Luminent Mortgage Capital, Inc. (NYSE: LUM) today reported net income for the quarter ended December 31, 2006 of $18.0 million, or $0.39 per share, and core earnings of $14.4 million, or $0.31 per share. REIT taxable net income for the quarter ended December 31, 2006 was $12.6 million, or $0.26 per share, and adjusted REIT taxable net income, was $16.5 million, or $0.34 per share. Fourth quarter core earnings adjust for the mark-to-market on hedging instruments and fourth quarter adjusted REIT taxable net income adjusts for final payments related to the internalization of management. The difference between GAAP net income and core earnings, and REIT taxable net income and adjusted REIT taxable net income is detailed in the additional financial information provided on pages seven and eight of this release.

For the year ended December 31, 2006, Luminent reported net income of $46.8 million, or $1.14 per share, and core earnings of $45.2 million, or $1.10 per share. REIT taxable net income for the year ended December 31, 2006 was $41.0 million, or $0.97 per share. Adjusted REIT taxable net income for the year ended December 31, 2006 was $48.1 million, or $1.14 per share. The strong year-over-year income growth reflects the successful broadening of Luminent's business platform from a passive agency mortgage-backed securities REIT to an active mortgage asset manager.

"We are very pleased with our fourth quarter and full-year results," said Gail P. Seneca, Chief Executive Officer and Chairman of the Board of Directors. "We distinguished ourselves among mortgage REITs by growing our dividend, our book value, and our profitability in 2006. During the year, we built the foundation to deliver an ongoing stream of strong and consistent dividends. Our high credit quality, non-interest rate sensitive model is working."

"Luminent is uniquely positioned to prosper in a challenging mortgage environment," commented Trez Moore, President and Chief Operating Officer. "Luminent's business is investment management. Our model is neither volume driven nor sub prime focused. We manage mortgage assets and employ risk disciplines that ensure high credit quality and minimize interest rate sensitivity. With Luminent's sophisticated infrastructure and seasoned professionals, we are confident that we can sustain solid credit performance and produce attractive dividends. We look forward to another year of delivering strong returns to our investors."

Additional financial highlights include:

-- Robust net interest spread: 158 basis points for the fourth quarter

and 144 basis points for the full year

-- Strong return on equity: 15.7% for the fourth quarter and 11.4% for the

full year

-- Asset growth: total assets of $8.6 billion, up 35% from the third

quarter and 75% from December 2005

- $800 million in prime quality loans securitizations in the fourth

quarter

- $4.6 billion prime quality securitizations in 2006

-- Record net interest income: $29.6 million in fourth quarter 2006, up

35% over third quarter 2006

-- Solid credit performance

- Delinquencies less than half the industry average

-- Solid credit quality

- 92% of assets are rated A or higher

- Prime quality whole loan portfolio

-- Minimal interest rate exposure

- "Matched-book" funding strategy

- 89% of mortgage assets float monthly, including the impact of hedges

- Virtually zero duration gap

-- Moderate leverage: 7.4x on a recourse basis

Luminent's credit quality is strong. 92% of Luminent's assets are rated A or higher or have been securitized into mortgage-backed securities rated A or higher. 65% of Luminent's assets are first lien, prime quality mortgages. Overall, the average FICO score is 713 and down payments are strong, with an average loan-to-value ratio, net of mortgage insurance, of 72.6%. 25% of Luminent's assets consist of AAA or agency-backed mortgage-backed securities. 9% of Luminent's assets consist of other mortgage-backed securities with an average credit rating of BBB+.

Luminent's credit performance is sound. Serious delinquencies (90 days +) stand at 54 basis points, less than half the industry average.

Book value at December 31, 2006 grew to $9.86 per share, net of the $0.375 of dividends declared during the quarter. The improvement in book value during a volatile year demonstrates the high credit quality of the portfolio and the effectiveness of sophisticated hedging techniques.

