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Edited Transcript of IFMI earnings conference call or presentation 30-Oct-19 2:00pm GMT

Q3 2019 Cohen & Company Inc Earnings Call

PHILADELPHIA Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Cohen & Company Inc earnings conference call or presentation Wednesday, October 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph W. Pooler

Cohen & Company Inc. - Executive VP, Treasurer & CFO

* Lester Raymond Brafman

Cohen & Company Inc. - CEO

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Cohen & Company's Third Quarter 2019 Earnings Call. My name is Nicole, and I will be your operator for today.

Before we begin, Cohen & Company would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under the applicable securities laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of the call, and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. Cohen & Company advises you to read the cautionary note regarding forward-looking statements in its earnings release and in its most recent annual report on Form 10-K filed with the SEC.

I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cohen & Company.

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Lester Raymond Brafman, Cohen & Company Inc. - CEO [2]

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Thank you, Nicole, and thank you, everybody, for joining us for our third quarter 2019 earnings call. With me on the call is Joe Pooler, our CFO.

Our third quarter performance was impacted by the shock to overnight repo funding rates in September and slower-than-anticipated growth from new issue revenue opportunities. While we are disappointed with our results from the quarter, we are pleased with the overall growth in our mortgage business as our TBA and Gestational Repo businesses have reached all-time highs in terms of volume and revenues. We continue to believe that the initiatives underway will generate long-term value for our shareholders, and we are focused on improving these results going forward.

Now I will return the call over to Joe to walk through this quarter's financial highlights in more detail.

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Joseph W. Pooler, Cohen & Company Inc. - Executive VP, Treasurer & CFO [3]

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Thank you, Lester. Starting with our statement of operations, our operating loss was $443,000 for the third quarter compared to operating income of $518,000 for the prior quarter and operating income of $356,000 for the prior year quarter.

Our loss before income taxes was $2.1 million for the current quarter compared to $1.7 million for the prior quarter and $1.8 million for the prior year quarter. The net loss attributable to Cohen & Company was $1.2 million or $1.06 per diluted share for the current quarter compared to net loss of $410,000 or $0.36 per diluted share for the prior quarter and net loss of $651,000 or $0.57 per diluted share for the prior year quarter. Net trading revenue came in at $8.5 million in the quarter, down $191,000 from the second quarter and up $1.7 million from the third quarter of '18.

The increase from the year ago quarter was primarily the result of increased trading revenue from municipals, agencies and mortgages. Our GCF Repo business was unfavorably impacted by the mid-September movement in the overnight funding rate due to a general lack of liquidity in the market. On a positive note, our Gestational Repo balance outstanding has grown to $1.2 billion and our notional amount of TBA balances outstanding has grown to $2.2 billion.

Our asset management revenue totaled $2 million in the quarter, up $273,000 from the prior quarter and down $800,000 from the year ago quarter.

The increase from the prior quarter was primarily a result of onetime performance fees related to the liquidation of our managed European CLO during the current quarter. While the decrease from the prior year quarter was primarily a result of onetime incentive fees in our European managed accounts recorded during the prior year quarter.

Third quarter of '19 principal transactions revenue was $310,000, down from both the prior quarter and the year ago quarter. The principal transactions revenue includes all gains and losses and income earned on our $6.9 million investment portfolio classified as other investments at fair value on our balance sheet. Compensation and benefits expense for the third quarter of '19 was $7 million, up $585,000 from the prior quarter and down $160,000 from the prior year quarter.

The quarterly changes were primarily the result of the variable compensation model we have in place and relate to our variations in net trading, new issue and advisory and asset management revenues from the comparable periods as well as headcount changes.

Compensation as a percentage of revenue was 62% in the third quarter compared to 58% in the second quarter and 59% in the third quarter of 2018. The number of Cohen employees was 90 as of September 30, same as -- same number as of June 30 of '19, and it was 86 at September 30 of '18.

Net interest expense for the third quarter of '19 was $1.5 million, including $860,000 on our 2 trust preferred debt instruments, $513,000 on our senior notes, $72,000 on our redeemable financial instruments and $91,000 on our credit lines.

In terms of the balance sheet, at the end of the quarter, our total equity was $39.7 million, a decrease of $2.7 million from year-end. Consolidated corporate indebtedness was carried at $46.1 million. Our redeemable financial instruments were carried at $18.5 million, and we had $14.1 million of unrestricted cash on the balance sheet.

Finally, we expect to file our 10-Q no later than this coming Friday. With that, I'll turn it back over to Lester for closing remarks.

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Lester Raymond Brafman, Cohen & Company Inc. - CEO [4]

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Thanks, Joe. Please direct any investor questions to Joe Pooler at (215) 701-8952 or via e-mail to investorrelations@cohanandcompany.com. The contact information can also be found at the bottom of our earnings release. Thank you joining us for today. Operator, you may now end the call.

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Operator [5]

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This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.