0001270436 Cohen & Co Inc. false --12-31 Q1 2023 0.001 0.001 50,000,000 50,000,000 27,413,098 27,413,098 27,413,098 27,413,098 0.01 0.01 100,000,000 100,000,000 1,819,866 1,819,866 1,774,342 1,774,342 302,235 341,059 0 0 0 0 3 1 0.33 1 30 30 0 0 0 10.00 8.80 9.31 49,614 1,489 0 2,250 15,000 17,500 25,000 6.0 7.0 10 10 10 3 0 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. 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, 2023 on a combined basis was 19.87% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity 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. The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs collateralized by mostly commercial real estate mortgage-backed loans. See note 4. The SPAC Fund invests in equity interests of SPACs. Represents the interest rate in effect as of the last day of the reporting period. 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. 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 September 30, 2022 on a combined basis was 15.41% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity. Goodwill and intangible assets are allocated to the Capital Markets and Asset Management business segments as indicated in the table above. As a practical expedient, the Company uses NAV (or its equivalent) to measure the fair value of its investments in the U.S. Insurance JV, the SPAC Fund, and the CREO JV. The U.S. Insurance JV invests in USD denominated debt issued by small insurance and reinsurance companies. The SPAC Fund invests in equity securities of SPACs. The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-backed loans. See note 4. According to ASC 820, these investments are not categorized within the valuation hierarchy. The U.S. Insurance JV invests in USD denominated debt issued by small and medium size insurance and reinsurance companies. Potentially diluted securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows: Excludes remaining restricted units of Cohen & Company Inc. Common Stock. 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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


  

FORM 10-Q


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number: 001-32026 

 


COHEN & COMPANY INC.

(Exact name of registrant as specified in its charter)


 

Maryland

16-1685692

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)



 

Cira Centre

2929 Arch Street, Suite 1703

Philadelphia, Pennsylvania

19104

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (215) 701-9555 

Not applicable 

(Former name, former address and former fiscal year, if changed since last report) 


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

COHN

 

The NYSE American Stock Exchange

 

As of May 5, 2023, there were 1,819,866 shares of common stock ($0.01 par value per share) of Cohen & Company Inc. ("Common Stock") outstanding.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒    Yes    ☐  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.



 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐  

Smaller reporting company



 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

 

 
 

Cohen & Company Inc. 

FORM 10-Q

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2023

  



 

 

 

 

Page 

PART I. FINANCIAL INFORMATION

 



 

 

Item 1.

Financial Statements (Unaudited)

5



 

 

 

Consolidated Balance Sheets—March 31, 2023 and December 31, 2022

5



 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)—Three Months Ended March 31, 2023 and 2022

6



 

 

 

Consolidated Statements of Changes in Equity—Three Months Ended March 31, 2023 and 2022

7



 

 

 

Consolidated Statements of Cash Flows—Three Months Ended March 31, 2023 and 2022

9



 

 

 

Notes to Consolidated Financial Statements (Unaudited)

10



 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

57



 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

81



 

 

Item 4.

Controls and Procedures

82



 

Part II. OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

83



 

 

Item 1A.

Risk Factors

83



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

84



 

 

Item 3. Defaults Upon Senior Securities 84
     
Item 4. Mine Safety Disclosures 84
     
Item 5. Other Information 84
     

Item 6.

Exhibits

85



 

Signatures

86

 

 

 

 

Forward-Looking Statements 

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, level of activity, performance, or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about the following subjects:

 

 

integration of operations;

 

business strategies;

 

growth opportunities;

 

competitive position;

 

market outlook;

 

expected financial position;

 

expected results of operations;

 

future cash flows;

 

financing plans;

 

plans and objectives of management;

 

tax treatment of the business combinations;

 

our investments in both SPACs and SPAC sponsor entities, including through our SPAC Fund and SPAC Series Funds;

 

our role as asset manager and sponsor in our SPAC franchise;

 

fair value of assets; and

 

any other statements regarding future growth, future cash needs, future operations, business plans, future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties, and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties, and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed under “Item 1A — Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Actual results may differ materially because of various factors, some of which are outside our control, including the following:

 

 

a decline in general economic conditions or the global financial markets;

 

continuation of the COVID-19 pandemic or future outbreaks of COVID-19, the timing and effectiveness of vaccine distribution, and uncertainty surrounding the length and severity of future impacts on the global economy and on our business, liquidity, results of operations and financial condition;

  economic uncertainty and capital markets disruption, which have been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine;
  losses and reduced transaction volumes as a result of increasing interest rates and inflation;
 

risks and liabilities due to our investments in the equity interests of SPACs and SPAC sponsor entities including the risk of increased regulation applicable to SPACs, risks regarding litigation in connection with the SPACs in which we invest and those which we sponsor, uncertainty of whether the SPACs in which we invest and those we sponsor will consummate a business combination, adverse impacts of COVID-19 on our SPAC franchise, significant competition for business opportunities in the SPAC industry, write-downs or write-offs with respect to the securities which we hold subsequent to the consummation of an initial business combination by the SPACs in which we invest and those which we sponsor, and the target of a SPAC being an early-stage and financially unstable company;

 

losses caused by financial or other problems experienced by third parties;

 

losses due to unidentified or unanticipated risks;

 

losses (whether realized or unrealized) on our principal investments;

 

a lack of liquidity, i.e., ready access to funds for use in our businesses; or the availability of financing at prohibitive rates;

 

the ability to attract and retain personnel;

 

the ability to meet regulatory capital requirements administered by federal agencies;

  the ability to pay dividends;
 

an inability to generate incremental income from acquired, newly established or expanded businesses;

 

unanticipated market closures due to inclement weather or other disasters;

 

the volume of trading in securities including collateralized securities transactions;

 

the liquidity in capital markets;

 

the creditworthiness of our correspondents, trading counterparties, and banking and margin customers;

 

changing interest rates and their impacts on U.S. residential mortgage volumes;

 

competitive conditions in each of our business segments;

 

the availability of borrowings under credit lines, credit agreements, warehouse agreements, and our credit facilities;

 

the potential misconduct or errors by our employees or by entities with whom we conduct business; and

 

the potential for litigation and other regulatory liability.

 

 

Our Internet website is www.cohenandcompany.com and we make available on our website our filings with the Securities and Exchange Commission (“SEC”), including annual reports, quarterly reports, current reports and any amendments to those filings. The reference to our website address does not constitute incorporation by reference of the information contained therein into this Form 10-Q. We also use our website to disseminate other material information to our investors (on the Home Page and in the “Investor Relations” section). Among other things, we post on our website our press releases and information about our public conference calls (including the scheduled dates, times and the methods by which investors and others can listen to those calls), and we make available for replay webcasts of those calls and other presentations for a limited time.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise.

 

Certain Terms Used in this Quarterly Report on Form 10-Q 

 

In this Quarterly Report on Form 10-Q, unless otherwise noted or as the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to Cohen & Company Inc. (formerly Institutional Financial Markets, Inc.), a Maryland corporation, and its subsidiaries on a consolidated basis; and “Cohen & Company, LLC” (formerly IFMI, LLC) or the “Operating LLC” refer to the main operating subsidiary of the Company. 

 

JVB Holdings” refers to JVB Financial Holdings, L.P., a wholly owned subsidiary of the Operating LLC; “JVB” refers to J.V.B. Financial Group, LLC, a wholly owned broker-dealer subsidiary of JVB Holdings; "CCFESA" refers to Cohen & Company Financial (Europe) S.A., a majority owned subsidiary regulated by the Autorite de Controle Prudentiel et de Resolution ("ACPR") in France; and “CCFEL” refers to Cohen & Company Financial (Europe) Limited, a wholly owned subsidiary of the Operating LLC formerly regulated by the Central Bank of Ireland (the “CBI”).  

 

Securities Act” refers to the Securities Act of 1933, as amended; and “Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

 

 

 

 

PART I. FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS.

 

COHEN & COMPANY INC.

 

CONSOLIDATED BALANCE SHEETS 

(Dollars in Thousands) 

 

   

March 31, 2023

         
   

(unaudited)

   

December 31, 2022

 

Assets

               

Cash and cash equivalents

  $ 3,641     $ 29,101  

Receivables from brokers, dealers, and clearing agencies

    103,261       140,933  

Due from related parties

    767       787  

Other receivables

    6,639       9,527  

Investments-trading

    197,857       211,828  

Other investments, at fair value

    22,395       28,022  

Receivables under resale agreements

    381,813       437,692  

Investments in equity method affiliates

    9,240       8,929  

Deferred income taxes

    6,545       6,934  

Goodwill

    109       109  

Right-of-use asset - operating leases

    9,144       9,647  

Other assets

    3,814       3,546  

Total assets

  $ 745,225     $ 887,055  
                 

Liabilities

               

Payables to brokers, dealers, and clearing agencies

  $ 106,639     $ 134,985  

Accounts payable and other liabilities

    8,999       11,439  

Due to related parties

    834       -  

Accrued compensation

    6,432       12,434  

Lease liability - operating leases

    9,920       10,447  

Trading securities sold, not yet purchased

    97,696       133,957  

Other investments sold, not yet purchased, at fair value

    73       78  

Securities sold under agreements to repurchase

    395,226       452,797  

Redeemable financial instruments

    7,868       7,868  

Debt

    29,173       29,024  

Total liabilities

    662,860       793,029  
                 

Commitments and contingencies (See note 21)

                 
                 

Stockholders' Equity:

               

Voting Non-Convertible Preferred Stock, $0.001 par value per share, 50,000,000 shares authorized, 27,413,098 shares issued and outstanding

    27       27  

Common Stock, $0.01 par value per share, 100,000,000 shares authorized, 1,819,866 and 1,774,342 shares issued and outstanding, respectively, including 302,235 and 341,059 unvested or restricted share awards, respectively

    18       17  

Additional paid-in capital

    73,636       72,801  

Accumulated other comprehensive loss

    (957 )     (955 )

Accumulated deficit

    (28,382 )     (25,151 )

Total stockholders' equity

    44,342       46,739  

Non-controlling interest

    38,023       47,287  

Total equity

    82,365       94,026  

Total liabilities and equity

  $ 745,225     $ 887,055  

( 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

COHEN & COMPANY INC. 

