The Company enters into repos and reverse repos as part of its matched book repo business. In general, the Company will lend money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repo. The Company will borrow money from another counterparty using the same collateral securities pursuant to a repo. The Company seeks to earn net interest income on these transactions. Until the fourth quarter 2021, the Company categorized its matched book repo business into two major groups: gestation repo and GCF repo. In the fourth quarter 2021, the Company wound down its GCF repo business.
Gestation repo involves entering into repo and reverse repo where the underlying collateral security represents a pool of newly issued mortgage loans. The borrowers (the reverse repo counterparties) are generally mortgage originators. The lenders (the repo counterparties) are a diverse group of the counterparties comprised of banks, insurance companies, and other financial institutions. The Company self-clears its gestation repo transactions.
In the matched book repo business, the demand for borrowed funds is generated by the reverse repo counterparty and the supply of funds is provided by the repo counterparty.
The gestation repo business has been and continues to be concentrated as to reverse repurchase counterparties. The Company conducts this business with a limited number of reverse repo counterparties. As of March 31, 2022 and December 31, 2021, the Company’s gestation reverse repos shown in the tables below represented balances from 15 and 14 counterparties, respectively. The Company also has a limited number of repo counterparties in the gestation repo business. However, this is primarily a function of the limited number of reverse repo agreement counterparties with whom the Company conducts this business rather than a reflection of a limited supply of funds. Therefore, the Company considers the gestation repo business to be concentrated on the demand side.
The total net revenue earned by the Company on its matched book repo business was $9,772 for the three months ended March 31, 2022. The total net revenue earned by the Company on its matched book repo business (both gestation repo and GCF repo) was $11,281 for the three months ended March 31, 2021.
The following tables summarize the remaining contractual maturity of the gross obligations under repos accounted for as secured borrowings segregated by the underlying collateral pledged as of each date shown. All amounts as well as counterparty cash collateral (see note 13) are subject to master netting arrangements.
SECURED BORROWINGS |
(Dollars in Thousands) |
March 31, 2022 |
| | Repurchase Agreements | |
| | Remaining Contractual Maturity of the Agreements | |
| | Overnight and | | | Up to | | | 30 - 90 | | | Greater than | | | | | |
Collateral Type: | | Continuous | | | 30 days | | | days | | | 90 days | | | Total | |
MBS (gestation repo) | | $ | 374,686 | | | $ | 1,813,729 | | | $ | - | | | | - | | | $ | 2,188,415 | |
| | $ | 374,686 | | | $ | 1,813,729 | | | $ | - | | | $ | - | | | $ | 2,188,415 | |
| | Reverse Repurchase Agreements | |
| | Remaining Contractual Maturity of the Agreements | |
| | Overnight and | | | Up to | | | 30 - 90 | | | Greater than | | | | | |
Collateral Type: | | Continuous | | | 30 days | | | days | | | 90 days | | | Total | |
MBS (gestation repo) | | $ | 374,936 | | | $ | 1,818,626 | | | $ | - | | | $ | - | | | $ | 2,193,562 | |
| | $ | 374,936 | | | $ | 1,818,626 | | | $ | - | | | $ | - | | | $ | 2,193,562 | |
SECURED BORROWINGS |
(Dollars in Thousands) |
December 31, 2021 |
| | Repurchase Agreements | |
| | Remaining Contractual Maturity of the Agreements | |
| | Overnight and | | | Up to | | | 30 - 90 | | | Greater than | | | | | |
Collateral Type: | | Continuous | | | 30 days | | | days | | | 90 days | | | Total | |
MBS (gestation repo) | | $ | - | | | $ | 3,171,415 | | | $ | - | | | $ | - | | | $ | 3,171,415 | |
| | $ | - | | | $ | 3,171,415 | | | $ | - | | | $ | - | | | $ | 3,171,415 | |
| | Reverse Repurchase Agreements | |
| | Remaining Contractual Maturity of the Agreements | |
| | Overnight and | | | Up to | | | 30 - 90 | | | Greater than | | | | | |
Collateral Type: | | Continuous | | | 30 days | | | days | | | 90 days | | | Total | |
MBS (gestation repo) | | $ | - | | | $ | 3,175,645 | | | $ | - | | | $ | - | | | $ | 3,175,645 | |
| | $ | - | | | $ | 3,175,645 | | | $ | - | | | $ | - | | | $ | 3,175,645 | |
11. INVESTMENTS IN EQUITY METHOD AFFILIATES
Equity method accounting requires that the Company record its investments in equity method affiliates on the consolidated balance sheets and recognize its share of the equity method affiliates’ net income as earnings each reporting period. The Company elected to use the cumulative earnings approach for the distributions it receives from its equity method investments. Under the cumulative earnings approach, any distributions received up to the amount of cumulative earnings are treated as return on investment and classified in operating activities within the cash flows. Any excess distributions would be considered as return of investments and classified in investing activities.
The Company has certain equity method affiliates for which it has elected the fair value option. Those investees are excluded from the table below. Those investees are included as a component of other investments, at fair value in the consolidated balance sheets. All gains and losses (unrealized and realized) from securities classified as other investments, at fair value in the consolidated balance sheets are recorded as a component of principal transactions and other income in the consolidated statement of operations. See notes 8 and 23.
The following table summarizes the activity and earnings in the Company’s investments that are accounted for under the equity method.
INVESTMENTS IN EQUITY METHOD AFFILIATES |
(Dollars in Thousands) |
| | Insurance SPACs | | | Dutch Real Estate Entities | | | Other SPAC Sponsor Entities | | | Total | |
January 1, 2022 | | $ | 4,543 | | | $ | 5,600 | | | $ | 38,095 | | | $ | 48,238 | |
Investments / advances | | | - | | | | - | | | | 511 | | | | 511 | |
Distributions / repayments | | | - | | | | - | | | | (73 | ) | | | (73 | ) |
Reclasses to (from) | | | - | | | | - | | | | (18,858 | ) | | | (18,858 | ) |
Earnings / (loss) realized | | | (589 | ) | | | (8 | ) | | | (11,507 | ) | | | (12,104 | ) |
March 31, 2022 | | $ | 3,954 | | | $ | 5,592 | | | $ | 8,168 | | | $ | 17,714 | |
| | Insurance SPACs | | | Dutch Real Estate Entities | | | Other SPAC Sponsor Entities | | | Total | |
January 1, 2021 | | $ | 9,807 | | | $ | 3,312 | | | $ | 363 | | | $ | 13,482 | |
Investments / advances | | | - | | | | 2,425 | | | | 5,967 | | | | 8,392 | |
Distributions / repayments | | | (3,958 | ) | | | - | | | | (249 | ) | | | (4,207 | ) |
Reclasses to (from) | | | | | | | | | | | (5,439 | ) | | | (5,439 | ) |
Earnings / (loss) realized | | | (1,306 | ) | | | (137 | ) | | | 37,453 | | | | 36,010 | |
December 31, 2021 | | $ | 4,543 | | | $ | 5,600 | | | $ | 38,095 | | | $ | 48,238 | |
The Insurance SPACs represent the Company's consolidated subsidiaries equity method investments in various insurance SPACs. Dutch Real Estate Entities include: (i) Amersfoot Office Investment I Cooperatief U. A. (“AOI”) is a company based in the Netherlands that invests in real estate and (ii) CK Capital Partners B.V. (“CK Capital”) is a company based in the Netherlands that manages investments in real estate. See note 23.
Other SPAC Sponsor Entities include both indirect and direct investments in SPAC Sponsor Entities. Several of these Sponsor Entities are invested in SPACs that have completed their business combinations. Those Sponsor Entities hold restricted and unrestricted equity interests in the public post-merger entities. The following table shows the equity method balance included in other SPAC Sponsor Entities above broken out by the ultimate investee.
OTHER SPAC SPONSOR ENTITIES |
MARCH 31, 2022 |
(Dollars in Thousands) |
Entity | Ticker | | Equity Method Carrying Value | |
Archer Aviation Inc. | ACHR | | | 579 | |
Wejo Group Ltd. | WEJO | | | 1,160 | |
Alpha Tau Medical Ltd. | DRTS | | | 1,309 | |
Various other Sponsor Entities | | | 5,120 | |
Total | | $ | 8,168 | |
OTHER SPAC SPONSOR ENTITIES |
DECEMBER 31, 2021 |
(Dollars in Thousands) |
Entity | Ticker | | Equity Method Carrying Value | |
Parella Weinberg Partners | PWP | | $ | 1,128 | |
Archer Aviation Inc. | ACHR | | | 728 | |
Wejo Group Ltd. | WEJO | | | 1,963 | |
Heliogen, Inc. | HLGN | | | 28,448 | |
Various other Sponsor Entities | | | 5,828 | |
Total | | $ | 38,095 | |
Over time, the Company expects these Sponsor Entities to either (a) liquidate their investments in these companies and distribute to the Company its allocable share of the cash proceeds or (b) to distribute the Company's allocable share of these equity investments in-kind to the Company. In either case, the final cash realized from these investments will be impacted by the performance of the public companies listed above until those investments are liquidated.
12. LEASES
The Company leases office space, certain computer and related equipment, and a vehicle under noncancelable operating leases. From time to time, the Company subleases office space to other tenants. Under the requirements of FASB 842, the company determines if an arrangement is a lease at the inception date of the contract. The Company determines if an arrangement is a lease at the inception date of the contract. The Company measures operating lease liabilities using an estimated incremental borrowing rate as there is no rate implicit in the Company’s operating lease arrangements. An incremental borrowing rate was calculated for each operating lease based on the term of the lease, the U.S. Treasury term interest rate, and an estimated spread to borrow on a secured basis.
Rent expense is recognized on a straight-line basis over the lease term and is included in business development, occupancy, and equipment expense.
As of March 31, 2022, all of the leases to which the Company was a party were operating leases. The weighted average remaining term of the leases was 6.1 years. The weighted average discount rate for the leases was 4.52%.
Maturities of operating lease liability payments consisted of the following.
FUTURE MATURITY OF LEASE LIABILITIES |
(Dollars in Thousands) |
| | As of March 31, 2022 | |
2022 - remaining | | $ | 1,740 | |
2023 | | | 2,650 | |
2024 | | | 2,122 | |
2025 | | | 1,767 | |
2026 | | | 1,512 | |
Thereafter | | | 3,777 | |
Total | | | 13,568 | |
Less imputed interest | | | (1,843 | ) |
Lease obligation | | $ | 11,725 | |
During the three months ended March 31, 2022 and 2021, total cash payments of $535 and $383, respectively, were recorded as a reduction in the operating lease obligation. No cash payments were made to acquire right of use assets. For the three months ended March 31, 2022 , rent expense, net of sublease income of $25 respectively was $639 . For the three months ended March 31, 2021, rent expense, net of sublease income of $70 was $370 .
13. OTHER RECEIVABLES, OTHER ASSETS, ACCOUNTS PAYABLE AND OTHER LIABILITIES
Other receivables consisted of the following.
OTHER RECEIVABLES |
(Dollars in Thousands) |
| | March 31, 2022 | | | December 31, 2021 | |
Asset management fees receivable | | $ | 911 | | | $ | 962 | |
Accrued interest receivable and dividend receivable | | | 4,115 | | | | 1,813 | |
Revenue share receivable | | | 114 | | | | 108 | |
Miscellaneous other receivables | | | 299 | | | | 320 | |
Other receivables | | $ | 5,439 | | | $ | 3,203 | |
When the Company enters into a reverse repo, it obtains collateral in excess of the principal amount of the reverse repo. The Company accepts collateral in the form of liquid securities or cash. If the value of the securities the Company receives as collateral increases, the Company’s reverse repo counterparties may request a return of their collateral with a value equal to such increase. In some cases, the Company will return to such reverse repo counterparties cash instead of securities. In that case, the Company includes the cash returned as a component of other receivables (cash collateral due from counterparties). No receivable for cash collateral related to repos exists as of March 31, 2022 or December 31, 2021.
