0001270436 Cohen & Co Inc. false --12-31 Q1 2024 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 1,926,838 1,926,838 1,893,747 1,893,747 318,332 367,491 0 0 0 0 3 0 0 0 0 2 12.00 9.58 9.71 49,614 1,489 0 6.0 7.0 10 4,983,557 10 10 0.25 557 195 362 59 389 448 498 584 86 10 3 0 false false false false Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows 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 LLC Units had been converted at the beginning of the period. Unallocated assets primarily include: (i) amounts due from related parties; (ii) furniture and equipment, net; and (iii) 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. Represents the interest rate in effect as of the last day of the reporting period. Goodwill and intangible assets are allocated to the Capital Markets and Asset Management business segments as indicated in the tables 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 and the CREO JV. The U.S. Insurance JV invests in U.S. Dollar ("USD") denominated debt issued by small insurance and reinsurance companies. The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans. According to ASC 820, these investments are not categorized within the valuation hierarchy. 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. The U.S. Insurance JV invests in USD denominated debt issued by small and medium size insurance and reinsurance companies. 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 and the CREO JV. The U.S. Insurance JV invests in USD denominated debt issued by small insurance and reinsurance companies. The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans. According to ASC 820, these investments are not categorized within the valuation hierarchy. 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, 2024 on a combined basis was 21.67% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity. The LLC Units 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 LLC Units 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 LLC Units are not included in the computation of basic earnings per share. These LLC 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. 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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, 2024

 

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: (215701-9555 

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  April 29, 2024, there were 1,926,838 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, 2024

  



 

 

 

 

Page 

PART I. FINANCIAL INFORMATION

 



 

 

Item 1.

Financial Statements (Unaudited)

5



 

 

 

Consolidated Balance Sheets—March 31, 2024 and December 31, 2023

5



 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)—Three Months Ended March 31, 2024 and 2023

6



 

 

 

Consolidated Statements of Changes in Equity—Three Months Ended March 31, 2024 and 2023

7



 

 

 

Consolidated Statements of Cash Flows—Three Months Ended March 31, 2024 and 2023

9



 

 

 

Notes to Consolidated Financial Statements (Unaudited)

10



 

 

Item 2.

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

56



 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

79



 

 

Item 4.

Controls and Procedures

80



 

Part II. OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

81



 

 

Item 1A.

Risk Factors

81



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

82



 

 

Item 3. Defaults Upon Senior Securities 82
     
Item 4. Mine Safety Disclosures 82
     
Item 5. Other Information 82
     

Item 6.

Exhibits

83



 

Signatures

84

 

2

 

 

 

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 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, 2023. 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;
  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 we sponsor, uncertainty of whether the SPACs in which we invest and those we sponsor will consummate a business combination, 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 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 which we conduct business; and

 

the potential for litigation and other regulatory liability.

 

3

 

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 any public conference calls that we may conduct (including the scheduled dates, times, and the methods by which investors and others can listen to any of 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; and "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.

 

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

 

4

 

 

 

PART I. FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS.

 

COHEN & COMPANY INC.

 

CONSOLIDATED BALANCE SHEETS 

(Dollars in Thousands) 

 

  

March 31, 2024

     
  

(unaudited)

  

December 31, 2023

 

Assets

        

Cash and cash equivalents

 $11,829  $10,650 

Receivables from brokers, dealers, and clearing agencies

  68,105   66,801 

Due from related parties

  998   772 

Other receivables

  6,784   5,373 

Investments-trading

  165,903   181,328 

Other investments, at fair value

  59,533   72,217 

Receivables under resale agreements

  692,438   408,408 

Investments in equity method affiliates

  43,281   14,241 

Deferred income taxes

  1,639   1,580 

Goodwill

  109   109 

Right-of-use asset - operating leases

  7,000   7,541 

Other assets

  3,706   3,741 

Total assets

 $1,061,325  $772,761 
         

Liabilities

        

