Luminent Mortgage Capital, Inc. Second Quarter Earnings: Accelerating Momentum
- REIT taxable net income $0.29 per share, up 38% from the first quarter of
2006, and 21% year-over-year
- Second quarter dividend: $0.20, up 300% from the first quarter 2006
- Further dividend growth in 2006 expected
- Continued growth in book value: $10.05 vs. $9.89 on March 31, 2006, and
$9.76 on December 31, 2005
SAN FRANCISCO, Aug. 9 -- Luminent Mortgage
Capital, Inc. (NYSE: LUM) today reported net income for the quarter ended
June 30, 2006 of $17.6 million, or $0.45 per share and REIT taxable net
income for the quarter of $11.2 million, or $0.29 per share. REIT taxable
net income per share increased 38% versus the first quarter of 2006 and 21%
year-over-year. REIT taxable net income is the basis upon which Luminent
determines its dividends. The difference between GAAP net income and REIT
taxable net income is due to a variety of factors, as detailed in the
additional financial information provided on pages seven and eight of this
release.
Luminent declared a second quarter dividend of $0.20 per share which
was paid on July 24, 2006 to stockholders of record on June 22, 2006. The
second quarter dividend of $0.20 per share was more than fully covered by
REIT taxable net income of $0.29 per share in the second quarter.
"Luminent's business performed extremely well in the second quarter,"
said Gail P. Seneca, Chairman of the Board and Chief Executive Officer. "We
grew assets, earnings and book value. Once again, we more than fully earned
our increased dividend. With each quarter, the evidence accumulates that
Luminent is positioned to prosper. Luminent has structured high quality,
recurring cash flows which will secure attractive and consistent dividends
going forward. Our dividend should increase further this year."
"Over the last year, we rapidly repositioned our business in order to
broaden our opportunities for return and reestablish dividend growth,"
continued Ms. Seneca. "With Luminent's strong capital position and our
talented staff, we successfully deployed capital opportunistically and
profitably through turbulent market conditions. Our strategic initiatives
have resulted in accelerating earnings and dividends. We are confident that
our sophisticated and agile investment team can identify profitable market
opportunities which will further drive our earnings."
Trez Moore, President and Chief Operating Officer, commented, "Luminent
has now originated and securitized $3.6 billion high quality residential
mortgages which are performing well, producing low double digit returns on
equity. Our rigorous underwriting standards, the high quality of our
borrowers and the valuation protection on our loans are generating good
credit results. We will continue to add high quality assets to our
efficiently structured balance sheet as we see opportunity for solid risk
adjusted returns."
"As a result of our risk management disciplines, our balance sheet is
virtually insensitive to interest rate changes," said Mr. Moore. "We
neutralize sensitivity to interest rate changes through our investment
choices and through our hedging activities. Including the effect of
hedging, nearly 90% of our assets float monthly. Our matched-book funding
strategy has successfully protected book value and has enabled us to grow
our dividend this year."
Other highlights include:
* Solid net interest spread: 108 basis points on a REIT taxable
basis, net of servicing
* Return on equity: 17.9% on a GAAP basis and 11.4% on a REIT taxable
basis
* Strong momentum in high credit quality residential mortgage credit
strategy
- $1.7 billion prime quality loans originated and securitized in
the second quarter
- $3.6 billion prime quality loans originated and securitized to
date
- $2.5 billion securitization shelf launched July 20, 2006
- $1.0 billion single seller commercial paper program established
August 2, 2006
* Mortgage asset growth: $5.5 billion, up 25% from first quarter and
8% year-over-year
* Minimal interest rate exposure
- "Matched-book" funding strategy
* Moderate leverage: 4.9x on a recourse basis
* CDO initiative to drive further asset and profitability growth
* Solid credit performance
- Zero loan credit losses
- Delinquencies below industry averages
* Stock repurchase program continues
- Nearly 2.6 million shares repurchased to date
The composition of Luminent's mortgage asset portfolio is diverse and
high quality. At June 30, 2006, 64% of Luminent's mortgage assets were
prime quality loans with an average FICO score of 710, a moderate-sized
average loan balance of $394 thousand, and strong down payment protection,
with an average loan to value ratio of 76%. The vast majority of these
mortgage loans were on single-family, owner-occupied homes. 27% of
Luminent's mortgage assets were adjustable rate AAA-rated or agency
guaranteed mortgage-backed securities, 85% of which have coupons which are
currently resetting. 9% of Luminent's mortgage assets were adjustable-rate
mortgage-backed securities rated below AAA, with an average overall rating
of A-.