When the Company enters into repo transactions, the Company provides collateral to the Company’s repo counterparties in excess of the principal balance of the repo. The Company’s counterparties accept collateral in the form of liquid securities or cash. To the extent the Company provides the collateral in cash, the Company includes it as a component of other receivables (cash collateral due from counterparties).
Asset management fees receivable are of a routine and short-term nature. These amounts are generally accrued monthly and paid on a monthly or quarterly basis. Accrued interest and dividends receivable represent interest and dividends accrued on the Company’s investment securities included as a component of investments-trading or other investments, at fair value. Interest payable on securities sold, not yet purchased is included as a component of accounts payable and other liabilities in the table entitled Accounts Payable and Other Liabilities below. Revenue share receivable represents the amount due to the Company for the Company’s share of a revenue arrangement generated from an entity in which the Company receives a share of the entity’s revenue. Miscellaneous other receivables represent other receivables that are of a short-term nature.
Other assets consisted of the following.
OTHER ASSETS |
(Dollars in Thousands) |
| | March 31, 2022 | | | December 31, 2021 | |
Deferred costs | | $ | 211 | | | $ | 240 | |
Prepaid expenses | | | 1,487 | | | | 1,286 | |
Deposits | | | 444 | | | | 479 | |
Miscellaneous other assets | | | 258 | | | | 258 | |
Furniture, equipment, and leasehold improvements, net | | | 1,622 | | | | 1,456 | |
Intangible assets | | | 166 | | | | 166 | |
Other assets | | $ | 4,188 | | | $ | 3,885 | |
Deferred costs and prepaid expenses represent amounts paid for services that are being amortized over their expected period of use and benefit. They are all routine and short-term in nature. Deposits are amounts held by landlords or other parties which will be returned or offset upon satisfaction of a lease or other contractual arrangement. See notes 16 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of the firm’s furniture, equipment, and leasehold improvements. Intangible assets represent the carrying value of the JVB broker-dealer license.
Accounts payable and other liabilities consisted of the following.
ACCOUNTS PAYABLE AND OTHER LIABILITIES |
(Dollars in Thousands) |
| | March 31, 2022 | | | December 31, 2021 | |
Accounts payable | | $ | 229 | | | $ | 122 | |
Redeemable financial instruments accrued interest | | | 176 | | | | 291 | |
Accrued income tax | | | 396 | | | | 179 | |
Accrued interest payable | | | 241 | | | | 558 | |
Accrued interest on securities sold, not yet purchased | | | 1,084 | | | | 704 | |
Payroll taxes payable | | | 1,358 | | | | 1,548 | |
Counterparty cash collateral | | | 40,465 | | | | 17,320 | |
Accrued expense and other liabilities | | | 6,641 | | | | 2,097 | |
Accounts payable and other liabilities | | $ | 50,590 | | | $ | 22,819 | |
The redeemable financial instrument accrued interest represents accrued interest on the JKD Capital Partners I LTD redeemable financial instrument. See note 15.
When the Company enters into a reverse repo, the Company obtains collateral in excess of the principal of the reverse repo. The Company accepts collateral in the form of liquid securities or cash. To the extent the Company receives cash collateral, the Company includes it as a component of other liabilities (counterparty cash collateral) in the table above.
When the Company enters into repo transactions, the Company provides collateral to the Company’s repo counterparty in excess of the principal balance of the repo. If the value of the securities the Company provides as collateral increases, the Company may request a return of its collateral with a value equal to such increase. In some cases, the repo counterparty will return cash instead of securities. In that case, the Company includes the cash returned as a component of other liabilities (counterparty cash collateral) in the table above. See note 10 and 22.
14. VARIABLE INTEREST ENTITIES
As a general matter, a reporting entity must consolidate a variable interest entity (“VIE”) when it is deemed to be the primary beneficiary. The primary beneficiary is the entity that has both (a) the power to direct the matters that most significantly impact the VIE’s financial performance and (b) a significant variable interest in the VIE.
Consolidated VIEs
The Company determined it was the primary beneficiary of several VIEs and therefore, has consolidated them. The following table provides certain information regarding the consolidated VIEs:
| | As of March 31, 2022 | | | As of December 31, 2021 | |
Cash and cash equivalents | | $ | 49 | | | $ | 43 | |
Receivables | | | - | | | | - | |
Other investments, at fair value | | | 10,670 | | | | 9,543 | |
Investment in equity method affiliates | | | 4,030 | | | | 33,080 | |
Non-controlling interest | | | (11,397 | ) | | | (29,979 | ) |
Investment in consolidated VIEs | | $ | 3,352 | | | $ | 12,687 | |
The maximum potential loss the Company could incur related to the consolidated VIEs is the investment in consolidated VIEs shown in the table above plus certain obligations the Company has to fund additional working capital to the equity method investees of certain of the consolidated VIEs. The total amount of working capital commitment was $810 as of March 31, 2022 and December 31, 2021, respectively.
The Company’s Principal Investing Portfolio
Included in other investments, at fair value in the consolidated balance sheets are investments in several VIEs. In each case, the Company determined it was not the primary beneficiary. The maximum potential financial statement loss the Company would incur if the VIEs were to default on all their obligations would be the loss of the carrying value of these investments as well as any future investments the Company were to make. As of March 31, 2022, and December 31, 2021, there were $8,464 and $9,170, respectively, of unfunded commitments to VIEs that the Company has invested in. Other than its investment in these entities, the Company did not provide financial support to these VIEs during the three months ended March 31, 2022 and 2021 and had no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at March 31, 2022 and December 31, 2021. See table below.
For each investment management contract entered into by the Company, the Company assesses whether the entity being managed is a VIE and if the Company is the primary beneficiary. Certain of the Investment Vehicles managed by the Company are VIEs. Under the current guidance of ASU 2015-12, the Company has concluded that its asset management contracts are not variable interests. Currently, the Company has no other interests in entities it manages that are considered variable interests and are considered significant. Therefore, the Company is not the primary beneficiary of any VIEs that it manages.
The Company’s Trading Portfolio
From time to time, the Company may acquire an interest in a VIE through the investments it makes as part of its trading operations, which are included as investments-trading or securities sold, not yet purchased in the consolidated balance sheets. Due to the high volume of trading activity in which the Company engages, the Company does not perform a formal assessment of each individual investment within its trading portfolio to determine if the investee is a VIE and if the Company is a primary beneficiary. Even if the Company were to obtain a variable interest in a VIE through its trading portfolio, the Company would not be deemed to be the primary beneficiary for two main reasons: (a) the Company does not usually obtain the power to direct activities that most significantly impact any investee’s financial performance and (b) a scope exception exists within the consolidation guidance for cases where the reporting entity is a broker-dealer and any control (either as the primary beneficiary of a VIE or through a controlling interest in a voting interest entity) was deemed to be temporary. In the unlikely case that the Company obtained the power to direct activities and obtained a significant variable interest in an investee in its trading portfolio that was a VIE, any such control would be deemed to be temporary due to the rapid turnover of the Company’s trading portfolio.
The following table presents the carrying amounts of the assets in the Company’s consolidated balance sheets related to the Company’s variable interests in identified VIEs with the exception of (i) the two trust VIEs that hold the Company’s junior subordinated notes (see note 16) and (ii) any security that represents an interest in a VIE that is included in investments-trading or securities sold, not yet purchased in the Company’s consolidated balance sheets. The table below shows the Company’s maximum exposure to loss associated with these identified nonconsolidated VIEs in which it holds variable interests at March 31, 2022 and December 31, 2021.
CARRYING VALUE OF VARIABLE INTERESTS IN NON-CONSOLIDATED VARIABLE INTEREST ENTITIES |
(Dollars in Thousands) |
| | As of March 31, 2022 | | | As of December 31, 2021 | |
Other investments, at fair value | | $ | 10,661 | | | $ | 11,260 | |
Investments in equity method affiliates | | | 12,122 | | | | 5,015 | |
Maximum exposure | | $ | 22,783 | | | $ | 16,275 | |
15. REDEEMABLE FINANCIAL INSTRUMENTS
Redeemable financial instruments consisted of the following.
REDEEMABLE FINANCIAL INSTRUMENTS |
(Dollars in Thousands) |
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
JKD Capital Partners I LTD |
|
$ |
7,957 |
|
|
$ |
7,957 |
|
|
|
$ |
7,957 |
|
|
$ |
7,957 |
|
16. DEBT
The Company had the following debt outstanding.
DETAIL OF DEBT |
(Dollars in Thousands) |
| | As of | | | As of | | Interest | | | | |
Description | | March 31, 2022 | | | December 31, 2021 | | Rate Terms | | Interest (3) | | Maturity |
Non-convertible debt: | | | | | | | | | | | | | |
10.00% senior note (the "2020 Senior Notes") | | $ | 4,500 | | | $ | 4,500 | | Fixed | | 10.00% | | January 2024 |
Contingent convertible debt: | | | | | | | | | | | | | |
8.00% convertible senior note (the "2017 Convertible Note") | | | - | | | | 15,000 | | Fixed | | 8.00% | | March 2023 (1) |
Less unamortized debt issuance costs | | | - | | | | (67 | ) | | | | | |
| | | - | | | | 14,933 | | | | | | |
Junior subordinated notes (2): | | | | | | | | | | | | | |
Alesco Capital Trust I | | | 28,125 | | | | 28,125 | | Variable | | 4.30% | | July 2037 |
Sunset Financial Statutory Trust I | | | 20,000 | | | | 20,000 | | Variable | | 5.15% | | March 2035 |
Less unamortized discount | | | (24,027 | ) | | | (24,164 | ) | | | | | |
| | | 24,098 | | | | 23,961 | | | | | | |
| | | | | | | | | | | | | |
ByLine Bank | | | - | | | | - | | Variable | | NA | | December 2023 |
Total | | $ | 28,598 | | | $ | 43,394 | | | | | | |
| (1) | The holder of the 2017 Convertible Note may convert all or any part of the outstanding principal amount at any time prior to maturity into units of membership interests of the Operating LLC at a conversion price of $1.45 per unit, subject to customary anti-dilution adjustments. Units of membership interests in the Operating LLC not held by Cohen & Company Inc. may, with certain restrictions, be redeemed and exchanged into shares of the Cohen & Company Inc. common stock, par value $0.01 per share (“Common Stock”) on a ten-for-one basis. Therefore, the 2017 Convertible Note can be converted into Operating LLC units of membership interests and then redeemed and exchanged into Common Stock at an effective conversion price of $14.50. See note 20 to the Annual Report on Form 10-K for the year ended December 31, 2021. Effective March 20, 2022, the 2017 Note was converted into 10,344,827 units. |
| (2) | The junior subordinated notes listed represent debt the Company owes to the two trusts noted above. The total par amount owed by the Company to the trusts is $49,614. However, the Company owns the common stock of the trusts in a total par amount of $1,489. The Company pays interest (and at maturity, principal) to the trusts on the entire $49,614 junior notes outstanding. However, the Company receives back from the trusts the pro rata share of interest and principal on the common stock held by the Company. These trusts are VIEs and the Company does not consolidate them even though the Company holds the common stock. The Company carries the common stock on its balance sheet at a value of $0. The junior subordinated notes are recorded at a discount to par. When factoring in the discount, the yield to maturity of the junior subordinated notes as of March 31, 2022 on a combined basis was 11.91% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity. |
| (3) | Represents the interest rate in effect as of the last day of the reporting period. |
The 2020 Senior Notes
On January 31, 2022, the Operating LLC and JKD Investor entered into a note purchase agreement, pursuant to which, among other things, on such date, (i) JKD Investor paid to the Operating LLC an additional $2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD Investor an Amended and Restated Senior Promissory Note in the aggregate principal amount of $4,500 (the “Amended and Restated Note”), which Amended and Restated Note amended and restated the JKD Note in its entirety. The 2022 Purchase Agreement contains customary representations and warranties on the part of each of JKD Investor and the Operating LLC. The Company used these proceeds to retire $2,250 of existing 2020 Senior Notes held by RNCS.
