Quarterly Report (10-q)

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 September 30, 2019

☐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)

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

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 October 29, 2019, there were 1,194,624 shares of common stock ($0.01 par value per share) of Cohen & Company Inc. (“Common Stock”) outstanding.

Table Of Contents

Cohen & Company Inc.

FORM 10-Q

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2019


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	6

	Consolidated Balance Sheets—September 30, 2019 and December 31, 2018	6

	Consolidated Statements of Operations and Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2019 and 2018	7

	Consolidated Statements of Changes in Equity—Nine Months Ended September 30, 2019 and 2018	8

	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2019 and 2018	10

	Notes to Consolidated Financial Statements (Unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	83

Item 4.	Controls and Procedures	86

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	87

Item 1A.	Risk Factors	87

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87

Item 6.	Exhibits	88

Signatures		89

Table Of Contents

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;

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, 2018. Actual results may differ materially as a result of various factors, some of which are outside our control, including the following:

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

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, including the availability of securities financing from our clearing agency and the Fixed Income Clearing Corporation the (“FICC”) or the availability at prohibitive or excess funding rates;

the ability to attract and retain personnel;

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

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 credit-worthiness 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 facilities;

our continued membership in the FICC;

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.

Table Of Contents

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.

Table Of Contents

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.; “JVB” refers to J.V.B. Financial Group, LLC, a broker-dealer subsidiary; “CCFL” refers to Cohen & Company Financial Limited (formerly known as EuroDekania Management LTD), a subsidiary regulated by the Financial Conduct Authority (formerly known as the Financial Services Authority) in the United Kingdom (the “FCA”); “CCFEL” refers to Cohen & Company Financial (Europe) Limited, a subsidiary regulated by the Central Bank of Ireland ( the “CBI”) and “EuroDekania” refers to EuroDekania (Cayman) Ltd., a Cayman Islands exempted company that is externally managed by CCFL.

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

Table Of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

COHEN & COMPANY INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(



	September 30, 2019
	(unaudited)		December 31, 2018
Assets
Cash and cash equivalents	$	14,130	$	14,106
Receivables from brokers, dealers, and clearing agencies		99,283		129,812
Due from related parties		317		793
Other receivables		5,949		12,072
Investments-trading		243,928		301,235
Other investments, at fair value		6,892		13,768
Receivables under resale agreements		7,052,919		7,632,230
Investment in equity method affiliates		3,410		-
Goodwill		7,992		7,992
Right-of-use asset - operating leases		7,460		-
Other assets		5,142		3,621
Total assets	$	7,447,422	$	8,115,629

Liabilities
Payables to brokers, dealers, and clearing agencies	$	130,004	$	201,598
Accounts payable and other liabilities		10,682		11,452
Accrued compensation		3,664		5,254
Trading securities sold, not yet purchased		90,016		120,122
Securities sold under agreements to repurchase		7,099,614		7,671,764
Deferred income taxes		1,100		2,017
Lease liability - operating leases		8,011		-
Redeemable financial instruments		18,540		17,448
Debt		46,091		43,536
Total liabilities		7,407,722		8,073,191

Commitments and contingencies (See note 20)

Stockholders' Equity:
Voting Non-Convertible Preferred Stock, $0.001 par value per share, 4,983,557 shares authorized, 4,983,557 shares issued and outstanding (see note 17)		5		5
Common Stock, $0.01 par value per share, 100,000,000 shares authorized, 1,217,624 and 1,204,196 shares issued and outstanding, respectively, including 73,715 and 93,479 unvested or restricted share awards, respectively		12		12
Additional paid-in capital		68,949		68,591
Accumulated other comprehensive loss		(1,009)		(908)
Accumulated deficit		(35,293)		(31,926)
Total stockholders' equity		32,664		35,774
Non-controlling interest		7,036		6,664
Total equity		39,700		42,438
Total liabilities and equity	$	7,447,422	$	8,115,629

See accompanying notes to unaudited consolidated financial statements.

Table Of Contents

COHEN & COMPANY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues
Net trading	$	8,479	$	6,816	$	25,873	$	20,193
Asset management		2,018		2,818		5,765		7,827
New issue and advisory		250		-		250		873
Principal transactions and other income		520		2,603		1,688		4,872
Total revenues		11,267		12,237		33,576		33,765

Operating expenses				.
Compensation and benefits		7,017		7,177		19,813		18,960
Business development, occupancy, equipment		770		725		2,476		2,236
Subscriptions, clearing, and execution		2,403		2,433		6,732		6,418
Professional fee and other operating		1,440		1,483		4,309		4,604
Depreciation and amortization		80		63		239		176
Total operating expenses		11,710		11,881		33,569		32,394

Operating income (loss)		(443)		356		7		1,371

Non-operating income (expense)
Interest expense, net		(1,536)		(2,185)		(5,329)		(6,205)
Income (loss) from equity method affiliates		(109)		-		(365)		-
Income (loss) before income tax expense (benefit)		(2,088)		(1,829)		(5,687)		(4,834)
Income tax expense (benefit)		(170)		(595)		(917)		(1,259)
Net income (loss)		(1,918)		(1,234)		(4,770)		(3,575)
Less: Net income (loss) attributable to the non-controlling interest		(702)		(583)		(1,942)		(1,530)
Net income (loss) attributable to Cohen & Company Inc.	$	(1,216)	$	(651)	$	(2,828)	$	(2,045)
Income (loss) per share data (see note 19)
Income (loss) per common share-basic:
Basic income (loss) per common share	$	(1.06)	$	(0.57)	$	(2.48)	$	(1.76)
Weighted average shares outstanding-basic		1,143,909		1,145,323		1,140,328		1,163,572
Income (loss) per common share-diluted:
Diluted income (loss) per common share	$	(1.06)	$	(0.57)	$	(2.48)	$	(1.76)
Weighted average shares outstanding-diluted		1,676,318		1,677,732		1,672,737		1,695,981

Dividends declared per common share	$	-	$	0.20	$	0.40	$	0.60

Comprehensive income (loss)
Net income (loss)	$	(1,918)	$	(1,234)	$	(4,770)	$	(3,575)
Other comprehensive income (loss) item:
Foreign currency translation adjustments, net of tax of $0		(152)		(30)		(127)		(77)
Other comprehensive income (loss), net of tax of $0		(152)		(30)		(127)		(77)
Comprehensive income (loss)		(2,070)		(1,264)		(4,897)		(3,652)
Less: comprehensive income (loss) attributable to the non-controlling interest		(749)		(593)		(1,982)		(1,555)
Comprehensive income (loss) attributable to Cohen & Company Inc.	$	(1,321)	$	(671)	$	(2,915)	$	(2,097)

See accompanying notes to unaudited consolidated financial statements.

Table Of Contents

COHEN & COMPANY INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)


	Cohen & Company Inc.
		Nine Months Ended September 30, 2019
			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, 2018		$	5	$	12	$	68,591	$	(31,926)	$	(908)	$	35,774	$	6,664	$	42,438
Net loss			-		-		-		(1,202)		-		(1,202)		(622)		(1,824)
Other comprehensive income			-		-		-		-		6		6		3		9
Cumulative effect adjustment - adoption of ASU 2016-02			-		-		-		(20)		-		(20)		-		(20)
Acquisition / (surrender) of additional units of consolidated subsidiary, net			-		-		133		-		(14)		119		(119)		-
Equity-based compensation and vesting of shares			-		-		117		-		-		117		55		172
Shares withheld for employee taxes			-		-		(87)		-		-		(87)		(41)		(128)
Purchase and retirement of Common Stock			-		-		(65)		-		-		(65)		-		(65)
Investment in non-controlling interest			-		-		-		-		-		-		2,550		2,550
Dividends/Distributions			-		-		-		(290)		-		(290)		(106)		(396)
March 31, 2019			5		12		68,689		(33,438)		(916)		34,352		8,384		42,736
Net loss			-		-		-		(410)		-		(410)		(618)		(1,028)
Other comprehensive income			-		-		-		-		12		12		4		16
Equity-based compensation and vesting of shares			-		-		130		-		-		130		62		192
Dividends/Distributions			-		-		-		(229)		-		(229)		(107)		(336)
June 30, 2019			5		12		68,819		(34,077)		(904)		33,855		7,725		41,580
Net loss			-		-		-		(1,216)		-		(1,216)		(702)		(1,918)
Other comprehensive income			-		-		-		-		(105)		(105)		(47)		(152)
Equity-based compensation and vesting of shares			-		-		130		-		-		130		60		190
September 30, 2019		$	5	$	12	$	68,949	$	(35,293)	$	(1,009)	$	32,664	$	7,036	$	39,700

See accompanying notes to unaudited consolidated financial statements.

Table Of Contents

COHEN & COMPANY INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)


	Cohen & Company Inc.
	Nine Months Ended September 30, 2018
			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, 2017		$	5	$	12	$	69,202	$	(28,497)	$	(850)	$	39,872	$	8,284	$	48,156
Net loss			-		-		-		(1,474)		-		(1,474)		(677)		(2,151)
Other comprehensive income			-		-		-		-		74		74		33		107
Acquisition / (surrender) of additional units of consolidated subsidiary, net			-		-		84		-		(7)		77		(77)		-
Equity-based compensation and vesting of shares			-		1		86		-		-		87		38		125
Shares withheld for employee taxes			-		-		(51)		-		-		(51)		(24)		(75)
Purchase and retirement of Common Stock			-		-		(71)		-		-		(71)		-		(71)
Dividends/Distributions			-		-		-		(276)		-		(276)		(106)		(382)
March 31, 2018			5		13		69,250		(30,247)		(783)		38,238		7,471		45,709
Net loss			-		-		-		80		-		80		(270)		(190)
Other comprehensive income			-		-		-		-		(106)		(106)		(48)		(154)
Acquisition / (surrender) of additional units of consolidated subsidiary, net			-		-		(101)		-		9		(92)		92		-
Equity-based compensation and vesting of shares			-		-		114		-		-		114		52		166
Shares withheld for employee taxes			-		-		-		-		-		-		-		-
Purchase and retirement of Common Stock			-		(1)		(248)		-		-		(249)		-		(249)
Dividends/Distributions			-		-		-		(236)		-		(236)		(106)		(342)
June 30, 2018			5		12		69,015		(30,403)		(880)		37,749		7,191		44,940
Net loss			-		-		-		(651)		-		(651)		(583)		(1,234)
Other comprehensive income			-		-		-		-		(20)		(20)		(10)		(30)
Acquisition / (surrender) of additional units of consolidated subsidiary, net			-		-		(122)		-		12		(110)		110		-
Equity-based compensation and vesting of shares			-		-		113		-		-		113		53		166
Shares withheld for employee taxes			-		-		-		-		-		-		-		-
Purchase and retirement of Common Stock			-		-		(281)		-		-		(281)		-		(281)
Dividends/Distributions			-		-				(230)		-		(230)		(107)		(337)
September 30, 2018		$	5	$	12	$	68,725	$	(31,284)	$	(888)	$	36,570	$	6,654	$	43,224

See accompanying notes to unaudited consolidated financial statements.

Table Of Contents

COHEN & COMPANY INC.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)



	Nine Months Ended September 30,
	2019		2018
Operating activities
Net income (loss)	$	(4,770)	$	(3,575)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity-based compensation		554		457
Accretion of income on other investments, at fair value		(368)		(1,330)
Realized loss (gain) on other investments, at fair value		1,451		285
(Income) / loss from equity method affiliates		365		-
Change in unrealized (gain) loss on other investments, at fair value		(2,330)		(3,421)
Depreciation and amortization		239		176
Amortization of discount on debt		396		656
Deferred tax provision (benefit)		(917)		(1,270)
Change in operating assets and liabilities, net:
(Increase) decrease in other receivables		6,141		(1,025)
(Increase) decrease in investments-trading		57,307		(17,205)
(Increase) decrease in other assets		(710)		(347)
(Increase) decrease in receivables under resale agreement		579,311		(5,260,413)
Change in receivables from / payables to related parties, net		476		96
Increase (decrease) in accrued compensation		(1,590)		(95)
Increase (decrease) in accounts payable and other liabilities		(1,386)		10,800
Increase (decrease) in trading securities sold, not yet purchased		(30,106)		(10,667)
Change in receivables from / payables to brokers, dealers, and clearing agencies		(41,065)		(5,042)
Increase (decrease) in securities sold under agreements to repurchase		(572,150)		5,291,321
Net cash provided by (used in) operating activities		(9,152)		(599)
Investing activities
Purchase of investments-other investments, at fair value		(1,168)		(25,802)
Sales and returns of principal-other investments, at fair value		9,291		13,092
Investment in equity method affiliate		(3,775)		-
Purchase of furniture, equipment, and leasehold improvements		(94)		(579)
Net cash provided by (used in) investing activities		4,254		(13,289)
Financing activities
Proceeds from draws on revolving credit facility		2,159		-
Repayment of convertible debt		-		(1,461)
Proceeds from redeemable financial instruments		1,268		-
Payments for debt issuance costs		-		(525)
Cash used to net share settle equity awards		(128)		(75)
Purchase and retirement of Common Stock		(65)		(601)
Proceeds from non-controlling interest investment		2,550		-
Non-controlling interest distributions		(213)		(319)
Cohen & Company Inc. dividends		(519)		(742)
Net cash provided by (used in) financing activities		5,052		(3,723)
Effect of exchange rate on cash		(130)		(156)
Net increase (decrease) in cash and cash equivalents		24		(17,767)
Cash and cash equivalents, beginning of period		14,106		22,933
Cash and cash equivalents, end of period	$	14,130	$	5,166

See accompanying notes to unaudited consolidated financial statements.

Table Of Contents

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 “Merger”) with a subsidiary of Alesco Financial Inc. (“AFN”), a publicly traded real estate investment trust.

As a result of the Merger, AFN contributed substantially all of its assets into Cohen Brothers in exchange for newly issued membership units 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 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 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 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 fixed income markets. As of September 30, 2019, the Company had $2.67 billion in assets under management (“AUM”) of which 82.4%, or $2.20 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-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, LLC; “JVB” refers to J.V.B. Financial Group LLC, a broker-dealer subsidiary; “CCFL” refers to Cohen & Company Financial Limited (formerly known as EuroDekania Management LTD), a subsidiary regulated by the Financial Conduct Authority (formerly known as Financial Services Authority) in the United Kingdom; “CCFEL” refers to Cohen & Company Financial (Europe) Limited, a subsidiary regulated by the Central Bank of Ireland in Ireland; and “EuroDekania” refers to EuroDekania (Cayman) Ltd., a Cayman Islands exempted company that is externally managed by CCFL.

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 repurchase agreement (“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, Small Business Administration (“SBA”) loans, 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 also offers execution and brokerage services for equity products. The Company operates its capital markets activities primarily through its subsidiaries: JVB in the United States, and CCFL and CCFEL in Europe.

Table Of Contents

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 has made for the purpose of earning an investment return rather than investments made to support the Company’s trading, matched book repo, or other Capital Markets business segment activities. These investments are a component of the Company’s other investments, at fair value and investment in equity method affiliates in our consolidated balance sheets.

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;

Net interest income 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.

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 nine months ended September 30, 2019 and 2018 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, 2018.

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, 2018.

Effective June 1, 2019, the Company changed its accounting policy regarding the netting of reverse repurchase agreement and repurchase agreement transactions and updated prior periods’ balances to be consistent with this new accounting policy. This change resulted in an increase in the reverse repurchase agreement and repurchase agreement amounts included in the consolidated balance sheet as of December 31, 2018 of $2,461,177. No other amounts previously presented were impacted by this change. See note 10.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Adoption of New Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Subsequent to that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2014-09 but they did not change the core principal of ASU 2014-09. The new guidance requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the new guidance on January 1, 2018 using the retrospective transition method. This ASU excludes from its scope revenue recognition related to items the Company records as a component of net trading and principal transactions

Table Of Contents

within its consolidated statements of operations and therefore this ASU had no impact on these items. In terms of asset management and other revenue, the main impact of Topic 606 related to the timing of the recognition of incentive management fees in certain cases. Prior to the adoption of Topic 606, the Company would recognize incentive fees when they were fixed and determinable. Under Topic 606, the Company is required to recognize incentive fees when they are probable and there is not a significant chance of reversal in the future. For the asset management contracts in place at the time of adoption, this change in policy did not result in any actual change in revenue that had already been recognized and therefore there was no transition adjustment necessary.

In February 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10). The amendments in ASU 2016-01, among other things, require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and liabilities by measurement category and form of financial asset; and eliminate the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The Company’s adoption of the provisions of ASU 2016-01, effective January 1, 2018 did not have an effect on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance (subsequently updated with ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, and ASU 2019-01), lessees will be required to recognize the following for all leases with the exception of short-term leases: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged. The Company adopted the provisions of the new guidance effective January 1, 2019. The Company recorded the following: (a) a right of use asset of $8,416, (b) a lease commitment liability of $8,860, (c) a reduction in retained earnings from cumulative effect of adoption of $20, (d) an increase in other receivables of $18, and (e) a reduction in other liabilities of $406. See note 12.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU provide cash flow statement classification guidance on eight specific cash flow presentation issues with the objective of reducing existing diversity in practice. The Company’s adoption of the provisions of ASU 2016-15, effective January 1, 2018 did not have an effect on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. The amendments in this ASU require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception of an intra-entity transfer of an asset other than inventory. The Company’s adoption of the provisions of ASU 2016-16, effective January 1, 2018 did not have an effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this ASU clarify the definition of a business and affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The Company’s adoption of the provisions of ASU 2017-01, effective January 1, 2018 did not have an effect on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The amendments in this ASU clarify that a financial asset within the scope of this topic may include nonfinancial assets transferred within a legal entity to counterparty. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The Company’s adoption of the provisions of ASU 2017-05, effective January 1, 2018 did not have an effect on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718, which previously only included share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The Company’s adoption of the provisions of ASU 2018-07, effective January 1, 2019 did not have an effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs, Premium Amortization on Purchased Callable Debt Securities (Sub-Topic 310-20). The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to

Table Of Contents

maturity. The Company’s adoption of the provisions of ASU 2017-08, effective January 1, 2019 did not have an effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this ASU provide guidance on determining those changes to the terms and conditions of share-based payment awards that require an entity to apply modification accounting. The Company’s adoption of the provisions of ASU 2017-09, effective January 1, 2018 did not have an effect on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivative and Hedging – Targeted Improvements to Accounting for Hedging Activities (Topic 815). The amendments in this ASU refine and expand hedge accounting for both financial and commodity risks and contain provisions to create more transparency and clarify how economic results are presented. The Company’s adoption of the provisions of ASU 2017-12, effective January 1, 2019 did not have an effect on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU provide the option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. The Company’s adoption of the provisions of ASU 2018-02, effective January 1, 2019 did not have an effect on the Company’s consolidated financial statements.

B. Recent Accounting Developments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date to be based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted beginning after December 15, 2018, 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.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU eliminate Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and should be applied on a prospective basis. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, by removing certain disclosure requirements related to the valuation hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. 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 October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Target Improvements to Related Party Guidance for Variable Interest Entities. The ASU made targeted changes to the related party consolidation guidance. The new guidance changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity will need to consider indirect interests held through related parties under common control on a proportionate basis under the new guidance, rather than in their entirety, as has been the case under current guidance. The guidance is effective in annual periods beginning after December 15, 2019 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

Table Of Contents

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. 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; and derivatives held by the Company.

Cash equivalents: Cash equivalents are carried at historical cost, which is assumed to approximate fair value. The estimated fair value measurement of 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.

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 debt was assumed in the Merger and recorded at fair value as of that date. As of September 30, 2019 and December 31, 2018, the fair value of the Company’s debt was estimated to be $53,835 and $50,159, 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; and other investments, at fair value. See notes 8 and 9. 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.

Table Of Contents

4. NEW BUSINESS

U.S. Insurance JV

On May 16, 2018, the Company committed to invest up to $3,000 in a newly formed joint venture (the “U.S. Insurance JV”) with an outside investor who committed to invest approximately $63,000 of equity in the U.S. Insurance JV. The U.S. Insurance JV was formed for the purposes of investing in debt issued by small and medium sized U.S. and Bermuda insurance and reinsurance companies and is managed by the Company. The Company is required to invest 4.5% of the total equity of the U.S. Insurance JV with an absolute limit of $3,000. The U.S. Insurance JV may use leverage to grow its assets.

The insurance company debt that will be funded by the U.S. Insurance JV may be originated by the Company and there may be origination fees earned in connection with such transactions. The Company will also earn management fees as manager of the U.S. Insurance JV. The Company is entitled to a quarterly base management fee, an annual incentive fee (if certain return hurdles are met), and an additional incentive fee upon the liquidation of the portfolio (if certain return hurdles are met).

The Company has elected the fair value option in accordance with the provisions of FASB ASC 820, Fair Value Measurements (“FASB ASC 820”) to account for its investment in the U.S. Insurance JV. The investment is included in other investments at fair value on the consolidated balance sheets and gains and losses (both realized and unrealized) are recognized in the consolidated statement of operations as a component of principal transactions and other income. Because the U.S. Insurance JV has the attributes of investment companies as described in FASB ASC 946-15-2, the Company will estimate the fair value of its investment using the net asset value (“NAV”) per share (or its equivalent) as of the reporting date in accordance with the “practical expedient” provisions related to investments in certain entities that calculate net asset value per share (or its equivalent) included in FASB ASC 820 for all entities. See note 8.

SPAC Fund

On August 6, 2018, the Company invested in and became the general partner of a newly formed partnership (the “SPAC Fund”) for the purposes of investing in the equity interests of special purpose acquisition companies (“SPACs”). The Company is the manager of the SPAC Fund. The Company has invested $630 in the SPAC Fund. The Company is entitled to a quarterly base management fee based on a percentage of the NAV of the SPAC Fund and an annual incentive allocation based on the actual returns earned by the SPAC Fund.

The Company has elected the fair value option in accordance with the provisions of FASB ASC 820 to account for its investment in the SPAC Fund. The investment is included in other investments, at fair value on the consolidated balance sheets and gains and losses (both realized and unrealized) are recognized in the statement of operations as a component of principal transactions and other revenue. Because the SPAC Fund has the attributes of investment companies as described in FASB ASC 946-15-2, the Company will estimate the fair value of its investment using the NAV per share (or its equivalent) as of the reporting date in accordance with the “practical expedient” provisions related to investments in certain entities that calculate net asset value per share (or its equivalent) included in FASB ASC 820 for all entities. See note 7.

ViaNova Capital Group LLC

In 2018, the Company formed a wholly-owned subsidiary, ViaNova Capital Group LLC (“ViaNova”), for the purpose of building a residential transition loan (“RTL”) business. RTLs are small balance commercial loans that are secured by first lien mortgages used by professional investors and real estate developers to finance the purchase and rehabilitation of residential properties. The business of ViaNova includes buying, aggregating, and distributing these loans to produce superior risk-adjusted returns through the pursuit of opportunities overlooked by commercial banks. The Company consolidates ViaNova.

On November 20, 2018, ViaNova entered into a Warehousing Credit and Security Agreement with LegacyTexas Bank (the “LegacyTexas Credit Facility”) with an effective date of November 16, 2018. The LegacyTexas Credit Facility was amended on May 4, 2019 and again on September 25, 2019. The LegacyTexas Credit Facility supports the buying, aggregating, and distributing of residential loans performed by the business of ViaNova. See Notes 5, 13, and 16.

Insurance Acquisition Corporation (the “Insurance SPAC”)

The Company is the sponsor of the Insurance SPAC, a blank check company that will seek to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (each a “Business Combination”).

Table Of Contents

45-day option to purchase up to 1,965,000 additional SPAC Units solely to cover over-allotments, if any (the “Over-Allotment Option”); and on March 21, 2019, the Underwriters exercised the Over-Allotment Option in full. Immediately following the completion of the IPO, there were an aggregate of 20,653,333 shares of SPAC Common Stock issued and outstanding.

If the Insurance SPAC fails to consummate a Business Combination within the first 18 months following the IPO, its corporate existence will cease except for the purposes of winding up its affairs and liquidating its assets.

The Operating LLC is the manager and a member of each of two entities: Insurance Acquisition Sponsor, LLC and Dioptra Advisors, LLC (together, the “Sponsor Entities”). The Sponsor Entities purchased 375,000 of the Insurance SPAC’s placement units in a private placement that occurred simultaneously with the IPO for an aggregate purchase price of $3,750, or $10.00 per placement unit. Each placement unit consists of one share of SPAC Common Stock and one-half of one warrant (the “Placement Warrant”). The placement units are identical to the SPAC Units sold in the IPO except (i) the shares of SPAC Common Stock issued as part of the placement units and the Placement Warrants will not be redeemable by the Insurance SPAC, (ii) the Placement Warrants may be exercised by the holders on a cashless basis, (iii) the shares of SPAC Common Stock issued as part of the placement units, together with the Placement Warrants, are entitled to certain registration rights, and (iv) for so long as they are held by the IPO underwriter, the placement units will not be exercisable more than five years following the effective date of the registration statement filed by the Insurance SPAC in connection with the IPO. Subject to certain limited exceptions, the placement units (including the underlying Placement Warrants and SPAC Common Stock and the shares of SPAC Common Stock issuable upon exercise of the Placement Warrants) will not be transferable, assignable, or salable until 30 days after the completion of our Business Combination.

