Piper Sandler Companies

05/07/2026 | Press release | Distributed by Public on 05/07/2026 10:33

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
Index
Executive Overview
Results of Operations for the Three Months Ended March 31, 2026 and 2025
Net Revenues
Non-Interest Expenses
Pre-Tax Margin
Income Taxes
Explanation and Reconciliation of Non-GAAP Financial Measures
Recent Accounting Pronouncements
Critical Accounting Policies and Estimates
Liquidity, Funding and Capital Resources
Common Stock Split
Leverage
Funding and Capital Resources
Capital Requirements
Off-Balance Sheet Arrangements
Risk Management
Effects of Inflation
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The following information should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and exhibits included elsewhere in this Quarterly Report on Form 10-Q.
Certain statements in this Quarterly Report on Form 10-Q may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements include, among other things, statements other than historical information or statements of current conditions and may relate to our future plans and objectives and results, and also may include our belief regarding the effect of various legal proceedings, as set forth under "Legal Proceedings" in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2025, as updated in our subsequent reports filed with the Securities and Exchange Commission ("SEC"), and under "Legal Proceedings" in Part II, Item 1 of this Quarterly Report on Form 10-Q. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under "External Factors Impacting Our Business" as well as the factors identified under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, as updated in our subsequent reports filed with the SEC, and under "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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.
Part I, Item 2 of this Quarterly Report on Form 10-Q includes financial measures that are not prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"). 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 financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP. See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
EXECUTIVE OVERVIEW
Our business principally consists of providing investment banking and institutional brokerage services to corporations, private equity groups, public entities, non-profit entities and institutional investors in the U.S. and internationally. We operate through one reportable segment in order to maximize the value we provide to clients by leveraging our diversified expertise and broad relationships of the experienced professionals across our company. Refer to our Annual Report on Form 10-K for the year ended December 31, 2025 for a full description of our business, including our business strategy and strategic activities.
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Financial Highlights
Three Months Ended
(Amounts in thousands, except per share data) Mar. 31, Mar. 31, 2026
2026 2025 v2025
U.S. GAAP
Net revenues $ 474,409 $ 357,272 32.8 %
Compensation and benefits 296,057 248,457 19.2
Non-compensation expenses 90,421 79,382 13.9
Income before income tax expense/(benefit)
87,931 29,433 198.7
Income tax expense/(benefit)
19,619 (7,335) N/M
Net income attributable to Piper Sandler Companies
65,242 64,915 0.5
Earnings per diluted common share (1)
$ 0.92 $ 0.91 1.1
Ratios and margin
Compensation ratio 62.4% 69.5%
Non-compensation ratio 19.1% 22.2%
Pre-tax margin 18.5% 8.2%
Effective tax rate 22.3% (24.9)%
Non-GAAP(2)
Adjusted net revenues $ 469,544 $ 383,310 22.5 %
Adjusted compensation and benefits 289,239 239,569 20.7
Adjusted non-compensation expenses 86,444 75,197 15.0
Adjusted operating income 93,861 68,544 36.9
Adjusted income tax expense/(benefit)
21,927 (4,951) N/M
Adjusted net income attributable to Piper Sandler Companies
71,934 73,495 (2.1)
Adjusted earnings per diluted common share (1)
$ 1.00 $ 1.02 (2.0)
Adjusted ratios and margin
Adjusted compensation ratio 61.6% 62.5%
Adjusted non-compensation ratio 18.4% 19.6%
Adjusted operating margin 20.0% 17.9%
Adjusted effective tax rate 23.4% (7.2)%
(1)Earnings per diluted common share has been adjusted to reflect the four-for-one forward split of common stock. See Note 1 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
(2)See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
N/M - Not meaningful
External Factors Impacting Our Business
Performance in the financial services industry in which we operate is highly correlated to the overall strength of macroeconomic conditions, financial market activity and the effect of geopolitical events. 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.
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Factors that differentiate our business within the financial services industry also may affect our financial results. For example, our capital markets business focuses on specific industry sectors while serving principally a 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
While the near-term macroeconomic environment remains uncertain, the overall market backdrop continues to be constructive with strong equity markets, solid corporate investment banking activity and a more accommodative regulatory environment. Monetary policy in the U.S. remains a prevalent factor impacting the economy and financial markets. The U.S. Federal Reserve held its short-term benchmark interest rate steady in the first quarter of 2026 as it balances its goals of maximum employment and stable prices against persistent inflation and higher energy prices. Heightened concerns over geopolitical conflicts, including recent escalations in the Middle East, as well as ongoing tensions in Eastern Europe and Taiwan, could negatively impact financial market activity. In addition, higher U.S. tariffs and shifts in trade policy, along with retaliatory actions by global trading partners, including the European Union and China, continue to contribute to elevated financial market uncertainty and upward pressure on inflation and supply chain costs. A significant decrease in uncertainty, or resolutions to geopolitical concerns and trade disputes, would likely be constructive for overall economic conditions, and consequently, our client and business activity.