The Amended and Restated Note evidences Operating LLC’s obligation to repay to JKD (i) the original principal amount of $2,250 paid by JKD to the Operating LLC under the Original Purchase Agreement, plus (ii) the additional $2,250 paid by JKD to the Operating LLC under the 2022 Purchase Agreement. Pursuant to the Amended and Restated Note, which is substantially identical to the JKD Note, the unpaid principal amount and all accrued but unpaid interest thereunder will be due and payable in full on January 31, 2024; provided, that, at any time after January 31, 2023 and prior to January 31, 2024, the holder of the Amended and Restated Note may, with at least 31 days’ prior written notice from the holder to the Operating LLC, declare the entire unpaid principal amount outstanding and all interest accrued and unpaid on the Amended and Restated Note to be immediately due and payable.
The Amended and Restated Note accrues interest on the unpaid principal amount from January 31, 2022 until maturity at a rate equal to 10% per year. Interest on the Amended and Restated Note is payable in cash quarterly on each January 1, April 1, July 1, and October 1, commencing on April 1, 2022. Under the Amended and Restated Note, upon the occurrence or existence of any “Event of Default” thereunder, the outstanding principal amount is (or in certain instances, at the option of the holder thereof, may be) immediately accelerated. Further, upon the occurrence of any “Event of Default” under the Amended and Restated Note and for so long as such Event of Default continues, all principal, interest and other amounts payable under the Amended and Restated Note will bear interest at a rate equal to 11% per year. The Amended and Restated Note may not be prepaid in whole or in part prior to January 31, 2023. The Amended and Restated Note may, with at least 31 days’ prior written notice from the Operating LLC to the holder thereof, be prepaid in whole or in part at any time following January 31, 2023 without the prior written consent of the holder and without penalty or premium.
The Amended and Restated Note and the payment of all principal, interest and any other amounts payable thereunder are senior obligations of the Operating LLC and will be senior to any Indebtedness (as defined in the Amended and Restated Note) of the Operating LLC outstanding as of and issued following January 30, 2020 (the original issuance date of the JKD Note). Pursuant to the Amended and Restated Note, following January 31, 2022, the Operating Company may not incur any Indebtedness that is a senior obligation to the Amended and Restated Note.
The 2017 Convertible Note
On March 10, 2017, the Operating LLC entered into a Securities Purchase Agreement (the “2017 Convertible Note Purchase Agreement”), by and among the Operating LLC and DGC Family Fintech Trust, a trust established by Daniel G. Cohen.
Pursuant to the 2017 Convertible Note Purchase Agreement, the DGC Family Fintech Trust agreed to purchase from the Operating LLC, and the Operating LLC agreed to issue and to sell to the DGC Family Fintech Trust, a convertible senior secured promissory note (the “2017 Convertible Note”) in the aggregate principal amount of $15,000. On March 10, 2017, the DGC Family Fintech Trust paid to the Operating LLC $15,000 in cash in consideration for the 2017 Convertible Note. As required pursuant to ASC 470, the Company accounted for the 2017 Convertible Notes as conventional convertible debt and did not allocate any amount of the proceeds to the embedded equity option.
Under the 2017 Convertible Note Purchase Agreement, the Operating LLC and the DGC Family Fintech Trust offered customary indemnifications. Further, the Operating LLC and the DGC Family Fintech Trust provided each other with customary representations and warranties, the Company provided limited representations and warranties to the DGC Family Fintech Trust, and each of the Operating LLC and the Company made customary affirmative covenants.
Pursuant to the 2017 Convertible Note Purchase Agreement, the Company agreed to execute an amendment (the “LLC Agreement Amendment”) to the Amended and Restated Limited Liability Company Agreement of the Operating LLC dated as of December 16, 2009, by and among the Operating LLC and its members, as amended (the “LLC Agreement”) at such time in the future as all of the other members execute the LLC Agreement Amendment. The LLC Agreement Amendment provides, among other things, that the board of managers will initially consist of Daniel G. Cohen, as chairman of the Operating LLC’s board of managers, Lester R. Brafman (the Company’s current chief executive officer), and Joseph W. Pooler, Jr. (the Company’s current executive vice president, chief financial officer, and treasurer). The LLC Agreement Amendment also provides that Daniel G. Cohen will not be able to be removed from the Operating LLC’s board of managers or as chairman of the Operating LLC’s board of managers other than for cause or under certain limited circumstances. On October 30, 2019, each of the members of Cohen & Company, LLC executed the LLC Agreement Amendment. The outstanding principal amount under the 2017 Convertible Note was due and payable on March 10, 2022 provided that the Operating LLC may, in its sole discretion, extend the maturity date for an additional one-year period, in each case unless the 2017 Convertible Note is earlier converted (in the manner described below). Effective on March 10, 2020, the Operating LLC exercised its option to extend effective March 10, 2022.
The 2017 Convertible Note accrued interest at a rate of 8% per year, payable quarterly. Provided that no event of default occurred under the 2017 Convertible Note, if dividends of less than $0.20 per share were paid on the Common Stock in any fiscal quarter prior to an interest payment date, then the Operating LLC may pay one-half of the interest payable on such date in cash, and the remaining one-half of the interest otherwise payable will be added to the principal amount of the 2017 Convertible Note then outstanding. The 2017 Convertible Note contains customary “Events of Default.” Upon the occurrence or existence of any Event of Default under the 2017 Convertible Note, the outstanding principal amount is immediately accelerated in certain limited instances and may be accelerated in all other instances upon notice by the holder of the 2017 Convertible Note to the Operating LLC. Further, upon the occurrence of any Event of Default under the 2017 Convertible Note and for so long as such Event of Default continues, all principal, interest, and other amounts payable under the 2017 Convertible Note will bear interest at a rate equal to 9% per year. The 2017 Convertible Note could not be prepaid in whole or in part prior to the maturity date without the prior written consent of the holder thereof (which may be granted or withheld in its sole discretion). The 2017 Convertible Note was secured by the equity interests held by the Operating LLC in all of its subsidiaries.
At any time following March 10, 2017, all or any portion of the outstanding principal amount of the 2017 Convertible Note may be converted by the holder thereof into units of membership interests of the Operating LLC (“LLC Units”) at a conversion rate equal to $1.45 per unit, subject to customary anti-dilution adjustments. Units of the Operating LLC not held by Cohen & Company Inc. may, with certain restrictions, be redeemed and exchanged into shares of the Company on a ten-for-one basis. Therefore, the 2017 Convertible Note can be converted into Operating LLC units and then redeemed and exchanged into Common Stock at an effective conversion price of $14.50. Under the 2017 Convertible Note Purchase Agreement, the Company submitted a proposal to the Company’s stockholders at its 2017 annual meeting of stockholders to approve the Company’s issuance, if any, of Common Stock upon any redemption of the LLC Units and the Company’s board of directors agreed to recommend that the Company’s stockholders vote to approve such proposal. The proposal was approved at the Company’s 2017 annual meeting.
Following any conversion of the 2017 Convertible Note into LLC Units, the holder of such LLC Units will have the same rights of redemption, if any, held by the holders of LLC Units as set forth in the LLC Agreement; provided that the holder will have no such redemption rights with respect to such LLC Units if the Company’s board of directors determines in good faith that satisfaction of such redemption by the Company with shares of its Common Stock would (i) jeopardize or endanger the availability to the Company of its net operating loss and net capital loss carryforwards and certain other tax benefits under Section 382 of the Internal Revenue Code of 1986, or (ii) constitute a “Change of Control” under the Junior Subordinated Indenture, dated as of June 25, 2007, between the Company (formerly Alesco Financial Inc.) and Wells Fargo Bank, N.A., as trustee.
Under the 2017 Convertible Note, if following any conversion of the 2017 Convertible Note into LLC Units, for so long as the Company owns a number of LLC Units representing less than a majority of the voting control of the Operating LLC, each holder of any LLC Units issued as a result of the conversion of the 2017 Convertible Note (regardless of how such LLC Units were acquired by such holder) is obligated to grant and appoint the Company as such holder’s proxy and attorney-in-fact to vote (i) the number of LLC Units owned by each such holder that, if voted by the Company, would give the Company a majority of the voting control of the Operating LLC, or (ii) if such holder holds less than such number of LLC Units, all such holder’s LLC Units. In connection with the amendment to the 2019 Senior Notes, on September 25, 2020, the Operating LLC and DGC Trust entered into Amendment No. 1 ( the "Amendment to the 2017 Convertible Note") to the 2017 Convertible Note to provide that the voting proxy as defined in the 2017 Convertible Note will be revoked without further action by any party, upon the earliest to occur of the following: (i) a Notice Default (as defined in the 2017 Convertible Note); (ii) and Automatic Default (as defined in the 2017 Convertible Note); and (iii) if Daniel Cohen and/or his affiliates cease to beneficially own (as defined in Rule 13d-3 under the Exchange Act) a majority of the voting securities of the Company pursuant to the terms and conditions of the Amendment to the 2017 Convertible Note. All other material terms and conditions of the 2017 Note remained substantially the same.
On March 20, 2022, the DGC Trust elected to convert the Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the Note of $1.45 per unit. As a result of such conversion, the Note was cancelled in its entirety.
Pursuant to the terms and conditions of the Operating LLC’s Amended and Restated Limited Liability Company Agreement, dated December 16, 2009, as amended, a holder of LLC units of membership interests may cause the Operating LLC to redeem such units of membership interests at any time for, at the Company’s option, (A) cash or (B) one share of the Company’s common stock, par value $0.01 per share (“Common Stock”), for every ten of such units of membership interests. Accordingly, the units of membership interests may be redeemed at any time by the DGC Trust into an aggregate of 1,034,482 shares of Common Stock.
Pursuant to the DGC Trust’s governing documents, Daniel G. Cohen has the ability to acquire at any time any of the DGC Trust’s assets, including the units of membership interests, by substituting other property of an equivalent value without the approval or consent of any person, including any trustee or beneficiary of the DGC Trust.
Byline Bank
On October 28, 2020, (i) the Company entered into a loan agreement (the “Original Byline Loan Agreement”) with Byline Bank, as lender, and JVB as borrower, by and among Byline Bank, the Company, the Operating LLC, JVB Holdings, JVB and C&Co PrinceRidge Holdings, LP, pursuant to which Byline Bank agreed to make loans at JVBs request from time to time in the aggregate amount of up to $7,500, and (ii) JVB and Byline Bank entered into a Revolving Note and Cash Subordination Agreement (the "Original Byline Note and Subordination Agreement"), pursuant to which Byline Bank agreed to make loans at JVB’s request from time to time in the aggregate amount of up to $17,500. The Company drew $17,500 under the Original Byline Note and Subordination Agreement during 2021 and repaid it in full during 2021. The Company, and the Company’s subsidiaries, the Operating LLC and JVB Holdings, served as guarantors of both the $7,500 and $17,500 facilities.
On December 21, 2021, (i) JVB and Byline Bank entered into the Amended and Restated Revolving Note and Cash Subordination Agreement (the “Amended and Restated Byline Loan Agreement”), which amended and restated the Original Byline Loan Agreement in its entirety, and (ii) the Original Byline Note and Subordination Agreement was terminated by the parties thereto. Pursuant to the Amended and Restated Byline Loan Agreement, Byline Bank agreed to make loans to JVB, at JVB’s request from time to time, in the aggregate amount of up to $25,000.
