UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30, 2018~~March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-31720

PIPER JAFFRAY COMPANIES

(Exact Name of Registrant as specified in its Charter)



DELAWARE		30-0168701
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
800 Nicollet Mall, Suite 1000 Minneapolis, Minnesota		55402
(Address of Principal Executive Offices)		(Zip Code)
	(612) 303-6000
(Registrant's Telephone Number, Including Area Code)



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share	PJC	The New York Stock Exchange

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. Yes þ No ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ No ¨

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



Large accelerated filer	þ		Accelerated filer	¨
Non-accelerated filer	¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨
			Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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).

Yes ¨ No þ

As of ~~August 1, 2018,~~April 30, 2019, the registrant had ~~15,168,629~~14,227,928 shares of Common Stock outstanding.

Piper Jaffray Companies

Index to Quarterly Report on Form 10-Q



PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	3
	Consolidated Statements of Financial Condition as of ~~June 30, 2018~~March 31, 2019 (Unaudited) and December 31, ~~2017~~2018	3
	Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and March 31, 2018 ~~and June 30, 2017~~ (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and March 31, 2018 ~~and June 30, 2017~~ (Unaudited)	5
	Consolidated Statements of ~~Cash Flows~~Changes in Shareholders' Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and March 31, 2018 ~~and June 30, 2017~~ (Unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and March 31, 2018 (Unaudited)	7
	Notes to the Consolidated Financial Statements (Unaudited)	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3833
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6754
ITEM 4.	CONTROLS AND PROCEDURES	6754

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	6754
ITEM 1A.	RISK FACTORS	6754
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6855
ITEM 6.	EXHIBITS	6855
	SIGNATURES	6956

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Piper Jaffray Companies

Consolidated Statements of Financial Condition


	June 30,			December 31,			March 31,			December 31,
	2018			2017			2019			2018
(Amounts in thousands, except share data)	(Unaudited)						(Unaudited)
Assets
Cash and cash equivalents	$	26,025		$	33,793		$	18,245		$	50,364
Receivables from brokers, dealers and clearing organizations	219,631			145,394			47,010			235,278

Financial instruments and other inventory positions owned	520,583			663,330			305,295			479,795
Financial instruments and other inventory positions owned and pledged as collateral	289,275			720,047			336,363			147,427
Total financial instruments and other inventory positions owned	809,858			1,383,377			641,658			627,222

Fixed assets (net of accumulated depreciation and amortization of $59,905 and $55,944, respectively)	27,330			25,179
Fixed assets (net of accumulated depreciation and amortization of $63,011 and $60,555, respectively)							31,680			32,619
Goodwill	81,855			81,855			81,855			81,855
Intangible assets (net of accumulated amortization of $90,647 and $85,417, respectively)	17,604			22,834
Intangible assets (net of accumulated amortization of $97,989 and $95,877, respectively)							10,262			12,374
Investments	155,622			176,212			152,024			151,963
Net deferred income tax assets	98,777			101,205			88,002			101,857
Right-of-use lease asset							41,935			—
Other assets	77,826			54,834			56,982			51,737
Total assets	$	1,514,528		$	2,024,683		$	1,169,653		$	1,345,269

Liabilities and Shareholders' Equity
Short-term financing	$	51,706		$	289,937		$	49,956		$	49,953
Senior notes	125,000			125,000
Payables to brokers, dealers and clearing organizations	5,257			19,392			6,272			8,657
Financial instruments and other inventory positions sold, but not yet purchased	367,251			399,227			174,504			177,427
Accrued compensation	182,478			400,092			143,430			333,522
Accrued lease liability							56,243			—
Other liabilities and accrued expenses	45,636			49,800			25,577			45,294
Total liabilities	777,328			1,283,448			455,982			614,853

Shareholders' equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at June 30, 2018 and December 31, 2017;
Shares issued: 19,516,573 at June 30, 2018 and 19,512,914 at December 31, 2017;
Shares outstanding: 13,334,389 at June 30, 2018 and 12,911,149 at December 31, 2017	195			195
Shares authorized: 100,000,000 at March 31, 2019 and December 31, 2018;
Shares issued: 19,519,307 at March 31, 2019 and 19,518,044 at December 31, 2018;
Shares outstanding: 13,468,235 at March 31, 2019 and 12,995,397 at December 31, 2018							195			195
Additional paid-in capital	801,682			791,970			772,184			796,363
Retained earnings (1)	153,407			176,270
Less common stock held in treasury, at cost: 6,182,184 shares at June 30, 2018 and 6,601,765 shares at December 31, 2017	(268,613		)	(273,824		)
Retained earnings							182,027			182,552
Less common stock held in treasury, at cost: 6,051,072 shares at March 31, 2019 and 6,522,647 shares at December 31, 2018							(291,903		)	(300,268		)
Accumulated other comprehensive loss	(1,147		)	(1,279		)	(1,183		)	(1,398		)
Total common shareholders' equity	685,524			693,332			661,320			677,444

Noncontrolling interests	51,676			47,903			52,351			52,972
Total shareholders' equity	737,200			741,235			713,671			730,416

Total liabilities and shareholders' equity	$	1,514,528		$	2,024,683		$	1,169,653		$	1,345,269


~~(1)~~	~~Includes the cumulative effect adjustment upon adoption of ASU 2014-09, as amended. See Note 2 for further discussion.~~

See Notes to the Consolidated Financial Statements

Table of Contents

Piper Jaffray Companies

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended					Six Months Ended					Three Months Ended
	June 30,					June 30,					March 31,
(Amounts in thousands, except per share data)	2018			2017		2018			2017		2019			2018
Revenues:
Investment banking	$	123,904		$	138,528	$	244,745		$	270,778	$	141,061		$	120,841
Institutional brokerage	33,032			37,074		60,677			76,210		34,954			27,645
Asset management	12,740			15,186		25,329			31,193		10,418			12,589
Interest	8,178			7,766		18,591			15,485		7,567			10,413
Investment income	726			5,453		3,638			15,828		475			2,912

Total revenues	178,580			204,007		352,980			409,494		194,475			174,400

Interest expense	5,099			6,262		10,437			11,220		2,643			5,338

Net revenues	173,481			197,745		342,543			398,274		191,832			169,062

Non-interest expenses:
Compensation and benefits	115,574			134,314		230,744			268,692		122,636			115,170
Outside services	10,564			9,789		19,503			20,117		9,142			8,939
Occupancy and equipment	8,931			8,257		17,509			16,719		8,750			8,578
Communications	7,925			7,273		16,551			14,889		8,630			8,626
Marketing and business development	7,685			8,282		14,984			15,829		7,395			7,299
Deal-related expenses	6,166			—		11,217			—		4,728			5,051
Trade execution and clearance	2,028			1,928		4,191			3,739		1,806			2,163
Restructuring costs	3,770			—		3,770			—
Intangible asset amortization	2,615			3,822		5,230			7,644		2,112			2,615
Back office conversion costs	—			868		—			1,734
Other operating expenses	2,964			3,345		5,547			6,235		3,703			2,583

Total non-interest expenses	168,222			177,878		329,246			355,598		168,902			161,024

Income before income tax expense/(benefit)	5,259			19,867		13,297			42,676		22,930			8,038

Income tax expense/(benefit)	567			4,906		(2,014		)	4,511		4,124			(2,581		)

Net income	4,692			14,961		15,311			38,165		18,806			10,619

Net income/(loss) applicable to noncontrolling interests	(1,534		)	1,388		(1,518		)	4,317		(616		)	16

Net income applicable to Piper Jaffray Companies	$	6,226		$	13,573	$	16,829		$	33,848	$	19,422		$	10,603

Net income applicable to Piper Jaffray Companies' common shareholders	$	5,522		$	11,522	$	12,195		$	28,412	$	17,835		$	6,435

Earnings per common share
Basic	$	0.43		$	0.89	$	0.91		$	2.24	$	1.35		$	0.47
Diluted	$	0.43		$	0.89	$	0.91		$	2.21	$	1.32		$	0.47

Dividends declared per common share	$	0.38		$	0.31	$	2.37		$	0.63	$	1.39		$	2.00

Weighted average number of common shares outstanding
Basic	13,303			12,826		13,200			12,711		13,204			13,096
Diluted	13,438			12,937		13,411			12,930		13,530			13,382

See Notes to the Consolidated Financial Statements

Table of Contents

Piper Jaffray Companies

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended					Six Months Ended					Three Months Ended
	June 30,					June 30,					March 31,
(Amounts in thousands)	2018			2017		2018			2017		2019			2018
Net income	$	4,692		$	14,961	$	15,311		$	38,165	$	18,806		$	10,619

Other comprehensive income/(loss), net of tax:
Other comprehensive income, net of tax:
Foreign currency translation adjustment	(397		)	772		132			995		215			529

Comprehensive income	4,295			15,733		15,443			39,160		19,021			11,148

Comprehensive income/(loss) applicable to noncontrolling interests	(1,534		)	1,388		(1,518		)	4,317		(616		)	16

Comprehensive income applicable to Piper Jaffray Companies	$	5,829		$	14,345	$	16,961		$	34,843	$	19,637		$	11,132

See Notes to the Consolidated Financial Statements

Table of Contents

Piper Jaffray Companies

Consolidated Statements of ~~Cash Flows~~Changes in Shareholders' Equity

(Unaudited)

Six Months Ended
June 30,
(Dollars in thousands) 2018 2017

Operating Activities:
Net income $ 15,311
$ 38,165
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets 4,074
3,486
Deferred income taxes 2,428
8,301
Stock-based compensation 19,227
12,881
Amortization of intangible assets 5,230
7,644
Amortization of forgivable loans 2,486
3,717
Decrease/(increase) in operating assets:
Receivables:
Customers —
520
Brokers, dealers and clearing organizations (74,237 ) 25,295
Securities purchased under agreements to resell —
12,682
Net financial instruments and other inventory positions owned 541,543
145,440
Investments 20,590
3,896
Other assets (25,194 ) (7,669 )
Increase/(decrease) in operating liabilities:
Payables:
Customers —
(1,094 )
Brokers, dealers and clearing organizations (14,135 ) 2,025
Securities sold under agreements to repurchase —
(6,128 )
Accrued compensation (196,717 ) (86,526 )
Other liabilities and accrued expenses (7,949 ) (1,405 )

Net cash provided by operating activities 292,657
161,230

Investing Activities:
Purchases of fixed assets, net (6,259 ) (3,034 )

Net cash used in investing activities (6,259 ) (3,034 )

Continued on next page



														Accumulated			Total
	Common				Additional									Other			Common						Total
(Amounts in thousands,	Shares		Common		Paid-In			Retained			Treasury			Comprehensive			Shareholders'			Noncontrolling			Shareholders'
except share amounts)	Outstanding		Stock		Capital			Earnings			Stock			Loss			Equity			Interests			Equity

Balance at December 31, 2018	12,995,397		$	195	$	796,363		$	182,552		$	(300,268	)	$	(1,398	)	$	677,444		$	52,972		$	730,416

Net income/(loss)	—		—		—			19,422			—			—			19,422			(616		)	18,806
Dividends	—		—		—			(19,947		)	—			—			(19,947		)	—			(19,947		)
Amortization/issuance of restricted stock	—		—		23,826			—			—			—			23,826			—			23,826
Repurchase of common stock through share repurchase program	(501	)	—		—			—			(32		)	—			(32		)	—			(32		)
Issuance of treasury shares for restricted stock vestings	1,035,360		—		(48,092		)	—			48,092			—			—			—			—
Repurchase of common stock from employees	(563,284	)	—		—			—			(39,695		)	—			(39,695		)	—			(39,695		)
Shares reserved/issued for director compensation	1,263		—		87			—			—			—			87			—			87
Other comprehensive income	—		—		—			—			—			215			215			—			215
Fund capital distributions, net	—		—		—			—			—			—			—			(5		)	(5		)
Balance at March 31, 2019	13,468,235		$	195	$	772,184		$	182,027		$	(291,903	)	$	(1,183	)	$	661,320		$	52,351		$	713,671

Balance at December 31, 2017	12,911,149		$	195	$	791,970		$	176,270		$	(273,824	)	$	(1,279	)	$	693,332		$	47,903		$	741,235

Net income	—		—		—			10,603			—			—			10,603			16			10,619
Dividends	—		—		—			(30,575		)	—			—			(30,575		)	—			(30,575		)
Amortization/issuance of restricted stock	—		—		34,416			—			—			—			34,416			—			34,416
Issuance of treasury shares for restricted stock vestings	574,594		—		(23,901		)	—			23,901			—			—			—			—
Repurchase of common stock from employees	(187,860	)	—		—			—			(16,797		)	—			(16,797		)	—			(16,797		)
Shares reserved/issued for director compensation	942		—		81			—			—			—			81			—			81
Other comprehensive income	—		—		—			—			—			529			529			—			529
Cumulative effect upon adoption of new accounting standard, net of tax	—		—		—			(3,597		)	—			—			(3,597		)	—			(3,597		)
Fund capital distributions, net	—		—		—			—			—			—			—			(904		)	(904		)
Balance at March 31, 2018	13,298,825		$	195	$	802,566		$	152,701		$	(266,720	)	$	(750	)	$	687,992		$	47,015		$	735,007

See Notes to the Consolidated Financial Statements

Table of Contents

Piper Jaffray Companies

Consolidated Statements of Cash Flows ~~– Continued~~

(Unaudited)


	Six Months Ended						Three Months Ended
	June 30,						March 31,
(Dollars in thousands)	2018			2017			2019			2018

Operating Activities:
Net income							$	18,806		$	10,619
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets							2,392			2,003
Deferred income taxes							13,855			5,610
Stock-based compensation							4,350			8,970
Amortization of intangible assets							2,112			2,615
Amortization of forgivable loans							1,503			1,298
Decrease/(increase) in operating assets:
Receivables from brokers, dealers and clearing organizations							188,268			99,092
Net financial instruments and other inventory positions owned							(17,359		)	270,816
Investments							(61		)	6,473
Other assets							(6,768		)	(23,256		)
Increase/(decrease) in operating liabilities:
Payables to brokers, dealers and clearing organizations							(2,385		)	14,190
Accrued compensation							(170,611		)	(247,363		)
Other liabilities and accrued expenses							(5,571		)	(4,619		)

Net cash provided by operating activities							28,531			146,448

Investing Activities:
Purchases of fixed assets, net							(1,431		)	(1,560		)

Net cash used in investing activities							(1,431		)	(1,560		)

Financing Activities:
Decrease in short-term financing	$	(238,231	)	$	(88,409	)
Repayment of senior notes	—			(50,000		)
Increase/(decrease) in short-term financing							3			(103,683		)
Payment of cash dividend	(35,991		)	(9,483		)	(19,947		)	(30,375		)
Increase/(decrease) in noncontrolling interests	5,291			(16,169		)
Decrease in noncontrolling interests							(5		)	(904		)
Repurchase of common stock	(24,914		)	(23,597		)	(39,727		)	(16,797		)
Proceeds from stock option exercises	—			1,703

Net cash used in financing activities	(293,845		)	(185,955		)	(59,676		)	(151,759		)

Currency adjustment:
Effect of exchange rate changes on cash	(321		)	620			457			720

Net decrease in cash, cash equivalents and restricted cash (1)	(7,768		)	(27,139		)
Net decrease in cash and cash equivalents							(32,119		)	(6,151		)

Cash, cash equivalents and restricted cash at beginning of period (1)	33,793			70,374
Cash and cash equivalents at beginning of period							50,364			33,793

Cash, cash equivalents and restricted cash at end of period (1)	$	26,025		$	43,235
Cash and cash equivalents at end of period							$	18,245		$	27,642

Supplemental disclosure of cash flow information –
Cash paid during the period for:
Interest	$	10,302		$	11,134		$	2,809		$	5,615
Income taxes	$	14,742		$	7,843		$	7,462		$	12,474


~~(1)~~	~~Upon adoption of ASU 2016-18, restricted cash includes cash and cash equivalents previously segregated for regulatory purposes. See Note 2 for further discussion.~~

See Notes to the Consolidated Financial Statements

Table of Contents

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Index



Note 1	Organization and Basis of Presentation	9
Note 2	Accounting Policies and Pronouncements	10
Note 3	Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased	1311
Note 4	Fair Value of Financial Instruments	1513
Note 5	Variable Interest Entities	2319
Note 6	Receivables from and Payables to Brokers, Dealers and Clearing Organizations	2520
Note 7	Investments	2520
Note 8	Other Assets	2621
Note 9	Short-Term Financing	2621
Note 10	Legal Contingencies ~~Commitments and Guarantees~~	2721
Note 11	~~Restructuring~~Leases	2822
Note 12	Shareholders' Equity	2822
Note 13	Compensation Plans	3024
Note 14	Earnings Per Share	3429
Note 15	Segment Reporting	3530
Note 16	Net Capital Requirements and Other Regulatory Matters	3732
Note 17	Income Taxes	3732

Table of Contents

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 1 Organization and Basis of Presentation

Organization

Piper Jaffray Companies is the parent company of Piper Jaffray & Co. ("Piper Jaffray"), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and mergers and acquisitions services in Europe; Piper Jaffray Finance LLC, which facilitates corporate debt underwriting in conjunction with affiliated credit vehicles; Advisory Research, Inc. ("ARI"), which provides asset management services to separately managed accounts, closed-end and open-end funds and partnerships; Piper Jaffray Investment Group Inc. and PJC Capital Management LLC, which consist of entities providing alternative asset management services; Piper Jaffray Financial Products Inc. and Piper Jaffray Financial Products II Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries.

~~Effective August 7, 2017, Piper Jaffray transitioned from a self clearing securities broker dealer to a fully disclosed clearing model.~~ Pershing LLC ("Pershing") is Piper Jaffray's clearing broker dealer responsible for the clearance and settlement of firm and customer cash and security transactions.

Piper Jaffray Companies and its subsidiaries (collectively, the "Company") operate in two reporting segments: Capital Markets and Asset Management. A summary of the activities of each of the Company's business segments is as follows:

Capital Markets

The Capital Markets segment provides investment banking services and institutional sales, trading and research services. Investment banking services include financial advisory services, management of and participation in underwritings and public finance activities. Revenues are generated through the receipt of advisory and financing fees. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, and profits and losses from trading these securities. Also, the Company generates revenue through strategic trading and investing activities, which focus on investments in municipal bonds, U.S. government agency securities, and merchant banking activities involving equity ~~or debt~~ investments in late stage private companies. The Company has created alternative asset management funds in merchant banking, energy and senior living in order to invest firm capital and to manage capital from outside investors. The Company receives management and performance fees for managing these funds.

Asset Management

The Asset Management segment provides traditional asset management services with product offerings in master limited partnerships and equity securities to institutions and individuals. Revenues are generated in the form of management and performance fees. Revenues are also generated through investments in the partnerships and funds that the Company manages.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to this guidance, certain information and disclosures have been omitted that are included within complete annual financial statements. Except as disclosed herein, there have been no material changes in the information reported in the financial statements and related disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. Noncontrolling interests represent equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. Noncontrolling interests include the minority equity holders' proportionate share of the equity in the Company's alternative asset management funds. All material intercompany balances have been eliminated.

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates and assumptions are based on the best information available, actual results could differ from those estimates.

Table of Contents

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 2 Accounting Policies and Pronouncements

Summary of Significant Accounting Policies

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for a full description of the Company's significant accounting policies. Changes to the Company's significant accounting policies are described below.

~~Revenue Recognition~~Leases

~~Investment Banking~~– ~~Investment banking revenues, which include advisory and underwriting fees, are recorded when the performance obligation for the transaction~~A lease is ~~satisfied under the terms of each engagement. Expenses associated with such transactions are deferred until the related revenue is recognized~~a contract, or the engagement is otherwise concluded. Investment banking revenues are presented gross of related client reimbursed deal expenses. Expenses for completed deals are reported separately in deal-related expenses on the consolidated statements of operations. Expenses related to investment banking deals not completed are recognized as non-interest expenses on the consolidated statements of operations.

The Company's advisory fees generally consist of a nonrefundable up-front fee and a success fee. The nonrefundable fee is recorded as deferred revenue upon receipt and recognized at a point in time when the performance obligation is satisfied, or when the transaction is deemed by management to be terminated. Management's judgment is required in determining when a transaction is considered to be terminated.

The substantial majority of the Company's advisory and underwriting fees (i.e., the success related advisory fee) are considered variable consideration and recognized when it is probable that the variable consideration will not be reversed in a future period. The variable consideration is considered to be constrained until satisfaction of the performance obligation. The Company's performance obligation is generally satisfied at a point in time upon the closing of a strategic transaction, completion of a financing or underwriting arrangement, or some other defined outcome (e.g., providing a fairness opinion). At this time, the Company has transferred control of the promised service and the customer obtains control. As these arrangements represent a single performance obligation, allocation of the transaction price is not necessary. The Company has elected to apply the following optional exemptions regarding disclosure of its remaining performance obligations: (i) the Company's performance obligation is part of a contract, that ~~has an original expected duration~~conveys the right to control the use of ~~one year~~identified property or ~~less and/or (ii)~~equipment for a period of time in exchange for consideration. In making this determination, the ~~variable consideration~~Company considers if it obtains substantially all of the economic benefits from the use of the underlying asset and directs how and for what purpose the asset is ~~allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part~~used during the term of ~~a single performance obligation.~~the contract.

~~Institutional Brokerage~~– ~~Institutional brokerage revenues include (i) commissions received from customers for the execution~~The Company leases its corporate headquarters and other offices under various non-cancelable leases, all of ~~brokerage transactions in listed and over-the-counter (OTC) equity, fixed income and convertible debt securities,~~ which are ~~recognized at a point in time on~~operating leases. In addition to rent, the ~~trade date because~~leases require payment of real estate taxes, insurance and common area maintenance. The original terms of the ~~customer has obtained~~Company's lease agreements generally range up to twelve years. Some of the ~~rights to the underlying security provided by the trade execution service, (ii) trading gains~~leases contain renewal and/or termination options, escalation clauses, rent-free holidays and losses, recorded on changes in the fair value of long and short security positions in the reporting period and (iii) fees received by the Company for equity research, which are generally recognized in the period received. operating cost adjustments.

The Company ~~permits institutional customers to allocate~~recognizes a ~~portion of their gross commissions to pay for research products~~right-of-use ("ROU") lease asset and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. As the Company is not acting as a principal in satisfying the performance obligation for these arrangements, expenses relating to soft dollars are netted against commission revenues and included in other liabilities and accrued expenseslease liability on the consolidated statements of financial ~~condition.~~

~~Asset Management~~– ~~Asset management fees include revenues~~position for all leases with a term greater than 12 months. The lease liability represents the ~~Company receives in connection with management~~Company’s obligation to make future lease payments and ~~investment advisory services performed for separately managed accounts and various funds and partnerships. The performance obligation related~~is recorded at an amount equal to the ~~transfer~~present value of ~~these services is satisfied~~the remaining lease payments due over ~~time and~~ the ~~related fees are recognized under~~lease term. The ROU lease asset, which represents the ~~output method, which reflects the fees that the Company has a~~ right to ~~invoice~~use the underlying asset during the lease term, is measured based on the ~~services provided during~~carrying value of the ~~period. Fees~~lease liability, adjusted for other items, such as lease incentives and uneven rent payments.

The discount rate used to determine the present value of the remaining lease payments reflects the Company’s incremental borrowing rate, which is the rate the Company would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. In calculating its discount rates, the Company took into consideration a current financing arrangement that is on a secured (i.e., collateralized) basis, as well as market interest rates and spreads, other reference points, and the respective tenors of the Company’s designated lease term ranges. The Company applied the portfolio approach in determining the discount rates for its leases. The weighted-average discount rate was 4.0 percent at March 31, 2019.

For leases that contain escalation clauses or rent-free holidays, the Company recognizes the related rent expense on a straight-line basis from the date the Company takes possession of the property to the end of the initial lease term. The Company records any difference between the straight-line rent expense and amounts paid under the leases as part of the amortization of the ROU lease asset.

Cash or lease incentives received upon entering into certain leases are ~~defined in client contracts~~recognized on a straight-line basis as a ~~percentage~~reduction of ~~portfolio assets under management. Amounts related to remaining performance obligations are not disclosed as~~rent expense from the date the Company ~~applies~~takes possession of the ~~output method.~~property or receives the cash to the end of the initial lease term. Lease incentives, which initially reduce the ROU lease asset, are a component of the amortization of the ROU lease asset.

~~Table~~Rent expense for leases with a term of ~~Contents~~

~~Piper Jaffray Companies~~

~~Notes to~~12 months or less is recorded on a straight-line basis over the ~~Consolidated Financial Statements~~

~~(Unaudited)~~

Asset management revenues may also include performance fees. Performance fees, if earned, are recognized when it is probable that such revenue will not be reversed in a future period. For the Company's alternative asset management funds, management will consider such factors as the remaining assets and residual life of the fund to conclude whether it is probable that a significant reversal of revenue will not occurlease term in the future. For the Company's traditional asset management funds, performance fees are earned when the investment return on assets under management exceeds certain benchmark targets or other performance targets over a specified measurement period (e.g. monthly, quarterly or annually). These performance fees are typically annual performance hurdles and recognized in the fourth quarterconsolidated statements of ~~the applicable year, or upon client liquidation.~~

~~See Note 15 for revenues from contracts with customers disaggregated by major business activity.~~operations.

Adoption of New Accounting Standards

~~Revenue Recognition~~Leases

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"), which supersedes previous revenue recognition guidance, including most industry-specific guidance. ASU 2014-09, as amended, requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services, and also requires enhanced disclosures.

The Company adopted this guidance effective as of January 1, 2018 under the modified retrospective method, in which the cumulative effect of applying the standard was recognized at the date of initial application. The cumulative effect adjustment that the Company recognized upon adoption as of January 1, 2018 was a decrease to retained earnings of $3.6 million, net of tax. The Company applied the guidance only to those contracts that were not completed at the date of initial application.

The previous broker dealer industry treatment of netting deal expenses with investment banking revenues was superseded under the new guidance. As a result of adopting ASU 2014-09, the Company now presents investment banking revenues gross of related client reimbursed deal expenses and deal-related expenses as non-interest expenses on the consolidated statements of operations, rather than the previous presentation of netting deal expenses incurred for completed investment banking deals within revenues. For the three and six months ended June 30, 2018, the Company reported higher investment banking revenues and higher non-compensation expenses of $6.2 million and $11.2 million, respectively. This change did not impact earnings. In addition, the Company now defers the recognition of performance fees on its merchant banking, energy and senior living alternative asset management funds until such fees are no longer subject to reversal, which will cause a delay in the recognition of these fees as revenue. For the six months ended June 30, 2018, the amount of asset management revenue from performance fees that the Company would have recognized if not for this change was not material. With the exception of the above, the Company's previous methods of recognizing investment banking revenues were not significantly impacted by the new guidance.

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). The amendments in ASU 2016-01 address certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 became effective for the Company as of January 1, 2018. There was no material impact to the Company's results of operations, financial position or disclosures upon adoption as the Company's financial instruments are already recorded at fair value.

