UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the Quarterly Period Ended March 31, ~~2019~~2020



¨☐	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~~SANDLER COMPANIES

(Exact Name of Registrant as specified in its Charter)



~~DELAWARE~~Delaware				30-0168701
(State or Other Jurisdiction of Incorporation or Organization)				(IRS Employer Identification No.)
800 Nicollet Mall, Suite ~~1000~~ 900
Minneapolis	,	Minnesota		55402
(Address of Principal Executive Offices)				(Zip Code)
(612)			~~(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~~PIPR	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 every Interactive Data File required to be submitted 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 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	¨☐	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 ~~April 30, 2019,~~May 1, 2020, the registrant had ~~14,227,928~~17,949,955 shares of Common Stock outstanding.

Piper ~~Jaffray~~Sandler 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 March 31, 2019 (Unaudited) and December 31, 2018~~	3
	Consolidated Statements of Operations ~~for the three months ended March 31, 2019 and March 31, 2018 (Unaudited)~~	4
	Consolidated Statements of Comprehensive Income ~~for the three months ended March 31, 2019 and March 31, 2018 (Unaudited)~~	5
	~~Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2019 and March 31, 2018 (Unaudited)~~	6
	Consolidated Statements of ~~Cash Flows for the three months ended March 31, 2019 and March 31, 2018 (Unaudited)~~Changes in Shareholders' Equity	7
	~~Notes to the~~ Consolidated ~~Financial~~ Statements ~~(Unaudited)~~of Cash Flows	8
	Notes to the Consolidated Financial Statements	9
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3338
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5460
ITEM 4.	CONTROLS AND PROCEDURES	5461

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	5461
ITEM 1A.	RISK FACTORS	5461
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5562
ITEM 6.	EXHIBITS	5563
	SIGNATURES	5664

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Piper ~~Jaffray~~Sandler Companies

Consolidated Statements of Financial Condition



	March 31,			December 31,
	2020			2019
(Amounts in thousands, except share data)	(Unaudited)
Assets
Cash and cash equivalents	$	128,582		$	250,018
Receivables from brokers, dealers and clearing organizations	16,962			283,108

Financial instruments and other inventory positions owned	241,395			434,088
Financial instruments and other inventory positions owned and pledged as collateral	369,948			205,674
Total financial instruments and other inventory positions owned	611,343			639,762

Fixed assets (net of accumulated depreciation and amortization of $68,397 and $65,991, respectively)	36,315			29,850
Goodwill	181,808			87,649
Intangible assets (net of accumulated amortization of $50,742 and $40,864, respectively)	164,408			16,686
Investments	141,542			158,141
Net deferred income tax assets	79,360			68,035
Right-of-use lease asset	74,847			40,030
Other assets	82,713			55,440
Total assets	$	1,517,880		$	1,628,719

Liabilities and Shareholders' Equity
Short-term financing	$	99,980		$	49,978
Senior notes	175,000			175,000
Payables to brokers, dealers and clearing organizations	16,201			7,514
Financial instruments and other inventory positions sold, but not yet purchased	147,118			185,425
Accrued compensation	126,990			300,527
Accrued lease liability	91,276			57,169
Other liabilities and accrued expenses	65,240			46,578
Total liabilities	721,805			822,191

Shareholders' equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at March 31, 2020 and December 31, 2019;
Shares issued: 19,526,398 at March 31, 2020 and 19,526,533 at December 31, 2019;
Shares outstanding: 13,783,930 at March 31, 2020 and 13,717,315 at December 31, 2019	195			195
Additional paid-in capital	790,478			757,669
Retained earnings	227,876			258,669
Less common stock held in treasury, at cost: 5,742,468 shares at March 31, 2020 and 5,809,218 shares at December 31, 2019	(287,446		)	(284,378		)
Accumulated other comprehensive loss	(1,544		)	(872		)
Total common shareholders' equity	729,559			731,283

Noncontrolling interests	66,516			75,245
Total shareholders' equity	796,075			806,528

Total liabilities and shareholders' equity	$	1,517,880		$	1,628,719

March 31, December 31,
2019 2018
(Amounts in thousands, except share data) (Unaudited)
Assets
Cash and cash equivalents $ 18,245
$ 50,364
Receivables from brokers, dealers and clearing organizations 47,010
235,278

Financial instruments and other inventory positions owned 305,295
479,795
Financial instruments and other inventory positions owned and pledged as collateral 336,363
147,427
Total financial instruments and other inventory positions owned 641,658
627,222

Fixed assets (net of accumulated depreciation and amortization of $63,011 and $60,555, respectively) 31,680
32,619
Goodwill 81,855
81,855
Intangible assets (net of accumulated amortization of $97,989 and $95,877, respectively) 10,262
12,374
Investments 152,024
151,963
Net deferred income tax assets 88,002
101,857
Right-of-use lease asset 41,935
—
Other assets 56,982
51,737
Total assets $ 1,169,653
$ 1,345,269

Liabilities and Shareholders' Equity
Short-term financing $ 49,956
$ 49,953
Payables to brokers, dealers and clearing organizations 6,272
8,657
Financial instruments and other inventory positions sold, but not yet purchased 174,504
177,427
Accrued compensation 143,430
333,522
Accrued lease liability 56,243
—
Other liabilities and accrued expenses 25,577
45,294
Total liabilities 455,982
614,853

Shareholders' equity:
Common stock, $0.01 par value:
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 772,184
796,363
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 (1,183 ) (1,398 )
Total common shareholders' equity 661,320
677,444

Noncontrolling interests 52,351
52,972
Total shareholders' equity 713,671
730,416

Total liabilities and shareholders' equity $ 1,169,653
$ 1,345,269

See Notes to the Consolidated Financial Statements

Table of Contents

Piper ~~Jaffray~~Sandler Companies

Consolidated Statements of Operations

(Unaudited)



	Three Months Ended
	March 31,
(Amounts in thousands, except per share data)	2020			2019

Revenues:
Investment banking	$	158,998		$	141,061
Institutional brokerage	89,143			34,965
Interest income	6,065			7,567
Investment income/(loss)	(13,826		)	1,592

Total revenues	240,380			185,185

Interest expense	4,212			2,643

Net revenues	236,168			182,542

Non-interest expenses:
Compensation and benefits	188,124			117,127
Outside services	8,439			8,571
Occupancy and equipment	12,238			8,349
Communications	11,634			7,865
Marketing and business development	10,039			6,738
Deal-related expenses	4,940			4,728
Trade execution and clearance	7,151			1,806
Restructuring and integration costs	1,902			—
Intangible asset amortization	9,878			753
Other operating expenses	15,852			3,468

Total non-interest expenses	270,197			159,405

Income/(loss) from continuing operations before income tax expense/(benefit)	(34,029		)	23,137

Income tax expense/(benefit)	(11,774		)	4,192

Income/(loss) from continuing operations	(22,255		)	18,945

Discontinued operations:
Loss from discontinued operations, net of tax	—			(139		)

Net income/(loss)	(22,255		)	18,806

Net loss applicable to noncontrolling interests	(7,528		)	(616		)

Net income/(loss) applicable to Piper Sandler Companies	$	(14,727	)	$	19,422

Net income/(loss) applicable to Piper Sandler Companies' common shareholders	$	(14,727	)	$	17,835

Continued on next page

Table of Contents

Piper Sandler Companies

Consolidated Statements of Operations – Continued

(Unaudited)

Three Months Ended
March 31,
(Amounts in thousands, except per share data) 2019 2018
Revenues:
Investment banking $ 141,061
$ 120,841
Institutional brokerage 34,954
27,645
Asset management 10,418
12,589
Interest 7,567
10,413
Investment income 475
2,912

Total revenues 194,475
174,400

Interest expense 2,643
5,338

Net revenues 191,832
169,062

Non-interest expenses:
Compensation and benefits 122,636
115,170
Outside services 9,142
8,939
Occupancy and equipment 8,750
8,578
Communications 8,630
8,626
Marketing and business development 7,395
7,299
Deal-related expenses 4,728
5,051
Trade execution and clearance 1,806
2,163
Intangible asset amortization 2,112
2,615
Other operating expenses 3,703
2,583

Total non-interest expenses 168,902
161,024

Income before income tax expense/(benefit) 22,930
8,038

Income tax expense/(benefit) 4,124
(2,581 )

Net income 18,806
10,619

Net income/(loss) applicable to noncontrolling interests (616 ) 16

Net income applicable to Piper Jaffray Companies $ 19,422
$ 10,603

Net income applicable to Piper Jaffray Companies' common shareholders $ 17,835
$ 6,435

Earnings per common share
Basic $ 1.35
$ 0.47
Diluted $ 1.32
$ 0.47

Dividends declared per common share $ 1.39
$ 2.00

Weighted average number of common shares outstanding
Basic 13,204
13,096
Diluted 13,530
13,382



	Three Months Ended
	March 31,
(Amounts in thousands, except per share data)	2020			2019

Amounts applicable to Piper Sandler Companies
Net income/(loss) from continuing operations	$	(14,727	)	$	19,561
Net loss from discontinued operations	—			(139		)
Net income/(loss) applicable to Piper Sandler Companies	$	(14,727	)	$	19,422

Earnings/(loss) per basic common share
Income/(loss) from continuing operations	$	(1.07	)	$	1.36
Loss from discontinued operations	—			(0.01		)
Earnings/(loss) per basic common share	$	(1.07	)	$	1.35

Earnings/(loss) per diluted common share
Income/(loss) from continuing operations	$	(1.07	)	$	1.33
Loss from discontinued operations	—			(0.01		)
Earnings/(loss) per diluted common share	$	(1.07	)	$	1.32

Dividends declared per common share	$	1.13		$	1.39

Weighted average common shares outstanding
Basic	13,796			13,204
Diluted	14,411			13,530

See Notes to the Consolidated Financial Statements

Table of Contents

Piper ~~Jaffray~~Sandler Companies

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended
March 31,
(Amounts in thousands) 2019 2018
Net income $ 18,806
$ 10,619

Other comprehensive income, net of tax:
Foreign currency translation adjustment 215
529

Comprehensive income 19,021
11,148

Comprehensive income/(loss) applicable to noncontrolling interests (616 ) 16

Comprehensive income applicable to Piper Jaffray Companies $ 19,637
$ 11,132



	Three Months Ended
	March 31,
(Amounts in thousands)	2020			2019
Net income/(loss)	$	(22,255	)	$	18,806

Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment	(672		)	215

Comprehensive income/(loss)	(22,927		)	19,021

Comprehensive loss applicable to noncontrolling interests	(7,528		)	(616		)

Comprehensive income/(loss) applicable to Piper Sandler Companies	$	(15,399	)	$	19,637

See Notes to the Consolidated Financial Statements

Table of Contents

Piper ~~Jaffray~~Sandler Companies

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)


														Accumulated			Total																						Accumulated			Total
	Common				Additional									Other			Common						Total			Common				Additional									Other			Common						Total
(Amounts in thousands,	Shares		Common		Paid-In			Retained			Treasury			Comprehensive			Shareholders'			Noncontrolling			Shareholders'			Shares		Common		Paid-In			Retained			Treasury			Comprehensive			Shareholders'			Noncontrolling			Shareholders'
except share amounts)	Outstanding		Stock		Capital			Earnings			Stock			Loss			Equity			Interests			Equity			Outstanding		Stock		Capital			Earnings			Stock			Loss			Equity			Interests			Equity
Balance at December 31, 2019																										13,717,315		$	195	$	757,669		$	258,669		$	(284,378	)	$	(872	)	$	731,283		$	75,245		$	806,528
Net loss																										—		—		—			(14,727		)	—			—			(14,727		)	(7,528		)	(22,255		)
Dividends																										—		—		—			(16,066		)	—			—			(16,066		)	—			(16,066		)
Amortization/issuance of restricted stock (1)																										—		—		44,195			—			—			—			44,195			—			44,195
Repurchase of common stock through share repurchase program																										(128,865	)	—		—			—			(9,225		)	—			(9,225		)	—			(9,225		)
Issuance of treasury shares for restricted stock vestings																										254,111		—		(12,551		)	—			12,551			—			—			—			—
Issuance of treasury shares for deal consideration																										34,205		—		1,049			—			1,674			—			2,723			—			2,723
Repurchase of common stock from employees																										(94,615	)	—		—			—			(8,068		)	—			(8,068		)	—			(8,068		)
Shares reserved/issued for director compensation																										1,779		—		116			—			—			—			116			—			116
Other comprehensive loss																										—		—		—			—			—			(672		)	(672		)	—			(672		)
Fund capital distributions, net																										—		—		—			—			—			—			—			(1,201		)	(1,201		)
Balance at March 31, 2020																										13,783,930		$	195	$	790,478		$	227,876		$	(287,446	)	$	(1,544	)	$	729,559		$	66,516		$	796,075

Balance at December 31, 2018	12,995,397		$	195	$	796,363		$	182,552		$	(300,268	)	$	(1,398	)	$	677,444		$	52,972		$	730,416		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			—		—		—			19,422			—			—			19,422			(616		)	18,806
Dividends	—		—		—			(19,947		)	—			—			(19,947		)	—			(19,947		)	—		—		—			(19,947		)	—			—			(19,947		)	—			(19,947		)
Amortization/issuance of restricted stock	—		—		23,826			—			—			—			23,826			—			23,826			—		—		23,826			—			—			—			23,826			—			23,826
Repurchase of common stock through share repurchase program	(501	)	—		—			—			(32		)	—			(32		)	—			(32		)	(501	)	—		—			—			(32		)	—			(32		)	—			(32		)
Issuance of treasury shares for restricted stock vestings	1,035,360		—		(48,092		)	—			48,092			—			—			—			—			1,035,360		—		(48,092		)	—			48,092			—			—			—			—
Repurchase of common stock from employees	(563,284	)	—		—			—			(39,695		)	—			(39,695		)	—			(39,695		)	(563,284	)	—		—			—			(39,695		)	—			(39,695		)	—			(39,695		)
Shares reserved/issued for director compensation	1,263		—		87			—			—			—			87			—			87			1,263		—		87			—			—			—			87			—			87
Other comprehensive income	—		—		—			—			—			215			215			—			215			—		—		—			—			—			215			215			—			215
Fund capital distributions, net	—		—		—			—			—			—			—			(5		)	(5		)	—		—		—			—			—			—			—			(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		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

(1) Includes amortization of restricted stock as part of deal consideration for the acquisition of Sandler O'Neill. See Note 3 for further discussion.

See Notes to the Consolidated Financial Statements

Table of Contents

Piper ~~Jaffray~~Sandler Companies

Consolidated Statements of Cash Flows

(Unaudited)



	Three Months Ended
	March 31,
(Amounts in thousands)	2020			2019
Operating Activities:
Net income/(loss)	$	(22,255	)	$	18,806
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization of fixed assets	2,632			2,392
Deferred income taxes	(11,325		)	13,855
Stock-based compensation	21,795			4,350
Amortization of intangible assets	9,878			2,112
Amortization of forgivable loans	1,068			1,503
Decrease/(increase) in operating assets:
Receivables from brokers, dealers and clearing organizations	458,821			188,268
Net financial instruments and other inventory positions owned	(9,888		)	(17,359		)
Investments	17,284			(62		)
Other assets	(13,937		)	(3,936		)
Increase/(decrease) in operating liabilities:
Payables to brokers, dealers and clearing organizations	8,687			(2,385		)
Accrued compensation	(222,256		)	(163,104		)
Other liabilities and accrued expenses	(2,912		)	(8,318		)
Increase in assets held for sale	—			(383		)
Decrease in liabilities held for sale	—			(7,218		)

Net cash provided by operating activities	237,592			28,521

Investing Activities:
Business acquisitions, net of cash acquired	(371,369		)	—
Purchases of fixed assets, net	(2,359		)	(1,421		)

Net cash used in investing activities	(373,728		)	(1,421		)

Financing Activities:
Increase in short-term financing	50,002			3
Payment of cash dividend	(16,066		)	(19,947		)
Decrease in noncontrolling interests	(1,201		)	(5		)
Repurchase of common stock	(17,293		)	(39,727		)

Net cash provided by/(used in) financing activities	15,442			(59,676		)

Currency adjustment:
Effect of exchange rate changes on cash	(742		)	457

Net decrease in cash and cash equivalents	(121,436		)	(32,119		)

Cash and cash equivalents at beginning of period	250,018			50,364

Cash and cash equivalents at end of period	$	128,582		$	18,245

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	4,127		$	2,809
Income taxes	$	557		$	7,462

Three Months Ended
March 31,
(Dollars in thousands) 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:
Increase/(decrease) in short-term financing 3
(103,683 )
Payment of cash dividend (19,947 ) (30,375 )
Decrease in noncontrolling interests (5 ) (904 )
Repurchase of common stock (39,727 ) (16,797 )

Net cash used in financing activities (59,676 ) (151,759 )

Currency adjustment:
Effect of exchange rate changes on cash 457
720

Net decrease in cash and cash equivalents (32,119 ) (6,151 )

Cash and cash equivalents at beginning of period 50,364
33,793

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 $ 2,809
$ 5,615
Income taxes $ 7,462
$ 12,474

See Notes to the Consolidated Financial Statements

Table of Contents

Piper ~~Jaffray~~Sandler 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 2	Accounting Policies and Pronouncements	11
Note 3	Acquisitions	11
Note 4	Discontinued Operations	14
Note 5	Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased	11
~~Note 4~~	~~Fair Value of Financial Instruments~~	13
~~Note 5~~	~~Variable Interest Entities~~	1915
Note 6	Fair Value of Financial Instruments	17
Note 7	Variable Interest Entities	23
Note 8	Receivables from and Payables to Brokers, Dealers and Clearing Organizations	20
~~Note 7~~	~~Investments~~	20
~~Note 8~~	~~Other Assets~~	21
~~Note 9~~	~~Short-Term Financing~~	21
~~Note 10~~	~~Legal Contingencies~~	21
~~Note 11~~	~~Leases~~	22
~~Note 12~~	~~Shareholders' Equity~~	22
~~Note 13~~	~~Compensation Plans~~	24
Note 9	Investments	24
Note 10	Other Assets	25
Note 11	Goodwill and Intangible Assets	25
Note 12	Short-Term Financing	26
Note 13	Legal Contingencies	26
Note 14	~~Earnings Per Share~~Leases	27
Note 15	Restructuring and Integration Costs	27
Note 16	Shareholders' Equity	28
Note 17	Compensation Plans	29
Note 1518	~~Segment Reporting~~Earnings Per Share	3034
Note 1619	Revenues and Business Information	36
Note 20	Net Capital Requirements and Other Regulatory Matters	3236
Note 1721	Income Taxes	3237
Note 22	Subsequent Event	37

Table of Contents

Piper ~~Jaffray~~Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 1Organization and Basis of Presentation

Organization

Piper ~~Jaffray~~Sandler Companies is the parent company of Piper ~~Jaffray~~Sandler & Co. ("Piper ~~Jaffray"~~Sandler"), a securities broker dealer and investment banking firm; Piper ~~Jaffray~~Sandler Ltd., a firm providing securities brokerage and mergers and acquisitions services in Europe; Piper ~~Jaffray~~Sandler 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~~Sandler Investment Group Inc. and ~~PJC~~PSC Capital Management LLC, which consist of entities providing alternative asset management services; Piper ~~Jaffray~~Sandler Financial Products Inc. and Piper ~~Jaffray~~Sandler Financial Products II Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries.