Loans (both principal and interest) made by Byline Bank to JVB under the Amended and Restated Byline Loan Agreement are scheduled to mature and become immediately due and payable in full on December 21, 2023. In addition, loans may be made until December 21, 2022. Loans will bear interest at a per annum rate equal to LIBOR plus 6.0%, provided that in no event can the interest rate be less than 7.0%. JVB is required to pay on a quarterly basis an undrawn commitment fee at a per annum rate equal to 0.50% of the undrawn portion of Byline Bank’s $25,000 commitment. JVB is also required to pay on each anniversary of December 21, 2021, a commitment fee at a per annum rate equal to 0.50% of the $25,000 commitment. JVB paid Byline Bank a commitment fee of $125 on December 21, 2021, in connection with the execution of the Amended and Restated Byline Loan Agreement.
JVB may request a reduction in the $25,000 commitment in a minimum amount of $1,000 and in multiples of $500 thereafter or such lesser amount as would bring the $25,000 loan commitment to the total principal amount of loans advanced under the Amended and Restated Byline Loan Agreement. The obligations of JVB under the Amended and Restated Agreement are guaranteed by the Company, the Operating LLC and JVB Holdings (the “Guarantors”) and are secured by a lien on all of JVB Holdings’ property, including its 100% ownership interest in all of the outstanding membership interests of JVB. Pursuant to the Amended and Restated Byline Loan Agreement, JVB and the Guarantors provide customary representations and warranties for a transaction of this type.
Effective December 22, 2021, the Company received approval from FINRA to treat draws under the Amended and Restated Byline Loan Agreement as qualified subordinated debt. As such, draws may be treated as an increase in net capital for purposes of FINRA Rule 15(c) 3-1.
The Amended and Restated Byline Loan Agreement also includes customary covenants for a transaction of this type, including covenants limiting the indebtedness that can be incurred by JVB and JVB Holdings and restricting JVB’s ability to make certain loans and investments. Additionally, JVB may not permit its (i) net worth to be less than $85,000 from December 31, 2021, through and including December 30, 2022, and $90,000 from December 31, 2022, and thereafter; and (ii) excess net capital to be less than $40,000 at any time. Further, any loans outstanding under the Amended and Restated Byline Loan Agreement may not exceed 0.25 times JVB's tangible net worth. As of March 31, 2022, and December 31, 2021, no amounts were outstanding under the Amended and Restated Byline Loan Agreement and the Company was in compliance with all of these financial covenants.
Pursuant to the Amended and Restated Byline Agreement, JVB may repay its existing outstanding indebtedness provided, however, that if the anticipated payment relates to the payment of any dividend by JVB, on the date such payment is made, and immediately after making such payment, the loans outstanding may not exceed $10,000. The Amended and Restated Byline Loan Agreement contains customary events of default for a transaction of this type. If an event of default occurs and is continuing, then Byline Bank may declare and cause all or any part of the loans thereunder and all other liabilities outstanding under the Amended and Restated Byline Loan Agreement to become immediately due and payable.
In the financial statements and other footnotes set forth in this Quarterly Report on Form 10-Q, the term "Byline LOC" refers to either the Original Byline Note and Subordination Agreement or the Amended and Restated Byline Loan Agreement, depending on the applicable time period.
Interest Expense, net
INTEREST EXPENSE |
(Dollars in Thousands) |
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Junior subordinated notes | | $ | 657 | | | $ | 647 | |
2020 Senior Notes | | | 119 | | | | 133 | |
2017 Convertible Note | | | 327 | | | | 375 | |
2013 Convertible Notes / 2019 Senior Notes | | | - | | | | 71 | |
Byline Credit Facility | | | 72 | | | | 65 | |
Redeemable Financial Instrument - DGC Trust / CBF | | | - | | | | 197 | |
Redeemable Financial Instrument - JKD Capital Partners I LTD | | | 176 | | | | 526 | |
| | $ | 1,351 | | | $ | 2,014 | |
17. EQUITY
Stockholders’ Equity
Common Equity: The following table reflects the activity for the three months ended March 31, 2022 related to the number of shares of unrestricted Common Stock that the Company had issued.
| | Common Stock | |
| | Shares | |
December 31, 2021 | | | 1,331,150 | |
Vesting of shares | | | 110,014 | |
Shares withheld for employee taxes and retired | | | (14,308 | ) |
Repurchase and retirement of Common Stock | | | - | |
March 31, 2022 | | | 1,426,856 | |
Series E Voting Non-Convertible Preferred Stock: Each share of the Company’s Series E Voting Non-Convertible Preferred Stock (“Series E Preferred Stock”) has no economic rights but entitles the holders thereof to vote the Series E Preferred Stock on all matters presented to the Company’s stockholders. For every ten shares of Series E Preferred Stock, the holders are entitled to one vote on any such matter. Daniel G. Cohen, the Company’s chairman, is the sole holder of all 4,983,557 shares of Series E Preferred Stock issued and outstanding as of March 31, 2022. For a more detailed description of these shares see note 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Series F Voting Non-Convertible Preferred Stock: On December 23, 2019, the Company’s board of directors adopted a resolution that reclassified 25,000,000 authorized but unissued shares of Preferred Stock, par value $0.001 per share, of the Company as a series of Preferred Stock designated as Series F Voting Non-Convertible Preferred Stock (“Series F Preferred Stock”). Pursuant to the Securities Purchase Agreement (the “SPA”), dated December 30, 2019, by and among the Company, the Operating LLC, Daniel G. Cohen, and the DGC Trust, the Company issued 12,549,273 Series F Preferred Stock to Daniel G. Cohen and 9,880,268 Series F Preferred Stock to the DGC Trust. The Series F Preferred Stock have substantially the same rights as the Series E Preferred Stock. The holders of the Series F Preferred Stock are not entitled to receive any dividends or distributions (whether in cash, stock or property of the Company). The holders of Series F Preferred Stock and Common Stock are required to vote, together as a single class on all matters with respect to which a vote of the stockholders of the Company is required or permitted. Each outstanding share of Series F Preferred Stock entitles the holder to one vote for every ten shares of Series F Preferred Stock on each matter submitted to the holders for their vote. As of March 31, 2022, there were 22,429,541 shares of Series F Preferred Stock issued and outstanding. For a more detailed description of these shares see note 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Stockholder Rights Plan
On March 10, 2020, the Company entered into a new Section 382 Rights Agreement (the “Rights Agreement”) with Computershare Inc., as rights agent (the “Rights Agent”). The Rights Agreement provided for a distribution of one preferred stock purchase right (each, a “Right,” and collectively, the “Rights”) for each share of the Company’s Common Stock outstanding to stockholders of record at the close of business on March 20, 2020 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company a unit (a “Unit”) consisting of one ten-thousandth of a share of the Company’s Series C Junior Participating Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), at a purchase price of $100.00 per Unit (the “Purchase Price”), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.
Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding or, in the case of uncertificated shares of Common Stock registered in book entry form (“Book Entry Shares”) by notation in book entry (which certificates for Common Stock and Book Entry Shares shall be deemed also to be certificates for Rights), and no separate Rights certificates will be distributed.
Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the Common Stock and a “Distribution Date” will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons has become an “Acquiring Person” (as defined below) (the “Stock Acquisition Date”) and (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. Pursuant to the Rights Agreement, an “Acquiring Person” means any person or entity who or which, together with all affiliates and associates of such person or entity, is the beneficial owner of 4.95% or more of the shares of Common Stock then outstanding, but does not include the Company or any “Exempted Person” (as defined below). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates after the Record Date will contain a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate.
Pursuant to the Rights Agreement, an “Exempted Person” is any person or entity who, together with all affiliates and associates of such person or entity, was or could become, as of March 10, 2020, the beneficial owner of Common Stock and/or other securities exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock outstanding as of March 10, 2020. However, any such person or entity will no longer be deemed to be an Exempted Person and shall be deemed an Acquiring Person under the Rights Agreement if such person or entity, together with all affiliates and associates of such person or entity, becomes the beneficial owner (and so long as such person continues to be the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock) of additional shares of Common Stock, except (x) pursuant to equity compensation awards granted to such person or entity by the Company or options or warrants outstanding and beneficially owned by such person or entity as of March 10, 2020, or as a result of an adjustment to the number of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof; or (y) as a result of a stock split, stock dividend or the like. In addition, any person or entity who, together with all affiliates and associates of such person or entity, becomes the beneficial owner of Common Stock and/or other securities exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock then outstanding as a result of a purchase by the Company or any of its subsidiaries of shares of Common Stock will also be an “Exempted Person.” However, any such person will no longer be deemed to be an Exempted Person and will be deemed to be an Acquiring Person if such person, together with all affiliates and associates of such person, becomes the beneficial owner, at any time after the date such person became the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock, of additional shares of Common Stock, except if such additional securities are acquired (x) pursuant to the exercise of options or warrants to purchase Common Stock outstanding and beneficially owned by such person as of the date such person became the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock or as a result of an adjustment to the number of shares of Common Stock for which such options or warrants are exercisable pursuant to the terms thereof, or (y) as a result of a stock split, stock dividend or the like.
In addition, the Rights Agreement defines the term “Exempted Person” to also include any person or entity who, together with all affiliates and associates of such person or entity, is the beneficial owner of Common Stock and/or other securities exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock outstanding, and whose beneficial ownership would not, as determined by the Company’s board of directors, jeopardize or endanger the availability of the Company of its deferred tax assets. However, any such person or entity will cease to be an Exempted Person if (x) such person or entity ceases to beneficially own 4.95% or more of the shares of the then outstanding Common Stock or (y) the Company’s board of directors makes a contrary determination with respect to the effect of such person’s or entity’s beneficial ownership (together with all affiliates and associates of such person) with respect to the availability to the Company of its deferred tax assets.
Pursuant to the Rights Agreement, a purchaser, assignee or transferee of the shares of Common Stock (or options or warrants exercisable for Common Stock) from an Exempted Person will not be considered an Exempted Person, except that a transferee from the estate of an Exempted Person who receives Common Stock as a bequest or inheritance from an Exempted Person will be an Exempted Person so long as such transferee continues to be the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock.
The Rights are not exercisable until the Distribution Date and will expire on the earliest of (i) the close of business on December 31, 2023, (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement, (iii) the time at which the Rights are exchanged pursuant to the Rights Agreement, (iv) the repeal of Section 382 of the Code or any successor statute if the Company’s board of directors determines that the Rights Agreement is no longer necessary or desirable for the preservation of certain tax benefits, and (v) the beginning of a taxable year of the Company to which the Company’s board of directors determines that certain tax benefits may not be carried forward. At no time will the Rights have any voting power.
Except as otherwise determined by the Company’s board of directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights.
Pursuant to the Rights Agreement, in the event that a person or entity becomes an Acquiring Person, each other holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company), having a value equal to two times the exercise price of the Right. The exercise price is the Purchase Price times the number of Units associated with each Right (initially, one). For example, at an exercise price of $100.00 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $200.00 worth of Common Stock (or other consideration, as noted above) for $100.00. If the Common Stock at the time of exercise had a market value per share of $20.00, the holder of each valid Right would be entitled to purchase ten (10) shares of Common Stock for $100.00.
Notwithstanding any of the foregoing, following the occurrence of a person or entity becoming an Acquiring Person (the “Flip-In Event”), all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by such Acquiring Person will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i) the Company engages in a merger or other business combination transaction in which the Company is not the surviving corporation; (ii) the Company engages in a merger or other business combination transaction in which the Company is the surviving corporation and the Common Stock is changed or exchanged; or (iii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth above) will thereafter have the right to receive, upon exercise of the Right, common stock of the acquiring company having a value equal to two times the exercise price of the Right.
However, Rights are not exercisable following the occurrence of a Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below.