Payables to brokers, dealers, and clearing agencies

 $110,856  $111,085 

Accounts payable and other liabilities

  10,104   8,115 

Due to related parties

  437   - 

Accrued compensation

  13,176   17,268 

Lease liability - operating leases

  7,632   8,216 

Trading securities sold, not yet purchased

  57,115   65,751 

Other investments sold, not yet purchased, at fair value

  20,217   24,742 

Securities sold under agreements to repurchase

  690,900   408,203 

Redeemable financial instruments

  7,868   7,868 

Debt

  29,697   29,716 

Total liabilities

  948,002   680,964 
         

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, 1,926,838 and 1,893,747 shares issued and outstanding, respectively, including 318,332 and 367,491 unvested or restricted share awards, respectively

  19   19 

Additional paid-in capital

  75,314   74,594 

Accumulated other comprehensive loss

  (969)  (944)

Accumulated deficit

  (30,638)  (32,014)

Total stockholders' equity

  43,753   41,682 

Non-controlling interest

  69,570   50,115 

Total equity

  113,323   91,797 

Total liabilities and equity

 $1,061,325  $772,761 

( 

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

 

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,

 
  

2024

  

2023

 

Revenues

        

Net trading

 $9,848  $8,210 

Asset management

  2,717   2,025 

New issue and advisory

  24,388   900 

Principal transactions and other income (loss)

  (18,389)  (2,311)

Total revenues

  18,564   8,824 
         

Operating expenses

        

Compensation and benefits

  14,839   10,537 

Business development, occupancy, equipment

  1,441   1,301 

Subscriptions, clearing, and execution

  2,086   2,125 

Professional fee and other operating

  3,449   2,200 

Depreciation and amortization

  124   144 

Total operating expenses

  21,939   16,307 
         

Operating (loss)

  (3,375)  (7,483)
         

Non-operating income (expense)

        

Interest expense, net

  (1,666)  (1,592)

Income (loss) from equity method affiliates

  29,045   (395)

Income (loss) before income tax expense (benefit)

  24,004   (9,470)

Income tax expense

  498   584 

Net income (loss)

  23,506   (10,054)

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

  16,270   97 

Enterprise net income (loss)

  7,236   (10,151)

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

  5,213   (7,514)

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

 $2,023  $(2,637)

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

        

Income (loss) per common share-basic:

        

Basic income (loss) per common share

 $1.28  $(1.77)

Weighted average shares outstanding-basic

  1,581,390   1,489,515 

Income (loss) per common share-diluted:

        

Diluted income (loss) per common share

 $1.28  $(1.77)

Weighted average shares outstanding-diluted

  5,645,086   5,487,483 
         

Comprehensive income (loss)

        

Net income (loss)

 $23,506  $(10,054)

Other comprehensive (loss) item:

        

Foreign currency translation adjustments, net of tax of $0

  (51)  45 

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

  (51)  45 

Comprehensive income (loss)

  23,455   (10,009)

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

  21,447   (7,382)

Comprehensive (loss) attributable to Cohen & Company Inc.

 $2,008  $(2,627)

 

See accompanying notes to unaudited consolidated financial statements.

 

6

 

 

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, 2024

                 
   

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, 2023

  $ 27     $ 19     $ 74,594     $ (32,014 )   $ (944 )   $ 41,682     $ 50,115     $ 91,797  

Net income

    -       -       -       2,023       -       2,023       21,483       23,506  

Other comprehensive loss

    -       -       -       -       (15 )     (15 )     (36 )     (51 )

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

    -       -       447       -       (10 )     437       (437 )     -  

Equity-based compensation

    -       -       325       -       -       325       823       1,148  

Shares withheld for employee taxes

    -       -       (52 )     -       -       (52 )     (133 )     (185 )

Dividends/distributions to convertible non-controlling interest

    -       -       -       (647 )     -       (647 )     (1,586 )     (2,233 )

Redemption of convertible non-controlling interest units

    -       -       -       -       -       -       (659 )     (659 )

March 31, 2024

  $ 27     $ 19     $ 75,314     $ (30,638 )   $ (969 )   $ 43,753     $ 69,570     $ 113,323  

 

7

 

   

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 income

    -       -       -       -       10       10       35       45  

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

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

Equity-based compensation and vesting of shares

    -       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  

March 31, 2023

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

    

  

See accompanying notes to unaudited consolidated financial statements.

