Cohen & Co Inc. - Quarter Report: 2022 September (Form 10-Q)

cohn20220930_10q.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

☐ 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 November 1, 2022, there were 1,716,942 shares of common stock ($0.01 par value per share) of Cohen & Company Inc. ("Common Stock") outstanding.

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Cohen & Company Inc.

FORM 10-Q

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2022


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5

	Consolidated Balance Sheets—September 30, 2022 and December 31, 2021	5

	Consolidated Statements of Operations and Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2022 and 2021	6

	Consolidated Statements of Changes in Equity—Three and Nine Months Ended September 30, 2022 and 2021	7

	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2022 and 2021	9

	Notes to Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	59

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	94

Item 4.	Controls and Procedures	95

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	96

Item 1A.	Risk Factors	96

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97

Item 6.	Exhibits	98

Signatures		99

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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;
	●	the special purpose acquisition companies (SPACs) of which we are a sponsor including, INSU Acquisition III, 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;
	●	our investments in both SPACs and SPAC sponsor entities, including through our SPAC Fund and SPAC Series Funds
	●	our role as asset manager and sponsor in our SPAC franchise
	●	fair value of assets; and
	●	any other statements regarding future growth, future cash needs, future operations, business plans, future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties, and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties, and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed under “Item 1A — Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Actual results may differ materially because of various factors, some of which are outside our control, including the following:

	●	a decline in general economic conditions or the global financial markets;
	●	continuation of the COVID-19 pandemic or future outbreaks of COVID-19, the timing and effectiveness of vaccine distribution, and uncertainty surrounding the length and severity of future impacts on the global economy and on our business, liquidity, results of operations and financial condition;
	●	economic uncertainty and capital markets disruption which have been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine;
	●	losses and reduced transaction volumes as a result of increasing interest rates and inflation.
	●	risks and liabilities due to our investments in the equity interests of SPACs and SPAC sponsor entities including the risk of increased regulation applicable to SPACs, risks regarding litigation in connection with the SPACs in which we invest and those which we sponsor, uncertainty of whether the SPACs in which we invest and those we sponsor will consummate a business combination, adverse impacts of COVID-19 on our SPAC franchise, significant competition for business opportunities in the SPAC industry, write-downs or write-offs with respect to the securities which we hold subsequent to the consummation of an initial business combination by the SPACs in which we invest and those which we sponsor, and the target of a SPAC being an early-stage and financially unstable company;
	●	losses caused by financial or other problems experienced by third parties;
	●	losses due to unidentified or unanticipated risks;
	●	losses (whether realized or unrealized) on our principal investments;
	●	a lack of liquidity, i.e., ready access to funds for use in our businesses; or the availability of financing at prohibitive rates;
	●	the ability to attract and retain personnel;
	●	the ability to meet regulatory capital requirements administered by federal agencies;
	●	the ability to pay dividends;
	●	an inability to generate incremental income from acquired, newly established or expanded businesses;
	●	unanticipated market closures due to inclement weather or other disasters;
	●	the volume of trading in securities including collateralized securities transactions;
	●	the liquidity in capital markets;
	●	the creditworthiness of our correspondents, trading counterparties, and banking and margin customers;
	●	changing interest rates and their impacts on U.S. residential mortgage volumes;
	●	competitive conditions in each of our business segments;
	●	the availability of borrowings under credit lines, credit agreements, warehouse agreements, and our credit facilities;
	●	the ability of the Company to collect its outstanding reverse repo balance from First Guaranty Mortgage Corporation;
	●	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.

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

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

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

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

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

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

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

COHEN & COMPANY INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	September 30, 2022
	(unaudited)			December 31, 2021
Assets
Cash and cash equivalents	$	47,287		$	50,567
Receivables from brokers, dealers, and clearing agencies		121,922			68,392
Due from related parties		1,764			4,581
Other receivables		20,739			3,203
Investments-trading		271,823			223,865
Other investments, at fair value		37,726			56,033
Receivables under resale agreements		699,658			3,175,645
Investments in equity method affiliates		13,466			48,238
Deferred income taxes		8,173			11,513
Goodwill		109			109
Right-of-use asset - operating leases		9,980			10,273
Other assets		3,466			3,885
Total assets	$	1,236,113		$	3,656,304

Liabilities
Payables to brokers, dealers, and clearing agencies	$	132,412		$	160,896
Accounts payable and other liabilities		28,506			22,819
Accrued compensation		19,325			22,577
Trading securities sold, not yet purchased		152,079			62,512
Other investments sold, not yet purchased, at fair value		910			2,488
Securities sold under agreements to repurchase		749,673			3,171,415
Lease liability - operating leases		10,739			10,813
Redeemable financial instruments		7,957			7,957
Debt		28,879			43,394
Total liabilities		1,130,480			3,504,871

Commitments and contingencies (See note 21)

Stockholders' Equity:
Voting Non-Convertible Preferred Stock, $0.001 par value per share, 50,000,000 shares authorized, 27,413,098 shares issued and outstanding, respectively		27			27
Common Stock, $0.01 par value per share, 100,000,000 shares authorized, 1,716,942 and 1,697,443 shares issued and outstanding, respectively, including 288,059 and 366,293 unvested or restricted share awards, respectively		17			17
Additional paid-in capital		72,460			72,006
Accumulated other comprehensive loss		(1,005	)		(905	)
Accumulated deficit		(21,793	)		(9,204	)
Total stockholders' equity		49,706			61,941
Non-controlling interest		55,927			89,492
Total equity		105,633			151,433
Total liabilities and equity	$	1,236,113		$	3,656,304

(

See accompanying notes to unaudited consolidated financial statements.

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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,
	2022			2021			2022			2021
Revenues
Net trading	$	7,966		$	16,599		$	30,365		$	54,181
Asset management		3,456			1,856			7,243			5,787
New issue and advisory		13,235			8,838			20,486			11,527
Principal transactions and other income (loss)		(1,192	)		(20,709	)		(26,157	)		47,831
Total revenues		23,465			6,584			31,937			119,326

Operating expenses
Compensation and benefits		15,227			20,577			41,320			61,414
Business development, occupancy, equipment		1,234			869			3,777			2,375
Subscriptions, clearing, and execution		2,112			2,581			6,025			7,745
Professional fee and other operating		1,905			1,585			5,593			5,280
Depreciation and amortization		139			90			414			258
Total operating expenses		20,617			25,702			57,129			77,072

Operating income (loss)		2,848			(19,118	)		(25,192	)		42,254

Non-operating income (expense)
Interest expense, net		(1,346	)		(1,731	)		(3,803	)		(5,527	)
Income (loss) from equity method affiliates		618			2,857			(14,530	)		7,512
Other non-operating income		-			-			-			2,127
Income (loss) before income tax expense (benefit)		2,120			(17,992	)		(43,525	)		46,366

Income tax expense (benefit)		1,761			(248	)		3,534			577
Net income (loss)		359			(17,744	)		(47,059	)		45,789
Less: Net income (loss) attributable to the non-convertible non-controlling interest of the Operating LLC		(109	)		(3,094	)		(18,980	)		17,837
Enterprise net income (loss)		468			(14,650	)		(28,079	)		27,952
Less: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.		1,387			(11,221	)		(17,691	)		20,301
Net income (loss) attributable to Cohen & Company Inc.	$	(919	)	$	(3,429	)	$	(10,388	)	$	7,651
Income (loss) per share data (see note 20)
Income (loss) per common share-basic:
Basic income (loss) per common share	$	(0.64	)	$	(2.61	)	$	(7.33	)	$	6.71
Weighted average shares outstanding-basic		1,428,883			1,314,554			1,417,358			1,140,149
Income (loss) per common share-diluted:
Diluted income (loss) per common share	$	(0.64	)	$	(3.46	)	$	(7.33	)	$	5.31
Weighted average shares outstanding-diluted		1,428,883			4,170,321			1,417,358			5,212,247

Comprehensive income (loss)
Net income (loss)	$	359		$	(17,744	)	$	(47,059	)	$	45,789
Other comprehensive income (loss) item:
Foreign currency translation adjustments, net of tax of $0		(127	)		(65	)		(392	)		(134	)
Other comprehensive income (loss), net of tax of $0		(127	)		(65	)		(392	)		(134	)
Comprehensive income (loss)		232			(17,809	)		(47,451	)		45,655
Less: comprehensive income (loss) attributable to the non-controlling interest		1,184			(14,404	)		(36,958	)		38,043
Comprehensive income (loss) attributable to Cohen & Company Inc.	$	(952	)	$	(3,405	)	$	(10,493	)	$	7,612

See accompanying notes to unaudited consolidated financial statements.

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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, 2022
	Preferred Stock		Common Stock		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity			Non-controlling Interest			Total Equity


December 31, 2021	$	27	$	17	$	72,006		$	(9,204	)	$	(905	)	$	61,941		$	89,492		$	151,433
Net (loss)		-		-		-			(7,612	)		-			(7,612	)		(27,554	)		(35,166	)
Other comprehensive (loss)		-		-		-			-			(19	)		(19	)		(47	)		(66	)
Acquisition / (surrender) of additional units of consolidated subsidiary, net		-		-		(292	)		-			4			(288	)		288			-
Equity-based compensation		-		-		338			-			-			338			766			1,104
Shares withheld for employee taxes		-		-		(72	)		-			-			(72	)		(145	)		(217	)
Dividends/distributions to convertible non-controlling interest		-		-		-			(1,481	)		-			(1,481	)		(3,475	)		(4,956	)
Convertible non-controlling interest investment		-				-			-			-			-			15,000			15,000
Non-convertible non-controlling interest investment		-		-		-			-			-			-			6			6
Non-convertible non-controlling interest distributions		-		-		-			-			-			-			(5,660	)		(5,660	)
March 31, 2022	$	27	$	17	$	71,980		$	(18,297	)	$	(920	)	$	52,807		$	68,671		$	121,478
Net (loss)		-		-		-			(1,857	)		-			(1,857	)		(10,395	)		(12,252	)
Other comprehensive (loss)		-		-		-			-			(53	)		(53	)		(146	)		(199	)
Acquisition / (surrender) of additional units of consolidated subsidiary, net		-		-		(89	)		-			1			(88	)		88			-
Equity-based compensation		-		-		287			-			-			287			795			1,082
Shares withheld for employee taxes		-		-		(4	)		-			-			(4	)		(13	)		(17	)
Dividends/distributions to convertible non-controlling interest		-		-		-			(362	)		-			(362	)		(1,060	)		(1,422	)
Non-convertible non-controlling interest investment		-		-		-			-			-			-			3			3
Non-convertible non-controlling interest distributions		-		-		-			-			-			-			(2,640	)		(2,640	)
June 30, 2022	$	27	$	17	$	72,174		$	(20,516	)	$	(972	)	$	50,730		$	55,303		$	106,033
Net income (loss)		-		-		-			(919	)		-			(919	)		1,278			359
Other comprehensive (loss)		-		-		-			-			(33	)		(33	)		(94	)		(127	)
Acquisition / (surrender) of additional units of consolidated subsidiary, net		-		-		-			-			-			-			-			-
Equity-based compensation		-		-		286			-			-			286			793			1,079
Shares withheld for employee taxes		-		-		-			-			-			-			-			-
Dividends/distributions to convertible non-controlling interest		-		-		-			(358	)		-			(358	)		(1,000	)		(1,358	)
Non-convertible non-controlling interest investment		-		-		-			-			-			-			-			-
Non-convertible non-controlling interest distributions		-		-		-			-			-			-			(353	)		(353	)
September 30, 2022	$	27	$	17	$	72,460		$	(21,793	)	$	(1,005	)	$	49,706		$	55,927		$	105,633

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	Cohen & Company Inc.
	Nine Months Ended September 30, 2021
	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, 2020	$	27	$	13	$	65,031		$	(20,341	)	$	(821	)	$	43,909		$	57,528		$	101,437
Net income		-		-		-			9,355			-			9,355			57,373			66,728
Other comprehensive loss		-		-		-			-			(70	)		(70	)		(28	)		(98	)
Acquisition / (surrender) of additional units of consolidated subsidiary, net		-		-		926			-			4			930			(930	)		-
Equity-based compensation and vesting of shares		-		-		153			-			-			153			13,488			13,641
Shares withheld for employee taxes		-		-		(97	)		-			-			(97	)		(264	)		(361	)
Purchase and retirement of Common Stock		-				(662	)								(662	)		-			(662	)
Dividends/distributions to convertible non-controlling interest		-		-		-			(7	)		-			(7	)		(144	)		(151	)
Non-convertible non-controlling interest investment		-		-		-			-			-			-			23			23
Non-convertible non-controlling interest distributions		-		-		-			-			-			-			(25,885	)		(25,885	)
March 31, 2021	$	27	$	13	$	65,351		$	(10,993	)	$	(887	)	$	53,511		$	101,161		$	154,672
Net income (loss)		-		-		-			1,725			-			1,725			(4,920	)		(3,195	)
Other comprehensive income		-		-		-			-			7			7			22			29
Common stock issued, net		-		1		2,672			-			-			2,673			-			2,673
Acquisition / (surrender) of additional units of consolidated subsidiary, net		-		-		1,449			-			(18	)		1,431			(1,431	)		-
Equity-based compensation and vesting of shares		-		-		145			-			-			145			382			527
Purchase and retirement of Common Stock		-		-		(7	)		-			-			(7	)		-			(7	)
Non-convertible non-controlling interest investment		-		-		-			-			-			-			2,506			2,506
Non-convertible non-controlling interest distributions		-		-		-			-			-			-			(30,769	)		(30,769	)
June 30, 2021	$	27	$	14	$	69,610		$	(9,268	)	$	(898	)	$	59,485		$	66,951		$	126,436
Net income (loss)		-		-		-			(3,429	)		-			(3,429	)		(14,315	)		(17,744	)
Other comprehensive income		-		-		-			-			24			24			(89	)		(65	)
Common stock issued, net		-		2		6,401			-			-			6,403			-			6,403
Acquisition / (surrender) of additional units of consolidated subsidiary, net		-		-		(4,398	)		-			5			(4,393	)		4,393			-
Equity-based compensation and vesting of shares		-		-		182			-			-			182			392			574
Shares withheld for employee taxes						(5	)								(5	)		(12	)		(17	)
Purchase and retirement of Common Stock		-		-		(187	)		-			-			(187	)		-			(187	)
Dividends/distributions to convertible non-controlling interest									(332	)					(332	)		(714	)		(1,046	)
Non-convertible non-controlling interest investment		-		-		-			-			-			-			7,023			7,023
Non-convertible non-controlling interest distributions		-		-		-			-			-			-			(4,215	)		(4,215	)
September 30, 2021	$	27	$	16	$	71,603		$	(13,029	)	$	(869	)	$	57,748		$	59,414		$	117,162

See accompanying notes to unaudited consolidated financial statements.

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COHEN & COMPANY INC.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2022			2021
Operating activities
Net income (loss)	$	(47,059	)	$	45,789
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity-based compensation		3,265			14,742
Accretion of income on other investments, at fair value		-			-
Loss (gain) on other investments, at fair value		26,451			(46,259	)
Loss (gain) on other investments, sold not yet purchased		525			(782	)
(Income) loss from equity method affiliates		14,530			(7,512	)
Depreciation and amortization		414			258
Amortization of discount on debt		485			638
Deferred tax provision (benefit)		3,340			(318	)
Other non-operating income - forgiveness of debt					(2,127	)
Change in operating assets and liabilities, net:
Change in receivables from / payables to brokers, dealers, and clearing agencies		(82,014	)		(56,864	)
Change in receivables from / payables to related parties, net		2,817			(187	)
(Increase) decrease in other receivables		(17,536	)		(11,039	)
(Increase) decrease in investments-trading		(47,958	)		54,278
(Increase) decrease in receivables under resale agreements		2,475,987			(1,224,811	)
(Increase) decrease in other assets		780			(5,271	)
Increase (decrease) in accounts payable and other liabilities		5,647			6,949
Increase (decrease) in accrued compensation		(3,252	)		10,060
Increase (decrease) in trading securities sold, not yet purchased		89,567			5,181
Increase (decrease) in securities sold under agreements to repurchase		(2,421,742	)		1,214,306
Net cash provided by (used in) operating activities		4,247			(2,969	)
Investing activities
Purchase of other investments, at fair value		(8,651	)		(88,012	)
Purchase of other investments sold, not yet purchased, at fair value		(5,994	)		(56,243	)
Sales and returns of principal - other investments, at fair value		15,791			87,614
Sales and returns of principal - other investments sold, not yet purchased, at fair value		3,054			53,951
Investment in equity method affiliate		(617	)		(1,537	)
Distribution from equity method affiliate		75			-
Purchase of furniture, equipment, and leasehold improvements		(482	)		(679	)
Net cash provided by (used in) investing activities		3,176			(4,906	)
Financing activities
Proceeds from debt		2,250			-
Repayment of debt		(2,250	)		(2,400	)
Repayments of redeemable financial instruments		-			(4,000	)
Cash used to net share settle equity awards		(234	)		(378	)
Proceeds from issuance of Common Stock		-			9,076
Purchase and retirement of Common Stock		-			(856	)
Cohen & Company Inc. dividends		(2,201	)		(339	)
Convertible non-controlling interest distributions		(5,535	)		(725	)
Non-convertible non-controlling interest investment		9			9,552
Non-convertible non-controlling interest distributions		(2,236	)		(1,926	)
Net cash provided by (used in) financing activities		(10,197	)		8,004
Effect of exchange rate on cash		(506	)		(295	)
Net increase (decrease) in cash and cash equivalents		(3,280	)		(166	)
Cash and cash equivalents, beginning of period		50,567			41,996
Cash and cash equivalents, end of period	$	47,287		$	41,830

See accompanying notes to unaudited consolidated financial statements.

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COHEN & COMPANY INC.

Notes to Consolidated Financial Statements

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

(Unaudited) 

1. ORGANIZATION AND NATURE OF OPERATIONS

Organizational History

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

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

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

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

The Company

The Company is a financial services company specializing in fixed income and SPAC markets. As of September 30, 2022, the Company had $2.15 billion in assets under management (“AUM”) of which 53.8% or $1.16 billion, was in collateralized debt obligations (“CDOs”). The remaining portion of AUM is from a diversified mix of Investment Vehicles (as defined herein).

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

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, 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 CCFESA in Europe. A division of JVB, Cohen & Company Capital Markets is the Company's full-service boutique investment banking platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial technology (commonly referred to as "fintech") and SPAC spaces.

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

Principal Investing: The Company’s Principal Investing business segment is comprised of investments that the Company holds related to its SPAC franchise and other investments the Company has made for the purpose of earning an investment return rather than investments made to support the Company’s trading, matched book repo, or other Capital Markets business segment activities. These investments are included in the Company’s other investments, at fair value; other investments sold, not yet purchased; and investments in equity method affiliates in the Company’s consolidated balance sheets.

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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 and other investments sold, not yet purchased; and
	●	Income and loss earned on equity method investments.

2. BASIS OF PRESENTATION

The financial statements of the Company included herein were prepared in conformity with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim month periods. All intercompany accounts and transactions have been eliminated in consolidation. The results for the nine months ended September 30, 2022 and 2021 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, 2021.

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, 2021.

CORRECTION OF AN IMMATERIAL ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the three months ended March 31, 2022, the Company determined that it had made an error when calculating its December 31, 2021, deferred tax asset and current tax payable related to its net operating loss carryforwards in certain local jurisdictions. Accordingly, the Company recorded an adjustment in that period and revised the December 31, 2021 balances presented herein. The below table shows the line items impacted and compares the amounts as previously stated to the revised amounts included in Item 1 of this report.

The balance sheet amounts shown below are as of December 31, 2021. The income statement amounts are for the year ended December 31, 2021.

Balance Sheet		As Stated			Revised			Change
Deferred income taxes	$	9,468		$	11,513		$	2,045
Accounts payable and other liabilities		22,701			22,819			118
Accumulated deficit		(9,730	)		(9,204	)		526
Non-controlling interest	$	88,091		$	89,492		$	1,401

Income Statement
Income tax expense (benefit)	$	(1,614	)	$	(3,541	)	$	(1,927	)
Net Income (loss)		72,111			74,038			1,927
Net Income attributable to non-controlling interests		60,829			62,230			1,401
Net income (loss) attributable to Cohen & Company Inc.	$	11,282		$	11,808		$	526

Basic Earnings Per Share	$	9.50		$	9.95		$	0.45
Diluted Earnings Per Share	$	7.48		$	7.83		$	0.35

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Adoption of New Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify accounting for income taxes. It removes specific exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. The Company’s adoption of the provisions of ASU 2019-12, effective January 1, 2021, did not have an effect on the Company’s consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies certain accounting topics impacted by Topic 321 Investments-Equity Securities. These topics include measuring equity securities using the measurement alternative, how the measurement alternative should be applied to equity method accounting, and certain forward contracts and purchased options which would be accounted for under the equity method of accounting upon settlement or exercise. The Company’s adoption of the provisions of ASU 2020-01, effective January 1, 2021, did not have an effect on the Company’s consolidated financial statements.

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

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

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

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

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

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

B. Recent Accounting Developments

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

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. The amendments in this ASU eliminate TDR recognition and measurement guidance and instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. This ASU is effective for fiscal years beginning after December 15, 2022, 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.

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

C. Fair Value of Financial Instruments

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

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

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

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

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

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 AFN Merger and recorded at fair value as of that date. As of September 30, 2022 and December 31, 2021, the fair value of the Company’s debt was estimated to be $32,039 and $54,284, respectively. The estimated fair value measurements of the debt are generally based on discounted cash flow models prepared by the Company’s management primarily using discount rates for similar instruments issued to companies with similar credit risks to the Company and are generally classified within level 3 of the value hierarchy.

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

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4. OTHER RECENT BUSINESS TRANSACTIONS OR EVENTS

Conversion of the 2017 Convertible Note

On March 10, 2017, the Operating LLC issued to DGC Family Fintech Trust (the “DGC Trust”), a trust established by Daniel G. Cohen, a convertible senior secured promissory note in the aggregate principal amount of $15,000 (the "2017 Convertible Note"). On March 20, 2022, the DGC Trust elected to convert the 2017 Convertible Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the 2017 Convertible Note agreement of $1.45 per unit. As a result of such conversion, the 2017 Convertible Note was cancelled in its entirety. These units of membership interests have the same conversion and redemption rights as the existing convertible non-controlling interest units of membership interests. See note 21 to the Company's December 31, 2021 Annual Report filed on Form 10-K for additional information regarding the 2017 Convertible Note.

Pursuant to the DGC Trust’s governing documents, Daniel G. Cohen has the ability to acquire at any time any of the DGC Trust’s assets, including the units of membership interest, by substituting other property of an equivalent value without the approval or consent of any person, including any trustee or beneficiary of the DGC Trust. See Notes 16 and 24.

The 2020 Senior Notes

On January 31, 2022, the Operating LLC and JKD Investor entered into a Note Purchase Agreement. On January 31, 2020, the Operating LLC entered into a Note Purchase Agreement (the “Original Purchase Agreement”) with JKD Capital Partners I LTD, a New York corporation (“JKD Investor”), and RN Capital Solutions LLC, a Delaware limited liability company (“RNCS”). The JKD Investor is owned by Jack DiMaio, Jr., the vice chairman of the Company’s board of directors and the Operating LLC’s board of managers, and his spouse. The note purchased by the JKD Investor is herein referred to as the “JKD Note.”

Pursuant to the Original Purchase Agreement, JKD Investor and RNCS each purchased a senior promissory note in the principal amount of $2,250 (for an aggregate investment of $4,500). The senior promissory notes bore interest at a fixed rate of 12% per annum and matured on January 31, 2022, pursuant to which, among other things, on such date, (i) JKD Investor paid to the Operating LLC an additional $2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD Investor an Amended and Restated Senior Promissory Note in the aggregate principal amount of $4,500 (the “Amended and Restated Note”), which Amended and Restated Note amended and restated the JKD Note in its entirety. The 2022 Purchase Agreement contains customary representations and warranties on the part of each of JKD Investor and the Operating LLC. The Company used these proceeds to retire $2,250 of existing 2020 Senior Notes held by RNCS. See note 16 and 24.