The net interest spread for the quarter ended December 31, 2006 was 1.58%. At December 31, 2006, the weighted-average coupon rate of Luminent's total mortgage assets was 7.03%. The weighted-average yield on average earning assets during the quarter ended December 31, 2006 was 7.12%. The weighted-average cost of average financing liabilities for the quarter was 5.54%.

The weighted-average amortized cost price of Luminent's total mortgage assets was 101.1% of par as of December 31, 2006. The constant payment rate on total mortgage assets was 17% for the quarter ended December 31, 2006. The majority of Luminent's loans carry explicit prepayment penalties.

Luminent maintains a strong capital position and modest leverage. Cash and unencumbered assets were in excess of $200 million at December 31, 2006. Luminent's recourse leverage ratio, defined as recourse financing liabilities as a ratio of stockholders' equity plus long-term debt, was 7.4x at December 31, 2006. During the fourth quarter, Luminent improved its capital efficiency by launching a single-seller commercial paper program, Luminent Star Funding I. Luminent intends to issue CDOs in 2007 which will further improve its capital efficiency.

Luminent's funding strategy exhibits diversification, low borrowing costs, and extensive reliance on non-recourse, matched-funded financing. Repurchase agreement financing declined to just 33% of total liabilities at December 31, 2006, down from 87% at December 31, 2005.

During the fourth quarter, Luminent executed its eighth loan securitization, LUM 2006-7, consisting of $800 million prime quality mortgages. The average FICO score of mortgage borrowers in this transaction was 719. The average loan-to-value ratio of the loans was 64.8%, net of mortgage insurance. All loans with 75% or greater loan-to-value ratio carried private mortgage insurance. Capital market reception was excellent, with average funding costs of LIBOR plus 19 basis points on the AAA-rated tranches of the securitization. The debt created in the securitization is non-recourse, match-funded and not marked-to-market.

At year-end, Luminent had $773 million of unsecuritized loans on its balance sheet. In January 2007, Luminent executed its ninth loan securitization, LUM 2007-1, consisting of $707 million prime quality mortgages. The average FICO score of mortgage borrowers in this transaction was 719. The average loan-to-value ratio of the loans was 72.1%, net of mortgage insurance. All loans with 75% or greater loan-to-value ratios carried private mortgage insurance. Average funding costs were LIBOR plus 16.5 basis points on the AAA-rated tranches of the deal, Luminent's best pricing to date.

Luminent issued 6.9 million shares of its common stock during the quarter ended December 31, 2006, and raised gross proceeds of $70.7 million.

Luminent paid a special dividend during the quarter ended December 31, 2006 of $0.075 cents per share and declared a fourth quarter of 2006 dividend of $0.30 per actual share. Luminent estimates that its undistributed REIT taxable net income balance as of December 31, 2006 was approximately $4.4 million, or $0.09 per actual share outstanding.

Luminent will hold a conference call on Friday, February 9, 2007, at 10:00 a.m. PST to discuss its fourth quarter of 2006 results of operations.

The dial-in number is 1-866-713-8563 and the passcode is 83137732. A replay of the call will be available through February 22, 2007. The replay number is 1-888-286-8010 and the passcode is 97742188. The international dial-in number is 1-617-597-5311 and the passcode is 83137732. The international replay number is 1-617-801-6888 and the passcode is 97742188.

The call will also 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.

Luminent was formed in April 2003, and its common stock trades on the New York Stock Exchange under the ticker "LUM." Luminent's Residential Mortgage Credit strategy invests in mortgage loans originated in cooperation with selected high-quality providers within certain established criteria, as well as subordinated mortgage-backed securities that have credit ratings below AAA. Luminent's Spread strategy invests primarily in US agency and other highly-rated single-family, adjustable-rate and hybrid adjustable-rate mortgage-backed securities and leverages these investments through repurchase agreements and commercial paper. Luminent's website can be found at http://www.luminentcapital.com.