Our advisory services results continued to benefit from our broad industry coverage and comprehensive product capabilities as well as an improving market environment for mergers and acquisitions ("M&A") activity. While the pipelines for our industry and product teams remain strong, the timing of these transactions may be influenced by market conditions. We anticipate our second quarter advisory services revenues to be similar to the first quarter.
The market environment for equity financings was resilient during the quarter, despite the volatility, particularly within the healthcare sector. We expect our second quarter corporate financing revenues to decline from the strong first quarter of 2026.
Our equity brokerage results were strong in the first quarter of 2026 as higher volatility drove increased trading volumes in response to geopolitical events. Our equity brokerage business continues to benefit from the quality of our trade execution and research product as we assist clients in navigating periods of heightened volatility. Our results will continue to be correlated with market volatility and trading volumes. We expect our second quarter equity brokerage revenues to decline from first quarter levels.
Our fixed income services results were negatively impacted by the volatility, which reduced our client activity during the first quarter of 2026. However, we continued to benefit from bank M&A activity by completing balance sheet restructuring trades. The near-term outlook for fixed income services remains challenging as the ongoing geopolitical developments are keeping many clients on the sidelines.
Our municipal financing activity declined in the first quarter of 2026 driven by reduced municipal negotiated issuance volumes in our specialty sector business. Our pipeline is strong with clients looking to access the market. We anticipate second quarter municipal financing revenues will improve modestly from the first quarter.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
The following table provides a summary of the results of our operations on a U.S. GAAP basis and the results of our operations as a percentage of net revenues for the periods indicated:
As a Percentage of
Net Revenues for the
Three Months Ended Three Months Ended
March 31, March 31,
2026
(Amounts in thousands) 2026 2025 v2025 2026 2025
Revenues
Investment banking:
Advisory services
$ 250,962 $ 216,800 15.8 % 52.9 % 60.7 %
Corporate financing
73,315 33,061 121.8 15.5 9.3
Municipal financing
23,913 26,403 (9.4) 5.0 7.4
Total investment banking
348,190 276,264 26.0 73.4 77.3
Institutional brokerage:
Equity brokerage
60,470 54,254 11.5 12.7 15.2
Fixed income services
50,375 47,670 5.7 10.6 13.3
Total institutional brokerage
110,845 101,924 8.8 23.4 28.5
Interest income 11,646 9,963 16.9 2.5 2.8
Investment income/(loss)
4,464 (29,597) N/M 0.9 (8.3)
Total revenues 475,145 358,554 32.5 100.2 100.4
Interest expense 736 1,282 (42.6) 0.2 0.4
Net revenues 474,409 357,272 32.8 100.0 100.0
Non-interest expenses (1)
Compensation and benefits 296,057 248,457 19.2 62.4 69.5
Occupancy and equipment
18,065 18,227 (0.9) 3.8 5.1
Outside services
13,717 15,471 (11.3) 2.9 4.3
Communications 14,910 15,441 (3.4) 3.1 4.3
Marketing and business development 15,151 14,873 1.9 3.2 4.2
Trade execution and clearance 5,037 5,174 (2.6) 1.1 1.4
Intangible asset amortization 2,057 2,076 (0.9) 0.4 0.6
Other operating expenses 21,484 8,120 164.6 4.5 2.3
Total non-interest expenses 386,478 327,839 17.9 81.5 91.8
Income before income tax expense/(benefit)
87,931 29,433 198.7 18.5 8.2
Income tax expense/(benefit)
19,619 (7,335) N/M 4.1 (2.1)
Net income
68,312 36,768 85.8 14.4 10.3
Net income/(loss) attributable to noncontrolling interests
3,070 (28,147) N/M 0.6 (7.9)
Net income attributable to Piper Sandler Companies $ 65,242 $ 64,915 0.5 13.8 18.2
(1)The presentation of total non-interest expenses changed to remove the separate line item for deal-related expenses. See Note 1 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
N/M - Not meaningful
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Net Revenues
Net revenues on a U.S. GAAP basis were $474.4 million for the three months ended March 31, 2026, compared with $357.3 million in the prior-year period. For the three months ended March 31, 2026, adjusted net revenues were $469.5 million, compared with $383.3 million in the first quarter of 2025. 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. See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
The following table provides supplemental business information:
Three Months Ended
March 31,
2026 2025
Advisory services
Completed M&A and restructuring transactions 69 42
Completed capital advisory transactions (1)
25 13
Total completed advisory transactions 94 55
Corporate financings
Total equity transactions priced 26 15
Book run equity transactions priced 26 11
Total debt and preferred transactions priced 10 12
Book run debt and preferred transactions priced 7 8
Advisory services and corporate financing
Number of managing directors
192 182
Municipal negotiated issues
Aggregate par value of issues priced (in billions) $ 3.3 $ 3.3
Total issues priced 98 94
Equity brokerage
Number of shares traded (in billions) 3.1 2.9
(1)Includes debt capital markets advisory transactions and equity and debt private placements.
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Investment Banking Revenues
Investment banking revenues comprise all of the revenues generated through advisory services activities, which include M&A, equity and debt private placements, debt capital markets advisory, restructuring and private capital advisory, and municipal financial advisory transactions. Investment banking revenues also include equity and debt corporate financing activities and municipal financings.
