REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Piper Sandler Companies
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Piper Sandler Companies (the Company, formerly known as Piper Jaffray Companies) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
|
|
|
|
Valuation of Investments at Fair Value
|
Description of the Matter
|
At December 31, 2019, the fair value of the Company’s investments categorized as Level III of the fair value hierarchy totaled $132.3 million, primarily consisting of merchant banking investments in private companies (“merchant banking investments”) that do not have readily determinable fair values. These investments are held in consolidated funds, which include $75.2 million of noncontrolling interests attributable to unrelated third party ownership. As described in Notes 2 and 7 of the consolidated financial statements, management determines the fair values of merchant banking investments internally using the best information available. These investments are valued based on an assessment of each underlying security, considering cost, terms and liquidity of the investment, the financial condition and operating results of the issuer, 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.
|
|
|
|
Auditing the fair value of the Company’s merchant banking investments was complex, as the inputs and assumptions used by the Company are highly judgmental and could have a significant effect on the fair value measurements of such investments.
|
|
|
How We Addressed the Matter in Our Audit
|
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s merchant banking investment valuation process. This included controls over management’s assessment of the valuation methodologies, the inputs and assumptions used in determining fair value measurements, and the valuation committee review of merchant banking investment valuations on a quarterly basis.
|
|
|
|
To test the valuation of the Company’s merchant banking investments, our procedures included, among others, involving internal valuation specialists to assist in our evaluation of the Company’s valuation methodologies, testing the significant inputs and assumptions used by the Company in determining the fair values, and testing the mathematical accuracy of the Company’s valuation calculations. For example, we agreed model inputs to source information including capital structure, investee-provided financial information or projections, and publicly-available information on comparable transactions (e.g., transaction multiples). We assessed the issuer’s financial projections by comparing them to historical performance, obtaining an understanding of key events impacting the issuer and performing sensitivity analyses as needed to evaluate the impact to fair value that would result from changes in these projections. To the extent available, we evaluated subsequent events and other information and considered whether it corroborated or contradicted the Company’s year-end valuations.
|
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2003.
Minneapolis, Minnesota
February 28, 2020
Piper Sandler Companies
Consolidated Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Amounts in thousands, except share data)
|
2019
|
|
2018
|
Assets
|
|
|
|
Cash and cash equivalents
|
$
|
250,018
|
|
|
$
|
50,364
|
|
Receivables from brokers, dealers and clearing organizations
|
283,108
|
|
|
235,278
|
|
|
|
|
|
Financial instruments and other inventory positions owned
|
434,088
|
|
|
479,795
|
|
Financial instruments and other inventory positions owned and pledged as collateral
|
205,674
|
|
|
147,427
|
|
Total financial instruments and other inventory positions owned
|
639,762
|
|
|
627,222
|
|
|
|
|
|
Fixed assets (net of accumulated depreciation and amortization of $65,991 and $58,927, respectively)
|
29,850
|
|
|
32,300
|
|
Goodwill
|
87,649
|
|
|
81,855
|
|
Intangible assets (net of accumulated amortization of $40,864 and $36,566, respectively)
|
16,686
|
|
|
4,284
|
|
Investments
|
158,141
|
|
|
151,886
|
|
Net deferred income tax assets
|
68,035
|
|
|
72,996
|
|
Right-of-use lease asset
|
40,030
|
|
|
—
|
|
Other assets
|
55,440
|
|
|
46,443
|
|
Assets held for sale
|
—
|
|
|
42,641
|
|
Total assets
|
$
|
1,628,719
|
|
|
$
|
1,345,269
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
Short-term financing
|
$
|
49,978
|
|
|
$
|
49,953
|
|
Senior notes
|
175,000
|
|
|
—
|
|
Payables to brokers, dealers and clearing organizations
|
7,514
|
|
|
8,657
|
|
Financial instruments and other inventory positions sold, but not yet purchased
|
185,425
|
|
|
177,427
|
|
Accrued compensation
|
300,527
|
|
|
323,588
|
|
Accrued lease liability
|
57,169
|
|
|
—
|
|
Other liabilities and accrued expenses
|
46,578
|
|
|
45,016
|
|
Liabilities held for sale
|
—
|
|
|
10,212
|
|
Total liabilities
|
822,191
|
|
|
614,853
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
Common stock, $0.01 par value:
|
|
|
|
Shares authorized: 100,000,000 at December 31, 2019 and December 31, 2018;
|
|
|
|
Shares issued: 19,526,533 at December 31, 2019 and 19,518,044 at December 31, 2018;
|
|
|
|
Shares outstanding: 13,717,315 at December 31, 2019 and 12,995,397 at December 31, 2018
|
195
|
|
|
195
|
|
Additional paid-in capital
|
757,669
|
|
|
796,363
|
|
Retained earnings
|
258,669
|
|
|
182,552
|
|
Less common stock held in treasury, at cost: 5,809,218 shares at December 31, 2019 and 6,522,647 shares at December 31, 2018
|
(284,378
|
)
|
|
(300,268
|
)
|
Accumulated other comprehensive loss
|
(872
|
)
|
|
(1,398
|
)
|
Total common shareholders' equity
|
731,283
|
|
|
677,444
|
|
|
|
|
|
Noncontrolling interests
|
75,245
|
|
|
52,972
|
|
Total shareholders' equity
|
806,528
|
|
|
730,416
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
$
|
1,628,719
|
|
|
$
|
1,345,269
|
|
See Notes to the Consolidated Financial Statements
Piper Sandler Companies
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(Amounts in thousands, except per share data)
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Investment banking
|
$
|
629,392
|
|
|
$
|
588,978
|
|
|
$
|
633,837
|
|
|
Institutional brokerage
|
167,891
|
|
|
124,738
|
|
|
154,712
|
|
|
Interest
|
26,741
|
|
|
32,749
|
|
|
31,954
|
|
|
Investment income
|
22,275
|
|
|
11,039
|
|
|
23,386
|
|
|
|
|
|
|
|
|
|
Total revenues
|
846,299
|
|
|
757,504
|
|
|
843,889
|
|
|
|
|
|
|
|
|
|
Interest expense
|
11,733
|
|
|
16,551
|
|
|
20,268
|
|
|
|
|
|
|
|
|
|
Net revenues
|
834,566
|
|
|
740,953
|
|
|
823,621
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
Compensation and benefits
|
516,090
|
|
|
488,487
|
|
|
589,637
|
|
|
Outside services
|
36,184
|
|
|
36,528
|
|
|
33,981
|
|
|
Occupancy and equipment
|
36,795
|
|
|
34,194
|
|
|
31,943
|
|
|
Communications
|
30,760
|
|
|
28,656
|
|
|
26,430
|
|
|
Marketing and business development
|
28,780
|
|
|
26,936
|
|
|
28,673
|
|
|
Deal-related expenses
|
25,823
|
|
|
25,120
|
|
|
—
|
|
|
Trade execution and clearance
|
10,186
|
|
|
8,014
|
|
|
8,166
|
|
|
Restructuring and integration costs
|
14,321
|
|
|
3,498
|
|
|
—
|
|
|
Intangible asset amortization
|
4,298
|
|
|
4,858
|
|
|
10,178
|
|
|
Back office conversion costs
|
—
|
|
|
—
|
|
|
3,927
|
|
|
Other operating expenses
|
12,350
|
|
|
12,173
|
|
|
11,370
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
715,587
|
|
|
668,464
|
|
|
744,305
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
118,979
|
|
|
72,489
|
|
|
79,316
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
24,577
|
|
|
18,046
|
|
|
53,808
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
94,402
|
|
|
54,443
|
|
|
25,508
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
Income/(loss) from discontinued operations, net of tax
|
23,772
|
|
|
1,387
|
|
|
(85,060
|
)
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
118,174
|
|
|
55,830
|
|
|
(59,552
|
)
|
|
|
|
|
|
|
|
|
Net income/(loss) applicable to noncontrolling interests
|
6,463
|
|
|
(1,206
|
)
|
|
2,387
|
|
|
|
|
|
|
|
|
|
Net income/(loss) applicable to Piper Sandler Companies
|
$
|
111,711
|
|
|
$
|
57,036
|
|
|
$
|
(61,939
|
)
|
|
|
|
|
|
|
|
|
Net income/(loss) applicable to Piper Sandler Companies' common shareholders
|
$
|
107,200
|
|
|
$
|
49,993
|
|
|
$
|
(64,875
|
)
|
(1)
|
|
|
|
|
|
|
|
Continued on next page
|
Piper Sandler Companies
Consolidated Statements of Operations – Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(Amounts in thousands, except per share data)
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Amounts applicable to Piper Sandler Companies
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
87,939
|
|
|
$
|
55,649
|
|
|
$
|
23,121
|
|
|
Net income/(loss) from discontinued operations
|
23,772
|
|
|
1,387
|
|
|
(85,060
|
)
|
|
Net income/(loss) applicable to Piper Sandler Companies
|
$
|
111,711
|
|
|
$
|
57,036
|
|
|
$
|
(61,939
|
)
|
|
|
|
|
|
|
|
|
Earnings/(loss) per basic common share
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
6.21
|
|
|
$
|
3.68
|
|
|
$
|
1.57
|
|
|
Income/(loss) from discontinued operations
|
1.69
|
|
|
0.09
|
|
|
(6.64
|
)
|
|
Earnings/(loss) per basic common share
|
$
|
7.90
|
|
|
$
|
3.78
|
|
|
$
|
(5.07
|
)
|
|
|
|
|
|
|
|
|
Earnings/(loss) per diluted common share
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
6.05
|
|
|
$
|
3.63
|
|
|
$
|
1.57
|
|
|
Income/(loss) from discontinued operations
|
1.65
|
|
|
0.09
|
|
|
(6.55
|
)
|
|
Earnings/(loss) per diluted common share
|
$
|
7.69
|
|
|
$
|
3.72
|
|
|
$
|
(4.99
|
)
|
(2)
|
|
|
|
|
|
|
|
Dividends declared per common share
|
$
|
2.51
|
|
|
$
|
3.12
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
Basic
|
13,555
|
|
|
13,234
|
|
|
12,807
|
|
|
Diluted
|
13,937
|
|
|
13,425
|
|
|
12,978
|
|
(2)
|
|
|
(1)
|
No allocation of undistributed income was made due to loss position. See Note 21.
|
|
|
(2)
|
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.
|
See Notes to the Consolidated Financial Statements
Piper Sandler Companies
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
Net income/(loss)
|
$
|
118,174
|
|
|
$
|
55,830
|
|
|
$
|
(59,552
|
)
|
|
|
|
|
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
Foreign currency translation adjustment
|
526
|
|
|
(119
|
)
|
|
1,320
|
|
|
|
|
|
|
|
Comprehensive income/(loss)
|
118,700
|
|
|
55,711
|
|
|
(58,232
|
)
|
|
|
|
|
|
|
Comprehensive income/(loss) applicable to noncontrolling interests
|
6,463
|
|
|
(1,206
|
)
|
|
2,387
|
|
|
|
|
|
|
|
Comprehensive income/(loss) applicable to Piper Sandler Companies
|
$
|
112,237
|
|
|
$
|
56,917
|
|
|
$
|
(60,619
|
)
|
See Notes to the Consolidated Financial Statements
Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
Common
|
|
|
|
Total
|
(Amounts in thousands,
|
|
Shares
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
Shareholders'
|
|
Noncontrolling
|
|
Shareholders'
|
except share amounts)
|
|
Outstanding
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
Loss
|
|
Equity
|
|
Interests
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
12,391,970
|
|
|
$
|
195
|
|
|
$
|
788,927
|
|
|
$
|
257,188
|
|
|
$
|
(284,461
|
)
|
|
$
|
(2,599
|
)
|
|
$
|
759,250
|
|
|
$
|
57,016
|
|
|
$
|
816,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(61,939
|
)
|
|
—
|
|
|
—
|
|
|
(61,939
|
)
|
|
2,387
|
|
|
(59,552
|
)
|
Dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,979
|
)
|
|
—
|
|
|
—
|
|
|
(18,979
|
)
|
|
—
|
|
|
(18,979
|
)
|
Amortization/issuance of restricted stock
|
|
—
|
|
|
—
|
|
|
37,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,250
|
|
|
—
|
|
|
37,250
|
|
Repurchase of common stock through share repurchase program
|
|
(36,936
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,498
|
)
|
|
—
|
|
|
(2,498
|
)
|
|
—
|
|
|
(2,498
|
)
|
Issuance of treasury shares for options exercised
|
|
26,149
|
|
|
—
|
|
|
662
|
|
|
—
|
|
|
1,041
|
|
|
—
|
|
|
1,703
|
|
|
—
|
|
|
1,703
|
|
Issuance of treasury shares for restricted stock vestings
|
|
841,178
|
|
|
—
|
|
|
(35,077
|
)
|
|
—
|
|
|
35,077
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock from employees
|
|
(314,542
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,983
|
)
|
|
—
|
|
|
(22,983
|
)
|
|
—
|
|
|
(22,983
|
)
|
Shares reserved/issued for director compensation
|
|
3,330
|
|
|
—
|
|
|
208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
208
|
|
|
—
|
|
|
208
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,320
|
|
|
1,320
|
|
|
—
|
|
|
1,320
|
|
Fund capital distributions, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,500
|
)
|
|
(11,500
|
)
|
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/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,036
|
|
|
—
|
|
|
—
|
|
|
57,036
|
|
|
(1,206
|
)
|
|
55,830
|
|
Dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47,157
|
)
|
|
—
|
|
|
—
|
|
|
(47,157
|
)
|
|
—
|
|
|
(47,157
|
)
|
Amortization/issuance of restricted stock
|
|
—
|
|
|
—
|
|
|
48,448
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,448
|
|
|
—
|
|
|
48,448
|
|
Repurchase of common stock through share repurchase program
|
|
(681,233
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47,142
|
)
|
|
—
|
|
|
(47,142
|
)
|
|
—
|
|
|
(47,142
|
)
|
Issuance of treasury shares for restricted stock vestings
|
|
1,040,015
|
|
|
—
|
|
|
(44,459
|
)
|
|
—
|
|
|
44,459
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock from employees
|
|
(279,664
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,761
|
)
|
|
—
|
|
|
(23,761
|
)
|
|
—
|
|
|
(23,761
|
)
|
Shares reserved/issued for director compensation
|
|
5,130
|
|
|
—
|
|
|
404
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
404
|
|
|
—
|
|
|
404
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(119
|
)
|
|
(119
|
)
|
|
—
|
|
|
(119
|
)
|
Cumulative effect upon adoption of new accounting standard, net of tax (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,597
|
)
|
|
—
|
|
|
—
|
|
|
(3,597
|
)
|
|
—
|
|
|
(3,597
|
)
|
Fund capital contributions, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,275
|
|
|
6,275
|
|
Balance at December 31, 2018
|
|
12,995,397
|
|
|
$
|
195
|
|
|
$
|
796,363
|
|
|
$
|
182,552
|
|
|
$
|
(300,268
|
)
|
|
$
|
(1,398
|
)
|
|
$
|
677,444
|
|
|
$
|
52,972
|
|
|
$
|
730,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued on next page
|
Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity – Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
Common
|
|
|
|
Total
|
(Amounts in thousands,
|
|
Shares
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
Shareholders'
|
|
Noncontrolling
|
|
Shareholders'
|
except share amounts)
|
|
Outstanding
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
Loss
|
|
Equity
|
|
Interests
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
111,711
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
111,711
|
|
|
$
|
6,463
|
|
|
$
|
118,174
|
|
Dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35,594
|
)
|
|
—
|
|
|
—
|
|
|
(35,594
|
)
|
|
—
|
|
|
(35,594
|
)
|
Amortization/issuance of restricted stock
|
|
—
|
|
|
—
|
|
|
27,137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,137
|
|
|
—
|
|
|
27,137
|
|
Repurchase of common stock through share repurchase program
|
|
(501
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
Issuance of treasury shares for restricted stock vestings
|
|
1,415,147
|
|
|
—
|
|
|
(66,474
|
)
|
|
—
|
|
|
66,474
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock from employees
|
|
(701,217
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50,552
|
)
|
|
—
|
|
|
(50,552
|
)
|
|
—
|
|
|
(50,552
|
)
|
Shares reserved/issued for director compensation
|
|
8,489
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
643
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
526
|
|
|
526
|
|
|
—
|
|
|
526
|
|
Fund capital contributions, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,810
|
|
|
15,810
|
|
Balance at December 31, 2019
|
|
13,717,315
|
|
|
$
|
195
|
|
|
$
|
757,669
|
|
|
$
|
258,669
|
|
|
$
|
(284,378
|
)
|
|
$
|
(872
|
)
|
|
$
|
731,283
|
|
|
$
|
75,245
|
|
|
$
|
806,528
|
|
|
|
(1)
|
Cumulative effect adjustment upon adoption of revenue recognition guidance in ASU 2014-09, as amended.