The Sponsor Entities raised $2,550 from third-party investors and the remaining investment in the private placement was made by the Company. Certain of the third-party investors are related parties of the Company. The Company consolidates the Sponsor Entities and treats its investment in the Insurance SPAC as an equity method investment. The $2,550 raised from third party investors is treated as non-controlling interest. See note 11.

The proceeds from the placement units were added to the net proceeds from the IPO to be held in a trust account. If the Insurance SPAC does not complete a Business Combination within the first 18 months following the IPO, the proceeds from the sale of the Placement Units will be used to fund the redemption of the SPAC Common Stock sold as part of the SPAC Units in the IPO (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.

The Sponsor Entities collectively hold 5,103,333 founder shares of the Insurance SPAC. Subject to certain limited exceptions, placement units held by the Sponsor Entities will not be transferable or salable until 30 days following a Business Combination, and founder shares held by the Sponsor Entities will not be transferable or salable except (a) with respect to 20% of such shares, until consummation of a Business Combination, and (b) with respect to additional 20% tranches of such shares, when the closing price of the Common Stock exceeds $12.00, $13.50, $15.00 and $17.00, respectively, for 20 out of any 30 consecutive trading days following the consummation of a Business Combination, in each case subject to certain limited exceptions.

CCFEL

In June 2018, in response to the uncertainty surrounding Brexit, the Company formed a new subsidiary, CCFEL (f/k/a Cohen & Company Financial (Ireland) Limited) in Ireland, for the purpose of seeking to become regulated to perform asset management and capital markets activities in Ireland and the European Union. In April 2019, CCFEL received authorization from the CBI under the European Union (Markets in Financial Instruments) Regulations 2017 to provide investment services in respect of certain financial instruments including transferable securities, money-market instruments, units in collective investment undertakings and various option, futures, swaps, forward rate agreements, and other derivative contracts (“Financial Instruments”). The services for which CCFEL received authorization include the receipt and transmission of orders in relation to Financial Instruments, the execution of orders on behalf of clients, portfolio management, investment advice and investment research, and financial analysis. In addition, CCFEL applied for approval of a French branch, which approval was granted by the CBI and the branch was authorized by the French regulators in April 2019. Following authorization of the French Branch of CCFEL, various contracts originally entered into by CCFL were novated to the French Branch of CCFEL. The novation of contracts was completed on July 1, 2019.

Table Of Contents

5. NET TRADING

Net trading consisted of the following in the periods presented.


NET TRADING
(Dollars in Thousands)

		Three Months Ended				Nine Months Ended
		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Net realized gains (losses) - trading inventory	$	5,919	$	1,627	$	15,845	$	9,420
Net unrealized gains (losses) - trading inventory		(707)		3,302		1,664		5,503
Net gains and losses		5,212		4,929		17,509		14,923

Interest income- trading inventory		1,517		1,144		5,192		3,373
Interest income - loans held for sale		43		-		90		-
Interest income-receivables under resale agreements		48,357		24,470		132,176		50,118
Interest income		49,917		25,614		137,458		53,491

Interest expense-securities sold under agreements to repurchase		(45,875)		(23,204)		(126,378)		(46,891)
Interest expense-LegacyTexas Credit Facility		(18)		-		(47)		-
Interest expense-margin payable		(757)		(523)		(2,669)		(1,330)
Interest expense		(46,650)		(23,727)		(129,094)		(48,221)

Net trading	$	8,479	$	6,816	$	25,873	$	20,193

Trading inventory includes investments classified as investments-trading as well as trading securities sold, not yet purchased. See note 7. Loans held for sale represent mortgage loans acquired for resale. See note 13. Also, see note 10 for discussion of receivables under resale agreements and securities sold under agreements to repurchase. See note 6 for discussion of margin payable. See note 16 for discussion of LegacyTexas Credit Facility.

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)

	September 30, 2019		December 31, 2018
Deposits with clearing agencies	$	250	$	250
Unsettled regular way trades, net		12,076		-
Receivables from clearing agencies		86,957		129,562
Receivables from brokers, dealers, and clearing agencies	$	99,283	$	129,812

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


PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES
(Dollars in Thousands)

	September 30, 2019		December 31, 2018
Unsettled regular way trades, net	$	-	$	5,822
Margin payable		130,004		195,776
Payables to brokers, dealers, and clearing agencies	$	130,004	$	201,598

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

Table Of Contents

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 (i) cash received by the Company upon execution of short trades that is restricted from withdrawal by the clearing agent and (ii) cash deposited with the FICC to support the Company’s General Collateral Funding (“GCF”) matched book repo business.

Margin payable represents amounts borrowed from Pershing, LLC to finance the Company’s trading portfolio. Effectively, all of the Company’s investments-trading and deposits with clearing agencies serve as collateral for the margin payable. See note 5 for interest expense incurred on margin payable.

7. FINANCIAL INSTRUMENTS

Investments—Trading

Investments-trading consisted of the following.



INVESTMENTS - TRADING
(Dollars in Thousands)

	September 30, 2019		December 31, 2018
U.S. government agency MBS and CMOs	$	131,548	$	149,651
U.S. government agency debt securities		24,298		14,915
RMBS		16		21
U.S. Treasury securities		20,523		4,099
ABS		100		100
SBA loans		9,633		31,496
Corporate bonds and redeemable preferred stock		34,146		44,507
Foreign government bonds		905		117
Municipal bonds		16,817		47,433
Certificates of deposit		1,790		302
Derivatives		4,002		8,212
Equity securities		150		382
Investments-trading	$	243,928	$	301,235

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)

	September 30, 2019		December 31, 2018
U.S. government agency MBS	$	-	$	16
U.S. Treasury securities		13,732		70,010
Corporate bonds and redeemable preferred stock		75,465		43,957
Municipal bonds		20		20
Derivatives		697		6,119
Equity securities		102		-
Trading securities sold, not yet purchased	$	90,016	$	120,122

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.

Table Of Contents

Other Investments, at fair value

Other investments, at fair value consisted of the following.



OTHER INVESTMENTS, AT FAIR VALUE
(Dollars in Thousands)

	September 30, 2019
	Amortized Cost		Carrying Value		Unrealized Gain / (Loss)
Equity securities	$	866	$	1,432	$	566
CLOs		3,082		2,640		(442)
CDOs		189		26		(163)
U.S. Insurance JV		1,349		1,488		139
SPAC Fund		630		652		22
Residential loans		10		654		644
Other investments, at fair value	$	6,126	$	6,892	$	766



	December 31, 2018
	Amortized Cost		Carrying Value		Unrealized Gain / (Loss)
Equity securities	$	5,016	$	6,650	$	1,634
CLOs		3,099		2,730		(369)
CDOs		189		26		(163)
EuroDekania		4,489		1,533		(2,956)
U.S. Insurance JV		1,900		1,925		25
SPAC Fund		600		592		(8)
Residential loans		39		325		286
Foreign currency forward contracts		-		(13)		(13)
Other investments, at fair value	$	15,332	$	13,768	$	(1,564)

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 where the affiliate has all of the attributes in FASB ASC 946-10-15-2 (commonly referred to as investment companies); and

investments in residential 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 September 30, 2019 and 2018 of $140 and $1,976, respectively. 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 nine months ended September 30, 2019 and 2018 of $879 and $3,136, respectively.

Table Of Contents

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 that have values 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 that have values based on one or more of the following:

Quoted prices for similar assets or liabilities in active markets;

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

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

Pricing models that have inputs 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 that have values 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 of the valuation hierarchy. As a result, the unrealized gains and losses for assets and liabilities within the level 3 of the valuation hierarchy 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.

A review of the valuation hierarchy classifications is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. There were no transfers between level 1 and level 2 of the valuation hierarchy during the nine months ended September 30, 2019 and 2018. Reclassifications between levels of the valuation hierarchy are reported as transfers in or transfers out as of the beginning of the quarter in which such reclassifications occur.

Table Of Contents

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 and indicate the valuation hierarchy level as well as the valuation techniques utilized by the Company to determine such fair value.



FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
September 30, 2019
(Dollars in Thousands)
					Significant		Significant
			Quoted Prices in		Other Observable		Unobservable
			Active Markets		Inputs		Inputs
Assets	Fair Value		(Level 1)		(Level 2)		(Level 3)
Investments-trading:
U.S. government agency MBS and CMOs	$	131,548	$	-	$	131,548	$	-
U.S. government agency debt securities		24,298		-		24,298		-
RMBS		16		-		16		-
U.S. Treasury securities		20,523		20,523		-		-
ABS		100		-		100		-
SBA loans		9,633		-		9,633		-
Corporate bonds and redeemable preferred stock		34,146		-		34,146		-
Foreign government bonds		905		-		905		-
Municipal bonds		16,817		-		16,817		-
Certificates of deposit		1,790		-		1,790		-
Derivatives		4,002		-		4,002		-
Equity securities		150		-		150		-
Total investments - trading	$	243,928	$	20,523	$	223,405	$	-

Other investments, at fair value:
Equity securities	$	1,432	$	270	$	1,162	$	-
CLOs		2,640		-		-		2,640
CDOs		26		-		-		26
Residential loans		654		-		654		-
		4,752	$	270	$	1,816	$	2,666
Investments measured at NAV (1)		2,140
Total other investments, at fair value	$	6,892

Liabilities
Trading securities sold, not yet purchased:
U.S. Treasury securities	$	13,732	$	13,732	$	-	$	-
Corporate bonds and redeemable preferred stock		75,465		-		75,465		-
Municipal bonds		20		-		20		-
Derivatives		697		-		697		-
Equity securities		102		102		-		-
Total trading securities sold, not yet purchased	$	90,016	$	13,834	$	76,182	$	-

(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 and the SPAC Fund. The U.S. Insurance JV invests in debt issued by small and medium sized U.S. and Bermuda insurance and reinsurance companies. The SPAC Fund invests in equity securities of SPACs. According to ASC 820, these investments are not categorized within the valuation hierarchy.

Table Of Contents



FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
December 31, 2018
(Dollars in Thousands)
					Significant		Significant
			Quoted Prices in		Other Observable		Unobservable
			Active Markets		Inputs		Inputs
Assets	Fair Value		(Level 1)		(Level 2)		(Level 3)
Investments-trading:
U.S. government agency MBS and CMOs	$	149,651	$	-	$	149,651	$	-
U.S. government agency debt securities		14,915		-		14,915		-
RMBS		21		-		21		-
U.S. Treasury securities		4,099		4,099		-		-
ABS		100		-		100		-
SBA loans		31,496		-		31,496		-
Corporate bonds and redeemable preferred stock		44,507		-		44,507		-
Foreign government bonds		117		-		117		-
Municipal bonds		47,433		-		47,433		-
Certificates of deposit		302		-		302		-
Derivatives		8,212		-		8,212		-
Equity securities		382		-		382		-
Total investments - trading	$	301,235	$	4,099	$	297,136	$	-

Other investments, at fair value:
Equity Securities	$	6,650	$	5,775	$	875	$	-
CLOs		2,730		-		-		2,730
CDOs		26		-		-		26
Residential loans		325		-		325		-
Foreign currency forward contracts		(13)		(13)		-		-
		9,718	$	5,762	$	1,200	$	2,756
Investments measured at NAV (1)		4,050
Total other investments, at fair value	$	13,768
Liabilities
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	16	$	-	$	16	$	-
U.S. Treasury securities		70,010		70,010		-		-
Corporate bonds and redeemable preferred stock		43,957		-		43,957		-
Municipal bonds		20		-		20		-
Derivatives		6,119		-		6,119		-
Total trading securities sold, not yet purchased	$	120,122	$	70,010	$	50,112	$	-

(1)As a practical expedient, the Company uses NAV or its equivalent to measure the fair value of its investments in EuroDekania., the U.S. Insurance JV, and the SPAC Fund. EuroDekania sold its remaining investments in 2019. Prior to its sale of its remaining investments, EuroDekania invested in hybrid capital securities of European companies. The U.S. Insurance JV invests in debt issued by small and medium sized U.S. and Bermuda insurance and reinsurance companies. The SPAC Fund invests in equity securities of SPACs. According to ASC 820, these investments are not categorized within the valuation hierarchy.

Table Of Contents

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.

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. 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.

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.

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.

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.

SBA Loans: SBA loans include loans and SBA interest only strips. In the case of loans, the Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices, internal valuation models using observable inputs, or market price quotations from third party pricing services. The Company generally classifies these investments within level 2 of the valuation hierarchy. These valuations are based on a market approach. SBA interest only strips do not trade in an active market with readily available prices. Accordingly, the Company generally uses valuation models to determine fair value and classifies the fair value of the SBA interest only strips within level 2 or level 3 of the valuation hierarchy depending on whether the model inputs are observable or not.

Table Of Contents

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.

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.

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.

Residential Loans: Management utilizes home price indices or market indications to value the residential loans. The Company classifies the fair value of these loans within level 2 in 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 Company may own an option or warrant where the underlying security is publicly traded but the option or warrant is not. In those cases, the Company may determine fair value using a Black-Scholes model and will generally classify this within level 2 within the valuation hierarchy.

The Company may own an equity investment in a publicly traded company that is restricted as to resale. In those cases, the Company may determine fair value by preparing a model. The fair value will be classified within level 2 of the valuation hierarchy if the inputs to the model are observable. Otherwise, it will be classified within level 3 of the valuation hierarchy.

The Company may own an equity interest in a private company. In those cases, the Company may determine fair value by preparing a model. The model may be either a market-based or income-based model, whichever is considered the most appropriate in each case. The fair value will be classified within level 2 if the inputs to the model are observable. Otherwise, it will be classified within level 3 of the valuation hierarchy.

Derivatives

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.

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.

Table Of Contents

Other Extended Settlement Trades

When the Company buys or sells a financial instrument that will not settle in the regular time frame, 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.

Level 3 Financial Assets and Liabilities

Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents additional information about assets measured at fair value on a recurring basis and for which the Company has utilized level 3 inputs to determine fair value.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Beginning of period	$	2,786	$	14,651	$	2,756	$	6,577
Gains & losses (1)		(53)		419		(80)		496
Transfers out of level 3		-		(11,295)		-		(13,361)
Accretion of income (1)		102		489		299		1,330
Purchases		-		-		-		9,600
Sales and returns of capital		(169)		(1,103)		(309)		(1,481)
End of period	$	2,666	$	3,161	$	2,666	$	3,161

Change in unrealized gains / (losses) (2)	$	(46)	$	(171)	$	(73)	$	(220)

(1)

Gains and losses and accretion of income on other investments, at fair value are recorded as a component of principal transactions and other income in the consolidated statements of operations.

(2)

Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

The circumstances that would result in transferring certain financial instruments from level 2 to level 3 of the valuation hierarchy would typically include what the Company believes to be a decrease in the availability, utility, and reliability of 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.

During the three months ended September 30, 2018, there were transfers from level 3 to level 2 of $11,295 relating to CLOs that were previously valued based on a model but for which comparable market transactions became available.

During the nine months ended September 30, 2018, there were transfers from level 3 to level 2 of $13,361. This was composed of (a) $2,066 from equity positions that were previously not listed on an exchange that were subject to a reorganization and subsequently began trading over the counter and (b) $11,295 of CLOs that were previously valued based on a model but for which observable market transactions became available.

Table Of Contents

The following tables provide the quantitative information about level 3 fair value measurements as of September 30, 2019 and December 31, 2018.

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

(Dollars in Thousands)

Significant

Range of

Fair Value

Valuation

Unobservable

Weighted

Significant

September 30, 2019

Technique

Inputs

Average

Inputs

Assets

Other investments, at fair value

CLOs

2,640

Discounted Cash Flow Model

Yield

18.1%

17.7% - 18.4%

Duration-years

6.1

5.6 - 6.8

Default rate

2.0%

2% - 2%

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

(Dollars in Thousands)

Significant

Range of

Fair Value

Valuation

Unobservable

Weighted

Significant

December 31, 2018

Technique

Inputs

Average

Inputs

Assets

Other investments, at fair value

CLOs

2,730

Discounted Cash Flow Model

Yield

20.0%

18.1% - 21.6%

Duration-years

6.9

6.3 - 7.5

Default rate

2.0%

2% - 2%

Sensitivity of Fair Value to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within level 3 of the valuation hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below.

CLOs: The Company uses a discounted cash flow model to determine the fair value of its investments in CLOs. Changes in the yield, duration, and default rate assumptions would impact the fair value determined. The longer the duration, the lower the fair value of the investment. The higher the yield, the lower the fair value of the investment. The higher the default rate, the lower the fair value of the investment.

Table Of Contents

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 September 30, 2019 and December 31, 2018.

FAIR VALUE MEASUREMENTS OF INVESTMENTS IN CERTAIN ENTITIES

THAT CALCULATE NET ASSET VALUE PER SHARE (OR ITS EQUIVALENT)

(Dollars in Thousands)

Fair Value September 30, 2019

Unfunded Commitments

Redemption Frequency

Redemption Notice Period

Other investments, at fair value

U.S. Insurance JV (b)

1,488

1,100

N/A

SPAC Fund (c)

652

N/A

Quarterly after 1 year lock up

90 days

2,140

Fair Value December 31, 2018

Unfunded Commitments

Redemption Frequency

Redemption Notice Period

Other investments, at fair value

EuroDekania (a)

1,533

N/A

U.S. Insurance JV (b)

1,925

1,100

N/A

SPAC Fund (c)

592

N/A

Quarterly after 1 year lock up

90 days

4,050

N/ANot applicable.

(a)

EuroDekania sold its remaining investments in 2019. Prior to that sale, EuroDekania owned investments in hybrid capital securities that have attributes of debt and equity, primarily in the form of subordinated debt issued by insurance companies, banks, and bank holding companies based primarily in Western Europe; widely syndicated leveraged loans issued by European corporations; commercial mortgage backed securities (“CMBS”), including subordinated interests in first mortgage real estate loans; and RMBS and ABS backed by consumer and commercial receivables. The majority of the assets were denominated in Euros and U.K. Pounds Sterling.

(b)

The U.S. Insurance JV invests in debt issued by small and medium sized U.S. and Bermuda 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 are permitted to record all or a portion of the change in the fair value of a designated hedge as an adjustment to AOCI 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 (“FASB 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 assets and liabilities on a net basis if the conditions of FASB ASC 210 are met. However, in general the Company does not enter into offsetting derivatives with the same counterparties. Therefore, in all of the 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

Table Of Contents

entered into to 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 FASB 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.

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.

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 September 30, 2019, and December 31, 2018, the Company had outstanding foreign currency forward contracts with a notional amount of 0 Euros and 1,250 Euros, respectively.

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 September 30, 2019, the Company had open TBA and other forward MBS purchase agreements in the notional amount of $2,379,700 and open TBA and other forward MBS sale agreements in the notional amount of $2,469,190. At December 31, 2018, the Company had open TBA and other forward agency MBS purchase agreements in the notional amount of $1,025,850 and open TBA and other forward agency MBS sale agreements in the notional amount of $1,069,688.

Other Extended Settlement Trades

When the Company buys or sells a financial instrument that will not settle in the regular time frame, the Company will account for that purchase and 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. At September 30, 2019, the Company had open forward purchase commitments of $990 and open forward sale commitments of $0. At December 31, 2018, the Company had open forward purchase commitments of $15,295 and open forward sale commitments of $0.

Table Of Contents

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 September 30, 2019 and December 31, 2018.



DERIVATIVE FINANCIAL INSTRUMENTS-BALANCE SHEET INFORMATION
(Dollars in Thousands)

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815	Balance Sheet Classification		September 30, 2019		December 31, 2018
TBAs and other forward agency MBS	Investments-trading	$	4,000	$	8,142
Other extended settlement trades	Investments-trading		2		70
Foreign currency forward contracts	Other investments, at fair value		-		(13)
TBAs and other forward agency MBS	Trading securities sold, not yet purchased		(697)		(6,116)
Other extended settlement trades	Trading securities sold, not yet purchased		-		(3)
		$	3,305	$	2,080

The following table presents 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)

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815	Income Statement Classification		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018
Foreign currency forward contracts	Revenue-principal transactions and other income	$	51	$	65
Other extended settlement trades	Revenue-net trading		(67)		(10)
TBAs and other forward agency MBS	Revenue-net trading		4,016		4,988
		$	4,000	$	5,043



DERIVATIVE FINANCIAL INSTRUMENTS-STATEMENT OF OPERATIONS INFORMATION
(Dollars in Thousands)

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815	Income Statement Classification		Three Months Ended September 30, 2019		Three Months Ended September 30, 2018
Foreign currency forward contracts	Revenue-principal transactions and other income	$	8	$	14
Other extended settlement trades	Revenue-net trading		5		(10)
TBAs and other forward agency MBS	Revenue-net trading		2,068		1,535
		$	2,081	$	1,539

10. COLLATERALIZED SECURITIES TRANSACTIONS

Matched Book Repo Business

The Company enters into repurchase and reverse repurchase agreements 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 repurchase agreement. The Company will borrow money from another counterparty using those same collateral securities pursuant to a repurchase agreement. The Company seeks to earn net interest income on these transactions. Currently, the Company categorizes its matched book repo business into two major groups: gestational repo and GCF repo.

Table Of Contents

Gestational Repo

Gestational repo involves entering into repurchase and reverse repurchase agreements where the underlying collateral security represents a pool of newly issued mortgage loans. The borrowers (the reverse repurchase agreement counterparties) are generally mortgage originators. The lenders (the repurchase agreement counterparties) are a diverse group of the counterparties comprised of banks, insurance companies, and other financial institutions. The Company’s gestational repo transactions were cleared through Industrial and Commercial Bank of China (“ICBC”) through April 1, 2018. Subsequent to that date, the Company has self-cleared its gestational repo transactions.

GCF Repo

As a full netting member of the FICC’s Government Securities Division, the Company has access to the FICC’s GCF repo service that provides netting and settlement services for repurchase transactions where the underlying security is general collateral (primarily U.S. Treasuries and U.S. Agency securities). The borrowers (the reverse repurchase agreement counterparties) are a diverse group of financial institutions including hedge funds, registered investment funds, REITs, and other similar counterparties. The lender (the repurchase agreement counterparty) is primarily the FICC itself. The Company uses Bank of New York (“BONY”) as its settlement agent for its GCF repo matched book transactions. The Company is considered self-clearing for this business. In connection with the Company’s full netting membership of the FICC, the Company agreed to establish and maintain a committed line of credit in a minimum amount of $25,000, which it entered into on April 25, 2018. This line of credit arrangement was subsequently amended. See note 16.

Other Repo Transactions

In addition to the Company’s matched book repo business, the Company may also enter into reverse repurchase agreements to acquire securities to cover short positions or as an investment. Additionally, the Company may enter into repurchase agreements to finance the Company’s securities positions held in inventory. These repurchase and reverse repurchase agreements are generally cleared on a bilateral or triparty basis; no clearing broker is involved. These transactions are not matched.

Repo Information

At September 30, 2019 and December 31, 2018, the Company held reverse repurchase agreements of $7,052,919 and $7,632,230, respectively, and the fair value of collateral received under reverse repurchase agreements was $7,302,321 and $7,905,823, respectively. As of September 30, 2019 and December 31, 2018, the reverse repurchase agreement balance was comprised of receivables collateralized by securities with 36 counterparties.

At September 30, 2019 and December 31, 2018, the Company held repurchase agreements of $7,099,614 and $7,671,764, respectively, and the fair value of securities and cash pledged as collateral under repurchase agreements was $7,100,803 and $7,694,018, respectively. These amounts include collateral for reverse repurchase agreements that were re-pledged as collateral for repurchase agreements.

Intraday Lending Facility

In conjunction with the Company’s GCF repo business, on October 18, 2019, the Company and BONY renewed an intraday lending facility. This lending facility allows for BONY to advance funds to JVB in order to facilitate the settlement of GCF repo transactions. The total committed amount at September 30, 2019 was $75,000. The new termination date of the intraday lending facility is October 16, 2020. It is expected that this facility will be renewed for successive 364-day periods provided that the Company continues its GCF repo business.

The BONY lending facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at an annual rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. For the nine months ended September 30, 2019, the Company received no advances under the intraday lending facility.

Concentration

In the matched book repo business, the demand for borrowed funds is generated by the reverse repurchase agreement counterparty and the supply of funds is provided by the repurchase agreement counterparty.