The Purchase Price payable, and the number of Units of Series C Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series C Preferred Stock, (ii) if holders of the Series C Preferred Stock are granted certain rights or warrants to subscribe for Series C Preferred Stock or convertible securities at less than the current market price of the Series C Preferred Stock, or (iii) upon the distribution to holders of the Series C Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Series C Preferred Stock on the last trading date prior to the date of exercise.
At any time after the Stock Acquisition Date, the Company may exchange all or part of the Rights (other than Rights owned by an Acquiring Person) for Common Stock at an exchange ratio equal to (i) a number of shares of Common Stock per Right with a value equal to the spread between the value of the number of shares of Common Stock for which the Rights may then be exercised and the Purchase Price or (ii) if prior to the acquisition by the Acquiring Person of 50% or more of the then outstanding shares of Common Stock, one share of Common Stock per Right (subject to adjustment).
At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. Immediately upon the action of the Company’s board of directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to shareholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Company as set forth above or in the event the Rights are redeemed.
Acquisition and Surrender of Additional Units of the Operating LLC, net: Effective January 1, 2011 and revised effective May 27, 2021, Cohen & Company Inc. and the Operating LLC entered into a Unit Issuance and Surrender Agreement (the “UIS Agreement”), that was approved by the board of directors of Cohen & Company Inc. and the board of managers of the Operating LLC. In an effort to maintain a 1:10 ratio of Common Stock to the number units of membership interests Cohen & Company Inc. holds in the Operating LLC, the UIS Agreement calls for the issuance of additional units of membership interests of the Operating LLC to Cohen & Company Inc. when Cohen & Company Inc. issues its Common Stock to employees under existing equity compensation plans or issues its Common Stock in a public or private offering. In certain cases, the UIS Agreement calls for Cohen & Company Inc. to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased by the Company.
During the three months ended March 31, 2022, Cohen & Company Inc. received and surrendered units of the Operating LLC. The following table displays the amount of units surrendered (net of receipts) by Cohen & Company Inc.
| | Operating LLC | |
| | Membership Units | |
Other units related to UIS Agreement | | | 957,060 | |
Units surrendered from retirement of Common Stock | | | - | |
Total | | | 957,060 | |
The Company recognized a net decrease in additional paid in capital of $292 and a net increase in AOCI of $4 with an offsetting increase in non-controlling interest of $288 in connection with the acquisition and surrender of additional units of the Operating LLC. The following schedule presents the effects of changes in Cohen & Company Inc.’s ownership interest in the Operating LLC on the equity attributable to Cohen & Company Inc. for the three months ended March 31, 2022 and 2021.
| | Three Months Ended | | | Three Months Ended | |
| | March 31, 2022 | | | March 31, 2021 | |
Net income / (loss) attributable to Cohen & Company Inc. | | $ | (7,612 | ) | | $ | 9,355 | |
Transfers (to) from the non-controlling interest: | | | | | | | | |
Increase / (decrease) in Cohen & Company, Inc. paid in capital for the acquisition / (surrender) of additional units in consolidated subsidiary, net | | | (292 | ) | | | 926 | |
Changes from net income / (loss) attributable to Cohen & Company Inc. and transfers (to) from the non-controlling interest | | $ | (7,904 | ) | | $ | 10,281 | |
Repurchases of Shares and Retirement of Treasury Stock
On December 21, 2020, the Company entered into a letter agreement (the “December 2020 Letter Agreement”). The December 2020 Letter Agreement was entered into with Piper Sandler & Co. (the "Agent"). The December 2020 Letter Agreement authorized the Agent to use reasonable efforts to purchase, on the Company’s behalf, up to an aggregate maximum amount of $1,000 of Common Stock on any day that the NYSE American Stock Exchange was open for business. The December 2020 Letter Agreement was effective from December 23, 2020 until July 28, 2021, at which time the aggregate maximum purchase authorization thereunder was reached. The December 2020 Letter Agreement was designed to comply with Rule 10b5-1 under the Exchange Act.
During the three months ended March 31, 2021, the Company repurchased 38,647 shares in the open market pursuant to the December 2020 Letter Agreement for a total purchase price of $662.
All of the purchases above were completed using cash on hand.
Equity Distribution Agreement
On December 1, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Northland Securities, Inc. (trade name Northland Capital Markets), as sales agent (the “Sales Agent”), relating to the issuance and sale from time to time by the Company (the “ATM Program”), through the Sales Agent, of shares of the Company's Common Stock, having an aggregate offering price of up to $75,000 (collectively the “Shares”). Sales of the Shares, if any, under the Equity Agreement will be made in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act as agreed with the Sales Agent. In accordance with applicable rules of the SEC, the Company was permitted to sell an aggregate of up to $9,318 in Shares under the Equity Agreement, which represented one-third of the value of the Common Stock held by non-affiliates as of March 5, 2021.
On June 7, 2021, the Company entered into a letter agreement (the “Equity Distribution Letter Agreement”) with the Sales Agent, pursuant to which the Sales Agent agreed to use its best efforts to, commencing on June 5, 2021, sell on the Company’s behalf up to $7,966 of the shares in the open market pursuant to the terms and conditions of the Equity Agreement and the Equity Distribution Letter Agreement, and the Company agreed not to take any action that would cause the sales of the Shares under the Equity Distribution Letter Agreement not to comply with Rule 10b5-1 or Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Equity Distribution Letter Agreement was entered into in connection with the ATM Program and is designed to comply with Rule 10b5-1 under the Exchange Act.
The Equity Agreement includes customary representations, warranties and covenants by the Company and customary obligations of the parties and termination provisions. The Company has agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Sales Agent may be required to make with respect to any of those liabilities. The Company will pay the Sales Agent for sales of its common stock a commission of 2.5% of the gross offering proceeds of the Shares sold through the Sales Agent pursuant to the Equity Agreement.
The offering of the Common Stock pursuant to the Equity Agreement will terminate upon the sale of all of the Shares pursuant to the Equity Agreement, unless sooner terminated in accordance with the terms and conditions of the Equity Agreement.
During the three months ended March 31, 2021 no shares were sold by the Company under the Equity Agreement. During the year ended December 31, 2021, the Company sold 300,859 shares in the open market pursuant to the Equity Distribution Agreement for a total net sale price of $9,076.
Detail of Non-Controlling Interest
ROLLFORWARD OF NON-CONTROLLING INTERESTS
(Dollars in Thousands)
| | Operating LLC | | | Insurance SPAC III Sponsor Entities | | | Other Consolidated Subsidiaries | | | Total | |
December 31, 2021 | | $ | 57,628 | | | $ | 4,808 | | | $ | 27,056 | | | $ | 89,492 | |
Non-controlling interest share of (loss) | | | (12,850 | ) | | | (297 | ) | | | (14,407 | ) | | | (27,554 | ) |
Other comprehensive (loss) | | | (47 | ) | | | - | | | | - | | | | (47 | ) |
Acquisition / (surrender) of additional units of consolidated subsidiary | | | 288 | | | | - | | | | - | | | | 288 | |
Equity-based compensation | | | 766 | | | | - | | | | - | | | | 766 | |
Shares withheld for employee taxes | | | (145 | ) | | | - | | | | - | | | | (145 | ) |
Investment of convertible non-controlling interest of Cohen & Company Inc. | | | 15,000 | | | | - | | | | - | | | | 15,000 | |
Investment of non-convertible non-controlling interest of Operating LLC | | | - | | | | - | | | | 6 | | | | 6 | |
Distributions to convertible non-controlling interest of Cohen & Company Inc. | | | (3,475 | ) | | | - | | | | - | | | | (3,475 | ) |
Distributions to non-convertible non-controlling interest of Operating LLC | | | - | | | | - | | | | (5,660 | ) | | | (5,660 | ) |
March 31, 2022 | | $ | 57,165 | | | $ | 4,511 | | | $ | 6,995 | | | $ | 68,671 | |
See note 21 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for a discussion of the Company’s non-controlling interests.
18. NET CAPITAL REQUIREMENTS
JVB is subject to the net capital provision of Rule 15c3-1 under the Exchange Act, which requires the maintenance of minimum net capital, as defined therein. As of March 31, 2022, JVB's minimum required net capital was $ 250, and actual net capital was $56,854, which exceeded the minimum requirements by $56,604. CCFESA, a subsidiary of the Company, is regulated by the ACPR in France. CCFESA is subject to certain regulatory capital requirements in accordance with Articles L.533-2 et seq. of the French Financial and Monetary Code, implementing the new framework set out in the Investment Firm Regulation ("IFR") and the Investment Firm Directive ("IFD"). As of March 31, 2022, the total minimum required net liquid capital was $534 and actual net liquid capital in CCFESA was $1,091, which exceeded the minimum requirement by $557. CCFEL cancelled its license with the CBI. The Company received its withdrawal license from the CBI on April 7, 2022.
19. EARNINGS / (LOSS) PER COMMON SHARE
The following table presents a reconciliation of basic and diluted earnings / (loss) per common share for the periods indicated.
EARNINGS / (LOSS) PER COMMON SHARE |
(Dollars in Thousands, except share or per share information) |
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Net income / (loss) attributable to Cohen & Company Inc. | | $ | (7,612 | ) | | $ | 9,355 | |
Add: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc. | | | - | | | | 27,403 | |
Add: Interest expense incurred on dilutive convertible notes | | | - | | | | 289 | |
Add / (deduct): Adjustment (2) | | | - | | | | (1,751 | ) |
Net income / (loss) on a fully converted basis | | $ | (7,612 | ) | | $ | 35,296 | |
| | | | | | | | |
Weighted average common shares outstanding - Basic | | | 1,394,954 | | | | 1,034,287 | |
Unrestricted Operating LLC membership units exchangeable into Cohen & Company, Inc. shares (1) | | | - | | | | 2,838,132 | |
Restricted units or shares | | | - | | | | 146,660 | |
Shares issuable upon conversion of dilutive convertible notes | | | - | | | | 1,034,483 | |
Weighted average common shares outstanding - Diluted (3) | | | 1,394,954 | | | | 5,053,562 | |
| | | | | | | | |
Net income / (loss) per common share - Basic | | $ | (5.46 | ) | | $ | 9.04 | |
| | | | | | | | |
Net income / (loss) per common share - Diluted | | $ | (5.46 | ) | | $ | 6.98 | |
(1) | The Operating LLC units of membership interest not held by Cohen & Company Inc. (that is, those held by the non-controlling interest) may be redeemed and exchanged into shares of the Company on a ten-for-one basis. The Operating LLC units of membership interests not held by Cohen & Company Inc. are redeemable, at the member’s option at any time, for (i) cash in an amount equal to the average of the per share closing prices of the Common Stock for the ten consecutive trading days immediately preceding the date the Company receives the member’s redemption notice, or (ii) at the Company’s option, one tenth of a share of the Common Stock, subject, in each case, to appropriate adjustment upon the occurrence of an issuance of additional shares of the Common Stock as a dividend or other distribution on the outstanding Common Stock, or a further subdivision or combination of the outstanding shares of the Common Stock. These units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income (loss) per common share when the effect is not anti-dilutive using the if-converted method. |
(2) | An adjustment is included because the Company would have incurred a higher income tax expense or realized a higher income tax benefit, as applicable, if the Operating LLC units of membership interests had been converted at the beginning of the period. |
(3) | Potentially diluted securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows: |
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Unrestricted Operating LLC membership units exchangeable into Cohen & Company, Inc. shares | | | 3,043,802 | | | | | |
2017 Convertible Note Units | | | 896,552 | | | | - | |
Restricted Common Stock | | | 81,792 | | | | - | |
Restricted Operating LLC units | | | 44,102 | | | | - | |
| | | | | | | | |
| | | 4,066,248 | | | | - | |
20. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory Proceedings
On October 8, 2021, Cohen & Company, Ltd., an Ohio limited liability company, as plaintiff, filed a complaint with the United States District Court, Eastern District of Pennsylvania, under the caption Cohen & Company, Ltd. v. Cohen & Company Inc., alleging that Cohen & Company, Inc., as defendant, has been using the “Cohen & Company” trademark and business name, which allegedly infringes and unfairly competes with the plaintiff’s registered trademarks “Cohen & Company” and “Cohen & Co,” in violation of applicable federal and state trademark laws and regulations. Pursuant to the complaint, the plaintiff has demanded that the defendant be permanently enjoined from using the “Cohen & Company” trademark and business name in connection with its business, pay to the plaintiff statutory damages, attorneys’ fees and costs and other damages, and pay over to plaintiff all gains, profits and advantages realized by the defendant from its allegedly unlawful acts and omissions. As of the date of this Quarterly Report on Form 10-Q, the Company has been served with the complaint and filed a partial motion to dismiss the complaint on April 18, 2022. The Company intends to vigorously defend itself against the allegations set forth therein.