New Commercial Real Estate Opportunities (“CREO”) JV

On September 3, 2021, the Company committed to invest up to $15,000 of equity in a newly formed joint venture (the “CREO JV”) with an outside investor who committed to invest approximately $435,000 of equity in the CREO JV. The Company is required to invest 7.5% of the total equity of the CREO JV with an absolute limit of $15,000. The CREO JV is managed by the Company.

The CREO JV was formed for the purposes of investing in primarily multi-family commercial real estate mortgage-backed loans and below-investment-grade rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-backed loans. “CRE CLO” means any pooling of commercial real estate mortgage-backed loans into a collateralized loan obligation.

The commercial real estate loans that will be funded by the CREO JV may be originated by the Company and the Company may earn origination fees in connection with such transactions. In addition, the Company may earn structuring fees in connection with structuring and consummating a CRE CLO consisting of a pooling of commercial real estate loans. The Company also may earn management fees as manager of any CRE CLOs based on the value of the assets consolidated into a CRE CLO (calculated in accordance with the terms of such CRE CLO), payable from the proceeds generated by and in accordance with the distribution waterfall of such CRE CLO.

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 CREO JV. The investment is included in other investments at fair value, on the consolidated balance sheet 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 CREO JV has the attributes of investment companies as described in FASB ASC 946-15-2, the Company estimates 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. As of September 30, 2022, the Company's investment balance in the CREO was $6,818.

Wind Down of the Company's GCF Repo Business

Since 2017, the Company has carried out a matched book GCF repo business as a full netting member of the FICC Government Services Division. In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, the Company decided to wind down this business. As of December 31, 2021, the wind down was completed and the GCF reverse repurchase agreements and repurchase agreements balances were reduced to zero. See note 10.

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INSU Acquisition Corp III ("Insurance SPAC III")

The Operating LLC is the manager of Insurance Acquisition Sponsor III, LLC (“IAS III”) and Dioptra Advisors III, LLC (together with IAS III, the “Insurance SPAC III Sponsor Entities”). The Insurance SPAC III Sponsor Entities are sponsors of INSU Acquisition Corp. III ("Insurance SPAC III"). On December 22, 2020, Insurance SPAC III completed the sale of 25,000,000 units (the “Insurance SPAC III Units”) in its initial public offering, which included 3,200,000 units issued pursuant to the underwriters’ over-allotment option.

Each Insurance SPAC III Unit consists of one share of Insurance SPAC III's Class A common stock, par value $0.0001 per share (“Insurance SPAC III Common Stock”), and one-third of one Insurance SPAC III warrant (each, an “Insurance SPAC III Warrant”), where each whole Insurance SPAC III Warrant entitles the holder to purchase one share of Insurance SPAC III Common Stock for $11.50 per share. The Insurance SPAC III Units were sold in the IPO at an offering price of $10.00 per Unit, for gross proceeds of $250,000 (before underwriting discounts and commissions and offering expenses). Pursuant to the underwriting agreement in the IPO, Insurance SPAC III granted the underwriters in the IPO (the “Insurance SPAC III Underwriters”) a 45-day option to purchase up to 3,270,000 additional Insurance SPAC III Units solely to cover over-allotments, if any; and on December 21, 2020, the Insurance SPAC III Underwriters notified the Company that they were partially exercising the over-allotment option for 3,200,000 Insurance SPAC III Units and waiving the remainder of the over-allotment option. Immediately following the completion of the IPO, there were an aggregate of 34,100,000 shares of Insurance SPAC III Common Stock issued and outstanding. If the Insurance SPAC III fails to consummate a business combination within the first 24 months following the IPO, its corporate existence will cease except for the purposes of winding up its affairs and liquidating its assets.

The Insurance SPAC III Sponsor Entities purchased an aggregate of 575,000 of placement units in Insurance SPAC III in a private placement that occurred simultaneously with the IPO for an aggregate of $5,750, or $10.00 per placement unit. Each placement unit consists of one share of Insurance SPAC III Common Stock and one-third of one warrant (the “Insurance SPAC III Placement Warrant”). The Insurance SPAC III placement units are identical to the Insurance SPAC III Units sold in the IPO except (i) the shares of Insurance SPAC III Common Stock issued as part of the placement units and the Insurance SPAC III Warrants will not be redeemable by Insurance SPAC III, (ii) the Insurance SPAC III Warrants may be exercised by the holders on a cashless basis, and (iii) the shares of Insurance SPAC III Common Stock issued as part of the placement units, together with the Insurance SPAC III Warrants, are entitled to certain registration rights. Subject to certain limited exceptions, the placement units (including the underlying Insurance SPAC III Warrants and Insurance SPAC III Common Stock and the shares of Insurance SPAC III Common Stock issuable upon exercise of the Insurance SPAC III Warrants) will not be transferable, assignable or salable until 30 days after the completion of the Insurance SPAC III’s initial business combination.

A total of $250,000 of the net proceeds from the private placement and the IPO (including approximately $10,600 of the deferred underwriting commission from the IPO) were placed in a trust account. Except for the withdrawal of interest to pay taxes (or dissolution expenses if a business combination is not consummated), none of the funds held in the trust account will be released until the earlier of (i) the completion of Insurance SPAC III’s initial business combination, (ii) in connection with a stockholder vote to amend Insurance SPAC III’s amended and restated certificate of incorporation (A) to modify the substance or timing of Insurance SPAC III’s obligation to redeem 100% of its public shares if it does not complete an initial business combination within 24 months from the completion of the IPO or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity, or (iii) the redemption of all of Insurance SPAC III’s public shares issued in the IPO if the Insurance SPAC III is unable to consummate an initial business combination within 24 months from the completion of the IPO. If Insurance SPAC III does not complete a business combination within the first 24 months following the IPO, the placement units will expire worthless.

The Insurance SPAC III Sponsor Entities collectively hold 8,525,000 founder shares in Insurance SPAC III. Subject to certain limited exceptions, the founder shares will not be transferable or salable except (a) with respect to 25% of such shares, until consummation of a business combination, and (b) with respect to additional 25% tranches of such shares, when the closing price of Insurance SPAC III Common Stock exceeds $12.00, $13.50, and $17.00, respectively, for 20 out of any 30 consecutive trading days following the consummation of a business combination. Certain non-controlling interests in the Insurance SPAC III Sponsor Entities, including executive and key employees of the Operating LLC, purchased membership interests in the Insurance SPAC III Sponsor Entities and, in addition to having an interest in Insurance SPAC III’s placement units discussed above, have an interest in Insurance SPAC III’s founder shares through such membership interests in the Insurance SPAC III Sponsor Entities. The number of the Insurance SPAC III’s founder shares in which such non-controlling interests in the Insurance SPAC III Sponsor Entities, including such executives and key employees of the Operating LLC, have an interest in through the Insurance SPAC III Sponsor Entities will not be finally and definitively determined until consummation of a business combination. The number of Insurance SPAC III’s founder shares currently allocated to the Operating LLC is 4,267,500, but such number of founder shares will also not be finally and definitively determined until the consummation of a business combination.

The Operating LLC loaned to Insurance SPAC III approximately $71 to cover IPO expenses, which was repaid in full at the closing of the IPO. Insurance Acquisition Sponsor III and its affiliates, including the Operating LLC, have also committed to loan Insurance SPAC III up to an additional $1,500 to cover operating and acquisition related expenses following the IPO, of which $960 was borrowed by Insurance SPAC III as of September 30, 2022. See notes 24 and 25. These loans will bear no interest and, if Insurance SPAC III consummates a business combination in the required timeframe, the loans are to be repaid from the funds held in Insurance SPAC III’s trust account. If Insurance SPAC III does not consummate a business combination in the required timeframe, no funds from Insurance SPAC III's trust account can be used to repay the loans.

As of September 30, 2022, the Company had a total equity method investment in Insurance SPAC III of $3,401, which was included as a component of investment in equity method affiliates in its consolidated balance sheet. Partially offsetting this amount was non-controlling interest of $4,210, which was included as a component of non-controlling interest in the Company's consolidated balance sheet. Therefore, the net carrying value of the Company's investment in Insurance SPAC III (excluding its advances under its loan agreement) was $(809) as of September 30, 2022.

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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,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Net realized gains (losses) - trading inventory	$	922		$	2,056		$	10,649		$	17,171
Net unrealized gains (losses) - trading inventory		742			1,871			(5,448	)		(2,216	)
Net gains and losses		1,664			3,927			5,201			14,955

Interest income- trading inventory		478			1,291			2,314			4,756
Interest income-reverse repos		11,831			19,586			39,831			58,977
Interest income		12,309			20,877			42,145			63,733

Interest expense-repos		(9,455	)		(10,140	)		(24,676	)		(30,527	)
Interest expense-margin payable		(848	)		(168	)		(1,456	)		(561	)
Interest expense		(10,303	)		(10,308	)		(26,132	)		(31,088	)

Other trading revenue		4,296			2,103			9,151			6,581

Net trading	$	7,966		$	16,599		$	30,365		$	54,181

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

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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, 2022		December 31, 2021
Deposits with clearing agencies	$	250	$	250
Unsettled regular way trades, net		-		2,827
Receivables from clearing agencies		121,672		65,315
Receivables from brokers, dealers, and clearing agencies	$	121,922	$	68,392

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

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

	September 30, 2022		December 31, 2021
Unsettled regular way trades, net	$	2,431	$	-
Margin payable		129,981		160,896
Payables to brokers, dealers, and clearing agencies	$	132,412	$	160,896

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

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

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

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

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7. FINANCIAL INSTRUMENTS

Investments—Trading

Investments-trading consisted of the following.

INVESTMENTS - TRADING
(Dollars in Thousands)

	September 30, 2022		December 31, 2021
U.S. government agency MBS and CMOs	$	146,940	$	134,093
U.S. government agency debt securities		22,920		22,373
RMBS		7		9
U.S. Treasury securities		15,249		-
ABS		1		1
Corporate bonds and redeemable preferred stock		46,654		45,519
Foreign government bonds		196		467
Municipal bonds		4,220		18,841
Certificates of deposit		-		169
Derivatives		35,481		1,275
Equity securities		155		1,118
Investments-trading	$	271,823	$	223,865

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, 2022		December 31, 2021
U.S. government agency debt securities	$	1	$	1
U.S. Treasury securities		74,309		29,513
Corporate bonds and redeemable preferred stock		43,910		32,574
Derivatives		33,859		424
Trading securities sold, not yet purchased	$	152,079	$	62,512

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.

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Other Investments, at Fair Value

Other investments, at fair value consisted of the following.

OTHER INVESTMENTS, AT FAIR VALUE
(Dollars in Thousands)

	September 30, 2022		December 31, 2021
Equity securities	$	21,186	$	27,104
Restricted equity securities		5,182		17,078
Corporate bonds and redeemable preferred stock		476		476
CREO		6,818		5,830
U.S. Insurance JV		3,414		3,450
SPAC Fund		513		1,980
Residential loans		137		115
Other investments, at fair value	$	37,726	$	56,033

A total of $11,941 and $15,563 of the amounts shown as other investments, at fair value above serve as collateral for the Company's margin loan payable as of September 30, 2022 and December 31, 2021, respectively. See note 6.

Other Investments, Sold Not Yet Purchased, at Fair Value

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

OTHER INVESTMENTS SOLD, NOT YET PURCHASED
(Dollars in Thousands)

	September 30, 2022		December 31, 2021
Equity securities	$	57	$	2,488
Equity derivatives		853		-
Other investments sold, not yet purchased	$	910	$	2,488

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8. FAIR VALUE DISCLOSURES

Fair Value Option

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

Such financial assets accounted for at fair value include:

	●	securities that would otherwise qualify for available for sale treatment;
	●	investments in equity method affiliates that have the attributes in FASB ASC 946-10-15-2 (commonly referred to as investment companies); and

●

investments in residential 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, 2022 and 2021 of $(714) and $(20,977), 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, 2022 and September 30, 2021 of $(26,451) and $46,259, respectively.

The Company recognized net gains (losses) related to changes in fair value of investments that are included as a component of other investments, sold not yet purchased during the three months ended September 30, 2022 and 2021 of $(782) and $6, respectively. The Company recognized net gains (losses) related to changes in fair value of investments that are included as a component of other investments, sold not yet purchased during the nine months ended September 30, 2022 and September 30, 2021 of $(525) and $782, respectively.

Fair Value Measurements

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

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

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

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

	3.	Pricing models whose inputs are derived, other than quoted prices, are observable for substantially the full term of the asset or liability; or
	4.	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

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

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

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

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The following tables present information about the Company’s assets and liabilities measured at fair value as of September 30, 2022 and December 31, 2021 and indicates the valuation hierarchy of the valuation techniques utilized by the Company to determine such fair value.

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
September 30, 2022

(Dollars in Thousands)

					Significant		Significant
			Quoted Prices in		Observable		Unobservable
			Active Markets		Inputs		Inputs
Assets	Fair Value		(Level 1)		(Level 2)		(Level 3)
Investments-trading:
U.S. government agency MBS and CMOs	$	146,940	$	-	$	146,940	$	-
U.S. government agency debt securities		22,920		-		22,920		-
RMBS		7		-		7		-
U.S. Treasury securities		15,249		15,249		-		-
ABS		1		-		1		-
Corporate bonds and redeemable preferred stock		46,654		-		46,654		-
Foreign government bonds		196		-		196		-
Municipal bonds		4,220		-		4,220		-
Derivatives		35,481		-		35,481		-
Equity securities		155		155		-		-
Total investments - trading	$	271,823	$	15,404	$	256,419	$	-

Other investments, at fair value:
Equity securities	$	21,186		21,186	$	-	$	-
Restricted equity securities		5,182		-		5,182		-
Corporate bonds and redeemable preferred stock		476		-		476		-
Residential loans		137		-		137		-
		26,981	$	21,186	$	5,795	$	-
Investments measured at NAV (1)		10,745
Total other investments, at fair value	$	37,726

Liabilities
Trading securities sold, not yet purchased:
U.S. government agency debt securities	$	1	$	-	$	1	$	-
U.S. Treasury securities		74,309		74,309		-		-
Corporate bonds and redeemable preferred stock		43,910		-		43,910		-
Derivatives		33,859		-		33,859		-
Total trading securities sold, not yet purchased	$	152,079	$	74,309	$	77,770	$	-

Other investments, sold not yet purchased:
Equity securities	$	57	$	57	$	-	$	-
Equity derivatives		853		-		853		-
Total other investments sold, not yet purchased	$	910	$	57	$	853	$	-

(1)

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

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FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
December 31, 2021
(Dollars in Thousands)

					Significant		Significant
			Quoted Prices in		Observable		Unobservable
			Active Markets		Inputs		Inputs
Assets	Fair Value		(Level 1)		(Level 2)		(Level 3)
Investments-trading:
U.S. government agency MBS and CMOs	$	134,093	$	-	$	134,093	$	-
U.S. government agency debt securities		22,373		-		22,373		-
RMBS		9		-		9		-
U.S. Treasury securities		-		-		-		-
ABS		1		-		1		-
Corporate bonds and redeemable preferred stock		45,519		-		45,519		-
Foreign government bonds		467		-		467		-
Municipal bonds		18,841		-		18,841		-
Certificates of deposit		169		-		169		-
Derivatives		1,275		-		1,275		-
Equity securities		1,118		-		1,118		-
Total investments - trading	$	223,865	$	-	$	223,865	$	-

Other investments, at fair value:
Equity Securities	$	27,104	$	27,104	$	-	$	-
Restricted Equity Securities		17,078		-		17,078		-
Corporate bonds and redeemable preferred stock		476		-		476		-
Residential loans		115		-		115		-
		44,773	$	27,104	$	17,669	$	-
Investments measured at NAV (1)		11,260
Total other investments, at fair value	$	56,033

Liabilities
Trading securities sold, not yet purchased:
U.S. Treasury securities	$	29,513	$	29,513	$	-	$	-
Corporate bonds and redeemable preferred stock		32,574		-		32,574		-
US Government Agency debt		1		1		-		-
Derivatives		424		-		424		-
Total trading securities sold, not yet purchased	$	62,512	$	29,514	$	32,998	$	-

Other investments, sold not yet purchased:
Equity securities	$	2,488	$	2,488	$	-	$	-
Total other investments sold, not yet purchased	$	2,488	$	2,488	$	-	$	-

(1)

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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.

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.

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

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

Subordinated Notes: The Company uses recently executed transactions or third-party quotations from independent pricing services to arrive at the fair value of its investments in subordinated notes. 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.

Derivatives

TBAs and Other Forward Agency MBS Contracts

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

Other Extended Settlement Trades

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

Equity Derivatives

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

Foreign Currency Forward Contracts

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

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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, 2022 and December 31, 2021.

Fair Value September 30, 2022

Unfunded Commitments

Redemption Frequency

Redemption Notice Period

Other investments, at fair value

CREO (a)

6,818

8,464

N/A

U.S. Insurance JV (b)

3,414

N/A

SPAC Fund (c)

513

N/A

Quarterly after 1 year lock up

30 days

10,745

Fair Value December 31, 2021

Unfunded Commitments

Redemption Frequency

Redemption Notice Period

Other investments, at fair value

CREO (a)

5,830

9,170

N/A

U.S. Insurance JV (b)

3,450

N/A

SPAC Fund (c)

1,980

N/A

Quarterly after 1 year lock up

30 days

11,260

	N/A	Not Applicable
	(a)	The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs collateralized by mostly commercial real estate mortgage-backed loans. See note 4.
	(b)	The U.S. Insurance JV invests in USD denominated debt issued by small and medium size insurance and reinsurance companies.
	(c)	The SPAC Fund invests in equity interests of SPACs.

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9. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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

Equity Derivatives

The Company enters into equity derivatives such as listed options and forward purchase or sale commitments for equity securities. In addition, the Company sometimes engages in advisory transactions which result in a receivable that can be paid in cash or a variable number of equity instruments. In such instances, the Company records the receivable as a component of other assets in its consolidated balance sheet and treats the equity component as an embedded derivative. All equity derivatives are carried at fair value as a component of other investments, at fair value or other investments sold, not yet purchased in the Company’s consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the Company had one equity derivative with a notional amount of $6,000 and $0, 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, 2022, the Company had open TBA and other forward MBS purchase agreements in the notional amount of $ 906,250 and open TBA and other forward MBS sale agreements in the notional amount of $ 937,200. At December 31, 2021, the Company had open TBA and other forward agency MBS purchase agreements in the notional amount of $1,243,250 and open TBA and other forward agency MBS sale agreements in the notional amount of $1,283,850.

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Other Extended Settlement Trades

When the Company buys or sells a financial instrument that will not settle in the regular timeframe, the Company will account for that purchase or sale on the settlement date rather than the trade date. In those cases, the Company accounts for the transaction between trade date and settlement date as either a forward purchase commitment or a forward sale commitment, both considered derivatives. The Company will record an unrealized gain or unrealized loss on the derivative for the difference between the fair value of the underlying financial instrument as of the reporting date and the agreed upon transaction price. As of September 30, 2022, and December 31, 2021, the Company had no open forward purchase or sales commitments.

Foreign Currency Forward Contracts

The Company invests in foreign currency denominated investments that expose it to fluctuations in foreign currency rates, and, therefore, the Company may, from time to time, hedge such exposure by using foreign currency forward contracts. The Company carries foreign currency forward contracts at fair value and includes them as a component of other investments, at fair value in the Company’s consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the Company had no outstanding foreign currency forward contracts.

The following table presents the Company’s derivative financial instruments and the amount and location of the fair value (unrealized gain / (loss)) recognized in the consolidated balance sheets as of September 30, 2022 and December 31, 2021.

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, 2022			December 31, 2021
TBAs and other forward agency MBS	Investments-trading	$	35,481		$	1,275
TBAs and other forward agency MBS	Trading securities sold, not yet purchased		(33,859	)		(424	)
Equity derivatives	Other investments, sold not purchased		(853	)		-
		$	769		$	851

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

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

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815	Income Statement Classification	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021
Other extended settlement trades	Revenue-net trading	$	-		$	(19	)
TBAs and other forward agency MBS	Revenue-net trading		2,685			1,160
Equity derivatives	Principal transactions and other income		(853	)		195
		$	1,832		$	1,336

Derivative Financial Instruments Not Designated as Hedging Instruments Under FASB ASC 815	Income Statement Classification	Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021
Other extended settlement trades	Revenue-net trading	$	-		$	1
TBAs and other forward agency MBS	Revenue-net trading		8,283			5,736
Equity derivatives	Principal transactions and other income		(853	)		387
		$	7,430		$	6,124

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10. COLLATERALIZED SECURITIES TRANSACTIONS

Matched Book Repo Business

The Company enters into repos and reverse repos as part of its matched book repo business. In general, the Company will lend money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repo. The Company will borrow money from another counterparty using the same collateral securities pursuant to a repo. The Company seeks to earn net interest income on these transactions. Until the fourth quarter 2021, the Company categorized its matched book repo business into two major groups: gestation repo and GCF repo. In the fourth quarter 2021, the Company wound down its GCF repo business.

GCF Repo

In October 2017, the Company became a full netting member of the FICC’s Government Securities Division. As a full netting member of the FICC, the Company had access to the FICC’s GCF repo service that provides netting and settlement services for repo transactions where the underlying security is general collateral (primarily U.S. Treasuries and U.S. Agency securities). The Company began entering into matched book GCF repo transactions in November 2017. The borrowers (the reverse repo counterparties) are a diverse group of financial institutions including hedge funds, registered investment funds, REITs, and other similar counterparties. The lenders (the repo counterparties) are the FICC and other large financial institutions. The Company used Bank of New York (“BONY”) as its settlement agent for its GCF repo matched book transactions. The Company was 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 with Fifth Third Financial Bank, N.A. (“FT Financial”) on April 25, 2018. The FT Financial line of credit arrangement was subsequently amended. In October 2020, the Company entered into a replacement credit agreement with Byline Bank, which was subsequently amended in December 2021. See note 16.

In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, the Company decided to wind down this business which was completed by December 31, 2021. As of September 30, 2022, the carrying value of the Company's GCF reverse repurchase agreements and repurchase agreements were zero.

In conjunction with the Company’s GCF repo business, on October 19, 2018, the Company and BONY entered into an intraday lending facility. The lending facility allowed for BONY to advance funds to JVB in order to facilitate the settlement of GCF repo transactions. In conjunction with the wind down of the GCF Repo business, the Company terminated this facility during 2021.

Gestation Repo

Gestation repo involves entering into repo and reverse repo where the underlying collateral security represents a pool of newly issued mortgage loans. The borrowers (the reverse repo counterparties) are generally mortgage originators. The lenders (the repo counterparties) are a diverse group of the counterparties comprised of banks, insurance companies, and other financial institutions. The Company self-clears its gestation repo transactions.

Gestation trades can be structured in two ways: (i) on balance sheet trades and (ii) agency trades. For on balance sheet trades, the Company borrows from one counterparty and lends to another on a principal basis and earns net interest margin. For agency repo trades, the Company gets paid a fee, which is paid by the borrower and is a function of the reverse repo notional amount.

Bankruptcy of Gestation Counterparty

As of June 30, 2022, the Company had an outstanding reverse repo balance with First Guaranty Mortgage Corporation (“FGMC”) totaling $269,228. Effective June 30, 2022, FGMC filed for bankruptcy. Subsequent to June 30, 2022, the Company issued a default notice to FGMC under the reverse repo. Also subsequent to June 30, 2022, the Company began liquidating the collateral held related to this reverse repo. The Company continues to sell the remaining collateral and estimates the fair value of the collateral on hand as of September 30, 2022 to be $48,357, which amount is included as a component of investments-trading. The Company has recorded a gross loss of $4,832 related to this liquidation of FGMC collateral for the three and nine months ended September 30, 2022. Of the $4,832 loss, $4,642 was recorded as a reduction in net trading revenue and $190 was recorded in professional fees and other operating expense. The Company has filed an unsecured claim under the bankruptcy proceeding, related to this loss but does not expect to receive a material recovery. To the extent any recovery is received, the Company will recognize it on a cash basis as received, as a component of net trading revenue.

In connection with the loss, the Company recorded a reversal of accrued incentive compensation of $1,753. Therefore, the net impact to earnings in the three and nine months ended September 30, 2022 was $3,079.

