Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2013

- or -

o         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 014140

GLEACHER & COMPANY, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (212) 273-7100

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

122,980,847 shares of Common Stock were outstanding as of the close of business on April 30, 2013

Table of Contents

GLEACHER & COMPANY, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

2

Table of Contents

GLEACHER & COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Part I — Financial Information

Item 1.  Financial Statements

The accompanying notes are an integral part

of these consolidated financial statements.

3

Table of Contents

GLEACHER & COMPANY, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

The accompanying notes are an integral part

of these consolidated financial statements.

4

Table of Contents

GLEACHER & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

NON CASH INVESTING AND FINANCING ACTIVITIES

During the three months ended March 31, 2013 and 2012, the Company issued approximately 0.0 million and 6.9 million shares out of treasury stock, net of forfeitures, respectively, for stock-based compensation exercises and vesting.

The accompanying notes are an integral part

of these consolidated financial statements.

5

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.  Basis of Presentation

Organization and Nature of Business

Gleacher & Company, Inc. (the “Parent” and together with its subsidiaries, the “Company”) is an independent investment bank that provides clients with strategic and financial advisory services, including merger and acquisition, restructuring, recapitalization, and strategic alternative analysis.  The Company is incorporated under the laws of the State of Delaware.  The Company’s common stock is traded on The NASDAQ Global Market (“NASDAQ”) under the symbol “GLCH.”

The Company also provided residential mortgage lending services through its subsidiary ClearPoint Funding Inc. (“ClearPoint”).  On February 14, 2013, the Company entered into an agreement to sell substantially all of ClearPoint’s assets to Homeward Residential, Inc. (“Homeward Transaction”).  The Homeward transaction closed on February 22, 2013, and all remaining business activities of ClearPoint have been substantially wound down.  ClearPoint’s results have been reclassified as discontinued operations.  Refer to Notes 23 and 24 herein for additional information.

Recent Developments

On April 5, 2013, the Company’s Board of Directors approved a plan to discontinue operations in its MBS & Rates and Credit Products divisions.  The plan is expected to be completed by the end of the second quarter 2013.  The results of these divisions will also be reclassified as discontinued operations in the second quarter 2013.  Refer to Note 27 herein for additional information.

The Company’s ability to generate revenue and continue business operations subsequent to exiting its MBS & Rates and Credit Products businesses depends principally on its Investment Banking activity, and in particular, generating fees for financial advisory services.  Given the Company’s state, its ability to generate Investment Banking revenues is currently uncertain.  Unless the Company is able to generate significant Investment Banking revenues, or develop new and profitable business lines, the Company will continue to operate at a loss.

At the Company’s 2013 Annual Stockholders Meeting to be held May 23, the board of directors will be largely reconstituted.  The composition of the board at that time cannot be predicted with certainty, and consequently the Company’s strategic direction and operational initiatives are not known at this time.  Accordingly, the Company’s financial position at future dates and its results of operations for periods subsequent to the 2013 Annual Stockholders Meeting are highly uncertain.

Policies and Presentation

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”).  The consolidated financial statements prepared in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  Actual results could be different from these estimates.  In the opinion of management, all normal, recurring adjustments necessary for a fair statement of this interim financial information are contained in the accompanying consolidated financial statements.  The results for any interim period are not necessarily indicative of those for the full year.

The accompanying consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for Quarterly Reports on Form 10-Q and are unaudited.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted.  Reference should be made to the Company’s audited consolidated financial statements and notes within the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for additional information, including a summary of the Company’s significant accounting policies.

6

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Correction of an Error and Certain Reclassifications

During the preparation of the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013, the Company determined that it had incorrectly reserved for approximately $1.9 million of principal receivable on a particular position within the Company’s financial instruments owned during the prior three years ended December 31, 2012, primarily during the year ended December 31, 2011.  The Company assessed this error and determined that it was not material to the previous reporting periods and is not material to the current year.  Therefore, the Company has recorded this item as an out of period adjustment to principal transactions within the Consolidated Statements of Operations for the three months ended March 31, 2013.