At June 30, 2006, the weighted-average coupon rate of Luminent's
mortgage assets was 6.51%. For the second quarter of 2006, the
weighted-average yield on average earning assets was 6.55% on a GAAP basis.
Total financing liabilities, including repurchase agreements, warehouse
financing liabilities, non-recourse mortgage-backed notes and junior
subordinated notes, were $5.1 billion. Luminent's weighted-average cost of
liabilities for the second quarter of 2006 was 4.83% on a GAAP basis.
Luminent's net interest spread for the second quarter of 2006 was 1.72% on
a GAAP basis, and 1.08% on a REIT taxable income basis, net of servicing
expense. Luminent's net interest spread benefited from monthly resets on
its mortgage assets and highly effective liability hedging strategies.
Luminent is committed to high credit quality. Non-investment grade
securities, including retained tranches of Luminent securitizations,
totaled less than 4% of Luminent's total assets at June 30, 2006. First
loss exposure, calculated on the same basis, was approximately 60 basis
points of total assets. Credit performance is solid. Luminent's seriously
delinquent loan rate of approximately 19 basis points of total loans held
for investment as of June 30, 2006 is well below the industry average for
prime quality loans. As of June 30, 2006, Luminent has realized no credit
losses on its portfolio of loans held for investment.
Luminent originated and securitized three prime quality loan packages
during the second quarter, totaling $1.7 billion. Capital market reception
was excellent, with overall weighted-average funding costs of LIBOR plus 22
basis points. These securitizations were financed with non-recourse, match-
funded debt.
The weighted-average price of Luminent's prime quality loans at June
30, 2006 was 101.9% of par. The weighted-average amortized cost price of
mortgage-backed securities, excluding residual interests, was 98.7% of par.
Luminent maintains a strong capital position. Cash and unencumbered
assets exceeded $300 million at June 30, 2006. Luminent's recourse leverage
ratio, defined as total recourse financing liabilities as a ratio of total
stockholders' equity and 30-year debt, was 4.9x at June 30, 2006.
Luminent's funding strategy exhibits diversification, low borrowing
costs, and increasing use of non-recourse, match-funded loans. Repurchase
agreement financing declined to just 45% of total liabilities at June 30,
2006.
Luminent launched a $2.5 billion securitization shelf on July 20, 2006.
Future securitizations will be issued from this shelf, further optimizing
our securitization returns. In addition, Luminent established a $1 billion
single-seller commercial paper facility, Luminent Star Funding I, to fund
its mortgage-backed securities portfolio, on August 2, 2006. This facility
will further reduce Luminent's reliance on repurchase agreement financing.
Luminent continued its stock repurchase program during the second
quarter. As of today, Luminent has repurchased nearly 2.6 million shares of
its common stock.
Luminent was formed in April 2003, completed its initial public
offering in December 2003 and trades on the New York Stock Exchange under
the ticker "LUM." Luminent is organized and conducts its operations so as
to qualify as a real estate investment trust for federal income tax
purposes. Luminent's principal activity is to invest in mortgage-backed
securities and mortgage loans, thereby providing capital to the residential
housing market. Luminent's website can be found at http://www.luminentcapital.com.
Luminent will hold a second quarter 2006 earnings conference call on
Wednesday, August 9, 2006 at 10:00 a.m. PDT. The dial-in number is
1-800-299-7089 and the passcode is 34051228. A replay of the call will be
available through August 23, 2006. The replay number is 1-888-286-8010 and
the passcode is 62105664. The call will be webcast and can be accessed at
Luminent's website at http://www.luminentcapital.com or through CCBN's
individual
investor center at http://www.fulldisclosure.com. A webcast replay will be
archived for one year on the Event Calendar page at
http://www.luminentcapital.com.
The international dial-in number is 1-617-801-9714 and the passcode is
34051228. The international replay number is 1-617-801-6888 and the
passcode is 62105664.
