The following information should be read in conjunction with the accompanying
unaudited consolidated financial statements and related notes and exhibits
included elsewhere in this Quarterly Report on Form 10-Q. Certain statements in
this Quarterly Report on Form 10-Q may be considered forward-looking. Statements
that are not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. These forward-looking statements
include, among other things, statements other than historical information or
statements of current conditions and may relate to our future plans and
objectives and results, and also may include our belief regarding the effect of
various legal proceedings, as set forth under "Legal Proceedings" in Part I,
Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2019
and in our subsequent reports filed with the Securities and Exchange Commission
("SEC"). Forward-looking statements involve inherent risks and uncertainties,
and important factors could cause actual results to differ materially from those
anticipated, including those factors discussed below under "External Factors
Impacting Our Business" as well as the factors identified under "Risk Factors"
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December
31, 2019, as updated in our subsequent reports filed with the SEC and under
"Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. These
reports are available at our Web site at www.pipersandler.com and at the SEC Web
site at www.sec.gov. Forward-looking statements speak only as of the date they
are made, and we undertake no obligation to update them in light of new
information or future events.

Explanation of Non-GAAP Financial Measures



We have included financial measures that are not prepared in accordance with
U.S. generally accepted accounting principles ("GAAP"). These non-GAAP financial
measures include adjustments to exclude (1) revenues and expenses related to
noncontrolling interests, (2) interest expense on long-term financing, (3)
amortization of intangible assets related to acquisitions, (4) compensation and
non-compensation expenses from acquisition-related agreements, (5)
acquisition-related restructuring and integration costs and (6) discontinued
operations. The adjusted weighted average diluted shares outstanding used in the
calculation of non-GAAP earnings per diluted common share contains an adjustment
to include the common shares for unvested restricted stock awards with service
conditions granted pursuant to the acquisitions of SOP Holdings, LLC and its
subsidiaries, including Sandler O'Neill & Partners, L.P. (collectively, "Sandler
O'Neill"), and The Valence Group ("Valence"). These adjustments affect the
following financial measures: net revenues, compensation expenses,
non-compensation expenses, income tax expense/(benefit), net income/(loss)
applicable to Piper Sandler Companies, earnings/(loss) per diluted common share,
non-interest expenses, pre-tax income/(loss) and pre-tax margin. Management
believes that presenting these results and measures on an adjusted basis in
conjunction with the corresponding U.S. GAAP measures provides the most
meaningful basis for comparison of our operating results across periods, and
enhances the overall understanding of our current financial performance by
excluding certain items that may not be indicative of our core operating
results. The non-GAAP financial measures should be considered in addition to,
not as a substitute for, measures of financial performance prepared in
accordance with U.S. GAAP.

COVID-19 Impacts



The impacts of the novel coronavirus disease ("COVID-19") continue to evolve and
present challenges to our business. At this time, it is uncertain how long our
business will be impacted by COVID-19, the related economic downturn and
changing market environment. We believe the significance of the impact will be
directly correlated to the length and severity of the economic slowdown and the
stability of the equity and credit markets. Our ability to access the market for
working capital and/or short-term and long-term financing may be impacted,
perhaps significantly, during periods of economic distress. Our ability to fund
operations, make capital investments, maintain compliance with our debt
covenants, and fund shareholder dividends or stock repurchases may also be
adversely affected, depending on the level and length of disruption to our
business. We continue to regularly monitor our capital and liquidity positions,
regulatory capital requirements, debt covenants and other contractual
obligations in light of the pandemic.

See the sections entitled "Outlook for the Remainder of 2020" and "Financial
Performance from Continuing Operations" for additional information regarding the
impacts of COVID-19 on our business.

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Executive Overview

Our continuing operations principally consist of providing investment banking
and institutional brokerage services to corporations, private equity groups,
public entities, non-profit entities and institutional investors in the United
States and Europe. We operate through one reportable business segment. Refer to
our Annual Report on Form 10-K for the year ended December 31, 2019 for a full
description of our business, including our business strategy.

Over the last 12 months, we have taken important steps in the execution of our business strategy. These steps include the following:



•On April 3, 2020, we completed the acquisition of Valence, an investment bank
offering mergers and acquisitions advisory services to companies and financial
sponsors with a focus on the chemicals, materials and related sectors. The
transaction adds a new industry sector and expands our presence in Europe.