|
See Notes to the Consolidated Financial Statements
Piper Sandler Companies
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
Operating Activities:
|
|
|
|
|
|
Net income/(loss)
|
$
|
118,174
|
|
|
$
|
55,830
|
|
|
$
|
(59,552
|
)
|
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization of fixed assets
|
9,360
|
|
|
8,358
|
|
|
7,252
|
|
Deferred income taxes
|
11,323
|
|
|
(652
|
)
|
|
(3,372
|
)
|
Gain on sale of Advisory Research, Inc. ("ARI"), net of tax
|
(33,026
|
)
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
32,003
|
|
|
44,285
|
|
|
39,831
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
114,363
|
|
Amortization of intangible assets
|
9,763
|
|
|
10,460
|
|
|
15,400
|
|
Amortization of forgivable loans
|
4,639
|
|
|
5,138
|
|
|
6,740
|
|
Decrease/(increase) in operating assets:
|
|
|
|
|
|
Receivables:
|
|
|
|
|
|
Customers
|
—
|
|
|
—
|
|
|
31,917
|
|
Brokers, dealers and clearing organizations
|
(46,207
|
)
|
|
(89,884
|
)
|
|
67,336
|
|
Securities purchased under agreements to resell
|
—
|
|
|
—
|
|
|
159,697
|
|
Net financial instruments and other inventory positions owned
|
(4,542
|
)
|
|
534,355
|
|
|
(224,536
|
)
|
Investments
|
(6,255
|
)
|
|
24,109
|
|
|
(8,418
|
)
|
Other assets
|
117
|
|
|
(3,758
|
)
|
|
3,937
|
|
Increase/(decrease) in operating liabilities:
|
|
|
|
|
|
Payables:
|
|
|
|
|
|
Customers
|
—
|
|
|
—
|
|
|
(29,352
|
)
|
Brokers, dealers and clearing organizations
|
(1,143
|
)
|
|
(10,735
|
)
|
|
(21,450
|
)
|
Securities sold under agreements to repurchase
|
—
|
|
|
—
|
|
|
(15,046
|
)
|
Accrued compensation
|
(29,277
|
)
|
|
(60,191
|
)
|
|
110,190
|
|
Other liabilities and accrued expenses
|
(10,117
|
)
|
|
(7,915
|
)
|
|
6,650
|
|
Decrease in assets held for sale
|
20,901
|
|
|
1,882
|
|
|
2,690
|
|
Decrease in liabilities held for sale
|
(7,915
|
)
|
|
(1,487
|
)
|
|
(1,276
|
)
|
|
|
|
|
|
|
Net cash provided by operating activities
|
67,798
|
|
|
509,795
|
|
|
203,001
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
(19,674
|
)
|
|
—
|
|
|
—
|
|
Proceeds from sale of ARI
|
52,881
|
|
|
—
|
|
|
—
|
|
Purchases of fixed assets, net
|
(6,516
|
)
|
|
(15,804
|
)
|
|
(7,994
|
)
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
26,691
|
|
|
(15,804
|
)
|
|
(7,994
|
)
|
|
|
|
|
|
|
Continued on next page
|
Piper Sandler Companies
Consolidated Statements of Cash Flows – Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
Financing Activities:
|
|
|
|
|
|
Increase/(decrease) in short-term financing
|
$
|
25
|
|
|
$
|
(239,984
|
)
|
|
$
|
(128,895
|
)
|
Issuance of senior notes
|
175,000
|
|
|
—
|
|
|
—
|
|
Repayment of senior notes
|
—
|
|
|
(125,000
|
)
|
|
(50,000
|
)
|
Payment of cash dividend
|
(35,594
|
)
|
|
(47,157
|
)
|
|
(18,947
|
)
|
Increase/(decrease) in noncontrolling interests
|
15,810
|
|
|
6,275
|
|
|
(11,500
|
)
|
Repurchase of common stock
|
(50,584
|
)
|
|
(70,903
|
)
|
|
(25,481
|
)
|
Proceeds from stock option exercises
|
—
|
|
|
—
|
|
|
1,703
|
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities
|
104,657
|
|
|
(476,769
|
)
|
|
(233,120
|
)
|
|
|
|
|
|
|
Currency adjustment:
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
508
|
|
|
(651
|
)
|
|
1,532
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
199,654
|
|
|
16,571
|
|
|
(36,581
|
)
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
50,364
|
|
|
33,793
|
|
|
70,374
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
$
|
250,018
|
|
|
$
|
50,364
|
|
|
$
|
33,793
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
Interest
|
$
|
12,038
|
|
|
$
|
17,129
|
|
|
$
|
19,917
|
|
Income taxes
|
$
|
9,581
|
|
|
$
|
17,134
|
|
|
$
|
31,895
|
|
See Notes to the Consolidated Financial Statements
Piper Sandler Companies
Notes to the Consolidated Financial Statements
Note 1 Organization and Basis of Presentation
Organization
As described in Note 26, Piper Jaffray Companies completed the acquisition of SOP Holdings, LLC and its subsidiaries, including Sandler O'Neill & Partners, L.P. (collectively, "Sandler O'Neill") on January 3, 2020. Upon completion of the acquisition, Piper Jaffray Companies was renamed Piper Sandler Companies. Certain of its subsidiaries were also renamed. The financial statements presented in this report cover periods that ended prior to the completion of the acquisition, and therefore only include the results of Piper Jaffray Companies. Sandler O'Neill's results of operations will be included in the consolidated financial statements prospectively from the date of acquisition.
Piper Sandler Companies is the parent company of Piper Sandler & Co. ("Piper Sandler"), a securities broker dealer and investment banking firm; Piper Sandler Ltd., a firm providing securities brokerage and mergers and acquisitions services in Europe; Piper Sandler Finance LLC, which facilitates corporate debt underwriting in conjunction with affiliated credit vehicles; Piper Sandler Investment Group Inc. and PSC Capital Management LLC, which consist of entities providing alternative asset management services; Piper Sandler Financial Products Inc. and Piper Sandler Financial Products II Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries.
Piper Sandler Companies and its subsidiaries (collectively, the "Company") operate in one reporting segment providing investment banking and institutional securities services (collectively, "Capital Markets"). The Company's Capital Markets business provides investment banking services and institutional sales, trading and research services. Investment banking services include financial advisory services, management of and participation in underwritings and public finance activities. Revenues are generated through the receipt of advisory and financing fees. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, and profits and losses from trading these securities. Also, the Company generates revenue through strategic trading and investing activities, which focus on investments in municipal bonds 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 in order to invest firm capital and to manage capital from outside investors. The Company receives management and performance fees for managing these funds.
As discussed in Note 4, Advisory Research, Inc. ("ARI") was sold in the third quarter of 2019. ARI's results were previously reported in the Company's Asset Management segment, which provided traditional asset management services with product offerings in master limited partnerships and equity securities.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and include the accounts of Piper 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 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.
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management 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.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a variable interest entity ("VIE") or a voting interest entity.
VIEs are entities in which (i) the total equity investment at risk is not sufficient to enable the entity to finance its activities independently or (ii) the at-risk equity holders do not have the normal characteristics of a controlling financial interest. A controlling financial interest in a VIE is present when an enterprise has one or more variable interests that have both (i) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The enterprise with a controlling financial interest is the primary beneficiary and consolidates the VIE.
Voting interest entities lack one or more of the characteristics of a VIE. The usual condition for a controlling financial interest is ownership of a majority voting interest for a corporation or a majority of kick-out or participating rights for a limited partnership.
When the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity's operating and financial policies, the Company's investment is accounted for under the equity method of accounting. If the Company does not have a controlling financial interest in, or exert significant influence over, an entity, the Company accounts for its investment at fair value, if the fair value option was elected, or at cost.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with maturities of 90 days or less at the date of origination.
Customer and Collateralized Securities Transactions
Piper Sandler transitioned from a self clearing securities broker dealer to a fully disclosed clearing model in 2017. Pershing LLC ("Pershing") is Piper Sandler's clearing broker dealer responsible for the clearance and settlement of firm and customer cash and security transactions. In addition, subsequent to transitioning to a fully disclosed clearing model, the Company no longer enters into securities purchased under agreements to resell, securities sold under agreements to repurchase, and securities borrowed and loaned transactions.
Fair Value of Financial Instruments
Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased on the consolidated statements of financial condition consist of financial instruments (including securities with extended settlements and derivative contracts) recorded at fair value. Unrealized gains and losses related to these financial instruments are reflected on the consolidated statements of operations. Securities (both long and short), including securities with extended settlements, are recognized on a trade-date basis. Additionally, certain of the Company's investments on the consolidated statements of financial condition are recorded at fair value, either as required by accounting guidance or through the fair value election.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Fair Value Measurement – Definition and Hierarchy – Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 820, "Fair Value Measurement," ("ASC 820") defines fair value as the amount at which an instrument could be exchanged in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy based on the inputs used to measure fair value. The fair value hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect management's assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:
Level I – Quoted prices (unadjusted) are available in active markets for identical assets or liabilities as of the report date. A quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market.
Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the report date. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III – Instruments that have little to no pricing observability as of the report date. These financial instruments are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
Valuation 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. When available, the Company values financial instruments at observable market prices, observable market parameters, or broker or dealer prices (bid and ask prices). In the case of financial instruments transacted on recognized exchanges, the observable market prices represent quotations for completed transactions from the exchange on which the financial instrument is principally traded.
A substantial percentage of the fair value of the Company's financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased, are based on observable market prices, observable market parameters, or derived from broker or dealer prices. The availability of observable market prices and pricing parameters can vary from product to product. Where available, observable market prices and pricing or market parameters in a product may be used to derive a price without requiring significant judgment. In certain markets, observable market prices or market parameters are not available for all products, and fair value is determined using techniques appropriate for each particular product. These techniques involve some degree of judgment. Results from valuation models and other techniques in one period may not be indicative of future period fair value measurement.
For investments in illiquid or privately held securities that do not have readily determinable fair values, the determination of fair value requires the Company to estimate the value of the securities using the best information available. Among the factors considered by the Company in determining the fair value of such financial instruments are the cost, terms and liquidity of the investment, the financial condition and operating results of the issuer, the quoted market price of publicly traded securities with similar quality and yield, and other factors generally pertinent to the valuation of investments. In instances where a security is subject to transfer restrictions, the value of the security is based primarily on the quoted price of a similar security without restriction but may be reduced by an amount estimated to reflect such restrictions. In addition, even where the Company derives the value of a security based on information from an independent source, certain assumptions may be required to determine the security's fair value. For instance, the Company assumes that the size of positions in securities that it holds would not be large enough to affect the quoted price of the securities if the Company sells them, and that any such sale would happen in an orderly manner. The actual value realized upon disposition could be different from the currently estimated fair value.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Fixed Assets
Fixed assets include furniture and equipment, software and leasehold improvements. Furniture and equipment and software are depreciated using the straight-line method over estimated useful lives of three to ten years. Leasehold improvements are amortized over ten years or the life of the lease, whichever is shorter.
