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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                     

Commission File No. 001-31720
PIPER SANDLER COMPANIES
(Exact Name of Registrant as specified in its Charter)
Delaware
 
30-0168701
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
800 Nicollet Mall, Suite 900
 
 
Minneapolis
,
Minnesota
 
55402
(Address of Principal Executive Offices)
 
(Zip Code)
(612)
303-6000
 
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share
PIPR
The New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   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
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No  

As of May 1, 2020, the registrant had 17,949,955 shares of Common Stock outstanding.
 




Piper Sandler Companies
Index to Quarterly Report on Form 10-Q

PART I. FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
3
 
 
3
 
 
4
 
 
6
 
 
7
 
 
8
 
 
9
ITEM 2.
 
38
ITEM 3.
 
60
ITEM 4.
 
61
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 1.
 
61
ITEM 1A.
 
61
ITEM 2.
 
62
ITEM 6.
 
63
 
 
64





PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.
Piper Sandler Companies
Consolidated Statements of Financial Condition
 
March 31,
 
December 31,
 
2020
 
2019
(Amounts in thousands, except share data)
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
128,582

 
$
250,018

Receivables from brokers, dealers and clearing organizations
16,962

 
283,108

 
 
 
 
Financial instruments and other inventory positions owned
241,395

 
434,088

Financial instruments and other inventory positions owned and pledged as collateral
369,948

 
205,674

Total financial instruments and other inventory positions owned
611,343

 
639,762

 
 
 
 
Fixed assets (net of accumulated depreciation and amortization of $68,397 and $65,991, respectively)
36,315

 
29,850

Goodwill
181,808

 
87,649

Intangible assets (net of accumulated amortization of $50,742 and $40,864, respectively)
164,408

 
16,686

Investments
141,542

 
158,141

Net deferred income tax assets
79,360

 
68,035

Right-of-use lease asset
74,847

 
40,030

Other assets
82,713

 
55,440

Total assets
$
1,517,880

 
$
1,628,719

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Short-term financing
$
99,980

 
$
49,978

Senior notes
175,000

 
175,000

Payables to brokers, dealers and clearing organizations
16,201

 
7,514

Financial instruments and other inventory positions sold, but not yet purchased
147,118

 
185,425

Accrued compensation
126,990

 
300,527

Accrued lease liability
91,276

 
57,169

Other liabilities and accrued expenses
65,240

 
46,578

Total liabilities
721,805

 
822,191

 
 
 
 
Shareholders' equity:
 
 
 
Common stock, $0.01 par value:
 
 
 
Shares authorized: 100,000,000 at March 31, 2020 and December 31, 2019;
 
 
 
Shares issued: 19,526,398 at March 31, 2020 and 19,526,533 at December 31, 2019;
 
 
 
Shares outstanding: 13,783,930 at March 31, 2020 and 13,717,315 at December 31, 2019
195

 
195

Additional paid-in capital
790,478

 
757,669

Retained earnings
227,876

 
258,669

Less common stock held in treasury, at cost: 5,742,468 shares at March 31, 2020 and 5,809,218 shares at December 31, 2019
(287,446
)
 
(284,378
)
Accumulated other comprehensive loss
(1,544
)
 
(872
)
Total common shareholders' equity
729,559

 
731,283

 
 
 
 
Noncontrolling interests
66,516

 
75,245

Total shareholders' equity
796,075

 
806,528

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

 
$
1,628,719



See Notes to the Consolidated Financial Statements

3

Piper Sandler Companies
Consolidated Statements of Operations
(Unaudited)

 
Three Months Ended
 
March 31,
(Amounts in thousands, except per share data)
2020
 
2019
 
 
 
 
Revenues:
 
 
 
Investment banking
$
158,998

 
$
141,061

Institutional brokerage
89,143

 
34,965

Interest income
6,065

 
7,567

Investment income/(loss)
(13,826
)
 
1,592

 
 
 
 
Total revenues
240,380

 
185,185

 
 
 
 
Interest expense
4,212

 
2,643

 
 
 
 
Net revenues
236,168

 
182,542

 
 
 
 
Non-interest expenses:
 
 
 
Compensation and benefits
188,124

 
117,127

Outside services
8,439

 
8,571

Occupancy and equipment
12,238

 
8,349

Communications
11,634

 
7,865

Marketing and business development
10,039

 
6,738

Deal-related expenses
4,940

 
4,728

Trade execution and clearance
7,151

 
1,806

Restructuring and integration costs
1,902

 

Intangible asset amortization
9,878

 
753

Other operating expenses
15,852

 
3,468

 
 
 
 
Total non-interest expenses
270,197

 
159,405

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

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

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

 
 
 
 
Discontinued operations:
 
 
 
Loss from discontinued operations, net of tax

 
(139
)
 
 
 
 
Net income/(loss)
(22,255
)
 
18,806

 
 
 
 
Net loss applicable to noncontrolling interests
(7,528
)
 
(616
)
 
 
 
 
Net income/(loss) applicable to Piper Sandler Companies
$
(14,727
)
 
$
19,422

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

 
 
 
 
Continued on next page


4

Piper Sandler Companies
Consolidated Statements of Operations – Continued
(Unaudited)

 
Three Months Ended
 
March 31,
(Amounts in thousands, except per share data)
2020
 
2019
 
 
 
 
Amounts applicable to Piper Sandler Companies
 
 
 
Net income/(loss) from continuing operations
$
(14,727
)
 
$
19,561

Net loss from discontinued operations

 
(139
)
Net income/(loss) applicable to Piper Sandler Companies
$
(14,727
)
 
$
19,422

 
 
 
 
Earnings/(loss) per basic common share
 
 
 
Income/(loss) from continuing operations
$
(1.07
)
 
$
1.36

Loss from discontinued operations

 
(0.01
)
Earnings/(loss) per basic common share
$
(1.07
)
 
$
1.35

 
 
 
 
Earnings/(loss) per diluted common share
 
 
 
Income/(loss) from continuing operations
$
(1.07
)
 
$
1.33

Loss from discontinued operations

 
(0.01
)
Earnings/(loss) per diluted common share
$
(1.07
)
 
$
1.32

 
 
 
 
Dividends declared per common share
$
1.13

 
$
1.39

 
 
 
 
Weighted average common shares outstanding
 
 
 
Basic
13,796

 
13,204

Diluted
14,411

 
13,530


See Notes to the Consolidated Financial Statements

5

Piper Sandler Companies
Consolidated Statements of Comprehensive Income
(Unaudited)

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

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

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

 
 
 
 
Comprehensive loss applicable to noncontrolling interests
(7,528
)
 
(616
)
 
 
 
 
Comprehensive income/(loss) applicable to Piper Sandler Companies
$
(15,399
)
 
$
19,637


See Notes to the Consolidated Financial Statements


6

Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)


 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
Total
 
 
 
 
 
 
Common
 
 
 
Additional
 
 
 
 
 
Other
 
Common
 
 
 
Total
(Amounts in thousands,
 
Shares
 
Common
 
Paid-In
 
Retained
 
Treasury
 
Comprehensive
 
Shareholders'
 
Noncontrolling
 
Shareholders'
 except share amounts)
 
Outstanding
 
Stock
 
Capital
 
Earnings
 
Stock
 
Loss
 
Equity
 
Interests
 
Equity
Balance at December 31, 2019
 
13,717,315

 
$
195

 
$
757,669

 
$
258,669

 
$
(284,378
)
 
$
(872
)
 
$
731,283

 
$
75,245

 
$
806,528

Net loss
 

 

 

 
(14,727
)
 

 

 
(14,727
)
 
(7,528
)
 
(22,255
)
Dividends
 

 

 

 
(16,066
)
 

 

 
(16,066
)
 

 
(16,066
)
Amortization/issuance of restricted stock (1)
 

 

 
44,195

 

 

 

 
44,195

 

 
44,195

Repurchase of common stock through share repurchase program
 
(128,865
)
 

 

 

 
(9,225
)
 

 
(9,225
)
 

 
(9,225
)
Issuance of treasury shares for restricted stock vestings
 
254,111

 

 
(12,551
)
 

 
12,551

 

 

 

 

Issuance of treasury shares for deal consideration
 
34,205

 

 
1,049

 

 
1,674

 

 
2,723

 

 
2,723

Repurchase of common stock from employees
 
(94,615
)
 

 

 

 
(8,068
)
 

 
(8,068
)
 

 
(8,068
)
Shares reserved/issued for director compensation
 
1,779

 

 
116

 

 

 

 
116

 

 
116

Other comprehensive loss
 

 

 

 

 

 
(672
)
 
(672
)
 

 
(672
)
Fund capital distributions, net
 

 

 

 

 

 

 

 
(1,201
)
 
(1,201
)
Balance at March 31, 2020
 
13,783,930

 
$
195

 
$
790,478

 
$
227,876

 
$
(287,446
)
 
$
(1,544
)
 
$
729,559

 
$
66,516

 
$
796,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
12,995,397

 
$
195

 
$
796,363

 
$
182,552

 
$
(300,268
)
 
$
(1,398
)
 
$
677,444

 
$
52,972

 
$
730,416

Net income/(loss)
 

 

 

 
19,422

 

 

 
19,422

 
(616
)
 
18,806

Dividends
 

 

 

 
(19,947
)
 

 

 
(19,947
)
 

 
(19,947
)
Amortization/issuance of restricted stock
 

 

 
23,826

 

 

 

 
23,826

 

 
23,826

Repurchase of common stock through share repurchase program
 
(501
)
 

 

 

 
(32
)
 

 
(32
)
 

 
(32
)
Issuance of treasury shares for restricted stock vestings
 
1,035,360

 

 
(48,092
)
 

 
48,092

 

 

 

 

Repurchase of common stock from employees
 
(563,284
)
 

 

 

 
(39,695
)
 

 
(39,695
)
 

 
(39,695
)
Shares reserved/issued for director compensation
 
1,263

 

 
87

 

 

 

 
87

 

 
87

Other comprehensive income
 

 

 

 

 

 
215

 
215

 

 
215

Fund capital distributions, net
 

 

 

 

 

 

 

 
(5
)
 
(5
)
Balance at March 31, 2019
 
13,468,235

 
$
195

 
$
772,184

 
$
182,027

 
$
(291,903
)
 
$
(1,183
)
 
$
661,320

 
$
52,351

 
$
713,671

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

See Notes to the Consolidated Financial Statements

7

Piper Sandler Companies
Consolidated Statements of Cash Flows
(Unaudited)

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

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization of fixed assets
2,632

 
2,392

Deferred income taxes
(11,325
)
 
13,855

Stock-based compensation
21,795

 
4,350

Amortization of intangible assets
9,878

 
2,112

Amortization of forgivable loans
1,068

 
1,503

Decrease/(increase) in operating assets:
 
 
 
Receivables from brokers, dealers and clearing organizations
458,821

 
188,268

Net financial instruments and other inventory positions owned
(9,888
)
 
(17,359
)
Investments
17,284

 
(62
)
Other assets
(13,937
)
 
(3,936
)
Increase/(decrease) in operating liabilities:
 
 
 
Payables to brokers, dealers and clearing organizations
8,687

 
(2,385
)
Accrued compensation
(222,256
)
 
(163,104
)
Other liabilities and accrued expenses
(2,912
)
 
(8,318
)
Increase in assets held for sale

 
(383
)
Decrease in liabilities held for sale

 
(7,218
)
 
 
 
 
Net cash provided by operating activities
237,592

 
28,521

 
 
 
 
Investing Activities:
 
 
 
Business acquisitions, net of cash acquired
(371,369
)
 

Purchases of fixed assets, net
(2,359
)
 
(1,421
)
 
 
 
 
Net cash used in investing activities
(373,728
)
 
(1,421
)
 
 
 
 
Financing Activities:
 
 
 
Increase in short-term financing
50,002

 
3

Payment of cash dividend
(16,066
)
 
(19,947
)
Decrease in noncontrolling interests
(1,201
)
 
(5
)
Repurchase of common stock
(17,293
)
 
(39,727
)
 
 
 
 
Net cash provided by/(used in) financing activities
15,442

 
(59,676
)
 
 
 
 
Currency adjustment:
 
 
 
Effect of exchange rate changes on cash
(742
)
 
457

 
 
 
 
Net decrease in cash and cash equivalents
(121,436
)
 
(32,119
)
 
 
 
 
Cash and cash equivalents at beginning of period
250,018

 
50,364

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

 
$
18,245

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
4,127

 
$
2,809

Income taxes
$
557

 
$
7,462



See Notes to the Consolidated Financial Statements

8

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


Index
Note 1
 
10
Note 2
 
11
Note 3
 
11
Note 4
 
14
Note 5
 
15
Note 6
 
17
Note 7
 
23
Note 8
 
24
Note 9
 
24
Note 10
 
25
Note 11
 
25
Note 12
 
26
Note 13
 
26
Note 14
 
27
Note 15
 
27
Note 16
 
28
Note 17
 
29
Note 18
 
34
Note 19
 
36
Note 20
 
36
Note 21
 
37
Note 22
 
37


9

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


Note 1 Organization and Basis of Presentation

Organization

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

Piper Sandler Companies and its subsidiaries (collectively, the "Company") operate in one reporting segment providing investment banking 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.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to this guidance, certain information and disclosures have been omitted that are included within the complete annual financial statements. Except as disclosed herein, there have been no material changes in the information reported in the financial statements and related disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The consolidated financial statements 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.

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

10

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


Note 2 Accounting Policies and Pronouncements

Summary of Significant Accounting Policies

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a full description of the Company's significant accounting policies.

Adoption of New Accounting Standards

Financial Instruments Credit Losses

In June 2016, the Financial Accounting Standards Board ("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.

Note 3 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.

SOP Holdings, LLC

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

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

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

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

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


11

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


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

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition:
(Amounts in thousands)
 
Assets
 
Cash and cash equivalents
$
27,420

Receivables from brokers, dealers and clearing organizations
192,675

Fixed assets
6,789

Goodwill
94,159

Intangible assets
157,600

Investments
685

Right-of-use lease asset
39,607

Other assets
10,029

Total assets acquired
528,964

 
 
Liabilities
 
Accrued compensation
71,398

Accrued lease liability
39,613

Other liabilities and accrued expenses
16,441

Due to Sandler O'Neill (1)
40,673

Total liabilities assumed
168,125

 
 
Net assets acquired
$
360,839

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

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

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

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

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


12

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


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

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

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition, including measurement period adjustments:
(Amounts in thousands)
 
Assets
 
Cash and cash equivalents
$
4,351

Receivables from brokers, dealers and clearing organizations
1,623

Fixed assets
289

Goodwill
5,794

Intangible assets
16,700

Right-of-use lease asset
6,811

Other assets
10,888

Total assets acquired
46,456

 
 
Liabilities
 
Accrued compensation
2,156

Accrued lease liability
6,811

Other liabilities and accrued expenses
13,464

Total liabilities assumed
22,431

 
 
Net assets acquired
$
24,025



Pro Forma Financial Information

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

13

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


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


Note 4 Discontinued Operations
In the third quarter of 2019, the Company completed the sale of its traditional asset management business, which was conducted through its wholly-owned subsidiary Advisory Research, Inc. ("ARI"). On September 20, 2019, the Company completed the sale of the master limited partnerships ("MLP") and energy infrastructure strategies business to Tortoise Capital Advisors. Additionally, on September 27, 2019, the Company completed the sale of its remaining equity strategies business to its former management team.

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

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

ARI's results have been presented as discontinued operations for all prior periods presented. The components of discontinued operations were as follows:
 
 
Three Months Ended
(Amounts in thousands)
 
March 31, 2019
Net revenues
 
$
9,290

 
 
 
Operating expenses
 
8,139

Intangible asset amortization
 
1,359

Total non-interest expenses
 
9,498

 
 
 
Loss from discontinued operations before income tax benefit
 
(208
)
 
 
 
Income tax benefit
 
(69
)
 
 
 
Loss from discontinued operations, net of tax
 
$
(139
)



14

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


Note 5 Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased

 
March 31,
 
December 31,
(Amounts in thousands)
2020
 
2019
Financial instruments and other inventory positions owned:
 
 
 
Corporate securities:
 
 
 
Equity securities
$
2,827

 
$
3,046

Convertible securities
117,915

 
146,406

Fixed income securities
84,651

 
28,176

Municipal securities:
 
 
 
Taxable securities
26,260

 
22,570

Tax-exempt securities
214,817

 
222,192

Short-term securities
63,406

 
67,901

Mortgage-backed securities
13

 
13

U.S. government agency securities
68,076

 
51,773

U.S. government securities
407

 
77,303

Derivative contracts
32,971

 
20,382

Total financial instruments and other inventory positions owned
$
611,343

 
$
639,762

 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
Corporate securities:
 
 
 
Equity securities
$
50,895

 
$
94,036

Fixed income securities
13,995

 
10,311

U.S. government agency securities
881

 
9,935

U.S. government securities
73,207

 
67,090

Derivative contracts
8,140

 
4,053

Total financial instruments and other inventory positions sold, but not yet purchased
$
147,118

 
$
185,425


At March 31, 2020 and December 31, 2019, financial instruments and other inventory positions owned in the amount of $369.9 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.