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands, except share or per share information)

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Revenues

               

Net trading

  $ 8,210     $ 12,022  

Asset management

    2,025       1,889  

New issue and advisory

    900       3,770  

Principal transactions and other income (loss)

    (2,311 )     (18,363 )

Total revenues

    8,824       (682 )
                 

Operating expenses

               

Compensation and benefits

    10,537       13,879  

Business development, occupancy, equipment

    1,301       1,248  

Subscriptions, clearing, and execution

    2,125       1,941  

Professional fee and other operating

    2,200       1,996  

Depreciation and amortization

    144       132  

Total operating expenses

    16,307       19,196  
                 

Operating income (loss)

    (7,483 )     (19,878 )
                 

Non-operating income (expense)

               

Interest expense, net

    (1,592 )     (1,351 )

Income (loss) from equity method affiliates

    (395 )     (12,104 )

Income (loss) before income tax expense (benefit)

    (9,470 )     (33,333 )

Income tax expense (benefit)

    584       1,833  

Net income (loss)

    (10,054 )     (35,166 )

Less: Net income (loss) attributable to the non-convertible non-controlling interest of the Operating LLC

    97       (14,704 )

Enterprise net income (loss)

    (10,151 )     (20,462 )

Less: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.

    (7,514 )     (12,850 )

Net income (loss) attributable to Cohen & Company Inc.

  $ (2,637 )   $ (7,612 )

Income (loss) per share data (see note 20)

               

Income (loss) per common share-basic:

               

Basic income (loss) per common share

  $ (1.77 )   $ (5.46 )

Weighted average shares outstanding-basic

    1,489,515       1,394,954  

Income (loss) per common share-diluted:

               

Diluted income (loss) per common share

  $ (1.77 )   $ (5.46 )

Weighted average shares outstanding-diluted

    5,487,483       1,394,954  
                 

Comprehensive income (loss)

               

Net income (loss)

  $ (10,054 )   $ (35,166 )

Other comprehensive income (loss) item:

               

Foreign currency translation adjustments, net of tax of $0

    45       (66 )

Other comprehensive income (loss), net of tax of $0

    45       (66 )

Comprehensive income (loss)

    (10,009 )     (35,232 )

Less: comprehensive income (loss) attributable to the non-controlling interest

    (7,382 )     (27,601 )

Comprehensive income (loss) attributable to Cohen & Company Inc.

  $ (2,627 )   $ (7,631 )

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

COHEN & COMPANY INC. 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in Thousands, except share or per share information)

(Unaudited)

 

   

Cohen & Company Inc.

                 
   

Three Months Ended March 31, 2023

                 
   

Preferred Stock

   

Common Stock

    Additional Paid-In Capital    

Retained Earnings (Accumulated Deficit)

   

Accumulated Other Comprehensive Income (Loss)

   

Total Stockholders' Equity

   

Non-controlling Interest

   

Total Equity

 
                                                                 
                                                                 

December 31, 2022

  $ 27     $ 17     $ 72,801     $ (25,151 )   $ (955 )   $ 46,739     $ 47,287     $ 94,026  

Net (loss)

    -       -       -       (2,637 )     -       (2,637 )     (7,417 )     (10,054 )

Other comprehensive (loss)

    -       -       -       -       10       10       35       45  

Acquisition / (surrender) of additional units of consolidated subsidiary, net

    -       -       582       -       (12 )     570       (570 )     -  

Equity-based compensation

    -       1       299       -       -       300       789       1,089  

Shares withheld for employee taxes

    -       -       (46 )     -       -       (46 )     (118 )     (164 )

Dividends/distributions to convertible non-controlling interest

    -       -       -       (594 )     -       (594 )     (1,187 )     (1,781 )

Redemption of convertible non-controlling interest units

    -       -       -       -       -       -       (834 )     (834 )

Non-convertible non-controlling interest investment

    -       -       -       -       -       -       38       38  

Non-convertible non-controlling interest distributions

    -       -       -       -       -       -       -       -  

March 31, 2023

  $ 27     $ 18     $ 73,636     $ (28,382 )   $ (957 )   $ 44,342     $ 38,023     $ 82,365  

 

 

   

Cohen & Company Inc.

                 
   

Three Months Ended March 31, 2022

                 
   

Preferred Stock

   

Common Stock

   

Additional Paid-In Capital

   

Retained Earnings (Accumulated Deficit)

   

Accumulated Other Comprehensive Income (Loss)

   

Total Stockholders' Equity

   

Non-controlling Interest

   

Total Equity

 
                                                                 
                                                                 

December 31, 2021

  $ 27     $ 17     $ 72,006     $ (9,204 )   $ (905 )   $ 61,941     $ 89,492     $ 151,433  

Net income

    -       -       -       (7,612 )     -       (7,612 )     (27,554 )     (35,166 )

Other comprehensive loss

    -       -       -       -       (19 )     (19 )     (47 )     (66 )

Acquisition / (surrender) of additional units of consolidated subsidiary, net

    -       -       (292 )     -       4       (288 )     288       -  

Equity-based compensation and vesting of shares

    -       -       338       -       -       338       766       1,104  

Shares withheld for employee taxes

    -       -       (72 )     -       -       (72 )     (145 )     (217 )

Dividends/distributions to convertible non-controlling interest

    -       -       -       (1,481 )     -       (1,481 )     (3,475 )     (4,956 )

Convertible non-controlling interest investment

    -       -       -       -       -       -       15,000       15,000  

Non-convertible non-controlling interest investment

    -       -       -       -       -       -       6       6  

Non-convertible non-controlling interest distributions

    -       -       -       -       -       -       (5,660 )     (5,660 )

March 31, 2022

  $ 27     $ 17     $ 71,980     $ (18,297 )   $ (920 )   $ 52,807     $ 68,671     $ 121,478  

    

  

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

COHEN & COMPANY INC. 

 

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Operating activities

               

Net income (loss)

  $ (10,054 )   $ (35,166 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

               

Equity-based compensation

    1,089       1,104  

Loss (gain) on other investments, at fair value

    2,603       18,718  

Loss (gain) on other investments, sold not yet purchased

    (5 )     (178 )

Noncash advisory fees received

    (492 )     -  

(Income) loss from equity method affiliates

    395       12,104  

Depreciation and amortization

    144       132  

Amortization of discount on debt

    149       204  

Deferred tax provision (benefit)

    389       1,464  

Change in operating assets and liabilities, net:

               

Change in receivables from / payables to brokers, dealers, and clearing agencies

    9,326       (36,381 )

Change in receivables from / payables to related parties, net

    20       2,876  

(Increase) decrease in other receivables

    2,888       (2,236 )

(Increase) decrease in investments-trading

    13,971       (24,856 )

(Increase) decrease in receivables under resale agreements

    55,879       982,083  

(Increase) decrease in other assets

    187       (951 )

Increase (decrease) in accounts payable and other liabilities

    (4,364 )     23,933  

Increase (decrease) in accrued compensation

    (6,002 )     (11,468 )

Increase (decrease) in trading securities sold, not yet purchased

    (36,261 )     65,968  

Increase (decrease) in securities sold under agreements to repurchase

    (57,571 )     (983,000 )

Net cash provided by (used in) operating activities

    (27,709 )     14,350  

Investing activities

               

Purchase of other investments, at fair value

    (363 )     (3,869 )

Purchase of other investments sold, not yet purchased, at fair value

    -       (4,178 )

Sales and returns of principal - other investments, at fair value

    3,908       7,395  

Sales and returns of principal - other investments sold, not yet purchased, at fair value

    -       1,239  

Investment in equity method affiliate

    (736 )     (438 )

Distribution from equity method affiliate

    1       -  

Purchase of furniture, equipment, and leasehold improvements

    (96 )     (298 )

Net cash provided by (used in) investing activities

    2,714       (149 )

Financing activities

               

Proceeds from debt

    -       2,250  

Repayment of debt

    -       (2,250 )

Cash used to net share settle equity awards

    (164 )     (217 )

Cohen & Company Inc. dividends

    (215 )     (54 )

Convertible non-controlling interest distributions

    (215 )     (142 )

Non-convertible non-controlling interest investment

    38       6  

Non-convertible non-controlling interest distributions

    -       (1,775 )

Net cash provided by (used in) financing activities

    (556 )     (2,182 )

Effect of exchange rate on cash

    91       (76 )

Net increase (decrease) in cash and cash equivalents

    (25,460 )     11,943  

Cash and cash equivalents, beginning of period

    29,101       50,567  

Cash and cash equivalents, end of period

  $ 3,641     $ 62,510  

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

COHEN & COMPANY INC.

