Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Index
Executive Overview
Results of Operations
Net Revenues
Non-Interest Expenses
Pre-Tax Margin
Income Taxes
Explanation and Reconciliation of Non-GAAP Financial Measures
Recent Accounting Pronouncements
Critical Accounting Policies and Estimates
Liquidity, Funding and Capital Resources
Common Stock Split
Cash F lows
Leverage
Funding and Capital Resources
Contractual Obligations
Capital Requirements
Off-Balance Sheet Arrangements
Risk Management
Effects of Inflation
The following information should be read in conjunction with the accompanying audited consolidated financial statements and related notes and exhibits included elsewhere in this Form 10-K. Certain statements in this Form 10-K may be considered forward-looking. See "Cautionary Note Regarding Forward-Looking Statements" in this Form 10-K for additional information regarding such statements and related risks and uncertainties.
Item 7 in this Form 10-K discusses our 2025 and 2024 results and the year-over-year comparisons between 2025 and 2024. Discussion of our 2023 results and the year-over-year comparisons between 2024 and 2023 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 , filed with the SEC on February 27, 2025 .
Item 7 in this Form 10-K includes financial measures that are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Management believes that presenting results and measures on an adjusted, non-GAAP basis in conjunction with the corresponding U.S. GAAP measures provides a more meaningful basis for comparison of its operating results and underlying trends between periods, and enhances the overall understanding of our current financial performance by excluding certain items that may not be indicative of our core operating results. The non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP. See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
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EXECUTIVE OVERVIEW
Overview of Operations
Our business principally consists of providing investment banking and institutional brokerage services to corporations, private equity groups, public entities, non-profit entities and institutional investors in the U.S. and internationally. We operate through one reportable segment in order to maximize the value we provide to clients by leveraging our diversified expertise and broad relationships of the experienced professionals across our company.
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, and government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, profits and losses from trading these securities, and fees for research services and corporate access offerings. In order to invest firm capital and to manage capital from outside investors, we have created alternative asset management funds in merchant banking and healthcare. We receive management and performance fees for managing these funds, and also record investment gains and losses.
Our Business Strategy
Our long-term strategic objectives are to drive revenue growth, expand our market presence, continue to gain market share, and maximize shareholder value. In order to meet these objectives, we are focused on the following:
• Continuing to expand our business through strategic investments and selectively adding partners who share our client-centric culture and who can leverage our platform to better serve clients;
• Growing our investment banking platform through continued investment in sector, product and geographic expansion via corporate development, strategic hiring and development of internal talent. We are specifically focused on strengthening our technology sector and expanding in Europe;
• Leveraging the scale within the equity brokerage and fixed income services platforms, driven by our expanded client base and product offerings, to continue to grow market share; and
• Prudently managing capital to maintain our balance sheet strength with ample liquidity and flexibility through all market conditions.
Strategic Activities
We have taken the following important steps in the execution of our business strategy:
• On September 12, 2025, we completed the acquisition of G Squared Capital Partners LLC ("G Squared"), a boutique investment bank specializing in government services and defense technology. The acquisition, along with other strategic hires, expands and strengthens our investment banking technology sector.
• We have made significant investments in our debt capital markets advisory, private capital advisory and restructuring in recent years in order to expand our client product offerings and increase market share, particularly with private equity groups.
• On August 23, 2024, we completed the acquisition of Aviditi Capital Advisors, LLC ("Aviditi Advisors"), an alternative investment bank providing full lifecycle services to financial sponsors, global alternative investment managers and limited partner investors. The transaction added private capital advisory capabilities to our platform.
• Our public finance business strengthened its market leadership in our core sectors through focusing on local market relationships and knowledge. As a result, our special districts team had a 50 percent market share in the states in which they compete and our public finance business was ranked second nationally in K-12 education by number of issues and par value for 2025.
• We elevated our institutional brokerage platform by investing in talent that expanded our product expertise and enhanced our client relationships, notably with our structured product capabilities and through the addition of a private markets equities trading group. Additionally, our specialized sales and trading and research teams are key differentiators in supporting our finance activity.
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Financial Highlights
Year Ended December 31,
(Amounts in thousands, except per share data)
U.S. GAAP
Net revenues
Compensation and benefits
Non-compensation expenses
Income before income tax expense
Income tax expense
Net income attributable to Piper Sandler Companies
Earnings per diluted common share
Ratios and margin
Compensation ratio
Non-compensation ratio
Pre-tax margin
Effective tax rate
Non-GAAP (1)
Adjusted net revenues
Adjusted compensation and benefits
Adjusted non-compensation expenses
Adjusted operating income
Adjusted income tax expense
Adjusted net income attributable to Piper Sandler Companies
Adjusted earnings per diluted common share
Adjusted ratios and margin
Adjusted compensation ratio
Adjusted non-compensation ratio
Adjusted operating margin
Adjusted effective tax rate
(1) See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
External Factors Impacting Our Business
Performance in the financial services industry in which we operate is highly correlated to the overall strength of macroeconomic conditions, financial market activity and the effect of geopolitical events. Overall market conditions are a product of many factors, which are beyond our control, often unpredictable and at times inherently volatile. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of advisory transactions, equity and debt corporate financings, and municipal financings; the relative level of volatility of the equity and fixed income markets; changes in interest rates and credit spreads (especially rapid and extreme changes); overall market liquidity; the level and shape of various yield curves; the volume and value of trading in securities; and overall equity valuations.
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Factors that differentiate our business within the financial services industry also may affect our financial results. For example, our capital markets business focuses on specific industry sectors while serving principally a middle-market clientele. If the business environment for our focus sectors is impacted adversely, our business and results of operations could reflect these impacts. In addition, our business, with its specific areas of focus and investment, may not track overall market trends. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results for any individual period should not be considered indicative of future results.
Market Data
The following table provides a summary of relevant market data:
Year Ended December 31,
U.S. Market Indices
S&P 500 (at period end)
Nasdaq (at period end)
U.S. Middle Market Mergers and Acquisitions
Announced transactions (number of transactions) (a)
U.S. Equity Capital Markets
Completed public equity offerings (number of transactions) (b)
Completed initial public offerings (number of transactions) (c)
Equity fee pool for overall market (in millions) (d)
Equity fee pool for sub-$5 billion (in millions) (e)
U.S. Municipal Negotiated Issuances
Completed issuances for overall market (number of transactions) (f)
Completed issuances for sub-$500 million (number of transactions) (g)
Aggregate par value for overall market (in billions) (f)
Aggregate par value for sub-$500 million (in billions) (g)
Average CBOE Volatility Index (VIX)
Average Daily Number of Shares Traded
NYSE (shares in millions)
Nasdaq (shares in millions)
Interest Rates
3-month treasury average rate
10-year treasury average rate
Average 10-year MMD to 10-year Treasury Ratio (h)
a. Source: Refinitiv and Piper Sandler & Co. (transactions with reported deal value between $100 million and $1 billion and transactions with less than $1 billion deal value that had a financial advisor).
b. Source: Dealogic and Piper Sandler & Co. Equity Capital Markets (IPOs, follow-on offerings and convertible offerings with reported deal value greater than $10 million).
c. Source: Dealogic and Piper Sandler & Co. Equity Capital Markets (offerings with reported deal value greater than $10 million).
d. Source: Dealogic and Piper Sandler & Co. Equity Capital Markets (IPOs, follow-on offerings and convertible offerings with deal values greater than $10 million and PIPEs/RDs greater than $5 million; SPAC IPO fees are represented as the standard two percent upfront fee unless noted differently on the IPO cover).
e. Source: Dealogic and Piper Sandler & Co. Equity Capital Markets (IPOs, follow-on offerings and convertible offerings with deal values greater than $10 million and PIPEs/RDs greater than $5 million for sub-$5 billion market cap issuers; SPAC IPO fees are represented as the standard two percent upfront fee unless noted differently on the IPO cover).
f. Source: Refinitiv (sole/senior negotiated and private placement transactions for the overall market).
g. Source: Refinitiv (sole/senior negotiated and private placement transactions for sub-$500 million).
h. Calculated based on the 10-year MMD index rate divided by the 10-year treasury rate.