•On January 3, 2020, we completed the acquisition of Sandler O'Neill, a
full-service investment banking firm and broker dealer focused on the financial
services industry. The acquisition of Sandler O'Neill is accretive to our
advisory services revenues, diversifies and enhances scale in corporate
financings, adds a differentiated fixed income services business, and increases
scale in our equity brokerage business.

•On August 2, 2019, we completed the acquisition of Weeden & Co. L.P. ("Weeden &
Co."). Weeden & Co. is a broker dealer focused on providing institutional
clients with global trading solutions, specializing in best execution through
the use of high-touch, low-touch and program trading capabilities. The
transaction added enhanced trade execution capabilities and scale to our equity
brokerage business.

Discontinued Operations - Discontinued operations includes the operating results
of Advisory Research, Inc. ("ARI"), our traditional asset management subsidiary
which we sold in the third quarter of 2019. See Note 4 to our unaudited
consolidated financial statements for further discussion of our discontinued
operations.

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Financial Highlights
                                                              Three Months Ended                                                                              Six Months Ended
(Amounts in thousands, except per share       June 30,             June 30,               2020                 June 30,             June 30,               2020
data)                                                     2020                 2019                  v2019                 2020                 2019                 v2019
U.S. GAAP
Net revenues                                $ 292,438            $ 172,418                  69.6  %          $ 528,606            $ 354,960                 48.9  %
Compensation and benefits                     213,560              102,476                 108.4               401,684              219,603                 82.9
Non-compensation expenses                      71,481               49,017                  45.8               153,554               91,295                 68.2

Net income/(loss) applicable to Piper
Sandler Companies                               1,454               10,389                 (86.0)              (13,273)              29,811             

N/M



Earnings/(loss) per diluted common share    $    0.10            $    0.72                 (86.1)            $   (0.96)           $    2.02                     N/M

Non-GAAP(1)
Adjusted net revenues                       $ 292,667            $ 162,779                  79.8  %          $ 537,589            $ 344,908                 55.9  %
Adjusted compensation and benefits            185,772              101,147                  83.7               344,465              215,967             

59.5


Adjusted non-compensation expenses             55,128               40,780                  35.2               112,344               81,162             

38.4



Adjusted net income applicable to Piper
Sandler Companies                              34,492               18,982                  81.7                59,916               41,169             

45.5


Adjusted earnings per diluted common share  $    1.93            $    1.32                  46.2             $    3.35            $    2.83                 18.4


N/M - Not meaningful

For the three months ended June 30, 2020



•Net revenues were up 69.6 percent from the year-ago period reflecting the
investments we have made in our business through the acquisitions of Sandler
O'Neill in the first quarter of 2020 and Weeden & Co. in the third quarter of
2019. In the second quarter of 2020, increased revenues in all of our businesses
were partially offset by lower investment income. Our corporate financing
revenues were driven by favorable market conditions for capital raising and
market share gains.

•Compensation and benefits expenses increased 108.4 percent compared with the
prior-year period due to higher revenues and additional headcount resulting from
our acquisitions of Sandler O'Neill, Weeden & Co. and Valence, as well as higher
acquisition-related costs related to restricted consideration and retention
awards associated with these acquisitions.

•Non-compensation expenses were up 45.8 percent compared to the year-ago period
driven by the addition of our recent acquisitions to the platform and intangible
asset amortization expense of $11.6 million.

•For the three months ended June 30, 2019, we recorded a tax benefit of $3.5 million related to restricted stock vesting at values greater than the grant price. The impact of the tax benefit on earnings per diluted common share was $0.24 in the second quarter of 2019.


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For the six months ended June 30, 2020

•Net revenues were up 48.9 percent from the year-ago period as our acquisitions
of Sandler O'Neill and Weeden & Co. provided significant franchise and financial
diversification, and enhanced our scale and durability across our platform.

•Compensation and benefits expenses increased 82.9 percent compared with the
prior-year period due to higher revenues, incremental headcount from our recent
acquisitions, and higher acquisition-related costs related to restricted
consideration and retention awards associated with the acquisitions. We also
recorded additional compensation expense for an earnout associated with the
Weeden & Co. acquisition related to our expectations of achieving a net revenue
target, as our equity brokerage business is outperforming initial projections.