Table Of Contents

On the demand side, the Company does not consider it’s GCF repo business to be concentrated because the Company’s GCF reverse repo counterparties are comprised of a diverse group of financial institutions.

On the supply side, the Company obtains a significant amount of its funds from the FICC. If the FICC were to reduce its repo lending activities or make significant adverse changes to the cost of such lending, the Company may not be able to replace the FICC funding, or if the Company does so, it may be at a higher cost of funding. Therefore, the Company considers its GCF repo business to be concentrated from the supply side of the business.

The gestational 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 September 30, 2019 and December 31, 2018, the Company’s gestational reverse repurchase agreements shown in the tables below represented balances from six counterparties. The Company also has a limited number of repurchase agreement counterparties in the gestational repo business, however, it is primarily a function of the limited number of reverse repurchase agreement counterparties with whom the Company conducts this business rather than a reflection of a limited supply of funds. Therefore, the Company considers the gestational repo business to be concentrated on the demand side.

The total net revenue earned by the Company on its matched book repo business (both gestational repo and GCF repo) was $2,566 and $6,202 for the three and nine months ended September 30, 2019, respectively. The total net revenue earned by the Company on its matched book repo business (both gestational repo and GCF Repo) was $1,401 and $3,450 for the three and nine months ended September 30, 2018, respectively.

Detail

Effective June 1, 2019, the Company changed its accounting policy regarding the netting of reverse repurchase agreement and repurchase agreement transactions. ASC 210 provides the option to present reverse repo and repo on a net basis if certain netting conditions are met. Prior to this date, the Company utilized this option and presented repo and reverse repo on a net basis when these conditions were met. As of June 1, 2019, the Company changed its policy to present all repo and reverse repo transactions on a gross basis even if the underlying netting conditions are met. The Company believes that the newly adopted accounting principle is preferable in the circumstances because it provides consistency for the accounting of all repurchase and reverse repurchase agreements, as well as more information on the face of the financial statements. The amounts in the table below (including periods prior to June 1, 2019) are presented on a gross basis.

As of September 30, 2019, the Company had outstanding reverse repurchase agreements of $7,052,919 and repurchase agreements of $7,099,614. Included in these amounts are outstanding reverse repurchase agreements of $310,156 and repurchase agreements of $5,235,208, where the FICC was the Company’s counterparty to the transaction and which were subject to a master netting arrangement.

As of December 31, 2018, the Company had outstanding reverse repurchase agreements of $7,632,230 and repurchase agreements of $7,671,764. Included in these amounts are outstanding reverse repurchase agreements of $2,461,177 and repurchase agreements of $6,923,912, where the FICC was the Company’s counterparty to the transaction and which were subject to a master netting arrangement.

The following tables summarize the remaining contractual maturity of the gross obligations under repurchase agreements 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.

Table Of Contents


SECURED BORROWINGS
(Dollars in Thousands)
September 30, 2019
	Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. government agency MBS (GCF repo)	$	4,928,509	$	1,298,689	$	-	$	-	$	6,227,198
MBS (gestational repo)		-		866,516		-		-		866,516
SBA loans		5,900		-		-		-		5,900
Securities sold under agreements to repurchase	$	4,934,409	$	2,165,205	$	-	$	-	$	7,099,614

	Reverse Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. government agency MBS (GCF repo)	$	1,294,500	$	2,537,072	$	2,346,669	$	-	$	6,178,241
MBS (gestational repo)		-		874,678		-		-		874,678
Receivables under resale agreements	$	1,294,500	$	3,411,750	$	2,346,669	$	-	$	7,052,919



SECURED BORROWINGS
(Dollars in Thousands)
December 31, 2018
	Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. government agency MBS (GCF repo)	$	7,014,758	$	250,537	$	-	$	-	$	7,265,295
MBS (gestational repo)		-		287,400		100,918		-		388,318
SBA loans		18,151		-		-		-		18,151
Securities sold under agreements to repurchase	$	7,032,909	$	537,937	$	100,918	$	-	$	7,671,764

	Reverse Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. government agency MBS (GCF repo)	$	10,864	$	5,477,247	$	598,635	$	1,157,349	$	7,244,095
MBS (gestational repo)		-		287,209		100,926		-		388,135
Receivables under resale agreements	$	10,864	$	5,764,456	$	699,561	$	1,157,349	$	7,632,230

11. INVESTMENT IN EQUITY METHOD AFFILIATE

Equity method accounting requires that the Company record its investment 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 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 asset management fees and 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 asset management and principal transactions and other income in the consolidated statement of operations. See note 23.

Table Of Contents

The following table summarizes the activity and earnings in the Company’s investment that is accounted for under the equity method. See note 4.



INVESTMENTS IN EQUITY METHOD AFFILIATES
(Dollars in Thousands)

	Insurance
	SPAC
January 1, 2019	$	-
Investments / advances		3,775
Distributions / repayments		-
Earnings / (loss) realized		(365)
September 30, 2019	$	3,410

12. LEASES

The Company leases office space and certain computer and related equipment under noncancelable operating leases. The company determines if an arrangement is a lease at the inception date of the contract. The Company measures operating lease liabilities using an estimated incremental borrowing rate as there is no rate implicit in the Company’s operating lease arrangements. An incremental borrowing rate was calculated for each operating lease based on the term of the lease, the U.S. Treasury term interest rate, and an estimated spread to borrow on a secured basis.

The Company adopted the provisions of ASC 842 effective January 1, 2019. At adoption, the Company elected to not restate prior periods and rather record a cumulative effect of accounting change effective January 1, 2019. The Company recorded the following: (a) a right of use asset of $8,416, (b) a lease commitment liability of $8,860, (c) a reduction in retained earnings from cumulative effect of adoption of $20, (d) an increase in other receivables of $18, and (e) a reduction in other liabilities of $406.

Rent expense is recognized on a straight-line basis over the lease term and is in included business development, occupancy, and equipment expense.

As of September 30, 2019, all of the leases to which the Company was a party were operating leases. The weighted average remaining term of the leases was 8.4 years. The weighted average discount rate for the leases was 5.31%.

Maturities of operating lease liability payments consisted of the following.



FUTURE MATURITY OF LEASE LIABILITIES
(Dollars in Thousands)


		As of September 30, 2019
2019 - remaining	$	423
2020		1,564
2021		1,108
2022		933
2023		950
Thereafter		5,077
Total		10,055
Less imputed interest		(2,044)
Lease obligation	$	8,011

During the nine months ended September 30, 2019, total cash payments of $1,153 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 September 30, 2019 and 2018, rent expense, net of sublease income of $73 and $53, was $387 and $351, respectively. For the nine months ended September 30, 2019 and 2018, rent expense, net of sublease income of $202 and $160, was $1,174 and $1,014, respectively.

Table Of Contents

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

Other receivables consisted of the following.


OTHER RECEIVABLES
(Dollars in Thousands)

	September 30, 2019		December 31, 2018
Cash collateral due from counterparties	$	2,946	$	6,216
Asset management fees receivable		879		947
New issue and advisory fees receivable		-		2,100
Accrued interest receivable and dividend receivable		1,754		2,359
Revenue share receivable		144		140
Other receivables		226		310
Other receivables	$	5,949	$	12,072

When the Company enters into a reverse repo, it obtains collateral in excess of the principal amount of the reverse repo. Collateral can be in the form of liquid securities or cash. To the extent the Company receives cash collateral, it is included as a component of other liabilities (counterparty cash collateral in the table below). If the value of the securities received as collateral increases, the Company’s reverse repo counterparties may request a return of a portion of their collateral. At times, the Company will return cash instead of securities. In those cases, the cash collateral is included as a component of other receivables.

Asset management and new issue and advisory receivables are of a routine and short-term nature. These amounts are generally accrued monthly and paid on a monthly or quarterly basis.

Accrued interest and dividends receivable represent interest and dividends accrued on the Company’s investment securities included as a component of investments-trading or other investments, at fair value. Interest payable on securities sold, not yet purchased is included as a component of accounts payable and other liabilities in the table entitled Accounts Payable and Other Liabilities below.

Revenue share receivable represents the amount due to the Company for the Company’s share of revenue arrangements in which the Company receives a share of the entity’s revenue. Other receivables represent other miscellaneous receivables that are of a short-term nature.

Table Of Contents

Other assets consisted of the following.



OTHER ASSETS
(Dollars in Thousands)

	September 30, 2019		December 31, 2018
Deferred costs	$	359	$	571
Prepaid expenses		974		1,009
Prepaid income taxes		23		40
Deposits		659		669
Miscellaneous other assets		275		33
Loans held for sale		1,698		-
Furniture, equipment, and leasehold improvements, net		988		1,133
Intangible assets		166		166
Other assets	$	5,142	$	3,621

Deferred costs and prepaid expenses represent amounts paid for services that are being amortized over their expected period of use and benefit. They are all routine and short-term in nature. Deposits are amounts held by landlords or other parties which will be returned or offset upon satisfaction of a lease or other contractual arrangement. Loans held for sale represent mortgage loans acquired by ViaNova (see note 4) that are being held for resale. See note 15 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for further discussion of the firm’s furniture, equipment, and leasehold improvements. Intangible assets represent the carrying value of the JVB broker-dealer license.

Accounts payable and other liabilities consisted of the following.



ACCOUNTS PAYABLE AND OTHER LIABILITIES
(Dollars in Thousands)

	September 30, 2019		December 31, 2018
Accounts payable	$	408	$	359
Redeemable financial instruments accrued interest		-		714
Straight line rent payable		-		405
Accrued interest payable		638		674
Accrued interest on securities sold, not yet purchased		1,153		1,184
Payroll taxes payable		539		721
Counterparty cash collateral		6,004		4,227
Accrued expense and other liabilities		1,940		3,168
Accounts payable and other liabilities	$	10,682	$	11,452

The redeemable financial instruments accrued interest represents accrued interest on the Company’s redeemable financial instruments. See note 15. Subsequent to the adoption of ASC 842, effective January 1, 2019, the Company no longer had straight line rent payable. See note 12.

Counterparty cash collateral represents cash collateral received from the Company’s reverse repo counterparties. This cash is owed to the counterparty. See note 10.

14. VARIABLE INTEREST ENTITIES

As a general matter, a reporting entity must consolidate a variable interest entity (“VIE”) when it is deemed to be the primary beneficiary. The primary beneficiary is the entity that has both (a) the power to direct the matters that most significantly impact the VIE’s financial performance and (b) a significant variable interest in the VIE.

The Company’s Principal Investing Portfolio

Included in other investments, at fair value in the consolidated balance sheets are investments in several VIEs. In each case, the Company determined it was not the primary beneficiary. The maximum potential financial statement loss the Company would incur if the VIEs were to default on all their obligations would be the loss of the carrying value of these investments as well as any future investments the Company were to make. As of September 30, 2019, there were $1,100 of unfunded commitments to VIEs that the Company has invested in. Other than its investment in these entities, the Company did not provide financial support to these VIEs

Table Of Contents

during the three and nine months ended September 30, 2019 and 2018 and had no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at September 30, 2019 and December 31, 2018. See table below.

For each investment management contract entered into by the Company, the Company assesses whether the entity being managed is a VIE and if the Company is the primary beneficiary. Certain of the Investment Vehicles managed by the Company are VIEs. Under the current guidance of ASU 2015-12, the Company has concluded that its asset management contracts are not variable interests. Currently, the Company has no other interests in entities it manages that are considered variable interests and are considered significant. Therefore, the Company is not the primary beneficiary of any VIEs that it manages.

The Company’s Trading Portfolio

From time to time, the Company may acquire an interest in a VIE through the investments it makes as part of its trading operations, which are included as investments-trading or securities sold, not yet purchased in the consolidated balance sheets. Because of the high volume of trading activity in which the Company engages, the Company does not perform a formal assessment of each individual investment within its trading portfolio to determine if the investee is a VIE and if the Company is a primary beneficiary. Even if the Company were to obtain a variable interest in a VIE through its trading portfolio, the Company would not be deemed to be the primary beneficiary for two main reasons: (a) the Company does not usually obtain the power to direct activities that most significantly impact any investee’s financial performance and (b) a scope exception exists within the consolidation guidance for cases where the reporting entity is a broker-dealer and any control (either as the primary beneficiary of a VIE or through a controlling interest in a voting interest entity) was deemed to be temporary. In the unlikely case that the Company obtained the power to direct activities and obtained a significant variable interest in an investee in its trading portfolio that was a VIE, any such control would be deemed to be temporary due to the rapid turnover of the Company’s trading portfolio.

The following table presents the carrying amounts of the assets in the Company’s consolidated balance sheets related to the Company’s variable interests in identified VIEs with the exception of (i) the two trust VIEs that hold the Company’s junior subordinated notes (see note 16) and (ii) any security that represents an interest in a VIE that is included in investments-trading or securities sold, not yet purchased in the Company’s consolidated balance sheets. The table below shows the Company’s maximum exposure to loss associated with these identified nonconsolidated VIEs in which it holds variable interests at September 30, 2019 and December 31, 2018.



CARRYING VALUE OF VARIABLE INTERESTS IN NON-CONSOLIDATED VARIABLE INTEREST ENTITIES
(Dollars in Thousands)

		As of September 30, 2019		As of December 31, 2018
Other Investments, at fair value	$	4,806	$	5,273
Maximum exposure	$	4,806	$	5,273

15. REDEEMABLE FINANCIAL INSTRUMENTS

Redeemable financial instruments consisted of the following .



REDEEMABLE FINANCIAL INSTRUMENTS
(Dollars in Thousands)

		As of September 30, 2019		As of December 31, 2018
JKD Capital Partners I LTD	$	7,957	$	6,732
DGC Family Fintech Trust / CBF		10,000		10,000
ViaNova Capital Group, LLC		583		716
	$	18,540	$	17,448

JKD Capital Partners I LTD Amendment

On October 3, 2016, the Operating LLC entered into an investment agreement (the “JKD Investment Agreement”), by and between Operating LLC and JKD Capital Partners I LTD (the “JKD Investor”), pursuant to which the JKD Investor agreed to invest up to $12,000 in the Operating LLC (the “JKD Investment”), $6,000 of which was invested upon the execution of the JKD Investment Agreement, an additional $1,000 was invested in January 2017, and an additional $1,268 was invested on January 9, 2019. The JKD Investor is owned by Jack DiMaio, the vice chairman of the Company’s board of directors and the Operating LLC’s board of managers, and his spouse.

Table Of Contents

In exchange for the JKD Investment, the Operating LLC agreed to pay to JKD Investor during the term of the JKD Investment Agreement an amount (“JKD Investment Return”) equal to 50% of the difference between (i) the revenues generated during a quarter by the activities of the Institutional Corporate Trading Business of JVB and (ii) certain expenses incurred by such Institutional Corporate Trading Business (the “Institutional Corporate Trading Business Net Revenue”). This JKD Investment Return is recorded monthly as interest expense or (interest income) with the related accrued interest recorded in accounts payable and other accrued liabilities. If the return is negative on an individual quarter, it will reduce the balance of the JKD Investment. Payments of the JKD Investment Return are made on a quarterly basis. The term of the JKD Investment Agreement commenced on October 3, 2016 and will continue until a redemption (as described below) occurs, unless the JKD Investment Agreement is earlier terminated.

On March 6, 2019, the JKD Investor and the Operating LLC entered into an amendment to the JKD Investment Agreement (the “JKD Investment Agreement Amendment”), pursuant to which the term “JKD Investment Return” under the JKD Investment Agreement was amended as follows:

(a)

during the fourth quarter of 2018, an amount equal to 42% of the difference between (i) the revenues generated during a quarter by the activities of the Institutional Corporate Trading Business of JVB and (ii) certain expenses incurred by such Institutional Corporate Trading Business (the “Institutional Corporate Trading Business Net Revenue”), and

(b)

commencing on January 1, 2019 and for each quarter during the remainder of the term of the JKD Investment Agreement, an amount equal to a percentage of the Institutional Corporate Trading Business Net Revenue, which percentage is based on the JKD Investor’s investment under the JKD Investment Agreement as a percentage of the total capital allocated to the Institutional Corporate Trading Business of JVB.

The JKD Investor may terminate the JKD Investment Agreement (i) upon 90 days’ prior written notice to the Operating LLC if the Operating LLC or its affiliates modify any of their policies or procedures governing the operation of their businesses or change the way they operate their business and such modification has a material adverse effect on the amounts payable to the JKD Investor pursuant to the JKD Investment Agreement or (ii) upon 60 days’ prior written notice to the Operating LLC if the employment of Lester Brafman, the Company’s chief executive officer, is terminated. The Operating LLC may terminate the JKD Investment Agreement, as amended, upon 60 days’ prior written notice to the JKD Investor if Mr. DiMaio ceases to control the day-to-day operations of the JKD Investor.

Upon a termination of the JKD Investment Agreement, as amended, the Operating LLC will pay to the JKD Investor an amount equal to the “Investment Balance” (as such term is defined in the JKD Investment Agreement, as amended) as of the day prior to such termination.

At any time following October 3, 2019, the JKD Investor or the Operating LLC may, upon two months’ notice to the other party, cause the Operating LLC to pay a redemption to the JKD Investor in an amount equal to the Investment Balance (as such term is defined in the JKD Investment Agreement, as amended) as of the day prior to such redemption.

If the Operating LLC or JVB sells JVB’s Institutional Corporate Trading Business to any unaffiliated third party, and such sale is not part of a larger sale of all or substantially all of the assets or equity securities of the Operating LLC or JVB, the Operating LLC will pay to the JKD Investor an amount equal to 25% of the net consideration paid to the Operating LLC in connection with such sale, after deducting certain amounts and certain expenses incurred by the Operating LLC or JVB in connection with such sale.

DGC Family Fintech Trust/ CBF Amendments

Prior to September 30, 2019, the DGC Family Fintech Trust / CBF redeemable financial instruments were comprised of two separate agreements: one with CBF pursuant to which CBF invested $8,000 into the Operating LLC (the “CBF Investment Agreement”) and one with the DGC Family Fintech Trust pursuant to which the DGC Family Fintech Trust invested $2,000 into the Operating LLC (the “DGC Family Fintech Trust Investment Agreement”). On September 25, 2019, each of the CBF Investment Agreement and the DGC Family Fintech Investment Agreement were amended, effective as of October 1, 2019 as follows.

(a)

The “Investment Amount” under the CBF Investment Agreement was reduced from $8,000 to $6,500 in exchange for a one-time payment of $1,500 from the Operating LLC to CBF; and

(b)

the term “Investment Return” under the CBF Investment Agreement was amended to mean an annual return equal to:

for any 365-day period beginning on September 29, 2017 or any anniversary of September 29, 2017 (each an “Annual Period’) and ending on or before September 29, 2020, 3.75% of the Investment Amount, plus (x) 11.47% of the revenue of the GCF repo business (the “Revenue of the Business”), for any Annual Period in which the Revenue of the Business is greater than zero but less than or equal to $5,333, (y) $612 for any Annual Period in which the Revenue of the Business is greater than

Table Of Contents

$5,333 but less than or equal to $8,000, or (z) 7.65% of the Revenue of the Business for any Annual Period in which the Revenue of the Business is greater than $8,000, and

for any Annual Period following September 29, 2020, (x) for any Annual Period in which the Revenue of the Business is greater than zero, the greater of 20% of the Investment Amount or 15.29% of the Revenue of the Business, or (y) for any Annual Period in which the Revenue of the Business is zero or less than zero, 3.75% of the Investment Amount.

(c)

the term “Investment Return” under the DGC Family Fintech Investment Agreement was amended to mean an annual return equal to:

for each Annual Period ending on or before September 29, 2020, 3.75% of the Investment Amount, as defined in the DGC Family Fintech Investment Agreement, plus (x) 3.53% of the Revenue of the Business, for any Annual Period in which the Revenue of the Business is greater than zero but less than or equal to $5,333 (y) $188 for any Annual Period in which the Revenue of the Business is greater than $5,333, but less than or equal to $8,000, or (z) 2.35% of the Revenue of the Business for any Annual Period in which the Revenue of the Business is greater than $8,000 and

for any Annual Period following September 29, 2020, (x) for any Annual Period in which the Revenue of the Business is greater than zero, the greater of 20% of the Investment Amount or 4.71% of the Revenue of the Business, or (y) for any Annual Period in which the Revenue of the Business is zero or less than zero, 3.75% of the Investment Amount.

Except as set forth above, the other material terms and conditions of the CBF Investment Agreement and the DGC Family Fintech Trust Investment Agreement remained substantially the same. The payment of $1,500 was made by the Company to CBF in October 2019, which reduced the redeemable financial instrument balance.

ViaNova Capital Group LLC

On November 16, 2018, and effective as of November 19, 2018, the Operating LLC entered into an investment agreement (the “ViaNova Investment Agreement”) by and among Hancock Funding, LLC (“Hancock”), New Avenue Investments LLC (“New Avenue”), JVB, ViaNova, and the Operating LLC. Pursuant to the ViaNova Investment Agreement, Hancock, New Avenue, the Operating LLC, and JVB agreed to invest $500, $250, $500, and $2,750, respectively, into ViaNova (collectively, the “ViaNova Investment”). Pursuant to the ViaNova Investment Agreement, Hancock, the Operating LLC, and JVB invested their respective portions of the ViaNova Investment into ViaNova prior to the effective date of the ViaNova Investment Agreement. In February 2019, New Avenue invested $200 of its portion of the ViaNova Investment (i.e., $250), the remaining $50 is included in due from related parties on the consolidated balance sheets. Hancock and New Avenue are owned by employees of the Company.

Pursuant to the ViaNova Investment Agreement, in consideration of the ViaNova Investment, once the Operating LLC is repaid $693 of funded operating costs from net revenue (as defined in the ViaNova Investment Agreement) generated directly by the activities of ViaNova’s RTL business, each party to the ViaNova Investment Agreement is entitled to receive a quarterly payment equal to the net revenue (to the extent positive) generated directly by the activities of ViaNova’s RTL business during such quarter, multiplied by a fraction, the numerator of which is equal to such party’s portion of the ViaNova Investment and the denominator is equal to the entire ViaNova Investment.

Table Of Contents

16. DEBT

The Company had the following debt outstanding.



DETAIL OF DEBT
(Dollars in Thousands)

Description		As of September 30, 2019		As of December 31, 2018	Interest Rate Terms	Interest (4)		Maturity
Non-convertible debt:
12.00% senior notes (the "2019 Senior Notes")	$	6,786	$	-	Fixed	12.00	%	September 2020 (1)
Contingent convertible debt:
8.00% convertible senior note (the "2017 Convertible Note")		15,000		15,000	Fixed	8.00	%	March 2022 (2)
8.00% convertible senior notes (the "2013 Convertible Notes")		-		6,786	Fixed	8.00	%	September 2019 (1)
Less unamortized debt issuance costs		(774)		(974)
		14,226		20,812
Junior subordinated notes (3):
Alesco Capital Trust I		28,125		28,125	Variable	6.27	%	July 2037
Sunset Financial Statutory Trust I		20,000		20,000	Variable	6.25	%	March 2035
Less unamortized discount		(25,205)		(25,401)
		22,920		22,724
FT Financial Bank, N.A. Credit Facility		-		-	Variable	N/A		April 2021

LegacyTexas Credit Facility		2,159		-	Variable	N/A		November 2019
Total	$	46,091	$	43,536

(1)On September 25, 2019, the Company amended the previously outstanding 2013 Convertible Notes, which were scheduled to mature on September 25, 2019. The material terms and conditions of the 2013 Convertible Notes remained substantially the same, except that (i) the maturity date changed from September 25, 2019 to September 25, 2020; (ii) the conversion feature in the 2013 Convertible Notes was removed; (iii) the interest rate has been changed from 8% per annum (9% in the event of certain events of default) to 12% per annum (13% in the event of certain events of default); and (iv) the restrictions regarding the prepayment were removed. The post amendment notes are referred to herein as the “2019 Senior Notes” and the pre-amendment notes are referred to herein as the 2013 Convertible Notes.

(2) The holder of the 2017 Convertible Note may convert all or any part of the outstanding principal amount at any time prior to maturity into units of the Operating LLC at a conversion price of $1.45 per unit, subject to customary anti-dilution adjustments. Units of the Operating LLC not held by Cohen & Company Inc. may, with certain restrictions, be redeemed and exchanged into shares of the Cohen & Company Inc. common stock, par value $0.01 per share (“Common Stock”) on a ten-for-one basis. Therefore, the 2017 Convertible Note can be converted into Operating LLC units and then redeemed and exchanged into Common Stock at an effective conversion price of $14.50. See note 18 to our Annual Report on Form 10-K for the year ended December 31, 2018.

(3)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, 2019 on a combined basis was 16.31% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity.

(4)Represents the interest rate in effect as of the last day of the reporting period.