~~Statement of Cash Flows~~

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"). ASU 2016-15 clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The amendments in ASU 2016-15 became effective for the Company as of January 1, 2018, with retrospective application. There was no material impact to the Company's presentation of its consolidated statements of cash flows upon adoption of ASU 2016-15.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" ("ASU 2016-18"). Under ASU 2016-18, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the consolidated statements of cash flows. ASU 2016-18 became effective for the Company as of January 1, 2018, with retrospective application. As a registered broker dealer, Piper Jaffray is subject to Rule 15c3-3 of the Securities Exchange Act of 1934, which requires broker dealers carrying customer accounts to maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of its customers. These accounts were previously classified as cash and cash equivalents segregated for regulatory purposes on the consolidated statements of financial condition. Subsequent to transitioning to a fully disclosed clearing model in 2017, Piper Jaffray no longer carries customer accounts and is no longer subject to Rule 15c3-3. The following table provides a reconciliation of cash, cash equivalents and restricted cash for all periods presented on the consolidated statements of cash flows:

December 31, June 30, December 31,
(Dollars in thousands) 2017 2017 2016
Cash and cash equivalents $ 33,793
$ 26,170
$ 41,359
Cash and cash equivalents segregated for regulatory purposes —
17,065
29,015
Cash, cash equivalents and restricted cash $ 33,793
$ 43,235
$ 70,374

~~Future Adoption of New Applicable Accounting Standards~~

~~Leases~~

~~In February 2016, the FASB issued ASU~~ No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize a ~~right-of-use~~ROU lease asset and lease liability on the consolidated statements of financial position for all leases with a term longer than 12 months and disclose key information about leasing arrangements. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from ~~current~~previous U.S. GAAP.

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Notes to the Consolidated Financial Statements

(Unaudited)

The Company adopted ASU 2016-02 ~~is effective for annual~~as of January 1, 2019 using the modified retrospective approach and ~~interim periods beginning after December 15, 2018. As~~applied the package of ~~June 30, 2018,~~practical expedients in transitioning to the new guidance. Electing the package of practical expedients allowed the Company ~~had approximately 65 operating~~to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for ~~office space with aggregate minimum~~any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Also, the Company has elected the practical expedient to not separate lease ~~commitments of $75.3 million.~~ components from nonlease components.

Upon adoption, the Company recognized a ROU lease ~~commitments will be reflected on the statement~~asset of ~~financial condition as a right-of-use asset~~approximately $44.0 million and a lease ~~commitment liability.~~liability of approximately $59.0 million. The ~~Company also evaluated other service contracts which may include embedded leases. The Company has identified its arrangements that are within~~difference between the ~~scope of~~ROU lease asset and the ~~new guidance, and continues~~lease liability is due to ~~evaluate their potential impact on the consolidated statements of financial condition and related disclosures. Upon adoption of ASU 2016-02, the Company does not expect material~~lease incentives. There were no changes to the recognition of rent expense in ~~its~~the Company’s consolidated statements of ~~operations. The impact~~operations upon adoption of ASU 2016-02. In addition, the new guidance onhas not impacted Piper Jaffray's net capital ~~is expected to be minimal.~~position.

Future Adoption of New Applicable Accounting Standards

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The new guidance requires an entity to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts as opposed to delaying recognition until the loss was probable of occurring. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019. ~~Early adoption is permitted for annual and interim periods beginning after December 15, 2018.~~ The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Note 3 Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased


	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2018		2017		2019		2018
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	18,229	$	51,896	$	12,908	$	1,458
Convertible securities	162,994		74,456		116,008		92,485
Fixed income securities	43,678		30,145		33,819		31,906
Municipal securities:
Taxable securities	28,309		67,699		40,072		38,711
Tax-exempt securities	233,549		744,241		246,130		268,804
Short-term securities	76,257		62,251		20,620		52,472
Mortgage-backed securities	1,173		481		14		15
U.S. government agency securities	229,610		317,318		152,743		123,384
U.S. government securities	992		9,317		2,569		954
Derivative contracts	15,067		25,573		16,775		17,033
Total financial instruments and other inventory positions owned	$	809,858	$	1,383,377	$	641,658	$	627,222

Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	128,509	$	101,517	$	79,279	$	82,082
Fixed income securities	35,127		30,292		18,163		20,180
U.S. government agency securities	26,222		49,077		8,859		10,257
U.S. government securities	173,179		213,312		62,354		60,365
Derivative contracts	4,214		5,029		5,849		4,543
Total financial instruments and other inventory positions sold, but not yet purchased	$	367,251	$	399,227	$	174,504	$	177,427

At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018, financial instruments and other inventory positions owned in the amount of $~~289.3~~336.4 million and $~~720.0~~147.4 million, respectively, had been pledged as collateral for short-term financings.

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Notes to the Consolidated Financial Statements

(Unaudited)

Financial instruments and other inventory positions sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated statements of financial condition. The Company economically hedges changes in the market value of its financial instruments and other inventory positions owned using inventory positions sold, but not yet purchased, interest rate derivatives ~~credit default swap index contracts,~~and U.S. treasury bond ~~futures and exchange traded options.~~futures.

Derivative Contract Financial Instruments

The Company uses interest rate swaps, interest rate locks ~~credit default swap index contracts,~~and U.S. treasury bond futures ~~and equity option contracts~~ as a means to manage risk in certain inventory positions. The Company also enters into interest rate swaps to facilitate customer transactions. The following describes the Company's derivatives by the type of transaction or security the instruments are economically hedging.

Customer matched-book derivatives: The Company enters into interest rate derivative contracts in a principal capacity as a dealer to satisfy the financial needs of its customers. The Company simultaneously enters into an interest rate derivative contract with a third party for the same notional amount to hedge the interest rate and credit risk of the initial client interest rate derivative contract. In certain limited instances, the Company has only hedged interest rate risk with a third party, and retains uncollateralized credit risk as described below. The instruments use interest rates based upon either the London Interbank Offer Rate ("LIBOR") index or the Securities Industry and Financial Markets Association ("SIFMA") index.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Trading securities derivatives: The Company enters into interest rate derivative contracts and uses U.S. treasury bond futures to hedge interest rate and market value risks associated with its fixed income securities. These instruments use interest rates based upon ~~either~~ the Municipal Market Data ("MMD") index, LIBOR or the SIFMA index. The Company also enters into credit default swap index contracts to hedge credit risk associated with its taxable fixed income securities and option contracts to hedge market value risk associated with its convertible securities.

Derivatives are reported on a net basis by counterparty (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of offset exists and on a net basis by cross product when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists. The total absolute notional contract amount, representing the absolute value of the sum of gross long and short derivative contracts, provides an indication of the volume of the Company's derivative activity and does not represent gains and losses. The following table presents the gross fair market value and the total absolute notional contract amount of the Company's outstanding derivative instruments, prior to counterparty netting, by asset or liability position:


	June 30, 2018						December 31, 2017						March 31, 2019						December 31, 2018
(Dollars in thousands)	Derivative		Derivative		Notional		Derivative		Derivative		Notional		Derivative		Derivative		Notional		Derivative		Derivative		Notional
Derivative Category	Assets (1)		Liabilities (2)		Amount		Assets (1)		Liabilities (2)		Amount		Assets (1)		Liabilities (2)		Amount		Assets (1)		Liabilities (2)		Amount
Interest rate
Customer matched-book	$	177,092	$	165,389	$	2,630,942	$	239,224	$	225,890	$	2,819,006	$	186,555	$	175,755	$	2,308,159	$	181,199	$	169,950	$	2,532,966
Trading securities	1,269		1,005		234,175		126		4,459		399,450		10		4,222		239,225		408		4,202		262,275
Equity options
Trading securities	—		—		—		6		—		9,635
	$	178,361	$	166,394	$	2,865,117	$	239,356	$	230,349	$	3,228,091	$	186,565	$	179,977	$	2,547,384	$	181,607	$	174,152	$	2,795,241


(1)	Derivative assets are included within financial instruments and other inventory positions owned on the consolidated statements of financial condition.


(2)	Derivative liabilities are included within financial instruments and other inventory positions sold, but not yet purchased on the consolidated statements of financial condition.

The Company's derivative contracts do not qualify for hedge accounting, therefore, unrealized gains and losses are recorded on the consolidated statements of operations. The gains and losses on the related economically hedged inventory positions are not disclosed below as they are not in qualifying hedging relationships. The following table presents the Company's unrealized gains/(losses) on derivative instruments:


		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)		June 30,						June 30,							March 31,
Derivative Category	Operations Category	2018			2017			2018			2017			Operations Category	2019			2018
Interest rate derivative contract	Investment banking	$	(471	)	$	(483	)	$	(1,266	)	$	(775	)	Investment banking	$	(617	)	$	(795	)
Interest rate derivative contract	Institutional brokerage	(830		)	(2,917		)	4,232			(17,655		)	Institutional brokerage	(249		)	5,062
Credit default swap index contract	Institutional brokerage	—			(77		)	—			178
		$	(1,301	)	$	(3,477	)	$	2,966		$	(18,252	)		$	(866	)	$	4,267

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Notes to the Consolidated Financial Statements

(Unaudited)

Credit risk associated with the Company's derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company's derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by the Company's financial risk committee. The Company considers counterparty credit risk in determining derivative contract fair value. The majority of the Company's derivative contracts are substantially collateralized by its counterparties, who are major financial institutions. The Company has a limited number of counterparties who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of ~~June 30, 2018~~March 31, 2019, the Company had $~~15.1~~16.9 million of uncollateralized credit exposure with these counterparties (notional contract amount of $~~178.9~~176.5 million), including $~~12.0~~13.9 million of uncollateralized credit exposure with one counterparty.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Note 4 Fair Value of Financial Instruments

Based on the nature of the Company's business and its role as a "dealer" in the securities industry or as a manager of alternative asset management funds, the fair values of its financial instruments are determined internally. The Company's processes are designed to ensure that the fair values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, unobservable inputs are developed based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations and other security-specific information. Valuation adjustments related to illiquidity or counterparty credit risk are also considered. In estimating fair value, the Company may utilize information provided by third party pricing vendors to corroborate internally-developed fair value estimates.

The Company employs specific control processes to determine the reasonableness of the fair value of its financial instruments. The Company's processes are designed to ensure that the internally-estimated fair values are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. Individuals outside of the trading departments perform independent pricing verification reviews as of each reporting date. The Company has established parameters which set forth when the fair value of securities are independently verified. The selection parameters are generally based upon the type of security, the level of estimation risk of a security, the materiality of the security to the Company's financial statements, changes in fair value from period to period, and other specific facts and circumstances of the Company's securities portfolio. In evaluating the initial internally-estimated fair values made by the Company's traders, the nature and complexity of securities involved (e.g., term, coupon, collateral, and other key drivers of value), level of market activity for securities, and availability of market data are considered. The independent price verification procedures include, but are not limited to, analysis of trade data (both internal and external where available), corroboration to the valuation of positions with similar characteristics, risks and components, or comparison to an alternative pricing source, such as a discounted cash flow model. The Company's valuation committee, comprised of members of senior management and risk management, provides oversight and overall responsibility for the internal control processes and procedures related to fair value measurements.

The following is a description of the valuation techniques used to measure fair value.

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value and classified as Level I.

Financial Instruments and Other Inventory Positions Owned

The Company records financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased at fair value on the consolidated statements of financial condition with unrealized gains and losses reflected on the consolidated statements of operations.

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Notes to the Consolidated Financial Statements

(Unaudited)

Equity securities – Exchange traded equity securities are valued based on quoted prices from the exchange for identical assets or liabilities as of the period-end date. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level I. Non-exchange traded equity securities (principally hybrid preferred securities) are measured primarily using broker quotations, prices observed for recently executed market transactions and internally-developed fair value estimates based on observable inputs and are categorized within Level II of the fair value hierarchy.

Convertible securities – Convertible securities are valued based on observable trades, when available. Accordingly, these convertible securities are categorized as Level II.

Corporate fixed income securities – Fixed income securities include corporate bonds which are valued based on recently executed market transactions of comparable size, internally-developed fair value estimates based on observable inputs, or broker quotations. Accordingly, these corporate bonds are categorized as Level II.

Taxable municipal securities – Taxable municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Tax-exempt municipal securities – Tax-exempt municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II. Certain illiquid tax-exempt municipal securities are valued using market data for comparable securities ~~(maturity~~(e.g., maturity and sector) and management judgment to infer an appropriate current yield or other model-based valuation techniques deemed appropriate by management based on the specific nature of the individual security and are therefore categorized as Level III.

Short-term municipal securities – Short-term municipal securities include auction rate securities, variable rate demand notes, and other short-term municipal securities. Variable rate demand notes and other short-term municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II. Auction rate securities with limited liquidity are categorized as Level III and are valued using discounted cash flow models with unobservable inputs such as the Company's expected recovery rate on the securities.

Mortgage-backed securities – Mortgage-backed securities are valued using observable trades, when available. Certain mortgage-backed securities are valued using models where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data. To the extent we hold, these mortgage-backed securities are categorized as Level II. Certain mortgage-backed securities collateralized by residential mortgages are valued using cash flow models that utilize unobservable inputs including credit default rates, prepayment rates, loss severity and valuation yields. As judgment is used to determine the range of these inputs, these mortgage-backed securities are categorized as Level III.

U.S. government agency securities – U.S. government agency securities include agency debt bonds and mortgage bonds. Agency debt bonds are valued by using either direct price quotes or price quotes for comparable bond securities and are categorized as Level II. Mortgage bonds include bonds secured by mortgages, mortgage pass-through securities, agency collateralized mortgage-obligation ("CMO") securities and agency interest-only securities. Mortgage pass-through securities, CMO securities and interest-only securities are valued using recently executed observable trades or other observable inputs, such as prepayment speeds and therefore are generally categorized as Level II. Mortgage bonds are valued using observable market inputs, such as market yields ~~ranging from 257-368 basis points ("bps")~~ on spreads over U.S. treasury securities, or models based upon prepayment ~~expectations ranging from 0%-19% conditional prepayment rate ("CPR").~~expectations. These securities are categorized as Level II.

U.S. government securities – U.S. government securities include highly liquid U.S. treasury securities which are generally valued using quoted market prices and therefore categorized as Level I. The Company does not transact in securities of countries other than the U.S. government.

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Notes to the Consolidated Financial Statements

(Unaudited)

Derivatives – Derivative contracts include interest rate swaps, interest rate locks ~~credit default swap index contracts,~~and U.S. treasury bond ~~futures and equity option contracts.~~futures. These instruments derive their value from underlying assets, reference rates, indices or a combination of these factors. The Company's equity option derivative contracts are valued based on quoted prices from the exchange for identical assets or liabilities as of the period-end date. To the extent these contracts are actively traded and valuation adjustments are not applied, they are categorized as Level I. The Company's credit default swap index contracts are valued using market price quotations and are classified as Level II. The majority of the Company's interest rate derivative contracts, including both interest rate swaps and interest rate locks, are valued using market standard pricing models based on the net present value of estimated future cash flows. The valuation models used do not involve material subjectivity as the methodologies do not entail significant judgment and the pricing inputs are market observable, including contractual terms, yield curves and measures of volatility. These instruments are classified as Level II within the fair value hierarchy. Certain interest rate locks transact in less active markets and were valued using valuation models that included the previously mentioned observable inputs and certain unobservable inputs that required significant judgment, such as the premium over the MMD curve. These instruments are classified as Level III.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Investments

The Company's investments valued at fair value include equity investments in private companies and partnerships and investments in registered mutual ~~funds, warrants of public and private companies and private company debt.~~funds. Investments in registered mutual funds are valued based on quoted prices on active markets and classified as Level I. Company-owned warrants, which have a cashless exercise option, are valued based upon the Black-Scholes option-pricing model and certain unobservable inputs. The Company applies a liquidity discount to the value of its warrants in public and private companies. For warrants in private companies, valuation adjustments, based upon management's judgment, are made to account for differences between the measured security and the stock volatility factors of comparable companies. Company-owned warrants are reported as Level III assets. Investments in private companies are valued based on an assessment of each underlying security, considering rounds of financing, third party transactions and market-based information, including comparable company transactions, trading multiples (e.g., multiples of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA")) and changes in market outlook, among other factors. These securities are generally categorized as Level III.

Fair Value Option – The fair value option permits the irrevocable fair value option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The fair value option was elected for certain merchant banking and other investments at inception to reflect economic events in earnings on a timely basis. Merchant banking and other equity investments of $~~3.5~~2.6 million and ~~$14.1~~$3.0 million, included within investments on the consolidated statements of financial condition, are accounted for at fair value and are classified as Level III assets at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The realized and unrealized net ~~gains~~impact from fair value changes included in earnings as a result of electing to apply the fair value option to certain financial assets were losses of $~~1.1~~0.4 million and gains of $~~0.7~~0.8 million for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, respectively.

The following table summarizes quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's Level III financial instruments as of ~~June 30, 2018~~March 31, 2019:



	Valuation			Weighted
	Technique	Unobservable Input	Range	Average (1)
Assets:
~~Financial instruments and other inventory positions owned:~~
~~Derivative contracts:~~
~~Interest rate locks~~	~~Discounted cash flow~~	~~Premium over the MMD curve (1)~~	~~5 - 25 bps~~	~~22.3 bps~~
Investments at fair value:
Equity securities in private companies	Market approach	Revenue multiple (2)	2 - 65 times	~~4.6~~4.3 times
		EBITDA multiple (2)	~~15.1~~13 - 16 times	~~15.1~~14.5 times

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve ~~(1)~~in basis points ("bps") (3)	2 - 2624 bps	~~17.1~~11.7 bps

~~Sensitivity~~Uncertainty of ~~the~~ fair value ~~to changes in unobservable inputs:~~measurements:


(1)	~~Significant increase/(decrease) in~~Unobservable inputs were weighted by the ~~unobservable input in isolation would result in a significantly lower/(higher)~~relative fair value ~~measurement.~~of the financial instruments.


~~(2)~~	~~Significant increase/(decrease) in the unobservable input in isolation would result in a significantly higher/(lower) fair value measurement.~~

(2) Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly higher/(lower) fair value measurement.

(3) Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly lower/(higher) fair value measurement.

1715

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in FASB Accounting Standards Codification Topic 820, "Fair Value Measurement" ("ASC 820") as of ~~June 30, 2018:~~March 31, 2019:


								Counterparty												Counterparty
								and Cash												and Cash
								Collateral												Collateral
(Dollars in thousands)	Level I		Level II		Level III			Netting (1)			Total		Level I		Level II		Level III			Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	245	$	17,984	$	—		$	—		$	18,229	$	21	$	12,887	$	—		$	—		$	12,908
Convertible securities	—		162,994		—			—			162,994		—		116,008		—			—			116,008
Fixed income securities	—		43,678		—			—			43,678		—		33,819		—			—			33,819
Municipal securities:
Taxable securities	—		28,309		—			—			28,309		—		40,072		—			—			40,072
Tax-exempt securities	—		233,549		—			—			233,549		—		246,130		—			—			246,130
Short-term securities	—		76,212		45			—			76,257		—		20,620		—			—			20,620
Mortgage-backed securities	—		1,155		18			—			1,173		—		—		14			—			14
U.S. government agency securities	—		229,610		—			—			229,610		—		152,743		—			—			152,743
U.S. government securities	992		—		—			—			992		2,569		—		—			—			2,569
Derivative contracts	—		177,431		930			(163,294		)	15,067		—		186,565		—			(169,790		)	16,775
Total financial instruments and other inventory positions owned	1,237		970,922		993			(163,294		)	809,858		2,590		808,844		14			(169,790		)	641,658

Cash equivalents	1,211		—		—			—			1,211		750		—		—			—			750

Investments at fair value	39,171		—		108,121		(2)	—			147,292		33,150		3,252		107,878		(2)	—			144,280
Total assets	$	41,619	$	970,922	$	109,114		$	(163,294	)	$	958,361	$	36,490	$	812,096	$	107,892		$	(169,790	)	$	786,688

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	128,509	$	—	$	—		$	—		$	128,509	$	68,307	$	10,972	$	—		$	—		$	79,279
Fixed income securities	—		35,127		—			—			35,127		—		18,163		—			—			18,163
U.S. government agency securities	—		26,222		—			—			26,222		—		8,859		—			—			8,859
U.S. government securities	173,179		—		—			—			173,179		62,354		—		—			—			62,354
Derivative contracts	—		165,389		1,005			(162,180		)	4,214		—		175,755		4,222			(174,128		)	5,849
Total financial instruments and other inventory positions sold, but not yet purchased	$	301,688	$	226,738	$	1,005		$	(162,180	)	$	367,251	$	130,661	$	213,749	$	4,222		$	(174,128	)	$	174,504


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.


(2)	Noncontrolling interests of ~~$51.7~~$52.4 million are attributable to third party ownership in consolidated merchant banking and senior living funds.

1816

Table of Contents

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in ASC 820 as of December 31, ~~2017~~2018:


								Counterparty												Counterparty
								and Cash												and Cash
								Collateral												Collateral
(Dollars in thousands)	Level I		Level II		Level III			Netting (1)			Total		Level I		Level II		Level III			Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	1,863	$	50,033	$	—		$	—		$	51,896	$	331	$	1,127	$	—		$	—		$	1,458
Convertible securities	—		74,456		—			—			74,456		—		92,485		—			—			92,485
Fixed income securities	—		30,145		—			—			30,145		—		31,906		—			—			31,906
Municipal securities:
Taxable securities	—		67,699		—			—			67,699		—		38,711		—			—			38,711
Tax-exempt securities	—		743,541		700			—			744,241		—		268,804		—			—			268,804
Short-term securities	—		61,537		714			—			62,251		—		52,472		—			—			52,472
Mortgage-backed securities	—		—		481			—			481		—		—		15			—			15
U.S. government agency securities	—		317,318		—			—			317,318		—		123,384		—			—			123,384
U.S. government securities	9,317		—		—			—			9,317		954		—		—			—			954
Derivative contracts	6		239,224		126			(213,783		)	25,573		—		181,378		229			(164,574		)	17,033
Total financial instruments and other inventory positions owned	11,186		1,583,953		2,021			(213,783		)	1,383,377		1,285		790,267		244			(164,574		)	627,222

Cash equivalents	3,782		—		—			—			3,782		20,581		—		—			—			20,581

Investments at fair value	39,504		—		126,060		(2)	—			165,564		33,587		2,649		107,792		(2)	—			144,028
Total assets	$	54,472	$	1,583,953	$	128,081		$	(213,783	)	$	1,552,723	$	55,453	$	792,916	$	108,036		$	(164,574	)	$	791,831

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	91,934	$	9,583	$	—		$	—		$	101,517	$	81,575	$	507	$	—		$	—		$	82,082
Fixed income securities	—		30,292		—			—			30,292		—		20,180		—			—			20,180
U.S. government agency securities	—		49,077		—			—			49,077		—		10,257		—			—			10,257
U.S. government securities	213,312		—		—			—			213,312		60,365		—		—			—			60,365
Derivative contracts	—		225,916		4,433			(225,320		)	5,029		—		169,950		4,202			(169,609		)	4,543
Total financial instruments and other inventory positions sold, but not yet purchased	$	305,246	$	314,868	$	4,433		$	(225,320	)	$	399,227	$	141,940	$	200,894	$	4,202		$	(169,609	)	$	177,427


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.


(2)	Noncontrolling interests of ~~$44.4~~$53.0 million are attributable to third party ownership in consolidated merchant banking and senior living funds.

The Company's Level III assets were $~~109.1~~107.9 million and $~~128.1~~108.0 million, or ~~11.4~~13.7 percent and ~~8.2~~13.6 percent of financial instruments measured at fair value at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018, respectively. ~~The value of transfers between levels are recognized at the beginning of the reporting period.~~ There were no significant transfers between ~~Level I, Level II or Level III~~levels for the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019.

1917

Table of Contents

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

The following tables summarize the changes in fair value associated with Level III financial instruments held at the beginning or end of the periods presented:


																					Unrealized gains/																							Unrealized gains/
																					(losses) for assets/																							(losses) for assets/
	Balance at													Realized		Unrealized			Balance at		liabilities held at			Balance at												Realized			Unrealized			Balance at		liabilities held at
	March 31,								Transfers		Transfers			gains/		gains/			June 30,		June 30,			December 31,								Transfers		Transfers		gains/			gains/			March 31,		March 31,
(Dollars in thousands)	2018		Purchases			Sales			in		out			(losses) (1)		(losses) (1)			2018		2018 (1)			2018		Purchases			Sales			in		out		(losses)			(losses)			2019		2019
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Short-term securities	$	719	$	—		$	(725	)	$	—	$	—		$	51	$	—		$	45	$	—
Mortgage-backed securities	284		—			—			—		—			—		(266		)	18		(94		)	$	15	$	—		$	(2	)	$	—	$	—	$	(27	)	$	28		$	14	$	—
Derivative contracts	2,144		4			(1,115		)	—		—			1,111		(1,214		)	930		(254		)	229		—			(336		)	—		—		336			(229		)	—		—
Total financial instruments and other inventory positions owned	3,147		4			(1,840		)	—		—			1,162		(1,480		)	993		(348		)	244		—			(338		)	—		—		309			(201		)	14		—

Investments at fair value	121,637		1,107			(10,787		)	—		(145		)	5,665		(9,356		)	108,121		(2,804		)	107,792		—			—			—		—		—			86			107,878		86
Total assets	$	124,784	$	1,111		$	(12,627	)	$	—	$	(145	)	$	6,827	$	(10,836	)	$	109,114	$	(3,152	)	$	108,036	$	—		$	(338	)	$	—	$	—	$	309		$	(115	)	$	107,892	$	86

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	1,389	$	(1,192	)	$	—		$	—	$	—		$	1,192	$	(384	)	$	1,005	$	531		$	4,202	$	(5,603	)	$	—		$	—	$	—	$	5,603		$	20		$	4,222	$	4,222
Total financial instruments and other inventory positions sold, but not yet purchased	$	1,389	$	(1,192	)	$	—		$	—	$	—		$	1,192	$	(384	)	$	1,005	$	531		$	4,202	$	(5,603	)	$	—		$	—	$	—	$	5,603		$	20		$	4,222	$	4,222

~~(1)~~

Realized and unrealized gains/(losses) related to financial instruments, with the exception of customer matched-book derivatives, are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to customer matched-book derivatives are reported in investment banking. Realized and unrealized gains/(losses) related to investments are reported in investment banking revenues or investment income on the consolidated statements of operations.



