SAN FRANCISCO, Aug. 6 /PRNewswire-FirstCall/ -- Luminent MortgageCapital, Inc. (NYSE: LUM) announced today that, since August 3, 2007, themortgage industry, and the financing methods that the mortgage industryrelies upon, have deteriorated significantly and in an unprecedentedfashion. Effectively, the secondary market for mortgage loans andmortgage-backed securities has seized-up. As a result, Luminent issimultaneously experiencing a significant increase in margin calls on itshighest quality assets and a decrease on the financing advance ratesprovided by its lenders. In a Board of Directors meeting today, Luminent's Board unanimouslyvoted to take the following actions: -- The Board of Directors suspended payment of Luminent's second quarter cash dividend of 32 cents per share on Luminent's common stock. -- The Board of Directors extended the maturity of the outstanding commercial paper issued by Luminent Star Funding Trust I, a special purpose subsidiary of Luminent, by 110 days. -- The Board of Directors cancelled Luminent's second quarter 2007 earnings release conference call, scheduled for Thursday, August 9, 2007, at 10:00 a.m. PDT, to discuss its second quarter of 2007 results of operations. -- The Board of Directors delayed the filing of Luminent's quarterly report on form 10-Q for the second quarter of 2007. Luminent's second quarter of 2007 unaudited condensed financial information is attached to this press release. Luminent's independent registered public accounting firm has not completed a review of the financial information for the three and six months ended June 30, 2007. -- The Board of Directors authorized Luminent's senior management to inform the New York Stock Exchange of these unfolding events and, as a result, trading was halted in Luminent's common stock. The Board of Directors currently is considering the full range ofstrategic alternatives to enhance Luminent's liquidity and preserveshareholder value during this period of market volatility. This news release and Luminent's filings with the Securities andExchange Commission contain forward-looking statements under the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements conveyLuminent's current expectations or forecasts of future events. Allstatements contained in this press release other than statements ofhistorical fact are forward-looking statements. Forward-looking statementsinclude statements regarding our financial position, business strategy,budgets, projected costs, plans and objectives of management for futureoperations. The words "may continue," "estimate," "intend," "project,""believe," "expect," "plan," "anticipate" and similar terms may identifyforward-looking statements, but the absence of such words does notnecessarily mean that a statement is not forward-looking. Theseforward-looking statements include, among other things, statements about: -- the effect of the flattening of, or other changes in, the yield curve on our investment strategies; -- changes in interest rates and mortgage prepayment rates; Luminent's ability to obtain or renew sufficient funding to maintain its leverage strategies; -- continued creditworthiness of the holders of mortgages underlying Luminent's mortgage-related assets; -- the possible effect of negative amortization of mortgages on Luminent's financial condition and REIT qualification; -- the possible impact of Luminent's failure to maintain exemptions under the 1940 Act; -- potential impacts of Luminent's leveraging policies on its net income and cash available for distribution; -- the power of Luminent's Board of Directors to change its operating policies and strategies without stockholder approval; -- effects of interest rate caps on Luminent's adjustable-rate and hybrid adjustable-rate loans and mortgage backed securities; -- the degree to which Luminent's hedging strategies may or may not protect it from interest rate volatility; -- Luminent's ability to invest up to 10% of its investment portfolio in residuals, leveraged mortgage derivative securities and shares of other REITs as well as other investments; -- volatility in the timing and amount of Luminent's cash distributions; Luminent's