~~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~~Sandler Companies and its subsidiaries (collectively, the "Company") operate in ~~two~~1 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~~providing 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~~municipal financing 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 investments in late stage private companies. The Company has created alternative asset management funds in merchant banking ~~energy~~ and ~~senior living~~energy 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 the 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, ~~2018.~~2019.

The consolidated financial statements include the accounts of Piper ~~Jaffray~~Sandler 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~~Sandler 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.

910

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Piper ~~Jaffray~~Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 2Accounting 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, ~~2018~~2019 for a full description of the Company's significant accounting policies. ~~Changes to the Company's significant accounting policies are described below.~~

~~Leases~~

A lease is a contract, or part of a contract, that conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. In making this determination, the 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 used during the term of the contract.

The Company leases its corporate headquarters and other offices under various non-cancelable leases, all of which are operating leases. In addition to rent, the leases require payment of real estate taxes, insurance and common area maintenance. The original terms of the Company's lease agreements generally range up to twelve years. Some of the leases contain renewal and/or termination options, escalation clauses, rent-free holidays and operating cost adjustments.

The Company recognizes a right-of-use ("ROU") lease asset and lease liability on the consolidated statements of financial position for all leases with a term greater than 12 months. The lease liability represents the Company’s obligation to make future lease payments and is recorded at an amount equal to the present value of the remaining lease payments due over the lease term. The ROU lease asset, which represents the right to use the underlying asset during the lease term, is measured based on the carrying value of the 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 recognized on a straight-line basis as a reduction of rent expense from the date the Company takes possession of the 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.

~~Rent expense for leases with a term of 12 months or less is recorded on a straight-line basis over the lease term in the consolidated statements of operations.~~

Adoption of New Accounting Standards

~~Leases~~Financial Instruments – Credit Losses

In ~~February~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize a 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 previous U.S. GAAP.

~~Table of Contents~~

~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

The Company adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach and applied the package of practical expedients in transitioning to the new guidance. Electing the package of practical expedients allowed the Company to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for 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 components from nonlease components.

Upon adoption, the Company recognized a ROU lease asset of approximately $44.0 million and a lease liability of approximately $59.0 million. The difference between the ROU lease asset and the lease liability is due to lease incentives. There were no changes to the recognition of rent expense in the Company’s consolidated statements of operations upon adoption of ASU 2016-02. In addition, the new guidance has not impacted Piper Jaffray's net capital 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 isbecame effective for ~~annual and interim periods beginning after December 15, 2019. The~~the Company ~~does not expect~~as of January 1, 2020. There was no material impact to the Company's consolidated financial statements upon adoption of ASU ~~2016-13~~2016-13.

Note 3Acquisitions

The following acquisitions were accounted for pursuant to FASB Accounting Standards Codification Topic 805, "Business Combinations." Accordingly, the purchase price of each acquisition was allocated to the acquired assets and liabilities assumed based on their estimated fair values as of the respective acquisition dates. The excess of the purchase price over the net assets acquired was allocated between goodwill and intangible assets.

SOP Holdings, LLC

On January 3, 2020, the Company completed the acquisition of SOP Holdings, LLC and its subsidiaries, including Sandler O'Neill & Partners, L.P. (collectively, "Sandler O'Neill"), a full-service investment banking firm and broker dealer focused on the financial services industry. The transaction was completed pursuant to the Agreement and Plans of Merger dated July 9, 2019. The purchase price was $485.0 million, for which the Company was entitled to receive $100.0 million of tangible book value, subject to a final adjustment as of the closing date. The acquisition of Sandler O'Neill is accretive to the Company's advisory services revenues, diversifies and enhances scale in corporate financings, adds a differentiated fixed income business, and increases scale in the equity brokerage business.

The net assets acquired by the Company are described below. As part of the purchase price, the Company granted 1,568,670 restricted shares valued at $124.9 million as equity consideration on the acquisition date. These restricted shares are generally subject to ratable vesting over three years and employees must fulfill service requirements in exchange for the rights to the restricted shares. Compensation expense will be amortized on a straight-line basis over the requisite service period of three years. The fair value of the restricted stock was determined using the market price of the Company's common stock on the date of acquisition.

The Company also entered into acquisition-related compensation arrangements with certain employees of $113.9 million which consisted of restricted stock ($96.9 million) and restricted cash ($17.0 million) for retention purposes. The retention-related awards are also subject to vesting restrictions and employees must remain continuously employed by the Company for the respective vesting period. Compensation expense related to these arrangements will be amortized on a straight-line basis over the requisite service period of 18 months, three years or five years (a weighted average service period of 3.7 years).

The Company recorded $94.2 million of goodwill on the consolidated statements of financial condition, all of which is expected to be deductible for income tax purposes. The final goodwill recorded on the Company's consolidated statements of financial condition may differ from that reflected herein as a result of measurement period adjustments. In management's opinion, the goodwill represents the reputation and operating expertise of Sandler O'Neill.

Identifiable intangible assets purchased by the Company consisted of customer relationships and the Sandler trade name with acquisition-date fair values of $72.2 million and $85.4 million, respectively.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Transaction costs of $0.9 million were incurred for the three months ended March 31, 2020 and are included in restructuring and integration costs on the consolidated statements of operations.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition:



(Amounts in thousands)
Assets
Cash and cash equivalents	$	27,420
Receivables from brokers, dealers and clearing organizations	192,675
Fixed assets	6,789
Goodwill	94,159
Intangible assets	157,600
Investments	685
Right-of-use lease asset	39,607
Other assets	10,029
Total assets acquired	528,964

Liabilities
Accrued compensation	71,398
Accrued lease liability	39,613
Other liabilities and accrued expenses	16,441
Due to Sandler O'Neill (1)	40,673
Total liabilities assumed	168,125

Net assets acquired	$	360,839


(1)	Represents the amount of excess tangible book value received by the Company on the date of acquisition.

Weeden & Co. L.P. ("Weeden & Co.")

On August 2, 2019, the Company completed the acquisition of Weeden & Co., a broker dealer specializing in equity security sales and trading. The economic value of the acquisition was approximately $42.0 million and was completed pursuant to a securities purchase agreement dated February 24, 2019, as amended. The transaction added enhanced trade execution capabilities and scale to the Company's equities institutional sales and trading business.

The Company acquired net assets with a fair value of $24.0 million as described below. As part of the purchase price, the Company granted $10.1 million in restricted cash as consideration on the acquisition date. The Company also entered into acquisition-related compensation arrangements with certain employees of $7.3 million in restricted stock for retention purposes. Both the restricted cash and restricted stock are subject to graded vesting, beginning on the third anniversary of the acquisition date, so long as the applicable employee remains continuously employed by the Company for such period. Compensation expense will be amortized on a straight-line basis over the requisite service period of four years.

Additional cash of up to $31.5 million may be earned if a net revenue target is achieved during the period from January 1, 2020 to June 30, 2021 ("Weeden Earnout"). Weeden & Co.'s equity owners, a portion of whom are now employees of the Company, are eligible to receive the additional payment. Employees must fulfill service requirements in exchange for the rights to the additional payment. Amounts estimated to be payable to employees will be recorded as compensation expense on the consolidated statements of operations over the requisite performance period. The Company recorded a liability as of the acquisition date for the fair value related to non-employee equity owners, and is required to adjust this liability through the statement of operations for any changes after the acquisition date. If earned, the Weeden Earnout will be paid by September 30, 2021. As of March 31, 2020, the Company expects the maximum Weeden Earnout will be earned and has accrued a total of $18.5 million related to this additional cash payment. The Company recorded $17.6 million in non-interest expenses related to the Weeden Earnout for the three months ended March 31, 2020.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

The Company recorded $5.8 million of goodwill on the consolidated statements of financial condition, all of which is expected to be deductible for income tax purposes. The final goodwill recorded on the Company's consolidated statements of financial condition may differ from that reflected herein as a result of measurement period adjustments. In management's opinion, the goodwill represents the reputation and operating expertise of Weeden & Co.

Identifiable intangible assets purchased by the Company consisted of customer relationships and internally developed software with acquisition-date fair values of $12.0 million and $4.7 million, respectively.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition, including measurement period adjustments:



(Amounts in thousands)
Assets
Cash and cash equivalents	$	4,351
Receivables from brokers, dealers and clearing organizations	1,623
Fixed assets	289
Goodwill	5,794
Intangible assets	16,700
Right-of-use lease asset	6,811
Other assets	10,888
Total assets acquired	46,456

Liabilities
Accrued compensation	2,156
Accrued lease liability	6,811
Other liabilities and accrued expenses	13,464
Total liabilities assumed	22,431

Net assets acquired	$	24,025

Pro Forma Financial Information

The results of operations of Sandler O'Neill and Weeden & Co. have ~~a material impact on its~~been included in the Company's consolidated financial ~~statements.~~statements prospectively beginning on the respective acquisition dates. The acquisitions have been fully integrated with the Company's existing operations. Accordingly, post-acquisition revenues and net income are not discernible. The following unaudited pro forma financial data is presented on a combined basis and includes both Sandler O’Neill and Weeden & Co. Based on the respective acquisition dates, the unaudited pro forma financial data assumes that the Sandler O’Neill acquisition had occurred on January 1, 2019, the beginning of the comparable prior period presented, and that the Weeden & Co. acquisition had occurred on January 1, 2018, the beginning of the prior annual period in which the acquisition occurred. Pro forma results have been prepared by adjusting the Company's historical results to include the results of operations of Sandler O'Neill and Weeden & Co. adjusted for the following significant changes: interest expense was adjusted to reflect the debt incurred by the Company to fund a portion of the Sandler O’Neill purchase price; amortization expense was adjusted to account for the acquisition-date fair value of intangible assets; compensation and benefits expenses were adjusted to reflect the restricted cash or restricted stock issued as part of the respective purchase price, the restricted stock issued for retention purposes, and the cost that would have been incurred had Sandler O’Neill partners been included in the Company’s employee compensation arrangements; and the income tax effect of applying the Company's statutory tax rates to the results of operations of Sandler O'Neill and Weeden & Co. The Company's consolidated unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the acquisitions been completed at the beginning of the applicable periods presented, does not contemplate client account overlap and anticipated operational efficiencies of the combined entities, nor does it indicate the results of operations in future periods.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)



	Three Months Ended
(Amounts in thousands)	March 31, 2019
Net revenues	$	291,254
Net income from continuing operations applicable to Piper Sandler Companies	11,482

Note 4Discontinued Operations

In the third quarter of 2019, the Company completed the sale of its traditional asset management business, which was conducted through its wholly-owned subsidiary Advisory Research, Inc. ("ARI"). On September 20, 2019, the Company completed the sale of the master limited partnerships ("MLP") and energy infrastructure strategies business to Tortoise Capital Advisors. Additionally, on September 27, 2019, the Company completed the sale of its remaining equity strategies business to its former management team.

The transactions generated cash proceeds of $52.9 million and include the potential for the Company to receive additional cash consideration payments based on prospective revenues. The Company is eligible to receive an additional payment of up to $35.7 million contingent upon contractually defined MLP revenue exceeding a revenue threshold in the one-year period following the close of the transaction. The Company may also receive an additional payment based upon a multiple of aggregate revenue with respect to certain sub-advised accounts as of December 31, 2020. The Company will record a gain upon receipt of the earnout payments, if any.

In addition, the Company is eligible to receive additional payments up to a total of $10.0 million based on the revenues of the equity strategies business during each of the four annual periods from January 1, 2020 to December 31, 2023. The Company estimated the fair value of this earnout to be $2.2 million upon the close of the transaction, which will be reevaluated at each reporting date. As of March 31, 2020, the Company had a $2.2 million receivable recorded in other assets on the consolidated statements of financial condition.

ARI's results have been presented as discontinued operations for all prior periods presented. The components of discontinued operations were as follows:



	Three Months Ended
(Amounts in thousands)	March 31, 2019
Net revenues	$	9,290

Operating expenses	8,139
Intangible asset amortization	1,359
Total non-interest expenses	9,498

Loss from discontinued operations before income tax benefit	(208		)

Income tax benefit	(69		)

Loss from discontinued operations, net of tax	$	(139	)

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 35Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased


	March 31,		December 31,		March 31,		December 31,
(Dollars in thousands)	2019		2018
(Amounts in thousands)					2020		2019
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	12,908	$	1,458	$	2,827	$	3,046
Convertible securities	116,008		92,485		117,915		146,406
Fixed income securities	33,819		31,906		84,651		28,176
Municipal securities:
Taxable securities	40,072		38,711		26,260		22,570
Tax-exempt securities	246,130		268,804		214,817		222,192
Short-term securities	20,620		52,472		63,406		67,901
Mortgage-backed securities	14		15		13		13
U.S. government agency securities	152,743		123,384		68,076		51,773
U.S. government securities	2,569		954		407		77,303
Derivative contracts	16,775		17,033		32,971		20,382
Total financial instruments and other inventory positions owned	$	641,658	$	627,222	$	611,343	$	639,762

Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	79,279	$	82,082	$	50,895	$	94,036
Fixed income securities	18,163		20,180		13,995		10,311
U.S. government agency securities	8,859		10,257		881		9,935
U.S. government securities	62,354		60,365		73,207		67,090
Derivative contracts	5,849		4,543		8,140		4,053
Total financial instruments and other inventory positions sold, but not yet purchased	$	174,504	$	177,427	$	147,118	$	185,425

At March 31, ~~2019~~2020 and December 31, ~~2018~~2019, financial instruments and other inventory positions owned in the amount of ~~$336.4~~$369.9 million and ~~$147.4~~$205.7 million,, respectively, had been pledged as collateral for short-term financings.

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~~Piper Jaffray Companies~~

~~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, and U.S. treasury bond ~~futures.~~futures and options.

Derivative Contract Financial Instruments

The Company uses interest rate swaps, interest rate locks, ~~and~~ U.S. treasury bond futures and options, 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~~Offered Rate ("LIBOR") index or the Securities Industry and Financial Markets Association ("SIFMA") index.

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Piper Sandler Companies

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 and options to hedge interest rate and market value risks associated with its fixed income securities. These instruments use interest rates based upon the Municipal Market Data ("MMD") index, LIBOR or the SIFMA index. The Company also enters into equity 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:



	March 31, 2020						December 31, 2019
(Amounts in thousands)	Derivative		Derivative		Notional		Derivative		Derivative		Notional
Derivative Category	Assets (1)		Liabilities (2)		Amount		Assets (1)		Liabilities (2)		Amount
Interest rate
Customer matched-book	$	264,559	$	253,830	$	2,023,391	$	209,119	$	198,315	$	2,197,340
Trading securities	1,975		6,502		209,075		8		1,852		110,875
Equity options
Trading securities	—		1,386		16,218		—		—		—
	$	266,534	$	261,718	$	2,248,684	$	209,127	$	200,167	$	2,308,215

March 31, 2019 December 31, 2018
(Dollars in thousands) Derivative Derivative Notional Derivative Derivative Notional
Derivative Category Assets (1) Liabilities (2) Amount Assets (1) Liabilities (2) Amount
Interest rate
Customer matched-book $ 186,555
$ 175,755
$ 2,308,159
$ 181,199
$ 169,950
$ 2,532,966
Trading securities 10
4,222
239,225
408
4,202
262,275
$ 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
(Amounts in thousands)		March 31,
Derivative Category	Operations Category	2020			2019
Interest rate derivative contract	Investment banking	$	(732	)	$	(617	)
Interest rate derivative contract	Institutional brokerage	(2,027		)	(249		)
Equity option derivative contracts	Institutional brokerage	(822		)	—
		$	(3,581	)	$	(866	)

Three Months Ended
(Dollars in thousands) March 31,
Derivative Category Operations Category 2019 2018
Interest rate derivative contract Investment banking $ (617 ) $ (795 )
Interest rate derivative contract Institutional brokerage (249 ) 5,062
$ (866 ) $ 4,267

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~~Piper Jaffray Companies~~

~~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 March 31, ~~2019~~2020, the Company had $~~16.9~~27.3 million of uncollateralized credit exposure with these counterparties (notional contract amount of $~~176.5~~173.0 million), including $~~13.9~~23.2 million of uncollateralized credit exposure with one counterparty.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 46Fair 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 consolidated 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~~available, and therefore are generally 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 (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 on spreads over U.S. treasury securities, or models based upon prepayment 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 – Derivative contracts include interest rate swaps, interest rate locks, ~~and~~ U.S. treasury bond ~~futures.~~futures and options, and equity option contracts. 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 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.

