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  
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