ability to purchase sufficient mortgages for its securitization business; and -- the other factors described in Luminent's Form 10-K, Form 10-Q and Form 8-K reports, including those under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and "Quantitative and Qualitative Disclosures about Market Risk." Luminent cautions you not to place undue reliance on theseforward-looking statements, which speak only as of the date of this pressrelease. All subsequent written and oral forward-looking statementsattributable to Luminent or any person acting on its behalf are expresslyqualified in their entirety by the cautionary statements contained orreferred to in this press release. Except to the extent required byapplicable law or regulation, Luminent undertakes no obligation to updatethese forward-looking statements to reflect events or circumstances afterthe date of this press release or to reflect the occurrence ofunanticipated events. LUMINENT MORTGAGE CAPITAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share June 30, December 31, amounts) 2007 2006 Assets: Cash and cash equivalents $13,254 $5,902 Restricted cash 14,559 7,498 Loans held-for-investment, net of allowance for loan losses of $12,297 at June 30, 2007 and $5,020 at December 31, 2006 5,934,480 5,591,717 Mortgage-backed securities, at fair value 84,602 141,556 Mortgage-backed securities pledged as 3,309,437 2,789,382 collateral, at fair value Debt securities, at fair value 1,157 -- Equity securities, at fair value 831 1,098 Interest receivable 38,347 36,736 Principal receivable 2,515 1,029 Derivatives, at fair value 59,766 13,021 Other assets 40,798 25,856 Total assets $9,499,746 $8,613,795 Liabilities: Mortgage-backed notes $4,515,197 $3,917,677 Repurchase agreements 2,868,572 2,707,915 Warehouse lending facilities 573,658 752,777 Commercial paper 573,385 637,677 Collateralized debt obligations 295,013 -- Junior subordinated notes 92,788 92,788 Convertible senior notes 90,000 -- Unsettled security purchases 4,572 -- Cash distributions payable 13,857 14,343 Accrued interest expense 15,436 12,094 Accounts payable and accrued expenses 22,156 6,969 Total liabilities 9,064,634 8,142,240 Stockholders' Equity: Preferred stock, par value $0.001: 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2007 and December 31, 2006 -- -- Common stock, par value $0.001: 100,000,000 shares authorized; 43,303,004 and 47,808,510 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively 43 48 Additional paid-in capital 543,859 583,492 Accumulated other comprehensive income 7,536 3,842 Accumulated distributions in excess of accumulated earnings (116,326) (115,827) Total stockholders' equity 435,112 471,555 Total liabilities and stockholders' equity $9,499,746 $8,613,795 LUMINENT MORTGAGE CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three For the Six Months Months (in thousands, except share Ended June 30, Ended June 30, and per share amounts) 2007 2006 2007 2006 Net interest income: Interest income: Mortgage loan and securitization portfolio $95,967 $45,398 $194,658 $68,009 Spread portfolio 31,775 19,845 62,151 50,810 Credit sensitive bond portfolio 18,727 9,667 35,226 17,683 Total interest income 146,469 74,910 292,035 136,502 Interest expense 122,222 53,513 237,426 99,484 Net interest income 24,247 21,397 54,609 37,018 Other income: Gains on derivatives, net 20,617 7,183 35,882 15,776 Impairment losses on mortgage-backed securities (14,154) (462) (14,159) (2,179) Gains (losses) on sales of mortgage-backed 4 (1,240) (15,449) 823 securities Other expense (19) (131) (99) (608) Total other income 6,448 5,350 6,175 13,812 Expenses: Servicing expense 6,730 2,538 12,716 4,020 Provision for loan losses 4,645 1,525 8,188 1,525 Salaries and benefits 3,551 2,018 6,635 4,441 Professional services 997 471 1,841 1,093 Management compensation expense to related party -- 854 -- 1,665 Other general and administrative expenses 1,889 1,136 3,674 2,091 Total expenses 17,812 8,542 33,054 14,835 Income before income taxes 18,205 18,205 27,730 35,995 Income taxes (benefit) (506) 641 (45) 652 Net income $13,389 $17,564 $27,775 $35,343 Net income per share - basic $0.30 $0.45 $0.60 $0.90 Net