Cohen & Company Inc. — Q2 2021 Form 10-Q
Business context and reporting period
For the quarter and six months ended June 30, 2021. Cohen & Company is a financial services firm focused on fixed-income capital markets, asset management, and principal investing, including SPAC-related investments. Unless noted, financial figures below are in millions of dollars; the filing reports them in thousands.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $10.1 | $24.1 | $112.7 | $41.9 |
| Operating income (loss) | $(9.1) | $7.9 | $61.4 | $(1.5) |
| Net income (loss), consolidated | $(3.2) | $3.3 | $63.5 | $(8.5) |
| Net income attributable to Cohen & Company Inc. | $1.7 | $0.9 | $11.1 | $(2.2) |
| Basic / diluted EPS attributable to parent | $1.61 / $1.21 | $0.78 / $0.69 | $10.52 / $8.12 | $(1.91) / $(1.92) |
- Revenue mix: Q2 net trading revenue was $18.4 million, asset-management revenue $1.8 million, new-issue and advisory revenue $0.9 million, and principal transactions and other income a loss of $11.0 million. For the first half, principal transactions and other income was $68.5 million, the main driver of the year-over-year revenue increase.
- Cash flow: First-half operating cash use was $23.7 million, compared with $209.2 million provided in 2020; investing activities provided $10.3 million and financing activities provided $0.03 million. Cash and cash equivalents fell by $13.6 million to $28.4 million from year-end 2020. Operating cash flow includes volatile repo-related collateral movements.
- Balance sheet and liquidity: Total assets were $6.536 billion and total liabilities $6.409 billion at June 30, 2021. Assets and liabilities chiefly reflect matched-book repo activity: resale-agreement receivables were $6.028 billion and repurchase-agreement liabilities $6.019 billion. Management said available cash, trading investments, and related borrowing capacity should meet near-term operating needs, while noting uncertainty about replacing financing.
- Debt: Reported debt was $45.4 million, versus $47.1 million at December 31, 2020; redeemable financial instruments were $8.0 million, down from $12.0 million. The Byline facility had no borrowings at quarter-end. Significant maturities included $2.4 million of 12% senior notes in September 2021, $4.5 million of 12% notes in January 2022, and a $15.0 million 8% convertible note in March 2022. The filing says the company was compliant with Byline financial covenants.
- Capital: Total equity was $126.4 million, including $67.0 million of non-controlling interest. Broker-dealer subsidiaries reported $76.2 million of regulatory net capital, well above the stated $1.2 million combined minimum; capital withdrawals remain restricted.
Material changes versus comparable periods
- First-half revenue increased 169% year over year, but was unusually dependent on SPAC-related investment and sponsor gains. Principal transactions included $60.4 million associated with MetroMile and $4.1 million associated with Shift Technologies (SFT); other SPAC equity contributed $2.9 million.
- Q2 revenue declined 58% year over year, chiefly because principal transactions and other income swung to a $11.0 million loss, including a $12.8 million MetroMile loss. Matched-book repo revenue improved, but net trading revenue fell 8%.
- First-half compensation and benefits rose 60% to $40.8 million. This included $13.1 million of non-cash equity compensation tied to Insurance SPAC II/MetroMile shares, recognized upon the February business combination. Total first-half operating expenses rose 18% to $51.4 million.
- First-half equity-method income improved to $4.7 million from a $1.3 million loss in 2020. Net interest expense fell to $3.8 million from $5.7 million.
- The $2.127 million PPP-loan forgiveness was recorded as non-operating income in Q2. The remaining loan balance and accrued interest were repaid in June.
- Assets under management were $2.146 billion, down from $2.769 billion at year-end 2020; company-sponsored CDO AUM fell to $1.294 billion. Management cited CDO auctions, paydowns, and removal as manager of one CDO; growth in other vehicles partly offset the decline.
Outlook, commentary, risks, and unusual items
- The filing provides no quantified earnings or revenue guidance. Management said results are unpredictable and exposed to market conditions, trading volumes, interest rates, mortgage activity, and SPAC market performance.
- Management expects JVB to operate GCF repo and TBA businesses at lower volumes than before the pandemic for an indefinite period, potentially weighing on profitability. It cited concerns about counterparty risk and liquidity volatility at earlier activity levels.
- Risks include reliance on FICC funding in GCF repo, concentration in gestation-repo counterparties, margin calls and collateral demands, restricted SPAC shares, fair-value estimation uncertainty, competition and fixed-income margin pressure, and the ability to refinance obligations. A 100-basis-point adverse yield-curve rise was estimated to reduce fixed-income portfolio value by $1.6 million; a 10% adverse equity-price move implied $4.9 million of sensitivity.
- The company held $38.3 million of SFT and MetroMile investments in aggregate at quarter-end, including shares with price hurdles restricting sale. Q2 fair-value changes in these investments can meaningfully affect reported results.
- A lawsuit seeking more than $1 billion from JVB and other broker-dealers was dismissed by the New York Appellate Division; the state Court of Appeals denied the plaintiff’s request for leave to appeal in May 2021. The filing also describes routine legal and regulatory matters.
- After quarter-end, the board declared a $0.25-per-share cash dividend, payable August 27, 2021. No common dividends were declared for the reported quarter or six-month periods.
Important facts for investors to verify
- How much of first-half earnings reflects realized cash gains versus unrealized SPAC fair-value movements, particularly MetroMile, SFT, and other sponsor investments.
- The restrictions, valuation methods, and potential dilution or compensation effects associated with SPAC shares and employee interests; confirm the realizability of restricted-share values.
- Upcoming debt maturities and refinancing capacity, including the September 2021 senior note and 2022 notes, alongside cash availability and unused committed facilities.
- Repo funding concentration, collateral and margin requirements, regulatory capital limits, and the degree to which cash-flow swings reflect temporary collateral deposits rather than operating performance.
- Whether declining CDO AUM and lower planned repo/TBA activity are offset by sustainable growth in other asset-management and capital-markets revenue.