In the first quarter of 2026, investment banking revenues increased 26.0 percent to $348.2 million, compared with $276.3 million in the prior-year period. For the three months ended March 31, 2026, advisory services revenues were $251.0 million, up 15.8 percent compared to $216.8 million in the first quarter of 2025, driven primarily by more completed transactions. Our advisory services performance during the quarter was led by our healthcare and financial services groups with solid contributions from our services & industrials and energy, power & infrastructure teams. For the three months ended March 31, 2026, corporate financing revenues were $73.3 million, up 121.8 percent compared with $33.1 million for the three months ended March 31, 2025, resulting from more completed equity financings and a higher average fee. Performance during the first quarter of 2026 was led by the healthcare sector, and we served as book runner on all 23 completed healthcare equity deals. Municipal financing revenues for the three months ended March 31, 2026 were $23.9 million, down 9.4 percent compared to $26.4 million in the prior-year period, driven by reduced municipal negotiated issuance activity in our specialty sector business.
Institutional Brokerage Revenues
Institutional brokerage revenues comprise all of the revenues generated through trading activities, which principally consist of facilitating customer trades, as well as fees received for our research services and corporate access offerings. 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 and the amount of fees received for research services.
For the three months ended March 31, 2026, institutional brokerage revenues were $110.8 million, up 8.8 percent compared with $101.9 million in the prior-year period. Equity brokerage revenues were $60.5 million in the first quarter of 2026, up 11.5 percent compared with $54.3 million in the corresponding period of 2025, driven by increased client activity resulting from higher market volatility. For the three months ended March 31, 2026, fixed income services revenues were $50.4 million, up 5.7 percent compared to $47.7 million in the prior-year period. Revenues for the current quarter benefited from several balance sheet restructuring trades, which offset a decline in client activity resulting from interest rate volatility.
Interest Income
Interest income represents amounts earned from holding long inventory positions and cash balances, as well as interest earned on installment fee receivables. For the three months ended March 31, 2026, interest income increased to $11.6 million, compared with $10.0 million for the three months ended March 31, 2025, reflecting higher interest income on our cash balances.
Investment Income/(Loss)
Investment income/(loss) includes realized and unrealized gains and losses on investments, including amounts attributable to noncontrolling interests, in our alternative asset management funds, as well as management and performance fees generated from those funds. For the three months ended March 31, 2026, we recorded investment income of $4.5 million, compared to an investment loss of $29.6 million in the corresponding period of 2025. In the first quarter of 2026, we recorded gains on our investments and the noncontrolling interests in the alternative asset funds that we manage primarily due to higher public company equity valuations. Excluding the impact of noncontrolling interests, adjusted investment loss was $0.4 million for the three months ended March 31, 2026, compared with $3.6 million for the three months ended March 31, 2025.
Interest Expense
Interest expense represents amounts associated with financing, economically hedging and holding short inventory positions, including interest paid on our financing arrangements, as well as commitment fees on certain short-term financing arrangements. For the three months ended March 31, 2026, interest expense decreased to $0.7 million, compared with $1.3 million in the prior-year period.
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Non-Interest Expenses
Non-interest expenses on a U.S. GAAP basis were $386.5 million for the three months ended March 31, 2026, compared to $327.8 million in the prior-year period. For the three months ended March 31, 2026, adjusted non-interest expenses were $375.7 million, compared with $314.8 million for the first quarter of 2025. The variance explanations for non-interest expenses and adjusted non-interest expenses are consistent on both a U.S. GAAP and non-GAAP basis unless stated otherwise. See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
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, the reversal of expenses 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 and decreasing with lower revenues and operating profits. Other compensation costs, primarily base salaries and benefits, are more fixed in nature. In conjunction with our acquisitions, we have granted restricted stock, restricted cash with service conditions, and restricted mutual fund shares of investment funds ("MFRS Awards"), which are amortized to compensation expense over the service period. We have also entered into forgivable loans with service conditions, which are amortized to compensation expense over the loan term. Additionally, expense estimates related to revenue-based earnout arrangements with service conditions entered into as part of our acquisitions are amortized to compensation expense over the service period.
The following table summarizes our expected future acquisition-related compensation expense for restricted stock, restricted cash with service conditions, MFRS Awards and forgivable loans with service conditions, as well as expense estimates related to revenue-based earnout arrangements:
(Amounts in thousands)
Remainder of 2026 $ 19,246
2027 19,840
2028 9,018
2029 5,029
Total $ 53,133
For the three months ended March 31, 2026, compensation and benefits expenses increased 19.2 percent to $296.1 million, compared with $248.5 million in the corresponding period of 2025, due to higher revenues. Compensation and benefits expenses as a percentage of net revenues decreased to 62.4 percent in the first quarter of 2026, compared to 69.5 percent in the first quarter of 2025, primarily due to higher net revenues, including investment income on our investments and the noncontrolling interests in the alternative asset management funds that we manage in the current quarter compared to an investment loss in the first quarter of 2025. Our adjusted compensation ratio decreased to 61.6 percent in the first quarter of 2026, compared with 62.5 percent in the first quarter of 2025, primarily due to higher adjusted net revenues.