•Non-compensation expenses increased 68.2 percent compared to the year-ago
period primarily due to our recent acquisitions. Also, in the first quarter of
2020, we recorded higher acquisition-related non-compensation costs due to a
$12.1 million fair value adjustment to the Weeden & Co. earnout related to
non-employee equity owners. We recorded the full value of the projected earnout
for these non-employees as they do not have service requirements.

•In the first half of 2020, we recorded $2.6 million of income tax benefits
primarily related to new tax provisions in the Coronavirus Aid, Relief, and
Economic Security Act (the "CARES Act"), which was enacted by the U.S. federal
government on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act
contains tax provisions allowing a five-year carry back of any net operating
losses incurred during federal tax years 2018, 2019 and 2020, to periods when
the corporate federal tax rate was 35 percent. The impact of the tax benefit on
earnings per diluted common share was $0.19 in the first six months of 2020.

•For the six months ended June 30, 2020 and 2019, we recorded a tax benefit of
$0.2 million and $5.1 million, respectively, related to restricted stock vesting
at values greater than the grant price. The impact of the tax benefit on
earnings per diluted common share was $0.35 in the first six months of 2019.



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(1)Reconciliation of U.S. GAAP to adjusted non-GAAP financial information
                                                              Three Months Ended                                     Six Months Ended
                                                                   June 30,                                              June 30,
(Amounts in thousands, except per share data)               2020               2019               2020                  2019
 Net revenues:
Net revenues - U.S. GAAP basis                          $ 292,438

$ 172,418 $ 528,606 $ 354,960 Adjustments: Revenue related to noncontrolling interests

                (2,235)            (9,639)             4,301                  (10,052)
Interest expense on long-term financing                     2,464                  -              4,682                        -
Adjusted net revenues                                   $ 292,667

$ 162,779 $ 537,589 $ 344,908



Compensation and benefits:
Compensation and benefits - U.S. GAAP basis             $ 213,560

$ 102,476 $ 401,684 $ 219,603 Adjustments: Compensation from acquisition-related agreements (27,788)

            (1,329)           (57,219)                  (3,636)
Adjusted compensation and benefits                      $ 185,772

$ 101,147 $ 344,465 $ 215,967



Non-compensation expenses:
Non-compensation expenses - U.S. GAAP basis             $  71,481

$ 49,017 $ 153,554 $ 91,295 Adjustments: Non-compensation expenses related to noncontrolling interests

                                                    (992)            (1,089)            (1,984)                  (2,118)

Acquisition-related restructuring and integration costs (3,724)

   (6,395)            (5,626)                  (6,395)

Amortization of intangible assets related to
acquisitions                                              (11,637)              (753)           (21,515)                  (1,506)

Non-compensation expenses from acquisition-related agreements

                                                      -                  -            (12,085)                    (114)
Adjusted non-compensation expenses                      $  55,128

$ 40,780 $ 112,344 $ 81,162



Net income/(loss) applicable to Piper Sandler
Companies:
Net income/(loss) applicable to Piper Sandler Companies
- U.S. GAAP basis                                       $   1,454

$ 10,389 $ (13,273) $ 29,811


 Adjustment to exclude net loss from discontinued
operations                                                      -             (2,166)                 -                   (2,305)
Net income/(loss) from continuing operations            $   1,454

$ 12,555 $ (13,273) $ 32,116

Adjustments:


Compensation from acquisition-related agreements           20,970              1,047             43,313                    2,989

Acquisition-related restructuring and integration costs 3,383

    4,809              4,802                    4,809

Amortization of intangible assets related to
acquisitions                                                8,685                571             16,058                    1,141

Non-compensation expenses from acquisition-related agreements

                                                      -                  -              9,016                      114

Adjusted net income applicable to Piper Sandler
Companies                                               $  34,492

$ 18,982 $ 59,916 $ 41,169

Earnings/(loss) per diluted common share:

Earnings/(loss) per diluted common share - U.S. GAAP basis

$    0.10

$ 0.72 $ (0.96) $ 2.02


 Adjustment to exclude net loss from discontinued
operations                                                      -              (0.15)                 -                    (0.16)
Income/(loss) from continuing operations                $    0.10