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Outlook for 2026
The market backdrop became more constructive in 2025 with strong equity markets, a more accommodative regulatory environment and an increase in investment banking activity. Monetary policy in the U.S. remains a prevalent factor impacting the economy and financial markets. The U.S. Federal Reserve lowered its short-term benchmark interest rate by 75 basis points in 2025 and is expected to continue to lower rates in 2026 as it balances its goals of maximum employment and stable prices. The effects of changes to U.S. trade policy, and any retaliatory actions by global trading partners, including the European Union and China, and their potential impact on inflation, supply chains, and global trade continues to contribute to elevated financial market uncertainty. In addition, concerns over geopolitical conflicts, including in the Middle East, Eastern Europe and Taiwan and any tensions as a result of trade disputes, could negatively impact financial market activity. A significant decrease in uncertainty, or resolutions to trade disputes and geopolitical concerns, would likely be for overall economic conditions, and consequently, our client and business activity.
Our advisory services results continued to benefit from our sector and product diversification as well as an improving market environment for M&A activity. While several large advisory transactions closed in the last week of 2025, our advisory services pipeline of engagement mandates is building and we expect another strong year of advisory services revenue in 2026.
Our corporate financing activity improved in the second half of 2025 as the overall market environment became more constructive. Our corporate financing activity has been strong to start 2026. Our pipeline of new issues is healthy and we are experiencing strong demand from institutional investors looking to deploy capital across sectors.
Our equity brokerage results benefited from strong volumes and volatility during 2025. Our equity brokerage business continues to benefit from the quality of our trade execution and research product as we assist clients in navigating periods of volatility. We expect our 2026 equity brokerage revenues to be similar to 2025.
Our fixed income services results benefited from solid client activity across most products and client verticals during 2025 due to more accommodative markets. In addition, we benefited from robust activity among our depository clients as the increase in bank M&A activity during the year, along with depository clients adjusting to the changing rate environment, provided more opportunities to advise on balance sheet repositioning. We expect clients to be more active in 2026 in anticipation of further short-term benchmark interest rate cuts by the U.S. Federal Reserve. We also anticipate continued opportunities to advise clients on balance sheet repositioning stemming from a robust M&A environment.
Our municipal financing activity was broad based in 2025 with solid performance across both our governmental and specialty sector businesses. Market conditions remained favorable during the year with record municipal negotiated issuance levels driven by funding needs for infrastructure upgrades and strong investor demand. We anticipate market conditions to remain favorable in 2026 with similar issuance volumes to 2025, albeit back to a more normalized quarterly trend.
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RESULTS OF OPERATIONS
The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated:
As a Percentage of
Net Revenues for the
Year Ended December 31,
Year Ended December 31,
(Amounts in thousands)
Revenues
Investment banking:
Advisory services
Corporate financing
Municipal financing
Total investment banking
Institutional brokerage:
Equity brokerage
Fixed income services
Total institutional brokerage
Interest income
Investment income/(loss)
Total revenues
Interest expense
Net revenues
Non-interest expenses
Compensation and benefits
Outside services
Occupancy and equipment
Communications
Marketing and business development
Deal-related expenses
Trade execution and clearance
Restructuring and integration costs
Intangible asset amortization
Other operating expenses
Total non-interest expenses
Income before income tax expense
Income tax expense
Net income
Net income/(loss) attributable to noncontrolling interests
Net income attributable to Piper Sandler Companies
N/M – Not meaningful
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Net Revenues
Net revenues on a U.S. GAAP basis were $1.90 billion for the year ended December 31, 2025, compared with $1.53 billion in the prior-year period. For the year ended December 31, 2025, adjusted net revenues were $1.88 billion, compared with $1.54 billion for the year ended December 31, 2024. The variance explanations for net revenues and adjusted net revenues are consistent on both a U.S. GAAP and non-GAAP basis unless stated otherwise. See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
The following table provides supplemental business information:
Year Ended December 31,
Advisory services
Completed M&A and restructuring transactions
Completed capital advisory transactions (1)
Total completed advisory transactions
Corporate financings
Total equity transactions priced
Book run equity transactions priced
Total debt and preferred transactions priced
Book run debt and preferred transactions priced
Advisory services and corporate financing
Number of managing directors
Municipal negotiated issues
Aggregate par value of issues priced (in billions)
Total issues priced
Equity brokerage
Number of shares traded (in billions)
(1) Includes debt capital markets advisory transactions and equity and debt private placements.
Investment Banking Revenues
Investment banking revenues comprise all of the revenues generated through advisory services activities, which include M&A, equity and debt private placements, debt capital markets advisory, restructuring and private capital advisory, and municipal financial advisory transactions. Investment banking revenues also include equity and debt corporate financing activities and municipal financings.
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In 2025, investment banking revenues were $1.40 billion, up 26.8 percent compared to $1.11 billion in 2024. For the year ended December 31, 2025, advisory services revenues were $1.04 billion, up 28.3 percent compared with $808.7 million in 2024, driven by more completed transactions and a higher average fee. In 2025, our advisory services performance was led by our financial services team with strong contributions from our services & industrials and healthcare sectors. In addition, our debt capital markets advisory product team recorded strong results in 2025. Corporate financing revenues were $217.2 million for the year ended December 31, 2025, up 24.9 percent compared to $173.9 million in the prior-year period, primarily due to increased average fees. Consistent with the overall market, our equity financing activity increased during the second half of 2025 resulting from reduced volatility and strong valuations. Performance during the year was led by the healthcare sector, and we served as book runner on 37 of 38 completed healthcare equity deals. In addition, our financial services group executed on a strong flow of debt and preferred financings. Municipal financing revenues for the year ended December 31, 2025 were $145.8 million, up 19.0 percent compared to $122.5 million in the year-ago period, driven by increased municipal negotiated issuance activity resulting from improved market conditions and increased investor demand. Our broad based performance during the year included solid contributions from both our specialty sector business and our governmental business, which drove the year-over-year revenue growth.
Institutional Brokerage Revenues
Institutional brokerage revenues comprise all of the revenues generated through trading activities, which principally consist of facilitating customer trades, as well as fees received for our research services and corporate access offerings. Our results may vary from quarter to quarter as a result of changes in trading margins, trading gains and losses, net interest spreads, trading volumes and the amount of fees received for research services.
For the year ended December 31, 2025, institutional brokerage revenues were $433.2 million, up 7.9 percent compared with $401.4 million in the prior-year period. Equity brokerage revenues were $230.3 million in 2025, up 7.0 percent compared with $215.3 million in 2024, due to increased client activity across our full suite of products. For the year ended December 31, 2025, fixed income services revenues were $202.9 million, up 9.0 percent compared to $186.2 million in the prior-year period, driven by increased activity from our depository clients resulting from an improved interest rate outlook as well as growth with our asset management and public entity clients.
Interest Income
Interest income represents amounts earned from holding long inventory positions and cash balances, as well as interest earned on installment fee receivables. Interest income for the year ended December 31, 2025 increased to $36.9 million, compared with $32.9 million in the prior-year period, primarily due to interest earned on installment fee receivables.
Investment Income/(Loss)
Investment income/(loss) includes realized and unrealized gains and losses on investments, including amounts attributable to noncontrolling interests, in our alternative asset management funds, as well as management and performance fees generated from those funds. For the year ended December 31, 2025, we recorded investment income of $33.2 million, compared to an investment loss of $7.9 million in the year-ago period. In 2025, we recorded gains on our investments and the noncontrolling interests in the alternative asset funds that we manage. Excluding the impact of noncontrolling interests, adjusted investment income was $12.9 million for the year ended December 31, 2025, compared with $7.2 million for the year ended December 31, 2024.