Table Of Contents

The 2019 Senior Notes

On September 25, 2019, the Company amended and restated the previously outstanding 2013 Convertible Notes, which was scheduled to mature on September 25, 2019. The material terms and conditions of the 2013 Convertible Notes remained substantially the same, except that (i) the maturity date was changed from September 25, 2019 to September 25, 2020; (ii) the conversion feature in the 2013 Convertible Notes was removed; (iii) the interest rate was changed from 8% per annum (9% in the event of certain events of default) to 12% per annum (13% in the event of certain events of default); and (iv) the restrictions regarding prepayment were removed. The post amendment notes are referred to herein as the “2019 Senior Notes” and the pre-amendment notes are referred to herein as the “2013 Convertible Notes”.

The 2013 Convertible Notes Amendment

The original maturity date of the 2013 Convertible Notes was September 25, 2018. Immediately prior to maturity, the 2013 Convertible Notes were held by three holders. On September 25, 2018, the Company fully paid off one holder in the amount of $1,461. The Company entered into amendments with the remaining two holders: the Edward Cohen IRA and the EBC 2013 Family Trust.

Pursuant to the amendments, to the 2013 Convertible Notes, (i) the maturity date of each of the outstanding 2013 Convertible Notes was extended from September 25, 2018 to September 25, 2019 and (ii) the conversion price under each of the outstanding 2013 Convertible Notes was reduced from $30.00 per share of Common Stock to $12.00 per share of Common Stock.

The amendments to the 2013 Convertible Notes provided that, until the Company’s stockholders approve the issuance of the shares of Common Stock issuable upon conversion of the 2013 Convertible Notes for purposes of Section 713 of the NYSE American’s Company Guide, the 2013 Convertible Notes may not be converted if such conversion would result in the Company issuing a number of shares of Common Stock that, when aggregated with any shares of Common Stock previously issued in connection with any conversion under the 2013 Convertible Notes, equals or exceeds, in the aggregate, 19.99% of the outstanding Common Stock as of September 25, 2018.

In addition, the amendments to the 2013 Convertible Notes provided that (i) the Company cause its stockholders to vote on a proposal (the “Stockholder Proposal”) regarding the issuance of the shares of Common Stock issuable upon conversion of the 2013 Convertible Notes for purposes of Section 713 of the NYSE American’s Company Guide at the 2019 annual meeting of the Company’s stockholders, (ii) the Company use its reasonable best efforts to solicit proxies for such stockholder approval, and (iii) the Company’s board of directors recommend to the Company’s stockholders that such stockholders approve the Stockholder Proposal.

At the Company’s 2019 annual meeting of stockholders held on June 12, 2019, the Company’s stockholders approved the Company’s potential issuances of up to 379,785 shares of Common Stock pursuant to the 2013 Convertible Note held by the Edward E. Cohen IRA and up to 207,834 shares of Common Stock pursuant to the 2013 Convertible Note held by the EBC 2013 Family Trust., in each case, in accordance with Section 713(a) of the NYSE American Company Guide.

On September 25, 2019, the 2019 Senior Notes amended and restated the 2013 Convertible Notes as discussed in greater detail above.

FT Financial Bank, N.A.

Effective on April 25, 2018, the Company, the Operating LLC, and JVB Holdings, as guarantors, and JVB, as borrower, entered into a loan agreement (the “2018 FT LOC”) with Fifth Third Bank (“FT Financial”) as lender. FT Financial was formerly known as MB Financial Bank, N.A.

Pursuant to the terms of the 2018 FT LOC, FT Financial agreed to make loans (each a “Loan” and collectively, the “Loans”) at JVB’s request from time to time in the aggregate amount of up to $25,000. The Loans (both principal and interest) are scheduled to mature and become immediately due and payable in full on April 10, 2020. In accordance with the terms of the 2018 FT LOC, JVB paid to FT Financial a commitment fee in the amount of $250.

Loans under the 2018 FT LOC bear interest at a per annum rate equal to LIBOR plus 6.0%. The Operating LLC is required to pay an undrawn commitment fee at a per annum rate equal to 0.50% of the undrawn portion of the FT Financial’s $25,000 commitment under the 2018 FT LOC. Pursuant to the 2018 FT LOC, all Loans must be used by JVB for working capital purposes and

Table Of Contents

general liquidity of JVB. Further, under the 2018 FT LOC, JVB may request a reduction of the $25,000 commitment amount in a minimum amount of $1,000 and multiples of $500 thereafter, upon not less than five days prior notice to FT Financial.

On January 29, 2019, the 2018 FT LOC was restructured. The total commitment of the 2018 FT LOC was reduced from $25,000 to $7,500 and the maturity date was extended from April 10, 2020 to April 10, 2021. The other material terms and conditions remained substantially identical.

As part of the restructuring, the Company entered into a new subordinated revolving note agreement (the “2019 FT Revolver”). Under the 2019 FT Revolver, the Company can borrow up to $17,500 on a revolving basis. Borrowings under the 2019 FT Revolver must be in minimum amounts of $1,000 or any higher multiple of $500. The 2019 FT Revolver bears interest at a per annum rate equal to LIBOR plus 6% and the Company is required to pay an undrawn commitment fee at a per annum rate equal to 0.50% per annum on any undrawn amounts. In addition, the Company will pay a commitment fee equal to 0.75% (or $131) on April 10, 2020. The 2019 FT Revolver matures on April 10, 2021.

On January 30, 2019, JVB received approval from FINRA to treat draws under the 2019 FT Revolver as qualified subordinated debt. As such, draws under the 2019 FT Revolver are treated as an increase in net capital for purposes of FINRA Rule 15(c) 3-1. As of September 30, 2019, the Company had not borrowed under the 2018 FT LOC or the 2019 FT Revolver.

LegacyTexas Bank

On November 20, 2018, ViaNova, as borrower, entered into a Warehousing Credit and Security Agreement (the “LegacyTexas Credit Facility”) with LegacyTexas Bank, as the lender, with an effective date of November 16, 2018, and amended on May 4, 2019 and September 25, 2019. The LegacyTexas Credit Facility supports the purchasing, aggregating, and distribution of residential transition loans by ViaNova.

Pursuant to the terms of the LegacyTexas Credit Facility, LegacyTexas Bank agreed to make loans at ViaNova’s request from time to time in the aggregate amount of up to $12,500. The loans (both principal and interest) are scheduled to mature and become immediately due and payable in full on November 15, 2019. On October 28, 2019, this was extended to April 15, 2020.

Loans under the LegacyTexas Credit Facility bear interest at a per annum rate equal to LIBOR (with a floor of 1.50%) plus 4.0% (for residential transition loans) or 5.0% (for aged residential transition loans). Commencing February 14, 2019, ViaNova became required to pay an undrawn commitment fee at a per annum rate equal to 0.25% of the undrawn portion of the $12,500 commitment under the LegacyTexas Credit Facility; provided, however, that such fee shall be waived for any calendar month (i) in which the used portion for such month is equal to or greater than fifty percent (50%) of the $12,500 commitment amount, or (ii) the aggregate advances funded by LegacyTexas Bank for such calendar month are equal to or greater than the $12,500 commitment amount, as may be in effect from time to time.

Loans under the LegacyTexas Credit Facility must be used by ViaNova to provide funding for short-term mortgages to developers for the purchase and renovation of residential 1-4 family properties or to purchase such short-term mortgages from correspondents that originate such short-term mortgages.

The obligations of ViaNova under the LegacyTexas Credit Facility are secured by a lien on the mortgages financed by the LegacyTexas Credit Facility. Further, pursuant to the terms of the LegacyTexas Credit Facility, ViaNova deposited cash in an amount equal to 2% of the $12,500 commitment amount in a non-interest-bearing account with LegacyTexas Bank as additional collateral. See note 13.

See note 18 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of the Company’s other debt.

Table Of Contents

Interest Expense, net


INTEREST EXPENSE
(Dollars in Thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018
Junior subordinated notes	$	860	$	896	$	2,624	$	2,603
2013 Convertible Notes / 2019 Senior Notes		141		207		410		615
2017 Convertible Note		372		365		1,098		1,078
2018 FT LOC/2019 FT Revolver		91		99		273		171
Redeemable Financial Instrument - DGC Family Fintech Trust / CBF		169		203		578		447
Redeemable Financial Instrument - JKD Capital Partners I LTD		(43)		415		478		1,291
Redeemable Financial Instrument - ViaNova Capital Group, LLC		(54)		-		(132)		-
	$	1,536	$	2,185	$	5,329	$	6,205

Because the LegacyTexas Credit Facility is used to directly finance the purchase of securities and loans, the interest expense incurred on the Legacy Texas Credit Facility is included as a component of net trading revenue. See note 5.

17. EQUITY

Stockholders’ Equity

Common Equity: The following table reflects the activity for the nine months ended September 30, 2019 related to the number of shares of unrestricted Common Stock that the Company had issued.


			Common Stock
			Shares
December 31, 2018			1,110,717
Vesting of shares			56,639
Shares withheld and retired for employee taxes			(15,557)
Repurchase and retirement of Common Stock			(7,890)
September 30, 2019			1,143,909

Series E Voting Non-Convertible Preferred Stock: Each share of the Company’s Series E Voting Non-Convertible Preferred Stock (“Series E Preferred Stock”) has no economic rights but entitles the holders to vote the Series E Preferred Stock on all matters presented to the Company’s stockholders. For every 10 shares of Series E Preferred Stock, the holders are entitled to one vote on any such matter. Daniel G. Cohen, the Company’s chairman, is the sole holder of all 4,983,557 shares of Series E Preferred Stock outstanding as of September 30, 2019. The Series E Preferred Stock held by Mr. Cohen gives him the same voting rights he would have if all of the Operating LLC membership units held by him were exchanged for Common Stock on a ten for one basis and effectively gives Mr. Cohen voting rights at the Company in the same proportion as his economic interest (as his membership units of the Operating LLC do not carry voting rights at the Company level). For a more detailed description of these shares see note 19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Acquisition and Surrender of Additional Units of the Operating LLC, net: Effective January 1, 2011, Cohen & Company Inc. and the Operating LLC entered into a Unit Issuance and Surrender Agreement (the “UIS Agreement”), that was approved by the board of directors of Cohen & Company Inc. and the board of managers of the Operating LLC. In an effort to maintain a 1:10 ratio of Common Stock to the number of membership units Cohen & Company Inc. holds in the Operating LLC, the UIS Agreement calls for the issuance of additional membership units of the Operating LLC to Cohen & Company Inc. when Cohen & Company Inc. issues its Common Stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for Cohen & Company Inc. to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased by the Company.

Table Of Contents

During the nine months ended September 30, 2019, Cohen & Company Inc. received and surrendered units of the Operating LLC. The following table displays the amount of units surrendered (net of receipts) by Cohen & Company Inc.


			Operating LLC
			Membership Units
Units related to UIS Agreement			410,820
Units surrendered from retirement of Common Stock			(78,900)
Total			331,920

The Company recognized a net increase in additional paid in capital of $133 and a net decrease in AOCI of $14 with an offsetting decrease in non-controlling interest of $119 in connection with the acquisition and surrender of additional units of the Operating LLC. The following schedule presents the effects of changes in Cohen & Company Inc.’s ownership interest in the Operating LLC on the equity attributable to Cohen & Company Inc. for the nine months ended September 30, 2019 and 2018.


		Nine Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2018
Net income / (loss) attributable to Cohen & Company Inc.	$	(2,828)	$	(2,045)
Transfers (to) from the non-controlling interest:
Increase / (decrease) in Cohen & Company Inc. paid in capital
for the acquisition / (surrender) of additional units in
consolidated subsidiary, net		133		(139)
Changes from net income / (loss) attributable to Cohen & Company Inc. and transfers (to) from the non-controlling interest	$	(2,695)	$	(2,184)

Repurchases of Shares and Retirement of Treasury Stock

On March 19, 2018 and March 17, 2017, the Company entered into letter agreements (the “2018 Letter Agreement” and the “2017 Letter Agreement,” respectively and together, the “10b5-1 Plan”) with Sandler O’Neill & Partners, L.P. (the “Agent”). The 2017 Letter Agreement was in effect from March 17, 2017 until March 17, 2018. The 2018 Letter Agreement was in effect from March 19, 2018 until March 19, 2019 and was not renewed. Both agreements authorized the Agent to use its commercially reasonable efforts to purchase, on the Company’s behalf, up to an aggregate maximum of $2,000 of Common Stock on any day that the NYSE American Stock Exchange was open for business. Pursuant to the 10b5-1 Plan, purchases of Common Stock may be made in public and private transactions and had to comply with Rule 10b-18 under the Exchange Act. The 10b5-1 Plan is designed to comply with Rule 10b5-1 under the Exchange Act.

During the three months ended September 30, 2019 and 2018, the Company repurchased 0 and 10,390 shares, respectively, in the open market pursuant to the 10b5-1 Plan for a total purchase price of $0 and $105, respectively.

During the nine months ended September 30, 2019 and 2018, the Company repurchased 7,890, and 40,202 shares, respectively, in the open market pursuant to the 10b5-1 Plan for a total purchase price of $65 and $425, respectively.

In addition, in a privately negotiated transactions on August 29, 2018, the Company purchased 17,555 shares for $176 from a current member of the board of directors.

In October 2019, the Company purchased 23,000 shares for $230 form a former member of the board of directors in a privately negotiated transaction.

All of the repurchases noted above were completed using cash on hand.

The Company currently has no 10b5-1 Plan in place.

18. NET CAPITAL REQUIREMENTS

JVB is subject to the net capital provision of Rule 15c3-1 under the Exchange Act, which requires the maintenance of minimum net capital, as defined therein.

As of September 30, 2019, JVB’s adjusted net capital was $50,670, which exceeded the minimum requirements by $50,241.

Table Of Contents

CCFL, a subsidiary of the Company regulated by the FCA, is subject to the net liquid capital provision of the Financial Services and Markets Act 2000, GENPRU 2.140R to 2.1.57R, relating to financial prudence with regards to the European Investment Services Directive and the European Capital Adequacy Directive, which requires the maintenance of minimum liquid capital, as defined therein. As of September 30, 2019, the total minimum required net liquid capital was $242, and net liquid capital in CCFL was $506, which exceeded the minimum requirements by $264 and was in compliance with the net liquid capital provisions.

CCFEL, a subsidiary of the Company regulated by the Central Bank of Ireland (the “CBI”), is subject to certain regulatory capital requirements in accordance with the Capital Requirements Regulation 575/2013 and applicable CBI requirements. As of September 30, 2019, the total minimum required net capital was $722, and actual net capital in CCFEL was $1,926, which exceeded the minimum requirements by $1,204 and was in compliance with the net liquid capital provisions.

19. EARNINGS / (Loss) PER COMMON SHARE

The following table presents a reconciliation of basic and diluted earnings / (loss) per common share for the periods indicated.



EARNINGS / (LOSS) PER COMMON SHARE
(Dollars in Thousands, except share or per share information)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income / (loss) attributable to Cohen & Company Inc.	$	(1,216)	$	(651)	$	(2,828)	$	(2,045)
Add/ (deduct): Income / (loss) attributable to non-controlling interest attributable to Operating LLC membership (1)		(645)		(583)		(1,754)		(1,530)
Add / (deduct): Adjustment (2)		79		283		430		596
Net income / (loss) on a fully converted basis	$	(1,782)	$	(951)	$	(4,152)	$	(2,979)

Weighted average common shares outstanding - Basic		1,143,909		1,145,323		1,140,328		1,163,572
Unrestricted Operating LLC membership units exchangeable into Cohen & Company shares (1)		532,409		532,409		532,409		532,409
Weighted average common shares outstanding - Diluted (3)		1,676,318		1,677,732		1,672,737		1,695,981

Net income / (loss) per common share - Basic	$	(1.06)	$	(0.57)	$	(2.48)	$	(1.76)

Net income / (loss) per common share - Diluted	$	(1.06)	$	(0.57)	$	(2.48)	$	(1.76)

(1)

The Operating LLC membership units not held by Cohen & Company Inc. (that is, those held by the non-controlling interest for the nine months ended September 30, 2019 and 2018) may be redeemed and exchanged into shares of the Company on a ten-for-one basis. The Operating LLC membership 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 units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income (loss) per common share when the effect is not anti-dilutive using the if-converted method.

(2)

An adjustment is included because the Company would have incurred a higher income tax expense or realized a higher income tax benefit, as applicable, if the Operating LLC membership units had been converted at the beginning of the period.

(3)

For the three months ended September 30, 2019, weighted average common shares outstanding excludes (i) 0 shares representing restricted Common Stock and restricted Operating LLC membership units, which when vested can be converted in Common Stock, (ii) 528,590 shares from the assumed conversion of the 2013 Convertible Notes, and (iii) 1,034,483 shares from the assumed conversion of the 2017 Convertible Note because the inclusion of such shares would be anti-dilutive. For the nine months ended September 30, 2019, weighted average common shares outstanding excludes (i) 19,728 shares representing restricted Common Stock and restricted Operating LLC membership units, (ii) 553,176 shares from the assumed conversion of the 2013 Convertible Notes, and (iii) 1,034,483 shares from the assumed conversion of the 2017 Convertible Note because the inclusion of such shares would be anti-dilutive.

Table Of Contents

For the three months ended September 30, 2018, weighted average common shares outstanding excludes (i) 26,168 shares representing restricted Common Stock, (ii) 293,865 shares from the assumed conversion of the 2013 Convertible Notes, and (iii) 1,034,483 shares from the assumed conversion of the 2017 Convertible Note because the inclusion of such shares would be anti-dilutive. For the nine months ended September 30, 2018, weighted average common shares outstanding excludes (i) 22,400 shares representing restricted Common Stock, (ii) 281,233 shares from the assumed conversion of the 2013 Convertible Notes, and (iii) 1,034,483 shares from the assumed conversion of the 2017 Convertible Note because the inclusion of such shares would be anti-dilutive.

20. COMMITMENTS AND CONTINGENCIES

Legal and Regulatory Proceedings

The Company’s U.S. broker-dealer subsidiary, J.V.B. Financial Group, LLC is a party to litigation commenced on August 7, 2019, in the Supreme Court of the State of New York under the caption VA Management, LP v. Odeon Capital Group LLC; Janney Montgomery Scott LLC; C&Co/PrinceRidge LLC; and JVB Financial Group LLC. The plaintiff, VA Management, LP (f/k/a Visium Asset Management, LP) (“Visium”), alleges that the defendants, as third-party broker-dealers, aided and abetted Visium’s portfolio managers’ breaches of their fiduciary duties by assisting in carrying out a fraudulent “mismarking scheme.” Visium is seeking in excess of $1 billion in damages from the defendants including disgorgement of the compensation paid to Visium’s portfolio managers, restitution of and damages for the investigative and legal fees, administrative wind down costs, and regulatory penalties paid by Visium as a result of the “mismarking scheme,” direct and consequential damages for the destruction of Visium’s business, including lost profits and lost enterprise value, and attorneys’ fees and costs. JVB filed a motion to dismiss the complaint in lieu of an answer on October 16, 2019. Visium’s response to the motion is due on November 15, 2019. The Company intends to defend the action vigorously.

In addition to the matter set forth above, the Company is a party to various routine legal proceedings and regulatory inquiries arising out of the ordinary course of the Company’s business. Management believes that the results of these routine legal proceedings and regulatory matters will not have a material adverse effect on the Company’s financial condition, or on the Company’s operations and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the Company’s operations and cash flows. It is the Company’s policy to expense legal and other fees as incurred.

Table Of Contents

21. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company operates within three business segments: Capital Markets, Asset Management, and Principal Investing. See note 1.

The Company’s business segment information was prepared using the following methodologies and generally represents the information that is relied upon by management in its decision- making processes:

(a) Revenues and expenses directly associated with each business segment are included in determining net income / (loss) by segment, and

(b) Indirect expenses (such as general and administrative expenses including executive and indirect overhead costs) not directly associated with specific business segments are not allocated to the business segments’ statements of operations.

Accordingly, the Company presents segment information consistent with internal management reporting. See note (1) in the table below for more detail on unallocated items. The following tables present the financial information for the Company’s segments for the periods indicated.

Table Of Contents



SEGMENT INFORMATION
Statement of Operations Information
Nine Months Ended September 30, 2019

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Net trading	$	25,873	$	-	$	-	$	25,873	$	-	$	25,873
Asset management		-		5,765		-		5,765		-		5,765
New issue and advisory		250		-		-		250		-		250
Principal transactions and other income		2		379		1,307		1,688		-		1,688
Total revenues		26,125		6,144		1,307		33,576		-		33,576
Total operating expenses		22,838		4,894		300		28,032		5,537		33,569
Operating income (loss)		3,287		1,250		1,007		5,544		(5,537)		7
Interest income (expense)		348		(191)		-		157		(5,486)		(5,329)
Income (loss) from equity method affiliates		-		-		(365)		(365)		-		(365)
Income (loss) before income taxes		3,635		1,059		642		5,336		(11,023)		(5,687)
Income tax expense (benefit)		-		-		-		-		(917)		(917)
Net income (loss)		3,635		1,059		642		5,336		(10,106)		(4,770)
Less: Net income (loss) attributable to the non-controlling interest		-		-		-		-		(1,942)		(1,942)
Net income (loss) attributable to Cohen & Company Inc.	$	3,635	$	1,059	$	642	$	5,336	$	(8,164)	$	(2,828)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	13	$	2	$	-	$	15	$	224	$	239



SEGMENT INFORMATION
Statement of Operations Information
Nine Months Ended September 30, 2018

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Net trading	$	20,193	$	-	$	-	$	20,193	$	-	$	20,193
Asset management		-		7,827		-		7,827		-		7,827
New issue and advisory		873		-		-		873		-		873
Principal transactions and other income		33		538		4,301		4,872		-		4,872
Total revenues		21,099		8,365		4,301		33,765		-		33,765
Total operating expenses		21,171		5,437		612		27,220		5,174		32,394
Operating income (loss)		(72)		2,928		3,689		6,545		(5,174)		1,371
Interest (expense) income		(170)		(33)		-		(203)		(6,002)		(6,205)
Income (loss) from equity method affiliates		-		-		-		-		-		-
Income (loss) before income taxes		(242)		2,895		3,689		6,342		(11,176)		(4,834)
Income tax expense (benefit)		-		-		-		-		(1,259)		(1,259)
Net income (loss)		(242)		2,895		3,689		6,342		(9,917)		(3,575)
Less: Net income (loss) attributable to the non-controlling interest		-		-		-		-		(1,530)		(1,530)
Net income (loss) attributable to Cohen & Company Inc.	$	(242)	$	2,895	$	3,689	$	6,342	$	(8,387)	$	(2,045)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	39	$	3	$	-	$	42	$	134	$	176

Table Of Contents



SEGMENT INFORMATION
Statement of Operations Information
Three Months Ended September 30, 2019

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Net trading	$	8,479	$	-	$	-	$	8,479	$	-	$	8,479
Asset management		-		2,018		-		2,018		-		2,018
New issue and advisory		250		-		-		250		-		250
Principal transactions and other income		-		157		363		520		-		520
Total revenues		8,729		2,175		363		11,267		-		11,267
Total operating expenses		8,161		1,612		101		9,874		1,836		11,710
Operating income (loss)		568		563		262		1,393		(1,836)		(443)
Interest income (expense)		165		(64)		-		101		(1,637)		(1,536)
Income (loss) from equity method affiliates		-		-		(109)		(109)		-		(109)
Income (loss) before income taxes		733		499		153		1,385		(3,473)		(2,088)
Income tax expense (benefit)		-		-		-		-		(170)		(170)
Net income (loss)		733		499		153		1,385		(3,303)		(1,918)
Less: Net income (loss) attributable to the non-controlling interest		-		-		-		-		(702)		(702)
Net income (loss) attributable to Cohen & Company Inc.	$	733	$	499	$	153	$	1,385	$	(2,601)	$	(1,216)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	5	$	1	$	-	$	6	$	74	$	80



SEGMENT INFORMATION
Statement of Operations Information
Three Months Ended September 30, 2018

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Net trading	$	6,816	$	-	$	-	$	6,816	$	-	$	6,816
Asset management		-		2,818		-		2,818		-		2,818
New issue and advisory		-		-		-		-		-		-
Principal transactions and other income		17		152		2,434		2,603		-		2,603
Total revenues		6,833		2,970		2,434		12,237		-		12,237
Total operating expenses		7,543		2,017		420		9,980		1,901		11,881
Operating income (loss)		(710)		953		2,014		2,257		(1,901)		356
Interest (expense) income		(99)		(33)		-		(132)		(2,053)		(2,185)
Income (loss) from equity method affiliates		-		-		-		-		-		-
Income (loss) before income taxes		(809)		920		2,014		2,125		(3,954)		(1,829)
Income tax expense (benefit)		-		-		-		-		(595)		(595)
Net income (loss)		(809)		920		2,014		2,125		(3,359)		(1,234)
Less: Net income (loss) attributable to the non-controlling interest		-		-		-		-		(583)		(583)
Net income (loss) attributable to Cohen & Company Inc.	$	(809)	$	920	$	2,014	$	2,125	$	(2,776)	$	(651)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	9	$	1	$	-	$	10	$	53	$	63

Table Of Contents

(1)

Unallocated includes certain expenses incurred by indirect overhead and support departments (such as the executive, finance, legal, information technology, human resources, risk, compliance, and other similar overhead and support departments). Some of the items not allocated include: (1) operating expenses (such as cash compensation and benefits, equity-based compensation expense, professional fees, travel and entertainment, consulting fees, and rent) related to support departments excluding certain departments that directly support the Capital Markets business segment; (2) interest expense on debt; and (3) income taxes. Management does not consider these items necessary for an understanding of the operating results of these business segments and such amounts are excluded in business segment reporting to the chief operating decision maker.