This news release and Luminent's filings with the Securities and
Exchange Commission contain forward-looking statements that predict or
describe future events or trends. The matters described in these
forward-looking statements are subject to known and unknown risks,
uncertainties and other unpredictable factors, many of which are beyond
Luminent's control and are based on the information currently available to
Luminent's management. Luminent faces many risks that could cause its
actual performance to differ materially from the results expressed or
implied by its forward-looking statements, including, without limitation,
the possibilities that interest rates may change, that principal payment
rates may change, that mortgage-backed securities or mortgage loans may not
be available for purchase on favorable terms, that borrowings to finance
the purchase of assets may not be available on favorable terms, that
Luminent may not be able to maintain its dividend or the yield on its
common stock, that Luminent may not be able to maintain its qualification
as a REIT for federal income tax purposes, that Luminent may experience the
risks associated with investing in real estate, including changes in
business conditions and the general economy, that Luminent's strategy of
purchasing mortgage loans for securitization may not continue to be
successful and that Luminent's strategies may not be effective, including
portfolio management and hedging strategies and strategy to protect net
interest spreads. Luminent's filings with the Securities and Exchange
Commission contain a more complete description of these and many other
risks to which Luminent is subject. Because of those risks, Luminent's
actual results, performance or financial condition may differ materially
from the results, performance or financial condition contemplated by its
forward-looking statements. The information set forth in this news release
represents management's current expectations and intentions. Luminent
assumes no responsibility to update or revise any forward-looking
statements, whether as a result of new information, future developments or
otherwise.
Contact:
Christopher J. Zyda
Senior Vice President &
Chief Financial Officer
Phone: 415-217-4500
Email: ir@luminentcapital.com
LUMINENT MORTGAGE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share June 30, December 31,
and per share amounts) 2006 2005
Assets:
Cash and cash equivalents $6,763 $11,466
Restricted cash 47 794
Mortgage-backed securities available-for-sale,
at fair value 80,321 219,148
Mortgage-backed securities available-for-sale,
pledged as collateral, at fair value 1,886,274 4,140,455
Loans held-for-investment, net of allowance
for loan losses of $1,525 at June 30, 2006 3,545,196 507,177
Interest receivable 23,955 21,543
Principal receivable 1,697 13,645
Derivatives, at fair value 18,440 10,720
Other assets 16,512 8,523
Stockholders' Equity:
Preferred stock, par value $0.001:
10,000,000 shares authorized; no shares
issued and outstanding at June 30, 2006
and December 31, 2005 -- --
Common stock, par value $0.001:
100,000,000 shares authorized; 39,065,245
and 40,587,245 shares issued and outstanding
at June 30, 2006 and December 31,
2005, respectively 39 41
Additional paid-in capital 498,084 511,941
Accumulated other comprehensive income (loss) (8,431) 7,076
Accumulated distributions in excess of
accumulated earnings (97,191) (122,737)
Total stockholders' equity 392,501 396,321
Total liabilities and stockholders' equity $5,579,205 $4,933,471
LUMINENT MORTGAGE CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except 2006 2005 2006 2005
share and per share
amounts)
Mortgage loan and
securitization
portfolio 45,398 -- 68,009 --
Credit sensitive
bond portfolio 9,667 461 17,683 663
Total interest
income 74,910 42,463 136,502 84,978
Interest expense 53,513 32,098 99,484 52,637
Net interest
income 21,397 10,365 37,018 32,341
Other income (expenses):
Other income
(expense) 7,052 (899) 15,168 (899)
Impairment losses
on mortgage-backed
securities (462) -- (2,179) --
Gains (losses) on sales
of mortgage-backed
securities (1,240) -- 823 --
Total other income
(expenses) 5,350 (899) 13,812 (899)
Expenses:
Management compensation
expense to related
party 712 1,082 1,425 2,180
Incentive compensation
expense to related
parties 142 403 240 873
Salaries and benefits 2,018 648 4,441 856
Servicing expense 2,538 -- 4,020 --
Provision for
loan losses 1,525 -- 1,525 --
Professional services 471 514 1,093 1,076
Board of directors
expense 95 116 208 235
Insurance expense 146 137 287 275
Custody expense 75 143 187 194
Other general and
administrative
expenses 820 249 1,409 610
Total expenses 8,542 3,292 14,835 6,299
Income before income
taxes $18,205 $6,174 $35,995 $25,143
Income taxes 641 -- 652 --
Net income $17,564 $6,174 $35,343 $25,143
Net income per
share - basic $0.45 $ 0.16 $0.90 $ 0.67
Net income per
share - diluted $0.45 $ 0.16 $0.90 $ 0.67
Weighted-average
number of shares
outstanding -
basic 38,609,963 38,176,274 39,060,284 37,694,382
Weighted-average
number of shares
outstanding -
diluted 38,834,435 38,351,238 39,337,203 37,780,366
Dividend per share $0.20 $0.27 $0.25 $0.63
LUMINENT MORTGAGE CAPITAL, INC.