From time to time, the Company is a party to various routine legal proceedings, claims, and regulatory inquiries arising out of the ordinary course of the Company’s business. Management believes that the results of these routine legal proceedings, claims, and regulatory matters will not have a material adverse effect on the Company’s financial condition, or on the Company’s operations and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the Company’s operations and cash flows. It is the Company’s policy to expense legal and other fees as incurred.
21. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates within three business segments: Capital Markets, Asset Management, and Principal Investing. See note 1. The Company’s business segment information was prepared using the following methodologies and generally represents the information that is relied upon by management in its decision- making processes: (a) revenues and expenses directly associated with each business segment are included in determining net income / (loss) by segment, and (b) indirect expenses (such as general and administrative expenses including executive and indirect overhead costs) not directly associated with specific business segments are not allocated to the business segments’ statements of operations. Accordingly, the Company presents segment information consistent with internal management reporting. See note (1) in the table below for more detail on unallocated items. The following tables present the financial information for the Company’s segments for the periods indicated.
SEGMENT INFORMATION
Statement of Operations Information
Three Months Ended March 31, 2022
|
|
Capital |
|
|
Asset |
|
|
Principal |
|
|
Segment |
|
|
Unallocated |
|
|
|
|
|
|
|
Markets |
|
|
Management |
|
|
Investing |
|
|
Total |
|
|
(1) |
|
|
Total |
|
Net trading |
|
$ |
12,022 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,022 |
|
|
$ |
- |
|
|
$ |
12,022 |
|
Asset management |
|
|
- |
|
|
|
1,889 |
|
|
|
- |
|
|
|
1,889 |
|
|
|
- |
|
|
|
1,889 |
|
New issue and advisory |
|
|
3,770 |
|
|
|
- |
|
|
|
- |
|
|
|
3,770 |
|
|
|
- |
|
|
|
3,770 |
|
Principal transactions and other income |
|
|
(1 |
) |
|
|
114 |
|
|
|
(18,476 |
) |
|
|
(18,363 |
) |
|
|
- |
|
|
|
(18,363 |
) |
Total revenues |
|
|
15,791 |
|
|
|
2,003 |
|
|
|
(18,476 |
) |
|
|
(682 |
) |
|
|
- |
|
|
|
(682 |
) |
Compensation |
|
|
9,862 |
|
|
|
1,450 |
|
|
|
195 |
|
|
|
11,507 |
|
|
|
2,372 |
|
|
|
13,879 |
|
Other Operating Expense |
|
|
3,435 |
|
|
|
370 |
|
|
|
148 |
|
|
|
3,953 |
|
|
|
1,364 |
|
|
|
5,317 |
|
Total operating expenses |
|
|
13,297 |
|
|
|
1,820 |
|
|
|
343 |
|
|
|
15,460 |
|
|
|
3,736 |
|
|
|
19,196 |
|
Operating income (loss) |
|
|
2,494 |
|
|
|
183 |
|
|
|
(18,819 |
) |
|
|
(16,142 |
) |
|
|
(3,736 |
) |
|
|
(19,878 |
) |
Interest income (expense) |
|
|
(72 |
) |
|
|
- |
|
|
|
- |
|
|
|
(72 |
) |
|
|
(1,279 |
) |
|
|
(1,351 |
) |
Income (loss) from equity method affiliates |
|
|
- |
|
|
|
- |
|
|
|
(12,104 |
) |
|
|
(12,104 |
) |
|
|
- |
|
|
|
(12,104 |
) |
Other non-operating income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income (loss) before income taxes |
|
|
2,422 |
|
|
|
183 |
|
|
|
(30,923 |
) |
|
|
(28,318 |
) |
|
|
(5,015 |
) |
|
|
(33,333 |
) |
Income tax expense (benefit) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,833 |
|
|
|
1,833 |
|
Net income (loss) |
|
|
2,422 |
|
|
|
183 |
|
|
|
(30,923 |
) |
|
|
(28,318 |
) |
|
|
(6,848 |
) |
|
|
(35,166 |
) |
Less: Net income (loss) attributable to the non-controlling interest |
|
|
- |
|
|
|
- |
|
|
|
(14,703 |
) |
|
|
(14,703 |
) |
|
|
(12,851 |
) |
|
|
(27,554 |
) |
Net income (loss) attributable to Cohen & Company Inc. |
|
$ |
2,422 |
|
|
$ |
183 |
|
|
$ |
(16,220 |
) |
|
$ |
(13,615 |
) |
|
$ |
6,003 |
|
|
$ |
(7,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other statement of operations data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (included in total operating expense) |
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
131 |
|
|
$ |
132 |
|
SEGMENT INFORMATION Statement of Operations Information |
Three Months Ended March 31, 2021 |
|
|
Capital |
|
|
Asset |
|
|
Principal |
|
|
Segment |
|
|
Unallocated |
|
|
|
|
|
|
|
Markets |
|
|
Management |
|
|
Investing |
|
|
Total |
|
|
(1) |
|
|
Total |
|
Net trading |
|
$ |
19,183 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
19,183 |
|
|
$ |
- |
|
|
$ |
19,183 |
|
Asset management |
|
|
- |
|
|
|
2,093 |
|
|
|
- |
|
|
|
2,093 |
|
|
|
- |
|
|
|
2,093 |
|
New issue and advisory |
|
|
1,839 |
|
|
|
- |
|
|
|
- |
|
|
|
1,839 |
|
|
|
- |
|
|
|
1,839 |
|
Principal transactions and other income |
|
|
(1 |
) |
|
|
160 |
|
|
|
79,402 |
|
|
|
79,561 |
|
|
|
- |
|
|
|
79,561 |
|
Total revenues |
|
|
21,021 |
|
|
|
2,253 |
|
|
|
79,402 |
|
|
|
102,676 |
|
|
|
- |
|
|
|
102,676 |
|
Compensation |
|
|
9,397 |
|
|
|
1,456 |
|
|
|
13,287 |
|
|
|
24,140 |
|
|
|
2,507 |
|
|
|
26,647 |
|
Other Operating Expense |
|
|
3,630 |
|
|
|
399 |
|
|
|
19 |
|
|
|
4,048 |
|
|
|
1,536 |
|
|
|
5,584 |
|
Total operating expenses |
|
|
13,027 |
|
|
|
1,855 |
|
|
|
13,306 |
|
|
|
28,188 |
|
|
|
4,043 |
|
|
|
32,231 |
|
Operating income (loss) |
|
|
7,994 |
|
|
|
398 |
|
|
|
66,096 |
|
|
|
74,488 |
|
|
|
(4,043 |
) |
|
|
70,445 |
|
Interest (expense) income |
|
|
(65 |
) |
|
|
- |
|
|
|
- |
|
|
|
(65 |
) |
|
|
(1,949 |
) |
|
|
(2,014 |
) |
Income (loss) from equity method affiliates |
|
|
- |
|
|
|
- |
|
|
|
(835 |
) |
|
|
(835 |
) |
|
|
- |
|
|
|
(835 |
) |
Income (loss) before income taxes |
|
|
7,929 |
|
|
|
398 |
|
|
|
65,261 |
|
|
|
73,588 |
|
|
|
(5,992 |
) |
|
|
67,596 |
|
Income tax expense (benefit) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
868 |
|
|
|
868 |
|
Net income (loss) |
|
|
7,929 |
|
|
|
398 |
|
|
|
65,261 |
|
|
|
73,588 |
|
|
|
(6,860 |
) |
|
|
66,728 |
|
Less: Net income (loss) attributable to the non-controlling interest |
|
|
- |
|
|
|
(5 |
) |
|
|
29,975 |
|
|
|
29,970 |
|
|
|
27,403 |
|
|
|
57,373 |
|
Net income (loss) attributable to Cohen & Company Inc. |
|
$ |
7,929 |
|
|
$ |
403 |
|
|
$ |
35,286 |
|
|
$ |
43,618 |
|
|
$ |
(34,263 |
) |
|
$ |
9,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other statement of operations data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (included in total operating expense) |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
79 |
|
|
$ |
81 |
|
BALANCE SHEET DATA |
|
As of March 31, 2022 |
|
(Dollars in Thousands) |
|
|
|
Capital |
|
|
Asset |
|
|
Principal |
|
|
Segment |
|
|
Unallocated |
|
|
|
|
|
|
|
Markets |
|
|
Management |
|
|
Investing |
|
|
Total |
|
|
(1) |
|
|
Total |
|
Total Assets |
|
$ |
2,595,421 |
|
|
$ |
3,459 |
|
|
$ |
67,545 |
|
|
$ |
2,666,425 |
|
|
$ |
40,307 |
|
|
$ |
2,706,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in equity method affiliates |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
17,714 |
|
|
$ |
17,714 |
|
|
$ |
- |
|
|
$ |
17,714 |
|
Goodwill (2) |
|
$ |
54 |
|
|
$ |
55 |
|
|
$ |
- |
|
|
$ |
109 |
|
|
$ |
- |
|
|
$ |
109 |
|
Intangible assets (2) |
|
$ |
166 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
166 |
|
|
$ |
- |
|
|
$ |
166 |
|
BALANCE SHEET DATA |
December 31, 2021 |
(Dollars in Thousands) |
|
|
Capital |
|
|
Asset |
|
|
Principal |
|
|
Segment |
|
|
Unallocated |
|
|
|
|
|
|
|
Markets |
|
|
Management |
|
|
Investing |
|
|
Total |
|
|
(1) |
|
|
Total |
|
Total Assets |
|
$ |
3,501,973 |
|
|
$ |
5,251 |
|
|
$ |
104,491 |
|
|
$ |
3,611,715 |
|
|
$ |
44,589 |
|
|
$ |
3,656,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in equity method affiliates |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
48,238 |
|
|
$ |
48,238 |
|
|
$ |
- |
|
|
$ |
48,238 |
|
Goodwill (2) |
|
$ |
54 |
|
|
$ |
55 |
|
|
$ |
- |
|
|
$ |
109 |
|
|
$ |
- |
|
|
$ |
109 |
|
Intangible assets (2) |
|
$ |
166 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
166 |
|
|
$ |
- |
|
|
$ |
166 |
|
(1) |
Unallocated assets primarily include: (1) amounts due from related parties; (2) furniture and equipment, net; and (3) other assets that are not considered necessary for an understanding of business segment assets. Such amounts are excluded in business segment reporting to the chief operating decision maker. |
(2) |
Goodwill and intangible assets are allocated to the Capital Markets and Asset Management business segments as indicated in the table above. |
Geographic Information
The Company conducts its business activities through offices in the following locations: (1) United States and (2) United Kingdom and Other. Total revenues by geographic area are summarized as follows.