 

Notes to Consolidated Financial Statements

(Dollars in Thousands, except share and per share information) 

(Unaudited)  

 

 

1. ORGANIZATION AND NATURE OF OPERATIONS

 

Organizational History 

 

Cohen Brothers, LLC (“Cohen Brothers”) was formed on October 7, 2004 by Cohen Bros. Financial, LLC (“CBF”). Cohen Brothers was established to acquire the net assets of CBF’s subsidiaries (the “Formation Transaction”): Cohen Bros. & Company Inc.; Cohen Frères SAS; Dekania Investors, LLC; Emporia Capital Management, LLC; and the majority interest in Cohen Bros. & Toroian Investment Management, Inc. The Formation Transaction was accomplished through a series of transactions occurring between March 4, 2005 and May 31, 2005.

 

From its formation until December 16, 2009, Cohen Brothers operated as a privately owned limited liability company. On December 16, 2009, Cohen Brothers completed its merger (the “AFN Merger”) with a subsidiary of Alesco Financial Inc. (“AFN”), a publicly traded real estate investment trust.

 

As a result of the AFN Merger, AFN contributed substantially all of its assets into Cohen Brothers in exchange for newly issued units of membership interests directly from Cohen Brothers. In addition, AFN received additional Cohen Brothers membership interests directly from its members in exchange for AFN common stock. In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the AFN Merger was accounted for as a reverse acquisition, and Cohen Brothers was deemed to be the accounting acquirer. As a result, all of AFN’s assets and liabilities were required to be revalued at fair value as of the acquisition date. The remaining units of membership interests of Cohen Brothers that were not held by AFN were included as a component of non-controlling interest in the consolidated balance sheets.

 

Subsequent to the AFN Merger, AFN was renamed Cohen & Company Inc. In January 2011, it was renamed again as Institutional Financial Markets, Inc. (“IFMI”) and on September 1, 2017 it was renamed again as Cohen & Company Inc.  Effective January 1, 2010, the Company ceased to qualify as a REIT.

 

The Company 

 

The Company is a financial services company specializing in an expanding range of capital markets and asset management services. As of March 31, 2023, the Company had $2.16 billion in assets under management (“AUM”) of which $1.03 billion was in collateralized debt obligations (“CDOs”). The remaining portion of AUM is from a diversified mix of Investment Vehicles (as defined herein).

 

In these financial statements, the “Company” refers to Cohen & Company Inc. and its subsidiaries on a consolidated basis. Cohen & Company, LLC or the “Operating LLC” refers to the main operating subsidiary of the Company.  “Cohen Brothers” refers to the pre-AFN Merger Cohen Brothers, LLC and its subsidiaries. “AFN” refers to the pre-merger Alesco Financial Inc. and its subsidiaries. When the term “Cohen & Company Inc.” is used, it is referring to the parent company itself. “JVB Holdings” refers to J.V.B. Financial Holdings, LP, a wholly owned subsidiary of the Operating LLC. “JVB” refers to J.V.B. Financial Group, LLC, a wholly owned broker-dealer subsidiary of JVB Holdings. "CCFESA" refers to Cohen & Company Financial (Europe) S.A., a majority owned subsidiary regulated by the Autorite de Controle Prudentiel et de Resolution ("ACPR") in France. “CCFEL” refers to Cohen & Company Financial (Europe) Limited, a subsidiary formerly regulated by the Central Bank of Ireland (the "CBI").  

 

The Company’s business is organized into the following three business segments.

 

Capital Markets: The Company’s Capital Markets business segment consists primarily of fixed income sales, trading, matched book repo financing, new issue placements in corporate and securitized products, and advisory services. The Company’s fixed income sales and trading group provides trade execution to corporate investors, institutional investors, mortgage originators, and other smaller broker-dealers. The Company specializes in a variety of products, including but not limited to: corporate bonds, asset backed securities (“ABS”), mortgage-backed securities (“MBS”), residential mortgage-backed securities (“RMBS”), CDOs, collateralized loan obligations (“CLOs”), collateralized bond obligations (“CBOs”), collateralized mortgage obligations (“CMOs”), municipal securities, to-be-announced securities (“TBAs”) and other forward agency MBS contracts, U.S. government bonds, U.S. government agency securities, brokered deposits and certificates of deposit (“CDs”) for small banks, and hybrid capital of financial institutions including trust preferred securities (“TruPS”), whole loans, and other structured financial instruments. The Company operates its capital markets activities primarily through its subsidiaries: JVB in the United States and CCFESA in Europe. A division of JVB, Cohen & Company Capital Markets ("CCM") is the Company's full-service boutique investment bank, which focuses on M&A, capital markets, and SPAC advisory services.   

 

Asset Management: The Company’s Asset Management business segment manages assets within CDOs, managed accounts, joint ventures, and investment funds (collectively referred to as “Investment Vehicles”). A CDO is a form of secured borrowing. The borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in the form of a securitization, which means that the lenders are actually investing in notes backed by the assets. In the event of default, the lenders will have recourse only to the assets securing the loan. The Company’s Asset Management business segment includes its fee-based asset management operations, which include ongoing base and incentive management fees.

 

Principal Investing: The Company’s Principal Investing business segment is comprised of investments that 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 the Company’s trading and other Capital Markets business segment activities.  These investments are included in the Company’s other investments, at fair value; other investments sold, not yet purchased; and investments in equity method affiliates in the Company’s consolidated balance sheets.

 

10

 

The Company generates its revenue by business segment primarily through the following activities.

 

Capital Markets

 

 

● 

Trading activities of the Company, which include execution and brokerage services, riskless trading activities as well as gains and losses (unrealized and realized) and income and expense earned on securities and derivatives classified as trading;

 

● 

Revenue earned on the Company’s matched book repo financing activities; and

 

● 

New issue and advisory revenue comprised primarily of (i) new issue revenue associated with originating, arranging, or placing newly created financial instruments and (ii) revenue from advisory services.

 

Asset Management

 

 

● 

Asset management fees for the Company’s on-going asset management services provided to certain Investment Vehicles, which may include fees both senior and subordinate to the securities in the Investment Vehicle, and incentive management fees earned based on the performance of the various Investment Vehicles.

 

Principal Investing

 

 

● 

Gains and losses (unrealized and realized) and income and expense earned on securities classified as other investments at fair value and other investments sold, not yet purchased; and

 

● 

Income and loss earned on equity method investments.

 

 

2. BASIS OF PRESENTATION

 

The financial statements of the Company included herein were prepared in conformity with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim month periods. All intercompany accounts and transactions have been eliminated in consolidation. The results for the three months ended March 31, 2023 and 2022 are not necessarily indicative of the results for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

Capitalized terms used herein without definition have the meanings ascribed to them in the Annual Report on Form 10-K for the year ended December 31, 2022.  

 

11

 
 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A. Adoption of New Accounting Standards

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Certain aspects of this topic were later enhanced and clarified in January 2021 when the FASB issued ASU 2021-01 Reference Rate Reform (Topic 848).  These ASUs provides temporary optional guidance to ease the burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offer Rate ("LIBOR or another reference rate expected to be discontinued.  This ASU is intended to help stakeholders during the global market-wide reference rate transition period and will be in effect for a limited time through December 31, 2022. In December 2022, FASB issued ASU 2022-06 (Topic 848) and deferred the sunset date from December 31, 2022 to December 31, 2024. The Company’s adoption of the provisions of ASU 2020-04 and ASU 2021-01, effective March 12, 2020, is on a prospective basis.  The adoption of this ASU did not have a material impact on the Company's consolidated financial statements. See note 20.  

 

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, ReceivablesNonrefundable Fees and Other Costs.  This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The Company’s adoption of the provisions of ASU 2020-08, effective January 1, 2022, did not have an effect on the Company’s consolidated financial statements.

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements.  This ASU affects a wide variety of Topics in the Codification. This ASU, among other things, contains amendments that improve consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section.  Many of the amendments arose because the FASB provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). The Company’s adoption of the provisions of ASU 2020-10, effective January 1, 2022, did not have an effect on the Company’s consolidated financial statements.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):  Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. The Company’s adoption of the provisions of ASU 2021-04, effective January 1, 2022, did not have an effect on the Company’s consolidated financial statements.

  

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The Company’s adoption of the provisions of ASU 2021-08, effective January 1, 2022, did not have an effect on the Company’s consolidated financial statements.

  

In October 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU includes amendments that are expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The amendments require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance:  (i) information about the nature of the transactions and the related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The Company’s adoption of the provisions of ASU 2021-10, effective January 1, 2022, did not have an effect on the Company’s consolidated financial statements.

  

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures.  The amendments in this ASU eliminate TDR recognition and measurement guidance and instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.  The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.  The Company's adoption of the provisions of ASU 2022-02, effective January 1, 2023, did not have an effect on the Company’s consolidated financial statements.

  

B. Recent Accounting Developments 

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):  Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.  This ASU simplifies accounting for convertible instruments by removing major separation models currently required.  The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception.  The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.  The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. 

 

 

12

 

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This ASU is effective for fiscal years beginning after December 15, 2023.  Early adoption is permitted.  The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. 

 

In March 2023, the FASB issued ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits. This ASU is effective for fiscal years beginning after December 15, 2023.  Early adoption is permitted.  The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

 

C. Fair Value of Financial Instruments 

 

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments. These determinations were based on available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop the estimates and, therefore, these estimates may not necessarily be indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Refer to note 8 for a discussion of the valuation hierarchy with respect to investments-trading; other investments, at fair value; other investments sold, not yet purchased; and derivatives held by the Company. 