Occupancy and Equipment
For the three months ended March 31, 2026, occupancy and equipment expenses decreased slightly to $18.1 million, compared with $18.2 million in the corresponding period of 2025. We expect our occupancy and equipment expenses will increase in 2026 as a result of relocating our office space in New York City, New York.
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 decreased 11.3 percent to $13.7 million in the first quarter of 2026, compared with $15.5 million in the corresponding period of 2025, primarily due to lower professional fees.
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Communications
Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third-party market data information. For the three months ended March 31, 2026, communication expenses decreased 3.4 percent to $14.9 million, compared with $15.4 million in the corresponding period of 2025, primarily due to lower market data services expenses.
Marketing and Business Development
Marketing and business development expenses include travel and entertainment costs, advertising and third-party marketing fees. For the three months ended March 31, 2026, marketing and business development expenses increased modestly to $15.2 million, compared with $14.9 million in the corresponding period of 2025.
Trade Execution and Clearance
For the three months ended March 31, 2026, trade execution and clearance expenses decreased slightly to $5.0 million, compared with $5.2 million in the corresponding period of 2025.
Intangible Asset Amortization
Amortization of definite-lived intangible assets was $2.1 million for the three months ended March 31, 2026 and 2025.
The following table summarizes the future aggregate amortization expense of our intangible assets with determinable lives:
(Amounts in thousands)
Remainder of 2026 $ 5,928
2027 3,480
2028 2,191
2029 541
Total $ 12,140
Other Operating Expenses
Other operating expenses primarily include underwriting expenses, insurance costs, license and registration fees, expenses related to our charitable giving program and litigation-related expenses, which consist of the amounts we accrue for and/or pay out related to legal and regulatory matters. The amount of underwriting expenses is dependent on the level of financing deal activity and may vary from period to period. Other operating expenses were $21.5 million in the first quarter of 2026, compared with $8.1 million in the corresponding period of 2025. Other operating expenses for the first quarter of 2026 included $8.5 million in litigation-related expenses as well as higher underwriting costs associated with increased corporate financing deal activity.
Pre-Tax Margin
Pre-tax margin for the three months ended March 31, 2026 increased to 18.5 percent, compared to 8.2 percent for the corresponding period of 2025. Adjusted pre-tax margin for the three months ended March 31, 2026 increased to 20.0 percent, compared with 17.9 percent for the corresponding period of 2025. In the current quarter, the increase in pre-tax margin on both a U.S. GAAP and adjusted basis was primarily due to higher net revenues. Additionally, U.S. GAAP pre-tax margin increased due to lower compensation and non-compensation ratios.
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Income Taxes
Our provision for income taxes was $19.6 million and our effective tax rate was 22.3 percent for the three months ended March 31, 2026. Our adjusted provision for income taxes was $21.9 million and our adjusted effective tax rate was 23.4 percent for the three months ended March 31, 2026. The provision for income taxes on both a U.S. GAAP and adjusted basis included $7.0 million of tax benefits related to stock-based compensation awards vesting at values greater than the grant price. Excluding the impact of this benefit, our adjusted effective tax rate was 30.8 percent.
Our provision for income taxes was a benefit of $7.3 million and our effective tax rate was negative 24.9 percent for the three months ended March 31, 2025. Our adjusted provision for income taxes was a benefit of $5.0 million and our adjusted effective tax rate was negative 7.2 percent for the three months ended March 31, 2025. The provision for income taxes on both a U.S. GAAP and adjusted basis included $25.4 million of tax benefits related to stock-based compensation awards vesting at values greater than the grant price and accrued forfeitable dividends paid on vested restricted stock related to acquisitions. Excluding the impact of these benefits, our adjusted effective tax rate was 29.8 percent. The effective tax rate on both a U.S. GAAP and adjusted basis was impacted by non-deductible employee compensation expense, including limitations on the deduction of employee compensation expense enacted with the American Rescue Plan Act of 2021.
EXPLANATION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
In Part I, Item 2 of this Quarterly Report on Form 10-Q, we have included financial measures that are not prepared in accordance with U.S. GAAP. Adjustments to these non-GAAP financial measures include (1) the exclusion of investment (income)/loss and non-compensation expenses related to noncontrolling interests, (2) the exclusion of compensation and non-compensation expenses from acquisition-related agreements, (3) the exclusion of amortization of intangible assets related to acquisitions and (4) the income tax impact allocated to the adjustments. For U.S. GAAP purposes, these items are included in each of their respective line items on the consolidated statements of operations.
These adjustments affect the following financial measures: net revenues, compensation and benefits expenses, non-compensation expenses, total non-interest expenses, income before income tax expense/(benefit), income tax expense/(benefit), net income attributable to Piper Sandler Companies, earnings per diluted common share, compensation ratio, non-compensation ratio, pre-tax margin and effective tax rate.
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 acquisition-related common shares for unvested restricted stock awards with service conditions.
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 financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP.