Other Repo Transactions

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

Repo Information

As of September 30, 2022 and December 31, 2021, the Company held reverse repos of $ 699,658 and $3,175,645, respectively, and the fair value of collateral received under reverse repos was $710,261 and $3,249,411, respectively. As of September 30, 2022 and December 31, 2021, the reverse repo balance was comprised of receivables collateralized by securities with 12 and 14 counterparties, respectively.

As of September 30, 2022 and December 31, 2021, the Company held repos of $ 749,673 and $3,171,415, respectively, and the fair value of securities and cash pledged as collateral under repos was $742,134 and $3,232,091, respectively. These amounts include collateral for reverse repos that were re-pledged as collateral for repos.

Concentration

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

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The gestation repo business has been and continues to be concentrated as to reverse repurchase counterparties. The Company conducts this business with a limited number of reverse repo counterparties. As of September 30, 2022 and December 31, 2021, the Company’s gestation reverse repos shown in the tables below represented balances from 12 and 14 counterparties, respectively. The Company also has a limited number of repo counterparties in the gestation repo business. However, this is primarily a function of the limited number of reverse repo agreement counterparties with whom the Company conducts this business rather than a reflection of a limited supply of funds. Therefore, the Company considers the gestation repo business to be concentrated on the demand side.

The total net revenue earned by the Company on its matched book repo business (net interest margent and fee revenue) was $2,376 and $15,155 for the three and nine months ended September 30, 2022. The total net revenue earned by the Company on its matched book repo business (both gestation repo and GCF repo) was $9,463 and $28,485 for the three and nine months ended September 30, 2021.

Detail

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

The following tables summarize the remaining contractual maturity of the gross obligations under repos accounted for as secured borrowings segregated by the underlying collateral pledged as of each date shown. All amounts as well as counterparty cash collateral (see note 13) are subject to master netting arrangements.

SECURED BORROWINGS

(Dollars in Thousands)

September 30, 2022

	Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to		30 - 90		Greater than
Collateral Type:	Continuous		30 days		days		90 days		Total
MBS (gestation repo)	$	-	$	749,673	$	-	$	-	$	749,673
	$	-	$	749,673	$	-	$	-	$	749,673

	Reverse Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to		30 - 90		Greater than
Collateral Type:	Continuous		30 days		days		90 days		Total
MBS (gestation repo)	$	-	$	699,658	$	-	$	-	$	699,658
	$	-	$	699,658	$	-	$	-	$	699,658

SECURED BORROWINGS

(Dollars in Thousands)

December 31, 2021

	Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to		30 - 90		Greater than
Collateral Type:	Continuous		30 days		days		90 days		Total
MBS (gestation repo)	$	-	$	3,171,415	$	-	$	-	$	3,171,415
	$	-	$	3,171,415	$	-	$	-	$	3,171,415

	Reverse Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to		30 - 90		Greater than
Collateral Type:	Continuous		30 days		days		90 days		Total
MBS (gestation repo)	$	-	$	3,175,645	$	-	$	-	$	3,175,645
	$	-	$	3,175,645	$	-	$	-	$	3,175,645

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11. INVESTMENTS IN EQUITY METHOD AFFILIATES

Equity method accounting requires that the Company record its investments in equity method affiliates on the consolidated balance sheets and recognize its share of the equity method affiliates’ net income as earnings each reporting period. The Company elected to use the cumulative earnings approach for the distributions it receives from its equity method investments. Under the cumulative earnings approach, any distributions received up to the amount of cumulative earnings are treated as return on investment and classified in operating activities within the cash flows. Any excess distributions would be considered as return of investments and classified in investing activities.

The Company has certain equity method affiliates for which it has elected the fair value option. Those investees are excluded from the table below. Those investees are included as a component of other investments, at fair value in the consolidated balance sheets. All gains and losses (unrealized and realized) from securities classified as other investments, at fair value in the consolidated balance sheets are recorded as a component of principal transactions and other income in the consolidated statement of operations. See notes 8 and 24.

The following table summarizes the activity and earnings in the Company’s investments that are accounted for under the equity method.

INVESTMENTS IN EQUITY METHOD AFFILIATES

(Dollars in Thousands)

	Insurance SPACs			Dutch Real Estate Entities			Other SPAC Sponsor Entities			Total
January 1, 2022	$	4,543		$	5,600		$	38,095		$	48,238
Investments / advances		-			-			697			697
Distributions / repayments		-			-			(75	)		(75	)
Reclasses to (from)		-			-			(20,864	)		(20,864	)
Earnings / (loss) realized		(1,142	)		(495	)		(12,893	)		(14,530	)
September 30, 2022	$	3,401		$	5,105		$	4,960		$	13,466

	Insurance SPACs			Dutch Real Estate Entities			Other SPAC Sponsor Entities			Total
January 1, 2021	$	9,807		$	3,312		$	363		$	13,482
Investments / advances		-			2,425			5,967			8,392
Distributions / repayments		(3,958	)		-			(249	)		(4,207	)
Reclasses to (from)		-			-			(5,439	)		(5,439	)
Earnings / (loss) realized		(1,306	)		(137	)		37,453			36,010
December 31, 2021	$	4,543		$	5,600		$	38,095		$	48,238

The Insurance SPACs represent the Company's consolidated subsidiaries equity method investments in various insurance SPACs. Dutch Real Estate Entities include: (i) Amersfoot Office Investment I Cooperatief U. A. (“AOI”) is a company based in the Netherlands that invests in real estate and (ii) CK Capital Partners B.V. (“CK Capital”) is a company based in the Netherlands that manages investments in real estate. See note 24.

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Other SPAC Sponsor Entities include both indirect and direct investments in SPAC Sponsor Entities. Several of these Sponsor Entities are invested in SPACs that have completed their business combinations. Those Sponsor Entities hold restricted and unrestricted equity interests in the public post-merger entities. The following table shows the equity method balance included in other SPAC Sponsor Entities above broken out by the ultimate investee.

OTHER SPAC SPONSOR ENTITIES

September 30, 2022

(Dollars in Thousands)

Entity	Ticker	Equity Method Carrying Value
Parella Weinberg Partners	PWP	$	75
Alpha Tau Medical Ltd.	DRTS		696
Various other Sponsor Entities			4,189
Total		$	4,960

OTHER SPAC SPONSOR ENTITIES

December 31, 2021

(Dollars in Thousands)

Entity	Ticker	Equity Method Carrying Value
Parella Weinberg Partners	PWP	$	1,128
Archer Aviation Inc.	ACHR		728
Wejo Group Ltd.	WEJO		1,963
Heliogen, Inc.	HLGN		28,448
Various other Sponsor Entities			5,828
Total		$	38,095

Over time, the Company expects these Sponsor Entities to either (a) liquidate their investments in these companies and distribute to the Company its allocable share of the cash proceeds or (b) to distribute the Company's allocable share of these equity investments in-kind to the Company. In either case, the final cash realized from these investments will be impacted by the performance of the public companies listed above until those investments are liquidated.

The amounts included as Various and other Sponsor Entities represent the Company's investment in Sponsor Entities which have not yet completed a business combination. If these Sponsor Entities are unsuccessful in completing a business combination and the underlying SPAC liquidates, the Company will likely receive no distributions in kind or in cash related to these investments and the remaining balances will be recorded as a component of loss from equity method investments in the consolidated statement of operations.

The following tables show certain summary financial data of all the Company's equity method investees. These amounts include all equity method investees whether accounted for under the equity method or at fair value. All information is presented on a combined basis.

	September 30, 2022			December 31, 2021
Total Assets	$	1,028,054		$	1,158,081

Liabilities	$	361,650		$	193,433
Total Equity		666,404			964,648
Total Liabilities & Equity	$	1,028,054		$	1,158,081

	Nine months ending
	September 30,			September 30,
	2022			2021

Net income/(loss)	$	(38,511	)	$	18,452
Net income/(loss) attributable to the investee	$	(38,517	)	$	18,452

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12. LEASES

The Company leases office space, certain computer and related equipment, and a vehicle under noncancelable operating leases. From time to time, the Company subleases office space to other tenants. Under the requirements of FASB 842, the company determines if an arrangement is a lease at the inception date of the contract. Then, the Company measures the lease liability using an incremental borrowing rate that was calculated for each operating lease based on the term of the lease, the U.S. Treasury term interest rate, and an estimated spread to borrow on a secured basis.

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

As of September 30, 2022, all of the leases to which the Company was a party were operating leases. The weighted average remaining term of the leases was 5.8 years. The weighted average discount rate for the leases was 4.55%.

Maturities of operating lease liability payments consisted of the following.

FUTURE MATURITY OF LEASE LIABILITIES
(Dollars in Thousands)

	As of September 30, 2022
2022 - remaining	$	589
2023		2,636
2024		2,108
2025		1,753
2026		1,497
Thereafter		3,729
Total		12,312
Less imputed interest		(1,573	)
Lease obligation	$	10,739

During the nine months ended September 30, 2022 and 2021, total cash payments of $1,678 and $1,040, respectively, were recorded as a reduction in the operating lease obligation. No cash payments were made to acquire right of use assets. For the three and nine months ended September 30, 2022, rent expense, net of sublease income of $26 and $76 respectively was $612 and $1,891. For the three and nine months ended September 30, 2021, rent expense, net of sublease income of $40 and $153 was $435 and $1,189.

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

Other receivables consisted of the following.

OTHER RECEIVABLES
(Dollars in Thousands)

	September 30, 2022		December 31, 2021
Asset management fees receivable	$	2,543	$	962
New issue fee receivable		6,000		-
Cash collateral due from counterparties		8,588		-
Accrued interest receivable and dividend receivable		2,552		1,394
Revenue share receivable		191		108
Miscellaneous other receivables		865		739
Other receivables	$	20,739	$	3,203

When the Company enters into a reverse repo, it obtains collateral in excess of the principal amount of the reverse repo. The Company accepts collateral in the form of liquid securities or cash. If the value of the securities the Company receives as collateral increases, the Company’s reverse repo counterparties may request a return of their collateral with a value equal to such increase. In some cases, the Company will return to such reverse repo counterparties cash instead of securities. In that case, the Company includes the cash returned as a component of other receivables (cash collateral due from counterparties).

When the Company enters into repo transactions, the Company provides collateral to the Company’s repo counterparties in excess of the principal balance of the repo. The Company’s counterparties accept collateral in the form of liquid securities or cash. To the extent the Company provides the collateral in cash, the Company includes it as a component of other receivables (cash collateral due from counterparties).

Asset management fees receivable are of a routine and short-term nature. These amounts are generally accrued monthly and paid on a monthly or quarterly basis. New issue fee receivable represents fees due for new issue and advisory services. The new issue fee receivable as of September 30, 2022 can be paid in cash or a variable number of equity instruments at the counterparty's option. The Company treats the option to pay in a variable number of equity instruments as an embedded derivative and carries that derivative at fair value as a component of trading securities sold, not yet purchased. See note 9. Accrued interest and dividends receivable represent interest and dividends accrued on the Company’s investment securities included as a component of investments-trading or other investments, at fair value. Interest payable on securities sold, not yet purchased is included as a component of accounts payable and other liabilities in the table entitled Accounts Payable and Other Liabilities below. Revenue share receivable represents the amount due to the Company for the Company’s share of a revenue arrangement generated from an entity in which the Company receives a share of the entity’s revenue. Miscellaneous other receivables represent other receivables that are of a short-term nature.

Other assets consisted of the following.

OTHER ASSETS
(Dollars in Thousands)

	September 30, 2022		December 31, 2021
Deferred costs	$	10	$	240
Prepaid expenses		1,317		1,286
Deposits		449		479
Miscellaneous other assets		-		258
Furniture, equipment, and leasehold improvements, net		1,524		1,456
Intangible assets		166		166
Other assets	$	3,466	$	3,885

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. See note 16 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 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, 2022		December 31, 2021
Accounts payable	$	684	$	122
Redeemable financial instruments accrued interest		244		291
Accrued income tax		54		179
Accrued interest payable		377		558
Accrued interest on securities sold, not yet purchased		883		704
Payroll taxes payable		1,679		1,548
Counterparty cash collateral		22,788		17,320
Accrued expense and other liabilities		1,797		2,097
Accounts payable and other liabilities	$	28,506	$	22,819

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The redeemable financial instrument accrued interest represents accrued interest on the JKD Capital Partners I LTD redeemable financial instrument. See note 15.

When the Company enters into a reverse repo, the Company obtains collateral in excess of the principal of the reverse repo. The Company accepts collateral in the form of liquid securities or cash. To the extent the Company receives cash collateral, the Company includes it as a component of other liabilities (counterparty cash collateral) in the table above.

When the Company enters into repo transactions, the Company provides collateral to the Company’s repo counterparty in excess of the principal balance of the repo. If the value of the securities the Company provides as collateral increases, the Company may request a return of its collateral with a value equal to such increase. In some cases, the repo counterparty will return cash instead of securities. In that case, the Company includes the cash returned as a component of other liabilities (counterparty cash collateral) in the table above. See note 10 and 23.

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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.

Consolidated VIEs

The Company determined it was the primary beneficiary of several VIEs and therefore, has consolidated them. The following table provides certain information regarding the consolidated VIEs:

	As of September 30, 2022			As of December 31, 2021
Cash and cash equivalents	$	50		$	43
Other investments, at fair value		-			9,543
Investment in equity method affiliates		3,439			33,080
Non-controlling interest		(4,238	)		(29,979	)
Investment in consolidated VIEs	$	(749	)	$	12,687

The maximum potential loss the Company could incur related to the consolidated VIEs is the investment in consolidated VIEs shown in the table above plus the Company has to fund additional working capital to the equity method investees of certain of the consolidated VIEs. The total amount of working capital borrowed was $960 and $810 as of September 30, 2022 and December 31, 2021, respectively.

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, 2022, and December 31, 2021, there were $8,464 and $9,170, respectively, of unfunded commitments to VIEs in which the Company had invested. Other than its investment in these entities, the Company did not provide financial support to these VIEs during the three and nine months ended September 30, 2022 and 2021 and had no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at September 30, 2022 and December 31, 2021. 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. Due to 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, 2022 and December 31, 2021.

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

	As of September 30, 2022		As of December 31, 2021
Other investments, at fair value	$	10,745	$	11,260
Investments in equity method affiliates		8,361		5,015
Maximum exposure	$	19,106	$	16,275

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15. REDEEMABLE FINANCIAL INSTRUMENTS

Redeemable financial instruments consisted of the following.

REDEEMABLE FINANCIAL INSTRUMENTS
(Dollars in Thousands)

	As of September 30, 2022		As of December 31, 2021
JKD Capital Partners I LTD	$	7,957	$	7,957
	$	7,957	$	7,957

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16. DEBT

The Company had the following debt outstanding.

DETAIL OF DEBT

(Dollars in Thousands)

	As of			As of			Interest
Description	September 30, 2022			December 31, 2021			Rate Terms	Interest (3)	Maturity
Non-convertible debt:
10.00% senior note (the "2020 Senior Notes")	$	4,500		$	4,500		Fixed	10.00%	January 2024
Contingent convertible debt:
8.00% convertible senior note (the "2017 Convertible Note")		-			15,000		Fixed	8.00%	March 2023 (1)
Less unamortized debt issuance costs		-			(67	)
		-			14,933
Junior subordinated notes (2):
Alesco Capital Trust I		28,125			28,125		Variable	6.78%	July 2037
Sunset Financial Statutory Trust I		20,000			20,000		Variable	6.40%	March 2035
Less unamortized discount		(23,746	)		(24,164	)
		24,379			23,961

ByLine Bank		-			-		Variable	NA	December 2023
Total	$	28,879		$	43,394

(1)

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 membership interests of the Operating LLC at a conversion price of $1.45 per unit, subject to customary anti-dilution adjustments. Units of membership interests in 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 of membership interests and then redeemed and exchanged into Common Stock at an effective conversion price of $14.50. See note 20 to the Annual Report on Form 10-K for the year ended December 31, 2021. Effective March 20, 2022, the 2017 Note was converted into 10,344,827 units.

	(2)	The junior subordinated notes listed represent debt the Company owes to the two trusts noted above. The total par amount owed by the Company to the trusts is $49,614. However, the Company owns the common stock of the trusts in a total par amount of $1,489. The Company pays interest (and at maturity, principal) to the trusts on the entire $49,614 junior notes outstanding. However, the Company receives back from the trusts the pro rata share of interest and principal on the common stock held by the Company. These trusts are VIEs and the Company does not consolidate them even though the Company holds the common stock. The Company carries the common stock on its balance sheet at a value of $0. The junior subordinated notes are recorded at a discount to par. When factoring in the discount, the yield to maturity of the junior subordinated notes as of September 30, 2022 on a combined basis was 15.41% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity.
	(3)	Represents the interest rate in effect as of the last day of the reporting period.

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The 2020 Senior Notes

On January 31, 2022, the Operating LLC and JKD Investor entered into a note purchase agreement, pursuant to which, among other things, on such date, (i) JKD Investor paid to the Operating LLC an additional $2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD Investor an Amended and Restated Senior Promissory Note in the aggregate principal amount of $4,500 (the “Amended and Restated Note”), which Amended and Restated Note amended and restated the JKD Note in its entirety. The 2022 Purchase Agreement contains customary representations and warranties on the part of each of JKD Investor and the Operating LLC. The Company used these proceeds to retire $2,250 of existing 2020 Senior Notes held by RNCS.

The Amended and Restated Note evidences Operating LLC’s obligation to repay to JKD (i) the original principal amount of $2,250 paid by JKD to the Operating LLC under the Original Purchase Agreement, plus (ii) the additional $2,250 paid by JKD to the Operating LLC under the 2022 Purchase Agreement. Pursuant to the Amended and Restated Note, which is substantially identical to the JKD Note, the unpaid principal amount and all accrued but unpaid interest thereunder will be due and payable in full on January 31, 2024; provided, that, at any time after January 31, 2023 and prior to January 31, 2024, the holder of the Amended and Restated Note may, with at least 31 days’ prior written notice from the holder to the Operating LLC, declare the entire unpaid principal amount outstanding and all interest accrued and unpaid on the Amended and Restated Note to be immediately due and payable.

The Amended and Restated Note accrues interest on the unpaid principal amount from January 31, 2022 until maturity at a rate equal to 10% per year. Interest on the Amended and Restated Note is payable in cash quarterly on each January 1, April 1, July 1, and October 1, commencing on April 1, 2022. Under the Amended and Restated Note, upon the occurrence or existence of any “Event of Default” thereunder, the outstanding principal amount is (or in certain instances, at the option of the holder thereof, may be) immediately accelerated. Further, upon the occurrence of any “Event of Default” under the Amended and Restated Note and for so long as such Event of Default continues, all principal, interest and other amounts payable under the Amended and Restated Note will bear interest at a rate equal to 11% per year. The Amended and Restated Note may not be prepaid in whole or in part prior to January 31, 2023. The Amended and Restated Note may, with at least 31 days’ prior written notice from the Operating LLC to the holder thereof, be prepaid in whole or in part at any time following January 31, 2023 without the prior written consent of the holder and without penalty or premium.

The Amended and Restated Note and the payment of all principal, interest and any other amounts payable thereunder are senior obligations of the Operating LLC and will be senior to any Indebtedness (as defined in the Amended and Restated Note) of the Operating LLC outstanding as of and issued following January 30, 2020 (the original issuance date of the JKD Note). Pursuant to the Amended and Restated Note, following January 31, 2022, the Operating Company may not incur any Indebtedness that is a senior obligation to the Amended and Restated Note.

The 2017 Convertible Note

On March 10, 2017, the Operating LLC entered into a Securities Purchase Agreement (the “2017 Convertible Note Purchase Agreement”), by and among the Operating LLC and DGC Trust.

Pursuant to the 2017 Convertible Note Purchase Agreement, the DGC Trust agreed to purchase from the Operating LLC, and the Operating LLC agreed to issue and to sell to the DGC Trust, a convertible senior secured promissory note (the “2017 Convertible Note”) in the aggregate principal amount of $15,000. On March 10, 2017, the DGC Trust paid to the Operating LLC $15,000 in cash in consideration for the 2017 Convertible Note. As required pursuant to ASC 470, the Company accounted for the 2017 Convertible Notes as conventional convertible debt and did not allocate any amount of the proceeds to the embedded equity option.

Under the 2017 Convertible Note Purchase Agreement, the Operating LLC and the DGC Trust offered customary indemnifications. Further, the Operating LLC and the DGC Trust provided each other with customary representations and warranties, the Company provided limited representations and warranties to the DGC Trust, and each of the Operating LLC and the Company made customary affirmative covenants.

Pursuant to the 2017 Convertible Note Purchase Agreement, the Company agreed to execute an amendment (the “LLC Agreement Amendment”) to the Amended and Restated Limited Liability Company Agreement of the Operating LLC dated as of December 16, 2009, by and among the Operating LLC and its members, as amended (the “LLC Agreement”) at such time in the future as all of the other members execute the LLC Agreement Amendment. The LLC Agreement Amendment provided, among other things, that the board of managers would initially consist of Daniel G. Cohen, as chairman of the Operating LLC’s board of managers, Lester R. Brafman (the Company’s current chief executive officer), and Joseph W. Pooler, Jr. (the Company’s current executive vice president, chief financial officer, and treasurer). The LLC Agreement Amendment also provided that Daniel G. Cohen would not be able to be removed from the Operating LLC’s board of managers or as chairman of the Operating LLC’s board of managers other than for cause or under certain limited circumstances. On October 30, 2019, each of the members of Cohen & Company, LLC executed the LLC Agreement Amendment. The outstanding principal amount under the 2017 Convertible Note was due and payable on March 10, 2022 provided that the Operating LLC could, in its sole discretion, extend the maturity date for an additional one-year period, in each case unless the 2017 Convertible Note was earlier converted into units of membership interests in the Operating LLC at the conversion rate of $1.45 per unit.

Effective March 10, 2020, the Operating LLC exercised its option to extend the 2017 Convertible Note's maturity date to March 10, 2022.

On March 20, 2022, the DGC Trust elected to convert the Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the Note of $1.45 per unit. As a result of such conversion, the Note was cancelled in its entirety.

Pursuant to the terms and conditions of the Operating LLC’s Amended and Restated Limited Liability Company Agreement, dated December 16, 2009, as amended, a holder of LLC units of membership interests may cause the Operating LLC to redeem such units of membership interests at any time for, at the Company’s option, (A) cash or (B) one share of the Company’s common stock, par value $0.01 per share (“Common Stock”), for every ten of such units of membership interests. Accordingly, the units of membership interests may be redeemed at any time by the DGC Trust into an aggregate of 1,034,482 shares of Common Stock.

Pursuant to the DGC Trust’s governing documents, Daniel G. Cohen has the ability to acquire at any time any of the DGC Trust’s assets, including the units of membership interests, by substituting other property of an equivalent value without the approval or consent of any person, including any trustee or beneficiary of the DGC Trust.

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Junior Subordinated Notes

The Company assumed $49,614 aggregate principal amount of junior subordinated notes outstanding at the time of the Merger. The Company recorded the debt at fair value on the acquisition date. Any difference between the fair value of the junior subordinated notes on the Merger date and the principal amount of debt is amortized into earnings over the estimated remaining life of the underlying debt as an adjustment to interest expense.

The junior subordinated notes are payable to two special purpose trusts:

1. Alesco Capital Trust I: $28,995 in aggregate principal amount issued in June 2007. The notes mature on July 30, 2037 and may be called by the Company at any time. The notes accrue interest payable quarterly at a floating interest rate equal to LIBOR plus 400 basis points per annum through July 30, 2037. All principal is due at maturity. Alesco Capital Trust I simultaneously issued 870 shares of Alesco Capital Trust I’s common securities to the Company for a purchase price of $870, which constitutes all of the issued and outstanding common securities of Alesco Capital Trust I.

2. Sunset Financial Statutory Trust I (“Sunset Financial Trust”): $20,619 in aggregate principal amount issued in March 2005. The notes mature on March 30, 2035. The notes accrue interest payable quarterly at a floating rate of interest of 90-day LIBOR plus 415 basis points. All principal is due at maturity. Sunset Financial Trust simultaneously issued 619 shares of Sunset Financial Trust’s common securities to the Company for a purchase price of $619, which constitutes all of the issued and outstanding common securities of Sunset Financial Trust.