BALANCE SHEET DATA
As of September 30, 2019
(Dollars in Thousands)

	Capital		Asset			Principal			Segment			Unallocated
	Markets			Management			Investing			Total			(1)		Total
Total Assets	$	7,421,954		$	1,448		$	10,328		$	7,433,730		$	13,692	$	7,447,422

Included within total assets:
Goodwill (2)	$	7,937		$	55		$	-		$	7,992		$	-	$	7,992
Intangible assets (2)	$	166		$	-		$	-		$	166		$	-	$	166



BALANCE SHEET DATA
December 31, 2018
(Dollars in Thousands)

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Total Assets	$	8,094,983	$	2,309	$	13,768	$	8,111,060	$	4,569	$	8,115,629

Included within total assets:
Goodwill (2)	$	7,937	$	55	$	-	$	7,992	$	-	$	7,992
Intangible assets (2)	$	166	$	-	$	-	$	166	$	-	$	166

(1)Unallocated assets primarily include: (1) amounts due from related parties; (2) furniture and equipment, net; and (3) other assets that are not considered necessary for an understanding of business segment assets. Such amounts are excluded in business segment reporting to the chief operating decision maker.

(2)Goodwill and intangible assets are allocated to the Capital Markets and Asset Management business segments as indicated in the table above.

Geographic Information

The Company conducts its business activities through offices in the following locations: (1) United States and (2) United Kingdom and Other. Total revenues by geographic area are summarized as follows.


GEOGRAPHIC DATA
(Dollars in Thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
		2019	2018		2019		2018
Total Revenues:
United States	$	10,152	$	10,406	$	30,545	$	28,461
Europe & Other		1,115		1,831		3,031		5,304
Total	$	11,267	$	12,237	$	33,576	$	33,765

Table Of Contents

Long-lived assets attributable to an individual country, other than the United States, are not material.

22. SUPPLEMENTAL CASH FLOW DISCLOSURE

Interest paid by the Company on its debt and redeemable financial instruments was $5,637 and $5,300 for the nine months ended September 30, 2019 and 2018, respectively.

The Company paid income taxes of $30 and $36 for the nine months ended September 30, 2019 and 2018, respectively. The Company received income tax refunds of $48 and $8 for the nine months ended September 30, 2019 and 2018, respectively.

For the nine months ended September 30, 2019, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:

The Company net surrendered units of the Operating LLC. The Company recognized a net increase in additional paid-in capital of $133, a net decrease of $14 in accumulated other comprehensive income, and a decrease of $119 in non-controlling interest. See note 17.

The investment return related to certain of the Company’s redeemable financial instruments was negative within certain quarterly periods. Accordingly, to the terms of those agreements, the redemption value of the instrument is reduced in those cases. Accordingly, the Company recorded interest income and reduced the balance of redeemable financial instruments by $176.

On January 1, 2019, the Company recorded a right of use asset of $8,416 and a right of use liability of $8,860, a reduction in retained earnings from cumulative effect of adoption of $20, an increase in other receivables of $18, and a reduction in other liabilities of $406, resulting from the adoption of ASU 2016-02. See note 3.

For the nine months ended September 30, 2018, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:

The Company net surrendered units of the Operating LLC. The Company recognized a net decrease in additional paid-in capital of $139, a net increase of $14 in accumulated other comprehensive income, and an increase of $125 in non-controlling interest. See note 17.

23. RELATED PARTY TRANSACTIONS

The Company has identified the following related party transactions for the nine months ended September 30, 2019 and 2018. The transactions are listed by related party and, unless otherwise noted in the text of the description, the amounts are disclosed in the tables at the end of this section.

A. The Bancorp, Inc. (“TBBK”)

TBBK is identified as a related party because Daniel G. Cohen is chairman of TBBK.

As part of the Company’s broker-dealer operations, the Company from time to time purchases securities from third parties and sells those securities to TBBK. The Company may purchase securities from TBBK and ultimately sell those securities to third parties. In either of the cases listed above, the Company includes the trading revenue earned (i.e. the gain or loss realized, or commission earned) by the Company for the entire transaction in the amounts disclosed as part of net trading in the table at the end of this section.

From time to time, the Company will enter into repurchase agreements with TBBK as its counterparty. As of September 30, 2019 and December 31, 2018, the Company had no repurchase agreements with TBBK. For the three and nine months ending September 30, 2019, the Company incurred no interest expense related to repurchase agreement with TBBK as its counterparty. For the three and nine months ended September 30, 2018, the Company incurred interest expense related to repurchase agreements with TBBK as its counterparty in the amounts of $480 and $1,369, respectively, which were included as a component of net trading revenue in the Company’s consolidated statements of operations. These amounts are not disclosed in the tables at the end this section.

B. Cohen Bros. Financial, LLC (“CBF”) and EBC 2013 Family Trust (“EBC”)

CBF has been identified as a related party because (i) CBF is a non-controlling interest holder of the Company and (ii) CBF is wholly owned by Daniel G. Cohen.

EBC has been identified as a related party because Daniel G. Cohen is a trustee of EBC and has sole voting power with respect to all shares of the Company held by EBC.

Table Of Contents

In September 2013, EBC, as an assignee of CBF, made a $4,000 investment in the Company. The Company issued $2,400 in principal amount of the 2013 Convertible Notes and $1,600 of Common Stock to EBC. See note 18 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. On September 25, 2019, the 2013 Notes were amended and restated by the 2019 Senior Notes. See note 16. The Company incurred interest expense on this debt, which is disclosed as part of interest expense incurred in the table at the end of this section.

On September 29, 2017, CBF also invested $8,000 of the $10,000 total investment in the Company’s Redeemable Financial Instrument – DGC Family Fintech Trust / CBF pursuant to the CBF Investment Agreement. The Company incurred interest expense on this instrument, which is disclosed as part of interest expense incurred in the table at the end of this section. In October 2019, a payment of $1,500 was made by the Company to CBF which reduced the redeemable financial instrument balance. See notes 15 and 16.

C. The Edward E. Cohen IRA

On August 28, 2015, $4,386 in principal amount of the 2013 Convertible Notes originally issued to Mead Park Capital in September 2013 was purchased by the Edward E. Cohen IRA of which Edward E. Cohen is the benefactor. Edward E. Cohen is the father of Daniel G. Cohen. See note 18 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. On September 25, 2019, the 2013 Convertible Notes were amended and restated by the 2019 Senior Notes. See note 16 for a description of amendments entered into related to the 2019 Senior Notes and 2013 Convertible Notes. The Company incurred interest expense on this debt, which is disclosed as part of interest expense incurred in the tables at the end of this section.

D. JKD Investor

The JKD Investor is an entity owned by Jack J. DiMaio, the vice chairman of the board of directors and vice chairman of the Operating LLC’s board of managers, and his spouse. On October 3, 2016, JKD Investor invested $6,000 in the Operating LLC. Additional investments were made in January 2017 and January 2019 in the amounts of $1,000 and $1,268 respectively. See note 15. The interest expense incurred on this investment is disclosed in the table at the end of this section.

E. DGC Family Fintech Trust

DGC Family Fintech Trust was established by Daniel G. Cohen, chairman of the Company’s board of directors and chairman of the Operating LLC board of managers. Daniel G. Cohen does not have any voting or dispositive control of securities held in the interest of the trust. The Company considers DGC Family Fintech Trust a related party because it was established by Daniel G. Cohen.

In March 2017, the 2017 Convertible Note was issued to the DGC Family Fintech Trust. The Company incurred interest expense on the 2017 Convertible Note, which is disclosed as part of interest expense incurred in the table at the end of this section.

On September 29, 2017, the DGC Family Fintech Trust also invested $2,000 of the $10,000 total investment in the Company’s Redeemable Financial Instrument – DGC Family Fintech Trust / CBF pursuant to the DGC Family Fintech Trust Investment Agreement. See note 15. See note 17 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K. Interest incurred on this instrument is disclosed in the tables at the end of this section.

F. FinTech Acquisition Corp. III/FinTech Acquisition Corp. II

In July 2017, the Operating LLC entered into an agreement with FinTech Acquisition Corp. II whereby the Company would provide certain accounting and administrative services. FinTech Acquisition Corp. II was considered a related party until July 2018 because Daniel G. Cohen was the chief executive and Betsy Cohen, Daniel G. Cohen’s mother, was the chairman of the board of directors of FinTech Acquisition Corp. II during that time period. Income earned on this arrangement is disclosed in the tables below. The agreement terminated in July 2018.

In December 2018, the Operating LLC entered into an agreement with Fin Tech Acquisition Corp. III whereby the Company will provide certain accounting and administrative services. Fin Tech Acquisition Corp. III is considered a related party because Daniel G. Cohen is the chief executive officer of FinTech Acquisition III and Betsy Cohen is the chairman of the board of directors of Fintech Acquisition Corp. III. Income earned on this arrangement is disclosed in the tables below.

G. FinTech Investor Holdings II, LLC

FinTech Investor Holdings II, LLC is considered a related party because Daniel G. Cohen is the manager of the entity.

Table Of Contents

In July 2018, the Operating LLC acquired publicly traded shares of Fintech Acquisition Corp. II from an unrelated third party for a total purchase price of $2,513. In connection with this purchase, the Operating LLC agreed with Fintech Investor Holdings II, LLC to not redeem these shares in advance of the merger between Fintech Acquisition Corp. II and Intermex Holdings II, LLC. In exchange for this agreement to not redeem these shares prior to the merger, as well as the outlay of capital to purchase the publicly traded shares of Fintech Acquisition Corp. II, the Operating LLC received unregistered, restricted shares of common stock of Fintech Acquisition Corp. II from Fintech Investor Holdings II, LLC. In connection with the merger, Fintech Acquisition Corp. II changed its name to International Money Express, Inc. The Company recognized net gains (losses) in principal transactions and other income of $66 and $223 in connection with the receipt of these shares for the three and nine months ended months ended September 30, 2019, respectively.

H. Duane Morris, LLP (“Duane Morris”)

Duane Morris is an international law firm and serves as legal counsel to the Company. Duane Morris is considered a related party because a partner at Duane Morris is a member of the same household as a director of the Company. Expense incurred by the Company for services provided by Duane Morris are included within professional fees and operating expense in the consolidated statements of operations and comprehensive income and are disclosed in the table below.

I. FinTech Masala, LLC

FinTech Masala, LLC is a related party because Betsy Cohen is the mother of Daniel G. Cohen and is a member of FinTech Masala, LLC. Daniel G. Cohen is also a member of Fintech Masala, LLC. The Company has engaged Betsy Cohen on behalf of FinTech Masala, LLC as a consultant to provide certain services related to the Insurance SPAC. The Company agreed to pay a consultant fee of $1 per month, which commenced July 1, 2019 and shall continue until the earlier of (i) the date that is thirty days following the closing of the Insurance SPAC’s initial Business Combination and (ii) the date on which the Company or Betsy Cohen terminates the consulting agreement. Betsy Cohen made a $2 investment in the Sponsor Entities in March 2019, which is included as a component of non-controlling interest in the consolidated balance sheet. The expense incurred by the Company for the consulting services provided by FinTech Masala, LLC are included within professional fees and operating expense in the consolidated income statement and are disclosed in the table below.

The Company has a sublease agreement for certain office space with FinTech Masala, LLC. The Company received payments under this agreement. The payments are recorded as a reduction in rent expenses. This sublease agreement commenced on August 1, 2018. It has an annual term that auto-renews if not cancelled earlier. It can be cancelled by either party upon 90 days’ notice. The income earned on this sublease is included as a reduction in rent expense in the consolidated statements of income and are disclosed in the tables below.

J. Investment Vehicle and Other

EuroDekania

EuroDekania is considered a related party because it is an equity method investment of the Company. The Company has an investment in and a management contract with EuroDekania. Income earned or loss incurred on the investment is included as part of principal transactions and other income in the tables below. Revenue earned on the management contract is included as part of asset management in the tables below. EuroDekania liquidated its remaining investments in July 2019 and expects to complete its corporate liquidation in the fourth quarter of 2019.

SPAC Fund

The SPAC Fund is considered a related party because it is an equity method investment of the Company. The Company has an investment in and a management contract with the SPAC Fund. Income earned or loss incurred on the investment is included as part of principal transactions and other income in the tables below. Revenue earned on the management contract is included as part of asset management in the tables below. As of September 30, 2019, the Company owned 3.77% of the equity of the SPAC Fund.

U.S. Insurance JV

U.S. Insurance JV is considered a related party because it is an equity method investment of the Company. The Company has an investment in and a management contract with the U.S. Insurance JV. Income earned or loss incurred on the investment is included as part of principal transactions and other income in the tables below. Revenue earned on the management contract is included as part of asset management and are shown in the tables below. As of September 30, 2019, the Company owned 4.5% of the equity of the U.S. Insurance JV.

Table Of Contents

Insurance SPAC

The Insurance SPAC is a related party as it is an equity method investment of the Sponsor Entities, which are consolidated by the Company. As of September 30, 2019, the Sponsor Entities owned 26.8% of the equity in the Insurance SPAC. Income earned, or loss incurred on equity method investments is included in the tables below. The Operating LLC and the Insurance SPAC entered into an administrative services agreement, dated March 19, 2019, pursuant to which the Operating LLC and the Insurance SPAC agreed that, commencing on the date that the Insurance SPAC’s securities were first listed on the Nasdaq Capital Market through the earlier of the Insurance SPAC’s consummation of a Business Combination and its liquidation, the Insurance SPAC will pay the Operating LLC $10 per month for certain office space, utilities, secretarial support, and administrative services. Revenue earned by the Company from the administrative services agreement is included as part of principal transactions and other income in the tables below. The Company agreed to lend the Insurance SPAC $750 for operating and acquisition related expenses. No amounts have been lent to date under this facility. See note 4.

The following tables display the routine transactions recognized in the statements of operations from the identified related parties that are described above.


	Related Party Transactions
	(Dollars in Thousands)

		Three Months Ended				Nine Months Ended
		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Net trading
TBBK	$	7	$	4	$	11	$	25

Asset management
EuroDekania		-		74		236		165
SPAC Fund		35		20		98		20
U.S. Insurance JV		61		16		211		16
	$	96	$	110	$	545	$	201
Principal transactions and other income
EuroDekania		(2)		35		279		786
Fintech Acquisition Corp.		2		12		8		17
Insurance SPAC		30		-		65		-
SPAC Fund		(19)		2		30		2
U.S. Insurance JV		31		7		114		7
	$	42	$	56	$	496	$	812
Income (loss) from equity method affiliates
Insurance SPAC	$	(109)	$	-	$	(365)	$	-

Operating expense (income)
Duane Morris		86		158		251		424
Fintech Masala, LLC		(11)		-		(23)		-
	$	75	$	158	$	228	$	424
Interest expense (income)
CBF		135		163		462		358
DGC Family Fintech Trust		406		405		1,214		1,167
EBC		50		61		145		180
Edward E. Cohen IRA		91		111		265		328
JKD Investor		(43)		415		478		1,291
	$	639	$	1,155	$	2,564	$	3,324

The following related party transactions are non-routine and are not included in the tables above.

K. Directors and Employees

The Company has entered into employment agreements with Mr. Cohen and Joseph W. Pooler, Jr., its chief financial officer. The Company has entered into its standard indemnification agreement with each of its directors and executive officers.

Table Of Contents

The Company maintains a 401(k) savings plan covering substantially all of its employees. The Company matches 50% of employee contributions for all participants not to exceed 3% of their salary. Contributions made on behalf of the Company were $50 and $219 for the three and nine months ended September 30, 2019, respectively, and $46 and $164 for the three and nine months ended September 30, 2018, respectively.

The Company leases office space from Zucker and Moore, LLC. Zucker and Moore, LLC is partially owned by Jack DiMaio, Jr., the vice chairman of the Company’s board of directors. The Company recorded $24 of rent expense for the three months ended September 30, 2019 and 2018. The Company recorded $72 of rent expense for the nine months ended September 30, 2019 and 2018.

24. DUE FROM / DUE TO RELATED PARTIES

Amounts due to related parties related to redeemable financial instruments and outstanding debt are included as components of those balances in the consolidated balance sheet. Also, interest or investment return owed on those balances are included as a component of accounts payable and other in the consolidated balance sheet. Any investment made in an equity method affiliate for which the Company does not elect the fair value option is included as a component of other assets in the consolidated balance sheet. Any investment made in an equity method affiliate for which the Company elected the fair value option is included as a component of other investments, at fair value in the consolidated balance sheet.

The following table summarizes other amounts outstanding due from / to related parties as of each date shown. These amounts may result from normal operating advances, employee advances, or from timing differences between the transactions disclosed in note 23 and final settlement of those transactions in cash. All amounts are primarily non-interest bearing.


DUE FROM/DUE TO RELATED PARTIES
(Dollars in Thousands)

	September 30, 2019		December 31, 2018
Employees & other	$	317	$	793
Due from related parties	$	317	$	793

Table Of Contents

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of the consolidated financial condition and results of operations of Cohen & Company Inc. and its majority owned subsidiaries (collectively, “we,” “us,” “our,” or the “Company”) should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including fair value of financial instruments. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

All amounts in this disclosure are in thousands (except share and unit and per share and per unit data) except where noted.

Overview

We are a financial services company specializing in fixed income markets. We were founded in 1999 as an investment firm focused on small-cap banking institutions, but have grown to provide an expanding range of capital markets and asset management services. We are organized into three business segments: Capital Markets, Asset Management, and Principal Investing.

Capital Markets: Our 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. Our fixed income sales and trading group provides trade execution to corporate investors, institutional investors, mortgage originators, and other smaller broker-dealers. We specialize in a variety of products, including but not limited to: corporate bonds, ABS, MBS, RMBS, CDOs, CLOs, CBOs, CMOs, municipal securities, TBAs and other forward agency MBS contracts, SBA loans, U.S. government bonds, U.S. government agency securities, brokered deposits and CDs for small banks, and hybrid capital of financial institutions including TruPS, whole loans, and other structured financial instruments. We also offer execution and brokerage services for equity products. We carry out our capital markets activities primarily through our subsidiaries: JVB in the United States and CCFL and CCFEL in Europe.

Asset Management: Our Asset Management business segment manages assets within CDOs, managed accounts, joint ventures, and investment funds (collectively, “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. Our Asset Management business segment includes our fee-based asset management operations, which include on-going base and incentive management fees. As of September 30, 2019, we had approximately $2.67 billion in assets under management (“AUM”) of which 82.4% was in CDOs. A substantial portion of our asset management revenue is earned from the management of CDOs. We have not completed a new securitization since 2008. As a result, our asset management revenue has declined from its historical highs as the assets of the CDOs decline due to maturities, repayments, auction call redemptions, and defaults. Our ability to complete securitizations in the future will depend upon, among other things, our asset origination capacity and success, our ability to arrange warehouse financing to originate assets, our willingness and capacity to fund required amounts to obtain warehouse financing and securitized financings, and the demand in the markets for such securitizations. The remaining portion of our AUM is from a diversified mix of other Investment Vehicles that were more recently formed.

Principal Investing: Our Principal Investing business segment is comprised of investments that we have made for the purpose of earning an investment return rather than investments to support our trading, matched book repo, or other Capital Markets business segment activities. These investments are a component of our other investments, at fair value in our consolidated balance sheet.

We generate our revenue by business segment primarily through the following activities.

Capital Markets:

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

Table Of Contents

Net interest income on our matched book repo financing activities; and

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

Asset Management:

Asset management fees for our on-going asset management services provided to certain Investment Vehicles, which may include fees both senior and subordinate to the securities issued 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.

Business Environment

Our business in general and our Capital Markets business segment in particular, do not produce predictable earnings. Our results can vary dramatically from year to year and quarter to quarter.

Our business is materially affected by economic conditions in the financial markets, political conditions, broad trends in business and finance, the housing and mortgage markets, changes in volume and price levels of securities transactions, and changes in interest rates, including overnight funding rates, all of which can affect our profitability and are unpredictable and beyond our control. These factors may affect the financial decisions made by investors and companies, including their level of participation in the financial markets and their willingness to participate in corporate transactions. Severe market fluctuations or weak economic conditions could reduce our trading volume and revenues, negatively affect our ability to generate new issue and advisory revenue, and adversely affect our profitability.

As a general rule, our trading business benefits from increased market volatility. Increased volatility usually results in increased activity from our clients and counterparties. However, periods of extreme volatility may at times result in clients reducing their trading volumes, which would negatively impact our results. Also, periods of extreme volatility may result in large fluctuations in securities valuations and we may incur losses on our holdings. Also, our mortgage group’s business benefits when mortgage volumes increase, and may suffer when mortgage volumes decrease. Among other things, mortgage volumes are significantly impacted by changes in interest rates.

In addition, as a smaller firm, we are exposed to intense competition. Although we provide financing to our customers, larger firms have a much greater capability to provide their clients with financing, giving them a competitive advantage. We are much more reliant upon our employees’ relationships, networks, and abilities to identify and capitalize on market opportunities. Therefore, our business may be significantly impacted by the addition or loss of key personnel.

We try to address these challenges by (i) focusing our business on clients and asset classes that are underserved by the large firms, (ii) continuing to monitor our fixed costs to enhance operating leverage and limit our losses during periods of low volumes, and (iii) attempting to hire and retain entrepreneurial and effective traders and salespeople.

Our business environment is rapidly changing. New risks and uncertainties emerge continuously and it is not possible for us to predict all the risks we will face. This may negatively impact our operating performance.

A portion of our revenue is generated from net trading activity. We engage in proprietary trading for our own account, provide securities financing for our customers, and execute “riskless” trades with a customer order in hand resulting in limited market risk to us. The inventory of securities held for our own account, as well as held to facilitate customer trades, and our market making activities are sensitive to market movements.

A portion of our revenue is generated from new issue and advisory engagements. The fees charged and volume of these engagements are sensitive to the overall business environment. We provide investment banking and advisory services in Europe through our subsidiaries CCFL and CCFEL and advisory services in the United States through our subsidiary JVB. Currently, our primary source of new issue revenue is from originating assets for our U.S. insurance asset management business and the PriDe funds and managed accounts.

A portion of our revenue is generated from management fees. Our ability to charge management fees and the amount of those fees is dependent upon the underlying investment performance and stability of the Investment Vehicles. If these types of investments do not provide attractive returns to investors, the demand for such instruments will likely fall, thereby reducing our opportunity to earn new management fees or maintain existing management fees. As of September 30, 2019, 82.4% of our existing AUM were in CDOs. The creation of CDOs has depended upon a vibrant securitization market. Since 2008, volumes within the securitization market have dropped significantly and have not fully recovered since that time. We have not completed a new securitization since 2008. The remaining portion of our AUM is from a diversified mix of other Investment Vehicles most of which were more recently formed.

Table Of Contents

A substantial portion of our asset management revenue is earned from the management of CDOs. As a result, our asset management revenue has declined from its historical highs as the assets of the CDOs decline due to maturities, repayments, auction call redemptions, and defaults. Our ability to complete securitizations in the future will depend upon, among other things, our asset origination capacity and success, our ability to arrange warehouse financing to originate assets, our willingness and capacity to fund required amounts to obtain warehouse financing and securitized financings, and the demand in the markets for such securitizations.

A portion of our revenues is generated from our principal investing activities. Therefore, our revenues are impacted by the overall market supply and demand of these investments as well as the individual performance of each investment. Our principal investments are included within other investments, at fair value in our consolidated balance sheets. See note 7 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Margin Pressures in Fixed Income Brokerage Business

Performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity. Overall market conditions are a product of many factors beyond our control and can be unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors including the volatility of the equity and fixed income markets, the level and shape of the various yield curves, and the volume and value of trading in securities.

Margins and volumes in certain products and markets within the fixed income brokerage business continue to decrease materially as competition has increased and general market activity has declined. Further, we continue to expect that competition will increase over time, resulting in continued margin pressure.