This news release and Luminent's filings with the Securities and Exchange Commission contain forward-looking statements. Forward-looking statements convey Luminent's current expectations or forecasts of future events. All statements contained in this press release other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words "may continue," "estimate," "intend," "project," "believe," "expect," "plan," "anticipate" and similar terms may identify forward-looking statements, but the absence of such words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:

-- the flattening of, or other changes in the yield curve, on Luminent's

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;

-- 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; and

-- volatility in the timing and amount of Luminent's cash distributions.

Any or all of Luminent's forward-looking statements in this press release, may turn out to be inaccurate. Luminent has based these forward-looking statements largely on its current expectations and projections about future events and future trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions Luminent might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described under the caption 'Risk Factors' in the documents Luminent files from time to time with the Securities and Exchange Commission after the date of this press release. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this press release may not occur as contemplated and actual results could differ materially from those anticipated or implied by Luminent's forward-looking statements.

You should not rely unduly on those forward-looking statements, which speak only as of the date of this press release. Unless required by the federal securities laws, Luminent undertakes no obligation to update publicly or revise any forward-looking statements to reflect new information or future events.

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

and per share amounts)

December 31, December 31,

2006 2005

Assets:

Cash and cash equivalents $5,902 $ 11,466

Restricted cash 7,498 794

Mortgage-backed securities

available-for-sale, at fair value 141,556 219,148

Mortgage-backed securities

available-for-sale, pledged as

collateral, at fair value 2,789,382 4,140,455

Equity securities available-for-sale,

at fair value 1,098 -

Loans held-for-investment, net of

allowance for loan losses of $5,020 at

December 31, 2006 5,591,717 507,177

Interest receivable 36,736 21,543

Principal receivable 1,029 13,645

Derivatives, at fair value 13,021 10,720

Other assets 25,856 8,523

Total assets $8,613,795 $4,933,471

Liabilities:

Mortgage-backed notes $3,917,677 $486,302

Repurchase agreements 2,707,915 3,928,505

Commercial paper 637,677 -

Warehouse lending facilities 752,777 -

Junior subordinated notes 92,788 92,788

Margin debt - 3,548

Cash distributions payable 14,343 1,218

Accrued interest expense 12,094 21,123

Management compensation payable - 939

Accounts payable and other liabilities 6,969 2,727

Total liabilities 8,142,240 4,537,150

Stockholders' Equity:

Preferred stock, par value $0.001:

10,000,000 shares authorized; no shares

issued and outstanding at

December 31, 2006 and December 31, 2005 - -

Common stock, par value $0.001:

100,000,000 shares authorized; 47,808,510

and 40,587,245 shares issued and

outstanding at December 31, 2006

and December 31, 2005, respectively 48 41

Additional paid-in capital 583,492 511,941

Accumulated other comprehensive income 3,842 7,076

Accumulated distributions in excess of

accumulated earnings (115,827) (122,737)

Total stockholders' equity 471,555 396,321

Total liabilities and stockholders' equity $8,613,795 $4,933,471

LUMINENT MORTGAGE CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months For the Year Ended

Ended Ended

December 31, December 31,

(in thousands, except 2006 2005 2006 2005

share and per share

amounts)

Net interest income:

Interest income:

Mortgage loan and

securitization

portfolio $87,323 $6,025 $220,990 $6,740

Spread portfolio 24,981 40,167 94,738 167,073

Credit sensitive

bond portfolio 13,233 3,905 41,409 7,608

Total interest

income 125,537 50,097 357,137 181,421

Interest expense 95,985 46,623 268,618 137,501

Net interest income 29,552 3,474 88,519 43,920

Other income (expenses):

Realized and unrealized

gains (losses) on

derivative instruments,

net 3,649 (497) 7,736 (808)

Gains (losses) on sales

of mortgage-backed

securities 3 - 993 (69)

Impairment losses on

mortgage-backed

securities (4,831) (112,008) (7,010) (112,008)

Other expenses (221) - (829) -

Total other income

(expenses) (1,400) (112,505) 890 (112,885)

Expenses:

Management compensation

expense to related

party - 939 6,921 4,193

Incentive compensation

expense to related parties - 122 791 1,250

Salaries and benefits 2,095 1,296 9,470 2,998

Servicing expense 4,405 387 11,951 434

Due diligence expense 317 35 876 68

Provision for loan

losses 1,872 - 5,176 -

Professional services 952 637 3,133 2,225

Board of directors expense 98 122 399 473

Insurance expense 167 141 611 556

Custody expense 120 96 444 415

Other general and

administrative expenses 965 461 2,671 1,318

Total expenses 10,991 4,236 42,443 13,930

Income (loss) before

income taxes 17,161 (113,267) 46,966 (82,895)

Income tax expense

(benefit) (888) 96 169 96

Net income (loss) $18,049 $(113,363) $46,797 $(82,991)

Net income (loss)

per share - basic $0.39 $(2.79) $1.15 $(2.13)

Net income (loss)

per share - diluted $0.39 $(2.79) $1.14 $(2.13)

Weighted-average

number of shares

outstanding - basic 46,282,380 40,578,516 40,788,778 39,007,953

Weighted-average

number of shares

outstanding

- diluted 46,519,251 40,578,516 41,003,620 39,007,953

Dividends per share $0.375 $ 0.03 $0.925 $0.77

A reconciliation of REIT taxable net income to adjusted REIT taxable net income was as follows (dollars in thousands):

For the Three Months For the Three Months

Ended Ended

December 31, 2006 December 31, 2005

Amount Amount Amount Amount

Per Share Per Share

REIT taxable net

income $12,636 $0.26 $423 $0.01

One-time charges 3,833 0.08 - -

Adjusted REIT taxable

net income $16,469 $0.34 $423 $ 0.01

Shares outstanding

on dividend record

date 47,808,510 40,587,245

For the Year Ended For the Year Ended

December 31, 2006 December 31, 2005

Amount Amount Amount Amount

Per Share Per Share

REIT taxable net

income $40,899 $0.97 $31,314 $0.79

One-time charges 7,167 0.17 - -

Adjusted REIT taxable

net income $48,066 $1.14 $31,314 $0.79

Average shares

outstanding on

dividend record

dates during the

year 42,163,918 40,667,532

A reconciliation of GAAP net income to core earnings was as follows (dollars in thousands):

For the Three Months For the Three Months

Ended Ended

December 31, 2006 December 31, 2005

Amount Amount Amount Amount

Per Share Per Share

GAAP net income

(loss) $18,049 $0.39 $(113,363) $(2.79)

Realized and

unrealized (gains)

losses on derivative

instruments, net (3,649) (0.08) 497 0.01

Core earnings $ 14,400 $0.31 $(112,866) $(2.78)

Weighted-average

number of shares

outstanding

- diluted 46,519,251 40,578,516

For the Year Ended For the Year Ended

December 31, 2006 December 31, 2005

Amount Amount Amount Amount

Per Share Per Share

GAAP net income

(loss) $46,797 $1.14 $(82,991) $(2.13)

Realized and

unrealized (gains)

losses on derivative

instruments, net (7,736) (0.19) 808 0.02

One-time charges 6,094 0.15 - -

Core earnings $45,155 $1.10 $(82,183) $(2.11)

Weighted-average

number of shares

outstanding

- diluted 41,003,620 39,007,953

One-time charges included in the reconciliations of REIT taxable net income to adjusted REIT taxable net income and GAAP net income to core earnings represent expenses related to Luminent's termination of the Amended and Restated Management Agreement with Seneca Capital Management, LLC.