Alesco Capital Trust I and Sunset Financial Trust (collectively, the “Trusts”) described above are VIEs pursuant to variable interest provisions included in FASB ASC 810 because the holders of the equity investment at risk do not have adequate decision making ability over the Trusts’ activities. The Company is not the primary beneficiary of the Trusts as it does not have the power to direct the activities of the Trusts. The Trusts are not consolidated by the Company and, therefore, the Company’s consolidated financial statements include the junior subordinated notes issued to the Trusts as a liability, and the investment in the Trusts’ common securities as an asset. The common securities were deemed to have a fair value of $0 as of the Merger Date. These are accounted for as cost method investments; therefore, the Company does not adjust the value at each reporting period. Any income generated on the common securities is recorded as interest income, a component of interest expense, net, in the consolidated statement of operations.

The junior subordinated notes have several financial covenants. Since the Merger, Cohen & Company Inc. has been in violation of one covenant of Alesco Capital Trust I. As a result of this violation, Cohen & Company Inc. is prohibited from issuing additional debt that is either subordinated to or pari passu with Alesco Capital Trust I debt. This violation does not prohibit Cohen & Company Inc. from issuing senior debt or the Operating LLC from issuing debt of any kind. Cohen & Company Inc. is in compliance with all other covenants of the junior subordinated notes. The Company does not consider this violation to have a material adverse impact on its operations or on its ability to obtain financing in the future.

Byline Bank

On October 28, 2020, (i) the Company entered into a loan agreement (the “Original Byline Loan Agreement”) with Byline Bank, as lender, and JVB as borrower, by and among Byline Bank, the Company, the Operating LLC, JVB Holdings, JVB and C&Co PrinceRidge Holdings, LP, pursuant to which Byline Bank agreed to make loans at JVBs request from time to time in the aggregate amount of up to $7,500, and (ii) JVB and Byline Bank entered into a Revolving Note and Cash Subordination Agreement (the "Original Byline Note and Subordination Agreement"), pursuant to which Byline Bank agreed to make loans at JVB’s request from time to time in the aggregate amount of up to $17,500. The Company drew $17,500 under the Original Byline Note and Subordination Agreement during 2021 and repaid it in full during 2021. The Company, and the Company’s subsidiaries, the Operating LLC and JVB Holdings, served as guarantors of both the $7,500 and $17,500 facilities.

On December 21, 2021, (i) JVB and Byline Bank entered into the Amended and Restated Revolving Note and Cash Subordination Agreement (the “Amended and Restated Byline Loan Agreement”), which amended and restated the Original Byline Loan Agreement in its entirety, and (ii) the Original Byline Note and Subordination Agreement was terminated by the parties thereto. Pursuant to the Amended and Restated Byline Loan Agreement, Byline Bank agreed to make loans to JVB, at JVB’s request from time to time, in the aggregate amount of up to $25,000.

Loans (both principal and interest) made by Byline Bank to JVB under the Amended and Restated Byline Loan Agreement are scheduled to mature and become immediately due and payable in full on December 21, 2023. In addition, loans may be made until December 21, 2022. Loans will bear interest at a per annum rate equal to LIBOR plus 6.0%, provided that in no event can the interest rate be less than 7.0%. JVB is required to pay on a quarterly basis an undrawn commitment fee at a per annum rate equal to 0.50% of the undrawn portion of Byline Bank’s $25,000 commitment. JVB is also required to pay on each anniversary of December 21, 2021, a commitment fee at a per annum rate equal to 0.50% of the $25,000 commitment. JVB paid Byline Bank a commitment fee of $125 on December 21, 2021, in connection with the execution of the Amended and Restated Byline Loan Agreement.

JVB may request a reduction in the $25,000 commitment in a minimum amount of $1,000 and in multiples of $500 thereafter or such lesser amount as would bring the $25,000 loan commitment to the total principal amount of loans advanced under the Amended and Restated Byline Loan Agreement. The obligations of JVB under the Amended and Restated Agreement are guaranteed by the Company, the Operating LLC and JVB Holdings (the “Guarantors”) and are secured by a lien on all of JVB Holdings’ property, including its 100% ownership interest in all of the outstanding membership interests of JVB. Pursuant to the Amended and Restated Byline Loan Agreement, JVB and the Guarantors provide customary representations and warranties for a transaction of this type.

Effective December 22, 2021, the Company received approval from FINRA to treat draws under the Amended and Restated Byline Loan Agreement as qualified subordinated debt. As such, draws may be treated as an increase in net capital for purposes of FINRA Rule 15(c) 3-1.

The Amended and Restated Byline Loan Agreement also includes customary covenants for a transaction of this type, including covenants limiting the indebtedness that can be incurred by JVB and JVB Holdings and restricting JVB’s ability to make certain loans and investments. Additionally, JVB may not permit its (i) net worth to be less than $85,000 from December 31, 2021, through and including December 30, 2022, and $90,000 from December 31, 2022, and thereafter; and (ii) excess net capital to be less than $40,000 at any time. Further, any loans outstanding under the Amended and Restated Byline Loan Agreement may not exceed 0.25 times JVB's tangible net worth. As of September 30, 2022, and December 31, 2021, no amounts were outstanding under the Amended and Restated Byline Loan Agreement and the Company was in compliance with all of these financial covenants.

Pursuant to the Amended and Restated Byline Agreement, JVB may repay its existing outstanding indebtedness provided, however, that if the anticipated payment relates to the payment of any dividend by JVB, on the date such payment is made, and immediately after making such payment, the loans outstanding may not exceed $10,000. The Amended and Restated Byline Loan Agreement contains customary events of default for a transaction of this type. If an event of default occurs and is continuing, then Byline Bank may declare and cause all or any part of the loans thereunder and all other liabilities outstanding under the Amended and Restated Byline Loan Agreement to become immediately due and payable.

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In the financial statements and other footnotes set forth in this Quarterly Report on Form 10-Q, the term "Byline LOC" refers to either the Original Byline Note and Subordination Agreement or the Amended and Restated Byline Loan Agreement, depending on the applicable time period.

Interest Expense, net

INTEREST EXPENSE
(Dollars in Thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Junior subordinated notes	$	921	$	652	$	2,334	$	1,951
2020 Senior Notes		113		136		344		404
2017 Convertible Note		-		388		327		1,144
2013 Convertible Notes / 2019 Senior Notes		-		67		-		210
Byline Credit Facility		67		67		201		198
Redeemable Financial Instrument - DGC Trust / CBF		-		-		-		197
Redeemable Financial Instrument - JKD Capital Partners I LTD		245		421		597		1,423
	$	1,346	$	1,731	$	3,803	$	5,527

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17. EQUITY

Stockholders’ Equity

Common Equity: The following table reflects the activity for the nine months ended September 30, 2022 related to the number of shares of unrestricted Common Stock that the Company had issued.

	Common Stock
	Shares
December 31, 2021		1,331,150
Vesting of shares		113,234
Shares withheld for employee taxes and retired		(15,501	)
September 30, 2022		1,428,883

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 thereof to vote the Series E Preferred Stock on all matters presented to the Company’s stockholders. For every ten 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 issued and outstanding as of September 30, 2022. For a more detailed description of these shares see note 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Series F Voting Non-Convertible Preferred Stock: On December 23, 2019, the Company’s board of directors adopted a resolution that reclassified 25,000,000 authorized but unissued shares of Preferred Stock, par value $0.001 per share, of the Company as a series of Preferred Stock designated as Series F Voting Non-Convertible Preferred Stock (“Series F Preferred Stock”). Pursuant to the Securities Purchase Agreement, dated December 30, 2019, by and among the Company, the Operating LLC, Daniel G. Cohen, and the DGC Trust, the Company issued 12,549,273 Series F Preferred Stock to Daniel G. Cohen and 9,880,268 Series F Preferred Stock to the DGC Trust. The Series F Preferred Stock have substantially the same rights as the Series E Preferred Stock. The holders of the Series F Preferred Stock are not entitled to receive any dividends or distributions (whether in cash, stock or property of the Company). The holders of Series F Preferred Stock and Common Stock are required to vote, together as a single class on all matters with respect to which a vote of the stockholders of the Company is required or permitted. Each outstanding share of Series F Preferred Stock entitles the holder to one vote for every ten shares of Series F Preferred Stock on each matter submitted to the holders for their vote. As of September 30, 2022, there were 22,429,541 shares of Series F Preferred Stock issued and outstanding. For a more detailed description of these shares see note 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Cash Dividends

During the three and nine months ended September 30, 2022, the Company declared and paid cash dividends of $0.25 and $1.50 per common share, respectively. During the three and nine months ended September 30, 2021, the Company declared and paid cash dividends of $0.25 and $0.25, respectively.

During the nine months ended September 30, 2022, 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
Other units related to UIS Agreement		977,330
Total		977,330

The Company recognized a net decrease in additional paid in capital of $381 and a net increase in AOCI of $5 with an offsetting increase in non-controlling interest of $376 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, 2022 and 2021.

	Nine Months Ended			Nine Months Ended
	September 30, 2022			September 30, 2021
Net income / (loss) attributable to Cohen & Company Inc.	$	(10,388	)	$	7,651
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		(381	)		(2,023	)
Changes from net income / (loss) attributable to Cohen & Company Inc. and transfers (to) from the non-controlling interest	$	(10,769	)	$	5,628

Repurchases of Shares and Retirement of Treasury Stock

On December 21, 2020, the Company entered into a letter agreement (the “December 2020 Letter Agreement”). The December 2020 Letter Agreement was entered into with Piper Sandler & Co. (the "Agent"). The December 2020 Letter Agreement authorized the Agent to use reasonable efforts to purchase, on the Company’s behalf, up to an aggregate maximum amount of $1,000 of Common Stock on any day that the NYSE American Stock Exchange was open for business. The December 2020 Letter Agreement was effective from December 23, 2020 until July 28, 2021, at which time the aggregate maximum purchase authorization thereunder was reached. The December 2020 Letter Agreement was designed to comply with Rule 10b5-1 under the Exchange Act.

During the three and nine months ended September 30, 2021, the Company repurchased 10,490 and 49,544, shares in the open market pursuant to the December 2020 Letter Agreement for a total purchase price of $187 and $857, respectively. All of the purchases above were completed using cash on hand.

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Equity Distribution Agreement

On December 1, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Northland Securities, Inc. (trade name Northland Capital Markets), as sales agent (the “Sales Agent”), relating to the issuance and sale from time to time by the Company (the “ATM Program”), through the Sales Agent, of shares of the Company's Common Stock, having an aggregate offering price of up to $75,000 (collectively the “Shares”). Sales of the Shares, if any, under the Equity Agreement will be made in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act as agreed with the Sales Agent. In accordance with applicable rules of the SEC, the Company was permitted to sell an aggregate of up to $9,318 in Shares under the Equity Agreement, which represented one-third of the value of the Common Stock held by non-affiliates as of March 5, 2021.

On June 7, 2021, the Company entered into a letter agreement (the “Equity Distribution Letter Agreement”) with the Sales Agent, pursuant to which the Sales Agent agreed to use its best efforts to, commencing on June 5, 2021, sell on the Company’s behalf up to $7,966 of the shares in the open market pursuant to the terms and conditions of the Equity Agreement and the Equity Distribution Letter Agreement, and the Company agreed not to take any action that would cause the sales of the Shares under the Equity Distribution Letter Agreement not to comply with Rule 10b5-1 or Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Equity Distribution Letter Agreement was entered into in connection with the ATM Program and is designed to comply with Rule 10b5-1 under the Exchange Act.

The Equity Agreement includes customary representations, warranties and covenants by the Company and customary obligations of the parties and termination provisions. The Company has agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Sales Agent may be required to make with respect to any of those liabilities. The Company will pay the Sales Agent for sales of its common stock a commission of 2.5% of the gross offering proceeds of the Shares sold through the Sales Agent pursuant to the Equity Agreement.

The offering of the Common Stock pursuant to the Equity Agreement will terminate upon the sale of all of the shares pursuant to the Equity Agreement, unless sooner terminated in accordance with the terms and conditions of the Equity Agreement.

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During the three and nine months ended September 30, 2021, the Company sold 198,700 and 300,859 shares, respectively, in the open market pursuant to the Equity Agreement for a total net sale price of $6,403 and $9,076, respectively. Pursuant to the Equity Agreement and General Instructions I.B.6 of Form S-3, no additional shares were sold under the Equity Distribution Agreement and the Equity Distribution Letter Agreement for the remainder of 2021. No shares were sold during 2022 pursuant to the Equity Agreement as of the date of this Quarterly Report on Form 10-Q.

Detail of Non-Controlling Interest

ROLLFORWARD OF NON-CONTROLLING INTERESTS

(Dollars in Thousands)

	Operating LLC			Insurance SPAC III Sponsor Entities			Other Consolidated Subsidiaries			Total
December 31, 2021	$	57,628		$	4,808		$	27,056		$	89,492
Non-controlling interest share of (loss)		(17,691	)		(598	)		(18,382	)		(36,671	)
Other comprehensive (loss)		(287	)		-			-			(287	)
Acquisition / (surrender) of additional units of consolidated subsidiary		376			-			-			376
Equity-based compensation		2,354			-			-			2,354
Shares withheld for employee taxes		(158	)		-			-			(158	)
Investment in convertible non-controlling interest of Cohen & Company Inc.		15,000			-			-			15,000
Investment in non-convertible non-controlling interest of Operating LLC		-			-			9			9
Distributions to convertible non-controlling interest of Cohen & Company Inc.		(5,535	)		-			-			(5,535	)
Distributions to non-convertible non-controlling interest of Operating LLC		-			-			(8,653	)		(8,653	)
September 30, 2022	$	51,687		$	4,210		$	30		$	55,927

The Operating LLC non-controlling interest is included as convertible non-controlling interest in the consolidated statement of operations. The other components on non-controlling interest are included as non-convertible non-controlling interest in the statement of operations. See note 16. See note 21 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for a discussion of the Company’s non-controlling interests.

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18. INCOME TAXES

Cohen & Company Inc. is treated as a C corporation for United States federal income tax purposes. A U.S. C corporation is subject to a federal tax rate of 21%. The Company's effective tax rate is significantly different than this rate for the following reasons:

1. Cohen & Company Inc. consolidates the Operating LLC but only owns a minority economic interest in the Operating LLC. For the nine months ended September 30, 2022, Cohen and Company Inc. owned 27.93% of the economic interests of the Operating LLC (on average) and is allocated the same percentage of income generated by the Operating LLC. To the extent Cohen and Company Inc. incurs tax obligations on this, the related tax expense is recognized in these consolidated financial statements. The remaining 72.07% that is allocated to the non-controlling members of the Operating LLC is subject to taxation on the members' tax returns.

2. The Operating LLC itself consolidates certain pass-through entities. Therefore, the income/(loss) of these entities are included in the Company's consolidated results but no tax expense/(benefit) related to the unowned portions is included.

3. There are state, local, and foreign taxes to which the Operating LLC or its subsidiaries are subject to, which are included in the effective tax rate.

4. The Company also has valuation allowances applied against its carryforward (net operating loss and net capital loss) deferred tax assets as well as its tax over book basis in the Operating LLC. Valuation allowances are applied to deferred tax assets when management determines that the assets may not be fully realized. This determination requires significant judgement and is primarily based on management's expectations regarding the generation of future taxable income. ASC 740 indicates that all available evidence should be considered when assessing the need for and the appropriate level of a valuation allowance. All available evidence includes historical information supplemented by all currently available information about future periods.

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19. 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, 2022, JVB's minimum required net capital was $250, and actual net capital was $48,376, which exceeded the minimum requirements by $48,126. CCFESA, a subsidiary of the Company, is regulated by the ACPR in France. CCFESA is subject to certain regulatory capital requirements in accordance with Articles L.533-2 et seq. of the French Financial and Monetary Code, implementing the new framework set out in the Investment Firm Regulation ("IFR") and the Investment Firm Directive ("IFD"). As of September 30, 2022, the total minimum required net liquid capital was $470 and actual net liquid capital in CCFESA was $915, which exceeded the minimum requirement by $445. CCFEL cancelled its license with the CBI. The Company received its withdrawal license from the CBI on April 7, 2022.

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20. 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,
	2022			2021			2022			2021
Net income / (loss) attributable to Cohen & Company Inc.	$	(919	)	$	(3,429	)	$	(10,388	)	$	7,651
Add: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.		-			(11,221	)		-			20,301
Add: Interest expense incurred on dilutive convertible notes		-			-			-			882
Add / (deduct): Adjustment (2)		-			237			-			(1,179	)
Net income / (loss) on a fully converted basis	$	(919	)	$	(14,413	)	$	(10,388	)	$	27,655

Weighted average common shares outstanding - Basic		1,428,883			1,314,554			1,417,358			1,140,149
Unrestricted Operating LLC membership units exchangeable into Cohen & Company Inc. shares (1)		-			2,855,767			-			2,849,889
Restricted units or shares		-			-			-			187,726
Shares issuable upon conversion of dilutive convertible notes		-			-			-			1,034,483
Weighted average common shares outstanding - Diluted (3)		1,428,883			4,170,321			1,417,358			5,212,247

Net income / (loss) per common share - Basic	$	(0.64	)	$	(2.61	)	$	(7.33	)	$	6.71

Net income / (loss) per common share - Diluted	$	(0.64	)	$	(3.46	)	$	(7.33	)	$	5.31

(1)

The Operating LLC units of membership interest not held by Cohen & Company Inc. (that is, those held by the non-controlling interest) may be redeemed and exchanged into shares of the Company on a ten-for-one basis. The Operating LLC units of membership interests not held by Cohen & Company Inc. are redeemable, at the member’s option at any time, for (i) cash in an amount equal to the average of the per share closing prices of the Common Stock for the ten consecutive trading days immediately preceding the date the Company receives the member’s redemption notice, or (ii) at the Company’s option, one tenth of a share of the Common Stock, subject, in each case, to appropriate adjustment upon the occurrence of an issuance of additional shares of the Common Stock as a dividend or other distribution on the outstanding Common Stock, or a further subdivision or combination of the outstanding shares of the Common Stock. These units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income (loss) per common share when the effect is not anti-dilutive using the if-converted method.

(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 units of membership interests had been converted at the beginning of the period.

(3)	Potentially diluted securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Unrestricted Operating LLC membership units exchangeable into Cohen & Company Inc. shares		3,965,405		-		3,658,204		-
2017 Convertible Note Units		-		1,034,483		298,851		-
Restricted Common Stock		6,211		102,038		10,334		-
Restricted Operating LLC units		1,963		77,540		4,087		-
		3,973,579		1,214,061		3,971,476		-

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21. COMMITMENTS AND CONTINGENCIES

Legal and Regulatory Proceedings

On October 8, 2021, Cohen & Company, Ltd., an Ohio limited liability company, as plaintiff, filed a complaint with the United States District Court, Eastern District of Pennsylvania, under the caption Cohen & Company, Ltd. v. Cohen & Company Inc., alleging that Cohen & Company Inc., as defendant, has been using the “Cohen & Company” trademark and business name, which allegedly infringes and unfairly competes with the plaintiff’s registered trademarks “Cohen & Company” and “Cohen & Co,” in violation of applicable federal and state trademark laws and regulations. Pursuant to the complaint, the plaintiff has demanded that the defendant be permanently enjoined from using the “Cohen & Company” trademark and business name in connection with its business, pay to the plaintiff statutory damages, attorneys’ fees and costs and other damages, and pay over to plaintiff all gains, profits and advantages realized by the defendant from its allegedly unlawful acts and omissions. The Company filed a partial motion on April 18, 2022, and on October 6, 2022, the Court granted the Company's motion and dismissed the plaintiff's counterfeiting claim with prejudice. The Company intends to vigorously defend against the allegations set forth in the remainder of the complaint.

From time to time, the Company is a party to various routine legal proceedings, claims, and regulatory inquiries arising out of the ordinary course of the Company’s business. Management believes that the results of these routine legal proceedings, claims, 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.

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22. SEGMENT AND GEOGRAPHIC 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.

SEGMENT INFORMATION

Statement of Operations Information

Nine Months Ended September 30, 2022

	Capital			Asset		Principal			Segment			Unallocated
	Markets			Management		Investing			Total			(1)			Total
Net trading	$	30,365		$	-	$	-		$	30,365		$	-		$	30,365
Asset management		-			7,243		-			7,243			-			7,243
New issue and advisory		20,486			-		-			20,486			-			20,486
Principal transactions and other income		1			534		(26,692	)		(26,157	)		-			(26,157	)
Total revenues		50,852			7,777		(26,692	)		31,937			-			31,937
Compensation		27,790			4,213		648			32,651			8,669			41,320
Other Operating Expense		10,247			1,478		522			12,247			3,562			15,809
Total operating expenses		38,037			5,691		1,170			44,898			12,231			57,129
Operating income (loss)		12,815			2,086		(27,862	)		(12,961	)		(12,231	)		(25,192	)
Interest income (expense)		(201	)		-		-			(201	)		(3,602	)		(3,803	)
Income (loss) from equity method affiliates		-			-		(14,530	)		(14,530	)		-			(14,530	)
Income (loss) before income taxes		12,614			2,086		(42,392	)		(27,692	)		(15,833	)		(43,525	)
Income tax expense (benefit)		-			-		-			-			3,534			3,534
Net income (loss)		12,614			2,086		(42,392	)		(27,692	)		(19,367	)		(47,059	)
Less: Net income (loss) attributable to the non-convertible non-controlling interest of the Operating LLC		-			-		(18,980	)		(18,980	)		-			(18,980	)
Enterprise net income (loss)		12,614			2,086		(23,412	)		(8,712	)		(19,367	)		(28,079	)
Less: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.		-			-		-			-			(17,691	)		(17,691	)
Net income (loss) attributable to Cohen & Company Inc.	$	12,614		$	2,086	$	(23,412	)	$	(8,712	)	$	(1,676	)	$	(10,388	)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	-		$	3	$	-		$	3		$	411		$	414

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SEGMENT INFORMATION

Statement of Operations Information

Nine Months Ended September 30, 2021

	Capital			Asset			Principal		Segment			Unallocated
	Markets			Management			Investing		Total			(1)			Total
Net trading	$	54,181		$	-		$	-	$	54,181		$	-		$	54,181
Asset management		-			5,787			-		5,787			-			5,787
New issue and advisory		11,527			-			-		11,527			-			11,527
Principal transactions and other income		(4	)		525			47,310		47,831			-			47,831
Total revenues		65,704			6,312			47,310		119,326			-			119,326
Compensation		30,476			4,201			13,415		48,092			13,322			61,414
Other Operating Expense		10,093			1,445			174		11,712			3,946			15,658
Total operating expenses		40,569			5,646			13,589		59,804			17,268			77,072
Operating income (loss)		25,135			666			33,721		59,522			(17,268	)		42,254
Interest (expense) income		(198	)		-			-		(198	)		(5,329	)		(5,527	)
Income (loss) from equity method affiliates		-			-			7,512		7,512			-			7,512
Other non-operating income		-			-			-		-			2,127			2,127
Income (loss) before income taxes		24,937			666			41,233		66,836			(20,470	)		46,366
Income tax expense (benefit)		-			-			-		-			577			577
Net income (loss)		24,937			666			41,233		66,836			(21,047	)		45,789
Less: Net income (loss) attributable to the non-convertible non-controlling interest of the Operating LLC		-			(5	)		17,842		17,837			-			17,837
Enterprise net income (loss)		24,937			671			23,391		48,999			(21,047	)		27,952
Less: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.		-			-			-		-			20,301			20,301
Net income (loss) attributable to Cohen & Company Inc.	$	24,937		$	671		$	23,391	$	48,999		$	(41,348	)	$	7,651

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	1		$	2		$	-	$	3		$	255		$	258