Interest Expense
Interest expense represents amounts associated with financing, economically hedging and holding short inventory positions, including interest paid on our financing arrangements, as well as commitment fees on certain short-term financing arrangements. Interest expense for the year ended December 31, 2025 decreased to $4.8 million, compared with $5.7 million in the prior-year period.
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Non-Interest Expenses
Non-interest expenses on a U.S. GAAP basis were $1.52 billion for the year ended December 31, 2025, compared to $1.31 billion in the prior-year period. For the year ended December 31, 2025, adjusted non-interest expenses were $1.47 billion, compared with $1.24 billion for the year ended December 31, 2024. The variance explanations for non-interest expenses and adjusted non-interest expenses are consistent on both a U.S. GAAP and non-GAAP basis unless stated otherwise. See "Explanation and Reconciliation of Non-GAAP Financial Measures" for a detailed explanation of the adjustments made to the corresponding U.S. GAAP measures and a reconciliation of U.S. GAAP to adjusted, non-GAAP financial information.
Compensation and Benefits
Compensation and benefits expenses, which are the largest component of our expenses, include salaries, incentive compensation, benefits, stock-based compensation, employment taxes, the reversal of expenses associated with the forfeiture of stock-based compensation and other employee-related costs. A significant portion of compensation expense is comprised of variable incentive arrangements, including discretionary incentive compensation, the amount of which fluctuates in proportion to the level of business activity, increasing with higher revenues and operating profits and decreasing with lower revenues and operating profits. Other compensation costs, primarily base salaries and benefits, are more fixed in nature. In conjunction with our acquisitions, we have granted restricted stock, restricted cash with service conditions, and restricted mutual fund shares of investment funds ("MFRS Awards") which are amortized to compensation expense over the service period. We have also entered into forgivable loans with service conditions, which are amortized to compensation expense over the loan term. Additionally, expense estimates related to revenue-based earnout arrangements with service conditions entered into as part of our acquisitions are amortized to compensation expense over the service period.
The following table summarizes our expected future acquisition-related compensation expense for restricted stock, restricted cash with service conditions, MFRS Awards and forgivable loans with service conditions, as well as expense estimates related to revenue-based earnout arrangements:
(Amounts in thousands)
Total
For the year ended December 31, 2025, compensation and benefits expenses increased 18.1 percent to $1.19 billion, compared with $1.00 billion in 2024, due to higher revenues and profitability. Compensation and benefits expenses as a percentage of net revenues decreased to 62.5 percent in 2025, compared to 65.8 percent in 2024, primarily due to higher net revenues, including investment income on our investments and the noncontrolling interests in the alternative asset management funds that we manage in the current year compared to an investment loss in 2024. Our adjusted compensation ratio decreased to 61.4 percent in 2025, compared with 62.0 percent in 2024, primarily due to higher adjusted net revenues.
Outside Services
Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees, fund expenses associated with our consolidated alternative asset management funds and other professional fees. For the year ended December 31, 2025, outside services expenses increased 5.2 percent to $58.7 million, compared with $55.8 million in 2024, primarily due to higher legal fees and increased professional fees associated with technology consulting services.
Occupancy and Equipment
For the year ended December 31, 2025, occupancy and equipment expenses increased 10.4 percent to $73.5 million, compared with $66.5 million in 2024, primarily due to incremental expenses as a result of relocating our Minneapolis corporate headquarters to a new building. Our occupancy and equipment expenses will increase in 2026 as a result of relocating our office space in New York City, New York.
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Communications
Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third-party market data information. For the year ended December 31, 2025, communication expenses increased 2.4 percent to $56.2 million, compared with $54.9 million in 2024, primarily due to higher market data services expenses.
Marketing and Business Development
Marketing and business development expenses include travel and entertainment costs, advertising and third-party marketing fees. For the year ended December 31, 2025, marketing and business development expenses increased 11.7 percent to $47.2 million, compared with $42.2 million in 2024, primarily due to higher travel expenses associated with increased business activity.
Deal-Related Expenses
Deal-related expenses include costs we incurred over the course of a completed investment banking deal, which primarily consist of legal fees, offering expenses, and travel costs. For the year ended December 31, 2025, deal-related expenses were $43.5 million, compared with $30.5 million for the year ended December 31, 2024. The amount of deal-related expenses is principally dependent on the level and mix of deal activity and may vary from period to period as the recognition of deal-related costs typically coincides with the closing of a transaction.
Trade Execution and Clearance
For the year ended December 31, 2025, trade execution and clearance expenses decreased slightly to $19.6 million, compared with $19.8 million for the year ended December 31, 2024.
Restructuring and Integration Costs
For the year ended December 31, 2025, we incurred restructuring and integration costs of $6.1 million. The expenses principally consisted of $2.8 million of severance benefits related to headcount reductions, $1.8 million for vacated leased office space associated with our acquisition of Aviditi Advisors, as well as $1.5 million of integration costs related principally to our acquisition of G Squared.
For the year ended December 31, 2024, we incurred restructuring and integration costs of $2.6 million, primarily consisting of integration costs related to our acquisition of Aviditi Advisors.
Intangible Asset Amortization
For the year ended December 31, 2025, amortization of definite-lived intangible assets was $10.0 million, compared with $10.3 million in 2024.
The following table summarizes the future aggregate amortization expense of our intangible assets with determinable lives:
(Amounts in thousands)
Total
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Other Operating Expenses
Other operating expenses primarily include insurance costs, license and registration fees, expenses related to our charitable giving program and litigation-related expenses, which consist of the amounts we accrue for and/or pay out related to legal and regulatory matters. For the year ended December 31, 2025, other operating expenses were $23.7 million, compared with $20.7 million in 2024. Other operating expenses for 2024 included a $4.0 million reduction in the accrual for civil penalties related to our regulatory settlements regarding recordkeeping requirements for business-related communications.
Pre-Tax Margin
Pre-tax margin for the year ended December 31, 2025 increased to 19.7 percent, compared to 14.3 percent for the year ended December 31, 2024. Adjusted pre-tax margin for the year ended December 31, 2025 increased to 21.9 percent, compared with 19.7 percent in 2024. In 2025, the increase in pre-tax margin on both a U.S. GAAP and adjusted basis was primarily due to higher net revenues as well as a lower compensation ratio.
Income Taxes
Our provision for income taxes was $80.6 million and our effective tax rate was 21.5 percent for the year ended December 31, 2025. Our adjusted provision for income taxes was $92.6 million and our adjusted effective tax rate was 22.6 percent for the year ended December 31, 2025. The provision for income taxes on both a U.S. GAAP and adjusted basis included $29.6 million of tax benefits related to stock-based compensation awards vesting at values greater than the grant price and accrued forfeitable dividends paid on vested restricted stock related to acquisitions. Excluding the impact of these benefits, our adjusted effective tax rate was 29.8 percent.
Our provision for income taxes was $61.0 million and our effective tax rate was 27.9 percent for the year ended December 31, 2024. Our adjusted provision for income taxes was $75.5 million and our adjusted effective tax rate was 24.9 percent for the year ended December 31, 2024. The provision for income taxes on both a U.S. GAAP and adjusted basis included $14.5 million of tax benefits related to stock-based compensation awards vesting at values greater than the grant price and accrued forfeitable dividends paid on vested restricted stock related to acquisitions. Excluding the impact of these benefits, our adjusted effective tax rate was 29.6 percent. The effective tax rate on both a U.S. GAAP and adjusted basis for 2024 was impacted by non-deductible employee compensation expense, including limitations on the deduction of employee compensation expense enacted with the American Rescue Plan Act of 2021.
EXPLANATION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
In Item 7 in this Form 10-K, we have included financial measures that are not prepared in accordance with U.S. GAAP. Adjustments to these non-GAAP financial measures include (1) the exclusion of investment (income)/loss and non-compensation expenses related to noncontrolling interests, (2) the exclusion of compensation and non-compensation expenses from acquisition-related agreements, (3) the exclusion of restructuring and integration costs related to acquisitions and/or headcount reductions, (4) the exclusion of amortization of intangible assets related to acquisitions, (5) the exclusion of non-compensation expenses from regulatory settlements (see Note 15 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for further information) and (6) the income tax impact allocated to the adjustments. For U.S. GAAP purposes, these items are included in each of their respective line items on the consolidated statements of operations.