Investments

The Company's investments valued at fair value include equity investments in private companies and ~~partnerships and investments in registered mutual funds. Investments in registered mutual funds are valued based on quoted prices on active markets and classified as Level I.~~partnerships. 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 $~~2.6~~1.8 million and ~~$3.0~~$2.1 million, included within investments on the consolidated statements of financial condition, ~~are~~were accounted for at fair value and ~~are~~were classified as Level III assets at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The realized and unrealized net impact from fair value changes included in earnings as a result of electing to apply the fair value option to certain financial assets were gains of $0.2 million and losses of $0.4 million ~~and gains of~~ ~~$0.8 million~~ for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019, respectively.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

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 March 31, ~~2019~~2020:



	Valuation			Weighted
	Technique	Unobservable Input	Range	Average (1)
~~Assets:~~Assets
Financial instruments and other inventory positions owned:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve in basis points ("bps") (2)	5 - 35 bps	15.4 bps
Investments at fair value:
Equity securities in private companies	Market approach	Revenue multiple (2)	23 - 5 times	~~4.3~~3.8 times
		EBITDA multiple (2)	1310 - 1620 times	~~14.5~~16.1 times

~~Liabilities:~~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 in ~~basis points ("bps")~~bps (3)	28 - 2462 bps	~~11.7~~51.7 bps

Uncertainty of fair value measurements:


(1)	Unobservable inputs were weighted by the relative fair value of the financial instruments.

~~(2)~~


(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.

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

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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 March 31, ~~2019:~~2020:


								Counterparty												Counterparty
								and Cash												and Cash
								Collateral												Collateral
(Dollars in thousands)	Level I		Level II		Level III			Netting (1)			Total
Assets:
(Amounts in thousands)													Level I		Level II		Level III			Netting (1)			Total
Assets
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	21	$	12,887	$	—		$	—		$	12,908	$	165	$	2,662	$	—		$	—		$	2,827
Convertible securities	—		116,008		—			—			116,008		—		117,915		—			—			117,915
Fixed income securities	—		33,819		—			—			33,819		—		84,651		—			—			84,651
Municipal securities:
Taxable securities	—		40,072		—			—			40,072		—		26,260		—			—			26,260
Tax-exempt securities	—		246,130		—			—			246,130		—		214,817		—			—			214,817
Short-term securities	—		20,620		—			—			20,620		—		63,406		—			—			63,406
Mortgage-backed securities	—		—		14			—			14		—		—		13			—			13
U.S. government agency securities	—		152,743		—			—			152,743		—		68,076		—			—			68,076
U.S. government securities	2,569		—		—			—			2,569		407		—		—			—			407
Derivative contracts	—		186,565		—			(169,790		)	16,775		—		264,559		1,975			(233,563		)	32,971
Total financial instruments and other inventory positions owned	2,590		808,844		14			(169,790		)	641,658		572		842,346		1,988			(233,563		)	611,343

Cash equivalents	750		—		—			—			750		4,916		—		—			—			4,916

Investments at fair value	33,150		3,252		107,878		(2)	—			144,280		13,838		—		120,730		(2)	—			134,568
Total assets	$	36,490	$	812,096	$	107,892		$	(169,790	)	$	786,688	$	19,326	$	842,346	$	122,718		$	(233,563	)	$	750,827

Liabilities:
Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	68,307	$	10,972	$	—		$	—		$	79,279	$	50,872	$	23	$	—		$	—		$	50,895
Fixed income securities	—		18,163		—			—			18,163		—		13,995		—			—			13,995
U.S. government agency securities	—		8,859		—			—			8,859		—		881		—			—			881
U.S. government securities	62,354		—		—			—			62,354		73,207		—		—			—			73,207
Derivative contracts	—		175,755		4,222			(174,128		)	5,849		1,386		254,775		5,557			(253,578		)	8,140
Total financial instruments and other inventory positions sold, but not yet purchased	$	130,661	$	213,749	$	4,222		$	(174,128	)	$	174,504	$	125,465	$	269,674	$	5,557		$	(253,578	)	$	147,118


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no0 securities posted as collateral to its counterparties.


(2)	~~Noncontrolling~~Includes noncontrolling interests of ~~$52.4~~$66.5 million ~~are~~primarily attributable to unrelated third party ownership in consolidated merchant banking ~~and senior living~~ funds.

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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, ~~2018~~2019:


								Counterparty												Counterparty
								and Cash												and Cash
								Collateral												Collateral
(Dollars in thousands)	Level I		Level II		Level III			Netting (1)			Total
Assets:
(Amounts in thousands)													Level I		Level II		Level III			Netting (1)			Total
Assets
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	331	$	1,127	$	—		$	—		$	1,458	$	469	$	2,577	$	—		$	—		$	3,046
Convertible securities	—		92,485		—			—			92,485		—		146,406		—			—			146,406
Fixed income securities	—		31,906		—			—			31,906		—		28,176		—			—			28,176
Municipal securities:
Taxable securities	—		38,711		—			—			38,711		—		22,570		—			—			22,570
Tax-exempt securities	—		268,804		—			—			268,804		—		222,192		—			—			222,192
Short-term securities	—		52,472		—			—			52,472		—		67,901		—			—			67,901
Mortgage-backed securities	—		—		15			—			15		—		—		13			—			13
U.S. government agency securities	—		123,384		—			—			123,384		—		51,773		—			—			51,773
U.S. government securities	954		—		—			—			954		77,303		—		—			—			77,303
Derivative contracts	—		181,378		229			(164,574		)	17,033		—		209,119		8			(188,745		)	20,382
Total financial instruments and other inventory positions owned	1,285		790,267		244			(164,574		)	627,222		77,772		750,714		21			(188,745		)	639,762

Cash equivalents	20,581		—		—			—			20,581		226,744		—		—			—			226,744

Investments at fair value	33,587		2,649		107,792		(2)	—			144,028		17,658		—		132,329		(2)	—			149,987
Total assets	$	55,453	$	792,916	$	108,036		$	(164,574	)	$	791,831	$	322,174	$	750,714	$	132,350		$	(188,745	)	$	1,016,493

Liabilities:
Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	81,575	$	507	$	—		$	—		$	82,082	$	88,794	$	5,242	$	—		$	—		$	94,036
Fixed income securities	—		20,180		—			—			20,180		—		10,311		—			—			10,311
U.S. government agency securities	—		10,257		—			—			10,257		—		9,935		—			—			9,935
U.S. government securities	60,365		—		—			—			60,365		67,090		—		—			—			67,090
Derivative contracts	—		169,950		4,202			(169,609		)	4,543		—		198,604		1,563			(196,114		)	4,053
Total financial instruments and other inventory positions sold, but not yet purchased	$	141,940	$	200,894	$	4,202		$	(169,609	)	$	177,427	$	155,884	$	224,092	$	1,563		$	(196,114	)	$	185,425


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no0 securities posted as collateral to its counterparties.


(2)	~~Noncontrolling~~Includes noncontrolling interests of ~~$53.0~~$75.2 million ~~are~~primarily attributable to unrelated third party ownership in consolidated merchant banking ~~and senior living~~ funds.

The Company's Level III assets were $~~107.9~~122.7 million and $~~108.0~~132.4 million, or ~~13.7~~16.3 percent and ~~13.6~~13.0 percent of financial instruments measured at fair value at March 31, ~~2019~~2020 and December 31, ~~2018~~2019, respectively. There were no0 significant transfers between levels for the three months ended March 31, ~~2019.~~2020.

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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
	December 31,								Transfers		Transfers		gains/			gains/			March 31,		March 31,		December 31,								Transfers			gains/			gains/			March 31,		March 31,
(Dollars in thousands)	2018		Purchases			Sales			in		out		(losses)			(losses)			2019		2019
Assets:
(Amounts in thousands)																							2019		Purchases			Sales			out			(losses)			(losses)			2020		2020
Assets
Financial instruments and other inventory positions owned:
Mortgage-backed securities	$	15	$	—		$	(2	)	$	—	$	—	$	(27	)	$	28		$	14	$	—	$	13	$	—		$	—		$	—		$	—		$	—		$	13	$	—
Derivative contracts	229		—			(336		)	—		—		336			(229		)	—		—		8		295			—			—			(295		)	1,967			1,975		1,975
Total financial instruments and other inventory positions owned	244		—			(338		)	—		—		309			(201		)	14		—		21		295			—			—			(295		)	1,967			1,988		1,975

Investments at fair value	107,792		—			—			—		—		—			86			107,878		86		132,329		283			(165		)	(130		)	(227		)	(11,360		)	120,730		(11,585		)
Total assets	$	108,036	$	—		$	(338	)	$	—	$	—	$	309		$	(115	)	$	107,892	$	86	$	132,350	$	578		$	(165	)	$	(130	)	$	(522	)	$	(9,393	)	$	122,718	$	(9,610	)

Liabilities:
Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	4,202	$	(5,603	)	$	—		$	—	$	—	$	5,603		$	20		$	4,222	$	4,222	$	1,563	$	(3,141	)	$	351		$	—		$	2,790		$	3,994		$	5,557	$	5,547
Total financial instruments and other inventory positions sold, but not yet purchased	$	4,202	$	(5,603	)	$	—		$	—	$	—	$	5,603		$	20		$	4,222	$	4,222	$	1,563	$	(3,141	)	$	351		$	—		$	2,790		$	3,994		$	5,557	$	5,547


																						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
	December 31,								Transfers		Transfers			gains/			gains/			March 31,		March 31,			December 31,								Transfers		gains/			gains/			March 31,		March 31,
(Dollars in thousands)	2017		Purchases			Sales			in		out			(losses)			(losses)			2018		2018
Assets:
(Amounts in thousands)																									2018		Purchases			Sales			out		(losses)			(losses)			2019		2019
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			$	15	$	—		$	(2	)	$	—	$	(27	)	$	28		$	14	$	—
Derivative contracts	126		—			(1,760		)	—		—			1,760			2,018			2,144		2,144			229		—			(336		)	—		336			(229		)	—		—
Total financial instruments and other inventory positions owned	2,021		—			(1,765		)	—		(700		)	1,760			1,831			3,147		2,152			244		—			(338		)	—		309			(201		)	14		—

Investments at fair value	126,060		601			(4,154		)	—		—			3,402			(4,272		)	121,637		(869		)	107,792		—			—			—		—			86			107,878		86
Total assets	$	128,081	$	601		$	(5,919	)	$	—	$	(700	)	$	5,162		$	(2,441	)	$	124,784	$	1,283		$	108,036	$	—		$	(338	)	$	—	$	309		$	(115	)	$	107,892	$	86

Liabilities:
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		$	4,202	$	(5,603	)	$	—		$	—	$	5,603		$	20		$	4,222	$	4,222
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		$	4,202	$	(5,603	)	$	—		$	—	$	5,603		$	20		$	4,222	$	4,222

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~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

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.

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.

Table of Contents

Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 57Variable Interest Entities ("VIEs")

The Company has investments in and/or acts as the managing partner of various partnerships and limited liability ~~companies, and registered mutual funds.~~companies. 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.

Consolidated VIEs

The Company's consolidated VIEs at March 31, ~~2019~~2020 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 March 31, ~~2019.~~2020. 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
(Amounts in thousands)	Management Funds
Assets
Investments	$	118,508
Other assets	647
Total assets	$	119,155

Liabilities
Other liabilities and accrued expenses	$	2,540
Total liabilities	$	2,540

Alternative Asset
(Dollars in thousands) Management Funds
Assets:
Investments $ 104,208
Other assets 511
Total assets $ 104,719

Liabilities:
Other liabilities and accrued expenses $ 2,079
Total liabilities $ 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 1317 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~~$0.3 billion at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The Company's exposure to loss from these VIEs is ~~$6.1~~$5.8 million, which is the carrying value of its capital contributions recorded in investments on the consolidated statements of financial condition at March 31, ~~2019.~~2020. The Company had no0 liabilities related to these VIEs at March 31, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019. Furthermore, the Company has not provided financial or other support to these VIEs that it was not previously contractually required to provide as of March 31, ~~2019.~~2020.

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Notes to the Consolidated Financial Statements

(Unaudited)

Note 68Receivables from and Payables to Brokers, Dealers and Clearing Organizations


	March 31,		December 31,		March 31,		December 31,
(Dollars in thousands)	2019		2018
(Amounts in thousands)					2020		2019
Receivable from clearing organizations	$	36,015	$	223,987	$	7,406	$	260,436
Deposits with clearing organizations	3,606		230
Receivable from brokers and dealers	3,998		7,700		5,967		19,161
Other	3,391		3,361		3,589		3,511
Total receivables from brokers, dealers and clearing organizations	$	47,010	$	235,278	$	16,962	$	283,108



	March 31,		December 31,
(Amounts in thousands)	2020		2019
Payable to brokers and dealers	$	15,469	$	7,514
Payable to clearing organizations	732		—
Total payables to brokers, dealers and clearing organizations	$	16,201	$	7,514

March 31, December 31,
(Dollars in thousands) 2019 2018
Payable to clearing organizations $ 5,128
$ 4,734
Payable to brokers and dealers 1,144
3,923
Total payables to brokers, dealers and clearing organizations $ 6,272
$ 8,657

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.~~Pershing LLC ("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~~Sandler to maintain excess net capital of $120 million.

Note 79Investments

The Company's investments include investments in private companies and ~~partnerships and registered mutual funds.~~partnerships.


	March 31,			December 31,			March 31,			December 31,
(Dollars in thousands)	2019			2018
(Amounts in thousands)							2020			2019
Investments at fair value	$	144,280		$	144,028		$	134,568		$	149,987
Investments at cost	1,513			1,512			611			1,084
Investments accounted for under the equity method	6,231			6,423			6,363			7,070
Total investments	152,024			151,963			141,542			158,141

Less investments attributable to noncontrolling interests (1)	(52,351		)	(52,972		)	(66,516		)	(75,245		)
	$	99,673		$	98,991		$	75,026		$	82,896


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

At March 31, ~~2019~~2020, investments carried on a cost basis had an estimated fair market value of ~~$1.5~~$0.6 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 10Other Assets



	March 31,		December 31,
(Amounts in thousands)	2020		2019
Fee receivables	$	30,975	$	18,574
Accrued interest receivables	3,824		2,977
Income tax receivables	5,616		2,658
Forgivable loans, net	4,143		5,227
Prepaid expenses	12,349		10,687
Other	25,806		15,317
Total other assets	$	82,713	$	55,440

Note 8~~Other~~11Goodwill and Intangible Assets



(Amounts in thousands)
Goodwill
Balance at December 31, 2019	$	87,649
Goodwill acquired	94,159
Balance at March 31, 2020	$	181,808

Intangible assets
Balance at December 31, 2019	$	16,686
Intangible assets acquired	157,600
Amortization of intangible assets	(9,878		)
Balance at March 31, 2020	$	164,408

The addition of goodwill and intangible assets during the three months ended March 31, 2020 related to the acquisition of Sandler O'Neill, as discussed in Note 3. Management identified $157.6 million of intangible assets, consisting of customer relationships of $72.2 million and the Sandler trade name of $85.4 million. The customer relationships will be amortized over a weighted average life of 2.4 years. The Sandler trade name is an indefinite-lived intangible asset and will not be subject to amortization.

The following table summarizes the future aggregate amortization expense of the Company's intangible assets with determinable lives:



(Amounts in thousands)
Remainder of 2020	$	29,634
2021	15,042
2022	9,325
2023	7,427
2024	6,280
Thereafter	11,300
Total	$	79,008

March 31, December 31,
(Dollars in thousands) 2019 2018
Fee receivables $ 18,105
$ 23,120
Income tax receivables 12,661
—
Accrued interest receivables 3,585
4,240
Forgivable loans, net 7,288
7,568
Prepaid expenses 8,042
9,477
Other 7,301
7,332
Total other assets $ 56,982
$ 51,737

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Notes to the Consolidated Financial Statements

(Unaudited)

Note 912Short-Term Financing



	Outstanding Balance				Weighted Average Interest Rate
	March 31,		December 31,		March 31,		December 31,
(Dollars in thousands)	2020		2019		2020		2019
Commercial paper	$	49,980	$	49,978	2.38	%	2.69	%
Revolving credit facility	50,000		—		2.91	%	—	%
Total short-term financing	$	99,980	$	49,978

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~~the CP Series II A program, and are secured by different inventory classes. As of March 31, ~~2019,~~2020, the weighted average maturity of outstanding CP Notes was 9six 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 ~~had~~retired the CP ~~Notes of $50.0 million outstanding at March 31, 2019 and December 31, 2018 with weighted average interest rates of 3.48% and 3.38%, respectively.~~Series A program on January 2, 2020.

The Company has ~~both committed~~an unsecured $50 million revolving credit facility with U.S. Bank N.A. The credit agreement will terminate on December 20, 2022, unless otherwise terminated, and ~~uncommitted short-term bank line financing available on~~is subject to a ~~secured basis. The Company uses these~~one-year extension exercisable at the option of the Company. This credit ~~facilities in~~facility includes customary events of default and covenants that, among other things, require the ~~ordinary course~~Company's U.S. broker dealer subsidiary to maintain a minimum regulatory net capital of ~~business~~$120 million, limit the Company's leverage ratio, require maintenance of a minimum ratio of operating cash flow to ~~fund a portion of its daily operations~~fixed charges, and ~~the amount borrowed under these credit facilities varies daily based~~impose certain limitations on the Company's ~~funding needs.~~ability to make acquisitions and make payments on its capital stock.

The Company's committed short-term bank line financing at March 31, ~~2019~~2020 consisted of a ~~one-year~~ one-year $~~175~~125 million committed revolving credit facility with U.S. Bank N.A., which was renewed in December ~~2018.~~2019. 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 a minimum regulatory net capital of $120 million, and the unpaid principal amount of all advances under this facility will be due on December ~~13, 2019.~~11, 2020. The Company pays a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis. At March 31, ~~2019~~2020, the Company had no0 advances against this line of credit.

~~The Company's uncommitted secured line at~~ ~~March 31, 2019~~ ~~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 ~~March 31, 2019, the Company had~~ no ~~advances against this line of credit.~~

Note 1013Legal Contingencies

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 March 31, ~~2019~~2020 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.

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Notes to the Consolidated Financial Statements

(Unaudited)

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.

Note 11 14 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 on an undiscounted basis for the Company’s operating leases (including short-term leases) as of March 31, ~~2019 are~~2020 were as follows:



(Amounts in thousands)
Remainder of 2020	$	17,686
2021	18,723
2022	17,361
2023	14,166
2024	12,262
Thereafter	25,660
Total	$	105,858

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

For the three months ended March 31, 2020 and 2019, the Company’s operating lease cost from continuing operations was ~~$3.0~~$4.9 million and $2.8 million, respectively, of which $0.2 million related to ~~all~~ short-term ~~leases.~~leases for each respective period. The Company recorded sublease income from continuing operations of $0.4 million for the three months ended March 31, 2020 and 2019.