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SEGMENT INFORMATION

Statement of Operations Information

Three Months Ended September 30, 2022

	Capital			Asset		Principal			Segment			Unallocated
	Markets			Management		Investing			Total			(1)			Total
Net trading	$	7,966		$	-	$	-		$	7,966		$	-		$	7,966
Asset management		-			3,456		-			3,456			-			3,456
New issue and advisory		13,235			-		-			13,235			-			13,235
Principal transactions and other income		-			191		(1,383	)		(1,192	)		-			(1,192	)
Total revenues		21,201			3,647		(1,383	)		23,465			-			23,465
Compensation		10,102			1,361		238			11,701			3,526			15,227
Other Operating Expense		3,571			524		174			4,269			1,121			5,390
Total operating expenses		13,673			1,885		412			15,970			4,647			20,617
Operating income (loss)		7,528			1,762		(1,795	)		7,495			(4,647	)		2,848
Interest income (expense)		(67	)		-		-			(67	)		(1,279	)		(1,346	)
Income (loss) from equity method affiliates		-			-		618			618			-			618
Other non-operating income		-			-		-			-			-			-
Income (loss) before income taxes		7,461			1,762		(1,177	)		8,046			(5,926	)		2,120
Income tax expense (benefit)		-			-		-			-			1,761			1,761
Net income (loss)		7,461			1,762		(1,177	)		8,046			(7,687	)		359
Less: Net income (loss) attributable to the non-convertible non-controlling interest of the Operating LLC		-			-		(109	)		(109	)					(109	)
Enterprise net income (loss)		7,461			1,762		(1,068	)		8,155			(7,687	)		468
Less: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.		-			-		-			-			1,387			1,387
Net income (loss) attributable to Cohen & Company Inc.	$	7,461		$	1,762	$	(1,068	)	$	8,155		$	(9,074	)	$	(919	)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	-		$	1	$	-		$	1		$	138		$	139

SEGMENT INFORMATION

Statement of Operations Information

Three Months Ended September 30, 2021

	Capital			Asset		Principal			Segment			Unallocated
	Markets			Management		Investing			Total			(1)			Total
Net trading	$	16,599		$	-	$	-		$	16,599		$	-		$	16,599
Asset management		-			1,856		-			1,856			-			1,856
New issue and advisory		8,838			-		-			8,838			-			8,838
Principal transactions and other income		(3	)		251		(20,957	)		(20,709	)		-			(20,709	)
Total revenues		25,434			2,107		(20,957	)		6,584			-			6,584
Compensation		11,200			1,540		155			12,895			7,682			20,577
Other Operating Expense		3,362			456		130			3,948			1,177			5,125
Total operating expenses		14,562			1,996		285			16,843			8,859			25,702
Operating income (loss)		10,872			111		(21,242	)		(10,259	)		(8,859	)		(19,118	)
Interest (expense) income		(67	)		-		-			(67	)		(1,664	)		(1,731	)
Income (loss) from equity method affiliates		-			-		2,857			2,857			-			2,857
Other non-operating income		-			-		-			-			-			-
Income (loss) before income taxes		10,805			111		(18,385	)		(7,469	)		(10,523	)		(17,992	)
Income tax expense (benefit)		-			-		-			-			(248	)		(248	)
Net income (loss)		10,805			111		(18,385	)		(7,469	)		(10,275	)		(17,744	)
Less: Net income (loss) attributable to the non-convertible non-controlling interest of the Operating LLC		-			-		(3,094	)		(3,094	)		-			(3,094	)
Enterprise net income (loss)		10,805			111		(15,291	)		(4,375	)		(10,275	)		(14,650	)
Less: Net income (loss) attributable to the convertible non-controlling interest of Cohen & Company Inc.		-			-		-			-			(11,221	)		(11,221	)
Net income (loss) attributable to Cohen & Company Inc.	$	10,805		$	111	$	(15,291	)	$	(4,375	)	$	946		$	(3,429	)

Other statement of operations data
Depreciation and amortization (included in total operating expense)	$	-		$	1	$	-		$	1		$	89		$	90

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BALANCE SHEET DATA

As of September 30, 2022

(Dollars in Thousands)

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Total Assets	$	1,139,850	$	5,518	$	51,293	$	1,196,661	$	39,452	$	1,236,113

Included within total assets:
Investments in equity method affiliates	$	-	$	-	$	13,466	$	13,466	$	-	$	13,466
Goodwill (2)	$	54	$	55	$	-	$	109	$	-	$	109
Intangible assets (2)	$	166	$	-	$	-	$	166	$	-	$	166

BALANCE SHEET DATA

December 31, 2021

(Dollars in Thousands)

	Capital		Asset		Principal		Segment		Unallocated
	Markets		Management		Investing		Total		(1)		Total
Total Assets	$	3,501,973	$	5,251	$	104,491	$	3,611,715	$	44,589	$	3,656,304

Included within total assets:
Investments in equity method affiliates	$	-	$	-	$	48,238	$	48,238	$	-	$	48,238
Goodwill (2)	$	54	$	55	$	-	$	109	$	-	$	109
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,
	2022		2021		2022		2021
Total Revenues:
United States	$	22,550	$	4,809	$	29,299	$	114,984
Europe & Other		915		1,775		2,638		4,342
Total	$	23,465	$	6,584	$	31,937	$	119,326

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

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23. SUPPLEMENTAL CASH FLOW DISCLOSURE

Interest paid by the Company on its debt and redeemable financial instruments was $3,482 and $4,768 for the nine months ended September 30, 2022 and 2021, respectively.

The Company paid income taxes of $316 and $166 for the nine months ended September 30, 2022 and 2021,, respectively. The Company received income tax refunds of $0 and $96 for nine months ended September 30, 2022 and 2021 respectively.

For the nine months ended September 30, 2022, 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 membership interests in the Operating LLC. The Company recognized a net decrease in additional paid-in capital of $381, a net increase of $5 in AOCI, and an increase of $376 in non-controlling interest.
	●	The Company recorded a $15,000 increase in convertible non-controlling interest and a $15,000 decrease in debt as a result of the DGC Trust election to convert the 2017 Convertible Note into units of membership interest of the Operating LLC.
	●	The Company recorded a decrease in equity method affiliates of $20,864 and an increase in other investments at fair value of $20,864 resulting from an in-kind distribution from equity method affiliates.
	●	The Company recorded a decrease in other investments at fair value of $6,417 and a corresponding decrease in non-controlling interest resulting from an in-kind distribution from a SPAC sponsor entity.
	●	The Company recorded an increase in other investments at fair value of $836 and a corresponding decrease in other investment, not sold of $836 resulting from an investment reclass.

For the nine months ended September 30, 2021, 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 membership interests in the Operating LLC. The Company recognized a net decrease in additional paid-in capital of $2,023, a net increase of $9 in AOCI, and a decrease of $2,032 in non-controlling interest. See note 17.
	●	The Company recorded a decrease of $2,103 in due from related party, a corresponding increase of $701 in other investments at fair value, and a corresponding decrease of $1,402 to non-controlling interest, all as a result an in-kind distribution of incremental LP interests, from the 2020 performance fee earned, to all the members of Vellar GP, including the Company.
	●	The Company recorded a decrease of $3,958 in equity method affiliates and a $31,049 decrease in other investments, at fair value and a corresponding decrease in non-controlling interest resulting from an in-kind distribution due to the completion of the Insurance SPAC II Merger.
	●	The Company recorded a decrease in other investments at fair value of $20,119 resulting from an in-kind distribution relating to the Insurance SPAC Merger.
	●	The Company recorded a decrease in equity method affiliates of $1,352 and an increase in other investments at fair value of $1,352 resulting from an in-kind distribution from an equity method affiliate.
	●	The Company recorded a decrease in other investments at fair value of $2,415 and a decrease in non-controlling interest of $2,415 resulting from in-kind distributions from other consolidated subsidiaries.

As part of the Company's matched book repo operations, the Company enters into reverse repos with counterparties whereby it lends money and receives securities as collateral. In accordance with ASC 860, the collateral securities are not recorded in the Company's consolidated balance sheets. However, from time to time the Company will hold cash instead of securities as collateral for these transactions. When the Company is provided cash as collateral for reverse repo transactions, the Company will make an entry to increase its cash and cash equivalents and to increase its other liabilities for the amount of cash received. There are two main reasons the Company may receive collateral in the form of cash as opposed to securities. First, when the value of the collateral securities the Company has in its possession declines, the Company will require the counterparty to provide it with additional collateral. The Company will accept either cash or additional liquid securities. Often, the Company's counterparties will provide it with cash as they may not have liquid securities readily available. Second, from time to time, the Company's counterparties require a portion of the collateral securities in the Company's possession returned to them for operating purposes. In such instances, the counterparty may not have substitute liquid securities available and will often provide the Company with cash as collateral instead. It is important to note that when the Company receives cash as collateral, it is temporary in nature and the Company has an obligation to return that cash when the counterparty provides substitute liquid securities as collateral or otherwise satisfies their associated reverse repo obligation. The Company is generally required to return any cash collateral the same business day that it receives substitute securities. See note 13.

The Company has no legal or contractual obligation to segregate this cash collateral held and therefore it is included as a component of its cash and cash equivalents in the Company's consolidated balance sheets. However, it is not available for use in the Company's general operations as the Company must stand ready at all times to return the collateral held immediately once the reverse repo counterparty provides substitute liquid securities or the repo matures.

The following table shows the impact of changes in these collateral deposits had on our cash flows in each period presented:

	Nine Months Ended September 30,
	2022		2021
Collateral deposit end of period	$	22,788	$	40,465
Less: Collateral deposit beginning of period		17,320		41,119
Impact to cash flow from operations	$	5,468	$	(654	)

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24. RELATED PARTY TRANSACTIONS

Certain defined terms in this footnote are defined the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company has identified the following related party transactions for the nine months ended September 30, 2022 and 2021. 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. Daniel G. Cohen/Cohen Bros. Financial, LLC (“CBF”)/ 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. On September 29, 2017, CBF also invested $8,000 of the $10,000 total investment in the Company’s Redeemable Financial Instrument – DGC 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 March 2021 and October 2020, payments of $4,000 and $2,500, respectively, were made by the Company to CBF, which fully extinguished the redeemable financial instrument balance. See notes 15 and 16.

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. 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. On September 25, 2019, the 2013 Convertible Notes were amended and restated by the 2019 Senior Notes. On September 25, 2020 the 2019 Senior Notes were amended again to extend their maturity date until September 25, 2021. The Company fully paid and extinguished the 2019 Notes on September 24, 2021. See note 20 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 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.

B. 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.

On January 31, 2020, JKD Investor purchased $2,250 of the 2020 Senior Notes. On January 31, 2022, the Operating LLC and JKD entered into the 2022 Note Purchase Agreement, pursuant to which, among other things, on such date, (i) JKD paid to the Operating LLC an additional $2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD the Amended and Restated Note in the aggregate principal amount of $4,500. See note 16. The Company incurred interest expense on this debt, which is disclosed as part of interest expense incurred in the tale at the end of this section.

C. DGC Trust

DGC Trust has been identified as a related party because Daniel G. Cohen's children are the beneficiaries of the trust and the 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.

In March 2017, the 2017 Convertible Note was issued to the DGC 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 March 20, 2022, the DGC Trust elected to convert the Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the Note of $1.45 per unit. As a result of such conversion, the Note was cancelled in its entirety and a $15,000 investment in non-convertible controlling interest was recorded. See note 16.

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D. 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.

E. FinTech Masala, LLC

The Company engaged Betsy Cohen on behalf of FinTech Masala, LLC as a consultant to provide certain services related to the Insurance SPAC II. The Company agreed to pay a consultant fee of $1 per month, which commenced on October 1, 2020, and continued through February 2021. Betsy Cohen made a $1 investment in the Insurance SPAC II Sponsor Entities. The expense incurred by the Company for the consulting services provided by FinTech Masala, LLC is included within professional fees and operating expense in the consolidated statements of operations and comprehensive income and are disclosed in the table below.

The Company engaged Betsy Cohen on behalf of FinTech Masala, LLC as a consultant to provide certain services related to the Insurance SPAC III. The Company agreed to pay a consultant fee of $1 per month, which commenced on December 1, 2020, and continues through (i) the date that is thirty days following the closing of the Insurance SPAC III ’s Initial Business Combination and (ii) the date on which the Company or Betsy Cohen terminates the consulting agreement. Betsy Cohen made a $1 investment in the Insurance SPAC III Sponsor Entities which is included as a component of non-controlling interest in the consolidated balance sheets. The expense incurred by the Company for the consulting services provided by FinTech Masala, LLC is included within professional fees and operating expense in the consolidated statements of operations and comprehensive income and are disclosed in the table below.

F. Investment Vehicle and Other

FlipOs (previously Stoa USA, Inc.)

FlipOs is a related party because Daniel Cohen is a member of the board of directors of FlipOs. As of September 30, 2022 the Company made cumulative investments of $691 in FlipOs. The fair value of these investments are included in other investments, at fair value on the consolidated balance sheets; any realized and unrealized gains on these investments are included in principle transactions and other income on the consolidated statements of operations and comprehensive income. The amounts are included in the table below.

CK Capital and AOI

CK Capital and AOI are related parties as they are equity method investments of the Company. In December 2019, the Company acquired a 45% interest in CK Capital. The Company purchased this interest for $18 (of which $17 was paid to an entity controlled by Daniel G. Cohen). In addition, in December 2019, the Company also acquired a 10% interest in AOI, a real estate holding company, for $1 from entities controlled by Daniel G. Cohen. Income earned, or loss incurred by the Company on the equity method investments in CK Capital and AOI is included in the tables below. In accordance with the CK Capital shareholders agreement, the Company may receive fees for consulting services provided by the Company to CK Capital. Any fees earned for such consulting services are included in principal transactions and other income in the table below. See note 11.

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Insurance SPAC II

Prior to February 9, 2021, the date of the Insurance SPAC II Merger, Insurance SPAC II was considered a related party as it was an equity method investment of the Company. The Operating LLC, was the manager of the Insurance SPAC II Sponsor Entities and the Company consolidated the Insurance SPAC II Sponsor Entities. Prior to the Insurance SPAC II Merger, the Company owned 46.1% of the equity in Insurance SPAC II. Income earned, or loss incurred on the equity method investment in Insurance SPAC II is included in the table below. The Operating LLC and Insurance SPAC II entered into an administrative services agreement, dated September 2, 2020, pursuant to which the Operating LLC and Insurance SPAC II agreed that, commencing on the date that Insurance SPAC II’s securities were first listed on the NASDAQ Capital Market through the earlier of Insurance SPAC II’s consummation of a business combination and its liquidation, Insurance SPAC II would pay the Operating LLC $20 per month for certain office space, utilities, secretarial support, and administrative services. Revenue earned by the Company from such administrative services agreement is included as part of principal transactions and other income in the tables below. The Company also agreed to lend Insurance SPAC up to $750 for operating and acquisition related expenses; no amounts were borrowed from the Company and the lending agreement is no longer in place effective with the Insurance SPAC II Merger.

Insurance SPAC III

Insurance SPAC III is a related party as it is an equity method investment of the Company. The Operating LLC is the manager of the Insurance SPAC III Sponsor Entities and the Company consolidates the Insurance SPAC III Sponsor Entities. As of September 30, 2022 , the Company owns 47.3% of the equity in Insurance SPAC III Sponsor Entities. Income earned, or loss incurred on the equity method investment in Insurance SPAC III is included in the table below. The Operating LLC and Insurance SPAC III entered into an administrative services agreement, dated December 17, 2020, pursuant to which the Operating LLC and Insurance SPAC III agreed that, commencing on the date that Insurance SPAC III’s securities were first listed on the NASDAQ Capital Market through the earlier of Insurance SPAC III’s consummation of a business combination and its liquidation, Insurance SPAC III would pay the Operating LLC $20 per month for certain office space, utilities, and shared personnel support as may be requested by Insurance SPAC III. 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 Operating LLC loaned to Insurance SPAC III approximately $71 to cover IPO expenses, which was repaid in full at the closing of the IPO. Insurance Acquisition Sponsor III and its affiliates, including the Operating LLC, have also committed to loan Insurance SPAC III up to an additional $1,500 to cover operating and acquisition related expenses following the IPO, of which $960 was borrowed by Insurance SPAC III as of September 30, 2022. See note 25. These loans will bear no interest and, if the Insurance SPAC III consummates a business combination in the required timeframe, the loans are to be repaid from the funds held in Insurance SPAC III’s trust account. If Insurance SPAC III does not consummate a business combination in the required timeframe, no funds from Insurance SPAC III's trust account can be used to repay the loans.

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, 2022, the Company owned 0.57% 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 is shown in the tables below. As of September 30, 2022, the Company owned 2.8% of the equity of the U.S. Insurance JV.

CREO JV

CREO JV is considered a related party because it is an equity method investment. The Company has an investment in and a management contract with CREO JV. Income earned or loss incurred on the investment are included as part of principal transactions and other income. As of September 30, 2022, the Company owned 7.5% of the equity of CREO JV.

Sponsor Entities of Other SPACs

In general, a SPAC is initially funded by a sponsor and that sponsor invests in and receives private placement and founders shares of the SPAC. The sponsor may be organized as a single legal entity or multiple entities under common control. In either case, the entity or entities is referred to in this section as the sponsor of the SPAC. The Company has had the following transactions with various sponsors of SPACs that are related parties and which the Company does not consolidate.

Fintech Acquisition Corp. IV ("FTAC IV") was a SPAC. The sponsor of Fintech Acquisition Corp. IV ("FTAC IV Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor investment in FTAC IV Sponsor, receiving a final allocation of 81,825 founder shares of FTAC IV stock for $1. In addition, on September 29, 2020, the Operating LLC entered into a letter agreement with FTAC IV Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC IV Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of an additional 24,547 founders shares of FTAC IV stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

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Fintech Acquisition Corp. V ("FTAC V") is a SPAC. The sponsor of Fintech Acquisition Corp. V ("FTAC V Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor investment in FTAC V Sponsor, receiving an initial allocation of 140,000 founder shares. On December 14, 2020, the Operating LLC entered into a letter agreement with FTAC V Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC V Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC V stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

Fintech Acquisition Corp. VI ("FTAC VI") is a SPAC. The sponsor of Fintech Acquisition Corp. VI ("FTAC VI Sponsor") is a related party as it is an equity method investment of the Company. On June 26, 2021, the Operating LLC entered into a letter agreement with FTAC VI Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC VI Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founder shares of FTAC VI stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principle transactions and other income, Other SPAC Entities in the tables below.

FTAC Olympus Acquisition Corp ("FTAC Olympus") was a SPAC. The sponsor of FTAC Olympus Acquisition Corp. ("FTAC Olympus Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor investment in FTAC Olympus Sponsor, receiving a final allocation of 399,741 founders shares of FTAC Olympus stock for $2. In addition, on September 8, 2020, the Operating LLC entered into a letter agreement with FTAC Olympus Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Olympus Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of an additional 19,987 founders shares of FTAC Olympus stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

FTAC Athena Acquisition Corp. ("FTAC Athena") is a SPAC. The sponsor of FTAC Athena Acquisition Corp. ("FTAC Athena Sponsor") is a related party as it is an equity method investment of the Company. On February 26, 2021, the Operating LLC entered into a letter agreement with FTAC Athena Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Athena Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Athena stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

FTAC Hera Acquisition Corp. ("FTAC Hera") is a SPAC. The sponsors of FTAC Hera Acquisition Corp. ("FTAC Hera Sponsors") is a related party as it is an equity method investment of the Company. On March 5, 2021, the Operating LLC entered into a letter agreement with FTAC Hera Sponsors whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Hera Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Hera stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

FTAC Parnassus Acquisition Corp. ("FTAC Parnassus") is a SPAC. The sponsors of FTAC Parnassus Acquisition Corp. ("FTAC Parnassus Sponsors") is a related party as it is an equity method investment of the Company. On March 15, 2021, the Operating LLC entered into a letter agreement with FTAC Parnassus Sponsors whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Parnassus Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Parnassus stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

FTAC Zeus Acquisition Corp. ("FTAC Zeus") is a SPAC. The sponsors of FTAC Zeus Acquisition Corp. ("FTAC Sponsors") is a related party as it is an equity method investment of the Company. On November 24, 2021, the Operating LLC entered into a letter agreement with FTAC Zeus Sponsors whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Zeus Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Zeus stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

FTAC Emerald Acquisition Corp. ("FTAC Emerald") is a SPAC. The sponsors of FTAC Emerald Acquisition Corp. ("FTAC Emerald Sponsors") is a related party as it is an equity method investment of the Company. On December 20, 2021, the Operating LLC entered into a letter agreement with FTAC Emerald Sponsors whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC Emerald Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000 founders shares of FTAC Emerald stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal transactions and other income, Other SPAC Entities in the tables below.

Other

The Company invests in sponsor entities of SPACS, either directly or through its interest in the SPAC Series Funds, that are not otherwise affiliated with the Company but are considered related parties because they are accounted for under the equity method. As of September 30, 2022, the Company owned 5.8% of these entities in the aggregate. Income earned or loss incurred on the equity method investment in the Other SPAC Entities in the tables below.

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

	Three Months Ended						Nine Months Ended
	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021

Asset management
SPAC Fund	$	220		$	305		$	763		$	812
Other SPAC Entities		-			-			-			319
U.S. Insurance JV		273			155			808			350
	$	493		$	460		$	1,571		$	1,481
Principal transactions and other income
Insurance SPAC II	$	-		$	-		$	-		$	40
Insurance SPAC III		60			60			180			180
FlipOS		-			1,805			4,196			1,805
Other SPAC Entities		35			20			95			107
SPAC Fund		6			(39	)		(57	)		429
U.S. Insurance JV		76			16			(34	)		275
CREO		165			-			282			-
	$	342		$	1,862		$	4,662		$	2,836
Income (loss) from equity method affiliates
Dutch Real Estate Entities	$	(230	)	$	(96	)	$	(495	)	$	(179	)
Insurance SPAC II		-			-			-			(107	)
Insurance SPAC III		(187	)		(296	)		(1,142	)		(986	)
Other SPAC Entities		1,035			3,249			(12,893	)		8,784
	$	618		$	2,857		$	(14,530	)	$	7,512

Operating expense (income)
Duane Morris	$	202		$	117		$	497		$	655
FinTech Masala, LLC		(1	)		(18	)		(44	)		(39	)
	$	201		$	99		$	453		$	616
Interest expense (income)
CBF	$	-		$	-		$	-		$	197
DGC Trust		-			388			326			1,144
EBC		-			68			-			210
JKD Investor		357			489			918			1,625
	$	357		$	945		$	1,244		$	3,176

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

H. Directors and Employees

The Company has entered into employment agreements with Daniel G. 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.

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 $94 and $298 for the three and nine months ended September 30, 2022. Contributions made on behalf of the Company were $58 and $225 for the three and nine months ended September 30, 2021.

The Company leased 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. This lease terminated June 20, 2022. The Company recorded $0 and $24 of rent expense related to this office space for the three months ended September 30, 2022 and 2021, respectively and $48 and $72 for the nine months ended September 30, 2022 and 2021.

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25. 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 sheets. Also, interest or investment return owed on those balances are included as a component of accounts payable and other in the consolidated balance sheets. 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 investments in equity method affiliates in the consolidated balance sheets. 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 sheets.

The following table summarizes amounts 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 24 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, 2022		December 31, 2021
CK Capital	$	-	$	137
U.S. Insurance JV		227		147
Insurance SPAC III		960		500
SPAC Fund		325		3,653
Employee & other		252		144
Due from related parties	$	1,764	$	4,581

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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, 2021.

“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, 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 CCFESA in Europe. A division of JVB, Cohen & Company Capital Markets is our full-service boutique investment banking platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial technology (commonly referred to as "fintech") and SPAC spaces.
	●	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, 2022, we had approximately $2.2 billion in assets under management (“AUM”) of which 53.8% 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 hold related to our SPAC franchise and other investments 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, other investments sold, not yet purchased, and investments in equity method affiliates 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 or trading securities sold, not yet purchased;

	●	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 Investment Vehicles.

Principal Investing:

	●	Gains and losses (unrealized and realized) and income and expense earned on securities classified as other investments, at fair value and other investments sold, not yet purchased.
	●	Income and loss earned on equity method investments.

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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, investment bankers, 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 subsidiary CCFESA and new issue and advisory services in the U.S. through our subsidiary JVB. A division of JVB, Cohen & Company Capital Markets is our full-service boutique investment banking platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial technology (commonly referred to as "fintech") and SPAC spaces. Currently, our primary source of new issue and advisory revenue is from originating assets for our U.S. and European insurance asset management business, and from investment banking and advisory services through our Cohen & Company Capital Markets platform.

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, 2022, 53.8% 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.