These adjustments affect the following financial measures: net revenues, compensation and benefits expenses, non-compensation expenses, total non-interest expenses, income before income tax expense, income tax expense, net income attributable to Piper Sandler Companies, earnings per diluted common share, compensation ratio, non-compensation ratio, pre-tax margin and effective tax rate.
The adjusted weighted average diluted shares outstanding used in the calculation of non-GAAP earnings per diluted common share contains an adjustment to include the common shares for unvested restricted stock awards with service conditions granted pursuant to all acquisitions since January 1, 2020.
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Management believes that presenting results and measures on an adjusted, non-GAAP basis in conjunction with the corresponding U.S. GAAP measures provides a more meaningful basis for comparison of its operating results and underlying trends between periods, and enhances the overall understanding of our current financial performance by excluding certain items that may not be indicative of our core operating results. The non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP.
Consolidation of the alternative asset management funds results in the inclusion of the proportionate share of the income or loss attributable to the equity interests in consolidated funds that are not attributable, either directly or indirectly, to us (i.e., noncontrolling interests). This proportionate share is reflected in net income/(loss) attributable to noncontrolling interests in the accompanying consolidated statements of operations, and has no effect on our overall financial performance, as ultimately, this income/(loss) is not income/(loss) for us. The adjusted, non-GAAP financial measures include only the actual proportionate share of the income/(loss) attributable to us as an investor in such alternative asset management funds.
The compensation and non-compensation expenses from acquisition-related agreements and amortization of intangible assets are excluded from the adjusted, non-GAAP financial measures as they represent expenses specifically related to acquisitions and therefore are not part of our ongoing operations.
The restructuring and integration costs excluded from the adjusted, non-GAAP financial results represent charges that resulted from severance benefits related to acquisitions or headcount reductions, as well as acquisition-related costs associated with contract termination, vacating redundant leased office space and professional fees related to the respective transaction. Excluding these restructuring and integration costs from our adjusted, non-GAAP financial measures provides a better understanding of our core non-compensation expenses.
The non-compensation expenses from regulatory settlements for the year ended December 31, 2024 include the reversal of other operating expenses of $4.0 million, as we reduced the accrual for civil penalties related to the regulatory settlements with the SEC and the Commodity Futures Trading Commission (the "CFTC"). In connection with these matters, we also incurred $1.0 million of outside services expenses for the year ended December 31, 2024. Management believes that excluding the non-compensation expenses from regulatory settlements from our adjusted, non-GAAP financial measures provides a better understanding of our core non-compensation expenses.
Reconciliation of U.S. GAAP to adjusted, non-GAAP financial information:
Year Ended December 31,
(Amounts in thousands, except per share data)
Net revenues:
Net revenues – U.S. GAAP basis
Adjustment:
Investment (income)/loss related to noncontrolling interests
Adjusted net revenues
Compensation and benefits:
Compensation and benefits – U.S. GAAP basis
Adjustment:
Compensation from acquisition-related agreements
Adjusted compensation and benefits
Non-compensation expenses:
Non-compensation expenses – U.S. GAAP basis
Adjustments:
Non-compensation expenses related to noncontrolling interests
Restructuring and integration costs
Amortization of intangible assets related to acquisitions
Non-compensation expenses from acquisition-related agreements
Non-compensation expenses from regulatory settlements
Adjusted non-compensation expenses
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Year Ended December 31,
(Amounts in thousands, except per share data)
Income before income tax expense:
Income before income tax expense – U.S. GAAP basis
Adjustments:
Investment (income)/loss related to noncontrolling interests
Non-compensation expenses related to noncontrolling interests
Compensation from acquisition-related agreements
Restructuring and integration costs
Amortization of intangible assets related to acquisitions
Non-compensation expenses from acquisition-related agreements
Non-compensation expenses from regulatory settlements
Adjusted operating income
Income tax expense:
Income tax expense – U.S. GAAP basis
Tax effect of adjustments:
Compensation from acquisition-related agreements
Restructuring and integration costs
Amortization of intangible assets related to acquisitions
Non-compensation expenses from acquisition-related agreements
Non-compensation expenses from regulatory settlements
Adjusted income tax expense
Net income attributable to Piper Sandler Companies:
Net income attributable to Piper Sandler Companies – U.S. GAAP basis
Adjustments:
Compensation from acquisition-related agreements
Restructuring and integration costs
Amortization of intangible assets related to acquisitions
Non-compensation expenses from acquisition-related agreements
Non-compensation expenses from regulatory settlements
Adjusted net income attributable to Piper Sandler Companies
Earnings per diluted common share:
Earnings per diluted common share – U.S. GAAP basis
Adjustment for inclusion of unvested acquisition-related stock
Adjustments:
Compensation from acquisition-related agreements
Restructuring and integration costs
Amortization of intangible assets related to acquisitions
Non-compensation expenses from acquisition-related agreements
Non-compensation expenses from regulatory settlements
Adjusted earnings per diluted common share
Weighted average diluted common shares outstanding:
Weighted average diluted common shares outstanding – U.S. GAAP basis
Adjustment:
Unvested acquisition-related restricted stock with service conditions
Adjusted weighted average diluted common shares outstanding
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RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements are set forth in Note 3 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, and are incorporated herein by reference.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting and reporting policies comply with U.S. GAAP and conform to practices within the securities industry. The preparation of financial statements in compliance with U.S. GAAP and industry practices requires us to make estimates and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical, including whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of the estimates, the ability to readily validate the estimates with other information (e.g., third-party or independent sources), the sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under U.S. GAAP.
For a full description of our significant accounting policies, see Note 2 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K. We believe that of our significant accounting policies, the following are our critical accounting policies and estimates.
Valuation of Financial Instruments
Financial instruments and other inventory positions owned, financial instruments and other inventory positions sold, but not yet purchased, and investments on our consolidated statements of financial condition consist of financial instruments recorded at fair value. Unrealized gains and losses related to these financial instruments are reflected on our consolidated statements of operations.
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date (i.e., the exit price). Based on the nature of our business and our role as a "dealer" in the securities industry or as a manager of alternative asset management funds, the fair values of our financial instruments are determined internally. See Note 2 and Note 6 to our consolidated financial statements for additional information on the valuation of our financial instruments and our fair value processes, including specific control processes to determine the reasonableness of the fair value of our financial instruments.
Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 820, "Fair Value Measurement," establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (i.e., Level I measurements) and the lowest priority to inputs with little or no pricing observability (i.e., Level III measurements). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Substantially all of our financial instruments categorized as Level III are investments related to our alternative asset management funds. These 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 EBITDA), discounted cash flow analyses and changes in market outlook, among other factors. See Note 6 to our consolidated financial statements for additional discussion of our assets and liabilities in the fair value hierarchy.
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Stock-Based Compensation Plans
As part of our compensation to employees and directors, we use stock-based compensation, consisting of restricted stock, restricted stock units and stock options. We account for equity awards in accordance with FASB Accounting Standards Codification Topic 718, "Compensation – Stock Compensation," ("ASC 718"), which requires all share-based payments to employees, including grants of employee stock options, to be recognized on the consolidated statements of operations at grant date fair value. Compensation expense related to share-based awards that require future service are amortized over the service period of the award. Forfeitures of awards with service conditions are accounted for when they occur. Share-based awards that do not require future service are recognized in the year in which the awards are deemed to be earned.
See Note 18 to our consolidated financial statements for additional information about our stock-based compensation plans.