 

Cash and cash equivalents: Cash and cash equivalents are carried at historical cost, which is assumed to approximate fair value. The estimated fair value measurement of cash and cash equivalents is classified within level 1 of the valuation hierarchy.

 

Investments-trading: These amounts are carried at fair value. The fair value is based on either quoted market prices of an active exchange, independent broker market quotations, market price quotations from third- party pricing services, or valuation models when quotations are not available.

 

Other investments, at fair value: These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent broker market quotations, or valuation models when quotations are not available.  In the case of investments in alternative investment funds, fair value is generally based on the reported net asset value of the underlying fund.

 

Receivables under resale agreements: Receivables under resale agreements are carried at their contracted resale price, have short-term maturities, and are repriced frequently or bear market interest rates and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of receivables under resale agreements are based on observations of actual market activity and are generally classified within level 2 of the valuation hierarchy.

 

Trading securities sold, not yet purchased: These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent market quotations, market price quotations from third party pricing services, or valuation models when quotations are not available.

 

Other investments sold, not yet purchased:  These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent broker market quotations, or valuation models when quotations are not available.

 

Securities sold under agreements to repurchase: The liabilities for securities sold under agreements to repurchase are carried at their contracted repurchase price, have short-term maturities, and are repriced frequently or bear market interest rates and, accordingly, these contracts are carried at amounts that approximate fair value. The estimated fair value measurements of securities sold under agreements to repurchase are based on observations of actual market activity and are generally classified within level 2 of the valuation hierarchy.

 

Redeemable financial instruments: The liabilities for redeemable financial instruments are carried at their redemption value, which approximates fair value. The estimated fair value measurement of the redeemable financial instruments is classified within level 3 of the valuation hierarchy. 

 

Debt: These amounts are carried at outstanding principal less unamortized discount and deferred financing costs. However, a substantial portion of the Company's debt was assumed in the AFN Merger and recorded at fair value as of that date. As of March 31, 2023 and December 31, 2022, the fair value of the Company’s debt was estimated to be $33,706 and $34,679, respectively. The estimated fair value measurements of the debt are generally based on discounted cash flow models prepared by the Company’s management primarily using discount rates for similar instruments issued to companies with similar credit risks to the Company and are generally classified within level 3 of the value hierarchy.

 

Derivatives: These amounts are carried at fair value. Derivatives may be included as a component of investments-trading; trading securities sold, not yet purchased; other investments, at fair value; and other investments, sold not yet purchased. The fair value is generally based on quoted market prices on an exchange that is deemed to be active for derivative instruments such as foreign currency forward contracts and Eurodollar futures.  For derivative instruments, such as TBAs and other extended settlement trades, the fair value is generally based on market price quotations from third party pricing services.

 

 

13

 

 

4. OTHER RECENT BUSINESS TRANSACTIONS OR EVENTS 

 

Conversion of the 2017 Convertible Note

 

On March 10, 2017, the Operating LLC issued to DGC Family Fintech Trust (the “DGC Trust”), a trust established by Daniel G. Cohen, a convertible senior secured promissory note in the aggregate principal amount of $15,000 (the "2017 Convertible Note").  On March 20, 2022, the DGC Trust elected to convert the 2017 Convertible Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the 2017 Convertible Note agreement of $1.45 per unit. As a result of such conversion, the 2017 Convertible Note was cancelled in its entirety.  These units of membership interests have the same conversion and redemption rights as the existing convertible non-controlling interest units of membership interests.  See note 20 to the Company's December 31, 2022 Annual Report filed on Form 10-K for additional information regarding the 2017 Convertible Note.  

 

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 interest, 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. See note 24.

 

The 2020 Senior Notes

 

On  January 31, 2020, the Operating LLC entered into a note purchase agreement (the “Original Purchase Agreement”) with JKD Capital Partners I LTD, a New York corporation (“JKD Investor”), and RN Capital Solutions LLC, a Delaware limited liability company (“RNCS”).  The JKD Investor is owned by Jack DiMaio, Jr., the vice chairman of the Company’s board of directors and the Operating LLC’s board of managers, and his spouse.  The note purchased by the JKD Investor is herein referred to as the “JKD Note.”  Pursuant to the Original Purchase Agreement, JKD Investor and RNCS each purchased a senior promissory note in the principal amount of $2,250 (for an aggregate investment of $4,500). The senior promissory notes bore interest at a fixed rate of 12% per annum and matured on January 31, 2022.

 

On January 31, 2022, the Operating LLC and JKD Investor entered into a note purchase agreement (the "2022 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 the 2020 Senior Notes held by RNCS.  See notes 16 and 24. 

 

 

14

 

INSU Acquisition Corp III ("Insurance SPAC III")

 

The Operating LLC was the manager of Insurance Acquisition Sponsor III, LLC (“IAS III”) and Dioptra Advisors III, LLC (together with IAS III, the “Insurance SPAC III Sponsor Entities”). The Insurance SPAC III Sponsor Entities were sponsors of INSU Acquisition Corp. III ("Insurance SPAC III"). On December 22, 2020, Insurance SPAC III completed the sale of 25,000,000 units (the “Insurance SPAC III Units”) in its initial public offering ("IPO"). Each Insurance SPAC III Unit consisted of one share of Insurance SPAC III's Class A common stock, par value $0.0001 per share (“Insurance SPAC III Common Stock”), and one-third of one Insurance SPAC III warrant (each, an “Insurance SPAC III Warrant”), where each whole Insurance SPAC III Warrant entitled the holder to purchase one share of Insurance SPAC III Common Stock for $11.50 per share. The Insurance SPAC III Units were sold in the IPO at an offering price of $10.00 per unit. Pursuant to its governing documents, if Insurance SPAC III failed to consummate a business combination within the first 24 months following the IPO, its corporate existence would cease except for the purposes of winding up its affairs and liquidating its assets.

 

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. IAS III and its affiliates, including the Operating LLC, committed to loan Insurance SPAC III up to an additional $1,500 to cover operating and acquisition related expenses following the IPO, of which $960 was borrowed by Insurance SPAC III. See note 24.  The loans bore no interest, and if Insurance SPAC III consummated a business combination in the required timeframe, the loans were to be repaid from the funds held in Insurance SPAC III’s trust account. If Insurance SPAC III did not consummate a business combination in the required timeframe, no funds from Insurance SPAC III's trust account could be used to repay the loans. 

 

On November 18, 2022, Insurance SPAC III announced it would not consummate an initial business combination within the required time period and that it intended to dissolve and liquidate, effective as of the close of business on December 22, 2022, and redeem all of the Insurance SPAC III Common Stock and each Insurance SPAC III Warrant that were included in its IPO, at a per-share redemption price of approximately $10.09. As of the close of business on December 22, 2022, the Insurance SPAC III Common Stock and each Insurance SPAC Warrant were deemed cancelled and represented only the right to receive the redemption amount of $10.09 per share.

 

In order to provide for the disbursement of funds from the trust account, Insurance SPAC III instructed the trustee of the trust account to take all necessary actions to liquidate the securities held in the trust account. The proceeds of the trust account were held in a non-interest bearing account while awaiting disbursement to the holders of the public shares. Record holders received their pro rata portion of the proceeds of the trust account, less $100 of interest to pay dissolution expenses and net of taxes payable. Insurance SPAC III Sponsor Entities agreed to waive their redemption rights with respect to their outstanding shares of Class B common stock issued prior to the Insurance SPAC III IPO. There were no redemption rights or liquidating distributions with respect to each Insurance SPAC III Warrant, which expired and were rendered worthless.

 

As a result of the liquidation of Insurance SPAC III, the Company recorded an equity method loss of $5,896 for the year ended December 31, 2022, which included a write-off of the amounts advanced to Insurance SPAC III from the Operating LLC as well as amounts invested. Of this loss, $4,808 was allocated to the non-convertible non-controlling interests. Therefore, the net impact to the Operating LLC was $1,088. 

 

15

 
 

5. NET TRADING 

 

Net trading consisted of the following in the periods presented.



NET TRADING

(Dollars in Thousands)

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Net realized gains (losses) - trading inventory

  $ 12,642     $ 4,615  

Net unrealized gains (losses) - trading inventory

    (8,098 )     (3,263 )

Net gains and losses

    4,544       1,352  
                 

Interest income- trading inventory

    735       1,091  

Interest income-reverse repos

    6,129       15,698  

Interest income

    6,864       16,789  
                 

Interest expense-repos

    (5,454 )     (7,661 )

Interest expense-margin payable

    (1,450 )     (193 )

Interest expense

    (6,904 )     (7,854 )
                 

Other trading revenue

    3,706       1,735  
                 

Net trading

  $ 8,210     $ 12,022  

 

  

Trading inventory includes investments classified as investments-trading as well as trading securities sold, not yet purchased.  See note 7.  For discussion of margin payable, see note 6.  Other trading revenue includes revenue earned on our agency repo business (see note 10).

  

16

 

 

6. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

 

Amounts receivable from brokers, dealers, and clearing agencies consisted of the following.

 

RECEIVABLES FROM BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

Deposits with clearing agencies

  $ 250     $ 250  

Unsettled regular way trades, net

    10,270       -  

Receivables from clearing agencies

    92,741       140,683  

Receivables from brokers, dealers, and clearing agencies

  $ 103,261     $ 140,933  

 

Amounts payable to brokers, dealers, and clearing agencies consisted of the following.



PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

Unsettled regular way trades, net

  $ -     $ 3,238  

Margin payable

    106,639       131,747  

Payables to brokers, dealers, and clearing agencies

  $ 106,639     $ 134,985  

 



Deposits with clearing agencies represent contractual amounts the Company is required to deposit with its clearing agents.

 

Securities transactions that settle in the regular way are recorded on the trade date, as if they had settled. The related amounts receivable and payable for unsettled securities transactions are recorded net in receivables from or payables to brokers, dealers, and clearing agencies on the Company’s consolidated balance sheets. 

 

Receivables from clearing agencies are primarily comprised of cash received by the Company upon execution of short trades that is restricted from withdrawal by the clearing agent.

 

Margin payable represents amounts borrowed from Pershing, LLC and Cantor Fitzgerald to finance the Company’s trading portfolio. See note 5 for interest expense incurred on margin payable.  All of the Company's securities included in investments-trading and a portion of the Company's securities included in other investments, at fair value serve as collateral for this margin loan.  See note 7.  

 

17

 

 

7. FINANCIAL INSTRUMENTS

 

Investments—Trading

 

Investments-trading consisted of the following.

 

INVESTMENTS - TRADING

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

ABS

  $ 1     $ 1  

Certificates of deposit

    160       -  

Corporate bonds and redeemable preferred stock

    41,874       44,572  

Derivatives

    4,369       4,669  

Equity securities

    527       220  

Municipal bonds

    16,433       19,502  

Residential mortgage loans

    11,164       13,506  

RMBS

    8       7  

U.S. government agency debt securities

    19,737       19,683  

U.S. government agency MBS and CMOs

    101,699       97,276  

U.S. Treasury securities

    1,885       12,392  

Investments-trading

  $ 197,857     $ 211,828  

 

 

Trading Securities Sold, Not Yet Purchased

 

Trading securities sold, not yet purchased consisted of the following.

 

TRADING SECURITIES SOLD, NOT YET PURCHASED

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

Corporate bonds and redeemable preferred stock

  $ 48,044     $ 61,310  

Derivatives

    6,193       1,177  

Equity securities

    26       51  

U.S. government agency debt securities

    -       32  

U.S. government agency MBS and CMOs

    1       1  

U.S. Treasury securities

    43,432       71,386  

Trading securities sold, not yet purchased

  $ 97,696     $ 133,957  

 

The Company manages its exposure to changes in interest rates for the interest rate sensitive securities it holds by entering into offsetting short positions for similar fixed rate securities. See note 5 for realized and unrealized gains recognized on investments-trading.

 

18

 

Other Investments, at Fair Value

 

Other investments, at fair value consisted of the following.

 

OTHER INVESTMENTS, AT FAIR VALUE

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

Equity securities

  $ 9,824     $ 13,725  

Restricted equity securities

    3,039       3,135  

Corporate bonds and redeemable preferred stock

    476       476  

CREO JV

    5,316       6,568  

U.S. Insurance JV

    3,059       3,459  

SPAC Fund

    554       527  

Residential mortgage loans

    127       132  

Other investments, at fair value

  $ 22,395     $ 28,022  

 

A total of $814 and $1,673 of the amounts shown as other investments, at fair value above serve as collateral for the Company's margin loan payable as of March 31, 2023 and December 31, 2022, respectively.  See note 6.  

 

Other Investments Sold ,Not Yet Purchased, at Fair Value

 

Other investments, sold not yet purchased, at fair value consisted of the following.

 

OTHER INVESTMENTS SOLD, NOT YET PURCHASED, AT FAIR VALUE

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

Equity securities

  $ 73     $ 78  

Other investments sold, not yet purchased, at fair value

  $ 73     $ 78  

 

 

19

 
 

8. FAIR VALUE DISCLOSURES

 

Fair Value Option

 

The Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions of FASB ASC 825. The primary reason for electing the fair value option was to reduce the burden of monitoring the differences between the cost and the fair value of the Company’s investments, previously classified as available for sale securities, including the assessment as to whether the declines are temporary in nature and to further remove an element of management judgment.

 

Such financial assets accounted for at fair value include:

 

 

● 

securities that would otherwise qualify for available for sale treatment;

 

● 

investments in equity method affiliates that have the attributes in FASB ASC 946-10-15-2 (commonly referred to as investment companies); and

 

● 

investments in residential mortgage loans.

 

The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the fair value option are recorded in principal transactions and other income in the consolidated statements of operations. All of the investments for which the Company has elected the fair value option are included as a component of other investments, at fair value in the consolidated balance sheets.

 

The Company recognized net gains (losses) related to changes in fair value of investments that are included as a component of other investments, at fair value during the three months ended March 31, 2023 and 2022 of $(2,603) and $(18,718), respectively. 

 

The Company recognized net gains (losses) related to changes in fair value of investments that are included as a component of other investments, sold not yet purchased during the three months ended March 31, 2023 and 2022 of $5 and $178, respectively. 

 

Fair Value Measurements

 

In accordance with FASB ASC 820, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level valuation hierarchy. The valuation hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the valuation hierarchy under FASB ASC 820 are described below.

 

Level 1            Financial assets and liabilities with values that are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level  2           Financial assets and liabilities with values that are based on one or more of the following:

 

 

1.

Quoted prices for similar assets or liabilities in active markets;

 

2.

Quoted prices for identical or similar assets or liabilities in non-active markets;

 

3.

Pricing models whose inputs are derived, other than quoted prices, are observable for substantially the full term of the asset or liability; or

 

4.

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

 

Level 3            Financial assets and liabilities with values that are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the valuation hierarchy. In such cases, the level in the valuation hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category that may be presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

20

 

The following tables present information about the Company’s assets and liabilities measured at fair value as of March 31, 2023 and December 31, 2022 and indicates the valuation hierarchy of the valuation techniques utilized by the Company to determine such fair value.

 

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

March 31, 2023

(Dollars in Thousands)

 

                   

Significant

   

Significant

 
           

Quoted Prices in

   

Observable

   

Unobservable

 
           

Active Markets

   

Inputs

   

Inputs

 

Assets

 

Fair Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Investments-trading:

                               

ABS

  $ 1     $ -     $ 1     $ -  

Certificate of Deposit

    160       -       160       -  

Corporate bonds and redeemable preferred stock

    41,874       -       41,874       -  

Derivatives

    4,369       -       4,369       -  

Equity securities

    527       417       110       -  

Municipal bonds

    16,433       -       16,433       -  

Residential mortgage loans

    11,164       -       11,164       -  

RMBS

    8       -       8       -  

U.S. government agency debt securities

    19,737       -       19,737       -  

U.S. government agency MBS and CMOs

    101,699       -       101,699       -  

U.S. Treasury securities

    1,885       1,885       -       -  

Total investments - trading

  $ 197,857     $ 2,302     $ 195,555     $ -  
                                 

Other investments, at fair value:

                               

Equity securities

  $ 9,824     $ 9,824     $ -     $ -  

Restricted equity securities

    3,039       -       3,039       -  

Corporate bonds and redeemable preferred stock

    476       -       476       -  

Residential mortgage loans

    127       -       127       -  
      13,466     $ 9,824     $ 3,642     $ -  

Investments measured at NAV (1)

    8,929                          

Total other investments, at fair value

  $ 22,395                          
                                 

Liabilities

                               

Trading securities sold, not yet purchased:

                               

Corporate bonds and redeemable preferred stock

  $ 48,044     $ -     $ 48,044     $ -  

Derivatives

    6,193       -       6,193       -  

Equity securities

    26       26       -       -  

U.S. government agency MBS and CMOs

    1       -       1       -  

U.S. Treasury securities

    43,432       43,432       -       -  

Total trading securities sold, not yet purchased

  $ 97,696     $ 43,458     $ 54,238     $ -  
                                

Other investments, sold not yet purchased:

                               

Equity securities

  $ 73     $ 73     $ -     $ -  

Total other investments sold, not yet purchased

  $ 73     $ 73     $ -     $ -  

 

 

(1)

As a practical expedient, the Company uses NAV (or its equivalent) to measure the fair value of its investments in the U.S. Insurance JV, the SPAC Fund, and the CREO JV. The U.S. Insurance JV invests in USD denominated debt issued by small insurance and reinsurance companies.  The SPAC Fund invests in equity securities of SPACs.  The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-backed loans. See note 4. According to ASC 820, these investments are not categorized within the valuation hierarchy.  