Our response to this margin compression has included: (i) building a diversified fixed income trading platform; (ii) acquiring or building out new product lines and expanding existing product lines; (iii) building a hedging execution and funding operation to service mortgage originators; (iv) becoming a full netting member of the FICC enabling us to expand our matched book repo business; and (v) monitoring our fixed costs. Our cost management initiatives are ongoing. However, there can be no certainty that these efforts will be sufficient. If insufficient, we will likely see a decline in profitability.

U.S. Housing Market

In recent years, our mortgage group has grown in significance to our Capital Markets segment and our company overall. The mortgage group primarily earns revenue by providing hedging execution, securities financing, and trade execution services to mortgage originators and other investors in mortgage backed securities. Therefore, this group’s revenue is highly dependent on the volume of mortgage originations in the U.S. Origination activity is highly sensitive to interest rates, the U.S. job market, housing starts, sale activity of existing housing stock, as well as the general health of the U.S. economy. In addition, any new regulation that impacts U.S. government agency mortgage backed security issuance activity, residential mortgage underwriting standards, or otherwise impacts mortgage originators will impact our business. We have no control over these external factors and there is no effective way for us to hedge against these risks. Our mortgage group’s volumes and profitability will be highly impacted by these external factors.

Recent Events

The 2019 Senior Notes

On September 25, 2019, we amended the previously outstanding 2013 Convertible Notes that were scheduled to mature on September 25, 2019. The material terms and conditions of the 2013 Convertible Notes remained substantially the same, except that (i) the maturity date changed from September 25, 2019 to September 25, 2020; (ii) the conversion feature in the 2013 Convertible Notes was removed; (iii) the interest rate changed from 8% per annum (9% in the event of certain events of default) to 12% per annum (13% in the event of certain events of default); and (iv) the restrictions regarding prepayment was removed. The post amendment notes are referred to herein as the “2019 Senior Notes” and the pre-amendment notes are referred to herein as the “2013 Convertible Notes.”

ViaNova

In 2018, we formed a new subsidiary, ViaNova, for the purpose of building a RTL business. RTLs are small balance commercial loans secured by first lien mortgages used by professional investors and real estate developers to finance the purchase and rehabilitation of residential properties. ViaNova’s business plan includes buying, aggregating, and distributing these loans to produce superior risk-adjusted returns through the pursuit of opportunities overlooked by commercial banks. To that end, we have hired two

Table Of Contents

professionals and entered into a line of credit with LegacyTexas Bank. See notes 4, 15, and 16 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

U.S. Insurance JV

On May 16, 2018, we committed to invest up to $3,000 in a newly formed joint venture (the “U.S. Insurance JV”) with an outside investor that committed to invest approximately $63,000 of equity in the U.S. Insurance JV. The U.S. Insurance JV was formed for the purposes of investing in debt issued by small and medium sized U.S. and Bermuda insurance and reinsurance companies and is managed by Dekania Capital Management, LLC, a registered investment advisor subsidiary of the Company (“DCM”). We are required to invest 4.5% of the total equity of the U.S. Insurance JV with an absolute limit of $3,000. The U.S. Insurance JV may use leverage to grow its assets. As of September 30, 2019, we had invested $1,900.

The insurance company debt that will be acquired by the U.S. Insurance JV may be originated by JVB and there may be origination fees earned in connection with such transactions. We also earn management fees as manager of the U.S. Insurance JV. We are entitled to a quarterly base management fee, an annual incentive fee (if certain return hurdles are met), and an additional incentive fee upon the liquidation of the portfolio (if certain return hurdles are met). See note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

SPAC Fund

On August 6, 2018, we invested in and became the general partner of a newly formed partnership, the SPAC Fund, for the purposes of investing in the equity securities of SPACs. Cohen & Company Financial Management, LLC, a registered investment advisor subsidiary of the Company (“CCFM”), is the manager of the SPAC Fund. As of September 30, 2019, we had invested $630 in the SPAC Fund. We are entitled to a quarterly base management fee based on a percentage of the net asset value of the SPAC Fund and an annual incentive allocation based on the actual returns earned by the SPAC Fund. See note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Amendments to 2013 Convertible Notes

The original maturity date of the 2013 Convertible Notes was September 25, 2018. Immediately prior to maturity, the 2013 Convertible Notes were held by three parties. On September 25, 2018, we fully paid off one holder in the amount of $1,461. We entered into amendments with the holders of the remaining $6,786 aggregate principal amount of the 2013 Convertible Notes: the Edward E. Cohen IRA and the EBC 2013 Family Trust. Edward E. Cohen is the benefactor of the Edward E. Cohen IRA and is the father of Daniel G. Cohen, the president and chief executive of our European operations and chairman of our board of directors. Daniel G. Cohen is a trustee of the EBC 2013 Family Trust. Pursuant to the amendments, (i) the maturity date of each of the 2013 Convertible Notes was extended from September 25, 2018 to September 25, 2019 and (ii) the conversion price under each of the 2013 Convertible Notes was reduced from $30.00 per share of Common Stock to $12.00 per share of Common Stock. See note 16 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Insurance Acquisition Corporation (the “Insurance SPAC”)

We are the sponsor of the Insurance SPAC, a blank check company seeking to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses (each a “Business Combination”).

On March 22, 2019, the Insurance SPAC completed the sale of 15,065,000 units (the “SPAC Units”) in its initial public offering (the “IPO”). Each SPAC Unit consists of one share of the SPAC’s Class A common stock, par value $0.0001 per share (“SPAC Common Stock”), and one-half of one warrant (each, a “SPAC Warrant”), where each whole SPAC Warrant entitles the holder to purchase one share of Common Stock for $11.50 per share. The SPAC Units were sold in the IPO at an offering price of $10.00 per SPAC Unit, for gross proceeds of $150,650 (before underwriting discounts and commissions and offering expenses). Pursuant to the underwriting agreement in the IPO, the Insurance SPAC granted the underwriters in the IPO (the “Underwriters”) a 45-day option to purchase up to 1,965,000 additional SPAC Units solely to cover over-allotments, if any (the “Over-Allotment Option”); and on March 21, 2019, the Underwriters exercised the Over-Allotment Option in full. Immediately following the completion of the IPO, there were an aggregate of 20,653,333 shares of SPAC Common Stock issued and outstanding.

We are the manager and a member of each of two entities: Insurance Acquisition Sponsor, LLC and Dioptra Advisors, LLC (together, the “Sponsor Entities”). The Sponsor Entities purchased 375,000 of the Insurance SPAC’s placement units in a private placement that occurred simultaneously with the IPO for an aggregate of $3,750, or $10.00 per placement unit. Each placement unit

Table Of Contents

consists of one share of SPAC Common Stock and one-half of one warrant (the “Placement Warrant”). The placement units are identical to the SPAC Units sold in the IPO except (i) the shares of SPAC Common Stock issued as part of the placement units and the Placement Warrants will not be redeemable by the Insurance SPAC, (ii) the Placement Warrants may be exercised by the holders on a cashless basis, (iii) the shares of SPAC Common Stock issued as part of the placement units, together with the Placement Warrants, are entitled to certain registration rights, and (iv) for so long as they are held by the Underwriter, the placement units will not be exercisable more than five years following the effective date of the registration statement filed by the Insurance SPAC in connection with the IPO. Subject to certain limited exceptions, the placement units (including the underlying Placement Warrants and SPAC Common Stock and the shares of SPAC Common Stock issuable upon exercise of the Placement Warrants) will not be transferable, assignable or salable until 30 days after the completion of our initial Business Combination.

The Sponsor Entities raised $2,550 from third party investors and the remaining investment in the private placement was made by the Company. The Company consolidates the Sponsor Entities and treats its investment in the Insurance SPAC as an equity method investment. The $2,550 raised from third party investors is treated as non-controlling interest. See notes 4 and 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

The proceeds from the placement units were added to the net proceeds from the IPO to be held in a trust account. If the Insurance SPAC does not complete a Business Combination within the first 18 months following the IPO, the proceeds from the sale of the placement units will be used to fund the redemption of the SPAC Common Stock sold as part of the Units in the IPO (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.

The Sponsor Entities collectively hold 5,103,333 founder shares of the Insurance SPAC. Subject to certain limited exceptions, placement units held by the Sponsor Entities will not be transferable or salable until 30 days following a Business Combination, and founder shares held by the Sponsor Entities will not be transferable or salable except (a) with respect to 20% of such shares, until consummation of a Business Combination, and (b) with respect to additional 20% tranches of such shares, when the closing price of the SPAC common stock exceeds $12.00, $13.50, $15.00, and $17.00, respectively, for 20 out of any 30 consecutive trading days following the consummation of a Business Combination, in each case subject to certain limited exceptions.

Cohen & Company Financial (Ireland) Limited

In June 2018, in response to the uncertainty surrounding Brexit, we formed a new subsidiary, CCFEL (f/k/a Cohen & Company Financial (Ireland) Limited) in Ireland, for the purpose of seeking to become regulated to perform asset management and capital markets activities in Ireland and the European Union. In April 2019, CCFEL received authorization from the CBI under the European Union (Markets in Financial Instruments) Regulations 2017 to provide investment services in respect of certain financial instruments including transferable securities, money-market instruments, units in collective investment undertakings and various option, futures, swaps, forward rate agreements and other derivative contracts (“Financial Instruments”). The services for which CCFEL received authorization include the receipt and transmission of orders in relation to Financial Instruments, the execution of orders on behalf of clients, portfolio management, investment advice and investment research, and financial analysis. In addition, CCFEL applied for approval of a French branch, which approval was granted by the CBI and the branch was authorized by the French regulators in April 2019. Following authorization of the French Branch of CCFEL, various contracts originally entered into by CCFL were novated to the French Branch of CCFEL. The novation of contracts was completed on July 1, 2019.

Table Of Contents

Consolidated Results of Operations

This section provides a comparative discussion of our consolidated results of operations for the specified periods. The period-to-period comparisons of financial results are not necessarily indicative of future results.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

The following table sets forth information regarding our consolidated results of operations for the nine months ended September 30, 2019 and 2018.



COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

	Nine Months Ended September 30,				Favorable / (Unfavorable)
	2019		2018		$ Change		% Change
Revenues
Net trading	$	25,873	$	20,193	$	5,680		28%
Asset management		5,765		7,827		(2,062)		(26)%
New issue and advisory		250		873		(623)		(71)%
Principal transactions and other income		1,688		4,872		(3,184)		(65)%
Total revenues		33,576		33,765		(189)		(1)%

Operating expenses
Compensation and benefits		19,813		18,960		(853)		(4)%
Business development, occupancy, equipment		2,476		2,236		(240)		(11)%
Subscriptions, clearing, and execution		6,732		6,418		(314)		(5)%
Professional fee and other operating		4,309		4,604		295		6%
Depreciation and amortization		239		176		(63)		(36)%
Total operating expenses		33,569		32,394		(1,175)		(4)%

Operating income / (loss)		7		1,371		(1,364)		(99)%

Non-operating income / (expense)

Interest expense, net		(5,329)		(6,205)		876		14%
Income / (loss) from equity method affiliates		(365)		-		(365)		NM
Income / (loss) before income taxes		(5,687)		(4,834)		(853)		(18)%
Income tax expense / (benefit)		(917)		(1,259)		(342)		(27)%
Net income / (loss)		(4,770)		(3,575)		(1,195)		(33)%
Less: Net income (loss) attributable to the non-controlling interest		(1,942)		(1,530)		412		27%
Net income / (loss) attributable to Cohen & Company Inc.	$	(2,828)	$	(2,045)	$	(783)		(38)%

Revenues

Revenues decreased by $189, or 1%, to $33,576 for the nine months ended September 30, 2019 from $33,765 for the nine months ended September 30, 2018. As discussed in more detail below, the change was comprised of (i) an increase of $5,680 in net trading revenue; (ii) a decrease of $2,062 in asset management revenue; (iii) a decrease of $623 in new issue and advisory revenue; and (iv) a decrease of $3,184 in principal transactions and other income.

Net Trading

Net trading revenue increased by $5,680, or 28%, to $25,873 for the nine months ended September 30, 2019 from $20,193 for the nine months ended September 30, 2018. The following table shows the detail by group.

Table Of Contents



NET TRADING
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018		Change
Mortgage	$	5,550	$	4,035	$	1,515
Matched book repo		6,202		3,450		2,752
High yield corporate		4,226		7,099		(2,873)
Investment grade corporate		839		586		253
SBA		820		309		511
Wholesale and other		8,236		4,714		3,522
Total	$	25,873	$	20,193	$	5,680

Our net trading revenue includes unrealized gains on our trading investments as of the applicable measurement date that may never be realized due to changes in market or other conditions not in our control. This may adversely affect the ultimate value realized from these investments. In addition, our net trading revenue also includes realized gains on certain proprietary trading positions. Our ability to derive trading gains from such trading positions is subject to overall market conditions. Due to volatility and uncertainty in the capital markets, the net trading revenue recognized may not be indicative of future results. Furthermore, from time to time, some of the assets included in the investments-trading line of our consolidated balance sheets represent level 3 valuations within the FASB valuation hierarchy. Level 3 assets are carried at fair value based on estimates derived using internal valuation models and other estimates. See notes 7, 8, and 9 to our consolidated financial statements included in this Quarterly Report on Form 10-Q. The fair value estimates made by us may not be indicative of the final sale price at which these assets may be sold.

We consider our matched book repo business to be subject to significant concentration risk. See note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Asset Management

Assets Under Management

Our AUM equals the sum of: (1) the gross assets included in CDOs that we have sponsored and manage; plus (2) the NAV of investment funds we manage; plus (3) the NAV or gross assets of other accounts we manage.

Our calculation of AUM may differ from the calculations used by other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. This definition of AUM is not necessarily identical to a definition of AUM that may be used in our management agreements.



ASSETS UNDER MANAGEMENT
(Dollars in Thousands)

	As of September 30,				As of December 31,
	2019		2018		2018		2017
Company sponsored CDOs	$	2,196,955	$	2,687,056	$	2,386,614	$	3,117,372
Other Investment Vehicles (1)		470,066		437,246		465,665		374,510
Assets under management (2)	$	2,667,021	$	3,124,302	$	2,852,279	$	3,491,882

(1)

Other Investment Vehicles represent all AUM that are not company sponsored CDOs.

(2)

In some cases, accounts we manage employ leverage. In some cases, our fees are based on gross assets and in some cases on net assets. AUM included herein is calculated using either the gross or net assets of each managed account or CDO based on whichever serves as the basis for our management fees.

(3)

Table Of Contents

Asset management fees decreased by $2,062, or 26%, to $5,765 for the nine months ended September 30, 2019 from $7,827 for the nine months ended September 30, 2018, as discussed in more detail below. The following table provides a more detailed comparison of the two periods.



ASSET MANAGEMENT
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018		Change
CDOs	$	3,187	$	3,915	$	(728)
Other		2,578		3,912		(1,334)
Total	$	5,765	$	7,827	$	(2,062)

CDOs

Asset management fees from company sponsored CDOs decreased by $728 to $3,187 for the nine months ended September 30, 2019 from $3,915 for the nine months ended September 30, 2018. The following table summarizes the periods presented by asset class.



FEES EARNED BY ASSET CLASS
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018		Change
TruPS and insurance company debt - U.S.	$	2,344	$	2,769	$	(425)
TruPS and insurance company debt - Europe		296		876		(580)
Broadly syndicated loans - Europe		547		270		277
Total	$	3,187	$	3,915	$	(728)

Asset management fees for TruPS and insurance company debt – U.S. declined. In October 2018, the Alesco II CDO had a successful auction of its assets and liquidated. During the nine months ended September 30, 2018, the Company recorded management fee revenue of $213 associated with the Alesco II CDO. The remaining reduction in asset management fees for TruPS and insurance company debt – U.S. was a result of average AUM declining due to principal repayments on the assets in these securitizations.

Asset management fees for TruPS and insurance company debt – Europe declined. In June 2018, the Dekania Europe I CDO had a successful auction of its assets and liquidated. During the nine months ended September 30, 2018, the Company recorded management fee revenue of $435 associated with the Dekania Europe I CDO. The remaining reduction in asset management fees for TruPS and insurance company debt – Europe was a result a decline in AUM due to principal repayments on the assets in these securitizations.

Asset management fees for broadly syndicated loans – Europe consist of a single CLO. During August 2019, this CLO liquidated. Of the revenue earned in 2019, $452 represented fees earned by us upon successful liquidation. No future revenue will be earned related to this management contract.

Other

Other asset management revenue decreased by $1,334 to $2,578 for the nine months ended September 30, 2019 from $3,912 for the nine months ended September 30, 2018. The decrease was primarily due to a reduction in performance fees being earned on our managed accounts during the nine months ended September 30, 2019 as compared to the same period in 2018.

New Issue and Advisory Revenue

New issue and advisory revenue decreased by $623, or 71%, to $250 for the nine months ended September 30, 2019 from $873 for the nine months ended September 30, 2018.

Table Of Contents

considerably. Finally, our revenue is generally earned when an underlying transaction closes (rather than on a monthly or quarterly basis). Therefore, the timing of underlying transactions increases the volatility of our revenue recognition.

In addition, we often incur certain costs related to new issue engagements. These costs are included as a component of either subscriptions, clearing, and execution or professional fees and other and will generally be recognized in the same period that the related revenue is recognized.

Principal Transactions and Other Income

Principal transactions and other income decreased by $3,184, or 65%, to $1,688 for the nine months ended September 30, 2019, as compared to $4,872 for the nine months ended September 30, 2018. The following table summarizes principal transactions and other income by category.



PRINCIPAL TRANSACTIONS & OTHER INCOME
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018		Change
EuroDekania	$	279	$	786	$	(507)
Currency hedges		51		65		(14)
CLO investments		219		1,826		(1,607)
SPAC equity positions		116		1,606		(1,490)
U.S. Insurance JV		114		7		107
SPAC Fund		31		2		29
Other principal investments		435		-		435
Total principal transactions		1,245		4,292		(3,047)

Star Asia revenue share		-		169		(169)
IIFC revenue share		378		365		13
All other income / (loss)		65		46		19
Other income		443		580		(137)

Total principal transactions and other income	$	1,688	$	4,872	$	(3,184)

Principal Transactions

EuroDekania is a company that invests in hybrid capital securities of European companies and we carry our investment at the reported NAV. Income recognized in each period is the result of changes in the underlying NAV of the fund as well as distributions received. Our investment in EuroDekania is denominated in Euros. We sometimes hedge this exposure (as described in greater detail below). EuroDekania sold its remaining investments in 2019. Going forward there should be no income or loss from this investment. We expect EuroDekania to complete its formal liquidation in the fourth quarter of 2019.

Our currency hedge consisted of a Euro forward agreement designed to hedge the currency risk primarily associated with our investment in EuroDekania.

The CLO investments represent investments in the most junior tranche of certain CLOs. The average carrying value of our CLO investments for the nine months ended September 30, 2019 was $2,712 as compared to $13,181 for the nine months ended September 30, 2018. These investments are carried at fair value. See note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for information about how we determine the value of these instruments.

SPAC equity positions represents unrestricted and restricted equity investments in publicly traded SPACs or their successor entities See note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for information about how we determine the value of these instruments.

The U.S. Insurance JV is a company that invests in debt issued by insurance companies and we carry our investment at its reported NAV. Income recognized in each period is the result of changes in the underlying NAV of the fund as well as distributions received. See note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

The SPAC Fund primarily invests in the equity of SPACs and we carry our investment at its reported NAV. Income recognized in each period is the result of changes in the underlying NAV of the SPAC Fund as well as distributions received. See note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Table Of Contents

Other Income

Other income decreased by $137 to $443 for the nine months ended September 30, 2019, as compared to $580 for the nine months ended September 30, 2018. Other income / (loss) is comprised of certain ongoing revenue share arrangements as well as other miscellaneous operating income items.

The revenue share arrangements noted in the table above entitle us to either a percentage of revenue earned by certain entities or a percentage of revenue earned in excess of certain thresholds. These arrangements expire, or have expired, as follows:

The Star Asia revenue share arrangement terminated during the first half of 2018.

The IIFC revenue share arrangement expires at the earlier of (i) the dissolution of IIFC or (ii) when we have earned a cumulative $20,000 in revenue share payments. To date, we have earned $2,563. Also, in any particular year, the revenue share earned by us cannot exceed $2,000.

Operating Expenses

Operating expenses increased by $1,175, or 4%, to $33,569 for the nine months ended September 30, 2019 from $32,394 for the nine months ended September 30, 2018. As discussed in more detail below, the change was comprised of (i) an increase of $853 in compensation and benefits; (ii) an increase of $240 in business development, occupancy, and equipment; (iii) an increase of $314 in subscriptions, clearing, and execution; (iv) a decrease of $295 of professional fee and other operating; and (v) an increase of $63 of depreciation and amortization.

Compensation and Benefits

Compensation and benefits increased by $853, or 4%, to $19,813 for the nine months ended September 30, 2019 from $18,960 for the nine months ended September 30, 2018.



COMPENSATION AND BENEFITS
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018		Change
Cash compensation and benefits	$	19,259	$	18,503	$	756
Equity-based compensation		554		457		97
Total	$	19,813	$	18,960	$	853

Cash compensation and benefits in the table above was primarily comprised of salary, incentive compensation, and benefits. Cash compensation and benefits increased by $756 to $19,259 for the nine months ended September 30, 2019 from $18,503 for the nine months ended September 30, 2018. Our total headcount increased from 86 at September 30, 2018 to 90 at September 30, 2019.

Equity-based compensation increased by $97 to $554 for the nine months ended September 30, 2019 from $457 for the nine months ended September 30, 2018. The increase was a result of the fact that there was a higher level of grants during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

Business Development, Occupancy, and Equipment

Business development, occupancy, and equipment increased by $240, or 11%, to $2,476 for the nine months ended September 30, 2019 from $2,236 for the nine months ended September 30, 2018. The increase was comprised of an increase of $11 from business development and $228 from occupancy and equipment. The increase in business development costs was primarily the result of expenses related to the promotion of businesses. The increase in occupancy and equipment was primarily the result of increased rent from our New York office lease effective as of August 1, 2018.

Table Of Contents

Subscriptions, Clearing, and Execution

Subscriptions, clearing, and execution increased by $314, or 5%, to $6,732 for the nine months ended September 30, 2019 from $6,418 for the nine months ended September 30, 2018. The increase was comprised of an increase in subscriptions of $231 and an increase in clearing and execution costs of $83. Clearing and execution costs increased primarily as a result of increased trading volumes.

Professional Fee and Other Operating Expenses

Professional fee and other operating expenses decreased by $295, or 6%, to $4,309 for the nine months ended September 30, 2019 from $4,604 for the nine months ended September 30, 2018. The decrease was comprised of a decrease in professional fees of $161 and a decrease in other operating expense of $133.

Depreciation and Amortization

Depreciation and amortization increased by $63, or 36%, to $239 for the nine months ended September 30, 2019 from $176 for the nine months ended September 30, 2018. The increase was primarily the result of new equipment depreciation related to our New York office.

Non-Operating Income and Expense

Interest Expense, net

Interest expense, net decreased by $876, or 14%, to $5,329 for the nine months ended September 30, 2019 from $6,205 for the nine months ended September 30, 2018.



INTEREST EXPENSE
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018		Change
Junior subordinated notes	$	2,624	$	2,603	$	21
2013 Convertible Notes / 2019 Senior Notes		410		615		(205)
2017 Convertible Note		1,098		1,078		20
2018 FT LOC		273		171		102
Redeemable Financial Instrument - DGC Family Fintech Trust / CBF		578		447		131
Redeemable Financial Instrument - JKD Capital Partners I LTD		478		1,291		(813)
Redeemable Financial Instrument - ViaNova Capital Group, LLC		(132)		-		(132)
	$	5,329	$	6,205	$	(876)

See notes 15 and 16 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Income / (loss) from Equity Method Affiliates

Income / (loss) from equity method affiliates decreased by $365 to ($365) for the nine months ended September 30, 2019 from $0 for the nine months ended September 30, 2018. The loss during 2019 is from our equity method investment in the Insurance SPAC. The Company acquired this investment in March 2019. See note 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Income Tax Expense / (Benefit)

The income tax expense / (benefit) increased by $342 to income tax expense / (benefit) of ($917) for the nine months ended September 30, 2019 from ($1,259) for the nine months ended September 30, 2018. In the nine months ended September 30, 2019, we estimated that we will incur a net operating loss in 2019 for U.S. income tax purposes. Therefore, we expect to have additional net operating loss carryforwards available to offset a portion of our deferred tax liability in future years. The reduction of the deferred tax liability is recorded as an income tax benefit.