Income Taxes
We file a consolidated U.S. federal income tax return, which includes all of our qualifying subsidiaries. We also are subject to income tax in various states and municipalities and those foreign jurisdictions in which we operate. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income taxes are provided for temporary differences in reporting certain items, principally restricted compensation (i.e., restricted stock, restricted stock units, restricted mutual fund shares, and deferred compensation). The realization of deferred tax assets is assessed and a valuation allowance is recognized to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. We believe that our future taxable profits will be sufficient to recognize our deferred tax assets. However, if our projections of future taxable profits do not materialize, we may conclude that a valuation allowance is necessary, which would impact our results of operations in that period.
We record deferred tax benefits for future tax deductions expected upon the vesting of stock-based compensation. We recognize the income tax effects of stock-based compensation awards in the income statement when the awards vest. If deductions reported on our tax return for stock-based compensation (i.e., the value of the stock-based compensation at the time of vesting) exceed the cumulative cost of those instruments recognized for financial reporting (i.e., the grant date fair value of the compensation computed in accordance with ASC 718), we record the excess tax benefit as income tax benefit. Conversely, if deductions reported on our tax return for stock-based compensation are less than the cumulative cost of those instruments recognized for financial reporting, the deficiency is recorded as an income tax expense. Additionally, we record a tax benefit related to accrued forfeitable dividends paid on restricted stock upon vesting. For the year ended December 31, 2025, we recorded $29.6 million of tax benefits related to stock-based compensation awards vesting at values greater than the grant date fair value and accrued forfeitable dividends paid on vested restricted stock related to acquisitions. As of February 19, 2026, approximately 305,000 shares have vested at share prices greater than the grant date fair values, resulting in an income tax of $7.3 million recorded in the first quarter of 2026.
We establish reserves for uncertain income tax positions in accordance with FASB Accounting Standards Codification Topic 740, "Income Taxes," when it is not more likely than not that a certain position or component of a position will be ultimately upheld by the relevant taxing authorities. Significant judgment is required in evaluating uncertain tax positions. Our tax provision and related accruals include the impact of estimates for uncertain tax positions and changes to the reserves that are considered appropriate. To the extent the probable tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of change and, in turn, our results of operations. As of December 31, 2025, we have a $ 2.2 million liability recorded for uncertain state income tax positions.
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LIQUIDITY, FUNDING AND CAPITAL RESOURCES
We regularly monitor our liquidity position, which is of critical importance to our business. Accordingly, we maintain a liquidity strategy designed to enable our business to continue to operate even under adverse circumstances, although there can be no assurance that our strategy will be successful under all circumstances. Insufficient liquidity resulting from adverse circumstances contributes to, and may be the cause of, financial institution failure.
The majority of our tangible assets consist of assets readily convertible into cash. Financial instruments and other inventory positions owned are stated at fair value and are generally readily marketable in most market conditions. Receivables and payables with brokers, dealers and clearing organizations usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources to the extent possible while considering tenor and cost. Our assets are financed by our cash flows from operations, equity capital and our funding arrangements. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses. One of our most important risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet reflect our overall risk tolerance, our ability to access stable funding sources and the amount of equity capital we hold.
Certain market conditions can impact the liquidity of our inventory positions, requiring us to hold larger inventory positions for longer than expected or requiring us to take other actions that may adversely impact our results.
A significant component of our employees' compensation is paid in annual discretionary incentive compensation. The timing of these incentive compensation payments, which is generally in February, has a significant impact on our cash position and liquidity.
Our dividend policy is intended to return between 30 percent and 50 percent of our fiscal year adjusted net income to shareholders. Our board of directors determines the declaration and payment of dividends and is free to change our dividend policy at any time. Our board of directors declared the following dividends on shares of our common stock:
Dividend
Declaration Date
Per Share
Record Date
Payment Date
Related to 2022:
February 3, 2023 (1)
March 3, 2023
March 17, 2023
Related to 2023:
February 3, 2023
March 3, 2023
March 17, 2023
May 2, 2023
May 26, 2023
June 9, 2023
July 28, 2023
August 25, 2023
September 8, 2023
October 27, 2023
November 21, 2023
December 8, 2023
February 2, 2024 (1)
March 4, 2024
March 15, 2024
Related to 2024:
February 2, 2024
March 4, 2024
March 15, 2024
April 26, 2024
May 24, 2024
June 7, 2024
August 2, 2024
August 29, 2024
September 13, 2024
October 25, 2024
November 22, 2024
December 13, 2024
January 31, 2025 (1)
March 4, 2025
March 14, 2025
Related to 2025:
January 31, 2025
March 4, 2025
March 14, 2025
May 2, 2025
May 30, 2025
June 13, 2025
August 1, 2025
August 29, 2025
September 12, 2025
October 31, 2025
November 25, 2025
December 12, 2025
February 6, 2026 (1)
March 3, 2026
March 13, 2026
Related to 2026:
February 6, 2026
March 3, 2026
March 13, 2026
(1) Represents a special cash dividend.
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Our board of directors has declared a special cash dividend on our common stock of $5.00 per share related to 2025 adjusted net income. This special dividend will be paid on March 13, 2026, to shareholders of record as of the close of business on March 3, 2026. Including this special cash dividend, we will have returned $7.70 per share, or approximately 43 percent of our fiscal year 2025 adjusted net income to shareholders.
As part of our capital management strategy, we repurchase our common stock over time in order to offset the dilutive effect of our employee stock-based compensation awards and our grants of acquisition-related restricted stock, as well as to return capital to shareholders.
Effective February 5, 2025, our board of directors authorized the repurchase of up to $150.0 million in common shares through December 31, 2026. During the year ended December 31, 2025, we repurchased 101,903 shares of our common stock at an average price of $279.05 per share for an aggregate purchase price of $28.4 million related to this authorization. At December 31, 2025, we had $121.6 million remaining under this authorization.
We also purchase shares of common stock from restricted stock award recipients upon the award vesting as recipients sell shares to meet their employment tax obligations. In 2025, we purchased 318,801 shares of our common stock at an average price of $303.03 per share for an aggregate purchase price of $96.6 million for these purposes.
Common Stock Split
On February 6, 2026, our board of directors approved a four-for-one forward split of our common stock to increase liquidity and help make our common stock more accessible to a wider range of investors. The stock split will be effected through the filing of an amendment to our amended and restated certificate of incorporation, which will be accompanied by a proportionate increase in the number of shares of our authorized common stock. At the effective time of the filing of the amendment on March 23, 2026, every share of our common stock will automatically become four shares of common stock. Our common stock is expected to begin trading on the split-adjusted basis at the start of trading on March 24, 2026.
Cash Flows
Cash and cash equivalents at December 31, 2025 were $809.4 million, an increase of $326.6 million from December 31, 2024. Operating activities provided $586.6 million of cash, primarily driven by cash generated from earnings and an increase in operating liabilities. The increase in operating liabilities was primarily due to an increase in accrued compensation of $107.4 million, the result of higher compensation costs in 2025 resulting from increased revenues and operating profits. In 2025, investing activities used $43.7 million, of which $34.7 million was used for the purchase of fixed assets and $9.0 million was used for the acquisition of G Squared. The increase in cash used for the purchase of fixed assets primarily related to relocating our Minneapolis corporate headquarters to a new building. In 2025, cash of $218.7 million was used in financing activities, as we repurchased $125.0 million of common stock and paid $114.1 million in dividends.
Cash and cash equivalents at December 31, 2024 were $482.8 million, an increase of $99.7 million from December 31, 2023. Operating activities provided $313.3 million of cash, primarily driven by cash generated from earnings and an increase in operating liabilities. The increase in operating liabilities was primarily due to an increase in accrued compensation of $56.6 million, the result of higher compensation costs in 2024 resulting from increased revenues and operating profits. In 2024, investing activities used $31.8 million, of which $16.3 million was used for the acquisition of Aviditi Advisors and $15.5 million was used for the purchase of fixed assets. In 2024, cash of $180.6 million was used in financing activities, as we paid $73.7 million in dividends, repurchased $66.4 million of common stock and reduced short-term financing by $37.3 million.