 

21

 

 

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

December 31, 2022

(Dollars in Thousands)

 

                   

Significant

   

Significant

 
           

Quoted Prices in

   

Observable

   

Unobservable

 
           

Active Markets

   

Inputs

   

Inputs

 

Assets

 

Fair Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

Investments-trading:

                               

ABS

  $ 1     $ -     $ 1     $ -  

Corporate bonds and redeemable preferred stock

    44,572       -       44,572       -  

Derivatives

    4,669       -       4,669       -  

Equity securities

    220       220       -       -  

Municipal bonds

    19,502       -       19,502       -  

Residential mortgage loans

    13,506       -       13,506       -  

RMBS

    7       -       7       -  

U.S. government agency debt securities

    19,683       -       19,683       -  

U.S. government agency MBS and CMOs

    97,276       -       97,276       -  

U.S. Treasury securities

    12,392       12,392       -       -  

Total investments - trading

  $ 211,828     $ 12,612     $ 199,216     $ -  
                                 

Other investments, at fair value:

                               

Equity Securities

  $ 13,725     $ 13,725     $ -     $ -  

Restricted Equity Securities

    3,135       -       3,135       -  

Corporate bonds and redeemable preferred stock

    476       -       476       -  

Residential mortgage loans

    132       -       132       -  
      17,468     $ 13,725     $ 3,743     $ -  

Investments measured at NAV (1)

    10,554                          

Total other investments, at fair value

  $ 28,022                          
                                 

Liabilities

                               

Trading securities sold, not yet purchased:

                               

Corporate bonds and redeemable preferred stock

  $ 61,310     $ -     $ 61,310     $ -  

Derivatives

    1,177       -       1,177       -  

Equity securities

    51       51       -       -  

U.S. Government Agency debt

    32       -       32       -  

U.S. government agency MBS and CMOs

    1       -       1       -  

U.S. Treasury securities

    71,386       71,386       -       -  

Total trading securities sold, not yet purchased

  $ 133,957     $ 71,437     $ 62,520     $ -  
                                

Other investments, sold not yet purchased:

                               

Equity securities

  $ 78     $ 78     $ -     $ -  

Total other investments sold, not yet purchased

  $ 78     $ 78     $ -     $ -  

 

 

(1)

As a practical expedient, the Company uses NAV (or its equivalent) to measure the fair value of its investments in the U.S. Insurance JV, the SPAC Fund, and the CREO JV. The U.S. Insurance JV invests in USD denominated debt issued by small insurance and reinsurance companies.  The SPAC Fund invests in equity securities of SPACs.  The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-backed loans. See note 4. According to ASC 820, these investments are not categorized within the valuation hierarchy.  

 

22

 

  

The following provides a brief description of the types of financial instruments the Company holds, the methodology for estimating fair value, and the level within the valuation hierarchy of the estimate. The discussion that follows applies regardless of whether the instrument is included in investments-trading; other investments, at fair value; or trading securities sold, not yet purchased.

 

CLOs, CDOs, and ABS: CLOs, CDOs, and ABS are interests in securitizations. ABS may include, but are not limited to, securities backed by auto loans, credit card receivables, or student loans. When the Company is able to obtain independent market quotations from at least two broker-dealers and where a price within the range of at least two broker-dealers is used or market price quotations from third party pricing services is used, these interests in securitizations will generally be classified within level 2 of the valuation hierarchy. These valuations are based on a market approach. The independent market quotations from broker-dealers are generally nonbinding. The Company seeks quotations from broker-dealers that historically have actively traded, monitored, issued, and been knowledgeable about the interests in securitizations. The Company generally believes to the extent that it (i)  receives two quotations in a similar range from broker-dealers knowledgeable about these interests in securitizations and (ii)  considers the broker-dealers gather and utilize observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources, then classification within level 2 of the valuation hierarchy is appropriate. In the absence of two broker-dealer market quotations, a single broker-dealer market quotation may be used without corroboration of the quote in which case the Company generally classifies the fair value within level 3 of the valuation hierarchy.

 

If quotations are unavailable, prices observed by the Company for recently executed market transactions or valuation models prepared by the Company’s management may be used, which are based on an income approach. These models prepared by the Company’s management include estimates, and the valuations derived from them could differ materially from amounts realizable in an open market exchange. Each CLO and CDO position is evaluated independently taking into consideration available comparable market levels, underlying collateral performance and pricing, deal structures, and liquidity.  Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy. 

 

Establishing fair value is inherently subjective (given the volatile and sometimes illiquid markets for certain interests in securitizations) and requires management to make a number of assumptions, including assumptions about the future of interest rates, discount rates, and the timing of cash flows. The assumptions the Company applies are specific to each security. Although the Company may rely on internal calculations to compute the fair value of certain interest in securitizations, the Company requests and considers indications of fair value from third party pricing services to assist in the valuation process.

 

Certificates of Deposit: The fair value of certificates of deposit is estimated using valuations provided by third party pricing services. The Company classifies the fair value of certificates of deposit within level 2 of the valuation hierarchy.

 

Corporate Bonds and Redeemable Preferred Stock: The Company uses recently executed transactions or third party quotations from independent pricing services to arrive at the fair value of its investments in corporate bonds and redeemable preferred stock. These valuations are based on a market approach. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. In instances where the fair values of securities are based on quoted prices in active markets (for example with redeemable preferred stock), the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

 

Equity Securities: The fair value of equity securities that represent unrestricted investments in publicly traded companies (common or preferred shares, options, warrants, and other equity investments) are determined using the closing price of the security as of the reporting date. These are securities that are traded on a recognized liquid exchange and the Company classifies their fair value within level 1 of the valuation hierarchy.  The fair value of equity securities that represent investments in privately held companies are generally determined either (i) based on a valuation model or (ii) based on recently observed transactions in the same instrument or similar instrument that we hold.  These valuations are generally classified within either level 2 or level 3 of the valuation hierarchy.  

 

Equity Securities Without Readily Determinable Fair Value: From time to time, the Company invests in equity securities that do not have a readily determinable fair value that also do not qualify for equity method accounting or the practical expedient for investments in investment companies which are measured at NAV. In those cases, the Company utilizes the measurement alternative of ASC 321-10-35-2. This alternative allows the Company to carry the investment at cost minus impairment. If the Company observes a market transaction for identical or similar instrument, it will adjust the carrying value of the equity security. If the equity security is being measured at cost minus impairment, it will be included as a component of other assets. If the equity security is being measured at fair value, it will be included as a component of other investments, at fair value. When measured at fair value using an orderly observable market transaction, it will generally be classified as level 1 in the valuation hierarchy.

 

Restricted Equity Securities:  Restricted equity securities are investments in publicly traded companies.  However, they are restricted from re-sale until either (a) the share price trades above a certain threshold for a certain period of time; or (b) a certain period of time elapses or both. The Company determines the fair value by utilizing a model that starts with the publicly traded share price but then applies a discount based on a Monte Carlo simulation.  The inputs to this model are observable so the Company classifies these securities within level 2 of the valuation hierarchy.  The Company is not allowed to sell these shares during the restriction period and there is no certainty as to when these hurdles will be met or if they will be met at all.

 

Foreign Government Bonds: The fair value of foreign government bonds is estimated using valuations provided by third party pricing services and classifies the fair value within level 2 of the valuation hierarchy.

 

Municipal Bonds: Municipal bonds, which include obligations of U.S. states, municipalities, and political subdivisions, primarily include bonds or notes issued by U.S. municipalities. The Company generally values these securities using third party quotations such as market price quotations from third party pricing services. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. The valuations are based on a market approach. In instances where the Company is unable to obtain reliable market price quotations from third party pricing services, the Company will use its own internal valuation models. In these cases, the Company will classify such securities as level 3 within the valuation hierarchy until it is able to obtain third party pricing.

 

Residential Mortgage Loans: The Company generally values these loans using a model. The model’s main inputs are current market quotations for pooled mortgage loan securities with similar characteristics. The Company considers the inputs to be observable and therefore classifies the fair value of these loans within level 2 of the valuation hierarchy.

 

RMBS: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. The Company generally classifies the fair value of these securities based on third party quotations within level 2 of the valuation hierarchy.

  

23

 

 

U.S. Government Agency Debt Securities: Callable and non-callable U.S. government agency debt securities are measured primarily based on quoted market prices obtained from third party pricing services. Non-callable U.S. government agency debt securities are generally classified within level 1 and callable U.S. government agency debt securities are classified within level 2 of the valuation hierarchy.

 

U.S. Government Agency MBS and CMOs: These are securities that are generally traded over-the-counter. The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. The Company classifies the fair value of these securities within level 2 of the valuation hierarchy.

 

U.S. Treasury Securities: U.S. Treasury securities include U.S. Treasury bonds and notes and the fair values of the U.S. Treasury securities are based on quoted prices or market activity in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

 

Derivatives 

 

TBAs and Other Forward Agency MBS Contracts 

 

The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. TBAs and other forward agency MBS contracts are generally classified within level 2 of the valuation hierarchy. If there is limited transaction activity or less transparency to observe market based inputs to valuation models, TBAs and other forward agency MBS contracts are classified within level 3 of the valuation hierarchy.  U.S. government agency MBS and CMOs include TBAs and other forward agency MBS contracts.  Unrealized gains on TBAs and other forward agency MBS contracts are included in investments-trading on the Company’s consolidated balance sheets and unrealized losses on TBAs and other forward agency MBS contracts are included in trading securities sold, not yet purchased on the Company’s consolidated balance sheets. See note 9.

 

Other Extended Settlement Trades 

 

When the Company buys or sells a financial instrument that will not settle in the regular timeframe, the Company will account for that purchase or sale on the settlement date rather than the trade date.  In those cases, the Company accounts for the transaction between trade date and settlement date as a derivative (as either a purchase commitment or sale commitment). The Company will record an unrealized gain or unrealized loss on the derivative for the difference between the fair value of the underlying financial instrument as of the reporting date and the agreed upon transaction price.  The Company will determine the fair value of the financial instrument using the methodologies described above.

 

Equity Derivatives

 

The Company may enter into equity derivatives which include listed options as well as other derivative transactions with an equity instrument as the underlying.  Listed options are traded on a recognized liquid exchange and the Company classifies their fair value within level 1 of the valuation hierarchy.  Other equity derivatives (where the underlying equity instrument is publicly traded but the derivative itself is not) are classified within level 2 of the valuation hierarchy.  

