NEW YORK, May 10, 2017 /PRNewswire/ — Five Oaks Investment Corp. (NYSE: OAKS) ("we", "Five Oaks" or "the Company") today announced its financial results for the first quarter ended March 31, 2017. For the first quarter, the Company reported GAAP net income of $1.5 million, or $0.08 per basic and diluted share, comprehensive income of $5.0 million, or $0.29 per basic and diluted share, and core earnings (1) of $2.7 million, or $0.15 per basic and diluted share. The Company also reported a net book value of $6.14 per share on a basic and diluted basis at March 31, 2017.

First Quarter Summary

  • Realized a positive economic return on our common stock of 4.8% (19.3% annualized), comprised of $0.14 increase in net book value per share and $0.15 dividend per common share (2).
  • We continued the reduction of Non-Agency RMBS exposure from $12.8 million at December 31, 2016 to $4.9 million at March 31, 2017 (on a non-GAAP combined basis).  We also reduced our Multi-Family MBS exposure from $91.5 million at December 31, 2016 to $55.5 million at March 31, 2017.
  • We continued to redeploy a portion of the capital released from selling down our credit exposure into Agency RMBS, which increased from $790.2 million at December 31, 2016 to $999.9 million at March 31, 2017. In order to minimize the potential impact of interest rate volatility, the increase was composed of purchases of Agency hybrid-ARMs.

(1) Core Earnings is a non-GAAP measure that we define as GAAP net income, excluding impairment losses, realized and unrealized gains or losses on the aggregate portfolio and certain non-recurring upfront costs related to securitization transactions or other one-time charges. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments.

(2) Economic return is a non-GAAP measure that we define as the sum of the change in net book value per common share and dividends declared on our common stock during the period over the beginning net book value per common share.

Management Observations

David Carroll, Five Oaks' Chairman and CEO commented: "As we had anticipated when reporting our fourth quarter 2016 results, market expectations for speedy implementation of the new administration's economic and fiscal plans faded somewhat during the first quarter, and market conditions as a result exhibited lower volatility than the prior quarter. The 10-year treasury fluctuated within a relatively narrow band of 2.31% to 2.63%, but uncertainty persists with regard to the extent and timing of future Federal Reserve interest rate increases as well as the manner in which the Fed plans to begin reducing their balance sheet investment portfolio. Mortgage spreads have already widened out somewhat since quarter end, likely in anticipation of future Fed actions, and we retain a defensive bias in expectation that there may be further spread widening to come as such actions unfold.

We have now effectively completed our transition to a simpler business strategy that is easier to understand. In particular, we have sold substantially all of our Non-Agency RMBS securities, and significantly reduced our Multi-Family MBS exposure, focusing on those positions that were repo financed. We have continued to reallocate a portion of the capital released from these sales into intermediate Agency hybrid floating-rate securities, a sector that we believe still offers attractive risk-adjusted investment opportunities, and for which financing conditions remain positive after last year's money market reforms. I am particularly pleased that an increase of $0.14 in book value per share made a positive contribution to our overall economic return of 4.8% for the quarter. While this will not always be possible should volatility spike again, I do believe it validates our continued focus on methodical and dynamic hedging strategies. On the cost side, as is typical, the first quarter included some front-loading of annual expenses and some residual expenses associated with our exit from the prime jumbo business. We expect the cost reduction benefits of this to be evident over the remainder of the year,

Looking ahead to the balance of 2017, we will continue to search for incremental cost saving opportunities, as well as further growth of our backstop guarantee business for rep and warranty risk on prime jumbo mortgage loans. When combined with our core holdings in Multi-Family MBS, I believe that our simplified business strategy concentrated on the Agency hybrid sector positions us well within the mortgage REIT sector".

Investment Portfolio and Capital Allocation

The following table summarizes certain characteristics of our investment portfolio and the related allocation of our equity capital on a non-GAAP combined basis as of March 31, 2017:

For the period ended

March 31, 2017

Agency MBS

Multi-Family MBS
(1)(2)

Non-Agency
RMBS (1)(2)

Residential
Loans (3)

Unrestricted
Cash  (4)

Total

Amortized Cost

1,002,116,876

52,876,433

11,063,929

7,784,817

32,713,356

1,106,555,411

Market Value

999,910,670

55,451,871

4,877,688

7,265,907

32,713,356

1,100,219,492

Repurchase Agreements

(948,712,000)

(20,362,000)

(2,151,000)

(971,225,000)

Hedges

4,872,365

104,573

4,976,938

Other (5)

4,585,765

(26,950)

58,632

12,563

(506,150)

4,123,860

Restricted Cash and Due to Broker

6,792,125

(14,595)