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Leverage
The following table presents total assets, adjusted assets, total shareholders' equity and tangible common shareholders' equity with the resulting leverage ratios:
December 31,
December 31,
(Dollars in thousands)
Total assets
Deduct: Goodwill and intangible assets
Deduct: Right-of-use lease assets
Deduct: Assets attributable to noncontrolling interests
Adjusted assets
Total shareholders' equity
Deduct: Goodwill and intangible assets
Deduct: Noncontrolling interests
Tangible common shareholders' equity
Leverage ratio (1)
Adjusted leverage ratio (2)
(1) Leverage ratio equals total assets divided by total shareholders' equity.
(2) Adjusted leverage ratio equals adjusted assets divided by tangible common shareholders' equity.
Adjusted assets and tangible common shareholders' equity are non-GAAP financial measures. Goodwill and intangible assets are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholders' equity, respectively, as we believe that goodwill and intangible assets do not constitute operating assets that can be deployed in a liquid manner. Right-of-use lease assets are also subtracted from total assets in determining adjusted assets as these are not operating assets that can be deployed in a liquid manner. Amounts attributable to noncontrolling interests are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholders' equity, respectively, as they represent assets and equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Sandler Companies. We view the resulting measure of adjusted leverage, also a non-GAAP financial measure, as a more relevant measure of financial risk when comparing financial services companies.
Funding and Capital Resources
The primary goal of our funding activities is to ensure adequate funding over a wide range of market conditions. Given the mix of our business activities, funding requirements are fulfilled through a diversified range of financing arrangements. We attempt to ensure that the tenor of our borrowing liabilities equals or exceeds the expected holding period of the assets being financed. Our ability to support increases in total assets is largely a function of our ability to obtain funding from external sources. Access to these external sources, as well as the cost of that financing, is dependent upon various factors, including market conditions, the general availability of credit and credit ratings. We currently do not have a credit rating, which could adversely affect our liquidity and competitive position by increasing our financing costs and limiting access to sources of liquidity that require a credit rating as a condition to providing the funds.
Our day-to-day funding and liquidity is obtained primarily through the use of cash from our operating activities, as well as through the use of a clearing arrangement with Pershing and a clearing arrangement with bank financing, which are typically collateralized by our securities inventory. These funding sources are critical to our ability to finance and hold inventory, which is a necessary part of our institutional brokerage business. The majority of our inventory is liquid and is therefore funded by short-term facilities or cash from our operating activities. Our funding sources are dependent on the types of inventory that our counterparties are willing to accept as collateral and the number of counterparties available. Our unsecured revolving credit facility has been established for working capital and general corporate purposes. Our secured revolving credit facility has been established for our private capital advisory business. Funding is generally obtained at rates based upon the federal funds rate or the Secured Overnight Financing Rate.
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Pershing Clearing Arrangement
We have established an arrangement to obtain financing from Pershing related to the majority of our trading activities. Under our fully disclosed clearing agreement, all of our securities inventories with the exception of convertible securities, and all of our customer activities are held by or cleared through Pershing. Financing under this arrangement is secured primarily by securities, and collateral limitations could reduce the amount of funding available under this arrangement. We may accommodate non-standard settlement timeframes for our clients, which can impact our funding and collateral balances. Our clearing arrangement activities are recorded net of trading activity and reported within receivables from or payables to brokers, dealers and clearing organizations. The funding is at the discretion of Pershing (i.e., uncommitted) and could be denied without a notice period. Our fully disclosed clearing agreement includes a covenant requiring Piper Sandler & Co., our U.S. broker dealer subsidiary, to maintain excess net capital of $120 million. At December 31, 2025, we had $0.2 million of financing outstanding under this arrangement.
Clearing Arrangement with Bank Financing
We have established a financing arrangement with a U.S. branch of CIBC related to our convertible securities inventories. Under this arrangement, our convertible securities inventories are cleared through a broker dealer affiliate of CIBC and held by CIBC. We generally economically hedge changes in the market value of our convertible securities inventories using the underlying common stock or the stock options of the underlying common stock. Financing under this arrangement is secured primarily by convertible securities and collateral limitations could reduce the amount of funding available. The funding is at the discretion of CIBC (i.e., uncommitted) and could be denied subject to a notice period. This arrangement is reported within receivables from or payables to brokers, dealers and clearing organizations, net of trading activity. At December 31, 2025, we had $40.2 million of financing outstanding under this arrangement.
Unsecured Revolving Credit Facility
We have an unsecured $120 million revolving credit facility with U.S. Bank N.A. The credit agreement will terminate on December 20, 2028, unless otherwise terminated. At December 31, 2025, there were $10.0 million of advances against this credit facility.
This credit facility includes customary events of default and covenants that, among other things, require Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million, limit our leverage ratio, require maintenance of a minimum ratio of operating cash flow to fixed charges, and impose certain limitations on our ability to make acquisitions and make payments on our capital stock. At December 31, 2025, we were in compliance with all covenants.
Secured Revolving Credit Facility
We have a $30 million revolving credit facility with Huntington Bancshares Incorporated, formerly Cadence Bank, related to our private capital advisory business. Advances under this facility are secured by certain installment fee receivables. The credit agreement will terminate on August 23, 2027, unless otherwise terminated. At December 31, 2025, there were $5.0 million of advances against this credit facility.
This credit facility includes customary events of default and covenants that, among other things, require Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million, limit our leverage ratio, require maintenance of a minimum fixed charge coverage ratio, and impose certain limitations on our ability to make acquisitions and make payments on our capital stock. At December 31, 2025, we were in compliance with all covenants.
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Average Funding Balances Outstanding and Maximum Daily Funding By Quarter
The following tables present the average balances outstanding for our various funding sources by quarter for 2025 and 2024:
Average Balance for the Three Months Ended
(Amounts in millions)
Dec. 31, 2025
Sept. 30, 2025
June 30, 2025
Mar. 31, 2025
Funding source
Pershing clearing arrangement
Clearing arrangement with bank financing
Unsecured revolving credit facility
Secured revolving credit facility
Total
Average Balance for the Three Months Ended
(Amounts in millions)
Dec. 31, 2024
Sept. 30, 2024
June 30, 2024
Mar. 31, 2024
Funding source
Pershing clearing arrangement
Clearing arrangement with bank financing
Unsecured revolving credit facility
Total
The average funding in the fourth quarter of 2025 increased to $83.7 million, compared with $67.2 million during the third quarter of 2025, primarily due to an increase in borrowings on our clearing arrangement with bank financing.
The following table presents the maximum daily funding amount by quarter for 2025 and 2024:
(Amounts in millions)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Contractual Obligations
In July 2025, we entered into a lease agreement for approximately 135,000 square feet of office space related to our New York City, New York location. Our contractual rental obligations over the 15-year lease term are $ 163.4 million. For further discussion of our contractual rental obligations, see Note 14 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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Capital Requirements
As a registered broker dealer and member firm of FINRA, Piper Sandler & Co. is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. We have elected to use the alternative method permitted by the uniform net capital rule which requires that we maintain minimum net capital of $1.0 million. Advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain approvals, notifications and other provisions of the uniform net capital rules. We expect that these provisions will not impact our ability to meet current and future obligations. At December 31, 2025, our net capital under the SEC's uniform net capital rule was $288.5 million, and exceeded the minimum net capital required under the SEC rule by $287.5 million.
Although we operate with a level of net capital substantially greater than the minimum thresholds established by FINRA and the SEC, a substantial reduction of our capital would curtail many of our capital markets revenue producing activities.
Our unsecured revolving credit facility and secured revolving credit facility include covenants requiring Piper Sandler & Co. to maintain a minimum regulatory net capital of $120 million. Our fully disclosed clearing agreement with Pershing includes a covenant requiring Piper Sandler & Co. to maintain excess net capital of $120 million.
At December 31, 2025, Piper Sandler Ltd., our broker dealer subsidiary registered in the U.K., was subject to, and was in compliance with, the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority pursuant to the Financial Services Act of 2012.
