COHN Cohen & Company Inc

Cohen & Company Inc. (NYSE American: COHN), a financial services firm specializing in fixed income and SPAC markets, today reported financial results for its third quarter ended September 30, 2022.

Summary Operating Results

	Three Months Ended												Nine Months Ended
($ in thousands)	9/30/22				6/30/22				9/30/21				9/30/22				9/30/21
Net trading	$	7,966			$	10,377			$	16,599			$	30,365			$	54,181
Asset management		3,456				1,898				1,856				7,243				5,787
New issue and advisory		13,235				3,481				8,838				20,486				11,527
Principal transactions and other revenue		(1,192	)			(6,602	)			(20,709	)			(26,157	)			47,831
Total revenues		23,465				9,154				6,584				31,937				119,326
Compensation and benefits		15,227				12,214				20,577				41,320				61,414
Non-compensation operating expenses		5,390				5,102				5,125				15,809				15,658
Operating income		2,848				(8,162	)			(19,118	)			(25,192	)			42,254
Interest expense, net		(1,346	)			(1,106	)			(1,731	)			(3,803	)			(5,527	)
Other non-operating income		-				-				-				-				2,127
Income (loss) from equity method affiliates		618				(3,044	)			2,857				(14,530	)			7,512
Income (loss) before income tax expense (benefit)		2,120				(12,312	)			(17,992	)			(43,525	)			46,366
Income tax expense (benefit)		1,761				(60	)			(248	)			3,534				577
Net income (loss)		359				(12,252	)			(17,744	)			(47,059	)			45,789
Less: Net income (loss) attributable to the non-convertible non-controlling interest		(109	)			(4,167	)			(3,094	)			(18,980	)			17,837
Enterprise net income (loss)		468				(8,085	)			(14,650	)			(28,079	)			27,952
Less: Net income (loss) attributable to the convertible non-controlling interest		1,387				(6,228	)			(11,221	)			(17,691	)			20,301
Net income (loss) attributable to Cohen & Company Inc.	$	(919	)		$	(1,857	)		$	(3,429	)		$	(10,388	)		$	7,651
Fully diluted net income (loss) per share	$	(0.64	)		$	(1.53	)		$	(3.46	)		$	(7.33	)		$	5.31
Adjusted pre-tax income (loss)	$	2,229			$	(8,145	)		$	(14,898	)		$	(24,545	)		$	26,402
Fully diluted adjusted pre-tax income (loss) per share	$	0.41			$	(1.51	)		$	(3.57	)		$	(4.47	)		$	5.23

 

Lester Brafman, Chief Executive Officer of Cohen & Company, said, “Our Company navigated difficult market conditions and continued to successfully execute our strategy, generating $2.2 million of adjusted pre-tax income in the third quarter. We were pleased that both our investment banking and U.S. insurance origination teams closed key transactions and generated new issue and advisory revenue. Although our reported financial results continued to be impacted by unrealized negative mark-to-market adjustments on our principal investing portfolio, we remain focused on our strategic objectives and we are confident that the expansion of our investment banking and commercial real estate teams will continue to translate into higher revenues in the future. As we move forward, we are committed to enhancing stockholder value, and in the third quarter we continued to pay our quarterly dividend.”

Adjusted pre-tax income (loss) is not a measure recognized under U.S. generally accepted accounting principles (“GAAP”). See Note 1 below.

