Five Oaks Investment Corp. Reports Third Quarter 2017 Financial Results

NEW YORK, Nov. 6, 2017

Third Quarter Summary

• We reported an economic loss on common equity of 2.59% (10.35% annualized), comprised of a $0.29 decrease in book value per share and a $0.15 dividend per common share⁽²⁾. The decrease in book value was due to increased financing costs during the quarter which contracted our net interest margin, continued wider spreads on Agency hybrid ARM securities relative to 15 and 30-year collateral, contributing to unrealized losses on our investment portfolio and realized losses on our hedge portfolio.
• During the quarter, we rotated out of $416.0 million of seasoned shorter duration Agency ARMs and into $513.6 million of new issue longer duration Agency ARMs. This rotation allowed us to increase the yield of the Agency portfolio from 2.34% as at second quarter period end to 2.47% as at third quarter period end by replacing the lower yielding seasoned Agency ARMs with new issue higher yielding Agency ARMs which we anticipate should benefit our net interest income in future quarters.

⁽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:

"In the third quarter the yield curve again flattened as short-term interest rates adjusted to the Fed's June tightening, and growing expectations of another rate increase later this year.  While market expectations contemplate up to three additional rate hikes over the next year, it remains unclear how high the Fed can raise short-term interest rates while also pursuing a non-traditional policy of balance sheet tapering.  We believe that we may be closer to the end of the traditional rate-hiking cycle given continued subdued inflation, but economic data and rate movements since the end of the third quarter are suggestive of continued and perhaps strengthening economic momentum.  Longer term, a market in which the Federal Reserve is reducing its purchases of both treasuries and mortgages should be an attractive one for buying and leveraging hybrid agency securities.