 

8

 

 

 

 

COHEN & COMPANY INC. 

 

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Operating activities

               

Net income (loss)

  $ 23,506     $ (10,054 )

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

               

Equity-based compensation

    1,148       1,089  

Loss (gain) on other investments, at fair value

    28,924       2,603  

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

    (9,426 )     (5 )

Noncash advisory fees received

    (8,577 )     (492 )

(Income) loss from equity method affiliates

    (29,045 )     395  

Depreciation and amortization

    124       144  

Amortization of discount on debt

    (19 )     149  

Deferred tax provision (benefit)

    (59 )     389  

Change in operating assets and liabilities, net:

               

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

    (1,533 )     9,326  

Change in receivables from / payables to related parties, net

    (226 )     20  

(Increase) decrease in other receivables

    (1,411 )     2,888  

(Increase) decrease in investments-trading

    15,425       13,971  

(Increase) decrease in receivables under resale agreements

    (284,030 )     55,879  

(Increase) decrease in other assets

    551       187  

Increase (decrease) in accounts payable and other liabilities

    38       (4,364 )

Increase (decrease) in accrued compensation

    (4,314 )     (6,002 )

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

    (8,636 )     (36,261 )

Increase (decrease) in securities sold under agreements to repurchase

    282,697       (57,571 )

Net cash provided by (used in) operating activities

    5,137       (27,709 )

Investing activities

               

Purchase of other investments, at fair value

    (25,146 )     (363 )

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

    (213 )     -  

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

    22,383       3,908  

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

    214       -  

Investment in equity method affiliate

    -       (736 )

Distribution from equity method affiliate

    5       1  

Purchase of furniture, equipment, and leasehold improvements

    (99 )     (96 )

Net cash provided by (used in) investing activities

    (2,856 )     2,714  

Financing activities

               

Cash used to net share settle equity awards

    (185 )     (164 )

Cohen & Company Inc. dividends

    (245 )     (215 )

Convertible non-controlling interest distributions

    (569 )     (215 )

Non-convertible non-controlling interest investment

    -       38  

Net cash provided by (used in) financing activities

    (999 )     (556 )

Effect of exchange rate on cash

    (103 )     91  

Net increase (decrease) in cash and cash equivalents

    1,179       (25,460 )

Cash and cash equivalents, beginning of period

    10,650       29,101  

Cash and cash equivalents, end of period

  $ 11,829     $ 3,641  

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

9

 

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 ("REIT").

 

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, 2024, the Company had $2.31 billion in assets under management (“AUM”) of which $1.0 billion was in collateralized debt obligations (“CDOs”). The remaining portion of AUM was 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. 

 

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, gestation 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. In addition, the Company has received financial instruments as consideration for advisory services provided by its Capital Markets business segment, which are included in this segment.  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 gestation repo financing program; and

 

● 

New issue and advisory revenue comprised of (a) origination fees for newly created financial instruments originated by the Company, (b) revenue from advisory services, and (c) revenue associated with arranging and placing the issuance of newly created financial instruments.  

 

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, 2024 and 2023 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, 2023.

 

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, 2023.  

 

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 provide 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.  These ASUs are intended to help stakeholders during the global market-wide reference rate transition period and were to 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, was on a prospective basis.  The adoption of these ASUs did not have a material impact on the Company's consolidated financial statements. See note 20.  

  

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.

 

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.  The Company's adoption of the provisions of ASU 2020-06, effective January 1, 2024, did not have an effect on the Company’s consolidated financial statements.

 

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. Early adoption is permitted.  The Company's adoption of the provisions of ASU 2022-03, effective January 1, 2024, did not have an effect on the Company’s 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.  Early adoption is permitted. The Company's adoption of the provisions of ASU 2032-02, effective January 1, 2024, did not have an effect on the Company’s consolidated financial statements.

