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The components
of net (loss)
income for
the six months
ended June
30, 2022
and 2021,
along with
the changes
in those components
are presented
in the table
below.
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2022
2021
Change
2022
2021
Change
Advisory services revenues
$
6,408
$
4,211
$
2,197
$
$
3,332
$
2,186
$
1,146
Interest and dividend income
1,636
2,201
(565)
742
1,084
(342)
Interest expense
(664)
(570)
(94)
(376)
(281)
(95)
Net revenues
7,380
5,842
1,538
3,698
2,989
709
Other expense
(9,223)
(1,822)
(7,401)
(2,865)
(2,480)
(385)
Expenses
(4,138)
(3,481)
(657)
(2,113)
(1,724)
(389)
Net (loss) income before income tax (benefit) provision
(5,981)
539
(6,520)
(1,280)
(1,215)
(65)
Income tax (benefit) provision
(1,315)
168
(1,483)
(93)
(295)
202
Net (loss) income
$
(4,666)
$
371
$
(5,037)
$
$
(1,187)
$
(920)
$
(267)
GAAP and
Non-GAAP
Reconciliation
Economic Interest Expense and Economic Net Interest Income
We use derivative instruments, specifically Eurodollar and Treasury Note (“T-Note”) futures contracts and TBA short positions to
hedge a portion of the interest rate risk on repurchase agreements in a rising
rate environment.
We have not designated our derivative financial instruments as hedge accounting relationships,
but rather hold them for
economic hedging purposes. Changes in fair value of these instruments are presented
in a separate line item in our consolidated
statements of operations and not included in interest expense. As such, for financial reporting
purposes, interest expense and cost of
funds are not impacted by the fluctuation in value of the derivative instruments.
For the purpose of computing economic net interest income and ratios relating
to cost of funds measures, GAAP interest
expense, as reflected in our consolidated statements of operations, is
adjusted to reflect the realized and unrealized gains or losses on
certain derivative instruments the Company uses that pertain to each period presented.
We believe that adjusting our GAAP interest
expense for the periods presented by the gains or losses on these derivative
instruments may not accurately reflect our economic
interest expense for these periods. The reason is that these derivative instruments
may cover periods that extend into the future, not
just the current period.
Any realized or unrealized gains or losses on the derivative instruments reflect
the change in market value of
the instrument caused by changes in underlying interest rates applicable to
the term covered by the instrument, which changes are
reflective of the future periods covered by the derivative instrument, not just
the current period.
For each period presented, we have combined the effects of the derivative financial instruments
in place for the respective period
with the actual interest expense incurred on borrowings to reflect total economic
interest expense for the applicable period. Interest
expense, including the effect of derivative instruments for the period, is referred to as economic interest
expense. Net interest income,
when calculated to include the effect of derivative instruments for the period, is referred to
as economic net interest income. This
presentation includes gains or losses on all contracts in effect during the reporting period,
covering the current period as well as
periods in the future.