6,777,530

Equity Allocated

67,448,925

35,152,899

2,785,320

7,278,470

32,207,206

144,872,820

             
             

Debt/Net Equity (6)

14.07

0.58

0.77

6.70

             
             

For the period ended

March 31, 2017

Agency MBS

Multi-Family MBS

Non-Agency
RMBS

Residential 

 Loans (7)

Unrestricted
Cash

Total

Yield on Earning Assets (8)

2.67%

8.84%

-0.49%

49.37%

3.16%

Less Cost of Funds

0.85%

1.10%

0.79%

0.86%

Net Interest Margin (9)

1.82%

7.74%

-1.28%

49.37%

2.30%

 
 
 

(1)   Information with respect to Non-Agency RMBS and Multi-Family MBS, and the resulting total is presented on a non-GAAP basis. On a GAAP basis,
        which excludes the impact of consolidation of the FREMF 2011-K13, FREMF 2012-KF01, and CSMC 2014-OAK1 Trusts, the fair value of our
        investments in Non-Agency RMBS is $0, and the fair value of our investments in Multi-Family MBS is $35,810,200.

(2)   Includes the fair value of our net investments in the FREMF 2011-K13, FREMF 2012-KF01, and CSMC 2014-OAK1 Trusts.

(3)   Includes mortgage servicing rights.

(4)   Includes cash and cash equivalents.

(5)   Includes interest receivable, prepaid and other assets, interest payable, dividend payable and accrued expenses and other liabilities.

(6)   Ratio is a reflection of the average haircuts for each asset categories. It does not reflect or include the unrestricted cash that the Company set aside
        for these asset categories.

(7)   Includes income on mortgage servicing rights.

(8)   Information is presented on a non-GAAP basis. On a GAAP basis, the total yield on average interest earning assets is 2.97%.

(9)   Net Interest Margin is the difference between our Yield on Earning Assets and our Cost of Funds.

 

Comparative Expenses

The following table provides a detailed breakdown of the composition of our expenses on a non-GAAP basis for the quarters ended March 31, 2017 and December 31, 2016 (percentages are annualized):

Expenses

For the quarter ended

March 31, 2017

For the quarter ended

December 31, 2016

     

Management Fees

$            544,510

$            598,867

G&A Expenses (1)

$            905,555

$            688,171

Operating Expenses Reimbursable to Manager

$         1,208,943

$         1,173,830

Other Operating Expenses

$            220,496

$              87,038

Compensation Expense

$              52,874

$              53,021

Total Expenses

$         2,932,378

$         2,600,927

     

Period-End Capital

$     144,872,820

$     142,466,865

     

Management Fees

$            544,510

$            598,867

G&A, Other Operating Expenses and Reimbursable

$         2,218,081

$         1,763,072

Compensation Expenses

$              52,874

$              53,021

Expenses related to Prime Jumbo Loans

$            116,913

$            185,967

     

Management Fees as % of Capital

1.50%

1.68%

G&A, Other, Reimbursable and Compensation as % of Capital

6.27%

5.10%

Expenses related to Prime Jumbo Loans as % of Capital

0.32%

0.52%

 

(1)   Excludes $683,017 and $696,616 in non-interest expense attributable to the consolidated trusts for the quarters ended March 31, 2017 and
        December 31, 2016, respectively.

 

The increase in G&A, Other Operating, Reimbursable and Compensation Expenses as a percentage of Capital over the past quarter is primarily a function of higher audit, administrator and legal expenses relative to the fourth quarter of 2016. Certain of these expenses are front-loaded for the year, and accordingly we anticipate a decline in such expenses for the remainder of 2017.

Operating Performance

The following table summarizes the Company's GAAP and non-GAAP earnings measurements for the quarters ended March 31, 2017 and December 31, 2016:

 

Quarter Ended March 31, 2017 

Quarter Ended December 31, 2016

 

Earnings

Earnings

Per diluted weighted
share

Annualized
return on
average
equity

Earnings

Per diluted
weighted share

Annualized
return on
average
equity

             

Core Earnings *

$    2,683,807

$              0.15

5.32%

$   2,789,902

$            0.19

5.85%

GAAP Net Income (Loss)

$    1,488,632

$              0.08

2.95%

$ 10,647,288

$            0.72

22.31%

Comprehensive Income (Loss)

$    5,039,534

$              0.29

9.99%

$    (639,702)

$          (0.04)

(1.34)%

             

Weighted Ave Shares Outstanding 

 

17,539,258

   

14,762,006

 

Weighted Average Equity 

 

$204,528,652

   

$189,868,791

 

 

Stockholders' Equity and Book Value Per Share

As of March 31, 2017, our stockholders' equity was $144.9 million and our book value per common share was $6.14 on a basic and fully diluted basis.