Financial Highlights

• Net loss attributable to Cohen & Company Inc. was $0.9 million, or $0.64 per diluted share, for the three months ended September 30, 2022, compared to net loss of $1.9 million, or $1.53 per diluted share, for the three months ended June 30, 2022, and net loss of $3.4 million, or $3.46 per diluted share, for the three months ended September 30, 2021. Adjusted pre-tax income was $2.2 million, or $0.41 per diluted share, for the three months ended September 30, 2022, compared to adjusted pre-tax loss of $8.1 million, or $1.51 per diluted share, for the three months ended June 30, 2022, and adjusted pre-tax loss of $14.9 million, or $3.57 per diluted share, for the three months ended September 30, 2021. Adjusted pre-tax income (loss) and adjusted pre-tax income (loss) per diluted share are not measures recognized under GAAP. See Note 1 below.
• Revenues were $23.5 million for the three months ended September 30, 2022, compared to $9.2 million for the prior quarter and $6.6 million for the prior year quarter.
  • Net trading revenue was $8.0 million for the three months ended September 30, 2022, down $2.4 million from the prior quarter and $8.6 million from the prior year quarter. The decrease from the prior quarters was due primarily to lower trading revenue from the mortgage group’s gestation repo business, including a $4.6 million loss in the current quarter related to the liquidation of collateral from a bankrupt gestation repo counterparty.
  • Asset management revenue was $3.5 million for the three months ended September 30, 2022, up $1.6 million from the prior quarter and the prior year quarter. The increase was due primarily to the successful auction of an Alesco CDO in September 2022, and the accompanying $1.6 million of subordinated management fees in arrears that were recorded.
  • New issue and advisory revenue was $13.2 million for the three months ended September 30, 2022, up $9.8 million from the prior quarter and $4.4 million from the prior year quarter. In the current quarter, the Cohen & Company Capital Markets investment banking team generated $10.5 million and the US insurance origination team generated $2.7 million of the new issue and advisory revenue.
  • Principal transactions and other revenue was negative $1.2 million for the three months ended September 30, 2022, compared to negative $6.6 million in the prior quarter and negative $20.7 million in the prior year quarter. In all quarters presented, the negative principal transactions and other revenue was primarily due to mark-to-market adjustments on the Company’s principal investments related to the Company’s involvement in the SPAC market as a sponsor, asset manager, and investor, which has resulted in increased holdings of public equity positions in post-business combination companies, often restricted, which are subject to market adjustments, both up and down.
• Compensation and benefits expense during the three months ended September 30, 2022 increased $3.0 million from the prior quarter and decreased $5.4 million from the prior year quarter. The number of Company employees was 122 as of September 30, 2022, compared to 121 as of June 30, 2022, and 115 as of September 30, 2021.
• Interest expense during the three months ended September 30, 2022 increased $0.2 million from the prior quarter and decreased $0.4 million from the prior year quarter.
• Income from equity method affiliates for the three months ended September 30, 2022 was $0.6 million, compared to loss from equity method affiliates of $3.0 million for the prior quarter and income from equity method affiliates of $2.9 million for the prior year quarter. Income (loss) from equity method affiliates fluctuates primarily depending on the timing of the closing of the business combinations by the Company’s equity method investees that are sponsors of SPACs, which typically result in increased value of founder shares allocable to the Company by the sponsors.
• Income tax expense for the three months ended September 30, 2022 was $1.8 million, compared to income tax benefit of $60 thousand in the prior quarter, and income tax benefit of $0.2 million in the prior year quarter. The Company will continue to evaluate its operations on a quarterly basis and may make adjustments to the valuation allowance applied against the Company's net operating loss and net capital loss tax assets. Future adjustments could be material and may result in additional tax benefit or tax expense.

Total Equity and Dividend Declaration

• As of September 30, 2022, total equity was $105.6 million, compared to $151.4 million as of December 31, 2021; the non-convertible non-controlling interest component of total equity was $4.2 million as of September 30, 2022 and $31.8 million as of December 31, 2021. Thus, the total equity excluding the non-convertible non-controlling interest component was $101.4 million as of September 30, 2022, an $18.2 million decrease from $119.6 million as of December 31, 2021.
• The Company’s Board of Directors has declared a quarterly dividend of $0.25 per share, payable on December 2, 2022, to stockholders of record as of November 18, 2022. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly operating results and the Company’s capital needs.

Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time (ET), today, November 2, 2022, to discuss these results. The conference call will be available via webcast. Interested parties can access the webcast by clicking the webcast link on the Company’s homepage at www.cohenandcompany.com. Those wishing to listen to the conference call with operator assistance can dial (877) 524-8416 (domestic) or +1 (412) 902-1028 (international). A replay of the call will be available for three days following the call by dialing (877) 660-6853 or (201) 612-7415.

About Cohen & Company

Cohen & Company is a financial services company specializing in fixed income markets and SPAC markets. It was founded in 1999 as an investment firm focused on small-cap banking institutions but has grown to provide an expanding range of capital markets and asset management services. Cohen & Company’s operating segments are Capital Markets, Asset Management, and Principal Investing. The Capital Markets segment consists of fixed income sales, trading, and matched book repo financing as well as new issue placements in corporate and securitized products, and advisory services, operating primarily through Cohen & Company’s subsidiaries, J.V.B. Financial Group, LLC in the United States and Cohen & Company Financial Europe Limited S.A. in Europe. A division of JVB, Cohen & Company Capital Markets is the Company’s full-service boutique investment banking platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial technology (commonly referred to as "fintech") and SPAC spaces. The Asset Management segment manages assets through collateralized debt obligations, managed accounts, and investment funds. As of September 30, 2022, the Company managed approximately $2.2 billion in primarily fixed income assets in a variety of asset classes including US and European trust preferred securities, subordinated debt, and corporate loans. As of September 30, 2022, 53.8% of the Company’s assets under management were in collateralized debt obligations that Cohen & Company manages, which were all securitized prior to 2008. The Principal Investing segment is comprised primarily of investments the Company holds related to its SPAC franchise and other investments the Company has made for the purpose of earning an investment return rather than investments made to support its trading, matched book repo, or other capital markets business activity. For more information, please visit www.cohenandcompany.com.