At March 31, 2020, the weighted-average remaining lease term for operating leases was 6.0 years and the weighted-average discount rate was 4.0%.

Note 15Restructuring and Integration Costs

The Company incurred restructuring and integration costs from continuing operations for the three months ended March 31, 2020, primarily in conjunction with its acquisition of Sandler O'Neill, which closed on January 3, 2020, and its acquisition of The Valence Group, which closed on April 3, 2020.



	Three Months Ended
(Amounts in thousands)	March 31, 2020
Severance, benefits and outplacement costs	$	878
Contract termination costs	173
Total restructuring costs	1,051

Integration costs	851

Total restructuring and integration costs	$	1,902

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Notes to the Consolidated Financial Statements

(Unaudited)

Note 1216Shareholders' Equity

Share Repurchases

Effective January 1, 2020, the Company's board of directors authorized the repurchase of up to $150.0 million in common shares through December 31, 2021. During the three months ended March 31, 2020, the Company repurchased 128,865 shares at an average price of $71.58 per share for an aggregate purchase price of $9.2 million related to this authorization. At March 31, 2020, the Company had $140.8 million remaining under this authorization.

Effective September 30, 2017, the Company's board of directors authorized the repurchase of up to $150.0 million in common shares, ~~through~~which expired on September 30, 2019. During the three months ended March 31, 2019, the Company repurchased 501 shares at an average price of $64.80 per share related to this authorization. ~~The Company has $102.8 million remaining under this authorization. No repurchases were made in conjunction with this authorization during the three months ended 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 ~~563,284~~94,615 shares and ~~187,860~~563,284 shares, or $~~39.7~~8.1 million and ~~$16.8~~$39.7 million of the Company's common stock for these purposes during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, 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.~~17. During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company issued ~~1,035,360~~254,111 shares and ~~574,594~~1,035,360 shares, respectively, related to these obligations. During the three months ended March 31, 2020, the Company also issued 34,205 common shares out of treasury stock for Sandler O'Neill deal consideration, as discussed in Note 3.

Dividends

The Company's current dividend policy includes both a quarterly and an annual special cash dividend. The annual special cash dividend is payable in the first quarter of each year, with the intention of returning a metric based on the Company's net income from the previous fiscal year.

During the three months ended March 31, ~~2019,~~2020, the Company declared and paid both a quarterly and annual special cash dividend on its common stock of $0.375 and ~~$1.01~~$0.75 per share, respectively, totaling ~~$19.9~~$16.1 million.

On ~~April 26, 2019,~~May 1, 2020, the board of directors declared a cash dividend of ~~$0.375~~$0.20 per share to be paid on June ~~14, 2019,~~12, 2020, to shareholders of record as of the close of business on May ~~24, 2019.~~29, 2020.

Noncontrolling Interests

The consolidated financial statements include the accounts of Piper ~~Jaffray~~Sandler 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~~Sandler Companies. Noncontrolling interests ~~include~~primarily represent the minority equity holders' proportionate share of the equity in the Company's merchant banking funds of $50.7 million and a senior living fund aggregating $1.7 million as of March 31, 2019. As of December 31, 2018, noncontrolling interests included the minority equity holders' proportionate share of the equity in merchant banking funds of $50.2 million and a senior living fund aggregating $2.8 million.funds.

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 no0 other comprehensive income or loss attributed to noncontrolling interests for the three months ended March 31, ~~2019~~2020 and ~~2018, respectively.~~2019.

2328

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Piper ~~Jaffray~~Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 1317Compensation Plans

Stock-Based Compensation Plans

The Company ~~maintains~~ ~~three~~has 3 outstanding stock-based compensation ~~plans,~~plans: the ~~Piper Jaffray Companies~~ Amended and Restated 2003 Annual and Long-Term Incentive Plan (the "Incentive Plan"), the ~~2016 Employment Inducement Award Plan (the "Simmons Inducement Plan") and the~~ 2019 Employment Inducement Award Plan (the ~~"Weeden & Co.~~"2019 Inducement Plan") and the 2020 Employment Inducement Award Plan (the "2020 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 March 31, ~~2019~~2020:



Incentive Plan
Restricted Stock
Annual grants	~~482,660~~478,290
Sign-on grants	~~55,885~~122,843
	~~538,545~~601,133
~~Simmons~~2019 Inducement Plan
Restricted Stock	~~254,058~~97,752

2020 Inducement Plan
Restricted Stock	1,213,694

Total restricted stock related to compensation	1,912,579

Sandler O'Neill Deal Consideration (1)	1,534,465

Total restricted stock outstanding	~~792,603~~3,447,044

Incentive Plan
Restricted Stock Units
Leadership grants	~~218,022~~146,048

Incentive Plan
Stock Options	81,667


(1)	The Company issued restricted stock with service conditions as part of deal consideration for the acquisition of Sandler O'Neill. See Note 3 for further discussion.

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 ~~(0.7~~(0.5 million shares remained available for future issuance under the Incentive Plan as of March 31, ~~2019~~2020). 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").

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

The Company's Annual Grants are made each year in February. Annual Grants vest ratably over three 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 ~~one-year~~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 ~~2018~~year 2019 for its February ~~2019~~2020 Annual ~~Grant ("2019 Annual Grant").~~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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~~Piper Jaffray Companies~~

~~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 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").

Leadership Grants Subsequent to 2016

Restricted stock units granted in 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 March 31, ~~2019,~~2020, the Company has determined that the probability of achieving the performance condition for each award is as follows:



		Probability of Achieving
Grant Year		Performance Condition
2020		75%
2019		62%
2018		50%

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

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
Grant Year	Interest Rate	Price Volatility
2020	1.40%	27.3%
2019	2.50%	31.9%
2018	2.40%	34.8%
2017	1.62%	35.9%

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

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 2018 for its February 2019 Leadership Grant.~~

2016 Leadership Grant

Restricted stock units granted in 2016 contain market condition criteria ~~and will vest~~ and convert to shares of common stock at the end of 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 award, the number of units that ~~will vest~~vested and ~~convert~~converted to shares ~~will be~~was based on the Company's stock performance achieving specified targets during the performance period. All units vested in full. Compensation expense iswas recognized over the 36-month performance ~~period.~~period which ended in May 2019.

Up to 50 percent of the award ~~can be~~was earned based on the Company's total shareholder return relative to members of a predetermined peer group and up to 50 percent of the award ~~can be~~was earned based on the Company's total shareholder return. The fair value of the 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
Grant Year	Interest Rate	Price Volatility
2016	0.98%	34.9%

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~~10 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.

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Notes to the Consolidated Financial Statements

(Unaudited)

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



~~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.

~~Table of Contents~~

~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Inducement Plans

The Company established the ~~Simmons~~2016 Employment Inducement Award Plan (the "2016 Inducement Plan") in conjunction with the acquisition of Simmons & Company International ("Simmons"). The Company granted $11.6 million (286,776 shares) in restricted stock under the ~~Simmons~~2016 Inducement Plan on May 16, 2016. ~~These~~The 2016 Inducement Plan awards were amortized as compensation expense on a straight-line basis over the vesting period. All outstanding shares cliff ~~vest~~vested on May 16, 2019. ~~Simmons~~The Company terminated the 2016 Inducement Plan in July 2019.

The Company established the 2019 Inducement Plan in conjunction with its acquisition of Weeden & Co. On August 2, 2019, the Company granted $7.3 million (97,752 shares) in restricted stock. These restricted shares are subject to graded vesting, generally beginning on the third anniversary of the grant date through August 2, 2023. The 2019 Inducement Plan awards are amortized as compensation expense on a straight-line basis over the vesting period. Employees forfeit unvested ~~Simmons~~shares upon termination of employment and a reversal of compensation expense is recorded.

The Company established the 2020 Inducement Plan in conjunction with its acquisition of Sandler O'Neill. On January 3, 2020, the Company granted $96.9 million (1,217,423 shares) in restricted stock. These restricted shares have both cliff and graded vesting terms with vesting periods of 18 months, three years or five years (with a weighted average service period of 3.7 years). The 2020 Inducement Plan awards are amortized as compensation expense on a straight-line basis over the vesting period. Employees forfeit unvested shares upon termination of employment and a reversal of compensation expense is recorded.

~~In the first quarter of 2019,~~As described in Note 22, the Company ~~established~~completed its acquisition of The Valence Group on April 3, 2020. The Company granted $5.5 million (114,000 shares) in restricted stock under the ~~Weeden & Co.~~2020 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.acquisition.

Stock-Based Compensation Activity

The following table summarizes the Company's stock-based compensation ~~expense:~~activity within continuing operations:



	Three Months Ended
	March 31,
(Amounts in millions)	2020		2019
Stock-based compensation expense	$	21.7	$	4.2
Forfeitures	0.1		0.9
Tax benefit related to stock-based compensation expense	2.4		0.4

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

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
	Restricted Stock		Grant Date
	(in Shares)		Fair Value
December 31, 2019	694,225		$	78.52
Granted	2,997,052		80.17
Vested	(235,856	)	81.98
Canceled	(8,377	)	76.97
March 31, 2020	3,447,044		$	79.72

Unvested Weighted Average
Restricted Stock Grant Date
(in Shares) Fair Value
December 31, 2018 1,569,795
$ 53.80
Granted 261,253
74.40
Vested (1,035,360 ) 48.55
Canceled (3,085 ) 81.67
March 31, 2019 792,603
$ 67.34

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



	Unvested		Weighted Average
	Restricted		Grant Date
	Stock Units		Fair Value
December 31, 2019	114,315		$	85.09
Granted	56,066		86.01
Vested	(18,255	)	84.10
Canceled	(6,078	)	84.10
March 31, 2020	146,048		$	85.60

Unvested Weighted Average
Restricted Grant Date
Stock Units Fair Value
December 31, 2018 194,251
$ 48.97
Granted 39,758
75.78
Vested —
—
Canceled (15,987 ) 45.79
March 31, 2019 218,022
$ 54.09

As of March 31, ~~2019~~2020, there was $~~4.7~~216.2 million of total unrecognized compensation cost related to restricted stock and restricted stock units expected to be recognized over a weighted average period of ~~2.1~~3.3 years.

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~~Piper Jaffray Companies~~

~~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, 2019	81,667	$	99.00	8.1	$	—
Granted	—	—
Exercised	—	—
Canceled	—	—
Expired	—	—
March 31, 2020	81,667	$	99.00	7.9	$	—

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~~2020, there was ~~$1.6~~$1.2 million of unrecognized compensation cost related to stock options expected to be recognized over a weighted average period of ~~3.9~~2.9 years. There were no0 exercisable 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 was available to certain employees subject to exceeding an investment banking revenue threshold during the three year Simmons post-acquisition period, which ended on February 26, 2019. Asas of March 31, 2019, the Company 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 were recorded as compensation expense on the consolidated statements of operations over the requisite performance period of three years. The Company recorded $0.6 million as a reduction of compensation expense and $4.3 million was recorded as compensation expense for the three months ended March 31, 2019 and 2018, respectively.2020.

Deferred Compensation Plans

The Company maintains various deferred compensation arrangements for employees.

The ~~Piper Jaffray Companies~~ Mutual Fund Restricted Share Investment Plan is a fully funded deferred compensation plan which allows eligible employees to receive a portion of their incentive compensation 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 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.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

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 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 ~~$30.6~~$13.5 million and ~~$31.2~~$16.7 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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~~$13.5 million and ~~$31.4~~$16.7 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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.

The Company entered into acquisition-related compensation arrangements with certain employees for retention and incentive purposes in conjunction with its acquisition of Simmons. Additional cash compensation was available to certain employees subject to exceeding an investment banking revenue threshold during the three-year Simmons post-acquisition period, which ended on February 26, 2019. The Company accrued $40.1 million related to this performance award plan, which was paid in August 2019. Amounts payable related to this performance award plan were recorded as compensation expense from continuing operations on the consolidated statements of operations over the requisite performance period of three years. The Company recorded $0.6 million as a reduction of compensation expense from continuing operations for the three months ended March 31, 2019.

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~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Note 1418Earnings 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~~income/(loss) applicable to Piper ~~Jaffray~~Sandler Companies' common shareholders by the weighted average number of common shares outstanding for the period. For periods prior to 2020, the Company calculated earnings per share using the two class method. Net ~~income~~income/(loss) applicable to Piper ~~Jaffray~~Sandler Companies' common shareholders ~~represents~~represented net ~~income~~income/(loss) applicable to Piper ~~Jaffray~~Sandler Companies reduced by the allocation of earnings to participating securities. No allocation of undistributed earnings iswas made for periods in which a loss iswas incurred, or for periods in which cash dividends ~~exceed~~exceeded net income resulting in an undistributed loss. Distributed earnings (e.g., dividends) ~~are~~were allocated to participating securities. Prior to the February 2019 Annual Grant (the "2019 Annual Grant"), all of the Company's ~~unvested~~ restricted shares ~~are~~were deemed to be participating securities as they ~~are~~were eligible to share in the profits (e.g., receive dividends) of the Company. The Company's ~~unvested~~ restricted stock units, as well as ~~the~~restricted stock grants issued in 2019 ~~Annual Grant,~~and subsequent periods, are not participating securities as they are not eligible to receive dividends, or the dividends are forfeitable until vested. Diluted ~~earnings~~earnings/(loss) per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive stock options, restricted stock units and non-participating restricted shares.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

The computation of earnings per share is as follows:


	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Amounts in thousands, except per share data)	2019			2018			2020			2019
Net income applicable to Piper Jaffray Companies	$	19,422		$	10,603
Earnings allocated to participating securities (1)	(1,587		)	(4,168		)
Net income applicable to Piper Jaffray Companies' common shareholders (2)	$	17,835		$	6,435
Net income/(loss) from continuing operations applicable to Piper Sandler Companies							$	(14,727	)	$	19,561
Net loss from discontinued operations							—			(139		)
Net income/(loss) applicable to Piper Sandler Companies							(14,727		)	19,422
Earnings allocated to participating securities							—			(1,587		)	(1)
Net income/(loss) applicable to Piper Sandler Companies' common shareholders							$	(14,727	)	$	17,835		(2)

Shares for basic and diluted calculations:
Average shares used in basic computation	13,204			13,096			13,796			13,204
Restricted stock units	205			286			106			205
Non-participating restricted shares	121			—			509			121
Average shares used in diluted computation (3)	13,530			13,382			14,411			13,530

Earnings per common share:
Basic	$	1.35		$	0.47
Diluted (3)	$	1.32		$	0.47
Earnings/(loss) per basic common share:
Income/(loss) from continuing operations							$	(1.07	)	$	1.36
Loss from discontinued operations							—			(0.01		)
Earnings/(loss) per basic common share							$	(1.07	)	$	1.35

Earnings/(loss) per diluted common share:
Income/(loss) from continuing operations							$	(1.07	)	$	1.33
Loss from discontinued operations							—			(0.01		)
Earnings/(loss) per diluted common share (3)							$	(1.07	)	$	1.32

(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 the Company's unvested restricted shares issued prior to the 2019 Annual Grant. The weighted average participating shares outstanding were 1,130,844 ~~and 2,089,155~~ for the three months ended March 31, ~~2019 and 2018, respectively.~~2019.

(2)

Net ~~income~~income/(loss) applicable to Piper ~~Jaffray~~Sandler 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, restricted stock units and non-participating restricted shares to dilutive shares outstanding, which alters the ratio used to allocate earnings to Piper ~~Jaffray~~Sandler 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 prior to 2020 in which cash dividends exceed net income resulting in an undistributed loss. Common shares of 533,207 ~~and 1,926,530~~ were excluded from diluted EPS atfor the three months ended March 31, 2019 ~~and 2018, respectively,~~, as the Company had an undistributed ~~losses~~loss for ~~these periods.~~this period under the two class method.

The average shares used in the diluted computation excluded anti-dilutive stock options and non-participating restricted shares of 2.8 million for the three months ended March 31, 2020. The anti-dilutive effects from stock options, restricted stock units and non-participating restricted shares were immaterial for the three months ended March 31, ~~2019~~ ~~and~~ ~~2018, respectively.~~2019.

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Piper ~~Jaffray~~Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 15~~Segment Reporting~~19Revenues and Business Information

~~Basis for Presentation~~

The ~~Company structures its segments primarily based upon the nature of the financial products~~Company's activities as an investment bank 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 toinstitutional securities firm constitute 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.single business segment. The substantial majority of the Company's net revenues and long-lived assets are located in the U.S.

Reportable ~~segment~~ financial results from continuing operations are as follows:



	Three Months Ended
	March 31,
(Amounts in thousands)	2020			2019
Investment banking
Advisory services	$	111,226		$	114,879
Corporate financing	25,176			13,516
Municipal financing	22,596			12,666
Total investment banking	158,998			141,061

Institutional brokerage
Equity brokerage	47,853			15,906
Fixed income services	41,290			19,059
Total institutional brokerage	89,143			34,965

Interest income	6,065			7,567
Investment income/(loss)	(13,826		)	1,592

Total revenues	240,380			185,185

Interest expense	4,212			2,643

Net revenues	236,168			182,542

Non-interest expenses (1)	270,197			159,405

Pre-tax income/(loss)	$	(34,029	)	$	23,137

Pre-tax margin	(14.4		)%	12.7		%


(1)	Non-interest expenses include intangible asset amortization of $9.9 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively.