																						Unrealized gains/
																						(losses) for assets/
	Balance at													Realized			Unrealized			Balance at		liabilities held at
	December 31,								Transfers		Transfers			gains/			gains/			March 31,		March 31,
(Dollars in thousands)	2017		Purchases			Sales			in		out			(losses)			(losses)			2018		2018
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securities	$	700	$	—		$	—		$	—	$	(700	)	$	—		$	—		$	—	$	—
Short-term securities	714		—			—			—		—			—			5			719		5
Mortgage-backed securities	481		—			(5		)	—		—			—			(192		)	284		3
Derivative contracts	126		—			(1,760		)	—		—			1,760			2,018			2,144		2,144
Total financial instruments and other inventory positions owned	2,021		—			(1,765		)	—		(700		)	1,760			1,831			3,147		2,152

Investments at fair value	126,060		601			(4,154		)	—		—			3,402			(4,272		)	121,637		(869		)
Total assets	$	128,081	$	601		$	(5,919	)	$	—	$	(700	)	$	5,162		$	(2,441	)	$	124,784	$	1,283

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	4,433	$	(1,305	)	$	3,226		$	—	$	—		$	(1,921	)	$	(3,044	)	$	1,389	$	1,389
Total financial instruments and other inventory positions sold, but not yet purchased	$	4,433	$	(1,305	)	$	3,226		$	—	$	—		$	(1,921	)	$	(3,044	)	$	1,389	$	1,389

Table of Contents

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Unrealized gains/
(losses) for assets/
Balance at Realized Unrealized Balance at liabilities held at
March 31, Transfers Transfers gains/ gains/ June 30, June 30,
(Dollars in thousands) 2017 Purchases Sales in out (losses) (1) (losses) (1) 2017 2017 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securities $ 1,117
$ —
$ —
$ —
$ —
$ —
$ —
$ 1,117
$ —
Short-term securities 744
—
(25 ) —
—
2
—
721
—
Mortgage-backed securities 5,492
—
(1,065 ) —
—
(18 ) (158 ) 4,251
(158 )
Derivative contracts 1,633
5
(1,093 ) —
—
1,088
(1,250 ) 383
383
Total financial instruments and other inventory positions owned 8,986
5
(2,183 ) —
—
1,072
(1,408 ) 6,472
225

Investments at fair value 110,693
607
(742 ) —
(601 ) 742
3,186
113,885
3,186
Total assets $ 119,679
$ 612
$ (2,925 ) $ —
$ (601 ) $ 1,814
$ 1,778
$ 120,357
$ 3,411

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts $ 3,906
$ —
$ 7,758
$ —
$ —
$ (7,758 ) $ 1,667
$ 5,573
$ 4,753
Total financial instruments and other inventory positions sold, but not yet purchased $ 3,906
$ —
$ 7,758
$ —
$ —
$ (7,758 ) $ 1,667
$ 5,573
$ 4,753

~~(1)~~

~~Table~~ of ~~Contents~~

~~Piper Jaffray Companies~~

~~Notes~~customer matched-book derivatives, are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to customer matched-book derivatives are reported in investment banking. Realized and unrealized gains/(losses) related to investments are reported in investment banking revenues or investment income on the ~~Consolidated Financial Statements~~

~~(Unaudited)~~

Unrealized gains/
(losses) for assets/
Balance at Realized Unrealized Balance at liabilities held at
December 31, Transfers Transfers gains/ gains/ June 30, June 30,
(Dollars in thousands) 2017 Purchases Sales in out (losses) (1) (losses) (1) 2018 2018 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securities $ 700
$ —
$ —
$ —
$ (700 ) $ —
$ —
$ —
$ —
Short-term securities 714
—
(725 ) —
—
51
5
45
—
Mortgage-backed securities 481
�� —
(5 ) —
—
—
(458 ) 18
(91 )
Derivative contracts 126
4
(2,875 ) —
—
2,872
803
930
930
Total financial instruments and other inventory positions owned 2,021
4
(3,605 ) —
(700 ) 2,923
350
993
839

Investments at fair value 126,060
1,708
(14,941 ) —
(145 ) 9,067
(13,628 ) 108,121
(4,078 )
Total assets $ 128,081
$ 1,712
$ (18,546 ) $ —
$ (845 ) $ 11,990
$ (13,278 ) $ 109,114
$ (3,239 )

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts $ 4,433
$ (2,497 ) $ 3,226
$ —
$ —
$ (729 ) $ (3,428 ) $ 1,005
$ 1,005
Total financial instruments and other inventory positions sold, but not yet purchased $ 4,433
$ (2,497 ) $ 3,226
$ —
$ —
$ (729 ) $ (3,428 ) $ 1,005
$ 1,005

~~(1)~~

~~Realized and unrealized gains/(losses) related to financial instruments, with the exception of customer matched-book derivatives, are reported in institutional brokerage on the~~ consolidated statements of operations. Realized and unrealized gains/(losses) related to customer matched-book derivatives are reported in investment banking. Realized and unrealized gains/(losses) related to investments are reported in investment banking revenues or investment income on the consolidated statements of operations.

~~Table~~ of ~~Contents~~operations.

~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Unrealized gains/
(losses) for assets/
Balance at Realized Unrealized Balance at liabilities held at
December 31, Transfers Transfers gains/ gains/ June 30, June 30,
(Dollars in thousands) 2016 Purchases Sales in out (losses) (1) (losses) (1) 2017 2017 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Taxable securities $ 2,686
$ —
$ (2,703 ) $ —
$ —
$ 716
$ (699 ) $ —
$ —
Tax-exempt securities 1,077
—
—
—
—
—
40
1,117
40
Short-term securities 744
—
(25 ) —
—
2
—
721
—
Mortgage-backed securities 5,365
996
(1,854 ) —
—
296
(552 ) 4,251
(158 )
Derivative contracts 13,952
245
(11,979 ) —
—
11,733
(13,568 ) 383
383
Total financial instruments and other inventory positions owned 23,824
1,241
(16,561 ) —
—
12,747
(14,779 ) 6,472
265

Investments at fair value 123,319
7,194
(25,212 ) —
(601 ) 9,398
(213 ) 113,885
9,680
Total assets $ 147,143
$ 8,435
$ (41,773 ) $ —
$ (601 ) $ 22,145
$ (14,992 ) $ 120,357
$ 9,945

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts $ 1,487
$ (719 ) $ 7,758
$ —
$ —
$ (7,039 ) $ 4,086
$ 5,573
$ 5,573
Total financial instruments and other inventory positions sold, but not yet purchased $ 1,487
$ (719 ) $ 7,758
$ —
$ —
$ (7,039 ) $ 4,086
$ 5,573
$ 5,573

~~(1)~~

The carrying values of the Company's cash, receivables and payables either from or to brokers, dealers and clearing organizations and short-term financings approximate fair value due to their liquid or short-term nature.

Note 5 Variable Interest Entities ("VIEs")

The Company has investments in and/or acts as the managing partner of various partnerships, limited liability companies, and registered mutual funds. These entities were established for the purpose of investing in securities of public or private companies, or municipal debt obligations, or providing financing to senior living facilities, and were initially financed through the capital commitments or seed investments of the members.

VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities. The determination as to whether an entity is a VIE is based on the structure and nature of each entity. The Company also considers other characteristics such as the power through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance and how the entity is financed.

The Company is required to consolidate all VIEs for which it is considered to be the primary beneficiary. The determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

~~Table of Contents~~

~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Consolidated VIEs

The Company's consolidated VIEs at ~~June 30, 2018~~March 31, 2019 included certain alternative asset management funds in which the Company has an investment and, as the managing partner, is deemed to have both the power to direct the most significant activities of the funds and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to these funds.

The following table presents information about the carrying value of the assets and liabilities of the VIEs which are consolidated by the Company and included on the consolidated statements of financial condition at ~~June 30, 2018.~~March 31, 2019. The assets can only be used to settle the liabilities of the respective VIE, and the creditors of the VIEs do not have recourse to the general credit of the Company. One of these VIEs has $25.0 million of bank line financing available with an interest rate based on prime plus an applicable margin. The assets and liabilities are presented prior to consolidation, and thus a portion of these assets and liabilities are eliminated in consolidation.


	Alternative Asset		Alternative Asset
(Dollars in thousands)	Management Funds		Management Funds
Assets:
Receivables from brokers, dealers and clearing organizations	$	4,842
Financial instruments and other inventory positions owned and pledged as collateral	37,201
Investments	104,545		$	104,208
Other assets	7,296		511
Total assets	$	153,884	$	104,719

Liabilities:
Short-term financing	$	1,748
Payables to brokers, dealers and clearing organizations	1,156
Financial instruments and other inventory positions sold, but not yet purchased	11,878
Other liabilities and accrued expenses	3,329		$	2,079
Total liabilities	$	18,111	$	2,079

The Company has investments in a grantor trust which was established as part of a nonqualified deferred compensation plan. The Company is the primary beneficiary of the grantor trust. Accordingly, the assets and liabilities of the grantor trust are consolidated by the Company on the consolidated statements of financial condition. See Note 13 for additional information on the nonqualified deferred compensation plan.

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Notes to the Consolidated Financial Statements

(Unaudited)

Nonconsolidated VIEs

The Company determined it is not the primary beneficiary of certain VIEs and accordingly does not consolidate them. These VIEs had net assets approximating $0.4 billion ~~and $0.6 billion~~ at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, respectively.~~2018. The Company's exposure to loss from these VIEs is ~~$6.6~~$6.1 million, which is the carrying value of its capital contributions recorded in investments on the consolidated statements of financial condition at ~~June 30, 2018.~~March 31, 2019. The Company had no liabilities related to these VIEs at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Furthermore, the Company has not provided financial or other support to these VIEs that it was not previously contractually required to provide as of ~~June 30, 2018.~~March 31, 2019.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

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


	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2018		2017		2019		2018
Receivable arising from unsettled securities transactions	$	4,842	$	9,218
Receivable from clearing organizations	193,717		109,270		$	36,015	$	223,987
Deposits with clearing organizations	1,520		11,019		3,606		230
Receivable from brokers and dealers	16,127		12,041		3,998		7,700
Other	3,425		3,846		3,391		3,361
Total receivables from brokers, dealers and clearing organizations	$	219,631	$	145,394	$	47,010	$	235,278


	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2018		2017		2019		2018
Payable arising from unsettled securities transactions	$	1,156	$	808
Payable to clearing organizations					$	5,128	$	4,734
Payable to brokers and dealers	4,101		18,584		1,144		3,923
Total payables to brokers, dealers and clearing organizations	$	5,257	$	19,392	$	6,272	$	8,657

~~As discussed in Note 1, Piper Jaffray transitioned from a self clearing securities broker dealer to a fully disclosed clearing model in 2017.~~ Under the Company's fully disclosed clearing agreement, the majority of its securities inventories and all of its customer activities are held by or cleared through Pershing. The Company has also established an arrangement to obtain financing from Pershing related to the majority of its trading activities. Financing under this arrangement is secured primarily by securities, and collateral limitations could reduce the amount of funding available under this arrangement. The funding is at the discretion of Pershing and could be denied. The Company's clearing arrangement activities are recorded net from trading activity. The Company's fully disclosed clearing agreement includes a covenant requiring Piper Jaffray to maintain excess net capital of $120 million.

Note 7 Investments

The Company's investments include investments in private companies and partnerships and registered mutual ~~funds, warrants of public and private companies and private company debt.~~funds.


	June 30,			December 31,			March 31,			December 31,
(Dollars in thousands)	2018			2017			2019			2018
Investments at fair value	$	147,292		$	165,564		$	144,280		$	144,028
Investments at cost	1,614			2,416			1,513			1,512
Investments accounted for under the equity method	6,716			8,232			6,231			6,423
Total investments	155,622			176,212			152,024			151,963

Less investments attributable to noncontrolling interests (1)	(51,676		)	(44,397		)	(52,351		)	(52,972		)
	$	103,946		$	131,815		$	99,673		$	98,991


(1)	Noncontrolling interests are attributable to third party ownership in consolidated merchant banking and senior living funds.

At ~~June 30, 2018~~March 31, 2019, investments carried on a cost basis had an estimated fair market value of ~~$1.6~~$1.5 million. Because valuation estimates were based upon management's judgment, investments carried at cost would be categorized as Level III assets in the fair value hierarchy, if they were carried at fair value.

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Notes to the Consolidated Financial Statements

(Unaudited)

Investments accounted for under the equity method include general and limited partnership interests. The carrying value of these investments is based on the investment vehicle's net asset value. The net assets of investment partnerships consist of investments in both marketable and non-marketable securities. The underlying investments held by such partnerships are valued based on the estimated fair value determined by management in the Company's capacity as general partner or investor and, in the case of investments in unaffiliated investment partnerships, are based on financial statements prepared by the unaffiliated general partners.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Note 8 Other Assets


	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2018		2017		2019		2018
Fee receivables	$	24,666	$	20,884	$	18,105	$	23,120
Income tax receivables	17,331		—		12,661		—
Accrued interest receivables	8,376		6,981		3,585		4,240
Forgivable loans, net	9,179		7,452		7,288		7,568
Prepaid expenses	7,094		6,769		8,042		9,477
Secured loan receivables	2,975		2,975
Other	8,205		9,773		7,301		7,332
Total other assets	$	77,826	$	54,834	$	56,982	$	51,737

Note 9 Short-Term Financing

Outstanding Balance Weighted Average Interest Rate
June 30, December 31, June 30, December 31,
(Dollars in thousands) 2018 2017 2018 2017
Commercial paper (secured) $ 49,958
$ 49,974
3.02 % 2.32 %
Prime broker arrangement 1,748
239,963
2.74 % 2.23 %
Total short-term financing $ 51,706
$ 289,937

The Company issues secured commercial paper to fund a portion of its securities inventory. The commercial paper notes ("CP Notes") can be issued with maturities of 27 days to 270 days from the date of issuance. The CP Notes are currently issued under two separate programs, CP Series A and CP Series II A, and are secured by different inventory classes. As of ~~June 30, 2018,~~March 31, 2019, the weighted average maturity of outstanding CP Notes was 9 days. The CP Notes are interest bearing or sold at a discount to par with an interest rate based on LIBOR plus an applicable margin. CP Series II A includes a covenant that requires the Company's U.S. broker dealer subsidiary to maintain excess net capital of $100 million.

The Company ~~has established an arrangement to obtain financing~~had CP Notes of $50.0 million outstanding at March 31, 2019 and December 31, 2018 with ~~a prime broker related to its municipal bond fund. Financing under this arrangement is primarily secured by municipal securities~~weighted average interest rates of 3.48% and collateral limitations could reduce the amount of funding available. Prime broker financing activities are recorded net of receivables from trading activity. The funding is at the discretion of the prime broker subject to a notice period.3.38%, respectively.

The Company has both committed and uncommitted short-term bank line financing available on a secured basis. The Company uses these credit facilities in the ordinary course of business to fund a portion of its daily operations and the amount borrowed under these credit facilities varies daily based on the Company's funding needs.

The Company's committed short-term bank line financing at ~~June 30, 2018~~March 31, 2019 consisted of a one-year $~~200~~175 million committed revolving credit facility with U.S. Bank, N.A., which was renewed in December ~~2017.~~2018. Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires the Company's U.S. broker dealer subsidiary to maintain minimum net capital of $120 million, and the unpaid principal amount of all advances under this facility will be due on December ~~14, 2018.~~13, 2019. The Company pays a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis. At ~~June 30, 2018~~March 31, 2019, the Company had no advances against this line of credit.

The Company's uncommitted secured line at ~~June 30, 2018~~March 31, 2019 ~~totaled~~was $85 million and is dependent on having appropriate collateral, as determined by the bank agreement, to secure an advance under the line. The availability of the Company's uncommitted line is subject to approval by the bank each time an advance is requested and may be denied. At ~~June 30, 2018~~March 31, 2019, the Company had no advances against this line of credit.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Note 10 Legal Contingencies ~~Commitments and Guarantees~~

The Company has been named as a defendant in various legal actions, including complaints and litigation and arbitration claims, arising from its business activities. Such actions include claims related to securities brokerage and investment banking activities, and certain class actions that primarily allege violations of securities laws and seek unspecified damages, which could be substantial. Also, the Company is involved from time to time in investigations and proceedings by governmental agencies and self-regulatory organizations ("SROs") which could result in adverse judgments, settlement, penalties, fines or other relief.

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Notes to the Consolidated Financial Statements

(Unaudited)

The Company has established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential legal actions, investigations and regulatory proceedings. Reasonably possible losses in excess of amounts accrued at ~~June 30, 2018~~March 31, 2019 are not material. In many cases, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount or range of any potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated.

Given uncertainties regarding the timing, scope, volume and outcome of pending and potential legal actions, investigations and regulatory proceedings and other factors, the amounts of reserves and ranges of reasonably possible losses are difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on currently available information, after consultation with outside legal counsel and taking into account its established reserves, that pending legal actions, investigations and regulatory proceedings will be resolved with no material adverse effect on the consolidated statements of financial condition, results of operations or cash flows of the Company. However, if during any period a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations and cash flows in that period and the financial condition as of the end of that period could be materially adversely affected. In addition, there can be no assurance that material losses will not be incurred from claims that have not yet been brought to the Company's attention or are not yet determined to be reasonably possible.

~~Operating Lease Commitments~~

Note 11 Leases

The Company leases office space throughout the United States and in a limited number of foreign countries where the Company's international operations reside. Aggregate minimum lease commitments ~~under~~on an undiscounted basis for the Company’s operating leases (including short-term leases) as of ~~June 30, 2018~~March 31, 2019 are as follows:

(Dollars in thousands)
Remainder of 2018 $ 7,515
2019 13,878
2020 13,671
2021 9,334
2022 7,985
Thereafter 22,900
Total $ 75,283

~~Investment Commitments~~

As of June 30, 2018, the Company had commitments to invest approximately $76.9 million in limited partnerships or limited liability companies that make direct or indirect equity or debt investments in companies.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 11Restructuring~~



(Dollars in thousands)
Remainder of 2019	$	10,670
2020	13,876
2021	9,461
2022	8,064
2023	7,187
Thereafter	15,771
Total	$	65,029

The ~~Company incurred~~weighted-average remaining lease term was 5.9 years at March 31, 2019.

For the ~~following pre-tax restructuring costs principally~~three months ended March 31, 2019, the Company’s operating lease cost was $3.0 million, of which $0.2 million related to ~~headcount reductions in both~~all short-term leases. The Company recorded sublease income of $0.4 million for the ~~Capital Markets and Asset Management segments.~~

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2018 June 30, 2018
Severance, benefits and outplacement costs $ 3,455
$ 3,455
Contract termination costs 185
185
Vacated leased office space 130
130
Total pre-tax restructuring costs $ 3,770
$ 3,770
three months ended March 31, 2019.

Note 12 Shareholders' Equity

Share Repurchases

Effective September 30, 2017, the Company's board of directors authorized the repurchase of up to $150.0 million in common shares through September 30, 2019. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company repurchased ~~56,714~~501 shares at an average price of ~~$69.43~~$64.80 per share ~~for an aggregate purchase price of $3.9 million~~ related to this authorization. The Company has ~~$146.1~~$102.8 million remaining under this authorization.

~~Effective August 14, 2015,~~ No repurchases were made in conjunction with this authorization during the ~~Company's board of directors authorized the repurchase of up to $150.0 million in common shares through September 30, 2017. During the six~~three months ended ~~June 30, 2017, the Company repurchased 27,530 shares at an average price of $72.63 per share for an aggregate purchase price of $2.0 million related to this authorization.~~March 31, 2018.

The Company also purchases shares of common stock from restricted stock award recipients upon the award vesting or as recipients sell shares to meet their employment tax obligations. The Company purchased ~~242,206~~563,284 shares and ~~293,357~~187,860 shares, or $~~21.0~~39.7 million and ~~$21.6~~$16.8 million of the Company's common stock for ~~this purpose~~these purposes during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017,~~2018, respectively.

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Notes to the Consolidated Financial Statements

(Unaudited)

Issuance of Shares

The Company issues common shares out of treasury stock as a result of employee restricted share vesting and exercise transactions as discussed in Note 13. During the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company issued ~~718,501~~1,035,360 shares and ~~800,044~~574,594 shares, respectively, related to these obligations.

Dividends

~~Beginning in 2017, the Company initiated the payment of~~The Company's dividend policy includes a quarterly cash dividend to holders of its common stock, which includes unvested restricted shares. In addition, the Company's board of directors approved a dividend policy with the intention of returning a metric based on net income from the previous fiscal year. This includesand an annual special cash dividend, payable in the first quarter of each year, ~~beginning in 2018.~~with the intention of returning a metric based on the Company's net income from the previous fiscal year.

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company declared and paid both a quarterly ~~cash dividends on its common stock, aggregating $0.75 per share,~~ and an annual special cash dividend on its common stock of ~~$1.62~~$0.375 and $1.01 per share, respectively, totaling ~~$36.1~~$19.9 million.

On ~~July 27, 2018,~~April 26, 2019, the board of directors declared a cash dividend of $0.375 per share to be paid on ~~September~~June 14, ~~2018,~~2019, to shareholders of record as of the close of business on ~~August~~May 24, ~~2018.~~

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~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

2019.

Noncontrolling Interests

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest. Noncontrolling interests represent equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. Noncontrolling interests include the minority equity holders' proportionate share of the equity in merchant banking funds of ~~$46.5~~$50.7 million and a senior living fund aggregating ~~$5.2~~$1.7 million as of ~~June 30, 2018.~~March 31, 2019. As of December 31, ~~2017,~~2018, noncontrolling interests included the minority equity holders' proportionate share of the equity in merchant banking funds of ~~$42.7~~$50.2 million and a senior living fund aggregating ~~$5.2~~$2.8 million.

Ownership interests in entities held by parties other than the Company's common shareholders are presented as noncontrolling interests within shareholders' equity, separate from the Company's own equity. Revenues, expenses and net income or loss are reported on the consolidated statements of operations on a consolidated basis, which includes amounts attributable to both the Company's common shareholders and noncontrolling interests. Net income or loss is then allocated between the Company and noncontrolling interests based upon their relative ownership interests. Net income applicable to noncontrolling interests is deducted from consolidated net income to determine net income applicable to the Company. There was no other comprehensive income or loss attributed to noncontrolling interests for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

~~The following table presents the changes in shareholders' equity for the six months ended June 30, 2018:~~

Common Common Total
Shares Shareholders' Noncontrolling Shareholders'
(Amounts in thousands, except share amounts) Outstanding Equity Interests Equity
Balance at December 31, 2017 12,911,149
$ 693,332
$ 47,903
$ 741,235
Net income/(loss) —
16,829
(1,518 ) 15,311
Dividends —
(36,095 ) —
(36,095 )
Amortization/issuance of restricted stock —
39,543
—
39,543
Issuance of treasury shares for restricted stock vestings 718,501
—
—
—
Repurchase of common stock through share repurchase program (56,714 ) (3,938 ) —
(3,938 )
Repurchase of common stock for employee tax withholding (242,206 ) (20,976 ) —
(20,976 )
Shares reserved/issued for director compensation 3,659
294
—
294
Other comprehensive income —
132
—
132
Cumulative effect upon adoption of new accounting standard, net of tax (1) —
(3,597 ) —
(3,597 )
Fund capital contributions, net —
—
5,291
5,291
Balance at June 30, 2018 13,334,389
$ 685,524
$ 51,676
$ 737,200


~~(1)~~	~~Cumulative effect adjustment upon adoption of ASU 2014-09, as amended. See Note 2 for further discussion.~~

2923

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Notes to the Consolidated Financial Statements

(Unaudited)

Note 13 Compensation Plans

Stock-Based Compensation Plans

The Company maintains ~~two~~three stock-based compensation plans, the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (the "Incentive Plan") ~~and~~, the 2016 Employment Inducement Award Plan (the ~~"Inducement~~"Simmons Inducement Plan") and the 2019 Employment Inducement Award Plan (the "Weeden & Co. Inducement Plan"). The Company's equity awards are recognized on the consolidated statements of operations at grant date fair value over the service period of the award, less forfeitures.

The following table provides a summary of the Company's outstanding equity awards (in shares or units) as of ~~June 30, 2018~~March 31, 2019:



Incentive Plan
Restricted Stock
Annual grants	~~662,106~~482,660
Sign-on grants	~~189,088~~55,885
	~~851,194~~538,545
Simmons Inducement Plan
Restricted Stock	254,058

Total restricted stock ~~related to compensation~~	~~1,105,252~~

~~Simmons Deal Consideration (1)~~	~~772,764~~

~~Total restricted stock~~ outstanding	~~1,878,016~~792,603

Incentive Plan
Restricted Stock Units
Leadership grants	~~194,251~~218,022

Incentive Plan
Stock Options	81,667


~~(1)~~	~~The Company issued restricted stock with service conditions as part of deal consideration for the acquisition of Simmons & Company International ("Simmons") on February 26, 2016.~~

Incentive Plan

The Incentive Plan permits the grant of equity awards, including restricted stock, restricted stock units and non-qualified stock options, to the Company's employees and directors for up to 8.2 million shares of common stock ~~(0.8~~(0.7 million shares remained available for future issuance under the Incentive Plan as of ~~June 30, 2018~~March 31, 2019). The Company believes that such awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool. The Incentive Plan provides for accelerated vesting of awards if there is a severance event, a change in control of the Company (as defined in the Incentive Plan), in the event of a participant's death, and at the discretion of the compensation committee of the Company's board of directors.

Restricted Stock Awards

Restricted stock grants are valued at the market price of the Company's common stock on the date of grant and are amortized over the requisite service period. The Company grants shares of restricted stock to employees as part of year-end compensation ("Annual Grants") and upon initial hiring or as a retention award ("Sign-on Grants").

The Company's Annual Grants are made each year in February. Annual Grants vest ratably over three years ~~years~~ in equal installments. The Annual Grants provide for continued vesting after termination of employment, so long as the employee does not violate certain post-termination restrictions set forth in the award agreement or any agreements entered into upon termination. The Company determined the service inception date precedes the grant date for the Annual Grants, and that the post-termination restrictions do not meet the criteria for an in-substance service condition, as defined by FASB Accounting Standards Codification Topic 718, "Compensation — Stock Compensation." Accordingly, restricted stock granted as part of the Annual Grants is expensed in the

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~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

one-year period in which those awards are deemed to be earned, which is generally the calendar year preceding the February grant date. For example, the Company recognized compensation expense during fiscal ~~2017~~2018 for its February ~~2018~~2019 Annual ~~Grant.~~Grant ("2019 Annual Grant"). If an equity award related to the Annual Grants is forfeited as a result of violating the post-termination restrictions, the lower of the fair value of the award at grant date or the fair value of the award at the date of forfeiture is recorded within the

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Notes to the Consolidated Financial Statements

(Unaudited)

consolidated statements of operations as a reversal of compensation expense.

Sign-on Grants are used as a recruiting tool for new employees and are issued to current employees as a retention tool. These awards have both cliff and ratable vesting terms, and the employees must fulfill service requirements in exchange for rights to the awards. Compensation expense is amortized on a straight-line basis from the grant date over the requisite service period, generally ~~one~~three to five years. Employees forfeit unvested shares upon termination of employment and a reversal of compensation expense is recorded.

Annually, the Company grants stock to its non-employee directors. The stock-based compensation paid to non-employee directors is fully expensed on the grant date and included within outside services expense on the consolidated statements of operations.

Restricted Stock Units

The Company grants restricted stock units to its leadership team ("Leadership Grants").

~~2018 and 2017~~ Leadership Grants Subsequent to 2016

Restricted stock units granted in ~~2018 and 2017~~each of the years subsequent to 2016 will vest and convert to shares of common stock at the end of each 36-month performance period only if the Company satisfies predetermined performance and/or market conditions over the performance period. Under the terms of these awards, the number of units that will actually vest and convert to shares will be based on the extent to which the Company achieves specified targets during each performance period. The maximum payout leverage under these grants is 150 percent.

Up to 75 percent of the award can be earned based on the Company achieving certain average adjusted return on equity targets, as defined in the terms of the award agreements. The fair value of this portion of the award was based on the closing price of the Company's common stock on the grant date. If the Company determines that it is probable that the performance condition will be achieved, compensation expense is amortized on a straight-line basis over the 36-month performance period. The probability that the performance condition will be achieved is reevaluated each reporting period with changes in estimated outcomes accounted for using a cumulative effect adjustment to compensation expense. Compensation expense will be recognized only if the performance condition is met. Employees forfeit unvested restricted stock units upon termination of employment with a corresponding reversal of compensation expense. As of ~~June 30, 2018,~~March 31, 2019, the Company has determined that the probability of achieving the performance condition for each award is ~~probable of achieving 50 percent of the 2018 award and 75 percent of the 2017 award.~~as follows:



		Probability of Achieving
Grant Year		Performance Condition
2019		68%
2018		50%
2017		75%

Up to 75 percent of the award can be earned based on the Company's total shareholder return relative to members of a predetermined peer group. The market condition must be met for the awards to vest and compensation cost will be recognized regardless if the market condition is satisfied. Compensation expense is amortized on a straight-line basis over the 36-month requisite service period. Employees forfeit unvested restricted stock units upon termination of employment with a corresponding reversal of compensation expense. For this portion of the awards, the fair value on the grant date was determined using a Monte Carlo simulation with the following assumptions:


	Risk-free	Expected Stock	Risk-free	Expected Stock
Grant Year	Interest Rate	Price Volatility	Interest Rate	Price Volatility
2019			2.50%	31.9%
2018	2.40%	34.8%	2.40%	34.8%
2017	1.62%	35.9%	1.62%	35.9%

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Notes to the Consolidated Financial Statements

(Unaudited)

Because the market condition portion of the awards vesting depend on the Company's total shareholder return relative to a peer group, the valuation modeled the performance of the peer group as well as the correlation between the Company and the peer group. The expected stock price volatility assumptions were determined using historical volatility, as correlation coefficients can only be developed through historical volatility. The risk-free interest rates were determined based on three-year U.S. Treasury bond yields.