 

  

Foreign Currency Forward Contracts 

 

Foreign currency forward contracts are exchange-traded derivatives, which transact on an exchange that is deemed to be active.  The fair value of the foreign currency forward contracts is based on current quoted market prices.  Valuation adjustments are not applied.  These are classified within level 1 of the valuation hierarchy. See note 9.

 

24

 

Investments in Certain Entities that Calculate NAV Per Share (or its Equivalent)

 

The following table presents additional information about investments in certain entities that calculate NAV per share (regardless of whether the “practical expedient” provisions of FASB ASC 820 have been applied), which are measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022.

 

   

Fair Value March 31, 2023

   

Unfunded Commitments

   

Redemption Frequency

   

Redemption Notice Period

 

Other investments, at fair value

                               

CREO JV (a)

  $ 5,316     $ 10,065       N/A       N/A  

U.S. Insurance JV (b)

    3,059       N/A       N/A       N/A  

SPAC Fund (c)

    554       N/A    

Quarterly after 1 year lock up

   

30 days

 
    $ 8,929                          

 

   

Fair Value December 31, 2022

   

Unfunded Commitments

   

Redemption Frequency

   

Redemption Notice Period

 

Other investments, at fair value

                               

CREO JV (a)

  $ 6,568     $ 8,464       N/A       N/A  

U.S. Insurance JV (b)

    3,459       N/A       N/A       N/A  

SPAC Fund (c)

    527       N/A    

Quarterly after 1 year lock up

   

30 days

 
    $ 10,554                          

  

  N/A Not Applicable
  (a) The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs collateralized by mostly commercial real estate mortgage-backed loans.  See note 4.
 

(b)

The U.S. Insurance JV invests in USD denominated debt issued by small and medium size insurance and reinsurance companies. 

 

(c)

The SPAC Fund invests in equity interests of SPACs.

 

 

 

9. DERIVATIVE FINANCIAL INSTRUMENTS

 

FASB ASC 815, Derivatives and Hedging (“FASB ASC 815”), provides for optional hedge accounting. When a derivative is deemed to be a hedge and certain documentation and effectiveness testing requirements are met, reporting entities can record all or a portion of the change in the fair value of a designated hedge as an adjustment to OCI rather than as a gain or loss in the statements of operations. To date, the Company has not designated any derivatives as hedges under the provisions included in FASB ASC 815.

 

All of the derivatives that the Company enters into contain master netting arrangements.  If certain requirements are met, the offsetting provisions included in FASB ASC 210, Balance Sheet (“ASC 210”), allow (but do not require) the reporting entity to net the asset and liability on the consolidated balance sheets. It is the Company’s policy to present the derivative assets and liabilities on a net basis if the conditions of ASC 210 are met.  However, in general the Company does not enter in offsetting derivatives with the same counterparties.  Therefore, in all periods presented, no derivatives are presented on a net basis. 

 

Derivative financial instruments are recorded at fair value. If the derivative was entered into as part of the Company’s broker-dealer operations, it will be included as a component of investments-trading or trading securities sold, not yet purchased. If it is entered into as a hedge for another financial instrument included in other investments, at fair value then the derivative will be included as a component of other investments, at fair value.

 

The Company may, from time to time, enter into derivatives to manage its risk exposures arising from (i) fluctuations in foreign currency rates with respect to the Company’s investments in foreign currency denominated investments; (ii) the Company’s investments in interest sensitive investments; and (iii) the Company’s facilitation of mortgage-backed trading. Derivatives entered into by the Company, from time to time, may include (a) foreign currency forward contracts; (b) purchase and sale agreements of TBAs and other forward agency MBS contracts; and (c) other extended settlement trades.

 

TBAs are forward contracts to purchase or sell MBS with collateral that remains “to be announced” until just prior to the trade settlement date. In addition to TBAs, the Company sometimes enters into forward purchases or sales of agency MBS where the underlying collateral has been identified.  These transactions are referred to as other forward agency MBS contracts.  TBAs and other forward agency MBS contracts are accounted for as derivatives by the Company under ASC 815.  The settlement of these transactions is not expected to have a material effect on the Company’s consolidated financial statements.

 

In addition to TBAs and other forward agency MBS contracts as part of the Company’s broker-dealer operations, the Company may from time to time enter into other securities or loan trades that do not settle within the normal securities settlement period. In those cases, the purchase or sale of the security or loan is not recorded until the settlement date.  However, from the trade date until the settlement date, the Company’s interest in the security is accounted for as a derivative as either a forward purchase commitment or forward sale commitment.  The Company will classify the related derivative either within investments-trading or other investments, at fair value depending on where it intends to classify the investment once the trade settles.

 

Derivatives involve varying degrees of off-balance sheet risk, whereby changes in the level or volatility of interest rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of its carrying amount. Depending on the Company’s investment strategy, realized and unrealized gains and losses are recognized in principal transactions and other income or in net trading in the Company’s consolidated statements of operations on a trade date basis.

 

The Company may, from time to time, enter into the following derivative instruments.

 

Equity Derivatives

 

A significant portion of the Company’s equity holdings are carried at fair value.  The Company hedges a portion of this exposure by entering into equity derivatives such as puts and short call options from time to time.  These derivative positions are carried at fair value as a component of other investments, at fair value and other investments sold, not yet purchased in the Company’s consolidated balance sheets.  As of  March 31, 2023 and December 31, 2022, the Company had no options. From time to time, the Company may also enter into forward purchase commitments for equity securities.  

 

In addition, the Company may engage in advisory transactions that result in a receivable that can be paid in cash or a variable number of equity instruments.  In such instances, the Company would record the receivable as a component of other assets in its consolidated balance sheet and record the equity component as an embedded derivative.  All equity derivatives are carried at fair value as a component of other investments, at fair value or other investments sold, not yet purchased in the Company’s consolidated balance sheets. As of   March 31, 2023 and December 31, 2022, the Company had no embedded equity derivatives.  

 

The Company also hedges a portion of the exposure from these equity investments by entering into short trades.  These short trades are not treated as derivatives and are carried as a component of other investments sold, not yet purchased.  See Note 7.

 

TBAs and Other Forward Agency MBS Contracts 

 

The Company enters into TBAs and other forward agency MBS transactions for three main reasons.

 

 

(i)

The Company trades U.S. government agency obligations.  In connection with these activities, the Company may be required to maintain inventory in order to facilitate customer transactions.  In order to mitigate exposure to market risk, the Company may enter into the purchase and sale of TBAs and other forward agency MBS contracts.

 

(ii)

The Company also enters into TBAs and other forward agency MBS contracts in order to assist clients (generally small to mid-size mortgage loan originators) in hedging the interest rate risk associated with the mortgages owned by these clients.

 

(iii)

Finally, the Company may enter into TBAs and other forward agency MBS contracts on a speculative basis.

 

The Company carries the TBAs and other forward agency MBS contracts at fair value and includes them as a component of investments-trading or trading securities sold, not yet purchased in the Company’s consolidated balance sheets. At March 31, 2023, the Company had open TBA and other forward MBS purchase agreements in the notional amount of $ 691,500 and open TBA and other forward MBS sale agreements in the notional amount of $716,400. At December 31, 2022, the Company had open TBA and other forward agency MBS purchase agreements in the notional amount of $535,000 and open TBA and other forward agency MBS sale agreements in the notional amount of $556,780.

 

26

 

Other Extended Settlement Trades

 

When the Company buys or sells a financial instrument that will not settle in the regular timeframe, the Company will account for that purchase or sale on the settlement date rather than the trade date.  In those cases, the Company accounts for the transaction between trade date and settlement date as either a forward purchase commitment or a forward sale commitment, both considered derivatives.  The Company will record an unrealized gain or unrealized loss on the derivative for the difference between the fair value of the underlying financial instrument as of the reporting date and the agreed upon transaction price. As of  March 31, 2023  and  December 31, 2022, the Company had no open forward purchase or sales commitments.



Foreign Currency Forward Contracts 

 

The Company invests in foreign currency denominated investments that expose it to fluctuations in foreign currency rates, and, therefore, the Company may, from time to time, hedge such exposure by using foreign currency forward contracts.  The Company carries foreign currency forward contracts at fair value and includes them as a component of other investments, at fair value in the Company’s consolidated balance sheets.  As of March 31, 2023 and December 31, 2022, the Company had no outstanding foreign currency forward contracts. 

 

The following table presents the Company’s derivative financial instruments and the amount and location of the fair value (unrealized gain / (loss)) recognized in the consolidated balance sheets as of March 31, 2023 and December 31, 2022.  

 

 

DERIVATIVE FINANCIAL INSTRUMENTS-BALANCE SHEET INFORMATION

(Dollars in Thousands)

 

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815

 

Balance Sheet Classification

 

March 31, 2023

   

December 31, 2022

 

TBAs and other forward agency MBS

 

Investments-trading

  $ 4,369     $ 4,669  

TBAs and other forward agency MBS

 

Trading securities sold, not yet purchased

    (6,193 )     (1,177 )
        $ (1,824 )   $ 3,492  

 

The following tables present the Company’s derivative financial instruments and the amount and location of the net gain (loss) recognized in the consolidated statements of operations.