Three Months Ended
March 31,
(Dollars in thousands) 2019 2018

Capital Markets
Investment banking
Advisory services $ 114,879
$ 75,329
Financing
Equities 13,527
37,642
Debt 13,082
7,686
Total investment banking 141,488
120,657

Institutional sales and trading
Equities 15,714
18,006
Fixed income 23,669
16,334
Total institutional sales and trading 39,383
34,340

Management and performance fees 1,129
1,388

Investment income 629
3,298

Long-term financing expenses (238 ) (1,787 )

Net revenues 182,391
157,896

Operating expenses (1) 158,453
148,860

Segment pre-tax operating income $ 23,938
$ 9,036

Segment pre-tax operating margin 13.1 % 5.7 %

Continued on next page

~~Table of Contents~~

~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Three Months Ended
March 31,
(Dollars in thousands) 2019 2018

Asset Management
Management and performance fees
Management fees $ 9,288
$ 11,193
Performance fees 1
8
Total management and performance fees 9,289
11,201

Investment income/(loss) 152
(35 )

Net revenues 9,441
11,166

Operating expenses (1) 10,449
12,164

Segment pre-tax operating loss $ (1,008 ) $ (998 )

Segment pre-tax operating margin (10.7 )% (8.9 )%

Total
Net revenues $ 191,832
$ 169,062

Operating expenses (1) 168,902
161,024

Pre-tax operating income $ 22,930
$ 8,038

Pre-tax operating margin 12.0 % 4.8 %

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

Three Months Ended
March 31,
(Dollars in thousands) 2019 2018
Capital Markets $ 753
$ 1,214
Asset Management 1,359
1,401
Total intangible asset amortization $ 2,112
$ 2,615

~~Reportable segment assets are as follows:~~

March 31, December 31,
(Dollars in thousands) 2019 2018
Capital Markets $ 1,105,143
$ 1,273,147
Asset Management 64,510
72,122
Total assets $ 1,169,653
$ 1,345,269

~~Table of Contents~~

~~Piper Jaffray Companies~~

~~Notes to the Consolidated Financial Statements~~

~~(Unaudited)~~

Note 1620Net Capital Requirements and Other Regulatory Matters

Piper ~~Jaffray~~Sandler 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~~Sandler's primary SRO. Piper ~~Jaffray~~Sandler is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. Piper ~~Jaffray~~Sandler 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~~Sandler are subject to certain approvals, notifications and other provisions of SEC and FINRA rules.

At March 31, ~~2019,~~2020, net capital calculated under the SEC rule was ~~$214.6~~$190.8 million, and exceeded the minimum net capital required under the SEC rule by ~~$213.6~~$189.8 million.

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Piper Sandler Companies

Notes to the Consolidated Financial Statements

(Unaudited)

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

Piper ~~Jaffray~~Sandler 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 March 31, ~~2019,~~2020, Piper ~~Jaffray~~Sandler Ltd. was in compliance with the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority.

Piper ~~Jaffray~~Sandler 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 March 31, ~~2019,~~2020, Piper ~~Jaffray~~Sandler Hong Kong Limited was in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Commission.

Note 1721Income Taxes

The Company recorded an income tax benefit from continuing operations of $11.8 million and income tax expense from continuing operations of ~~$4.1~~$4.2 million for the three months ended March 31, ~~2019.~~2020 and 2019, respectively. Income tax ~~expense was reduced by~~expense/(benefit) from continuing operations included a tax benefit of $0.2 million and $1.7 million for the three months ended March 31, 2020 and 2019, respectively, related to stock-based compensation awards vesting at values greater than the grant price.

The ~~Company recorded an income~~Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was enacted by the U.S. federal government on March 27, 2020 in response to the COVID-19 pandemic, contains tax ~~benefit~~provisions allowing a five-year carry back of ~~$2.6 million for~~any net operating losses incurred during federal tax years 2018, 2019 and 2020, to periods when the corporate federal tax rate was 35 percent. FASB Accounting Standards Codification Topic 740, "Income Taxes," requires companies to recognize the effect of tax law changes in the period of enactment. For the three months ended March 31, ~~2018. Income~~2020, the Company recorded $5.7 million of income tax ~~expense was reduced by a tax benefit of $5.0 million for the three months ended March 31, 2018,~~benefits primarily related to ~~stock-based compensation awards vesting at values greater than~~these new tax provisions in the ~~grant price.~~CARES Act.

Note 22Subsequent Event

On April 3, 2020, the Company completed its acquisition of The Valence Group, an investment bank offering mergers and acquisitions advisory services to companies and financial sponsors with a focus on the chemicals, materials and related sectors. The total consideration consisted of cash, restricted stock and a note payable agreement. A portion of the restricted stock consideration was used for retentive purposes. Additional consideration may be earned if certain revenue targets are achieved. The Valence Group's results of operations will be included in the Company's consolidated financial statements prospectively from the date of acquisition.

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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.~~Quarterly Report on Form 10-Q. Certain statements in this ~~report~~Quarterly Report on Form 10-Q 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~~conditions 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, ~~2018~~2019 and in our subsequent reports filed with the ~~SEC.~~Securities and Exchange Commission ("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, ~~2018,~~2019, 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~~www.pipersandler.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~~acquisition-related restructuring and integration costs, (5) ~~the impact of the annual special cash dividend paid~~interest expense on senior notes and (6) discontinued operations. The adjusted weighted average diluted shares outstanding used in the ~~first quarter resulting in an undistributed loss on~~calculation of non-GAAP earnings per diluted common ~~share.~~share contains an adjustment to include the common shares for unvested restricted stock awards with service conditions granted pursuant to the acquisition of SOP Holdings, LLC and its subsidiaries, including Sandler O'Neill & Partners, L.P. (collectively, "Sandler O'Neill"). These adjustments affect the following financial measures: net revenues, compensation expenses, non-compensation expenses, income tax expense/(benefit), net ~~income~~income/(loss) applicable to Piper ~~Jaffray~~Sandler Companies, ~~earnings~~earnings/(loss) per diluted common share, ~~segment net revenues, segment operating~~non-interest 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.

COVID-19 Impacts

The impacts of the novel coronavirus disease ("COVID-19") are evolving and presenting challenges across our business. At this time, it is uncertain how long our business will be negatively impacted by COVID-19 and the related economic and market downturn. The anticipated decline in revenues will impact our results of operations and cash flows. However, at this time, it is uncertain how significant and prolonged the impact will be on our business. We believe the significance of the impact will be directly correlated to the length and severity of the economic slowdown and the speed at which the equity and credit markets recover. Our ability to access the market for working capital and/or short-term and long-term financing may be impacted, perhaps significantly, during these unprecedented periods of economic distress and turmoil. Our ability to fund operations, make capital investments, maintain compliance with our debt covenants, and fund shareholder dividends or stock repurchases may also be adversely affected, depending on the level of disruption to our business. We continue to regularly monitor our capital and liquidity positions, regulatory capital requirements, debt covenants and other contractual obligations. Management is also focused on cost management initiatives and reviewing decisions related to capital projects and initiatives, such as share repurchases and dividend recommendations to our board of directors.

See the sections entitled “Outlook for the Remainder of 2020” and “Financial Performance from Continuing Operations,” as well as "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q, for additional information regarding the impacts of COVID-19 on our business.

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Executive Overview

Our ~~business~~continuing operations principally ~~consists~~consist of providing investment banking and 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~~one reportable business ~~segments: Capital Markets and Asset Management.~~segment. Refer to our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for a full description of our business, including our business strategy.

Over the last 12 months, we have continued to take important steps in the execution of our business strategy. These steps include the following:

On ~~February 25,~~January 3, 2020, we completed the acquisition of Sandler O'Neill, a full-service investment banking firm and broker dealer focused on the financial services industry. The acquisition of Sandler O'Neill is accretive to our advisory services revenues, diversifies and enhances scale in corporate financings, adds a differentiated fixed income services business, and increases scale in our equity brokerage business.

On August 2, 2019, we ~~entered into a definitive agreement to acquire~~completed the acquisition of 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, low-touch and program trading capabilities. The transaction ~~is expected~~added enhanced trade execution capabilities and scale to ~~close early~~our equity brokerage business.

On April 3, 2020, we completed the acquisition of The Valence Group, an investment bank offering mergers and acquisitions advisory services to companies and financial sponsors with a focus on the chemicals, materials and related sectors. The transaction adds a new industry sector and expands our presence in Europe.

Discontinued Operations – Discontinued operations includes the operating results of Advisory Research, Inc. ("ARI"), our traditional asset management subsidiary which we sold in the third quarter of ~~2019, subject~~2019. See Note 4 to ~~regulatory approvals and customary closing conditions.~~our unaudited consolidated financial statements for further discussion of our discontinued operations.

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Financial Highlights


	Three Months Ended						Three Months Ended
(Amounts in thousands, except per share data)	Mar. 31,		Mar. 31,		Percent		Mar. 31,			Mar. 31,		2020
(Amounts in thousands, except per share data)	2019		2018		Inc/(Dec)		2020			2019		v2019
U.S. GAAP
Net revenues	$	191,832	$	169,062	13.5	%	$	236,168		$	182,542	29.4	%
Compensation and benefits	122,636		115,170		6.5		188,124			117,127		60.6
Non-compensation expenses	46,266		45,854		0.9		82,073			42,278		94.1
Net income applicable to Piper Jaffray Companies	19,422		10,603		83.2
Earnings per diluted common share	$	1.32	$	0.47	180.9	%
Net income/(loss) applicable to Piper Sandler Companies							(14,727		)	19,422		N/M
Earnings/(loss) per diluted common share							$	(1.07	)	$	1.32	N/M

Non-GAAP⁽¹⁾
Adjusted net revenues	$	191,419	$	168,143	13.8	%	$	244,922		$	182,129	34.5	%
Adjusted compensation and benefits	120,329		104,966		14.6		158,693			114,820		38.2
Adjusted non-compensation expenses	43,011		42,167		2.0		57,216			40,382		41.7
Adjusted net income applicable to Piper Jaffray Companies	23,070		21,322		8.2
Adjusted net income applicable to Piper Sandler Companies							25,424			22,187		14.6
Adjusted earnings per diluted common share	$	1.57	$	1.38	13.8	%	$	1.48		$	1.51	(2.0	)

N/M – Not meaningful

For the three months ended March 31, ~~2019~~2020

Net revenues were up ~~13.5~~29.4 percent from the year-ago period ~~as higher advisory services revenues and improved performance~~reflecting the investments we have made in our ~~fixed income~~business through the acquisitions of Sandler O'Neill in the first quarter of 2020 and Weeden & Co. in the third quarter of 2019. In the first quarter of 2020, higher institutional brokerage, ~~business~~corporate financing and municipal financing revenues were partially offset by lower ~~equity financing revenues.~~advisory services revenues and an investment loss. Our institutional brokerage revenues were driven by robust activity in an extremely volatile market.

Compensation and benefits expenses increased ~~6.5~~60.6 percent compared with the prior-year period due to ~~higher compensation expenses~~additional headcount resulting from ~~increased revenues~~our acquisitions of Sandler O'Neill and ~~profitability, partially offset by lower~~Weeden & Co., as well as higher acquisition-related costs related to restricted consideration and retention awards associated with these acquisitions. We also recorded additional compensation ~~costs.~~expense for an earnout associated with the Weeden & Co. acquisition related to our expectations of achieving a net revenue target, as our equity brokerage business is outperforming initial projections.

Non-compensation expenses were up ~~slightly~~94.1 percent compared to the year-ago ~~period.~~period driven by the addition of Sandler O'Neill and Weeden & Co. to our platform. We also recorded higher acquisition-related non-compensation costs due to a $12.1 million fair value adjustment to the Weeden & Co. earnout related to non-employee equity owners. We recorded the full value of the projected earnout for these non-employees as they do not have service requirements.

In the first quarter of 2020, we recorded $5.7 million of income tax benefits primarily related to new tax provisions in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was enacted by the U.S. federal government on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act contains tax provisions allowing a five-year carry back of any net operating losses incurred during federal tax years 2018, 2019 and 2020, to periods when the corporate federal tax rate was 35 percent. The impact of these new tax provisions on earnings per diluted common share was $0.41 in the first quarter of 2020.

For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we recorded a tax benefit of ~~$1.7~~$0.2 million and ~~$5.0~~$1.7 million, respectively, related to restricted stock vesting at values greater than the grant price. The impact of the tax benefit ~~increased~~on earnings per diluted common share bywas $0.13 in the first quarter of ~~2019, compared with $0.39 in the first quarter of 2018.~~2019.

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


	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Amounts in thousands, except per share data)	2019			2018			2020			2019
Net revenues:
Net revenues – U.S. GAAP basis	$	191,832		$	169,062		$	236,168		$	182,542
Adjustments:
Revenue related to noncontrolling interests	(413		)	(919		)	6,536			(413		)
Interest expense on senior notes							2,218			��
Adjusted net revenues	$	191,419		$	168,143		$	244,922		$	182,129

Compensation and benefits:
Compensation and benefits – U.S. GAAP basis	$	122,636		$	115,170		$	188,124		$	117,127
Adjustments:
Compensation from acquisition-related agreements	(2,307		)	(10,204		)	(29,431		)	(2,307		)
Adjusted compensation and benefits	$	120,329		$	104,966		$	158,693		$	114,820

Non-compensation expenses:
Non-compensation expenses – U.S. GAAP basis	$	46,266		$	45,854		$	82,073		$	42,278
Adjustments:
Non-compensation expenses related to noncontrolling interests	(1,029		)	(903		)	(992		)	(1,029		)
Acquisition-related restructuring and integration costs							(1,902		)	—
Amortization of intangible assets related to acquisitions	(2,112		)	(2,615		)	(9,878		)	(753		)
Non-compensation expenses from acquisition-related agreements	(114		)	(169		)	(12,085		)	(114		)
Adjusted non-compensation expenses	$	43,011		$	42,167		$	57,216		$	40,382

Net income applicable to Piper Jaffray Companies:
Net income applicable to Piper Jaffray Companies – U.S. GAAP basis	$	19,422		$	10,603
Net income/(loss) applicable to Piper Sandler Companies:
Net income/(loss) applicable to Piper Sandler Companies – U.S. GAAP basis							$	(14,727	)	$	19,422
Adjustment to exclude net loss from discontinued operations							—			(139		)
Net income/(loss) from continuing operations							$	(14,727	)	$	19,561
Adjustments:
Compensation from acquisition-related agreements	1,941			7,673			22,343			1,941
Acquisition-related restructuring and integration costs							1,419			—
Amortization of intangible assets related to acquisitions	1,593			1,967			7,373			571
Non-compensation expenses from acquisition-related agreements	114			127			9,016			114
Impact of the Tax Cuts and Jobs Act legislation	—			952
Adjusted net income applicable to Piper Jaffray Companies	$	23,070		$	21,322
Adjusted net income applicable to Piper Sandler Companies							$	25,424		$	22,187

Earnings per diluted common share:
Earnings per diluted common share – U.S. GAAP basis	$	1.32		$	0.47
Adjustment for undistributed loss allocated to participating shares (2)	0.01			0.21
Earnings/(loss) per diluted common share:
Earnings/(loss) per diluted common share – U.S. GAAP basis							$	(1.07	)	$	1.32
Adjustment to exclude net loss from discontinued operations							—			(0.01		)
Income/(loss) from continuing operations							$	(1.07	)	$	1.33
Impact of antidilutive shares in a period of a loss							0.05			—
Adjustment for inclusion of unvested acquisition-related stock							(0.28		)	—
	1.33			0.68			$	(1.30	)	$	1.33
Adjustments:
Compensation from acquisition-related agreements	0.13			0.50			1.55			0.13
Acquisition-related restructuring and integration costs							0.10			—
Amortization of intangible assets related to acquisitions	0.11			0.13			0.51			0.04
Non-compensation expenses from acquisition-related agreements	0.01			0.01			0.62			0.01
Impact of the Tax Cuts and Jobs Act legislation	—			0.06
Adjusted earnings per diluted common share	$	1.57		$	1.38		$	1.48		$	1.51

Weighted average diluted common shares outstanding:
Weighted average diluted common shares outstanding – U.S. GAAP basis							14,411			13,530
Adjustment:
Unvested acquisition-related restricted stock with service conditions							2,748			—
Adjusted weighted average diluted common shares outstanding							17,159			13,530

~~(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.

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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.~~volatile, as we experienced in the first quarter of 2020. 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 corporate financings, and municipal financings; the relative level of volatility of the equity and fixed income ~~markets,~~markets; changes in interest rates and credit spreads (especially rapid and extreme changes),; overall market ~~liquidity,~~liquidity; the level and shape of various yield ~~curves,~~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),~~securities; and overall equity ~~valuations, and the demand for active asset management services.~~valuations.

~~Table of Contents~~

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.

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Outlook for the ~~remainder~~Remainder of ~~2019~~2020

~~We believe~~On March 11, 2020, the World Health Organization characterized the COVID-19 outbreak as a global pandemic. The COVID-19 pandemic has been an exogenous shock that upended the trajectory of the U.S economy. Global macroeconomic conditions have been significantly impacted as a result of government-mandated closure of businesses, supply chain and production disruptions, job losses, reduced consumer spending and sentiment, and a myriad of other factors. Global and U.S. financial markets have seen significant decreases in value and are experiencing volatility in asset prices, currency exchange rates and commodity prices, particularly oil prices.

Various factors, including governmental, societal and scientific efforts to slow the spread of COVID-19, will likely dictate the time frame for economic recovery and return to stability in the global and U.S. markets. The U.S. Federal Reserve took extraordinary steps in the first quarter of 2020 to provide liquidity in the financial markets, including cutting the short-term benchmark interest rate to zero and launching a new round of quantitative easing. In addition, the U.S. ~~economy will continue~~federal government passed legislation attempting to ~~grow at a moderate pace for~~mitigate some of the ~~remainder of 2019. However, geopolitical~~economic hardship caused by the COVID-19 pandemic.

Geopolitical and macroeconomic risks, such as uncertainties surrounding trade policy, negotiations regarding Brexit and other global economic ~~deceleration, present risks to this outlook. These risks~~conditions, remain in the background and ~~uncertainties may pose consequences for the global economy and inject periods of heightened volatility into the U.S. equity and debt markets.~~

~~U.S. monetary policy~~ will continue to be a critical factor impacting the economy and financial markets. The U.S. Federal Reserve is projecting no interest rate increases in 2019 as the growth of economic activity has slowed and inflation has stagnated despite tight labor conditions. Going forward, we believehave an ongoing impact to the U.S. ~~Federal Reserve will be patient~~ and ~~flexible~~global economy. The 2020 U.S. presidential election may also influence the volatility or direction of markets based on investors’ assessment of the outcome and the overall political outlook in ~~adjusting short-term interest rates, balancing economic data~~the U.S.