Aviditi Capital Advisors Europe GmbH, a European subsidiary, is authorized and regulated by the Federal Financial Supervisory Authority ("BaFin") as a tied agent of AHP Capital Management GmbH, a third-party financial institution.
Piper Sandler MENA Ltd, an ADGM subsidiary, is authorized and regulated by the ADGM Financial Services Regulatory Authority.
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OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business we enter into various types of off-balance sheet arrangements. The following table summarizes the notional contract value of our off-balance sheet arrangements for the periods presented:
Expiration Per Period
Total Contractual Amount
December 31,
December 31,
(Amounts in thousands)
Later
Customer matched-book derivative contracts (1) (2)
Trading securities derivative contracts (1)
Investment commitments (3)
(1) We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional or contract amount overstates the expected payout. At December 31, 2025 and 2024, the net fair value of these derivative contracts approximated $4.0 million and $3.3 million, respectively.
(2) We have three counterparties (contractual amount of $72.4 million at December 31, 2025) who are not required to post collateral. The uncollateralized amounts, representing the fair value of the derivative contracts, expose us to the credit risk of these counterparties. At December 31, 2025, we had $4.7 million of credit exposure with these counterparties, including $4.1 million of credit exposure with one counterparty.
(3) The investment commitments have no specified call dates. The timing of capital calls is based on market conditions and investment opportunities.
Derivatives
Derivatives' notional or contract amounts are not reflected as assets or liabilities on our consolidated statements of financial condition. Rather, the fair value of the derivative transactions are reported on the consolidated statements of financial condition as assets or liabilities in financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased, as applicable.
For a discussion of our activities related to derivative products, see Note 7 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Investment Commitments
We have investments, including those made as part of our alternative asset management activities, in limited partnerships or limited liability companies that make direct or indirect equity or debt investments in companies. We commit capital and/or act as the managing partner of these entities. We have committed capital of $30.9 million to certain entities and these commitments generally have no specified call dates. For additional information on our activities related to these types of entities, see Note 9 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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RISK MANAGEMENT
Risk is an inherent part of our business. The principal risks we face in operating our business include: strategic risk, market risk, liquidity risk, credit risk, operational risk, human capital risk, and legal and regulatory risk. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability. We have a formal risk management process to identify, assess and monitor each risk and mitigating controls in accordance with defined policies and procedures. The risk management functions are independent of our business lines. Our management takes an active role in the risk management process, and the results are reported to senior management and the board of directors.
The audit committee of the board of directors oversees management's processes for identifying and evaluating our major risks, and the policies, procedures and practices employed by management to govern its risk assessment and risk management processes. The nominating and governance committee of the board of directors oversees the board of directors' committee structures and functions as they relate to the various committees' responsibilities with respect to oversight of our major risk exposures. With respect to these major risk exposures, the audit committee is responsible for overseeing management's monitoring and control of our major risk exposures relating to market risk, credit risk, liquidity risk, legal and regulatory risk, operational risk (including cybersecurity, as further described in Part I, Item 1C of this Form 10-K), and human capital risk relating to misconduct, fraud, and legal and compliance matters. Our compensation committee is responsible for overseeing management's monitoring and control of our major risk exposures relating to compensation, organizational structure, and succession. Our board of directors is responsible for overseeing management's monitoring and control of our major risk exposures related to our corporate strategy. Our Chief Executive Officer and Chief Financial Officer meet with the audit committee on a quarterly basis to discuss our market, liquidity, and legal and regulatory risks, and provide updates to the board of directors, audit committee, and compensation committee concerning the other major risk exposures on a regular basis.
We use internal committees to assist in governing risk and ensure that our business activities are properly assessed, monitored and managed. Our executive financial risk committee manages our market, liquidity and credit risks; oversees risk management practices related to these risks, including defining acceptable risk tolerances and approving risk management policies; and responds to market changes in a dynamic manner. Membership is comprised of senior leadership, including our Chief Executive Officer, President, Chief Financial Officer, Treasurer, Head of Market and Credit Risk, and Head of Fixed Income Trading and Risk. Other committees that help evaluate and monitor risk include underwriting, leadership team and operating committees. These committees help manage risk by ensuring that business activities are properly managed and within a defined scope of activity. Our valuation committees, comprised of members of senior management and risk management, provide oversight and overall responsibility for the internal control processes and procedures related to fair value measurements. Additionally, our operational risk committees address and monitor risk related to information systems and security, legal, regulatory and compliance matters, and third parties such as vendors and service providers.
With respect to market risk and credit risk, the cornerstone of our risk management process is daily communication among traders, trading department management and senior management concerning our inventory positions and overall risk profile. Our risk management functions supplement this communication process by providing their independent perspectives on our market and credit risk profile on a daily basis. The broader objectives of our risk management functions are to understand the risk profile of each trading area, to consolidate risk monitoring company-wide, to assist in implementing effective hedging strategies, to articulate large trading or position risks to senior management, and to ensure accurate fair values of our financial instruments.
Risk management techniques, processes and strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, and any risk management failures could expose us to material unanticipated losses.
Strategic Risk
Strategic risk represents the risk associated with executive management failing to develop and execute on the appropriate strategic vision which demonstrates a commitment to our culture, leverages our core competencies, appropriately responds to external factors in the marketplace, and is in the best interests of our clients, employees and shareholders.
Our leadership team is responsible for managing our strategic risks. The board of directors oversees the leadership team in setting and executing our strategic plan.
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Market Risk
Market risk represents the risk of losses, or financial volatility, that may result from the change in value of a financial instrument due to fluctuations in its market price. Our exposure to market risk is directly related to our role as a financial intermediary for our clients and to our market-making activities. The scope of our market risk management policies and procedures includes all market-sensitive cash and derivative financial instruments.
Our different types of market risk include:
Interest Rate Risk
Interest rate risk represents the potential volatility from changes in market interest rates. We are exposed to interest rate risk arising from changes in the level and volatility of interest rates, changes in the slope of the yield curve, changes in credit spreads, and the rate of prepayments on our interest-earning assets (e.g., inventories) and our funding sources (e.g., short-term financing) which finance these assets. Interest rate risk is managed by selling short U.S. government securities, agency securities, corporate debt securities and derivative contracts. See Note 7 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information on our derivative contracts. Our interest rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate risk. Also, we establish limits on our long fixed income securities inventory, monitor these limits on a daily basis and manage within those limits. Our limits include but are not limited to the following: position and concentration size, dollar duration (i.e., DV01), credit quality and aging.
We estimate that a parallel 50 basis point adverse change in the market would result in a decrease of approximately $1.6 million in the carrying value of our fixed income securities inventory as of December 31, 2025, including the effect of the hedging transactions.
We also measure and monitor the aging and turnover of our long fixed income securities inventory. Turnover is evaluated based on a five-day average by category of security. The vast majority of our fixed income securities inventory generally turns over within three weeks.
In addition to the measures discussed above, we monitor and manage market risk exposure through evaluation of spread DV01 and the MMD basis risk for municipal securities to movements in U.S. treasury securities. All metrics are aggregated by asset concentration and are used for monitoring limits and exception approvals. In times of market volatility, we may also perform ad hoc stress tests and scenario analysis as market conditions dictate.
Equity Price Risk
Equity price risk represents the potential loss in value due to adverse changes in the level or volatility of equity prices. We are exposed to equity price risk through our trading activities primarily in the U.S. market. We attempt to reduce the risk of loss inherent in our market-making and in our inventory of equity securities by establishing limits on our long inventory, monitoring these limits on a daily basis, and by managing net position levels within those limits.
Foreign Exchange Risk
Foreign exchange risk represents the potential volatility to earnings or capital arising from movement in foreign exchange rates. A modest portion of our business is conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets, revenues and expenses.
