Good morning, ladies and gentlemen, and welcome to Cohen & Company's third quarter 2026 earnings call. My name is Samantha, 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 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 this 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.
Earlier today, Cohen & Company issued a press release announcing third quarter 2026 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded, and a replay of it will be available for three days beginning shortly after the conclusion of this call. The company's remarks also include certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP provided in the company's earnings release. After the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to Daniel Cohen, Executive Chairman and Chief Executive Officer of Cohen & Company.
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 - 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 six 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.
During the quarter, the income tax benefit was $6.3 million, including the $6.5 million deferred tax benefit that I previously mentioned. We will continue to evaluate our operations on a quarterly basis and may have further adjustments to the valuation allowance applied against our carry-forward tax assets. In terms of the balance sheet and capitalization, at the end of the quarter, total equity was $119.6 million compared to $103.1 million as of the end of the year. The non-convertible, non-controlling interest component of total equity was $2 million at the end of the quarter compared to $0.4 million at the end of the year. Thus, the total enterprise equity, excluding the non-convertible, non-controlling interest component, was $117.5 million at the end of the year, a $14.9 million increase $117.5 million at the end of the quarter, I should say, a $14.9 million increase from the end of the year.
At quarter end, including all unvested shares and units, we had outstanding 3.4 million shares of common stock and 42.2 million convertible membership units of our primary operating subsidiary, which are convertible into shares of common stock on a 10-for-1 basis, resulting in a total of 7.6 million fully diluted shares of common stock on an as-converted basis, assuming all unvested units and shares vest. During the quarter, we sold 137,716 shares of common stock under the ATM program at a net average price of $11.07 for $1.5 million in net proceeds. Year to date, we have sold 325,739 shares at a net average price of $12.01 for $3.9 million in net proceeds. At the end of the quarter, consolidated corporate indebtedness is carried at $31.4 million. We declared a quarterly dividend at $0.25 per share payable on December 14th to stockholders of record as of November 30.
The board will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly operating results and the company's capital needs. With that, I'll turn it back to Daniel.
Thanks, Joe. Look, it's great to be back on these calls with you, and I'm super excited as we move forward into the future, building a company that really completes the potential that we really have here. I just want to remind people that while earnings per share were not as what we wanted to, we do have periodicity in our business. Our year-to-date number on a GAAP basis was $1.47, and that we expect to move forward with strong earnings power into the future, bringing back to life some of the areas that we haven't been making as much money in, and driving our core now business of investment banking forward under the great leadership that we have there. With that, I'd like to turn it over to questions.
We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Mike Grondahl with Northland Securities. Please proceed with your question.
Hey, Daniel and Joe. Could you talk maybe a little bit more about your outlook and pipeline going into Q4 in 2027?
Yeah, absolutely. I mean, in terms of outlook, we have a huge amount, a large amount of vehicles. I am going to turn it over to Joe to answer this.
Yeah. Mike, as you know, we do not really announce a dollar amount that is in our pipeline, but we do disclose that we have 45 SPACs that we have underwritten that have backend fees, as all those engagement letters do. 13 of those have signed business combination agreements. Also from those SPACs, we have placement units or placement warrants on our books that are valued somewhere in the 30% probability range. To the extent that some of those deals do close, there is some upside valuation opportunity for our results as well. But we continue to add to the pipeline. I think I would say some of the transactions are not closing as quickly as they had been maybe two quarters ago.
Yeah, and I think that we vary from working on de-SPAC transactions to initial transactions. Right now, the new issue SPAC IPO market is a little bit slow, but we have a large backlog of new issuers that we think will, once the market opens up a little bit more, which we expect it to towards the end of the year or the beginning of next year, gives us a huge opportunity of relaunching a large number of transactions. One of the things I will mention is if you look at our classes of SPACs that we underwrote in 2025, we have almost all of them with targets that should be closing or have closed already. It is a higher percentage than almost anybody else out there. I think it is because of our ability to identify de-SPAC opportunities for people, and that is going to continue.