Consolidation of the alternative asset management 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) attributable to noncontrolling interests in the accompanying consolidated statements of operations, and has no effect on our overall financial performance, as ultimately, this income/(loss) is not income/(loss) for us. The adjusted, non-GAAP financial measures include only the actual proportionate share of the income/(loss) attributable to us as an investor in such alternative asset management funds.
The compensation and non-compensation expenses from acquisition-related agreements and amortization of intangible assets are excluded from the adjusted, non-GAAP financial measures as they represent expenses specifically related to acquisitions and therefore are not part of our ongoing operations.
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Reconciliation of U.S. GAAP to adjusted, non-GAAP financial information:
Three Months Ended
March 31,
(Amounts in thousands, except per share data) 2026 2025
Net revenues:
Net revenues - U.S. GAAP basis $ 474,409 $ 357,272
Adjustment:
Investment (income)/loss related to noncontrolling interests (4,865) 26,038
Adjusted net revenues $ 469,544 $ 383,310
Compensation and benefits:
Compensation and benefits - U.S. GAAP basis $ 296,057 $ 248,457
Adjustment:
Compensation from acquisition-related agreements (6,818) (8,888)
Adjusted compensation and benefits $ 289,239 $ 239,569
Non-compensation expenses:
Non-compensation expenses - U.S. GAAP basis $ 90,421 $ 79,382
Adjustments:
Non-compensation expenses related to noncontrolling interests (1,795) (2,109)
Amortization of intangible assets related to acquisitions (2,057) (2,076)
Non-compensation expenses from acquisition-related agreements (125) -
Adjusted non-compensation expenses $ 86,444 $ 75,197
Income before income tax expense/(benefit):
Income before income tax expense/(benefit) - U.S. GAAP basis
$ 87,931 $ 29,433
Adjustments:
Investment (income)/loss related to noncontrolling interests (4,865) 26,038
Non-compensation expenses related to noncontrolling interests 1,795 2,109
Compensation from acquisition-related agreements 6,818 8,888
Amortization of intangible assets related to acquisitions 2,057 2,076
Non-compensation expenses from acquisition-related agreements 125 -
Adjusted operating income $ 93,861 $ 68,544
Income tax expense/(benefit):
Income tax expense/(benefit) - U.S. GAAP basis
$ 19,619 $ (7,335)
Tax effect of adjustments:
Compensation from acquisition-related agreements 1,730 1,840
Amortization of intangible assets related to acquisitions 545 544
Non-compensation expenses from acquisition-related agreements 33 -
Adjusted income tax expense/(benefit)
$ 21,927 $ (4,951)
Net income attributable to Piper Sandler Companies:
Net income attributable to Piper Sandler Companies - U.S. GAAP basis
$ 65,242 $ 64,915
Adjustments:
Compensation from acquisition-related agreements 5,088 7,048
Amortization of intangible assets related to acquisitions 1,512 1,532
Non-compensation expenses from acquisition-related agreements 92 -
Adjusted net income attributable to Piper Sandler Companies $ 71,934 $ 73,495
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Three Months Ended
March 31,
(Amounts in thousands, except per share data) 2026 2025
Earnings per diluted common share (1):
Earnings per diluted common share - U.S. GAAP basis $ 0.92 $ 0.91
Adjustment for inclusion of unvested acquisition-related stock (0.01) (0.01)
$ 0.91 $ 0.90
Adjustments:
Compensation from acquisition-related agreements 0.07 0.10
Amortization of intangible assets related to acquisitions 0.02 0.02
Non-compensation expenses from acquisition-related agreements - -
Adjusted earnings per diluted common share $ 1.00 $ 1.02
Weighted average diluted common shares outstanding (1):
Weighted average diluted common shares outstanding - U.S. GAAP basis 71,235 71,150
Adjustment:
Unvested acquisition-related restricted stock with service conditions 402 699
Adjusted weighted average diluted common shares outstanding 71,637 71,849
(1)Common shares and per common share information have been adjusted to reflect the four-for-one forward split of common stock. See Note 1 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements are set forth in Note 3 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and are incorporated herein by reference.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting and reporting policies comply with U.S. GAAP and conform to practices within the securities industry. The preparation of financial statements in compliance with U.S. GAAP and industry practices requires us to make estimates and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical, including whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of the estimates, the ability to readily validate the estimates with other information (e.g., third-party or independent sources), the sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under U.S. GAAP.
We believe that of our significant accounting policies, the following are our critical accounting policies and estimates:
•Valuation of Financial Instruments
•Stock-Based Compensation Plans
•Income Taxes
See the "Critical Accounting Policies and Estimates" section and Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025 for further information on our critical accounting policies and estimates.
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LIQUIDITY, FUNDING AND CAPITAL RESOURCES
We regularly monitor our liquidity position, which is of critical importance to our business. Accordingly, we 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. Insufficient liquidity resulting from adverse circumstances contributes to, and may be the cause of, financial institution failure.
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 is generally in February, has a significant impact on our cash position and liquidity.