In addition, certain amounts in prior periods have been reclassified to conform to the current year presentation with no impact to previously reported net loss or stockholders’ equity.  This includes the prior period results of ClearPoint, which are now being reported as discontinued operations.  Refer to Note 24 herein for additional information.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02 “Other Comprehensive Income — Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).  The objective of ASU 2013-02 is to improve the reporting of reclassifications out of accumulated other comprehensive income.  This ASU seeks to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts.  This guidance is effective prospectively for reporting periods beginning after December 15, 2012.  ASU 2013-02 is not applicable to the Company as it has no items reported as other comprehensive income.

In January 2013, the FASB issued ASU No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”).  The main objective of ASU 2013-01 is to address implementation issues about the scope of ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), which requires new disclosures about balance sheet offsetting and related arrangements.  For derivative financial assets and liabilities, the amendments require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to offsetting requirements but not offset in the balance sheet.  ASU 2013-01 clarifies that the scope of ASU 2011-11 applies to derivatives, including embedded bifurcated derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset in accordance with applicable accounting literature or subject to an enforceable master netting arrangement or similar agreement.  This guidance is effective for annual reporting periods beginning on or after January 1, 2013 and is to be applied retrospectively.  This guidance does not amend the existing guidance on when it is appropriate to offset, and since these amended principles require only additional disclosures, the adoption of ASU 2011-11 did not affect the Company’s financial condition, results of operations or cash flows.

7

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.  (Loss)/Earnings Per Common Share

The Company calculates basic and diluted (loss)/earnings per share in accordance with ASC 260, “Earnings Per Share.”  Basic (loss)/earnings per share is computed based upon weighted-average shares outstanding during the period.  Dilutive (loss)/earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period. The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards, warrants, and unexercised options.  The weighted-average shares outstanding were calculated as follows:

For the three months ended March 31, 2013 and March 31, 2012, the Company was in a net loss position and therefore excluded approximately 9.1 million and 10.1 million, respectively, of shares underlying stock options, 3.5 million and 9.2 million, respectively, of shares of restricted stock, and 4.1 million and 4.9 million, respectively, of shares underlying restricted stock units (“RSUs”) from its computation of dilutive loss per share because they were anti-dilutive.

3.  Cash and Cash Equivalents

The Company has defined cash equivalents as highly liquid investments, with original maturities of less than 90 days that are not segregated for regulatory purposes or held for sale in the ordinary course of business.  At March 31, 2013 and December 31, 2012, cash equivalents were approximately $3.2 million and $3.1 million, respectively.  Cash and cash equivalents of approximately $27.1 million and $21.8 million at March 31, 2013 and December 31, 2012, respectively, were held at one financial institution.

4.  Cash and Securities Segregated for Regulatory and Other Purposes

The Company self-clears its trading activities in U.S. government securities (the “Rates business”) and is therefore subject to the Customer Protection rules under Rule 15c3-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These activities will be discontinued in the second quarter of 2013.  At March 31, 2013 and December 31, 2012, the Company segregated cash of $1.0 million and $1.0 million, respectively, in a special reserve bank account for the exclusive benefit of customers pertaining to the activities of the Company’s Rates business and items related to when the Company was previously conducting self-clearing in prior years, including outstanding checks issued to customers and vendors, and other miscellaneous items.

In addition, cash and securities segregated for regulatory and other purposes at March 31, 2013 include $5.0 million, representing cash deposited into an escrow account by ClearPoint in connection with the Homeward Transaction.   Refer to Note 16 herein for additional information.  Cash segregated at December 31, 2012 includes $12.0 million of cash on deposit with ClearPoint’s warehouse lenders in connection with ClearPoint’s loan origination activities, now discontinued.

8

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.  Resale and Repurchase Agreements

Refer to Note 1 within the footnotes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a detailed discussion of accounting policies related to the Company’s resale and repurchase agreements.

At March 31, 2013 and December 31, 2012, the fair value of financial instruments held as collateral by the Company that it was permitted to deliver or repledge in connection with resale agreements was approximately $20.8 million and $137.9 million, respectively, substantially all of which was repledged to cover securities sold, but not yet purchased at March 31, 2013 and in the form of repurchase agreements at December 31, 2012.