GEOGRAPHIC DATA |
(Dollars in Thousands) |
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
Total Revenues: |
|
|
|
|
|
|
|
|
United States |
|
$ |
(1,529 |
) |
|
$ |
100,917 |
|
Europe & Other |
|
|
847 |
|
|
|
1,759 |
|
Total |
|
$ |
(682 |
) |
|
$ |
102,676 |
|
Long-lived assets attributable to an individual country, other than the United States, are not material.
22. SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid by the Company on its debt and redeemable financial instruments was $1,551 and $1,585 for the three months ended March 31, 2022 and 2021, respectively.
The Company paid income taxes of $154 and $102 for the three months ended March 31, 2022 and 2021, respectively. The Company received no income tax refunds for three months ended March 31, 2022 and 2021. respectively.
For the three months ended March 31, 2022, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:
| ● | The Company net surrendered units of membership interests in the Operating LLC. The Company recognized a net decrease in additional paid-in capital of $292, a net increase of $4 in AOCI, and an increase of $288 in non-controlling interest. |
| ● | The Company recorded a $15,000 increase in convertible non-controlling interest and a $15,000 decrease in debt as a result of the DGC Trust election to convert the 2017 Convertible Note into units of membership interest of the Operating LLC. |
| ● | The Company recorded an accrual of $4,760 in accounts payable and other accrued liabilities for dividends and distributions declared on March 7, 20222, which were paid after March 31, 2022. |
| ● | The Company recorded a decrease in equity method affiliates of $18,858 and an increase in other investments at fair value of $18,858 resulting from an in-kind distribution from equity method affiliates. |
| ● | The Company recorded a decrease in other investments at fair value of $3,885 and a corresponding decrease in non-controlling interest resulting from an in-kind distribution from a SPAC sponsor entity. |
| ● | The Company recorded an increase in other investments at fair value of $836 and a corresponding decrease in other investment, not sold of $836 resulting from an investment reclass. |
For the three months ended March 31, 2021, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:
| ● | The Company net surrendered units of membership interests in the Operating LLC. The Company recognized a net increase in additional paid-in capital of $926, a net increase of $4 in AOCI, and a decrease of $930 in non-controlling interest. See note 17. |
| ● | The Company recorded a decrease of $2,103 in due from related party, a corresponding increase of $701 in other investments at fair value, and a corresponding decrease of $1,402 to non-controlling interest, all as a result an in-kind distribution of incremental LP interests, from the 2020 performance fee earned, to all the members of Vellar GP, including the Company. |
| ● | The Company recorded a decrease of $3,958 in equity method affiliates and a $279 decrease in other investments, at fair value from the completion of the Insurance SPAC II Merger. |
| ● | The Company recorded a decrease in other investments at fair value of $20,119 resulting from an in-kind distribution relating to the Insurance SPAC Merger. |
As part of the Company's matched book repo operations, the Company enters into reverse repos with counterparties whereby it lends money and receives securities as collateral. In accordance with ASC 860, the collateral securities are not recorded in the Company's consolidated balance sheets. However, from time to time the Company will hold cash instead of securities as collateral for these transactions. When the Company is provided cash as collateral for reverse repo transactions, the Company will make an entry to increase its cash and cash equivalents and to increase its other liabilities for the amount of cash received. There are two main reasons the Company may receive collateral in the form of cash as opposed to securities. First, when the value of the collateral securities the Company has in its possession declines, the Company will require the counterparty to provide it with additional collateral. The Company will accept either cash or additional liquid securities. Often, the Company's counterparties will provide it with cash as they may not have liquid securities readily available. Second, from time to time, the Company's counterparties require a portion of the collateral securities in the Company's possession returned to them for operating purposes. In such instances, the counterparty may not have substitute liquid securities available and will often provide the Company with cash as collateral instead. It is important to note that when the Company receives cash as collateral, it is temporary in nature and the Company has an obligation to return that cash when the counterparty provides substitute liquid securities as collateral or otherwise satisfies their associated reverse repo obligation. The Company is generally required to return any cash collateral the same business day that it receives substitute securities. See note 13.
The Company has no legal or contractual obligation to segregate this cash collateral held and therefore it is included as a component of its cash and cash equivalents in the Company's consolidated balance sheets. However, it is not available for use in the Company's general operations as the Company must stand ready at all times to return the collateral held immediately once the reverse repo counterparty provides substitute liquid securities or the repo matures.
The following table shows the impact of changes in these collateral deposits had on our cash flows in each period presented:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Collateral deposit end of period | | $ | 40,465 | | | $ | 29,275 | |
Less: Collateral deposit beginning of period | | | 17,320 | | | | 41,119 | |
Impact to cash flow from operations | | $ | 23,145 | | | $ | (11,844 | ) |
23. RELATED PARTY TRANSACTIONS
The Company has identified the following related party transactions for the three months ended March 31, 2022 and 2021. The transactions are listed by related party and, unless otherwise noted in the text of the description, the amounts are disclosed in the tables at the end of this section.
A. The Bancorp, Inc. (“TBBK”)
TBBK is identified as a related party because Daniel G. Cohen was chairman of TBBK through October 31, 2021. Thereafter, TBBK will no longer be treated as a related party to the Company.
As part of the Company’s broker-dealer operations, the Company from time to time purchases securities from third parties and sells those securities to TBBK. The Company may purchase securities from TBBK and ultimately sell those securities to third parties. In either of the cases listed above, the Company includes the trading revenue earned (i.e. the gain or loss realized, or commission earned) by the Company for the entire transaction in the as part of net trading in the table. For the three months ending March 31, 2022 and March 31, 2021, the Company earned no trading revenue from transactions with TBBK.
From time to time, the Company will enter into repo agreements with TBBK as its counterparty. As of March 31, 2022 and December 31, 2021, the Company had no repo agreements with TBBK as counterparty. For the three months ended March 31, 2022, and 2021, the Company incurred no interest expense related to repos with TBBK as its counterparty.
B. Daniel G. Cohen/Cohen Bros. Financial, LLC (“CBF”)/ EBC 2013 Family Trust (“EBC”)
CBF has been identified as a related party because (i) CBF is a non-controlling interest holder of the Company and (ii) CBF is wholly owned by Daniel G. Cohen. On September 29, 2017, CBF also invested $8,000 of the $10,000 total investment in the Company’s Redeemable Financial Instrument – DGC Trust / CBF pursuant to the CBF Investment Agreement. The Company incurred interest expense on this instrument, which is disclosed as part of interest expense incurred in the table at the end of this section. In March 2021 and October 2020, payments of $4,000 and $2,500, respectively, were made by the Company to CBF, which fully extinguished the redeemable financial instrument balance. See notes 15 and 16.
EBC has been identified as a related party because Daniel G. Cohen is a trustee of EBC and has sole voting power with respect to all shares of the Company held by EBC. In September 2013, EBC, as an assignee of CBF, made a $4,000 investment in the Company. The Company issued $2,400 in principal amount of the 2013 Convertible Notes and $1,600 of Common Stock to EBC. On September 25, 2019, the 2013 Convertible Notes were amended and restated by the 2019 Senior Notes. On September 25, 2020 the 2019 Senior Notes were amended again to extend their maturity date until September 25, 2021. The Company fully paid and extinguished the 2019 Notes on September 24, 2021. The Company incurred interest expense on this debt. See note 20 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company incurred interest expense on this debt, which is disclosed as part of interest expense incurred in the table at the end of this section.
C. JKD Investor
The JKD Investor is an entity owned by Jack J. DiMaio, the vice chairman of the board of directors and vice chairman of the Operating LLC’s board of managers and his spouse. On October 3, 2016, JKD Investor invested $6,000 in the Operating LLC. Additional investments were made in January 2017 and January 2019 in the amounts of $1,000 and $1,268 respectively. See note 15. The interest expense incurred on this investment is disclosed in the table at the end of this section.
On January 31, 2020, JKD Investor purchased $2,250 of the 2020 Senior Notes. On January 31, 2022, the Operating LLC and JKD entered into the 2022 Note Purchase Agreement, pursuant to which, among other things, on such date, (i) JKD paid to the Operating LLC an additional $2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD the Amended and Restated Note in the aggregate principal amount of $4,500. See note 16. The Company incurred interest expense on this debt, which is disclosed as part of interest expense incurred in the tale at the end of this section.
D. DGC Trust
DGC Trust has been identified as a related party because Daniel G. Cohen's children are the beneficiaries of the trust and the trust was established by Daniel G. Cohen, chairman of the Company’s board of directors and chairman of the Operating LLC board of managers. Daniel G. Cohen does not have any voting or dispositive control of securities held in the interest of the trust.
In March 2017, the 2017 Convertible Note was issued to the DGC Trust. The Company incurred interest expense on the 2017 Convertible Note, which is disclosed as part of interest expense incurred in the table at the end of this section. On March 20, 2022, the DGC Trust elected to convert the Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the Note of $1.45 per unit. As a result of such conversion, the Note was cancelled in its entirety and a $15,000 investment in non-convertible controlling interest was recorded. See note 16.
E. Duane Morris, LLP (“Duane Morris”)
Duane Morris is an international law firm and serves as legal counsel to the Company. Duane Morris is considered a related party because a partner at Duane Morris is a member of the same household as a director of the Company. Expense incurred by the Company for services provided by Duane Morris are included within professional fees and operating expense in the consolidated statements of operations and comprehensive income and are disclosed in the table below.
F. FinTech Masala, LLC
The Company engaged Betsy Cohen on behalf of FinTech Masala, LLC as a consultant to provide certain services related to the Insurance SPAC II. The Company agreed to pay a consultant fee of $1 per month, which commenced on October 1, 2020, and continued through February 2021. Betsy Cohen made a $1 investment in the Insurance SPAC II Sponsor Entities which is included as a component of non-controlling interest in the consolidated balance sheet at December 31, 2020. The expense incurred by the Company for the consulting services provided by FinTech Masala, LLC is included within professional fees and operating expense in the consolidated statements of operations and comprehensive income and are disclosed in the table below.
The Company engaged Betsy Cohen on behalf of FinTech Masala, LLC as a consultant to provide certain services related to the Insurance SPAC III. The Company agreed to pay a consultant fee of $1 per month, which commenced on December 1, 2020, and continues through (i) the date that is thirty days following the closing of the Insurance SPAC III ’s Initial Business Combination and (ii) the date on which the Company or Betsy Cohen terminates the consulting agreement. Betsy Cohen made a $1 investment in the Insurance SPAC III Sponsor Entities which is included as a component of non-controlling interest in the consolidated balance sheets. The expense incurred by the Company for the consulting services provided by FinTech Masala, LLC is included within professional fees and operating expense in the consolidated statements of operations and comprehensive income and are disclosed in the table below.
G. Investment Vehicle and Other
FlipOs (previously Stoa USA, Inc.)
FlipOs is a related party because Daniel Cohen is a member of the board of directors of FlipOs. As of
December 31, 2021 the Company made cumulative investments of
$566 in FlipOs. The fair value of these investments are included in other investments, at fair value on the consolidated balance sheets; any realized and unrealized gains on these investments are included in principle transactions and other income on the consolidated statements of operations and comprehensive income. This amount is included in the table below.
CK Capital and AOI
CK Capital and AOI are related parties as they are equity method investments of the Company. In December 2019, the Company acquired a 45% interest in CK Capital. The Company purchased this interest for $18 (of which $17 was paid to an entity controlled by Daniel G. Cohen). In addition, in December 2019, the Company also acquired a 10% interest in AOI, a real estate holding company, for $1 from entities controlled by Daniel G. Cohen. Income earned, or loss incurred by the Company on the equity method investments in CK Capital and AOI is included in the tables below. In accordance with the CK Capital shareholders agreement, the Company may receive fees for consulting services provided by the Company to CK Capital. Any fees earned for such consulting services are included in principal transactions and other income in the table below. See note 11.
