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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, 2022
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 Number: 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 ClassTrading SymbolName of Each Exchange On Which Registered
Common Stock, par value $0.01 per sharePIPRThe 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 filerSmaller 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 April 29, 2022, the registrant had 17,809,945 shares of Common Stock outstanding.



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


PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.

Piper Sandler Companies
Consolidated Statements of Financial Condition
March 31,December 31,
20222021
(Amounts in thousands, except share data)(Unaudited)
Assets
Cash and cash equivalents$247,039 $970,965 
Receivables from brokers, dealers and clearing organizations181,380 254,130 
Financial instruments and other inventory positions owned332,738 230,423 
Financial instruments and other inventory positions owned and pledged as collateral127,075 118,551 
Total financial instruments and other inventory positions owned459,813 348,974 
Fixed assets (net of accumulated depreciation and amortization of $80,262 and $76,823, respectively)
53,137 51,761 
Goodwill237,426 227,508 
Intangible assets (net of accumulated amortization of $118,593 and $115,672, respectively)
135,457 119,778 
Investments (including noncontrolling interests of $149,540 and $164,565, respectively)
228,839 252,045 
Net deferred income tax assets150,949 158,200 
Right-of-use lease asset90,099 71,341 
Other assets98,315 110,605 
Total assets$1,882,454 $2,565,307 
Liabilities and Shareholders' Equity
Long-term financing$125,000 $125,000 
Payables to brokers, dealers and clearing organizations2,383 13,247 
Financial instruments and other inventory positions sold, but not yet purchased177,821 128,690 
Accrued compensation220,832 900,079 
Accrued lease liability108,255 89,625 
Other liabilities and accrued expenses91,800 81,811 
Total liabilities726,091 1,338,452 
Shareholders' equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at March 31, 2022 and December 31, 2021;
Shares issued: 19,538,916 at March 31, 2022 and 19,541,037 at December 31, 2021;
Shares outstanding: 14,196,756 at March 31, 2022 and 14,129,519 at December 31, 2021
195 195 
Additional paid-in capital988,754 925,387 
Retained earnings405,426 450,165 
Less common stock held in treasury, at cost: 5,342,160 shares at March 31, 2022 and 5,411,518 shares at December 31, 2021
(375,511)(312,573)
Accumulated other comprehensive loss(1,650)(964)
Total common shareholders' equity1,017,214 1,062,210 
Noncontrolling interests139,149 164,645 
Total shareholders' equity1,156,363 1,226,855 
Total liabilities and shareholders' equity$1,882,454 $2,565,307 
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)20222021
Revenues:
Investment banking$257,502 $296,074 
Institutional brokerage104,562 109,488 
Interest income3,856 2,057 
Investment income/(loss)(13,074)23,768 
Total revenues352,846 431,387 
Interest expense2,201 2,780 
Net revenues350,645 428,607 
Non-interest expenses:
Compensation and benefits247,899 280,328 
Outside services11,176 7,675 
Occupancy and equipment14,536 14,022 
Communications12,425 11,808 
Marketing and business development8,632 2,067 
Deal-related expenses5,544 12,431 
Trade execution and clearance4,035 4,180 
Restructuring and integration costs1,247 135 
Intangible asset amortization2,921 7,520 
Other operating expenses6,593 5,574 
Total non-interest expenses315,008 345,740 
Income before income tax expense35,637 82,867 
Income tax expense10,979 17,274 
Net income24,658 65,593 
Net income/(loss) applicable to noncontrolling interests(11,993)16,134 
Net income applicable to Piper Sandler Companies$36,651 $49,459 
Earnings per common share
Basic$2.53 $3.44 
Diluted$2.12 $3.00 
Dividends declared per common share$5.10 $2.25 
Weighted average number of common shares outstanding
Basic14,481 14,374 
Diluted17,294 16,467 

See Notes to the Consolidated Financial Statements
4

Piper Sandler Companies
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
(Amounts in thousands)20222021
Net income$24,658 $65,593 
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment(686)306 
Comprehensive income23,972 65,899 
Comprehensive income/(loss) applicable to noncontrolling interests(11,993)16,134 
Comprehensive income applicable to Piper Sandler Companies$35,965 $49,765 