Our dividend policy is intended to return between 30 percent and 50 percent of our fiscal year adjusted net income to shareholders. Our board of directors determines the declaration and payment of dividends and is free to change our dividend policy at any time. Our board of directors declared the following dividends on shares of our common stock:
Dividend
Declaration Date
Per Share (1)
Record Date Payment Date
Related to 2024:
January 31, 2025 (2)
0.7500 March 4, 2025 March 14, 2025
Related to 2025:
January 31, 2025 0.1625 March 4, 2025 March 14, 2025
May 2, 2025 0.1625 May 30, 2025 June 13, 2025
August 1, 2025 0.1750 August 29, 2025 September 12, 2025
October 31, 2025 0.1750 November 25, 2025 December 12, 2025
February 6, 2026 (2)
1.2500 March 3, 2026 March 13, 2026
Related to 2026:
February 6, 2026 0.1750 March 3, 2026 March 13, 2026
May 1, 2026 0.2000 May 29, 2026 June 12, 2026
(1)Dividends per share has been adjusted to reflect the four-for-one forward split of common stock. See Note 1 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
(2)Represents a special cash dividend.
As part of our capital management strategy, we repurchase our common stock over time in order to offset the dilutive effect of our employee stock-based compensation awards and our grants of acquisition-related restricted stock, as well as to return capital to shareholders.
Effective February 5, 2025, our board of directors authorized the repurchase of up to $150.0 million in common shares through December 31, 2026. During the three months ended March 31, 2026, we repurchased 425,148 shares of our common stock at an average price of $77.73 per share for an aggregate purchase price of $33.0 million related to this authorization. At March 31, 2026, we had $88.5 million remaining under this authorization.
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We also purchase shares of common stock from restricted stock award recipients upon the award vesting as recipients sell shares to meet their employment tax obligations. During the first quarter of 2026, we purchased 458,656 shares of our common stock at an average price of $80.33 per share for an aggregate purchase price of $36.8 million for these purposes.
Common Stock Split
On March 23, 2026, we effected a four-for-one forward split of our common stock ("Stock Split") through the filing of an amendment to our amended and restated certificate of incorporation, which was accompanied by a proportionate increase in the number of shares of our authorized common stock. Our common stock began trading on the split-adjusted basis at the start of trading on March 24, 2026. All share and per share amounts presented herein have been retrospectively adjusted to reflect the impact of the Stock Split.
Leverage
The following table presents total assets, adjusted assets, total shareholders' equity and tangible common shareholders' equity with the resulting leverage ratios:
March 31, December 31,
(Dollars in thousands) 2026 2025
Total assets $ 2,130,063 $ 2,592,646
Deduct: Goodwill and intangible assets (417,940) (418,856)
Deduct: Right-of-use lease assets
(60,474) (64,004)
Deduct: Assets attributable to noncontrolling interests
(218,068) (217,726)
Adjusted assets $ 1,433,581 $ 1,892,060
Total shareholders' equity $ 1,557,859 $ 1,582,793
Deduct: Goodwill and intangible assets (417,940) (418,856)
Deduct: Noncontrolling interests (216,023) (211,786)
Tangible common shareholders' equity $ 923,896 $ 952,151
Leverage ratio (1) 1.4 1.6
Adjusted leverage ratio (2) 1.6 2.0
(1)Leverage ratio equals total assets divided by total shareholders' equity.
(2)Adjusted leverage ratio equals adjusted assets divided by tangible common shareholders' equity.
Adjusted assets and tangible common shareholders' equity are non-GAAP financial measures. Goodwill and intangible assets are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholders' equity, respectively, as we believe that goodwill and intangible assets do not constitute operating assets that can be deployed in a liquid manner. Right-of-use lease assets are also subtracted from total assets in determining adjusted assets as these are not operating assets that can be deployed in a liquid manner. Amounts attributable 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 decreased from December 31, 2025, primarily due to a decline in cash and cash equivalents driven by the payment of annual incentive compensation in the first quarter of 2026.
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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 financing arrangements. 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 cash from our operating activities, as well as through the use of a clearing arrangement with Pershing LLC ("Pershing") and a clearing arrangement with bank financing, which are 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 or cash from our operating activities. Our funding sources are dependent on the types of inventory that our counterparties are willing to accept as collateral and the number of counterparties available. Our unsecured revolving credit facility has been established for working capital and general corporate purposes. Our secured revolving credit facility has been established for our private capital advisory business. Funding is generally obtained at rates based upon the federal funds rate or the Secured Overnight Financing Rate.
Pershing Clearing Arrangement
We have established an arrangement to obtain financing from Pershing related to the majority of our trading activities. Under our fully disclosed clearing agreement, all of our securities inventories with the exception of convertible securities, 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. We may accommodate non-standard settlement timeframes for our clients, which can impact our funding and collateral balances. Our clearing arrangement activities are recorded net of 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 March 31, 2026, we had $4.1 million of financing outstanding under this arrangement.