 

 

DERIVATIVE FINANCIAL INSTRUMENTS-STATEMENT OF OPERATIONS INFORMATION

(Dollars in Thousands)

 

       

Three Months Ended March 31,

 

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815

 

Income Statement Classification

 

2023

   

2022

 

TBAs and other forward agency MBS

 

Revenue-net trading

  $ 388     $ 2,638  
        $ 388     $ 2,638  

 

27

 
 

10. COLLATERALIZED SECURITIES TRANSACTIONS

 

Matched Book Repo Business

 

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.  

 

Gestation Repo

 

For the periods presented, all of the Company's matched book repo business consisted of gestation repo transactions.  Gestation repo involves entering into repo and reverse repo transactions 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.

 

Gestation trades can be structured in two ways:

 

On Balance Sheet: The Company executes a reverse repo with the borrower and a matching repo (with the same collateral and maturity date) with the lender. In this case the Company is a principal to each trade and is borrowing from one counterparty and lending to another and earning net interest margin. These transactions are referred to by the Company as on balance sheet gestation repo trades.

 

Agency Repo: Similar to the on balance sheet repo, the Company first executes a reverse repo with the borrower and a matching repo (with the same collateral and maturity date) with the lender. However, in this case, all three parties (i.e., borrower, lender, and the Company) simultaneously enter into an assignment agreement. The effect of this assignment is to remove the Company as principal to the reverse repo and repo and have the lender and borrower directly face each other in a repo trade. The Company receives a fee for its role in arranging the financing. These transactions are referred to by the Company as agency gestation repo trades.

 

Bankruptcy of Gestation Counterparty

 

As of June 30, 2022, the Company had an outstanding reverse repo balance with First Guaranty Mortgage Corporation (“FGMC”) totaling $269,228. Effective June 30, 2022, FGMC filed for bankruptcy. Subsequent to June 30, 2022, the Company issued a default notice to FGMC under the reverse repo. The Company took possession of the collateral and began liquidating it.

 

As of  March 31, 2023 and December 31, 2022, the Company had liquidated all of the collateral with the exception of $11,164 and $13,506 of residential mortgage loans, respectively. These loans are carried at fair value and are included in investments-trading in the consolidated balance sheets.

 

During the year ended December 31, 2022, the Company recorded a gross loss of $5,454 in connection with the FGMC reverse repo. Of the $5,454 loss, $5,244 was recorded as a reduction in net trading revenue and $210 was recorded in professional fees and other operating expense in the Company's statement of operations. The Company has filed an unsecured claim under the bankruptcy proceeding, related to this loss but does not expect to receive a material recovery. To the extent any recovery of this loss is received, the Company will recognize it on a cash basis as received, as a component of net trading revenue.  In connection with the loss, the Company recorded a reversal of accrued incentive compensation of $1,753 and, therefore, the net impact to the Company's earnings during the year ended December 31, 2022 was $3,701.

 

During the three months ended March 31, 2023, the Company recorded an additional loss of $1,165 which is included as a component of net trading revenue related to the decline in fair value of the remaining collateral.  As of March 31, 2023, the Company has remaining collateral related to the FGMC reverse repo of $11,164 carried at fair value as a component of investments-trading.  

 

Other Repo Transactions 

 

In addition to the Company’s matched book repo business, the Company may also enter into reverse repos to acquire securities to cover short positions or as an investment.  Additionally, the Company may enter into repos to finance the Company’s securities positions held in inventory.  These repo and reverse repo agreements are generally cleared on a bilateral or triparty basis; no clearing broker is involved. 

 

Repo Information 

 

As of  March 31, 2023 and December 31, 2022, the Company held reverse repos of $381,813 and $437,692, respectively, and the fair value of collateral received under reverse repos was $385,581 and $440,681, respectively.  

 

As of  March 31, 2023 and December 31, 2022, the Company held repos of $ 395,226 and $452,797, respectively, and the fair value of securities and cash pledged as collateral under repos was $396,600 and $454,770, respectively. These amounts include collateral for reverse repos that were re-pledged as collateral for repos.

 

Concentration 

 

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. 

 

28

 

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, 2023 and December 31, 2022, the Company’s gestation reverse repos shown in the tables below represented balances from 8 and 8 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 (net interest margin and fee revenue) was $4,381 for the three months ended March 31, 2023. 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. 



Detail 

 

ASC 210 provides the option to present reverse repo and repo on a net basis if certain netting conditions are met.  The Company presents all repo and reverse repo transaction, as well as counterparty cash collateral (see note 13), on a gross basis even if the underlying netting conditions are met.  The amounts in the table below are presented on a gross basis.

 

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, 2023

 

   

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)

  $ -     $ 395,226     $ -     $ -     $ 395,226  
    $ -     $ 395,226     $ -     $ -     $ 395,226  

 

   

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)

  $ -     $ 381,813     $ -     $ -     $ 381,813  
    $ -     $ 381,813     $ -     $ -     $ 381,813  

 

 

 

 

SECURED BORROWINGS

(Dollars in Thousands)

December 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)

  $ -     $ 452,797     $ -     $ -     $ 452,797  
    $ -     $ 452,797     $ -     $ -     $ 452,797  

 

   

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)

  $ -     $ 437,692     $ -     $ -     $ 437,692  
    $ -     $ 437,692     $ -     $ -     $ 437,692  

 

29

 
 

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 statement of cash flows. Any excess distributions would be considered as return of investment 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 24.

 

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)

 

   

INSU Acquisition Corp. III

   

Dutch Real Estate Entities

   

SPAC Sponsor Entities and Other

   

Total

 

January 1, 2023

  $ -     $ 5,530     $ 3,399     $ 8,929  

Investments / advances

    -       -       736       736  

Distributions / repayments

    -       -       (1 )     (1 )

Reclasses to (from)

    -       -       (29 )     (29 )

Earnings / (loss) realized

    -       142       (537 )     (395 )

March 31, 2023

  $ -     $ 5,672     $ 3,568     $ 9,240  

 

   

INSU Acquisition Corp. III

   

Dutch Real Estate Entities

   

SPAC Sponsor Entities and Other

   

Total

 

January 1, 2022

  $ 4,543     $ 5,600     $ 38,095     $ 48,238  

Investments / advances

    1,355       -       1,259       2,614  

Distributions / repayments

    -       -       (77 )     (77 )

Reclasses to (from)

    -       -       (20,915 )     (20,915 )

Earnings / (loss) realized

    (5,898 )     (70 )     (14,963 )     (20,931 )

December 31, 2022

  $ -     $ 5,530     $ 3,399     $ 8,929  

 

Dutch Real Estate Entities include: (i) Amersfoot Office Investment I Cooperatief U. A. (“AOI”), a company based in the Netherlands that invests in real estate, and (ii) CK Capital Partners B.V. (“CK Capital”), a company based in the Netherlands that manages investments in real estate.  See note 24.  INSU Acquisition Corp. III completed its $218 million IPO in December 2020 and was liquidated in December 2022 without completing a business combination within the required time period. See note 4.  The amounts included as SPAC Sponsor Entities and other represent the Company's investment in SPAC sponsor entities that have not yet completed a business combination.  If these SPAC sponsor entities are unsuccessful in completing a business combination and the underlying SPAC liquidates, the Company will likely receive no distributions in kind or in cash related to these investments and the remaining balances will be recorded as a component of loss from equity method investments in the consolidated statement of operations.

 

30

 
 

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 ASC 842, the Company determines if an arrangement is a lease at the inception date of the contract. Then, the Company measures the lease liability using an incremental borrowing rate that 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, 2023, all of the leases to which the Company was a party were operating leases.  The weighted average remaining term of the leases was 5.4 years.  The weighted average discount rate for the leases was 4.62%.

 

Maturities of operating lease liability payments consisted of the following.

 

FUTURE MATURITY OF LEASE LIABILITIES

(Dollars in Thousands)

 

   

As of March 31, 2023

 

2023 - remaining

  $ 2,033  

2024

    2,173  

2025

    1,797  

2026

    1,509  

2027

    1,517  

Thereafter

    2,251  

Total

    11,280  

Less imputed interest

    (1,360 )

Lease obligation

  $ 9,920  

 

During the three months ended March 31, 2023 and 2022, total cash payments of $668  and  $535, 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, 2023, rent expense, net of sublease income of $26, was $630. For the three months ended March 31, 2022, rent expense, net of sublease income of $25, was $639.

 

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13.  OTHER RECEIVABLES, OTHER ASSETS, ACCOUNTS PAYABLE AND OTHER LIABILITIES

 

Other receivables consisted of the following.

 

OTHER RECEIVABLES

(Dollars in Thousands)

 

   

March 31, 2023

   

December 31, 2022

 

Asset management fees receivable

  $ 1,019     $ 936  

New issue fee receivable

    -       167  

Cash collateral due from counterparties

    2,145       4,301  

Accrued interest receivable and dividend receivable

    2,047       2,561  

Revenue share receivable

    257       138  

Agency repo income receivable

    543       806  

Miscellaneous other receivables

    628       618  

Other receivables

  $ 6,639     $ 9,527  

 

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.

 

New issue fee receivable represents fees due for new issue and advisory services. 

 

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). 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). 

 

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.

 

Agency repo income receivable represents income receivable on gestation repo trades.  See note 10.

 

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, 2023

   

December 31, 2022

 

Deferred costs

  $ 102     $ 133  

Prepaid expenses

    1,669       1,325  

Deposits

    453       450  

Furniture, equipment, and leasehold improvements, net

    1,424       1,472  

Intangible assets