See Notes to the Consolidated Financial Statements

5

Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
AccumulatedTotal
CommonAdditionalOtherCommonTotal
(Amounts in thousands,SharesCommonPaid-InRetainedTreasuryComprehensiveShareholders'NoncontrollingShareholders'
 except share amounts)
OutstandingStockCapitalEarningsStockIncome/(Loss)EquityInterestsEquity
Balance at December 31, 2021
14,129,519 $195 $925,387 $450,165 $(312,573)$(964)$1,062,210 $164,645 $1,226,855 
Net income/(loss)— — — 36,651 — — 36,651 (11,993)24,658 
Dividends
— — — (81,390)— — (81,390)— (81,390)
Amortization/issuance of restricted stock (1)
— — 114,048 — — — 114,048 — 114,048 
Repurchase of common stock through share repurchase program
(653,029)— — — (92,945)— (92,945)— (92,945)
Issuance of treasury shares for restricted stock vestings
854,668 — (50,934)— 50,934 —  —  
Repurchase of common stock from employees
(136,440)— — — (20,927)— (20,927)— (20,927)
Shares reserved/issued for director compensation
2,038 — 253 — — — 253 — 253 
Other comprehensive loss— — — — — (686)(686)— (686)
Fund capital distributions, net
— — — — — —  (13,503)(13,503)
Balance at March 31, 202214,196,756 $195 $988,754 $405,426 $(375,511)$(1,650)$1,017,214 $139,149 $1,156,363 
Balance at December 31, 202013,776,025 $195 $847,785 $271,001 $(289,359)$(197)$829,425 $96,657 $926,082 
Net income— — — 49,459 — — 49,459 16,134 65,593 
Dividends
— — — (34,551)— — (34,551)— (34,551)
Amortization/issuance of restricted stock (1)
— — 62,691 — — — 62,691 — 62,691 
Repurchase of common stock through share repurchase program
(58,519)— — — (6,218)— (6,218)— (6,218)
Issuance of treasury shares for restricted stock vestings
823,951 — (41,500)— 41,500 —  —  
Repurchase of common stock from employees
(120,222)— — — (12,735)— (12,735)— (12,735)
Shares reserved/issued for director compensation
849 — 104 — — — 104 — 104 
Other comprehensive income— — — — — 306 306 — 306 
Fund capital distributions, net
— — — — — —  (10,046)(10,046)
Balance at March 31, 202114,422,084 $195 $869,080 $285,909 $(266,812)$109 $888,481 $102,745 $991,226 
(1)Includes amortization of restricted stock issued in conjunction with the Company's acquisitions.

See Notes to the Consolidated Financial Statements
6

Piper Sandler Companies
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
(Amounts in thousands)20222021
Operating Activities:
Net income$24,658 $65,593 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets3,609 2,659 
Deferred income taxes7,251 1,831 
Stock-based compensation31,983 33,911 
Amortization of intangible assets2,921 7,520 
Amortization of forgivable loans2,089 1,290 
Decrease/(increase) in operating assets:
Receivables from brokers, dealers and clearing organizations75,716 (50,194)
Net financial instruments and other inventory positions owned(61,708)(75,136)
Investments23,206 (1,099)
Other assets1,753 (18,977)
Increase/(decrease) in operating liabilities:
Payables to brokers, dealers and clearing organizations(10,864)(435)
Accrued compensation(601,748)(235,174)
Other liabilities and accrued expenses16,892 4,635 
Net cash used in operating activities(484,242)(263,576)
Investing Activities:
Business acquisitions, net of cash acquired(24,958) 
Purchases of fixed assets, net(4,733)(9,259)
Net cash used in investing activities(29,691)(9,259)
Financing Activities:
Repayment of long-term financing (20,000)
Payment of cash dividend(81,390)(34,551)
Decrease in noncontrolling interests(13,503)(10,046)
Repurchase of common stock(113,872)(18,953)
Net cash used in financing activities(208,765)(83,550)
Currency adjustment:
Effect of exchange rate changes on cash(1,228)260 
Net decrease in cash and cash equivalents(723,926)(356,125)
Cash and cash equivalents at beginning of period970,965 507,935 
Cash and cash equivalents at end of period$247,039 $151,810 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$1,837 $2,846 
Income taxes$8,277 $9,650 
See Notes to the Consolidated Financial Statements
7

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

Index
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
8

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 the United Kingdom; Piper Sandler Finance LLC, which facilitates corporate debt underwriting in conjunction with affiliated credit vehicles; Piper Sandler Investment Group Inc., PSC Capital Management LLC and PSC Capital Management II LLC, entities providing alternative asset management services; Piper Sandler Loan Strategies, LLC, which provides management services for primary and secondary market liquidity transactions of loan and servicing rights; Piper Sandler Hedging Services, LLC, an entity that assists clients with hedging strategies; Piper Sandler Financial Products Inc. and Piper Sandler Financial Products II Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries.