ADDITIONAL FINANCIAL INFORMATION
(Unaudited)
REIT taxable net income is calculated according to the requirements of
the Internal Revenue Code, rather than GAAP. We believe that REIT taxable
net income is an important measure of our financial performance because
REIT taxable net income, and not GAAP net income, is the basis upon which
we make our cash distributions that enable us to maintain our REIT status.
The following table reconciles our GAAP net income to our REIT taxable net
income for the six months ended June 30, 2006 and June 30, 2005 (in
thousands, except share and per share amounts):
For the For the
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
Adjustments REIT Adjustments REIT
GAAP to GAAP Taxable GAAP to GAAP Taxable
State- State- State- State- State- State-
ment ment ment ment ment ment
of of of of of of
Oper- Oper- Oper- Oper- Oper- Oper-
ations ations ations ations ations ations
Net Interest Income:
Interest Income:
Spread
portfolio $50,810 $(7,225) $43,585 $84,315 $-- $84,315
Mortgage loan
and
securitization
portfolio 68,009 (41,147) 26,862 -- -- --
Credit
sensitive
bond
portfolio 17,683 (52) 17,631 663 -- 663
Total
interest
income 136,502 (48,424) 88,078 84,978 -- 84,978
Interest
expense 99,484 (40,789) 58,695 52,637 2,986 55,623
Net interest
income 37,018 (7,635) 29,383 32,341 (2,986) 29,355
Other Income
(expense):
Other income
(expense) 15,168 (15,371) (203) (899) 899 --
Impairment
losses on
mortgage-backed
securities (2,179) 2,179 -- -- -- --
Gains on
sales of
mortgage-backed
securities 823 (823) -- -- -- --
Total other
income
(expense) 13,812 (14,015) (203) (899) 899 --
Expenses:
Management
compensation
expense to
related party 1,425 (181) 1,244 2,180 -- 2,180
Incentive
compensation
expense to
related parties 240 219 459 873 (573) 300
Salaries and
benefits 4,441 (463) 3,978 856 (138) 718
Servicing
expense 4,020 (3,105) 916 -- -- --
Provision for
loan losses 1,525 (1,525) -- -- -- --
Professional
services 1,093 (127) 965 1,076 -- 1,076
Board of
directors
expense 208 -- 208 235 -- 235
Insurance
expense 287 -- 287 275 -- 275
Custody
expense 187 (9) 178 194 -- 194
Other general
and
administrative
expenses 1,409 (130) 1,279 610 329 939
Total
expenses 14,835 (5,321) 9,514 6,299 (382) 5,917
Income before
taxes $35,995 $(16,329) $19,666 $25,143 $(1,705) $23,438
Income taxes 652 (561) 91 -- -- --
Net income $35,343 $(15,768) $19,575 $25,143 $(1,705) $23,438
Net income
per share
- basic $0.90 $0.67
Net income
per share
- diluted $0.90 $0.67
Weighted-
average
number of
shares
outstanding
- basic 39,060,284 37,694,382
Weighted-
average
number of
shares
outstanding
- diluted 39,337,203 37,780,366
REIT taxable
net income
per share $0.50 $0.58
Actual shares
outstanding
on dividend
record date 39,065,245 40,151,117
LUMINENT MORTGAGE CAPITAL, INC.
ADDITIONAL FINANCIAL INFORMATION
(Unaudited)
We believe that these presentations of our REIT taxable net income are
useful to investors because they are directly related to the distributions
we make in order to retain our REIT status. REIT taxable net income entails
certain limitations, and, by itself, is an incomplete measure of our
financial performance over any period. As a result, our REIT taxable net
income should be considered in addition to, and not as a substitute for,
our GAAP-based net income as a measure of our financial performance.