Insurance SPAC II
Prior to February 9, 2021, the date of the Insurance SPAC II Merger, Insurance SPAC II was considered a related party as it was an equity method investment of the Company. The Operating LLC, was the manager of the Insurance SPAC II Sponsor Entities and the Company consolidated the Insurance SPAC II Sponsor Entities. Prior to the Insurance SPAC II Merger, the Company owned 46.1% of the equity in Insurance SPAC II. Income earned, or loss incurred on the equity method investment in Insurance SPAC II is included in the table below. The Operating LLC and Insurance SPAC II entered into an administrative services agreement, dated September 2, 2020, pursuant to which the Operating LLC and Insurance SPAC II agreed that, commencing on the date that Insurance SPAC II’s securities were first listed on the NASDAQ Capital Market through the earlier of Insurance SPAC II’s consummation of a business combination and its liquidation, Insurance SPAC II would pay the Operating LLC $20 per month for certain office space, utilities, secretarial support, and administrative services. Revenue earned by the Company from such administrative services agreement is included as part of principal transactions and other income in the tables below. The Company also agreed to lend Insurance SPAC up to $750 for operating and acquisition related expenses; no amounts were borrowed from the Company and the lending agreement is no longer in place effective with the Insurance SPAC II Merger.
Insurance SPAC III
Insurance SPAC III is a related party as it is an equity method investment of the Company. The Operating LLC is the manager of the Insurance SPAC III Sponsor Entities and the Company consolidates the Insurance SPAC III Sponsor Entities. As of March 31, 2022 , the Company owns 47.3% of the equity in Insurance SPAC III Sponsor Entities. Income earned, or loss incurred on the equity method investment in Insurance SPAC III is included in the table below. The Operating LLC and Insurance SPAC III entered into an administrative services agreement, dated December 17, 2020, pursuant to which the Operating LLC and Insurance SPAC III agreed that, commencing on the date that Insurance SPAC III’s securities were first listed on the NASDAQ Capital Market through the earlier of Insurance SPAC III’s consummation of a business combination and its liquidation, Insurance SPAC III would pay the Operating LLC $20 per month for certain office space, utilities, and shared personnel support as may be requested by Insurance SPAC III. Revenue earned by the Company from the administrative services agreement is included as part of principal transactions and other income in the tables below.
The Operating LLC loaned to Insurance SPAC III approximately $71 to cover IPO expenses, which was repaid in full at the closing of the IPO. Insurance Acquisition Sponsor III and its affiliates, including the Operating LLC, have also committed to loan Insurance SPAC III up to an additional $1,500 to cover operating and acquisition related expenses following the IPO, of which $810 was borrowed by Insurance SPAC III as of March 31, 2022. In April 2022, the Operating LLC advanced an additional $150 to Insurance SPAC III. See note 24. These loans will bear no interest and, if the Insurance SPAC III consummates a business combination in the required timeframe, the loans are to be repaid from the funds held in Insurance SPAC III’s trust account. If Insurance SPAC III does not consummate a business combination in the required timeframe, no funds from Insurance SPAC III's trust account can be used to repay the loans.
SPAC Fund
The SPAC Fund is considered a related party because it is an equity method investment of the Company. The Company has an investment in and a management contract with the SPAC Fund. Income earned or loss incurred on the investment is included as part of principal transactions and other income in the tables below. Revenue earned on the management contract is included as part of asset management in the tables below. As of March 31, 2022, the Company owned 0.42% of the equity of the SPAC Fund.
U.S. Insurance JV
U.S. Insurance JV is considered a related party because it is an equity method investment of the Company. The Company has an investment in and a management contract with the U.S. Insurance JV. Income earned or loss incurred on the investment is included as part of principal transactions and other income in the tables below. Revenue earned on the management contract is included as part of asset management and is shown in the tables below. As of March 31, 2022, the Company owned 3.1% of the equity of the U.S. Insurance JV.
CREO JV
CREO JV is considered a related party because it is an equity method investment. The Company has an investment in and a management contract with CREO JV. Income earned or loss incurred on the investment are included as part of principal transactions and other income. As of March 31, 2022, the Company owned 7.5% of the equity of CREO JV.
Sponsor Entities of Other SPACs
In general, a SPAC is initially funded by a sponsor and that sponsor invests in and receives private placement and founders shares of the SPAC. The sponsor may be organized as a single legal entity or multiple entities under common control. In either case, the entity or entities is referred to in this section as the sponsor of the SPAC. The Company has had the following transactions with various sponsors of SPACs that are related parties and which the Company does not consolidate.
Fintech Acquisition Corp. IV ("FTAC IV") was a SPAC. The sponsor of Fintech Acquisition Corp. IV ("FTAC IV Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor investment in FTAC IV Sponsor, receiving a final allocation of 81,825 founder shares of FTAC IV stock for $1. In addition, on September 29, 2020, the Operating LLC entered into a letter agreement with FTAC IV Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC IV Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of an additional 24,547 founders shares of FTAC IV stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the tables below.
Fintech Acquisition Corp. V ("FTAC V") is a SPAC. The sponsor of Fintech Acquisition Corp. V ("FTAC V Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor investment in FTAC V Sponsor, receiving an initial allocation of 140,000 founder shares. On December 14, 2020, the Operating LLC entered into a letter agreement with FTAC V Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC V Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC V stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the tables below.
Fintech Acquisition Corp. VI ("FTAC VI") is a SPAC. The sponsor of Fintech Acquisition Corp. VI ("FTAC VI Sponsor") is a related party as it is an equity method investment of the Company. On June 26, 2021, the Operating LLC entered into a letter agreement with FTAC VI Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC VI Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founder shares of FTAC VI stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principle transactions and other income, SPAC Sponsor Entities in the tables below.
FTAC Olympus Acquisition Corp ("FTAC Olympus") was a SPAC. The sponsor of FTAC Olympus Acquisition Corp. ("FTAC Olympus Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor investment in FTAC Olympus Sponsor, receiving a final allocation of 399,741 founders shares of FTAC Olympus stock for $2. In addition, on September 8, 2020, the Operating LLC entered into a letter agreement with FTAC Olympus Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Olympus Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of an additional 19,987 founders shares of FTAC Olympus stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the tables below.
FTAC Athena Acquisition Corp. ("FTAC Athena") is a SPAC. The sponsor of FTAC Athena Acquisition Corp. ("FTAC Athena Sponsor") is a related party as it is an equity method investment of the Company. On February 26, 2021, the Operating LLC entered into a letter agreement with FTAC Athena Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Athena Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Athena stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the tables below.
FTAC Hera Acquisition Corp. ("FTAC Hera") is a SPAC. The sponsors of FTAC Hera Acquisition Corp. ("FTAC Hera Sponsors") is a related party as it is an equity method investment of the Company. On March 5, 2021, the Operating LLC entered into a letter agreement with FTAC Hera Sponsors whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Hera Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Hera stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the tables below.
FTAC Parnassus Acquisition Corp. ("FTAC Parnassus") is a SPAC. The sponsors of FTAC Parnassus Acquisition Corp. ("FTAC Parnassus Sponsors") is a related party as it is an equity method investment of the Company. On March 15, 2021, the Operating LLC entered into a letter agreement with FTAC Parnassus Sponsors whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Parnassus Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Parnassus stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the tables below.
Other
The Company invests in sponsor entities of SPACS, either directly or through its interest in the SPAC Series Funds, that are not otherwise affiliated with the Company but are considered related parties because they are accounted for under the equity method. As of March 31, 2022, the Company owned 2.26% of these entities in the aggregate. Income earned or loss incurred on the equity method investment in the SPAC Sponsor Entities is included in the tables below.
The following tables display the routine transactions recognized in the consolidated statements of operations from the identified related parties that are described above.
| | Three Months Ended | |
| | March 31, 2022 | | | March 31, 2021 | |
| | | | | | | | |
Asset management | | | | | | | | |
SPAC Fund | | $ | 282 | | | $ | 215 | |
Other SPAC Entities | | | | | | | 319 | |
U.S. Insurance JV | | | 266 | | | | 91 | |
| | $ | 548 | | | $ | 625 | |
Principal transactions and other income | | | | | | | | |
Insurance SPAC II | | $ | - | | | $ | 40 | |
Insurance SPAC III | | | 60 | | | | 60 | |
FlipOS | | | (308 | ) | | | - | |
Other SPAC Entities | | | 25 | | | | 15 | |
SPAC Fund | | | (55 | ) | | | 478 | |
U.S. Insurance JV | | | 80 | | | | 162 | |
CREO | | | 80 | | | | - | |
| | $ | (118 | ) | | $ | 755 | |
Income (loss) from equity method affiliates | | | | | | | | |
Dutch Real Estate Entities | | $ | (8 | ) | | $ | (132 | ) |
Insurance SPAC II | | | - | | | | (107 | ) |
Insurance SPAC III | | | (589 | ) | | | (454 | ) |
Other SPAC Entities | | | (11,507 | ) | | | (142 | ) |
| | $ | (12,104 | ) | | $ | (835 | ) |
| | | | | | | | |
Operating expense (income) | | | | | | | | |
Duane Morris | | $ | 142 | | | $ | 398 | |
FinTech Masala, LLC | | | (18 | ) | | | (8 | ) |
| | $ | 124 | | | $ | 390 | |
Interest expense (income) | | | | | | | | |
CBF | | $ | - | | | $ | 197 | |
DGC Trust | | | 327 | | | | 375 | |
EBC | | | - | | | | 71 | |
JKD Investor | | | 271 | | | | 592 | |
| | $ | 598 | | | $ | 1,235 | |
The following related party transactions are non-routine and are not included in the tables above.
H. Directors and Employees
The Company has entered into employment agreements with Daniel G. Cohen and Joseph W. Pooler, Jr., its chief financial officer. The Company has entered into its standard indemnification agreement with each of its directors and executive officers.
The Company maintains a 401(k) savings plan covering substantially all of its employees. The Company matches 50% of employee contributions for all participants not to exceed 3% of their salary. Contributions made on behalf of the Company were $101 for the three months ended March 31, 2022. Contributions made on behalf of the Company were $95 for the three months ended March 31, 2021.
The Company leases office space from Zucker and Moore, LLC. Zucker and Moore, LLC is partially owned by Jack DiMaio, Jr., the vice chairman of the Company’s board of directors. The lease agreement automatically renews each in June unless it is terminated with 120 days' notice. The Company recorded $24 of rent expense related to this office space for the three months ended March 31, 2022 and 2021, respectively.
24. DUE FROM / DUE TO RELATED PARTIES
Amounts due to related parties related to redeemable financial instruments and outstanding debt are included as components of those balances in the consolidated balance sheets. Also, interest or investment return owed on those balances are included as a component of accounts payable and other in the consolidated balance sheets. Any investment made in an equity method affiliate for which the Company does not elect the fair value option is included as a component of investments in equity method affiliates in the consolidated balance sheets. Any investment made in an equity method affiliate for which the Company elected the fair value option is included as a component of other investments, at fair value in the consolidated balance sheets.
The following table summarizes amounts due from / to related parties as of each date shown. These amounts may result from normal operating advances, employee advances, or from timing differences between the transactions disclosed in note 23 and final settlement of those transactions in cash. All amounts are primarily non-interest bearing.
DUE FROM/DUE TO RELATED PARTIES |
(Dollars in Thousands) |
| | March 31, 2022 | | | December 31, 2021 | |
CK Capital | | $ | - | | | $ | 137 | |
U.S. Insurance JV | | | 213 | | | | 147 | |
Insurance SPAC III | | | 810 | | | | 500 | |
SPAC Fund | | | 446 | | | | 3,653 | |
Employee & other | | | 236 | | | | 144 | |
Due from related parties | | $ | 1,705 | | | $ | 4,581 | |