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. Some of the leases contain renewal and/or termination options, escalation clauses, rent-free holidays and operating cost adjustments. The original terms of the Company's lease agreements generally range up to 12 years. The weighted-average remaining lease term was 5.3 years at December 31, 2019.
The Company recognizes a right-of-use ("ROU") lease asset and lease liability on the consolidated statements of financial condition 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 takes 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 applies the portfolio approach in determining the discount rates for its leases. The weighted-average discount rate was 4.0 percent at December 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.
Goodwill and Intangible Assets
Goodwill represents the fair value of the consideration transferred in excess of the fair value of identifiable net assets at the acquisition date. The recoverability of goodwill is evaluated annually, at a minimum, or on an interim basis if circumstances indicate a possible inability to realize the carrying amount. See Note 12 for additional information on the Company's goodwill impairment testing.
Intangible assets with determinable lives consist of customer relationships, internally developed software and the Simmons & Company International ("Simmons") trade name that are amortized over their original estimated useful lives ranging from two to eight years. The pattern of amortization reflects the timing of the realization of the economic benefits of such intangible assets.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Investments
The Company's investments include equity investments in private companies and partnerships and investments in registered mutual funds. Equity investments in private companies are accounted for at fair value, as required by accounting guidance or if the fair value option was elected. Investments in partnerships are accounted for under the equity method, which is generally the net asset value. Registered mutual funds are accounted for at fair value.
Other Assets
Other assets include receivables and prepaid expenses. Receivables include fee receivables, income tax receivables, accrued interest, and loans made to employees, typically in connection with their recruitment. Employee loans are forgiven based on continued employment and are amortized to compensation and benefits expense using the straight-line method over the respective terms of the loans, which generally range from two to five years.
Revenue Recognition
Investment Banking – Investment banking revenues, which include advisory and underwriting fees, are recorded when the performance obligation for the transaction is satisfied under the terms of each engagement. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. Investment banking revenues are presented gross of related client reimbursed deal expenses. Expenses for completed deals are reported separately in deal-related expenses on the consolidated statements of operations. Expenses related to investment banking deals not completed are recognized as non-interest expenses in their respective category on the consolidated statements of operations.
The Company's advisory fees generally consist of a nonrefundable up-front fee and a success fee. The nonrefundable fee is recorded as deferred revenue upon receipt and recognized at a point in time when the performance obligation is satisfied, or when the transaction is deemed by management to be terminated. Management's judgment is required in determining when a transaction is considered to be terminated.
The substantial majority of the Company's advisory and underwriting fees (i.e., the success-related advisory fee) are considered variable consideration and recognized when it is probable that the variable consideration will not be reversed in a future period. The variable consideration is considered to be constrained until satisfaction of the performance obligation. The Company's performance obligation is generally satisfied at a point in time upon the closing of a strategic transaction, completion of a financing or underwriting arrangement, or some other defined outcome (e.g., providing a fairness opinion). At this time, the Company has transferred control of the promised service and the customer obtains control. As these arrangements represent a single performance obligation, allocation of the transaction price is not necessary. The Company has elected to apply the following optional exemptions regarding disclosure of its remaining performance obligations: (i) the Company's performance obligation is part of a contract that has an original expected duration of one year or less and/or (ii) the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
Institutional Brokerage – Institutional brokerage revenues include (i) commissions received from customers for the execution of brokerage transactions in listed and over-the-counter (OTC) equity, fixed income and convertible debt securities, which are recognized at a point in time on the trade date because the customer has obtained the rights to the underlying security provided by the trade execution service, (ii) trading gains and losses, recorded based on changes in the fair value of long and short security positions in the reporting period and (iii) fees received by the Company for equity research. The Company permits institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as commission share agreements or "soft dollar" arrangements. As the Company is not acting as a principal in satisfying the performance obligation for these arrangements, expenses relating to soft dollars are netted against commission revenues and included in other liabilities and accrued expenses on the consolidated statements of financial condition.
Interest Revenue and Expense – The Company nets interest expense within net revenues to mitigate the effects of fluctuations in interest rates on the Company's consolidated statements of operations. The Company recognizes contractual interest on financial instruments owned and financial instruments sold, but not yet purchased (excluding derivative instruments), on an accrual basis as a component of interest revenue and expense. The Company accounts for interest related to its short-term financing and its senior notes on an accrual basis with related interest recorded as interest expense.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Investment Income – Investment income includes realized and unrealized gains and losses from the Company's merchant banking, energy, senior living and other firm investments, as well as management and performance fees generated from the Company’s alternative asset management funds.
The performance obligation related to the transfer of management and investment advisory services is satisfied over time and the related management fees are recognized under the output method, which reflects the fees that the Company has a right to invoice based on the services provided during the period. Fees are defined as a percentage of committed and/or invested capital. Amounts related to remaining performance obligations are not disclosed as the Company applies the output method.
Performance fees, if earned, are recognized when it is probable that such revenue will not be reversed in a future period. Management will consider such factors as the remaining assets and residual life of the fund to conclude whether it is probable that a significant reversal of revenue will not occur in the future.
See Note 22 for revenues from contracts with customers disaggregated by major business activity.
Stock-Based Compensation
FASB Accounting Standards Codification Topic 718, "Compensation – Stock Compensation," ("ASC 718") requires all stock-based compensation to be expensed on the consolidated statements of operations based on the grant date fair value of the award. Compensation expense related to stock-based awards that do not require future service are recognized in the year in which the awards were deemed to be earned. Stock-based awards that require future service are amortized over the relevant service period. Forfeitures of awards with service conditions are accounted for when they occur. See Note 20 for additional information on the Company's accounting for stock-based compensation.
Income Taxes
The Company files a consolidated U.S. federal income tax return, which includes all of its qualifying subsidiaries. The Company is also subject to income tax in various states and municipalities and those foreign jurisdictions in which it operates. Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The realization of deferred tax assets is assessed and a valuation allowance is recognized to the extent that it is more likely than not that any portion of a deferred tax asset will not be realized. Tax reserves for uncertain tax positions are recorded in accordance with FASB Accounting Standards Codification Topic 740, "Income Taxes" ("ASC 740").
Earnings Per Share
Basic earnings per common share is computed by dividing net income/(loss) applicable to common shareholders by the weighted average number of common shares outstanding for the period. Net income/(loss) applicable to common shareholders represents net income/(loss) reduced by the allocation of earnings to participating securities. No allocation of undistributed earnings is made for periods in which a loss is incurred, or for periods in which cash dividends exceed net income resulting in an undistributed loss. Distributed earnings (e.g., dividends) are allocated to participating securities. Diluted earnings 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.
Unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the earnings allocation in the earnings per share calculation under the two-class method. See Note 21 for additional information on the Company's participating and non-participating securities.
Foreign Currency Translation
The Company consolidates foreign subsidiaries which have designated their local currency as their functional currency. Assets and liabilities of these foreign subsidiaries are translated at period-end rates of exchange. The gains or losses resulting from translating foreign currency financial statements are included in other comprehensive income/(loss). Gains or losses resulting from foreign currency transactions are included in net income/(loss).
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Contingencies
The Company is involved in various pending and potential legal proceedings related to its business, including litigation, arbitration and regulatory proceedings. The Company establishes reserves for potential losses to the extent that claims are probable of loss and the amount of the loss can be reasonably estimated. The determination of the outcome and reserve amounts requires significant judgment on the part of the Company's management.
Note 3 Recent Accounting Pronouncements
Adoption of New Accounting Standards
Leases
In February 2016, the 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 condition 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.
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 carry forward its prior conclusions on lease definition, lease classification and initial direct costs related to the existing leases as of the adoption date. Also, the Company has elected the practical expedient to not separate lease components from nonlease components. Both at transition and for new leases thereafter, ROU lease assets and lease liabilities are initially recognized based on the present value of future minimum lease payments over the lease term, including nonlease components such as fixed common area maintenance costs and other fixed costs (e.g., real estate taxes and insurance).
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 Sandler'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 became effective as of January 1, 2020. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.
Note 4 Discontinued 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 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.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
In addition, the Company is eligible to receive additional payments of 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.
ARI's results, previously reported in the Asset Management segment, have been presented as discontinued operations for all periods presented and the related assets and liabilities were classified as held for sale. As of December 31, 2018, the disposal group consisted of:
|
|
|
|
|
|
December 31,
|
(Dollars in thousands)
|
2018
|
Assets
|
|
Net deferred income tax assets
|
$
|
28,861
|
|
Fee receivables
|
4,128
|
|
Intangible assets
|
8,090
|
|
Other assets
|
1,562
|
|
Total assets held for sale
|
$
|
42,641
|
|
|
|
Liabilities
|
|
Accrued compensation
|
$
|
9,934
|
|
Other liabilities
|
278
|
|
Total liabilities held for sale
|
$
|
10,212
|
|
The components of discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Net revenues
|
|
$
|
26,546
|
|
|
$
|
43,489
|
|
|
$
|
51,301
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
22,589
|
|
|
35,227
|
|
|
40,356
|
|
Intangible asset amortization and impairment (1)
|
|
5,465
|
|
|
5,602
|
|
|
5,222
|
|
Restructuring costs
|
|
10,268
|
|
|
272
|
|
|
—
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
114,363
|
|
Total non-interest expenses
|
|
38,322
|
|
|
41,101
|
|
|
159,941
|
|
|
|
|
|
|
|
|
Income/(loss) from discontinued operations before income tax expense/(benefit)
|
|
(11,776
|
)
|
|
2,388
|
|
|
(108,640
|
)
|
|
|
|
|
|
|
|
Income tax expense/(benefit)
|
|
(2,522
|
)
|
|
1,001
|
|
|
(23,580
|
)
|
|
|
|
|
|
|
|
Net income/(loss) from discontinued operations before gain on sales
|
|
(9,254
|
)
|
|
1,387
|
|
|
(85,060
|
)
|
|
|
|
|
|
|
|
Gain on sales, net of tax
|
|
33,026
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Income/(loss) from discontinued operations, net of tax
|
|
$
|
23,772
|
|
|
$
|
1,387
|
|
|
$
|
(85,060
|
)
|
|
|
(1)
|
Includes $2.9 million of intangible asset impairment related to the ARI trade name for the year ended December 31, 2019.
|
Note 5 Acquisition of Weeden & Co. L.P.
On August 2, 2019, the Company completed the acquisition of Weeden & Co. L.P. ("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.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 & Co.'s equity holders, a portion of which 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, if any, 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 holders. If earned, the amount will be paid by September 30, 2021.
This acquisition was accounted for pursuant to FASB Accounting Standards Codification Topic 805, "Business Combinations." Accordingly, the purchase price was allocated to the acquired assets and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the net assets acquired was allocated between goodwill and intangible assets. 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.
Transaction costs of $1.9 million were incurred for the year ended December 31, 2019, and are included in restructuring and integration costs on the consolidated statements of operations.
In the fourth quarter of 2019, the Company recorded the following measurement period adjustments: $1.5 million to reflect the final fair value of Weeden & Co.'s intangible assets and $4.1 million related to a liability for uncertain state and local income tax positions and the corresponding indemnification asset and deferred tax asset.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition, including measurement period adjustments:
|
|
|
|
|
(Dollars 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
|
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Weeden & Co.'s results of operations have been included in the Company's consolidated financial statements prospectively beginning on the date of acquisition. The acquisition has 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 assumes that the acquisition had occurred at the beginning of the comparable prior period presented. Pro forma results have been prepared by adjusting the Company's historical results to include Weeden & Co.'s results of operations adjusted for the following changes: 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 issued as part of the purchase price and the restricted stock issued for retention purposes; and the income tax effect of applying the Company's statutory tax rates to Weeden & Co.'s results of operations. The Company's consolidated unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the acquisition 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
Net revenues
|
$
|
870,525
|
|
|
$
|
816,366
|
|
|
$
|
894,582
|
|
Net income from continuing operations applicable to Piper Sandler Companies
|
83,582
|
|
|
53,561
|
|
|
20,070
|
|
Note 6 Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Financial instruments and other inventory positions owned:
|
|
|
|
Corporate securities:
|
|
|
|
Equity securities
|
$
|
3,046
|
|
|
$
|
1,458
|
|
Convertible securities
|
146,406
|
|
|
92,485
|
|
Fixed income securities
|
28,176
|
|
|
31,906
|
|
Municipal securities:
|
|
|
|
Taxable securities
|
22,570
|
|
|
38,711
|
|
Tax-exempt securities
|
222,192
|
|
|
268,804
|
|
Short-term securities
|
67,901
|
|
|
52,472
|
|
Mortgage-backed securities
|
13
|
|
|
15
|
|
U.S. government agency securities
|
51,773
|
|
|
123,384
|
|
U.S. government securities
|
77,303
|
|
|
954
|
|
Derivative contracts
|
20,382
|
|
|
17,033
|
|
Total financial instruments and other inventory positions owned
|
$
|
639,762
|
|
|
$
|
627,222
|
|
|
|
|
|
Financial instruments and other inventory positions sold, but not yet purchased:
|
|
|
|
Corporate securities:
|
|
|
|
Equity securities
|
$
|
94,036
|
|
|
$
|
82,082
|
|
Fixed income securities
|
10,311
|
|
|
20,180
|
|
U.S. government agency securities
|
9,935
|
|
|
10,257
|
|
U.S. government securities
|
67,090
|
|
|
60,365
|
|
Derivative contracts
|
4,053
|
|
|
4,543
|
|
Total financial instruments and other inventory positions sold, but not yet purchased
|
$
|
185,425
|
|
|
$
|
177,427
|
|
At December 31, 2019 and 2018, financial instruments and other inventory positions owned in the amount of $205.7 million and $147.4 million, respectively, had been pledged as collateral for short-term financings.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 and options.