Table Of Contents

Net Income / (Loss) Attributable to the Non-controlling Interest

Net income / (loss) attributable to the non-controlling interest for the nine months ended September 30, 2019 and 2018 was comprised of the non-controlling interest related to member interests in the Operating LLC other than interests held by us for the relevant periods. In addition, net income / (loss) attributable to the non-controlling interest also included non-controlling interest related to entities that were consolidated by the Operating LLC but not wholly owned by us.



SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Nine Months Ended September 30, 2019

	Wholly Owned Subsidiaries		Majority Owned Subsidiaries		Total Operating LLC Consolidated		Cohen & Company, Inc.		Consolidated
Net income / (loss) before tax	$	(5,322)	$	(365)	$	(5,687)	$		$	(5,687)
Income tax expense / (benefit)						0		(917)		(917)
Net income / (loss) after tax		(5,322)		(365)		(5,687)		917		(4,770)
Majority owned subsidiary non-controlling interest		-		(188)		(188)
Net income / (loss) attributable to the Operating LLC		(5,322)		(177)		(5,499)
Average effective Operating LLC non-controlling interest % (1)						30.84%
Operating LLC non-controlling interest					$	(1,754)



SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Nine Months Ended September 30, 2018

	Wholly Owned Subsidiaries		Majority Owned Subsidiaries		Total Operating LLC Consolidated		Cohen & Company, Inc.		Consolidated
Net income / (loss) before tax	$	(4,834)	$	-	$	(4,834)	$	-	$	(4,834)
Income tax expense / (benefit)		39		-		39		(1,298)		(1,259)
Net income / (loss) after tax		(4,873)		-		(4,873)		1,298		(3,575)
Majority owned subsidiary non-controlling interest		-		-		-
Net income / (loss) attributable to the Operating LLC		(4,873)		-		(4,873)
Average effective Operating LLC non-controlling interest % (1)						31.40%
Operating LLC non-controlling interest					$	(1,530)

(1)Because earnings are recognized unevenly throughout the year and the non-controlling interest percentage may change during the period, the average effective non-controlling interest percentage may not equal the percentage at the end of any period or the simple average of the beginning and ending percentages.

Table Of Contents

Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

The following table sets forth information regarding our consolidated results of operations for the three months ended September 30, 2019 and 2018.



COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

	Three Months Ended September 30,				Favorable / (Unfavorable)
	2019		2018		$ Change		% Change
Revenues
Net trading	$	8,479	$	6,816	$	1,663		24%
Asset management		2,018		2,818		(800)		(28)%
New issue and advisory		250		-		250		NM
Principal transactions and other income		520		2,603		(2,083)		(80)%
Total revenues		11,267		12,237		(970)		(8)%

Operating expenses
Compensation and benefits		7,017		7,177		160		2%
Business development, occupancy, equipment		770		725		(45)		(6)%
Subscriptions, clearing, and execution		2,403		2,433		30		1%
Professional fee and other operating		1,440		1,483		43		3%
Depreciation and amortization		80		63		(17)		(27)%
Total operating expenses		11,710		11,881		171		1%

Operating income / (loss)		(443)		356		(799)		(224)%

Non-operating income / (expense)

Interest expense, net		(1,536)		(2,185)		649		30%
Income / (loss) from equity method affiliates		(109)		-		(109)		NM
Income / (loss) before income taxes		(2,088)		(1,829)		(259)		(14)%
Income tax expense / (benefit)		(170)		(595)		(425)		(71)%
Net income / (loss)		(1,918)		(1,234)		(684)		(55)%
Less: Net income (loss) attributable to the non-controlling interest		(702)		(583)		119		20%
Net income / (loss) attributable to Cohen & Company Inc.	$	(1,216)	$	(651)	$	(565)		(87)%

Revenues

Revenues decreased by $970, or 8%, to $11,267 for the three months ended September 30, 2019 from $12,237 for the three months ended September 30, 2018. As discussed in more detail below, the change was comprised of (i) an increase of $1,663 in net trading revenue; (ii) a decrease of $800 in asset management revenue; (iii) an increase of $250 in new issue and advisory revenue; and (iv) a decrease of $2,083 in principal transactions and other income.

Net Trading

Net trading revenue increased by $1,663, or 24%, to $8,479 for the three months ended September 30, 2019 from $6,816 for the three months ended September 30, 2018. The following table shows the detail by group.

Table Of Contents



NET TRADING
(Dollars in Thousands)

	Three Months Ended September 30,
	2019		2018		Change
Mortgage	$	2,013	$	1,337	$	676
Matched book repo		2,566		1,401		1,165
High yield corporate		724		2,278		(1,554)
Investment grade corporate		432		193		239
SBA		142		54		88
Wholesale and other		2,602		1,553		1,049
Total	$	8,479	$	6,816	$	1,663

We consider our matched book repo business to be subject to significant concentration risk. See note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Asset Management

Asset management fees decreased by $800, or 28%, to $2,018 for the three months ended September 30, 2019 from $2,818 for the three months ended September 30, 2018, as discussed in more detail below. The following table provides a more detailed comparison of the two periods.



ASSET MANAGEMENT
(Dollars in Thousands)

	Three Months Ended September 30,
	2019		2018		Change
CDOs	$	1,334	$	1,111	$	223
Other		684		1,707		(1,023)
Total	$	2,018	$	2,818	$	(800)

CDOs

Asset management fees from Company sponsored CDOs increased by $223 to $1,334 for the three months ended September 30, 2019 from $1,111 for the three months ended September 30, 2018. The following table summarizes the periods presented by asset class.

Table Of Contents


FEES EARNED BY ASSET CLASS
(Dollars in Thousands)

	Three Months Ended September 30,
	2019		2018		Change
TruPS and insurance company debt - U.S.	$	774	$	917	$	(143)
TruPS and insurance company debt - Europe		97		128		(31)
Broadly syndicated loans - Europe		463		66		397
Total	$	1,334	$	1,111	$	223

Asset management fees for TruPS and insurance company debt – U.S. declined. In October 2018, the Alesco II CDO had a successful auction of its assets and liquidated. During the three months ended September 30, 2018, the Company recorded management fee revenue of $70 associated with the Alesco II CDO. The remaining reduction in asset management fees for TruPS and insurance company debt – U.S. was the result of average AUM declining due to principal repayments on the assets in these securitizations

Asset management fees for TruPS and insurance company debt – Europe declined. The reduction in asset management fees for TruPS and insurance company debt – Europe was the result a decline in AUM due to principal repayments on the assets in these securitizations.

Asset management fees for broadly syndicated loans – Europe consist of a single CLO. During August 2019, this CLO liquidated. Of the revenue earned during the three months ended September 30, 2019, $452 represented fees earned by us upon successful liquidation. No future revenue will be earned related to this management contract.

Other

Other asset management revenue decreased by $1,023 to $684 for the three months ended September 30, 2019 from $1,707 for the three months ended September 30, 2018. The decrease was primarily due to a reduction of performance fees being earned on our managed accounts during the three months ended September 30, 2019 as compared to the same period in 2018.

New Issue and Advisory Revenue

New issue and advisory revenue increased by $250, to $250 for the three months ended September 30, 2019 from $0 for the three months ended September 30, 2018.

Our revenue earned from new issue and advisory has been, and we expect will continue to be, volatile. We earn revenue from a limited number of engagements. Therefore, a small change in the number of engagements can result in large fluctuations in the revenue recognized. Further, even if the number of engagements remains consistent, the average revenue per engagement can fluctuate considerably. Finally, our revenue is generally earned when an underlying transaction closes (rather than on a monthly or quarterly basis). Therefore, the timing of underlying transactions increases the volatility of our revenue recognition.

In addition, we often incur certain costs related to new issue engagements. These costs are included as a component of either subscriptions, clearing and execution, or professional fees and other, and will generally be recognized in the same period that the related revenue is recognized.

Principal Transactions and Other Income

Principal transactions and other income decreased by $2,083, or 80%, to $520 for the three months ended September 30, 2019, as compared to $2,603 for the three months ended September 30, 2018. The following table summarizes principal transactions and other income by category.

Table Of Contents



PRINCIPAL TRANSACTIONS & OTHER INCOME
(Dollars in Thousands)

	Three Months Ended September 30,
	2019		2018		Change
EuroDekania	$	(2)	$	35	$	(37)
Currency hedges		9		14		(5)
CLO investments		50		908		(858)
SPAC equity positions		85		1,434		(1,349)
U.S. Insurance JV		31		2		29
SPAC Fund		(19)		7		(26)
Other principal investments		156		1		155
Total principal transactions		310		2,401		(2,091)

IIFC revenue share		157		150		7
All other income / (loss)		53		52		1
Other income		210		202		8

Total principal transactions and other income	$	520	$	2,603	$	(2,083)

Principal Transactions

Our currency hedge consisted of a Euro forward agreement designed to hedge the currency risk primarily associated with our investment in EuroDekania.

The CLO investments represent investments in the most junior tranche of certain CLOs. The average carrying value of our CLO investments for the three months ended September 30, 2019 was $2,687 as compared to $14,451 for the three months ended September 30, 2018. These investments are carried at fair value. See note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for information about how we determine the value of these instruments.

Other Income

Other income increased by $8 to $210 for the three months ended September 30, 2019, as compared to $202 for the three months ended September 30, 2018. Other income / (loss) is comprised of certain ongoing revenue share arrangements as well as other miscellaneous operating income items.

Table Of Contents

Operating Expenses

Operating expenses decreased by $171, or 1%, to $11,710 for the three months ended September 30, 2019 from $11,881 for the three months ended September 30, 2018. As discussed in more detail below, the change was comprised of (i) a decrease of $160 in compensation and benefits; (ii) an increase of $45 in business development, occupancy, and equipment; (iii) a decrease of $30 in subscriptions, clearing, and execution; (iv) a decrease of $43 of professional fee and other operating expenses; and (v) an increase of $17 of depreciation and amortization.

Compensation and Benefits

Compensation and benefits decreased by $160, or 2%, to $7,017 for the three months ended September 30, 2019 from $7,177 for the three months ended September 30, 2018.



COMPENSATION AND BENEFITS
(Dollars in Thousands)

	Three Months Ended September 30,
	2019		2018		Change
Cash compensation and benefits	$	6,827	$	7,011	$	(184)
Equity-based compensation		190		166		24
Total	$	7,017	$	7,177	$	(160)

Cash compensation and benefits in the table above was primarily comprised of salary, incentive compensation, and benefits. Cash compensation and benefits decreased by $184 to $6,827 for the three months ended September 30, 2019 from $7,011 for the three months ended September 30, 2018. This decrease was primarily the result of a decrease in incentive compensation that is tied to revenue and operating profitability. Our total headcount increased from 86 at September 30, 2018 to 90 at September 30, 2019.

Equity-based compensation increased by $24 to $190 for the three months ended September 30, 2019 from $166 for the three months ended September 30, 2018. The increase was the result of the fact that equity grants increased during 2019 as compared to 2018.

Business Development, Occupancy, and Equipment

Business development, occupancy, and equipment increased by $45, or 6%, to $770 for the three months ended September 30, 2019 from $725 for the three months ended September 30, 2018. The increase was due to an increase in occupancy and equipment expense of $66; partially offset by a decrease business development costs of $22. The increase in occupancy and equipment was primarily the result of increased rent from our New York office lease effective as of August 1, 2018.

Subscriptions, Clearing, and Execution

Subscriptions, clearing, and execution decreased by $30, or 1%, to $2,403 for the three months ended September 30, 2019 from $2,433 for the three months ended September 30, 2018. The decrease was the result of a decrease in clearing and execution of $74, partially offset by an increase in subscriptions of $44.

Professional fee and Other Operating Expenses

Professional fee and other operating expenses decreased by $43, or 3%, to $1,440 for the three months ended September 30, 2019 from $1,483 for the three months ended September 30, 2018. The decrease is comprised of a decrease in professional fees of $2 and a decrease in other operating expenses of $40.

Table Of Contents

Depreciation and Amortization

Depreciation and amortization increased by $17, or 27%, to $80 for the three months ended September 30, 2019 from $63 for the three months ended September 30, 2018. The increase was primarily the result of new asset purchases related to our New York office lease.

Non-Operating Income and Expense

Interest Expense, net

Interest expense, net decreased by $649, or 30%, to $1,536 for the three months ended September 30, 2019 from $2,185 for the three months ended September 30, 2018.



INTEREST EXPENSE
(Dollars in Thousands)

	Three Months Ended September 30,
	2019		2018		Change
Junior subordinated notes	$	860	$	896	$	(36)
2013 Convertible Notes / 2019 Senior Notes		141		207		(66)
2017 Convertible Note		372		365		7
2018 FT LOC		91		99		(8)
Redeemable Financial Instrument - DGC Family Fintech Trust / CBF		169		203		(34)
Redeemable Financial Instrument - JKD Capital Partners I LTD		(43)		415		(458)
Redeemable Financial Instrument - ViaNova Capital Group, LLC		(54)		-		(54)
	$	1,536	$	2,185	$	(649)

See notes 15 and 16 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Income / (loss) from Equity Method Affiliates

Income / (loss) from equity method affiliates decreased by $109 to ($109) for the three months ended September 30, 2019 from $0 for the three months ended September 30, 2018. The loss during 2019 is from our equity method investment in the Insurance SPAC. The Company acquired this investment in March 2019. See note 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Income Tax Expense / (Benefit)

The income tax expense / (benefit) increased by $425 to income tax expense / (benefit) of $(170) for the three months ended September 30, 2019 from $(595) for the three months ended September 30, 2018. In the three months ended September 30, 2019, we estimated that we will incur a net operating loss for 2019 for U.S. income tax purposes. Therefore, we expect to have additional net operating loss carryforwards available to offset a portion of our deferred tax liability in future years. The reduction of the deferred tax liability is recorded as an income tax benefit.

Table Of Contents

Net Income / (Loss) Attributable to the Non-controlling Interest

Net income / (loss) attributable to the non-controlling interest for the three months ended September 30, 2019 and 2018 was comprised of the non-controlling interest related to member interests in the Operating LLC other than interests held by us for the relevant periods. In addition, net income / (loss) attributable to the non-controlling interest also included non-controlling interest related to entities that were consolidated by the Operating LLC but not wholly owned by us.



SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Three Months Ended September 30, 2019

	Wholly Owned Subsidiaries		Majority Owned Subsidiaries		Total Operating LLC Consolidated		Cohen & Company, Inc.		Consolidated
Net income / (loss) before tax	$	(1,978)	$	(110)	$	(2,088)	$		$	(2,088)
Income tax expense / (benefit)						0		(170)		(170)
Net income / (loss) after tax		(1,978)		(110)		(2,088)		170		(1,918)
Majority owned subsidiary non-controlling interest				(56)		(56)
Net income / (loss) attributable to the Operating LLC		(1,978)		(54)		(2,032)
Average effective Operating LLC non-controlling interest % (1)						30.94%
Operating LLC non-controlling interest					$	(646)



SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Three Months Ended September 30, 2018

	Wholly Owned Subsidiaries		Majority Owned Subsidiaries		Total Operating LLC Consolidated		Cohen & Company, Inc.		Consolidated
Net income / (loss) before tax	$	(1,829)	$	-	$	(1,829)	$	-	$	(1,829)
Income tax expense / (benefit)		14		-		14		(609)		(595)
Net income / (loss) after tax		(1,843)		-		(1,843)		609		(1,234)
Majority owned subsidiary non-controlling interest		-		-		-
Net income / (loss) attributable to the Operating LLC		(1,843)		-		(1,843)
Average effective Operating LLC non-controlling interest % (1)						31.63%
Operating LLC non-controlling interest					$	(583)

Table Of Contents

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements including ongoing commitments to repay debt borrowings, make interest payments on outstanding borrowings, fund investments, and support other general business purposes. In addition, our United States, United Kingdom, and Irish broker-dealer subsidiaries are subject to certain regulatory requirements to maintain minimum levels of net capital. Historically, our primary sources of funds have been our operating activities and general corporate borrowings. In addition, our trading operations have generally been financed by use of collateralized securities financing arrangements as well as margin loans.

Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and loans. JVB is subject to net capital restrictions imposed by the Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) that require certain minimum levels of net capital to remain in this subsidiary. In addition, these restrictions could potentially impose notice requirements or limit our ability to withdraw capital above the required minimum amounts (excess capital) whether through a distribution or a loan. CCFL is regulated by the Financial Conduct Authority (“FCA”) and CCFEL is regulated by the Central Bank of Ireland (the “CBI”) and each must maintain certain minimum levels of capital. See note 18 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

See Liquidity and Capital Resources – Contractual Obligations below.

During the third quarter of 2010, our board of directors initiated a dividend of $0.50 per quarter, which was paid regularly through December 31, 2011. Beginning in 2012, our board of directors declared a dividend of $0.20 per quarter, which was paid regularly through the first quarter of 2019. Each time a cash dividend was declared by our board of directors, a pro rata distribution was made to the other members of the Operating LLC upon payment of dividends to our stockholders.

On August 2, 2019, we announced that we have decided to suspend our quarterly cash dividend. Suspending the $0.20 quarterly dividend is expected to save approximately $1,341 in cash annually and approximately $671 in cash during fiscal year 2019. We currently intend to use the related annual cash savings to invest in new business initiatives and improve our financial position. Any future determination to declare and pay dividends will be made at the discretion of our Board of Directors, after taking into account a variety of factors, including business, financial, and regulatory considerations as well as any limitations under Maryland law or imposed by any agreements governing our indebtedness. Going forward, the board of directors will re-assess our capital resources and may or may not determine to reinstate the dividend based on that assessment.

Since March 17, 2016, we have entered into two letter agreements (together, the “10b5-1 Plan”) with Sandler O’Neill & Partners, L.P. (the “Agent”). The most recent letter agreement provided for the Agent to purchase up to an aggregate maximum of $2,000 of Common Stock and was in effect until March 19, 2019. It expired on that date and we did not enter into a new letter agreement. Pursuant to the 10b5-1 Plan, purchases of Common Stock may have been made in public and private transactions and were required to comply with Rule 10b-18 under the Exchange Act. The 10b5-1 Plan was designed to comply with Rule 10b5-1 under the Exchange Act.

During the three months ended September 30, 2019 and 2018, we repurchased 0 and 10,390 shares in the open market under the 10b5-1 Plan for a total purchase price of $0 and $105 respectively.

During the nine months ended September 30, 2019 and 2018 we repurchased 7,890 and 40,202 shares in the open market under the 10b5-1 Plan for a total purchase price of $65 and $425 respectively.

During the nine months ended September 30, 2018, the Company purchased 17,555 shares for $176 from a current member of the board of directors in a privately negotiated transaction.

All of the repurchases noted above were completed using cash on hand.

During the nine months ended September 30, 2019, we drew on the LegacyTexas Credit Facility by $2,159 and we raised $1,268 of proceeds from redeemable financial instruments. See notes 15 and 16 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

During the nine months ended September 30, 2019, we raised $2,550 by issuing equity of the Sponsor Entities to third parties. This was accounted for as non-controlling interest as we consolidate the Sponsor Entities. See notes 4 and 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

During the nine months ended September 30, 2018, we repaid $1,461 of the 2013 Convertible Notes.

Table Of Contents

Cash Flows

We have seven primary uses for capital:

(1) To fund the operations of our Capital Markets business segment. Our Capital Markets business segment utilizes capital (i) to fund securities inventory to facilitate client trading activities; (ii) for risk trading on the firm’s own account; (iii) to fund our collateralized securities lending activities; (iv) for temporary capital needs associated with underwriting activities; (v) to fund business expansion into existing or new product lines including additional capital dedicated to our mortgage group as well as our matched book repo business; and (vi) to fund any operating losses incurred.

(2) To fund the expansion of our Asset Management business segment. We generally grow our assets under management by sponsoring new Investment Vehicles. The creation of a new Investment Vehicle often requires us to invest a certain amount of our own capital to attract outside capital to manage. Also, these new Investment Vehicles often require warehouse and other third party financing to fund the acquisition of investments. Finally, we generally will hire employees to manage new Investment Vehicles and will operate at a loss for a startup period.

(3) To fund investments. We make principal investments to generate returns. We may need to raise additional debt or equity financing in order to ensure we have the capital necessary to take advantage of attractive investment opportunities.

(4) To fund mergers or acquisitions. We may opportunistically use capital to acquire other asset managers, individual asset management contracts, or financial services firms. To the extent our liquidity sources are insufficient to fund our future merger or acquisition activities, we may need to raise additional funding through an equity or debt offering. No assurances can be given that additional financing will be available in the future, or that if available, such financing will be on favorable terms.

(5) To fund potential dividends and distributions. During the third quarter of 2010 and for each subsequent quarter through June 30, 2019, the board of directors has declared a dividend. A pro rata distribution has been paid to the other members of the Operating LLC upon the payment of any dividends to stockholders of Cohen & Company Inc. On August 2, 2019, we announced that we have decided to suspend our quarterly cash dividend.

(6) To fund potential repurchases of Common Stock. The Company has opportunistically repurchased Common Stock in private transactions as well through its 10b5-1 Plan. See note 17 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

(7) To pay off debt as it matures: The Company has indebtedness that must be repaid as it matures. See note 16 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

If we are unable to raise sufficient capital on economically favorable terms, we may need to reduce the amount of capital invested for the uses described above, which may adversely impact earnings and our ability to pay future dividends, if any.

As of September 30, 2019 and December 31, 2018, we maintained cash and cash equivalents of $14,130 and $14,106, respectively. We generated cash from or used cash for the following activities.



SUMMARY CASH FLOW INFORMATION
(Dollars in Thousands)

	Nine Months Ended September 30,
	2019		2018
Cash flow from operating activities	$	(9,152)	$	(599)
Cash flow from investing activities		4,254		(13,289)
Cash flow from financing activities		5,052		(3,723)
Effect of exchange rate on cash		(130)		(156)
Net cash flow		24		(17,767)
Cash and cash equivalents, beginning		14,106		22,933
Cash and cash equivalents, ending	$	14,130	$	5,166

See the statement of cash flows in our consolidated financial statements. We believe our available cash and cash equivalents, as well as our investment in our trading portfolio and related borrowing capacity, will provide sufficient liquidity to meet the cash needs of our ongoing operations in the near term.

Nine Months Ended September 30, 2019

As of September 30, 2019, our cash and cash equivalents were $14,130, representing an increase of $24 from December 31, 2018. The increase was attributable to cash used by operating activities of $9,152, cash provided by investing activities of $4,254, cash provided by financing activities of $5,052, and the decrease in cash caused by the change in exchange rates of $130.

Table Of Contents

The cash used by operating activities of $9,152 was comprised of (a) net cash inflows of $2,014 related to working capital fluctuations; (b) net cash outflows of $6,338 from trading activities comprised of our investments-trading, trading securities sold, not yet purchased, receivables under resale agreements, securities sold under agreements to repurchase, and receivables and payables from brokers, dealers, and clearing agencies, as well as the changes in unrealized gains and losses on the investments-trading and trading securities sold, but not yet purchased; and (c) net cash outflows from other earnings items of $4,828 (which represents net income or loss adjusted for the following non-cash operating items: other income / (expense), realized and unrealized gains and losses and accretion of income on other investments, equity based compensation, depreciation and amortization, and amortization of discount on debt).

The cash provided by investing activities of $4,254 was comprised of (a) $9,291 of cash received from sales and returns of principal from other investments, at fair value; partially offset by (b) $1,168 of cash used to purchase other investments, at fair value; (c) $3,775 of cash used for investments in equity method affiliates; and (d) $94 of cash used to purchase furniture and equipment.

The cash provided by financing activities of $5,052 was comprised of (a) $1,268 in proceeds from redeemable financial instruments; (b) $2,550 in proceeds from the issuance of non-controlling interests; and (c) $2,159 in proceeds from draws on revolving credit facility; partially offset by (d) $128 in cash used to net settle equity awards; (e) $65 in cash used to purchase and retire Common Stock; (f) $213 in cash used for non-controlling interest distributions, and (g) $519 in cash used to pay dividends.

Nine Months Ended September 30, 2018

As of September 30, 2018, our cash and cash equivalents were $5,166, representing a decrease of $17,767 from December 31, 2017. The decrease was attributable to cash used by operating activities of $599, cash used by investing activities of $13,289, cash used by financing activities of $3,723, and the decrease in cash caused by the change in exchange rates of $156.

The cash used by operating activities of $599 was comprised of (a) net cash inflows of $8,159 related to working capital fluctuations; (b) net cash outflows of $2,006 from trading activities comprised of our investments-trading, trading securities sold, not yet purchased, securities sold under agreements to repurchase, and receivables and payables from brokers, dealers, and clearing agencies, as well as the changes in unrealized gains and losses on the investments-trading and trading securities sold, but not yet purchased; and (c) net cash outflows from other earnings items of $6,752 (which represents net income or loss adjusted for the following non-cash operating items: other income / (expense), realized and unrealized gains and losses and accretion of income on other investments, equity based compensation, depreciation and amortization, and amortization of discount on debt).