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


15

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


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

Derivatives are reported on a net basis by counterparty (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of offset exists and on a net basis by cross product when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists. The total absolute notional contract amount, representing the absolute value of the sum of gross long and short derivative contracts, provides an indication of the volume of the Company's derivative activity and does not represent gains and losses. The following table presents the gross fair market value and the total absolute notional contract amount of the Company's outstanding derivative instruments, prior to counterparty netting, by asset or liability position:
 
 
March 31, 2020
 
December 31, 2019
(Amounts in thousands)
 
Derivative
 
Derivative
 
Notional
 
Derivative
 
Derivative
 
Notional
Derivative Category
 
Assets (1)
 
Liabilities (2)
 
Amount
 
Assets (1)
 
Liabilities (2)
 
Amount
Interest rate
 
 
 
 
 
 
 
 
 
 
 
 
Customer matched-book
 
$
264,559

 
$
253,830

 
$
2,023,391

 
$
209,119

 
$
198,315

 
$
2,197,340

Trading securities
 
1,975

 
6,502

 
209,075

 
8

 
1,852

 
110,875

Equity options
 
 
 
 
 
 
 
 
 
 
 
 
Trading securities
 

 
1,386

 
16,218

 

 

 

 
 
$
266,534

 
$
261,718

 
$
2,248,684

 
$
209,127

 
$
200,167

 
$
2,308,215


(1)
Derivative assets are included within financial instruments and other inventory positions owned on the consolidated statements of financial condition.
(2)
Derivative liabilities are included within financial instruments and other inventory positions sold, but not yet purchased on the consolidated statements of financial condition.

The Company's derivative contracts do not qualify for hedge accounting, therefore, unrealized gains and losses are recorded on the consolidated statements of operations. The gains and losses on the related economically hedged inventory positions are not disclosed below as they are not in qualifying hedging relationships. The following table presents the Company's unrealized gains/(losses) on derivative instruments:
 
 
 
 
Three Months Ended
(Amounts in thousands)
 
 
 
March 31,
Derivative Category
 
Operations Category
 
2020
 
2019
Interest rate derivative contract
 
Investment banking
 
$
(732
)
 
$
(617
)
Interest rate derivative contract
 
Institutional brokerage
 
(2,027
)
 
(249
)
Equity option derivative contracts
 
Institutional brokerage
 
(822
)
 

 
 
 
 
$
(3,581
)
 
$
(866
)


Credit risk associated with the Company's derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company's derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by the Company's financial risk committee. The Company considers counterparty credit risk in determining derivative contract fair value. The majority of the Company's derivative contracts are substantially collateralized by its counterparties, who are major financial institutions. The Company has a limited number of counterparties who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of March 31, 2020, the Company had $27.3 million of uncollateralized credit exposure with these counterparties (notional contract amount of $173.0 million), including $23.2 million of uncollateralized credit exposure with one counterparty.


16

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


Note 6 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.

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.

17

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


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

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.

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 March 31, 2020 and December 31, 2019, respectively. The realized and unrealized net impact from fair value changes included in earnings as a result of electing to apply the fair value option to certain financial assets were gains of $0.2 million and losses of $0.4 million for the three months ended March 31, 2020 and 2019, respectively.


18

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


The following table summarizes quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's Level III financial instruments as of March 31, 2020:
 
Valuation
 
 
 
 
 
Weighted
 
Technique
 
Unobservable Input
 
Range
 
Average (1)
Assets
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
Derivative contracts:
 
 
 
 
 
 
 
Interest rate locks
Discounted cash flow
 
Premium over the MMD curve in basis points ("bps") (2)
 
5 - 35 bps
 
15.4 bps
Investments at fair value:
 
 
 
 
 
 
 
Equity securities in private companies
Market approach
 
Revenue multiple (2)
 
3 - 5 times
 
3.8 times
 
 
 
EBITDA multiple (2)
 
10 - 20 times
 
16.1 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)
 
8 - 62 bps
 
51.7 bps
Uncertainty of fair value measurements:
(1)
Unobservable inputs were weighted by the relative fair value of the financial instruments.
(2)
Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly higher/(lower) fair value measurement.
(3)
Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly lower/(higher) fair value measurement.


19

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in FASB Accounting Standards Codification Topic 820, "Fair Value Measurement" ("ASC 820") as of March 31, 2020:
 
 
 
 
 
 
 
Counterparty
 
 
 
 
 
 
 
 
 
and Cash
 
 
 
 
 
 
 
 
 
Collateral
 
 
(Amounts in thousands)
Level I
 
Level II
 
Level III
 
Netting (1)
 
Total
Assets
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
165

 
$
2,662

 
$

 
$

 
$
2,827

Convertible securities

 
117,915

 

 

 
117,915

Fixed income securities

 
84,651

 

 

 
84,651

Municipal securities:
 
 
 
 
 
 
 
 
 
Taxable securities

 
26,260

 

 

 
26,260

Tax-exempt securities

 
214,817

 

 

 
214,817

Short-term securities

 
63,406

 

 

 
63,406

Mortgage-backed securities

 

 
13

 

 
13

U.S. government agency securities

 
68,076

 

 

 
68,076

U.S. government securities
407

 

 

 

 
407

Derivative contracts

 
264,559

 
1,975

 
(233,563
)
 
32,971

Total financial instruments and other inventory positions owned
572

 
842,346

 
1,988

 
(233,563
)
 
611,343

 
 
 
 
 
 
 
 
 
 
Cash equivalents
4,916

 

 

 

 
4,916

 
 
 
 
 
 
 
 
 
 
Investments at fair value
13,838

 

 
120,730

(2)

 
134,568

Total assets
$
19,326

 
$
842,346

 
$
122,718

 
$
(233,563
)
 
$
750,827

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
50,872

 
$
23

 
$

 
$

 
$
50,895

Fixed income securities

 
13,995

 

 

 
13,995

U.S. government agency securities

 
881

 

 

 
881

U.S. government securities
73,207

 

 

 

 
73,207

Derivative contracts
1,386

 
254,775

 
5,557

 
(253,578
)
 
8,140

Total financial instruments and other inventory positions sold, but not yet purchased
$
125,465

 
$
269,674

 
$
5,557

 
$
(253,578
)
 
$
147,118

(1)
Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.
(2)
Includes noncontrolling interests of $66.5 million primarily attributable to unrelated third party ownership in consolidated merchant banking funds.


20

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)


The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2019:
 
 
 
 
 
 
 
Counterparty
 
 
 
 
 
 
 
 
 
and Cash
 
 
 
 
 
 
 
 
 
Collateral
 
 
(Amounts in thousands)
Level I
 
Level II
 
Level III
 
Netting (1)
 
Total
Assets
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
469

 
$
2,577

 
$

 
$

 
$
3,046

Convertible securities

 
146,406

 

 

 
146,406

Fixed income securities

 
28,176

 

 

 
28,176

Municipal securities:
 
 
 
 
 
 
 
 
 
Taxable securities

 
22,570

 

 

 
22,570

Tax-exempt securities

 
222,192

 

 

 
222,192

Short-term securities

 
67,901

 

 

 
67,901

Mortgage-backed securities

 

 
13

 

 
13

U.S. government agency securities

 
51,773

 

 

 
51,773

U.S. government securities
77,303

 

 

 

 
77,303

Derivative contracts

 
209,119

 
8

 
(188,745
)
 
20,382

Total financial instruments and other inventory positions owned
77,772

 
750,714

 
21

 
(188,745
)
 
639,762

 
 
 
 
 
 
 
 
 
 
Cash equivalents
226,744

 

 

 

 
226,744

 
 
 
 
 
 
 
 
 
 
Investments at fair value
17,658

 

 
132,329

(2)

 
149,987

Total assets
$
322,174

 
$
750,714

 
$
132,350

 
$
(188,745
)
 
$
1,016,493

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
88,794

 
$
5,242

 
$

 
$

 
$
94,036

Fixed income securities

 
10,311

 

 

 
10,311

U.S. government agency securities

 
9,935

 

 

 
9,935

U.S. government securities
67,090

 

 

 

 
67,090

Derivative contracts

 
198,604

 
1,563