Derivative Contract Financial Instruments
The Company uses interest rate swaps, interest rate locks, and U.S. treasury bond futures and options 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 Offered Rate ("LIBOR") index or the Securities Industry and Financial Markets Association ("SIFMA") index.
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. Prior to 2018, the Company used credit default swap index contracts to hedge credit risk associated with its taxable fixed income securities and option contracts to hedge market value risk associated with its convertible securities.
Derivatives are reported on a net basis by counterparty (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of offset exists and on a net basis by cross product when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists. The total absolute notional contract amount, representing the absolute value of the sum of gross long and short derivative contracts, provides an indication of the volume of the Company's derivative activity and does not represent gains and losses. The following table presents the gross fair market value and the total absolute notional contract amount of the Company's outstanding derivative instruments, prior to counterparty netting, by asset or liability position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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
|
|
$
|
209,119
|
|
|
$
|
198,315
|
|
|
$
|
2,197,340
|
|
|
$
|
181,199
|
|
|
$
|
169,950
|
|
|
$
|
2,532,966
|
|
Trading securities
|
|
8
|
|
|
1,852
|
|
|
110,875
|
|
|
408
|
|
|
4,202
|
|
|
262,275
|
|
|
|
$
|
209,127
|
|
|
$
|
200,167
|
|
|
$
|
2,308,215
|
|
|
$
|
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.
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
Year Ended December 31,
|
Derivative Category
|
|
Operations Category
|
|
2019
|
|
2018
|
|
2017
|
Interest rate derivative contract
|
|
Investment banking
|
|
$
|
(912
|
)
|
|
$
|
(1,880
|
)
|
|
$
|
(2,608
|
)
|
Interest rate derivative contract
|
|
Institutional brokerage
|
|
2,417
|
|
|
334
|
|
|
(16,772
|
)
|
Credit default swap index contract
|
|
Institutional brokerage
|
|
—
|
|
|
—
|
|
|
4,482
|
|
Futures and equity option derivative contracts
|
|
Institutional brokerage
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
|
|
|
$
|
1,505
|
|
|
$
|
(1,546
|
)
|
|
$
|
(14,915
|
)
|
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 December 31, 2019, the Company had $19.2 million of uncollateralized credit exposure with these counterparties (notional contract amount of $173.2 million), including $16.2 million of uncollateralized credit exposure with one counterparty.
Note 7 Fair Value of Financial Instruments
Based on the nature of the Company's business and its role as a "dealer" in the securities industry or as a manager of alternative asset management funds, the fair values of its financial instruments are determined internally. The Company's processes are designed to ensure that the fair values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, unobservable inputs are developed based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations and other security-specific information. Valuation adjustments related to illiquidity or counterparty credit risk are also considered. In estimating fair value, the Company may utilize information provided by third party pricing vendors to corroborate internally-developed fair value estimates.
The Company employs specific control processes to determine the reasonableness of the fair value of its financial instruments. The Company's processes are designed to ensure that the internally-estimated fair values are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. Individuals outside of the trading departments perform independent pricing verification reviews as of each reporting date. The Company has established parameters which set forth when the fair value of securities are independently verified. The selection parameters are generally based upon the type of security, the level of estimation risk of a security, the materiality of the security to the Company's 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.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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.
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, 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.
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.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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.
Derivative contracts – Derivative contracts include interest rate swaps, interest rate locks, and U.S. treasury bond futures and options. These instruments derive their value from underlying assets, reference rates, indices or a combination of these factors. 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. 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 $2.1 million and $3.0 million, included within investments on the consolidated statements of financial condition, were accounted for at fair value and were classified as Level III assets at December 31, 2019 and 2018, 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 losses of $0.6 million, gains of $0.6 million and gains of $1.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
|
|
|
Weighted
|
|
Technique
|
|
Unobservable Input
|
|
Range
|
|
Average (1)
|
Assets
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions owned:
|
|
|
|
|
|
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
Interest rate locks
|
Discounted cash flow
|
|
Premium over the MMD curve in basis points ("bps") (2)
|
|
6.5 bps
|
|
6.5 bps
|
Investments at fair value:
|
|
|
|
|
|
|
|
Equity securities in private companies
|
Market approach
|
|
Revenue multiple (2)
|
|
3 - 6 times
|
|
4.5 times
|
|
|
|
EBITDA multiple (2)
|
|
11 - 20 times
|
|
15.7 times
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions sold, but not yet purchased:
|
|
|
|
|
|
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
Interest rate locks
|
Discounted cash flow
|
|
Premium over the MMD curve in bps (3)
|
|
0 - 21 bps
|
|
4.7 bps
|
Uncertainty of fair value measurements:
|
|
(1)
|
Unobservable inputs were weighted by the relative fair value of the financial instruments.
|
|
|
(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.
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
|
|
|
|
|
|
|
|
and Cash
|
|
|
|
|
|
|
|
|
|
Collateral
|
|
|
(Dollars in thousands)
|
Level I
|
|
Level II
|
|
Level III
|
|
Netting (1)
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions owned:
|
|
|
|
|
|
|
|
|
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
469
|
|
|
$
|
2,577
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,046
|
|
Convertible securities
|
—
|
|
|
146,406
|
|
|
—
|
|
|
—
|
|
|
146,406
|
|
Fixed income securities
|
—
|
|
|
28,176
|
|
|
—
|
|
|
—
|
|
|
28,176
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
—
|
|
|
22,570
|
|
|
—
|
|
|
—
|
|
|
22,570
|
|
Tax-exempt securities
|
—
|
|
|
222,192
|
|
|
—
|
|
|
—
|
|
|
222,192
|
|
Short-term securities
|
—
|
|
|
67,901
|
|
|
—
|
|
|
—
|
|
|
67,901
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
U.S. government agency securities
|
—
|
|
|
51,773
|
|
|
—
|
|
|
—
|
|
|
51,773
|
|
U.S. government securities
|
77,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77,303
|
|
Derivative contracts
|
—
|
|
|
209,119
|
|
|
8
|
|
|
(188,745
|
)
|
|
20,382
|
|
Total financial instruments and other inventory positions owned
|
77,772
|
|
|
750,714
|
|
|
21
|
|
|
(188,745
|
)
|
|
639,762
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
226,744
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226,744
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
17,658
|
|
|
—
|
|
|
132,329
|
|
(2)
|
—
|
|
|
149,987
|
|
Total assets
|
$
|
322,174
|
|
|
$
|
750,714
|
|
|
$
|
132,350
|
|
|
$
|
(188,745
|
)
|
|
$
|
1,016,493
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions sold, but not yet purchased:
|
|
|
|
|
|
|
|
|
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
88,794
|
|
|
$
|
5,242
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
94,036
|
|
Fixed income securities
|
—
|
|
|
10,311
|
|
|
—
|
|
|
—
|
|
|
10,311
|
|
U.S. government agency securities
|
—
|
|
|
9,935
|
|
|
—
|
|
|
—
|
|
|
9,935
|
|
U.S. government securities
|
67,090
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67,090
|
|
Derivative contracts
|
—
|
|
|
198,604
|
|
|
1,563
|
|
|
(196,114
|
)
|
|
4,053
|
|
Total financial instruments and other inventory positions sold, but not yet purchased
|
$
|
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 no securities posted as collateral to its counterparties.
|
|
|
(2)
|
Noncontrolling interests of $75.2 million are attributable to unrelated third party ownership in consolidated merchant banking and senior living funds.
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
|
|
|
|
|
|
|
|
and Cash
|
|
|
|
|
|
|
|
|
|
Collateral
|
|
|
(Dollars 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
|
|
Convertible securities
|
—
|
|
|
92,485
|
|
|
—
|
|
|
—
|
|
|
92,485
|
|
Fixed income securities
|
—
|
|
|
31,906
|
|
|
—
|
|
|
—
|
|
|
31,906
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
—
|
|
|
38,711
|
|
|
—
|
|
|
—
|
|
|
38,711
|
|
Tax-exempt securities
|
—
|
|
|
268,804
|
|
|
—
|
|
|
—
|
|
|
268,804
|
|
Short-term securities
|
—
|
|
|
52,472
|
|
|
—
|
|
|
—
|
|
|
52,472
|
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
U.S. government agency securities
|
—
|
|
|
123,384
|
|
|
—
|
|
|
—
|
|
|
123,384
|
|
U.S. government securities
|
954
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
954
|
|
Derivative contracts
|
—
|
|
|
181,378
|
|
|
229
|
|
|
(164,574
|
)
|
|
17,033
|
|
Total financial instruments and other inventory positions owned
|
1,285
|
|
|
790,267
|
|
|
244
|
|
|
(164,574
|
)
|
|
627,222
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
20,581
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,581
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
33,587
|
|
|
2,649
|
|
|
107,792
|
|
(2)
|
—
|
|
|
144,028
|
|
Total assets
|
$
|
55,453
|
|
|
$
|
792,916
|
|
|
$
|
108,036
|
|
|
$
|
(164,574
|
)
|
|
$
|
791,831
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions sold, but not yet purchased:
|
|
|
|
|
|
|
|
|
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
81,575
|
|
|
$
|
507
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82,082
|
|
Fixed income securities
|
—
|
|
|
20,180
|
|
|
—
|
|
|
—
|
|
|
20,180
|
|
U.S. government agency securities
|
—
|
|
|
10,257
|
|
|
—
|
|
|
—
|
|
|
10,257
|
|
U.S. government securities
|
60,365
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,365
|
|
Derivative contracts
|
—
|
|
|
169,950
|
|
|
4,202
|
|
|
(169,609
|
)
|
|
4,543
|
|
Total financial instruments and other inventory positions sold, but not yet purchased
|
$
|
141,940
|
|
|
$
|
200,894
|
|
|
$
|
4,202
|
|
|
$
|
(169,609
|
)
|
|
$
|
177,427
|
|
|
|
(1)
|
Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.
|
|
|
(2)
|
Noncontrolling interests of $53.0 million are attributable to unrelated third party ownership in consolidated merchant banking and senior living funds.
|
The Company's Level III assets were $132.4 million and $108.0 million, or 13.0 percent and 13.6 percent of financial instruments measured at fair value at December 31, 2019 and 2018, respectively. There were no significant transfers between levels for the year ended December 31, 2019.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(losses) for assets/
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Realized
|
|
Unrealized
|
|
Balance at
|
|
liabilities held at
|
|
December 31,
|
|
|
|
|
|
Transfers
|
|
Transfers
|
|
gains/
|
|
gains/
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2018
|
|
Purchases
|
|
Sales
|
|
in
|
|
out
|
|
(losses)
|
|
(losses)
|
|
2019
|
|
2019
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
27
|
|
|
$
|
13
|
|
|
$
|
—
|
|
Derivative contracts
|
229
|
|
|
42
|
|
|
(796
|
)
|
|
—
|
|
|
—
|
|
|
755
|
|
|
(222
|
)
|
|
8
|
|
|
8
|
|
Total financial instruments and other inventory positions owned
|
244
|
|
|
42
|
|
|
(802
|
)
|
|
—
|
|
|
—
|
|
|
732
|
|
|
(195
|
)
|
|
21
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
107,792
|
|
|
23,624
|
|
|
(14,897
|
)
|
|
—
|
|
|
(783
|
)
|
|
2,901
|
|
|
13,692
|
|
|
132,329
|
|
|
16,105
|
|
Total assets
|
$
|
108,036
|
|
|
$
|
23,666
|
|
|
$
|
(15,699
|
)
|
|
$
|
—
|
|
|
$
|
(783
|
)
|
|
$
|
3,633
|
|
|
$
|
13,497
|
|
|
$
|
132,350
|
|
|
$
|
16,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions sold, but not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
$
|
4,202
|
|
|
$
|
(16,311
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,311
|
|
|
$
|
(2,639
|
)
|
|
$
|
1,563
|
|
|
$
|
1,563
|
|
Total financial instruments and other inventory positions sold, but not yet purchased
|
$
|
4,202
|
|
|
$
|
(16,311
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,311
|
|
|
$
|
(2,639
|
)
|
|
$
|
1,563
|
|
|
$
|
1,563
|
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(losses) for assets/
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Realized
|
|
Unrealized
|
|
Balance at
|
|
liabilities held at
|
|
December 31,
|
|
|
|
|
|
Transfers
|
|
Transfers
|
|
gains/
|
|
gains/
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2017
|
|
Purchases
|
|
Sales
|
|
in
|
|
out
|
|
(losses)
|
|
(losses)
|
|
2018
|
|
2018
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt securities
|
$
|
700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(700
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term securities
|
714
|
|
|
—
|
|
|
(775
|
)
|
|
—
|
|
|
—
|
|
|
54
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Mortgage-backed securities
|
481
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(461
|
)
|
|
15
|
|
|
(95
|
)
|
Derivative contracts
|
126
|
|
|
725
|
|
|
(3,807
|
)
|
|
—
|
|
|
—
|
|
|
3,082
|
|
|
103
|
|
|
229
|
|
|
229
|
|
Total financial instruments and other inventory positions owned
|
2,021
|
|
|
725
|
|
|
(4,587
|
)
|
|
—
|
|
|
(700
|
)
|
|
3,136
|
|
|
(351
|
)
|
|
244
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
126,060
|
|
|
15,988
|
|
|
(36,444
|
)
|
|
—
|
|
|
(502
|
)
|
|
14,015
|
|
|
(11,325
|
)
|
|
107,792
|
|
|
(1,775
|
)
|
Total assets
|
$
|
128,081
|
|
|
$
|
16,713
|
|
|
$
|
(41,031
|
)
|
|
$
|
—
|
|
|
$
|
(1,202
|
)
|
|
$
|
17,151
|
|
|
$
|
(11,676
|
)
|
|
$
|
108,036
|
|
|
$
|
(1,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments and other inventory positions sold, but not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
$
|
4,433
|
|
|
$
|
(2,815
|
)
|
|
$
|
3,266
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(451
|
)
|
|
$
|
(231
|
)
|
|
$
|
4,202
|
|
|
$
|
4,202
|
|
Total financial instruments and other inventory positions sold, but not yet purchased
|
$
|
4,433
|
|
|
$
|
(2,815
|
)
|
|
$
|
3,266
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(451
|
)
|
|
$
|
(231
|
)
|
|
$
|
4,202
|
|
|
$
|
4,202
|
|
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.