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, other investments sold, not yet purchased, and investments in equity method affiliates in our consolidated balance sheets. More recently, a significant component of our principal investment revenue has come from SPAC related equity investments, primarily in entities that have been the result of sponsored SPAC business combinations or related party sponsored SPAC business combinations. Access to these investments is reliant on a robust SPAC market. Performance of the resulting principal investments can be materially impacted by overall performance of the equity markets. See note 7 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

The SPAC Market

Beginning in 2018, we began sponsoring a series of SPACs. Each sponsored SPAC either completed or seeks to complete a business combination with a company involved in the insurance market. In addition, we invest in other SPACs at various stages of their business life cycle. Beginning in 2019, these SPAC activities have become a significant portion of our Principal Investing business segment. In August 2018, we invested in and became the general partner of a newly formed investment fund (the “SPAC Fund”), which was created for the purpose of investing in the equity interests of SPACs and SPAC sponsor entities including SPACs sponsored by us, our affiliates, and third parties. As a complement to the SPAC Fund, we established and became manager of two newly formed umbrella limited liability companies (the “SPAC Series Funds”) that issue a separate series of interest for each investment portfolio, which typically consists of investments in the sponsor entities of individual SPACs. Generally, when a SPAC acquires or merges with a privately held target company, the target company winds up owning a majority of the resulting outstanding equity of the SPAC so the transaction is accounted for as a reverse merger. Private companies utilize reverse mergers with SPACs as a method of going public as an alternative to a traditional IPO. All of our business activity related to SPACs is highly sensitive to the volume of activity in the SPAC market. Volumes could be negatively impacted if target companies no longer see SPACs as an attractive alternative thereby reducing the number of suitable potential business combination targets. Also, investor demand for SPACs would be negatively impacted if the stock of SPACs that successfully complete a business combination underperform the market. If volumes of SPAC activity decline, our results of operations will likely be significantly negatively impacted.

Equity prices of SPACs and post business combination SPACs declined significantly during 2022. We are exposed to public equity prices of SPACs and post business combination SPACs both through our other investments, at fair value and investments in equity method affiliates. As a result, we recorded significant principal transaction losses and equity method losses during the nine months ended September 30, 2022. Continued declines in the equity prices of these companies will result in further losses for us.

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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; and (iv) 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

Our mortgage group is significant 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.

Rising Interest Rates and Inflation

During 2022, the U.S. Federal Reserve began a process of raising the fed funds rate and quantitative tightening to address rising inflation. These actions have the effect of increasing interest rates which negatively impacts our business in several ways:

1.	Rising rates reduce the fair value of fixed income securities we hold on our balance sheet.
2.	Rising rates have created instability in the equity markets which has reduced equity financing and business combination volumes and negatively impacted our Cohen and Company Capital Markets business.
3.	Rising rates have reduced the volumes of new issue fixed income instruments which has negatively impacted our CREO JV.
4.	Rising rates significantly reduce mortgage activity. Our mortgage group's profitability is mainly impacted by the volume of mortgage activity in the U.S. (both mortgages for new home purchases as well as refinancing). Furthermore, our mortgage group engages in repo lending to mortgage originators. Reduced mortgage volumes impose financial pressures on mortgage originators and may increase the risk that originators default on their repo obligations to us. See Note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
5.	Rising rates may ultimately push the U.S. into recession which may further reduce overall transaction volumes in the financial markets negatively impacting our business generally.

COVID 19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. The spread of COVID-19 has caused significant volatility in domestic and international markets. There is on-going uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies.

In 2021, medical professionals developed COVID-19 vaccines and governments began to distribute them globally, which is expected to reduce virus spread and further aid economic recovery. Despite broad improvements in the global fight against the COVID-19 virus, we will likely be impacted by the pandemic in other ways which we cannot reliably determine. We will continue to monitor market conditions and respond accordingly. In April 2020, we applied for and received a $2,166 loan under the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. On June 21, 2021, we received notification that the U.S. Small Business Administration, as administrator of the PPP, had approved our PPP Loan forgiveness application for $2,127 and all accrued interest on the PPP Loan, leaving us with a remaining PPP Loan balance of $39. The PPP Loan forgiveness was recorded to other non-operating income on the consolidated statements of operations and comprehensive income. We repaid the remaining balance plus accrued interest on June 25, 2021, at which point the PPP Loan balance was reduced to zero.

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Recent Events

The 2017 Convertible Note

On March 10, 2017, the Operating LLC issued to DGC Family Fintech Trust (the “DGC Trust”), a trust established by Daniel G. Cohen, a convertible senior secured promissory note in the aggregate principal amount of $15,000 (the "2017 Convertible Note").

The 2017 Convertible Note was originally scheduled to mature on March 10, 2022; however in accordance with the terms and conditions of the 2107 Convertible Note agreement, effective on March 10, 2022, the Operating LLC exercised its right to extend the maturity date from March 10, 2022 to March 10, 2023. On March 20, 2022, the DGC Trust elected to convert the 2017 Convertible Note into an aggregate of 10,344,827 units of membership interests in the Operating LLC at the conversion rate specified in the 2017 Convertible Note agreement of $1.45 per unit. As a result of such conversion, the 2017 Convertible Note was cancelled in its entirety. These units of membership interests have same conversion and redemption rights as the existing convertible non-controlling interest units. See note 21 to the Company's December 31, 2021 Annual Report filed on Form 10-K.

The 2020 Senior Notes

On January 31, 2022, the Operating LLC and JKD Investor entered into a Note Purchase Agreement pursuant to which, among other things, on such date, (i) JKD Investor paid to the Operating LLC an additional $2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD Investor an Amended and Restated Senior Promissory Note in the aggregate principal amount of $4,500 (the “Amended and Restated Note”), which Amended and Restated Note amended and restated the JKD Note in its entirety. The 2022 Purchase Agreement contains customary representations and warranties on the part of each of JKD Investor and the Operating LLC. We used these proceeds to retire $2,250 of existing 2020 Senior Notes held by RNCS. See notes 16 and 24 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

New Commercial Real Estate Opportunities (“CREO”) JV

On September 3, 2021, we committed to invest up to $15,000 of equity in a newly formed joint venture (the “CREO JV”) with an outside investor who committed to invest approximately $435,000 of equity in the CREO JV. We are required to invest 7.5% of the total equity of the CREO JV with an absolute limit of $15,000. The CREO JV is managed by us.

The commercial real estate loans that will be funded by the CREO JV may be originated by us and we may earn origination fees earned in connection with such transactions. In addition, the Company may earn structuring fees in connection with structuring and consummating a CRE CLO consisting of a pooling of commercial real estate loans. We also may earn management fees as manager of any CRE CLOs based on the value of the assets consolidated into a CRE CLO (calculated in accordance with the terms of such CRE CLO), payable from the proceeds generated by and in accordance with the distribution waterfall of such CRE CLO.

We have elected the fair value option in accordance with the provisions of FASB ASC 820, Fair Value Measurements (“FASB ASC 820”) to account for our investment in the CREO JV. The investment is included in other investments at fair value, on the consolidated balance sheet 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 CREO JV has the attributes of investment companies as described in FASB ASC 946-15-2, we estimate the fair value of our 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. As of September 30, 2022, our investment balance in the CREO was $6,818.

Wind Down of the Company's GCF Repo Business

The Company has carried out a matched book GCF repo business as a full netting member of the FICC Government Services Division since 2017. In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, the Company decided to wind down this business. As of December 31, 2021, the wind down was completed and the GCF reverse repurchase agreements and repurchase agreements balances were reduced to zero. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

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INSU Acquisition Corp III ("Insurance SPAC III")

The Operating LLC is the manager of Insurance Acquisition Sponsor III, LLC (“IAS III”) and Dioptra Advisors III, LLC (together with IAS III, the “Insurance SPAC III Sponsor Entities”). The Insurance SPAC III Sponsor Entities are sponsors of INSU Acquisition Corp. III ("Insurance SPAC III"). On December 22, 2020, Insurance SPAC III completed the sale of 25,000,000 units (the “Insurance SPAC III Units”) in its initial public offering which included 3,200,000 units issued pursuant to the underwriters’ over-allotment option.

Each Insurance SPAC III Unit consists of one share of Insurance SPAC III's Class A common stock, par value $0.0001 per share (“Insurance SPAC III Common Stock”), and one-third of one Insurance SPAC III warrant (each, an “Insurance SPAC III Warrant”), where each whole Insurance SPAC III Warrant entitles the holder to purchase one share of Insurance SPAC III Common Stock for $11.50 per share. The Insurance SPAC III Units were sold in the IPO at an offering price of $10.00 per Unit, for gross proceeds of $250,000 (before underwriting discounts and commissions and offering expenses). Pursuant to the underwriting agreement in the IPO, Insurance SPAC III granted the underwriters in the IPO (the “Insurance SPAC III Underwriters”) a 45-day option to purchase up to 3,270,000 additional Insurance SPAC III Units solely to cover over-allotments, if any; and on December 21, 2020, the Insurance SPAC III Underwriters notified the Company that they were partially exercising the over-allotment option for 3,200,000 Insurance SPAC III units and waiving the remainder of the over-allotment option. Immediately following the completion of the IPO, there were an aggregate of 34,100,000 shares of Insurance SPAC III Common Stock issued and outstanding. If the Insurance SPAC III fails to consummate a business combination within the first 24 months following the IPO, its corporate existence will cease except for the purposes of winding up its affairs and liquidating its assets.

The Insurance SPAC III Sponsor Entities purchased an aggregate of 575,000 of placement units in Insurance SPAC III in a private placement that occurred simultaneously with the IPO for an aggregate of $5,750, or $10.00 per placement unit. Each placement unit consists of one share of Insurance SPAC III Common Stock and one-third of one warrant (the “Insurance SPAC III Placement Warrant”). The Insurance SPAC III placement units are identical to the Insurance SPAC III Units sold in the IPO except (i) the shares of Insurance SPAC III Common Stock issued as part of the placement units and the Insurance SPAC III Warrants will not be redeemable by Insurance SPAC III, (ii) the Insurance SPAC III Warrants may be exercised by the holders on a cashless basis, and (iii) the shares of Insurance SPAC III Common Stock issued as part of the placement units, together with the Insurance SPAC III Warrants, are entitled to certain registration rights. Subject to certain limited exceptions, the placement units (including the underlying Insurance SPAC III Warrants and Insurance SPAC III Common Stock and the shares of Insurance SPAC III Common Stock issuable upon exercise of the Insurance SPAC III Warrants) will not be transferable, assignable or salable until 30 days after the completion of the Insurance SPAC III’s initial business combination.

A total of $250,000 of the net proceeds from the private placement and the IPO (including approximately $10,600 of the deferred underwriting commission from the IPO) were placed in a trust account. Except for the withdrawal of interest to pay taxes (or dissolution expenses if a business combination is not consummated), none of the funds held in the trust account will be released until the earlier of (i) the completion of Insurance SPAC III’s initial business combination, (ii) in connection with a stockholder vote to amend Insurance SPAC III’s amended and restated certificate of incorporation (A) to modify the substance or timing of Insurance SPAC III’s obligation to redeem 100% of its public shares if it does not complete an initial business combination within 24 months from the completion of the IPO or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity, or (iii) the redemption of all of Insurance SPAC III’s public shares issued in the IPO if the Insurance SPAC III is unable to consummate an initial business combination within 24 months from the completion of the IPO. If Insurance SPAC III does not complete a business combination within the first 24 months following the IPO, the placement units will expire worthless.

The Insurance SPAC III Sponsor Entities collectively hold 8,525,000 founder shares in Insurance SPAC III. Subject to certain limited exceptions, the founder shares will not be transferable or salable except (a) with respect to 25% of such shares, until consummation of a business combination, and (b) with respect to additional 25% tranches of such shares, when the closing price of Insurance SPAC III Common Stock exceeds $12.00, $13.50, and $17.00, respectively, for 20 out of any 30 consecutive trading days following the consummation of a business combination. Certain non-controlling interests in the Insurance SPAC III Sponsor Entities, including executive and key employees of the Operating LLC, purchased membership interests in the Insurance SPAC III Sponsor Entities and, in addition to having an interest in Insurance SPAC III’s placement units discussed above, have an interest in Insurance SPAC III’s founder shares through such membership interests in the Insurance SPAC III Sponsor Entities. The number of the Insurance SPAC III’s founder shares in which such non-controlling interests in the Insurance SPAC III Sponsor Entities, including such executives and key employees of the Operating LLC, have an interest in through the Insurance SPAC III Sponsor Entities will not be finally and definitively determined until consummation of a business combination. The number of Insurance SPAC III’s founder shares currently allocated to the Operating LLC is 4,267,500, but such number of founder shares will also not be finally and definitively determined until the consummation of a business combination.

The Operating LLC loaned to Insurance SPAC III approximately $71 to cover IPO expenses, which was repaid in full at the closing of the IPO. Insurance Acquisition Sponsor III and its affiliates, including the Operating LLC, have also committed to loan Insurance SPAC III up to an additional $1,500 to cover operating and acquisition related expenses following the IPO, of which $960 was borrowed by Insurance SPAC III as of September 30, 2022. If Insurance SPAC III does not consummate a business combination in the required timeframe, no funds from Insurance SPAC III's trust account can be used to repay the loans.

As of September 30, 2022, we had a total equity method investment in Insurance SPAC III of $3,401, which was included as a component of investment in equity method affiliates in our consolidated balance sheet. Offsetting this amount was non-controlling interest of $4,210, which was included as a component of non-controlling interest in our consolidated balance sheet. Therefore, the net carrying value of our investment in Insurance SPAC III (excluding its advances under our loan agreement) was $(809) as of September 30, 2022.

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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, 2022 Compared to the Nine Months Ended September 30, 2021

The following table sets forth information regarding our consolidated results of operations for the nine months ended September 30, 2022 and 2021.

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

	Nine Months Ended September 30,						Favorable / (Unfavorable)
	2022			2021			$ Change			% Change
Revenues
Net trading	$	30,365		$	54,181		$	(23,816	)		(44	%)
Asset management		7,243			5,787			1,456			25	%
New issue and advisory		20,486			11,527			8,959			78	%
Principal transactions and other income (loss)		(26,157	)		47,831			(73,988	)		(155	%)
Total revenues		31,937			119,326			(87,389	)		(73	%)

Operating expenses
Compensation and benefits		41,320			61,414			20,094			33	%
Business development, occupancy, equipment		3,777			2,375			(1,402	)		(59	%)
Subscriptions, clearing, and execution		6,025			7,745			1,720			22	%
Professional fee and other operating		5,593			5,280			(313	)		(6	%)
Depreciation and amortization		414			258			(156	)		(60	%)
Total operating expenses		57,129			77,072			19,943			26	%

Operating income / (loss)		(25,192	)		42,254			(67,446	)		(160	%)

Non-operating income / (expense)

Interest expense, net		(3,803	)		(5,527	)		1,724			31	%
Income / (loss) from equity method affiliates		(14,530	)		7,512			(22,042	)		(293	%)
Other non operating income		-			2,127			(2,127	)		(100	%)
Income / (loss) before income taxes		(43,525	)		46,366			(89,891	)		(194	%)
Income tax expense / (benefit)		3,534			577			(2,957	)		(512	%)
Net income / (loss)		(47,059	)		45,789			(92,848	)		(203	%)
Less: Net income (loss) attributable to the non-convertible non-controlling interest		(18,980	)		17,837			36,817			206	%
Enterprise net income / (loss)		(28,079	)		27,952			(56,031	)		(200	%)
Less: Net income (loss) attributable to the convertible non-controlling interest		(17,691	)		20,301			37,992			187	%
Net income / (loss) attributable to Cohen & Company Inc.	$	(10,388	)	$	7,651			(18,039	)		(236	%)

Revenues

Revenues decreased by $87,389 or 73% to $31,937 for the nine months ended September 30, 2022 from $119,326 for the nine months ended September 30, 2021. As discussed in more detail below, the change was comprised of (i) a decrease of $23,816 in net trading revenue; (ii) an increase of $1,456 in asset management revenue; (iii) an increase in new issue and advisory of $8,959 and (iv) a decrease of $73,988 principal transactions and other income.

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Net Trading

Net trading revenue decreased by $23,816 or 44% to $30,365 for the nine months ended September 30, 2022 from $54,181 for the nine months ended September 30, 2021. The following table shows the detail by group.

NET TRADING
(Dollars in Thousands)

	Nine Months Ended September 30,
	2022			2021		Change
Mortgage	$	1,073		$	5,811	$	(4,738	)
Matched book repo		24,305			35,066		(10,761	)
High yield corporate		3,583			8,553		(4,970	)
Investment grade corporate		1,463			359		1,104
Wholesale and other		(59	)		4,392		(4,451	)
Total	$	30,365		$	54,181	$	(23,816	)

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 Item 1 of 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 Item 1 of this Quarterly Report on Form 10-Q.

During the nine months ended September 30, 2022, we recorded a loss of $4,642 related to the FGMC bankruptcy which was included as a reduction in net trading revenue. In the table above, $4,117 of that loss is included in mortgage group and $525 is included in the matched book repo group. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

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Asset 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 within our investment agreements.

	As of September 30,				As of December 31,
	2022		2021		2021		2020
Company sponsored CDOs	$	1,158,911	$	1,247,779	$	1,239,988	$	2,057,178
Other Investment Vehicles (1)		993,423		993,025		1,118,162		712,028
Assets under management (2)	$	2,152,334	$	2,240,804	$	2,358,150	$	2,769,206

(1) Other Investment Vehicles represent any investment vehicles that are not company sponsored CDOs.

(2) In some cases, accounts we manage may employ leverage. In some cases, our fees are based on gross assets and in some cases on net assets. Finally, in the case of the CREO JV and the SPAC Series Funds there are no management fees earned. AUM included herein is calculated using either gross or net assets of each managed account or CDO based on whichever serves as the basis for our management fees. In the case where no management fees are earned, the net assets are included.

Asset management fees increased by $1,456 or 25% to $7,243 for the nine months ended September 30, 2022 from $5,787 for the nine months ended September 30, 2021, 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,
	2022		2021		Change
CDOs	$	3,035	$	1,978	$	1,057
Other		4,208		3,809		399
Total	$	7,243	$	5,787	$	1,456

Asset management fees from CDOs increased due to the payment of deferred subordinated fees we received as a result of the successful auction of one CDO in September 2022. Asset management fees from other increased due to an increase in fees from an increase in fees earned from the US Insurance JV and PriDe funds partially offset by a reduction in fees earned from the SPAC Fund.

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New Issue and Advisory

New issue and advisory revenue increased by $8,959 to $20,486 for the nine months ended September 30, 2022, as compared to $11,527 for the nine months ended September 30, 2021. The following table summarizes new issue revenue by business line.

	For the Nine Months Ended
	2022		2021		Change
Cohen & Company Capital Markets	$	13,980	$	7,574	$	6,406
Commercial Real Estate Originations		1,753		1,940		(187	)
US Insurance Originations		4,753		2,013		2,740
Total	$	20,486	$	11,527	$	8,959

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.

Cohen & Company Capital Markets, a division of JVB, is our full-service boutique investment banking platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, which generates new issue placement and advisory revenue from clients primarily in the financial technology (commonly referred to as "fintech") and SPAC spaces, further expanding our SPAC capabilities. In addition, we generate new issue revenue by originating new assets for the U.S. Insurance JV, CREO JV, and for our PriDe funds in Europe.

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Principal Transactions and Other Income (Loss)

Principal transactions and other income (loss) decreased by $73,988 or 155%, to ($26,157) for the nine months ended September 30, 2022, as compared to $47,831 for the nine months ended September 30, 2021. The following table summarizes principal transactions and other income by category.

PRINCIPAL TRANSACTIONS & OTHER INCOME
(Dollars in Thousands)

	Nine Months Ended September 30,
	2022			2021			Change
SFT	$	(4,634	)	$	1,001		$	(5,635	)
LMND		(2,458	)		46,033			(48,491	)
IMXI		-			318			(318	)
WEJO		(1,605	)		-			(1,605	)
REE		(4,536	)		(4,571	)		35
ML		(228	)		(646	)		418
BKSY		(79	)		70			(149	)
HLGN		(14,167	)		-			(14,167	)
PAYO		(386	)		(139	)		(247	)
PWP		(497	)		366			(863	)
FOXO		(786	)		-			(786	)
ACHR		(72	)		-			(72	)
SPAC Fund		(57	)		429			(486	)
US Insurance JV		(34	)		275			(309	)
CREO JV		282			-			282
FlipOs		4,196			1,805			2,391
Other principal investments		(1,935	)		2,068			(4,003	)
Total principal transactions		(26,996	)		47,009			(74,005	)

IIFC revenue share		534			526			8
All other income / (loss)		305			296			9
Other income		839			822			17

Principal transactions and other income (loss)	$	(26,157	)	$	47,831		$	(73,988	)

Principal Transactions

For all investments discussed below, 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.

SFT represents equity positions in Shift Technologies, Inc. (NASDAQ: SFT). The shares of SFT we hold are comprised of both unrestricted and restricted shares and are carried at fair value. As of the beginning of 2021, we held most of our SFT shares in the Insurance SPAC Sponsor Entities, which were not wholly owned subsidiaries of the Operating LLC. As of September 30, 2022, all SFT shares held by us were held by the Operating LLC. See non-controlling interest discussion below. As of September 30, 2022, we had total investments in SFT carried at fair value of $1,166, which is included as a component of other investments, at fair value.

LMND represents equity positions in Lemonade, Inc. (NASDAQ: LMND). Prior to LMNDs business combination with Metromile (NASDAQ: MILE), this represented shares of MILE. Upon completion of the business combination of LMND and MILE, we received shares of LMND in exchange for our shares of MILE. The shares of LMND we hold are comprised of unrestricted shares and are carried at fair value. As of the beginning of 2021, we held most of our LMND shares (at the time, MILE shares) in the Insurance SPAC II Sponsor Entities, which were not wholly owned subsidiaries of the Operating LLC. As of September 30, 2022, all LMND shares held by us were held by the Operating LLC. See compensation and non-controlling interest discussions below. As of September 30, 2022 we had total investments in LMND carried at fair value of $1,821, which is included as a component of other investments, at fair value.

IMXI represents equity positions of International Money Express, Inc. (NASDAQ: IMXI), a publicly traded company that resulted from the merger of Intermex Holdings, LLC and FinTech Acquisition Corp. II. As of September 30, 2022, we held no investment in IMXI. This investment was carried at fair value.

WEJO represents equity positions of Wejo Group, Ltd. (NASDAQ: WEJO), a publicly traded company that closed its business combination with Virtuoso Acquisition Corp. As of September 30, 2022, we had an investment in WEJO of $313 carried at fair value and included as a component of other investments at fair value. We have investments in the sponsor of WEJO that are accounted for as equity method affiliates. See Income / (loss) from Equity Method Affiliates below and note 11 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

REE represents equity positions of REE Automotive Ltd. (NASDAQ: REE), a publicly traded company that closed its business combination with 10X Capital Venture Acquisition Corp. As of September 30, 2022, we had a total investment in REE carried at fair value of $511, which is included as a component of other investments at fair value.

ML represents equity positions of MoneyLion, Inc. (NYSE: ML), a publicly traded company that closed its business combination with Fusion Acquisition Corp. As of September 30, 2022, we had a total investment in ML carried at fair value of $35, which is included as a component of other investments at fair value.

BKSY represents equity positions of Blacksky Technologies, Inc (NYSE: BKSY) that closed its business combination with Osprey Technologies Acquisition Corp. As of September 30, 2022, we had a total investment in BKSY carried at fair value of $27, which is included as a component of other investments at fair value.

Heliogen, Inc. (NYSE: HLGN) is a public company that closed its business combination with Athena Technology Acquisition Corp. As of September 30, 2022, we had a total investment in HLGN carried at fair value of $940, which is included as a component of other investments at fair value.

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Payoneer Global, Inc. (NASDAQ: PAYO) is a public company that closed its business combination with FTAC Olympus Acquisition Corp. SPAC. As of September 30, 2022, we had a total investment in PAYO carried at fair value of $1,664, which is included as a component of other investments at fair value.

Parella Weinberg Partners (NASDAQ: PWP) is a public company that closed its business combination with FTAC IV Acquisition Corp. SPAC. As of September 30, 2022, we had a total investment in PWP carried at fair value of $155, which is included as a component of other investments at fair value.