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~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

~~In the fourth quarter of 2017, the~~The compensation committee of the Company's board of directors included defined retirement provisions in its Leadership Grants, beginning with the February 2018 grant. Certain grantees meeting defined age and service requirements will be fully vested in the awards as long as performance and post-termination obligations are met throughout the performance period. These retirement-eligible grants are expensed in the period in which those awards are deemed to be earned, which is the calendar year preceding the February grant date. For example, the Company recognized compensation expense for retirement-eligible grantees in fiscal ~~2017~~2018 for its February ~~2018~~2019 Leadership Grant.

2016 Leadership ~~Grants Prior to 2017~~Grant

Restricted stock units granted ~~prior to 2017~~in 2016 contain market condition criteria and will vest and convert to shares of common stock at the end of ~~each~~the 36-month performance period only if the Company's stock performance satisfies predetermined market conditions over the performance period. Under the terms of the ~~grants,~~award, the number of units that will vest and convert to shares will be based on the Company's stock performance achieving specified targets during ~~each~~the performance period. Compensation expense is recognized over ~~each~~the 36-month performance period.

Up to 50 percent of ~~these awards~~the award can be earned based on the Company's total shareholder return relative to members of a predetermined peer group and up to 50 percent of the ~~awards~~award can be earned based on the Company's total shareholder return. The fair value of the ~~awards~~award on the grant date was determined using a Monte Carlo simulation with the following assumptions pursuant to the methodology above:


	Risk-free	Expected Stock	Risk-free	Expected Stock
Grant Year	Interest Rate	Price Volatility	Interest Rate	Price Volatility
2016	0.98%	34.9%	0.98%	34.9%
2015	0.90%	29.8%

Stock Options

On February 15, 2018, the Company granted options to certain executive officers. These options are expensed on a straight-line basis over the required service period of five years, based on the estimated fair value of the award on the date of grant. The exercise price per share is equal to the closing price on the date of grant plus ten percent. These options are subject to graded vesting, beginning on the third anniversary of the grant date, so long as the employee remains continuously employed by the Company. The maximum term of these stock options is ten years.

The fair value of this stock option award was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



Risk-free interest rate	2.82%
Dividend yield	3.22%
Expected stock price volatility	37.20%
Expected life of options (in years)	7.0
Fair value of options granted (per share)	$24.49

The risk-free interest rate assumption was based on the U.S. Treasury bond yield with a maturity equal to the expected life of the options. The dividend yield assumption was based on the assumed dividend payout over the expected life of the options. The expected stock price volatility assumption was determined using historical volatility, as correlation coefficients can only be developed through historical volatility.

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Notes to the Consolidated Financial Statements

(Unaudited)

Inducement ~~Plan~~Plans

The Company established the Simmons Inducement Plan in conjunction with the acquisition of ~~Simmons.~~Simmons & Company International ("Simmons"). The Company granted $11.6 million (286,776 shares) in restricted stock under the Simmons Inducement Plan on May 16, 2016. These shares cliff vest on May 16, 2019. Simmons Inducement Plan awards are amortized as compensation expense on a straight-line basis over the vesting period. Employees forfeit unvested Simmons Inducement Plan shares upon termination of employment and a reversal of compensation expense is recorded.

In the first quarter of 2019, the Company established the Weeden & Co. Inducement Plan in conjunction with the anticipated acquisition of Weeden & Co. L.P. The transaction is expected to close in the third quarter of 2019, subject to regulatory approvals and customary closing conditions. As of March 31, 2019, no shares have been issued under the Weeden & Co. Inducement Plan.

Stock-Based Compensation Activity

The ~~Company recorded~~following table summarizes the Company's stock-based compensation expense of $9.5 million and $12.1 million for the three months ended June 30, 2018 and 2017, respectively, and $18.4 million and $12.3 million for the six months ended June 30, 2018 and 2017, respectively. Forfeitures were $0.4 million and $0.6 million for the three months ended June 30, 2018 and 2017, respectively, and $0.4 million and $2.3 million for the six months ended June 30, 2018 and 2017, respectively. The tax benefit related to stock-based compensation expense totaled $1.6 million and $3.7 million for the three months ended June 30, 2018 and 2017, respectively, and $2.9 million for the six months ended June 30, 2018 and 2017, respectively.expense:



	Three Months Ended
	March 31,
(amounts in millions)	2019		2018
Stock-based compensation expense	$	4.3	$	8.9
Forfeitures	0.9		—
Tax benefit related to stock-based compensation expense	0.3		1.2

The following table summarizes the changes in the Company's unvested restricted stock:


	Unvested		Weighted Average		Unvested		Weighted Average
	Restricted Stock		Grant Date		Restricted Stock		Grant Date
	(in Shares)		Fair Value		(in Shares)		Fair Value
December 31, 2017	2,225,617		$	46.40
December 31, 2018					1,569,795		$	53.80
Granted	288,541		89.44		261,253		74.40
Vested	(625,127	)	50.66		(1,035,360	)	48.55
Canceled	(11,015	)	50.82		(3,085	)	81.67
June 30, 2018	1,878,016		$	51.56
March 31, 2019					792,603		$	67.34

The following table summarizes the changes in the Company's unvested restricted stock units:


	Unvested		Weighted Average		Unvested		Weighted Average
	Restricted		Grant Date		Restricted		Grant Date
	Stock Units		Fair Value		Stock Units		Fair Value
December 31, 2017	244,772		$	27.89
December 31, 2018					194,251		$	48.97
Granted	53,796		92.93		39,758		75.78
Vested	(86,511	)	21.83		—		—
Canceled	(17,806	)	23.91		(15,987	)	45.79
June 30, 2018	194,251		$	48.97
March 31, 2019					218,022		$	54.09

As of ~~June 30, 2018~~March 31, 2019, there was $~~14.4~~4.7 million of total unrecognized compensation cost related to restricted stock and restricted stock units expected to be recognized over a weighted average period of ~~1.1~~2.1 years.

~~The following table summarizes the changes in the Company's outstanding stock options:~~

Weighted Average
Weighted Remaining
Options Average Contractual Term Aggregate
Outstanding Exercise Price (in Years) Intrinsic Value
December 31, 2017 —
$ —
0.0 $ —
Granted 81,667
99.00

Exercised —
—

Canceled —
—

June 30, 2018 81,667
$ 99.00
9.6 $ —

~~As of~~ ~~June 30, 2018~~, there was $1.9 million of unrecognized compensation cost related to stock options expected to be recognized over a weighted average period of 4.6 years. There were no options exercised during the six months ended June 30, 2018.

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Notes to the Consolidated Financial Statements

(Unaudited)

The following table summarizes the changes in the Company's outstanding stock options:



				Weighted Average
		Weighted		Remaining
	Options	Average		Contractual Term	Aggregate
	Outstanding	Exercise Price		(in Years)	Intrinsic Value
December 31, 2018	81,667	$	99.00	9.1	$	—
Granted	—	—
Exercised	—	—
Canceled	—	—
March 31, 2019	81,667	$	99.00	8.9	$	—

As of March 31, 2019, there was $1.6 million of unrecognized compensation cost related to stock options expected to be recognized over a weighted average period of 3.9 years. There were no options exercised during the three months ended March 31, 2019.

Acquisition-related Compensation Arrangements

The Company entered into acquisition-related compensation arrangements with certain employees for retention and incentive purposes. Additional cash compensation ~~may be~~was available to certain ~~investment banking~~ employees subject to exceeding an investment banking revenue threshold during the three year Simmons post-acquisition period, ~~to the extent they are employed by~~which ended on February 26, 2019. As of March 31, 2019, the Company ~~at the time of payment. Amounts estimated~~had accrued $39.1 million related to this performance award plan, which is expected to be paid in August 2019. Amounts payable related to this performance award plan ~~will be~~were recorded as compensation expense on the consolidated statements of operations over the requisite performance period of three years. ~~As of June 30, 2018, the Company had accrued $37.4 million related to this performance award plan.~~ The Company recorded $0.6 million as a reduction of compensation expense ~~of $2.3~~and $4.3 million ~~and $1.4 million~~was recorded as compensation expense for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $6.6 million and $2.7 million for the six months ended June 30, 2018 and 2017, respectively, related to this performance award plan.~~respectively.

Deferred Compensation Plans

The Company maintains various deferred compensation arrangements for employees.

The nonqualified deferred compensation plan is an unfunded plan which allows certain highly compensated employees, at their election, to defer a percentage of their base salary, commissions and/or cash bonuses. The deferrals vest immediately and are non-forfeitable. The amounts deferred under this plan are held in a grantor trust. The Company invests, as a principal, in investments to economically hedge its obligation under the nonqualified deferred compensation plan. Investments in the grantor trust, consisting of mutual funds, totaled ~~$32.0 million~~ and $31.5 million as of June 30, 2018 and December 31, 2017, respectively, and are included in investments on the consolidated statements of financial condition. The compensation deferred by the employees is expensed in the period earned. The deferred compensation liability was ~~$32.0 million~~ and $31.6 million as of June 30, 2018 and December 31, 2017, respectively. Changes in the fair value of the investments made by the Company are reported in investment income and changes in the corresponding deferred compensation liability are reflected as compensation and benefits expense on the consolidated statements of operations. On August 9, 2017, the Company's board of directors approved the discontinuance of future deferral elections by participants for performance periods beginning after December 31, 2017.

The Piper Jaffray Companies Mutual Fund Restricted Share Investment Plan is a fully funded deferred compensation plan which allows eligible employees to ~~elect to~~ receive a portion of ~~the~~their incentive compensation ~~they would otherwise receive in the form of restricted stock, instead~~ in restricted mutual fund shares ("MFRS Awards") of investment funds. MFRS Awards are awarded to qualifying employees in February of each year, and represent a portion of their compensation for performance in the preceding year similar to the Company's Annual Grants. MFRS Awards vest ratably over three years ~~years~~ in equal installments and provide for continued vesting after termination of employment so long as the employee does not violate certain post-termination restrictions set forth in the award agreement or any agreement entered into upon termination. Forfeitures are recorded as a reduction of compensation and benefits expense within the consolidated statements of operations. MFRS Awards are owned by employee recipients (subject to aforementioned vesting restrictions) and as such are not included on the consolidated statements of financial condition.

The nonqualified deferred compensation plan is an unfunded plan which allows certain highly compensated employees, at their election, to defer a portion of their compensation. In 2017, this plan was closed to future deferral elections by participants for performance periods beginning after December 31, 2017. The amounts deferred under this plan are held in a grantor trust. The Company ~~has also granted MFRS Awards to new employees~~invests, as a ~~recruiting tool. Employees must fulfill service requirements~~principal, in ~~exchange for rights~~investments to economically hedge its obligation under the ~~awards. Compensation~~nonqualified deferred compensation plan. Investments in the grantor trust, consisting of mutual funds, totaled $30.6 million and $31.2 million as of March 31, 2019 and December 31, 2018, respectively, and are included in investments on the consolidated statements of financial condition. The compensation deferred by the employees was expensed in the period earned. The deferred compensation liability was $31.0 million and $31.4 million as of March 31, 2019 and December 31, 2018, respectively. Changes in the fair value of the investments made by the Company are reported in investment income and changes in the corresponding deferred compensation liability are reflected as compensation and benefits expense ~~from these awards are amortized~~ on ~~a straight-line basis over~~ the ~~requisite service period~~consolidated statements of ~~two~~ to ~~five years~~.operations.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 14 Earnings Per Share ("EPS")

The Company calculates earnings per share using the two-class method. Basic earnings per common share is computed by dividing net income applicable to Piper Jaffray Companies' common shareholders by the weighted average number of common shares outstanding for the period. Net income applicable to Piper Jaffray Companies' common shareholders represents net income applicable to Piper Jaffray Companies reduced by the allocation of earnings to participating securities. No allocation of undistributed earnings is made for periods in which a loss is incurred, or for periods in which cash dividends exceed net income resulting in an undistributed loss. Distributed earnings (e.g., dividends) are allocated to participating securities. ~~All~~Prior to the 2019 Annual Grant, all of the Company's unvested restricted shares are deemed to be participating securities as they are eligible to share in the profits (e.g., receive dividends) of the Company. The Company's unvested restricted stock units, as well as the 2019 Annual Grant, are not participating securities as they are not eligible to receive dividends, or the dividends are forfeitable until vested. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive stock options, ~~and~~ restricted stock ~~units.~~units and non-participating restricted shares.

The computation of earnings per share is as follows:


	Three Months Ended						Six Months Ended							Three Months Ended
	June 30,						June 30,							March 31,
(Amounts in thousands, except per share data)	2018			2017			2018				2017			2019			2018
Net income applicable to Piper Jaffray Companies	$	6,226		$	13,573		$	16,829			$	33,848		$	19,422		$	10,603
Earnings allocated to participating securities (1)	(704		)	(2,051		)	(4,634		)		(5,436		)	(1,587		)	(4,168		)
Net income applicable to Piper Jaffray Companies' common shareholders (2)	$	5,522		$	11,522		$	12,195			$	28,412		$	17,835		$	6,435

Shares for basic and diluted calculations:
Average shares used in basic computation	13,303			12,826			13,200				12,711			13,204			13,096
Restricted stock units	135			111			211				219			205			286
Average shares used in diluted computation	13,438			12,937			13,411			(3)	12,930
Non-participating restricted shares														121			—
Average shares used in diluted computation (3)														13,530			13,382

Earnings per common share:
Basic	$	0.43		$	0.89		$	0.91			$	2.24		$	1.35		$	0.47
Diluted	$	0.43		$	0.89		$	0.91		(3)	$	2.21
Diluted (3)														$	1.32		$	0.47

(1)

Represents the allocation of distributed and undistributed earnings to participating securities. No allocation of undistributed earnings is made for periods in which a loss is incurred, or for periods in which cash dividends exceed net income resulting in an undistributed loss. Distributed earnings (e.g., dividends) are allocated to participating securities. Participating securities include ~~all of~~ the Company's unvested restricted ~~shares.~~shares issued prior to the 2019 Annual Grant. The weighted average participating shares outstanding were ~~1,906,364~~1,130,844 and ~~2,296,080~~2,089,155 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and 1,997,254 and 2,462,486 for the six months ended June 30, 2018 and 2017,~~ respectively.

(2)

Net income applicable to Piper Jaffray Companies' common shareholders for diluted and basic EPS may differ under the two-class method as a result of adding the effect of the assumed exercise of stock options, ~~and~~ restricted stock units and non-participating restricted shares to dilutive shares outstanding, which alters the ratio used to allocate earnings to Piper Jaffray Companies' common shareholders and participating securities for purposes of calculating diluted and basic EPS.

(3)

Earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding for periods in which a loss is incurred, or for periods in which cash dividends exceed net income resulting in an undistributed loss. Common shares of ~~1,878,016~~533,207 and 1,926,530 were excluded from diluted EPS at ~~June 30,~~March 31, 2019 and 2018, respectively, as the Company had an undistributed ~~loss~~losses for ~~the period.~~these periods.

The anti-dilutive effects from stock options, ~~and~~ restricted stock units and non-participating restricted shares were immaterial for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, respectively.

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Notes to the Consolidated Financial Statements

(Unaudited)

Note 15 Segment Reporting

Basis for Presentation

The Company structures its segments primarily based upon the nature of the financial products and services provided to customers and the Company's management organization. The Company evaluates performance and allocates resources based on segment pre-tax operating income or loss and segment pre-tax operating margin. Revenues and expenses directly associated with each respective segment are included in determining their operating results. Other revenues and expenses that are not directly attributable to a particular segment are allocated based upon the Company's allocation methodologies, including each segment's respective net revenues, use of shared resources, headcount or other relevant measures. Segment assets are based on those directly associated with each segment, and include an allocation of certain assets based on the most relevant measures applicable, including headcount and other factors. The substantial majority of the Company's net revenues and long-lived assets are located in the U.S.

Reportable segment financial results are as follows:


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(Dollars in thousands)	2018			2017			2018			2017			2019			2018

Capital Markets
Investment banking
Advisory services	$	77,214		$	92,507		$	152,543		$	185,389		$	114,879		$	75,329
Financing
Equities	30,038			24,730			67,680			48,112			13,527			37,642
Debt	16,851			21,971			24,537			38,379			13,082			7,686
Total investment banking	124,103			139,208			244,760			271,880			141,488			120,657

Institutional sales and trading
Equities	19,141			20,569			37,147			40,675			15,714			18,006
Fixed income	18,436			19,221			34,770			42,461			23,669			16,334
Total institutional sales and trading	37,577			39,790			71,917			83,136			39,383			34,340

Management and performance fees	1,630			1,497			3,018			3,494			1,129			1,388

Investment income	1,143			5,307			4,441			15,815			629			3,298

Long-term financing expenses	(1,832		)	(2,029		)	(3,619		)	(4,267		)	(238		)	(1,787		)

Net revenues	162,621			183,773			320,517			370,058			182,391			157,896

Operating expenses (1)	156,381			164,233			305,241			328,293			158,453			148,860

Segment pre-tax operating income	$	6,240		$	19,540		$	15,276		$	41,765		$	23,938		$	9,036

Segment pre-tax operating margin	3.8		%	10.6		%	4.8		%	11.3		%	13.1		%	5.7		%

Continued on next page

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Notes to the Consolidated Financial Statements

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(Dollars in thousands)	2018			2017			2018			2017			2019			2018

Asset Management
Management and performance fees
Management fees	$	11,110		$	13,689		$	22,303		$	27,699		$	9,288		$	11,193
Performance fees	—			—			8			—			1			8
Total management and performance fees	11,110			13,689			22,311			27,699			9,289			11,201

Investment income/(loss)	(250		)	283			(285		)	517			152			(35		)

Net revenues	10,860			13,972			22,026			28,216			9,441			11,166

Operating expenses (1)	11,841			13,645			24,005			27,305			10,449			12,164

Segment pre-tax operating income/(loss)	$	(981	)	$	327		$	(1,979	)	$	911
Segment pre-tax operating loss													$	(1,008	)	$	(998	)

Segment pre-tax operating margin	(9.0		)%	2.3		%	(9.0		)%	3.2		%	(10.7		)%	(8.9		)%


Total
Net revenues	$	173,481		$	197,745		$	342,543		$	398,274		$	191,832		$	169,062

Operating expenses	168,222			177,878			329,246			355,598
Operating expenses (1)													168,902			161,024

Pre-tax operating income	$	5,259		$	19,867		$	13,297		$	42,676		$	22,930		$	8,038

Pre-tax operating margin	3.0		%	10.0		%	3.9		%	10.7		%	12.0		%	4.8		%

(1)Operating expenses include intangible asset amortization as set forth in the table below:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(Dollars in thousands)	2018		2017		2018		2017		2019		2018
Capital Markets	$	1,215	$	2,545	$	2,429	$	5,089	$	753	$	1,214
Asset Management	1,400		1,277		2,801		2,555		1,359		1,401
Total intangible asset amortization	$	2,615	$	3,822	$	5,230	$	7,644	$	2,112	$	2,615

Reportable segment assets are as follows:


	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2018		2017		2019		2018
Capital Markets	$	1,435,481	$	1,933,050	$	1,105,143	$	1,273,147
Asset Management	79,047		91,633		64,510		72,122
Total assets	$	1,514,528	$	2,024,683	$	1,169,653	$	1,345,269

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Notes to the Consolidated Financial Statements

(Unaudited)

Note 16 Net Capital Requirements and Other Regulatory Matters

Piper Jaffray is registered as a securities broker dealer with the SEC and is a member of various SROs and securities exchanges. The Financial Industry Regulatory Authority, Inc. ("FINRA"), serves as Piper Jaffray's primary SRO. Piper Jaffray is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. Piper Jaffray has elected to use the alternative method permitted by the SEC rule which requires that it maintain minimum net capital of $1.0 million. Advances to affiliates, repayment of subordinated debt, dividend payments and other equity withdrawals by Piper Jaffray are subject to certain approvals, notifications and other provisions of SEC and FINRA rules.

At ~~June 30, 2018,~~March 31, 2019, net capital calculated under the SEC rule was ~~$167.3~~$214.6 million, and exceeded the minimum net capital required under the SEC rule by ~~$166.3~~$213.6 million.

The Company's committed short-term credit facility ~~and its senior notes include covenants~~includes a covenant requiring Piper Jaffray to maintain minimum net capital of $120 million. CP Notes issued under CP Series II A include a covenant that requires Piper Jaffray to maintain excess net capital of $100 million. The Company's fully disclosed clearing agreement with Pershing also includes a covenant requiring Piper Jaffray to maintain excess net capital of $120 million.

Piper Jaffray Ltd., a broker dealer subsidiary registered in the United Kingdom, is subject to the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority. As of ~~June 30, 2018,~~March 31, 2019, Piper Jaffray Ltd. was in compliance with the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority.

Piper Jaffray Hong Kong Limited is licensed by the Hong Kong Securities and Futures Commission, which is subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rule promulgated under the Securities and Futures Ordinance. At ~~June 30, 2018,~~March 31, 2019, Piper Jaffray Hong Kong Limited was in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Commission.

Note 17 Income Taxes

The Company recorded income tax expense of ~~$0.6 million and $4.9~~$4.1 million for the three months ended ~~June 30, 2018 and 2017, respectively.~~March 31, 2019. Income tax expense was reduced by a tax benefit of ~~$1.4 million and $1.8~~$1.7 million for the three months ended ~~June 30, 2018 and 2017, respectively,~~March 31, 2019, related to stock-based compensation awards vesting at values greater than the grant price.

The Company recorded an income tax benefit of ~~$2.0~~$2.6 million for the ~~six~~three months ended ~~June 30, 2018, and income tax expense of $4.5 million for the six months ended June 30, 2017.~~March 31, 2018. Income tax expense was reduced by a tax benefit of ~~$6.4 million and $8.7~~$5.0 million for the ~~six~~three months ended ~~June 30,~~March 31, 2018, ~~and 2017, respectively,~~ related to stock-based compensation awards vesting at values greater than the grant price.

SEC Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118") permitted companies to report a provisional amount in the financial statements if the accounting for income tax effects of the Tax Cuts and Jobs Act was incomplete as of December 31, 2017. This provisional amount would be subject to adjustment during a defined measurement period. Pursuant to SAB 118, the Company recorded an additional $1.0 million of income tax expense for the six months ended June 30, 2018.

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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following information should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and exhibits included elsewhere in this report. Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements include, among other things, statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, and also may include our belief regarding the effect of various legal proceedings, as set forth under "Legal Proceedings" in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and in our subsequent reports filed with the SEC. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under "External Factors Impacting Our Business" as well as the factors identified under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as updated in our subsequent reports filed with the SEC and under "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. These reports are available at our Web site at www.piperjaffray.com and at the SEC Web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Explanation of Non-GAAP Financial Measures

We have included financial measures that are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). These non-GAAP financial measures include adjustments to exclude (1) revenues and expenses related to noncontrolling interests, (2) amortization of intangible assets related to acquisitions, (3) compensation and non-compensation expenses from acquisition-related agreements, (4) the impact from remeasuring deferred tax assets resulting from changes to the U.S. federal tax code and (5) the impact of the annual special cash dividend paid in the first quarter ~~of 2018~~ resulting in an undistributed loss on earnings per diluted common share. These adjustments affect the following financial measures: net revenues, compensation expenses, non-compensation expenses, income tax expense/(benefit), net income applicable to Piper Jaffray Companies, earnings per diluted common share, segment net revenues, segment operating expenses, segment pre-tax operating income/(loss) and segment pre-tax operating margin. Management believes that presenting these results and measures on an adjusted basis in conjunction with the corresponding U.S. GAAP measures provides the most meaningful basis for comparison of our operating results across periods, and enhances the overall understanding of our current financial performance by excluding certain items that may not be indicative of our core operating results. The non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP.

Executive Overview

Our business principally consists of providing investment banking, institutional brokerage, asset management and related financial services to corporations, private equity groups, public entities, non-profit entities and institutional investors in the United States and Europe. We operate through two reportable business segments: Capital Markets and Asset Management. Refer to our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for a full description of our business, including our ~~strategic growth initiatives.~~business strategy.

On February 25, 2019, we entered into a definitive agreement to acquire Weeden & Co. L.P. ("Weeden & Co."). Weeden & Co. is a broker dealer focused on providing institutional clients with premier global trading solutions, specializing in best execution through the use of high-touch and program trading capabilities. The transaction is expected to close early in the third quarter of 2019, subject to regulatory approvals and customary closing conditions.

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Financial Highlights


	Three Months Ended						Six Months Ended						Three Months Ended
(Amounts in thousands, except per share data)	June 30,		June 30,		Percent		June 30,		June 30,		Percent		Mar. 31,		Mar. 31,		Percent
(Amounts in thousands, except per share data)	2018		2017		Inc/(Dec)		2018		2017		Inc/(Dec)		2019		2018		Inc/(Dec)
U.S. GAAP
Net revenues	$	173,481	$	197,745	(12.3	)%	$	342,543	$	398,274	(14.0	)%	$	191,832	$	169,062	13.5	%
Compensation and benefits	115,574		134,314		(14.0	)	230,744		268,692		(14.1	)	122,636		115,170		6.5
Non-compensation expenses	52,648		43,564		20.9		98,502		86,906		13.3		46,266		45,854		0.9
Net income applicable to Piper Jaffray Companies	6,226		13,573		(54.1	)	16,829		33,848		(50.3	)	19,422		10,603		83.2
Earnings per diluted common share	$	0.43	$	0.89	(51.7	)	$	0.91	$	2.21	(58.8	)	$	1.32	$	0.47	180.9	%

Non-GAAP⁽¹⁾
Adjusted net revenues	$	173,919	$	195,778	(11.2	)%	$	342,062	$	392,410	(12.8	)%	$	191,419	$	168,143	13.8	%
Adjusted compensation and benefits	108,237		126,223		(14.2	)	213,203		252,700		(15.6	)	120,329		104,966		14.6
Adjusted non-compensation expenses	48,765		38,992		25.1		90,932		77,458		17.4		43,011		42,167		2.0
Adjusted net income applicable to Piper Jaffray Companies	13,839		21,274		(34.9	)	35,161		48,755		(27.9	)	23,070		21,322		8.2
Adjusted earnings per diluted common share	$	0.92	$	1.40	(34.3	)	$	2.29	$	3.18	(28.0	)	$	1.57	$	1.38	13.8	%

For the three months ended ~~June 30, 2018~~March 31, 2019

Net revenues were ~~down 12.3~~up 13.5 percent from the year-ago period as ~~increased~~higher advisory services revenues and improved performance in our fixed income institutional brokerage business were partially offset by lower equity financing revenues were more than offset by decreased revenues in our other businesses. Market conditions remain strong in equity investment banking and are improving in public finance, while our institutional brokerage and asset management businesses continue to face challenging market conditions.revenues.