Clearing Arrangement with Bank Financing
We have established a financing arrangement with a U.S. branch of Canadian Imperial Bank of Commerce ("CIBC") related to our convertible securities inventories. Under this arrangement, our convertible securities inventories are cleared through a broker dealer affiliate of CIBC and held by CIBC. We generally economically hedge changes in the market value of our convertible securities inventories using the underlying common stock or the stock options of the underlying common stock. 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 CIBC (i.e., uncommitted) and could be denied subject to a notice period. This arrangement is reported within receivables from or payables to brokers, dealers and clearing organizations, net of trading activity. At March 31, 2026, we had $29.9 million of financing outstanding under this arrangement.
Unsecured Revolving Credit Facility
We have an unsecured $120 million revolving credit facility with U.S. Bank N.A. The credit agreement will terminate on December 20, 2028, unless otherwise terminated. At March 31, 2026, there were $10.0 million of advances against this credit facility.
This credit facility includes customary events of default and covenants that, among other things, require Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million, limit our leverage ratio, require maintenance of a minimum ratio of operating cash flow to fixed charges, and impose certain limitations on our ability to make acquisitions and make payments on our capital stock. At March 31, 2026, we were in compliance with all covenants.
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Secured Revolving Credit Facility
We have a $30 million revolving credit facility with Huntington Bancshares Incorporated related to our private capital advisory business. Advances under this facility are secured by certain installment fee receivables. The credit agreement will terminate on August 23, 2027, unless otherwise terminated. At March 31, 2026, there were $5.0 million of advances against this credit facility.
This credit facility includes customary events of default and covenants that, among other things, require Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million, limit our leverage ratio, require maintenance of a minimum fixed charge coverage ratio, and impose certain limitations on our ability to make acquisitions and make payments on our capital stock. At March 31, 2026, we were in compliance with all covenants.
Average Funding Balances Outstanding and Maximum Daily Funding By Quarter
The following table presents the average balances outstanding for our various funding sources by quarter for 2026 and 2025:
Average Balance for the Three Months Ended
(Amounts in millions) Mar. 31, 2026 Dec. 31, 2025 Sept. 30, 2025 June 30, 2025 Mar. 31, 2025
Funding source
Pershing clearing arrangement $ 4.7 $ 10.3 $ 5.3 $ 80.9 $ 9.7
Clearing arrangement with bank financing 34.5 58.4 46.9 57.9 51.9
Unsecured revolving credit facility 10.0 10.0 10.0 10.0 10.0
Secured revolving credit facility
5.0 5.0 5.0 5.0 1.2
Total $ 54.2 $ 83.7 $ 67.2 $ 153.8 $ 72.8
The average funding in the first quarter of 2026 decreased to $54.2 million, compared with $83.7 million during the fourth quarter of 2025 and $72.8 million during the first quarter of 2025, primarily due to a decrease in borrowings on our clearing arrangement with bank financing.
The following table presents the maximum daily funding amount by quarter for 2026 and 2025:
(Amounts in millions) 2026 2025
First Quarter $ 211.7 $ 574.2
Second Quarter 615.5
Third Quarter 276.1
Fourth Quarter 305.2
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Capital Requirements
As a registered broker dealer and member firm of the Financial Industry Regulatory Authority, Inc. ("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 March 31, 2026, our net capital under the SEC's uniform net capital rule was $276.1 million, and exceeded the minimum net capital required under the SEC rule by $275.1 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 unsecured revolving credit facility and secured revolving credit facility include covenants requiring Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million. Our fully disclosed clearing agreement with Pershing includes a covenant requiring Piper Sandler & Co. to maintain excess net capital of $120 million.
At March 31, 2026, 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.
Aviditi Capital Advisors Europe GmbH, a European subsidiary, is authorized and regulated by the Federal Financial Supervisory Authority ("BaFin") as a tied agent of AHP Capital Management GmbH, a third-party financial institution.
Piper Sandler MENA Ltd, an Abu Dhabi Global Market ("ADGM") subsidiary, is authorized and regulated by the ADGM Financial Services Regulatory Authority. As of March 31, 2026, Piper Sandler MENA Ltd was in compliance with the capital requirements of the ADGM Financial Services Regulatory Authority.
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OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business we enter into various types of off-balance sheet arrangements. The following table summarizes the notional contract value of our off-balance sheet arrangements for the periods presented:
Expiration Per Period
Total Contractual Amount
Remainder of 2029 2031 March 31, December 31,
(Amounts in thousands) 2026 2027 2028 - 2030 - 2032 Later 2026 2025
Customer matched-book derivative contracts (1) (2) $ 60,000 $ 21,986 $ - $ 20,222 $ - $ 262,550 $ 364,758 $ 355,129
Trading securities derivative contracts (1)
171,180 50,080 - 6,500 - - 227,760 236,400
Investment commitments (3) - - - - - - 28,091 30,884
(1)We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional or contract amount overstates the expected payout. At March 31, 2026 and December 31, 2025, the net fair value of these derivative contracts approximated $3.2 million and $4.0 million, respectively.
(2)We have three counterparties (contractual amount of $72.4 million at March 31, 2026) who are not required to post collateral. The uncollateralized amounts, representing the fair value of the derivative contracts, expose us to the credit risk of these counterparties. At March 31, 2026, we had $4.4 million of credit exposure with these counterparties, including $3.9 million of credit exposure with one counterparty.