The cash used by investing activities of $13,289 was comprised of (a) $25,802 of cash used to purchase other investments, at fair value; (b) $579 of cash used to purchase furniture, equipment, and leasehold improvements; partially offset by (c) $13,092 in cash provided by sales and returns of investments, at fair value.

The cash used by financing activities of $3,723 was comprised of (a) $1,461 repayments of convertible debt; (b) $525 in cash used to pay debt issuance costs; (c) $75 in cash used to settle equity awards; (d) $601 in purchase and retirement of Common Stock; (e) $319 in non-controlling interest distributions; and (f) $742 in dividends paid to shareholders.

Regulatory Capital Requirements

We have three subsidiaries that are licensed securities dealers: JVB in the United States, CCFL in the United Kingdom, and CCFEL in Ireland. As a U.S. broker-dealer, JVB is subject to the Uniform Net Capital Rule in Rule 15c3-1 under the Exchange Act. Our London-based subsidiary, CCFL, is subject to the regulatory supervision and requirements of the FCA and our Ireland-based subsidiary, CCFEL, is subject to the regulatory supervision and requirements of the CBI. The amount of net assets that these subsidiaries may distribute is subject to restrictions under these applicable net capital rules. These subsidiaries have historically operated in excess of minimum net capital requirements. Our minimum capital requirements at September 30, 2019 were as follows.


MINIMUM NET CAPITAL REQUIREMENTS
(Dollars in Thousands)
United States	$	429
Europe		964
Total	$	1,393

We operate with more than the minimum regulatory capital requirement in our licensed broker-dealers and at September 30, 2019, total net capital, or the equivalent as defined by the relevant statutory regulations, in our licensed broker-dealers totaled $53,102. See note 18 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

In addition, our licensed broker-dealers are generally subject to capital withdrawal notification and restrictions.

Table Of Contents

Securities Financing

We maintain repurchase agreements with various third party institutional investors. There is no maximum limit as to the amount of securities that may be transferred pursuant to these agreements, and transactions are approved on a case-by-case basis. The repurchase agreements do not include substantive provisions other than those covenants and other customary provisions contained in standard master repurchase agreements. The repurchase agreements generally require us to transfer additional securities to the counterparty in the event the value of the securities then held by the counterparty in the margin account falls below specified levels and contain events of default in cases where we breach our obligations under the agreement. We receive margin calls from our repurchase agreement counterparties from time to time in the ordinary course of business. To date, we have maintained sufficient liquidity to meet margin calls, and we have always been able to satisfy a margin call, however, no assurance can be given that we will be able to satisfy requests from our counterparties to post additional collateral in the future. See note 10 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

If there were an event of default under the repurchase agreements, we would give our counterparty the option to terminate all repurchase transactions existing with us and make any amount due from us to the counterparty payable immediately. Repurchase obligations are full recourse obligations to us. If we were to default under a repurchase obligation, the counterparty would have recourse to our other assets if the collateral was not sufficient to satisfy the obligation in full. Most of our repurchase agreements are entered into as part of our matched book repo business.

Our clearing agencies provide securities financing arrangements including margin arrangements and securities borrowing and lending arrangements. These arrangements generally require us to transfer additional securities or cash to the clearing agency in the event the value of the securities then held by the clearing agency in the margin account falls below specified levels and contain events of default in cases where we breach our obligations under such agreements.

An event of default under the clearing agreement would give our counterparty the option to terminate our clearing arrangement. Any amounts owed to the clearing agency would be immediately due and payable. These obligations are recourse to us. Furthermore, a termination of our clearing arrangements would result in a significant disruption to our business and would have a significant negative impact on our dealings and relationship with our customers.

The following table presents our period end balance, average monthly balance, and maximum balance at any month end during the nine months ended September 30, 2019 and the twelve months ended December 31, 2018 for receivables under resale agreements and securities sold under agreements to repurchase.



		For the Nine Months Ended September 30, 2019		For the Twelve Months Ended December 31, 2018
Receivables under resale agreements
Period end	$	7,052,919	$	7,632,230
Monthly average		6,136,605		4,492,390
Maximum month end		7,052,919		7,632,230
Securities sold under agreements to repurchase
Period end	$	7,099,614	$	7,671,764
Monthly average		6,186,617		4,531,355
Maximum month end		7,099,614		7,671,764

Fluctuations in the balance of our repurchase agreements from period to period and intra-period are dependent on business activity in those periods. The fluctuations in the balances of our receivables under resale agreements over the periods presented were impacted by our clients’ desires to execute collateralized financing arrangements through the repurchase market or other financing products.

Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider such intra-period fluctuations as typical for the repurchase market. Month-end balances may be higher or lower than average period balances.

Debt Financing

As of September 30, 2019, we had the following sources of debt financing other than securities financing arrangements: (1) convertible senior notes, comprised of the 2019 Senior Notes and the 2017 Convertible Note and (2) junior subordinated notes payable to the following two special purpose trusts: (a) Alesco Capital Trust I and (b) Sunset Financial Statutory Trust I.

See note 16 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q for a discussion of the Company’s outstanding debt.

Table Of Contents

The following table summarizes the Company’s long-term indebtedness and other financing outstanding.



DETAIL OF DEBT
(Dollars in Thousands)

Description		As of September 30, 2019		As of December 31, 2018	Interest Rate Terms	Interest (4)		Maturity
Non-convertible debt:
12.00% senior notes (the "2019 Senior Notes")	$	6,786	$	-	Fixed	12.00	%	September 2020 (1)
Contingent convertible debt:
8.00% convertible senior note (the "2017 Convertible Note")		15,000		15,000	Fixed	8.00	%	March 2022 (2)
8.00% convertible senior notes (the "2013 Convertible Notes")		-		6,786	Fixed	8.00	%	September 2019 (1)
Less unamortized debt issuance costs		(774)		(974)
		14,226		20,812
Junior subordinated notes (3):
Alesco Capital Trust I		28,125		28,125	Variable	6.27	%	July 2037
Sunset Financial Statutory Trust I		20,000		20,000	Variable	6.25	%	March 2035
Less unamortized discount		(25,205)		(25,401)
		22,920		22,724
FT Financial Bank, N.A. Credit Facility		-		-	Variable	N/A		April 2021

LegacyTexas Credit Facility		2,159		-	Variable	N/A		November 2019
Total	$	46,091	$	43,536

(1)On September 25, 2019, we amended the previously outstanding 2013 Convertible Notes which were scheduled to mature September 25, 2019. The material terms and conditions of the 2013 Convertible Notes remained substantially the same, except that (i) the maturity date changed from September 25, 2019 to September 25, 2020; (ii) the conversion feature in the 2013 Convertible Notes was removed; (iii) the interest rate changed from 8% per annum (9% in the event of certain events of default) to 12% per annum (13% in the event of certain events of default); and (iv) the restrictions regarding prepayment were removed. The post-amendment notes are referred to as the “2019 Senior Notes” and the pre-amendment notes are referred to herein as the “2013 Convertible Notes.”

(3)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, 2019 on a combined basis is 16.31% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity.

(4)Represents the interest rate in effect as of the last day of the reporting period.

Table Of Contents

Redeemable Financial Instruments

As of September 30, 2019, we have the following sources of financing that we account for as redeemable financial instruments. See note 15 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.



REDEEMABLE FINANCIAL INSTRUMENTS
(Dollars in thousands)

	As of September 30, 2019		As of December 31, 2018
JKD Capital Partners I LTD	$	7,957	$	6,732
DGC Family Fintech Trust / CBF		10,000		10,000
ViaNova Capital Group, LLC		583		716
Total	$	18,540	$	17,448

Off-Balance Sheet Arrangements

Other than as described in note 9 (derivative financial instruments) and note 14 (variable interest entities) to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, there were no material off balance sheet arrangements as of September 30, 2019.

Contractual Obligations

The table below summarizes our significant contractual obligations as of September 30, 2019 and the future periods in which such obligations are expected to be settled in cash. We assumed that the 2017 Convertible Note is not converted prior to maturity. Our junior subordinated notes are assumed to be repaid on their respective maturity dates. Excluded from the table below are obligations that are short-term in nature, including trading liabilities (including derivatives) and repurchase agreements.



CONTRACTUAL OBLIGATIONS
September 30, 2019
(Dollars in Thousands)

		Payment Due by Period
		Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Operating lease arrangements	$	9,656	$	1,353	$	2,044	$	1,919	$	4,340
Maturity of 2019 Senior Notes		6,786		6,786		-		-		-
Interest on 2019 Senor Notes		801		801		-		-		-
Maturity of 2017 Convertible Note (1)		15,000		-		15,000		-		-
Interest on 2017 Convertible Note (1)		3,235		1,203		2,032		-		-
Maturities on junior subordinated notes		48,125		-		-		-		48,125
Interest on junior subordinated notes (2)		51,568		3,013		6,026		6,026		36,503
Redeemable Financial Instrument - JKD Capital Partners 1 (3)		7,957		7,957		-		-		-
Redeemable Financial Instrument - DGC Family Fintech Trust / CBF (3)		8,500		8,500		-		-		-
Redeemable Financial Instrument - ViaNova (3)		583		583		-		-		-
Minimum variable payment due on Redeemable Financial Instruments (4)		320		320		-		-		-
Other Operating Obligations (5)		4,228		2,080		1,647		501		-
	$	156,759	$	32,596	$	26,749	$	8,446	$	88,968

Table Of Contents

(1)

Assumes the 2017 Convertible Note are not converted prior to maturity.

(2)

The interest on the junior subordinated notes related to Alesco Capital Trust I is variable. The interest rate of 6.266% (based on a 90-day LIBOR rate in effect as of September 30, 2019 plus 4.00%) was used to compute the contractual interest payment in each period noted. The interest on the junior subordinated notes related to Sunset Financial Statutory Trust I is variable. The interest rate of 6.254% (based on a 90-day LIBOR rate in effect as of September 30, 2019 plus 4.15%) was used to compute the contractual interest payment in each period noted.

(3)

Represents redemption value of the redeemable financial instruments as of the reporting period. The redeemable financial instruments do not have a fixed maturity date. The period shown above represents the first period the holder of these instruments has the ability to require redemption by us.

(4)

The redeemable financial instruments require certain variable payments be made by us based on revenues earned by certain of our operations. The amounts shown here represent the minimum amount of payments that would be due under these instruments.

(5)

Represents material operating contracts for various services.

We believe that we will be able to continue to fund our current operations and meet our contractual obligations through a combination of existing cash resources and other sources of credit. Due to the uncertainties that exist in the economy, we cannot be certain that we will be able to replace existing financing or find sources of additional financing in the future.

Recent Accounting Pronouncements

The following is a list of recent accounting pronouncements that we believe will have a continuing impact on our financial statements going forward.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date to be based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU eliminate Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and should be applied on a prospective basis. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, by removing certain disclosure requirements related to the valuation hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities . The ASU made targeted changes to the related party consolidation guidance. The new guidance changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity will need to consider indirect interests held through related parties under common control on a proportionate basis under the new guidance, rather than in their entirety, as has been the case under current guidance. The guidance is effective in annual periods beginning after December 15, 2019 and interim periods within those fiscal years

Table Of Contents

with early adoption permitted. We are currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.

Critical Accounting Policies and Estimates

Our accounting policies are essential to understanding and interpreting the financial results reported in our condensed consolidated financial statements. The significant accounting policies used in the preparation of our condensed consolidated financial statements are summarized in note 3 to our consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2018. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. During the nine months ended September 30, 2019, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.

Effective January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842). Effective January 1, 2019, we recorded the following: (a) a right of use asset of $8,416 (b) a lease commitment liability of $8,860 (c) a reduction in retained earnings from cumulative effect of adoption of $20 (d) an increase in other receivables of $18 and (e) a reduction in other liabilities of $406. See notes 3 and 12 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for further discussion.

Table Of Contents

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All amounts in this section are in thousands unless otherwise noted.

Market Risk

Market risk is the risk of economic loss arising from the adverse impact of market changes to the market value of our trading and investment positions. Market risk is inherent to both derivative and non-derivative financial instruments, and accordingly, the scope of our market risk management procedures extends beyond derivatives to include all market risk sensitive financial instruments. For purposes of analyzing the components of market risk, we have broken out our investment portfolio into three broad categories, plus debt, as described below.

Fixed Income Securities: We hold, from time to time, the following securities: U.S. Treasury securities, U.S. government agency MBS, U.S. government agency debt securities, CMOs, non-government MBS, corporate bonds, non-redeemable and redeemable preferred stock, municipal bonds, certificates of deposits, SBA loans, residential loans, whole loans, and unconsolidated investments in the middle and senior tiers of securitization entities and TruPS. We attempt to mitigate our exposure to market risk by entering into economic hedging transactions, which may include TBAs and other forward agency MBS contracts. The fixed income category can be broadly broken down into two subcategories: fixed rate and floating rate.

Floating rate securities are not in themselves particularly sensitive to interest rate risk. Because they generally accrue income at a variable rate, the movement in interest rates typically does not impact their fair value. Fluctuations in their current income due to variations in interest rates are generally not material to us. Floating rate fixed income securities are subject to other market risks such as default risk of the underlying issuer, changes in issuer’s credit spreads, prepayment rates, investor demand and supply of securities within a particular asset class or industry class of the ultimate obligor. The sensitivity to any individual market risk can be difficult to quantify.

The fair value of fixed rate securities is sensitive to changes in interest rates. However, fixed rate securities that have low credit ratings or represent junior interests in securitizations are not particularly interest rate sensitive. In general, when we acquire interest rate sensitive securities, we enter into an offsetting short position for a similar fixed rate security. Alternatively, we may enter into other interest rate hedging arrangements such as interest rate swaps or Eurodollar futures. We measure our net interest rate sensitivity by determining how the fair value of our net interest rate sensitive assets would change as a result of a 100 basis point (“bps”) adverse shift across the entire yield curve. Based on this analysis, as of September 30, 2019, we would incur a loss of $1,658 if the yield curve rises 100 bps across all maturities and a gain of $1,649 if the yield curve falls 100 bps across all maturities.

Equity Securities: We hold equity interests in the form of investments in investment funds, permanent capital vehicles, and equity instruments of publicly traded companies. These investments are subject to equity price risk. Equity price risk results from changes in the level or volatility of underlying equity prices, which affect the value of equity securities or instruments that in turn derive their value from a particular stock. We attempt to reduce the risk of loss inherent in our inventory of equity securities by closely monitoring those security positions. However, since we generally make investments in our investment funds and permanent capital vehicles in order to facilitate third party capital raising (and hence increase our AUM and asset management fees), we may be unwilling to sell these positions as compared to investments in unaffiliated third parties. We measure our net equity price sensitivity and foreign currency sensitivity by determining how the net fair value of our equity price sensitive and foreign exchange sensitive assets would change as a result of a 10% adverse change in equity prices or foreign exchange rates. Based on this analysis, as of September 30, 2019, our equity price sensitivity was $143 and our foreign exchange currency sensitivity was $0.

Other Securities: These investments are primarily made up of residual interests in securitization entities. The fair value of these investments will fluctuate over time based on a number of factors including, but not limited to, liquidity of the investment type, the credit performance of the individual assets and issuers within the securitization entity, the asset class of the securitization entity and the relative supply of and demand for investments within that asset class, credit spreads in general, the transparency of valuation of the assets and liabilities of the securitization entity, and investors’ view of the accuracy of ratings prepared by the independent rating agencies. The sensitivity to any individual market risk cannot be quantified.

Debt: In addition to the risks noted above, we incur interest rate risk related to our debt obligations. We have debt that accrues interest at either variable rates or fixed rates. As of September 30, 2019, a 100 bps change in the three month LIBOR would result in a change in our annual cash paid for interest in the amount of $503. A 100 bps adverse change in the market yield to maturity would result in an increase in the fair value of the debt in the amount of $1,161 as of September 30, 2019.

Counterparty Risk and Settlement Risk

We are subject to counterparty risk primarily in two areas: (i) our collateralized securities transactions described in note 10 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q and (ii) our TBA and other forward

Table Of Contents

agency MBS activities described in note 9 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q. With respect to the matched book repo financing activities, our risk is that the counterparty does not fulfill its obligation to repurchase the underlying security when it is due. In this case, we would typically liquidate the underlying security, which may result in a loss if the security has declined in value in relation to the balance due from the counterparty under the reverse repurchase agreement.

With respect to our TBA and other forward agency MBS activities, our risk is that the counterparty does not settle the TBA trade on the scheduled settlement date. In this case, we would have to execute the trade, which may result in a loss based on market movement in the value of the underlying trade between its initial trade date and its settlement date (which in the case of TBAs can be as long as 90 days). If we were to incur a loss under either of these activities, we have recourse to the counterparty pursuant to the underlying agreements.

Finally, we have general settlement risk in all of our regular way fixed income and equity trading activities. If a counterparty fails to settle a trade, we may incur a loss in closing out the position and would be forced to try to recover this loss from the counterparty. If the counterparty has become insolvent or does not have sufficient liquid assets to reimburse us for the loss, we may not get reimbursed.

How we manage these risks

Market Risk

We seek to manage our market risk by utilizing our underwriting and credit analysis processes that are performed in advance of acquiring any investment. In addition, we continually monitor our investments-trading and our trading securities sold, not yet purchased on a daily basis and our other investments on a monthly basis. We perform an in-depth monthly analysis on all our investments and our risk committee meets on a monthly basis to review specific issues within our portfolio and to make recommendations for dealing with these issues. In addition, each of our broker-dealers has an assigned chief risk officer that reviews the firm’s positions and trading activities on a daily basis.

Counterparty Risk

We seek to manage our counterparty risk primarily through two processes. First, we perform a credit assessment of each counterparty to ensure the counterparty has sufficient equity, liquidity, and profitability to support the level of trading or lending we plan to do with them. Second, we may require counterparties to post cash or other liquid collateral (“margin”) to support changes in the market value of the underlying securities or trades on an ongoing basis.

In the case of collateralized securities financing transactions, we will generally lend less than the market value of the underlying security initially. The difference between the amount lent and the value of the security is referred to as the haircut. We will seek to maintain this haircut while the loan is outstanding. If the value of the security declines, we will require the counterparty to post margin to offset this decline. If the counterparty fails to post margin, we will sell the underlying security. The haircut serves as a buffer against market movements to prevent or minimize a loss.

In the case of TBA and other forward agency MBS activities, we sometimes require counterparties to post margin with us when the market value of the underlying TBA trade declines. If the counterparty fails to post margin, we will close out the underlying trade. In the case of TBA and other forward agency MBS activities, we will sometimes obtain initial margin or a cash deposit from the counterparty, which serves a purpose similar to the haircut as an additional buffer against losses. However, some of our TBA and other forward agency MBS activities are done without initial margin or cash deposits.

Risks Related to our Matched Book Repo Business

We have entered into repurchase and reverse repurchase agreements as part of our matched book repo business. In general, we will lend money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repurchase agreement. We will borrow money from another counterparty using those same collateral securities pursuant to a repurchase agreement. We seek to earn net interest income on these matched transactions.

Table Of Contents

In our gestational repo business, we will generally ensure that the maturity date of each reverse repurchase agreement matches the maturity date of the matched repurchase agreement. However, in our GCF repo business, we may enter into a reverse repurchase agreement with a longer term than the matched repurchase agreement. When the maturity dates of the matched agreements are not the same, we are exposed to two risks:

Interest rate risk: We are taking risk that the interest rate we pay on the repurchase agreement may increase during the term of the reverse repurchase agreement. If this happens, we may make lower net interest income or, in some cases, have a net loss on a matched trade.

Funding risk: We are taking risk that the repurchase agreement counterparty may increase the haircut (i.e. demand higher levels of collateral) at the maturity date of the repurchase agreement or cease funding altogether.

We manage these risks in the following ways:

We monitor the weighted average maturity of our reverse repurchase agreements as compared to the weighted average maturity of our repurchase agreements on a daily basis. We limit the difference between the weighted average maturities based on market conditions.

We obtain a significantly higher haircut on our reverse repurchase agreements as compared to the required haircut on our repurchase agreements. This excess haircut provides a cushion if the repurchase agreement counterparty were to increase its required haircut.

We limit the practice of having longer term reverse repurchase agreements as compared to matched repurchase agreements to high quality collateral types that are typically very liquid and have stable funding markets.

Table Of Contents

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that material information relating to the Company (and its consolidated subsidiaries) required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, who certify our financial reports and to other members of senior management and the Company’s board of directors.

Under the supervision and with the participation of our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2019. Based on that evaluation, the chief executive officer and the chief financial officer concluded that our disclosure controls and procedures were effective at September 30, 2019.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table Of Contents

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Incorporated by reference to the headings titled “Legal and Regulatory Proceedings” in note 20 to the consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

Item 1A.Risk Factors

In addition to the information set forth in this Quarterly Report on Form 10-Q, you should also carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including without limitation the risk factors contained under the caption “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, that could materially and adversely affect our business, financial condition, and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes in the significant factors that may affect our business and operations as described in “Item 1A—Risk Factors” of the Annual Report on 10-K for the year ended December 31, 2018.

We have suspended our dividend payments and may not be able to continue to pay dividends.

On August 2, 2019, we announced that we have decided to suspend our quarterly cash dividend. Suspending the $0.20 quarterly dividend is expected to save approximately $1,341 in cash annually, approximately $671 in cash during fiscal year 2019. We currently intend to use the related annual cash savings to invest in new business initiatives and improve our financial position. Any future determination to declare and pay dividends will be made at the discretion of our board of directors, after taking into account a variety of factors, including business, financial, and regulatory considerations as well as any limitations under Maryland law or imposed by any agreements governing our indebtedness. Going forward, the board of directors will re-assess its capital resources and may or may not determine to reinstate the dividend based on that assessment.

There can be no assurance that the Company will resume paying dividends on a regular basis. If our board of directors were to determine not to pay dividends in the future, stockholders would not receive any further return on an investment in our capital stock in the form of dividends, and may obtain an economic benefit from the common stock only after an increase in its trading price and only by selling the common stock.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Effective January 1, 2010, the Company ceased to qualify as a REIT and, therefore, is not required to make any dividends or other distributions to its stockholders. However, the Company’s board of directors has the power to decide to increase, reduce, or eliminate dividends in the future. The Company’s board of directors’ decision will depend on a variety of factors, including business, financial, and regulatory considerations as well as any limitations under Maryland law or imposed by any agreements governing indebtedness of the Company. There can be no assurances that such dividends will be maintained or increased and, if maintained or increased, will not subsequently be discontinued.

Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and loans. JVB is subject to net capital restrictions imposed by the SEC and FINRA that require certain minimum levels of net capital to remain in this subsidiary. In addition, these restrictions could potentially impose notice requirements or limit our ability to withdraw capital above the required minimum amounts (excess capital) whether through distribution or loan. CCFL is regulated by the FCA in the United Kingdom and must maintain certain minimum levels of capital. See note 18 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

Issuer Purchases of Equity Securities

None.

Table Of Contents

Item 6.Exhibits




Exhibit No.	Description
10.1	Senior Promissory Note, dated September 25, 2019, issued by Cohen & Company Inc. to Pensco Trust Company, Custodian fbo Edward E. Cohen IRA in the aggregate principal amount of $4,385,628.

10.2	Senior Promissory Note, dated September 25, 2019, issued by Cohen & Company Inc. to the EBC 2013 Family Trust in the aggregate principal amount of $2,400,000.

10.3	Amendment No. 1 to Investment Agreement, dated as of September 25, 2019 and effective as of October 1, 2019, by and between Cohen & Company, LLC and Cohen Bros. Financial LLC.

10.4	Amendment No. 1 to Investment Agreement, dated as of September 25, 2019 and effective as of October 1, 2019, by and between Cohen & Company, LLC and the DGC Family Fintech Trust.

10.5	Purchase Agreement, dated October 2, 2019, by and among Daniel G. Cohen, Christopher Ricciardi and Stephanie Ricciardi.

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.*

31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.*

32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.**

32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.**

101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at September 30, 2019 and December 31, 2018, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the Nine and Three Months Ended September 30, 2019 and 2018, (iii) the Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2019 and 2018, (iv) the Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018, and (v) Notes to Consolidated Financial Statements.**

*		Filed herewith.
**		Furnished herewith.

Table Of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	Cohen & Company Inc.

	By:	/s/ LESTER R. BRAFMAN

		Lester R. Brafman
Date: November 1, 2019		Chief Executive Officer

	Cohen & Company Inc.

	By:	/s/ JOSEPH W. POOLER, JR.

		Joseph W. Pooler, Jr.
Date: November 1, 2019		Executive Vice President, Chief Financial Officer, and Treasurer