The following table summarizes Luminent's mortgage-backed securities classified as available-for-sale at December 31, 2006, which are carried at fair value:

(in thousands)

Amortized cost $2,930,878

Unrealized gains 7,549

Unrealized losses (7,489)

Fair value $2,930,938

The following table summarizes Luminent's mortgage-backed securities at December 31, 2006, according to their estimated weighted-average life classifications:

Weighted-Average Life Fair Value Amortized Cost

(in thousands)

Less than one year $235,186 $234,932

Greater than one year and less

than five years 2,612,020 2,608,627

Greater than five years 83,732 87,319

Total $2,930,938 $2,930,878

The following table summarizes the Company's residential mortgage loans classified as held-for-investment at December 31, 2006, which are carried at amortized cost, net of allowance for loan losses (in thousands):

Principal $5,472,325

Unamortized premium 124,412

Amortized cost 5,596,737

Allowance for loan losses (5,020)

Total residential loans, net of allowance

for loan losses $5,591,717

The following table summarizes key metrics of Luminent's loans held-for- investment at December 31, 2006 (dollars in thousands):

Unpaid principal balance $5,472,325

Number of loans 13,942

Average loan balance $393

Weighted-average coupon rate 7.65%

Weighted-average lifetime cap 10.64%

Weighted-average original term, in months 375

Weighted-average remaining term, in months 366

Weighted-average effective loan-to-value

ratio (LTV) 72.6%

Weighted-average FICO score 713

Top five geographic concentrations (% exposure):

California 57.4%

Florida 8.6%

Arizona 4.1%

Virginia 3.7%

Nevada 3.4%

Occupancy status:

Owner occupied 86.5%

Investor 13.5%

Property type:

Single-family 83.6%

Condominium 9.7%

Other residential 6.7%

Collateral type:

Alt A - first lien 100.0%

(1) effect after mortgage insurance

Interest expense for the three months and year ended December 31, 2006 was calculated as follows:

For the Percentage For the Percentage

Three Months of Average Year Ended of Average

Ended Financing December 31, Financing

December 31, Liabilities 2006 Liabilities

2006

(in thousands)

Interest expense on

repurchase agreement

liabilities $34,919 2.01% $116,465 2.23%

Interest expense on

mortgage-backed

notes 47,987 2.77 132,107 2.53

Interest expense on

commercial paper

facility 4,736 0.27 4,786 0.09

Interest expense on

warehouse lending

facilities 7,611 0.44 16,459 0.31

Interest expense on

junior subordinated

notes 1,977 0.11 7,768 0.15

Amortization of net

realized gains on

futures and interest

rate swap contracts (544) (0.03) (7,468) (0.14)

Net interest income on

interest rate swap

contracts (879) (0.05) (1,676) (0.04)

Other 178 0.02 177 nm

Total interest

expense $95,985 5.54% $268,618 5.13%

nm = not meaningful

Average repurchase agreement liabilities, mortgage-backed notes, commercial paper facilities, warehouse lending facilities and junior subordinated notes during the three months and the year ended December 31, 2006 were $6.8 billion and $5.2 billion, respectively.

Interest expense for the three months and the year ended December 31, 2005 was calculated as follows:

For the Percentage For the Percentage

Three Months of Average Year Ended of Average

Ended Financing December 31, Financing

December 31, Liabilities 2005 Liabilities

2005

(in thousands)

Interest expense on

repurchase agreement

liabilities $41,211 3.53% $138,076 3.08%

Interest expense on

mortgage-backed notes 3,719 0.32 3,719 0.08

Interest expense on

warehouse lending

facilities 922 0.08 1,507 0.03

Interest expense on

junior subordinated

notes 1,172 0.10 3,411 0.08

Net hedge

ineffectiveness

losses on futures

and interest rate

swap contracts 301 0.03 258 0.01

Amortization of net

realized gains on

futures contracts (20) nm (1,415) (0.03)

Net interest income

on interest rate swap

contracts (698) (0.06) (8,093) (0.18)

Other 16 nm 38 nm

Total interest

expense $46,623 4.00% $137,501 3.07%

nm = not meaningful

Average repurchase agreement liabilities, mortgage-backed notes, warehouse lending facilities and junior subordinated notes during the three months and the year ended December 31, 2005 were $4.6 billion and $4.4 billion, respectively.

Source: prnewswire