Piper Sandler Companies and its subsidiaries (collectively, the "Company") operate in one reporting segment providing investment banking 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, corporations, 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 has created alternative asset management funds in merchant banking and healthcare in order to invest firm capital and to manage capital from outside investors. The Company records gains and losses from investments in these funds and receives management and performance fees.

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, 2021.

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.

Note 2 Summary of Significant Accounting Policies

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for a full description of the Company's significant accounting policies.

9

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

Note 3 Acquisitions

Cornerstone Macro Research LP

On February 4, 2022, the Company completed the acquisition of Cornerstone Macro Research LP, including its subsidiary, Cornerstone Macro LLC (collectively, "Cornerstone Macro"), an independent research firm focused on providing macro research and equity derivatives trading to institutional investors. The transaction was completed pursuant to the Securities Purchase Agreement dated October 12, 2021. The acquisition adds a macro research team and increases the scale of the Company's equity brokerage operations.

The purchase price of $34.0 million consisted of cash consideration of $32.5 million and contingent consideration of $1.5 million, as detailed in the net assets acquired table below. As part of the acquisition, the Company granted 64,077 restricted shares valued at $9.7 million on the acquisition date. The restricted shares are subject to graded vesting on the fourth and the fifth anniversaries of the acquisition date, so long as the applicable employee remains continuously employed by the Company for the respective vesting period. As these shares contain service conditions, the value of the shares is not part of the purchase price. Compensation expense will be amortized on a straight-line basis over the requisite service period of five years.

The Company also entered into acquisition-related compensation arrangements with certain employees of $10.7 million, which consisted of restricted stock ($7.5 million) and forgivable loans ($3.2 million), for retention purposes. As 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 (a weighted average service period of 3.4 years). See Note 16 for further discussion. The loans will be forgiven, so long as the applicable employee remains continuously employed for the loan term. Compensation expense will be amortized on a straight-line basis over the respective loan term (a weighted average period of 3.6 years).

Additional cash of up to $27.8 million may be earned (the "Cornerstone Earnout") if a net revenue target is achieved during the performance period from July 1, 2022 to December 31, 2023. Of the total amount, up to $6.0 million may be earned by Cornerstone Macro's equity owners and there are no service requirements. If earned, this amount will be paid by March 31, 2024. The Company recorded a $1.5 million liability as of the acquisition date for the fair value of the contingent consideration, which is included in the purchase price. The remaining amount may be earned by the equity owners, whom are now employees of the Company, and certain employees in exchange for service requirements. As this amount compensates employees for future services, the value is not part of the purchase price. Amounts estimated to be payable, if any, will be recorded as compensation expense on the consolidated statements of operations over the requisite service period. If earned, these amounts will be paid by June 30, 2025 and June 30, 2026.

The acquisition was accounted for pursuant to Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 805, "Business Combinations." Accordingly, the purchase price was allocated to the acquired assets and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the net assets acquired was allocated between goodwill and intangible assets. The Company recorded $9.9 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 Cornerstone Macro. Identifiable intangible assets purchased by the Company consisted of customer relationships with an acquisition-date fair value of $18.6 million.

Transaction costs of $0.6 million were incurred for the three months ended March 31, 2022, and are included in restructuring and integration costs on the consolidated statements of operations.