Dividends

The Company declared a dividend of $0.05 per share of common stock for the months of April, May and June 2017.

Second Quarter 2017 Common Stock Dividends

Month

Dividend

Record Date

Payment Date

       

April 2017

$0.05

April 17, 2017

April 27, 2017

       

May 2017

$0.05

May 15, 2017

May 30, 2017

       

June 2017

$0.05

June 15, 2017

June 29, 2017

 

In accordance with the terms of the 8.75% Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") of the Company, the board of directors has also declared monthly cash dividend rates for the second quarter of 2017 of $0.1823 per share of Series A Preferred Stock:

Second Quarter 2017 Series A Preferred Stock Dividends

Month

Dividend

Record Date

Payment Date

       

April 2017

$0.1823

April 17, 2017

April 27, 2017

       

May 2017

$0.1823

May 15, 2017

May 30, 2017

       

June 2017

$0.1823

June 15, 2017

June 27, 2017

 

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the U.S. securities laws that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. You can identify forward-looking statements by use of words such as "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions or other comparable terms, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions, interest rates, the general economy and political conditions and related matters. Forward-looking statements are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Actual results may differ from expectations, estimates and projections and, consequently, you should not rely on these forward looking statements as predictions of future events. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. Additional information concerning these and other risk factors are contained in the Company's most recent filings with the Securities and Exchange Commission, which are available on the Securities and Exchange Commission's website at www.sec.gov.

All subsequent written and oral forward-looking statements that the Company makes, or that are attributable to the Company, are expressly qualified in their entirety by this cautionary notice. Any forward-looking statement speaks only as of the date on which it is made. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

For financial statement reporting purposes, GAAP requires us to consolidate the assets and liabilities of the FREMF 2011-K13, FREMF 2012-KF01, and CSMC 2014-OAK1 Trusts.  However, our maximum exposure to loss from consolidation of the trusts is limited to the fair value of our net investment therein. We therefore have also presented certain information as of March 31, 2017 and December 31, 2016 that includes our net investments in the consolidated trusts. This information as well as core earnings, economic return and comparative expenses constitute non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. While we believe the non-GAAP information included in this press release provides supplemental information to assist investors in analyzing that portion of our portfolio composed of Non-Agency RMBS and Multi-Family MBS, and to assist investors in comparing our results with other peer issuers, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

Reconciliation of GAAP to Core Earnings

     

GAAP to Core Earnings Reconciliation

Three Months Ended

Three Months Ended

 

March 31, 2017

December 31, 2016

Reconciliation of GAAP to non-GAAP Information

   

Net Income (loss) attributable to common shareholders

$

1,488,632

$

10,647,288

     

Adjustments for non-core earnings

   

Realized (Gain) Loss on sale of investments, net

$

9,317,003

$

3,854,528

Unrealized (Gain) Loss on fair value securities

$

(9,448,270)

$

1,113,666

Realized (Gain) Loss on derivative contracts, net

$

(2,233,051)

$

(78,876)

Unrealized (Gain) Loss on derivative contracts, net

$

3,077,088

$

(12,667,801)

Realized (Gain) Loss on mortgage loans held-for-sale

$

174

$

34,988

Unrealized (Gain) Loss on mortgage loans held-for-sale

$

3,709

$

148,138

Unrealized (Gain) Loss on mortgage servicing rights

$

126,446

$

(415,376)

Unrealized (Gain) Loss on multi-family loans held in securitization trusts

$

(1,299,630)

$

(385,309)

Unrealized (Gain) Loss on residential loans held in securitization trusts

$

368,343

$

(324,209)

Other income

$

(12,171)

$

(5,465)

Subtotal

$

(100,363)

$

(8,725,716)

     

Other Adjustments

   

Recognized compensation expense related to restricted   common stock

$

6,620

$

6,771

Adjustment for consolidated securities/securitization costs

$

1,136,592

$

861,559

Adjustment for one-time charges

$

152,322

$

Core Earnings

$

2,683,807

$

2,789,902

         

Weighted average shares outstanding – Basic and Diluted

 

17,539,258

 

14,762,006

         

Core Earnings per weighted share outstanding – Basic and Diluted

$

0.15

$

0.19

 

Additional Information

As of March 31, 2017, we have determined that we were the primary beneficiary of two Multi-Family MBS securitization trusts, the FREMF 2011-K13 Trust, and the FREMF 2012-KF01 Trust. As a result, we are required to consolidate the trusts' underlying multi-family loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trusts, which requires that changes in valuation in the assets and liabilities of these trusts be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in multi-family investments to our financial statements as of March 31, 2017 is set forth below:

Multi-Family Loans held in Securitization Trusts, at fair value

$

1,219,903,501

Multi-Family Securitized Debt Obligations (non-recourse)

$

(1,200,261,830)

Net Carrying Value

$

19,641,671

Multi-Family MBS PO

$

35,810,200

Cash and Other

$

63,028

Repurchase Agreements

$

(20,362,000)

Net Capital in Multi-Family

$

35,152,899

 

As of March 31, 2017, we have determined that we were the primary beneficiary of one prime jumbo residential mortgage securitization trust, CSMC 2014-OAK1. As a result, we are required to consolidate the trusts' underlying prime jumbo residential loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trusts, which requires that changes in valuation in the assets and liabilities of the trusts be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in Non-Agency RMBS to our financial statements as of March 31, 2017 is set forth below:

Residential Loans held in Securitization Trusts, at fair value (1)

$

131,769,523

Residential Securitized Debt Obligations (non-recourse)

$

(126,891,835)

Net Carrying Value

$

4,877,688

Non-Agency RMBS

$

Cash and Other

$

58,632

Repurchase Agreements

$

(2,151,000)

Net Capital in Non-Agency

$

2,785,320

 

(1) Excludes $1,128,790 in Mortgage Servicing Rights           

 

Five Oaks Investment Corp.

Five Oaks Investment Corp. is a real estate investment trust ("REIT") focused with its subsidiaries on investing on a leveraged basis in mortgage and other real estate-related assets, particularly mortgage-backed securities ("MBS"), including residential mortgage-backed securities ("RMBS") and multi-family mortgage-backed securities ("Multi-Family MBS"), and mortgage servicing rights. The Company's objective remains to deliver attractive cash flow returns over time to its investors, primarily through dividends and secondarily through capital appreciation. Five Oaks Investment Corp. is externally managed and advised by Oak Circle Capital Partners LLC.

Additional Information and Where to Find It

Investors, security holders and other interested persons may find additional information regarding the Company at the SEC's Internet site at http://www.sec.gov/ or the Company website www.fiveoaksinvestment.com or by directing requests to: Five Oaks Investment Corp., 540 Madison Avenue, 19 th  Floor, New York, NY 10022, Attention: Investor Relations.

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 
 
 

 

March 31, 2017 (1)

 

December 31, 2016 (1)

 

 

 (unaudited) 

   

ASSETS

         

Available-for-sale securities, at fair value (includes pledged securities of $1,040,598,558 and $876,121,505 for

         

March 31, 2017 and December 31, 2016, respectively)

$

1,035,720,870

 

$

870,929,601

Mortgage loans held-for-sale, at fair value 

 

2,822,751

   

2,849,536

Multi-family loans held in securitization trusts, at fair value

 

1,215,157,038

   

1,222,905,433

Residential loans held in securitization trusts, at fair value

 

132,454,523

   

141,126,720

Mortgage servicing rights, at fair value

 

3,314,363

   

3,440,809

Cash and cash equivalents

 

32,713,356

   

27,534,374

Restricted cash

 

7,693,120

   

10,355,222

Deferred offering costs

 

96,532

   

96,489

Accrued interest receivable

 

8,078,915

   

7,619,717

Investment related receivable

 

2,193,766

   

3,914,458

Derivative assets, at fair value

 

4,976,938

   

8,053,813

Other assets

 

724,267

   

775,031

           

 

Total assets

$

2,445,946,439

 

$

2,299,601,203

           

LIABILITIES:

         

Repurchase agreements:

         

 

Available-for-sale securities

$

971,225,000

 

$

804,811,000

Multi-family securitized debt obligations

 

1,195,536,818

   

1,204,583,678

Residential securitized debt obligations

 

126,535,978

   

134,846,348

Accrued interest payable

 

5,534,935

   

5,467,916

Dividends payable

 

39,132

   

39,132

Deferred income

 

200,534

   

203,743

Due to broker

 

915,590

   

4,244,678

Fees and expenses payable to Manager

 

709,000

   

880,000

Other accounts payable and accrued expenses

 

376,632

   

2,057,843

           

 

Total liabilities

 

2,301,073,619

   

2,157,134,338

           

STOCKHOLDERS' EQUITY:

         

Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized, 8.75% Series A cumulative

         

redeemable, $25 liquidation preference, 1,610,000 and 1,610,000 issued and outstanding at March 31,

         

2017 and December 31, 2016, respectively

 

37,156,972

   