FOXO Technologies Inc. (NASDAQ: FOXO) is a public company that closed its business combination with Delwinds Insurance Acquisition Corp. As of September 30, 2022, we had a total investment in FOXO carried at fair value of $367, which is included as a component of other investments at fair value.

Archer Aviation Inc. (NASDAQ: ACHR) is a public company that closed its business combination with Atlas Crest Investment Corp. As of September 30, 2022 we had a total investment in ACHR carried at fair value of $25, which is a included as a component of other investments at fair value.

The SPAC Fund invests in the equity of SPACs. We carry our investment in the fund at its reported NAV.

The US Insurance JV invests in insurance company debt. We carry our investment in the fund at its reported NAV.

CREO JV invests in commercial real estate debt. We carry our investment in the fund at its reported NAV.

FlipOs is a private company in which we own common equity. We carry our investment at fair value. See note 24 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Other principal investments consist of realized and unrealized gains and losses from other investments reported at fair value.

Other Income

Other income / (loss) is comprised of an ongoing revenue share arrangement as well as other miscellaneous operating income items. The revenue share arrangement noted in the table above entitles us to a percentage of revenue earned by IIFC. 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 $4,375. Also, in any particular year, the revenue share earned by us cannot exceed $2,000.

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Operating Expenses

Operating expenses decreased by $19,943 or 26% to $57,129 for the nine months ended September 30, 2022 from $77,072 for the nine months ended September 30, 2021. As discussed in more detail below, the change was comprised of (i) a decrease of $20,094 in compensation and benefits; (ii) an increase of $1,402 in business development, occupancy, and equipment; (iii) a decrease of $1,720 in subscriptions, clearing, and execution; (iv) an increase of $313 in professional fee and other operating; and (v) an increase of $156 in depreciation and amortization.

Compensation and Benefits

Compensation and benefits decreased by $20,094, or 33%, to $41,320 for the nine months ended September 30, 2022 from $61,414 for the nine months ended September 30, 2021.

COMPENSATION AND BENEFITS
(Dollars in Thousands)

	Nine Months Ended September 30,
	2022		2021		Change
Cash compensation and benefits	$	38,055	$	46,672	$	(8,617	)
Equity-based compensation		3,265		14,742		(11,477	)
Total	$	41,320	$	61,414	$	(20,094	)

Cash compensation and benefits in the table above was primarily comprised of salary, incentive compensation, and benefits. Cash compensation and benefits decreased by $8,617 to $38,055 for the nine months ended September 30, 2022 from $46,672 for the nine months ended September 30, 2021. The decrease was due to a decrease in incentive compensation that is tied to revenues and operating profitability, partially offset by increases related to the continued build out of the Cohen and Company Capital Markets team. Our total headcount increased from 115 at September 30, 2021 to 122 at September 30, 2022.

During the nine months ended September 30, 2022, we recorded a reduction in incentive compensation of $1,753 related to the FGMC bankruptcy. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Equity-based compensation decreased by $11,477, to $3,265 for the nine months ended September 30, 2022, as compared to $14,742 for the nine months ended September 30, 2021. The decrease was due to equity compensation related to Insurance SPAC II , which was recognized upon the completion of the merger between Insurance SPAC II and MILE and recorded in the nine months ended September 30, 2021.

Business Development, Occupancy, and Equipment

Business development, occupancy, and equipment increased by $1,402, or 59%, to $3,777 for the nine months ended September 30, 2022 from $2,375 for the nine months ended September 30, 2021. This increase was comprised of an increase of $636 of business development and an increase in $766 of occupancy and equipment. Business development in increased primarily due to increased levels of travel. Occupancy and equipment increased due to additional rent for space in our New York office.

Subscriptions, Clearing, and Execution

Subscriptions, clearing, and execution decreased by $1,720, or 22% to $6,025 for the nine months ended September 30, 2022 from $7,745 for the nine months ended September 30, 2021. The decrease was comprised of a decrease in clearing and execution of $2,060; partially offset by an increase in subscriptions of $340. The decrease in clearing and execution was due to the result of reduced new issue costs and the wind down of our GCF repo business. The increase in subscriptions is primarily due to increased headcount.

Professional Fee and Other Operating Expenses

Professional fee and other operating expenses increased by $313,or 6% to $5,593 for the nine months ended September 30, 2022 from $5,280 for the nine months ended September 30, 2021. This increase was comprised of an increase in professional fees of $413; partially offset by a decrease in other operating of $100. Professional fees increased due to increased legal and tax prep fees. Other operating expense decreased due to lower non-income based taxes.

During the nine months ended September 30, 2022, we recorded legal expenses of $190 related to the FGMC bankruptcy. This amount is included in professional fees. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q .

Depreciation and Amortization

Depreciation and amortization increased by $156 ,or 60% to $414 for the nine months ended September 30, 2022 from $258 for the nine months ended September 30, 2021. The increase was due to additional leasehold improvements in the Company's New York and California offices.

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Non-Operating Income and Expense

Interest Expense, net

Interest expense, net decreased by $1,724 to $3,803 for the nine months ended September 30, 2022 from $5,527 for the nine months ended September 30, 2021.

INTEREST EXPENSE
(Dollars in Thousands)

	Nine Months Ended September 30,
	2022		2021		Change
Junior subordinated notes	$	2,334	$	1,951	$	383
2020 Senior Notes		344		404		(60	)
2013 Convertible Notes / 2019 Senior Notes		-		210		(210	)
2017 Convertible Note		327		1,144		(817	)
Byline LOC		201		198		3
Redeemable Financial Instrument - DGC Trust / CBF		-		197		(197	)
Redeemable Financial Instrument - JKD Capital Partners I LTD		597		1,423		(826	)
	$	3,803	$	5,527	$	(1,724	)

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

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Income / (loss) from Equity Method Affiliates

Income / (loss) from equity method affiliates decreased by $22,042 to ($14,530) for the nine months ended September 30, 2022 from $7,512 for the nine months ended September 30, 2021. See note 11 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

	Nine Months Ended September 30,
	2022			2021			Change
Insurance SPACs	$	(1,142	)	$	(1,092	)	$	(50	)
Dutch Real Estate Entities		(495	)		(179	)		(316	)
Other SPAC Sponsor Entities		(12,893	)		8,783			(21,676	)
Total	$	(14,530	)	$	7,512		$	(22,042	)

SPAC Sponsor Entities includes both indirect and direct investments in SPAC Sponsor Entities. Several of these Sponsor Entities are invested in SPACs that have completed their business combinations. Those Sponsor Entities hold restricted and unrestricted equity interests in the public post-merger entities. We account for our investments in Sponsor Entities under the equity method of accounting. If the Sponsor Entity distributes SPAC shares to us, we account for those SPAC shares as a component of other investments, at fair value. The following table shows the equity method balance included in other SPAC Sponsor Entities above broken out by the ultimate public company investee.

	Nine Months Ended September 30,
	2022			2021			Change
HLGN	$	(10,558	)	$	(2	)	$	(10,556	)
WEJO		(2,182	)		(81	)		(2,101	)
DRTS		695			(1	)		696
PAYO		-			3,653			(3,653	)
PWP		(124	)		1,418			(1,542	)
ACHR		(217	)		1,136			(1,353	)
REE		-			3,002			(3,002	)
FOXO		1,096			(111	)		1,207
Other		(1,603	)		(231	)		(1,372	)
Total	$	(12,893	)	$	8,783		$	(21,676	)

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of HLGN was $0. However, during the periods presented we held HLGN shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of WEJO was $0. However, during the periods presented we held WEJO shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of DRTS was $696.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of PAYO was $0. However, during the periods presented we held PAYO shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of PWP was $80. However, during the periods presented we held PWP shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of ACHR was $0. However, during the periods presented we held ACHR shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of REE was $0. However, during the periods presented we held REE shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of FOXO was $110. However, during the periods presented we held FOXO shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

The remaining other investments in SPAC Sponsor Entities represent investments in sponsor entities who have not yet completed a business combination. See note 11 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q

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Other Non Operating Income / (Loss)

We recorded other non-operating income of $2,127 for the nine months ended September 30, 2021 as the result of the forgiveness of our PPP loan. See note 17 to our consolidated financial statements included in item 1 of this quarterly Report on Form 10-Q.

Income Tax Expense / (Benefit)

The income tax expense / (benefit) increased by $2,957 to income tax expense / (benefit) of $3,534 for the nine months ended September 30, 2022 from $577 for the nine months ended September 30, 2021. The increase was primarily due to an increase in the valuation allowance related to our NOL carryforward assets recorded in the nine months ended September 30, 2022. This increase of the valuation allowance was recorded as the result of two items: (i) the conversion of the 2017 convertible notes which occurred in March 2022 and resulted in a dilution of Cohen & Company Inc.'s share of the Operating LLC which reduced the expected amount of future income available to utilize these carryforward assets; and (ii) lower expectations about future taxable income realizable due to reduced operating performance during 2022.

Our provision for income taxes fluctuates due to several factors mostly attributable to our legal structure summarized as follows:

It is important to note that when evaluating our income tax expense or benefit (especially compared to other companies' expense or benefit) that substantially all of our operations occur in the Operating LLC. There are some local taxes and foreign taxes to which the Operating LLC or its subsidiaries are subject to, but the Operating LLC is generally treated as a pass-through entity and is not subject to U.S. federal or state income tax. Therefore, the members of the Operating LLC receive allocations of its income and are subject to U.S. federal and state taxes. For the current period, Cohen and Company Inc. was allocated 27.93% of income generated by the Operating LLC. To the extent Cohen and Company Inc. incurs tax obligations on this, the related tax expense is recognized in these consolidated financial statements. However, the remaining 72.07% that was allocated to the non-controlling members of the Operating LLC is subject to taxation on the members' tax returns. That tax obligation is not included in these consolidated financial statements.

We also have significant valuation allowances applied against our carryforward (NOL and NCL) deferred tax assets as well as our tax over book basis in the Operating LLC. Valuation allowances are applied to deferred tax assets when management determines that the assets may not be fully realized. This determination requires significant judgement and is primarily based on management's expectations regarding the generation of future taxable income. ASC 740 indicates that all available evidence should be considered when assessing the need for and the appropriate level of a valuation allowance. All available evidence includes historical information supplemented by all currently available information about future years. Our earnings are very volatile which makes this determination especially difficult. Although we will make adjustments to these valuations allowances throughout the year as appropriate, our actual results for any particular fiscal year provide the best evidence of our ability to generate future taxable income. We give more weight to the full year results in making our estimates of future taxable income as compared to quarterly earnings which are even more volatile than our annual results. Therefore, we may have significant adjustments to our valuation allowances (and therefore our income tax expenses or benefit) which may be recorded in the fourth quarter of any particular fiscal year.

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

Net income / (loss) attributable to the non-convertible non-controlling interest for the nine months ended September 30, 2022 and 2021 was comprised of the non-controlling interest related to member interests in consolidated subsidiaries of the Operating LLC other than interests held by us for the relevant periods. These interests are not convertible into Common Stock.

SUMMARY CALCULATION OF NON-CONVERTIBLE NON-CONTROLLING INTEREST

For the Nine Months Ended September 30, 2022

	Nine Months Ended September 30,
	2022			2021			Change
Insurance SPAC Sponsor Entities	$	-		$	3,560		$	3,560
Insurance II SPAC Sponsor Entities		-			17,644			17,644
Insurance III SPAC Sponsor Entities		(598	)		(506	)		92
SPAC Pipe Entities		(2,250	)		(2,659	)		(409	)
Other SPAC Sponsor Investor		(16,132	)		(197	)		15,935
Other		-			(5	)		(5	)
Total	$	(18,980	)	$	17,837		$	36,817

Insurance SPAC Sponsor Entities, Insurance SPAC II Sponsor Entities, and Insurance SPAC III Sponsor Entities are the Sponsor Entities formed by us for these SPACs. SPAC Pipe Entities are entities which themselves invest in Pipe's (Private Investment in Public Equity) of post business combination SPACs. Other SPAC Sponsor Investor represents an entity which we consolidate but do not wholly own that invests in other SPAC Sponsor Entities.

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

Net income / (loss) attributable to the convertible non-controlling interest for the nine months ended September 30, 2022 and 2021 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. These interests are convertible into Common Stock. See note 21 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

SUMMARY CALCULATION OF CONVERTIBLE NON-CONTROLLING INTEREST

For the Nine Months Ended September 30, 2022

	Total Operating LLC			Cohen &
	Consolidated			Company Inc.			Consolidated
Net income / (loss) before tax	$	(43,525	)	$	-		$	(43,525	)
Income tax expense / (benefit)		2			3,532			3,534
Net income / (loss) after tax		(43,527	)		(3,532	)		(47,059	)
Other consolidated subsidiary non-controlling interest		(18,980	)
Net income / (loss) attributable to the Operating LLC		(24,547	)
Average effective Operating LLC non-controlling interest % (1)		72.07	%
Convertible non-controlling interest	$	(17,691	)

SUMMARY CALCULATION OF NON-CONTROLLING INTEREST

For the Nine Months Ended September 30, 2021

	Total Operating LLC			Cohen &
	Consolidated			Company Inc.			Consolidated
Net income / (loss) before tax	$	46,366		$	-		$	46,366
Income tax expense / (benefit)		108			469			577
Net income / (loss) after tax		46,258			(469	)		45,789
Other consolidated subsidiary non-controlling interest		17,837
Net income / (loss) attributable to the Operating LLC		28,421
Average effective Operating LLC non-controlling interest % (1)		71.43	%
Operating LLC non-controlling interest	$	20,301

(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.

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Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The following table sets forth information regarding our consolidated results of operations for the three months ended September 30, 2022 and 2021.

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

	Three Months Ended September 30,						Favorable / (Unfavorable)
	2022			2021			$ Change			% Change
Revenues
Net trading	$	7,966		$	16,599		$	(8,633	)		(52	%)
Asset management		3,456			1,856			1,600			86	%
New issue and advisory		13,235			8,838			4,397			50	%
Principal transactions and other income (loss)		(1,192	)		(20,709	)		19,517			94	%
Total revenues		23,465			6,584			16,881			256	%

Operating expenses
Compensation and benefits		15,227			20,577			5,350			26	%
Business development, occupancy, equipment		1,234			869			(365	)		(42	%)
Subscriptions, clearing, and execution		2,112			2,581			469			18	%
Professional fee and other operating		1,905			1,585			(320	)		(20	%)
Depreciation and amortization		139			90			(49	)		(54	%)
Total operating expenses		20,617			25,702			5,085			20	%

Operating income / (loss)		2,848			(19,118	)		21,966			115	%

Non-operating income / (expense)

Interest expense, net		(1,346	)		(1,731	)		385			22	%
Income / (loss) from equity method affiliates		618			2,857			(2,239	)		(78	%)
Other non operating income		-			-			-			NM
Income / (loss) before income taxes		2,120			(17,992	)		20,112			112	%
Income tax expense / (benefit)		1,761			(248	)		(2,009	)		(810	%)
Net income / (loss)		359			(17,744	)		18,103			102	%
Less: Net income (loss) attributable to the non-convertible non-controlling interest		(109	)		(3,094	)		(2,985	)		(96	%)
Enterprise net income / (loss)		468			(14,650	)		15,118			103	%
Less: Net income (loss) attributable to the convertible non-controlling interest		1,387			(11,221	)		(12,608	)		(112	%)
Net income / (loss) attributable to Cohen & Company Inc.	$	(919	)	$	(3,429	)		2,510			73	%

Revenues

Revenues increased by $16,881 or 256% to $23,465 for the three months ended September 30, 2022 from $6,584 for the three months ended September 30, 2021. As discussed in more detail below, the change was comprised of (i) a decrease of $8,633 in net trading revenue; (ii) an increase of $1,600 in asset management revenue; (iii) an increase in new issue and advisory of $4,397; and (iv) an increase of $19,517 in principal transactions and other income.

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Net Trading

Net trading revenue decreased by $8,633 or 52%, to $7,966 for the three months ended September 30, 2022 from $16,599 for the three months ended September 30, 2021. The following table shows the detail by group.

NET TRADING
(Dollars in Thousands)

	Three Months Ended September 30,
	2022			2021		Change
Mortgage	$	(2,529	)	$	1,433	$	(3,962	)
Matched book repo		6,672			11,567		(4,895	)
High yield corporate		1,444			2,470		(1,026	)
Investment grade corporate		595			158		437
Wholesale and other		1,784			971		813
Total	$	7,966		$	16,599	$	(8,633	)

During the three months ended September 30, 2022, we recorded a loss of $4,642 related to the FGMC bankruptcy which was included as a reduction in net trading revenue. In the table above, $4,117 of that loss is included in mortgage group and $525 is included in the matched book repo group. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

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Asset Management

	As of September 30,				As of December 31,
	2022		2021		2021		2020
Company sponsored CDOs	$	1,158,911	$	1,247,779	$	1,239,988	$	2,057,178
Other Investment Vehicles (1)		993,423		993,025		1,118,162		712,028
Assets under management (2)	$	2,152,334	$	2,240,804	$	2,358,150	$	2,769,206

(1) Other Investment Vehicles represent any investment vehicles that are not company sponsored CDOs.

(2) In some cases, accounts we manage may employ leverage. Further, in some cases, our fees are based on gross assets and in other cases, our fees are based on net assets. Finally, in the case of the CREO JV and the SPAC Series Funds there are no management fees earned. AUM included herein is calculated using either gross or net assets of each managed account or CDO based on whichever serves as the basis for our management fees. In the case where no management fees are earned, the net assets are included.

Asset management fees increased by $1,600, or 86%, to $3,456 for the three months ended September 30, 2022 from $1,856 for the three months ended September 30, 2021, 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,
	2022		2021		Change
CDOs	$	2,049	$	545	$	1,504
Other		1,407		1,311		96
Total	$	3,456	$	1,856	$	1,600

Asset management fees from CDOs increased due to the payment of deferred subordinated fees received by the Company as a result of the successful auction of one CDO during September 2022. Asset management fees from other increased due to an increase in fees from an increase in fees earned from the US Insurance JV and PriDe funds partially offset by a reduction in fees earned from the SPAC Fund.

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New Issue and Advisory

New issue and advisory revenue increased by $4,397 to $13,235 for the three months ended September 30, 2022, as compared to $8,838 for the three months ended September 30, 2021. The following table summarizes new issue revenue by business line.

	Three Months Ended September 30,
	2022		2021		Change
Cohen & Company Capital Markets	$	10,475	$	7,173	$	3,302
Commercial Real Estate Originations		-		740		(740	)
US Insurance Originations		2,760		925		1,835
Total	$	13,235	$	8,838	$	4,397

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Principal Transactions and Other Income (Loss)

Principal transactions and other income (loss) increased by $19,517, or 94%, to ($1,192) for the three months ended September 30, 2022, as compared to ($20,709) for the three months ended September 30, 2021. The following table summarizes principal transactions and other income by category.

PRINCIPAL TRANSACTIONS & OTHER INCOME
(Dollars in Thousands)

	Three Months Ended September 30,
	2022			2021			Change
SFT		44			(3,121	)		3,165
LMND		684			(14,349	)		15,033
IMXI		-			509			(509	)
WEJO		11			-			11
REE		(363	)		(4,571	)		4,208
ML		(11	)		(646	)		635
BKSY		-			70			(70	)
HLGN		(145	)		-			(145	)
PAYO		586			(398	)		984
PWP		14			(63	)		77
FOXO		(785	)		-			(785	)
ACHR		(16	)		-			(16	)
SPAC Fund		6			(38	)		44
US Insurance JV		76			16			60
CREO JV		164			-			164
FlipOs		-			1,805			(1,805	)
Other principal investments		(1,767	)		(250	)		(1,517	)
Total principal transactions		(1,502	)		(21,036	)		19,534

IIFC revenue share		191			251			(60	)
All other income / (loss)		119			76			43
Other income		310			327			(17	)

Principal transactions and other income (loss)	$	(1,192	)	$	(20,709	)	$	19,517

Principal Transactions

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Parella Weinberg Partners (NASDAQ: PWP) is a public company that closed its business combination with FTAC IV Acquisition Corp. SPAC. As of September 30, 2022, we had a total investment in PWP carried at fair value of $55, which is included as a component of other investments at fair value.

The SPAC Fund invests in the equity of SPACs. We carry our investment in the fund at its reported NAV.

The US Insurance JV invests in insurance company debt. We carry our investment in the fund at its reported NAV.

CREO JV invests in commercial real estate debt. We carry our investment in the fund at its reported NAV.

Other principal investments consist of realized and unrealized gains and losses from other investments reported at fair value.

Other Income

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Operating Expenses

Operating expenses decreased by $5,085, or 20%, to $20,617 for the three months ended September 30, 2022 from $25,702 for the three months ended September 30, 2021. As discussed in more detail below, the change was comprised of (i) a decrease of $5,350 in compensation and benefits; (ii) an increase of $365 in business development, occupancy, and equipment; (iii) a decrease of $469 in subscriptions, clearing, and execution; (iv) an increase of $320 in professional fee and other operating; and (v) an increase of $49 in depreciation and amortization.

Compensation and Benefits

Compensation and benefits decreased by $5,350, or 26%, to $15,227 for the three months ended September 30, 2022 from $20,577 for the three months ended September 30, 2021.

COMPENSATION AND BENEFITS
(Dollars in Thousands)

	Three Months Ended September 30,
	2022		2021		Change
Cash compensation and benefits	$	14,147	$	20,002	$	(5,855	)
Equity-based compensation		1,080		575		505
Total	$	15,227	$	20,577	$	(5,350	)

Cash compensation and benefits in the table above was primarily comprised of salary, incentive compensation, and benefits. Cash compensation and benefits decreased by $5,855 to $14,147 for the three months ended September 30, 2022 from $20,002 for the three months ended September 30, 2021. The decrease was due to a decrease in incentive compensation that is tied to revenues and operating profitability, partially offset by increases related to the continued build out of the Cohen and Company Capital Markets team. Our total headcount increased from 115 at September 30, 2021 to 122 at September 30, 2022.

During the three months ended September 30, 2022, we recorded a reduction in incentive compensation of $1,753 related to the FGMC bankruptcy. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Equity-based compensation increased by $505, to $1,080 for the three months ended September 30, 2022, as compared to $575 for the three months ended September 30, 2021. The increase was due to additional equity grants to employees.

Business Development, Occupancy, and Equipment

Business development, occupancy, and equipment increased by $365, or 42%, to $1,234 for the three months ended September 30, 2022 from $869 for the three months ended September 30, 2021. This increase was comprised of an increase in business development of $188 and an increase in occupancy and equipment of $177. Business development in increased primarily due to increased levels of travel. Occupancy and equipment increased due to additional rent for space in our New York office.

Subscriptions, Clearing, and Execution

Subscriptions, clearing, and execution decreased by $469, or 18%, to $2,112 for the three months ended September 30, 2022 from $2,581 for the three months ended September 30, 2021. This decrease was comprised of a decrease in clearing and execution of $536; partially offset by an increase in subscriptions of $67. The decrease in clearing and execution was due to the result of reduced new issue costs and the wind down of our GCF repo business. The increase in subscriptions is primarily due to increased headcount.

Professional Fee and Other Operating Expenses

Professional fee and other operating expenses increased by $320, or 20%, to $1,905 for the three months ended September 30, 2022 from $1,585 for the three months ended September 30, 2021. This increase was comprised of an increase in professional fees of $382; partially offset by a decrease in other operating expense of $62. Professional fees increased due to increased legal and tax prep fees. Other operating expense decreased due to lower non-income based taxes.

During the three months ended September 30, 2022, we recorded legal expenses of $190 related to the FGMC bankruptcy. This amount is included in professional fees. See note 10 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q .

Depreciation and Amortization

Depreciation and amortization increased by $49, or 54%, to $139 for the three months ended September 30, 2022 from $90 for the three months ended September 30, 2021. The increase was due to additional leasehold improvements at the Company's New York and California offices.

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Non-Operating Income and Expense

Interest Expense, net

Interest expense, net decreased by $385, to $1,346 for the three months ended September 30, 2022 from $1,731 for the three months ended September 30, 2021.