The following table below presents the gross and net information about the Company’s resale and repurchase agreements that are offset in the financial statements:

The following tables provide detail on the maturity composition of the outstanding repurchase agreements at December 31, 2012 (there were no outstanding repurchase agreements at March 31, 2013):

9

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.  Receivables from and Payables to Brokers, Dealers, and Clearing Organizations

Amounts receivable from and payable to brokers, dealers and clearing organizations consists of the following:

Included within deposits with clearing organizations at March 31, 2013 and December 31, 2012 is a deposit with the Fixed Income Clearing Corporation (“FICC”) of approximately $6.3 million and $8.8 million, respectively, related to the Company’s self clearing activities associated with the Rates business.

Payable to clearing organizations at March 31, 2013 and December 31, 2012 included approximately $37.6 million and $35.5 million, respectively, of excess equity (funds that are readily available to the Company) held at the Company’s principal clearing broker.

Securities transactions are recorded on their trade date as if they had settled.  The related amounts receivable and payable for unsettled securities transactions are recorded net, by clearing organization, in Receivables from or Payables to brokers, dealers and clearing organizations in the Consolidated Statements of Financial Condition.  The clearing organization may re-hypothecate all securities held on behalf of the Company.

7.  Receivables from and Payables to Others

Amounts Receivable from and Payable to Others consist of the following:

The Company maintains a group of “zero balance” bank accounts which are included in Payable to others on the Consolidated Statements of Financial Condition.  Drafts payable represent the balance in these accounts related to outstanding checks that have not yet been presented for payment at the bank.  The Company has sufficient funds on deposit to clear these checks, and these funds will be transferred to the “zero-balance” accounts upon presentment.

10

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.  Financial Instruments

Refer to Note 1 within the footnotes to the consolidated financial statements contained within Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a detailed discussion of accounting policies related to the Company’s financial instruments & investments, loans and derivative financial instruments.

The Company’s financial instruments, which are held primarily in connection with the business activities of the Company’s MBS & Rates division (which are being discontinued in the second quarter of 2013), are recorded within the Consolidated Statements of Financial Condition at fair value.  ASC 820 “Fair Value Measurements and Disclosures” defines fair value as the price that would be received upon the sale of an asset or paid upon the transfer of a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1: Quoted prices in active markets that the Company has the ability to access at the reporting date, for identical assets or liabilities.

Level 2: Directly or indirectly observable prices in active markets for similar assets or liabilities; quoted prices for identical or similar items in markets that are not active; inputs other than quoted prices (e.g., interest rates, yield curves, credit risks, volatilities); or “market corroborated inputs.”

Level 3: Unobservable inputs that reflect management’s own assumptions about the assumptions market participants would make.

** Prices are not adjusted for the effects, if any, of the Company holding a large block relative to the overall trading volume (referred to as a “blockage factor”).

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

ASC 820 also provides (i) general guidance on determining fair value when markets are inactive including the use of judgment in determining whether a transaction in a dislocated market represents fair value, the inclusion of market participant risk adjustments when an entity significantly adjusts observable market data based on unobservable inputs, and the degree of reliance to be placed on broker quotes or pricing services as well as (ii) additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly declined and guidance on identifying circumstances that indicate a transaction is not orderly.

Fair Valuation Methodology

Cash Equivalents — These financial assets represent cash in banks or cash invested in highly liquid investments with original maturities less than 90 days that are not segregated for regulatory purposes or held for sale in the ordinary course of business.  These investments are valued at par, which represent fair value, and are considered Level 1.  Refer to Note 3 herein for additional information.

11

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Instruments Owned/Securities Sold But Not Yet Purchased, at Fair Value — These financial instruments primarily consist of investments in fixed income securities, as well as holdings in equity securities.  The Company has no direct exposure to European sovereign debt.

Level 1 Cash Instruments

Level 1 cash instruments generally include U.S. government obligations and actively traded listed preferred stock and equity securities (if not subject to legal restriction on transfer).  These instruments are traded in active, quoted and highly liquid markets.

