Cohen & Company 2026 Q3 Earnings Call

Great. Thank you, Samantha, and thanks, everybody, for joining us for our third quarter earnings call. With me on the call is Joe Pooler, our CFO. Before discussing our third quarter results, I just want to address the leadership announcement that we made this morning. First of all, it's been a pleasure working with Lester Brafman ever since he joined Cohen & Company. On behalf of our board, I want to thank Lester for his leadership and dedication to the company, and we really do wish him the best. The board appointed me as Chief Executive Officer of Cohen & Company, effective as of November 10th, 2026. I succeed Lester, who resigned yesterday, who resigned November 10th as the Chief Executive Officer, and he'll remain with the company as a senior advisor through November 30th, 2026, to support an orderly transition.

I'm also going to continue to serve as Executive Chairman of the board. I'm super energized to be stepping back into the CEO's role, especially for a company that I founded. I served on the board since 1999. I served as CEO from 2009 to 2013. I know the company well, and I'm super excited because I know our potential even better. I'm looking forward to working with the great team that we have on board to both strengthen our performance today and position the company to continue the success that we've had and the success that we expect to have going into the future. My goals are very simple.

I believe that this company has the potential to transform itself over the next few years into a company with, over the next three to five years, more than $500 million of revenue, and build on the things that we have built so far today. In that context, I'm going to discuss the results, particularly the results of our leading frontier investment banking practice that has developed a leading position in both underwriting new SPACs and in helping companies in fields from nuclear fusion through AI and other areas go public into the Nasdaq and the New York Stock Exchange. We're really encouraged by the continued strong performance of Cohen & Company Capital Markets. During the third quarter, we underwrote 6 SPAC IPOs and one closed-end fund.

We raised $1.8 billion for clients and advised on and raised capital for eight de-SPAC transactions, which really signifies our status as a leading SPAC advisor on Wall Street. We continue to build momentum as we invest in our capital markets franchise, and the opportunity for expanding that franchise is substantial. After nearly doubling deal activity and advising on more than $43 billion of transactions in 2025, the firm has continued to build momentum in 2026 by expanding its equity capital markets capabilities, broadening our sector expertise, and adding senior talent across the platform.

I'll just mention the launch of a dedicated at-the-market offering practice led by Connor Leahey as Managing Director, a private credit advisory practice led by Daniel Sheriff as the Head of Private Credit, along with the additions of Rahul Jasuja as Head of Energy and Energy Transition, and Pawel Skonieczka, who leads the firm's space technology, aerospace, and communications infrastructure practice. Going forward, we will continue to focus on being the advisor of choice to the growth in frontier technology sectors of the economy, including blockchain, fintech, and rare earth minerals, where we've been a significant participant, as well as the related sub-verticals of stablecoin tokenization and AI. Furthermore, we are confident in our ability to attract incremental talent to our innovative, cutting-edge investment banking operation. We'll continue to transform the firm and add to this practice going forward.

While the third quarter results were unfavorably impacted by more than $17 million of mark-to-market adjustments in our investment banking and new issue revenue pipeline, we generated positive adjusted pre-tax income and are optimistic about our pipeline as we focus on consistent production through the end of the year. We are also hopeful that our sponsored SPAC, Inflection Point Acquisition Corp. VII, will close its business combination with Elroy Air in the fourth quarter of 2026. Overall, we are confident in our future earnings potential and are committed to driving long-term value for our stockholders, including through our quarterly dividend, which, of course, I benefit enormously from. Now, I'm just going to mention also that we're excited to revitalize our trading franchises, where we've participated in the middle markets, debt markets since the inception of the company.

We would expect that going forward, augmenting what we do, we will pick up our fair share of equity trading that we believe can be profitable to us in, of course, an innovative way going forward into the future. Because as the type of frontier investment bank that we really have developed, we have the opportunity to focus on specialties and not necessarily have to have a platform that sometimes other people might have loss leaders to balance out other businesses that they need to service a client in one way and across a whole series of things. With that, I am super excited. I am going to turn over the call to Joe Pooler to walk through this quarter's financial highlights in more detail, and I am excited to be talking to you as we move forward and continue to grow.

Thank you, Daniel. I will begin with a discussion of our operating results for the quarter. Our net income attributable to Cohen & Company Inc. shareholders was $6.7 million for the quarter, or $0.12 per fully diluted share, compared to net income of $3.6 million for the prior quarter, or $0.94 per fully diluted share, and net income of $4.6 million for the prior year quarter, or $2.58 per fully diluted share. Our current quarter net income attributable to Cohen shareholders includes a $6.5 million tax benefit as a result of a reduction of our valuation allowance against our deferred tax assets.

Our fully diluted earnings per share calculation reflects all convertible membership units in our primary operating subsidiary, Cohen & Company LLC, as if they are converted to shares, and also reflects an income tax expense adjustment at an estimated effective tax rate as if our ownership structure was a full C corp for the entire period. Our adjusted pre-tax income was $648,000 for the quarter, compared to $10.1 million in the prior quarter and $16.4 million in the prior year quarter. As a reminder, adjusted pre-tax income is a key earnings measurement for us, as it incorporates enterprise earnings attributable to our convertible non-controlling interest, which is substantially held by our founder and CEO, Daniel Cohen. Daniel holds substantial interest of the enterprise directly in the primary operating subsidiary, Cohen & Company LLC, which is a consolidated subsidiary of Cohen & Company Inc.

Investment banking and new issue revenue was $12.7 million in the quarter, compared to $54 million from the prior quarter and $68.6 million from the year ago quarter. In the quarter, all of our investment banking and new issue revenue came from our CCM business and was primarily driven by SPAC M&A and SPAC IPO transactions, but was partially offset by $17.6 million of losses on financial instruments that we have received as consideration for investment banking and new issue services. CCM continues to maintain a strong pipeline, including both backend SPAC underwriting fees and potential placement unit and warrant valuation upside from 45 SPACs, 13 of which have signed business combination agreements. Net trading revenue came in at $12.5 million in the third quarter.

The gestation repo book of business was $4.5 billion at the end of the quarter and generated $6.6 million of the net trading revenue during the quarter. Asset management revenue totaled $1.7 million in the quarter. Third quarter principal transactions and other revenue was positive $5.5 million, primarily due to $5 million in gains recorded on shares we hold in Silvia, Inc., formerly ProCap Financial, the entity that our first Columbus Circle SPAC merged with in the fourth quarter of 2025. Compensation and benefits expense for the third quarter was $21.1 million, which was down $27 million from the prior quarter and down $32 million from the prior year quarter. The change from both periods was primarily the result of fluctuations in revenue and the related variable incentive comp.

The number of company employees was 135 at the end of September, compared to 129 at the end of June and 124 as of the prior year September quarter. Net interest expense for the quarter was $1.4 million, including $1.2 million on our trust preferred securities debt, $94,000 on our senior promissory notes, and $42,000 on our bank credit facility. Loss from equity method affiliates totaled $1.3 million. The loss in the current quarter was primarily driven by a $796,000 loss on Columbus Circle Capital Corp III, which is our third SPAC of that brand, which had an offsetting credit recorded in the net income loss attributable to the non-convertible, non-controlling interest line item of $625,000, resulting in a net loss of $171,000 to the company due to the Columbus Circle Capital Corp III SPAC.