income per share - diluted $0.30 $0.45 $0.60 $0.90 Weighted-average number of 44,774,340 38,609,963 46,038,178 39,060,284 shares outstanding - basic Weighted-average number of shares outstanding - 44,898,778 38,834,435 46,220,019 39,337,203 diluted Dividend per share $0.32 $0.20 $0.62 $0.25 LUMINENT MORTGAGE CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) 2007 2006 Cash flows from operating activities: Net income $27,775 $35,343 Adjustments to reconcile net income to net cash used in operating activities: Amortization of premium/(discount) on loans held-for-investment and mortgage-backed securities and depreciation 11,800 (1,416) Impairment losses on mortgage-backed 14,159 2,179 securities Provision for loan losses 8,188 1,525 Negative amortization of loans held-for- (52,196 (16,969) investment Share-based compensation 1,485 1,676 Net realized and unrealized gains on (20,906 (14,759) derivative instruments Net (losses) on mortgage backed securities held as trading (9) -- Net gain (losses) on sales of mortgage- backed-securities available-for-sale 15,449 (823) Changes in operating assets and liabilities: (Increase) decrease in interest receivable, net of purchased interest (1,320) 1,130 (Increase) decrease in other assets 1,171 (15,305) Increase in accounts payable and other liabilities 14,798 310 Increase (decrease) in accrued interest expense 3,342 (11,527) Increase in management compensation payable, incentive compensation payable and other related-party payable -- 588 Net cash provided by (used in) operating activities 23,736 (18,048) Cash flows from investing activities: Purchases of mortgage-backed securities (790,866) (1,449,385) Proceeds from sales of mortgage-backed securities 31,348 3,619,558 Principal payments of mortgage-backed securities 280,454 289,359 Purchases of loans held-for-investment, net (1,262,734) (3,143,481) Principal payments of loans held-for- investment 940,605 106,707 Purchases of derivative instruments (32,979 (1,555) Proceeds from derivative instruments 7,331 2,326 Purchase of debt securities (1,271) -- Net change in restricted cash (7,061) 747 Other (176) -- Net cash used in investing activities (835,349) (575,724) Cash flows from financing activities: Repurchases of common stock (41,123) (15,534) Capitalized financing costs (7,122) -- Borrowings under repurchase agreements 21,901,406 19,794,029 Principal payments on repurchase agreements (21,740,749)(21,414,302) Borrowings under warehouse lending facilities 1,651,917 2,468,843 Paydown of warehouse lending facilities (1,830,852) (2,467,969) Borrowings under commercial paper facility 2,838,460 -- Paydown of commercial paper facility (2,902,752) -- Distributions to stockholders (28,760) (3,202) Proceeds from issuance of mortgage-backed notes 1,359,447 2,324,948 Principal payments on mortgage-backed notes (761,934) (94,196) Proceeds from issuance of collateralized debt obligations 291,027 -- Principal payments on margin debt -- (3,548) Proceeds from issuance of convertible senior notes 90,000 -- Net cash provided by financing activities 818,965 589,069 Net increase (decrease) in cash and cash equivalents 7,352 (4,703) Cash and cash equivalents, beginning of the period 5,902 11,466 Cash and cash equivalents, end of the period $13,254 $6,763 LUMINENT MORTGAGE CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) For the Six Months Ended June 30, (in thousands) 2007 2006 Supplemental disclosure of cash flow information: Interest paid $245,393 $113,741 Taxes paid 1,179 486 Non-cash investing and financing activities: Increase in unsettled security purchases $4,572 $53,181 (Increase) decrease in principal receivable (1,488) 11,948 Transfer of loans held-for- 8,681 -- investment to real estate owned Acquisition of mortgage-backed securities available-for-sale through collateralized debt obligations (3,986) -- Principal payments of mortgage- backed securities available-for-sale 183 -- Paydown of warehouse lending facilities (183) -- Increase (decrease) in cash distributions payable to stockholders (486) 6,605 Contact: Christopher J. Zyda Senior Vice President & Chief Financial Officer Phone: (415) 217-4500 Email: ir@luminentcapital.com