Level 2 Cash Instruments

Level 2 cash instruments generally include agency mortgage-backed securities, federal agency obligations, corporate debt, certain preferred stock, asset-backed and non-agency residential and commercial mortgage-backed securities and certain other debt obligations.  In addition, Level 2 cash instruments also include mortgage loans originated by ClearPoint for which the fair value option (“FVO”) has been elected.

In determining fair value for Level 2 financial instruments, management considers recent purchases or sales of the financial assets, benchmark securities and yields, discounted cash flow techniques, recently executed market transactions of comparable size, issuer spreads and bids/offers.  Fair value for ClearPoint’s loans is determined primarily based upon the prospective investor buy price.

Level 3 Cash Instruments

Level 3 cash instruments generally include non-agency commercial and residential mortgage backed securities positions, collateralized debt obligations, certain agency mortgage-backed securities and certain other debt obligations.  In determining fair value for Level 3 financial instruments, management maximizes the use of market observable information when available.  Management considers factors such as recent purchases of the financial assets, discounted cash flow techniques, bids that were received, and various benchmarking techniques, including spread comparisons to other similar financial assets recently traded, or spreads to observable factors such as yield curves.  Management considers its valuation methodologies consistent with how other market participants value similar financial assets.

Level 3 cash instruments also includes the Company’s investment in FA Technology Ventures, L.P. (“FATV” or “the Partnership”), further described below.

Derivatives — These financial instruments primarily consist of TBAs, exchange traded futures and options contracts.  In addition, the prior-year period included ClearPoint forward sales and interest rate lock commitments (“IRLCs”).

TBAs:  The Company utilizes derivatives for trading strategies and economic hedging strategies.  The Company economically hedges certain of its mortgage-backed and U.S. government securities trading.  The Company also economically hedged the mortgage lending activities of ClearPoint (the activities of which have been discontinued in connection with the Homeward Transaction), through the use of TBAs and forward sale agreements.  A TBA is a forward mortgage-backed security whose collateral remains “to-be-announced” until just prior to the trade settlement.

Exchange traded futures and options contracts:  The Company utilized these financial instruments primarily for hedging strategies.  These contracts are traded in active quoted markets and therefore are also generally classified as Level 1.

IRLCs:  ClearPoint had entered into mortgage loan IRLCs in connection with its mortgage lending activities.  These activities have been wound down in connection with the Homeward Transaction.  At December 31, 2012, the fair value of the IRLCs were determined on an individual loan basis and are based on investor pricing tables stratified by product, note rate and term and considered the servicing release premium, expected loan origination fees and costs and loan pricing adjustments specific to each loan.  The Company also applied an estimated rate of

12

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

closure based on historical experience in determining the notional amount of the loans expected to be funded.  All of these factors combined results in the classification of the IRLCs as Level 3 at December 31, 2012.

Investments — These financial assets primarily represent the Company’s investment in FATV, a venture capital limited partnership which provides early stage growth capital to companies in the information and new energy technology sectors.  Valuation techniques applied by FATV GP LLC (the “General Partner”) to the underlying portfolio companies predominantly include consideration of comparable market transactions and the use of valuation models to determine the discounted value of estimated future cash flows, adjusted as appropriate for market and/or other risk factors.  Historically, FATV held equity securities in public companies which were valued based upon quoted market prices.  This investment is classified as Level 3 as the majority of the valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Valuation Processes and Controls

At March 31, 2013, the Company’s sales and trading professionals in its MBS & Rates and Credit Products divisions (which will be discontinued in the second quarter of 2013) were responsible for pricing its financial instruments.  The Company employs an independent control process in order to validate these prices.  This control process, which involves both the Company’s risk management and finance personnel, is designed to ensure that the values used for financial reporting are based on observable inputs wherever possible.  In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable.