10

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

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$6,881 
Receivables from brokers, dealers and clearing organizations2,966 
Fixed assets286 
Goodwill9,918 
Intangible assets18,600 
Right-of-use lease asset7,026 
Other assets3,323 
Total assets acquired49,000 
Liabilities
Accrued compensation3,729 
Accrued lease liability7,026 
Other liabilities and accrued expenses4,277 
Total liabilities assumed15,032 
Net assets acquired$33,968 

Pro Forma Financial Information

The results of operations of Cornerstone Macro have been included in the Company's consolidated financial statements prospectively beginning on the acquisition date. The acquisition has been fully integrated with the Company's existing operations. Accordingly, post-acquisition revenues and net income are not discernible. The following unaudited pro forma financial data assumes that the acquisition had occurred on January 1, 2021, the beginning of the comparable prior period presented. Pro forma results have been prepared by adjusting the Company's historical results to include the results of operations of Cornerstone Macro adjusted for the following significant changes: amortization expense was adjusted to account for the acquisition-date fair value of intangible assets; compensation and benefits expenses were adjusted to reflect the restricted stock issued as part of the acquisition, the restricted stock and forgivable loans issued for retention purposes, and the Cornerstone Earnout with service conditions; and the income tax effect of applying the Company's statutory tax rates to the results of operations of Cornerstone Macro. The Company's consolidated unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period 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.
Three Months Ended
March 31,
(Amounts in thousands)20222021
Net revenues$353,531 $442,629 
Net income applicable to Piper Sandler Companies35,977 49,138 

Definitive Agreement to Acquire Stamford Partners LLP ("Stamford Partners")

On January 5, 2022, the Company announced a definitive agreement to acquire Stamford Partners, a specialist investment bank offering financial advisory and corporate development services in the European food and beverage and related consumer sectors. The purchase price consists of cash consideration, and restricted stock will be granted for retention purposes. The transaction is expected to close in the second quarter of 2022, subject to obtaining required regulatory approvals and other customary closing conditions.

11

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

Note 4 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)20222021
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities$6,263 $2,831 
Convertible securities137,517 148,057 
Fixed income securities5,253 8,687 
Municipal securities:
Taxable securities23,018 12,377 
Tax-exempt securities154,719 97,891 
Short-term securities31,048 29,357 
Mortgage-backed securities 1,277 
U.S. government agency securities76,625 24,361 
U.S. government securities2,893 138 
Derivative contracts22,477 23,998 
Total financial instruments and other inventory positions owned$459,813 $348,974 
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities$95,187 $77,744 
Fixed income securities28,889 4,950 
U.S. government agency securities13,143  
U.S. government securities37,303 41,780 
Derivative contracts3,299 4,216 
Total financial instruments and other inventory positions sold, but not yet purchased$177,821 $128,690 

At March 31, 2022 and December 31, 2021, financial instruments and other inventory positions owned in the amount of $127.1 million and $118.6 million, respectively, had been pledged as collateral for short-term financing arrangements.

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, U.S. treasury bond futures and options, and equity option contracts.

Derivative Contract Financial Instruments

The Company uses interest rate and credit default 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 and credit default swaps to facilitate customer transactions. Credit default swaps use rates based upon the Commercial Mortgage Backed Securities ("CMBX") index. 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 rates based upon the London Interbank Offered Rate ("LIBOR") index, the Municipal Market Data ("MMD") index or the Securities Industry and Financial Markets Association ("SIFMA") index.

12

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 primarily associated with its fixed income securities. These instruments use rates based upon the MMD, LIBOR or SIFMA indices. 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, 2022December 31, 2021
(Amounts in thousands)DerivativeDerivativeNotionalDerivativeDerivativeNotional
Derivative CategoryAssets (1)Liabilities (2)AmountAssets (1)Liabilities (2)Amount
Interest rate
Customer matched-book$121,136 $114,030 $1,597,001 $157,064 $149,353 $1,630,056 
Trading securities8,011 7 140,825  1,560 65,925 
$129,147 $114,037 $1,737,826 $157,064 $150,913 $1,695,981 
(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 CategoryOperations Category20222021
Interest rate derivative contract
Investment banking$(243)$(1,016)
Interest rate derivative contract
Institutional brokerage9,205 5,261 
Equity option derivative contracts
Institutional brokerage 160 
$8,962 $4,405 

Credit risk associated with the Company's derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company's derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by the Company's financial risk committee. The Company considers counterparty credit risk in determining derivative contract fair value. The majority of the Company's derivative contracts are substantially collateralized by its counterparties, who are major financial institutions. The Company has a limited number of counterparties who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of a derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of March 31, 2022, the Company had $18.8 million of uncollateralized credit exposure with these counterparties (notional contract amount of $157.5 million), including $12.5 million of uncollateralized credit exposure with one counterparty.

13

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

Note 5 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 is 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 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.

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

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.
14

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. Certain illiquid tax-exempt municipal securities are valued using market data for comparable securities (e.g., maturity and sector) and management judgment to infer an appropriate current yield or other model-based valuation techniques deemed appropriate by management based on the specific nature of the individual security and are therefore categorized as Level III.

Short-term municipal securities – Short-term municipal securities include 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 are valued using observable trades, when available. Certain mortgage-backed securities are valued using models where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data. To the extent we hold, these mortgage-backed securities are categorized as Level II. Certain mortgage-backed securities collateralized by residential mortgages are valued using cash flow models that utilize unobservable inputs including credit default rates, prepayment rates, loss severity and valuation yields. As judgment is used to determine the range of these inputs, these mortgage-backed securities are categorized as Level III.

U.S. government agency securities – U.S. government agency securities include agency debt bonds and mortgage bonds. Agency debt bonds are valued by using either direct price quotes or price quotes for comparable bond securities and are categorized as Level II. Mortgage bonds include bonds secured by mortgages, mortgage pass-through securities, agency collateralized mortgage-obligation ("CMO") securities and agency interest-only securities. Mortgage pass-through securities, CMO securities and interest-only securities are valued using recently executed observable trades or other observable inputs, such as prepayment speeds and therefore are generally categorized as Level II. Mortgage bonds are valued using observable market inputs, such as market yields on spreads over U.S. treasury securities, or models based upon prepayment expectations. These securities are categorized as Level II.

U.S. government securities – U.S. government securities include highly liquid U.S. treasury securities which are generally valued using quoted market prices and therefore categorized as Level I. The Company does not transact in securities of countries other than the U.S. government.

Derivative contracts – Derivative contracts include interest rate swaps, interest rate locks, and U.S. treasury bond futures and options. These instruments derive their value from underlying assets, reference rates, indices or a combination of these factors. The majority of the Company's interest rate derivative contracts, including both interest rate swaps and interest rate locks, are valued using market standard pricing models based on the net present value of estimated future cash flows. The valuation models used do not involve material subjectivity as the methodologies do not entail significant judgment and the pricing inputs are market observable, including contractual terms, yield curves and measures of volatility. These instruments are classified as Level II within the fair value hierarchy. Certain interest rate locks transact in less active markets and are valued using valuation models that include the previously mentioned observable inputs and certain unobservable inputs that require 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. Investments in private companies are valued based on an assessment of each underlying security, considering rounds of financing, the financial condition and operating results of the private company, 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 categorized based on the lowest level of input that is significant to the fair value measurement.

15

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, 2022:
ValuationWeighted
TechniqueUnobservable InputRangeAverage (1)
Assets
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securitiesDiscounted cash flow
Expected recovery rate (% of par) (2)
0 - 25%
13.4%
Derivative contracts:
Interest rate locksDiscounted cash flow
Premium over the MMD curve in basis points ("bps") (2)
1 - 44 bps
26.6 bps
Investments at fair value:
Equity securities in private companies
Market approachRevenue multiple (2)
1 - 5 times
2.9 times
EBITDA multiple (2)
12 - 14 times
12.9 times
Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts:
Interest rate locksDiscounted cash flow
Premium over the MMD curve in bps (3)
1 - 26 bps
13.5 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.

16

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, 2022:
Counterparty
and Cash
Collateral
(Amounts in thousands)Level ILevel IILevel IIINetting (1)Total
Assets
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities$4,020 $2,243 $— $— $6,263 
Convertible securities— 137,517 — — 137,517 
Fixed income securities— 5,253 — — 5,253 
Municipal securities:
Taxable securities— 23,018 — — 23,018 
Tax-exempt securities— 154,455 264 — 154,719 
Short-term securities— 31,048 — — 31,048 
U.S. government agency securities— 76,625 — — 76,625 
U.S. government securities2,893 — — — 2,893 
Derivative contracts— 119,997 9,150 (106,670)22,477 
Total financial instruments and other inventory positions owned
6,913 550,156 9,414 (106,670)459,813 
Cash equivalents195,200 — — — 195,200 
Investments at fair value (2)49,079 33,503 134,795 — 217,377 
Total assets$251,192 $583,659 $144,209 $(106,670)$872,390 
Liabilities
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities$95,187 $— $— $— $95,187 
Fixed income securities— 28,889 — — 28,889 
U.S. government agency securities—