Several of the key drivers for robust advisory services activity, such as strong valuations, financing and ~~inflation readings.~~

~~Market conditions remain conducive to~~CEO confidence, have been negatively impacted. Activity in the market for advisory engagements, ~~especially in the U.S. middle market,~~both announced and completed deals, is down significantly on a sequential basis and expected to drop further. We expect that 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 strategic acquisitions and divestment activity. We believe our full year advisory ~~pipeline remains strong and, consistent with prior years,~~services revenues will ~~be more weighted to the second half of the year.~~significantly decline from current levels. 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. ~~Equity~~The heightened volatility in March also shut down corporate capital raising, ~~started 2019 slowly due to~~and we expect it may be more muted until the ~~extended federal government shut down~~volatility subsides and ~~steep sell-off in~~ the ~~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.stabilizes.

Our equity brokerage business experienced secular changes in 2018 as the manner in which many market participants pay for trade execution and research services began to transition at a time when the overall fee pool was shrinking. Increasingly, market participants are executing trades through low-touch execution providers and paying separately for research services. This dynamic has introduced more seasonality toIn our equity brokerage business, volatility spiked to record levels which drove significant trading volumes as ~~we typically receive an increased level of payments for research~~clients reacted to the rapidly changing market environment. We believe that volatility and volumes will remain elevated, but down from the extreme levels experienced in the second half of the ~~year. In~~first quarter of 2020. Similarly, we expect our equity brokerage revenues to remain strong, albeit down from 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~~2020. We believe that our ~~equity brokerage business.~~

Interest rates remain relatively low by historical standards and the yield curve has flattened. We expect these conditions to persist and will likely slow customer flow activity for our fixed income institutional brokerage business. In our public finance business, municipal issuance levels started 2019 slower than anticipated, however, we expect volumes to improve to more normalized levels as the year progresses, which should benefit this business.

~~Asset management~~ revenues will continue to ~~be affected by valuations, investment performance~~follow trading volumes and ~~broad~~the uncertainty of the current market ~~trends.~~conditions could lead to further spikes in volatility and volumes in future periods.

The fixed income markets also experienced extreme volatility in March which created liquidity and pricing dislocations in a number of asset classes, particularly municipal securities. This resulted in robust activity across products as clients repositioned in a rapidly changing environment. We ~~also expect~~believe that ~~active asset managers, ourselves included,~~activity will remain ~~under pressure to create alpha for their clients~~elevated, but likely not at the levels experienced in the first quarter of 2020. Our public finance underwriting business was also impacted by the volatility in March, as new issuance and ~~to maintain or grow AUM.~~refinancing activity decreased significantly. Volatility, rate stability and client demand will also impact the level of municipal finance activity going forward.

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Results of Operations

Financial Summary for the three months ended March 31, 2020 and March 31, 2019 ~~and~~ ~~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
	March 31,								March 31,				March 31,								March 31,
							2019												2020
(Dollars in thousands)	2019			2018			v2018		2019		2018
(Amounts in thousands)													2020			2019			v2019		2020		2019
Revenues:
Investment banking	$	141,061		$	120,841		16.7	%	73.5	%	71.5	%	$	158,998		$	141,061		12.7	%	67.3	%	77.3	%
Institutional brokerage	34,954			27,645			26.4		18.2		16.4		89,143			34,965			154.9		37.7		19.2
Asset management	10,418			12,589			(17.2	)	5.4		7.4
Interest	7,567			10,413			(27.3	)	3.9		6.2
Investment income	475			2,912			(83.7	)	0.2		1.7
Interest income													6,065			7,567			(19.8	)	2.6		4.1
Investment income/(loss)													(13,826		)	1,592			N/M		(5.9	)	0.9
Total revenues	194,475			174,400			11.5		101.4		103.2		240,380			185,185			29.8		101.8		101.4

Interest expense	2,643			5,338			(50.5	)	1.4		3.2		4,212			2,643			59.4		1.8		1.4

Net revenues	191,832			169,062			13.5		100.0		100.0		236,168			182,542			29.4		100.0		100.0

Non-interest expenses:
Compensation and benefits	122,636			115,170			6.5		63.9		68.1		188,124			117,127			60.6		79.7		64.2
Outside services	9,142			8,939			2.3		4.8		5.3		8,439			8,571			(1.5	)	3.6		4.7
Occupancy and equipment	8,750			8,578			2.0		4.6		5.1		12,238			8,349			46.6		5.2		4.6
Communications	8,630			8,626			—		4.5		5.1		11,634			7,865			47.9		4.9		4.3
Marketing and business development	7,395			7,299			1.3		3.9		4.3		10,039			6,738			49.0		4.3		3.7
Deal-related expenses	4,728			5,051			(6.4	)	2.5		3.0		4,940			4,728			4.5		2.1		2.6
Trade execution and clearance	1,806			2,163			(16.5	)	0.9		1.3		7,151			1,806			296.0		3.0		1.0
Restructuring and integration costs													1,902			—			N/M		0.8		—
Intangible asset amortization	2,112			2,615			(19.2	)	1.1		1.5		9,878			753			N/M		4.2		0.4
Other operating expenses	3,703			2,583			43.4		1.9		1.5		15,852			3,468			357.1		6.7		1.9
Total non-interest expenses	168,902			161,024			4.9		88.0		95.2		270,197			159,405			69.5		114.4		87.3

Income before income tax expense/(benefit)	22,930			8,038			185.3		12.0		4.8
Income/(loss) from continuing operations before income tax expense/(benefit)													(34,029		)	23,137			N/M		(14.4	)	12.7

Income tax expense/(benefit)	4,124			(2,581		)	N/M		2.1		(1.5	)	(11,774		)	4,192			N/M		(5.0	)	2.3

Net income	18,806			10,619			77.1		9.8		6.3
Income/(loss) from continuing operations													(22,255		)	18,945			N/M		(9.4	)	10.4

Net income/(loss) applicable to noncontrolling interests	(616		)	16			N/M		(0.3	)	—
Discontinued operations:
Loss from discontinued operations, net of tax													—			(139		)	N/M		—		(0.1	)
Net income/(loss)													(22,255		)	18,806			N/M		(9.4	)	10.3

Net income applicable to Piper Jaffray Companies	$	19,422		$	10,603		83.2	%	10.1	%	6.3	%
Net loss applicable to noncontrolling interests													(7,528		)	(616		)	N/M		(3.2	)	(0.3	)

Net income/(loss) applicable to Piper Sandler Companies													$	(14,727	)	$	19,422		N/M		(6.2	)%	10.6	%

N/M – Not meaningful

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For the three months ended March 31, ~~2019~~2020, we recorded a net ~~income~~loss from continuing operations applicable to Piper ~~Jaffray~~Sandler Companies of ~~$19.4~~$14.7 million. Net revenues from continuing operations for the three months ended March 31, ~~2019~~2020 were ~~$191.8~~$236.2 million, a ~~13.5~~29.4 percent increase compared to ~~$169.1~~$182.5 million in the year-ago ~~period.~~ period, reflecting the impact of our acquisitions of Sandler O'Neill and Weeden & Co. In the first quarter of~~2019~~2020, investment banking revenues were ~~$141.1~~$159.0 million, up ~~16.7~~12.7 percent compared with ~~$120.8~~$141.1 million in the prior-year period, asdue to higher ~~advisory services~~corporate and ~~debt financing revenues were partially offset by lower equity~~municipal financing revenues. For the three months ended March 31, ~~2019,~~2020, institutional brokerage revenues increased ~~26.4~~154.9 percent to ~~$35.0~~$89.1 million, compared with ~~$27.6~~$35.0 million in the first quarter of ~~2018, as higher fixed income institutional brokerage revenues were partially offset by lower equity institutional brokerage revenues. In~~2019, due to the ~~first quarter~~acquisitions of ~~2019, asset management fees of $10.4~~

~~Table of Contents~~

~~million were down 17.2 percent compared with $12.6 million~~Weeden & Co. and Sandler O'Neill and high volatility in the first quarter of 2018 due to lower management fees from our master limited partnership ("MLP") and equity product offerings as we experienced client assets under management ("AUM") outflows and market depreciation during 2018.financial markets driving higher trading volumes. For the three months ended March 31, ~~2019,~~2020, net interest income was ~~$4.9~~$1.9 million, down ~~slightly from $5.1~~compared to $4.9 million in the prior-year period. ~~We recorded investment income of $0.5 million in~~The decrease was due to additional interest expense on our fixed rate senior notes which we issued on October 15, 2019. In the first quarter of ~~2019,~~2020, we recorded an investment loss of $13.8 million, compared with ~~$2.9~~income of $1.6 million in the prior-year period. In the current quarter, we recorded unrealized losses on our investment and the noncontrolling interests in the merchant banking funds that we manage, and also on our other firm investments. Non-interest expenses from continuing operations were ~~$168.9~~$270.2 million for the three months ended March 31, ~~2019,~~2020, up ~~4.9 percent~~ compared to ~~$161.0~~$159.4 million in the prior-year period, ~~due primarily to~~driven by higher compensation and non-compensation expenses resulting from ~~increased revenues~~the acquisitions of Sandler O'Neill and ~~improved profitability.~~Weeden & Co.

Consolidated Non-Interest Expenses from Continuing Operations

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 and restricted cash 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 March 31, ~~2019~~2020, compensation and benefits expenses increased 60.6 percent to ~~$122.6~~$188.1 million, compared with ~~$115.2~~$117.1 million in the corresponding period of ~~2018, due~~2019. The increase in compensation and benefits expenses was driven by incremental headcount from the acquisitions of Sandler O'Neill in the first quarter of 2020 and Weeden & Co. in the third quarter of 2019, along with higher acquisition-related compensation related to ~~higher~~restricted consideration and retention awards associated with these acquisitions. We also recorded additional compensation expense for an earnout associated with the acquisition of Weeden & Co. related to our expectations of achieving a net ~~revenues and increased profitability.~~revenue target, as our equity brokerage business is outperforming initial projections. Compensation and benefits expenses as a percentage of net revenues was ~~63.9~~79.7 percent in the first quarter of ~~2019,~~2020, compared with ~~68.1~~64.2 percent in the first quarter of ~~2018.~~2019. The ~~lower~~ compensation ratio ~~reflects decreased~~was impacted by increased acquisition-related compensation ~~driven by a decline in compensation expenses~~ related to ~~a Simmons~~the acquisitions of Sandler O'Neill and Weeden & 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 2019.Co.

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 2.3 percent to $9.1~~were $8.4 million in the first quarter of ~~2019,~~2020, down slightly compared with ~~$8.9 million in~~ the corresponding period of ~~2018. Excluding the portion of expenses from non-controlled equity interests in our consolidated alternative asset management funds, outside services expenses were flat.~~2019.

Occupancy and Equipment – For the three months ended March 31, ~~2019,~~2020, occupancy and equipment expenses increased ~~slightly~~ to ~~$8.8~~$12.2 million, compared with ~~$8.6~~$8.3 million for the three months ended March 31, ~~2018.~~2019. The increase was primarily the result of incremental occupancy expenses related to the acquisitions of Sandler O'Neill and Weeden & Co.

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 March 31, ~~2019,~~2020, communication expenses ~~were flat at $8.6~~increased 47.9 percent to $11.6 million, compared with $7.9 million for the three months ended March 31, ~~2018.~~2019 due to increased market data services expenses resulting from incremental headcount related to the acquisitions of Sandler O'Neill and Weeden & Co.

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 March 31, ~~2019,~~2020, marketing and business development expenses ~~were $7.4~~increased 49.0 percent to $10.0 million, ~~essentially flat~~ compared towith $6.7 million in the corresponding period of ~~2018.~~2019. The increase was driven by higher travel costs stemming from our increased headcount related to Sandler O'Neill and Weeden & Co.

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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. For the three months ended March 31, ~~2019,~~2020, deal-related expenses were ~~$4.7~~$4.9 million, compared with ~~$5.1~~$4.7 million ~~for the three months ended March 31, 2018. The decrease in deal-related expenses corresponds with a decline in equity financing activity~~ for the three months ended March 31, 2019. The amount of deal-related expenses ~~will~~is principally be dependent on the level of deal activity and may vary from period to period as the recognition of deal-related costs typically coincides with the closing of a transaction.

Trade Execution and Clearance – For the three months ended March 31, ~~2019,~~2020, trade execution and clearance expenses were ~~$1.8~~$7.2 million, compared with ~~$2.2~~$1.8 million in the corresponding period of ~~2018.~~2019. The ~~decline~~increase in trade execution and clearance expenses was reflective of ~~reduced~~higher trading volumes ~~compared with~~driven by the ~~first~~addition of Weeden & Co. onto our platform and record levels of trading volatility during the quarter resulting from the economic impacts of the COVID-19 pandemic.

Restructuring and Integration Costs – For the three months ended March 31, 2020, we incurred acquisition-related restructuring and integration costs of $1.9 million related to the acquisitions of Sandler O'Neill and The Valence Group. The expenses consisted of $0.8 million of transaction costs, $0.9 million of severance benefits and $0.2 million of contract termination costs. We expect to incur additional restructuring and integration costs in the second quarter of ~~2018.~~2020.

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Intangible Asset Amortization – Intangible asset amortization includes the amortization of definite-lived intangible assets consisting of customer relationships, internally developed software and the trade name that we acquired from Simmons ~~trade name.~~& Company International. For the three months ended March 31, ~~2019,~~2020, intangible asset amortization was ~~$2.1~~$9.9 million, compared with ~~$2.6~~$0.8 million infor the ~~corresponding period~~three months ended March 31, 2019. The increase was due to incremental intangible amortization expense related to identifiable intangible assets associated with the acquisitions of ~~2018.~~Sandler O'Neill and Weeden & Co.

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. Additionally, in the first quarter of 2020, we recorded a $12.1 million fair value adjustment related to the earnout for former Weeden & Co. equity owners who did not transition to our platform. We are required to record the full value of the projected earnout as the non-employee equity owners do not have service requirements. Other operating expenses ~~increased to $3.7~~were $15.9 million in the first quarter of ~~2019,~~2020, compared with ~~$2.6~~$3.5 million in the ~~first quarter~~corresponding period in 2019.

Income Taxes– For the three months ended March 31, 2020, our provision for income taxes was a benefit of ~~2018. The increase was primarily due to higher expense~~$11.8 million, which included $5.7 million of income tax benefits related to new tax provisions in the CARES Act. The CARES Act contained tax provisions allowing a five-year carry back of any net operating losses incurred during federal tax years 2018, 2019 and 2020, to periods when the corporate federal tax rate was 35 percent. Excluding the impact of these provisions and noncontrolling interests, our ~~charitable giving program driven by our increased profitability.~~effective tax rate was 22.9 percent.

~~Income Taxes~~–For the three months ended March 31, 2019, our provision for income taxes was ~~$4.1 million, which included~~$4.2 million. In the first quarter of 2019, we recorded a $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 and noncontrolling interests, our effective tax rate was ~~25.4~~24.8 percent.

For the three months ended March 31, 2018, our benefit from income taxes was $2.6 million. In the first quarter of 2018, we recorded a $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 these two items, our effective tax rate was 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~~Financial Performance from Continuing Operations

~~We measure financial performance by~~Our activities as an investment bank and institutional securities firm constitute a single 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/(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 results and measures on an adjusted, ~~segment pre-tax operating income and adjusted segment pre-tax operating margin, each a~~ non-GAAP ~~measure,~~basis in conjunction with the corresponding 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~~The adjusted ~~segment pre-tax operating margin~~financial results 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.~~agreements, (4) acquisition-related restructuring and integration costs and (5) interest expense on senior notes. 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~~non-GAAP financial results and adjustments necessary to reconcile to our consolidated U.S. GAAP ~~pre-tax operating income and pre-tax operating margin~~financial results for the periods presented:

Three Months Ended March 31,
2019 2018
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 $ 114,879
$ —
$ —
$ 114,879
$ 75,329
$ —
$ —
$ 75,329
Financing
Equities 13,527
—
—
13,527
37,642
—
—
37,642
Debt 13,082
—
—
13,082
7,686
—
—
7,686
Total investment banking 141,488
—
—
141,488
120,657
—
—
120,657

Institutional sales and trading
Equities 15,714
—
—
15,714
18,006
—
—
18,006
Fixed income 23,669
—
—
23,669
16,334
—
—
16,334
Total institutional sales and trading 39,383
—
—
39,383
34,340
—
—
34,340

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

Investment income 216
413
—
629
2,379
919
—
3,298

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

Net revenues 181,978
413
—
182,391
156,977
919
—
157,896

Operating expenses 154,250
1,029
3,174
158,453
136,370
903
11,587
148,860

Segment pre-tax operating income $ 27,728
$ (616 ) $ (3,174 ) $ 23,938
$ 20,607
$ 16
$ (11,587 ) $ 9,036

Segment pre-tax operating margin 15.2 % 13.1 % 13.1 % 5.7 %



	Three Months Ended March 31,
	2020												2019
				Adjustments (1)												Adjustments (1)
	Total			Noncontrolling			Other			U.S.			Total			Noncontrolling			Other			U.S.
(Amounts in thousands)	Adjusted			Interests			Adjustments			GAAP			Adjusted			Interests			Adjustments			GAAP
Investment banking
Advisory services	$	111,226		$	—		$	—		$	111,226		$	114,879		$	—		$	—		$	114,879
Corporate financing	25,176			—			—			25,176			13,516			—			—			13,516
Municipal financing	22,596			—			—			22,596			12,666			—			—			12,666
Total investment banking	158,998			—			—			158,998			141,061			—			—			141,061

Institutional brokerage
Equity brokerage	47,853			—			—			47,853			15,906			—			—			15,906
Fixed income services	41,290			—			—			41,290			19,059			—			—			19,059
Total institutional brokerage	89,143			—			—			89,143			34,965			—			—			34,965

Interest income	6,065			—			—			6,065			7,567			—			—			7,567
Investment income/(loss)	(7,290		)	(6,536		)	—			(13,826		)	1,179			413			—			1,592

Total revenues	246,916			(6,536		)	—			240,380			184,772			413			—			185,185

Interest expense	1,994			—			2,218			4,212			2,643			—			—			2,643

Net revenues	244,922			(6,536		)	(2,218		)	236,168			182,129			413			—			182,542

Non-interest expenses	215,909			992			53,296			270,197			155,202			1,029			3,174			159,405

Pre-tax income/(loss)	$	29,013		$	(7,528	)	$	(55,514	)	$	(34,029	)	$	26,927		$	(616	)	$	(3,174	)	$	23,137

Pre-tax margin	11.8		%							(14.4		)%	14.8		%							12.7		%


(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~~financial results to the adjusted ~~segment pre-tax operating income and adjusted segment pre-tax operating margin:~~financial results:

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

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 March 31,
(Dollars in thousands) 2019 2018
Compensation from acquisition-related agreements $ 2,307
$ 10,204
Amortization of intangible assets related to acquisitions 753
1,214
Non-compensation expenses from acquisition-related agreements 114
169
$ 3,174
$ 11,587

~~Capital Markets net revenues~~Interest expense on ~~a U.S. GAAP basis were $182.4~~our senior notes of $2.2 million for the three months ended March 31, ~~2019,~~2020, along with the items in the following table, are not included in our adjusted financial results:



	Three Months Ended March 31,
(Amounts in thousands)	2020		2019
Compensation from acquisition-related agreements	$	29,431	$	2,307
Acquisition-related restructuring and integration costs	1,902		—
Amortization of intangible assets related to acquisitions	9,878		753
Non-compensation expenses from acquisition-related agreements	12,085		114
	$	53,296	$	3,174

Net revenues on a U.S. GAAP basis were $236.2 million for the three months ended March 31, 2020, compared with ~~$157.9~~$182.5 million in the prior-year period. For the three months ended March 31, ~~2019,~~2020, adjusted net revenues were ~~$182.0~~$244.9 million, compared with ~~$157.0~~$182.1 million in the first quarter of ~~2018.~~2019. The variance explanations for net revenues and adjusted net revenues are consistent on both a U.S. GAAP and non-GAAP ~~basis.~~basis unless stated otherwise.