(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 7 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Investment Commitments
We have investments, including those made as part of our alternative asset management activities, in 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 $28.1 million to certain entities and these commitments generally have no specified call dates.
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RISK MANAGEMENT
Risk is an inherent part of our business. The principal risks we face in operating our business include: strategic risk, market risk, liquidity risk, credit risk, operational risk, human capital risk, and legal and regulatory risk. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability. We have a formal risk management process to identify, assess and monitor each risk and mitigating controls in accordance with defined policies and procedures. The risk management functions are independent of our business lines. Our management takes an active role in the risk management process, and the results are reported to senior management and the board of directors.
The audit committee of the board of directors oversees management's processes for identifying and evaluating our major risks, and the policies, procedures and practices employed by management to govern its risk assessment and risk management processes. The nominating and governance committee of the board of directors oversees the board of directors' committee structures and functions as they relate to the various committees' responsibilities with respect to oversight of our major risk exposures. With respect to these major risk exposures, the audit committee is responsible for overseeing management's monitoring and control of our major risk exposures relating to market risk, credit risk, liquidity risk, legal and regulatory risk, operational risk (including cybersecurity, as further described in Part I, Item 1C "Cybersecurity" in our Annual Report on Form 10-K for the year ended December 31, 2025), 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 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 committees, 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.
Strategic Risk
Strategic risk represents the risk associated with executive management failing to develop and execute on the appropriate strategic vision which demonstrates a commitment to our culture, leverages our core competencies, appropriately responds to external factors in the marketplace, and is in the best interests of our clients, employees and shareholders.
Our leadership team is responsible for managing our strategic risks. The board of directors oversees the leadership team in setting and executing our strategic plan.
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Market Risk
Market risk represents the risk of losses, or financial volatility, that may result from the change in value of a financial instrument due to fluctuations in its market price. Our exposure to market risk is directly related to our role as a financial intermediary for our clients 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 7 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q 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 $0.4 million in the carrying value of our fixed income securities inventory as of March 31, 2026, 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 Municipal Market Data ("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.
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.
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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 or at normal bid-offer spreads. Depending on the specific security, the structure of the financial product, 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 securities, taxable and tax-exempt municipal securities, and U.S. government and agency securities as a percentage of the total of these asset classes as of March 31, 2026:
AAA AA A BBB BB Not Rated
Corporate fixed income securities - % - % 2.0 % 0.3 % - % 0.9 %
Taxable and tax-exempt municipal securities 7.3 46.7 8.1 - - 3.2
U.S. government and agency securities - 31.5 - - - -
7.3 % 78.2 % 10.1 % 0.3 % - % 4.1 %
Convertible and preferred securities are excluded from the table above as they are typically unrated.
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 creditworthiness. 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.
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 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.
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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 our 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.
Within our customer matched-book derivative portfolio, we have concentrated counterparty credit exposure with three non-publicly rated entities totaling $4.4 million at March 31, 2026. This counterparty credit exposure relates to our public finance business and consists primarily of interest rate swaps. One derivative counterparty represented 89.0 percent, or $3.9 million, of this exposure. Credit exposure associated with our derivative counterparties is driven by uncollateralized market movements in the fair value of the interest rate swap contracts and is monitored regularly by our financial risk committee. We attempt to minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by senior management.
Operational Risk
Operational risk is the risk of loss, or damage to our reputation, resulting from inadequate or failed processes, people and systems or from external events. We rely on the ability of our employees and our systems, both internal and at computer centers operated by third parties, to process a large number of transactions. Our systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control. In the event of a breakdown or improper operation of our systems or improper action by our employees or third-party vendors, we could suffer financial loss, a disruption of our businesses, regulatory sanctions and damage to our reputation. We also face the risk of operational failure or termination of our relationship with any of the exchanges, fully disclosed clearing firms, or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage our exposure to risk.
Our operations rely on secure processing, storage and transmission of confidential and other information in our internal and outsourced computer systems and networks. Our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, internal misconduct or inadvertent errors and other events that could have an information security impact. The occurrence of one or more of these events 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. A further discussion of our procedures for cybersecurity risk management is included in Part I, Item 1C "Cybersecurity" in our Annual Report on Form 10-K for the year ended December 31, 2025.
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. Important aspects of these policies and procedures include segregation of duties, management oversight, internal control over financial reporting and independent risk management activities within such functions as Risk Management, Compliance, Operations, Internal Audit, Treasury, Finance, Information Technology and Legal. Internal Audit oversees, monitors, evaluates, analyzes and reports on operational risk across the firm. 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.
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We operate under a fully disclosed clearing model for all of our securities inventories with the exception of convertible securities, and for all of our client clearing activities. 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 reasonably designed to achieve 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 financial and electronic recordkeeping. We have also established procedures that are reasonably designed to achieve compliance with our policies relating to ethics and business conduct. 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 occupancy costs, communications charges and travel costs, 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.
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Piper Sandler Companies published this content on May 07, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 07, 2026 at 16:34 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]