INTEREST EXPENSE
(Dollars in Thousands)

	Three Months Ended September 30,
	2022		2021		Change
Junior subordinated notes	$	921	$	652	$	269
2020 Senior Notes		113		136		(23	)
2013 Convertible Notes / 2019 Senior Notes		-		67		(67	)
2017 Convertible Note		-		388		(388	)
Byline LOC		67		67		-
Redeemable Financial Instrument - JKD Capital Partners I LTD		245		421		(176	)
	$	1,346	$	1,731	$	(385	)

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

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Income / (loss) from Equity Method Affiliates

Income / (loss) from equity method affiliates decreased by $2,239 to $618 for the three months ended September 30, 2022 from $2,857 for the three months ended September 30, 2021. See note 11 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

	Three Months Ended September 30,
	2022			2021			Change
Insurance SPACs	$	(186	)	$	(296	)	$	110
Dutch Real Estate Entities		(230	)		(96	)		(134	)
Other SPAC Sponsor Entities		1,034			3,249			(2,215	)
Total	$	618		$	2,857		$	(2,239	)

	Three Months Ended September 30,
	2022			2021			Change
WEJO		(54	)		(28	)		(26	)
DRTS		(378	)		-			(378	)
PAYO		-			(630	)		630
PWP		8			72			(64	)
ACHR		12			1,138			(1,126	)
REE		-			3,013			(3,013	)
FOXO		1,157			(34	)		1,191
Other		289			(282	)		571
Total	$	1,034		$	3,249		$	(2,215	)

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of WEJO was $0. However, during the periods presented we held HLGN shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of DRTS was $696.

As of September 30, 2022, our equity method investment in sponsor entity of the predecessor SPAC of FOXO was $0. However, during the periods presented we held FOXO shares as a component of other investments, at fair value as of September 30, 2022. See Principal Transactions above and note 8 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

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Income Tax Expense / (Benefit)

The income tax expense / (benefit) increased by $2,009 to income tax expense / (benefit) of $1,761 for the three months ended September 30, 2022 from ($248) for the three months ended September 30, 2021. The increase was primarily due to an increase in the valuation allowance related to our NOL carryforward assets recorded in the three months ended September 30, 2022 This increase of the valuation allowance was recorded as the result of lower expectations about future taxable income realizable due to reduced operating performance during 2022.

Our provision for income taxes fluctuates due to several factors mostly attributable to our legal structure summarized as follows:

It is important to note that when evaluating our income tax expense or benefit (especially compared to other companies' expense or benefit) that substantially all of our operations occur in the Operating LLC. There are some local taxes and foreign taxes to which the Operating LLC or its subsidiaries are subject to, but the Operating LLC is generally treated as a pass-through entity and is not subject to U.S. federal or state income tax. Therefore, the members of the Operating LLC receive allocations of its income and are subject to U.S. federal and state taxes. For the current period, Cohen and Company Inc. was allocated 37.38% of the income generated by the Operating LLC. To the extent Cohen and Company Inc. incurs tax obligations on this, the related tax expense is recognized in these consolidated financial statements. However, the remaining 62.62% that was allocated to the non-controlling members of the Operating LLC is subject to taxation on the members' tax returns. That tax obligation is not included in these consolidated financial statements.

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

Net income / (loss) attributable to the non-convertible non-controlling interest for the three months ended September 30, 2022 and 2021 was comprised of the non-controlling interest related to member interests in consolidated subsidiaries of the Operating LLC other than interests held by us for the relevant periods. These interests are not convertible into Common Stock.

SUMMARY CALCULATION OF NON-CONVERTIBLE NON-CONTROLLING INTEREST

For the Three Months Ended September 30, 2022

	Three Months Ended September 30,
	2022			2021			Change
Insurance III SPAC Sponsor Entities	$	(116	)	$	(149	)	$	(33	)
SPAC Pipe Entities		21			(2,751	)		(2,772	)
Other SPAC Sponsor Investor		(14	)		(194	)		(180	)
Total	$	(109	)	$	(3,094	)	$	(2,985	)

Insurance SPAC III Sponsor Entities are the Sponsor Entities formed by us for the Insurance SPAC III. SPAC Pipe Entities are entities which themselves invest in Pipe's (Private Investment in Public Equity) of post business combination SPACs. Other SPAC Sponsor Investor represents an entity which we consolidate but do not wholly own that invests in other SPAC Sponsor Entities.

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

Net income / (loss) attributable to the convertible non-controlling interest for the three months ended September 30, 2022 and 2021 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. These interests are convertible into Common Stock. See note 21 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

SUMMARY CALCULATION OF CONVERTIBLE NON-CONTROLLING INTEREST

For the Three Months Ended September 30, 2022

	Total Operating LLC			Cohen &
	Consolidated			Company Inc.			Consolidated
Net income / (loss) before tax	$	2,120		$	-		$	2,120
Income tax expense / (benefit)		14			1,747			1,761
Net income / (loss) after tax		2,106			(1,747	)		359
Other consolidated subsidiary non-controlling interest		(109	)
Net income / (loss) attributable to the Operating LLC		2,215
Average effective Operating LLC non-controlling interest % (1)		62.62	%
Operating LLC non-controlling interest		1,387

SUMMARY CALCULATION OF NON-CONTROLLING INTEREST

For the Three Months Ended September 30, 2021

	Total Operating LLC			Cohen &
	Consolidated			Company Inc.			Consolidated
Net income / (loss) before tax	$	(17,992	)	$	-		$	(17,992	)
Income tax expense / (benefit)		(138	)		(110	)		(248	)
Net income / (loss) after tax		(17,854	)		110			(17,744	)
Other consolidated subsidiary non-controlling interest		(3,094	)
Net income / (loss) attributable to the Operating LLC		(14,760	)
Average effective Operating LLC non-controlling interest % (1)		76.02	%
Operating LLC non-controlling interest		(11,221	)

(1)

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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 and French 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 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 a distribution or a loan. CCFESA is subject to the regulations of the ACPR. ACPR imposes minimum capital requirements. See note 25 to our consolidated financial statements included in our Annual Report for the year ended December 31, 2021 on Form 10-K.

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 July 29, 2021, our board of directors reinstated our quarterly dividend declaring a cash dividend of $0.25 per share. We have paid a quarterly cash dividend of $0.25 regularly since that date. In addition to our routine quarterly distribution, on March 8, 2022, our board of directors declared a special cash dividend of $0.75 per share. On November 2, 2022, our board of directors declared a quarterly dividend of $0.25 per share payable on December 2, 2022 to shareholders of record on November 18, 2022.

During the three and nine months ended September 30, 2021, we repurchased 10,490 shares and 49,544 shares of Common Stock in the open market pursuant to the December 2020 Letter Agreement for a total purchase price of $187 and $857, respectively. During the three and nine months ended September 30, 2022, no shares were repurchased. All of the repurchases were completed using cash on hand. The December 2020 Letter Agreement expired on December 31, 2021.

On December 1, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Northland Securities, Inc. (trade name Northland Capital Markets), as sales agent (the “Sales Agent”), relating to the issuance and sale from time to time by the Company (the “ATM Program”), through the Sales Agent, of shares of the Company's Common Stock, having an aggregate offering price of up to $75,000 (collectively the “Shares”). Sales of the Shares, if any, under the Equity Agreement will be made in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act as agreed with the Sales Agent.

On June 7, 2021, the Company entered into a letter agreement (the “Equity Distribution Letter Agreement”) with the Sales Agent, pursuant to which the Sales Agent agreed to use its best efforts to, commencing on June 5, 2021, sell on the Company’s behalf up to $7,966 of the Shares in the open market pursuant to the terms and conditions of the Equity Distribution Agreement and the Equity Distribution Letter Agreement, and the Company agreed not to take any action that would cause the sales of the Shares under the Letter Agreement not to comply with Rule 10b5-1 or Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Equity Distribution Letter Agreement was entered into in connection with the ATM Program and is designed to comply with Rule 10b5-1 under the Exchange Act.

During the three and nine months ended September 30, 2021, the Company sold 198,700 and 300,849 shares in the open market pursuant to the Equity Agreement for a total net sale price of $6,403 and $9,076 respectively. No shares were sold during 2022.

During the nine months ended September 30, 2022 and 2021, we had the following other significant financing transactions. This excludes non-cash transactions. See note 23 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

During the nine months ended September 30, 2022:

	●	We issued a new 2020 Senior Note for $2,250 and used the proceeds to pay off an existing 2020 Senior Note.
	●	We paid dividends of $2,201 on our Common Stock
	●	We made distributions to the convertible non-controlling interest of $5,535
	●	We made distributions to the non-convertible non-controlling interest of $2,236.

During the nine months ended September 30, 2021:

	●	We repaid $2,400 of the 2019 Senior Note
	●	We repaid $4,000 of redeemable financial instruments.
	●	We raised $9,552 from the issuance of equity of other consolidated subsidiaries.
	●	We made distributions to the non-convertible non controlling interest of $1,926.
	●	We paid dividends of $339 on our Common Stock
	●	We made distributions to the convertible non-controlling interest of $725.
	●	We made distributions to the non-convertible non-controlling interest of $1,926

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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 (including sponsor and other investments in SPACs) 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. We sometimes pay quarterly and special dividends. When we pay a dividend, a pro rata distribution is paid to the other members of the Operating LLC upon the payment of any dividends to stockholders of Cohen & Company Inc.
(6)	To fund potential repurchases of Common Stock. The Company has opportunistically repurchased Common Stock in private transactions as well as through its 10b5-1 Plan. See note 17 to our consolidated financial statements included in Item 1 of 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 Item 1 of 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, 2022 and December 31, 2021, we maintained cash and cash equivalents of $ 47,287 and $ 50,567, respectively. We generated cash from or used cash for the following activities.

SUMMARY CASH FLOW INFORMATION
(Dollars in Thousands)

.	Nine Months Ended September 30,
	2022			2021
Cash flow from operating activities	$	4,247		$	(2,969	)
Cash flow from investing activities		3,176			(4,906	)
Cash flow from financing activities		(10,197	)		8,004
Effect of exchange rate on cash		(506	)		(295	)
Net cash flow		(3,280	)		(166	)
Cash and cash equivalents, beginning		50,567			41,996
Cash and cash equivalents, ending	$	47,287		$	41,830

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.

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Nine Months Ended September 30, 2022

As of September 30, 2022, our cash and cash equivalents were $ 47,287, representing a decrease of $ 3,280 from December 31, 2021. The decrease was attributable to cash provided by operating activities of $ 4,247, cash provided by investing activities of $ 3,176, cash used in financing activities of $ 10,197, and a decrease in cash caused by the change in exchange rates of $ 506.

The cash provided by operating activities of $ 4,247 was comprised of (a) net cash outflows of $ 11,544 related to working capital fluctuations; (b) net cash inflows of $ 13,840 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 inflows from other earnings items of $ 1,951 (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, income from equity method affiliates, equity based compensation, depreciation and amortization, deferred taxes, and amortization of discount on debt).

The cash provided by investing activities of $ 3,176 was comprised of (a) $15,791 of cash inflows from sales and returns of principal from other investments, at fair value; (b) $3,054 of cash inflows from sales and returns of principal from other investments sold, not yet purchased at fair value; and (c) $75 in distributions received from equity method affiliates; partially offset by (d) $8,651 in cash used to purchase other investments, at fair value; (e) $5,994 in cash used to purchase other investments sold, not yet purchased at fair value, (f) $617 in cash invested in equity method affiliates and (g) $482 in cash used to purchase furniture, equipment, and leasehold improvements.

The cash used in financing activities of $ 10,197 was comprised of (a) $2,250 in cash used to repay debt; (b) $234 in cash used to settle equity awards; (c) $2,201 in cash used to pay dividends; (d) $5,535 in cash used to pay distributions to the convertible non-controlling interest; and (e) $2,236 in cash used to pay distributions to the non-convertible non-controlling interest; partially offset by (f) $9 in contributions received from non-convertible non-controlling interests; and (g) $2,250 in cash proceeds from debt.

Nine Months Ended September 30, 2021

As of September 30, 2021, our cash and cash equivalents were $ 41,830, representing a decrease of $ 166 from December 31, 2020. The decrease was attributable to cash used in operating activities of $ 2,969, cash used in investing activities of $ 4,906, cash provided by financing activities of $ 8,004, and a decrease in cash caused by the change in exchange rates of $ 295.

The cash used in operating activities of $ 2,969 was comprised of (a) net cash inflows of $ 512 related to working capital fluctuations; (b) net cash outflows of $ 7,910 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 inflows from other earnings items of $ 4,429 (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, income from equity method affiliates, equity based compensation, depreciation and amortization, deferred taxes, and amortization of discount on debt).

The cash used in investing activities of $ 4,906 was comprised of (a) 88,012 of purchases of other investments, at fair value; (b) $56,243 of purchases of other investments sold, not yet purchased, at fair value; (c) $1,537 of investments in equity method affiliates, (d) $679 of purchases of furniture, equipment, and leasehold improvements; partially offset by (e) $87,614 of sales and returns of principal of other investments, at fair value and (f) $53,951 of sales and returns of principal of other investments sold, not yet purchased, at fair value.

The cash provided by financing activities of $ 8,004 was comprised of (a) $9,076 in proceeds from issuance of Common Stock, (b) $9,552 of proceeds from issuance of non-controlling interests; partially offset by (c) $2,400 of repayment of debt; (d) $4,000 in repayment of redeemable financial instruments; (e) $378 in cash used to net settle equity awards; (f) $856 in cash used to purchase and retire Common Stock; (g) $1,926 in cash used for non-controlling interest distributions for other consolidated subsidiaries; (h) $725 in cash used to issue non-controlling interest distributions of the Operating LLC; and (i) $339 in cash used to pay dividends.

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Note Regarding Collateral Deposits and Impact on Operating Cash Flow

As part of our matched book repo operations, we enter into reverse repos with counterparties whereby we lend money and receive securities as collateral. In accordance with ASC 860, the collateral securities are not recorded in our consolidated balance sheets. However, from time to time we will hold cash instead of securities as collateral for these transactions. When we are provided cash as collateral for reverse repo transactions, we will make an entry to increase our cash and cash equivalents and to increase our other liabilities for the amount of cash received. There are two main reasons we may receive collateral in the form of cash as opposed to securities. First, when the value of the collateral securities we have in our possession decline, we will require the counterparty to provide us with additional collateral. We will accept either cash or additional liquid securities. Often, our counterparties will provide us with cash as they may not have liquid securities readily available. Second, from time to time, our counterparties require a portion of the collateral securities in our possession returned to them for operating purposes. In such instances, the counterparty may not have substitute liquid securities available and will often provide us with cash as collateral instead. It is important to note that when we receive cash as collateral, it is temporary in nature and we have an obligation to return that cash when the counterparty provides substitute liquid securities as collateral or otherwise satisfies their associated reverse repo obligation. We are generally required to return any cash collateral the same business day that we receive substitute securities. The amount of cash we receive as collateral for our repo operations is volatile and therefore, both our cash and cash equivalents balance and our cash provided by and used in operations are volatile as they are both impacted. These amounts can be large and should be taken into account when analyzing our cash flow from operations.

The following table shows the impact of changes in these collateral deposits had on our cash flows in each period presented:

	Nine Months Ended September 30,
	2022		2021
Collateral deposit end of period	$	22,788	$	40,465
Less: Collateral deposit beginning of period		17,320		41,119
Impact to cash flow from operations	$	5,468	$	(654	)

Regulatory Capital Requirements

We have two subsidiaries that are licensed securities dealers: JVB in the United States and CCFESA in France. As a U.S. broker-dealer, JVB is subject to the Uniform Net Capital Rule in Rule 15c3-1 under the Exchange Act. Our French-based subsidiary, CCFESA, is subject to the regulatory supervision and requirements of the ACPR. 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, 2022 were as follows.

MINIMUM NET CAPITAL REQUIREMENTS
(Dollars in Thousands)

United States	$	250
Europe		470
Total	$	720

We operate with more than the minimum regulatory capital requirement in our licensed broker-dealers and at September 30, 2022, total net capital, or the equivalent as defined by the relevant statutory regulations, in our licensed broker-dealers totaled $49,291. 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.

Restrictions of Distributions of Capital from JVB

As of September 30, 2022, our total equity on a consolidated basis was $105,633. However, the total equity of JVB was $94,061. Of the $11,572 in equity outside of JVB, $4,240 represents non-convertible non-controlling interests comprised mainly of the non-controlling interests of Insurance SPAC III Sponsor Entities and other consolidated subsidiaries which cannot be utilized by the Operating LLC for other purposes.

From time to time, we may need to take distributions of income (and potentially returns of capital) from JVB to satisfy the cash needs as a result of the losses incurred outside of JVB or to satisfy other obligations that come due outside of JVB. However, we are subject to significant limitations on our ability to make distributions from JVB. These limitations include limitations imposed by FINRA under rule 15c3-1 (described immediately above) and limitations under our line of credit with Byline Bank (see note 16 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q). Furthermore, counterparties to JVB have their own internal counterparty credit requirements. The specific requirements are not generally shared with us. However, if we take too much in capital distributions from JVB (beyond its net income), we may not be able to trade with certain counterparties which may cause JVB’s operations to deteriorate.

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.

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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, 2022 and the twelve months ended December 31, 2021 for receivables under resale agreements and securities sold under agreements to repurchase.

	For the Nine Months Ended September 30, 2022		For the Twelve Months Ended December 31, 2021
Receivables under resale agreements
Period end		699,658		3,175,645
Monthly average		1,970,087		5,750,146
Maximum month end		3,006,658		7,299,538
Securities sold under agreements to repurchase
Period end		749,673		3,171,415
Monthly average		1,989,316		5,745,838
Maximum month end		3,002,514		7,289,275

Repo balances declined between December 31, 2021 and September 30, 2022 both because of reduced mortgage origination activity of our counterparties as well as certain reverse repo counterparties closing out existing repo trades with us and obtaining financing directly with third party lenders as part of our agency gestation business. See note 10. Fluctuations in the balance of our repurchase agreements from period to period and intra-period are dependent on business activity in those periods as well as the volume of our gestation trades that are structured. 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. See note 4 and 10 regarding wind down of GCF repo business.

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Debt Financing

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.

DETAIL OF DEBT

(Dollars in Thousands)

	As of			As of			Interest
Description	September 30, 2022			December 31, 2021			Rate Terms	Interest (3)	Maturity
Non-convertible debt:
10.00% senior note (the "2020 Senior Notes")	$	4,500		$	4,500		Fixed	10.00%	January 2024
Contingent convertible debt:
8.00% convertible senior note (the "2017 Convertible Note")		-			15,000		Fixed	8.00%	March 2023 (1)
Less unamortized debt issuance costs		-			(67	)
		-			14,933
Junior subordinated notes (2):
Alesco Capital Trust I		28,125			28,125		Variable	6.78%	July 2037
Sunset Financial Statutory Trust I		20,000			20,000		Variable	6.40%	March 2035
Less unamortized discount		(23,746	)		(24,164	)
		24,379			23,961

ByLine Bank		-			-		Variable	NA	December 2023
Total	$	28,879		$	43,394

(1)

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 membership interests of the Operating LLC at a conversion price of $1.45 per unit, subject to customary anti-dilution adjustments. Units of membership interests in 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 of membership interests and then redeemed and exchanged into Common Stock at an effective conversion price of $14.50. See note 20 to the Annual Report on Form 10-K for the year ended December 31, 2021. Effective March 20, 2022, the 2017 Note was converted into 10,344,827 units.

(2)

The junior subordinated notes listed represent debt the Company owes to the two trusts noted above. The total par amount owed by the Company to the trusts is $49,614. However, the Company owns the common stock of the trusts in a total par amount of $1,489. The Company pays interest (and at maturity, principal) to the trusts on the entire $49,614 junior notes outstanding. However, the Company receives back from the trusts the pro rata share of interest and principal on the common stock held by the Company. These trusts are VIEs and the Company does not consolidate them even though the Company holds the common stock. The Company carries the common stock on its balance sheet at a value of $0. The junior subordinated notes are recorded at a discount to par. When factoring in the discount, the yield to maturity of the junior subordinated notes as of September 30, 2022 on a combined basis was 15.41% assuming the variable rate in effect on the last day of the reporting period remains in effect until maturity.

(3)

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

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Redeemable Financial Instruments

As of September 30, 2022 and December 31, 2021, we had a redeemable financial instrument payable to JKD Capital Partners I LTD. See note 16 to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

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, 2022.

Contractual Obligations

The table below summarizes our significant contractual obligations as of September 30, 2022 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, 2022

(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		12,365		2,515		4,250		2,999		2,601
Maturity of 2020 Senior Notes (1)		4,500		-		4,500		-		-
Interest on 2020 Senior Notes (1)		677		450		227		-		-
Maturities on junior subordinated notes		48,125		-		-		-		48,125
Interest on junior subordinated notes (2)		48,565		3,472		6,945		6,945		31,203
Redeemable Financial Instrument - JKD Capital Partners 1 (3)		7,957		7,957		-		-		-
Other Operating Obligations (4)		1,468		1,285		183		-		-
	$	123,657	$	15,679	$	16,105	$	9,944	$	81,929

	(1)	The 2020 Notes mature on January 31, 2024. However, any time after January 31, 2023, the holder can give us 31 days' notice and require full repayment. For purposes of the table above, we show the maturity on earlier date, but show the interest payments out to the stated maturity date.
	(2)	The interest on the junior subordinated notes related to Alesco Capital Trust I is variable. The interest rate of 6.78% (based on a 90-day LIBOR rate in effect as of September 30, 2022 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 7.82% (based on a 90-day LIBOR rate in effect as of September 30, 2022 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)

Represents material operating contracts for various services.

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

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. The amendments in this ASU eliminate TDR recognition and measurement guidance and instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. This ASU is effective for fiscal years beginning after December 15, 2022, 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 June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This ASU is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

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, 2021. 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 three months ended September 30, 2022, 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, 2021.

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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, 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, 2022, we would incur a loss of $1,345 if the yield curve rises 100 bps across all maturities and a gain of $1,343 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. Also, with our SPAC franchise, we have a large amount of restricted shares on our balance sheet. These investments are subject to equity price risk and we cannot sell them while they are restricted. Furthermore, there is limited ability for us to hedge this risk on a cost-effective basis. 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, 2022, our equity price sensitivity was $2,128 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, 2022, 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 $481. 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 $2,487 as of September 30, 2022.

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 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.

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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 and our other investments on a daily 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, our broker-dealer 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.

In our gestation repo business, we will generally ensure that the maturity date of each reverse repurchase agreement matches the maturity date of the matched repurchase agreement. This largely eliminates funding risk and interest rate risk. If our repo side counterparties increase haircuts or interest rates, we can pass such a change onto our reverse repo counterparties or let the trade mature.

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, 2022. 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, 2022.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Incorporated by reference to the headings titled “Commitments and Contingencies” in note 21 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, 2021, 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, 2021.

Interest rate changes could affect our profitability.

The Company’s profitability may be adversely affected by inflation and inflationary expectations. Inflation has been rising at historically high rates, and the Federal Reserve has signaled that it will continue increasing the target federal funds effective rate.

Inflation and future expectations of inflation can negatively influence securities prices, including the fair value of fixed income securities we hold on our balance sheet. Rising interest rates may create instability in the equity markets, reduce the volumes of new issue fixed income instruments, and significantly reduce mortgage activity, all of which negatively affects our profitability. Additionally, the impact of inflation on the Company’s operating expenses may affect profitability to the extent that additional costs are not recoverable through increased prices of services offered by the Company.

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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. CCFESA is regulated by the ACPR in France and must maintain certain minimum levels of capital. See note 19 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet be Purchased under the Plans or Programs
July 2022			$	-		-		34,704
August 2022		-	$	-		-		34,704
September 2022		-	$	-		-		34,704
Total		-				-

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Item 6. Exhibits

Exhibit No.	Description
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 formatted inline XBRL: (i) the Consolidated Balance Sheets at September 30, 2022 and December 31, 2021, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021, (iii) the Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2022 and 2021, (iv) the Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021, and (v) Notes to Consolidated Financial Statements.**

104	Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)

*		Filed herewith.
**		Furnished herewith.

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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 4, 2022		Chief Executive Officer

	Cohen & Company Inc.

	By:	/s/ JOSEPH W. POOLER, JR.
		Joseph W. Pooler, Jr.
Date: November 4, 2022		Executive Vice President, Chief Financial Officer, and Treasurer