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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 corporate financing ~~activities. To assess the profitability~~activities and municipal financings.

Table of ~~investment banking, we aggregate investment banking fees with the net interest income or expense associated with these activities.~~Contents

In the first quarter of ~~2019,~~2020, investment banking revenues increased ~~17.3~~12.7 percent to ~~$141.5~~$159.0 million, compared with ~~$120.7~~$141.1 million in the corresponding period of the prior year. For the three months ended March 31, ~~2019,~~2020, advisory services revenues were ~~$114.9~~$111.2 million, ~~up 52.5~~down 3.2 percent compared to ~~$75.3~~$114.9 million in the first quarter of ~~2018.~~2019. Although the number of completed transactions increased year-over-year, revenues in the prior-year period were driven by the closing of two larger deals. Increased volatility and uncertainty associated with COVID-19 influenced activity market-wide to end the first quarter of 2020. We expect activity will be subdued in the second quarter as companies evaluate the changing and uncertain environment. We completed 57 transactions with an aggregate enterprise value of $7.6 billion in the first quarter of 2020, compared with 35 transactions with an aggregate enterprise value of $11.9 billion in the first quarter of 2019, compared with 36 transactions with an aggregate enterprise value of $5.2 billion in the first quarter of 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.2019. The uneven distribution of the number and size of deals results in revenue fluctuations from quarter to quarter. For the three months ended March 31, ~~2019, equity~~2020, corporate financing revenues were ~~$13.5~~$25.2 million, ~~down 64.1~~up 86.3 percent compared with ~~$37.6~~$13.5 million infor the ~~first quarter~~three months ended March 31, 2019, due to more book run equity deals, and the addition of ~~2018, driven by fewer completed transactions~~Sandler O'Neill to our platform, which ~~was exacerbated by fewer bookrun deals. We completed 7 bookrun deals in the first quarter of 2019 compared with 17 bookrun deals~~book ran debt offerings for financial services companies. Additionally, activity in the year-ago ~~period. Equity financing activity started slow in 2019 as~~period was impacted by the federal government ~~shut down extended into late January 2019~~shut-down at the start of 2019. As volatility spiked in March, capital raising activity substantially halted. We anticipate that equity financing activity will be lower until volatility subsides and ~~market participants were hesitant after the market volatility in the fourth quarter of 2018.~~markets stabilize. During the first quarter of ~~2019,~~2020, we completed ~~12 equity~~20 corporate financings ~~raising $5.2 billion for our clients,~~(of which 14 were book run deals), compared with ~~25 equity~~12 corporate financings ~~raising $4.5 billion for our clients~~(of which 7 were book run deals) in the comparable year-ago period. ~~Debt~~Municipal financing revenues for the three months ended March 31, ~~2019~~2020 were ~~$13.1~~$22.6 million, up ~~70.2~~78.4 percent compared ~~with $7.7~~to $12.7 million in the ~~historical slow year-ago period, which was impacted~~prior-year period. Our results were driven by ~~federal tax reform. Municipal~~robust new issuance ~~volumes were up on a year-over-year basis, but remain low on a historical basis.~~and refinancing activity in the first two months of 2020 as interest rates remained low. The level of activity rapidly declined in March due to significant volatility in the fixed income markets. During the first quarter of ~~2019,~~2020, we completed 77146 negotiated municipal issues with a total par value of $3.6 billion, compared with 84 negotiated municipal issues with a total par value of $1.7 billion ~~compared with 59 negotiated municipal issues with a total par value of $1.6 billion~~ during the prior-year period.

Institutional ~~sales and trading~~brokerage 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.bonds. 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 March 31, ~~2019,~~2020, institutional brokerage revenues were ~~$39.4~~$89.1 million, ~~an increase of 14.7 percent~~ compared with ~~$34.3~~$35.0 million in the prior-year ~~period, as higher fixed income institutional~~period. Equity brokerage revenues were ~~partially offset by lower equity institutional brokerage revenues. Equity institutional brokerage revenues were $15.7~~$47.9 million in the first quarter of ~~2019, down 12.7 percent~~2020, up significantly compared with ~~$18.0~~$15.9 million in the corresponding period of ~~2018. Although equity~~2019. The increased volatility market-wide drove a significant increase in volumes as investors repositioned in response to market ~~indices were up~~uncertainty and fund outflows. Our results in the first quarter of ~~2019, volatility~~2020 reflect our expanded client base with the acquisitions of Sandler O'Neill 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 activity.~~Weeden & Co., execution expertise and product capabilities. For the three months ended March 31, ~~2019,~~2020, fixed income ~~institutional brokerage~~services revenues were ~~$23.7~~$41.3 million, up ~~44.9~~116.6 percent compared with ~~$16.3~~$19.1 million in the prior-year ~~period, due to increased client activity at the start of the year and improved overall trading performance. Also, market conditions~~period. Revenues 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~~2020 were driven by the addition of Sandler O'Neill to our platform and robust client activity across products as clients repositioned in a rapidly changing market. The financial services team acquired with Sandler O'Neill contributed strong revenues as they leveraged their expertise with banks to provide strategic advice around balance sheet management in this time of market volatility. Additionally, the historically volatile quarter and higher volumes in municipals drove activity as we provided liquidity to municipal ~~bonds were~~bond funds which saw significant outflows by identifying buyers who took advantage of meaningfully higher yields. The strong client activity was partially offset by trading losses in municipal securities due to the ~~worst in nearly a decade.~~sharp and sudden market dislocation.

~~Management~~Interest income represents amounts earned from economically hedging and ~~performance fees include the fees generated from our merchant banking, energy and senior living funds with outside investors.~~holding long inventory positions. For the three months ended March 31, ~~2019, management and performance fees were $1.1~~2020, interest income decreased to $6.1 million, compared with ~~$1.4~~$7.6 million infor the ~~prior-year period.~~three months ended March 31, 2019.

Investment ~~income~~income/(loss) includes realized and unrealized gains and losses on investments, including amounts attributable to noncontrolling interests, in our merchant banking and energy funds, as well as management and ~~senior living~~performance fees generated from those funds. For the three months ended March 31, ~~2019,~~2020, we recorded an investment ~~income was $0.6~~loss of $13.8 million, compared with ~~$3.3~~investment income of $1.6 million in the corresponding period of ~~2018. We~~2019. In the first quarter of 2020, we recorded ~~lower gains~~unrealized losses on our ~~investments~~investment and the noncontrolling interests in the ~~current period.~~merchant banking funds that we manage, and also on our other firm investments. Lower equity valuations and an uncertain and challenging operating environment for some of our portfolio companies drove the fair value adjustments in our merchant banking portfolio. We also recorded unrealized losses on investments held in our non-qualified deferred compensation plan. This is a legacy plan that is no longer active and the fair value adjustments are offset against a deferred compensation liability with no impact to net income. Excluding the impact of noncontrolling interests, adjusted investment loss was $7.3 million for the three months ended March 31, 2020, compared with adjusted investment income of $1.2 million for the three months ended March 31, 2019.

~~Long-term~~

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Interest expense represents amounts associated with financing, ~~expenses primarily represent~~economically hedging and holding short inventory positions, including interest paid on our senior notes along with commitment fees on our ~~lines~~line of ~~credit. We repaid our $125~~credit and revolving credit facility. For the three months ended March 31, 2020, interest expense was $4.2 million, compared with $2.6 million in the prior-year period. On October 15, 2019, we issued $175 million of fixed rate senior notes, ~~upon maturity~~resulting in additional interest expense. Excluding the impact of interest expense on ~~October 9, 2018, and, as a result, we no longer have long-term financing expenses related to these notes.~~our senior notes, adjusted interest expense was $2.0 million for the three months ended March 31, 2020.

~~Capital Markets segment pre-tax operating~~Pre-tax margin for the three months ended March 31, ~~2019~~2020 was ~~13.1~~a negative 14.4 percent, compared with ~~5.7~~12.7 percent for the corresponding period of ~~2018.~~2019. The ~~increase in segment~~negative pre-tax ~~operating~~ margin ~~was driven by~~for the first quarter of 2020 primarily resulted from higher ~~revenues~~

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acquisition-related compensation and ~~lower acquisition-related compensation.~~non-compensation expenses, and intangible asset amortization. Adjusted ~~segment~~ pre-tax ~~operating~~ margin for the three months ended March 31, ~~2019~~2020 was ~~15.2~~11.8 percent, down compared with ~~13.1~~14.8 percent for the corresponding period of ~~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/(loss) and pre-tax operating margin for the periods presented:

Three Months Ended March 31,
2019 2018
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 $ 5,506
$ —
$ —
$ 5,506
$ 6,304
$ —
$ —
$ 6,304
Equity 3,782
—
—
3,782
4,889
—
—
4,889
Total management fees 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 9,289
—
—
9,289
11,201
—
—
11,201

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

Total net revenues 9,441
—
—
9,441
11,166
—
—
11,166

Operating expenses 9,090
—
1,359
10,449
10,763
—
1,401
12,164

Segment pre-tax operating income/(loss) $ 351
$ —
$ (1,359 ) $ (1,008 ) $ 403
$ —
$ (1,401 ) $ (998 )

Segment pre-tax operating margin 3.7 % (10.7 )% 3.6 % (8.9 )%


~~(1)~~	~~Other Adjustments – Consists of amortization of acquisition-related intangible assets of $1.4 million for the three months ended March 31,~~ 2019 ~~and 2018, 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 AUM measured monthly or quarterly, and an increase or reduction in AUM, due to ~~market price fluctuations or net client~~a higher compensation ratio driven by changes in our business mix resulting from the unrealized losses in our merchant banking portfolio and trading losses in fixed income services.

Discontinued Operations

Discontinued operations includes our traditional 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~~subsidiary, ARI, 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 recognizedwe sold in the ~~fourth~~third 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 ~~March 31, 2019, approximately five percent of our AUM was eligible to earn performance fees.~~

2019. For the three months ended March 31, 2019, ~~management fees were $9.3 million,~~we recorded a ~~decrease~~loss from discontinued operations, net of ~~17.0 percent, compared with $11.2 million in the prior-year period. Management fees declined~~tax, of $0.1 million. See Note 4 to our unaudited consolidated financial statements for ~~both~~further discussion of our ~~MLP and equity product offerings primarily due to lower average AUM, driven by net client outflows. Additionally, we experienced significant market depreciation at the end of 2018.~~discontinued operations.

Investment income/(loss) includes gains and losses from our investments in registered funds and private funds or partnerships that we manage. We recorded investment income of $0.2 million for the three months ended March 31, 2019.

~~The negative segment pre-tax operating margin for the three months ended March 31, 2019 and 2018, respectively, was due to a pre-tax operating loss resulting from intangible amortization expense.~~

~~Table of Contents~~

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

Twelve
Three Months Ended Months Ended
March 31, March 31,
(Dollars in millions) 2019 2018 2019
MLP
Beginning of period $ 3,054
$ 3,790
$ 3,399
Net inflows/(outflows) (147 ) 6
(347 )
Net market appreciation/(depreciation) 535
(397 ) 390
End of period $ 3,442
$ 3,399
$ 3,442

Equity
Beginning of period $ 2,701
$ 3,556
$ 3,478
Net outflows (135 ) (47 ) (608 )
Net market appreciation/(depreciation) 303
(31 ) (1 )
End of period $ 2,869
$ 3,478
$ 2,869

Total
Beginning of period $ 5,755
$ 7,346
$ 6,877
Net outflows (282 ) (41 ) (955 )
Net market appreciation/(depreciation) 838
(428 ) 389
End of period $ 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, ~~2018~~2019 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.

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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.

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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.

~~As part~~We continue to adapt and respond to the changing market conditions. Our capital and liquidity positions remain strong, our leverage is low, and our risk posture remains conservative. We remain prudent in allocating capital and maintaining inventory levels.

We drew on our revolving credit facility to finance the upfront cash consideration of our 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,The Valence Group, which ~~ended~~closed on February 26, 2019. As of 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.April 3, 2020.

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 an annual and quarterly basis, and is free to change our dividend policy at any time.

The quarterly cash dividend of $0.20 per share declared by our board of directors on May 1, 2020 is lower compared to our previous quarterly dividends as we prudently manage capital and maintain balance sheet flexibility during this time of uncertainty.

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

Declaration Date Dividend Per Share
Record Date Payment Date
February 1, 2018 (1) $ 1.6200
February 26, 2018 March 15, 2018
February 1, 2018 $ 0.3750
February 26, 2018 March 15, 2018
April 27, 2018 $ 0.3750
May 25, 2018 June 15, 2018
July 27, 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



Declaration Date	Dividend Per Share		Record Date	Payment Date
February 1, 2019 (1)	$	1.010	February 25, 2019	March 15, 2019
February 1, 2019	$	0.375	February 25, 2019	March 15, 2019
April 26, 2019	$	0.375	May 24, 2019	June 14, 2019
July 26, 2019	$	0.375	August 23, 2019	September 13, 2019
October 30, 2019	$	0.375	November 22, 2019	December 13, 2019
January 31, 2020 (2)	$	0.750	March 2, 2020	March 13, 2020
January 31, 2020	$	0.375	March 2, 2020	March 13, 2020
May 1, 2020	$	0.200	May 29, 2020	June 12, 2020


(1)	Represents the annual special cash dividend based on our fiscal year ~~2017~~2018 results.


(2)	Represents the annual special cash dividend based on our fiscal year ~~2018~~2019 results.

Effective ~~September 30, 2017,~~January 1, 2020, our board of directors authorized the repurchase of up to $150.0 million in common shares through ~~September 30, 2019.~~December 31, 2021. During the three months ended March 31, ~~2019,~~2020, we repurchased ~~501~~128,865 shares of our common stock at an average price of ~~$64.80~~$71.58 per share for an aggregate purchase price of $9.2 million related to this authorization. ~~We have $102.8~~At March 31, 2020, we had $140.8 million remaining under this authorization.

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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 quarter of ~~2019~~2020, we purchased ~~563,284~~94,615 shares or $~~39.7~~8.1 million of our common stock for these purposes.

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Leverage

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


	March 31,			December 31,			March 31,			December 31,
(Dollars in thousands)	2019			2018			2020			2019
Total assets	$	1,169,653		$	1,345,269		$	1,517,880		$	1,628,719
Deduct: Goodwill and intangible assets	(92,117		)	(94,229		)	(346,216		)	(104,335		)
Deduct: Right-of-use lease asset	(41,935		)	—			(74,847		)	(40,030		)
Deduct: Assets from noncontrolling interests	(53,451		)	(53,558		)	(67,310		)	(76,516		)
Adjusted assets	$	982,150		$	1,197,482		$	1,029,507		$	1,407,838

Total shareholders' equity	$	713,671		$	730,416		$	796,075		$	806,528
Deduct: Goodwill and intangible assets	(92,117		)	(94,229		)	(346,216		)	(104,335		)
Deduct: Noncontrolling interests	(52,351		)	(52,972		)	(66,516		)	(75,245		)
Tangible common shareholders' equity	$	569,203		$	583,215		$	383,343		$	626,948

Leverage ratio (1)	1.6			1.8			1.9			2.0

Adjusted leverage ratio (2)	1.7			2.1			2.7			2.2


(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~~that 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~~Sandler 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 increased from December 31, 2019 primarily due to the goodwill and intangible assets related to our acquisition of Sandler O'Neill.

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.

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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, a prime broker ~~agreements,~~agreement, and a bank ~~lines~~line 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.~~Offered Rate ("LIBOR").

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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~~Sandler & Co., our U.S. broker dealer subsidiary, to maintain excess net capital of $120 million. At March 31, ~~2019,~~2020, we had ~~$169.5~~$205.9 million of financing outstanding under this arrangement.

Commercial Paper Program – Piper ~~Jaffray~~Sandler & 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~~the CP Series II A program, and is secured by different inventory classes, which is reflected in the interest rate ~~paid on the respective program.~~paid. The ~~programs~~program can issue commercial paper with maturities of 27 to 270 days. CP Series II A includes a covenant that requires Piper ~~Jaffray~~Sandler & Co. to maintain excess net capital of $100 million. We retired the CP Series A program on January 2, 2020.

The following table provides information about our ~~commercial paper programs~~CP Series II A program at March 31, ~~2019~~2020:


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

Weighted average maturity, in days	—		9		6
Weighted average maturity at issuance, in days	—		29		32

Prime Broker ~~Arrangements~~Arrangement – We have established an overnight financing arrangement with 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 March 31, ~~2019,~~2020, we had ~~$101.8~~$91.7 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~~Line – Our committed line is a one-year ~~$175~~$125 million revolving secured credit facility. ~~We may use this credit facility in the ordinary course of business to fund a portion of our daily operations.~~ Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires Piper ~~Jaffray~~Sandler & Co. to maintain a minimum regulatory net capital of $120 million, and the unpaid principal amount of all advances under the facility will be due on December ~~13, 2019.~~11, 2020. This credit facility has been in place since 2008 and we renewed the facility for another one-year term in the fourth quarter of ~~2018.~~2019. At March 31, ~~2019,~~2020, we had no advances against this line of credit.