Compensation and benefits expenses ~~decreased 14.0~~increased 6.5 percent compared with the prior-year period due to ~~lower~~higher compensation expenses resulting from ~~decreased revenues.~~increased revenues and profitability, partially offset by lower acquisition-related compensation costs.

Non-compensation expenses were up ~~20.9 percent~~slightly compared to the year-ago ~~period, include $3.8~~period.

For the three months ended March 31, 2019 and 2018, we recorded a tax benefit of $1.7 million ~~of restructuring charges in the second quarter of 2018 resulting from actions to reduce costs in our brokerage~~ and asset management businesses given the challenging market conditions. This expense, which primarily relates to headcount reductions, is included in both our U.S. GAAP and non-GAAP results. Also, non-compensation expenses include $6.2$5.0 million, of deal-related expenses in the current quarter. This reflects new accounting guidance effective in 2018 which requires investment banking client reimbursed deal expenses to be presented on a gross basis on the consolidated statements of operations, rather than the previous presentation of netting deal expenses within revenues. Excluding the restructuring costs and deal-related expenses, non-compensation expenses were $42.7 million, down 2.0 percent compared to the second quarter of 2017. See further discussion on the accounting changerespectively, related to ~~deal expenses within the "Results of Operations" section below.~~

Earnings of $0.43 per diluted common share in the second quarter of 2018 were reduced by higher non-compensation expenses, and aided by a $1.4 million tax benefit related to stock-based compensation awardsrestricted stock vesting at values greater than the grant price. The tax benefit increased earnings per diluted common share by ~~$0.11 in the current quarter. In the year-ago period, we recorded a tax benefit of $1.8 million for equity award vestings, which increased earnings per diluted common share by $0.12.~~

~~For the six months ended June 30, 2018~~

Net revenues were down 14.0 percent from the year-ago period as increased equity financing revenues were more than offset by decreased revenues in our other businesses. We also recorded lower investment income.

~~Compensation and benefits expenses decreased 14.1 percent compared with the prior-year period due to lower compensation expenses resulting from decreased revenues.~~

~~Non-compensation expenses, up 13.3 percent compared to the year-ago period, include $11.2 million of client reimbursed deal-related expenses~~$0.13 in the first ~~half~~quarter of 2018 stemming from a change in accounting presentation, as discussed above. Excluding these deal-related expenses and the $3.8 million of restructuring costs, non-compensation expenses were $83.5 million, down 3.9 percent2019, compared ~~to the first half of 2017.~~

~~For the~~ ~~six months~~ ended June 30, 2018 and 2017, we recorded a tax benefit of $6.4 million and $8.7 million, respectively, related to stock-based compensation awards vesting at values greater than the grant price. The tax benefit increased earnings per diluted common share by $0.49 and $0.57with $0.39 in the first ~~half~~quarter of ~~2018 and 2017, respectively.~~2018.

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(1)	Reconciliation of U.S. GAAP to adjusted non-GAAP financial information


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(Amounts in thousands, except per share data)	2018			2017			2018			2017			2019			2018
Net revenues:
Net revenues – U.S. GAAP basis	$	173,481		$	197,745		$	342,543		$	398,274		$	191,832		$	169,062
Adjustments:
Revenue related to noncontrolling interests	438			(1,967		)	(481		)	(5,864		)	(413		)	(919		)
Adjusted net revenues	$	173,919		$	195,778		$	342,062		$	392,410		$	191,419		$	168,143

Compensation and benefits:
Compensation and benefits – U.S. GAAP basis	$	115,574		$	134,314		$	230,744		$	268,692		$	122,636		$	115,170
Adjustments:
Compensation from acquisition-related agreements	(7,337		)	(8,091		)	(17,541		)	(15,992		)	(2,307		)	(10,204		)
Adjusted compensation and benefits	$	108,237		$	126,223		$	213,203		$	252,700		$	120,329		$	104,966

Non-compensation expenses:
Non-compensation expenses – U.S. GAAP basis	$	52,648		$	43,564		$	98,502		$	86,906		$	46,266		$	45,854
Adjustments:
Non-compensation expenses related to noncontrolling interests	(1,096		)	(579		)	(1,999		)	(1,547		)	(1,029		)	(903		)
Amortization of intangible assets related to acquisitions	(2,615		)	(3,822		)	(5,230		)	(7,644		)	(2,112		)	(2,615		)
Non-compensation expenses from acquisition-related agreements	(172		)	(171		)	(341		)	(257		)	(114		)	(169		)
Adjusted non-compensation expenses	$	48,765		$	38,992		$	90,932		$	77,458		$	43,011		$	42,167

Net income applicable to Piper Jaffray Companies:
Net income applicable to Piper Jaffray Companies – U.S. GAAP basis	$	6,226		$	13,573		$	16,829		$	33,848		$	19,422		$	10,603
Adjustments:
Compensation from acquisition-related agreements	5,517			5,248			13,190			10,054			1,941			7,673
Amortization of intangible assets related to acquisitions	1,967			2,348			3,934			4,695			1,593			1,967
Non-compensation expenses from acquisition-related agreements	129			105			256			158			114			127
Impact of the Tax Cuts and Jobs Act legislation	—			—			952			—			—			952
Adjusted net income applicable to Piper Jaffray Companies	$	13,839		$	21,274		$	35,161		$	48,755		$	23,070		$	21,322

Earnings per diluted common share:
Earnings per diluted common share – U.S. GAAP basis	$	0.43		$	0.89		$	0.91		$	2.21		$	1.32		$	0.47
Adjustment for undistributed loss allocated to participating shares (2)	—			—			0.19			—			0.01			0.21
	0.43			0.89			1.10			2.21			1.33			0.68
Adjustments:
Compensation from acquisition-related agreements	0.35			0.34			0.85			0.65			0.13			0.50
Amortization of intangible assets related to acquisitions	0.13			0.15			0.26			0.30			0.11			0.13
Non-compensation expenses from acquisition-related agreements	0.01			0.01			0.02			0.01			0.01			0.01
Impact of the Tax Cuts and Jobs Act legislation	—			—			0.06			—			—			0.06
Adjusted earnings per diluted common share	$	0.92		$	1.40		$	2.29		$	3.18		$	1.57		$	1.38

(2)

Piper Jaffray Companies calculates earnings per common share using the two-class method, which requires the allocation of consolidated adjusted net income between common shareholders and participating security holders, which in the case of Piper Jaffray Companies, represents unvested stock with non-forfeitable dividend rights. No allocation of undistributed earnings is made for periods in which a loss is incurred, or for periods in which the special cash dividend exceeds adjusted net income resulting in an undistributed loss.

External Factors Impacting Our Business

Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control, often unpredictable and at times inherently volatile. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of advisory transactions and equity and debt financings, the relative level of volatility of the equity and fixed income markets, changes in interest rates and credit spreads (especially rapid and extreme changes), overall market liquidity, the level and shape of various yield curves, the volume and value of trading in securities (although becoming less so for equity securities due to the unbundling of research services from trade execution), overall equity valuations, and the demand for active asset management services.

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Factors that differentiate our business within the financial services industry also may affect our financial results. For example, our capital markets business focuses on specific industry sectors while serving principally middle-market clientele. If the business environment for our focus sectors is impacted adversely, our business and results of operations could reflect these impacts. In addition, our business, with its specific areas of focus and investment, may not track overall market trends. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results for any individual period should not be considered indicative of future results.

Outlook for the remainder of ~~2018~~2019

We ~~expect~~believe that the U.S. economy towill continue to grow at a moderate pace for the remainder of ~~2018. Stimulus measures, including both tax cuts~~2019. However, geopolitical and ~~increased fiscal spending,~~macroeconomic risks, such as ~~well as actions to reduce regulatory costs on businesses, should be supportive to growth in the U.S. Risks~~uncertainties surrounding trade policy and global economic deceleration, present risks to this ~~outlook include geopolitical~~outlook. These risks ~~or international economic instability, including a tumultuous trade policy environment, which~~and uncertainties may pose consequences for the global economy and inject periods of heightened volatility into the U.S. equity and debt ~~markets, as experienced in the first half of 2018.~~markets.

U.S. monetary policy will continue to ~~impact~~be a critical factor impacting the economy and financial ~~markets in the second half of 2018.~~markets. The U.S. Federal Reserve ~~increased short-term~~is projecting no interest ~~rates twice~~rate increases in 2019 as the ~~first half of 2018 on the basis of a more optimistic view~~growth of economic ~~growth~~activity has slowed and ~~higher~~ inflation ~~expectations. Long-term interest rates, however, have not moved in step with increases in short-term interest rates resulting in a flattening of the yield curve. We anticipate that~~has stagnated despite tight labor conditions. Going forward, we believe the U.S. Federal Reserve will ~~continue~~be patient and flexible in adjusting short-term interest rates, balancing economic data and inflation readings.

Market conditions remain conducive to ~~pursue a gradual and steady path to rate normalization, although this path could be slightly steeper if the pace of inflation accelerates.~~

~~We expect conditions~~advisory engagements, especially in the ~~equity markets to remain constructive~~U.S. middle market, our primary market. Advisory activity has been driven by solid economic growth domestically, ample financing availability, and secular changes in technology and innovation driving the need for ~~our advisory~~strategic acquisitions and ~~equity financing businesses, absent a major market disruption or periods of sustained market volatility.~~divestment activity. We believe our full year advisory ~~services business~~pipeline remains strong and, consistent with prior years, will ~~improve meaningfully in~~be more weighted to the second half of ~~2018 from~~ the ~~first half based on our current pipeline of deals, the strength of our market position, and the durability and diversity in our practice.~~year. Advisory services revenues for any given quarter are impacted by the timing and size of the deals closing, which can result in fluctuations in revenues period over period. ~~An active equity underwriting market, along with~~Equity capital raising started 2019 slowly due to the ~~strength~~extended federal government shut down and ~~breadth of our platform, will continue to favorably benefit our equity financing business~~steep sell-off in the ~~second half~~fourth quarter of 2018. Heading into the second quarter, market conditions have improved and are more conducive for equity capital raising, which should allow us to execute on our strong pipeline. If we experience sustained bouts of higher volatility or a material market correction, our advisory services and equity capital raising businesses may suffer.

~~We expect that secular challenges to our~~Our equity brokerage business ~~will persist for~~experienced secular changes in 2018 as the ~~remainder of 2018. The European Union's MiFID II regulations governing how~~manner in which many market participants pay for trade execution and research services ~~went into effect on January 1, 2018. Although~~began to transition at a ~~European regulation, it indirectly impacts~~time when the ~~U.S. equity markets as many global asset managers have adopted a consistent MiFID II compliant regime across all geographies.~~overall fee pool was shrinking. Increasingly, market participants are executing trades through low-touch execution providers and paying separately for research services. ~~As a result, we believe that~~This dynamic has introduced more seasonality to our ~~revenues are becoming less correlated to market trading volumes. The~~ equity brokerage ~~fee pool has been shrinking~~business as we typically receive an increased level of payments for ~~several years~~research in the second half of the year. In the first quarter, we announced the acquisition of Weeden & Co. The acquisition is expected to close early in the third quarter and add enhanced trade execution capabilities and scale to our equity brokerage business.

Interest rates remain relatively low by historical standards and the ~~increased transparency of unbundling research from trading execution~~yield curve has flattened. We expect these conditions to persist and will likely ~~exacerbate this trend.~~

~~We expect the low interest rate environment and a flattened to possibly inverted yield curve to persist for the remainder of 2018. This would continue to subdue~~slow customer flow activity ~~and depress trading spreads~~ for our fixed income institutional brokerage business. ~~While higher interest rates across the yield curve would be favorable to this business, the move to higher rates could adversely impact~~In our public finance business, ~~in the short-term as economic growth has not yet spurred a ramp in new money~~municipal issuance ~~volumes. Irrespective of the interest rate~~ levels we believe that municipal debt underwriting activity will be down meaningfully in 2018 compared to 2017 as some issuances were accelerated to the end of 2017 due to changes from the tax reform legislation, and also due to a lower level of refunding activity. Despite a slow start to 2018, municipal new issuance volumes began to rebound in the second quarter to be more in line with historical levels, andstarted 2019 slower than anticipated, however, we expect ~~a stronger market in~~volumes to improve to more normalized levels as the ~~second half of 2018.~~year progresses, which should benefit this business.

Asset management revenues will continue to be affected by valuations, ~~and~~ investment performance ~~as well as~~and broad market trends. We ~~further~~also expect that active asset managers, ourselves included, will remain under pressure to create alpha for their clients and to maintain or grow AUM.

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Results of Operations

Financial Summary for the three months ended ~~June 30, 2018~~March 31, 2019 and ~~June 30, 2017~~March 31, 2018

The following table provides a summary of the results of our operations on a U.S. GAAP basis and the results of our operations as a percentage of net revenues for the periods indicated.


								As a Percentage of												As a Percentage of
								Net Revenues for the												Net Revenues for the
	Three Months Ended							Three Months Ended				Three Months Ended								Three Months Ended
	June 30,							June 30,				March 31,								March 31,
						2018												2019
(Dollars in thousands)	2018			2017		v2017		2018		2017		2019			2018			v2018		2019		2018
Revenues:
Investment banking	$	123,904		$	138,528	(10.6	)%	71.4	%	70.1	%	$	141,061		$	120,841		16.7	%	73.5	%	71.5	%
Institutional brokerage	33,032			37,074		(10.9	)	19.0		18.7		34,954			27,645			26.4		18.2		16.4
Asset management	12,740			15,186		(16.1	)	7.3		7.7		10,418			12,589			(17.2	)	5.4		7.4
Interest	8,178			7,766		5.3		4.7		3.9		7,567			10,413			(27.3	)	3.9		6.2
Investment income	726			5,453		(86.7	)	0.4		2.8		475			2,912			(83.7	)	0.2		1.7
Total revenues	178,580			204,007		(12.5	)	102.9		103.2		194,475			174,400			11.5		101.4		103.2

Interest expense	5,099			6,262		(18.6	)	2.9		3.2		2,643			5,338			(50.5	)	1.4		3.2

Net revenues	173,481			197,745		(12.3	)	100.0		100.0		191,832			169,062			13.5		100.0		100.0

Non-interest expenses:
Compensation and benefits	115,574			134,314		(14.0	)	66.6		67.9		122,636			115,170			6.5		63.9		68.1
Outside services	10,564			9,789		7.9		6.1		5.0		9,142			8,939			2.3		4.8		5.3
Occupancy and equipment	8,931			8,257		8.2		5.1		4.2		8,750			8,578			2.0		4.6		5.1
Communications	7,925			7,273		9.0		4.6		3.7		8,630			8,626			—		4.5		5.1
Marketing and business development	7,685			8,282		(7.2	)	4.4		4.2		7,395			7,299			1.3		3.9		4.3
Deal-related expenses	6,166			—		N/M		3.6		—		4,728			5,051			(6.4	)	2.5		3.0
Trade execution and clearance	2,028			1,928		5.2		1.2		1.0		1,806			2,163			(16.5	)	0.9		1.3
Restructuring costs	3,770			—		N/M		2.2		—
Intangible asset amortization	2,615			3,822		(31.6	)	1.5		1.9		2,112			2,615			(19.2	)	1.1		1.5
Back office conversion costs	—			868		N/M		—		0.4
Other operating expenses	2,964			3,345		(11.4	)	1.7		1.7		3,703			2,583			43.4		1.9		1.5
Total non-interest expenses	168,222			177,878		(5.4	)	97.0		90.0		168,902			161,024			4.9		88.0		95.2

Income before income tax expense	5,259			19,867		(73.5	)	3.0		10.0
Income before income tax expense/(benefit)												22,930			8,038			185.3		12.0		4.8

Income tax expense	567			4,906		(88.4	)	0.3		2.5
Income tax expense/(benefit)												4,124			(2,581		)	N/M		2.1		(1.5	)

Net income	4,692			14,961		(68.6	)	2.7		7.6		18,806			10,619			77.1		9.8		6.3

Net income/(loss) applicable to noncontrolling interests	(1,534		)	1,388		N/M		(0.9	)	0.7		(616		)	16			N/M		(0.3	)	—

Net income applicable to Piper Jaffray Companies	$	6,226		$	13,573	(54.1	)%	3.6	%	6.9	%	$	19,422		$	10,603		83.2	%	10.1	%	6.3	%

N/M – Not meaningful

For the three months ended ~~June 30, 2018~~March 31, 2019, we recorded net income applicable to Piper Jaffray Companies of ~~$6.2~~$19.4 million. Net revenues for the three months ended ~~June 30, 2018~~March 31, 2019 were ~~$173.5~~$191.8 million, a ~~12.3~~13.5 percent ~~decrease~~increase compared to ~~$197.7~~$169.1 million in the year-ago period. In the ~~second~~first quarter of ~~2018~~2019, investment banking revenues were ~~$123.9~~$141.1 million, ~~down 10.6~~up 16.7 percent compared with ~~$138.5~~$120.8 million in the prior-year period, as ~~lower~~higher advisory services and debt financing revenues were partially offset by ~~higher~~lower equity financing revenues. For the three months ended ~~June 30, 2018,~~March 31, 2019, institutional brokerage revenues ~~decreased 10.9~~increased 26.4 percent to $35.0 million, compared with $27.6 million in the first quarter of 2018, as higher fixed income institutional brokerage revenues were partially offset by lower equity institutional brokerage revenues. In the first quarter of 2019, asset management fees of $10.4

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~~$33.0~~ million were down 17.2 percent compared with ~~$37.1~~$12.6 million in the ~~second~~first quarter of ~~2017, due to lower fixed income and equity institutional brokerage revenues. In the second quarter of~~ 2018 ~~asset management fees of $12.7 million were down 16.1 percent compared with $15.2 million in the second quarter of 2017~~ due to lower management fees from ~~both~~ our master limited partnership ("MLP") and equity product ~~offerings.~~offerings as we experienced client assets under management ("AUM") outflows and market depreciation during 2018. For the three months ended ~~June 30, 2018,~~March 31, 2019, net interest income was ~~$3.1~~$4.9 million, updown slightly from ~~$1.5~~$5.1 million in the prior-year period. The increase was attributable to lower costs of financing given our level of capital, as well as lower long-term financing expenses. We repaid $50 million of Class A senior notes upon maturity on May 31, 2017. We recorded investment income of ~~$0.7~~$0.5 million in the first quarter of ~~2018,~~2019, compared with ~~$5.5~~$2.9 million in the prior-year period. Non-interest expenses were ~~$168.2~~$168.9 million for the three months ended ~~June 30, 2018, down 5.4~~March 31, 2019, up 4.9 percent compared to ~~$177.9~~$161.0 million in the prior-year period, ~~as lower~~due primarily to higher compensation expenses from decreased revenues were partially offset by higher non-compensation expenses. Non-compensation expenses include $3.8 million of incremental restructuring costs, as well as $6.2 million of deal-related expenses. New accounting guidance, effective in 2018, requires the gross presentation of client reimbursed deal expenses.

~~New Revenue Recognition Guidance~~

As discussed in Note 2 to our unaudited consolidated financial statements, we adopted new revenue recognition guidance effective as of January 1, 2018. The previous broker dealer industry treatment of netting deal expenses with investment banking revenues was superseded under the new guidance. As a result of adopting the new guidance, we now present investment banking revenues gross of related client reimbursed deal expenses and deal-related expenses as non-interest expenses on the consolidated statements of operations, rather than the previous presentation of netting deal expenses incurred for completed investment banking deals within revenues. This change did not impact net income, however the financial measures for the three months ended June 30, 2018 were impacted as follows:

~~Higher net revenues,~~

~~Decreased compensation ratio,~~

~~Higher non-compensation expenses,~~

~~Higher non-compensation ratio, and~~

~~Lower pre-tax operating margin.~~

Deal-related expenses are deferred until completion of an investment banking transaction and are now reported separately on the consolidated statements of operations. For the three months ended June 30, 2018, we reported higher investment bankingincreased revenues and ~~higher non-compensation expenses of $6.2 million, respectively, as a result of this change.~~

In addition, we now defer the recognition of performance fees on our merchant banking, energy and senior living alternative asset management funds until such fees are no longer subject to reversal, which will cause a delay in the recognition of these fees as revenue. With the exception of the above, our previous methods of recognizing investment banking revenues were not significantly impacted by the new guidance.improved profitability.

Consolidated Non-Interest Expenses

Compensation and Benefits – Compensation and benefits expenses, which are the largest component of our expenses, include salaries, incentive compensation, benefits, stock-based compensation, employment taxes, income associated with the forfeiture of stock-based compensation and other employee-related costs. A portion of compensation expense is comprised of variable incentive arrangements, including discretionary incentive compensation, the amount of which fluctuates in proportion to the level of business activity, increasing with higher revenues and operating profits. Other compensation costs, primarily base salaries and benefits, are more fixed in nature. The timing of incentive compensation payments, which generally occur in February, has a greater impact on our cash position and liquidity than is reflected on our consolidated statements of operations. We have granted restricted stock with service conditions as a component of our acquisition deal consideration, which is amortized to compensation expense over the service period.

For the three months ended ~~June 30, 2018~~March 31, 2019, compensation and benefits expenses ~~decreased~~increased to ~~$115.6~~$122.6 million, compared with ~~$134.3~~$115.2 million in the corresponding period of ~~2017~~2018, due to ~~lower~~higher net ~~revenues.~~revenues and increased profitability. Compensation and benefits expenses as a percentage of net revenues was ~~66.6~~63.9 percent in the first quarter of 2019, compared with 68.1 percent in the first quarter of 2018. The lower compensation ratio reflects decreased acquisition-related compensation driven by a decline in compensation expenses related to a Simmons & Company International ("Simmons") performance award plan implemented at the time of acquisition. The requisite service period for our remaining acquisition-related compensation arrangements ends in the second quarter of 2018, compared with 67.9 percent in the second quarter of 2017. The decreased compensation ratio reflects the impact of presenting investment banking revenues gross of related client reimbursed deal expenses, as required by new accounting guidance. This change resulted in a 250 bps decrease to the compensation ratio in the current quarter.2019.

~~Table of Contents~~

Outside Services – Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees, fund expenses associated with our consolidated alternative asset management funds and other professional fees. Outside services expenses increased ~~7.9~~2.3 percent to ~~$10.6~~$9.1 million in the ~~second~~first quarter of ~~2018,~~2019, compared with ~~$9.8~~$8.9 million in the corresponding period of ~~2017, due to an increase~~2018. Excluding the portion of expenses from non-controlled equity interests in ~~professional fees partially offset by a reduction in securities processing costs as there are~~our consolidated alternative asset management funds, outside services ~~we no longer use following our migration to a fully disclosed clearing model in the third quarter of 2017.~~expenses were flat.

Occupancy and Equipment – For the three months ended ~~June 30, 2018~~,March 31, 2019, occupancy and equipment expenses increased slightly to ~~$8.9~~$8.8 million, compared with ~~$8.3~~$8.6 million for the three months ended ~~June 30, 2017.~~March 31, 2018.

Communications – Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third party market data information. For the three months ended ~~June 30, 2018,~~March 31, 2019, communication expenses ~~increased 9.0 percent to $7.9~~were flat at $8.6 million, compared with ~~$7.3 million for~~ the three months ended ~~June 30, 2017. The increase was primarily due to higher market data services.~~March 31, 2018.

Marketing and Business Development – Marketing and business development expenses include travel and entertainment costs, advertising and third party marketing fees. For the three months ended ~~June 30, 2018,~~March 31, 2019, marketing and business development expenses ~~decreased~~were $7.4 million, essentially flat compared to ~~$7.7 million, compared with $8.3 million in~~ the corresponding period of ~~2017. The decline was attributable to lower marketing and travel expenses.~~2018.

Deal-Related Expenses – Deal-related expenses include costs we incurred over the course of a completed investment banking deal, which primarily consist of legal fees, offering expenses, and travel and entertainment ~~costs and market data services.~~costs. For the three months ended ~~June 30, 2018,~~March 31, 2019, deal-related expenses were ~~$6.2 million. Effective January 1, 2018, new revenue recognition guidance required us to present deal~~$4.7 million, compared with $5.1 million for the three months ended March 31, 2018. The decrease in deal-related expenses oncorresponds with a ~~gross basis under non-interest expenses on~~decline in equity financing activity for the ~~consolidated statements of operations, rather than netting deal expenses incurred for completed investment banking deals within revenues.~~three months ended March 31, 2019. The amount of deal-related expenses ~~for the year~~ will principally be dependent on the level of deal activity and may vary from ~~quarter~~period to ~~quarter~~period as the recognition of deal-related costs typically coincides with the closing of a transaction. ~~Based upon prior years' experience, we would expect approximately $20.0 million to $25.0 million of annual deal-related expenses.~~

Trade Execution and Clearance – For the three months ended ~~June 30, 2018,~~March 31, 2019, trade execution and clearance expenses were ~~$2.0~~$1.8 million, ~~flat~~ compared with $2.2 million in the corresponding period of ~~2017.~~2018. The decline in trade execution and clearance expenses was reflective of reduced trading volumes compared with the first quarter of 2018.

~~Restructuring Costs~~ ~~– For the three months ended June 30, 2018, we incurred restructuring costs~~

Table of $3.8 million related to our brokerage and asset management businesses. Restructuring costs include $3.5 million of severance benefits, $0.1 million for vacated leased office space, and $0.2 million for contract termination fees. We do not anticipate incurring additional restructuring costs in 2018.Contents

Intangible Asset Amortization – Intangible asset amortization includes the amortization of definite-lived intangible assets consisting of customer relationships and the Simmons ~~& Company International ("Simmons")~~ trade name. For the three months ended ~~June 30, 2018,~~March 31, 2019, intangible asset amortization was ~~$2.6~~$2.1 million, compared with ~~$3.8~~$2.6 million in the corresponding period of ~~2017.~~

~~Back Office Conversion Costs~~ – In the third quarter of 2017, we migrated to a fully disclosed clearing model and are no longer self clearing. Back office conversion costs included costs incurred to transition to a fully disclosed clearing model, such as contract termination fees, vendor migration fees, professional fees, and severance benefits for impacted personnel. For the three months ended June 30, 2017, we incurred back office conversion costs of $0.9 million.2018.

Other Operating Expenses – Other operating expenses include insurance costs, license and registration fees, expenses related to our charitable giving program and litigation-related expenses, which consist of the amounts we reserve and/or pay out related to legal and regulatory matters. Other operating expenses ~~decreased 11.4 percent~~increased to ~~$3.0~~$3.7 million in the ~~second~~first quarter of ~~2018,~~2019, compared with ~~$3.3~~$2.6 million in the ~~second~~first quarter of ~~2017.~~2018. The ~~decrease~~increase was primarily due to ~~lower~~higher expense related to our charitable giving program driven by our ~~lower~~increased profitability.

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Income Taxes – ~~The Tax Cuts and Jobs Act reduced the corporate federal tax rate from 35 percent to 21 percent effective January 1, 2018.~~

For the three months ended ~~June 30, 2018,~~March 31, 2019, our provision for income ~~tax expense~~taxes was ~~$0.6 million. In the second quarter of 2018, we recorded~~$4.1 million, which included a ~~$1.4~~$1.7 million tax benefit related to stock-based compensation awards vesting at values greater than the grant price. Excluding the impact of this benefit, our effective tax rate was ~~29.0~~25.4 percent.