 

12

 

B. Recent Accounting Developments 

 

In August 2023, the FASB issued ASU 2023-05, Business Combinations— Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.  The ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification Master Glossary. The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value. The ASU is effective on a prospective basis for all joint ventures with a formation date on or after January 1, 2025. Early adoption of ASU No. 2023-05 is permitted in any interim or annual period in which financial statements have not yet been issued. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

 

In October 2023, the FASB issued ASU 2023-06, Disclosure ImprovementsCodification Amendments in Response to the Securities and Exchange Commission (SEC’”) Disclosure Update and Simplification Initiative. These amendments clarify or improve disclosure and presentation requirements of a variety of topics and align the requirements in the FASB accounting standard codification with the  SEC’s regulations.  The ASU will be effective on the date the related disclosure requirements are removed from Regulation S-X or Regulation S-K by the SEC  and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027.  Early adoption is not permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU are designed to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU is  effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The amendments in this ASU address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this ASU are effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. 

 

In March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for as share-based payment arrangements in accordance with FASB Accounting Standards Codification (FASB ASC) 718, Compensation-Stock Compensation.  The ASU is effective for public business entities for annual periods beginning after December 15, 2024 and interim periods with those annual periods. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

 

In March 2024, the FASB issued ASU 2024-02, Codification Improvements — Amendments to Remove References to the Concepts Statements. The ASU amends the Codification to remove references to various concepts statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas.   The ASU is effective for public business entities for annual periods beginning after December 15, 2024. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

 

13

 

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 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, 2024 and December 31, 2023, the fair value of the Company’s debt was estimated to be $38,824 and $37,474, 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.

  

14

 

 

4. OTHER RECENT BUSINESS TRANSACTIONS OR EVENTS 

 

Consolidation of the SPAC Fund

 

Prior to March 31, 2023, the general partner of the SPAC Fund (“Vellar GP”) had an investment in the SPAC Fund, the potential to earn incentive fees, and did not consolidate the SPAC Fund.  Effective April 1, 2023, all of the investors in the SPAC Fund, other than Vellar GP, redeemed all of their interests in the SPAC Fund. Therefore, effective April 1, 2023, Vellar GP became the sole owner of the SPAC Fund and began consolidating it. The Company owns an interest in and consolidates Vellar GP. Effective April 1, 2023, the Company began consolidating the SPAC Fund as well. The Company recorded the following entry upon consolidation:

  

   

Asset/(Liability)

 

Cash and cash equivalents

  $ 257  

Receivables from brokers, dealers, and clearing agencies

    68,066  

Other investments, at fair value

    40,388  

Other assets

    108  

Accounts payable and other liabilities

    (82,968 )

Other investments sold, not yet purchased

    (25,806 )

Vellar GP's remaining investment in the SPAC Fund

  $ 45  

  

As of  March 31, 2024, all amounts due to the redeeming investors in the SPAC Fund were paid in full.

 

 

15

 
 

5. NET TRADING 

 

Net trading consisted of the following in the periods presented.



NET TRADING

(Dollars in Thousands)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Net realized gains (losses) - trading inventory

  $ 5,415     $ 7,460  

Net unrealized gains (losses) - trading inventory

    966       (2,906 )

Net gains and losses

    6,381       4,554  
                 

Interest income- trading inventory

    1,407       735  

Interest income-reverse repos

    7,879       6,129  

Interest income

    9,286       6,864  
                 

Interest expense-repos

    (7,095 )     (5,454 )

Interest expense-margin payable

    (1,396 )     (1,460 )

Interest expense

    (8,491 )     (6,914 )
                 

Other trading revenue

    2,672       3,706  
                 

Net trading

  $ 9,848     $ 8,210  

  

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, 2024

   

December 31, 2023

 

Deposits with clearing agencies

  $ 250     $ 250  

Unsettled regular way trades, net

    2,198       1,527  

Receivables from clearing agencies

    65,657       65,024  

Receivables from brokers, dealers, and clearing agencies

  $ 68,105     $ 66,801  

 

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



PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

 

   

March 31, 2024

   

December 31, 2023

 

Margin payable

  $ 110,856     $ 111,085  

Payables to brokers, dealers, and clearing agencies

  $ 110,856     $ 111,085  



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 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, 2024

   

December 31, 2023

 

Corporate bonds and redeemable preferred stock

  $ 44,611     $ 53,657  

Derivatives

    2,768       7,470  

Equity securities

    644       928  

Municipal bonds

    20,169       20,572  

Residential mortgage loans

    1,554       3,113  

RMBS

    8       9  

U.S. government agency debt securities

    8,615       6,567  

U.S. government agency MBS and CMOs

    86,264       88,000  

U.S. Treasury securities

    1,270       1,012  

Investments-trading

  $ 165,903     $ 181,328  

 

Substantially all of the Company's investments-trading serve as collateral for the Company's margin loan payable.  See note 6.

 

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, 2024

   

December 31, 2023

 

Corporate bonds and redeemable preferred stock

  $ 20,994     $ 24,355  

Derivatives

    2,382       6,719  

Equity securities

    143       393  

U.S. government agency debt securities

    114       -  

U.S. government agency MBS and CMOs

    1       -  

U.S. Treasury securities

    33,481       34,284  

Trading securities sold, not yet purchased

  $ 57,115     $ 65,751  

 

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, 2024

   

December 31, 2023

 

Equity securities

  $ 27,773     $ 38,038  

Equity derivatives

    956       1,447  

Restricted equity securities

    7,743       2,054  

Corporate bonds and redeemable preferred stock

    522       506  

Fair value receivables

    9,824       9,541  

Interests in SPVs

    4,111       12,609  

CREO JV

    5,362       4,783  

U.S. Insurance JV

    3,111       3,107  

Residential mortgage loans

    131       132  

Other investments, at fair value

  $ 59,533     $ 72,217  

 

As of March 31, 2024, $16,186 of  equity securities, $883 of equity derivatives, and $3,056 of the fair value receivables represented long positions related to share forward arrangements ("SFAs") entered into by the Company. As of   December 31, 2023, $26,079 of unrestricted equity securities, $1,447 of equity derivatives, and $6,278 of the fair value receivables represented long positions related to SFAs entered into by the Company.  See note 9. 

 

Fair value receivables represent receivables (including receivables that are convertible into equity shares) from various counterparties in connection with the Company's advisory business. These receivables are carried at fair value.

 

Interests in SPVs represents interests the Company has received in SPVs as consideration for services provided by CCM, rather than cash.  The SPVs hold convertible notes receivable interests in the counterparties.  The Company does not consolidate the SPVs and carries its interests in the SPVs at fair value.  See note 9 for discussion of the determination of fair value.

 

A total of $883 and $946 of the amounts shown as other investments, at fair value above served as collateral for the Company's margin loan payable as of  March 31, 2024 and December 31, 2023, 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, 2024

   

December 31, 2023

 

Equity securities

  $ 3,371     $ 97  

Share forward liabilities

    16,846       24,645  

Other investments sold, not yet purchased, at fair value

  $ 20,217     $ 24,742  

 

Share forward liabilities represent derivative positions related to SFAs entered into by the Company.  See description of SFAs in note 9.

   

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) or that have fair values that are readily determinable; 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) of  ($28,924) and ($2,603), 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, 2024 and 2023, respectively.

 

The Company recognized net gains (losses) of  $9,426 and $5 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, 2024 and 2023, 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 with inputs that are derived, other than quoted prices, and observable for substantially the full term of the asset or liability; or

 

4.

Pricing models with inputs that 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, 2024 and December 31, 2023, and indicate 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, 2024

(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:

                               

Corporate bonds and redeemable preferred stock

  $ 44,611     $ -     $ 44,611     $ -  

Derivatives

    2,768       -       2,768       -  

Equity securities

    644       429       215       -  

Municipal bonds

    20,169       -       20,169       -  

Residential mortgage loans

    1,554       -       1,554       -  

RMBS

    8       -       8       -  

U.S. government agency debt securities

    8,615       -       8,615       -  

U.S. government agency MBS and CMOs

    86,264       -       86,264       -  

U.S. Treasury securities