Note 1: Adjusted pre-tax income (loss) and adjusted pre-tax income (loss) per share are non-GAAP measures of performance. Please see the discussion under “Non-GAAP Measures” below. Also see the tables below for the reconciliations of non-GAAP measures of performance to their corresponding GAAP measures of performance.

Forward-looking Statements

This communication contains certain statements, estimates, and forecasts with respect to future performance and events. These statements, estimates, and forecasts are “forward-looking statements.” In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “seek,” or “continue” or the negatives thereof or variations thereon or similar terminology. All statements other than statements of historical fact included in this communication are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties, and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied in the forward-looking statements including, but not limited to, those discussed under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition” in our filings with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s website at www.sec.gov and our website at www.cohenandcompany.com/investor-relations/sec-filings. Such risk factors include the following: (a) a decline in general economic conditions or the global financial markets, including those caused by the Russian invasion of Ukraine, (b) losses caused by financial or other problems experienced by third parties, (c) losses due to unidentified or unanticipated risks, (d) a lack of liquidity, i.e., ready access to funds for use in our businesses, (e) the ability to attract and retain personnel, (f) litigation and regulatory issues, (g) competitive pressure, (h) an inability to generate incremental income from new or expanded businesses, (i) unanticipated market closures or effects due to inclement weather or other disasters, (j) losses (whether realized or unrealized) on our principal investments, (k) the possibility that payments to the Company of subordinated management fees from its CDOs will continue to be deferred or will be discontinued, (l) the possibility that the stockholder rights plan may fail to preserve the value of the Company’s deferred tax assets, whether as a result of the acquisition by a person of 5% of the Company’s common stock or otherwise, (m) the possibility that the Company’s third sponsored insurance SPAC, INSU Acquisition Corp. III, does not successfully consummate a business combination, (n) a reduction in the volume of investments into SPACs, (o) the difficulty in identifying potential business combinations as a result of increased competition in the SPAC market, (p) the value of our holdings of founders shares in post-business combination companies is volatile and may decline and the possibility that significant portions of the founder shares may remain restricted for a long period of time, (q) the possibility that the Company will stop paying quarterly dividends to its stockholders, (r) the possibility that the Company will incur additional losses liquidating collateral related to a reverse repo with now bankrupt First Guaranty Mortgage Corporation, (s) the impacts of rising interest rates and inflation, and (t) the impacts of the COVID-19 pandemic. As a result, there can be no assurance that the forward-looking statements included in this communication will prove to be accurate or correct. In light of these risks, uncertainties, and assumptions, the future performance or events described in the forward-looking statements in this communication might not occur. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Cautionary Note Regarding Quarterly Financial Results

Due to the nature of our business, our revenue and operating results may fluctuate materially from quarter to quarter. Accordingly, revenue and net income in any particular quarter may not be indicative of future results. Further, our employee compensation arrangements are in large part incentive-based and, therefore, will fluctuate with revenue. The amount of compensation expense recognized in any one quarter may not be indicative of such expense in future periods. As a result, we suggest that annual results may be the most meaningful gauge for investors in evaluating our business performance.

COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
		Three Months Ended												Nine Months Ended
		9/30/22				6/30/22				9/30/21				9/30/22				9/30/21
	Revenues
	Net trading	$	7,966			$	10,377			$	16,599			$	30,365			$	54,181
	Asset management		3,456				1,898				1,856				7,243				5,787
	New issue and advisory		13,235				3,481				8,838				20,486				11,527
	Principal transactions and other revenue		(1,192	)			(6,602	)			(20,709	)			(26,157	)			47,831
	Total revenues		23,465				9,154				6,584				31,937				119,326
	Operating expenses
	Compensation and benefits		15,227				12,214				20,577				41,320				61,414
	Business development, occupancy, equipment		1,234				1,295				869				3,777				2,375
	Subscriptions, clearing, and execution		2,112				1,972				2,581				6,025				7,745
	Professional services and other operating		1,905				1,692				1,585				5,593				5,280
	Depreciation and amortization		139				143				90				414				258
	Total operating expenses		20,617				17,316				25,702				57,129				77,072
	Operating income (loss)		2,848				(8,162	)			(19,118	)			(25,192	)			42,254
	Non-operating income (expense)
	Interest expense, net		(1,346	)			(1,106	)			(1,731	)			(3,803	)			(5,527	)
	Other non-operating income (expense)		-				-				-				-				2,127
	Income (loss) from equity method affiliates		618				(3,044	)			2,857				(14,530	)			7,512
	Income (loss) before income tax expense (benefit)		2,120				(12,312	)			(17,992	)			(43,525	)			46,366
	Income tax expense (benefit)		1,761				(60	)			(248	)			3,534				577
	Net income (loss)		359				(12,252	)			(17,744	)			(47,059	)			45,789
	Less: Net income (loss) attributable to the non-convertible non-controlling interest		(109	)			(4,167	)			(3,094	)			(18,980	)			17,837
	Enterprise net income (loss)		468				(8,085	)			(14,650	)			(28,079	)			27,952
	Less: Net income (loss) attributable to the convertible non-controlling interest		1,387				(6,228	)			(11,221	)			(17,691	)			20,301
	Net income (loss) attributable to Cohen & Company Inc.	$	(919	)		$	(1,857	)		$	(3,429	)		$	(10,388	)		$	7,651
Earnings per share
	Basic
	Net income (loss) attributable to Cohen & Company Inc.	$	(919	)		$	(1,857	)		$	(3,429	)		$	(10,388	)		$	7,651
	Basic shares outstanding		1,429				1,428				1,314				1,417				1,140
	Net income (loss) attributable to Cohen & Company Inc. per share	$	(0.64	)		$	(1.30	)		$	(2.61	)		$	(7.33	)		$	6.71
	Fully Diluted
	Net income (loss) attributable to Cohen & Company Inc.	$	(919	)		$	(1,857	)		$	(3,429	)		$	(10,388	)		$	7,651
	Net income (loss) attributable to the convertible non-controlling interest		-				(6,228	)			(11,221	)			-				20,301
	Net interest attributable to convertible debt, net of taxes		-				-				-				-				882
	Income tax and conversion adjustment		-				(172	)			237				-				(1,179	)
	Net income (loss) attributable to Cohen & Company Inc. for fully diluted net income (loss) per share calculation	$	(919	)		$	(8,257	)		$	(14,413	)		$	(10,388	)		$	27,655
	Basic shares outstanding		1,429				1,428				1,314				1,417				1,140
	Unrestricted Operating LLC membership units exchangeable into COHN shares		-				3,966				2,856				-				2,850
	Additional dilutive shares		-				-				-				-				1,222
	Fully diluted shares outstanding (1)		1,429				5,394				4,170				1,417				5,212
	Fully diluted net income (loss) per share	$	(0.64	)		$	(1.53	)		$	(3.46	)		$	(7.33	)		$	5.31
Reconciliation of adjusted pre-tax income (loss) to net income (loss) attributable to Cohen & Company Inc. and calculations of per share amounts
	Net income (loss) attributable to Cohen & Company Inc.	$	(919	)		$	(1,857	)		$	(3,429	)		$	(10,388	)		$	7,651
	Addback (deduct): Other non-operating income		-				-				-				-				(2,127	)
	Addback (deduct): Income tax expense (benefit)		1,761				(60	)			(248	)			3,534				577
	Addback (deduct): Net income (loss) attributable to the convertible non-controlling interest		1,387				(6,228	)			(11,221	)			(17,691	)			20,301
	Adjusted pre-tax income (loss)		2,229				(8,145	)			(14,898	)			(24,545	)			26,402
	Net interest attributable to convertible debt		-				-				-				327				882
	Enterprise pre-tax income (loss) for fully diluted adjusted pre-tax income (loss) per share calculation	$	2,229			$	(8,145	)		$	(14,898	)		$	(24,218	)		$	27,284
	Adjusted fully diluted shares outstanding (2)		5,394				5,394				4,170				5,416				5,212
	Fully diluted adjusted pre-tax income (loss) per share	$	0.41			$	(1.51	)		$	(3.57	)		$	(4.47	)		$	5.23
	(1) When the fully diluted net income (loss) per share is anti-dilutive, the basic shares outstanding are presented on this line item.
	(2) Adjusted fully diluted shares outstanding includes unrestricted Operating LLC units exchangeable into COHN shares at all times; even during periods when the corresponding GAAP calculation of fully diluted shares outstanding above does not include them. The Operating LLC units are always included because the non-GAAP measure of performance, adjusted pre-tax income (loss), always includes net income (loss) attributable to the corresponding convertible non-controlling interest.