For the three months ended ~~June 30, 2017,~~March 31, 2018, our benefit from income ~~tax expense~~taxes was ~~$4.9~~$2.6 million. In the ~~second~~first quarter of ~~2017,~~2018, we recorded a ~~$1.8~~$5.0 million tax benefit related to stock-based compensation awards vesting at values greater than the grant price. Additionally, pursuant to SEC Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act," we recorded an additional $1.0 million of income tax expense for the three months ended March 31, 2018. Excluding the impact of ~~this benefit,~~these two items, our effective tax rate was ~~36.3 percent.~~18.5 percent due to the impact of tax-exempt interest income representing a larger portion of our pre-tax income.

In the second quarter of 2019, we estimate recording a tax benefit of approximately $3.6 million related to performance share units and Simmons Inducement Plan shares vesting at values greater than the grant price. See also Note 13, "Compensation Plans" in the notes to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q for further information on our compensation plans.

Segment Performance

We measure financial performance by business segment. Our two reportable segments are Capital Markets and Asset Management. We determined these segments based upon the nature of the financial products and services provided to customers and our management organization. Segment pre-tax operating ~~income~~income/(loss) and segment pre-tax operating margin are used to evaluate and measure segment performance by our chief operating decision maker in deciding how to allocate resources and in assessing performance in relation to our competitors. Revenues and expenses directly associated with each respective segment are included in determining segment operating results. Revenues and expenses that are not directly attributable to a particular segment are allocated based upon our allocation methodologies, generally based on each segment's respective net revenues, use of shared resources, headcount or other relevant measures.

Throughout this section, we have presented segment results on both a U.S. GAAP and non-GAAP basis. Management believes that presenting adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin, each a non-GAAP measure, in conjunction with the U.S. GAAP measures provides a more meaningful basis for comparison of its operating results and underlying trends between periods, and enhances the overall understanding of our current financial performance by excluding certain items that may not be indicative of our core operating results. The non-GAAP segment results should be considered in addition to, not as a substitute for, the segment results prepared in accordance with U.S. GAAP.

Adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin exclude (1) revenues and expenses related to noncontrolling interests, (2) amortization of intangible assets related to acquisitions and (3) compensation and non-compensation expenses from acquisition-related agreements. For U.S. GAAP purposes, these items are included in each of their respective line items on the consolidated statements of operations.

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Capital Markets

The following table sets forth the Capital Markets adjusted segment financial results and adjustments necessary to reconcile to our consolidated U.S. GAAP pre-tax operating income and pre-tax operating margin for the periods presented:


	Three Months Ended June 30,																							Three Months Ended March 31,
	2018												2017											2019												2018
				Adjustments (1)												Adjustments (1)											Adjustments (1)												Adjustments (1)
	Total			Noncontrolling			Other			U.S.			Total			Noncontrolling		Other			U.S.			Total			Noncontrolling			Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests			Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests			Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Investment banking
Advisory services	$	77,214		$	—		$	—		$	77,214		$	92,507		$	—	$	—		$	92,507		$	114,879		$	—		$	—		$	114,879		$	75,329		$	—	$	—		$	75,329
Financing
Equities	30,038			—			—			30,038			24,730			—		—			24,730			13,527			—			—			13,527			37,642			—		—			37,642
Debt	16,851			—			—			16,851			21,971			—		—			21,971			13,082			—			—			13,082			7,686			—		—			7,686
Total investment banking	124,103			—			—			124,103			139,208			—		—			139,208			141,488			—			—			141,488			120,657			—		—			120,657

Institutional sales and trading
Equities	19,141			—			—			19,141			20,569			—		—			20,569			15,714			—			—			15,714			18,006			—		—			18,006
Fixed income	18,436			—			—			18,436			19,221			—		—			19,221			23,669			—			—			23,669			16,334			—		—			16,334
Total institutional sales and trading	37,577			—			—			37,577			39,790			—		—			39,790			39,383			—			—			39,383			34,340			—		—			34,340

Management and performance fees	1,630			—			—			1,630			1,497			—		—			1,497			1,129			—			—			1,129			1,388			—		—			1,388

Investment income	1,581			(438		)	—			1,143			3,340			1,967		—			5,307			216			413			—			629			2,379			919		—			3,298

Long-term financing expenses	(1,832		)	—			—			(1,832		)	(2,029		)	—		—			(2,029		)	(238		)	—			—			(238		)	(1,787		)	—		—			(1,787		)

Net revenues	163,059			(438		)	—			162,621			181,806			1,967		—			183,773			181,978			413			—			182,391			156,977			919		—			157,896

Operating expenses	146,561			1,096			8,724			156,381			152,847			579		10,807			164,233			154,250			1,029			3,174			158,453			136,370			903		11,587			148,860

Segment pre-tax operating income	$	16,498		$	(1,534	)	$	(8,724	)	$	6,240		$	28,959		$	1,388	$	(10,807	)	$	19,540		$	27,728		$	(616	)	$	(3,174	)	$	23,938		$	20,607		$	16	$	(11,587	)	$	9,036

Segment pre-tax operating margin	10.1		%							3.8		%	15.9		%						10.6		%	15.2		%							13.1		%	13.1		%						5.7		%


(1)	The following is a summary of the adjustments needed to reconcile our consolidated U.S. GAAP segment pre-tax operating income and segment pre-tax operating margin to the adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin:

Noncontrolling interests – The impacts of consolidating noncontrolling interests in our alternative asset management funds are not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin.

Other adjustments – The following table sets forth the items not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin for the periods presented:


	Three Months Ended June 30,				Three Months Ended March 31,
(Dollars in thousands)	2018		2017		2019		2018
Compensation from acquisition-related agreements	$	7,337	$	8,091	$	2,307	$	10,204
Amortization of intangible assets related to acquisitions	1,215		2,545		753		1,214
Non-compensation expenses from acquisition-related agreements	172		171		114		169
	$	8,724	$	10,807	$	3,174	$	11,587

Capital Markets net revenues on a U.S. GAAP basis were ~~$162.6~~$182.4 million for the three months ended ~~June 30, 2018,~~March 31, 2019, compared with ~~$183.8~~$157.9 million in the prior-year period. For the three months ended ~~June 30, 2018,~~March 31, 2019, adjusted net revenues were ~~$163.1~~$182.0 million, compared with ~~$181.8~~$157.0 million in the ~~second~~first quarter of ~~2017.~~2018. The variance explanations for net revenues and adjusted net revenues are consistent on both a U.S. GAAP and non-GAAP basis.

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Investment banking revenues comprise all of the revenues generated through advisory services activities, which includes mergers and acquisitions, equity private placements, debt and restructuring advisory, and municipal financial advisory transactions, as well as equity and debt financing activities. To assess the profitability of investment banking, we aggregate investment banking fees with the net interest income or expense associated with these activities.

In the ~~second~~first quarter of ~~2018,~~2019, investment banking revenues ~~decreased 10.9~~increased 17.3 percent to ~~$124.1~~$141.5 million, compared with ~~$139.2~~$120.7 million in the corresponding period of the prior year. For the three months ended ~~June 30, 2018,~~March 31, 2019, advisory services revenues were ~~$77.2~~$114.9 million, ~~down 16.5~~up 52.5 percent compared to ~~$92.5~~$75.3 million in the ~~second~~first quarter of 2017, due to fewer completed transactions. This decline is consistent with the market where the number of completed transactions was also down. Our advisory services revenues can be impacted by timing and the number and size of deals closing, which results in fluctuations in revenues from period to period.2018. We completed 3735 transactions with an aggregate enterprise value of ~~$5.0~~$11.9 billion in the ~~second~~first quarter of ~~2018,~~2019, compared with 4636 transactions with an aggregate enterprise value of ~~$8.1~~$5.2 billion in the ~~second~~first quarter of ~~2017.~~2018. Although the number of completed transactions was essentially flat year-over-year, the increase in revenues was driven by the closing of two larger deals. The uneven distribution of the number and size of deals results in revenue fluctuations from quarter to quarter. For the three months ended ~~June 30, 2018,~~March 31, 2019, equity financing revenues were ~~$30.0~~$13.5 million, ~~up 21.5~~down 64.1 percent compared with ~~$24.7~~$37.6 million in the second quarter of 2017, reflecting strong relative performance and market share gains. We outperformed our sub-$2 billion target market where the overall fee pool was up approximately 7 percent compared to the prior-year period. Also, the number of deals in which we were book runner increased approximately 25 percent compared to the second quarter of 2017. During the secondfirst quarter of 2018, driven by fewer completed transactions which was exacerbated by fewer bookrun deals. We completed 7 bookrun deals in the first quarter of 2019 compared with 17 bookrun deals in the year-ago period. Equity financing activity started slow in 2019 as the federal government shut down extended into late January 2019 and market participants were hesitant after the market volatility in the fourth quarter of 2018. During the first quarter of 2019, we completed 2612 equity financings, raising ~~$5.5~~$5.2 billion for our clients, compared with 1725 equity financings, raising ~~$3.9~~$4.5 billion for our clients in the comparable year-ago period. Debt financing revenues for the three months ended ~~June 30, 2018~~March 31, 2019 were ~~$16.9~~$13.1 million, ~~down 23.3~~up 70.2 percent compared with ~~$22.0~~$7.7 million in the historical slow year-ago period, ~~driven~~which was impacted by ~~a decline in municipal market~~federal tax reform. Municipal issuance volumes ~~from robust 2017 levels.~~were up on a year-over-year basis, but remain low on a historical basis. During the ~~second~~first quarter of ~~2018,~~2019, we completed ~~114~~77 negotiated municipal issues with a total par value of ~~$2.3~~$1.7 billion, compared with ~~140~~59 negotiated municipal issues with a total par value of ~~$3.5~~$1.6 billion during the prior-year period.

Institutional sales and trading revenues comprise all of the revenues generated through trading activities, which consist of facilitating customer trades, executing competitive municipal underwritings and our strategic trading activities in municipal bonds and U.S. government agency securities. To assess the profitability of institutional brokerage activities, we aggregate institutional brokerage revenues with the net interest income or expense associated with financing, economically hedging and holding long or short inventory positions. Our results may vary from quarter to quarter as a result of changes in trading margins, trading gains and losses, net interest spreads, trading volumes, the timing of payments for research services, and the timing of transactions based on market opportunities.

For the three months ended ~~June 30, 2018,~~March 31, 2019, institutional brokerage revenues were ~~$37.6~~$39.4 million, ~~a decrease~~an increase of ~~5.6~~14.7 percent compared with ~~$39.8~~$34.3 million in the prior-year period, ~~due to~~as higher fixed income institutional brokerage revenues were partially offset by lower equity ~~and fixed income~~ institutional brokerage revenues. Equity institutional brokerage revenues were ~~$19.1~~$15.7 million in the ~~second~~first quarter of ~~2018,~~2019, down ~~6.9~~12.7 percent compared with ~~$20.6~~$18.0 million in the corresponding period of ~~2017, due to changes in how~~2018. Although equity market ~~participants pay for equity research~~indices were up in the first quarter of 2019, volatility and volumes were relatively subdued, which negatively impacted our performance. Additionally, revenues in the first quarter of 2018 were positively impacted by more block trade execution services. The European Union's MiFID II regulations governing how market participants pay for execution and research services went into effect on January 1, 2018. Although a European regulation, this indirectly impacts the U.S. equity markets as many global asset managers adopt a consistent MiFID II compliant regime across all geographies. Increasingly, market participants are executing trades through low-touch execution providers and paying separately for research services. As a result, we believe that our revenues are becoming less correlated to market trading volumes.activity. For the three months ended ~~June 30, 2018,~~March 31, 2019, fixed income institutional brokerage revenues were ~~$18.4~~$23.7 million, ~~down 4.1~~up 44.9 percent compared with ~~$19.2~~$16.3 million in the prior-year period, due to ~~light customer flow activity. Market~~increased client activity at the start of the year and improved overall trading performance. Also, market conditions ~~remain challenging as low interest rates and~~in this business improved significantly compared to the year-ago period, driven by strong returns in the municipal asset class. In the first quarter of 2018, industry returns for municipal bonds were the worst in nearly a ~~flattening yield curve depress volumes and trading spreads.~~decade.

Management and performance fees include the fees generated from our merchant banking, energy and senior living funds with outside investors. For the three months ended ~~June 30, 2018~~March 31, 2019, management and performance fees were ~~$1.6~~$1.1 million, compared with ~~$1.5~~$1.4 million in the prior-year period.

Investment income includes realized and unrealized gains and losses on investments, including amounts attributable to noncontrolling interests, in our merchant banking, energy and senior living funds. For the three months ended ~~June 30, 2018,~~March 31, 2019, investment income was ~~$1.1~~$0.6 million, compared ~~to $5.3~~with $3.3 million in the corresponding period of ~~2017.~~2018. We recorded lower gains on our investments in the current period.

Long-term financing expenses primarily represent interest paid on our senior ~~notes. For the three months ended~~ ~~June 30, 2018, long-term financing expenses decreased to $1.8 million, from $2.0 million in the prior-year period.~~notes along with commitment fees on our lines of credit. We repaid ~~$50~~our $125 million ~~of Class A~~fixed rate senior notes upon maturity on ~~May 31, 2017.~~

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October 9, 2018, and, as a result, we no longer have long-term financing expenses related to these notes.

Capital Markets segment pre-tax operating margin for the three months ended ~~June 30, 2018~~March 31, 2019 was ~~3.8~~13.1 percent, compared with ~~10.6~~5.7 percent for the corresponding period of ~~2017.~~2018. The increase in segment pre-tax operating margin was driven by higher revenues

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and lower acquisition-related compensation. Adjusted segment pre-tax operating margin for the three months ended ~~June 30, 2018~~March 31, 2019 was ~~10.1~~15.2 percent, compared with ~~15.9~~13.1 percent for the corresponding period of ~~2017. In the current quarter, segment pre-tax operating margin for both U.S. GAAP and adjusted results was negatively impacted by restructuring costs and lower net revenues.~~2018.

Asset Management

The following table sets forth the Asset Management segment financial results and adjustments necessary to reconcile to our consolidated U.S. GAAP pre-tax operating ~~income~~income/(loss) and pre-tax operating margin for the periods presented:


	Three Months Ended June 30,																						Three Months Ended March 31,
	2018											2017											2019											2018
				Adjustments (1)											Adjustments (1)											Adjustments (1)											Adjustments (1)
	Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Management fees
MLP	$	6,343		$	—	$	—		$	6,343		$	7,168		$	—	$	—		$	7,168		$	5,506		$	—	$	—		$	5,506		$	6,304		$	—	$	—		$	6,304
Equity	4,767			—		—			4,767			6,521			—		—			6,521			3,782			—		—			3,782			4,889			—		—			4,889
Total management fees	11,110			—		—			11,110			13,689			—		—			13,689			9,288			—		—			9,288			11,193			—		—			11,193

Performance fees
MLP	—			—		—			—			—			—		—			—			—			—		—			—			—			—		—			—
Equity	—			—		—			—			—			—		—			—			1			—		—			1			8			—		—			8
Total performance fees	—			—		—			—			—			—		—			—			1			—		—			1			8			—		—			8

Total management and performance fees	11,110			—		—			11,110			13,689			—		—			13,689			9,289			—		—			9,289			11,201			—		—			11,201

Investment income/(loss)	(250		)	—		—			(250		)	283			—		—			283			152			—		—			152			(35		)	—		—			(35		)

Total net revenues	10,860			—		—			10,860			13,972			—		—			13,972			9,441			—		—			9,441			11,166			—		—			11,166

Operating expenses	10,441			—		1,400			11,841			12,368			—		1,277			13,645			9,090			—		1,359			10,449			10,763			—		1,401			12,164

Segment pre-tax operating income/(loss)	$	419		$	—	$	(1,400	)	$	(981	)	$	1,604		$	—	$	(1,277	)	$	327		$	351		$	—	$	(1,359	)	$	(1,008	)	$	403		$	—	$	(1,401	)	$	(998	)

Segment pre-tax operating margin	3.9		%						(9.0		)%	11.5		%						2.3		%	3.7		%						(10.7		)%	3.6		%						(8.9		)%


(1)	Other Adjustments – Consists of amortization of acquisition-related intangible assets of $1.4 million ~~and $1.3 million~~ for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Management and performance fee revenues comprise the revenues generated from management and investment advisory services performed for separately managed accounts, registered funds and partnerships. Client asset inflows and outflows and investment performance have a direct effect on management and performance fee revenues. Management fees are generally based on the level of ~~assets under management ("AUM")~~AUM measured monthly or quarterly, and an increase or reduction in AUM, due to market price fluctuations or net client asset flows, will result in a corresponding increase or decrease in management fees. Fees vary with the type of assets managed and the vehicle in which they are managed. Performance fees are earned when the investment return on AUM exceeds certain benchmark targets or other performance targets over a specified measurement period. These performance fees are typically annual performance hurdles and recognized in the fourth quarter of the applicable year, or upon withdrawal of client assets. The level of performance fees earned can vary significantly from period to period and these fees may not necessarily be correlated to changes in total AUM. At ~~June 30, 2018~~March 31, 2019, approximately five percent of our AUM was eligible to earn performance fees.

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For the three months ended ~~June 30, 2018,~~March 31, 2019, management fees were ~~$11.1~~$9.3 million, a decrease of ~~18.8~~17.0 percent, compared with ~~$13.7~~$11.2 million in the prior-year ~~period, due to lower management~~period. Management fees ~~from~~declined for both our MLP and equity product offerings. Management fees from our MLP strategies decreased 11.5 percent in the second quarter of 2018 to $6.3 million, compared with $7.2 million in the second quarter of 2017, due to lower average AUM. In the second quarter of 2018, management fees related to our equity strategies were $4.8 million, down 26.9 percent compared to $6.5 million in the corresponding period of 2017. The decrease wasofferings primarily due to lower average AUM, ~~from~~driven by net client ~~outflows in 2017, as well as a lower average effective revenue yield. The average effective revenue yield (total annualized management fees as a percentage~~outflows. Additionally, we experienced significant market depreciation at the end of ~~our average month-end AUM) for our equity strategies was 55 basis points for the second quarter of 2018, compared with 62 basis points for the prior-year period.~~2018.

Investment income/(loss) includes gains and losses from our investments in registered funds and private funds or partnerships that we manage. ~~For~~We recorded investment income of $0.2 million for the three months ended ~~June 30, 2018, we recorded an investment loss of $0.3 million, compared with income of $0.3 million for the prior-year period.~~March 31, 2019.

~~Segment~~The negative segment pre-tax operating margin for the three months ended ~~June 30,~~March 31, 2019 and 2018, respectively, was ~~a negative 9.0 percent~~ due to ~~declining profitability in the business. Adjusted segment~~a pre-tax operating ~~margin declined~~loss resulting from ~~11.5 percent in the second quarter of 2017 to 3.9 percent in the second quarter of 2018.~~

~~The following table summarizes the changes in our AUM for the periods presented:~~

Twelve
Three Months Ended Months Ended
June 30, June 30,
(Dollars in millions) 2018 2017 2018
MLP
Beginning of period $ 3,399
$ 4,681
$ 4,304
Net inflows/(outflows) 251
(9 ) (137 )
Net market appreciation/(depreciation) 366
(368 ) (151 )
End of period $ 4,016
$ 4,304
$ 4,016

Equity
Beginning of period $ 3,478
$ 4,081
$ 4,276
Net inflows/(outflows) (48 ) 173
(1,128 )
Net market appreciation 37
22
319
End of period $ 3,467
$ 4,276
$ 3,467

Total
Beginning of period $ 6,877
$ 8,762
$ 8,580
Net inflows/(outflows) 203
164
(1,265 )
Net market appreciation/(depreciation) 403
(346 ) 168
End of period $ 7,483
$ 8,580
$ 7,483
intangible amortization expense.

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~~Financial Summary for the six months ended~~ ~~June 30, 2018~~ ~~and~~ ~~June 30, 2017~~

~~The following table provides a summary of the results of our operations on a U.S. GAAP basis and the results of our operations as a percentage of net revenues for the periods indicated.~~

As a Percentage of
Net Revenues for the
Six Months Ended Six Months Ended
June 30, June 30,
2018
(Dollars in thousands) 2018 2017 v2017 2018 2017
Revenues:
Investment banking $ 244,745
$ 270,778
(9.6 )% 71.4 % 68.0 %
Institutional brokerage 60,677
76,210
(20.4 ) 17.7
19.1
Asset management 25,329
31,193
(18.8 ) 7.4
7.8
Interest 18,591
15,485
20.1
5.4
3.9
Investment income 3,638
15,828
(77.0 ) 1.1
4.0
Total revenues 352,980
409,494
(13.8 ) 103.0
102.8

Interest expense 10,437
11,220
(7.0 ) 3.0
2.8

Net revenues 342,543
398,274
(14.0 ) 100.0
100.0

Non-interest expenses:
Compensation and benefits 230,744
268,692
(14.1 ) 67.4
67.5
Outside services 19,503
20,117
(3.1 ) 5.7
5.1
Occupancy and equipment 17,509
16,719
4.7
5.1
4.2
Communications 16,551
14,889
11.2
4.8
3.7
Marketing and business development 14,984
15,829
(5.3 ) 4.4
4.0
Deal-related expenses 11,217
—
N/M 3.3
—
Trade execution and clearance 4,191
3,739
12.1
1.2
0.9
Restructuring costs 3,770
—
N/M 1.1
—
Intangible asset amortization 5,230
7,644
(31.6 ) 1.5
1.9
Back office conversion costs —
1,734
N/M —
0.4
Other operating expenses 5,547
6,235
(11.0 ) 1.6
1.6
Total non-interest expenses 329,246
355,598
(7.4 ) 96.1
89.3

Income before income tax expense/(benefit) 13,297
42,676
(68.8 ) 3.9
10.7

Income tax expense/(benefit) (2,014 ) 4,511
N/M (0.6 ) 1.1

Net income 15,311
38,165
(59.9 ) 4.5
9.6

Net income/(loss) applicable to noncontrolling interests (1,518 ) 4,317
N/M (0.4 ) 1.1

Net income applicable to Piper Jaffray Companies $ 16,829
$ 33,848
(50.3 )% 4.9 % 8.5 %

~~N/M – Not meaningful~~

Except as discussed below, the description of non-interest expenses and net revenues as well as the underlying reasons for variances to prior year are substantially the same as the comparative quarterly discussion.

~~Table of Contents~~

~~For the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018, we recorded net income applicable to Piper Jaffray Companies of $16.8 million. Net revenues for the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018~~ were $342.5 million, compared to $398.3 million in the year-ago period. In the first half of 2018, investment banking revenues were $244.7 million, down 9.6 percent compared with $270.8 million in the prior-year period as higher equity financing revenues were more than offset by lower advisory services and debt financing revenues. For the ~~six months~~ ~~ended~~ ~~June 30, 2018, institutional brokerage revenues decreased 20.4 percent to~~ ~~$60.7 million, compared with~~ ~~$76.2 million~~ ~~in the first half of~~ ~~2017, due to lower fixed income and equity institutional brokerage revenues. In the first half of 2018, asset management fees were~~ ~~$25.3 million~~, down 18.8 percent compared with $31.2 million in the first half of 2017, due to lower management fees from our MLP and equity product offerings. In the first six months of 2018, net interest income increased to ~~$8.2 million~~, compared with $4.3 million in the prior-year period. The increase was driven by higher interest income earned during the first quarter of 2018 on municipal securities as a result of higher average inventory balances. Also, long-term financing expenses were lower compared to the first half of 2017 as we repaid $50 million of Class A senior notes upon maturity on May 31, 2017. For the ~~six months~~ ~~ended June 30, 2018, investment income was $3.6 million, compared with $15.8 million in the prior-year period. Non-interest expenses were $329.2 million for the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018~~, down 7.4 percent compared with $355.6 million in the year-ago period. Lower compensation expenses from decreased revenues were partially offset by higher non-compensation expenses due to restructuring costs and deal-related expenses. Beginning in 2018, new accounting guidance requires the gross presentation of client reimbursed deal expenses.

~~Consolidated Non-Interest Expenses~~

~~Outside Services –~~ Outside services expenses decreased slightly to $19.5 million in the first half of 2018, compared with $20.1 million in the corresponding period of 2017. Excluding the portion of expenses from non-controlled equity interests in our consolidated alternative asset management funds, outside services expenses were flat, as higher professional fees were offset by a reduction in securities processing costs as there are services we no longer use following our migration to a fully disclosed clearing model in the third quarter of 2017.

~~Income Taxes~~– The Tax Cuts and Jobs Act reduced the corporate federal tax rate from 35 percent to 21 percent effective January 1, 2018. SEC Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118") permitted companies to report a provisional amount in the financial statements if the accounting for income tax effects of the Tax Cuts and Jobs Act was incomplete as of December 31, 2017. This provisional amount would be subject to adjustment during a defined measurement period.

For the six months ended June 30, 2018, our benefit from income taxes was $2.0 million. In the first half of 2018, we recorded a $6.4 million tax benefit related to stock-based compensation awards vesting at values greater than the grant price. Additionally, pursuant to SAB 118, we recorded an additional $1.0 million of income tax expense for the six months ended June 30, 2018. Excluding the impact of these items, our effective tax rate was 23.4 percent for the six months ended June 30, 2018.

For the six months ended June 30, 2017, our provision for income taxes was $4.5 million. In the first half of 2017, we recorded a $8.7 million tax benefit related to stock-based compensation awards vesting at values greater than the grant price. Excluding the impact of this benefit, our effective tax rate was 34.6 percent.

~~Table of Contents~~

~~Segment Performance~~

~~Capital Markets~~

Six Months Ended June 30,
2018 2017

Adjustments ⁽¹⁾

Adjustments ⁽¹⁾

Total Noncontrolling Other U.S. Total Noncontrolling Other U.S.
(Dollars in thousands) Adjusted Interests Adjustments GAAP Adjusted Interests Adjustments GAAP
Investment banking
Advisory services $ 152,543
$ —
$ —
$ 152,543
$ 185,389
$ —
$ —
$ 185,389
Financing
Equities 67,680
—
—
67,680
48,112
—
—
48,112
Debt 24,537
—
—
24,537
38,379
—
—
38,379
Total investment banking 244,760
—
—
244,760
271,880
—
—
271,880

Institutional sales and trading
Equities 37,147
—
—
37,147
40,675
—
—
40,675
Fixed income 34,770
—
—
34,770
42,461
—
—
42,461
Total institutional sales and trading 71,917
—
—
71,917
83,136
—
—
83,136

Management and performance fees 3,018
—
—
3,018
3,494
—
—
3,494

Investment income 3,960
481
—
4,441
9,951
5,864
—
15,815

Long-term financing expenses (3,619 ) —
—
(3,619 ) (4,267 ) —
—
(4,267 )

Net revenues 320,036
481
—
320,517
364,194
5,864
—
370,058

Operating expenses 282,931
1,999
20,311
305,241
305,408
1,547
21,338
328,293

Segment pre-tax operating income $ 37,105
$ (1,518 ) $ (20,311 ) $ 15,276
$ 58,786
$ 4,317
$ (21,338 ) $ 41,765

Segment pre-tax operating margin 11.6 % 4.8 % 16.1 % 11.3 %


~~(1)~~	The following is a summary of the adjustments needed to reconcile our consolidated U.S. GAAP segment pre-tax operating income and segment pre-tax operating margin to the adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin:

~~Other adjustments – The following table sets forth the items not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin for the periods presented:~~

Six Months Ended June 30,
(Dollars in thousands) 2018 2017
Compensation from acquisition-related agreements $ 17,541
$ 15,992
Amortization of intangible assets related to acquisitions 2,429
5,089
Non-compensation expenses from acquisition-related agreements 341
257
$ 20,311
$ 21,338

~~Capital Markets net revenues on a U.S. GAAP basis were $320.5 million for the~~ ~~six months~~ ended June 30, 2018, compared with $370.1 million in the prior-year period. In the first half of 2018, Capital Markets adjusted net revenues were $320.0 million, compared with $364.2 million in the first half of 2017. The variance explanations for net revenues and adjusted net revenues are consistent on both a U.S. GAAP and non-GAAP basis.

~~Table of Contents~~

~~In the first half of 2018, investment banking revenues decreased 10.0 percent to $244.8 million, compared with $271.9 million in the corresponding period of the prior year. For the~~ ~~six months~~ ended June 30, 2018, advisory services revenues decreased 17.7 percent to $152.5 million, compared with $185.4 million in the first half of 2017. The decrease was driven by lower revenue per transaction as our number of completed deals was consistent year-over-year. We completed 73 transactions with an aggregate enterprise value of $10.2 billion in the first half of 2018, compared with 75 transactions with an aggregate enterprise value of $16.5 billion in the first half of 2017. For the six months ended ~~June 30, 2018~~, equity financing revenues were $67.7 million, up 40.7 percent compared with $48.1 million in the prior-year period, due to more completed transactions and higher revenue per transaction. The number of deals in which we were book runner increased approximately 19 percent compared to the first half of 2017. During the first half of 2018, we completed 51 equity financings, raising $10.0 billion for our clients, compared with 44 equity financings, raising $10.1 billion for our clients in the year-ago period. Debt financing revenues for the ~~six months~~ ~~ended~~ ~~June 30, 2018~~ were $24.5 million, down 36.1 percent compared with $38.4 million in the year-ago period, due to lower public finance revenues as municipal market issuance volume has declined significantly compared to the prior-year period. The first quarter of 2018 experienced a significant decline in issuance volume due to record issuance volume in the fourth quarter of 2017 as issuers accelerated financings before the implementation of federal tax law changes in 2018. Municipal issuance volume began to rebound in the second quarter of 2018 with approximately $70 billion of negotiated municipal issues, which is more in line with historical levels. During the first half of 2018, we completed 172 negotiated municipal issues with a total par value of $3.7 billion, compared with 269 negotiated municipal issues with a total par value of $6.9 billion during the prior-year period.

~~For the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018~~, institutional brokerage revenues decreased 13.5 percent to $71.9 million, compared with $83.1 million in the prior-year period, due to lower equity and fixed income institutional brokerage revenues. Equity institutional brokerage revenues decreased 8.7 percent to $37.1 million in the first half of ~~2018, compared with $40.7 million in the corresponding period of~~ ~~2017~~, due to changes in how equity market participants pay for equity research and trade execution services. Our revenues are becoming less correlated to market trading volumes as global market participants are shifting trade execution to low-touch providers and paying for research services separately, a result of the MiFID II regulation. For the ~~six months~~ ended June 30, 2018, fixed income institutional brokerage revenues were $34.8 million, down 18.1 percent compared with $42.5 million in the prior-year period, due to lower trading gains and a decline in customer flow activity. Industry returns for municipal bonds in the first quarter of 2018 were the worst in nearly a decade, resulting in a decline in the value of municipal securities. Also, customer demand was muted due to the impact of tax reform on the municipal asset class. These unfavorable market conditions were exacerbated by low interest rates and a flattened yield curve, conditions which continued into the second quarter of 2018.

~~For the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018, management and performance fees were $3.0 million, compared with $3.5 million in the prior-year period.~~

~~For the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018~~, investment income was $4.4 million, compared to $15.8 million in the corresponding period of 2017. In the first half of 2017, we recored higher gains on our investments. Excluding the impact of noncontrolling interests, adjusted investment income was $4.0 million and $10.0 million for the ~~six months~~ ~~ended June 30, 2018 and 2017, respectively.~~

~~For the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018, long-term financing expenses decreased to $3.6 million, compared with $4.3 million in the prior-year period. We repaid $50 million of Class A senior notes upon maturity on May 31, 2017.~~

Capital Markets segment pre-tax operating margin for the six months ended June 30, 2018 was 4.8 percent, compared with 11.3 percent for the corresponding period of 2017. The decreased pre-tax operating margin was attributable to lower revenues, as well as incremental restructuring costs. Adjusted segment pre-tax operating margin for the ~~six months~~ ~~ended June 30, 2018 was 11.6 percent, compared with 16.1 percent for the corresponding period of 2017.~~

~~Table of Contents~~

~~Asset Management~~

The following table sets forth the Asset Management segment financial results and adjustments necessary to reconcile to our consolidated U.S. GAAP pre-tax operating income and pre-tax operating margin for the periods presented:

Six Months Ended June 30,
2018 2017

Adjustments ⁽¹⁾

Adjustments ⁽¹⁾

Total Noncontrolling Other U.S. Total Noncontrolling Other U.S.
(Dollars in thousands) Adjusted Interests Adjustments GAAP Adjusted Interests Adjustments GAAP
Management fees
MLP $ 12,647
$ —
$ —
$ 12,647
$ 14,517
$ —
$ —
$ 14,517
Equity 9,656
—
—
9,656
13,182
—
—
13,182
Total management fees 22,303
—
—
22,303
27,699
—
—
27,699

Performance fees
MLP —
—
—
—
—
—
—
—
Equity 8
—
—
8
—
—
—
—
Total performance fees 8
—
—
8
—
—
—
—

Total management and performance fees 22,311
—
—
22,311
27,699
—
—
27,699

Investment income/(loss) (285 ) —
—
(285 ) 517
—
—
517

Total net revenues 22,026
—
—
22,026
28,216
—
—
28,216

Operating expenses 21,204
—
2,801
24,005
24,750
—
2,555
27,305

Segment pre-tax operating income/(loss) $ 822
$ —
$ (2,801 ) $ (1,979 ) $ 3,466
$ —
$ (2,555 ) $ 911

Segment pre-tax operating margin 3.7 % (9.0 )% 12.3 % 3.2 %


~~(1)~~	~~Other Adjustments – Consists of amortization of acquisition-related intangible assets of $2.8 million and $2.6 million for the six months ended June 30, 2018 and 2017, respectively.~~

~~For the~~ ~~six months~~ ended June 30, 2018, management fees were $22.3 million, a decrease of 19.5 percent compared with $27.7 million in the prior-year period due to lower management fees from both our MLP and equity product offerings. Management fees from our MLP strategies decreased 12.9 percent in the first half of 2018 to $12.6 million, compared with $14.5 million in the first half of 2017, due to lower average AUM. In the first half of ~~2018, management fees related to our equity strategies were $9.7 million, down 26.7 percent compared to $13.2 million in the corresponding period of~~ ~~2017~~, due to lower average AUM and a lower average effective revenue yield. The average effective revenue yield for our equity strategies was 55 basis points for the six months ended June 30, 2018, down from 64 basis points for the six months ended June 30, 2017.

~~Segment pre-tax operating margin for the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018~~ was a negative 9.0 percent due to declining profitability in the business. Adjusted segment operating margin declined from 12.3 percent in the first half of 2017 to 3.7 percent in the first half of 2018.

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The following table summarizes the changes in our AUM for the periods presented:


							Twelve									Twelve
	Six Months Ended						Months Ended			Three Months Ended						Months Ended
	June 30,						June 30,			March 31,						March 31,
(Dollars in millions)	2018			2017			2018			2019			2018			2019
MLP
Beginning of period	$	3,790		$	4,616		$	4,304		$	3,054		$	3,790		$	3,399
Net inflows/(outflows)	257			(30		)	(137		)	(147		)	6			(347		)
Net market depreciation	(31		)	(282		)	(151		)
Net market appreciation/(depreciation)										535			(397		)	390
End of period	$	4,016		$	4,304		$	4,016		$	3,442		$	3,399		$	3,442

Equity
Beginning of period	$	3,556		$	4,115		$	4,276		$	2,701		$	3,556		$	3,478
Net inflows/(outflows)	(95		)	30			(1,128		)
Net market appreciation	6			131			319
Net outflows										(135		)	(47		)	(608		)
Net market appreciation/(depreciation)										303			(31		)	(1		)
End of period	$	3,467		$	4,276		$	3,467		$	2,869		$	3,478		$	2,869

Total
Beginning of period	$	7,346		$	8,731		$	8,580		$	5,755		$	7,346		$	6,877
Net inflows/(outflows)	162			—			(1,265		)
Net outflows										(282		)	(41		)	(955		)
Net market appreciation/(depreciation)	(25		)	(151		)	168			838			(428		)	389
End of period	$	7,483		$	8,580		$	7,483		$	6,311		$	6,877		$	6,311

Recent Accounting Pronouncements

Recent accounting pronouncements are set forth in Note 2 to our unaudited consolidated financial statements, and are incorporated herein by reference.

Critical Accounting Policies

Our accounting and reporting policies comply with U.S. GAAP and conform to practices within the securities industry. The preparation of financial statements in compliance with U.S. GAAP and industry practices requires us to make estimates and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical, including whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of the estimates, the ability to readily validate the estimates with other information (e.g., third party or independent sources), the sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under U.S. GAAP.

We believe that of our significant accounting policies, the following are our critical accounting policies:

Valuation of Financial Instruments

Goodwill and Intangible Assets

Compensation Plans

Income Taxes

See the "Critical Accounting Policies" section and Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for further information on our critical accounting policies. See also Note 2, "Accounting Policies and Pronouncements" in the notes to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q for changes to our significant accounting ~~policies, as well as the impact from the adoption of new accounting standards.~~policies.

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Liquidity, Funding and Capital Resources

Liquidity is of critical importance to us given the nature of our business. Insufficient liquidity resulting from adverse circumstances contributes to, and may be the cause of, financial institution failure. Accordingly, we regularly monitor our liquidity position and maintain a liquidity strategy designed to enable our business to continue to operate even under adverse circumstances, although there can be no assurance that our strategy will be successful under all circumstances.

The majority of our tangible assets consist of assets readily convertible into cash. Financial instruments and other inventory positions owned are stated at fair value and are generally readily marketable in most market conditions. Receivables and payables with brokers, dealers and clearing organizations usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources to the extent possible while considering tenor and cost. Our assets are financed by our cash flows from operations, equity capital, and our funding arrangements. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses. One of our most important risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet reflect our overall risk tolerance, our ability to access stable funding sources and the amount of equity capital we hold.

Certain market conditions can impact the liquidity of our inventory positions, requiring us to hold larger inventory positions for longer than expected or requiring us to take other actions that may adversely impact our results.

A significant component of our employees' compensation is paid in annual discretionary incentive compensation. The timing of these incentive compensation payments, which generally are made in February, has a significant impact on our cash position and liquidity.

~~Beginning in 2017, we initiated the payment of a quarterly cash dividend to holders~~As part of our ~~common stock,~~acquisition of Simmons, we entered into acquisition-related compensation arrangements with certain employees for retention and incentive purposes. Additional cash compensation was available to certain employees subject to exceeding an investment banking revenue threshold during the three year post-acquisition period, which ~~includes unvested restricted shares. Our board~~ended on February 26, 2019. As of ~~directors also approved a~~March 31, 2019, we had accrued $39.1 million related to this performance award plan, which is expected to be paid in August 2019. Additionally, as part of our definitive agreement to acquire Weeden & Co., we expect to pay approximately $24.5 million of the total consideration in cash upon closing, early in the third quarter of 2019. We expect these payments to be funded by cash flows generated from operations.

Our dividend policy is intended to return between 30 percent and 50 percent of our adjusted net income from the previous fiscal year to shareholders. This includes the payment of a quarterly and an annual special cash dividend, payable in the first quarter of each year. Our board of directors determines the declaration and payment of dividends on aan annual and quarterly basis, and is free to change our dividend policy at any time.

Our board of directors declared the following ~~dividends:~~dividends on shares of our common stock:

Declaration Date

Dividend Per Share

Record Date

Payment Date

Dividend Per Share

Record Date

Payment Date

February 2, 2017

0.3125

February 20, 2017

March 13, 2017

April 27, 2017

0.3125

May 26, 2017

June 15, 2017

July 27, 2017

0.3125

August 28, 2017

September 15, 2017

October 26, 2017

0.3125

November 29, 2017

December 15, 2017

February 1, 2018 (1)

1.6200

February 26, 2018

March 15, 2018

1.6200

February 26, 2018

March 15, 2018

February 1, 2018

0.3750

February 26, 2018

March 15, 2018

0.3750

February 26, 2018

March 15, 2018

April 27, 2018

0.3750

May 25, 2018

June 15, 2018

0.3750

May 25, 2018

June 15, 2018

July 27, 2018

0.3750

August 24, 2018

September 14, 2018

0.3750

August 24, 2018

September 14, 2018

October 26, 2018

0.3750

November 28, 2018

December 14, 2018

February 1, 2019 (2)

1.0100

February 25, 2019

March 15, 2019

February 1, 2019

0.3750

February 25, 2019

March 15, 2019

April 26, 2019

0.3750

May 24, 2019

June 14, 2019


(1)	Represents the annual special cash dividend based on our fiscal year 2017 results.


(2)	Represents the annual special cash dividend based on our fiscal year 2018 results.

Effective September 30, 2017, our board of directors authorized the repurchase of up to $150.0 million in common shares through September 30, 2019. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we repurchased ~~56,714~~501 shares of our common stock at an average price of ~~$69.43~~$64.80 per share ~~for an aggregate purchase price of $3.9 million~~ related to this authorization. We have ~~$146.1~~$102.8 million remaining under this authorization.

Table of Contents

We also purchase shares of common stock from restricted stock award recipients upon the award vesting or as recipients sell shares to meet their employment tax obligations. During the first ~~half~~quarter of ~~2018~~2019, we purchased ~~242,206~~563,284 shares or $~~21.0~~39.7 million of our common stock for ~~this purpose.~~these purposes.

~~Table of Contents~~

Leverage

The following table presents total assets, adjusted assets, total shareholders' equity and tangible shareholders' equity with the resulting leverage ratios as of:


	June 30,			December 31,			March 31,			December 31,
(Dollars in thousands)	2018			2017			2019			2018
Total assets	$	1,514,528		$	2,024,683		$	1,169,653		$	1,345,269
Deduct: Goodwill and intangible assets	(99,459		)	(104,689		)	(92,117		)	(94,229		)
Deduct: Right-of-use lease asset							(41,935		)	—
Deduct: Assets from noncontrolling interests	(53,176		)	(54,917		)	(53,451		)	(53,558		)
Adjusted assets	$	1,361,893		$	1,865,077		$	982,150		$	1,197,482

Total shareholders' equity	$	737,200		$	741,235		$	713,671		$	730,416
Deduct: Goodwill and intangible assets	(99,459		)	(104,689		)	(92,117		)	(94,229		)
Deduct: Noncontrolling interests	(51,676		)	(47,903		)	(52,351		)	(52,972		)
Tangible common shareholders' equity	$	586,065		$	588,643		$	569,203		$	583,215

Leverage ratio (1)	2.1			2.7			1.6			1.8

Adjusted leverage ratio (2)	2.3			3.2			1.7			2.1


(1)	Leverage ratio equals total assets divided by total shareholders' equity.


(2)	Adjusted leverage ratio equals adjusted assets divided by tangible common shareholders' equity.

Adjusted assets and tangible common shareholders' equity are non-GAAP financial measures. Goodwill and intangible assets are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholders' equity, respectively, as we believe that goodwill and intangible assets do not constitute operating assets which can be deployed in a liquid manner. The right-of-use lease asset is also subtracted from total assets in determining adjusted assets as it is not an operating asset that can be deployed in a liquid manner. Amounts attributed to noncontrolling interests are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholders' equity, respectively, as they represent assets and equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. We view the resulting measure of adjusted leverage, also a non-GAAP financial measure, as a more relevant measure of financial risk when comparing financial services companies. ~~Our adjusted leverage ratio decreased from December 31, 2017 due to lower inventory balances.~~

Funding and Capital Resources

The primary goal of our funding activities is to ensure adequate funding over a wide range of market conditions. Given the mix of our business activities, funding requirements are fulfilled through a diversified range of short-term and long-term financing. We attempt to ensure that the tenor of our borrowing liabilities equals or exceeds the expected holding period of the assets being financed. Our ability to support increases in total assets is largely a function of our ability to obtain funding from external sources. Access to these external sources, as well as the cost of that financing, is dependent upon various factors, including market conditions, the general availability of credit and credit ratings. We currently do not have a credit rating, which could adversely affect our liquidity and competitive position by increasing our financing costs and limiting access to sources of liquidity that require a credit rating as a condition to providing the funds.

In 2017, we migrated to a fully disclosed clearing model and are no longer self clearing. Pershing is our clearing broker dealer. The conversion provided us with a new funding source through Pershing and, as a result, changed our mix of funding sources.

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Our day-to-day funding and liquidity is obtained primarily through the use of our clearing arrangement with Pershing LLC ("Pershing"), commercial paper issuance, prime broker agreements, and bank lines of credit, and is typically collateralized by our securities inventory. These funding sources are critical to our ability to finance and hold inventory, which is a necessary part of our institutional brokerage business. The majority of our inventory is liquid and is therefore funded by short-term facilities. Certain of these short-term facilities (i.e., committed line and commercial paper) have been established to mitigate changes in the liquidity of our inventory based on changing market conditions. In the case of our committed line, it is available to us regardless of changes in market liquidity conditions through the end of its term, although there may be limitations on the type of securities available to pledge. Our commercial paper program helps mitigate changes in market liquidity conditions given it is not an overnight facility, but provides funding with a term of 27 to 270 days. Our funding sources are also dependent on the types of inventory that our counterparties are willing to accept as collateral and the number of counterparties available. Funding is generally obtained at rates based upon the federal funds rate or the London Interbank Offer Rate.

Pershing Clearing Arrangement – We have established an arrangement to obtain financing from Pershing related to the majority of our trading activities. Under our fully disclosed clearing agreement, the majority of our securities inventories and all of our customer activities are held by or cleared through Pershing. Financing under this arrangement is secured primarily by securities, and collateral limitations could reduce the amount of funding available under this arrangement. Our clearing arrangement activities are recorded net from trading activity and reported within receivables from or payables to brokers, dealers and clearing organizations. The funding is at the discretion of Pershing (i.e., uncommitted) and could be denied without a notice period. Our fully disclosed clearing agreement includes a covenant requiring Piper Jaffray & Co., our U.S. broker dealer subsidiary, to maintain excess net capital of $120 million. At ~~June 30, 2018,~~March 31, 2019, we had ~~$34.0~~$169.5 million of financing outstanding under this arrangement.

Commercial Paper Program – ~~Our U.S. broker dealer subsidiary,~~ Piper Jaffray & Co., issues secured commercial paper to fund a portion of its securities inventory. This commercial paper is currently issued under two separate programs, CP Series A and CP Series II A, and is secured by different inventory classes, which is reflected in the interest rate paid on the respective program. The programs can issue commercial paper with maturities of 27 to 270 days. CP Series II A includes a covenant that requires Piper Jaffray & Co. to maintain excess net capital of $100 million. The following table provides information about our commercial paper programs at ~~June 30, 2018~~March 31, 2019:


(Dollars in millions)	CP Series A		CP Series II A		CP Series A		CP Series II A
Maximum amount that may be issued	$	300.0	$	200.0	$	300.0	$	200.0
Amount outstanding	—		50.0		—		50.0

Weighted average maturity, in days	—		9		—		9
Weighted average maturity at issuance, in days	—		32		—		29

Prime Broker Arrangements – We have established an arrangement to obtain overnight financing by a single prime broker related to certain strategic trading activities in municipal securities. We completed the liquidation of the municipal securities inventories associated with these strategic trading activities in the third quarter of 2018, and we anticipate closing this prime broker arrangement as we will no longer have a need for the funding source. Financing under this arrangement is secured primarily by municipal securities, and collateral limitations could reduce the amount of funding available. The funding is at the discretion of the prime broker and could be denied subject to a notice period. Our prime broker financing activities are recorded net of receivables from trading activity. At June 30, 2018, we had $1.7 million outstanding under this prime broker arrangement.

~~Additionally, we have established a second~~ overnight financing arrangement with ~~another~~a broker dealer related to our convertible securities inventories. Financing under this arrangement is secured primarily by convertible securities and collateral limitations could reduce the amount of funding available. The funding is at the discretion of the prime broker and could be denied subject to a notice period. This arrangement is reported within receivables from or payables to brokers, dealers and clearing organizations, net of trading activity. At ~~June 30, 2018~~,March 31, 2019, we had ~~$164.7~~$101.8 million of financing outstanding under this prime broker arrangement.

Additionally, we previously established an arrangement to obtain overnight financing with another prime broker related to certain strategic trading activities in municipal securities. We completed the liquidation of the municipal securities inventories associated with these strategic trading activities in the third quarter of 2018, and closed this prime broker arrangement as we no longer needed the funding source.

Committed Lines – Our committed line is a one-year ~~$200~~$175 million revolving secured credit facility. We may use ~~our committed~~this credit facility in the ordinary course of business to fund a portion of our daily ~~operations, and the amount borrowed under the facility varies daily based on our funding needs.~~operations. Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires Piper Jaffray & Co. to maintain minimum net capital of ~~$120~~$120 million,, and the unpaid principal amount of all advances under the facility will be due on December ~~14, 2018.~~13, 2019. This credit facility has been in place since 2008 and we renewed the facility for another one-year term in the fourth quarter of ~~2017.~~2018. At ~~June 30, 2018~~,March 31, 2019, we had no advances against this line of credit.

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Uncommitted Line – We use this uncommitted line in the ordinary course of business to fund a portion of our daily operations, and the amount borrowed under our uncommitted line varies daily based on our funding needs. Our $85 million uncommitted secured line is dependent on having appropriate collateral, as determined by the bank agreement, to secure an advance under the line. Collateral limitations could reduce the amount of funding available under this secured line. Our uncommitted line is discretionary and is not a commitment by the bank to provide an advance under the line. More specifically, the line is subject to approval by the bank each time an advance is requested and advances may be denied, which may be particularly true during times of market stress or market perceptions of our exposures. We manage our relationship with the bank that provides this uncommitted facility in order to have appropriate levels of funding for our business. At ~~June 30, 2018~~March 31, 2019, we had no advances against this line of credit.

The following tables present the average balances outstanding for our various funding sources by quarter for ~~2018~~2019 and ~~2017~~2018, respectively.

Average Balance for the Three Months Ended
(Dollars in millions) June 30, 2018 Mar. 31, 2018
Funding source:
Pershing clearing arrangement $ 90.0
$ 47.1
Commercial paper 50.0
50.0
Prime broker arrangements 218.8
336.5
Short-term bank loans —
—
Total $ 358.8
$ 433.6


	Average Balance for the Three Months Ended								Average Balance for the Three Months Ended
(Dollars in millions)	Dec. 31, 2017		Sept. 30, 2017		June 30, 2017		Mar. 31, 2017		Mar. 31, 2019		Dec. 31, 2018		Sept. 30, 2018		June 30, 2018		Mar. 31, 2018
Funding source:
Pershing clearing arrangement	$	20.6	$	26.3	$	—	$	—	$	82.1	$	79.6	$	3.0	$	90.0	$	47.1
Commercial paper	49.5		30.3		117.1		137.7		50.0		50.0		50.0		50.0		50.0
Prime broker arrangements	221.1		175.2		192.6		204.9		106.4		85.2		112.7		218.8		336.5
Short-term bank loans	—		6.0		67.1		2.5
Total	$	291.2	$	237.8	$	376.8	$	345.1	$	238.5	$	214.8	$	165.7	$	358.8	$	433.6

The average funding in the ~~second quarter of 2018 decreased to $358.8 million, compared with $433.6 million during the~~ first quarter of ~~2018, as a reduction in municipal securities decreased financing through our prime broker arrangement during the current quarter. Average funding decreased~~2019 declined compared to the corresponding period of ~~2017~~2018 due to significantly lower inventory balances ~~and~~at March 31, 2019. We previously financed a portion of our municipal securities inventories associated with certain strategic trading activities through one of our prime broker arrangements. As previously discussed, we closed this prime broker arrangement in the ~~accumulation~~third quarter of ~~cash from operations.~~2018.

The following table presents the maximum daily funding amount by quarter for ~~2018~~2019 and ~~2017,~~2018, respectively.

(Dollars in millions) 2018 2017
First Quarter $ 613.1
$ 543.4
Second Quarter $ 505.0
$ 538.3
Third Quarter $ 418.7
Fourth Quarter $ 569.9

~~Senior Notes~~

We have entered into variable and fixed rate senior notes with certain entities advised by Pacific Investment Management Company ("PIMCO"). At June 30, 2018, we carried an outstanding senior notes balance of $125.0 million.

On October 8, 2015, we entered into a second amended and restated note purchase agreement ("Second Amended and Restated Note Purchase Agreement") under which we issued $125 million of fixed rate Class C Notes. The Class C Notes bear interest at an annual fixed rate of 5.06 percent, are payable semi-annually and mature on October 9, 2018. The unpaid principal amount is due in full on the maturity date and may not be prepaid. The $50 million of variable rate Class A Notes issued in 2014 were repaid in full on the May 31, 2017 maturity date.

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The Second Amended and Restated Note Purchase Agreement includes customary events of default and covenants that, among other things, require us to maintain a minimum consolidated tangible net worth and minimum regulatory net capital, limit our leverage ratio and require maintenance of a minimum ratio of operating cash flow to fixed charges. At June 30, 2018, we were in compliance with all covenants.



(Dollars in millions)	2019		2018
First Quarter	$	362.7	$	613.1
Second Quarter			$	505.0
Third Quarter			$	263.5
Fourth Quarter			$	312.3

Contractual Obligations

Our contractual obligations have not materially changed from those reported in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2017, except for our operating lease obligations. On April 3, 2018, we entered into a new lease agreement for our Houston, Texas office location.~~

Remainder of 2019 2021 2023 and
(Dollars in millions) 2018 -2020 -2022 thereafter Total
Operating lease obligations $ 7.5
$ 27.6
$ 17.3
$ 22.9
$ 75.3
2018.

New Leases Guidance

As discussed in Note 2 to our unaudited consolidated financial statements, we ~~will adopt~~adopted new accounting guidance related to leases effective as of January 1, 2019. The guidance requires lessees to recognize a right-of-use ("ROU") lease asset and lease liability on the consolidated statements of financial condition for all ~~leases, including operating~~ leases with a term greater than 12 ~~months on the statements of financial position. As of June 30, 2018, we had approximately 65 operating leases for office space with aggregate minimum lease commitments of $75.3 million.~~months. Upon adoption, we recognized a ROU lease asset of ~~the new guidance, lease commitments will be reflected on our statement of financial condition as a right-of-use asset~~approximately $44.0 million and a lease ~~commitment liability.~~liability of approximately $59.0 million. The ~~impact of~~difference between the ROU lease asset and lease liability is due to lease incentives. The new guidance onhas not impacted Piper Jaffray & Co.'s net capital ~~is expected to be minimal.~~position.

Capital Requirements

As a registered broker dealer and member firm of the Financial Industry Regulatory Authority, Inc. ("FINRA"), Piper Jaffray & Co., our U.S. broker dealer subsidiary, is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. We have elected to use the alternative method permitted by the uniform net capital rule which requires that we maintain minimum net capital of ~~$1.0 million~~.$1.0 million. Advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain approvals, notifications and other provisions of the uniform net capital rules. We expect that these provisions will not impact our ability to meet current and future obligations. At ~~June 30, 2018~~March 31, 2019, our net capital under the SEC's uniform net capital rule was ~~$167.3~~$214.6 million, and exceeded the minimum net capital required under the SEC rule by ~~$166.3~~$213.6 million.

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Although we operate with a level of net capital substantially greater than the minimum thresholds established by FINRA and the SEC, a substantial reduction of our capital would curtail many of our Capital Markets revenue producing activities.

Our committed short-term credit facility ~~and our senior notes with PIMCO include covenants~~includes a covenant requiring Piper Jaffray & Co. to maintain minimum net capital of $120 million. Secured commercial paper issued under CP Series II A includes a covenant that requires Piper Jaffray & Co. to maintain excess net capital of $100 million. Our fully disclosed clearing agreement with Pershing also includes a covenant requiring Piper Jaffray & Co. to maintain excess net capital of $120 million.

At ~~June 30, 2018,~~March 31, 2019, Piper Jaffray Ltd., our broker dealer subsidiary registered in the United Kingdom, was subject to, and was in compliance with, the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority pursuant to the Financial Services Act of 2012.

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Off-Balance Sheet Arrangements

In the ordinary course of business we enter into various types of off-balance sheet arrangements. The following table summarizes the notional contract value of our off-balance sheet arrangements for the periods presented:


	Expiration Per Period at December 31,												Total Contractual Amount				Expiration Per Period at December 31,												Total Contractual Amount
							2021		2023				June 30,		December 31,								2022		2024				March 31,		December 31,
(Dollars in thousands)	2018		2019		2020		- 2022		- 2024		Later		2018		2017		2019		2020		2021		- 2023		- 2025		Later		2019		2018
Customer matched-book derivative contracts (1) (2)	$	—	$	31,050	$	23,650	$	50,450	$	163,590	$	2,362,202	$	2,630,942	$	2,819,006	$	31,050	$	21,390	$	10,280	$	125,660	$	103,030	$	2,016,749	$	2,308,159	$	2,532,966
Trading securities derivative contracts (2)	215,300		9,500		—		—		—		9,375		234,175		399,450		214,850		10,000		—		—		5,000		9,375		239,225		262,275
Equity option derivative contracts (2)	—		—		—		—		—		—		—		9,635
Investment commitments (3)	—		—		—		—		—		—		76,876		72,467		—		—		—		—		—		—		77,955		77,984

(1)

Consists of interest rate swaps. We have minimal market risk related to these matched-book derivative contracts; however, we do have counterparty risk with one major financial institution, which is mitigated by collateral deposits. In addition, we have a limited number of counterparties (contractual amount of $~~178.9~~176.5 million at ~~June 30, 2018~~March 31, 2019) who are not required to post collateral. The uncollateralized amounts, representing the fair value of the derivative contracts, expose us to the credit risk of these counterparties. At ~~June 30, 2018~~March 31, 2019, we had $~~15.1~~16.9 million of credit exposure with these counterparties, including $~~12.0~~13.9 million of credit exposure with one counterparty.


(2)	We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional or contract amount overstates the expected payout. At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018, the net fair value of these derivative contracts approximated $10.9 million and ~~$20.5~~$12.5 million, respectively.


(3)	The investment commitments have no specified call dates. The timing of capital calls is based on market conditions and investment opportunities.

Derivatives

Derivatives' notional or contract amounts are not reflected as assets or liabilities on our consolidated statements of financial condition. Rather, the fair value of the derivative transactions are reported on the consolidated statements of financial condition as assets or liabilities in financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased, as applicable. For a discussion of our activities related to derivative products, see Note 3, "Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased," in the notes to our unaudited consolidated financial statements.

Investment Commitments

We have investments, including those made as part of our merchant banking activities, in various limited partnerships or limited liability companies that provide financing or make investments in companies. We commit capital and/or act as the managing partner of these entities. We have committed capital of ~~$76.9~~$78.0 million to certain entities and these commitments generally have no specified call dates.

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Risk Management

Risk is an inherent part of our business. The principal risks we face in operating our business include: strategic risk, market risk, liquidity risk, credit risk, operational risk, human capital risk, and legal and regulatory risks. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability. We have a formal risk management process to identify, assess and monitor each risk and mitigating controls in accordance with defined policies and procedures. The risk management functions are independent of our business lines. Our management takes an active role in the risk management process, and the results are reported to senior management and the Board of Directors.

The audit committee of the Board of Directors oversees management's processes for identifying and evaluating our major risks, and the policies, procedures and practices employed by management to govern its risk assessment and risk management processes. The nominating and governance committee of the Board of Directors oversees the Board of Directors' committee structures and functions as they relate to the various committees' responsibilities with respect to oversight of our major risk exposures. With respect to these major risk exposures, the audit committee is responsible for overseeing management's monitoring and control of our major risk exposures relating to market risk, credit risk, liquidity risk, legal and regulatory ~~risk,~~risks, operational risk (including cybersecurity), and human capital risk relating to misconduct, fraud, and legal and compliance matters. Our compensation committee is responsible for overseeing management's monitoring and control of our major risk exposures relating to compensation, organizational structure, and succession. Our Board of Directors is responsible for overseeing management's monitoring and control of our major risk exposures related to our corporate strategy. Our Chief Executive Officer and Chief Financial Officer meet with the audit committee on a quarterly basis to discuss our market, liquidity, and legal and regulatory risks, and provide updates to the Board of Directors, audit committee, and compensation committee concerning the other major risk exposures on a regular basis.

We use internal committees to assist in governing risk and ensure that our business activities are properly assessed, monitored and managed. Our financial risk ~~committees manage~~committee manages our market, liquidity and credit risks, and ~~oversee~~oversees risk management practices related to these risks, including defining acceptable risk tolerances and approving risk management policies. Membership is comprised of senior ~~leadership,~~leadership. A subset of this group, including but not limited to, our Chief Executive Officer, President, Chief Financial Officer, ~~General Counsel,~~ Treasurer, Head of Market and Credit Risk, ~~Head of Public Finance~~ and Head of Fixed Income ~~Services~~Trading, meets with increased frequency to evaluate the firm's inventory position, and ~~Firm Investments and Trading.~~respond to market changes in a dynamic manner. Other committees that help evaluate and monitor risk include underwriting, leadership team and operating committees. These committees help manage risk by ensuring that business activities are properly managed and within a defined scope of activity. Our valuation committee, comprised of members of senior management and risk management, provide oversight and overall responsibility for the internal control processes and procedures related to fair value measurements. Additionally, our operational risk committees address and monitor risk related to information systems and security, legal, regulatory and compliance matters, and third parties such as vendors and service providers.

With respect to market risk and credit risk, the cornerstone of our risk management process is daily communication among traders, trading department management and senior management concerning our inventory positions, including those associated with our strategic trading activities, and overall risk profile. Our risk management functions supplement this communication process by providing their independent perspectives on our market and credit risk profile on a daily basis. The broader objectives of our risk management functions are to understand the risk profile of each trading area, to consolidate risk monitoring company-wide, to assist in implementing effective hedging strategies, to articulate large trading or position risks to senior management, and to ensure accurate fair values of our financial instruments.

Risk management techniques, processes and strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, and any risk management failures could expose us to material unanticipated losses.

Strategic Risk

Strategic risk represents the risk associated with executive management failing to develop and execute on the appropriate strategic vision which demonstrates a commitment to our culture, leverages our core competencies, appropriately responds to external factors in the marketplace, and is in the best interests of our clients, employees and shareholders.

Our leadership team is responsible for managing our strategic risks. The Board of Directors oversees the leadership team in setting and executing our strategic plan.

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Market Risk

Market risk represents the risk of losses, or financial volatility that may result from the change in value of a financial instrument due to fluctuations in its market price. Our exposure to market risk is directly related to our role as a financial intermediary for our clients, to our market-making activities and our strategic trading activities. Market risks are inherent to both cash and derivative financial instruments. The scope of our market risk management policies and procedures includes all market-sensitive financial instruments.

Our different types of market risk include:

Interest Rate Risk — Interest rate risk represents the potential volatility from changes in market interest rates. We are exposed to interest rate risk arising from changes in the level and volatility of interest rates, changes in the slope of the yield curve, changes in credit spreads, and the rate of prepayments on our interest-earning assets (e.g., inventories) and our funding sources (e.g., short-term financing) which finance these assets. Interest rate risk is managed by selling short U.S. government securities, agency securities, corporate debt securities and derivative contracts. See Note 3 of our accompanying unaudited consolidated financial statements for additional information on our derivative contracts. Our interest rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate risk. Also, we establish limits on the notional level of our fixed income securities inventory and manage net positions within those limits.

Equity Price Risk — Equity price risk represents the potential loss in value due to adverse changes in the level or volatility of equity prices. We are exposed to equity price risk through our trading activities in the U.S. market. We attempt to reduce the risk of loss inherent in our market-making and in our inventory of equity securities by establishing limits on the notional level of our inventory and by managing net position levels within those limits.

Foreign Exchange Risk — Foreign exchange risk represents the potential volatility to earnings or capital arising from movement in foreign exchange rates. A modest portion of our business is conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets, revenues and expenses. A change in the foreign currency rates could create either a foreign currency transaction gain/loss (recorded in our consolidated statements of operations) or a foreign currency translation adjustment (recorded to accumulated other comprehensive income/ (loss) within the shareholders' equity section of our consolidated statements of financial condition and other comprehensive income/ (loss) within the consolidated statements of comprehensive income).

Value-at-Risk ("VaR")

We use the statistical technique known as VaR to measure, monitor and review the market risk exposures in our trading portfolios. VaR is the potential loss in value of our trading positions, excluding noncontrolling interests, due to adverse market movements over a defined time horizon with a specified confidence level. We perform a daily VaR analysis on substantially all of our trading positions, including fixed income, equities, convertible bonds, mortgage-backed securities and all associated economic hedges. These positions encompass both customer-related and strategic trading activities. A VaR model provides a common metric for assessing market risk across business lines and products. Changes in VaR between reporting periods are generally due to changes in levels of risk exposure, volatilities and/or correlations among asset classes and individual securities.

We use a Monte Carlo simulation methodology for VaR calculations. We believe this methodology provides VaR results that properly reflect the risk profile of all our instruments, including those that contain optionality, and also accurately models correlation movements among all of our asset classes. In addition, it provides improved tail results as there are no assumptions of distribution, and can provide additional insight for scenario shock analysis.

Model-based VaR derived from simulation has inherent limitations including: reliance on historical data to predict future market risk; VaR calculated using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or offset with hedges within one day; and published VaR results reflect past trading positions while future risk depends on future positions.

The modeling of the market risk characteristics of our trading positions involves a number of assumptions and approximations. While we believe that these assumptions and approximations are reasonable, different assumptions and approximations could produce materially different VaR estimates. When comparing our VaR numbers to those of other firms, it is important to remember that different methodologies, assumptions and approximations could produce significantly different results.

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The following table quantifies the model-based VaR simulated for each component of market risk for the periods presented, which are computed using the past 250 days of historical data. When calculating VaR we use a 95 percent confidence level and a one-day time horizon. This means that, over time, there is a one in 20 chance that daily trading net revenues will fall below the expected daily trading net revenues by an amount at least as large as the reported VaR. Shortfalls on a single day can exceed reported VaR by significant amounts. Shortfalls can also accumulate over a longer time horizon, such as a number of consecutive trading days. Therefore, there can be no assurance that actual losses occurring on any given day arising from changes in market conditions will not exceed the VaR amounts shown below or that such losses will not occur more than once in a 20-day trading period.


	June 30,			December 31,			March 31,			December 31,
(Dollars in thousands)	2018			2017			2019			2018
Interest Rate Risk	$	551		$	965		$	275		$	370
Equity Price Risk	50			62			55			49
Diversification Effect (1)	(36		)	(40		)	(40		)	(40		)
Total Value-at-Risk	$	565		$	987		$	290		$	379


(1)	Equals the difference between total VaR and the sum of the VaRs for the two risk categories. This effect arises because the two market risk categories are not perfectly correlated.

The aggregate VaR as of ~~June 30, 2018~~March 31, 2019 was lower than the reported VaR on December 31, ~~2017.~~2018. The decrease in VaR was due to ~~lower inventory levels and~~ our mix of inventory compared to the end of ~~2017.~~2018.

We view average VaR over a period of time as more representative of trends in the business than VaR at any single point in time. The table below illustrates the daily high, low and average VaR calculated for each component of market risk during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and the year ended December 31, ~~2017~~2018, respectively.


(Dollars in thousands)	High		Low		Average			High		Low		Average
For the Six Months Ended June 30, 2018
For the Three Months Ended March 31, 2019
Interest Rate Risk	$	1,084	$	506	$	826		$	469	$	181	$	293
Equity Price Risk	82		21		55			57		43		48
Diversification Effect (1)					(38		)					(36		)
Total Value-at-Risk	$	1,101	$	515	$	843		$	480	$	194	$	305


(Dollars in thousands)	High		Low		Average			High		Low		Average
For the Year Ended December 31, 2017
For the Year Ended December 31, 2018
Interest Rate Risk	$	1,235	$	480	$	785		$	1,084	$	268	$	631
Equity Price Risk	178		28		81			91		21		54
Diversification Effect (1)					(57		)					(40		)
Total Value-at-Risk	$	1,244	$	506	$	809		$	1,101	$	277	$	645


(1)	Equals the difference between total VaR and the sum of the VaRs for the two risk categories. This effect arises because the two market risk categories are not perfectly correlated. Because high and low VaR numbers for these risk categories may have occurred on different days, high and low numbers for diversification benefit would not be meaningful.

Trading losses exceeded our one-day VaR on ~~one occasion~~three occasions during the first ~~half~~quarter of ~~2018.~~2019.

In addition to VaR, we also employ additional measures to monitor and manage market risk exposure including net market position, duration exposure, option sensitivities, and inventory turnover. All metrics are aggregated by asset concentration and are used for monitoring limits and exception approvals. In times of market volatility, we also perform ad hoc stress tests and scenario analysis as market conditions dictate. Unlike our VaR, which measures potential losses within a given confidence level, stress scenarios do not have an associated implied probability. Rather, stress testing is used to estimate the potential loss from market moves outside our VaR confidence levels.

Liquidity Risk

Liquidity risk is the risk that we are unable to timely access necessary funding sources in order to operate our business, as well as the risk that we are unable to timely divest securities that we hold in connection with our market-making, sales and trading, and strategic trading activities. We are exposed to liquidity risk in our day-to-day funding activities, by holding potentially illiquid inventory positions and in our role as a remarketing agent for variable rate demand notes.

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See the section entitled "Liquidity, Funding and Capital Resources" for information regarding our liquidity and how we manage liquidity risk.

Our inventory positions, including those associated with strategic trading activities, subject us to potential financial losses from the reduction in value of illiquid positions. Market risk can be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Depending on the specific security, the structure of the financial product, and/or overall market conditions, we may be forced to hold a security for substantially longer than we had planned or forced to liquidate into a challenging market if funding becomes unavailable.

Credit Risk

Credit risk refers to the potential for loss due to the default or deterioration in credit quality of a counterparty, customer, borrower or issuer of securities we hold in our trading inventory. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction and the parties involved. Credit risk also results from an obligor's failure to meet the terms of any contract with us or otherwise fail to perform as agreed. This may be reflected through issues such as settlement obligations or payment collections.

Our different types of credit risk include:

Credit Spread Risk — Credit spread risk arises from the possibility that changes in credit spreads will affect the value of financial instruments. Credit spreads represent the credit risk premiums required by market participants for a given credit quality (e.g., the additional yield that a debt instrument issued by a AA-rated entity must produce over a risk-free alternative). Changes in credit spreads result from potential changes in an issuer's credit rating or the market's perception of the issuer's credit worthiness. We are exposed to credit spread risk with the debt instruments held in our trading inventory, including those held for strategic trading activites. We enter into transactions to hedge our exposure to credit spread risk through the use of derivatives and certain other financial instruments. These hedging strategies may not work in all market environments and as a result may not be effective in mitigating credit spread risk.

Deterioration/Default Risk — Deterioration/default risk represents the risk due to an issuer, counterparty or borrower failing to fulfill its obligations. We are exposed to deterioration/default risk in our role as a trading counterparty to dealers and customers, as a holder of securities, and as a member of exchanges. The risk of default depends on the creditworthiness of the counterparty and/or issuer of the security. We mitigate this risk by establishing and monitoring individual and aggregate position limits for each counterparty relative to potential levels of activity, holding and marking to market collateral on certain transactions. Our risk management functions also evaluate the potential risk associated with institutional counterparties with whom we hold derivatives, TBAs and other documented institutional counterparty agreements that may give rise to credit exposure.

Collections Risk — Collections risk arises from ineffective management and monitoring of collecting outstanding debts and obligations, including those related to our customer trading activities and margin lending. Our client activities involve the execution, settlement and financing of various transactions. Client activities are transacted on a delivery versus payment, cash or margin basis. Our credit exposure to institutional client business is mitigated by the use of industry-standard delivery versus payment through depositories and clearing banks. Credit exposure associated with our customer margin accounts in the U.S. is monitored daily. Our risk management functions have credit risk policies establishing appropriate credit limits and collateralization thresholds for our customers utilizing margin lending.

Concentration Risk— Concentration risk is the risk due to concentrated exposure to a particular product; individual issuer, borrower or counterparty; financial instrument; or geographic area. We are subject to concentration risk if we hold large individual securities positions, execute large transactions with individual counterparties or groups of related counterparties, or make substantial underwriting commitments. Concentration risk can occur by industry, geographic area or type of client. Securities purchased under agreements to resell consist primarily of securities issued by the U.S. government or its agencies. The counterparties to these agreements typically are primary dealers of U.S. government securities and major financial institutions. Inventory and investment positions taken and commitments made, including underwritings, may result in exposure to individual issuers and businesses. Potential concentration risk is carefully monitored through review of counterparties and borrowers and is managed through the use of policies and limits established by senior management.

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We have concentrated counterparty credit exposure with five non-publicly rated entities totaling $~~15.1~~16.9 million at ~~June 30, 2018~~March 31, 2019. This counterparty credit exposure is part of our matched-book derivative program related to our public finance business, consisting primarily of interest rate swaps. One derivative counterparty represents ~~79.9~~82.3 percent, or $~~12.0~~13.9 million, of this exposure. Credit exposure associated with our derivative counterparties is driven by uncollateralized market movements in the fair value of the interest rate swap contracts and is monitored regularly by our financial risk committee. We attempt to minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by senior management.

Operational Risk

Operational risk is the risk of loss, or damage to our reputation, resulting from inadequate or failed processes, people and systems or from external events. We rely on the ability of our employees and our systems, both internal and at computer centers operated by third parties, to process a large number of transactions. Our systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control. In the event of a breakdown or improper operation of our systems or improper action by our employees or third party vendors, we could suffer financial loss, a disruption of our businesses, regulatory sanctions and damage to our reputation. We also face the risk of operational failure or termination of our relationship with any of the exchanges, fully disclosed clearing firms, or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage our exposure to risk.

Our operations rely on secure processing, storage and transmission of confidential and other information in our internal and outsourced computer systems and networks. Our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, internal misconduct or inadvertent errors and other events that could have an information security impact. The occurrence of one or more of these events, which we have experienced, could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations. We take protective measures and endeavor to modify them as circumstances warrant.

In order to mitigate and control operational risk, we have developed and continue to enhance policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. We also have business continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits.

~~In 2017, we migrated to~~We operate under a fully disclosed clearing model for all of our clearing operations. In a fully disclosed clearing model, we act as an introducing broker for client transactions and rely on Pershing, our clearing broker dealer, to facilitate clearance and settlement of our clients' securities transactions. The clearing services provided by Pershing are critical to our business operations, and similar to other services performed by third party vendors, any failure by Pershing with respect to the services we rely upon Pershing to provide could cause financial loss, significantly disrupt our business, damage our reputation, and adversely affect our ability to serve our clients and manage our exposure to risk.

Human Capital Risk

Our business is a human capital business and our success is dependent upon the skills, expertise and performance of our employees. Human capital risks represent the risks posed if we fail to attract and retain qualified individuals who are motivated to serve the best interests of our clients, thereby serving the best interests of our company. Attracting and retaining employees depends, among other things, on our company's culture, management, work environment, geographic locations and compensation. There are risks associated with the proper recruitment, development and rewards of our employees to ensure quality performance and retention.

Legal and Regulatory Risk

Legal and regulatory risk includes the risk of non-compliance with applicable legal and regulatory requirements and loss to our reputation we may suffer as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. We are generally subject to extensive regulation in the various jurisdictions in which we conduct our business. We have established procedures that are designed to ensure compliance with applicable statutory and regulatory requirements, such as public company reporting obligations, regulatory net capital requirements, sales and trading practices, potential conflicts of interest, anti-money laundering, privacy and recordkeeping. We have also established procedures

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that are designed to require that our policies relating to ethics and business conduct are followed. The legal and regulatory focus on the financial services industry presents a continuing business challenge for us.

Our business also subjects us to the complex income tax laws of the jurisdictions in which we have business operations, and these tax laws may be subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes.

Effects of Inflation

Because our assets are liquid and generally short-term in nature, they are not significantly affected by inflation. However, the rate of inflation affects our expenses, such as employee compensation, office space leasing costs and communications charges, which may not be readily recoverable in the price of services we offer to our clients. To the extent inflation results in rising interest rates and has adverse effects upon the securities markets, it may adversely affect our financial position and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information under the caption "Risk Management" in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding disclosure.

During the ~~second~~first quarter of our fiscal year ending December 31, ~~2018,~~2019, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The discussion of our business and operations should be read together with the legal proceedings contained in Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

ITEM 1A. RISK FACTORS.

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The table below sets forth the information with respect to purchases made by or on behalf of Piper Jaffray Companies or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the quarter ended ~~June 30, 2018~~March 31, 2019.


					Total Number of Shares	Approximate Dollar						Total Number of Shares	Approximate Dollar
					Purchased as Part of	Value of Shares Yet to be						Purchased as Part of	Value of Shares Yet to be
	Total Number of		Average Price		Publicly Announced	Purchased Under the			Total Number of	Average Price		Publicly Announced	Purchased Under the
Period	Shares Purchased		Paid per Share		Plans or Programs	Plans or Programs (1)			Shares Purchased	Paid per Share		Plans or Programs	Plans or Programs (1)
Month #1
(April 1, 2018 to April 30, 2018)	18,789	⁽²⁾	$	69.91	18,600	$	149	million
(January 1, 2019 to January 31, 2019)									501	$	64.80	501	$	103	million
Month #2
(May 1, 2018 to May 31, 2018)	92,065	⁽³⁾	$	73.71	38,114	$	146	million
(February 1, 2019 to February 28, 2019)									563,284	$	70.47	—	$	103	million
Month #3
(June 1, 2018 to June 30, 2018)	206		$	80.10	—	$	146	million
(March 1, 2019 to March 31, 2019)									—	$	—	—	$	103	million
Total	111,060		$	73.08	56,714	$	146	million	563,785	$	70.47	501	$	103	million


(1)	Effective September 30, 2017, our board of directors authorized the repurchase of up to $150.0 million of common stock through September 30, 2019.


~~(2)~~	Consists of 18,600 shares of common stock repurchased on the open market pursuant to a 10b5-1 plan established with an independent agent at an average price of $69.82 per share, and 189 shares of common stock withheld from recipients of restricted stock to pay taxes upon the vesting of the restricted stock at an average price per share of $78.95.


~~(3)~~	Consists of 38,114 shares of common stock repurchased on the open market pursuant to a 10b5-1 plan established with an independent agent at an average price of $69.24 per share, and 53,951 shares of common stock withheld from recipients of restricted stock to pay taxes upon the vesting of the restricted stock at an average price per share of $76.87.

ITEM 6. EXHIBITS.



Exhibit Index
Exhibit		Method
Number	Description	of Filing

10.1	Piper Jaffray Companies 2019 Employment Inducement Award Plan.†	(1)
10.2	Form of Restricted Stock Agreement for grants under the Piper Jaffray Companies 2019 Employment Inducement Award Plan.†	(2)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith
32.1	Section 1350 Certifications.	Filed herewith
101	Interactive data files pursuant to Rule 405 Registration S-T: (i) the Consolidated Statements of Financial Condition as of March 31, 2019 and December 31, 2018, (ii) the Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018, (iv) the Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2019 and 2018, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 and (vi) the notes to the Consolidated Financial Statements.	Filed herewith

_________________



~~Exhibit~~(1)	Filed as Exhibit 4.4 to the Company’s Registration Statement on Form S-8, filed with the Commission on March 13, 2019, and incorporated herein by reference.

			~~Method~~
~~Number~~ (2)	Filed as Exhibit 4.5 to the Company’s Registration Statement on Form S-8, filed with the Commission on March 13, 2019, and incorporated herein by reference.

	~~Description~~		~~of Filing~~
†
~~31.1~~		~~Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.~~		~~Filed herewith~~
~~31.2~~		~~Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.~~		~~Filed herewith~~
~~32.1~~		~~Section 1350 Certifications.~~		~~Filed herewith~~
~~101~~		Interactive data files pursuant to Rule 405 Registration S-T: (i) the Consolidated Statements of Financial Condition as of June 30, 2018 and December 31, 2017, (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017, (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 and (v) the notes to the Consolidated Financial Statements.		~~Filed herewith~~This exhibit is a management contract or compensatory plan or agreement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PIPER JAFFRAY COMPANIES

Date:	~~August~~May 8, ~~2018~~2019	By	/s/ Chad R. Abraham
		Its	Chief Executive Officer

Date:	~~August~~May 8, ~~2018~~2019	By	/s/ Timothy L. Carter
		Its	Chief Financial Officer



	Outstanding Balance				Weighted Average Interest Rate
	June 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2018		2017		2018		2017
Commercial paper (secured)	$	49,958	$	49,974	3.02	%	2.32	%
Prime broker arrangement	1,748		239,963		2.74	%	2.23	%
Total short-term financing	$	51,706	$	289,937



(Dollars in thousands)
Remainder of 2018	$	7,515
2019	13,878
2020	13,671
2021	9,334
2022	7,985
Thereafter	22,900
Total	$	75,283



	Six Months Ended June 30,
	2018												2017
				Adjustments ⁽¹⁾												Adjustments ⁽¹⁾
	Total			Noncontrolling			Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests			Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Investment banking
Advisory services	$	152,543		$	—		$	—		$	152,543		$	185,389		$	—	$	—		$	185,389
Financing
Equities	67,680			—			—			67,680			48,112			—		—			48,112
Debt	24,537			—			—			24,537			38,379			—		—			38,379
Total investment banking	244,760			—			—			244,760			271,880			—		—			271,880

Institutional sales and trading
Equities	37,147			—			—			37,147			40,675			—		—			40,675
Fixed income	34,770			—			—			34,770			42,461			—		—			42,461
Total institutional sales and trading	71,917			—			—			71,917			83,136			—		—			83,136

Management and performance fees	3,018			—			—			3,018			3,494			—		—			3,494

Investment income	3,960			481			—			4,441			9,951			5,864		—			15,815

Long-term financing expenses	(3,619		)	—			—			(3,619		)	(4,267		)	—		—			(4,267		)

Net revenues	320,036			481			—			320,517			364,194			5,864		—			370,058

Operating expenses	282,931			1,999			20,311			305,241			305,408			1,547		21,338			328,293

Segment pre-tax operating income	$	37,105		$	(1,518	)	$	(20,311	)	$	15,276		$	58,786		$	4,317	$	(21,338	)	$	41,765

Segment pre-tax operating margin	11.6		%							4.8		%	16.1		%						11.3		%



	Remainder of		2019		2021		2023 and
(Dollars in millions)	2018		-2020		-2022		thereafter		Total
Operating lease obligations	$	7.5	$	27.6	$	17.3	$	22.9	$	75.3