Note 8 Variable Interest Entities ("VIEs")
The Company has investments in and/or acts as the managing partner of various partnerships, limited liability companies, or registered mutual funds. These entities were established for the purpose of investing in securities of public or private companies, or municipal debt obligations, or providing financing to senior living facilities, and were initially financed through the capital commitments or seed investments of the members.
VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities. The determination as to whether an entity is a VIE is based on the structure and nature of each entity. The Company also considers other characteristics such as the power through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance and how the entity is financed.
The Company is required to consolidate all VIEs for which it is considered to be the primary beneficiary. The determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Consolidated VIEs
The Company's consolidated VIEs at December 31, 2019 include 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 December 31, 2019. The assets can only be used to settle the liabilities of the respective VIE, and the creditors of the VIEs do not have recourse to the general credit of the Company. One of these VIEs has $25.0 million of bank line financing available with an interest rate based on prime plus an applicable margin. The assets and liabilities are presented prior to consolidation, and thus a portion of these assets and liabilities are eliminated in consolidation.
|
|
|
|
|
|
|
|
Alternative Asset
|
(Dollars in thousands)
|
|
Management Funds
|
Assets
|
|
|
Investments
|
|
$
|
129,646
|
|
Other assets
|
|
2,586
|
|
Total assets
|
|
$
|
132,232
|
|
|
|
|
Liabilities
|
|
|
Other liabilities and accrued expenses
|
|
$
|
2,859
|
|
Total liabilities
|
|
$
|
2,859
|
|
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 20 for additional information on the nonqualified deferred compensation plan.
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 $0.3 billion at December 31, 2019 and 2018. The Company's exposure to loss from these VIEs is $7.0 million, which is the carrying value of its capital contributions recorded in investments on the consolidated statements of financial condition at December 31, 2019. The Company had no liabilities related to these VIEs at December 31, 2019 and 2018. Furthermore, the Company has not provided financial or other support to these VIEs that it was not previously contractually required to provide as of December 31, 2019.
Note 9 Receivables from and Payables to Brokers, Dealers and Clearing Organizations
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Receivable from clearing organizations
|
$
|
260,436
|
|
|
$
|
223,987
|
|
Receivable from brokers and dealers
|
19,161
|
|
|
7,700
|
|
Other
|
3,511
|
|
|
3,591
|
|
Total receivables from brokers, dealers and clearing organizations
|
$
|
283,108
|
|
|
$
|
235,278
|
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Payable to brokers and dealers
|
$
|
7,514
|
|
|
$
|
3,923
|
|
Payable to clearing organizations
|
—
|
|
|
4,734
|
|
Total payables to brokers, dealers and clearing organizations
|
$
|
7,514
|
|
|
$
|
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. 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 Sandler to maintain excess net capital of $120 million.
Note 10 Investments
The Company's investments include investments in private companies and partnerships and investments in registered mutual funds.
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Investments at fair value
|
$
|
149,987
|
|
|
$
|
144,028
|
|
Investments at cost
|
1,084
|
|
|
1,512
|
|
Investments accounted for under the equity method
|
7,070
|
|
|
6,346
|
|
Total investments
|
158,141
|
|
|
151,886
|
|
|
|
|
|
Less investments attributable to noncontrolling interests (1)
|
(75,245
|
)
|
|
(52,972
|
)
|
|
$
|
82,896
|
|
|
$
|
98,914
|
|
|
|
(1)
|
Noncontrolling interests are attributable to third party ownership in consolidated merchant banking and senior living funds.
|
At December 31, 2019, investments carried on a cost basis had an estimated fair market value of $1.1 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.
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.
Note 11 Other Assets
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Fee receivables
|
$
|
18,574
|
|
|
$
|
18,990
|
|
Accrued interest receivables
|
2,977
|
|
|
4,240
|
|
Income tax receivables
|
2,658
|
|
|
—
|
|
Forgivable loans, net
|
5,227
|
|
|
7,152
|
|
Prepaid expenses
|
10,687
|
|
|
8,763
|
|
Other
|
15,317
|
|
|
7,298
|
|
Total other assets
|
$
|
55,440
|
|
|
$
|
46,443
|
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 12 Goodwill and Intangible Assets
|
|
|
|
|
(Dollars in thousands)
|
|
Goodwill
|
|
Balance at December 31, 2017
|
$
|
81,855
|
|
Goodwill acquired
|
—
|
|
Balance at December 31, 2018
|
$
|
81,855
|
|
Goodwill acquired
|
5,794
|
|
Balance at December 31, 2019
|
$
|
87,649
|
|
|
|
Intangible assets
|
|
Balance at December 31, 2017
|
$
|
9,142
|
|
Intangible assets acquired
|
—
|
|
Amortization of intangible assets
|
(4,858
|
)
|
Balance at December 31, 2018
|
$
|
4,284
|
|
Intangible assets acquired
|
16,700
|
|
Amortization of intangible assets
|
(4,298
|
)
|
Balance at December 31, 2019
|
$
|
16,686
|
|
The Company tests goodwill and indefinite-life intangible assets for impairment on an annual basis and on an interim basis when circumstances exist that could indicate possible impairment. The Company tests for impairment at the reporting unit level, which is generally one level below its operating segments. The Company has identified one reporting unit: Capital Markets. When testing for impairment, the Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after making an assessment, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then further analysis is unnecessary. However, if the Company concludes otherwise, then the Company is required to perform a quantitative goodwill test, which requires management to make judgments in determining what assumptions to use in the calculation. The quantitative goodwill test compares the fair value of the reporting unit to its carrying value, including allocated goodwill. An impairment is recognized for the excess amount of a reporting unit's carrying value over its fair value. The estimated fair value of the reporting unit is derived based on valuation techniques that a market participant would use. The Company estimates the fair value of the reporting unit using the income approach (discounted cash flow method) and market approach (earnings and/or transaction multiples).
The Company performed its annual goodwill impairment testing as of October 31, 2019, which resulted in no impairment. The annual goodwill impairment testing for 2018 and 2017 resulted in no impairment associated with the Capital Markets reporting unit.
The Company also evaluated its intangible assets and concluded there was no impairment in 2019, 2018 and 2017 associated with the Capital Markets reporting unit.
The addition of goodwill and intangible assets during the year ended December 31, 2019 related to the acquisition of Weeden & Co., as discussed in Note 5. Management identified $16.7 million of intangible assets, consisting of $12.0 million of customer relationships and $4.7 million of internally developed software, which will be amortized over a weighted average life of 8.4 years and 3.6 years, respectively.
Intangible assets with determinable lives primarily consist of customer relationships and internally developed software. The following table summarizes the future aggregate amortization expense of the Company's intangible assets with determinable lives:
|
|
|
|
|
(Dollars in thousands)
|
|
2020
|
$
|
4,246
|
|
2021
|
3,263
|
|
2022
|
2,416
|
|
2023
|
1,686
|
|
2024
|
1,368
|
|
Thereafter
|
3,707
|
|
Total
|
$
|
16,686
|
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 13 Fixed Assets
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Furniture and equipment
|
$
|
44,018
|
|
|
$
|
43,554
|
|
Leasehold improvements
|
39,714
|
|
|
36,069
|
|
Software
|
12,109
|
|
|
11,604
|
|
Total
|
95,841
|
|
|
91,227
|
|
Accumulated depreciation and amortization
|
(65,991
|
)
|
|
(58,927
|
)
|
|
$
|
29,850
|
|
|
$
|
32,300
|
|
For the years ended December 31, 2019, 2018 and 2017, depreciation and amortization of furniture and equipment, leasehold improvements and software totaled $9.3 million, $8.1 million and $7.0 million, respectively, and are included in occupancy and equipment expense from continuing operations on the consolidated statements of operations.
Note 14 Short-Term Financing
The Company issues secured commercial paper to fund a portion of its securities inventory. The commercial paper notes ("CP Notes") can be issued with maturities of 27 days to 270 days from the date of issuance. The CP Notes are currently issued under two separate programs, CP Series A and CP Series II A, and are secured by different inventory classes. As of December 31, 2019, the weighted average maturity of outstanding CP Notes was six 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 CP Notes of $50.0 million outstanding at December 31, 2019 and 2018, with weighted average interest rates of 2.69% and 3.38%, respectively. The CP Series A program was retired effective January 2, 2020.
The Company's committed short-term bank line financing at December 31, 2019 consisted of a one-year $125 million committed revolving credit facility with U.S. Bank, N.A., which was renewed in December 2019. The Company uses this credit facility in the ordinary course of business to fund a portion of its daily operations and the amount borrowed under this credit facility varies daily based on the Company's funding needs. 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 11, 2020. The Company pays a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis. At December 31, 2019, the Company had no advances against this line of credit.
On December 20, 2019, Piper Sandler Companies entered into a credit agreement ("Credit Agreement") with U.S. Bank, N.A., which created an unsecured $50 million revolving credit facility. The Credit Agreement will terminate on December 20, 2022, unless otherwise terminated, and is subject to a one-year extension exercisable at the option of the Company. At December 31, 2019, there were no advances against this credit facility.
The Credit Agreement includes customary events of default and covenants that, among other things, require the Company's U.S. broker dealer subsidiary to maintain a minimum regulatory net capital, limit the Company's leverage ratio, require maintenance of a minimum ratio of operating cash flow to fixed charges, and impose certain limitations on the Company's ability to make acquisitions and make payments on its capital stock.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 15 Senior Notes
On October 15, 2019, the Company entered into a note purchase agreement ("Note Purchase Agreement") with certain entities advised by Pacific Investment Management Company ("PIMCO"), under which the Company issued unsecured fixed rate senior notes ("Notes") in the amount of $175 million. 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 by the Company.
The Note Purchase Agreement includes customary events of default and covenants that, among other things, require the Company's U.S. broker dealer subsidiary to maintain a minimum regulatory net capital, limit the Company's leverage ratio and require the Company to maintain a minimum ratio of operating cash flow to fixed charges. At December 31, 2019, the Company was in compliance with all covenants.
The senior notes are recorded at amortized cost which approximates fair value at December 31, 2019.
Note 16 Contingencies, Commitments and Guarantees
Legal 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.
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 December 31, 2019 are not material. In many cases, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount or range of any potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated.
Given uncertainties regarding the timing, scope, volume and outcome of pending and potential legal actions, investigations and regulatory proceedings and other factors, the amounts of reserves and ranges of reasonably possible losses are difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on currently available information, after consultation with outside legal counsel and taking into account its established reserves, that pending legal actions, investigations and regulatory proceedings will be resolved with no material adverse effect on the consolidated statements of financial condition, results of operations or cash flows of the Company. However, if during any period a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations and cash flows in that period and the financial condition as of the end of that period could be materially adversely affected. In addition, there can be no assurance that material losses will not be incurred from claims that have not yet been brought to the Company's attention or are not yet determined to be reasonably possible.
Litigation-related reserve activity included within other operating expenses from continuing operations was immaterial for the years ended December 31, 2019, 2018 and 2017.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Operating Lease Commitments
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 December 31, 2019 were as follows:
|
|
|
|
|
(Dollars in thousands)
|
|
2020
|
$
|
17,245
|
|
2021
|
12,698
|
|
2022
|
11,324
|
|
2023
|
8,311
|
|
2024
|
6,550
|
|
Thereafter
|
10,860
|
|
Total
|
$
|
66,988
|
|
Total minimum rentals to be received from 2020 through 2024 under noncancelable subleases were $2.2 million at December 31, 2019.
For the year ended December 31, 2019, the Company's operating lease cost from continuing operations was $12.1 million, of which $0.7 million related to short-term leases. The Company recorded sublease income from continuing operations of $1.6 million for the year ended December 31, 2019.
Rent expense from continuing operations was $12.7 million and $11.8 million for the years ended December 31, 2018 and 2017, respectively.
Investment Commitments
As of December 31, 2019, the Company had commitments to invest approximately $71.0 million in limited partnerships or limited liability companies that make direct or indirect equity or debt investments in companies.
Other Guarantees
The Company is a member of numerous exchanges. Under the membership agreements with these entities, members generally are required to guarantee the performance of other members, and if a member becomes unable to satisfy its obligations to the exchange, other members would be required to meet shortfalls. To mitigate these performance risks, the exchanges often require members to post collateral. In addition, the Company identifies and guarantees certain clearing agents against specified potential losses in connection with providing services to the Company or its affiliates. The Company's maximum potential liability under these arrangements cannot be quantified. However, management believes the likelihood that the Company would be required to make payments under these arrangements is remote. Accordingly, no liability is recorded in the consolidated statements of financial condition for these arrangements.
Concentration of Credit Risk
The Company provides investment, capital-raising and related services to a diverse group of domestic and foreign customers, including governments, corporations, and institutional and individual investors. The Company's exposure to credit risk associated with the non-performance of customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile securities markets, credit markets and regulatory changes. This exposure is measured on an individual customer basis and on a group basis for customers that share similar attributes. To alleviate the potential for risk concentrations, counterparty credit limits have been implemented for certain products and are continually monitored in light of changing customer and market conditions.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 17 Restructuring and Integration Costs
The Company incurred restructuring costs from continuing operations for the year ended December 31, 2019, primarily in conjunction with its acquisition of Weeden & Co. The Company incurred restructuring costs from continuing operations for the year ended December 31, 2018, primarily related to headcount reductions. The Company incurred integration costs from continuing operations for the year ended December 31, 2019, related to the acquisition of Weeden & Co., which closed on August 2, 2019, and the acquisition of Sandler O'Neill, which closed on January 3, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Severance, benefits and outplacement costs
|
|
$
|
2,938
|
|
|
$
|
3,183
|
|
|
$
|
—
|
|
Contract termination costs
|
|
2,798
|
|
|
185
|
|
|
—
|
|
Vacated leased office space
|
|
1,726
|
|
|
130
|
|
|
—
|
|
Total restructuring costs
|
|
7,462
|
|
|
3,498
|
|
|
—
|
|
|
|
|
|
|
|
|
Integration costs
|
|
6,859
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Total restructuring and integration costs
|
|
$
|
14,321
|
|
|
$
|
3,498
|
|
|
$
|
—
|
|
Note 18 Shareholders' Equity
The Company's amended and restated certificate of incorporation provides for the issuance of up to 100,000,000 shares of common stock with a par value of $0.01 per share and up to 5,000,000 shares of undesignated preferred stock with a par value of $0.01 per share.
Common Stock
The holders of the Company's common stock are entitled to one vote per share on all matters to be voted upon by the shareholders. Subject to preferences that may be applicable to any outstanding preferred stock of Piper Sandler Companies, the holders of its common stock are entitled to receive ratably such dividends, if any, as may be declared out of funds legally available for that purpose. There are also restrictions on the payment of dividends as set forth in Note 23. The Company's board of directors determines the declaration and payment of dividends on a quarterly basis, and is free to change the Company's dividend policy at any time.
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, beginning in 2018, with the intention of returning a metric based on net income from the previous fiscal year.
In 2019, the Company declared and paid quarterly cash dividends on its common stock, aggregating $1.50 per share, and an annual special cash dividend on its common stock related to fiscal year 2018 results of $1.01 per share, totaling $35.6 million.
In 2018, the Company declared and paid quarterly cash dividends on its common stock, aggregating $1.50 per share, and an annual special cash dividend on its common stock related to fiscal year 2017 results of $1.62 per share, totaling $47.2 million.
In 2017, the Company declared and paid quarterly cash dividends on its common stock, aggregating $1.25 per share, totaling $19.0 million.
On January 31, 2020, the board of directors declared both a quarterly and annual special cash dividend on its common stock of $0.38 and $0.75 per share, respectively, to be paid on March 13, 2020, to shareholders of record as of the close of business on March 2, 2020.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
In the event that Piper Sandler Companies is liquidated or dissolved, the holders of its common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to any prior distribution rights of Piper Sandler Companies preferred stock, if any, then outstanding. Currently, there is no outstanding preferred stock. The holders of the common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to Piper Sandler Companies common stock.
Share Repurchases
Effective September 30, 2017, the Company's board of directors authorized the repurchase of up to $150.0 million in common shares, which expired on September 30, 2019. In 2019, the Company repurchased 501 shares at an average price of $64.80 per share related to this authorization. In 2018, the Company repurchased 681,233 shares at an average price of $69.20 per share for an aggregate purchase price of $47.1 million related to this authorization.
Effective August 14, 2015, the Company's board of directors authorized the repurchase of up to $150.0 million in common shares through September 30, 2017. In 2017, the Company repurchased 36,936 shares at an average price of $67.62 per share for an aggregate purchase price of $2.5 million related to this authorization.
On November 15, 2019, the Company's board of directors authorized the repurchase of up to $150.0 million in common shares. This authorization will be effective from January 1, 2020 through December 31, 2021.
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 701,217 shares or $50.6 million; 279,664 shares or $23.8 million; and 314,542 shares or $23.0 million of the Company's common stock for these purposes during the years ended December 31, 2019, 2018 and 2017, respectively.
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 20. During the years ended December 31, 2019, 2018 and 2017, the Company issued 1,415,147 shares, 1,040,015 shares and 867,327 shares, respectively, related to these obligations.
Preferred Stock
The Piper Sandler Companies board of directors has the authority, without action by its shareholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, which may be greater than the rights associated with the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of common stock until the Piper Sandler Companies board of directors determines the specific rights of the holders of preferred stock. However, the effects might include, among other things, the following: restricting dividends on its common stock, diluting the voting power of its common stock, impairing the liquidation rights of its common stock and delaying or preventing a change in control of Piper Sandler Companies without further action by its shareholders.
Noncontrolling Interests
The consolidated financial statements include the accounts of Piper 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 Sandler Companies. Noncontrolling interests include the minority equity holders' proportionate share of the equity in merchant banking funds of $72.7 million and a senior living fund of $2.5 million as of December 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 of $2.8 million.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Ownership interests in entities held by parties other than the Company's common shareholders are presented as noncontrolling interests within shareholders' equity, separate from the Company's own equity. Revenues, expenses and net income or loss are reported on the consolidated statements of operations on a consolidated basis, which includes amounts attributable to both the Company's common shareholders and noncontrolling interests. Net income or loss is then allocated between the Company and noncontrolling interests based upon their relative ownership interests. Net income applicable to noncontrolling interests is deducted from consolidated net income to determine net income applicable to the Company. There was no other comprehensive income or loss attributed to noncontrolling interests for the years ended December 31, 2019, 2018 and 2017.
Note 19 Employee Benefit Plans
The Company has various employee benefit plans, and substantially all employees are covered by at least one plan. The plans include health and welfare plans and a tax-qualified retirement plan (the "Retirement Plan"). During the years ended December 31, 2019, 2018 and 2017, the Company incurred employee benefits expenses from continuing operations of $18.4 million, $18.1 million and $18.8 million, respectively.
Health and Welfare Plans
Company employees who meet certain work schedule and service requirements are eligible to participate in the Company's health and welfare plans. The Company subsidizes the cost of coverage for employees. The health plans contain cost-sharing features such as deductibles and coinsurance.
The Company is self-insured for losses related to health claims, although it obtains third party stop loss insurance coverage on both an individual and a group plan basis. Self-insured liabilities are based on a number of factors, including historical claims experience, an estimate of claims incurred but not reported and valuations provided by third party actuaries. For the years ended December 31, 2019, 2018 and 2017, the Company recognized expense of $10.6 million, $10.7 million and $11.3 million, respectively, in compensation and benefits expense from continuing operations on the consolidated statements of operations related to its health plans.
Retirement Plan
The Retirement Plan consists of a defined contribution retirement savings plan. The defined contribution retirement savings plan allows qualified employees, at their option, to make contributions through salary deductions under Section 401(k) of the Internal Revenue Code. Employee contributions are 100 percent matched by the Company to a maximum of six percent of recognized compensation up to the social security taxable wage base. Although the Company's matching contribution vests immediately, a participant must be employed on December 31 to receive that year's matching contribution.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 20 Compensation Plans
Stock-Based Compensation Plans
The Company has three outstanding stock-based compensation plans: the Amended and Restated 2003 Annual and Long-Term Incentive Plan (the "Incentive Plan"), the 2019 Employment Inducement Award Plan (the "Weeden & Co. Inducement Plan") and the 2020 Employment Inducement Award Plan (the "Sandler O'Neill 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 December 31, 2019:
|
|
|
|
Incentive Plan
|
|
Restricted Stock
|
|
Annual grants
|
463,110
|
|
Sign-on grants
|
133,363
|
|
|
596,473
|
|
Weeden & Co. Inducement Plan
|
|
Restricted Stock
|
97,752
|
|
|
|
Total restricted stock outstanding
|
694,225
|
|
|
|
Incentive Plan
|
|
Restricted Stock Units
|
|
Leadership grants
|
114,315
|
|
|
|
Incentive Plan
|
|
Stock Options
|
81,667
|
|
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 million shares remained available for future issuance under the Incentive Plan as of December 31, 2019). The Company believes that such awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool. The Incentive Plan provides for accelerated vesting of awards if there is a severance event, a change in control of the Company (as defined in the Incentive Plan), in the event of a participant's death, and at the discretion of the compensation committee of the Company's board of directors.
Restricted Stock Awards
Restricted stock grants are valued at the market price of the Company's common stock on the date of grant and are amortized over the requisite service period. The Company grants shares of restricted stock to employees as part of year-end compensation ("Annual Grants") and upon initial hiring or as a retention award ("Sign-on Grants").
The Company's Annual Grants are made each year in February. Annual Grants vest ratably over three years 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 ASC 718. Accordingly, restricted stock granted as part of the Annual Grants is expensed in the 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 year 2019 for its February 2020 Annual Grant. If an equity award related to the Annual Grants is forfeited as a result of violating the post-termination restrictions, the lower of the fair value of the award at grant date or the fair value of the award at the date of forfeiture is recorded within the consolidated statements of operations as a reversal of compensation expense.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 December 31, 2019, the Company has determined that the probability of achieving the performance condition for each award is as follows:
|
|
|
|
Grant Year
|
|
Probability of Achieving Performance Condition
|
2019
|
|
62%
|
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
|
2019
|
|
2.50%
|
|
31.9%
|
2018
|
|
2.40%
|
|
34.8%
|
2017
|
|
1.62%
|
|
35.9%
|
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.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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.
2016 Leadership Grant
Restricted stock units granted in 2016 contain market condition criteria 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 vested and converted to shares was based on the Company's stock performance achieving specified targets during the performance period. All units vested in full. Compensation expense was recognized over the 36-month performance period which ended in May 2019.
Up to 50 percent of the award 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 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 percent. These options are subject to graded vesting, beginning on the third anniversary of the grant date, so long as the employee remains continuously employed by the Company. The maximum term of these stock options is ten years.
The fair value of this stock option award was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
Risk-free interest rate
|
2.82%
|
Dividend yield
|
3.22%
|
Expected stock price volatility
|
37.20%
|
Expected life of options (in years)
|
7.0
|
Fair value of options granted (per share)
|
$24.49
|
The risk-free interest rate assumption was based on the U.S. Treasury bond yield with a maturity equal to the expected life of the options. The dividend yield assumption was based on the assumed dividend payout over the expected life of the options. The expected stock price volatility assumption was determined using historical volatility, as correlation coefficients can only be developed through historical volatility.
Inducement Plans
The Company established the 2016 Employment Inducement Award Plan (the "Simmons Inducement Plan") in conjunction with the acquisition of Simmons. The Company granted $11.6 million (286,776 shares) in restricted stock under the Simmons Inducement Plan on May 16, 2016. Simmons Inducement Plan awards were amortized as compensation expense on a straight-line basis over the vesting period. All outstanding shares cliff vested on May 16, 2019. The Company terminated the Simmons Inducement Plan in July 2019.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The Company established the Weeden & Co. 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. Weeden & Co. 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.
The Company established the Sandler O'Neill 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.
Stock-Based Compensation Activity
The following table summarizes the Company's stock-based compensation activity within continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in millions)
|
|
2019
|
|
2018
|
|
2017
|
Stock-based compensation expense
|
|
$
|
30.8
|
|
|
$
|
43.2
|
|
|
$
|
39.2
|
|
Forfeitures
|
|
2.6
|
|
|
0.9
|
|
|
3.0
|
|
Tax benefit related to stock-based compensation expense
|
|
5.4
|
|
|
6.9
|
|
|
9.8
|
|
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, 2016
|
2,874,117
|
|
|
$
|
43.12
|
|
Granted
|
248,749
|
|
|
77.78
|
|
Vested
|
(717,782
|
)
|
|
45.08
|
|
Canceled
|
(179,467
|
)
|
|
42.70
|
|
December 31, 2017
|
2,225,617
|
|
|
$
|
46.40
|
|
Granted
|
310,494
|
|
|
88.18
|
|
Vested
|
(945,550
|
)
|
|
47.65
|
|
Canceled
|
(20,766
|
)
|
|
54.53
|
|
December 31, 2018
|
1,569,795
|
|
|
$
|
53.80
|
|
Granted
|
463,088
|
|
|
74.05
|
|
Vested
|
(1,306,844
|
)
|
|
47.30
|
|
Canceled
|
(31,814
|
)
|
|
76.20
|
|
December 31, 2019
|
694,225
|
|
|
$
|
78.52
|
|
The fair value of restricted stock that vested during the years ended December 31, 2019, 2018 and 2017 was $61.8 million, $45.1 million and $32.4 million, respectively.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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, 2016
|
374,460
|
|
|
$
|
21.63
|
|
Granted
|
35,981
|
|
|
84.10
|
|
Vested
|
(115,290
|
)
|
|
23.42
|
|
Canceled
|
(50,379
|
)
|
|
31.73
|
|
December 31, 2017
|
244,772
|
|
|
$
|
27.89
|
|
Granted
|
53,796
|
|
|
92.93
|
|
Vested
|
(86,511
|
)
|
|
21.83
|
|
Canceled
|
(17,806
|
)
|
|
23.91
|
|
December 31, 2018
|
194,251
|
|
|
$
|
48.97
|
|
Granted
|
39,758
|
|
|
75.78
|
|
Vested
|
(103,707
|
)
|
|
19.93
|
|
Canceled
|
(15,987
|
)
|
|
45.79
|
|
December 31, 2019
|
114,315
|
|
|
$
|
85.09
|
|
As of December 31, 2019, there was $14.6 million of total unrecognized compensation cost related to restricted stock and restricted stock units expected to be recognized over a weighted average period of 3.1 years.
The following table summarizes the changes in the Company's outstanding stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
Options
|
|
Average
|
|
Contractual Term
|
|
Aggregate
|
|
Outstanding
|
|
Exercise Price
|
|
(in Years)
|
|
Intrinsic Value
|
December 31, 2016
|
30,613
|
|
|
$
|
65.86
|
|
|
0.3
|
|
$
|
203,291
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(26,149
|
)
|
|
65.13
|
|
|
|
|
|
Canceled
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
(4,464
|
)
|
|
70.13
|
|
|
|
|
|
December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
0.0
|
|
$
|
—
|
|
Granted
|
81,667
|
|
|
99.00
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Canceled
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
December 31, 2018
|
81,667
|
|
|
$
|
99.00
|
|
|
9.1
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Canceled
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
December 31, 2019
|
81,667
|
|
|
$
|
99.00
|
|
|
8.1
|
|
$
|
—
|
|
As of December 31, 2019, there was $1.2 million of unrecognized compensation cost related to stock options expected to be recognized over a weighted average period of 3.1 years. There were no exercisable options during the years ended December 31, 2019 and 2018. For the year ended December 31, 2017, the intrinsic value of options exercised and the resulting tax benefit realized was $0.3 million and $0.1 million, respectively.
The Company has a policy of issuing shares out of treasury (to the extent available) to satisfy share option exercises and restricted stock vesting. The Company expects to withhold approximately 0.1 million shares from employee equity awards vesting in 2020, related to employee individual income tax withholding obligations on restricted stock vesting. For accounting purposes, withholding shares to cover employees' tax obligations is deemed to be a repurchase of shares by the Company.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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. 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, $8.9 million and $27.0 million as compensation expense from continuing operations for the years ended December 31, 2019, 2018 and 2017, respectively.
Deferred Compensation Plans
The Company maintains various deferred compensation arrangements for employees.
The 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 the aforementioned vesting restrictions) and as such are not included on the consolidated statements of financial condition.
The Company recorded compensation expense from continuing operations of $45.5 million, $50.2 million and $60.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to employee MFRS Awards, less forfeitures. Forfeitures were $3.3 million, $1.6 million and $1.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The nonqualified deferred compensation plan is an unfunded plan which allowed 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 $16.7 million and $31.2 million as of December 31, 2019 and 2018, respectively, and are included in investments on the consolidated statements of financial condition. The compensation deferred by the employees was expensed in the period earned. The deferred compensation liability was $16.7 million and $31.4 million as of December 31, 2019 and 2018, respectively. Changes in the fair value of the investments made by the Company are reported in investment income and changes in the corresponding deferred compensation liability are reflected as compensation and benefits expense on the consolidated statements of operations.
Note 21 Earnings Per Share ("EPS")
The Company calculates earnings per share using the two-class method. Basic earnings per common share is computed by dividing net income/(loss) applicable to Piper Sandler Companies' common shareholders by the weighted average number of common shares outstanding for the period. Net income/(loss) applicable to Piper Sandler Companies' common shareholders represents net income/(loss) applicable to Piper Sandler Companies reduced by the allocation of earnings to participating securities. No allocation of undistributed earnings is made for periods in which a loss is incurred, or for periods in which cash dividends exceed net income resulting in an undistributed loss. Distributed earnings (e.g., dividends) are allocated to participating securities. Prior to the February 2019 Annual Grant (the "2019 Annual Grant"), all of the Company's unvested restricted shares are deemed to be participating securities as they are eligible to share in the profits (e.g., receive dividends) of the Company. The Company's unvested restricted stock units, as well as the 2019 restricted stock grants, are not participating securities as they are not eligible to receive dividends, or the dividends are forfeitable until vested. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive stock options, restricted stock units and non-participating restricted shares.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The computation of earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands, except per share data)
|
2019
|
|
2018
|
|
2017
|
Net income from continuing operations applicable to Piper Sandler Companies
|
$
|
87,939
|
|
|
$
|
55,649
|
|
|
$
|
23,121
|
|
Net income/(loss) from discontinued operations
|
23,772
|
|
|
1,387
|
|
|
(85,060
|
)
|
Net income/(loss) applicable to Piper Sandler Companies
|
111,711
|
|
|
57,036
|
|
|
(61,939
|
)
|
Earnings allocated to participating securities (1)
|
(4,511
|
)
|
|
(7,043
|
)
|
|
(2,936
|
)
|
Net income/(loss) applicable to Piper Sandler Companies' common shareholders (2)
|
$
|
107,200
|
|
|
$
|
49,993
|
|
|
$
|
(64,875
|
)
|
|
|
|
|
|
|
Shares for basic and diluted calculations:
|
|
|
|
|
|
Average shares used in basic computation
|
13,555
|
|
|
13,234
|
|
|
12,807
|
|
Restricted stock units
|
162
|
|
|
191
|
|
|
171
|
|
Non-participating restricted shares
|
220
|
|
|
—
|
|
|
—
|
|
Average shares used in diluted computation (3)
|
13,937
|
|
|
13,425
|
|
|
12,978
|
|
|
|
|
|
|
|
Earnings/(loss) per basic common share:
|
|
|
|
|
|
Income from continuing operations
|
$
|
6.21
|
|
|
$
|
3.68
|
|
|
$
|
1.57
|
|
Income/(loss) from discontinued operations
|
1.69
|
|
|
0.09
|
|
|
(6.64
|
)
|
Earnings/(loss) per basic common share
|
$
|
7.90
|
|
|
$
|
3.78
|
|
|
$
|
(5.07
|
)
|
|
|
|
|
|
|
Earnings/(loss) per diluted common share:
|
|
|
|
|
|
Income from continuing operations
|
$
|
6.05
|
|
|
$
|
3.63
|
|
|
$
|
1.57
|
|
Income/(loss) from discontinued operations
|
1.65
|
|
|
0.09
|
|
|
(6.55
|
)
|
Earnings/(loss) per diluted common share (3)
|
$
|
7.69
|
|
|
$
|
3.72
|
|
|
$
|
(4.99
|
)
|
|
|
(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 513,220; 1,868,883; and 2,349,476 for the years ended December 31, 2019, 2018 and 2017, respectively.
|
|
|
(2)
|
Net income/(loss) applicable to Piper 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 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 in which cash dividends exceed net income resulting in an undistributed loss. Common shares of 2,225,617 were excluded from diluted EPS for the year ended December 31, 2017, as the Company had a net loss for this period.
|
The average shares used in the diluted computation excluded anti-dilutive stock options and non-participating restricted shares of 0.1 million for the year ended December 31, 2019. The anti-dilutive effects from stock options, restricted stock units and non-participating restricted shares were immaterial for the years ended December 31, 2018 and 2017.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 22 Revenues and Business Information
The Company's activities as an investment bank and institutional securities firm constitute a single business segment. The substantial majority of the Company's net revenues and long-lived assets are located in the U.S.
Segment pre-tax operating income and segment pre-tax operating margin exclude the results of discontinued operations.
Reportable financial results from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
Capital Markets
|
|
|
|
|
|
Investment banking
|
|
|
|
|
|
Advisory services
|
$
|
440,695
|
|
|
$
|
394,133
|
|
|
$
|
443,303
|
|
Equity financing
|
104,563
|
|
|
122,172
|
|
|
98,996
|
|
Debt financing
|
85,701
|
|
|
73,262
|
|
|
93,434
|
|
Total investment banking
|
630,959
|
|
|
589,567
|
|
|
635,733
|
|
|
|
|
|
|
|
Institutional sales and trading
|
|
|
|
|
|
Equities
|
88,792
|
|
|
77,477
|
|
|
81,717
|
|
Fixed income
|
94,922
|
|
|
67,784
|
|
|
89,609
|
|
Total institutional sales and trading
|
183,714
|
|
|
145,261
|
|
|
171,326
|
|
|
|
|
|
|
|
Investment income
|
23,093
|
|
|
11,918
|
|
|
24,238
|
|
|
|
|
|
|
|
Other financing expenses
|
(3,200
|
)
|
|
(5,793
|
)
|
|
(7,676
|
)
|
|
|
|
|
|
|
Net revenues
|
834,566
|
|
|
740,953
|
|
|
823,621
|
|
|
|
|
|
|
|
Operating expenses (1)
|
715,587
|
|
|
668,464
|
|
|
744,305
|
|
|
|
|
|
|
|
Segment pre-tax operating income
|
$
|
118,979
|
|
|
$
|
72,489
|
|
|
$
|
79,316
|
|
|
|
|
|
|
|
Segment pre-tax operating margin
|
14.3
|
%
|
|
9.8
|
%
|
|
9.6
|
%
|
|
|
(1)
|
Operating expenses include intangible asset amortization of $4.3 million, $4.9 million and $10.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
|
Note 23 Net Capital Requirements and Other Regulatory Matters
Piper 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 Sandler's primary SRO. Piper Sandler is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. Piper 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 Sandler are subject to certain approvals, notifications and other provisions of SEC and FINRA rules.
At December 31, 2019, net capital calculated under the SEC rule was $236.9 million, and exceeded the minimum net capital required under the SEC rule by $235.9 million.
The Company's committed short-term credit facility, revolving credit facility and its senior notes with PIMCO include covenants requiring Piper Sandler to maintain minimum net capital of $120 million. CP Notes issued under CP Series II A include a covenant that requires Piper Sandler to maintain excess net capital of $100 million. The Company's fully disclosed clearing agreement with Pershing also includes a covenant requiring Piper Sandler to maintain excess net capital of $120 million.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Piper 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 December 31, 2019, Piper Sandler Ltd. was in compliance with the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority.
Piper 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 December 31, 2019, Piper Sandler Hong Kong Limited was in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Commission.
Note 24 Income Taxes
Income tax expense/(benefit) is provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
As a result of the Tax Cuts and Jobs Act that was enacted on December 22, 2017, and in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118"), the Company made a reasonable estimate of the impact of the Tax Cuts and Jobs Act, and recorded a discrete item in its 2017 provisional income tax expense from continuing operations of $36.4 million. This amount reflected an estimated reduction of deferred tax assets as a result of the statutory federal rate decrease from 35 percent to 21 percent. Pursuant to the defined measurement period in SAB 118, the Company recorded an additional $1.0 million of income tax expense from continuing operations for the year ended December 31, 2018. The accounting for the income tax effects of the Tax Cuts and Jobs Act was complete as of December 31, 2018.
The components of income tax expense from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(404
|
)
|
|
$
|
16,351
|
|
|
$
|
30,230
|
|
State
|
123
|
|
|
4,784
|
|
|
5,896
|
|
Foreign
|
96
|
|
|
276
|
|
|
93
|
|
|
(185
|
)
|
|
21,411
|
|
|
36,219
|
|
Deferred:
|
|
|
|
|
|
Federal
|
19,071
|
|
|
(7,326
|
)
|
|
20,692
|
|
State
|
5,517
|
|
|
(524
|
)
|
|
(1,849
|
)
|
Foreign
|
174
|
|
|
4,485
|
|
|
(1,254
|
)
|
|
24,762
|
|
|
(3,365
|
)
|
|
17,589
|
|
|
|
|
|
|
|
Total income tax expense from continuing operations
|
$
|
24,577
|
|
|
$
|
18,046
|
|
|
$
|
53,808
|
|
|
|
|
|
|
|
Total income tax expense/(benefit) from discontinued operations
|
$
|
8,370
|
|
|
$
|
1,001
|
|
|
$
|
(23,580
|
)
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
A reconciliation of federal income taxes from continuing operations at statutory rates to the Company's effective tax rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
Federal income tax expense at statutory rates
|
$
|
24,986
|
|
|
$
|
15,223
|
|
|
$
|
27,760
|
|
Increase/(reduction) in taxes resulting from:
|
|
|
|
|
|
Impact of the Tax Cuts and Jobs Act
|
—
|
|
|
952
|
|
|
36,357
|
|
State income taxes, net of federal tax benefit
|
4,906
|
|
|
3,390
|
|
|
2,561
|
|
Net tax-exempt interest income
|
(1,643
|
)
|
|
(3,034
|
)
|
|
(5,040
|
)
|
Foreign jurisdictions tax rate differential
|
(438
|
)
|
|
1,067
|
|
|
865
|
|
Non-deductible compensation
|
3,293
|
|
|
1,999
|
|
|
—
|
|
Change in valuation allowance
|
(209
|
)
|
|
5,299
|
|
|
(752
|
)
|
Vestings of stock awards
|
(5,171
|
)
|
|
(7,052
|
)
|
|
(9,115
|
)
|
Loss/(income) attributable to noncontrolling interests
|
(1,357
|
)
|
|
253
|
|
|
(835
|
)
|
Other, net
|
210
|
|
|
(51
|
)
|
|
2,007
|
|
Total income tax expense from continuing operations
|
$
|
24,577
|
|
|
$
|
18,046
|
|
|
$
|
53,808
|
|
In accordance with ASC 740, U.S. income taxes are not provided on undistributed earnings of international subsidiaries that are permanently reinvested. As of December 31, 2019, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of the Company's foreign earnings to the U.S.
Deferred income tax assets and liabilities reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes. The net deferred income tax assets consisted of the following items:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Deferred compensation
|
$
|
54,969
|
|
|
$
|
63,147
|
|
Accrued lease liability
|
13,531
|
|
|
—
|
|
Goodwill tax basis in excess of book basis
|
11,059
|
|
|
11,005
|
|
Net operating loss carryforwards
|
4,965
|
|
|
5,556
|
|
Liabilities/accruals not currently deductible
|
1,530
|
|
|
1,117
|
|
Other
|
3,852
|
|
|
4,733
|
|
Total deferred tax assets
|
89,906
|
|
|
85,558
|
|
Valuation allowance
|
(4,599
|
)
|
|
(4,808
|
)
|
|
|
|
|
Deferred tax assets after valuation allowance
|
85,307
|
|
|
80,750
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Right-of-use lease asset
|
9,289
|
|
|
—
|
|
Unrealized gains on firm investments
|
3,988
|
|
|
4,313
|
|
Fixed assets
|
3,408
|
|
|
2,886
|
|
Other
|
587
|
|
|
555
|
|
|
|
|
|
Total deferred tax liabilities
|
17,272
|
|
|
7,754
|
|
|
|
|
|
Net deferred tax assets
|
$
|
68,035
|
|
|
$
|
72,996
|
|
The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. The Company believes that its future tax profits will be sufficient to recognize its deferred tax assets, with the exception of $4.6 million in state and foreign net operating loss carryforwards.