Liquidity Risk
Liquidity risk is the risk that we are unable to timely access necessary funding sources in order to operate our business, as well as the risk that we are unable to timely divest securities that we hold in connection with our market-making and sales and trading activities. We are exposed to liquidity risk in our day-to-day funding activities, by holding potentially illiquid inventory positions and in our role as a remarketing agent for variable rate demand notes.
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Our inventory positions subject us to potential financial losses from the reduction in value of illiquid positions. Market risk can be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities or at normal bid-offer spreads. Depending on the specific security, the structure of the financial product, or overall market conditions, we may be forced to hold a security for substantially longer than we had planned or forced to liquidate into a challenging market if funding becomes unavailable.
See the section entitled "Liquidity, Funding and Capital Resources" for information regarding our liquidity and how we manage liquidity risk.
Credit Risk
Credit risk refers to the potential for loss due to the default or deterioration in credit quality of a counterparty, customer, borrower or issuer of securities we hold in our trading inventory. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction and the parties involved. Credit risk also results from an obligor's failure to meet the terms of any contract with us or otherwise fail to perform as agreed. This may be reflected through issues such as settlement obligations or payment collections.
A key tenet of our risk management procedures related to credit risk is the daily monitoring of the credit quality of our long fixed income securities inventory. These rating trends and the credit quality mix are regularly reviewed with the executive financial risk committee. The following table summarizes the credit rating for our long corporate fixed income securities, taxable and tax-exempt municipal securities, and U.S. government and agency securities as a percentage of the total of these asset classes as of December 31, 2025:
AAA
BBB
Not Rated
Corporate fixed income securities
Taxable and tax-exempt municipal securities
U.S. government and agency securities
Convertible and preferred securities are excluded from the table above as they are typically unrated.
Our different types of credit risk include:
Credit Spread Risk
Credit spread risk arises from the possibility that changes in credit spreads will affect the value of financial instruments. Credit spreads represent the credit risk premiums required by market participants for a given credit quality (e.g., the additional yield that a debt instrument issued by a AA-rated entity must produce over a risk-free alternative). Changes in credit spreads result from potential changes in an issuer's credit rating or the market's perception of the issuer's creditworthiness. We are exposed to credit spread risk with the debt instruments held in our trading inventory. We enter into transactions to hedge our exposure to credit spread risk with derivatives and certain other financial instruments. These hedging strategies may not work in all market environments and as a result may not be effective in mitigating credit spread risk.
Deterioration/Default Risk
Deterioration/default risk represents the risk due to an issuer, counterparty or borrower failing to fulfill its obligations. We are exposed to deterioration/default risk in our role as a trading counterparty to dealers and customers, as a holder of securities, and as a member of exchanges. The risk of default depends on the creditworthiness of the counterparty or issuer of the security. We mitigate this risk by establishing and monitoring individual and aggregate position limits for each counterparty relative to potential levels of activity, holding and marking to market collateral on certain transactions. Our risk management functions also evaluate the potential risk associated with institutional counterparties with whom we hold derivatives, TBAs and other documented institutional counterparty agreements that may give rise to credit exposure.
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Collections Risk
Collections risk arises from ineffective management and monitoring of collecting outstanding debts and obligations, including those related to our customer trading activities. Our client activities involve the execution, settlement and financing of various transactions. Client activities are transacted on a delivery versus payment, cash or margin basis. Our credit exposure to institutional client business is mitigated by the use of industry-standard delivery versus payment through depositories and clearing banks. Our risk management functions have credit risk policies establishing appropriate credit limits and collateralization thresholds for our customers and counterparties.
Concentration Risk
Concentration risk is the risk due to concentrated exposure to a particular product; individual issuer, borrower or counterparty; financial instrument; or geographic area. We are subject to concentration risk if we hold large individual securities positions, execute large transactions with individual counterparties or groups of related counterparties, or make substantial underwriting commitments. Potential concentration risk is monitored through review of counterparties and borrowers and is managed using policies and limits established by senior management.
Within our customer matched-book derivative portfolio, we have concentrated counterparty credit exposure with three non-publicly rated entities totaling $4.7 million at December 31, 2025. This counterparty credit exposure relates to our public finance business and consists primarily of interest rate swaps. One derivative counterparty represented 87.7 percent, or $4.1 million, of this exposure. Credit exposure associated with our derivative counterparties is driven by uncollateralized market movements in the fair value of the interest rate swap contracts and is monitored regularly by our financial risk committee. We attempt to minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by senior management.
Operational Risk
Operational risk is the risk of loss, or damage to our reputation, resulting from inadequate or failed processes, people and systems or from external events. We rely on the ability of our employees and our systems, both internal and at computer centers operated by third parties, to process a large number of transactions. Our systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control. In the event of a breakdown or improper operation of our systems or improper action by our employees or third-party vendors, we could suffer financial loss, a disruption of our businesses, regulatory sanctions and damage to our reputation. We also face the risk of operational failure or termination of our relationship with any of the exchanges, fully clearing firms, or other financial intermediaries we use to facilitate our securities transactions. Any such or could affect our ability to effect transactions and manage our exposure to risk.
Our operations rely on secure processing, storage and transmission of confidential and other information in our internal and outsourced computer systems and networks. Our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, internal misconduct or inadvertent errors and other events that could have an information security impact. The occurrence of one or more of these events could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations. We take protective measures and endeavor to modify them as circumstances warrant. A further discussion of our procedures for cybersecurity risk management is included in Part I, Item 1C of this Form 10-K.
In order to mitigate and control operational risk, we have developed and continue to enhance policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. Important aspects of these policies and procedures include segregation of duties, management oversight, internal control over financial reporting and independent risk management activities within such functions as Risk Management, Compliance, Operations, Internal Audit, Treasury, Finance, Information Technology and Legal. Internal Audit oversees, monitors, evaluates, analyzes and reports on operational risk across the firm. We also have business continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits.
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We operate under a fully disclosed clearing model for all of our securities inventories with the exception of convertible securities, and for all of our client clearing activities. In a fully disclosed clearing model, we act as an introducing broker for client transactions and rely on Pershing, our clearing broker dealer, to facilitate clearance and settlement of our clients' securities transactions. The clearing services provided by Pershing are critical to our business operations, and similar to other services performed by third-party vendors, any failure by Pershing with respect to the services we rely upon Pershing to provide could cause financial loss, significantly disrupt our business, damage our reputation, and adversely affect our ability to serve our clients and manage our exposure to risk.
Human Capital Risk
Our business is a human capital business and our success is dependent upon the skills, expertise and performance of our employees. Human capital risks represent the risks posed if we fail to attract and retain qualified individuals who are motivated to serve the best interests of our clients, thereby serving the best interests of our company. Attracting and retaining employees depends, among other things, on our company's culture, management, work environment, geographic locations and compensation. There are risks associated with the proper recruitment, development and rewards of our employees to ensure quality performance and retention.
Legal and Regulatory Risk
Legal and regulatory risk includes the risk of non-compliance with applicable legal and regulatory requirements and loss to our reputation we may suffer as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. We are generally subject to extensive regulation in the various jurisdictions in which we conduct our business. We have established procedures that are reasonably designed to achieve compliance with applicable statutory and regulatory requirements, such as public company reporting obligations, regulatory net capital requirements, sales and trading practices, potential conflicts of interest, anti-money laundering, privacy, and financial and electronic recordkeeping. We have also established procedures that are reasonably designed to achieve compliance with our policies relating to ethics and business conduct. The legal and regulatory focus on the financial services industry presents a continuing business challenge for us.
Our business also subjects us to the complex income tax laws of the jurisdictions in which we have business operations, and these tax laws may be subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes.
EFFECTS OF INFLATION
Because our assets are liquid and generally short-term in nature, they are not significantly affected by inflation. However, the rate of inflation affects our expenses, such as employee compensation, office space occupancy costs, communications charges and travel costs, which may not be readily recoverable in the price of services we offer to our clients. To the extent inflation results in rising interest rates and has adverse effects upon the securities markets, it may adversely affect our financial position and results of operations.