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~~Uncommitted Line~~Revolving Credit Facility – ~~We use this uncommitted line in the ordinary course of business to fund a portion of our daily operations,~~Our parent company, Piper Sandler Companies, has an unsecured $50 million revolving credit facility with U.S. Bank N.A. The credit agreement will terminate on December 20, 2022, unless otherwise terminated, 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~~a one-year extension exercisable at 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.~~option. At March 31, ~~2019~~,2020, we had noadvances of $50 million against this ~~line~~credit facility.

This credit facility includes customary events of ~~credit.~~default and covenants that, among other things, require Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million, limit our leverage ratio, require maintenance of a minimum ratio of operating cash flow to fixed charges, and impose certain limitations on our ability to make acquisitions and make payments on our capital stock. At March 31, 2020, we were in compliance with all covenants.

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The following ~~tables present~~table presents the average balances outstanding for our various funding sources by quarter for ~~2019~~2020 and ~~2018, respectively.~~2019:


	Average Balance for the Three Months Ended										Average Balance for the Three Months Ended
(Dollars in millions)	Mar. 31, 2019		Dec. 31, 2018		Sept. 30, 2018		June 30, 2018		Mar. 31, 2018
(Amounts in millions)											Mar. 31, 2020		Dec. 31, 2019		Sept. 30, 2019		June 30, 2019		Mar. 31, 2019
Funding source:
Pershing clearing arrangement	$	82.1	$	79.6	$	3.0	$	90.0	$	47.1	$	117.8	$	22.9	$	94.6	$	170.2	$	82.1
Commercial paper	50.0		50.0		50.0		50.0		50.0		50.0		50.0		50.0		50.0		50.0
Prime broker arrangements	106.4		85.2		112.7		218.8		336.5
Prime broker arrangement											72.3		99.7		68.0		77.1		106.4
Revolving credit facility											7.1		—		—		—		—
Total	$	238.5	$	214.8	$	165.7	$	358.8	$	433.6	$	247.2	$	172.6	$	212.6	$	297.3	$	238.5

The average funding in the first quarter of ~~2019 declined~~2020 increased to $247.2 million, compared towith $172.6 million during the corresponding period of 2018 due to significantly lower inventory balances 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 thirdfourth quarter of ~~2018.~~2019. This increase was primarily the result of annual discretionary incentive payments made in February, which increased borrowings.

The following table presents the maximum daily funding amount by quarter for ~~2019~~2020 and ~~2018, respectively.~~2019:


(Dollars in millions)	2019		2018
(Amounts in millions)					2020		2019
First Quarter	$	362.7	$	613.1	$	642.1	$	362.7
Second Quarter			$	505.0			$	427.1
Third Quarter			$	263.5			$	416.0
Fourth Quarter			$	312.3			$	330.7

Senior Notes

On October 15, 2019, we entered into a note purchase agreement ("Note Purchase Agreement") under which we issued unsecured fixed rate senior notes ("Notes") in the amount of $175 million. The initial holders of the Notes are certain entities advised by Pacific Investment Management Company ("PIMCO"). The Notes consist of two classes, Class A Notes and Class B Notes, with principal amounts of $50 million and $125 million, respectively. The Class A Notes bear interest at an annual fixed rate of 4.74 percent and mature on October 15, 2021. The Class B Notes bear interest at an annual fixed rate of 5.20 percent and mature on October 15, 2023. Interest on the Notes is payable semi-annually. The unpaid principal amounts are due in full on the respective maturity dates and may not be prepaid.

The Note Purchase Agreement includes customary events of default and covenants that, among other things, require Piper Sandler & Co. to maintain a minimum regulatory net capital, limit our leverage ratio and require maintenance of a minimum ratio of operating cash flow to fixed charges. At March 31, 2020, we were in compliance with all covenants.

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, ~~2018.~~

~~New Leases Guidance~~

~~As discussed in Note 2 to~~2019, except for our ~~unaudited consolidated financial statements,~~operating lease obligations and purchase commitments. In conjunction with our acquisition of Sandler O'Neill, we ~~adopted new accounting guidance~~acquired various leases and agreements related to ~~leases effective as~~new purchase commitments.



	Remainder of 2020		2021		2023		2025 and
(Amounts in millions)	Remainder of 2020		- 2022		- 2024		thereafter		Total
Operating lease obligations	$	17.7	$	36.1	$	26.4	$	25.7	$	105.9
Purchase commitments	19.0		23.0		7.6		8.8		58.4

Purchase commitments include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of ~~January 1, 2019. The guidance requires lessees to recognize a right-of-use ("ROU") lease asset and lease liability~~the transaction. Purchase commitments with variable pricing provisions are included in the table based on the ~~consolidated statements~~minimum contractual amounts. Certain purchase commitments contain termination or renewal provisions. The table reflects the minimum contractual amounts likely to be paid under these agreements assuming the contracts are not terminated.

Table of financial condition for all leases with a term greater than 12 months. Upon adoption, we recognized a ROU lease asset of approximately $44.0 million and a lease liability of approximately $59.0 million. The difference between the ROU lease asset and lease liability is due to lease incentives. The new guidance has not impacted Piper Jaffray & Co.'s net capital position.Contents

Capital Requirements

As a registered broker dealer and member firm of the Financial Industry Regulatory Authority, Inc. ("FINRA"), Piper ~~Jaffray~~Sandler & 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. 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 March 31, ~~2019~~2020, our net capital under the SEC's uniform net capital rule was ~~$214.6~~$190.8 million, and exceeded the minimum net capital required under the SEC rule by ~~$213.6~~$189.8 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~~capital markets revenue producing activities.

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

At March 31, ~~2019,~~2020, Piper ~~Jaffray~~Sandler Ltd., our broker dealer subsidiary registered in the ~~United Kingdom,~~U.K., 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.

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
							2022		2024				March 31,		December 31,								2023		2025				March 31,		December 31,
(Dollars in thousands)	2019		2020		2021		- 2023		- 2025		Later		2019		2018
(Amounts in thousands)																	2020		2021		2022		- 2024		- 2026		Later		2020		2019
Customer matched-book derivative contracts (1) (2)	$	31,050	$	21,390	$	10,280	$	125,660	$	103,030	$	2,016,749	$	2,308,159	$	2,532,966	$	19,040	$	6,930	$	24,150	$	141,370	$	15,160	$	1,816,741	$	2,023,391	$	2,197,340
Trading securities derivative contracts (2)	214,850		10,000		—		—		5,000		9,375		239,225		262,275		187,700		12,000		—		—		—		9,375		209,075		110,875
Equity option derivative contracts (2)																	13,703		2,515		—		—		—		—		16,218		—
Investment commitments (3)	—		—		—		—		—		—		77,955		77,984		—		—		—		—		—		—		70,861		70,953

(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 $~~176.5~~173.0 million at March 31, ~~2019~~2020) 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 March 31, ~~2019~~2020, we had $~~16.9~~27.3 million of credit exposure with these counterparties, including $~~13.9~~23.2 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 March 31, ~~2019~~2020 and December 31, ~~2018~~2019, the net fair value of these derivative contracts approximated $~~10.9~~24.8 million and ~~$12.5~~$16.3 million, respectively.


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

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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,"~~5 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 ~~$78.0~~$70.9 million to certain entities and these commitments generally have no specified call dates.

Replacement of Interbank Offered Rates ("IBORs"), including LIBOR

Central banks and regulators in a number of major jurisdictions (e.g., U.S., U.K., European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for IBORs. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021. We have a limited number of contractual agreements which use LIBOR. We do not expect the transition from LIBOR to a replacement rate to have a significant impact on our operations.

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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 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 executive financial risk committee manages our market, liquidity and credit ~~risks, and~~risks; oversees risk management practices related to these risks, including defining acceptable risk tolerances and approving risk management ~~policies.~~policies; and responds to market changes in a dynamic manner. Membership is comprised of senior ~~leadership. A subset of this group,~~leadership, including but not limited to, our Chief Executive Officer, President, Chief Financial Officer, Treasurer, Head of Market and Credit Risk, and Head of Fixed Income ~~Trading, meets with increased frequency to evaluate the firm's inventory position, and respond to market changes in a dynamic manner.~~Trading. 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.

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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 35 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 primarily 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).

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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.


	March 31,			December 31,			March 31,			December 31,
(Dollars in thousands)	2019			2018
(Amounts in thousands)							2020			2019
Interest Rate Risk	$	275		$	370		$	494		$	428
Equity Price Risk	55			49			47			52
Diversification Effect (1)	(40		)	(40		)	(27		)	(37		)
Total Value-at-Risk	$	290		$	379		$	514		$	443


(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 March 31, ~~2019~~2020 was ~~lower~~higher than the reported VaR on December 31, ~~2018.~~2019. The ~~decrease~~increase in VaR was due to our mix of inventory compared to the end of ~~2018.~~2019.

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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 three months ended March 31, ~~2019~~2020 and the year ended December 31, ~~2018, respectively.~~2019.


(Dollars in thousands)	High		Low		Average
For the Three Months Ended March 31, 2019
(Amounts in thousands)								High		Low		Average
For the Three Months Ended March 31, 2020
Interest Rate Risk	$	469	$	181	$	293		$	918	$	433	$	652
Equity Price Risk	57		43		48			63		44		53
Diversification Effect (1)					(36		)					(30		)
Total Value-at-Risk	$	480	$	194	$	305		$	943	$	455	$	675


(Dollars in thousands)	High		Low		Average
For the Year Ended December 31, 2018
(Amounts in thousands)								High		Low		Average
For the Year Ended December 31, 2019
Interest Rate Risk	$	1,084	$	268	$	631		$	792	$	181	$	432
Equity Price Risk	91		21		54			69		42		54
Diversification Effect (1)					(40		)					(41		)
Total Value-at-Risk	$	1,101	$	277	$	645		$	808	$	191	$	445


(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~~effect would not be meaningful.

Trading losses exceeded our one-day VaR on ~~three~~12 occasions during the first quarter of ~~2019.~~2020.

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.

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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.~~activities. 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 $~~16.9~~27.3 million at March 31, ~~2019~~2020. This counterparty credit exposure is part of our matched-book derivative program related to our public finance underwriting business, consisting primarily of interest rate swaps. One derivative counterparty ~~represents~~ ~~82.3~~represented 85.0 percent, or $~~13.9~~23.2 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.

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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.

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.

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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 first quarter of our fiscal year ending December 31, ~~2019,~~2020, 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, ~~2018.~~2019.

ITEM 1A. RISK FACTORS.

The discussion of our business and operations should be read together with the risk factors listed below along with those contained in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019. 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.

There have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except as follows:

The widespread outbreak of COVID-19 has negatively impacted the global and U.S. economy and financial markets. The decline in economic and market activity caused by the impact from COVID-19 has had an adverse effect on our business, financial condition, and results of operations, which we expect to continue throughout 2020.

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The widespread outbreak of COVID-19 has negatively impacted nearly every sector of the global and U.S. economy. The negative impacts of the disease from a community health perspective, as well as the measures enacted to mitigate its further spread, including travel restrictions, quarantines, stay-at-home orders, and business shutdowns, have resulted in an unprecedented level of short-term dislocations in, and a slowdown of, global and U.S. economic activity.

The decline in the macroeconomic outlook and the increase in market uncertainty has negatively impacted our overall results of operations and our equities investment banking operations in particular. Within the current environment, we expect that advisory engagements activity will be significantly below that of previous years, and the timing of transaction closings may be prolonged, as the market conditions typically required for these transactions are challenged. Although the recent financial market volatility was beneficial for our institutional brokerage businesses, the increased activity in these businesses will not be sufficient to offset the decline in advisory engagements, and future volatility could make it more difficult for companies to conduct initial public offerings or raise additional capital from public equity markets, negatively impacting our equity capital markets business and our overall results of operations. In addition, with increased volatility, we have seen and may continue to see periods where the hedging vehicles we use to hedge the interest rate risk on our securities inventory become less effective, which may adversely affect our overall results of operations.

It is uncertain how long and to what extent the COVID-19 pandemic and the associated economic and market downturn will negatively impact our business. A further decrease in demand for our financial services could negatively impact our liquidity position and our growth strategy. The length and degree of the impact will likely be correlated to the length and depth of the

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economic slowdown, which will determine the speed of the recovery of the U.S. and global equity and credit markets. Any concern or doubts in the market about the pace or ability of normal economic activity to resume, or the efficacy or adequacy of the government measures enacted to support the global economy, could further erode the outlook for macroeconomic conditions and business confidence, and cause further decreases in our equities investment banking revenues. In addition, to the extent that the primary sectors that are covered by our equities investment banking business take longer to recover due to the erosion of economic conditions in those sectors, such as the energy or consumer sectors, our equities investment banking business could continue to be negatively impacted even after other sectors begin to experience a recovery.

Market access to working capital, short-term and long-term financing opportunities, and the ability to raise capital may be impacted significantly during these periods of economic distress. Our ability to fund operations, make capital investments or commitments, maintain compliance with our debt covenants, fund the payment of shareholder dividends, and repurchase shares of our common stock may be adversely affected, depending on the total impact and length of the disruption. We continue to regularly monitor our cash levels, liquidity, regulatory capital requirements, and debt covenants in light of the pandemic.

In addition to the effects that we have already experienced from the decline in U.S. and global economic and financial market conditions, there could be other material impacts to our business as a result of the outbreak of COVID-19, including the possibility of our employees contracting the disease and the potential disruptions caused to our business operations, which depend upon the health and well-being of our employees as a human-capital business, heightened cybersecurity, information security, and operational risks or reductions in our operating effectiveness as our employees work from home or disaster-recovery locations, and the unavailability of key personnel necessary to conduct our business activities. We continue to take precautions to protect the safety and well-being of our employees and clients. However, no assurance can be given that such steps will be adequate and, as a result, our business and results of operations could be adversely affected. In addition, it is our experience that during and following market downturns, adversarial proceedings against financial services firms typically increase. The risk of litigation, arbitration, and regulatory proceedings, or the enactment of any legislation that reduces or eliminates our business activities in response to the effects of the pandemic on financial markets may adversely affect our overall results of operations.

Ultimately, the full extent to which COVID-19 will impact our business, financial condition and results of operations depends on future developments, which are highly uncertain and cannot be accurately predicted at this time, including new information which may emerge concerning the severity and duration of the COVID-19 pandemic and actions to contain its spread or mitigate its impact, among others.

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~~Sandler 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 March 31, ~~2019~~2020.


				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
(January 1, 2019 to January 31, 2019)	501	$	64.80	501	$	103	million
(January 1, 2020 to January 31, 2020)								2,941		$	81.83	—	$	150	million
Month #2
(February 1, 2019 to February 28, 2019)	563,284	$	70.47	—	$	103	million
(February 1, 2020 to February 29, 2020)								136,647	⁽²⁾	$	81.13	44,973	$	147	million
Month #3
(March 1, 2019 to March 31, 2019)	—	$	—	—	$	103	million
(March 1, 2020 to March 31, 2020)								83,892		$	71.12	83,892	$	141	million
Total	563,785	$	70.47	501	$	103	million	223,480		$	77.38	128,865	$	141	million


(1)	Effective ~~September 30, 2017,~~January 1, 2020, our board of directors authorized the repurchase of up to $150.0 million of common stock through ~~September 30, 2019.~~December 31, 2021.


(2)	Consists of 44,973 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 $72.45 per share, and 91,674 shares of common stock withheld from recipients of restricted stock to pay taxes upon the vesting of the restricted stock at an average price of $85.38 per share.

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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

~~_________________~~



~~(1)~~Exhibit Index
Exhibit		Method
Number	Description	of Filing

3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed August 3, 2007).
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed January 6, 2020).
3.3	Amended and Restated Bylaws (as of January 3, 2020) (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed January 6, 2020).
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer.	Filed ~~as Exhibit 4.4~~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	The following financial information from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the ~~Company’s Registration Statement~~Consolidated Financial Statements.	Filed herewith
104	The cover page from our Quarterly Report on Form ~~S-8, filed with~~10-Q for the ~~Commission on~~quarter ended March ~~13, 2019, and incorporated herein by reference.~~

31, 2020, formatted in iXBRL.
~~(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.~~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~~SANDLER COMPANIES

Date:	May 8, ~~2019~~2020	By	/s/ Chad R. Abraham
		Name	Chad R. Abraham
		Its	Chairman and Chief Executive Officer

Date:	May 8, ~~2019~~2020	By	/s/ Timothy L. Carter
		Name	Timothy L. Carter
		Its	Chief Financial Officer



	March 31, 2019						December 31, 2018
(Dollars in thousands)	Derivative		Derivative		Notional		Derivative		Derivative		Notional
Derivative Category	Assets (1)		Liabilities (2)		Amount		Assets (1)		Liabilities (2)		Amount
Interest rate
Customer matched-book	$	186,555	$	175,755	$	2,308,159	$	181,199	$	169,950	$	2,532,966
Trading securities	10		4,222		239,225		408		4,202		262,275
	$	186,565	$	179,977	$	2,547,384	$	181,607	$	174,152	$	2,795,241



(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



							Twelve
	Three Months Ended						Months Ended
	March 31,						March 31,
(Dollars in millions)	2019			2018			2019
MLP
Beginning of period	$	3,054		$	3,790		$	3,399
Net inflows/(outflows)	(147		)	6			(347		)
Net market appreciation/(depreciation)	535			(397		)	390
End of period	$	3,442		$	3,399		$	3,442

Equity
Beginning of period	$	2,701		$	3,556		$	3,478
Net outflows	(135		)	(47		)	(608		)
Net market appreciation/(depreciation)	303			(31		)	(1		)
End of period	$	2,869		$	3,478		$	2,869

Total
Beginning of period	$	5,755		$	7,346		$	6,877
Net outflows	(282		)	(41		)	(955		)
Net market appreciation/(depreciation)	838			(428		)	389
End of period	$	6,311		$	6,877		$	6,311



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