37,156,972

Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 17,539,258 and 17,539,258

         

shares issued and outstanding, at March 31, 2017 and December 31, 2016, respectively

 

175,348

   

175,348

Additional paid-in capital

 

204,262,178

   

204,264,868

Accumulated other comprehensive income (loss)

 

(5,717,728)

   

(9,268,630)

Cumulative distributions to stockholders

 

(92,735,592)

   

(89,224,194)

Accumulated earnings (deficit)

 

1,731,642

   

(637,499)

           

 

Total stockholders' equity

 

144,872,820

   

142,466,865

           

 

Total liabilities and stockholders' equity

$

2,445,946,439

 

$

2,299,601,203

           
           

 

(1)  Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIE's) as the Company is the primary beneficiary 

       of these VIEs.  As of March 31, 2017 and December 31, 2016, assets of consolidated VIEs totaled $1,352,797,965 and $1,369,120,941, respectively, and the 

       liabilities of consolidated VIEs totaled $1,327,149,816 and $1,344,404,080, respectively

 

 

FIVE OAKS INVESTMENT CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

   
   
   
   
 

Three Months Ended March 31, 

 

2017

 

 

2016

           
           

Revenues:

         

 

Interest income:

         

 

Available-for-sale securities

$

6,822,622

 

$

4,899,038

 

Mortgage loans held-for-sale

 

28,763

   

122,237

 

Multi-family loans held in securitization trusts

 

13,948,754

   

15,437,804

 

Residential loans held in securitization trusts

 

1,355,438

   

4,152,406

 

Cash and cash equivalents

 

35,734

   

5,710

 

Interest expense:

         

 

Repurchase agreements – available-for-sale securities

 

(2,095,474)

   

(1,489,413)

 

Repurchase agreements – mortgage loans held-for-sale

 

   

(76,200)

 

Multi-family securitized debt obligations

 

(13,237,724)

   

(14,112,709)

 

Residential securitized debt obligations

 

(1,074,352)

   

(3,178,442)

           

 

 

 

Net interest income

 

5,783,761

   

5,760,431

           

Other-than-temporary impairments

         

 

Increase in credit reserves

 

   

(20,994)

 

Additional other-than-temporary credit impairment losses

 

   

           

 

 

 

Total impairment losses recognized in earnings

 

   

(20,994)

           

Other income:

         

 

Realized gain (loss) on sale of investments, net

 

(9,317,003)

   

(6,383,153)

 

Change in unrealized gain (loss) on fair value option securities

 

9,448,270

   

(371,095)

 

Realized gain (loss) on derivative contracts, net

 

2,233,051

   

(1,585,541)

 

Change in unrealized gain (loss) on derivative contracts, net

 

(3,077,088)

   

(8,462,400)

 

Realized gain (loss) on mortgage loans held-for-sale

 

(174)

   

(986)

 

Change in unrealized gain (loss) on mortgage loans held-for-sale

 

(3,709)

   

197,902

 

Change in unrealized gain (loss) on mortgage servicing rights

 

(126,446)

   

(900,288)

 

Change in unrealized gain (loss) on multi-family loans held in securitization trusts

 

1,299,630

   

1,536,317

 

Change in unrealized gain (loss) on residential loans held in securitization trusts

 

(368,343)

   

(2,554,077)

 

Other interest expense

 

(152,322)

   

 

Servicing income

 

252,738

   

223,678

 

Other income

 

12,171

   

24,982

           

 

Total other income (loss)

 

200,775

   

(18,274,661)

           

Expenses:

         

 

Management fee

 

544,510

   

623,223

 

General and administrative expenses

 

1,588,572

   

1,632,511

 

Operating expenses reimbursable to Manager

 

1,208,943

   

1,204,811

 

Other operating expenses

 

220,496

   

882,206

 

Compensation expense

 

52,874

   

69,639

           

 

Total expenses

 

3,615,395

   

4,412,390

           

 

Net income (loss)

 

2,369,141

   

(16,947,614)

           

 

Dividends to preferred stockholders

 

(880,509)

   

(880,509)

           

 

Net income (loss) attributable to common stockholders

$

1,488,632

 

$

(17,828,123)

           

 

Earnings (loss) per share:

         

 

 

Net income (loss) attributable to common stockholders (basic and diluted)

$

1,488,632

 

$

(17,828,123)

 

 

Weighted average number of shares of common stock outstanding

 

17,539,258

   

14,605,515

 

Basic and diluted income (loss) per share

$

0.08

 

$

(1.22)

 

 

Dividends declared per share of common stock

$

0.15

 

$

0.18

 

 

 

 

 

SOURCE Five Oaks Investment Corp.

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