Fair value is generally determined through a variety of factors, such as recent purchases or sales of the financial assets, bids that were received, and various benchmarking techniques, including spread comparisons to other similar assets recently traded or spreads to other observable factors such as yield curves.  The Company’s independent control process includes leveraging pricing information obtained from external data providers to assess the reasonableness of its marks, generally for the Company’s most highly liquid financial instruments, as this data tends to be generally reliable for positions that are actively traded.  For the Company’s less liquid financial instruments, the Company’s independent control process includes comparing month-end marks to recent trading activity, benchmarking price changes to observable market indices, reviewing benchmarking techniques and analyzing external pricing data for trends.  These independent procedures are critical to ensuring the Company’s financial instruments are properly valued.

13

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Hierarchy

The following table summarizes the categorization of the financial instruments within the fair value hierarchy at March 31, 2013:

(1)         Unrealized gains/(losses) relating to derivatives are reported in Financial instruments owned and Securities sold, but not yet purchased, at fair value in the Consolidated Statements of Financial Condition.

Included below is a discussion of the characteristics of certain of the Company’s Level 2 and Level 3 holdings at March 31, 2013.  Unless otherwise stated, fair value of Level 2 assets are determined based upon observable third party information including recent trading activity, broker quotes and other relevant market data as noted above.  Fair values for Level 3 assets are based predominantly on management’s own assumptions about the assumptions market participants would make.

Financial Instruments Classified as Level 2

The Company’s agency mortgage-backed securities positions classified as Level 2, of approximately $462.9 million, have a weighted average loan size of approximately $0.1 million paying interest of 4.4%, with a weighted average FICO score of 712.  This portfolio has a weighted average coupon remitting payment of 3.5% and has a weighted average annualized constant prepayment rate of approximately 8.2%.  Fair value is determined through a combination of matrix pricing as well as the information noted in the preceding paragraph.

The Company’s Level 2 federal agency obligations of approximately $12.1 million have a weighted average coupon of 2.2% and a weighted average maturity of 2022.

14

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s Level 2 loans of approximately $7.7 million (unpaid principal of approximately $7.7 million), which are related to the mortgage lending activities of ClearPoint and for which the FVO has been elected, have a weighted average loan size of approximately $0.2 million and has a weighted average coupon remitting payment of 3.7%.  There are no unrealized gains or losses arising from fair value changes of these loans as of March 31, 2013 and there are no loans 90 days or more past due and no loans are in non-accrual status.  The loans are underwritten using standards prescribed by conventional mortgage lenders and loan buyers such as the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.

The Company’s net holdings of corporate debt securities classified as Level 2 of approximately $1.1 million have a weighted average credit rating of BB, have a weighted average issuance year of 2010 and a weighted average maturity of 2030.

Financial Instruments Classified as Level 3

Investments — Quantitative Disclosure About Significant Unobservable Inputs

The Company’s investments of approximately $21.6 million classified as Level 3, includes the Company’s investment in FATV of approximately $17.3 million, which is comprised of 19 holdings primarily in 7 privately held companies.  Refer to Note 10 herein for additional information.

An increase in the enterprise value/revenue multiple would result in a higher fair value for these investments, whereas, an increase in the discounts applied to these multiples would reduce fair value.

Nonrecurring Fair Value Measurements — Quantitative Disclosure About Significant Unobservable Inputs

The Company’s assets measured at fair value on a nonrecurring basis solely relate to Goodwill arising from various business combinations which would be classified as Level 3 within the fair value hierarchy.  Refer to Note 12 herein for additional information.

15

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the categorization of the financial instruments within the fair value hierarchy including those for which the Company accounts for under the FVO at December 31, 2012:

The Company reviews its financial instrument classification on a quarterly basis.  As the observability and strength of valuation attributes change, reclassifications of certain financial assets or liabilities may occur between levels.  The Company’s policy is to utilize an end-of-period convention for determining transfers in or out of Levels 1, 2 and 3.  During the three months ended March 31, 2013 and March 31, 2012, there were no transfers between Levels 1 and 2.

16

Table of Contents

GLEACHER & COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the changes in the Company’s Level 3 financial instruments for the three months ended March 31, 2013:

(1)         Realized and unrealized gains/(losses) are reported in Principal transactions in the Consolidated Statements of Operations.

The following table summarizes the changes in the Company’s Level 3 financial instruments for the three months ended March 31, 2012: