We are a leading investment bank
We enable growth and success for our clients through deep sector expertise,
candid advice and a differentiated, highly productive culture.
OUR MISSION
We connect capital with opportunity to create value and build a better future.
GUIDING PRINCIPLES
We create and implement superior financial solutions for our clients.
Serving clients is our fundamental purpose.
We earn our clients' trust by delivering the best guidance and service.
Great people working together as a team are our competitive advantage.
As we serve, we are committed to these core values:
• Always place our clients' interests first
• Conduct ourselves with integrity and treat others with respect
• Work in partnership with our clients and each other
• Attract, retain and develop a diverse group of the best people
in a high-quality, inclusive environment
• Contribute our talents and resources to serve the communities
in which we live and work
Financial highlights
Piper Sandler generated record revenues of $1.23 billion and record adjusted
earnings of $10.02 per share for 2020. In addition, we returned $3.10 per share,
or 31% of adjusted net income, to shareholders through our 2020 dividends. Our
results were driven by strong performances across all of our businesses, and
reflect the benefits of our more scaled and diversified platform and our ability to
successfully drive shareholder value through strategic investments.
SUMMARY OF ADJUSTED FINANCIAL RESULTS*
($ in thousands)
For the year ended December 31,
Adjusted net revenues
Advisory services
Corporate financing
Municipal financing
Equity brokerage
Fixed income
Investment income
Interest income, net of expense
2016
2017
2018
2019
2020
$304,654
72,099
113,587
87,944
73,736
20,933
17,386
$443,303
100,455
90,079
79,788
74,929
18,067
18,852
$394,133
123,072
71,773
77,110
47,628
7,418
21,100
$440,695
105,256
83,441
87,555
80,336
11,506
16,856
$443,327
295,333
119,816
161,445
196,308
10,384
8,347
Adjusted net revenues
$690,339
$825,473
$742,234
$825,645 $1,234,960
Adjusted operating income
Adjusted operating margin
$103,658
15.0%
$149,877
18.2%
$113,384
15.3%
$138,235
16.7%
$250,288
20.3%
Adjusted net income
$62,748
$102,140
$87,412
$106,197
$177,555
Adjusted Net Revenues*
($ in millions)
Adjusted Diluted EPS*
$1,235
$10.02
$825
$742
$826
$690
$7.36
$6.68
$5.72
$4.05
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
*Financial measures presented above and included in the following letter to our fellow shareholders are on a non-GAAP, adjusted basis. The
non-GAAP measures are not meant to be considered in isolation or as a substitute for the corresponding U.S. GAAP measures. Please refer
to the Appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measure.
To our fellow shareholders:
This past year has brought more change than we could have ever imagined. We experienced a global
pandemic, a movement for racial justice, and a monumental election. Economic conditions and
financial markets heavily influence our business and this year was a rollercoaster on both fronts.
During 2020, equity markets hit all-time highs in mid-February, then plummeted 34% by late March,
and then rebounded reaching all-time highs by year-end. The volatility and velocity of change in the
markets was historic and unprecedented. Through all of this, and in part because of it, 2020 was a
year of transformation and tremendous growth for us.
The scale and diversification of the platform
we have built combined with the hard work of
our employees and their dedication to serving
our clients greatly benefited all stakeholders in
2020. We recorded the firm’s highest net
revenues, adjusted net income, and adjusted
EPS on record. Our results include strong
performances across all of our businesses and
highlight our ability to drive shareholder value
through focused investments and strong
execution of our strategic objectives.
For 2020, we generated adjusted net revenues
of $1.23 billion, an increase of 50% over 2019.
Adjusted net income of $178 million for 2020
increased 67% over the prior year, and
adjusted diluted earnings of $10.02 per share
increased 36% compared to $7.36 in 2019.
Serving our clients is our fundamental
purpose, and we have built market-leading
franchises with multi-decade trusted
relationships by delivering our industry-best
guidance and service. As we all adapted to the
changing business environment, we remained
in constant communication with our clients—
sharing best practices, discussing and
executing their strategic initiatives and capital
needs, and finding liquidity in rapidly changing
markets.
2020 Adjusted Net Revenue Mix
$1.23
BILLION
Advisory Services
Corporate Financing
Municipal Financing
Equity Brokerage
Fixed Income
Other income
During 2020, we raised record amounts of capital for both corporate and municipal clients, executed
record equity volumes, and provided differentiated advice on repositioning balance sheets and
portfolios. In addition to benefiting from favorable markets, we gained market share in all of our
businesses—a true reflection of our reputation and the trust clients place in us. These achievements
are the result of diligently executing our long-term strategic objectives of driving revenue growth,
building a stronger and more durable platform, and maximizing shareholder value.
PIPER SANDLER | 1
In January 2020, we completed the acquisition of Sandler O’Neill to become Piper Sandler
Companies. The combination positioned us as a top player within the financial services industry and
strengthened our market leadership. During 2020, Sandler outperformed our expectations, retained
their leading market share, and registered one of their most successful years. The resiliency of their
franchise during challenging markets has been particularly impressive. Their broad product offerings
combined with deep client relationships and sector expertise continues to drive strong performance
across market cycles.
We acquired Weeden & Co. in 2019, making 2020 the first complete fiscal year with Weeden as the
core of our equity trading platform. The acquisition positioned us as a top institutional equities
platform, expanded our trading product offerings and account coverage, and increased our market
share opportunity as clients continue to seek large and broad, high-quality providers. By combining
top-ranked research, trading and capital markets capabilities, we have created a premier client
destination. During 2020, we significantly grew revenues and gained market share. As we continue to
demonstrate the full capabilities of our platform, we believe there is additional opportunity for market
share gains.
These acquisitions, among others, collectively strengthened our platform by adding material scale and
operating leverage, broadening our industry verticals, and expanding our product capabilities.
Navigating this past year has reinforced the importance of each of these attributes. Just as our record
performance, market leadership, and broad product offerings are helping us to build and deepen client
relationships, they are making our platform a destination of choice for talent.
We gained market share in all of our businesses during 2020—a reflection of our reputation
and the trust clients place in us.
No. 1
Advisor in U.S. M&A for
Banks & Thrifts1
No. 2
Advisor in U.S. M&A for deals
< $500M2
Top 5
Book run underwriter of
IPOs & Follow-Ons for
companies < $5B market
cap in Healthcare3
58%
Market share in book
run debt issuance
for Community &
Regional Banks4
No. 2
Senior underwriter of
municipal negotiated
U.S. transactions5
11.6B
Equity shares traded during
2020, up 149% over 2019
2x+
Size of fixed income business
in 2020 compared to 2019
1) Ranking based on number of announced U.S. bank and thrift transactions during 2020. Source: S&P Global Market Intelligence.
2) Ranking based on number of announced U.S. transactions across all industries with a reported deal value < $500 million during 2020. Source: Mergermarket.
3) Ranking based on number of book run IPOs and Follow-Ons > $20 million in value for healthcare companies with < $5 billion of market cap during 2020.
Source: Dealogic, Piper Sandler Equity Capital Markets Desk.
4) Market share based on gross proceeds raised during 2020 in $1000 par subordinated debt and senior note offerings > $5 million in size for Community Banks
with assets < $40 billion. Source: S&P Global Market Intelligence, Bloomberg, Piper Sandler Syndicate Desk.
5) Ranking based on number of municipal sole/senior negotiated and private placement transactions completed during 2020. Source: Refinitiv.
2 | PIPER SANDLER
The scale and operating leverage in our platform combined with our capital-light approach allows us
to generate significant levels of excess cash from operations. Based on this, and our track record of
profitable growth, we continue to believe our shareholders will benefit the most over the long-term
through deployment of capital towards growth initiatives. As such, we made a number of strategic
investments during the year to move our business forward.
We acquired The Valence Group in April 2020, adding a chemicals and materials M&A practice to our
platform to expand our industry coverage with the benefit of strengthening our presence in Europe. In
December 2020, we closed on the acquisition of TRS Advisors, an independent advisory firm focused
on advising and executing restructurings, reorganizations and other complex financial transactions.
This addition broadens our product capabilities, and we see synergistic opportunities with many of our
industry verticals.
Further strengthening our leadership in public finance, we hired a special district group in our public
finance investment banking business. This longstanding, market-leading team serves special district
and urban authority clients that fund public infrastructure for new development.
In addition to deploying capital towards acquisitions that accelerate growth, we return capital to
shareholders through our dividend policy. Total dividends related to fiscal year 2020 amounted to
$3.10 per share, up 38% compared to the prior year, and equates to a payout ratio of 30.9% of
adjusted net income. This represents a 4.3% dividend yield based on the average closing share price
during 2020.
Our growth, business mix and disciplined use of capital has driven best-in-class returns. Individual
years, especially in rapidly changing markets, only provide a limited picture, while a decade illustrates
true evolution and sustainability. Since 2011, we have grown net revenues more than threefold, and
adjusted diluted EPS at a 32% CAGR. We have and will continue to transform our business through
strategic investments.
Our commitment to continued growth and transformation also applies to our employees. Great people
working together as a team are our competitive advantage. In March 2020, we rapidly transitioned
over 90% of our employees to a remote working environment. Our corporate support groups worked
diligently behind the scenes, providing best in class support to ensure the continued service to our
clients. We take pride in the incredible partnership our employees displayed in the face of adversity—
showing up each day with a positive attitude focused on helping each other, serving our clients, and
improving our communities.
The events that led to George Floyd’s death in Minneapolis, our headquarters, were painful and
traumatic for our community and the entire country, especially our communities of color. We recognize
the magnitude of work required in remedying the inequalities and injustices that exist in our
communities, and we believe that each of us has a role to play. Together, with determined and
collaborative efforts, we can make progress towards achieving greater justice and equality, in part by
creating a more diverse and inclusive workforce. We are committed, as a firm, to continue working
together to create the change our employees, clients, and communities deserve.
PIPER SANDLER | 3
INVESTMENT BANKING
Investment banking, which consists of advisory services and corporate financing, delivered record
revenues of $739 million in 2020, up 35% compared to the prior year. Revenues for the year included
significant contributions from our market-leading franchises in healthcare and financial services.
In addition, our performance highlights the breadth of our product expertise. Corporate equity and
debt financing activity, combined with capital advisory deals, generated 56% of total investment
banking revenues, compared to M&A activity which generated 44%. Our comprehensive suite of
products and services, combined with our deep and broad sector expertise, allows us to serve clients
across all market cycles.
Growing and broadening our investment banking platform continues to be a focus. Since 2011, we
have grown revenues nearly fivefold demonstrating our long-term success in strategically investing in
our business. With 138 investment banking managing directors and several market-leading franchises,
our platform represents one of the deepest and broadest amongst our peers. In addition to driving
revenue growth through accretive combinations, selective hiring, and internal development, our
success is also attributable to winning larger assignments and gaining market share.
Investment Banking Revenues
($ in millions)
Corporate Financing
Advisory Services
$308
$110
$325
$114
$198
$210
$377
$72
$305
$151
$63
$88
$161
$70
$91
$178
$94
$83
$739
$295
$544
$100
$517
$123
$546
$105
$443
$394
$441
$443
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
When we announced the acquisition of Sandler in July 2019, we set a target of $750 million of annual
investment banking revenues, and in 2020, we nearly reached that target despite a challenging M&A
market. We see opportunities to continue our growth trajectory by broadening our industry teams
through strategic hires or tuck-in acquisitions, and by capitalizing on the strength of our U.S. franchise
to expand into Europe. We now believe that we are on a clear path to grow annual investment banking
revenues to $1 billion over the next several years.
4 | PIPER SANDLER
Advisory Services
Advisory services generated revenues of $443 million for 2020, flat compared to the prior year, despite
M&A activity slowing during the second and third quarters of the year as uncertainty from the Covid-
19 pandemic delayed engagements market-wide. Our performance during 2020 benefited from the
addition of Sandler and the breadth and scale of our industry teams.
We advised on 158 completed M&A transactions during 2020, up from 140 during the prior year, and
completed 114 capital advisory transactions, namely debt and equity private placements, compared to
38 during 2019. In addition, we ranked No. 2 in the market based on the number of U.S. M&A deals
announced during 2020 with a reported value of less than $500 million, and ranked No. 1 in bank and
thrift M&A based on the number of announced transactions during 2020.
Although market conditions were challenging for most of the year, our fourth quarter 2020 results were
particularly encouraging as revenues rebounded 119% from the trough we experienced during the
third quarter of 2020. We generated record quarterly revenues of $169 million driven by strong
contributions from all of our industry teams. We expect this momentum will continue through 2021 as
market conditions continue to improve and our pipelines are strong.
We continue to focus on enhancing our value proposition to clients by providing more products and
deep sector expertise. Our recent acquisition of TRS Advisors broadens our product capabilities, and
our acquisition of Valence expands our industry coverage, with the benefit of strengthening our
presence in Europe. In the near-term, we remain focused on executing on our pipeline, developing our
current talent, increasing productivity, and growing the business through strategic investments.
Corporate Financing
Corporate financing generated a record $295 million of revenues for 2020, up 181% compared to the
prior year. Market conditions became favorable for capital raising starting in the second quarter of
2020, driven by a sharp rebound in valuations combined with lower volatility for certain equities and
low interest rates in debt markets, and these dynamics continued during the remainder of the year. In
addition to conducive markets, our performance was driven by market share gains and the addition of
Sandler.
Activity for us was concentrated in equity capital raisings. We completed 137 equity offerings and
served as book runner on 99 transactions. Our healthcare team had a standout year—delivering record
revenues, running the books on 90 of their 96 completed equity deals, and raising over $20 billion for
healthcare companies. The reputation and strength of this team positioned us nicely for the influx of
healthcare companies raising equity capital. For 2020, we ranked in the top 5 of investment banks
based on the number of book run IPOs and follow-ons for healthcare companies with less than $5
billion of market cap.
The addition of Sandler to our platform expanded our product capabilities into corporate debt and
preferred offerings. The team offers a comprehensive and differentiated value proposition for bank
clients, specifically community and regional banks. This, combined with our dominant market share
and conducive markets led to a very active year. We completed 58 debt and preferred stock offerings
during 2020 as banks and other financial services companies raised capital at historically low rates.
PIPER SANDLER | 5
INSTITUTIONAL BROKERAGE
Institutional brokerage delivered a record year as we helped clients navigate the increased volatility
and advised clients on investing in the low rate environment. We generated revenues of $358 million
for 2020, up 113% over the prior year. The significant scale we have added through our acquisitions of
Sandler and Weeden drove efficiencies in our cost structure and capital usage leading to a meaningful
expansion in operating margin and returns in the business.
Compared to 2011, the business has more than doubled and is providing significant diversity to our
earnings stream. Our brokerage businesses generated 29% of 2020 total adjusted net revenues and
this contribution was balanced between fixed income and equities. Essential to the investment
banking businesses, our team of over 170 sales professionals in both equities and fixed income were
instrumental in distributing 1,250 new issue deals during 2020 and raising over $50 billion of capital for
corporate and municipal clients. With scale, deep expertise, broad product capabilities and access to
significant new issue product we offer a differentiated value proposition to our clients.
Institutional Brokerage Revenues
($ in millions)
Fixed Income
Equity Brokerage
$135
$51
$85
$167
$92
$74
$147
$58
$89
$157
$155
$162
$155
$75
$82
$76
$79
$74
$88
$75
$80
$125
$48
$77
$168
$80
$88
$358
$196
$161
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Equity Brokerage
Equity brokerage generated record revenues of $161 million for 2020, an increase of 84% over the
prior year. The combination with Weeden added a comprehensive suite of products and broad client
base to our platform, while the addition of Sandler meaningfully expanded our financial services
industry coverage. Our ability to leverage this expanded client base, execution expertise and product
capabilities to find liquidity for clients drove our strong performance during the year.
We traded 11.6 billion shares during 2020, an increase of 149% over 2019. The breadth of our client
base allows us to cross a significant portion of executed cash trades resulting in no market impact for
our clients, which is a valuable differentiator for us. In addition, our client retention has been
exceptionally high and we believe we are in the early stages of demonstrating the full capabilities of
our platform. With best-in-class research, trading, and capital markets capabilities, we are well
positioned to continue deepening client relationships and increasing our market share.
6 | PIPER SANDLER
Fixed Income
Fixed income generated record revenues of $196 million for 2020, up 144% compared to 2019. The
addition of Sandler to our platform, combined with strong execution, deep relationships, robust client
activity, and heightened volatility in the market drove the record year. We achieved these results on a
lower risk profile as we reduced trading inventory, and leverage on our cost base, driving a meaningful
increase in the returns in this business.
We look to retain this tremendous momentum by providing differentiated advice and analytics tailored
to defined client verticals, and serving our clients with product expertise reaching far beyond
traditional bonds including derivatives, loan strategies and securitizations. We believe we are in the
early stages of realizing the synergies from our combination with Sandler and see opportunities to
increase productivity by capitalizing on our expanded client base and successfully cross selling the
unique product and strategic capabilities of the firm.
PUBLIC FINANCE
Our public finance franchise, anchored by municipal financing activity, generated record revenues of
$120 million for 2020, up 44% from 2019. Low interest rates and strong investor demand drove record
market issuance of $475 billion, an increase of 5% over the prior peak in 2017.
Against this backdrop, we completed 847 municipal negotiated issuances during 2020 and ranked as
the No. 2 issuer nationally based on number of completed deals. In total, we raised $19.1 billion of par
value for our clients during 2020, up 55% over 2019 and compares to a 17% increase in the market
illustrating our market share gains. Our performance was driven by a combination of strong
governmental issuance, especially in school districts where we have market leadership, and the
investments we made last year to strengthen our presence in Nebraska, Colorado, and Pennsylvania.
Since 2011, we have doubled revenues and more than doubled market share. Our longstanding
commitment and public finance expertise makes us a natural destination for talent looking to best
serve their clients. We remain focused on advancing our leadership position in every geographic and
specialty market where we compete through internal development, selective hiring, and corporate
development opportunities.
Municipal Financing Revenues
($ in millions)
$72
$71
$62
$52
$114
$89
$90
$120
$83
$72
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
PIPER SANDLER | 7
LOOKING AHEAD
We began 2020 with a focus on executing on our acquisition of Sandler and fully realizing the revenue
synergies resulting from the addition of Weeden. We made great strides—delivering on these
investments and paving the way for future growth.
We continue to build enduring, market-leading franchises and add material scale and operating
leverage to our business. We believe that our market leadership, sector expertise and broad product
capabilities are unparalleled in the market, and we are focused on maintaining and extending our
position.
Our business is exceptionally well positioned for future growth, and we are confident in our ability to
continue delivering on our long-term strategic objectives of driving revenue growth, building a stronger
and more durable platform, and maximizing shareholder value.
In order to meet these objectives, we continue to focus on:
• Executing on the scaled platform we have built by collaborating across business lines to fully realize
the revenue synergies resulting from our recent investments;
• Transforming our business through strategic investments and selectively adding partners who share
our client-centric culture and who can leverage our platform to better serve clients;
• Growing our investment banking platform through accretive combinations, developing internal
talent, and continued sector and geographic expansion;
• Leveraging the scale within our equity brokerage and fixed income platforms, driven by our recently
expanded client base and product offerings, to grow market share; and
• Prudently managing capital to reduce risk and maintain our strong balance sheet with ample
liquidity and flexibility through all market conditions.
Our success is and continues to be driven by the hard work of our employees. We thank our
employees for their ongoing dedication to serving our clients, and we congratulate them on another
great year.
On behalf of our fellow partners across Piper Sandler, we would like to thank you, our shareholders,
for your trust. We look forward to continuing to serve the best interests of our clients, employees,
shareholders, and the communities where we live and work.
Chad R. Abraham
Chairman and Chief Executive Officer
Debbra L. Schoneman
President
8 | PIPER SANDLER
OUR CULTURE
Our 125-year legacy has perpetuated because of the partnerships we
forge—among our clients, our employees, our shareholders, and the
communities where we live and work.
Through a distinct combination of candid counsel, focused expertise and
empowered employees, we enable clients to achieve their short-term
goals while realizing their long-term vision.
We accomplish this through our:
• Reputation for client-first approach and straightforward advice
• Deep expertise and market leadership in focus industry sectors
• Strategic advisory relationships and expert execution
• A track record of delivering results for more than a century
DIVERSITY & INCLUSION
We believe diverse teams with unique backgrounds, skills, and
experiences yield more innovative solutions.
Our Mission
To recruit, develop, retain and engage a diverse, high-performing team.
Our Pledge
Our business demands bright, committed people working in partnership within an environment that
prevents no person from doing their best work. We commit to encouraging and valuing inclusivity
because every partner brings unique perspectives that help us better serve our clients. By fulfilling this
promise, we believe we will exceed the expectations of our employees, clients, and shareholders.
Diversity & Inclusion Council
The Diversity & Inclusion Council serves as a means for employees to connect with one another to
promote a greater awareness and understanding of inclusion and diversity across the firm, and works
to advance the firm’s Diversity & Inclusion Mission.
Employee Resource Networks
The firm has cultivated five employee resource networks that work in partnership with the Diversity &
Inclusion Council: Multicultural Network, Pride Network, Veterans Network, Women’s Network, and
Young Professionals Network.
Recruiting Diverse Talent
We maintain two programs focused on recruiting diverse talent. The Career Exploration Program is our
hallmark diversity recruiting program and serves as a pipeline for our summer internship opportunities.
The program is designed to attract high-achieving, diverse candidates, which includes female, Black,
Hispanic/Latino, Native American, Asian, veteran, and LGBTQ students. The Piper Sandler MBA
Fellowship Program is a competitive scholarship program that provides outstanding women, Black,
Hispanic/Latino, and Native American MBA students with a financial award for exceptional academic
achievement and an Associate-level internship between the first and second year of business school.
PIPER SANDLER | 9
COMMUNITY LEADERSHIP
Community giving has always been integral to the values and guiding principles of Piper Sandler. We
offer both employee and corporate giving programs and funding to nonprofit organizations to make a
positive impact on the communities where and we live and work.
Employee Giving and Corporate Matching
One of our core guiding principles is to contribute our talents and resources to serve the communities
in which we live and work. We encourage and support our employees’ individual philanthropic
interests through the Matching Gifts Program and our Annual Charitable Giving Campaign. We also
provide Disaster Relief through funds set up to assist employees, clients or partners who live or work
in an area directly affected by a disaster. Disaster Relief funds benefit specific, predetermined
nonprofits, and all employee contributions are matched by Piper Sandler.
1,531
$1.5M
$3.4M
Charities donated to by
employees in 2020
Raised through employee
donations in 2020
Total employee giving and
corporate matching for 2020
Employee Volunteer Programs
We support the organizations in which our employees donate their time and resources through grant
opportunities. The Community Leader Grant encourages and supports sustained volunteerism for
employees who contribute more than 40 hours annually to a qualifying nonprofit and serve as a
member of its board of directors. The Volunteer Program Grant provides direct gifts to qualifying
nonprofit organizations where an employee volunteers 40 hours or more in a year.
In addition, each year Piper Sandler recognizes two outstanding employees for their dedication to
strengthening the communities where we live and work. The Bobby and Tad Piper Community Service
Award recognizes an employee who has acted in service to his or her community through
volunteerism and commitment. The David Crosby Community Leadership Award honors an employee
for outstanding leadership and board service with charitable organizations.
Corporate Giving & Community Support
Piper Sandler provides corporate funding to nonprofits that are aligned with our two focus areas:
•
Increasing education opportunities for black, indigenous and people of color (BIPOC) communities
creating development and employment opportunities these students might not otherwise have; and,
• Stabilizing the circumstances for disadvantaged youth by helping students and their families meet
basic needs.
Piper Sandler contributes a consistent percentage of its pre-tax earnings to the community as part of
the Minnesota Keystone Program, a voluntary initiative promoting corporate support for communities.
We have been a member of this program for more than 40 years.
10 | PIPER SANDLER
BOARD OF DIRECTORS
Chad R. Abraham
Chairman and Chief Executive Officer
Piper Sandler Companies
Philip E. Soran (Lead Independent Director)
Former President
Dell Compellent Inc.
Jonathan J. Doyle
Vice Chairman and Head of Financial Services
Piper Sandler Companies
William R. Fitzgerald
Former Chairman and Chief Executive Officer
Ascent Capital Group, Inc.
Victoria M. Holt
Former President and Chief Executive Officer
Protolabs
Addison (Tad) L. Piper
Former Chairman and Chief Executive Officer
Piper Jaffray Companies Inc.
LEADERSHIP TEAM
Chad R. Abraham
Chairman and Chief Executive Officer
Debbra L. Schoneman
President
James P. Baker
Global Co-Head of Investment Banking and
Capital Markets
John A. Beckelman
Head of Fixed Income
Timothy L. Carter
Chief Financial Officer
Michael R. Dillahunt
Global Co-Head of Investment Banking and
Capital Markets
Jonathan J. Doyle
Vice Chairman and Head of Financial Services
Debbra L. Schoneman
President
Piper Sandler Companies
Thomas S. Schreier Jr.
Former Vice Chairman
Nuveen Investments, Inc.
Former Chairman
Nuveen Asset Management
Sherry M. Smith
Former Executive Vice President and
Chief Financial Officer
SUPERVALU Inc.
Brian R. Sterling
Former Managing Director
Piper Sandler Companies
Scott C. Taylor
Former Executive Vice President,
General Counsel, and Secretary
Symantec Corp.
Christine N. Esckilsen
Chief Human Capital Officer
Frank E. Fairman
Head of Public Finance Services
John W. Geelan
General Counsel and Secretary
J.P. Peltier
Global Co-Head of Healthcare Investment
Banking
Shawn C. Quant
Chief Information and Operations Officer
Thomas P. Schnettler
Vice Chairman
PIPER SANDLER | 11
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2020
Commission File No. 001-31720
PIPER SANDLER COMPANIES
(Exact Name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
30-0168701
(IRS Employer Identification No.)
800 Nicollet Mall, Suite 900
Minneapolis, Minnesota
(Address of Principal Executive Offices)
55402
(Zip Code)
(Registrant's Telephone Number, Including Area Code)
(612) 303-6000
Title of Each Class
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
PIPR
Name of Each Exchange On Which Registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller
reporting company, " and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☑
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public
accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The aggregate market value of the 17,366,955 shares of the Registrant's Common Stock, par value $0.01 per share, held by non-
affiliates based upon the last sale price, as reported on the New York Stock Exchange, of the Common Stock on June 30, 2020 was
approximately $1.0 billion.
As of February 19, 2021, the registrant had 18,262,868 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to
herein) from the Registrant's Proxy Statement for its 2021 Annual Meeting of Shareholders to be held on May 21, 2021.
TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS..........................................................................................................................
ITEM 1A. RISK FACTORS.................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS..............................................................................
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
PROPERTIES......................................................................................................................
LEGAL PROCEEDINGS...................................................................................................
MINE SAFETY DISCLOSURES.......................................................................................
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES..........................
SELECTED FINANCIAL DATA......................................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................................................
ITEM 9A. CONTROLS AND PROCEDURES...................................................................................
ITEM 9B. OTHER INFORMATION...................................................................................................
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE............
ITEM 11.
ITEM 12.
ITEM 13.
EXECUTIVE COMPENSATION......................................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.............................................................................................................
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES....................................................
ITEM 15.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..........................................
FORM 10-K SUMMARY...................................................................................................
SIGNATURES....................................................................................................................
PART IV
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K for the year ended December 31, 2020 (this "Form 10-K") contains forward-looking
statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are
forward-looking statements. These forward-looking statements include, among other things, statements other than historical
information or statements of current conditions and may relate to our future plans and objectives and results, and also may
include our belief regarding the effect of various legal proceedings, as set forth under "Legal Proceedings" in Part I, Item 3 of
this Form 10-K and in our subsequent reports filed with the Securities and Exchange Commission ("SEC"). Forward-looking
statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from
those anticipated, including those factors discussed below under "Risk Factors" in Part I, Item 1A of this Form 10-K, as well
as those factors discussed under "External Factors Impacting Our Business" included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Form 10-K and in our subsequent reports
filed with the SEC. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to
update them in light of new information or future events.
ITEM 1. BUSINESS.
Overview
Piper Sandler Companies ("Piper Sandler") is an investment bank and institutional securities firm, serving the needs of
corporations, private equity groups, public entities, non-profit entities and institutional investors in the U.S. and
internationally. Founded in 1895, Piper Sandler provides a broad set of products and services, including financial advisory
services; equity and debt capital markets products; public finance services; equity research and institutional brokerage; fixed
income services; and private equity strategies. Our headquarters are located in Minneapolis, Minnesota and we have offices
across the United States and international locations in London, Aberdeen and Hong Kong.
Our Business
We operate in one reportable segment providing investment banking and institutional sales, trading and research services
for various equity and fixed income products.
•
•
•
Investment Banking – For our corporate clients, we provide advisory services, which includes mergers and acquisitions;
equity and debt private placements; and debt and restructuring advisory. We also help raise capital through equity and
debt financings. We operate in the following focus sectors: healthcare; financial services; consumer; energy and
renewables; diversified industrials and services; technology; and chemicals and materials, primarily focusing on middle-
market clients. For our government and non-profit clients, we underwrite municipal issuances, provide municipal
financial advisory and loan placement services, and offer various over-the-counter derivative products. Our public
finance investment banking capabilities focus on state and local governments, cultural and social service non-profit
entities, special districts, project financings, and the education, healthcare, hospitality, senior living and transportation
sectors.
Equity and Fixed Income Institutional Brokerage – We offer both equity and fixed income advisory and trade execution
services for institutional investors and government and non-profit entities. Integral to our capital markets efforts, we have
equity sales and trading relationships with institutional investors in North America and Europe that invest in our core
sectors. Our research analysts provide investment ideas and support to our trading clients on approximately 900
companies. Fixed income services provides advice on balance sheet management, investment strategy and customized
portfolio solutions. Our fixed income sales and trading professionals have expertise in municipal, corporate, mortgage,
agency, treasury and structured product securities and cover a range of institutional investors. We principally engage in
trading activities to facilitate customer needs.
Alternative Asset Management Funds – We have created alternative asset management funds in merchant banking and
energy in order to invest firm capital and to manage capital from outside investors.
3
Discontinued Operations
In the third quarter of 2019, we sold our traditional asset management subsidiary, Advisory Research, Inc. ("ARI").
ARI's results have been presented herein as discontinued operations for all prior periods presented. For further information on
our discontinued operations, see Note 5 to our consolidated financial statements in Part II, Item 8 of this Form 10-K.
Financial Information about Geographic Areas
As of December 31, 2020, the substantial majority of our net revenues and long-lived assets were located in the U.S.
Competition
Our business is subject to intense competition driven by large Wall Street and international firms, regional broker
dealers, boutique and niche-specialty firms and alternative trading systems that effect securities transactions through various
electronic venues. Competition is based on a variety of factors, including price, quality of advice and service, reputation,
product selection, transaction execution, financial resources and investment performance. Many of our large competitors have
greater financial resources than we have and may have more flexibility to offer a broader set of products and services than we
can.
In addition, there is significant competition within the securities industry for obtaining and retaining the services of
qualified employees. Our business is a human capital business, and attracting and retaining employees depends, among other
things, on our company's culture, management, work environment, geographic locations and compensation.
Human Capital
Piper Sandler connects capital with opportunity to create value and build a better future, and our employees have been
critical to achieving this mission throughout our 125-year operating history. We believe that great people working together as
a team are our competitive advantage, and it is crucial that we continue to attract and retain talented employees. As part of
these efforts, we strive to offer a competitive compensation and benefits program and training and development opportunities,
foster a community where everyone feels included and empowered to do to their best work, and give employees the
opportunity to give back to their communities.
As of December 31, 2020, we had 1,511 full-time employees, of which 1,451 were employed in the United States and 60
in the United Kingdom and Hong Kong. Approximately 1,130 of our employees were registered with the Financial Industry
Regulatory Authority, Inc. ("FINRA") as of December 31, 2020. One key metric we use to benchmark our firm to industry
peer companies is the number of investment banking managing directors. At December 31, 2020, we had 138 corporate
investment banking managing directors.
Compensation and Benefits Program – Our compensation program is designed to attract, reward and retain employees
who possess the skills necessary to support our business objectives and assist in the achievement of our strategic goals. We
provide employees with competitive compensation packages that include base salary, annual incentive bonuses, length of
service awards, and equity awards. For further information on the restricted shares we grant to employees as part of year-end
compensation, see Note 20 to our consolidated financial statements in Part II, Item 8 of this Form 10-K. In addition to cash
and equity compensation, we also offer benefits such as life and health (medical, dental and vision) insurance, paid time off,
paid parental leave, health and wellness programs and a 401(k) plan. We believe our programs align both individual
employees and long-term company performance with stockholder interests.
Training and Development – A core tenet of our talent system is to develop talent from within and to supplement with
external candidates. We provide opportunities for employees to grow and build their careers through various training and
development programs. We also have a talent and succession planning process, which is reviewed annually with our board of
directors.
4
Diversity and Inclusion ("D&I") – At Piper Sandler, we believe that diverse teams with unique backgrounds, skills and
experiences yield more innovative solutions. This is reflected in our commitment to attract, retain and develop a diverse and
talented workforce in a high-quality, inclusive environment. We are focused on building an inclusive culture through a
variety of initiatives supported by our D&I committee, including our hiring practices. Our employee networks also serve as a
source of inclusion to support the acquisition of diverse talent both internally and externally. Each employee network is
sponsored and supported by senior leaders across the firm.
Community Leadership – We are committed to contributing our talents and resources to serve the communities in which
we live and work through the Piper Sandler Foundation, various charitable campaigns, employee programs and volunteerism.
We believe that this commitment assists in our efforts to attract and retain employees.
Regulation
As a participant in the financial services industry, our business is regulated by U.S. federal and state regulatory agencies,
self-regulatory organizations ("SROs") and securities exchanges, and by foreign governmental agencies, financial regulatory
bodies and securities exchanges. We are subject to complex and extensive regulation of most aspects of our business,
including the manner in which securities transactions are effected, net capital requirements, recordkeeping and reporting
procedures, relationships and conflicts with customers, the handling of cash and margin accounts, conduct, experience and
training requirements for certain employees, and the manner in which we prevent and detect money-laundering and bribery
activities. The regulatory framework of the financial services industry is designed primarily to safeguard the integrity of the
capital markets and to protect customers, not creditors or shareholders.
The laws, rules and regulations comprising this regulatory framework can (and do) change frequently, as can the
interpretation and enforcement of existing laws, rules and regulations. Conditions in the global financial markets and
economy, including the 2008 financial crisis, caused legislators and regulators to increase the examination, enforcement and
rule-making activity directed toward the financial services industry. The intensity of the regulatory environment may
correlate with the level and nature of our legal proceedings for a given period, and increased intensity could have an adverse
effect on our business, financial condition, and results of operations.
Our U.S. broker dealer subsidiary (Piper Sandler & Co.) is registered as a securities broker dealer with the SEC and is a
member of various SROs and securities exchanges. In July 2007, the National Association of Securities Dealers and the
member regulation, enforcement and arbitration functions of the New York Stock Exchange ("NYSE") consolidated to form
FINRA, which now serves as the primary SRO of Piper Sandler & Co., although the NYSE continues to have oversight over
NYSE-related market activities. FINRA regulates many aspects of our U.S. broker dealer business, including registration,
education and conduct of our broker dealer employees, examinations, rulemaking, enforcement of these rules and the federal
securities laws, trade reporting and the administration of dispute resolution between investors and registered firms. We have
agreed to abide by the rules of FINRA (as well as those of the NYSE and other SROs), and FINRA has the power to expel,
fine and otherwise discipline Piper Sandler & Co. and its officers, directors and employees. Among the rules that apply to
Piper Sandler & Co. are the uniform net capital rule of the SEC (Rule 15c3-1) and the net capital rule of FINRA. Both rules
set a minimum level of net capital a broker dealer must maintain and also require that a portion of the broker dealer's assets
be relatively liquid. Under the applicable FINRA rule, FINRA may prohibit a member firm from expanding its business or
paying cash dividends if resulting net capital falls below FINRA requirements. In addition, Piper Sandler & Co. is subject to
certain notification requirements related to withdrawals of excess net capital. As a result of these rules, our ability to make
withdrawals of capital from Piper Sandler & Co. may be limited. In addition, Piper Sandler & Co. is licensed as a broker
dealer in each of the 50 states, requiring us to comply with applicable laws, rules and regulations of each state. Any state may
revoke a license to conduct a securities business and fine or otherwise discipline broker dealers and their officers, directors
and employees.
We also operate one entity that is authorized, licensed and regulated by the U.K. Financial Conduct Authority and
registered under the laws of England and Wales, as well as an entity that is authorized, licensed and regulated by the Hong
Kong Securities and Futures Commission and registered under the laws of Hong Kong. The U.K. Financial Conduct
Authority and the Hong Kong Securities and Futures Commission regulate these entities (in their respective jurisdictions) in
areas of capital adequacy, customer protection and business conduct, among others. We also have a subsidiary organized in
Guernsey and regulated by the Guernsey Financial Services Commission ("GFSC").
5
Entities in the jurisdictions identified above are also subject to anti-money laundering regulations. Piper Sandler & Co. is
subject to the USA PATRIOT Act of 2001, which contains anti-money laundering and financial transparency laws and
mandates the implementation of various regulations requiring us to implement standards for verifying client identification at
the time the client relationship is initiated, monitoring client transactions and reporting suspicious activity. Our entities in
Hong Kong, the United Kingdom and Guernsey are subject to similar anti-money laundering laws and regulations. We are
also subject to the U.S. Foreign Corrupt Practices Act as well as other anti-bribery laws in the jurisdictions in which we
operate. These laws generally prohibit companies and their intermediaries from engaging in bribery or making other improper
payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage.
We maintain subsidiaries that are registered as investment advisors with the SEC and subject to regulation and oversight
by the SEC. Piper Jaffray Investment Management LLC ("PJIM"), PSC Capital Partners LLC, Piper Sandler Advisors LLC,
Piper Heartland Healthcare Capital LLC and Piper Sandler Finance Management LLC are asset management subsidiaries and
registered investment advisors. As registered investment advisors, these entities are subject to requirements that relate to,
among other things, fiduciary duties to clients, maintaining an effective compliance program, solicitation agreements,
conflicts of interest, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and
principal transactions between advisor and advisory clients, as well as general anti-fraud prohibitions. Piper Sandler & Co. is
also a registered investment advisor and subject to these requirements. Parallel General Partners Limited is the general
partner of several private equity limited partnerships; it and the limited partnerships are registered and regulated by the
GFSC.
Certain of our businesses also are subject to compliance with laws and regulations of U.S. federal and state governments,
non-U.S. governments, their respective agencies and/or various SROs or exchanges governing the privacy of client
information. Any failure with respect to our practices, procedures and controls in any of these areas could subject us to
regulatory consequences, including fines, and potentially other significant liabilities.
6
Information About our Executive Officers
Information regarding our executive officers and their ages as of February 19, 2021, are as follows:
Name
Chad R. Abraham
Debbra L. Schoneman
Timothy L. Carter
James P. Baker
Jonathan J. Doyle
John W. Geelan
R. Scott LaRue
Age
52
52
53
53
55
45
60
Position(s)
Chief Executive Officer
President
Chief Financial Officer
Global Co-Head of Investment Banking and Capital Markets
Vice Chairman and Head of Financial Services Group
General Counsel and Secretary
Global Co-Head of Investment Banking and Capital Markets
Chad R. Abraham is our chief executive officer, a position he has held since January 2018. He previously served as
global co-head of investment banking and capital markets from October 2010 to December 2017. Prior to that, he served as
head of equity capital markets since November 2005. Mr. Abraham joined Piper Sandler in 1991.
Debbra L. Schoneman is our president, a position she has held since January 2018. She previously served as chief
financial officer from May 2008 to December 2017, and global head of equities from June 2017 to December 2017. Prior to
that, she served as treasurer from August 2006 until May 2008; and as finance director of our corporate and institutional
services business from July 2002 until July 2004 when the role was expanded to include our public finance services division.
Ms. Schoneman joined Piper Sandler in 1990.
Timothy L. Carter is our chief financial officer, a position he has held since January 2018. He previously served as
senior vice president of finance from May 2017 to December 2017. Prior to that, he served as treasurer from May 2008 to
May 2017, chief accounting officer from 2006 to May 2008, and controller from 1999 to 2006. Mr. Carter joined Piper
Sandler in 1995.
James P. Baker is our global co-head of investment banking and capital markets, a position he has held since January
2019. Prior to that, he served as our co-head of energy investment banking from February 2016 to December 2018. Mr. Baker
joined Piper Sandler in February 2016 in connection with our acquisition of Simmons & Company International, where Mr.
Baker was a managing director and leader of its midstream/downstream investment banking group.
Jonathan J. Doyle is our vice chairman, senior managing principal and head of the financial services group, a position
he has held since January 2020. Mr. Doyle joined Piper Sandler in connection with our acquisition of Sandler O'Neill, where
Mr. Doyle served as a senior managing principal.
John W. Geelan is our general counsel and secretary. He served as assistant general counsel and assistant secretary from
November 2007 until becoming general counsel in January 2013. Mr. Geelan joined Piper Sandler in 2005.
R. Scott LaRue is our global co-head of investment banking and capital markets, a position he has held since October
2010. Prior to that, he served as global co-head of consumer investment banking from February 2010 to September 2010 and
co-head of consumer investment banking from August 2004 to January 2010. Mr. LaRue joined Piper Sandler in 2003.
7
Additional Information
Our principal executive offices are located at 800 Nicollet Mall, Suite 900, Minneapolis, Minnesota 55402, and our
general telephone number is (612) 303-6000. We maintain an Internet Web site at http://www.pipersandler.com. The
information contained on and connected to our Web site is not incorporated into this Form 10-K. We make available free of
charge on or through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and all other reports we file with the SEC, as soon as reasonably practicable after we
electronically file these reports with, or furnish them to, the SEC. Such reports are also available on the SEC's Web site at
http://www.sec.gov. "Piper Sandler," the "Company," "registrant," "we," "us" and "our" refer to Piper Sandler Companies and
our subsidiaries. The Piper Sandler logo and the other trademarks, tradenames and service marks of Piper Sandler mentioned
in this report or elsewhere, including, but not limited to, PIPER SANDLERSM, PIPER JAFFRAY®, REALIZE THE POWER
OF PARTNERSHIP®, SANDLER O'NEILL®, SANDLER O'NEILL & PARTNERS®, SANDLER O'NEILL MORTGAGE
FINANCE®, TRSSM, TRS ADVISORSSM, SIMMONS ENERGY | A DIVISION OF PIPER SANDLERSM, SIMMONS
JAFFRAY®, SIMMONS ENERGYSM, SIMMONS & COMPANY
ENERGY
INTERNATIONAL®, SIMMONSCO-INTL®, PIPER SANDLER FINANCESM, PIPER JAFFRAY FINANCESM, PJIM®,
PIPER SANDLER BIOINSIGHTSSM, PIPER JAFFRAY BIOINSIGHTSSM, BIOINSIGHTSSM, TAKING STOCK WITH
TEENS®, HEALTHY ACTIVE AND SUSTAINABLE LIVING® and GUIDES FOR THE JOURNEY® are the property of
Piper Sandler.
| A DIVISION OF PIPER
8
ITEM 1A. RISK FACTORS.
In the normal course of our business activities, we are exposed to a variety of risks. The principal risks we face in
operating our business include: strategic risks, market risks, human capital risks, liquidity risks, credit risks, operational risks,
and legal and regulatory risks. A full description of each of these principal areas of risk, as well as the primary risk
management processes that we use to mitigate our risk exposure in each, is discussed below under the caption "Risk
Management" included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part
II, Item 7 of this Form 10-K.
The following discussion sets forth the risk factors that we have identified in each area of principal risk as being the most
material to our business, future financial condition, and results of operations. Although we discuss these risk factors primarily
in the context of their potential effects on our business, financial condition or results of operations, you should understand
that these effects can have further negative implications such as: reducing the price of our common stock; reducing our
capital, which can have regulatory and other consequences; affecting the confidence that our clients and other counterparties
have in us, with a resulting negative effect on our ability to conduct and grow our business; and reducing the attractiveness of
our securities to potential purchasers, which may adversely affect our ability to raise capital and secure other funding or the
prices at which we are able to do so. Further, additional risks beyond those discussed below and elsewhere in this Form 10-K
or in other of our reports filed with, or furnished to, the SEC could adversely affect us. We cannot assure you that the risk
factors herein or elsewhere in our other reports filed with, or furnished to, the SEC address all potential risks that we may
face.
These risk factors also serve to describe factors which may cause our results to differ materially from those described in
forward-looking statements included in this Form 10-K or in other documents or statements that make reference to this Form
10-K. Forward-looking statements, as further described in this Form 10-K under the heading "Cautionary Note Regarding
Forward-Looking Statements," and other factors that may affect future results are discussed below under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Form 10-K.
Strategic and Market Risk
Our business success depends in large part upon the strategic decisions made by our executive management, the
alignment of business plans developed to act upon those decisions, and the quality of implementation of these business plans.
Strategic risk represents the risk associated with our executive management failing to develop and execute on the appropriate
strategic vision which demonstrates a commitment to our culture, leverages our core competencies, appropriately responds to
external factors in the marketplace, and is in the best interests of our company. In setting out and executing upon a strategic
vision for our business, we are faced with a number of inherent risks, including risks relating to external events and market
and economic conditions, competition, and business performance that could all negatively affect our ability to execute on our
strategic decisions and, therefore, our future financial condition or results of operations. The risks related to external events
and overall market and economic conditions are referred to as market, or systemic, risk. The following are those material risk
factors that we have identified that could pose a risk to our strategic vision, and the market risks that may impact execution of
our strategy.
9
Developments in market and economic conditions have in the past adversely affected, and may in the future adversely
affect, our business and profitability and cause volatility in our results of operations.
Economic and market conditions have had, and will continue to have, a direct and material impact on our results of
operations and financial condition because performance in the financial services industry is heavily influenced by the overall
strength of economic conditions and financial market activity. For example:
•
•
•
Following the outbreak of the COVID-19 pandemic in March 2020, nearly every sector of the global and U.S. economy
was negatively impacted. The uncertainty surrounding the effects and course of the pandemic, and the measures enacted
to mitigate its spread, including travel restrictions, quarantines, stay-at-home orders, and business shutdowns resulted in
almost unprecedented short-term dislocations in, and a slowdown of, global and U.S. economic activity. Business
uncertainty over the length and severity of the pandemic and the timing of the eventual economic recovery resulted in a
severe decline in our advisory (i.e., mergers and acquisitions) revenue during the second and third quarters of 2020. This
decline was largely off-set by improved performance by our capital markets, institutional brokerage, and public finance
businesses, which benefitted from accommodative market conditions created by the efforts of the U.S. federal
government to support the markets and economy. Although we currently believe that the U.S. economy will continue to
recover from COVID-19 and its related impacts in 2021, we also believe that the economic recovery and growth will be
dependent on the trajectory of vaccine distribution and administration. Widespread concern or doubts in the market about
the pace or ability of normal economic activity to resume, or the efficacy or adequacy of the government measures
enacted to support the U.S. and global economy, could further erode the outlook for macroeconomic conditions and
business confidence, and negatively impact our equities investment banking revenues. In addition, to the extent that the
primary sectors that are covered by our equities investment banking business take longer to recover due to the erosion of
economic conditions in those sectors, such as the energy or consumer sectors, our equities investment banking business
could continue to be negatively impacted even after other sectors begin to experience a recovery.
Our equities investment banking revenue from our advisory and equity capital markets businesses is directly related to
macroeconomic conditions and corresponding financial market activity. When the outlook for macroeconomic conditions
is uncertain or negative, financial market activity generally tends to decrease, which can reduce our equities investment
banking revenues. As an example, a significant portion of our equities investment banking revenues in recent years has
been derived from advisory engagements in our focus sectors, and activity in this area is highly correlated to the
macroeconomic environment and market conditions. Reduced expectations of U.S. economic growth and recovery from
the COVID-19 pandemic or a further decline in the global macroeconomic outlook could cause financial market activity
to decrease and negatively affect our equities investment banking revenues. In addition, global macroeconomic
conditions and U.S. financial markets remain vulnerable to the potential risks posed by exogenous shocks in addition to
COVID-19, which could include, among other things, political or social unrest or financial uncertainty in the United
States and the European Union, complications involving terrorism and armed conflicts around the world, or other
challenges to global trade or travel. More generally, because our business is closely correlated to the macroeconomic
outlook, a significant deterioration in that outlook or an exogenous shock would likely have an immediate and significant
negative impact on our equities investment banking business and our overall results of operations, as we experienced
with the outbreak of COVID-19 in 2020.
U.S. equity markets experienced severe volatility during 2020, with historic declines caused by the outbreak of
COVID-19, followed quickly by dramatic increases on the basis of the response by the U.S. federal government to
support the markets and economy as well as increased understanding of the impact and scope of the pandemic. Our
equities capital markets business was able to take full advantage of these accommodative market conditions in the second
half of the year as our clients sought to access U.S. equity markets at favorable valuations, which contributed positively
to our operating results for the year. However, if volatility in the U.S. equity markets were to return or increase in 2021,
whether due to the concerns about the course of the COVID-19 pandemic, the outlook for the U.S. or global economic
recovery, or public equity valuations, or due to some other exogenous shock, companies may find it more difficult to
raise capital from public equity markets, which could have a negative impact on our equity capital markets business and
our overall results of operations. In addition, in 2020, the healthcare sector was a significant contributor to our equity
capital markets results, and any significant equity market volatility or moderation that specifically impacts that sector for
any reason, including concerns over equity valuations or negative developments that result from legislative or regulatory
actions taken by the new U.S. presidential administration, could have a negative impact on our results of operations.
10
It is difficult to predict the economic and market conditions for 2021, which are dependent upon the pace of global and
U.S. economic recovery from COVID-19 and geopolitical events globally. Our smaller scale and the cyclical nature of the
economy and the financial services industry leads to volatility in our financial results, including our operating margins,
compensation ratios, business mix, and revenue and expense levels. Our financial performance may be limited by the fixed
nature of certain expenses, the impact from unanticipated losses or expenses during the year, our business mix, and the
inability to scale back costs in a timeframe to match decreases in revenue-related changes in market and economic conditions.
As a result, our financial results may vary significantly from quarter to quarter and year to year.
Developments in specific business sectors and markets in which we conduct our business, have in the past adversely
affected, and may in the future adversely affect, our business and profitability.
Our results for a particular period may be disproportionately impacted by declines in specific sectors of the U.S. or
global economy, or for certain products within the financial services industry, due to our business mix and focus areas. For
example:
•
•
•
Our equities investment banking business focuses on specific sectors, including healthcare, financial services, energy and
renewables, consumer, diversified industrials and services, technology, and chemicals and materials. Volatility,
uncertainty, or slowdowns in any of these sectors may adversely affect our business, sometimes disproportionately, and
may cause volatility in the net revenues we receive from our corporate advisory and capital markets activities. Both the
healthcare and financial services sectors are significant contributors to our overall results, and negative developments in
either of these sectors, including but not limited to negative developments that result from legislative or regulatory
actions taken by the new U.S. presidential administration, would materially and disproportionately impact our equities
investment banking results, even if general economic conditions were strong. In addition, we may not participate, or may
participate to a lesser degree than other firms, in sectors that experience significant activity, such as real estate, and our
operating results may not correlate with the results of other firms that participate in these sectors.
Our public finance investment banking business depends heavily upon conditions in the municipal market. It focuses on
investment banking activity in sectors that include state and local government, education, senior living, healthcare,
transportation, and hospitality sectors, with an emphasis on transactions with a par value of $500 million or less.
Concerns about U.S. economic growth or recovery from the COVID-19 pandemic could have a disproportionate impact
on high-yield sectors, which could have a negative impact on our public finance business. Further, the enactment, or the
threat of enactment, of any legislation that alters the financing alternatives available to local or state governments or tax-
exempt organizations through the elimination or reduction of tax-exempt bonds could have a negative impact on our
results of operations in these businesses.
Our fixed income institutional business derives its revenue from sales and trading activity in the municipal and taxable
markets and from hybrid preferreds and government agency products. Our operating results for our fixed income
institutional business may not correlate with the results of other firms or the fixed income market generally because we
do not participate in significant segments of the fixed income markets such as credit default swaps, corporate high-yield
bonds, currencies or commodities.
Financing and advisory services engagements are transactional in nature and do not generally provide for subsequent
engagements.
Even though we work to represent our clients at every stage of their lifecycle, we are typically retained on a short-term,
engagement-by-engagement basis in connection with specific advisory or capital markets transactions. As a consequence, the
timing of when fees are earned varies, and, therefore, our financial results from advisory and capital markets activities may
experience volatility quarter to quarter based on equity market conditions as well as the macroeconomic business cycle more
broadly. In particular, our revenues related to advisory transactions tend to be more unpredictable from quarter to quarter due
to the one-time nature of the transaction and the size of the fee. As a result, high levels of revenue in one quarter will not
necessarily be predictive of continued high levels of revenue in any subsequent period. If we are unable to generate a
substantial number of new engagements and generate fees from the successful completion of those transactions, our business
and results of operations could be adversely affected.
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The number of anticipated investment banking transactions may differ from actual results.
The completion of anticipated investment banking transactions in our pipeline is uncertain and partially beyond our
control, and our investment banking revenue is typically earned only upon the successful completion of a transaction. In most
cases, we receive little or no payment for investment banking engagements that do not result in the successful completion of a
transaction. For example, a client's acquisition transaction may be delayed or terminated because of a failure to agree upon
final terms with the counterparty, failure to obtain necessary regulatory consents or director or stockholder approvals, failure
to secure necessary financing, adverse market conditions or unexpected financial or other issues in the client's or
counterparty's business. More importantly, anticipated advisory or capital markets transactions may be delayed or terminated
as a result of a decline in or uncertainty surrounding market or economic conditions. If parties fail to complete a transaction
on which we are advising or an offering in which we are participating, we earn little or no revenue from the transaction and
may have incurred significant expenses (e.g., travel and legal expenses) associated with the transaction. Accordingly, our
business is highly dependent on market and economic conditions as well as the decisions and actions of our clients and
interested third parties, and the number of engagements we have at any given time (and any characterization or description of
our deal pipelines) is subject to change and may not necessarily result in future revenues.
We may make strategic acquisitions, enter into new business opportunities, or engage in joint ventures, which could cause
us to incur unforeseen expenses and have disruptive effects on our business and may not yield the benefits we expect.
We may grow in part through corporate development or similar activities that could include acquisitions, joint ventures
and minority investment stakes, and entering into new lines of business. There are a number of risks associated with these
activities. Costs or difficulties relating to a transaction, including integration of products, employees, technology systems,
accounting systems and management controls, or entry into a new business line, may be difficult to predict accurately and be
greater than expected causing our estimates to differ from actual results. Importantly, we may be unable to retain key
personnel after a transaction, including personnel who are critical to the success of the ongoing business. We may incur
unforeseen liabilities of an acquired company or from entry into a new business line, that could impose significant and
unanticipated legal costs on us. We will need to successfully manage these risks in order to fully realize the anticipated
benefits of these transactions.
Longer-term, our corporate development activities may require increased costs in the form of management personnel,
financial and management systems and controls and facilities, which, in the absence of continued revenue growth, could
cause our operating margins to decline. In addition, when we acquire a business, a substantial portion of the purchase price is
often allocated to goodwill and other identifiable intangible assets. Our goodwill and intangible assets are tested at least
annually for impairment. If, in connection with that test, we determine that a reporting unit's fair value is less than its carrying
value, we would be required to recognize an impairment to the goodwill associated with that reporting unit. More generally,
any difficulties that we experience could disrupt our ongoing business, increase our expenses and adversely affect our
operating results and financial condition. We also may be unable to achieve anticipated benefits and synergies from a
transaction as fully as expected or within the expected time frame.
We may not be able to compete successfully with other companies in the financial services industry who often have
significantly greater resources than we do.
The financial services industry remains highly competitive, and our revenues and profitability may suffer if we are
unable to compete effectively. We generally compete on the basis of such factors as quality of advice and service, reputation,
price, product selection, transaction execution and financial resources. Pricing and other competitive pressures in investment
banking, including the use of multiple book runners, co-managers, and multiple financial advisors handling transactions, have
affected and could continue to adversely affect our revenues.
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We remain at a competitive disadvantage given our relatively small size compared to some of our competitors. Large
financial services firms generally have a larger capital base, greater access to capital, and greater technology resources,
affording them greater capacity for risk and potential for innovation, an extended geographic reach and flexibility to offer a
broader set of products. For example, some of these firms are able to use their larger capital base to offer additional products
or services to their investment banking clients, which can be a competitive advantage. With respect to our fixed income
institutional brokerage and public finance investment banking businesses, it is more difficult for us to diversify and
differentiate our product set, and our fixed income business mix currently is concentrated in the municipal market and to a
lesser extent corporate credits, potentially with less opportunity for growth than other firms which have grown their fixed
income businesses by investing in, developing and offering non-traditional products (e.g., credit default swaps, interest rate
products and currencies and commodities).
Our institutional brokerage business is subject to pricing pressures.
The ability to execute trades electronically and through alternative trading systems and competitive pressures on our
clients have increased the pressure on trading commissions and spreads within the equities institutional brokerage business
over the past few years. We expect to continue to experience pricing and other competitive pressures in our equities and fixed
income institutional brokerage businesses in the future. In addition, we will need to continue to invest in these businesses in
order to continue to meet our clients’ needs and maintain sufficient scale.
Our inability to identify and address actual, potential, or perceived conflicts of interest may negatively impact our
reputation and have a material adverse effect on our business.
We regularly address actual, potential or perceived conflicts of interest in our business, including situations where our
services to a particular client or our own investments or other interests conflict, or are perceived to conflict, with the interests
of another client. Appropriately identifying and dealing with conflicts of interest is complex and difficult, and we face the
risk that our current policies, controls and procedures do not timely identify or appropriately manage such conflicts of
interest. It is possible that actual, potential or perceived conflicts could give rise to client dissatisfaction, litigation or
regulatory enforcement actions. Our reputation could be damaged if we fail, or appear to fail, to deal appropriately with
potential or actual conflicts of interest. Client dissatisfaction, litigation, or regulatory enforcement actions arising from a
failure to adequately deal with conflicts of interest, and the reputational harm suffered as a consequence, could have a
material adverse effect on our business.
Damage to our reputation could harm our business.
Maintaining our reputation is critical to attracting and maintaining clients, customers, investors, and employees. If we
fail to deal with, or appear to fail to deal with, issues that may give rise to reputational risk, such failure or appearance of
failure could have a material adverse effect on our business and stock price. These issues include, but are not limited to,
appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money laundering,
cybersecurity, and the proper identification of the strategic, market, human capital, liquidity, credit, operational, legal and
regulatory risks inherent in our business and products.
Human Capital Risk
Our business is a human capital business, and, therefore, our future financial condition and results of operations are
significantly dependent upon our employees and their actions. Our success depends on the skills, expertise, and performance
of our employees. Human capital risks represent the risks posed if we fail to attract and retain qualified individuals who are
motivated to serve the best interests of our clients, thereby serving the best interests of our company, as well as the risks
posed if our culture fails to encourage such behavior. Human capital risk is also present where we fail to detect and prevent
employees from acting contrary to our policies and procedures, for example, if an employee were to inadequately safeguard
or misuse our clients' confidential information. Any failure by us in creating and maintaining a culture that emphasizes
serving our clients' best interests or detecting or preventing employees from engaging in behaviors that run counter to that
culture might lead to reputational damage for our firm. The following are those material human capital risk factors that we
have identified that could pose a risk to us.
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Our ability to attract, develop and retain highly skilled and productive employees, develop the next generation of our
business leadership, and instill and maintain a culture of ethics is critical to the success of our business.
Historically, the market for qualified employees within the financial services industry has been marked by intense
competition, and the performance of our business may suffer to the extent we are unable to attract, retain, and develop
productive employees, given the relatively small size of our company and our employee base compared to some of our
competitors and the geographic locations in which we operate. The primary sources of revenue in each of our business lines
are fees earned on advisory and underwriting transactions and customer accounts managed by our employees, who have
historically been recruited by other firms and in certain cases are able to take their client relationships with them when they
change firms. In some areas of our business, a small number of employees are responsible for producing a significant amount
of revenue, and the loss of any of these employees could adversely affect our results of operations.
Further, recruiting and retention success often depends on the ability to deliver competitive compensation, and we may
be at a disadvantage to some competitors given our size and financial resources. Our inability or unwillingness to meet
compensation needs or demands may result in the loss of some of our professionals or the inability to recruit additional
professionals at compensation levels that are within our target range for compensation and benefits expense. Our ability to
retain and recruit also may be hindered if we limit our aggregate annual compensation and benefits expense as a percentage
of annual net revenues.
A vibrant and ethical corporate culture is critical to ensuring that our employees put our clients' interests first and are
able to identify and manage potential conflicts of interest, while also creating an environment in which each of our employees
feel empowered to develop and pursue their full potential. Our expectations for our corporate culture and ethics are instilled
and maintained by the "tone at the top" set by our management and board of directors. Lapses in our corporate culture could
lead to reputational damage or employee loss, either of which could adversely affect our results of operations.
Our business success depends in large part on the strategic decisions made by our leadership team, and the business plans
developed and implemented by our senior business leaders. Our ability to identify, develop, and retain future senior business
leaders, and our ability to develop and implement successful succession plans for our leadership team and other senior
business leaders, is critical to our future success and results of operations.
Our inability to effectively integrate and retain personnel in connection with our acquisitions may adversely affect our
financial condition and results of operations.
We invest time and resources in carefully assessing opportunities for acquisitions, and we have made acquisitions in the
past several years to broaden the scope and depth of our human capital in various businesses. Despite diligence and
integration planning, acquisitions still present certain risks, including the difficulties in integrating and bringing together
different work cultures and employees, and retaining those employees for the period of time necessary to realize the
anticipated benefits of the acquisition. Difficulties in integrating our acquisitions, including attracting and retaining talent to
realize the expected benefits of these acquisitions, may adversely affect our financial condition and results of operations.
Liquidity and Credit Risk
Two of our principal categories of risk as a broker dealer are liquidity and credit risk, each of which can have a material
impact on our results of operations and viability as a business. We believe that the effective management of liquidity and
credit is fundamental to the financial health of our firm. With respect to liquidity risk, it impacts our ability to timely access
necessary funding sources in order to operate our business and our ability to timely divest securities that we hold in
connection with our market-making and sales and trading activities. Credit risk, as distinguished from liquidity risk, is the
potential for loss due to the default or deterioration in credit quality of a counterparty, customer, client, borrower, or issuer of
securities we hold in our trading inventory. The nature and amount of credit risk depends on the type of transaction, the
structure and duration of that transaction and the parties involved. The following are the material liquidity and credit risk
factors that we have identified that could pose a risk to us.
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An inability to access capital readily or on terms favorable to us could impair our ability to fund operations and could
jeopardize our financial condition and results of operations.
Liquidity, or ready access to funds, is essential to our business. To fund our business, we rely on financing provided by
Pershing LLC ("Pershing") under our fully disclosed clearing agreement, as well as bank financing, commercial paper, and
other funding sources. The financing provided by Pershing is at Pershing's discretion (i.e., uncommitted) and could be denied
without prior notice. To help mitigate this risk, during 2019, the Company issued $175 million of unsecured fixed rate senior
notes as financing for general corporate purposes, including to finance a portion of our acquisition of Sandler O'Neill &
Partners, L.P. in early 2020. In January 2021, we increased the size of our unsecured revolving credit facility from $50
million to $65 million, and we intend to use the facility for working capital and general corporate purposes. Our broker dealer
subsidiary also renewed a $100 million committed credit facility in December 2020 for an additional twelve months.
Our access to funding sources, particularly uncommitted funding sources, is dependent on factors we cannot control,
such as economic downturns, the disruption of financial markets, the failure or consolidation of other financial institutions,
negative news about the financial industry generally or us specifically. We could experience disruptions with our credit
facilities in the future, including the loss of liquidity sources and/or increased borrowing costs, if lenders or investors develop
a negative perception of our short- or long-term financial prospects, which could result from decreased business activity. Our
liquidity also could be impacted by the activities resulting in concentration of risk, including investments in specific markets
or products without liquidity. Our access to funds also may be impaired if regulatory authorities take significant action
against us, or if we discover that one of our employees has engaged in serious unauthorized or illegal activity.
In the future, we may need to incur debt or issue equity in order to fund our working capital requirements, as well as to
execute our growth initiatives that may include acquisitions and other investments. Similarly, our access to funding sources
may be contingent upon terms and conditions that may limit or restrict our business activities and growth initiatives. In
addition, we currently do not have a credit rating, which could adversely affect our liquidity and competitive position by
increasing our borrowing costs and limiting access to sources of liquidity that require a credit rating as a condition to
providing funds.
If we are unable to obtain necessary funding, or if the funding we obtain is on terms and conditions unfavorable to us, it
could negatively affect our business activities and operations, and our ability to pursue certain growth initiatives and make
certain capital decisions, including the decision whether to pay future dividends to our shareholders, as well as our future
financial condition or results of operations.
Concentration of risk increases the potential for significant losses.
Concentration of risk increases the potential for significant losses in our sales and trading, alternative asset management,
merchant banking, credit underwriting and syndication platform, and underwriting businesses. We have committed capital to
these businesses, and we may take substantial positions in particular types of securities and/or issuers. This concentration of
risk may cause us to suffer losses even when economic and market conditions are generally favorable for our competitors.
Further, disruptions in the credit markets can make it difficult to hedge exposures effectively and economically.
Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by,
third parties who owe us money, securities or other assets.
The nature of our businesses exposes us to credit risk, or the risk that third parties who owe us money, securities or other
assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of
liquidity, operational failure or other reasons. Deterioration in the credit quality of securities or obligations we hold could
result in losses and adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity
purposes. A significant downgrade in the credit ratings of our counterparties could also have a negative impact on our results.
Default rates, downgrades and disputes with counterparties as to the valuation of collateral tend to increase in times of market
stress and illiquidity. Although we review credit exposures to specific clients and counterparties and to specific industries that
we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect or
foresee. Also, concerns about, or a default by, one institution generally leads to losses, significant liquidity problems, or
defaults by other institutions, which in turn could adversely affect our business.
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Particular activities or products within our business expose us to increased credit risk, including inventory positions,
interest rate swap contracts with customer credit exposure, counterparty risk with one major financial institution related to
customer interest rate swap contracts without customer credit exposure, investment banking and advisory fee receivables,
liquidity providers on variable rate demand notes we remarket, and similar activities. With respect to interest rate swap
contracts with customer credit exposure, we have retained the credit exposure with four non-publicly rated counterparties
totaling $24.0 million at December 31, 2020 as part of our matched-book interest rate swap program. In the event of a
termination of the contract, the counterparty would owe us the applicable amount of the credit exposure. If our counterparty
is unable to make its payment to us, we would still be obligated to pay our hedging counterparty, resulting in credit losses.
Non-performance by our counterparties, clients and others, including with respect to our inventory positions and interest rate
swap contracts with customer credit exposures, could result in losses, potentially material, and thus have a significant adverse
effect on our business and results of operations.
In addition, reliance on revenues from hedge funds and hedge fund advisors, which are less regulated than many
investment company and investment advisor clients, may expose us to greater risk of financial loss from unsettled trades than
is the case with other types of institutional investors. Concentration of risk may result in losses to us even when economic and
market conditions are generally favorable for others in our industry.
An inability to readily divest trading positions may result in financial losses to our business.
Timely divestiture of our trading positions, including equity, fixed income and other securities positions, can be impaired
by decreased trading volume, increased price volatility, rapid changes in interest rates, concentrated trading positions,
limitations on the ability to divest positions in highly specialized or structured transactions and changes in industry and
government regulations. While we hold a security, we are vulnerable to valuation fluctuations and may experience financial
losses to the extent the value of the security decreases and we are unable to timely divest or hedge our trading position in that
security. The value may decline as a result of many factors, including issuer-specific, market or geopolitical events. In
addition, in times of market uncertainty, the inability to divest inventory positions may have an impact on our liquidity as
funding sources generally become more restrictive, which could limit our ability to pledge the underlying security as
collateral. Our liquidity may also be impacted if we choose to facilitate liquidity for specific products and voluntarily increase
our inventory positions in order to do so, exposing ourselves to greater market risk and potential financial losses from the
reduction in value of illiquid positions.
Our underwriting and alternative asset management activities expose us to risk of loss.
We engage in a variety of activities in which we commit or invest our own capital, including underwriting and
alternative asset management. In our role as underwriter for equity and fixed income securities, we commit to purchase
securities from the issuer or one or more holders of the issuer's securities, and then sell those securities to other investors or
into the public markets, as applicable. Our underwriting activities, including bought deal transactions and equity block
trading activities, expose us to the risk of loss if the price of the security falls below the price we purchased the security
before we are able to sell all of the securities that we purchased. For example, as an underwriter, or, with respect to equity
securities, a block positioner, we may commit to purchasing securities from an issuer or one or more holders of the issuer's
securities without having found purchasers for some or all of the securities. In those instances, we may find that we are
unable to sell the securities at a price equal to or above the price at which we purchased the securities, or with respect to
certain securities, at a price sufficient to cover our hedges. With respect to alternative asset management, our ability to
withdraw our capital from these investments may be limited, and we may not be able to realize our investment objectives by
sale or disposition at attractive prices, increasing our risk of losses. Our joint venture entities that underwrite and syndicate
client debt may hold a portion of such debt after syndication, and our invested capital is exposed to a risk of loss to the extent
that the debt is ultimately not repaid.
Our results from these activities may vary from quarter to quarter. We may incur significant losses from our underwriting
and alternative asset management due to equity or fixed income market fluctuations and volatility from quarter to quarter, or
from a deterioration in specific business subsectors or the economy more generally. In addition, we may engage in hedging
transactions that, if not successful, could result in losses; and the hedges we purchase to counterbalance market rate changes
in certain inventory positions are not perfectly matched to the positions being hedged, which could result in losses.
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Use of derivative instruments as part of our financial risk management techniques may not effectively hedge the risks
associated with activities in certain of our businesses.
We use interest rate swaps, interest rate locks, U.S. Treasury bond futures and options, and equity option contracts as a
means to manage risk in certain inventory positions and to facilitate customer transactions. With respect to risk management,
we enter into derivative contracts to hedge interest rate and market value risks associated with our security positions,
including fixed income inventory positions we hold both for facilitating client activity. The instruments currently use interest
rates based upon the Municipal Market Data ("MMD"), London Interbank Offered Rate ("LIBOR") or Securities Industry and
Financial Markets Association ("SIFMA") index. Generally, we do not hedge all of our interest rate risk. In addition, these
hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate
and market value risk, especially when market volatility reduces the correlation between a hedging vehicle and the securities
inventory being hedged.
There are risks inherent in our use of these products, including counterparty exposure and basis risk. Counterparty
exposure refers to the risk that the amount of collateral in our possession on any given day may not be sufficient to fully
cover the current value of the swaps if a counterparty were to suddenly default. Basis risk refers to risks associated with
swaps where changes in the value of the swaps may not exactly mirror changes in the value of the cash flows they are
hedging. We may incur losses from our exposure to derivative interest rate products and the increased use of these products
in the future.
The use of estimates and valuations in measuring fair value involve significant estimation and judgment by management.
We make various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in measuring
fair value of certain financial instruments, investments in private companies, accounting for goodwill and intangible assets,
establishing provisions for potential losses that may arise from litigation, and regulatory proceedings and tax examinations.
Estimates are based on available information and judgment. Therefore, actual results could differ from our estimates and that
difference could have a material effect on our consolidated financial statements. With respect to accounting for goodwill, we
complete our annual goodwill and intangible asset impairment testing in the fourth quarter of each year or earlier if
impairment indicators are present. Impairment charges resulting from this valuation analysis could materially adversely affect
our results of operations.
Financial instruments and other inventory positions owned, and financial instruments and other inventory positions sold
but not yet purchased, are recorded at fair value, and unrealized gains and losses related to these financial instruments are
reflected on our consolidated statements of operations. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a transaction between market participants at the measurement date. Where available, fair
value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices
or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and
judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments'
complexity. Difficult market environments may cause financial instruments to become substantially more illiquid and
difficult to value, increasing the use of valuation models. Our future results of operations and financial condition may be
adversely affected by the valuation adjustments that we apply to these financial instruments.
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 valuation techniques require significant management estimation and
judgment.
Operational Risk
Operational risk is the risk of loss, or damage to our reputation, resulting from inadequate or failed processes, people and
systems or from external events. Such loss or reputational damage could negatively impact our future financial condition and
results of operations. The following are those material operational risk factors that we have identified that could pose a risk to
us.
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Our information and technology systems, including outsourced systems, are critical components of our operations, and
failure of those systems or other aspects of our operations infrastructure may disrupt our business, cause financial loss
and constrain our growth.
We typically transact thousands of securities trades on a daily basis across multiple markets. Our data and transaction
processing, financial, accounting and other technology and operating systems are essential to this task. A system malfunction
(due to hardware failure, capacity overload, security incident, data corruption, etc.) or mistake made relating to the processing
of transactions could result in financial loss, liability to clients, regulatory intervention, reputational damage and constraints
on our ability to grow.
We operate under a fully disclosed model for all of our clearing operations. In a fully disclosed model, we act as an
introducing broker for most customer transactions and rely on a clearing broker dealer to handle clearance and settlement of
our customers' securities transactions. The clearing services provided by our clearing broker dealer, Pershing, are critical to
our business operations, and similar to other important outsourced operations, any failure by the clearing agent with respect to
the services we rely on it to provide could significantly disrupt and negatively impact our operations and financial results. We
also contract with third parties for market data services, which constantly broadcast news, quotes, analytics and other relevant
information to our employees, as well as other critical data processing activities. In the event that any of these service
providers fails to adequately perform such services or the relationship between that service provider and us is terminated, we
may experience a significant disruption in our operations, including our ability to timely and accurately process transactions
or maintain complete and accurate records of those transactions.
Adapting or developing our technology systems to meet new regulatory requirements, client needs, geographic
expansion and industry demands also is critical for our business. The introduction of new technologies presents new
challenges on a regular basis. We have an ongoing need to upgrade and improve our various technology systems, including
our data and transaction processing, financial, accounting, risk management, compliance, and trading systems. This need
could present operational issues or require significant capital spending. It also may require us to make additional investments
in technology systems and may require us to reevaluate the current value and/or expected useful lives of our technology
systems, which could negatively impact our results of operations.
In 2020, nearly 90% of our workforce transitioned to a work-from-home environment in response to the COVID-19
pandemic, which entailed significant investments and potentially presented heightened cybersecurity, information security,
and operational risks which we needed to manage. Although we successfully managed that transition, a similar disruption in
the infrastructure that supports our business due to fire, natural disaster, health emergency (e.g., a disease pandemic), power
or communication failure, act of terrorism or war may affect our ability to service and interact with our clients. If we are not
able to implement contingency plans effectively, any such disruption could harm our results of operations.
Protection of our sensitive and confidential information is critical to our operations, and failure of those systems may
disrupt our business, damage our reputation, and cause financial losses.
Our clients routinely provide us with sensitive and confidential information. Secure processing, storage and transmission
of confidential and other information in our internal and outsourced computer systems and networks is critically important to
our business. We take protective measures and endeavor to modify them as circumstances warrant. However, our computer
systems, software and networks, and those of our clients, vendors, service providers, counterparties and other third parties,
may be vulnerable to unauthorized access, cyber attacks, security breaches, computer viruses or other malicious code,
inadvertent, erroneous or intercepted transmission of information (including by e-mail), human error, and other events that
could have an information security impact. We work with our employees, clients, vendors, service providers, counterparties
and other third parties to develop and implement measures designed to protect against such an event, but we may not be able
to fully protect against such an event, and do not have, and may be unable to put in place, secure capabilities with all of these
third parties and we may not be able to ensure that these third parties have appropriate controls in place to protect the
confidentiality of the information. If one or more of such events occur, this potentially could jeopardize our or our clients' or
counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems
and networks, or those of third parties, or otherwise cause interruptions or malfunctions in our, our clients', our
counterparties' or third parties' operations. We may be required to expend significant additional resources to modify our
protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to reputational
harm as well as litigation, regulatory penalties, and financial losses that are either not insured against or not fully covered
through any insurance maintained by us.
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A failure to protect our computer systems, networks and information, and our clients' information, against cyber attacks,
data breaches, and similar threats could impair our ability to conduct our businesses, result in the disclosure, theft or
destruction of confidential information, damage our reputation and cause significant financial and legal exposure.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our
computer systems and networks. There have been several highly publicized cases involving financial services companies,
consumer-based companies and other companies, as well as governmental and political organizations, reporting breaches in
the security of their websites, networks or other systems. We have not been immune from such events. Some of the
publicized breaches have involved sophisticated and targeted cyber attacks intended to obtain unauthorized access to
confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, including through
the introduction of computer viruses, malware, ransomware, phishing, denial-of-service, and other means. There have also
been several highly publicized cases where hackers have requested "ransom" payments in exchange for not disclosing
customer information.
A successful penetration or circumvention of the security of our systems could cause serious negative consequences for
us, including significant disruption of our operations and those of our clients, customers and counterparties; misappropriation
of our confidential information or that of our clients, customers, counterparties or employees; or damage to our computers or
systems and those of our clients, customers and counterparties; and could result in violations of applicable privacy and other
laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant
litigation exposure and reputational harm, all of which could have a material adverse effect on us.
We continuously monitor and develop our systems to protect our technology infrastructure and data from
misappropriation or corruption. Despite our efforts to ensure the integrity of our systems and information, we have not been
and may not be able to anticipate, detect or implement effective preventive measures against all cyber threats, especially
because the techniques used are increasingly sophisticated, change frequently, and are often not recognized until months after
the attack. Cyber attacks can originate from a variety of sources, including third parties who are affiliated with foreign
governments or employees acting negligently or in a manner adverse to our interests. Third parties may seek to gain access to
our systems either directly or using equipment or security passwords belonging to employees, customers, third party service
providers or other users of our systems. In addition, due to our interconnectivity with third party vendors, central agents,
exchanges, clearing houses and other financial institutions, we could be adversely impacted if any of them are subject to a
successful cyber attack or other information security event.
Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems,
software and networks have been and may be vulnerable to unauthorized access, misuse, computer viruses or other malicious
code and other events that could have a security impact. We may be required to expend significant additional resources to
modify our protective measures or to investigate and remediate vulnerabilities, exposures, or information security events. Due
to the complexity and interconnectedness of our systems, the process of enhancing our protective measures can itself create a
risk of systems disruptions and security issues.
The increased use of cloud technologies can heighten these and other operational risks. Certain aspects of the security of
such technologies are unpredictable or beyond our control, and this lack of transparency may inhibit our ability to discover a
failure by cloud service providers to adequately safeguard their systems and prevent cyber attacks that could disrupt our
operations and result in misappropriation, corruption or loss of confidential and other information. In addition, there is a risk
that encryption and other protective measures, despite their sophistication, may be defeated, particularly to the extent that
new computing technologies vastly increase the speed and computing power available.
19
Risk management processes may not fully mitigate exposure to the various risks that we face.
We refine our risk management techniques, strategies and assessment methods on an ongoing basis. However, risk
management techniques and strategies, both ours and those available to the market generally, may not be fully effective in
identifying and mitigating our risk exposure in all economic market environments or against all types of risk. For example,
we may fail to identify or anticipate particular risks that our systems are capable of identifying, or the systems that we use,
and that are used within the industry generally, may not be capable of identifying certain risks, or every economic and
financial outcome, or the specifics and timing of such outcomes. In addition, our risk management techniques and strategies
seek to balance our ability to profit from our market-making and investing positions with our exposure to potential losses.
Some of our strategies for managing risk are based upon our use of observed historical market behavior. We apply statistical
and other tools to these observations to quantify our risk exposure. Any failures in our risk management techniques and
strategies to accurately quantify our risk exposure could limit our ability to manage risks. In addition, any risk management
failures could cause our losses to be significantly greater than the historical measures indicate. Further, our quantified
modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient,
exposing us to material unanticipated losses.
The financial services industry and the markets in which we operate are subject to systemic risk that could adversely affect
our business and results.
Participants in the financial services industry and markets increasingly are closely interrelated as a result of credit,
trading, clearing, technology and other relationships between them. A significant adverse development with one participant
(such as a bankruptcy or default) may spread to others and lead to significant concentrated or market-wide problems (such as
defaults, liquidity problems or losses) for other industry participants, including us. Further, the control and risk management
infrastructure of the markets in which we operate often is outpaced by financial innovation and growth in new types of
securities, transactions and markets. Systemic risk is inherently difficult to assess and quantify, and its form and magnitude
can remain unknown for significant periods of time.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could materially
affect our business.
We have documented and tested our internal control procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report by our independent auditors regarding our internal
control over financial reporting. We are in compliance with Section 404 of the Sarbanes-Oxley Act as of December 31, 2020.
However, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or
amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective
internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to maintain an
effective internal control environment could materially adversely affect our business.
Legal and Regulatory Risk
Legal and regulatory risk includes the risk of non-compliance with applicable legal and regulatory requirements and the
loss to our reputation we may suffer as a result of failure to comply with laws, regulations, rules, related SRO standards and
codes of conduct applicable to our business activities. It also includes the risk that legislation could reduce or eliminate
certain business activities that we are currently engaged in, which could negatively impact our future financial condition or
results of operation. The following are those material legal and regulatory risk factors that we have identified that could pose
a risk to us.
20
Our industry is exposed to significant legal liability, which could lead to substantial damages.
We face significant legal risks in our businesses. These risks include potential liability under securities laws and
regulations in connection with our capital markets, asset management and other businesses. The volume and amount of
damages claimed in litigation, arbitrations, regulatory enforcement actions and other adversarial proceedings against financial
services firms has historically been intense. Our experience has been that adversarial proceedings against financial services
firms typically increase during and following a market downturn. We also are subject to claims from disputes with our
employees and our former employees under various circumstances. Risks associated with legal liability often are difficult to
assess or quantify and their existence and magnitude can remain unknown for significant periods of time, making the amount
of legal reserves related to these legal liabilities difficult to determine and subject to future revision. Legal or regulatory
matters involving our directors, officers or employees in their individual capacities also may create exposure for us because
we may be obligated or may choose to indemnify the affected individuals against liabilities and expenses they incur in
connection with such matters to the extent permitted under applicable law. In addition, like other financial services
companies, we may face the possibility of employee fraud or misconduct. The precautions we take to prevent and detect this
activity may not be effective in all cases and there can be no assurance that we will be able to deter or prevent fraud or
misconduct. Exposures from and expenses incurred related to any of the foregoing actions or proceedings could have a
negative impact on our results of operations and financial condition. In addition, future results of operations could be
adversely affected if reserves relating to these legal liabilities are required to be increased or legal proceedings are resolved in
excess of established reserves.
Our business is subject to extensive regulation in the jurisdictions in which we operate, and a significant regulatory action
against our company may have a material adverse financial effect on, cause significant reputational harm to, or result in
other collateral consequences for our company.
As a participant in the financial services industry, we are subject to complex and extensive regulation of many aspects of
our business by U.S. federal and state regulatory agencies, SROs (including securities exchanges) and by foreign
governmental agencies, regulatory bodies and securities exchanges. Specifically, our operating subsidiaries include broker
dealer and related securities entities organized in the United States, the United Kingdom, and Hong Kong. Each of these
entities is registered or licensed with the applicable local regulator and is subject to all of the applicable rules and regulations
promulgated by those authorities. In addition, our asset management subsidiaries, PJIM, PSC Capital Partners LLC, Piper
Sandler Advisors LLC, Piper Heartland Healthcare Capital LLC and Piper Sandler Finance Management LLC, as well as
Piper Sandler & Co., are registered as investment advisors with the SEC and subject to the regulation and oversight by the
SEC, and we have an additional asset management subsidiary subject to regulation in Guernsey.
Generally, the requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to
protect customers and other third parties who deal with us. These requirements are not designed to protect our shareholders.
Consequently, broker dealer regulations often serve to limit our activities, through net capital, customer protection and
market conduct requirements and restrictions on the businesses in which we may operate or invest. We also must comply
with asset management regulations, including requirements related to fiduciary duties to clients, record-keeping and reporting
and customer disclosures. Compliance with many of these regulations entails a number of risks, particularly in areas where
applicable regulations may be newer or unclear. In addition, regulatory authorities in all jurisdictions in which we conduct
business may intervene in our business and we, and our employees, could be fined or otherwise disciplined for violations or
prohibited from engaging in some of our business activities.
Our business also subjects us to the complex income and payroll tax laws of the national and local jurisdictions in which
we have business operations, and these tax laws may be subject to different interpretations by the taxpayer and the relevant
governmental taxing authorities. We must make judgments and interpretations about the application of these inherently
complex tax laws when determining the provision for income and other taxes. We are subject to contingent tax risk that could
adversely affect our results of operations, to the extent that our interpretations of tax laws are disputed upon examination or
audit, and are settled in amounts in excess of established reserves for such contingencies.
21
The effort to combat money laundering also has become a high priority in governmental policy with respect to financial
institutions. The obligation of financial institutions, including ourselves, to identify their customers, watch for and report
suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and
share information with other financial institutions, has required the implementation and maintenance of internal practices,
procedures and controls which have increased, and may continue to increase, our costs. Any failure with respect to our
programs in this area could subject us to serious regulatory consequences, including substantial fines, and potentially other
liabilities. In addition, our international operations require compliance with anti-bribery laws, including the Foreign Corrupt
Practices Act and the U.K. Bribery Act 2010. These laws generally prohibit companies and their intermediaries from
engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business
or gaining an unfair business advantage. While our employees and agents are required to comply with these laws, we cannot
ensure that our internal control policies and procedures will always protect us from intentional, reckless or negligent acts
committed by our employees or agents, which acts could subject our company to fines or other regulatory consequences that
could disrupt our operations and negatively impact our results of operations.
Legislative and regulatory proposals could significantly curtail the revenue from certain products that we currently
provide or otherwise have a material adverse effect on our results of operations.
Proposed changes in laws or regulations relating to our business could decrease, perhaps significantly, the revenue that
we receive from certain products or services that we provide, or otherwise have a material adverse effect on our results of
operations. Both the healthcare and financial services sectors are significant contributors to our overall results, and negative
developments in either of these sectors, including but not limited to negative developments that result from legislative or
regulatory actions taken by the new U.S. presidential administration, could negatively affect our results of operations, even if
general economic conditions were strong.
The business operations that we conduct outside of the United States subject us to unique risks.
When we conduct business outside the United States, we are subject to risks, including, without limitation, the risk that
we will be unable to provide effective operational support to these business activities, the risk of noncompliance with foreign
laws and regulations, and the general economic and political conditions in countries where we conduct business, which may
differ significantly from those in the United States. For example, the effect of Brexit is still developing and could require us
to obtain additional regulatory licenses or impose new restrictions on our ability to conduct business in Europe.
Regulatory capital requirements may limit our ability to expand or maintain our present levels of business or impair our
ability to meet our financial obligations.
We are subject to the SEC's uniform net capital rule (Rule 15c3-1) and the net capital rule of FINRA, which may limit
our ability to make withdrawals of capital from Piper Sandler & Co., our U.S. broker dealer subsidiary. The uniform net
capital rule sets the minimum level of net capital a broker dealer must maintain and also requires that a portion of its assets be
relatively liquid. FINRA may prohibit a member firm from expanding its business or paying cash dividends if resulting net
capital falls below its requirements. Underwriting commitments require a charge against net capital and, accordingly, our
ability to make underwriting commitments may be limited by the requirement that we must at all times be in compliance with
the applicable net capital regulations.
As Piper Sandler Companies is a holding company, it depends on dividends, distributions and other payments from our
subsidiaries to fund its obligations. The regulatory restrictions described above may impede access to funds our holding
company needs to make payments on any such obligations.
22
Other Risks to Our Shareholders
The following are additional risk factors that we have identified that could pose a material risk to us or our shareholders.
We may change our dividend policy at any time and there can be no assurance that we will continue to declare cash
dividends.
Our current dividend policy is to pay quarterly and annual cash dividends to our shareholders in order to return between
30 percent and 50 percent of our adjusted net income from each fiscal year to shareholders. Although we expect to pay
dividends to our shareholders in accordance with our dividend policy, we have no obligation to pay any dividend, and our
dividend policy may change at any time without notice. The declaration and payment of dividends is at the discretion of our
board of directors in accordance with applicable law after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and capital uses, limitations imposed by our indebtedness,
legal requirements and other factors that our board of directors deems relevant. As a result, we may not pay dividends at any
rate or at all.
Our stock price may fluctuate as a result of several factors, including but not limited to, changes in our revenues,
operating results, and return on equity.
We have experienced, and expect to experience in the future, fluctuations in the market price of our common stock due
to factors that relate to the nature of our business, including but not limited to changes in our revenues, operating results,
earnings per share, and return on equity. Our business, by its nature, does not produce steady and predictable earnings on a
quarterly basis, which may cause fluctuations in our stock price that may be significant. Other factors that have affected, and
may further affect, our stock price include changes in or news related to economic, political, or market events or conditions,
changes in market conditions in the financial services industry, including developments in regulation affecting our business, a
predominantly passive or quantitative shareholder base among the company's top twenty shareholders, failure to meet the
expectations of market analysts, changes in recommendations or outlooks by market analysts, and aggressive short selling.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and of Delaware
law may prevent or delay an acquisition of our company, which could decrease the market value of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law contain
provisions that are intended to deter abusive takeover tactics by making them unacceptably expensive to the raider and to
encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. These
provisions include limitations on our shareholders' ability to act by written consent and to call special meetings. Delaware law
also imposes some restrictions on mergers and other business combinations between us and any holder of 15 percent or more
of our outstanding common stock. We believe these provisions protect our shareholders from coercive or otherwise unfair
takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of
directors with more time to assess any acquisition proposal, and are not intended to make our company immune from
takeovers. However, these provisions apply even if the offer may be considered beneficial by some shareholders and could
delay or prevent an acquisition that our board of directors determines is not in the best interests of our company and our
shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
As of February 19, 2021, we conducted our operations through 63 principal offices in 30 states, and the District of
Columbia, and in London, Aberdeen and Hong Kong. All of our offices are leased. Our principal executive office is located
at 800 Nicollet Mall, Suite 900, Minneapolis, Minnesota 55402 and, as of February 19, 2021, comprises approximately
124,000 square feet of space under a lease which expires November 30, 2025, with an early termination option effective
January 31, 2023.
23
ITEM 3. LEGAL PROCEEDINGS.
Due to the nature of our business, we are involved in a variety of legal proceedings. These proceedings include litigation,
arbitration and regulatory proceedings, which may arise from, among other things, underwriting or other transactional
activity, client account activity, employment matters, regulatory examinations of our businesses and investigations of
securities industry practices by governmental agencies and SROs. The securities industry is highly regulated, and the
regulatory scrutiny applied to securities firms is intense, resulting in a significant number of regulatory investigations and
enforcement actions and uncertainty regarding the likely outcome of these matters.
Litigation-related expenses include amounts we reserve and/or pay out as legal and regulatory settlements, awards or
judgments, and fines. Parties who initiate litigation and arbitration proceedings against us may seek substantial or
indeterminate damages, and regulatory investigations can result in substantial fines being imposed on us. We reserve for
contingencies related to legal proceedings at the time and to the extent we determine the amount to be probable and
reasonably estimable. However, it is inherently difficult to predict accurately the timing and outcome of legal proceedings,
including the amounts of any settlements, judgments or fines. We assess each proceeding based on its particular facts, our
outside advisors' assessment and our past experience with similar matters, and expectations regarding the current legal and
regulatory environment and other external developments that might affect the outcome of a particular proceeding or type of
proceeding. Subject to the foregoing, we believe, based on our current knowledge, after appropriate consultation with outside
legal counsel and taking into account our established reserves, that pending legal actions, investigations and regulatory
proceedings, will be resolved with no material adverse effect on our consolidated financial condition, results of operations or
cash flows. However, there can be no assurance that our assessments will reflect the ultimate outcome of pending
proceedings, and the outcome of any particular matter may be material to our operating results for any particular period,
depending, in part, on the operating results for that period and the amount of established reserves. Reasonably possible losses
in excess of amounts accrued at December 31, 2020 are not material. We generally have denied, or believe that we have
meritorious defenses and will deny, liability in all significant cases currently pending against us, and we intend to vigorously
defend such actions.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
24
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
PART II
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol "PIPR."
Shareholders
We had 10,167 shareholders of record and approximately 30,137 beneficial owners of our common stock as of
February 19, 2021.
Dividend Policy
Our board of directors has approved a dividend policy with the intention of returning between 30 percent and 50 percent
of our adjusted net income from the previous fiscal year to shareholders. This includes the payment of a quarterly and an
annual special cash dividend, payable in the first quarter of each year.
Our board of directors has declared a special cash dividend on our common stock of $1.85 per share related to 2020
adjusted net income. This special dividend will be paid on March 12, 2021, to shareholders of record as of the close of
business on March 3, 2021. Including this special cash dividend and the regular quarterly dividends totaling $1.25 per share
paid during 2020, we will have returned $3.10 per share, or approximately 31 percent of our fiscal year 2020 adjusted net
income to shareholders. In addition, our board of directors has declared a quarterly cash dividend on our common stock of
$0.40 per share to be paid on March 12, 2021, to shareholders of record as of the close of business on March 3, 2021.
Our board of directors is free to change our dividend policy at any time. Restrictions on our U.S. broker dealer
subsidiary's ability to pay dividends are described in Note 23 to the consolidated financial statements included in Part II, Item
8 of this Form 10-K.
Purchases of Equity Securities
The table below sets forth the information with respect to purchases made by or on behalf of Piper Sandler Companies or
any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the quarter
ended December 31, 2020.
Period
Month #1
(October 1, 2020 to
October 31, 2020).........
Month #2
(November 1, 2020 to
November 30, 2020).....
Month #3
(December 1, 2020 to
December 31, 2020).....
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares Yet to be
Purchased Under the
Plans or Programs (1)
—
$
—
2,637
$
92.60
—
2,637
$
$
—
92.60
—
$
—
$
—
—
$
$
137
137
137
137
(1) Effective January 1, 2020, our board of directors authorized the repurchase of up to $150.0 million of common stock through December 31, 2021.
25
Stock Performance Graph
This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section
18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated
by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act.
The following graph compares the performance of an investment in our common stock from December 31, 2015 through
December 31, 2020, with the S&P 500 Index and the S&P 500 Diversified Financials Index. The graph assumes $100 was
invested on December 31, 2015, in each of our common stock, the S&P 500 Index and the S&P 500 Diversified Financials
Index and that all dividends were reinvested on the date of payment without payment of any commissions. The performance
shown in the graph represents past performance and should not be considered an indication of future performance.
FIVE YEAR TOTAL RETURN FOR PIPER SANDLER COMPANIES COMMON STOCK,
THE S&P 500 INDEX AND THE S&P DIVERSIFIED FINANCIALS INDEX
Company/Index
Piper Sandler Companies.............
S&P 500 Index.............................
S&P 500 Diversified Financials...
12/31/2015
100
$
100
100
12/31/2016
179.46
$
111.96
120.55
12/31/2017
217.54
$
136.40
150.56
12/31/2018
172.52
$
130.42
135.62
12/31/2019
213.72
$
171.49
168.94
12/31/2020
277.06
$
203.04
188.14
ITEM 6. SELECTED FINANCIAL DATA.
None.
26
PIPRS&P 500 IndexS&P 500 Diversified Financials12/31/201512/31/201612/31/201712/31/201812/31/201912/31/2020$0$50$100$150$200$250$300
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following information should be read in conjunction with the accompanying audited consolidated financial
statements and related notes and exhibits included elsewhere in this Form 10-K. Certain statements in this Form 10-K may be
considered forward-looking. See "Cautionary Note Regarding Forward-Looking Statements" in this Form 10-K for additional
information regarding such statements and related risks and uncertainties.
Item 7 in this Form 10-K discusses our 2020 and 2019 results and the year-over-year comparisons between 2020 and
2019. Discussion of our 2018 results and the year-over-year comparisons between 2019 and 2018 can be found in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual
Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020.
Explanation of Non-GAAP Financial Measures
We have included financial measures that are not prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"). These non-GAAP financial measures include adjustments to exclude (1) revenues and expenses related
to noncontrolling interests, (2) interest expense on long-term financing from net revenues, (3) amortization of intangible
assets related to acquisitions, (4) compensation and non-compensation expenses from acquisition-related agreements, (5)
acquisition-related restructuring and integration costs and (6) discontinued operations. The adjusted weighted average diluted
shares outstanding used in the calculation of non-GAAP earnings per diluted common share contains an adjustment to
include the common shares for unvested restricted stock awards with service conditions granted pursuant to the acquisitions
of SOP Holdings, LLC and its subsidiaries, including Sandler O'Neill & Partners, L.P. (collectively, "Sandler O'Neill") and
The Valence Group ("Valence"). These adjustments affect the following financial measures: net revenues, compensation
expenses, non-compensation expenses, income tax expense, net income applicable to Piper Sandler Companies, earnings per
diluted common share, non-interest expenses, pre-tax income and pre-tax margin. Management believes that presenting these
results and measures on an adjusted basis in conjunction with the corresponding U.S. GAAP measures provides the most
meaningful basis for comparison of our operating results across periods and enhances the overall understanding of our current
financial performance by excluding certain items that may not be indicative of our core operating results. The non-GAAP
financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in
accordance with U.S. GAAP.
Executive Overview
Overview of Operations – Our continuing operations principally consist of providing investment banking and
institutional brokerage services to corporations, private equity groups, public entities, non-profit entities and institutional
investors in the United States and Europe. We operate through one reportable business segment.
Investment banking services include financial advisory services, management of and participation in underwritings and
municipal financing activities. Revenues are generated through the receipt of advisory and financing fees. Institutional sales,
trading and research services focus on the trading of equity and fixed income products with institutions, government and non-
profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional
sales activities, net interest revenues on trading securities held in inventory, profits and losses from trading these securities,
and research checks as clients pay us for research services and corporate access offerings. Also, we have historically
generated revenue through strategic trading activities, which focused on investments in municipal bonds; however, we ceased
these activities in the first half of 2020. In order to invest firm capital and to manage capital from outside investors, we have
created alternative asset management funds in merchant banking, which involve equity investments in late stage private
companies, and in the energy sector, whose principal activity is to invest in oil and gas services companies headquartered in
Europe. We receive management and performance fees for managing these funds, as well as investment gains and losses.
Discontinued Operations – Discontinued operations includes the operating results of ARI, our traditional asset
management subsidiary which we sold in the third quarter of 2019. See Note 5 to our consolidated financial statements
included in Part II, Item 8 of this Form 10-K for further discussion of our discontinued operations.
27
Our Business Strategy – Our long-term strategic objectives are to drive revenue growth, build a stronger and more
durable platform, continue to gain market share, and maximize shareholder value. In order to meet these objectives, we are
focused on the following:
•
•
•
•
Continuing to transform our business through strategic investments and selectively adding partners who share our client-
centric culture and who can leverage our platform to better serve clients;
Growing our investment banking platform through market share gains, accretive combinations, developing internal
talent, and continued sector and geographic expansion. We also believe there is an opportunity to capitalize on the
strength of our U.S. franchises by expanding in Europe;
Leveraging the scale within the equity brokerage and fixed income services platforms, driven by our recently expanded
client base and product offerings, to grow market share; and
Prudently managing capital to maintain our balance sheet strength with ample liquidity and flexibility through all market
conditions.
Strategic Activities – During 2019 and 2020, we took the following important steps in the execution of our business
strategy.
•
•
•
•
On December 31, 2020, we completed the acquisition of TRS Advisors LLC ("TRS"), an advisory firm offering
restructuring and reorganization services to companies in public, private and governmental settings. The transaction
expands the scale of our restructuring advisory business.
On April 3, 2020, we completed the acquisition of Valence, an investment bank offering mergers and acquisitions
advisory services to companies and financial sponsors with a focus on the chemicals, materials and related sectors. The
transaction adds a new industry sector and expands our presence in Europe.
On January 3, 2020, we completed the acquisition of Sandler O'Neill, a full-service investment banking firm and broker
dealer focused on the financial services industry. The acquisition of Sandler O'Neill is accretive to our advisory services
revenues, diversifies and enhances scale in corporate financings, adds a differentiated fixed income services business,
and increases scale in our equity brokerage business.
On August 2, 2019, we completed the acquisition of Weeden & Co. L.P. ("Weeden & Co."). Weeden & Co. is a broker
dealer focused on providing institutional clients with global trading solutions, specializing in best execution through the
use of high-touch, low-touch and program trading capabilities. The transaction added enhanced trade execution
capabilities and scale to our equity brokerage business.
28
Financial Highlights
(Amounts in thousands, except per share data)
U.S. GAAP
Net revenues.......................................................................................
Compensation and benefits.................................................................
Non-compensation expenses..............................................................
Income from continuing operations before income tax expense........
Net income applicable to Piper Sandler Companies...........................
Earnings per diluted common share...................................................
Ratios and margin
Compensation ratio.........................................................................
Non-compensation ratio..................................................................
Pre-tax margin.................................................................................
Non-GAAP (1)
Adjusted net revenues.........................................................................
Adjusted compensation and benefits..................................................
Adjusted non-compensation expenses................................................
Adjusted operating income.................................................................
Adjusted net income applicable to Piper Sandler Companies............
Adjusted earnings per diluted common share.....................................
Adjusted ratios and margin
Adjusted compensation ratio............................................................
Adjusted non-compensation ratio.....................................................
Adjusted operating margin................................................................
$
$
$
$
See the "Results of Operations" section for additional information.
Year Ended December 31,
2020
2019
1,238,213
877,462
292,203
68,548
40,504
2.72
70.9 %
23.6 %
5.5 %
1,234,960
764,066
220,606
250,288
177,555
10.02
$
$
$
$
61.9 %
17.9 %
20.3 %
834,566
516,090
199,497
118,979
111,711
7.69
61.8 %
23.9 %
14.3 %
825,645
510,952
176,458
138,235
106,197
7.36
61.9 %
21.4 %
16.7 %
2020
v2019
48.4 %
70.0
46.5
(42.4)
(63.7)
(64.6)
49.6 %
49.5
25.0
81.1
67.2
36.1
29
(1) Reconciliation of U.S. GAAP to adjusted non-GAAP financial information
(Amounts in thousands, except per share data)
Net revenues:
Net revenues – U.S. GAAP basis...................................................................................................................
Adjustments:
Revenue related to noncontrolling interests................................................................................................
Interest expense on long-term financing......................................................................................................
Adjusted net revenues....................................................................................................................................
Compensation and benefits:
Compensation and benefits – U.S. GAAP basis.............................................................................................
Adjustments:
Compensation from acquisition-related agreements...................................................................................
Adjusted compensation and benefits..............................................................................................................
Non-compensation expenses:
Non-compensation expenses – U.S. GAAP basis...........................................................................................
Adjustments:
Non-compensation expenses related to noncontrolling interests................................................................
Acquisition-related restructuring and integration costs..............................................................................
Amortization of intangible assets related to acquisitions............................................................................
Non-compensation expenses from acquisition-related agreements............................................................
Adjusted non-compensation expenses............................................................................................................
Income from continuing operations before income tax expense:
Income from continuing operations before income tax expense – U.S. GAAP basis....................................
Adjustments:
Revenue related to noncontrolling interests................................................................................................
Interest expense on long-term financing......................................................................................................
Non-compensation expenses related to noncontrolling interests................................................................
Compensation from acquisition-related agreements...................................................................................
Acquisition-related restructuring and integration costs..............................................................................
Amortization of intangible assets related to acquisitions............................................................................
Non-compensation expenses from acquisition-related agreements............................................................
Adjusted operating income............................................................................................................................
Interest expense on long-term financing......................................................................................................
Adjusted income before adjusted income tax expense...................................................................................
Net income applicable to Piper Sandler Companies:
Net income applicable to Piper Sandler Companies – U.S. GAAP basis......................................................
Adjustment to exclude net income from discontinued operations..................................................................
Net income from continuing operations.........................................................................................................
Adjustments:
Compensation from acquisition-related agreements...................................................................................
Acquisition-related restructuring and integration costs..............................................................................
Amortization of intangible assets related to acquisitions............................................................................
Non-compensation expenses from acquisition-related agreements............................................................
Adjusted net income applicable to Piper Sandler Companies.......................................................................
$
$
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2019
2020
1,238,213
$
834,566
(12,881)
9,628
1,234,960
$
(10,769)
1,848
825,645
877,462
$
516,090
(113,396)
764,066
$
(5,138)
510,952
292,203
$
199,497
(4,029)
(10,755)
(44,728)
(12,085)
220,606
$
(4,306)
(14,321)
(4,298)
(114)
176,458
68,548
$
118,979
(12,881)
9,628
4,029
113,396
10,755
44,728
12,085
250,288
(9,628)
240,660
40,504
—
40,504
85,940
8,712
33,383
9,016
177,555
$
$
$
$
(10,769)
1,848
4,306
5,138
14,321
4,298
114
138,235
(1,848)
136,387
111,711
23,772
87,939
4,124
10,770
3,250
114
106,197
30
(Amounts in thousands, except per share data)
Earnings per diluted common share:
Earnings per diluted common share – U.S. GAAP basis...............................................................................
Adjustment to exclude net income from discontinued operations..................................................................
Income from continuing operations...............................................................................................................
Adjustment for inclusion of unvested acquisition-related stock....................................................................
Adjustment related to participating shares (2)..............................................................................................
Adjustments:
Compensation from acquisition-related agreements...................................................................................
Acquisition-related restructuring and integration costs..............................................................................
Amortization of intangible assets related to acquisitions............................................................................
Non-compensation expenses from acquisition-related agreements............................................................
Adjusted earnings per diluted common share................................................................................................
$
$
$
$
Weighted average diluted common shares outstanding:
Weighted average diluted common shares outstanding – U.S. GAAP basis.................................................
Adjustment:
Unvested acquisition-related restricted stock with service conditions........................................................
Adjusted weighted average diluted common shares outstanding..................................................................
Year Ended December 31,
2019
2020
2.72
—
2.72
(1.89)
—
0.83
5.76
0.58
2.24
0.61
10.02
$
$
$
$
14,901
2,814
17,715
7.69
1.65
6.05
—
0.04
6.09
0.29
0.75
0.23
0.01
7.36
13,937
—
13,937
(2) A non-GAAP measure for which the adjustment related to participating shares excludes the impact of the annual special cash dividend paid in the first
quarter.
31
Market Data
The following table provides a summary of relevant market data over the past three years.
Year Ended
S&P 500 (a)..............................................................................
Nasdaq (a).................................................................................
Mergers and Acquisitions - Middle Market
2020
3,756
12,888
2019
3,231
8,973
2018
2,507
6,635
2020
v2019
16.2 %
43.6 %
2019
v2018
28.9 %
35.2 %
(number of transactions in U.S.) (b).......................................
2,971
3,009
3,051
(1.3) %
(1.4) %
Public Equity Offerings
(number of transactions in U.S.) (c).......................................
1,285
Initial Public Offerings
(number of transactions in U.S.) (d).......................................
436
U.S. Equity Capital Markets Fee Pool - Sub-$5 billion
887
206
979
44.9 %
(9.4) %
226
111.7 %
(8.8) %
(dollars in millions) (e)...........................................................
$ 9,014
$ 4,379
$ 5,009
105.8 %
(12.6) %
Municipal Negotiated Issuances
(number of transactions in U.S.) (f)........................................
8,861
7,505
5,872
18.1 %
27.8 %
Municipal Negotiated Issuances
(value of transactions in billions in U.S.) (f)..........................
Average CBOE Volatility Index (VIX)....................................
NYSE Average Daily Number of Shares Traded
$ 390
29
$ 327
15
$ 264
17
19.2 %
93.3 %
23.9 %
(11.8) %
(millions of shares).................................................................
2,402
1,690
1,708
42.1 %
(1.1) %
Nasdaq Average Daily Number of Shares Traded
(millions of shares).................................................................
10-Year Treasury Average Rate...............................................
3-Month Treasury Average Rate..............................................
Average 10-Year Municipal-Treasury Ratio (g).......................
2,010
1,381
1,428
0.81 %
0.25 %
1.22
2.14 %
2.11 %
0.79
2.91 %
1.97 %
0.85
45.5 %
(62.1) %
(88.2) %
54.4 %
(3.3) %
(26.5) %
7.1 %
(7.1) %
(a) Data provided is at period end.
(b)
(c)
(d)
(e)
Source: Refinitiv (transactions with reported deal value between $100 million and $1 billion and transactions with an undisclosed deal value that had
a financial advisor).
Source: Dealogic and Piper Sandler Equity Capital Markets (IPOs, follow-on offerings and convertible offerings with reported deal value greater than
$10 million).
Source: Dealogic and Piper Sandler Equity Capital Markets (offerings with reported deal value greater than $10 million).
Source: Dealogic and Piper Sandler Equity Capital Markets (IPOs, follow-on offerings and convertible offerings with deal values greater than $10
million and PIPEs/RDs greater than $5 million for sub-$5 billion market cap issuers; SPAC IPO fees are represented as the standard two percent
upfront fee unless noted differently on the IPO cover).
(f)
Source: Refinitiv (sole/senior negotiated and private placement transactions).
(g) Calculated based on the 10-year Municipal Market Data (MMD) index rate divided by the 10-year treasury rate.
External Factors Impacting Our Business
Performance in the financial services industry in which we operate is highly correlated to the overall strength of
economic conditions and financial market activity. Overall market conditions are a product of many factors, which are
beyond our control, often unpredictable and at times inherently volatile. These factors may affect the financial decisions
made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our
business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the
demand for investment banking services as reflected by the number and size of advisory transactions, equity and debt
corporate financings, and municipal financings; the relative level of volatility of the equity and fixed income markets;
changes in interest rates and credit spreads (especially rapid and extreme changes); overall market liquidity; the level and
shape of various yield curves; the volume and value of trading in securities; and overall equity valuations.
32
Factors that differentiate our business within the financial services industry also may affect our financial results. For
example, our capital markets business focuses on specific industry sectors while serving principally middle-market clientele.
If the business environment for our focus sectors is impacted adversely, our business and results of operations could reflect
these impacts. In addition, our business, with its specific areas of focus and investment, may not track overall market trends.
Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to
period, and results for any individual period should not be considered indicative of future results.
Outlook for 2021
On March 11, 2020, the World Health Organization characterized the COVID-19 outbreak as a global pandemic. The
COVID-19 pandemic has affected major economic and financial markets, and businesses and governments continue to face
challenges associated with the economic conditions resulting from efforts to address it. Global macroeconomic conditions
have been significantly impacted by the government-mandated closure of businesses and the subsequent reopening of the
economy with new protocols for social interaction, supply chain and production disruptions, job losses, reduced consumer
spending and sentiment, and a myriad of other factors.
The U.S. federal government passed legislation in the first and fourth quarters of 2020 attempting to mitigate some of the
economic hardship caused by the COVID-19 pandemic, with the potential for additional legislation and stimulus measures in
2021. The U.S. Federal Reserve took extraordinary steps in 2020 to provide liquidity in the financial markets, including
cutting the short-term benchmark interest rate to zero and launching a new round of quantitative easing. After historic
volatility in the first quarter of 2020, equity markets rebounded and fixed income markets stabilized, aided by the record
levels of federal monetary and fiscal support. In the third quarter of 2020, the U.S. Federal Reserve announced it would keep
the benchmark interest rate at its current low level for an extended period of time, and maintained their quantitative easing
measures.
After the unprecedented shock to the economy in 2020 from COVID-19, we expect the economy to improve in 2021,
likely weighted towards the second half of the year. However, economic recovery and growth will be dependent on the
trajectory of vaccine distribution and administration. The results of the recent U.S. elections will also influence future
legislative actions and policies which, in part, may impact economic growth. Geopolitical and macroeconomic risks, such as
uncertainties surrounding trade policy and other global economic conditions, remain in the background and will continue to
have an ongoing impact to the U.S. and global economy.
Market conditions continued to be favorable for corporate capital raising in the fourth quarter of 2020 driven by strong
investor demand and market valuations. We believe equity and debt capital raising activity will remain strong in 2021 albeit
at reduced levels from 2020.
Advisory services revenues rebounded in the fourth quarter of 2020 from the trough we experienced during the third
quarter of 2020. Advisory services activity is benefiting from increased CEO confidence and more clarity on a post-pandemic
outlook. Market conditions remain conducive for activity in the middle market due to attractive valuations, low financing
rates and an expectation of continued economic growth. Our pipeline is strong across our industry verticals.
In our equity brokerage business, revenues for 2020 reflected substantially increased levels of volatility and volumes. We
believe our equity brokerage revenues will decline in 2021 as institutional trading volumes moderate from the elevated 2020
levels. We also expect the equity brokerage fee pool will be down in 2021.
The actions taken by the U.S. Federal Reserve to inject liquidity into the financial markets and to keep interest rates low
allowed for stability in the fixed income markets after the first quarter of 2020. We anticipate less volatility in 2021 which
will reduce volumes and commission spreads. We will continue to provide our clients with differentiated advice and analytics
on repositioning balance sheets, maximizing yields and managing risk in the current market environment.
Our public finance underwriting business benefited from market stability, low yields, robust refinancing activity and
strong investor demand in 2020. We believe that market issuance volumes in 2021 will moderate from the record levels in
2020, especially within the governmental space. Revenues from higher-yielding municipal offerings should increase as high
yield investor demand has improved meaningfully. Issuer capital needs, interest rate yields, rate stability and client demand
will continue to be the principal drivers of the level of municipal finance activity going forward.
33
Results of Operations
Financial Summary
The following table provides a summary of the results of our operations on a U.S. GAAP basis and the results of our
operations as a percentage of net revenues for the periods indicated.
Year Ended December 31,
2020
2019
2018
2020
v2019
2019
v2018
As a Percentage of
Net Revenues for the
Year Ended December 31,
2020
2019
2018
(Amounts in thousands)
Revenues:
Investment banking.............................
Institutional brokerage.........................
Interest income....................................
Investment income..............................
Total revenues...................................
$ 858,476 $ 629,392 $ 588,978
124,738
167,891
357,753
32,749
26,741
13,164
11,039
22,275
23,265
757,504
846,299
1,252,658
36.4 %
113.1
(50.8)
4.4
48.0
6.9 %
34.6
(18.3)
101.8
11.7
69.3 % 75.4 % 79.5 %
20.1
28.9
3.2
1.1
2.7
1.9
101.4
101.2
16.8
4.4
1.5
102.2
Interest expense...................................
14,445
11,733
16,551
23.1
(29.1)
1.2
1.4
2.2
Net revenues......................................
1,238,213
834,566
740,953
48.4
12.6
100.0
100.0
100.0
Non-interest expenses:
Compensation and benefits.................
Outside services...................................
Occupancy and equipment..................
Communications..................................
Marketing and business
development......................................
Deal-related expenses..........................
Trade execution and clearance............
Restructuring and integration costs.....
Intangible asset amortization...............
Other operating expenses....................
Total non-interest expenses...............
877,462
38,377
54,007
44,358
516,090
36,184
36,795
30,760
488,487
36,528
34,194
28,656
13,472
38,072
18,934
10,755
44,728
29,500
1,169,665
28,780
25,823
10,186
14,321
4,298
12,350
715,587
26,936
25,120
8,014
3,498
4,858
12,173
668,464
70.0
6.1
46.8
44.2
(53.2)
47.4
85.9
(24.9)
940.7
138.9
63.5
5.7
(0.9)
7.6
7.3
6.8
2.8
27.1
309.4
(11.5)
1.5
7.0
Income from continuing operations
before income tax expense ................
68,548
118,979
72,489
(42.4)
64.1
Income tax expense.............................
19,192
24,577
18,046
(21.9)
36.2
Income from continuing operations ...
49,356
94,402
54,443
(47.7)
73.4
Discontinued operations:
Income from discontinued operations,
net of tax............................................
—
23,772
1,387
N/M
N/M
Net income ............................................
49,356
118,174
55,830
(58.2)
111.7
70.9
3.1
4.4
3.6
1.1
3.1
1.5
0.9
3.6
2.4
94.5
5.5
1.5
4.0
—
4.0
61.8
4.3
4.4
3.7
3.4
3.1
1.2
1.7
0.5
1.5
85.7
14.3
2.9
11.3
2.8
14.2
65.9
4.9
4.6
3.9
3.6
3.4
1.1
0.5
0.7
1.6
90.2
9.8
2.4
7.3
0.2
7.5
Net income/(loss) applicable to
noncontrolling interests.....................
Net income applicable to Piper
Sandler Companies ...........................
N/M — Not meaningful
8,852
6,463
(1,206)
37.0
N/M
0.7
0.8
(0.2)
$ 40,504 $ 111,711 $ 57,036
(63.7) %
95.9 %
3.3 % 13.4 %
7.7 %
34
For the year ended December 31, 2020, we recorded net income from continuing operations applicable to Piper Sandler
Companies of $40.5 million. Net revenues from continuing operations for the year ended December 31, 2020 increased 48.4
percent to $1.24 billion, compared with $834.6 million in the year-ago period, driven by record corporate financing revenues.
Additionally, the acquisitions of Sandler O'Neill and Weeden & Co. have provided increased diversification and scale to our
platform. In 2020, investment banking revenues increased 36.4 percent to $858.5 million, compared with $629.4 million in
2019, due to significantly higher corporate financing revenues, as well as increased municipal financing revenues. For the
year ended December 31, 2020, institutional brokerage revenues were $357.8 million, up 113.1 percent compared with
$167.9 million in 2019. The increase was due to the acquisitions of Weeden & Co. and Sandler O'Neill, as well as higher
volatility in the financial markets, particularly in the first quarter of 2020, which drove higher trading volumes. In 2020, net
interest expense was $1.3 million, compared to net interest income of $15.0 million in 2019. Net interest expense resulted
from a decline in interest income on our long inventory positions combined with incremental interest expense on our long-
term financing arrangements, which consist of our fixed rate senior notes issued on October 15, 2019, and the unsecured
promissory notes we entered into on April 3, 2020 to fund a portion of the Valence purchase price. For the year ended
December 31, 2020, investment income was $23.3 million, compared with $22.3 million in 2019. In 2020, we recorded lower
gains on our investment and the noncontrolling interests in the merchant banking funds that we manage which were more
than offset by higher gains on our other firm investments. Non-interest expenses from continuing operations were
$1.17 billion for the year ended December 31, 2020, up 63.5 percent compared with $715.6 million in the prior year,
primarily due to higher compensation and non-compensation expenses resulting from our recent acquisitions.
Consolidated Non-Interest Expenses from Continuing Operations
Compensation and Benefits – Compensation and benefits expenses, which are the largest component of our expenses,
include salaries, incentive compensation, benefits, stock-based compensation, employment taxes, income associated with the
forfeiture of stock-based compensation and other employee-related costs. A significant portion of compensation expense is
comprised of variable incentive arrangements, including discretionary incentive compensation, the amount of which
fluctuates in proportion to the level of business activity, increasing with higher revenues and operating profits. Other
compensation costs, primarily base salaries and benefits, are more fixed in nature. The timing of incentive compensation
payments, which generally occur in February, has a greater impact on our cash position and liquidity than is reflected on our
consolidated statements of operations. We have granted restricted stock and restricted cash with service conditions as a
component of our acquisition deal consideration, which is amortized to compensation expense over the service period.
The following table summarizes our future acquisition-related compensation expense for restricted stock and restricted
cash with service conditions, as well as amounts estimated to be paid under earnout arrangements:
(Amounts in thousands)
2021.............................................................................................................................................................
2022.............................................................................................................................................................
2023.............................................................................................................................................................
2024.............................................................................................................................................................
2025.............................................................................................................................................................
Total..........................................................................................................................................................
$
$
93,707
80,019
29,997
22,041
5,295
231,059
For the year ended December 31, 2020, compensation and benefits expenses increased 70.0 percent to $877.5 million
from $516.1 million in 2019. The increase in compensation and benefits expenses was driven by increased revenues and
incremental headcount from the acquisitions of Sandler O'Neill and Valence, along with higher acquisition-related
compensation related to restricted consideration and retention awards associated with these acquisitions. We also recorded
additional compensation expense for an earnout associated with the acquisition of Weeden & Co. related to our expectations
of achieving a net revenue target, as our equity brokerage business is outperforming initial projections. Compensation and
benefits expenses as a percentage of net revenues was 70.9 percent in 2020, compared with 61.8 percent in 2019. The
compensation ratio was impacted by increased acquisition-related compensation related to our recent acquisitions.
Outside Services – Outside services expenses include securities processing expenses, outsourced technology functions,
outside legal fees, fund expenses associated with our consolidated alternative asset management funds and other professional
fees. Outside services expenses were $38.4 million in 2020, up 6.1 percent compared with $36.2 million in 2019. The
increase was due to incremental expenses related to the acquisition of Sandler O'Neill.
35
Occupancy and Equipment – For the year ended December 31, 2020, occupancy and equipment expenses increased 46.8
percent to $54.0 million, compared with $36.8 million in 2019. The increase was primarily the result of incremental expenses
related to our recent acquisitions.
Communications – Communication expenses include costs for telecommunication and data communication, primarily
consisting of expenses for obtaining third party market data information. For the year ended December 31, 2020,
communication expenses increased 44.2 percent to $44.4 million, compared with $30.8 million for the year ended December
31, 2019 due to higher market data services expenses resulting from incremental headcount related to our recent acquisitions.
Marketing and Business Development – Marketing and business development expenses include travel and entertainment
costs, advertising and third party marketing fees. In 2020, marketing and business development expenses decreased 53.2
percent to $13.5 million, compared with $28.8 million for the year ended December 31, 2019. The decrease was driven by
lower travel and entertainment costs related to the COVID-19 pandemic. We anticipate that travel will begin to resume in the
second half of 2021, resulting in increased travel and entertainment costs compared to 2020.
Deal-Related Expenses – Deal-related expenses include costs we incurred over the course of a completed investment
banking deal, which primarily consist of legal fees, offering expenses, and travel and entertainment costs. For the year ended
December 31, 2020, deal-related expenses increased 47.4 percent to $38.1 million, compared with $25.8 million for the year
ended December 31, 2019. The amount of deal-related expenses is principally dependent on the level of deal activity and may
vary from period to period as the recognition of deal-related costs typically coincides with the closing of a transaction. We
closed on a record number of equity financing transactions in 2020, which resulted in higher deal-related expenses.
Trade Execution and Clearance – For the year ended December 31, 2020, trade execution and clearance expenses were
$18.9 million, compared with $10.2 million for the year ended December 31, 2019. The increase in trade execution and
clearance expenses was reflective of higher trading volumes.
Restructuring and Integration Costs – For the year ended December 31, 2020, we incurred acquisition-related
restructuring and integration costs of $10.8 million. The expenses consisted of $4.4 million of transaction costs related to our
recent acquisitions, $3.0 million of severance benefits, $0.9 million of contract termination costs and $2.5 million for vacated
leased office space.
For the year ended December 31, 2019, we incurred acquisition-related restructuring and integration costs of
$14.3 million related to the acquisitions of Weeden & Co. and Sandler O'Neill. The expenses consisted of $6.9 million of
professional fees related to the transactions, $2.9 million of severance benefits, $2.8 million of contract termination costs and
$1.7 million for vacated leased office space.
Intangible Asset Amortization – Intangible asset amortization includes the amortization of definite-lived intangible assets
consisting of customer relationships, internally developed software and the trade name that we acquired from Simmons &
Company International ("Simmons"). For the year ended December 31, 2020, intangible asset amortization was
$44.7 million, compared with $4.3 million in 2019. The increase was due to incremental intangible asset amortization
expense related to identifiable intangible assets associated with the acquisitions of Sandler O'Neill and Valence and a full
year of intangible asset amortization expense related to Weeden & Co. In 2021, we anticipate incurring additional intangible
asset amortization expense related to the acquisition of TRS and a full year of intangible asset amortization expense related to
the acquisition of Valence.
Other Operating Expenses – Other operating expenses include insurance costs, license and registration fees, expenses
related to our charitable giving program and litigation-related expenses, which consist of the amounts we reserve and/or pay
out related to legal and regulatory matters. Other operating expenses were $29.5 million in 2020, compared with
$12.4 million in 2019. In the first quarter of 2020, we recorded a $12.1 million fair value adjustment related to the earnout for
former Weeden & Co. equity owners who did not transition to our platform. We recorded the full value of the projected
earnout as the non-employee equity owners do not have service requirements. The increase was also due to higher expense
related to our charitable giving program.
36
Income Taxes – For the year ended December 31, 2020, our provision for income taxes was $19.2 million. Excluding the
impact of noncontrolling interests, our effective tax rate was 32.1 percent, which was driven by the impact of non-deductible
covered employee compensation expense, partially offset by $2.4 million of income tax benefits related to the tax provisions
in the Coronavirus Aid, Relief, and Economic Security Act.
For the year ended December 31, 2019, our provision for income taxes was $24.6 million, which included a $5.1 million
tax benefit related to stock-based compensation awards vesting at values greater than the grant price. Excluding the impact of
this benefit and noncontrolling interests, our effective tax rate was 26.4 percent.
Financial Performance from Continuing Operations
Our activities as an investment bank and institutional securities firm constitute a single business segment.
Throughout this section, we have presented results on both a U.S. GAAP and non-GAAP basis. Management believes
that presenting results and measures on an adjusted, non-GAAP basis in conjunction with the corresponding U.S. GAAP
measures provides a more meaningful basis for comparison of its operating results and underlying trends between periods,
and enhances the overall understanding of our current financial performance by excluding certain items that may not be
indicative of our core operating results. The non-GAAP results should be considered in addition to, not as a substitute for, the
results prepared in accordance with U.S. GAAP.
The adjusted financial results exclude (1) revenues and expenses related to noncontrolling interests, (2) interest expense
on long-term financing from net revenues, (3) amortization of intangible assets related to acquisitions, (4) compensation and
non-compensation expenses from acquisition-related agreements and (5) acquisition-related restructuring and integration
costs. For U.S. GAAP purposes, these items are included in each of their respective line items on the consolidated statements
of operations.
Adjusted operating income and adjusted operating margin present the results of operations excluding the impact resulting
from the consolidation of noncontrolling interests in alternative asset management funds. Consolidation of these funds results
in the inclusion of the proportionate share of the income or loss attributable to the equity interests in consolidated funds that
are not attributable, either directly or indirectly, to us (i.e., noncontrolling interests). This proportionate share is reflected in
net income/(loss) applicable to noncontrolling interests in the accompanying consolidated statements of operations, and has
no effect on our overall financial performance, as ultimately, this income or loss is not income or loss for us. Included in
adjusted operating income and adjusted operating margin is the actual proportionate share of the income or loss attributable to
us as an investor in such funds.
The adjusted, non-GAAP financial results also exclude amortization of intangible assets and compensation and non-
compensation expenses from acquisition-related agreements. These amounts are excluded on a non-GAAP basis as they
represent expenses specifically related to acquisitions that will eventually be fully amortized and therefore not part of our on-
going operations. The acquisition-related restructuring and integration costs excluded from the adjusted financial results
represent charges that resulted from severance benefits, contract termination costs, vacating redundant leased office space and
professional fees related to the respective transactions. These restructuring and integration costs are excluded from our non-
GAAP financial measures as they relate to acquisitions and excluding these amounts provides a better understanding of our
core non-compensation expenses. Interest expense on long-term financing is an adjustment from net revenues as these
arrangements were used to fund the Sandler O'Neill and Valence acquisitions. Management believes that presenting adjusted
financial results excluding the acquisition-related amounts provides clarity on the financial results generated by the core
operating components of our business.
37
The following table sets forth the adjusted, non-GAAP financial results and adjustments necessary to reconcile to our
consolidated U.S. GAAP financial results for the periods presented:
Year Ended December 31,
2020
Adjustments (1)
2019
Adjustments (1)
(Amounts in thousands)
Adjusted
Interests
Adjustments
GAAP
Adjusted
Interests
Adjustments
GAAP
Total
Noncontrolling
Other
U.S.
Total
Noncontrolling
Other
U.S.
Investment banking
Advisory services...........
$ 443,327
$
— $
— $ 443,327
$ 440,695
$
— $
Corporate financing........
Municipal financing.......
295,333
119,816
Total investment banking...
858,476
Institutional brokerage:
Equity brokerage............
Fixed income services....
161,445
196,308
Total institutional
brokerage........................
357,753
—
—
—
—
—
—
—
—
295,333
105,256
119,816
83,441
—
858,476
629,392
—
—
161,445
87,555
196,308
80,336
—
357,753
167,891
—
—
—
—
—
—
— $ 440,695
—
—
105,256
83,441
—
629,392
—
—
87,555
80,336
—
167,891
—
—
26,741
22,275
Interest income..................
Investment income.............
13,164
10,384
Total revenues...................
1,239,777
—
12,881
12,881
—
—
13,164
23,265
26,741
11,506
—
10,769
—
1,252,658
835,530
10,769
846,299
Interest expense.................
4,817
—
9,628
14,445
9,885
—
1,848
11,733
Net revenues......................
1,234,960
12,881
(9,628)
1,238,213
825,645
10,769
(1,848)
834,566
Non-interest expenses........
984,672
4,029
180,964
1,169,665
687,410
4,306
23,871
715,587
Pre-tax income...................
$ 250,288
$
8,852 $
(190,592) $ 68,548
$ 138,235
$
6,463 $
(25,719) $ 118,979
Pre-tax margin...................
20.3 %
5.5 %
16.7 %
14.3 %
(1) The following is a summary of the adjustments needed to reconcile our consolidated U.S. GAAP financial results to the adjusted, non-GAAP financial
results:
Noncontrolling interests – The impacts of consolidating noncontrolling interests in our alternative asset management funds are not included in our
adjusted financial results.
Other adjustments – The following items are not included in our adjusted financial results:
(Amounts in thousands)
Interest expense on long-term financing..........................................................................................................
Year Ended December 31,
2020
2019
$
9,628
$
Compensation from acquisition-related agreements.......................................................................................
Acquisition-related restructuring and integration costs..................................................................................
Amortization of intangible assets related to acquisitions................................................................................
Non-compensation expenses from acquisition-related agreements.................................................................
113,396
10,755
44,728
12,085
180,964
1,848
5,138
14,321
4,298
114
23,871
Total other adjustments...................................................................................................................................
$
190,592
$
25,719
Net revenues on a U.S. GAAP basis increased 48.4 percent to $1.24 billion for the year ended December 31, 2020,
compared with $834.6 million in the prior-year period. For the year ended December 31, 2020, adjusted net revenues were
$1.23 billion compared with $825.6 million for the year ended December 31, 2019. The variance explanations for net
revenues and adjusted net revenues are consistent on both a U.S. GAAP and non-GAAP basis unless stated otherwise.
38
Investment banking revenues comprise all of the revenues generated through advisory services activities, which includes
mergers and acquisitions ("M&A"), equity and debt private placements, debt and restructuring advisory, and municipal
financial advisory transactions. Collectively, equity and debt private placements and debt and restructuring advisory
transactions are referred to as capital advisory transactions. Investment banking revenues also include equity and debt
corporate financing activities and municipal financings.
In 2020, investment banking revenues were $858.5 million, up 36.4 percent compared with $629.4 million in the prior-
year period. For the year ended December 31, 2020, advisory services revenues were $443.3 million, compared with
$440.7 million in 2019. Incremental revenues from the addition of Sandler O'Neill to our platform offset the decline in
revenues from a market-wide decrease as M&A activity slowed appreciably during the second and third quarters of 2020 as
uncertainty around COVID-19 put many engagements on hold. We saw a rebound in activity in the fourth quarter of 2020
from the trough we experienced during the third quarter, due, in part, to increased CEO confidence and more clarity on a
post-pandemic outlook. For the year ended December 31, 2020, corporate financing revenues were a record $295.3 million,
up significantly compared with $105.3 million in the prior-year period, due to more completed and book run equity deals, and
the addition of Sandler O'Neill to our platform, which book ran 37 debt offerings for financial services companies. Following
a substantial halt to capital raising activity in March, market conditions became favorable for capital raising during the
second quarter of 2020 driven by a sharp rebound in valuations for equities of certain industry groups combined with lower
volatility and low new issue interest rates in debt markets, and these dynamics continued through the remainder of the year.
Activity for us during the year was principally in the healthcare sector, and we completed 96 healthcare equity deals.
Additionally, activity in the first quarter of 2019 was impacted by the U.S. federal government shut-down. Municipal
financing revenues for the year ended December 31, 2020 were a record $119.8 million, up 43.6 percent compared with
$83.4 million in the year-ago period. Despite a rapid decline in the level of activity in March due to significant volatility in
the fixed income markets, low interest rates combined with strong investor demand drove record market issuance volumes in
2020. During 2020, the issuance activity was focused within the governmental space. The par amount of our negotiated
municipal issuances increased approximately 55 percent in 2020 compared to an increase of approximately 19 percent for the
industry.
The following table provides investment banking deal information:
(Dollars in billions)
Advisory services
Year Ended December 31,
2020
2019
M&A transactions..............................................................................................................
Capital advisory transactions..............................................................................................
Corporate financings
Total equity transactions....................................................................................................
Book run equity transactions..............................................................................................
Total debt and preferred transactions.................................................................................
Book run debt and preferred transactions...........................................................................
158
114
137
99
58
37
Municipal negotiated issues
Aggregate par value...........................................................................................................
Total issues.........................................................................................................................
$
19.1 $
847
140
38
74
50
—
—
12.3
572
Institutional brokerage revenues comprise all of the revenues generated through trading activities, which consist of
facilitating customer trades, executing competitive municipal underwritings and our strategic trading activities in municipal
bonds. Our results may vary from quarter to quarter as a result of changes in trading margins, trading gains and losses, net
interest spreads, trading volumes, the timing of payments for research services and the timing of transactions based on market
opportunities.
39
For the year ended December 31, 2020, institutional brokerage revenues increased to $357.8 million, compared with
$167.9 million in the prior-year period. Equity brokerage revenues were $161.4 million in 2020, up 84.4 percent compared
with $87.6 million in 2019, reflecting the successful integration of our platform with Weeden & Co. This combination has
expanded our client base, execution expertise and product capabilities, which we leveraged to find liquidity for our clients
during the year. Additionally, market-wide volumes and volatility were higher compared to 2019. In the first quarter of 2020,
increased volatility market-wide drove significantly higher volumes as investors repositioned in response to market
uncertainty and fund outflows. Volumes were also elevated in the fourth quarter of 2020 as clients repositioned before and
after the 2020 U.S. presidential election, and market indices traded higher driven by optimism on COVID-19 vaccine results
and an economic recovery. For the year ended December 31, 2020, fixed income services revenues were $196.3 million, up
144.4 percent compared with $80.3 million in the prior-year period, due to the addition of Sandler O'Neill to our platform,
strong client activity and solid execution in conducive markets. We continue to provide strategic advice on repositioning
balance sheets, maximizing yields and managing risk in this low interest rate environment within a market with ample
liquidity. Additionally, in the first quarter of 2020, the historically volatile quarter and higher volumes in municipals drove
client activity as we provided liquidity to municipal bond funds which saw significant outflows by identifying buyers who
took advantage of meaningfully higher yields. This strong client activity was partially offset by trading losses in municipal
securities due to the sharp and sudden market dislocation.
Interest income represents amounts earned from holding long inventory positions. For the year ended December 31,
2020, interest income decreased 50.8 percent to $13.2 million, compared with $26.7 million in 2019, reflecting lower long
inventory balances. We have focused on only carrying inventory where clients need liquidity within our areas of expertise.
Investment income includes realized and unrealized gains and losses on investments, including amounts attributable to
noncontrolling interests, in our merchant banking and energy funds, as well as management and performance fees generated
from those funds. For the year ended December 31, 2020, investment income was $23.3 million, compared to $22.3 million
in 2019. In 2020, we recorded lower gains on our investment and the noncontrolling interests in the merchant banking funds
that we manage. Lower equity valuations and an uncertain and challenging operating environment for some of our portfolio
companies drove fair value adjustments in our merchant banking portfolio in the first half of 2020. These declines were more
than offset by higher gains on our other firm investments. Excluding the impact of noncontrolling interests, adjusted
investment income was $10.4 million in 2020 and $11.5 million in 2019.
Interest expense represents amounts associated with financing, economically hedging and holding short inventory
positions, including interest paid on our long-term financing arrangements, as well as commitment fees on our line of credit
and revolving credit facility. For the year ended December 31, 2020, interest expense increased to $14.4 million, compared
with $11.7 million in the prior-year period. In 2020, we recorded incremental interest expense on our long-term financing
arrangements, which consist of the $175 million of fixed rate senior notes we issued on October 15, 2019, and $20 million of
unsecured promissory notes we entered into on April 3, 2020 to fund a portion of the Valence purchase price. The increase
was partially offset by a decline in interest expense resulting from lower average short inventory balances. Excluding the
impact of interest expense on long-term financing, adjusted interest expense was $4.8 million and $9.9 million for the years
ended December 31, 2020 and 2019, respectively. The $20 million of unsecured promissory notes were repaid in early 2021,
which will decrease interest expense on long-term financing.
Pre-tax margin for 2020 was 5.5 percent, down compared with 14.3 percent for 2019 due to the increased compensation
ratio resulting from higher acquisition-related compensation expense. Adjusted pre-tax margin increased to 20.3 percent in
2020, compared with 16.7 percent in 2019. Adjusted pre-tax margin increased driven by the increased scale of our platform,
the successful integration of the Sandler O'Neill and Weeden & Co. acquisitions, and significantly lower marketing and
business development expenses due to reduced travel and entertainment costs related to the COVID-19 pandemic.
40
The following table sets forth the adjusted, non-GAAP financial results and adjustments necessary to reconcile to our
consolidated U.S. GAAP financial results for the periods presented:
Year Ended December 31,
2019
Adjustments (1)
2018
Adjustments (1)
Total
Adjusted
Noncontrolling
Interests
Other
Adjustments
U.S.
GAAP
Total
Adjusted
Noncontrolling
Interests
Other
Adjustments
U.S.
GAAP
(Amounts in thousands)
Investment banking
Advisory services...........
$ 440,695
$
— $
— $ 440,695
$ 394,133
$
— $
— $ 394,133
Corporate financing........
Municipal financing.......
105,256
83,441
Total investment banking...
629,392
Institutional brokerage:
Equity brokerage............
87,555
Fixed income services....
80,336
Total institutional
brokerage........................
167,891
Interest income..................
Investment income.............
26,741
11,506
—
—
—
—
—
—
—
10,769
—
—
—
—
—
105,256
123,072
83,441
71,773
629,392
588,978
87,555
77,110
80,336
47,628
—
167,891
124,738
—
—
26,741
32,749
22,275
7,418
Total revenues...................
835,530
10,769
—
846,299
753,883
—
—
—
—
—
—
—
3,621
3,621
—
—
—
123,072
71,773
588,978
—
—
77,110
47,628
—
124,738
—
—
32,749
11,039
—
757,504
Interest expense.................
9,885
—
1,848
11,733
11,649
—
4,902
16,551
Net revenues......................
825,645
10,769
(1,848)
834,566
742,234
3,621
(4,902)
740,953
Non-interest expenses........
687,410
4,306
23,871
715,587
628,850
4,827
34,787
668,464
Pre-tax income...................
$ 138,235
$
6,463 $
(25,719) $ 118,979
$ 113,384
$
(1,206) $
(39,689) $ 72,489
Pre-tax margin...................
16.7 %
14.3 %
15.3 %
9.8 %
(1) The following is a summary of the adjustments needed to reconcile our consolidated U.S. GAAP financial results to the adjusted, non-GAAP financial
results:
Noncontrolling interests – The impacts of consolidating noncontrolling interests in our alternative asset management funds are not included in our
adjusted financial results.
Other adjustments – The following items are not included in our adjusted financial results:
(Amounts in thousands)
Interest expense on long-term financing................................................................................................
Year Ended December 31,
2019
2018
$
1,848
$
Compensation from acquisition-related agreements.............................................................................
Acquisition-related restructuring and integration costs........................................................................
Amortization of intangible assets related to acquisitions......................................................................
Non-compensation expenses from acquisition-related agreements.......................................................
5,138
14,321
4,298
114
23,871
4,902
29,246
—
4,858
683
34,787
Total other adjustments..........................................................................................................................
$
25,719
$
39,689
Discussion of the year-over-year comparisons between 2019 and 2018 can be found in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year
ended December 31, 2019, filed with the SEC on February 28, 2020.
41
Discontinued Operations
Discontinued operations includes our traditional asset management subsidiary, ARI, which we sold in the third quarter of
2019. ARI's results, previously reported in our Asset Management segment, have been presented as discontinued operations
for all prior periods presented.
The components of discontinued operations were as follows:
(Amounts in thousands)
Net revenues.....................................................................................................................
Year Ended December 31,
2019
2018
$
26,546 $
43,489
Operating expenses.......................................................................................................
Intangible asset amortization and impairment (1).........................................................
Restructuring costs........................................................................................................
Total non-interest expenses..............................................................................................
22,589
5,465
10,268
38,322
Income/(loss) from discontinued operations before income tax expense/(benefit).........
(11,776)
Income tax expense/(benefit)........................................................................................
(2,522)
Net income/(loss) from discontinued operations before gain on sales............................
(9,254)
Gain on sales, net of tax...................................................................................................
33,026
35,227
5,602
272
41,101
2,388
1,001
1,387
—
Income from discontinued operations, net of tax.............................................................
$
23,772 $
1,387
(1)
Includes $2.9 million of intangible asset impairment related to the ARI trade name for the year ended December 31, 2019.
Restructuring costs of $10.3 million for the year ended December 31, 2019 primarily relate to transaction costs and
payments associated with the sale of the business.
See Note 5 to our consolidated financial statements in Part II, Item 8 of this Form 10-K for further discussion of our
discontinued operations.
Recent Accounting Pronouncements
Recent accounting pronouncements are set forth in Note 3 to our consolidated financial statements included in Part II,
Item 8 of this Form 10-K, and are incorporated herein by reference.
Critical Accounting Policies
Our accounting and reporting policies comply with U.S. GAAP and conform to practices within the securities industry.
The preparation of financial statements in compliance with U.S. GAAP and industry practices requires us to make estimates
and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting
policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of
operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not
considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is
critical, including whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of
the estimates, the ability to readily validate the estimates with other information (e.g., third party or independent sources), the
sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under
U.S. GAAP.
For a full description of our significant accounting policies, see Note 2 to our consolidated financial statements included
in Part II, Item 8 of this Form 10-K. We believe that of our significant accounting policies, the following are our critical
accounting policies.
42
Valuation of Financial Instruments
Financial instruments and other inventory positions owned, financial instruments and other inventory positions sold, but
not yet purchased, and certain of our investments recorded in investments on our consolidated statements of financial
condition consist of financial instruments recorded at fair value, as required by accounting guidance. Unrealized gains and
losses related to these financial instruments are reflected on our consolidated statements of operations.
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly
transaction between market participants at the measurement date (the exit price). Based on the nature of our business and our
role as a "dealer" in the securities industry or as a manager of alternative asset management funds, the fair values of our
financial instruments are determined internally. See Note 2 and Note 7 to our consolidated financial statements for additional
information on the valuation of our financial instruments and our fair value processes, including specific control processes to
determine the reasonableness of the fair value of our financial instruments.
Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 820, "Fair Value
Measurement," establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I
measurements) and the lowest priority to inputs with little or no pricing observability (Level III measurements). Assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
See Note 7 to our consolidated financial statements for additional discussion of our assets and liabilities in the fair value
hierarchy.
Goodwill and Intangible Assets
We record all assets acquired and liabilities assumed in acquisitions, including goodwill and other intangible assets, at
fair value. Determining the fair value of assets and liabilities acquired requires certain management estimates. At December
31, 2020, we had goodwill of $227.5 million and intangible assets of $149.9 million.
We are required to perform impairment tests of goodwill and indefinite-life intangible assets annually and on an interim
basis when circumstances exist that could indicate possible impairment. We have elected to test goodwill for impairment in
the fourth quarter of each calendar year. We have 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, we
determine 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 we conclude otherwise, then we are 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. See Notes 2 and 12 to our
consolidated financial statements for additional information on our impairment testing.
The initial recognition of goodwill and other intangible assets and the subsequent quantitative impairment analysis
involves significant judgment in determining the estimates of future cash flows, discount rates, economic forecast and other
assumptions which are then used in acceptable valuation techniques, such as the market approach (earnings and/or transaction
multiples) and/or the income approach (discounted cash flow method). Changes in these estimates and assumptions could
have a significant impact on the fair value and any resulting impairment of goodwill. Our estimated cash flows, by their
nature, are difficult to determine over an extended time period. Events and factors that may significantly affect the estimates
include, among others, competitive forces and changes in revenue growth trends, cost structures, technology and market
conditions. To assess the reasonableness of cash flow estimates and validate assumptions used in our estimates, we review
historical performance of the underlying assets or similar assets. In assessing the fair value of our reporting unit, the volatile
nature of the securities markets and our industry requires us to consider the business and market cycle and assess the stage of
the cycle in estimating the timing and extent of future cash flows. In addition to discounted cash flows, we consider earnings
multiples of comparable public companies and multiples of recent mergers and acquisitions transactions of similar businesses
in our subsequent impairment analysis.
43
We elected to perform a qualitative assessment to test goodwill in our capital markets reporting unit for impairment. The
following relevant events and circumstances were evaluated in concluding that it was not more likely than not that this
goodwill was impaired: macroeconomic conditions, industry and market considerations and the overall financial performance
of the capital markets reporting unit. Our annual goodwill impairment testing, performed as of October 31, 2020, resulted in
no impairment.
We also evaluated our intangible assets (indefinite and definite-lived) and concluded there was no impairment in 2020.
Compensation Plans
Stock-Based Compensation Plans
As part of our compensation to employees and directors, we use stock-based compensation, consisting of restricted stock,
restricted stock units and stock options. We account for equity awards in accordance with FASB Accounting Standards
Codification Topic 718, "Compensation–Stock Compensation," ("ASC 718"), which requires all share-based payments to
employees, including grants of employee stock options, to be recognized on the consolidated statements of operations at grant
date fair value. Compensation expense related to share-based awards which require future service are amortized over the
service period of the award. Forfeitures of awards with service conditions are accounted for when they occur. Share-based
awards that do not require future service are recognized in the year in which the awards are deemed to be earned.
See Note 20 to our consolidated financial statements for additional information about our stock-based compensation
plans.
Income Taxes
We file a consolidated U.S. federal income tax return, which includes all of our qualifying subsidiaries. We also are
subject to income tax in various states and municipalities and those foreign jurisdictions in which we operate. Amounts
provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent
amounts currently payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences
attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis and for tax loss carryforwards. Deferred tax assets and liabilities are measured 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 effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred income taxes are provided for temporary differences in reporting certain items,
principally restricted compensation (i.e., restricted stock, restricted stock units, restricted mutual fund shares, and deferred
compensation). 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 the deferred tax asset will not be realized. We believe that our future taxable profits
will be sufficient to recognize our U.S. deferred tax assets. However, if our projections of future taxable profits do not
materialize, we may conclude that a valuation allowance is necessary, which would impact our results of operations in that
period. As of December 31, 2020, we have recorded a deferred tax asset valuation allowance of $4.9 million related to net
operating loss carryforwards in the U.K. for Piper Sandler Ltd.
We record deferred tax benefits for future tax deductions expected upon the vesting of stock-based compensation. We
recognize the income tax effects of stock-based compensation awards in the income statement when the awards vest. If
deductions reported on our tax return for stock-based compensation (i.e., the value of the stock-based compensation at the
time of vesting) exceed the cumulative cost of those instruments recognized for financial reporting (i.e., the grant date fair
value of the compensation computed in accordance with ASC 718), we record the excess tax benefit as income tax benefit.
Conversely, if deductions reported on our tax return for stock-based compensation are less than the cumulative cost of those
instruments recognized for financial reporting, the deficiency is recorded as income tax expense. For the year ended
December 31, 2020, we recorded a $0.3 million tax benefit from continuing operations for stock awards vesting during the
period. In the first quarter of 2021, approximately 757,000 shares vested at share prices greater than the grant date fair values,
resulting in $1.7 million of excess tax benefits recorded as income tax benefit in the first quarter of 2021.
44
We establish reserves for uncertain income tax positions in accordance with FASB Accounting Standards Codification
Topic 740, "Income Taxes," when it is not more likely than not that a certain position or component of a position will be
ultimately upheld by the relevant taxing authorities. Significant judgment is required in evaluating uncertain tax positions.
Our tax provision and related accruals include the impact of estimates for uncertain tax positions and changes to the reserves
that are considered appropriate. To the extent the probable tax outcome of these matters changes, such change in estimate will
impact the income tax provision in the period of change and, in turn, our results of operations. In the fourth quarter of 2019,
we recorded a $4.1 million liability for uncertain income tax positions related to our acquisition of Weeden & Co. In the third
quarter of 2020, we recorded the reversal of $3.2 million related to this liability. These amounts were recorded as
measurement period adjustments in accordance with FASB Accounting Standards Codification Topic 805, "Business
Combinations," and include a corresponding indemnification asset. We also paid a settlement of $0.9 million, for which we
were indemnified.
Liquidity, Funding and Capital Resources
Liquidity is of critical importance to us given the nature of our business. Insufficient liquidity resulting from adverse
circumstances contributes to, and may be the cause of, financial institution failure. Accordingly, we regularly monitor our
liquidity position and maintain a liquidity strategy designed to enable our business to continue to operate even under adverse
circumstances, although there can be no assurance that our strategy will be successful under all circumstances.
The majority of our tangible assets consist of assets readily convertible into cash. Financial instruments and other
inventory positions owned are stated at fair value and are generally readily marketable in most market conditions.
Receivables and payables with brokers, dealers and clearing organizations usually settle within a few days. As part of our
liquidity strategy, we emphasize diversification of funding sources to the extent possible while considering tenor and cost.
Our assets are financed by our cash flows from operations, equity capital, and our funding arrangements. The fluctuations in
cash flows from financing activities are directly related to daily operating activities from our various businesses. One of our
most important risk management disciplines is our ability to manage the size and composition of our balance sheet. While our
asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our
balance sheet reflect our overall risk tolerance, our ability to access stable funding sources and the amount of equity capital
we hold.
Certain market conditions can impact the liquidity of our inventory positions, requiring us to hold larger inventory
positions for longer than expected or requiring us to take other actions that may adversely impact our results.
A significant component of our employees' compensation is paid in annual discretionary incentive compensation. The
timing of these incentive compensation payments, which generally are made in February, has a significant impact on our cash
position and liquidity.
Our capital and liquidity positions are strong, our leverage is low, and our risk posture remains conservative. We believe
that our priorities for capital deployment remain aligned with our shareholders' interests.
Our dividend policy is intended to return between 30 percent and 50 percent of our adjusted net income from the
previous fiscal year to shareholders. This includes the payment of a quarterly and an annual special cash dividend, payable in
the first quarter of each year. Our board of directors determines the declaration and payment of dividends on an annual and
quarterly basis, and is free to change our dividend policy at any time.
45
Our board of directors declared the following dividends on shares of our common stock:
Declaration Date
February 1, 2018 (1)..................
February 1, 2018........................
April 27, 2018............................
July 27, 2018..............................
October 26, 2018........................
February 1, 2019 (1)..................
February 1, 2019........................
April 26, 2019............................
July 26, 2019..............................
October 30, 2019........................
January 31, 2020 (1)..................
January 31, 2020........................
May 1, 2020...............................
July 31, 2020..............................
October 30, 2020........................
February 4, 2021 (1)..................
February 4, 2021........................
(1) Represents the annual special cash dividend based on our results from the previous fiscal year.
Dividend
Per Share
1.620
0.375
0.375
0.375
0.375
1.010
0.375
0.375
0.375
0.375
0.750
0.375
0.200
0.300
0.375
1.850
0.400
Record Date
February 26, 2018
February 26, 2018
May 25, 2018
August 24, 2018
November 28, 2018
February 25, 2019
February 25, 2019
May 24, 2019
August 23, 2019
November 22, 2019
March 2, 2020
March 2, 2020
May 29, 2020
August 28, 2020
November 24, 2020
March 3, 2021
March 3, 2021
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Payment Date
March 15, 2018
March 15, 2018
June 15, 2018
September 14, 2018
December 14, 2018
March 15, 2019
March 15, 2019
June 14, 2019
September 13, 2019
December 13, 2019
March 13, 2020
March 13, 2020
June 12, 2020
September 11, 2020
December 11, 2020
March 12, 2021
March 12, 2021
Our board of directors has declared a special cash dividend on our common stock of $1.85 per share related to 2020
adjusted net income. This special dividend will be paid on March 12, 2021, to shareholders of record as of the close of
business on March 3, 2021. Including this special cash dividend and the regular quarterly dividends totaling $1.25 per share
paid during 2020, we will have returned $3.10 per share, or approximately 31 percent of our fiscal year 2020 adjusted net
income to shareholders.
Effective January 1, 2020, our board of directors authorized the repurchase of up to $150.0 million in common shares
through December 31, 2021. In 2020, we repurchased 188,319 shares of our common stock at an average price of $69.72 per
share for an aggregate purchase price of $13.1 million related to this authorization. At December 31, 2020, we had
$136.9 million remaining under this authorization.
We also purchase shares of common stock from restricted stock award recipients upon the award vesting or as recipients
sell shares to meet their employment tax obligations. During 2020, we purchased 105,193 shares or $8.8 million of our
common stock for these purposes.
Cash Flows
Cash and cash equivalents at December 31, 2020 were $507.9 million, an increase of $257.9 million from December 31,
2019. Operating activities provided $779.8 million of cash, driven by cash generated from earnings and a reduction in
operating assets. The decrease in operating assets resulted from a $203.8 million decline in net financial instruments and
other inventory positions owned as we have focused on only carrying inventory where clients need liquidity within our areas
of expertise, as well as a $254.3 million decrease in receivables from brokers, dealers and clearing organizations. The
increase in operating liabilities was primarily due to an increase in accrued compensation of $132.8 million, the result of
higher compensation costs in 2020 from increased revenues and incremental headcount from our recent acquisitions. In 2020,
investing activities used $435.0 million, of which $417.4 million was used for the acquisitions of Sandler O'Neill, Valence
and TRS. We also used $17.6 million for the purchase of fixed assets. Cash of $87.6 million was used in financing activities
as we reduced amounts due under our short-term financing by $50.0 million. We repaid the amount outstanding under our
commercial paper program in full upon maturity in the fourth quarter of 2020. We also paid $28.2 million in dividends and
repurchased $22.0 million of common stock during 2020.
46
Cash and cash equivalents at December 31, 2019 were $250.0 million, an increase of $199.7 million from December 31,
2018. Operating activities provided $67.8 million of cash, primarily due to cash generated from earnings. Our net income of
$118.2 million in 2019 included a $33.0 million non-cash gain on the sale of ARI. The increase in operating assets was driven
by a $46.2 million increase in our receivables from brokers, dealers and clearing organizations. The decrease in operating
liabilities was due to a decrease in accrued compensation of $29.3 million resulting from the payment of the Simmons
performance award plan in the third quarter of 2019. In 2019, investing activities provided $26.7 million, primarily due to
proceeds from the sale of ARI. This increase was partially offset by the use of $19.7 million for the acquisition of Weeden &
Co. and $6.5 million for the purchase of fixed assets. Cash of $104.7 million was provided through financing activities as we
issued $175.0 million of fixed rate senior notes on October 15, 2019. The repurchase of $50.6 million of common stock and
dividend payments of $35.6 million partially offset this increase.
Leverage
The following table presents total assets, adjusted assets, total shareholders' equity and tangible shareholders' equity with
the resulting leverage ratios:
(Dollars in thousands)
Total assets..................................................................................................................
Deduct: Goodwill and intangible assets......................................................................
Deduct: Right-of-use lease asset.................................................................................
Deduct: Assets from noncontrolling interests.............................................................
Adjusted assets............................................................................................................
December 31,
2020
1,997,140
(377,366)
(82,543)
(97,375)
1,439,856
$
$
December 31,
2019
1,628,719
(104,335)
(40,030)
(76,516)
1,407,838
$
$
Total shareholders' equity...........................................................................................
Deduct: Goodwill and intangible assets......................................................................
Deduct: Noncontrolling interests................................................................................
Tangible common shareholders' equity......................................................................
$
$
926,082
(377,366)
(96,657)
452,059
$
$
806,528
(104,335)
(75,245)
626,948
Leverage ratio (1)........................................................................................................
Adjusted leverage ratio (2).........................................................................................
(1) Leverage ratio equals total assets divided by total shareholders' equity.
(2) Adjusted leverage ratio equals adjusted assets divided by tangible common shareholders' equity.
2.2
3.2
2.0
2.2
Adjusted assets and tangible common shareholders' equity are non-GAAP financial measures. Goodwill and intangible
assets are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common
shareholders' equity, respectively, as we believe that goodwill and intangible assets do not constitute operating assets that can
be deployed in a liquid manner. The right-of-use lease asset is also subtracted from total assets in determining adjusted assets
as it is not an operating asset that can be deployed in a liquid manner. Amounts attributed to noncontrolling interests are
subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholders'
equity, respectively, as they represent assets and equity interests in consolidated entities that are not attributable, either
directly or indirectly, to Piper Sandler Companies. We view the resulting measure of adjusted leverage, also a non-GAAP
financial measure, as a more relevant measure of financial risk when comparing financial services companies. Our adjusted
leverage ratio increased from December 31, 2019 primarily due to the goodwill and intangible assets related to our
acquisitions of Sandler O'Neill, Valence and TRS.
47
Funding and Capital Resources
The primary goal of our funding activities is to ensure adequate funding over a wide range of market conditions. Given
the mix of our business activities, funding requirements are fulfilled through a diversified range of short-term and long-term
financing. We attempt to ensure that the tenor of our borrowing liabilities equals or exceeds the expected holding period of
the assets being financed. Our ability to support increases in total assets is largely a function of our ability to obtain funding
from external sources. Access to these external sources, as well as the cost of that financing, is dependent upon various
factors, including market conditions, the general availability of credit and credit ratings. We currently do not have a credit
rating, which could adversely affect our liquidity and competitive position by increasing our financing costs and limiting
access to sources of liquidity that require a credit rating as a condition to providing the funds.
Our day-to-day funding and liquidity is obtained primarily through the use of our clearing arrangement with Pershing,
commercial paper issuance, a prime broker agreement and a bank line of credit, and is typically collateralized by our
securities inventory. These funding sources are critical to our ability to finance and hold inventory, which is a necessary part
of our institutional brokerage business. The majority of our inventory is liquid and is therefore funded by short-term facilities.
Certain of these short-term facilities (i.e., committed line and commercial paper) have been established to mitigate changes in
the liquidity of our inventory based on changing market conditions. In the case of our committed line, it is available to us
regardless of changes in market liquidity conditions through the end of its term, although there may be limitations on the type
of securities available to pledge. Our commercial paper program helps mitigate changes in market liquidity conditions given
it is not an overnight facility, but provides funding with a term of 27 to 270 days. Our funding sources are also dependent on
the types of inventory that our counterparties are willing to accept as collateral and the number of counterparties available.
Funding is generally obtained at rates based upon the federal funds rate or LIBOR.
Pershing Clearing Arrangement – We have established an arrangement to obtain financing from Pershing related to the
majority of our trading activities. Under our fully disclosed clearing agreement, the majority of our securities inventories and
all of our customer activities are held by or cleared through Pershing. Financing under this arrangement is secured primarily
by securities, and collateral limitations could reduce the amount of funding available under this arrangement. Our clearing
arrangement activities are recorded net from trading activity and reported within receivables from or payables to brokers,
dealers and clearing organizations. The funding is at the discretion of Pershing (i.e., uncommitted) and could be denied
without a notice period. Our fully disclosed clearing agreement includes a covenant requiring Piper Sandler & Co., our U.S.
broker dealer subsidiary, to maintain excess net capital of $120 million. At December 31, 2020, we had $0.1 million of
financing outstanding under this arrangement.
Commercial Paper Program – Piper Sandler & Co. issues secured commercial paper to fund a portion of its securities
inventory. This commercial paper is currently issued under the CP Series II A program, and is secured by different inventory
classes, which is reflected in the interest rate paid. The program can issue commercial paper with maturities of 27 to 270 days
and the maximum amount that may be issued is $200 million. CP Series II A includes a covenant that requires Piper
Sandler & Co. to maintain excess net capital of $100 million. At December 31, 2020, the CP Series II A program had no
outstanding balance. We retired the CP Series A program on January 2, 2020.
Prime Broker Arrangement – We have established an overnight financing arrangement with a broker dealer related to our
convertible securities inventories. Financing under this arrangement is secured primarily by convertible securities and
collateral limitations could reduce the amount of funding available. The funding is at the discretion of the prime broker and
could be denied subject to a notice period. This arrangement is reported within receivables from or payables to brokers,
dealers and clearing organizations, net of trading activity. At December 31, 2020, we had $106.3 million of financing
outstanding under this prime broker arrangement.
Committed Line – We elected to decrease our committed line from $125 million to $100 million in the fourth quarter of
2020. Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires
Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million, and the unpaid principal amount of all
advances under the facility will be due on December 10, 2021. This credit facility has been in place since 2008 and we
renewed the facility for another one-year term in the fourth quarter of 2020. At December 31, 2020, we had no advances
against this line of credit.
48
Revolving Credit Facility – Our parent company, Piper Sandler Companies, has an unsecured $50 million revolving
credit facility with U.S. Bank N.A. The credit agreement will terminate on December 20, 2022, unless otherwise terminated,
and is subject to a one-year extension exercisable at our option. At December 31, 2020, there were no advances against this
credit facility. In January 2021, we increased our revolving credit facility from $50 million to $65 million.
This credit facility includes customary events of default and covenants that, among other things, requires Piper Sandler &
Co. to maintain a minimum regulatory net capital of $120 million, limits our leverage ratio, requires maintenance of a
minimum ratio of operating cash flow to fixed charges, and imposes certain limitations on our ability to make acquisitions
and make payments on our capital stock. At December 31, 2020, we were in compliance with all covenants.
The following tables present the average balances outstanding for our various funding sources by quarter for 2020 and
2019:
(Amounts in millions)
Funding source:
Pershing clearing arrangement...........................
Commercial paper...............................................
Prime broker arrangement..................................
Revolving credit facility.....................................
Total.................................................................
Average Balance for the Three Months Ended
Dec. 31, 2020
Sept. 30, 2020
June 30, 2020 Mar. 31, 2020
$
$
16.1
11.4
97.5
4.9
129.9
$
$
3.3
50.0
90.2
29.3
172.8
$
$
17.7
50.0
81.9
50.0
199.6
$
$
117.8
50.0
72.3
7.1
247.2
(Amounts in millions)
Funding source:
Pershing clearing arrangement...........................
Commercial paper...............................................
Prime broker arrangement..................................
Total.................................................................
Average Balance for the Three Months Ended
Dec. 31, 2019
Sept. 30, 2019
June 30, 2019 Mar. 31, 2019
$
$
22.9
50.0
99.7
172.6
$
$
94.6
50.0
68.0
212.6
$
$
170.2
50.0
77.1
297.3
$
$
82.1
50.0
106.4
238.5
The average funding in the fourth quarter of 2020 decreased to $129.9 million, compared with $172.8 million during the
third quarter of 2020 and $172.6 million during the fourth quarter of 2019. Cash from operations allowed us to reduce
financing balances throughout 2020. We repaid the $50 million outstanding under our CP Series II A program in full upon
maturity in October 2020. Also, early in the fourth quarter of 2020, we repaid the $25 million of advances against our
revolving credit facility.
The following table presents the maximum daily funding amount by quarter for 2020 and 2019:
(Amounts in millions)
First quarter.........................................................................................................................
Second quarter....................................................................................................................
Third quarter.......................................................................................................................
Fourth quarter.....................................................................................................................
$
$
$
$
2020
2019
642.1
378.3
401.7
482.3
$
$
$
$
362.7
427.1
416.0
330.7
49
Long-Term Financing
Senior Notes – On October 15, 2019, we entered into a note purchase agreement ("Note Purchase Agreement") under
which we issued unsecured fixed rate senior notes ("Notes") in the amount of $175 million. The initial holders of the Notes
are certain entities advised by Pacific Investment Management Company ("PIMCO"). The Notes consist of two classes, Class
A Notes and Class B Notes, with principal amounts of $50 million and $125 million, respectively. The Class A Notes bear
interest at an annual fixed rate of 4.74 percent and mature on October 15, 2021. The Class B Notes bear interest at an annual
fixed rate of 5.20 percent and mature on October 15, 2023. Interest on the Notes is payable semi-annually. The unpaid
principal amounts are due in full on the respective maturity dates and may not be prepaid.
The Note Purchase Agreement includes customary events of default and covenants that, among other things, requires
Piper Sandler & Co. to maintain a minimum regulatory net capital, limits our leverage ratio and requires maintenance of a
minimum ratio of operating cash flow to fixed charges. At December 31, 2020, we were in compliance with all covenants.
Valence Notes – On April 3, 2020, we entered into unsecured promissory notes as part of the acquisition of Valence
totaling $20 million (the "Valence Notes"). The Valence Notes bear interest at an annual fixed rate of 5.0 percent and mature
on October 15, 2021. Interest is payable quarterly in arrears. The Valence Notes were repaid in early 2021.
Capital Requirements
As a registered broker dealer and member firm of FINRA, Piper Sandler & Co. is subject to the uniform net capital rule
of the SEC and the net capital rule of FINRA. We have elected to use the alternative method permitted by the uniform net
capital rule which requires that we maintain minimum net capital of $1.0 million. Advances to affiliates, repayment of
subordinated liabilities, dividend payments and other equity withdrawals are subject to certain approvals, notifications and
other provisions of the uniform net capital rules. We expect that these provisions will not impact our ability to meet current
and future obligations. At December 31, 2020, our net capital under the SEC's uniform net capital rule was $212.9 million,
and exceeded the minimum net capital required under the SEC rule by $211.9 million.
Although we operate with a level of net capital substantially greater than the minimum thresholds established by FINRA
and the SEC, a substantial reduction of our capital would curtail many of our capital markets revenue producing activities.
Our committed short-term credit facility, revolving credit facility and senior notes with PIMCO include covenants
requiring Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million. Secured commercial paper
issued under CP Series II A includes a covenant that requires Piper Sandler & Co. to maintain excess net capital of
$100 million. Our fully disclosed clearing agreement with Pershing also includes a covenant requiring Piper Sandler & Co. to
maintain excess net capital of $120 million.
At December 31, 2020, Piper Sandler Ltd., our broker dealer subsidiary registered in the U.K., was subject to, and was in
compliance with, the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority
pursuant to the Financial Services Act of 2012.
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, 2020, Piper Sandler Hong Kong Limited was in compliance with the liquid capital
requirements of the Hong Kong Securities and Futures Commission.
50
Off-Balance Sheet Arrangements
In the ordinary course of business we enter into various types of off-balance sheet arrangements. The following table
summarizes the notional contract value of our off-balance sheet arrangements for the periods presented:
(Amounts in thousands)
2021
2022
2023
2024
- 2025
2026
- 2027
Later
Expiration Per Period at December 31,
Total Contractual Amount
December 31,
2020
December 31,
2019
Customer matched-book
derivative contracts (1) (2).....
$
3,510
$ 18,680
$ 88,660
$ 41,810
$ 21,491
$ 1,780,980
$
1,955,131
$
2,197,340
Trading securities derivative
contracts (2)............................
Investment commitments (3)....
46,000
—
—
—
—
—
—
—
—
—
9,375
—
55,375
66,043
110,875
70,953
(1) Consists of interest rate swaps. We have minimal market risk related to these matched-book derivative contracts; however, we do have counterparty
risk with one major financial institution, which is mitigated by collateral deposits. In addition, we have a limited number of counterparties (contractual
amount of $161.3 million at December 31, 2020) who are not required to post collateral. The uncollateralized amounts, representing the fair value of
the derivative contracts, expose us to the credit risk of these counterparties. At December 31, 2020, we had $24.0 million of credit exposure with these
counterparties, including $20.2 million of credit exposure with one counterparty.
(2) We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional or contract
amount overstates the expected payout. At December 31, 2020 and 2019, the net fair value of these derivative contracts approximated $18.1 million
and $16.3 million, respectively.
(3) The investment commitments have no specified call dates. The timing of capital calls is based on market conditions and investment opportunities.
Derivatives
Derivatives' notional or contract amounts are not reflected as assets or liabilities on our consolidated statements of
financial condition. Rather, the fair value of the derivative transactions are reported on the consolidated statements of
financial condition as assets or liabilities in financial instruments and other inventory positions owned and financial
instruments and other inventory positions sold, but not yet purchased, as applicable. For a discussion of our activities related
to derivative products, see Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Investment Commitments
We have investments, including those made as part of our merchant banking activities, in various limited partnerships or
limited liability companies that make direct or indirect equity or debt investments in companies. We commit capital and/or
act as the managing partner of these entities. We have committed capital of $66.0 million to certain entities and these
commitments generally have no specified call dates. For additional information on our activities related to these types of
entities, see Note 8 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Replacement of Interbank Offered Rates ("IBORs"), including LIBOR
Central banks and regulators in a number of major jurisdictions (e.g., U.S., U.K., European Union, Switzerland and
Japan) have convened working groups to find, and implement the transition to, suitable replacements for IBORs. The U.K.
Financial Conduct Authority, which regulates LIBOR, has announced that it will not compel panel banks to contribute to
LIBOR after 2021. A recent plan would extend the publication of certain USD LIBOR tenors until June 30, 2023, which
would allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions. We have a limited number
of contractual agreements which use LIBOR. We do not expect the transition from LIBOR to a replacement rate to have a
significant impact on our operations.
51
Risk Management
Risk is an inherent part of our business. The principal risks we face in operating our business include: strategic risk,
market risk, liquidity risk, credit risk, operational risk, human capital risk, and legal and regulatory risks. The extent to which
we properly identify and effectively manage each of these risks is critical to our financial condition and profitability. We have
a formal risk management process to identify, assess and monitor each risk and mitigating controls in accordance with
defined policies and procedures. The risk management functions are independent of our business lines. Our management
takes an active role in the risk management process, and the results are reported to senior management and the board of
directors.
The audit committee of the board of directors oversees management's processes for identifying and evaluating our major
risks, and the policies, procedures and practices employed by management to govern its risk assessment and risk management
processes. The nominating and governance committee of the board of directors oversees the board of directors' committee
structures and functions as they relate to the various committees' responsibilities with respect to oversight of our major risk
exposures. With respect to these major risk exposures, the audit committee is responsible for overseeing management's
monitoring and control of our major risk exposures relating to market risk, credit risk, liquidity risk, legal and regulatory
risks, operational risk (including cybersecurity), and human capital risk relating to misconduct, fraud, and legal and
compliance matters. Our compensation committee is responsible for overseeing management's monitoring and control of our
major risk exposures relating to compensation, organizational structure, and succession. Our board of directors is responsible
for overseeing management's monitoring and control of our major risk exposures related to our corporate strategy. Our Chief
Executive Officer and Chief Financial Officer meet with the audit committee on a quarterly basis to discuss our market,
liquidity, and legal and regulatory risks, and provide updates to the board of directors, audit committee, and compensation
committee concerning the other major risk exposures on a regular basis.
We use internal committees to assist in governing risk and ensure that our business activities are properly assessed,
monitored and managed. Our executive financial risk committee manages our market, liquidity and credit risks; oversees risk
management practices related to these risks, including defining acceptable risk tolerances and approving risk management
policies; and responds to market changes in a dynamic manner. Membership is comprised of senior leadership, including but
not limited to, our Chief Executive Officer, President, Chief Financial Officer, Treasurer, Head of Market and Credit Risk,
and Head of Fixed Income Trading and Risk. Other committees that help evaluate and monitor risk include underwriting,
leadership team and operating committees. These committees help manage risk by ensuring that business activities are
properly managed and within a defined scope of activity. Our valuation committee, comprised of members of senior
management and risk management, provide oversight and overall responsibility for the internal control processes and
procedures related to fair value measurements. Additionally, our operational risk committees address and monitor risk related
to information systems and security, legal, regulatory and compliance matters, and third parties such as vendors and service
providers.
With respect to market risk and credit risk, the cornerstone of our risk management process is daily communication
among traders, trading department management and senior management concerning our inventory positions and overall risk
profile. Our risk management functions supplement this communication process by providing their independent perspectives
on our market and credit risk profile on a daily basis. The broader objectives of our risk management functions are to
understand the risk profile of each trading area, to consolidate risk monitoring company-wide, to assist in implementing
effective hedging strategies, to articulate large trading or position risks to senior management, and to ensure accurate fair
values of our financial instruments.
Risk management techniques, processes and strategies may not be fully effective in mitigating our risk exposure in all
market environments or against all types of risk, and any risk management failures could expose us to material unanticipated
losses.
52
Strategic Risk
Strategic risk represents the risk associated with executive management failing to develop and execute on the appropriate
strategic vision which demonstrates a commitment to our culture, leverages our core competencies, appropriately responds to
external factors in the marketplace, and is in the best interests of our clients, employees and shareholders.
Our leadership team is responsible for managing our strategic risks. The board of directors oversees the leadership team
in setting and executing our strategic plan.
Market Risk
Market risk represents the risk of losses, or financial volatility, that may result from the change in value of a financial
instrument due to fluctuations in its market price. Our exposure to market risk is directly related to our role as a financial
intermediary for our clients and to our market-making activities. The scope of our market risk management policies and
procedures includes all market-sensitive cash and derivative financial instruments.
Our different types of market risk include:
Interest Rate Risk — Interest rate risk represents the potential volatility from changes in market interest rates. We are
exposed to interest rate risk arising from changes in the level and volatility of interest rates, changes in the slope of the yield
curve, changes in credit spreads, and the rate of prepayments on our interest-earning assets (e.g., inventories) and our funding
sources (e.g., short-term financing) which finance these assets. Interest rate risk is managed by selling short U.S. government
securities, agency securities, corporate debt securities and derivative contracts. See Note 6 to our consolidated financial
statements included in Part II, Item 8 of this Form 10-K for additional information on our derivative contracts. Our interest
rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest
rate risk. Also, we establish limits on our long fixed income securities inventory, monitor these limits on a daily basis and
manage within those limits. Our limits include but are not limited to the following: position and concentration size, dollar
duration (i.e., DV01), credit quality and aging.
We estimate that a parallel 50 basis point adverse change in the market would result in a decrease of approximately
$0.8 million in the carrying value of our fixed income securities inventory as of December 31, 2020, including the effect of
the hedging transactions.
We also measure and monitor the aging and turnover of our long fixed income securities inventory. Turnover is
evaluated based on a five-day average by category of security. The vast majority of our fixed income securities inventory
generally turns over within three weeks.
In addition to the measures discussed above, we monitor and manage market risk exposure through evaluation of spread
DV01 and the MMD basis risk for municipal securities to movements in U.S. treasury securities. All metrics are aggregated
by asset concentration and are used for monitoring limits and exception approvals. In times of market volatility, we may also
perform ad hoc stress tests and scenario analysis as market conditions dictate.
Equity Price Risk — Equity price risk represents the potential loss in value due to adverse changes in the level or
volatility of equity prices. We are exposed to equity price risk through our trading activities primarily in the U.S. market. We
attempt to reduce the risk of loss inherent in our market-making and in our inventory of equity securities by establishing
limits on our long inventory, monitoring these limits on a daily basis, and by managing net position levels within those limits.
Foreign Exchange Risk — Foreign exchange risk represents the potential volatility to earnings or capital arising from
movement in foreign exchange rates. A modest portion of our business is conducted in currencies other than the U.S. dollar,
and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets,
revenues and expenses.
53
Liquidity Risk
Liquidity risk is the risk that we are unable to timely access necessary funding sources in order to operate our business,
as well as the risk that we are unable to timely divest securities that we hold in connection with our market-making and sales
and trading activities. We are exposed to liquidity risk in our day-to-day funding activities, by holding potentially illiquid
inventory positions and in our role as a remarketing agent for variable rate demand notes.
Our inventory positions subject us to potential financial losses from the reduction in value of illiquid positions. Market
risk can be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities
and/or at normal bid-offer spreads. Depending on the specific security, the structure of the financial product, and/or overall
market conditions, we may be forced to hold a security for substantially longer than we had planned or forced to liquidate
into a challenging market if funding becomes unavailable.
See the section entitled "Liquidity, Funding and Capital Resources" for information regarding our liquidity and how we
manage liquidity risk.
Credit Risk
Credit risk refers to the potential for loss due to the default or deterioration in credit quality of a counterparty, customer,
borrower or issuer of securities we hold in our trading inventory. The nature and amount of credit risk depends on the type of
transaction, the structure and duration of that transaction and the parties involved. Credit risk also results from an obligor's
failure to meet the terms of any contract with us or otherwise fail to perform as agreed. This may be reflected through issues
such as settlement obligations or payment collections.
A key tenet of our risk management procedures related to credit risk is the daily monitoring of the credit quality of our
long fixed income securities inventory. These rating trends and the credit quality mix are regularly reviewed with the
executive financial risk committee. The following table summarizes the credit rating for our long corporate fixed income,
municipal (taxable and tax-exempt), and U.S. government and agency securities as a percentage of the total of these asset
classes:
Corporate fixed income securities............
Municipal securities - taxable and
tax-exempt...............................................
U.S. government and agency securities....
AAA
— %
9.5 %
— %
9.5 %
AA
0.2 %
27.3 %
57.7 %
85.2 %
A
— %
BBB
0.1 %
4.0 %
— %
4.0 %
0.7 %
— %
0.8 %
BB
Not Rated
0.6 %
— %
— %
0.6 %
— %
— %
— %
— %
Convertible and preferred securities are excluded from the table above as they are typically unrated and the nature of the
strategy is low risk.
Our different types of credit risk include:
Credit Spread Risk — Credit spread risk arises from the possibility that changes in credit spreads will affect the value of
financial instruments. Credit spreads represent the credit risk premiums required by market participants for a given credit
quality (e.g., the additional yield that a debt instrument issued by a AA-rated entity must produce over a risk-free alternative).
Changes in credit spreads result from potential changes in an issuer's credit rating or the market's perception of the issuer's
credit worthiness. We are exposed to credit spread risk with the debt instruments held in our trading inventory. We enter into
transactions to hedge our exposure to credit spread risk with derivatives and certain other financial instruments. These
hedging strategies may not work in all market environments and as a result may not be effective in mitigating credit spread
risk.
54
Deterioration/Default Risk — Deterioration/default risk represents the risk due to an issuer, counterparty or borrower
failing to fulfill its obligations. We are exposed to deterioration/default risk in our role as a trading counterparty to dealers
and customers, as a holder of securities, and as a member of exchanges. The risk of default depends on the creditworthiness
of the counterparty and/or issuer of the security. We mitigate this risk by establishing and monitoring individual and
aggregate position limits for each counterparty relative to potential levels of activity, holding and marking to market
collateral on certain transactions. Our risk management functions also evaluate the potential risk associated with institutional
counterparties with whom we hold derivatives, TBAs and other documented institutional counterparty agreements that may
give rise to credit exposure.
Collections Risk — Collections risk arises from ineffective management and monitoring of collecting outstanding debts
and obligations, including those related to our customer trading activities. Our client activities involve the execution,
settlement and financing of various transactions. Client activities are transacted on a delivery versus payment, cash or margin
basis. Our credit exposure to institutional client business is mitigated by the use of industry-standard delivery versus payment
through depositories and clearing banks. Our risk management functions have credit risk policies establishing appropriate
credit limits and collateralization thresholds for customers and counterparties.
Concentration Risk — Concentration risk is the risk due to concentrated exposure to a particular product; individual
issuer, borrower or counterparty; financial instrument; or geographic area. We are subject to concentration risk if we hold
large individual securities positions, execute large transactions with individual counterparties or groups of related
counterparties, or make substantial underwriting commitments. Potential concentration risk is monitored through review of
counterparties and borrowers and is managed using policies and limits established by senior management.
We have concentrated counterparty credit exposure with four non-publicly rated entities totaling $24.0 million at
December 31, 2020. This counterparty credit exposure is part of our matched-book derivative program related to our public
finance business, consisting primarily of interest rate swaps. One derivative counterparty represented 84.0 percent, or
$20.2 million, of this exposure. Credit exposure associated with our derivative counterparties is driven by uncollateralized
market movements in the fair value of the interest rate swap contracts and is monitored regularly by our financial risk
committee. We attempt to minimize the credit (or repayment) risk in derivative instruments by entering into transactions with
high-quality counterparties that are reviewed periodically by senior management.
Operational Risk
Operational risk is the risk of loss, or damage to our reputation, resulting from inadequate or failed processes, people and
systems or from external events. We rely on the ability of our employees and our systems, both internal and at computer
centers operated by third parties, to process a large number of transactions. Our systems may fail to operate properly or
become disabled as a result of events that are wholly or partially beyond our control. In the event of a breakdown or improper
operation of our systems or improper action by our employees or third party vendors, we could suffer financial loss, a
disruption of our businesses, regulatory sanctions and damage to our reputation. We also face the risk of operational failure or
termination of our relationship with any of the exchanges, fully disclosed clearing firms, or other financial intermediaries we
use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect
transactions and manage our exposure to risk.
Our operations rely on secure processing, storage and transmission of confidential and other information in our internal
and outsourced computer systems and networks. Our computer systems, software and networks may be vulnerable to
unauthorized access, computer viruses or other malicious code, internal misconduct or inadvertent errors and other events that
could have an information security impact. The occurrence of one or more of these events, which we have experienced, could
jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted
through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our
counterparties' or third parties' operations. We take protective measures and endeavor to modify them as circumstances
warrant.
In order to mitigate and control operational risk, we have developed and continue to enhance policies and procedures that
are designed to identify and manage operational risk at appropriate levels throughout the organization. We also have business
continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built
into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operational policies and
procedures are being followed and that our various businesses are operating within established corporate policies and limits.
55
We operate under a fully disclosed clearing model for all of our clearing operations. In a fully disclosed clearing model,
we act as an introducing broker for client transactions and rely on Pershing, our clearing broker dealer, to facilitate clearance
and settlement of our clients' securities transactions. The clearing services provided by Pershing are critical to our business
operations, and similar to other services performed by third party vendors, any failure by Pershing with respect to the services
we rely upon Pershing to provide could cause financial loss, significantly disrupt our business, damage our reputation, and
adversely affect our ability to serve our clients and manage our exposure to risk.
Human Capital Risk
Our business is a human capital business and our success is dependent upon the skills, expertise and performance of our
employees. Human capital risks represent the risks posed if we fail to attract and retain qualified individuals who are
motivated to serve the best interests of our clients, thereby serving the best interests of our company. Attracting and retaining
employees depends, among other things, on our company's culture, management, work environment, geographic locations
and compensation. There are risks associated with the proper recruitment, development and rewards of our employees to
ensure quality performance and retention.
Legal and Regulatory Risk
Legal and regulatory risk includes the risk of non-compliance with applicable legal and regulatory requirements and loss
to our reputation we may suffer as a result of failure to comply with laws, regulations, rules, related self-regulatory
organization standards and codes of conduct applicable to our business activities. We are generally subject to extensive
regulation in the various jurisdictions in which we conduct our business. We have established procedures that are designed to
ensure compliance with applicable statutory and regulatory requirements, such as public company reporting obligations,
regulatory net capital requirements, sales and trading practices, potential conflicts of interest, anti-money laundering, privacy
and recordkeeping. We have also established procedures that are designed to require that our policies relating to ethics and
business conduct are followed. The legal and regulatory focus on the financial services industry presents a continuing
business challenge for us.
Our business also subjects us to the complex income tax laws of the jurisdictions in which we have business operations,
and these tax laws may be subject to different interpretations by the taxpayer and the relevant governmental taxing
authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when
determining the provision for income taxes.
Effects of Inflation
Because our assets are liquid and generally short-term in nature, they are not significantly affected by inflation.
However, the rate of inflation affects our expenses, such as employee compensation, office space leasing costs and
communications charges, which may not be readily recoverable in the price of services we offer to our clients. To the extent
inflation results in rising interest rates and has adverse effects upon the securities markets, it may adversely affect our
financial position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information under the caption "Risk Management" in Part II, Item 7 of this Form 10-K entitled, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," is incorporated herein by reference.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management's Report on Internal Control Over Financial Reporting............................................................
Report of Independent Registered Public Accounting Firm...........................................................................
Report of Independent Registered Public Accounting Firm...........................................................................
Consolidated Financial Statements:
Consolidated Statements of Financial Condition.........................................................................................
Consolidated Statements of Operations........................................................................................................
Consolidated Statements of Comprehensive Income...................................................................................
Consolidated Statements of Changes in Shareholders' Equity.....................................................................
Consolidated Statements of Cash Flows......................................................................................................
Notes to the Consolidated Financial Statements:
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Note 25
Organization and Basis of Presentation...................................................................................
Summary of Significant Accounting Policies.........................................................................
Recent Accounting Pronouncements.......................................................................................
Acquisitions.............................................................................................................................
Discontinued Operations.........................................................................................................
Financial Instruments and Other Inventory Positions Owned and Financial Instruments
and Other Inventory Positions Sold, but Not Yet Purchased...............................................
Fair Value of Financial Instruments........................................................................................
Variable Interest Entities.........................................................................................................
Receivables from and Payables to Brokers, Dealers and Clearing Organizations..................
Investments..............................................................................................................................
Other Assets............................................................................................................................
Goodwill and Intangible Assets..............................................................................................
Fixed Assets............................................................................................................................
Short-Term Financing.............................................................................................................
Long-Term Financing..............................................................................................................
Contingencies, Commitments and Guarantees........................................................................
Restructuring and Integration Costs........................................................................................
Shareholders' Equity................................................................................................................
Employee Benefit Plans..........................................................................................................
Compensation Plans................................................................................................................
Earnings Per Share..................................................................................................................
Revenues and Business Information.......................................................................................
Net Capital Requirements and Other Regulatory Matters.......................................................
Income Taxes..........................................................................................................................
Parent Company only and PSLS.............................................................................................
Supplementary Data.....................................................................................................................................
58
59
60
62
63
65
66
68
69
70
75
76
82
83
85
91
93
93
94
94
95
95
96
96
98
99
101
102
108
110
111
111
114
118
57
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.
Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on its assessment and
those criteria, management has concluded that we maintained effective internal control over financial reporting as of
December 31, 2020.
Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements
of Piper Sandler Companies included in this Annual Report on Form 10-K, has issued an attestation report on internal control
over financial reporting as of December 31, 2020. Their report, which expresses an unqualified opinion on the effectiveness
of Piper Sandler Companies' internal control over financial reporting as of December 31, 2020, is included herein.
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Piper Sandler Companies
Opinion on Internal Control Over Financial Reporting
We have audited Piper Sandler Companies’ (the Company) internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2020 and 2019, and
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, 2020, and the related notes, and our report dated February 25, 2021,
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 25, 2021
59
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) as of December 31, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 25, 2021 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 Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters 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 matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Description
of the Matter
Valuation of Investments at Fair Value
At December 31, 2020, the fair value of the Company’s investments categorized as Level III of the fair
value hierarchy totaled $153 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 $96.7 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.
60
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.
Valuation of Acquisition-Related Intangibles
Description
of the Matter
As disclosed in Note 4 of the consolidated financial statements, the Company acquired SOP Holdings,
LLC and its subsidiaries, including Sandler O'Neill & Partners, L.P. (Sandler) in 2020. The transaction was
accounted for as a business combination. Identifiable intangible assets acquired through this business
combination consisted of customer relationships and the Sandler trade name with acquisition-date fair values of
$72.4 million and $85.4 million, respectively. These intangible assets are measured at acquisition date using
models with significant assumptions including financial projections, discount rates, and a royalty rate, among
others, which form the basis of fair value. Certain of these assumptions are forward-looking and could be
affected by future economic and market conditions.
Auditing the fair value of the Company’s acquired identifiable intangible assets was complex, as the inputs
and assumptions used by the Company are highly judgmental and could have a significant effect on the
acquisition-date fair value measurements of such identifiable intangible assets.
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 acquisition process. This included controls over management’s assessment of the valuation
methodologies, the inputs and assumptions used in determining acquisition-date fair value measurements, and
review and approval of final intangible asset valuation.
To test the valuation of the Company’s acquired intangible assets, 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 acquisition-date fair
values, and testing the mathematical accuracy of the Company’s valuation calculations. For example, we
performed sensitivity analyses for certain assumptions, compared significant assumptions to current industry,
market, and economic trends, to assumptions used to value similar intangible assets of past acquisitions, and to
other guidelines used by companies within the same industry. Also, to test projected financial information, we
compared projections to historical results of Sandler and the Company and obtained support for individual
contracts expected to generate revenue.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2003.
Minneapolis, Minnesota
February 25, 2021
61
Piper Sandler Companies
Consolidated Statements of Financial Condition
(Amounts in thousands, except share data)
Assets
Cash and cash equivalents..................................................................................................
Receivables from brokers, dealers and clearing organizations...........................................
Financial instruments and other inventory positions owned..............................................
Financial instruments and other inventory positions owned and pledged as collateral......
Total financial instruments and other inventory positions owned...................................
Fixed assets (net of accumulated depreciation and amortization of $74,883 and
$65,991, respectively)......................................................................................................
Goodwill.............................................................................................................................
Intangible assets (net of accumulated amortization of $85,592 and $40,864,
respectively)......................................................................................................................
Investments.........................................................................................................................
Net deferred income tax assets...........................................................................................
Right-of-use lease asset......................................................................................................
Other assets.........................................................................................................................
Total assets.......................................................................................................................
Liabilities and Shareholders' Equity
Short-term financing...........................................................................................................
Long-term financing...........................................................................................................
Payables to brokers, dealers and clearing organizations....................................................
Financial instruments and other inventory positions sold, but not yet purchased..............
Accrued compensation.......................................................................................................
Accrued lease liability........................................................................................................
Other liabilities and accrued expenses................................................................................
Total liabilities.................................................................................................................
Shareholders' equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at December 31, 2020 and December 31, 2019;
Shares issued: 19,533,547 at December 31, 2020 and 19,526,533 at
December 31, 2019;
Shares outstanding: 13,776,025 at December 31, 2020 and 13,717,315 at
December 31, 2019......................................................................................................
Additional paid-in capital................................................................................................
Retained earnings.............................................................................................................
Less common stock held in treasury, at cost: 5,757,522 shares at December 31, 2020
and 5,809,218 shares at December 31, 2019..................................................................
Accumulated other comprehensive loss...........................................................................
Total common shareholders' equity...............................................................................
Noncontrolling interests.................................................................................................
Total shareholders' equity..............................................................................................
December 31, December 31,
2020
2019
$
507,935 $
221,491
270,849
130,703
401,552
43,812
227,508
149,858
183,179
104,219
82,543
75,043
1,997,140 $
— $
195,000
18,591
151,030
522,412
99,478
84,547
1,071,058
$
$
250,018
283,108
434,088
205,674
639,762
29,850
87,649
16,686
158,141
68,035
40,030
55,440
1,628,719
49,978
175,000
7,514
185,425
300,527
57,169
46,578
822,191
195
847,785
271,001
(289,359)
(197)
829,425
96,657
926,082
195
757,669
258,669
(284,378)
(872)
731,283
75,245
806,528
Total liabilities and shareholders' equity........................................................................
$
1,997,140 $
1,628,719
See Notes to the Consolidated Financial Statements
62
Piper Sandler Companies
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Revenues:
Year Ended December 31,
2019
2018
2020
Investment banking.................................................................
$
858,476
$
629,392
$
Institutional brokerage............................................................
Interest income........................................................................
Investment income..................................................................
357,753
13,164
23,265
167,891
26,741
22,275
588,978
124,738
32,749
11,039
Total revenues.......................................................................
1,252,658
846,299
757,504
Interest expense.......................................................................
14,445
11,733
16,551
Net revenues..........................................................................
1,238,213
834,566
740,953
Non-interest expenses:
Compensation and benefits.....................................................
Outside services......................................................................
Occupancy and equipment......................................................
Communications.....................................................................
Marketing and business development.....................................
Deal-related expenses..............................................................
Trade execution and clearance................................................
Restructuring and integration costs.........................................
Intangible asset amortization...................................................
Other operating expenses........................................................
877,462
38,377
54,007
44,358
13,472
38,072
18,934
10,755
44,728
29,500
516,090
36,184
36,795
30,760
28,780
25,823
10,186
14,321
4,298
12,350
488,487
36,528
34,194
28,656
26,936
25,120
8,014
3,498
4,858
12,173
Total non-interest expenses...................................................
1,169,665
715,587
668,464
Income from continuing operations before income tax
expense ...................................................................................
Income tax expense.................................................................
Income from continuing operations ......................................
Discontinued operations:
68,548
19,192
49,356
118,979
24,577
94,402
72,489
18,046
54,443
Income from discontinued operations, net of tax....................
—
23,772
1,387
Net income ...............................................................................
49,356
118,174
55,830
Net income/(loss) applicable to noncontrolling interests........
8,852
6,463
(1,206)
Net income applicable to Piper Sandler Companies ............
Net income applicable to Piper Sandler Companies'
common shareholders ...........................................................
$
$
40,504
$
111,711
$
57,036
40,504
$
107,200
$
49,993
Continued on next page
63
Piper Sandler Companies
Consolidated Statements of Operations – Continued
(Amounts in thousands, except per share data)
Amounts applicable to Piper Sandler Companies
Net income from continuing operations..................................
Net income from discontinued operations..............................
Net income applicable to Piper Sandler Companies.............
Earnings per basic common share
Income from continuing operations........................................
Income from discontinued operations.....................................
Earnings per basic common share.........................................
Earnings per diluted common share
Income from continuing operations........................................
Income from discontinued operations.....................................
Earnings per diluted common share......................................
Dividends declared per common share .................................
Weighted average number of common shares outstanding
$
$
$
$
$
$
$
Year Ended December 31,
2019
2018
2020
40,504
—
40,504
2.94
—
2.94
2.72
—
2.72
2.00
$
$
$
$
$
$
$
87,939
23,772
111,711
6.21
1.69
7.90
6.05
1.65
7.69
2.51
$
$
$
$
$
$
$
55,649
1,387
57,036
3.68
0.09
3.78
3.63
0.09
3.72
3.12
Basic........................................................................................
Diluted.....................................................................................
13,781
14,901
13,555
13,937
13,234
13,425
See Notes to the Consolidated Financial Statements
64
Piper Sandler Companies
Consolidated Statements of Comprehensive Income
(Amounts in thousands)
Net income .....................................................................................
Other comprehensive income/(loss), net of tax:
Year Ended December 31,
2019
2018
2020
$
49,356
$
118,174
$
55,830
Foreign currency translation adjustment.......................................
675
526
(119)
Comprehensive income .................................................................
50,031
118,700
55,711
Comprehensive income/(loss) applicable to noncontrolling
interests........................................................................................
8,852
6,463
(1,206)
Comprehensive income applicable to Piper Sandler
Companies ...................................................................................
$
41,179
$
112,237
$
56,917
See Notes to the Consolidated Financial Statements
65
Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity
Common
(Amounts in thousands,
Shares
Common
except share amounts)
Outstanding
Stock
Additional
Paid-In
Capital
Accumulated
Total
Other
Common
Total
Retained
Treasury
Comprehensive
Shareholders' Noncontrolling
Shareholders'
Earnings
Stock
Loss
Equity
Interests
Equity
Balance at
December 31, 2017 ....
Net income/(loss)...........
Dividends.......................
Amortization/issuance of
restricted stock.............
Repurchase of common
stock through share
repurchase program.....
Issuance of treasury
shares for restricted
stock vestings...............
Repurchase of common
stock from employees..
Shares reserved/issued
for director
compensation...............
Other comprehensive
loss...............................
Cumulative effect upon
adoption of new
accounting standard,
net of tax (1)................
Fund capital
contributions, net.........
Balance at
December 31, 2018 ....
Net income.....................
Dividends.......................
Amortization/issuance of
restricted stock.............
Repurchase of common
stock through share
repurchase program.....
Issuance of treasury
shares for restricted
stock vestings...............
Repurchase of common
stock from employees..
Shares reserved/issued
for director
compensation...............
Other comprehensive
income.........................
Fund capital
contributions, net.........
Balance at
December 31, 2019 ....
12,911,149
$
195
$
791,970
$ 176,270
$ (273,824) $
(1,279) $
693,332
$
47,903
$
741,235
—
—
—
(681,233)
1,040,015
(279,664)
5,130
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
57,036
(47,157)
48,448
—
—
—
—
—
—
(47,142)
(44,459)
—
404
—
—
—
—
—
—
—
(3,597)
—
44,459
(23,761)
—
—
—
—
—
—
—
—
—
—
—
(119)
—
—
57,036
(47,157)
48,448
(47,142)
—
(23,761)
404
(119)
(1,206)
—
—
—
—
—
—
—
55,830
(47,157)
48,448
(47,142)
—
(23,761)
404
(119)
(3,597)
—
(3,597)
—
6,275
6,275
12,995,397
$
195
$
796,363
$ 182,552
$ (300,268) $
(1,398) $
677,444
$
52,972
$
730,416
—
—
—
(501)
1,415,147
(701,217)
8,489
—
—
—
—
—
—
—
—
—
—
—
—
—
111,711
(35,594)
27,137
—
(66,474)
—
643
—
—
—
—
—
—
—
—
—
—
—
—
(32)
66,474
(50,552)
—
—
—
—
—
—
—
—
—
—
526
—
111,711
(35,594)
27,137
(32)
—
(50,552)
643
526
—
6,463
—
—
—
—
—
—
—
118,174
(35,594)
27,137
(32)
—
(50,552)
643
526
15,810
15,810
13,717,315
$
195
$
757,669
$ 258,669
$ (284,378) $
(872) $
731,283
$
75,245
$
806,528
Continued on next page
66
Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity – Continued
Common
(Amounts in thousands,
Shares
Common
except share amounts)
Outstanding
Stock
Additional
Paid-In
Capital
Accumulated
Total
Other
Common
Total
Retained
Treasury
Comprehensive
Shareholders' Noncontrolling
Shareholders'
Earnings
Stock
Loss
Equity
Interests
Equity
Net income.....................
Dividends.......................
Amortization/issuance of
restricted stock (2).......
Repurchase of common
stock through share
repurchase program.....
Issuance of treasury
shares for restricted
stock vestings...............
Issuance of treasury
shares for deal
consideration................
Repurchase of common
stock from employees..
Shares reserved/issued
for director
compensation...............
Other comprehensive
income.........................
Fund capital
contributions, net.........
Balance at
December 31, 2020 ....
$
—
—
—
(188,319)
—
—
—
—
$
—
—
$ 40,504
$
(28,172)
103,852
—
$
—
—
—
—
—
(13,129)
309,089
—
(15,310)
—
15,310
34,205
(105,193)
8,928
—
—
—
—
—
—
—
1,049
—
525
—
—
—
—
—
—
—
1,674
(8,836)
—
—
—
—
—
—
—
—
—
—
—
675
—
$
40,504
$
8,852
$
49,356
(28,172)
103,852
(13,129)
—
2,723
(8,836)
525
675
—
—
—
—
—
—
—
—
—
(28,172)
103,852
(13,129)
—
2,723
(8,836)
525
675
12,560
12,560
13,776,025
$
195
$
847,785
$ 271,001
$ (289,359) $
(197) $
829,425
$
96,657
$
926,082
(1) Cumulative effect adjustment upon adoption of revenue recognition guidance in ASU 2014-09, as amended.
(2)
Includes amortization of restricted stock issued as part of deal consideration. See Note 4 for further discussion.
See Notes to the Consolidated Financial Statements
67
Piper Sandler Companies
Consolidated Statements of Cash Flows
(Amounts in thousands)
Operating Activities:
Year Ended December 31,
2020
2019
2018
Net income................................................................................................................
$
49,356
$
118,174
$
55,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets........................................................
Deferred income taxes............................................................................................
Gain on sale of Advisory Research, Inc. ("ARI"), net of tax..................................
Stock-based compensation......................................................................................
Amortization of intangible assets............................................................................
Amortization of forgivable loans............................................................................
Decrease/(increase) in operating assets:
Receivables from brokers, dealers and clearing organizations...............................
Net financial instruments and other inventory positions owned.............................
Investments.............................................................................................................
Other assets.............................................................................................................
Increase/(decrease) in operating liabilities:
Payables to brokers, dealers and clearing organizations........................................
Accrued compensation............................................................................................
Other liabilities and accrued expenses....................................................................
Decrease in assets held for sale.................................................................................
Decrease in liabilities held for sale...........................................................................
10,699
(36,184)
—
121,688
44,728
3,538
254,292
203,815
(24,353)
4,024
11,077
132,767
4,318
—
—
9,360
11,323
(33,026)
32,003
9,763
4,639
(46,207)
(4,542)
(6,255)
117
(1,143)
(29,277)
(10,117)
20,901
(7,915)
8,358
(652)
—
44,285
10,460
5,138
(89,884)
534,355
24,109
(3,758)
(10,735)
(60,191)
(7,915)
1,882
(1,487)
Net cash provided by operating activities...............................................................
779,765
67,798
509,795
Investing Activities:
Business acquisitions, net of cash acquired..............................................................
Proceeds from sale of ARI........................................................................................
Purchases of fixed assets, net....................................................................................
(417,414)
—
(17,581)
(19,674)
52,881
(6,516)
Net cash provided by/(used in) investing activities................................................
(434,995)
26,691
—
—
(15,804)
(15,804)
Financing Activities:
Increase/(decrease) in short-term financing..............................................................
$
(49,978)
$
25
$
(239,984)
Issuance of senior notes............................................................................................
Repayment of senior notes........................................................................................
Payment of cash dividend.........................................................................................
Increase in noncontrolling interests..........................................................................
Repurchase of common stock...................................................................................
Net cash provided by/(used in) financing activities................................................
Currency adjustment:
Effect of exchange rate changes on cash...................................................................
Net increase in cash and cash equivalents....................................................................
Cash and cash equivalents at beginning of year...........................................................
Cash and cash equivalents at end of year.....................................................................
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.....................................................................................................................
Income taxes...........................................................................................................
$
$
$
—
—
(28,172)
12,560
(21,965)
(87,555)
702
257,917
250,018
175,000
—
(35,594)
15,810
(50,584)
—
(125,000)
(47,157)
6,275
(70,903)
104,657
(476,769)
508
199,654
50,364
(651)
16,571
33,793
507,935
$
250,018
$
50,364
14,485
28,891
$
$
12,038
9,581
$
$
17,129
17,134
See Notes to the Consolidated Financial Statements
68
Piper Sandler Companies
Notes to the Consolidated Financial Statements
Note 1 Organization and Basis of Presentation
Organization
As described in Note 4, 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.
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, entities providing alternative asset
management services; Piper Sandler Loan Strategies, LLC ("PSLS"), which provides management services for primary and
secondary market liquidity transactions of loan and servicing rights; Piper Sandler Hedging Services, LLC, an entity that
assists clients with programmatic hedging solutions and broader hedging strategies; 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 municipal financing
activities. Revenues are generated through the receipt of advisory and financing fees. Institutional sales, trading and research
services focus on the trading of equity and fixed income products with institutions, government and non-profit entities.
Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales
activities, net interest revenues on trading securities held in inventory, and profits and losses from trading these securities.
Also, the Company generates revenue through strategic trading and investing activities, which focus on investments in
municipal bonds and merchant banking activities involving equity investments in late stage private companies. The Company
has created alternative asset management funds in merchant banking and energy in order to invest firm capital and to manage
capital from outside investors. The Company receives management and performance fees for managing these funds.
As discussed in Note 5, Advisory Research, Inc. ("ARI") was sold in the third quarter of 2019. ARI's results, previously
reported in the Company's Asset Management segment, have been presented as discontinued operations for all prior periods
presented. ARI 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.
69
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.
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.
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.
70
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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.
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.
71
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 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
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.
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 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). See Note 12 for additional
information on the Company's impairment testing.
72
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 one to eight years. The pattern of amortization reflects the timing of the realization of the economic benefits of
such intangible assets. The Sandler trade name is an indefinite-lived intangible asset, which is not amortized and is evaluated
annually, at a minimum, or on an interim basis if events or circumstances indicate a possible inability to realize the carrying
amount.
Investments
The Company's investments include equity investments in private companies and partnerships. 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.
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 four 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.
73
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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, (iii) fees earned by PSLS related to the brokering of loans and
servicing rights in market liquidity transactions, which are recognized at a point in time on the trade date, and (iv) 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 and long-term financing arrangements on an accrual basis with related interest recorded as interest expense.
Investment Income – Investment income includes realized and unrealized gains and losses from the Company's merchant
banking, energy 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.
74
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 applicable to common shareholders by the
weighted average number of common shares outstanding for the period. 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 restricted shares. For periods prior to 2020, the Company calculated earnings per share using the two-class
method. See Note 21 for additional information on the Company's calculation of earnings per share.
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.
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
Financial Instruments – Credit Losses
In June 2016, the FASB issued Accounting Standards Update ("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 for the Company as of January 1, 2020. There was no material impact to the
Company's consolidated financial statements upon adoption of ASU 2016-13.
75
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 4 Acquisitions
The following acquisitions were accounted for pursuant to FASB Accounting Standards Codification Topic 805,
"Business Combinations." Accordingly, the purchase price of each acquisition was allocated to the acquired assets and
liabilities assumed based on their estimated fair values as of the respective acquisition dates. The excess of the purchase price
over the net assets acquired was allocated between goodwill and intangible assets. The fair value of the equity consideration
and retention-related restricted stock was determined using the market price of the Company’s common stock on the date of
the respective acquisition.
SOP Holdings, LLC
On January 3, 2020, the Company completed the acquisition of SOP Holdings, LLC and its subsidiaries, including
Sandler O'Neill & Partners, L.P. (collectively, "Sandler O'Neill"), a full-service investment banking firm and broker dealer
focused on the financial services industry. The transaction was completed pursuant to the Agreement and Plans of Merger
dated July 9, 2019. The purchase price was $485.0 million, for which the Company was entitled to receive $100.0 million of
tangible book value, subject to a final adjustment as of the closing date. The acquisition of Sandler O'Neill is accretive to the
Company's advisory services revenues, diversifies and enhances scale in corporate financings, adds a differentiated fixed
income business, and increases scale in the equity brokerage business.
The net assets acquired by the Company are described below. As part of the purchase price, the Company granted
1,568,670 restricted shares valued at $124.9 million as equity consideration on the acquisition date. These restricted shares
are generally subject to ratable vesting over three years and employees must fulfill service requirements in exchange for the
rights to the restricted shares. Compensation expense will be amortized on a straight-line basis over the requisite service
period of three years.
The Company also entered into acquisition-related compensation arrangements with certain employees of $113.9 million
which consisted of restricted stock ($96.9 million) and restricted cash ($17.0 million) for retention purposes. The retention-
related awards are also subject to vesting restrictions and employees must remain continuously employed by the Company for
the respective vesting period. Compensation expense related to these arrangements will be amortized on a straight-line basis
over the requisite service period of 18 months, three years or five years (a weighted average service period of 3.7 years).
The Company recorded $94.4 million of goodwill on the consolidated statements of financial condition, of which
$93.4 million is expected to be deductible for income tax purposes. In management's opinion, the goodwill represents the
reputation and operating expertise of Sandler O'Neill. Identifiable intangible assets purchased by the Company consisted of
customer relationships and the Sandler trade name with acquisition-date fair values of $72.4 million and $85.4 million,
respectively.
Transaction costs of $1.2 million and $4.8 million were incurred for the years ended December 31, 2020 and 2019,
respectively, and are included in restructuring and integration costs on the consolidated statements of operations.
76
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the
acquisition, including measurement period adjustments:
(Amounts in thousands)
Assets
Cash and cash equivalents...............................................................................................................
Receivables from brokers, dealers and clearing organizations........................................................
Fixed assets......................................................................................................................................
Goodwill..........................................................................................................................................
Intangible assets...............................................................................................................................
Investments......................................................................................................................................
Right-of-use lease asset...................................................................................................................
Other assets......................................................................................................................................
Total assets acquired..........................................................................................................................
$
Liabilities
Accrued compensation....................................................................................................................
Accrued lease liability.....................................................................................................................
Other liabilities and accrued expenses.............................................................................................
Due to Sandler O'Neill (1)...............................................................................................................
Total liabilities assumed.....................................................................................................................
27,420
192,675
6,789
94,360
157,800
685
39,607
9,628
528,964
71,398
39,613
16,441
40,673
168,125
Net assets acquired.............................................................................................................................
$
360,839
(1) Represents the amount of excess tangible book value received by the Company on the date of acquisition.
The Valence Group ("Valence")
On April 3, 2020, the Company completed the acquisition of Valence, an investment bank offering mergers and
acquisitions advisory services to companies and financial sponsors with a focus on the chemicals, materials and related
sectors. The transaction was completed pursuant to the share purchase agreement dated February 20, 2020, as amended. The
acquisition adds a new industry sector and expands the Company's presence in Europe.
The net assets acquired by the Company are described below. As part of the purchase price, the Company entered into
unsecured promissory notes with the former owners totaling $20.0 million (the "Valence Notes"), as discussed in Note 15.
The Valence Notes were repaid in early 2021. The Company also granted 647,268 restricted shares valued at $31.2 million as
equity consideration on the acquisition date. In addition, the Company entered into acquisition-related compensation
arrangements with certain employees of $5.5 million in restricted stock for retention purposes. Both the equity consideration
and retention-related restricted shares 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 five years.
Additional cash may be earned by certain employees if a revenue threshold is exceeded during the three-year post-
acquisition period to the extent they are employed by the Company at the time of payment. Amounts estimated to be payable,
if any, will be recorded as compensation expense on the consolidated statements of operations over the requisite performance
period. If earned, the amount will be paid by July 3, 2023.
The Company recorded $33.3 million of goodwill on the consolidated statements of financial condition, none of which is
expected to be deductible for income tax purposes. In management's opinion, the goodwill represents the reputation and
operating expertise of Valence. Identifiable intangible assets purchased by the Company consisted of customer relationships
with an acquisition-date fair value of $14.8 million.
77
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Transaction costs of $2.5 million were incurred for the year ended December 31, 2020 and are included in restructuring
and integration costs on the consolidated statements of operations.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the
acquisition:
(Amounts in thousands)
Assets
Cash and cash equivalents...............................................................................................................
Fixed assets......................................................................................................................................
Goodwill..........................................................................................................................................
Intangible assets...............................................................................................................................
Right-of-use lease asset...................................................................................................................
Other assets......................................................................................................................................
Total assets acquired..........................................................................................................................
$
Liabilities
Accrued lease liability.....................................................................................................................
Other liabilities and accrued expenses.............................................................................................
Total liabilities assumed.....................................................................................................................
Net assets acquired.............................................................................................................................
$
TRS Advisors LLC ("TRS")
8,181
256
33,300
14,800
3,279
4,190
64,006
3,279
10,393
13,672
50,334
On December 31, 2020, the Company completed the acquisition of TRS, an advisory firm offering restructuring and
reorganization services to companies in public, private and government settings. The transaction was completed pursuant to
the equity purchase agreement dated December 8, 2020. The acquisition expands the scale of the Company's restructuring
advisory business.
The net assets acquired by the Company are described below. In addition to cash consideration, as part of the purchase
price, the Company granted 145,952 restricted shares valued at $14.7 million as equity consideration on the acquisition date.
The equity consideration restricted shares 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 five years. In addition, the Company
entered into acquisition-related compensation arrangements with certain employees of $2.9 million in restricted stock for
retention purposes. These restricted shares are subject to ratable vesting and employees must fulfill service requirements in
exchange for the rights to the restricted shares. Compensation expense will be amortized on a straight-line basis over the
requisite service period of three years.
Additional cash of $7.0 million may be earned by certain employees if a revenue threshold is exceeded during the three-
year post-acquisition period to the extent they are employed by the Company at the time of payment. Amounts estimated to
be payable, if any, will be recorded as compensation expense on the consolidated statements of operations over the requisite
performance period. If earned, the amount will be paid by April 3, 2024.
The Company recorded $12.2 million of goodwill on the consolidated statements of financial condition, all of which is
expected to be deductible for income tax purposes. The final goodwill recorded on the Company's consolidated statements of
financial condition may differ from that reflected herein as a result of measurement period adjustments. In management's
opinion, the goodwill represents the reputation and operating expertise of TRS. Identifiable intangible assets purchased by the
Company consisted of customer relationships with an acquisition-date fair value of $5.3 million.
78
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Transaction costs of $0.8 million were incurred for the year ended December 31, 2020 and are included in restructuring
and integration costs on the consolidated statements of operations.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the
acquisition:
(Amounts in thousands)
Assets
Cash and cash equivalents...............................................................................................................
Goodwill..........................................................................................................................................
Intangible assets...............................................................................................................................
Right-of-use lease asset...................................................................................................................
Other assets......................................................................................................................................
Total assets acquired..........................................................................................................................
$
Liabilities
Accrued compensation.....................................................................................................................
Accrued lease liability.....................................................................................................................
Other liabilities and accrued expenses.............................................................................................
Total liabilities assumed.....................................................................................................................
7
12,199
5,300
1,818
6,423
25,747
23
1,818
7
1,848
Net assets acquired.............................................................................................................................
$
23,899
Weeden & Co. L.P. ("Weeden & Co.")
On August 2, 2019, the Company completed the acquisition of Weeden & Co., a broker dealer specializing in equity
security sales and trading. The economic value of the acquisition was approximately $42.0 million and was completed
pursuant to a securities purchase agreement dated February 24, 2019, as amended. The transaction added enhanced trade
execution capabilities and scale to the Company's equities institutional sales and trading business.
The net assets acquired by the Company are described below. As part of the purchase price, the Company granted
$10.1 million in restricted cash as consideration on the acquisition date. The Company also entered into acquisition-related
compensation arrangements with certain employees of $7.3 million in restricted stock for retention purposes. Both the
restricted cash and restricted stock are subject to graded vesting, beginning on the third anniversary of the acquisition date, so
long as the applicable employee remains continuously employed by the Company for such period. Compensation expense
will be amortized on a straight-line basis over the requisite service period of four years.
Additional cash of up to $31.5 million may be earned if a net revenue target is achieved during the period from
January 1, 2020 to June 30, 2021 ("Weeden Earnout"). Weeden & Co.'s equity owners, a portion of whom are now
employees of the Company, are eligible to receive the additional payment. Employees must fulfill service requirements in
exchange for the rights to the additional payment. Amounts estimated to be payable to employees will be recorded as
compensation expense on the consolidated statements of operations over the requisite performance period. The Company
recorded a liability as of the acquisition date for the fair value related to non-employee equity owners, and is required to
adjust this liability through the statement of operations for any changes after the acquisition date. If earned, the Weeden
Earnout will be paid by September 30, 2021. As of December 31, 2020, the Company expects the maximum Weeden Earnout
will be earned and has accrued a total of $25.0 million related to this additional cash payment. The Company recorded
$24.1 million in non-interest expenses related to the Weeden Earnout for the year ended December 31, 2020.
79
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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. 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.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the
acquisition, including measurement period adjustments:
(Amounts in thousands)
Assets
Cash and cash equivalents...............................................................................................................
Receivables from brokers, dealers and clearing organizations........................................................
Fixed assets......................................................................................................................................
Goodwill..........................................................................................................................................
Intangible assets...............................................................................................................................
Right-of-use lease asset...................................................................................................................
Other assets......................................................................................................................................
Total assets acquired..........................................................................................................................
$
Liabilities
Accrued compensation....................................................................................................................
Accrued lease liability.....................................................................................................................
Other liabilities and accrued expenses.............................................................................................
Total liabilities assumed.....................................................................................................................
Net assets acquired.............................................................................................................................
$
4,351
1,623
289
5,794
16,700
6,811
7,675
43,243
2,156
6,811
10,251
19,218
24,025
80
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Pro Forma Financial Information
The results of operations of Sandler O'Neill, Valence, TRS and Weeden & Co. have been included in the Company's
consolidated financial statements prospectively beginning on the respective acquisition dates. The acquisitions have been
fully integrated with the Company's existing operations. Accordingly, post-acquisition revenues and net income are not
discernible. The following unaudited pro forma financial data is presented on a combined basis. Based on the respective
acquisition dates, the unaudited pro forma financial data assumes that the Sandler O’Neill, Valence and TRS acquisitions had
occurred on January 1, 2018, the beginning of the comparable prior period presented, and that the Weeden & Co. acquisition
had occurred on January 1, 2017. Pro forma results have been prepared by adjusting the Company's historical results to
include the results of operations of Sandler O'Neill, Valence, TRS and Weeden & Co. adjusted for the following significant
changes: interest expense was adjusted to reflect the debt incurred by the Company to fund portions of the Sandler O’Neill
and Valence purchase price; amortization expense was adjusted to account for the acquisition-date fair value of intangible
assets; compensation and benefits expenses were adjusted to reflect the restricted cash or restricted stock issued as part of the
respective purchase price, the restricted stock issued for retention purposes, and the cost that would have been incurred had
Sandler O’Neill partners and Valence and TRS employees been included in the Company’s employee compensation
arrangements; and the income tax effect of applying the Company's statutory tax rates to the results of operations of Sandler
O'Neill, Valence, TRS and Weeden & Co. The Company's consolidated unaudited pro forma information presented does not
necessarily reflect the results of operations that would have resulted had the acquisitions been completed at the beginning of
the applicable periods presented, does not contemplate client account overlap and anticipated operational efficiencies of the
combined entities, nor does it indicate the results of operations in future periods.
(Amounts in thousands)
Net revenues.........................................................................................
Net income from continuing operations applicable to Piper Sandler
Companies..........................................................................................
Year Ended December 31,
2019
2020
2018
$
1,289,331 $
1,252,260 $
1,183,131
44,453
73,952
6,327
81
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 5 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 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 $53.9 million.
ARI's results, previously reported in the Asset Management segment, have been presented as discontinued operations for
all prior periods presented and the related assets and liabilities were classified as held for sale. The components of
discontinued operations were as follows:
(Amounts in thousands)
Net revenues....................................................................................................................
Year Ended December 31,
2019
2018
$
26,546 $
43,489
Operating expenses.......................................................................................................
Intangible asset amortization (1)...................................................................................
Restructuring costs........................................................................................................
Total non-interest expenses.............................................................................................
22,589
5,465
10,268
38,322
35,227
5,602
272
41,101
Income/(loss) from discontinued operations before income tax expense/(benefit).........
(11,776)
2,388
Income tax expense/(benefit)........................................................................................
(2,522)
1,001
Income/(loss) from discontinued operations before gain on sales...................................
(9,254)
1,387
Gain on sales, net of tax...................................................................................................
33,026
—
Income from discontinued operations, net of tax............................................................
$
23,772 $
1,387
(1)
Includes $2.9 million of intangible asset impairment related to the ARI trade name for the year ended December 31, 2019.
82
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 6 Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory
Positions Sold, but Not Yet Purchased
(Amounts in thousands)
Financial instruments and other inventory positions owned:
Corporate securities:
December 31,
2020
December 31,
2019
Equity securities...........................................................................................................
Convertible securities...................................................................................................
Fixed income securities................................................................................................
$
Municipal securities:
Taxable securities.........................................................................................................
Tax-exempt securities...................................................................................................
Short-term securities....................................................................................................
Mortgage-backed securities............................................................................................
U.S. government agency securities.................................................................................
U.S. government securities.............................................................................................
Derivative contracts........................................................................................................
Total financial instruments and other inventory positions owned..................................
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities...........................................................................................................
Fixed income securities................................................................................................
U.S. government agency securities.................................................................................
U.S. government securities.............................................................................................
Derivative contracts........................................................................................................
Total financial instruments and other inventory positions sold, but not yet purchased..
$
$
$
1,349
146,088
18,432
6,267
67,944
28,592
13
9,146
100,275
23,446
401,552
105,190
18,789
—
21,669
5,382
151,030
$
$
$
$
3,046
146,406
28,176
22,570
222,192
67,901
13
51,773
77,303
20,382
639,762
94,036
10,311
9,935
67,090
4,053
185,425
At December 31, 2020 and 2019, financial instruments and other inventory positions owned in the amount of
$130.7 million and $205.7 million, respectively, had been pledged as collateral for short-term financings.
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, U.S. treasury bond futures and options, and equity option
contracts as a means to manage risk in certain inventory positions. The Company also enters into interest rate swaps to
facilitate customer transactions. The following describes the Company's derivatives by the type of transaction or security the
instruments are economically hedging.
83
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 the London
Interbank Offered Rate ("LIBOR") index, the Municipal Market Data ("MMD") 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 MMD index, LIBOR or the SIFMA index. The Company also enters into equity
option contracts to hedge market value risk associated with its convertible securities.
Derivatives are reported on a net basis by counterparty (i.e., the net payable or receivable for derivative assets and
liabilities for a given counterparty) when a legal right of offset exists and on a net basis by cross product when applicable
provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided
a legal right of offset exists. The total absolute notional contract amount, representing the absolute value of the sum of gross
long and short derivative contracts, provides an indication of the volume of the Company's derivative activity and does not
represent gains and losses. The following table presents the gross fair market value and the total absolute notional contract
amount of the Company's outstanding derivative instruments, prior to counterparty netting, by asset or liability position:
(Amounts in thousands)
Derivative Category
Interest rate
Customer matched-book..
Trading securities.............
Derivative
Assets (1)
December 31, 2020
Derivative
Liabilities (2)
Notional
Amount
Derivative
Assets (1)
December 31, 2019
Derivative
Liabilities (2)
Notional
Amount
$
$
233,116 $
—
233,116 $
223,218 $ 1,955,131 $
209,119 $
4,225
55,375
8
227,443 $ 2,010,506 $
209,127 $
198,315 $ 2,197,340
110,875
200,167 $ 2,308,215
1,852
(1) Derivative assets are included within financial instruments and other inventory positions owned on the consolidated statements of financial condition.
(2) Derivative liabilities are included within financial instruments and other inventory positions sold, but not yet purchased on the consolidated statements
of financial condition.
The Company's derivative contracts do not qualify for hedge accounting, therefore, unrealized gains and losses are
recorded on the consolidated statements of operations. The gains and losses on the related economically hedged inventory
positions are not disclosed below as they are not in qualifying hedging relationships. The following table presents the
Company's unrealized gains/(losses) on derivative instruments:
(Amounts in thousands)
Derivative Category
Interest rate derivative contract........................
Interest rate derivative contract........................
Operations Category
Investment banking
Institutional brokerage
Year Ended December 31,
2019
2018
2020
$
$
(1,407) $
(1,881)
(3,288) $
(912) $
2,417
1,505
$
(1,880)
334
(1,546)
84
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 a derivative contract can
become material, exposing the Company to the credit risk of these counterparties. As of December 31, 2020, the Company
had $24.0 million of uncollateralized credit exposure with these counterparties (notional contract amount of $161.3 million),
including $20.2 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.
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.
85
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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.
Short-term municipal securities – Short-term municipal securities include 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.
Mortgage-backed securities – Mortgage-backed securities collateralized by residential mortgages are valued using cash
flow models that utilize unobservable inputs including credit default rates, prepayment rates, loss severity and valuation
yields. As judgment is used to determine the range of these inputs, these mortgage-backed securities are categorized as
Level III.
U.S. government agency securities – U.S. government agency securities include agency debt bonds and mortgage bonds.
Agency debt bonds are valued by using either direct price quotes or price quotes for comparable bond securities and are
categorized as Level II. Mortgage bonds include bonds secured by mortgages, mortgage pass-through securities, agency
collateralized mortgage-obligation ("CMO") securities and agency interest-only securities. Mortgage pass-through securities,
CMO securities and interest-only securities are valued using recently executed observable trades or other observable inputs,
such as prepayment speeds and therefore are generally categorized as Level II. Mortgage bonds are valued using observable
market inputs, such as market yields on spreads over U.S. treasury securities, or models based upon prepayment expectations.
These securities are categorized as Level II.
U.S. government securities – U.S. government securities include highly liquid U.S. treasury securities which are
generally valued using quoted market prices and therefore categorized as Level I. The Company does not transact in
securities of countries other than the U.S. government.
Derivative contracts – Derivative contracts include interest rate swaps, interest rate locks, U.S. treasury bond futures and
options, and equity option contracts. These instruments derive their value from underlying assets, reference rates, indices or a
combination of these factors. The Company's equity option derivative contracts are valued based on quoted prices from the
exchange for identical assets or liabilities as of the period-end date. To the extent these contracts are actively traded and
valuation adjustments are not applied, they are categorized as Level I. The majority of the Company's interest rate derivative
contracts, including both interest rate swaps and interest rate locks, are valued using market standard pricing models based on
the net present value of estimated future cash flows. The valuation models used do not involve material subjectivity as the
methodologies do not entail significant judgment and the pricing inputs are market observable, including contractual terms,
yield curves and measures of volatility. These instruments are classified as Level II within the fair value hierarchy. Certain
interest rate locks transact in less active markets and were valued using valuation models that included the previously
mentioned observable inputs and certain unobservable inputs that required significant judgment, such as the premium over
the MMD curve. These instruments are classified as Level III.
86
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Investments
The Company's investments valued at fair value include equity investments in private companies and partnerships.
Investments in private companies are valued based on an assessment of each underlying security, considering rounds of
financing, third party transactions and market-based information, including comparable company transactions, trading
multiples (e.g., multiples of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA")) and
changes in market outlook, among other factors. These securities are generally categorized as Level III.
Fair Value Option – The fair value option permits the irrevocable fair value option election on an instrument-by-
instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for
that instrument. The fair value option was elected for certain merchant banking and other investments at inception to reflect
economic events in earnings on a timely basis. Merchant banking and other equity investments of $1.8 million and
$2.1 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, 2020 and 2019, respectively. The realized and unrealized net
impact from fair value changes included in earnings as a result of electing to apply the fair value option to certain financial
assets were gains of $0.2 million, losses of $0.6 million and gains of $0.6 million for the years ended December 31, 2020,
2019 and 2018, respectively.
The following table summarizes quantitative information about the significant unobservable inputs used in the fair value
measurement of the Company's Level III financial instruments as of December 31, 2020:
Valuation
Technique
Unobservable Input
Range
Weighted
Average (1)
Assets
Financial instruments and other
inventory positions owned:
Derivative contracts:
Interest rate locks..................
Discounted cash flow
Investments at fair value:
Equity securities in private
companies.............................. Market approach
Premium over the MMD curve
in basis points ("bps") (2)
1 - 3 bps
1.8 bps
Revenue multiple (2)
EBITDA multiple (2)
3 - 5 times
4.1 times
9 - 20 times
15.8 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 - 8 bps
2.4 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.
87
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, 2020:
Level I
Level II
Level III
Counterparty
and Cash
Collateral
Netting (1)
Total
(Amounts in thousands)
Assets
Financial instruments and other
inventory positions owned:
Corporate securities:
Equity securities..............................
Convertible securities......................
Fixed income securities...................
Municipal securities:
Taxable securities............................
Tax-exempt securities......................
Short-term securities........................
Mortgage-backed securities...............
U.S. government agency securities...
U.S. government securities................
Derivative contracts...........................
Total financial instruments and other
inventory positions owned.................
$
$
330
—
—
1,019
146,088
18,432
$
—
—
—
—
—
100,275
—
6,267
67,944
28,592
—
9,146
—
232,846
100,605
510,334
—
—
—
—
—
—
13
—
—
270
283
—
$
$
—
—
—
1,349
146,088
18,432
—
—
—
—
—
—
(209,670)
6,267
67,944
28,592
13
9,146
100,275
23,446
(209,670)
401,552
—
468,091
Cash equivalents..................................
468,091
—
Investments at fair value......................
Total assets...........................................
16,496
585,192
$
5,358
515,692
$
152,995 (2)
$
153,278
—
174,849
(209,670) $ 1,044,492
$
Liabilities
Financial instruments and other
inventory positions sold, but not yet
purchased:
Corporate securities:
Equity securities..............................
Fixed income securities...................
U.S. government securities................
Derivative contracts...........................
Total financial instruments and other
inventory positions sold, but not yet
purchased............................................
$
$
$
102,013
—
21,669
—
3,177
18,789
—
223,737
—
—
—
3,706
$
$
—
—
—
(222,061)
105,190
18,789
21,669
5,382
$
123,682
$
245,703
$
3,706
$
(222,061) $
151,030
(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)
Includes noncontrolling interests of $96.7 million primarily attributable to unrelated third party ownership in consolidated merchant
banking funds.
88
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:
Level I
Level II
Level III
Counterparty
and Cash
Collateral
Netting (1)
Total
(Amounts in thousands)
Assets
Financial instruments and other
inventory positions owned:
Corporate securities:
Equity securities..............................
Convertible securities......................
Fixed income securities...................
Municipal securities:
Taxable securities............................
Tax-exempt securities......................
Short-term securities........................
Mortgage-backed securities...............
U.S. government agency securities...
U.S. government securities................
Derivative contracts...........................
Total financial instruments and other
inventory positions owned.................
$
$
469
—
—
$
2,577
146,406
28,176
—
—
—
—
—
77,303
—
22,570
222,192
67,901
—
51,773
—
209,119
77,772
750,714
—
—
—
—
—
—
13
—
—
8
21
—
$
$
—
—
—
3,046
146,406
28,176
—
—
—
—
—
—
(188,745)
22,570
222,192
67,901
13
51,773
77,303
20,382
(188,745)
639,762
—
226,744
Cash equivalents..................................
226,744
—
Investments at fair value......................
Total assets...........................................
17,658
322,174
$
—
750,714
$
132,329 (2)
$
132,350
—
149,987
(188,745) $ 1,016,493
$
Liabilities
Financial instruments and other
inventory positions sold, but not yet
purchased:
Corporate securities:
Equity securities..............................
Fixed income securities...................
U.S. government agency securities...
U.S. government securities................
Derivative contracts...........................
Total financial instruments and other
inventory positions sold, but not yet
purchased............................................
$
$
$
88,794
—
—
67,090
—
5,242
10,311
9,935
—
198,604
—
—
—
—
1,563
$
$
—
—
—
—
(196,114)
94,036
10,311
9,935
67,090
4,053
$
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)
Includes noncontrolling interests of $75.2 million primarily attributable to unrelated third party ownership in consolidated merchant
banking funds.
89
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The Company's Level III assets were $153.3 million and $132.4 million, or 14.7 percent and 13.0 percent of financial
instruments measured at fair value at December 31, 2020 and 2019, respectively. There were no significant transfers between
levels for the year ended December 31, 2020.
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:
Balance at
December 31,
Transfers
Transfers
gains/
gains/
December 31,
December 31,
Realized
Unrealized
Balance at
liabilities held at
(Amounts in thousands)
2019
Purchases
Sales
in
out
(losses)
(losses)
2020
2020
Unrealized gains/
(losses) for assets/
Assets
Financial instruments and
other inventory positions
owned:
Mortgage-backed
securities......................
Derivative contracts.......
Total financial instruments
and other inventory
positions owned...............
$
13 $
— $
— $ — $ — $
— $
— $
13 $
8
1,005
(535)
—
21
1,005
(535)
—
—
—
(470)
262
(470)
262
270
283
Investments at fair value....
132,329
16,133
(6,285)
—
(130)
(3,264)
14,212
152,995
Total assets........................
$
132,350 $ 17,138 $ (6,820) $ — $
(130) $
(3,734) $ 14,474 $
153,278 $
—
270
270
8,711
8,981
Liabilities
Financial instruments and
other inventory positions
sold, but not yet
purchased:
Derivative contracts.......
Total financial instruments
and other inventory
positions sold, but not yet
purchased.........................
$
1,563 $ (14,983) $
379 $ — $ — $ 14,604 $
2,143 $
3,706 $
3,706
$
1,563 $ (14,983) $
379 $ — $ — $ 14,604 $
2,143 $
3,706 $
3,706
90
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Balance at
December 31,
Transfers
Transfers
gains/
gains/
December 31,
December 31,
Realized
Unrealized
Balance at
liabilities held at
(Amounts in thousands)
2018
Purchases
Sales
in
out
(losses)
(losses)
2019
2019
Unrealized gains/
(losses) for assets/
Assets
Financial instruments and
other inventory positions
owned:
Mortgage-backed
securities......................
Derivative contracts.......
Total financial instruments
and other inventory
positions owned...............
$
15 $
229
— $
42
(796)
—
(6) $ — $ — $
—
—
(23) $
755
27 $
(222)
13 $
8
732
(195)
21
—
8
8
244
42
(802)
—
Investments at fair value....
Total assets........................
$
107,792
108,036 $ 23,666 $ (15,699) $ — $
(14,897)
23,624
—
(783)
(783) $
2,901
3,633 $ 13,497 $
13,692
132,329
132,350 $
16,105
16,113
Liabilities
Financial instruments and
other inventory positions
sold, but not yet
purchased:
Derivative contracts.......
Total financial instruments
and other inventory
positions sold, but not yet
purchased.........................
$
4,202 $ (16,311) $
— $ — $ — $ 16,311 $
(2,639) $
1,563 $
1,563
$
4,202 $ (16,311) $
— $ — $ — $ 16,311 $
(2,639) $
1,563 $
1,563
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- and long-term financings approximate fair value due to either 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 and limited liability
companies. These entities were established for the purpose of investing in securities of public or private companies, or
municipal debt obligations, 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.
91
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Consolidated VIEs
The Company's consolidated VIEs at December 31, 2020 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, 2020. The
assets can only be used to settle the liabilities of the respective VIE, and the creditors of the VIEs do not have recourse to the
general credit of the Company. One of these VIEs has $25.0 million of bank line financing available with an interest rate
based on prime plus an applicable margin. The assets and liabilities are presented prior to consolidation, and thus a portion of
these assets and liabilities are eliminated in consolidation.
(Amounts in thousands)
Assets
Investments..........................................................................................................................................
Other assets..........................................................................................................................................
Total assets..............................................................................................................................................
Liabilities
Other liabilities and accrued expenses.................................................................................................
Total liabilities........................................................................................................................................
Alternative Asset
Management Funds
$
$
$
$
150,879
5,905
156,784
2,593
2,593
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 $1.8 billion and $0.3 billion at December 31, 2020 and 2019, respectively. The
Company's exposure to loss from these VIEs is $7.8 million, which is the carrying value of its capital contributions recorded
in investments on the consolidated statements of financial condition at December 31, 2020. The Company had no liabilities
related to these VIEs at December 31, 2020 and 2019. Furthermore, the Company has not provided financial or other support
to these VIEs that it was not previously contractually required to provide as of December 31, 2020.
92
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 9 Receivables from and Payables to Brokers, Dealers and Clearing Organizations
(Amounts in thousands)
Receivable from clearing organizations.....................................................................
Receivable from brokers and dealers..........................................................................
Other...........................................................................................................................
Total receivables from brokers, dealers and clearing organizations........................
(Amounts in thousands)
Payable to brokers and dealers....................................................................................
Total payables to brokers, dealers and clearing organizations.................................
December 31,
2020
December 31,
2019
$
$
184,662
33,514
3,315
221,491
$
$
260,436
19,161
3,511
283,108
December 31,
2020
December 31,
2019
$
$
18,591
18,591
$
$
7,514
7,514
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 LLC ("Pershing"). The Company has also established an arrangement to
obtain financing from Pershing related to the majority of its trading activities. Financing under this arrangement is secured
primarily by securities, and collateral limitations could reduce the amount of funding available under this arrangement. The
funding is at the discretion of Pershing and could be denied. The Company's clearing arrangement activities are recorded net
from trading activity. The Company's fully disclosed clearing agreement includes a covenant requiring Piper Sandler to
maintain excess net capital of $120 million.
Note 10 Investments
The Company's investments include investments in private companies and partnerships.
(Amounts in thousands)
Investments at fair value.............................................................................................
Investments at cost......................................................................................................
Investments accounted for under the equity method..................................................
Total investments.....................................................................................................
Less investments attributable to noncontrolling interests (1).....................................
December 31,
2020
December 31,
2019
$
$
$
174,849
611
7,719
183,179
149,987
1,084
7,070
158,141
(96,657)
86,522
$
(75,245)
82,896
(1) Noncontrolling interests are primarily attributable to unrelated third party ownership in consolidated merchant banking funds.
At December 31, 2020, investments carried on a cost basis had an estimated fair market value of $0.6 million. Because
valuation estimates were based upon management's judgment, investments carried at cost would be categorized as Level III
assets in the fair value hierarchy, if they were carried at fair value.
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.
93
$
$
$
$
$
$
$
$
18,574
2,977
5,227
10,687
2,658
15,317
55,440
81,855
5,794
87,649
139,859
227,508
4,284
16,700
(4,298)
16,686
177,900
(44,728)
149,858
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 11 Other Assets
(Amounts in thousands)
Fee receivables............................................................................................................
Accrued interest receivables.......................................................................................
Forgivable loans, net...................................................................................................
Prepaid expenses.........................................................................................................
Income tax receivables................................................................................................
Other...........................................................................................................................
Total other assets......................................................................................................
$
$
38,840
1,474
5,526
14,585
—
14,618
75,043
December 31,
2020
December 31,
2019
Note 12 Goodwill and Intangible Assets
(Amounts in thousands)
Goodwill
Balance at December 31, 2018 ..................................................................................................................
Goodwill acquired .......................................................................................................................................
Balance at December 31, 2019 ..................................................................................................................
Goodwill acquired .......................................................................................................................................
Balance at December 31, 2020 ..................................................................................................................
Intangible assets
Balance at December 31, 2018 ..................................................................................................................
Intangible assets acquired ............................................................................................................................
Amortization of intangible assets ................................................................................................................
Balance at December 31, 2019 ..................................................................................................................
Intangible assets acquired ............................................................................................................................
Amortization of intangible assets ................................................................................................................
Balance at December 31, 2020 ..................................................................................................................
As discussed in Note 4, the addition of goodwill and intangible assets during the year ended December 31, 2020 related
to the acquisitions of Sandler O'Neill, Valence and TRS. Management identified $157.8 million of intangible assets related to
the acquisition of Sandler O'Neill, consisting of customer relationships of $72.4 million and the Sandler trade name of
$85.4 million. The customer relationships will be amortized over a weighted average life of 2.4 years. The Sandler trade
name is an indefinite-lived intangible asset and will not be subject to amortization. Management identified $14.8 million of
customer relationship intangible assets related to the acquisition of Valence, which will be amortized over a weighted average
life of 1.4 years. Management also identified $5.3 million of customer relationship intangible assets related to the acquisition
of TRS, which will be amortized over one year. The addition of goodwill and intangible assets during the year ended
December 31, 2019 related to the acquisition of Weeden & Co. 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 are being
amortized over a weighted average life of 8.4 years and 3.6 years, respectively.
94
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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:
(Amounts in thousands)
2021..............................................................................................................................................................
2022..............................................................................................................................................................
2023..............................................................................................................................................................
2024..............................................................................................................................................................
2025..............................................................................................................................................................
Thereafter.....................................................................................................................................................
Total...........................................................................................................................................................
$
$
30,080
9,344
7,442
6,292
5,302
5,998
64,458
The Company performed its annual goodwill impairment testing as of October 31, 2020, which resulted in no
impairment. The annual goodwill impairment testing for 2019 and 2018 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 2020, 2019 and 2018
associated with the Capital Markets reporting unit.
Note 13 Fixed Assets
(Amounts in thousands)
Furniture and equipment.............................................................................................
Leasehold improvements............................................................................................
Software......................................................................................................................
Total.........................................................................................................................
Accumulated depreciation and amortization..............................................................
December 31,
2020
December 31,
2019
$
$
50,971
55,510
12,214
118,695
(74,883)
43,812
$
$
44,018
39,714
12,109
95,841
(65,991)
29,850
For the years ended December 31, 2020, 2019 and 2018, depreciation and amortization of furniture and equipment,
leasehold improvements and software totaled $10.7 million, $9.3 million and $8.1 million, respectively, and are included in
occupancy and equipment expense from continuing operations on the consolidated statements of operations.
Note 14 Short-Term Financing
(Amounts in thousands)
Commercial paper....................................
Total short-term financing.....................
Outstanding Balance
December 31,
2020
December 31,
2019
Weighted Average Interest Rate
December 31,
December 31,
2019
2020
$
$
—
—
$
$
49,978
49,978
— %
2.69 %
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 the CP Series II A program, and are secured by different inventory classes. 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. At December 31,
2020, the CP Series II A program had no outstanding balance. The Company retired the CP Series A program on January 2,
2020.
95
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The Company has an unsecured $50 million revolving credit facility with U.S. Bank, N.A. The credit agreement will
terminate on December 20, 2022, unless otherwise terminated, and is subject to a one-year extension exercisable at the option
of the Company. This credit facility includes customary events of default and covenants that, among other things, requires the
Company's U.S. broker dealer subsidiary to maintain a minimum regulatory net capital of $120 million, limits the Company's
leverage ratio, requires maintenance of a minimum ratio of operating cash flow to fixed charges, and imposes certain
limitations on the Company's ability to make acquisitions and make payments on its capital stock. At December 31, 2020,
there were no advances against this credit facility. In January 2021, the Company increased this credit facility from
$50 million to $65 million.
The Company's committed short-term bank line financing at December 31, 2020 consisted of a one-year $100 million
committed revolving credit facility with U.S. Bank, N.A., which has been renewed annually in the fourth quarter of each year
since 2008. 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 10, 2021. The Company pays a
nonrefundable commitment fee on the unused portion of the facility on a quarterly basis. At December 31, 2020, the
Company had no advances against this line of credit.
Note 15 Long-Term Financing
On October 15, 2019, the Company entered into a 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.
On April 3, 2020, the Company entered into unsecured promissory notes as part of the acquisition of Valence totaling
$20 million. The Valence Notes bear interest at an annual fixed rate of 5.0 percent and mature on October 15, 2021. Interest
is payable quarterly in arrears. The Valence Notes were repaid in early 2021.
Long-term financing arrangements are recorded at amortized cost which approximates fair value at December 31, 2020.
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, settlements, 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, 2020 are not material. In many cases, however, it is inherently difficult to determine
whether any loss is probable or even possible or to estimate the amount or range of any potential loss, particularly where
proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters
frequently need to be more developed before a loss or range of loss can reasonably be estimated.
96
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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, 2020, 2019 and 2018.
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, 2020 were as follows:
(Amounts in thousands)
2021................................................................................................................................................................
2022................................................................................................................................................................
2023................................................................................................................................................................
2024................................................................................................................................................................
2025................................................................................................................................................................
Thereafter.......................................................................................................................................................
Total.............................................................................................................................................................
$
$
24,345
22,589
18,421
16,185
14,060
22,471
118,071
Total minimum rentals to be received from 2021 through 2024 under noncancelable subleases were $1.5 million at
December 31, 2020.
The following table summarizes the Company's operating lease costs and sublease income from continuing operations
subsequent to the adoption of ASU No. 2016-02, "Leases (Topic 842)" on January 1, 2019:
(Amounts in millions)
Operating lease costs.........................................................................................................
Operating lease costs related to short-term leases.............................................................
Sublease income................................................................................................................
$
Year Ended December 31,
2020
2019
21.9 $
0.8
1.8
12.1
0.7
1.6
At December 31, 2020, the weighted average remaining lease term for operating leases was 5.6 years and the weighted
average discount rate was 4.0 percent.
Investment Commitments
As of December 31, 2020, the Company had commitments to invest approximately $66.0 million in limited partnerships
or limited liability companies that make direct or indirect equity or debt investments in companies.
97
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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.
Note 17 Restructuring and Integration Costs
The Company incurred restructuring and integration costs from continuing operations for the year ended December 31,
2020, primarily in conjunction with its acquisition of Sandler O'Neill, which closed on January 3, 2020, its acquisition of
Valence, which closed on April 3, 2020, and its acquisition of TRS, which closed on December 31, 2020. The Company
incurred restructuring and integration costs from continuing operations for the year ended December 31, 2019, primarily in
conjunction with its acquisition of Weeden & Co., which closed on August 2, 2019, and the pending acquisition of Sandler
O'Neill. The Company incurred restructuring costs from continuing operations for the year ended December 31, 2018,
primarily related to headcount reductions.
(Amounts in thousands)
Severance, benefits and outplacement...............................................
Contract termination..........................................................................
Vacated leased office space...............................................................
Total restructuring costs..................................................................
$
Integration costs..............................................................................
Year Ended December 31,
2019
2018
2020
$
3,032
891
2,481
6,404
4,351
$
2,938
2,798
1,726
7,462
6,859
3,183
185
130
3,498
—
Total restructuring and integration costs...........................................
$
10,755
$
14,321
$
3,498
98
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 2020, the Company declared and paid quarterly cash dividends on its common stock, aggregating $1.25 per share, and
an annual special cash dividend on its common stock related to fiscal year 2019 results of $0.75 per share, totaling
$28.2 million.
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.
On February 4, 2021, the board of directors declared both a quarterly and annual special cash dividend on its common
stock of $0.40 and $1.85 per share, respectively, to be paid on March 12, 2021, to shareholders of record as of the close of
business on March 3, 2021.
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.
99
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Share Repurchases
Effective January 1, 2020, the Company's board of directors authorized the repurchase of up to $150.0 million in
common shares through December 31, 2021. In 2020, the Company repurchased 188,319 shares at an average price of $69.72
per share for an aggregate purchase price of $13.1 million related to this authorization. The Company has $136.9 million
remaining under this authorization.
Effective September 30, 2017, the Company's board of directors authorized the repurchase of up to $150.0 million in
common shares, 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.
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 105,193 shares or $8.8 million;
701,217 shares or $50.6 million; and 279,664 shares or $23.8 million of the Company's common stock for these purposes
during the years ended December 31, 2020, 2019 and 2018, 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, 2020, 2019 and 2018, the Company issued
309,089 shares, 1,415,147 shares and 1,040,015 shares, respectively, related to these obligations. During the year ended
December 31, 2020, the Company also issued 34,205 common shares out of treasury stock for Sandler O'Neill deal
consideration, as discussed in Note 4.
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 primarily represent the minority equity holders' proportionate share of the equity in the Company's
merchant banking funds.
Ownership interests in entities held by parties other than the Company's common shareholders are presented as
noncontrolling interests within shareholders' equity, separate from the Company's own equity. Revenues, expenses and net
income or loss are reported on the consolidated statements of operations on a consolidated basis, which includes amounts
attributable to both the Company's common shareholders and noncontrolling interests. Net income or loss is then allocated
between the Company and noncontrolling interests based upon their relative ownership interests. Net income applicable to
noncontrolling interests is deducted from consolidated net income to determine net income applicable to the Company. There
was no other comprehensive income or loss attributed to noncontrolling interests for the years ended December 31, 2020,
2019 and 2018.
100
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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, 2020, 2019 and 2018, the Company incurred employee benefits expenses from continuing operations of
$25.5 million, $18.4 million and $18.1 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, 2020, 2019 and 2018, the Company recognized expense of $14.7 million, $10.6 million
and $10.7 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.
101
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 "2019 Inducement
Plan") and the 2020 Employment Inducement Award Plan (the "2020 Inducement Plan"). The Company's equity awards are
recognized on the consolidated statements of operations at grant date fair value over the service period of the award, less
forfeitures.
The following table provides a summary of the Company's outstanding equity awards (in shares or units) as of
December 31, 2020:
Incentive Plan
Restricted Stock
Annual grants.............................................................................................................................................
Sign-on grants............................................................................................................................................
456,066
103,405
559,471
2019 Inducement Plan
Restricted Stock ........................................................................................................................................
97,100
2020 Inducement Plan
Restricted Stock ........................................................................................................................................
1,328,301
Total restricted stock related to compensation .........................................................................................
1,984,872
Deal Consideration (1) ................................................................................................................................
2,327,685
Total restricted stock outstanding .............................................................................................................
4,312,557
Incentive Plan
Restricted Stock Units
Leadership grants.......................................................................................................................................
146,048
Incentive Plan
Stock Options ............................................................................................................................................
81,667
(1) The Company issued restricted stock with service conditions as part of deal consideration for the acquisitions of Sandler
O'Neill, Valence and TRS. See Note 4 for further discussion.
Incentive Plan
The Incentive Plan permits the grant of equity awards, including restricted stock, restricted stock units and non-qualified
stock options, to the Company's employees and directors for up to 9.4 million shares of common stock (1.7 million shares
remained available for future issuance under the Incentive Plan as of December 31, 2020). The Company believes that such
awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool.
The Incentive Plan provides for accelerated vesting of awards if there is a severance event, a change in control of the
Company (as defined in the Incentive Plan), in the event of a participant's death, and at the discretion of the compensation
committee of the Company's board of directors.
102
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 2020 for its February 2021 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.
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.
103
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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, 2020, the Company
has determined that the probability of achieving the performance condition for each award is as follows:
Grant Year
2020...........................................................................................................................................
2019...........................................................................................................................................
2018...........................................................................................................................................
Probability of Achieving
Performance Condition
75%
75%
57%
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:
Grant Year
2020...............................................................................................................................
2019...............................................................................................................................
2018...............................................................................................................................
2017...............................................................................................................................
Risk-free
Interest Rate
1.40%
2.50%
2.40%
1.62%
Expected Stock
Price Volatility
27.3%
31.9%
34.8%
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.
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.
104
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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:
Grant Year
2016...............................................................................................................................
Risk-free
Interest Rate
0.98%
Expected Stock
Price Volatility
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 10 percent. These options are subject
to graded vesting, beginning on the third anniversary of the grant date, so long as the employee remains continuously
employed by the Company. The maximum term of these stock options is ten years.
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....................................................................................................................................
Dividend yield...............................................................................................................................................
Expected stock price volatility......................................................................................................................
Expected life of options (in years)................................................................................................................
Fair value of options granted (per share).......................................................................................................
$
2.82 %
3.22 %
37.20 %
7.0
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
Inducement plan awards are amortized as compensation expense on a straight-line basis over each respective vesting
period. Employees forfeit unvested shares upon termination of employment and a reversal of compensation expense is
recorded.
The Company established the 2016 Employment Inducement Award Plan (the "2016 Inducement Plan") in conjunction
with the acquisition of Simmons & Company International ("Simmons"). The Company granted $11.6 million (286,776
shares) in restricted stock under the 2016 Inducement Plan on May 16, 2016. All outstanding shares cliff vested on May 16,
2019 and the 2016 Inducement Plan was terminated in July 2019.
The Company established the 2019 Inducement Plan in conjunction with its acquisition of Weeden & Co. On August 2,
2019, the Company granted $7.3 million (97,752 shares) in restricted stock. These restricted shares are subject to graded
vesting, generally beginning on the third anniversary of the grant date through August 2, 2023.
105
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The Company established the 2020 Inducement Plan in conjunction with its acquisition of Sandler O'Neill. On January 3,
2020, the Company granted $96.9 million (1,217,423 shares) in restricted stock. These restricted shares have both cliff and
graded vesting terms with vesting periods of 18 months, three years or five years (with a weighted average service period of
3.7 years). On April 3, 2020, the Company granted $5.5 million (114,000 shares) in restricted stock under the 2020
Inducement Plan in conjunction with its acquisition of Valence. These restricted shares are subject to graded vesting,
generally beginning on the third anniversary of the grant date through April 3, 2025. On December 31, 2020, the Company
granted $2.9 million (29,194 shares) in restricted stock under the 2020 Inducement Plan in conjunction with its acquisition of
TRS. These restricted shares are subject to ratable vesting over a three-year vesting period.
Stock-Based Compensation Activity
The following table summarizes the Company's stock-based compensation activity within continuing operations:
(Amounts in millions)
Stock-based compensation expense....................................................
Forfeitures...........................................................................................
Tax benefit related to stock-based compensation expense..................
$
Year Ended December 31,
2019
2020
2018
120.8 $
2.3
15.6
30.8 $
2.6
5.4
43.2
0.9
6.9
The following table summarizes the changes in the Company's unvested restricted stock:
Unvested
Restricted Stock
(in Shares)
Weighted Average
Grant Date
Fair Value
December 31, 2017 ..........................................................................................
Granted...............................................................................................................
Vested................................................................................................................
Canceled.............................................................................................................
December 31, 2018 ..........................................................................................
Granted...............................................................................................................
Vested................................................................................................................
Canceled.............................................................................................................
December 31, 2019 ..........................................................................................
Granted...............................................................................................................
Vested................................................................................................................
Canceled.............................................................................................................
December 31, 2020 ..........................................................................................
2,225,617
310,494
(945,550)
(20,766)
1,569,795
463,088
(1,306,844)
(31,814)
694,225
3,968,340
(283,934)
(66,074)
4,312,557
$
$
$
$
46.40
88.18
47.65
54.53
53.80
74.05
47.30
76.20
78.52
74.82
80.64
77.68
74.99
The fair value of restricted stock that vested during the years ended December 31, 2020, 2019 and 2018 was
$22.9 million, $61.8 million and $45.1 million, respectively.
106
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The following table summarizes the changes in the Company's unvested restricted stock units:
December 31, 2017 ..........................................................................................
Granted ..............................................................................................................
Vested ...............................................................................................................
Canceled ............................................................................................................
December 31, 2018 ..........................................................................................
Granted ..............................................................................................................
Vested ...............................................................................................................
Canceled ............................................................................................................
December 31, 2019 ..........................................................................................
Granted ..............................................................................................................
Vested ...............................................................................................................
Canceled ............................................................................................................
December 31, 2020 ..........................................................................................
Unvested
Restricted
Stock Units
Weighted Average
Grant Date
Fair Value
244,772
53,796
(86,511)
(17,806)
194,251
39,758
(103,707)
(15,987)
114,315
56,066
(18,255)
(6,078)
146,048
$
$
$
$
27.89
92.93
21.83
23.91
48.97
75.78
19.93
45.79
85.09
86.01
84.10
84.10
85.60
As of December 31, 2020, there was $210.4 million of total unrecognized compensation cost related to restricted stock
and restricted stock units expected to be recognized over a weighted average period of 3.0 years.
The following table summarizes the changes in the Company's outstanding stock options:
December 31, 2017 .................................
Granted .....................................................
Exercised ..................................................
Canceled ...................................................
Expired .....................................................
December 31, 2018 .................................
Granted .....................................................
Exercised ..................................................
Canceled ...................................................
Expired .....................................................
December 31, 2019 .................................
Granted .....................................................
Exercised ..................................................
Canceled ...................................................
Expired .....................................................
December 31, 2020 .................................
Options
Outstanding
—
81,667
—
—
—
81,667
—
—
—
—
81,667
—
—
—
—
81,667
$
Weighted
Average
Exercise Price
—
$
99.00
—
—
—
99.00
—
—
—
—
99.00
—
—
—
—
99.00
$
$
Weighted Average
Remaining
Contractual Term
(in Years)
—
Aggregate
Intrinsic Value
—
$
9.1
8.1
$
$
—
—
7.1
$
155,167
As of December 31, 2020, there was $0.8 million of unrecognized compensation cost related to stock options expected to
be recognized over a weighted average period of 2.1 years. There were no exercisable options during the years ended
December 31, 2020, 2019 and 2018.
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 2021, 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.
107
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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 allowed eligible
employees to receive a portion of their incentive compensation in restricted mutual fund shares ("MFRS Awards") of
investment funds. MFRS Awards are awarded to qualifying employees in February of each year, and represent a portion of
their compensation for performance in the preceding year similar to the Company's Annual Grants. MFRS Awards vest
ratably over three years in equal installments and provide for continued vesting after termination of employment so long as
the employee does not violate certain post-termination restrictions set forth in the award agreement or any agreement entered
into upon termination. Forfeitures are recorded as a reduction of compensation and benefits expense within the consolidated
statements of operations. MFRS Awards are owned by employee recipients (subject to aforementioned vesting restrictions)
and as such are not included on the consolidated statements of financial condition.
The Company recorded compensation expense from continuing operations of $77.2 million, $45.5 million and
$50.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to employee MFRS Awards, less
forfeitures. Forfeitures were $5.8 million, $3.3 million and $1.6 million for the years ended December 31, 2020, 2019 and
2018, respectively.
The nonqualified deferred compensation plan is an unfunded plan which allows certain highly compensated employees,
at their election, to defer a portion of their compensation. 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 $16.3 million and $16.7 million as of
December 31, 2020 and 2019, respectively, and are included in investments on the consolidated statements of financial
condition. A corresponding deferred compensation liability is included in accrued compensation on the consolidated
statements of financial condition. The compensation deferred by the employees was expensed in the period earned. Changes
in the fair value of the investments made by the Company are reported in investment income and changes in the
corresponding deferred compensation liability are reflected as compensation and benefits expense on the consolidated
statements of operations.
The Company entered into acquisition-related compensation arrangements with certain employees for retention and
incentive purposes in conjunction with its acquisition of Simmons. Additional cash compensation was available to certain
employees subject to exceeding an investment banking revenue threshold during the three-year Simmons post-acquisition
period, which ended on February 26, 2019. The Company accrued $40.1 million related to this performance award plan,
which was paid in August 2019. Amounts payable related to this performance award plan were recorded as compensation
expense from continuing operations on the consolidated statements of operations over the requisite performance period of
three years. The Company recorded $0.6 million and $8.9 million as compensation expense from continuing operations for
the years ended December 31, 2019 and 2018, respectively.
108
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 21 Earnings Per Share ("EPS")
Basic earnings per common share is computed by dividing net income applicable to Piper Sandler Companies' common
shareholders by the weighted average number of common shares outstanding for the period. For periods prior to 2020, the
Company calculated EPS using the two-class method. Net income applicable to Piper Sandler Companies' common
shareholders represented net income applicable to Piper Sandler Companies reduced by the allocation of earnings to
participating securities. No allocation of undistributed earnings was made for periods in which a loss was incurred, or for
periods in which cash dividends exceeded net income resulting in an undistributed loss. Distributed earnings (e.g., dividends)
were allocated to participating securities. Prior to the February 2019 Annual Grant (the "2019 Annual Grant"), all of the
Company's restricted shares were deemed to be participating securities as they were eligible to share in the profits (e.g.,
receive dividends) of the Company. The Company's restricted stock units, as well as restricted stock grants issued in 2019
and subsequent periods, 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.
The computation of EPS is as follows:
(Amounts in thousands, except per share data)
Net income from continuing operations applicable to
$
Piper Sandler Companies.........................................................
Net income from discontinued operations...............................
Net income applicable to Piper Sandler Companies..................
Earnings allocated to participating securities..........................
Net income applicable to Piper Sandler Companies' common
shareholders..............................................................................
$
Shares for basic and diluted calculations:
Average shares used in basic computation..............................
Restricted stock units...............................................................
Non-participating restricted shares..........................................
Average shares used in diluted computation..............................
Earnings per basic common share:
Income from continuing operations........................................
Income from discontinued operations.....................................
Earnings per basic common share.........................................
Earnings per diluted common share:
Income from continuing operations........................................
Income from discontinued operations.....................................
Earnings per diluted common share......................................
$
$
$
$
Year Ended December 31,
2019
2018
2020
40,504
$
87,939
$
55,649
—
40,504
—
23,772
111,711
(4,511) (1)
1,387
57,036
(7,043) (1)
40,504
$
107,200
(2) $
49,993
(2)
13,781
135
985
14,901
2.94
—
2.94
2.72
—
2.72
$
$
$
$
13,555
162
220
13,937
6.21
1.69
7.90
6.05
1.65
7.69
$
$
$
$
13,234
191
—
13,425
3.68
0.09
3.78
3.63
0.09
3.72
(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 and 1,868,883 for the years ended December 31, 2019 and 2018, respectively.
(2) Net income 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.
109
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The average shares used in the diluted computation excluded anti-dilutive stock options and non-participating restricted
shares of 1.7 million and 0.1 million for the years ended December 31, 2020 and 2019, respectively. The anti-dilutive effects
from stock options, restricted stock units and non-participating restricted shares were immaterial for the year ended
December 31, 2018.
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.
Reportable financial results from continuing operations are as follows:
(Amounts in thousands)
Capital Markets
Year Ended December 31,
2019
2018
2020
Investment banking
Advisory services........................................................................
Corporate financing.....................................................................
Municipal financing....................................................................
Total investment banking..............................................................
$
$
443,327
295,333
119,816
858,476
Institutional brokerage
Equity brokerage.........................................................................
Fixed income services.................................................................
Total institutional brokerage.........................................................
Interest income..............................................................................
Investment income.........................................................................
161,445
196,308
357,753
13,164
23,265
440,695
105,256
83,441
629,392
87,555
80,336
167,891
26,741
22,275
$
394,133
123,072
71,773
588,978
77,110
47,628
124,738
32,749
11,039
Total revenues...............................................................................