Our own SPAC will close, which is a significant revenue event for us in the fourth quarter. We look at it that even in a marketplace where the IPO window is not as open as we all know, that we still have an enormous backlog, an enormous pipeline, and the ability to close deals, earn fees, and move forward nicely. As far as 2027 is concerned, we do not have a specific guidance that we are giving right yet, but we have been able to produce significant revenue. We believe there is no reason to believe we should not be able to grow beyond that.
I'll mention that, while our investment banking has been the key driver of our revenue and then partially our profitability, that historically our asset management business, the businesses that we have run through our asset management business, our gestation repo product have all continued to be strong contributors in 2026, as well as a franchise in middle market debt capital markets banking that has grown in over 2024 and 2025 and 2026, and that we are expecting to continue to grow substantially and will add substantially to our revenues in 2027. I come in with the ability to grow a whole wide range of businesses, reinvigorate to a certain extent the high revenue and high net income potential of our asset management businesses, get everything to work together like we have in previous periods in companies where I was CEO, and really move everything forward extremely nicely.
Does that answer your question as to our outlook, Mike?
Yeah, that's helpful. Secondly, I think in your prepared remarks, you talked about a new business offering, the ATM offering, and private credit. I do not know, can you just go into each one of those, when they kind of started, and what you are visioning there?
Okay. Well, I think, okay, so our ATM, at-the-market offering, is a natural extension of the SPAC business. As we launch companies public, we can help them to continue to grow. Our companies are those companies that are building the future, whether it is in nuclear energy or any of the other verticals that we operate in, energy transition, and they will need capital as we move forward very nicely. As we see, this next transformation of the American economy across all of these areas is what is driving huge capital investments and seems worthy of huge capital investments as we move forward. Space is obviously something that is included in there. AI is obviously something included in there. The inception of that, when exactly did our team come aboard?
There's no ATM revenue in the third quarter, Mike, and that hire was end of third quarter, or it might have been early fourth quarter, and there's de minimis private credit revenue. That hire was also late third quarter, early fourth quarter.
Yeah. Those particular businesses. I want to highlight something that we did for Yorkville Securities and Dan Ives, which was launching a new product where we've innovated the SPAC investment fund, or special purpose investment fund, which allows somebody to accumulate a bunch of interests and then seek a vote like a SPAC. It's a very efficient vehicle for allowing people to start essentially a new closed-end fund, which can create a lot of value for people by focusing on those areas where it's very hard, but extremely profitable, to get involved in the pre-IPO and later stage venture capital rounds.
Particularly in this case, we have a great leader with a great team that's known in the capital markets and able to make strong calls in spaces, who's able to put together a fund that is focused on pre-IPO AI investments, and that'll be continuously offered to the public going forward. We're excited about that product, and we're excited about replicating that, since at this point, we're the only people who have done this. We expect that this is another area where we can grow our franchise. I have a lot of ideas for that area, and I think our investment banking team and our capital markets team is leading in terms of looking at new structures to be involved in. Does that answer your question?
Yeah. No, that's helpful. Thank you.
On the private credit, that is an area where I also think that we can be very, very meaningful going forward. We have a great team. I am super excited about them. I seem to be super excited about everything. I have to get a couple new words to use. But it is a moment where we have lots of potential that is underutilized. Our core potential is underutilized. Our opportunities are great. And we have known each other for a long time, and I am excited for Cohen & Company to really fulfill its potential in the second 25 years of its existence.
Perfect. Hey, thank you guys.
Thank you.
Thank you, Mike.
Once again, if you would like to ask a question, please press star one on your telephone keypad. We have reached the end of the question and answer session. I would like to turn the floor back over to Daniel Cohen for closing comments.
Great. Thank you very much, and thank you everybody for participating. I am very excited to be making my first public conference call in a long time, but very excited to be making my next one. I think we will continue to share our enthusiasm for where we can really go and show you that we are well on the way of getting there while generating real cash and real profits and real revenues going forward. Please, come and join us again for the next conference call. Operator?
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.