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The Company accounts for unrecognized tax benefits in accordance with the provisions of ASC 740, which requires tax reserves to be recorded for uncertain tax positions on the consolidated statements of financial condition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
(Dollars in thousands)
|
|
Balance at December 31, 2016
|
$
|
123
|
|
Additions based on tax positions related to the current year
|
—
|
|
Additions for tax positions of prior years
|
166
|
|
Reductions for tax positions of prior years
|
—
|
|
Settlements
|
(123
|
)
|
Balance at December 31, 2017
|
$
|
166
|
|
Additions based on tax positions related to the current year
|
608
|
|
Additions for tax positions of prior years
|
—
|
|
Reductions for tax positions of prior years
|
—
|
|
Settlements
|
—
|
|
Balance at December 31, 2018
|
$
|
774
|
|
Additions based on tax positions related to the current year
|
—
|
|
Additions for tax positions of prior years
|
4,128
|
|
Reductions for tax positions of prior years
|
(358
|
)
|
Settlements
|
(285
|
)
|
Balance at December 31, 2019
|
$
|
4,259
|
|
As of December 31, 2019, approximately $0.2 million of the Company's unrecognized tax benefits would impact the annual effective rate, if recognized.
In 2019, the Company recorded a $4.1 million liability for uncertain state and local income tax positions related to its acquisition of Weeden & Co. This liability was recorded as a measurement period adjustment and includes a corresponding indemnification asset and deferred tax asset. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. The Company had $1.2 million accrued related to the payment of interest and penalties at December 31, 2019. The Company had no accruals related to the payment of interest and penalties at December 31, 2018 and 2017. The Company or one of its subsidiaries files income tax returns with the various states and foreign jurisdictions in which the Company operates. The Company is not subject to examination by U.S. federal tax authorities for years before 2016 and is not subject to examination by state and local or non-U.S. tax authorities for taxable years before 2015. The Company anticipates the majority of its uncertain income tax positions will be resolved within the next twelve months.
Note 25 Piper Sandler Companies (Parent Company only)
Condensed Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(Amounts in thousands)
|
2019
|
|
2018
|
Assets
|
|
|
|
Cash and cash equivalents
|
$
|
200
|
|
|
$
|
254
|
|
Investment in and advances to subsidiaries
|
931,444
|
|
|
676,516
|
|
Other assets
|
16,878
|
|
|
27,529
|
|
Total assets
|
$
|
948,522
|
|
|
$
|
704,299
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
Senior notes
|
$
|
175,000
|
|
|
$
|
—
|
|
Accrued compensation
|
30,336
|
|
|
26,081
|
|
Other liabilities and accrued expenses
|
11,903
|
|
|
774
|
|
Total liabilities
|
217,239
|
|
|
26,855
|
|
|
|
|
|
Shareholders' equity
|
731,283
|
|
|
677,444
|
|
Total liabilities and shareholders' equity
|
$
|
948,522
|
|
|
$
|
704,299
|
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
Dividends from subsidiaries
|
$
|
54,762
|
|
|
$
|
74,896
|
|
|
$
|
105,102
|
|
Interest
|
815
|
|
|
1,247
|
|
|
1,125
|
|
Investment income/(loss)
|
2,012
|
|
|
(496
|
)
|
|
4,060
|
|
Total revenues
|
57,589
|
|
|
75,647
|
|
|
110,287
|
|
|
|
|
|
|
|
Interest expense
|
1,910
|
|
|
4,902
|
|
|
7,170
|
|
|
|
|
|
|
|
Net revenues
|
55,679
|
|
|
70,745
|
|
|
103,117
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
Total non-interest expenses
|
4,851
|
|
|
5,844
|
|
|
4,936
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense and equity in income of subsidiaries
|
50,828
|
|
|
64,901
|
|
|
98,181
|
|
|
|
|
|
|
|
Income tax expense
|
11,215
|
|
|
10,833
|
|
|
30,366
|
|
|
|
|
|
|
|
Income from continuing operations of parent company
|
39,613
|
|
|
54,068
|
|
|
67,815
|
|
|
|
|
|
|
|
Equity in undistributed/(distributed in excess of) income of subsidiaries
|
99,005
|
|
|
5,469
|
|
|
(40,321
|
)
|
|
|
|
|
|
|
Net income from continuing operations
|
138,618
|
|
|
59,537
|
|
|
27,494
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
(26,907
|
)
|
|
(2,501
|
)
|
|
(89,433
|
)
|
|
|
|
|
|
|
Net income/(loss) applicable to Piper Sandler Companies
|
$
|
111,711
|
|
|
$
|
57,036
|
|
|
$
|
(61,939
|
)
|
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
Operating Activities:
|
|
|
|
|
|
Net income/(loss)
|
$
|
111,711
|
|
|
$
|
57,036
|
|
|
$
|
(61,939
|
)
|
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
|
|
|
|
|
|
Stock-based compensation
|
643
|
|
|
404
|
|
|
208
|
|
Equity in undistributed/(distributed in excess of) income of subsidiaries
|
(99,005
|
)
|
|
(5,469
|
)
|
|
40,321
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
13,349
|
|
|
51,971
|
|
|
(21,410
|
)
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
Issuance of senior notes
|
175,000
|
|
|
—
|
|
|
—
|
|
Repayment of senior notes
|
—
|
|
|
(125,000
|
)
|
|
(50,000
|
)
|
Advances from/(to) subsidiaries
|
(102,225
|
)
|
|
188,995
|
|
|
117,016
|
|
Repurchase of common stock
|
(50,584
|
)
|
|
(70,903
|
)
|
|
(25,481
|
)
|
Payment of cash dividend
|
(35,594
|
)
|
|
(47,157
|
)
|
|
(18,947
|
)
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities
|
(13,403
|
)
|
|
(54,065
|
)
|
|
22,588
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
(54
|
)
|
|
(2,094
|
)
|
|
1,178
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
254
|
|
|
2,348
|
|
|
1,170
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
$
|
200
|
|
|
$
|
254
|
|
|
$
|
2,348
|
|
Note 26 Subsequent Events
On January 3, 2020, the Company completed the acquisition of 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 total consideration of $485.0 million, for which the Company received $100.0 million of tangible book value, consisted of $350.0 million in cash and $135.0 million in restricted consideration, primarily in restricted stock. The Company also entered into acquisition-related compensation agreements with certain employees of $115.0 million, primarily in restricted stock, for retention purposes. Sandler O'Neill's results of operations will be included in the Company's consolidated financial statements prospectively from the date of acquisition.
On February 21, 2020, the Company announced a definitive agreement to acquire 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 consists of cash and restricted stock. A portion of the restricted stock consideration will be used for retentive purposes. Additional consideration may be earned if certain revenue targets are achieved. The transaction is expected to close in the second quarter of 2020, subject to obtaining required regulatory approvals and other customary closing conditions.
Piper Sandler Companies
Supplementary Data
Quarterly Information (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Fiscal Quarter
|
(Amounts in thousands, except per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total revenues
|
$
|
185,185
|
|
|
$
|
175,411
|
|
|
$
|
202,912
|
|
|
$
|
282,791
|
|
|
Interest expense
|
2,643
|
|
|
2,993
|
|
|
2,177
|
|
|
3,920
|
|
|
Net revenues
|
182,542
|
|
|
172,418
|
|
|
200,735
|
|
|
278,871
|
|
|
Non-interest expenses
|
159,405
|
|
|
151,493
|
|
|
179,700
|
|
|
224,989
|
|
|
Income from continuing operations before income tax expense/(benefit)
|
23,137
|
|
|
20,925
|
|
|
21,035
|
|
|
53,882
|
|
|
Income tax expense/(benefit)
|
4,192
|
|
|
(180
|
)
|
|
6,717
|
|
|
13,848
|
|
|
Income from continuing operations
|
18,945
|
|
|
21,105
|
|
|
14,318
|
|
|
40,034
|
|
|
Income/(loss) from discontinued operations, net of tax
|
(139
|
)
|
|
(2,166
|
)
|
|
26,077
|
|
|
—
|
|
|
Net income
|
18,806
|
|
|
18,939
|
|
|
40,395
|
|
|
40,034
|
|
|
Net income/(loss) applicable to noncontrolling interests
|
(616
|
)
|
|
8,550
|
|
|
(2,847
|
)
|
|
1,376
|
|
|
Net income applicable to Piper Sandler Companies
|
$
|
19,422
|
|
|
$
|
10,389
|
|
|
$
|
43,242
|
|
|
38,658
|
|
|
Net income applicable to Piper Sandler Companies' common shareholders
|
$
|
17,835
|
|
|
$
|
10,151
|
|
|
$
|
42,442
|
|
|
$
|
38,006
|
|
|
|
|
|
|
|
|
|
|
|
Amounts applicable to Piper Sandler Companies
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
19,561
|
|
|
$
|
12,555
|
|
|
$
|
17,165
|
|
|
$
|
38,658
|
|
|
Net income/(loss) from discontinued operations
|
(139
|
)
|
|
(2,166
|
)
|
|
26,077
|
|
|
—
|
|
|
Net income applicable to Piper Sandler Companies
|
$
|
19,422
|
|
|
$
|
10,389
|
|
|
$
|
43,242
|
|
|
$
|
38,658
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
1.36
|
|
|
$
|
0.90
|
|
|
$
|
1.23
|
|
|
$
|
2.77
|
|
|
Income/(loss) from discontinued operations
|
(0.01
|
)
|
|
(0.15
|
)
|
|
1.87
|
|
|
—
|
|
|
Earnings per basic common share
|
$
|
1.35
|
|
|
$
|
0.75
|
|
|
$
|
3.09
|
|
|
$
|
2.77
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
1.33
|
|
|
$
|
0.87
|
|
|
$
|
1.20
|
|
|
$
|
2.70
|
|
|
Income/(loss) from discontinued operations
|
(0.01
|
)
|
|
(0.15
|
)
|
|
1.82
|
|
|
—
|
|
|
Earnings per diluted common share
|
$
|
1.32
|
|
|
$
|
0.72
|
|
|
$
|
3.01
|
|
|
$
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
$
|
1.385
|
|
|
$
|
0.375
|
|
|
$
|
0.375
|
|
|
$
|
0.375
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
13,204
|
|
|
13,588
|
|
|
13,708
|
|
|
13,714
|
|
|
Diluted
|
13,530
|
|
|
14,024
|
|
|
14,085
|
|
|
14,100
|
|
|
Piper Sandler Companies
Supplementary Data – Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Fiscal Quarter
|
(Amounts in thousands, except per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total revenues
|
$
|
163,200
|
|
|
$
|
167,460
|
|
|
$
|
209,656
|
|
|
$
|
217,188
|
|
|
Interest expense
|
5,338
|
|
|
5,099
|
|
|
3,705
|
|
|
2,409
|
|
|
Net revenues
|
157,862
|
|
|
162,361
|
|
|
205,951
|
|
|
214,779
|
|
|
Non-interest expenses
|
149,740
|
|
|
157,474
|
|
|
178,165
|
|
|
183,085
|
|
|
Income from continuing operations before income tax expense/(benefit)
|
8,122
|
|
|
4,887
|
|
|
27,786
|
|
|
31,694
|
|
|
Income tax expense/(benefit)
|
(2,512
|
)
|
|
559
|
|
|
6,902
|
|
|
13,097
|
|
|
Income from continuing operations
|
10,634
|
|
|
4,328
|
|
|
20,884
|
|
|
18,597
|
|
|
Income/(loss) from discontinued operations, net of tax
|
(15
|
)
|
|
364
|
|
|
1,386
|
|
|
(348
|
)
|
|
Net income
|
10,619
|
|
|
4,692
|
|
|
22,270
|
|
|
18,249
|
|
|
Net income/(loss) applicable to noncontrolling interests
|
16
|
|
|
(1,534
|
)
|
|
247
|
|
|
65
|
|
|
Net income applicable to Piper Sandler Companies
|
$
|
10,603
|
|
|
$
|
6,226
|
|
|
$
|
22,023
|
|
|
$
|
18,184
|
|
|
Net income applicable to Piper Sandler Companies' common shareholders
|
$
|
6,435
|
|
|
$
|
5,522
|
|
|
$
|
19,377
|
|
|
$
|
16,164
|
|
|
|
|
|
|
|
|
|
|
|
Amounts applicable to Piper Sandler Companies
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
10,618
|
|
|
$
|
5,862
|
|
|
$
|
20,637
|
|
|
$
|
18,532
|
|
|
Net income/(loss) from discontinued operations
|
(15
|
)
|
|
364
|
|
|
1,386
|
|
|
(348
|
)
|
|
Net income applicable to Piper Sandler Companies
|
$
|
10,603
|
|
|
$
|
6,226
|
|
|
$
|
22,023
|
|
|
$
|
18,184
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.47
|
|
|
$
|
0.40
|
|
|
$
|
1.36
|
|
|
$
|
1.25
|
|
|
Income/(loss) from discontinued operations
|
—
|
|
|
0.03
|
|
|
0.09
|
|
|
(0.02
|
)
|
|
Earnings per basic common share
|
$
|
0.47
|
|
|
$
|
0.43
|
|
|
$
|
1.45
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.50
|
|
|
$
|
0.40
|
|
|
$
|
1.34
|
|
|
$
|
1.23
|
|
|
Income/(loss) from discontinued operations
|
—
|
|
|
0.03
|
|
|
0.09
|
|
|
(0.02
|
)
|
|
Earnings per diluted common share
|
$
|
0.50
|
|
|
$
|
0.43
|
|
|
$
|
1.43
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
$
|
1.995
|
|
|
$
|
0.375
|
|
|
$
|
0.375
|
|
|
$
|
0.375
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
13,096
|
|
|
13,303
|
|
|
13,343
|
|
|
13,191
|
|
|
Diluted
|
13,382
|
|
|
13,438
|
|
|
13,508
|
|
|
13,367
|
|
|