1,252,658
846,299
757,504
Interest expense.............................................................................
14,445
11,733
16,551
Net revenues..................................................................................
1,238,213
834,566
740,953
Non-interest expenses (1)..............................................................
1,169,665
715,587
668,464
Pre-tax income..............................................................................
$
68,548
$
118,979
$
72,489
Pre-tax margin...............................................................................
5.5 %
14.3 %
9.8 %
(1) Non-interest expenses include intangible asset amortization of $44.7 million, $4.3 million and $4.9 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
110
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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, 2020, net capital calculated under the SEC rule was $212.9 million, and exceeded the minimum net
capital required under the SEC rule by $211.9 million.
The Company's committed short-term credit facility, revolving credit facility and its 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 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, 2020, 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, 2020, 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.
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was enacted by the U.S. federal
government on March 27, 2020 in response to the COVID-19 pandemic, contains tax provisions allowing a five-year carry
back of any net operating losses incurred during federal tax years 2018, 2019 and 2020, to periods when the corporate federal
tax rate was 35 percent. ASC 740 requires companies to recognize the effect of tax law changes in the period of enactment.
For the year ended December 31, 2020, the Company recorded $2.4 million of income tax benefits related to the tax
provisions in the CARES Act.
SEC Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB
118") permitted companies to report a provisional amount in the financial statements if the accounting for income tax effects
of the Tax Cuts and Jobs Act was incomplete as of December 31, 2017. This provisional amount would be subject to
adjustment during a defined measurement period. Pursuant to SAB 118, the Company recorded an additional $1.0 million of
income tax expense from continuing operations for the year ended December 31, 2018.
111
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
The components of income tax expense from continuing operations are as follows:
(Amounts in thousands)
Current:
Federal....................................................................................
State........................................................................................
Foreign....................................................................................
$
Deferred:
Federal....................................................................................
State........................................................................................
Foreign....................................................................................
Total income tax expense from continuing operations..............
Total income tax expense from discontinued operations..........
$
$
2020
Year Ended December 31,
2019
2018
43,445
14,551
150
58,146
(27,995)
(10,510)
(449)
(38,954)
19,192
—
$
$
$
(404) $
123
96
(185)
19,071
5,517
174
24,762
24,577
8,370
$
$
16,351
4,784
276
21,411
(7,326)
(524)
4,485
(3,365)
18,046
1,001
A reconciliation of federal income taxes from continuing operations at statutory rates to the Company's effective tax rates
is as follows:
(Amounts in thousands)
Federal income tax expense at statutory rates...........................
Increase/(reduction) in taxes resulting from:
Impact of the CARES Act......................................................
Impact of the Tax Cuts and Jobs Act......................................
State income taxes, net of federal tax benefit.........................
Net tax-exempt interest income..............................................
Foreign jurisdictions tax rate differential................................
Non-deductible compensation................................................
Change in valuation allowance...............................................
Vestings of stock awards........................................................
Loss/(income) attributable to noncontrolling interests...........
Other, net................................................................................
Total income tax expense from continuing operations..............
2020
Year Ended December 31,
2019
2018
$
14,395
$
24,986
$
15,223
(2,438)
—
4,396
(1,661)
48
6,163
446
(337)
(1,859)
39
19,192
$
—
—
4,906
(1,643)
(438)
3,293
(209)
(5,171)
(1,357)
210
24,577
$
—
952
3,390
(3,034)
1,067
1,999
5,299
(7,052)
253
(51)
18,046
$
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, 2020, 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.
112
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
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:
(Amounts in thousands)
Deferred tax assets:
December 31,
2020
December 31,
2019
Deferred compensation............................................................................................
Accrued lease liability..............................................................................................
Goodwill tax basis in excess of book basis..............................................................
Net operating loss carryforwards.............................................................................
Liabilities/accruals not currently deductible............................................................
Other.........................................................................................................................
Total deferred tax assets.........................................................................................
Valuation allowance...............................................................................................
$
$
78,155
24,067
30,174
4,665
1,357
2,478
140,896
(5,045)
54,969
13,531
11,059
4,965
1,530
3,852
89,906
(4,599)
Deferred tax assets after valuation allowance.....................................................
135,851
85,307
Deferred tax liabilities:
Right-of-use lease asset............................................................................................
Unrealized gains on firm investments......................................................................
Fixed assets..............................................................................................................
Other.........................................................................................................................
Total deferred tax liabilities...................................................................................
19,759
5,610
5,686
577
31,632
9,289
3,988
3,408
587
17,272
Net deferred tax assets................................................................................................
$
104,219
$
68,035
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 $5.0 million in state and foreign net operating loss
carryforwards.
113
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:
(Amounts in thousands)
Balance at December 31, 2017 ..................................................................................................................
Additions based on tax positions related to the current year ......................................................................
Additions for tax positions of prior years ...................................................................................................
Reductions for tax positions of prior years .................................................................................................
Settlements ..................................................................................................................................................
Balance at December 31, 2018 ..................................................................................................................
Additions based on tax positions related to the current year ......................................................................
Additions for tax positions of prior years ...................................................................................................
Reductions for tax positions of prior years .................................................................................................
Settlements ..................................................................................................................................................
Balance at December 31, 2019 ..................................................................................................................
Additions based on tax positions related to the current year ......................................................................
Additions for tax positions of prior years ...................................................................................................
Reductions for tax positions of prior years .................................................................................................
Settlements ..................................................................................................................................................
Balance at December 31, 2020 ..................................................................................................................
$
$
$
$
166
608
—
—
—
774
—
4,128
(358)
(285)
4,259
—
—
(3,212)
(943)
104
As of December 31, 2020, approximately $0.1 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. In 2020, the Company reversed $3.2 million of this liability and corresponding
indemnification asset and deferred tax asset as a measurement period adjustment and paid a settlement of $0.9 million, for
which the Company was indemnified.
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, 2020 or 2018. 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 2017 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.
114
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Note 25 Parent Company only and PSLS
Parent Company only
Condensed Statements of Financial Condition
(Amounts in thousands)
Assets
December 31,
2020
December 31,
2019
Cash and cash equivalents........................................................................................
Investment in and advances to subsidiaries.............................................................
Other assets..............................................................................................................
Total assets.............................................................................................................
Liabilities and Shareholders' Equity
Long-term financing.................................................................................................
Accrued compensation.............................................................................................
Other liabilities and accrued expenses.....................................................................
Total liabilities........................................................................................................
$
$
$
$
$
$
200
1,066,069
9,311
1,075,580
195,000
47,647
3,508
246,155
Shareholders' equity.................................................................................................
Total liabilities and shareholders' equity................................................................
$
829,425
1,075,580
$
200
931,444
16,878
948,522
175,000
30,336
11,903
217,239
731,283
948,522
115
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Condensed Statements of Operations
(Amounts in thousands)
Revenues:
2020
Year Ended December 31,
2019
2018
Dividends from subsidiaries...................................................
Interest income........................................................................
Investment income/(loss)........................................................
Total revenues.......................................................................
$
Interest expense.......................................................................
Net revenues..........................................................................
$
42,450
829
1,565
44,844
10,568
34,276
$
54,762
815
2,012
57,589
1,910
74,896
1,247
(496)
75,647
4,902
55,679
70,745
Non-interest expenses:
Total non-interest expenses...................................................
2,049
4,851
5,844
Income from continuing operations before income tax
expense and equity in income of subsidiaries .....................
32,227
50,828
64,901
Income tax expense.................................................................
Income from continuing operations of parent company .....
Equity in undistributed income of subsidiaries.......................
8,186
24,041
16,463
11,215
39,613
99,005
10,833
54,068
5,469
Net income from continuing operations ...............................
40,504
138,618
59,537
Discontinued operations:
Loss from discontinued operations, net of tax........................
—
(26,907)
(2,501)
Net income applicable to Piper Sandler Companies ...........
$
40,504
$
111,711
$
57,036
116
Piper Sandler Companies
Notes to the Consolidated Financial Statements – Continued
Condensed Statements of Cash Flows
(Amounts in thousands)
Operating Activities:
Net income..............................................................................
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock-based compensation....................................................
Equity in undistributed income of subsidiaries.....................
Year Ended December 31,
2019
2020
2018
$
40,504
$
111,711
$
57,036
525
(16,463)
643
(99,005)
404
(5,469)
Net cash provided by operating activities.............................
24,566
13,349
51,971
Financing Activities:
Issuance of senior notes..........................................................
Repayment of senior notes......................................................
Advances from/(to) subsidiaries.............................................
Repurchase of common stock.................................................
Payment of cash dividend.......................................................
—
—
25,571
(21,965)
(28,172)
175,000
—
(102,225)
(50,584)
(35,594)
—
(125,000)
188,995
(70,903)
(47,157)
Net cash used in financing activities.....................................
(24,566)
(13,403)
(54,065)
Net decrease in cash and cash equivalents................................
Cash and cash equivalents at beginning of year........................
—
200
(54)
254
(2,094)
2,348
Cash and cash equivalents at end of year..................................
$
200
$
200
$
254
PSLS
Condensed Statement of Financial Condition
(Amounts in thousands)
Assets
December 31,
2020
Cash and cash equivalents.........................................................................................................................
Right-of-use lease asset.............................................................................................................................
Fee receivables..........................................................................................................................................
Prepaid expenses.......................................................................................................................................
Other assets................................................................................................................................................
Total assets..............................................................................................................................................
Liabilities and Shareholder's Equity
Accrued compensation..............................................................................................................................
Accrued lease liability...............................................................................................................................
Other liabilities and accrued expenses......................................................................................................
Total liabilities.........................................................................................................................................
$
$
$
Shareholder's equity..................................................................................................................................
Total liabilities and shareholder's equity.................................................................................................
$
3,103
1,633
506
121
629
5,992
1,209
1,633
575
3,417
2,575
5,992
117
Piper Sandler Companies
Supplementary Data
Quarterly Information (unaudited)
(Amounts in thousands, except per share data)
Total revenues......................................................................
Interest expense....................................................................
Net revenues........................................................................
Non-interest expenses..........................................................
Income/(loss) from continuing operations before income
tax expense/(benefit)..........................................................
Income tax expense/(benefit)...............................................
Net income/(loss).................................................................
Net income/(loss) applicable to noncontrolling interests.....
Net income/(loss) applicable to Piper Sandler Companies..
Net income/(loss) applicable to Piper Sandler Companies'
common shareholders........................................................
Earnings/(loss) per common share
Basic...................................................................................
Diluted................................................................................
Dividends declared per common share ...........................
$
$
$
$
$
$
Weighted average number of common shares
outstanding
Basic..................................................................................
Diluted...............................................................................
First
240,380 $
4,212
236,168
270,197
(34,029)
(11,774)
(22,255)
(7,528)
(14,727) $
2020 Fiscal Quarter
Third
Second
Fourth
295,964 $
3,526
292,438
285,041
307,174 $
3,455
303,719
279,070
409,140
3,252
405,888
335,357
7,397
4,700
2,697
1,243
1,454 $
24,649
5,674
18,975
7,358
11,617 $
70,531
20,592
49,939
7,779
42,160
(14,727) $
1,454 $
11,617 $
42,160
(1.07) $
(1.07) $
0.11 $
0.10 $
0.84 $
0.78 $
3.07
2.66
1.125 $
0.20 $
0.30 $
0.375
13,796
14,411
13,794
14,476
13,778
14,853
13,755
15,860
118
Piper Sandler Companies
Supplementary Data – Continued
(Amounts in thousands, except per share data)
Total revenues......................................................................
Interest expense....................................................................
Net revenues........................................................................
Non-interest expenses..........................................................
Income from continuing operations before income tax
expense/(benefit)................................................................
Income tax expense/(benefit)...............................................
Income from continuing operations.....................................
Income/(loss) from discontinued operations, net of tax......
Net income...........................................................................
Net income/(loss) applicable to noncontrolling interests.....
Net income applicable to Piper Sandler Companies............
Net income applicable to Piper Sandler Companies'
common shareholders........................................................
Amounts applicable to Piper Sandler Companies
Net income from continuing operations............................
Net income/(loss) from discontinued operations..............
Net income applicable to Piper Sandler Companies.......
Earnings per basic common share
Income from continuing operations..................................
Income/(loss) from discontinued operations.....................
Earnings per basic common share...................................
Earnings per diluted common share
Income from continuing operations..................................
Income/(loss) from discontinued operations.....................
Earnings per diluted common share................................
Dividends declared per common share ...........................
Weighted average number of common shares
outstanding
Basic..................................................................................
Diluted...............................................................................
$
First
185,185 $
2,643
182,542
159,405
2019 Fiscal Quarter
Third
Second
Fourth
175,411 $
2,993
172,418
151,493
202,912 $
2,177
200,735
179,700
282,791
3,920
278,871
224,989
23,137
4,192
18,945
(139)
18,806
(616)
19,422 $
20,925
(180)
21,105
(2,166)
18,939
8,550
10,389 $
21,035
6,717
14,318
26,077
40,395
(2,847)
43,242 $
53,882
13,848
40,034
—
40,034
1,376
38,658
17,835 $
10,151 $
42,442 $
38,006
19,561 $
(139)
19,422 $
12,555 $
(2,166)
10,389 $
17,165 $
26,077
43,242 $
38,658
—
38,658
1.36 $
(0.01)
1.35 $
0.90 $
(0.15)
0.75 $
1.23 $
1.87
3.09 $
1.33 $
(0.01)
1.32 $
0.87 $
(0.15)
0.72 $
1.20 $
1.82
3.01 $
2.77
—
2.77
2.70
—
2.70
1.385 $
0.375 $
0.375 $
0.375
13,204
13,530
13,588
14,024
13,708
14,085
13,714
14,100
$
$
$
$
$
$
$
$
$
119
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the
participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is
(a) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and
principal financial officer to allow timely decisions regarding disclosure.
During the fourth quarter of our fiscal year ended December 31, 2020, there was no change in our system of internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting and the attestation report of our independent
registered public accounting firm on management's assessment of internal control over financial reporting are included in Part
II, Item 8 of this Form 10-K entitled "Financial Statements and Supplementary Data" and are incorporated herein by
reference.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information regarding our executive officers included in Part I, Item 1 of this Form 10-K under the caption
"Information About our Executive Officers" is incorporated herein by reference. The information in the definitive proxy
statement for our 2021 annual meeting of shareholders to be held on May 21, 2021, under the captions "Proposal One —
Election of Directors," "Information Regarding the Board of Directors and Corporate Governance — Committees of the
Board — Audit Committee," "Information Regarding the Board of Directors and Corporate Governance — Codes of Ethics
and Business Conduct" and "Delinquent Section 16(a) Reports" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the definitive proxy statement for our 2021 annual meeting of shareholders to be held on May 21,
2021, under the captions "Executive Compensation," "Certain Relationships and Related Transactions — Compensation
Committee Interlocks and Insider Participation," "Information Regarding the Board of Directors and Corporate
Governance — Compensation Program for Non-Employee Directors" and "Information Regarding the Board of Directors and
Corporate Governance — Non-Employee Director Compensation for 2020" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information in the definitive proxy statement for our 2021 annual meeting of shareholders to be held on May 21,
2021, under the captions "Security Ownership — Beneficial Ownership of Directors, Nominees and Executive Officers,"
"Security Ownership — Beneficial Owners of More than Five Percent of Our Common Stock" and "Executive
Compensation — Outstanding Equity Awards at Fiscal Year-End" is incorporated herein by reference.
120
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information in the definitive proxy statement for our 2021 annual meeting of shareholders to be held on May 21,
2021, under the captions "Information Regarding the Board of Directors and Corporate Governance — Director
Independence," "Certain Relationships and Related Transactions — Transactions with Related Persons" and "Certain
Relationships and Related Transactions — Review and Approval of Transactions with Related Persons" is incorporated
herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information in the definitive proxy statement for our 2021 annual meeting of shareholders to be held on May 21,
2021, under the captions "Audit Committee Report and Payment of Fees to Our Independent Auditor — Auditor Fees" and
"Audit Committee Report and Payment of Fees to Our Independent Auditor — Auditor Services Pre-Approval Policy" is
incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) FINANCIAL STATEMENTS OF THE COMPANY.
PART IV
The Consolidated Financial Statements are incorporated herein by reference and included in Part II, Item 8 to this Form
10-K.
(a)(2) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules for the Company have been included in the Consolidated Financial Statements or the
related footnotes, or are either inapplicable or not required.
(a)(3) EXHIBITS.
Exhibit
Number
Description
Exhibit Index
2.1
2.2
2.3
2.4
2.5
3.1
3.2
Separation and Distribution Agreement dated as of December 23, 2003, between U.S. Bancorp and Piper
Sandler Companies (incorporated by reference to Exhibit 2.1 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). #
Securities Purchase Agreement dated November 16, 2015 among Piper Sandler Companies, Piper
Sandler & Co., Simmons & Company International, SCI JV LP, SCI GP, LLC, and Simmons & Company
International Holdings LLC (incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K, filed November 17, 2015). #
First Amendment to Securities Purchase Agreement dated February 25, 2016 among Piper Sandler
Companies, Piper Sandler & Co., Simmons & Company International, SCI JV LP, SCI GP, LLC, and
Simmons & Company International Holdings LLC (incorporated by reference to Exhibit 2.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2016, filed May 4, 2016). #
Second Amendment to Securities Purchase Agreement dated April 19, 2017 between Piper Sandler & Co.
and SCI JV LP (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2017, filed May 9, 2017).
Agreement and Plans of Merger, dated July 9, 2019, by and among Piper Jaffray Companies, SOP
Holdings, LLC, Sandler O’Neill & Partners Corp., Sandler O’Neill & Partners, L.P. and the other parties
thereto (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed July
10, 2019).#
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed August 3, 2007).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed January 6, 2020).
121
Exhibit
Number
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Exhibit Index
Description
Amended and Restated Bylaws (as of January 3, 2020) (incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K, filed January 6, 2020).
Form of Specimen Certificate for Piper Sandler Companies Common Stock (incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017, filed
February 26, 2018).
Second Amended and Restated Indenture dated as of June 11, 2012 (Secured Commercial Paper Notes),
between Piper Sandler & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, filed August
2, 2012).
First Amendment to Second Amended and Restated Indenture (Secured Commercial Paper Notes - Series
I), dated September 29, 2017, between Piper Sandler & Co. and the Bank of New York Mellon
(incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2017, filed November 8, 2017).
Amended and Restated Indenture (Secured Commercial Paper Notes - Series II), dated as of April 30, 2015,
between Piper Sandler & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 4.1
to the Company's Current Report on Form 8-K, filed October 2, 2017).
First Amendment to Amended and Restated Indenture (Secured Commercial Paper Notes - Series II), dated
as of September 29, 2017, between Piper Sandler & Co. and the Bank of New York Mellon (incorporated
by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K, filed October 2, 2017).
Second Amended and Restated Indenture dated April 21, 2014 (Secured Commercial Paper Notes - Series
III), between Piper Sandler & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, filed April 21, 2014).
Description of Securities (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2019, filed February 28, 2020).
Form of director indemnification agreement between Piper Sandler Companies and its directors
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 17,
2014). †
Office Lease Agreement, dated May 30, 2012, by and among Piper Sandler & Co. and Wells REIT – 800
Nicollett Avenue Owner, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K, filed June 1, 2012).
Piper Sandler Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (as amended
and restated May 15, 2020) (incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-8, filed May 22, 2020). †
Piper Sandler Companies Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed July 31, 2013). †
Form of Performance Share Unit Agreement for 2017 Leadership Team Grants under the Piper Sandler
Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016,
filed February 24, 2017). †
Form of Performance Share Unit Agreement for 2018 Leadership Team Grants under the Piper Sandler
Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2017, filed February 26, 2018). †
Form of Performance Share Unit Agreement for 2019 Leadership Team Grants under the Piper Sandler
Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 2018,
filed February 26, 2019). †
Form of Performance Share Unit Agreement for 2020 Leadership Team Grants under the Piper Sandler
Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2019, filed February 28, 2020). †
Form of Performance Share Unit Agreement for 2021 Leadership Team Grants under the Piper Sandler
Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan.†*
122
Exhibit
Number
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Exhibit Index
Description
Piper Sandler Companies Deferred Compensation Plan for Non-Employee Directors, as amended and
restated effective May 4, 2016 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2016, filed August 5, 2016). †
Summary of Non-Employee Director Compensation Program. †*
Form of Notice Period Agreement (incorporated by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2006, filed March 1, 2007). †
Credit Agreement, dated December 20, 2019, by and between Piper Sandler Companies and U.S. Bank
National Association, as conformed through the first amendment, dated January 15, 2021.*
Amended and Restated Loan Agreement dated December 28, 2012, between Piper Sandler & Co. and U.S.
Bank National Association (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2012, filed February 27, 2013).
First Amendment to Amended and Restated Loan Agreement, dated December 28, 2013, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed February 28, 2014).
Second Amendment to Amended and Restated Loan Agreement, dated December 19, 2014, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2014, filed February 26, 2015).
Third Amendment to Amended and Restated Loan Agreement, dated December 18, 2015, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed February 25,
2016).
Fourth Amendment to Amended and Restated Loan Agreement, dated December 17, 2016, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed May 9, 2017).
Fifth Amendment to Amended and Restated Loan Agreement, dated December 16, 2017, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed February 26,
2018).
Sixth Amendment to Amended and Restated Loan Agreement, dated December 14, 2018, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed February 26,
2019).
Seventh Amendment to Amended and Restated Loan Agreement, dated December 13, 2019, between Piper
Sandler & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed February 28,
2020).
Eighth Amendment to Amended and Restated Loan Agreement, dated December 11, 2020, between Piper
Sandler & Co. and U.S. Bank National Association.*
Piper Sandler Companies Amended and Restated Mutual Fund Restricted Share Investment Plan, effective
as of December 13, 2016 (incorporated by reference to Exhibit 10.34 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2016, filed February 24, 2017). †
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for Employee Grants in 2017
(related to performance in 2016) under the Piper Sandler Companies Amended and Restated 2003 Annual
and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan (incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2016, filed February 24, 2017). †
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for California-based Employee
Grants in 2017 (related to performance in 2016) under the Piper Sandler Companies Amended and Restated
2003 Annual and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan
(incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2016, filed February 24, 2017). †
123
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
21.1
23.1
24.1
Exhibit Index
Description
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for Employee Grants in 2018
(related to performance in 2017) under the Piper Sandler Companies Amended and Restated 2003 Annual
and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan (incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2017, filed February 26, 2018). †
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for California-based Employee
Grants in 2018 (related to performance in 2017) under the Piper Sandler Companies Amended and Restated
2003 Annual and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan
(incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2017, filed February 26, 2018). †
Form of Non-Qualified Stock Option Agreement for 2018 Promotional Grants under the Piper Sandler
Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed February 9, 2018). †
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for Employee Grants in 2019
(related to performance in 2018) under the Piper Sandler Companies Amended and Restated 2003 Annual
and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan (incorporated by
reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31,
2018, filed on February 26, 2019). †
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for Employee Grants in 2020
(related to performance in 2019) under the Piper Sandler Companies Amended and Restated 2003 Annual
and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan (incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2019, filed February 28, 2020). †
Form of Restricted Stock and Mutual Fund Restricted Share Agreement for Employee Grants in 2021
(related to performance in 2020) under the Piper Sandler Companies Amended and Restated 2003 Annual
and Long-Term Incentive Plan and Mutual Fund Restricted Share Investment Plan.†*
Piper Sandler Companies 2019 Employment Inducement Award Plan (incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-8, filed March 13, 2019). †
Form of Restricted Stock Agreement for Grants under the Piper Sandler Companies 2019 Employment
Inducement Award Plan (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement
on Form S-8, filed March 13, 2019). †
Letter Agreement, dated July 8, 2019, by and between Piper Sandler Companies and Jonathan J. Doyle
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 6,
2020). †
Equity Consideration Restricted Stock Agreement, dated July 9, 2019, by and between Piper Sandler
Companies and Jonathan J. Doyle (incorporated by reference to Exhibit 10.39 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2019, filed February 28, 2020). †
Transition Services Agreement, dated December 31, 2020, by and between Piper Sandler & Co. and Brian
R. Sterling.†*
Piper Sandler Companies 2020 Employment Inducement Award Plan (incorporated by reference to Exhibit
4.4 to the Company’s Registration Statement on Form S-8, filed November 29, 2019). †
Form of Restricted Stock Agreement for Grants under the Piper Sandler Companies 2020 Employment
Inducement Award Plan (18-Month Cliff Vesting) (incorporated by reference to Exhibit 4.5 to the
Company’s Registration Statement on Form S-8, filed November 29, 2019). †
Form of Restricted Stock Agreement for Grants under the Piper Sandler Companies 2020 Employment
Inducement Award Plan (3-Year Cliff Vesting) (incorporated by reference to Exhibit 4.6 to the Company’s
Registration Statement on Form S-8, filed November 29, 2019). †
Form of Restricted Stock Agreement for Grants under the Piper Sandler Companies 2020 Employment
Inducement Award Plan (Years 3, 4 and 5 Pro-rata Vesting) (incorporated by reference to Exhibit 4.7 to the
Company’s Registration Statement on Form S-8, filed November 29, 2019). †
Subsidiaries of Piper Sandler Companies *
Consent of Ernst & Young LLP *
Power of Attorney *
124
Exhibit
Number
31.1
31.2
32.1
101
104
Exhibit Index
Description
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Section 1350 Certifications. **
The following financial information from our Annual Report on Form 10-K for the year ended December
31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated
Statements of Financial Condition (ii) the Consolidated Statements of Operations, (iii) the Consolidated
Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders'
Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial
Statements.
The cover page from our Annual Report on Form 10-K for the year ended December 31, 2020, formatted in
iXBRL.
_______________________
# The Company hereby agrees to furnish supplementally to the Commission upon request any omitted exhibit or schedule.
† This exhibit is a management contract or compensatory plan or agreement.
* Filed herewith.
** This information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section
18 of the Securities Exchange Act of 1934.
ITEM 16. FORM 10-K SUMMARY.
None.
125
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 25, 2021.
SIGNATURES
PIPER SANDLER COMPANIES
By
Name
Its
/s/ Chad R. Abraham
Chad R. Abraham
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on February 25, 2021.
SIGNATURE
/s/ Chad R. Abraham
Chad R. Abraham
/s/ Timothy L. Carter
Timothy L. Carter
/s/ Jonathan J. Doyle
Jonathan J. Doyle
/s/ William R. Fitzgerald
William R. Fitzgerald
/s/ Victoria M. Holt
Victoria M. Holt
/s/ Addison L. Piper
Addison L. Piper
/s/ Debbra L. Schoneman
Debbra L. Schoneman
/s/ Thomas S. Schreier Jr.
Thomas S. Schreier Jr.
/s/ Sherry M. Smith
Sherry M. Smith
/s/ Philip E. Soran
Philip E. Soran
/s/ Brian R. Sterling
Brian R. Sterling
/s/ Scott C. Taylor
Scott C. Taylor
TITLE
Chairman and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
126
APPENDIX
Reconciliation of U.S. GAAP financial measures to adjusted, non-GAAP financial measures
The financial highlights and letter to shareholders include non-GAAP, or ‘‘adjusted,’’ financial
measures. The corresponding reconciliations of these non-GAAP financial measures to the most
comparable U.S. GAAP financial measures are included below.
The non-GAAP financial measures include adjustments to exclude: (1) revenues and expenses related
to noncontrolling interests, (2) interest expense on long-term financing, (3) amortization of intangible
assets related to acquisitions, (4) compensation and non-compensation expenses from acquisition-
related agreements, (5) acquisition-related restructuring and integration costs, (6) goodwill impairment
charges, (7) the impact from remeasuring deferred tax assets resulting from changes to the U.S.
federal tax code, (8) the impact of a deferred tax asset valuation allowance, and (9) discontinued
operations. The adjusted weighted average diluted shares outstanding used in the calculation of non-
GAAP earnings per diluted common share contains an adjustment to include the common shares for
unvested restricted stock awards with service conditions granted pursuant to the acquisitions of
Sandler O'Neill and The Valence Group.
Management believes that presenting results and measures on this adjusted basis alongside U.S.
GAAP measures provides the most meaningful basis for comparison of its operating results across
periods, and enhances the overall understanding of our current financial performance by excluding
certain items that may not be indicative of our core operating results. The non-GAAP financial
measures should be considered in addition to, not as a substitute for, measures of financial
performance prepared in accordance with U.S. GAAP.
NET REVENUES
A reconciliation of adjusted net revenues to U.S. GAAP net revenues:
($ in thousands)
U.S. GAAP net revenues
Adjustments:
2020
$1,238,213
For the year ended December 31,
2018
$740,953
2019
$834,566
2017
$823,621
2016
$693,214
Revenue related to noncontrolling interests
Interest expense on long-term financing
(12,881)
9,628
(10,769)
1,848
(3,621)
4,902
(5,319)
7,171
(11,070)
8,195
Adjusted net revenues
$1,234,960
$825,645
$742,234
$825,473
$690,339
($ in thousands)
U.S. GAAP net revenues
Adjustments:
2015
$602,264
For the year ended December 31,
2013
$443,508
2014
$567,841
2012
$424,135
2011
$369,063
Revenue related to noncontrolling interests
Interest expense on long-term financing
(9,810)
6,406
(15,699)
5,454
(8,794)
5,803
(4,174)
3,236
(1,785)
3,759
Adjusted net revenues
$598,860
$557,596
$440,517
$423,197
$371,037
A1 | PIPER SANDLER
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
A reconciliation of adjusted income before adjusted income tax expense to U.S. GAAP income from continuing
operations before income tax expense:
($ in thousands)
U.S. GAAP income from continuing operations
before income tax expense
Adjustments:
Revenue related to noncontrolling interests
Interest expense on long-term financing
Non-compensation expenses related to
noncontrolling interests
Compensation from acquisition-related
agreements
Acquisition-related restructuring and integration
costs
Amortization of intangible assets related to
acquisitions
Non-compensation expenses from acquisition-
related agreements
Adjusted operating income
Interest expense on long-term financing
Adjusted income before adjusted income tax
expense
2020
For the year ended December 31,
2018
2019
2017
2016
$68,548
$118,979
$72,489
$79,316
$41,644
(12,881)
9,628
(10,769)
1,848
(3,621)
4,902
(5,319)
7,171
(11,070)
8,195
4,029
4,306
4,827
2,932
2,864
113,396
5,138
29,246
54,999
36,241
10,755
14,321
-
-
10,197
44,728
4,298
4,858
10,178
15,587
12,085
$250,288
(9,628)
114
$138,235
(1,848)
683
$113,384
(4,902)
600
$149,877
(7,171)
-
$103,658
(8,195)
$240,660
$136,387
$108,482
$142,706
$95,463
NET INCOME/(LOSS) APPLICABLE TO PIPER SANDLER COMPANIES
A reconciliation of adjusted net income applicable to U.S. GAAP net income/(loss) applicable to Piper Sandler
Companies:
($ in thousands)
U.S. GAAP net income/(loss) applicable to Piper
Sandler Companies
Adjustment to exclude net income/(loss) from
discontinued operations
Net income from continuing operations
Adjustments:
Compensation from acquisition-related
agreements
Acquisition-related restructuring and integration
costs
Amortization of intangible assets related to
acquisitions
Non-compensation expenses from acquisition-
related agreements
Impact of the Tax Cuts and Jobs Act legislation
Impact of deferred tax asset valuation
allowance
2020
For the year ended December 31,
2018
2019
2017
2016
$40,504
$111,711
$57,036
($61,939)
($21,952)
-
$40,504
23,772
$87,939
1,387
$55,649
(85,060)
$23,121
(44,464)
$22,512
85,940
4,124
21,992
35,755
23,700
8,712
10,770
-
-
7,009
33,383
3,250
3,655
6,301
9,527
9,016
-
114
-
514
952
607
36,356
-
-
4,650
-
-
-
-
Adjusted net income
$177,555
$106,197
$87,412
$102,140
$62,748
PIPER SANDLER | A2
EARNINGS PER DILUTED COMMON SHARE
A reconciliation of adjusted earnings per diluted common share to U.S. GAAP earnings/(loss) per diluted
common share:
For the year ended December 31,
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
U.S. GAAP earnings/(loss) per
diluted common share
Adjustment to exclude net
income/(loss) from discontinued
operations
Income/(loss) from continuing
operations
Adjustment related to
participating shares (1)
Adjustment for inclusion of
unvested acquisition-related
stock (2)
Adjustments:
Compensation from
acquisition-related agreements
Acquisition-related
restructuring and integration
costs
Goodwill impairment
Amortization of intangible
assets related to acquisitions
Non-compensation expenses
from acquisition-related
agreements
Impact of the Tax Cuts and
Jobs Act legislation
Impact of deferred tax asset
valuation allowance
Adjusted earnings per diluted
common share
$2.72 $7.69 $3.72 ($4.99)
($1.72)
$3.34 $3.87 $2.70 $2.26 ($6.51)
-
1.65
0.09
(6.56)
(3.48)
0.79
1.04
0.75
0.34
0.03
$2.72 $6.05 $3.63 $1.57 $1.76 $2.55 $2.83 $1.95 $1.92 ($6.54)
-
0.04
-
(0.05)
(0.31)
-
-
-
-
1.20
(1.89)
-
$0.83 $6.09 $3.63 $1.52 $1.45 $2.55 $2.83 $1.95 $1.92 ($5.34)
-
-
-
-
-
-
-
-
5.76
0.29
1.44
2.33
1.53
0.16
0.15
0.06
-
-
0.58
-
0.75
-
-
-
-
-
0.45
-
0.42
-
-
-
0.17
-
0.11
-
-
6.16
2.24
0.23
0.24
0.41
0.61
0.06
0.12
0.06
0.61
0.01
0.04
0.04
-
-
-
-
0.06
2.38
0.31
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$10.02 $7.36 $5.72 $6.68 $4.05 $3.18 $3.09 $2.24 $2.03 $0.83
1) For periods prior to 2020, Piper Sandler Companies calculated earnings per common share using the two-class method, which required
the allocation of consolidated adjusted net income between common shareholders and participating security holders, which in the case of
Piper Sandler Companies, represented unvested stock with non-forfeitable dividend rights. No allocation of undistributed earnings was
made for periods in which a loss was incurred, or for periods in which the special cash dividend exceeded adjusted net income resulting in
an undistributed loss.
2) For 2020, the weighted average diluted shares outstanding used in the calculation of adjusted earnings per diluted common share contain
an adjustment to include 2.8 million common shares for unvested restricted stock awards with service conditions granted pursuant to the
acquisitions of Sandler O'Neill and The Valence Group.
A3 | PIPER SANDLER
CORPORATE HEADQUARTERS
INDEPENDENT ACCOUNTANTS
Piper Sandler Companies
Mail Stop J12NSH
800 Nicollet Mall, Suite 900
Minneapolis, MN 55402
612 303-6000
COMPANY WEBSITE
www.pipersandler.com
STOCK TRANSFER AGENT AND REGISTRAR
Broadridge acts as transfer agent and registrar for Piper
Sandler Companies and maintains all shareholder
records for the company. If you have questions regarding
the Piper Sandler Companies stock you own, stock
transfers, address corrections or changes, lost stock
certificates or duplicate mailings, please contact
Broadridge:
Online
shareholder.broadridge.com/PIPR
Telephone
Toll-Free
Outside of U.S.
Shareowner relations specialists available
Monday through Friday, 9 a.m. to 6 p.m. ET
800 872-4409
720 501-4324
Written correspondence
Broadridge Corporate Issuer Solutions, Inc
PO Box 1342
Brentwood, NY 11717
Certified and overnight delivery
Broadridge Corporate Issuer Solutions, Inc
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Ernst & Young LLP
COMMON STOCK LISTING
New York Stock Exchange (symbol: PIPR)
INVESTOR INQUIRIES
Shareholders, securities analysts and investors seeking
more information about the company should contact Tim
Carter, chief financial officer, at timothy.carter@psc.com
or 612 303-5607; or the corporate headquarters address.
WEBSITE ACCESS TO SEC REPORTS AND
CORPORATE GOVERNANCE INFORMATION
Piper Sandler Companies makes available free of charge
on its website, www.pipersandler.com, its annual reports
on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities and Exchange Act of 1934, as amended, as
well as all other reports filed by Piper Sandler Companies
with the Securities and Exchange Commission, as soon
as reasonably practicable after it electronically files them
with, or furnishes them to, the Securities and Exchange
Commission. These reports are also available at the
Securities and Exchange Commission website,
www.sec.gov.
Piper Sandler Companies also makes available free of
charge on its website the company’s codes of ethics and
business conduct, its corporate governance principles
and the charters of the audit, compensation, and
nominating and governance committees of the board of
directors. Printed copies of these materials will be mailed
upon request.
DIVIDENDS
Piper Sandler Companies began paying cash dividends
on its common stock in 2017. The decision to pay future
dividends is at the discretion of the board of directors.
FORWARD-LOOKING STATEMENTS
This annual report and the preceding letter to shareholders contain forward-looking statements. Statements that are
not historical or current facts, including statements about beliefs and expectations, are forward-looking statements
and are subject to significant risks and uncertainties that are difficult to predict. A number of these risks and
uncertainties are described in our reports filed or furnished with the Securities and Exchange Commission, including
our Annual Report on Form 10-K for the year ended December 31, 2020. Forward-looking statements speak only as of
the date they are made, and we undertake no obligation to update them in light of new information or future events.