COHEN & COMPANY INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
		September 30, 2022
		(unaudited)				December 31, 2021
	Assets
	Cash and cash equivalents	$	47,287			$	50,567
	Receivables from brokers, dealers, and clearing agencies		121,922				68,392
	Due from related parties		1,764				4,581
	Other receivables		20,739				3,203
	Investments - trading		271,823				223,865
	Other investments, at fair value		37,726				56,033
	Receivables under resale agreements		699,658				3,175,645
	Investment in equity method affiliates		13,466				48,238
	Deferred income taxes		8,173				11,513
	Goodwill		109				109
	Right-of-use asset - operating leases		9,980				10,273
	Other assets		3,466				3,885
	Total assets	$	1,236,113			$	3,656,304
	Liabilities
	Payables to brokers, dealers, and clearing agencies	$	132,412			$	160,896
	Accounts payable and other liabilities		28,506				22,819
	Accrued compensation		19,325				22,577
	Trading securities sold, not yet purchased		152,079				62,512
	Other investments sold, not yet purchased		910				2,488
	Securities sold under agreements to repurchase		749,673				3,171,415
	Operating lease liability		10,739				10,813
	Redeemable Financial Instruments		7,957				7,957
	Debt		28,879				43,394
	Total liabilities		1,130,480				3,504,871
	Equity
	Voting nonconvertible preferred stock		27				27
	Common stock		17				17
	Additional paid-in capital		72,460				72,006
	Accumulated other comprehensive loss		(1,005	)			(905	)
	Accumulated deficit		(21,793	)			(9,204	)
	Total stockholders' equity		49,706				61,941
	Noncontrolling interest		55,927				89,492
	Total equity		105,633				151,433
	Total liabilities and equity	$	1,236,113			$	3,656,304

Non-GAAP Measures

Adjusted pre-tax income (loss) and adjusted pre-tax income (loss) per diluted share

Adjusted pre-tax income (loss) is not a financial measure recognized by GAAP. Adjusted pre-tax income (loss) represents net income (loss) attributable to Cohen & Company Inc., computed in accordance with GAAP, excluding other non-operating income and income tax expense (benefit), plus the net income (loss) attributable to the convertible non-controlling interest. Other non-operating income, representing the forgiveness of our PPP loan, has been excluded because it is a non-recurring item. Income tax expense (benefit) has been excluded because a pre-tax measurement of enterprise earnings that includes net income (loss) attributable to the convertible non-controlling interest is a useful and appropriate measure of performance. Furthermore, our income tax expense (benefit) has been, and we expect it will continue to be, a substantially non-cash item for the foreseeable future, generated from adjustments in our valuation allowance applied to the Company’s gross deferred tax assets. Convertible non-controlling interest is added back to adjusted pre-tax income because the underlying Cohen & Company, LLC equity units are convertible into Cohen & Company Inc. shares. Adjusted pre-tax income (loss) per diluted share is calculated, by dividing adjusted pre-tax income (loss) by diluted shares outstanding, both of which include adjustments used in the corresponding calculation in accordance with GAAP.

We present adjusted pre-tax income (loss) and related per diluted share amounts in this release because we consider them to be useful and appropriate supplemental measures of our performance. Adjusted pre-tax income (loss) and related per diluted share amounts help us to evaluate our performance without the effects of certain GAAP calculations that may not have a direct cash or recurring impact on our current operating performance. In addition, our management uses adjusted pre-tax income (loss) and related per diluted share amounts to evaluate the performance of our enterprise operations. Adjusted pre-tax income (loss) and related per diluted share amounts, as we define them, are not necessarily comparable to similarly named measures of other companies and may not be appropriate measures for performance relative to other companies. Adjusted pre-tax income (loss) should not be assessed in isolation from or construed as a substitute for net income (loss) attributable to Cohen & Company Inc. prepared in accordance with GAAP. Adjusted pre-tax income (loss) is not intended to represent and should not be considered to be a more meaningful measure than, or an alternative to, measures of operating performance as determined in accordance with GAAP.

Contact:

Investors -	Media -
Cohen & Company Inc.	Joele Frank, Wilkinson Brimmer Katcher
Joseph W. Pooler, Jr.	James Golden or Andrew Squire
Executive Vice President and	212-355-4449
Chief Financial Officer	jgolden@joelefrank.com or asquire@joelefrank.com
215-701-8952
investorrelations@cohenandcompany.com