$ 0.87 $ (0.96) $ 2.18 Adjustment for inclusion of unvested acquisition-related stock

                                   (0.45)                 -              (0.80)                       -
Impact of antidilutive shares in a period of a loss             -                  -               0.04                        -
Adjustment related to participating shares (2)                  -                  -                  -                     0.02
                                                        $   (0.35)

$ 0.87 $ (1.72) $ 2.20

Adjustments:


Compensation from acquisition-related agreements             1.45               0.07               3.01                     0.21

Acquisition-related restructuring and integration costs 0.23

     0.34               0.33                     0.33

Amortization of intangible assets related to
acquisitions                                                 0.60               0.04               1.11                     0.08

Non-compensation expenses from acquisition-related agreements

                                                      -                  -               0.62                     0.01

 Adjusted earnings per diluted common share             $    1.93

$ 1.32 $ 3.35 $ 2.83

Weighted average diluted common shares outstanding: Weighted average diluted common shares outstanding - U.S. GAAP basis

                                            14,476             14,024             14,444                   13,778

Adjustment:

Unvested acquisition-related restricted stock with service conditions

                                          3,401                  -              3,450                        -
Adjusted weighted average diluted common shares
outstanding                                                17,877             14,024             17,894                   13,778


(2)The adjustment related to participating shares excludes the impact of the annual special cash dividend paid in the first quarter of 2019.


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External Factors Impacting Our Business

Performance in the financial services industry in which we operate is highly
correlated to the overall strength of economic conditions and financial market
activity. Overall market conditions are a product of many factors, which are
beyond our control, often unpredictable and at times inherently volatile. These
factors may affect the financial decisions made by investors, including their
level of participation in the financial markets. In turn, these decisions may
affect our business results. With respect to financial market activity, our
profitability is sensitive to a variety of factors, including the demand for
investment banking services as reflected by the number and size of advisory
transactions, equity and debt corporate financings, and municipal financings;
the relative level of volatility of the equity and fixed income markets; changes
in interest rates and credit spreads (especially rapid and extreme changes);
overall market liquidity; the level and shape of various yield curves; the
volume and value of trading in securities; and overall equity valuations.

Factors that differentiate our business within the financial services industry
also may affect our financial results. For example, our capital markets business
focuses on specific industry sectors while serving principally middle-market
clientele. If the business environment for our focus sectors is impacted
adversely, our business and results of operations could reflect these impacts.
In addition, our business, with its specific areas of focus and investment, may
not track overall market trends. Given the variability of the capital markets
and securities businesses, our earnings may fluctuate significantly from period
to period, and results for any individual period should not be considered
indicative of future results.

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Outlook for the Remainder of 2020

On March 11, 2020, the World Health Organization characterized the COVID-19
outbreak as a global pandemic. The COVID-19 pandemic has affected major economic
and financial markets, and businesses and governments are facing challenges
associated with the economic conditions resulting from efforts to address it.
Global macroeconomic conditions have been significantly impacted by the
government-mandated closure of businesses and the gradual reopening of the
economy with new protocols for social interaction, supply chain and production
disruptions, job losses, reduced consumer spending and sentiment, and a myriad
of other factors.

The U.S. federal government passed legislation attempting to mitigate some of
the economic hardship caused by the COVID-19 pandemic, with the potential for
more legislation and stimulus measures in the future. The U.S. Federal Reserve
has taken extraordinary steps to provide liquidity in the financial markets,
including cutting the short-term benchmark interest rate to zero and launching a
new round of quantitative easing. After historic volatility in the first quarter
of 2020, equity markets rebounded and fixed income markets stabilized, aided by
the record levels of federal monetary and fiscal support.

Geopolitical and macroeconomic risks, such as uncertainties surrounding trade
policy, negotiations regarding Brexit and other global economic conditions,
remain in the background and will continue to have an ongoing impact to the U.S.
and global economy. The 2020 U.S. presidential election may also influence the
volatility or direction of markets based on investors' assessment of the outcome
and the overall political outlook in the U.S.

The uncertainty associated with COVID-19 continues to influence advisory services activity market-wide, as evidenced by the decline in the number of announced deals in the market. Many engagements have been put on hold until business conditions become more clear. We expect that our advisory services revenues in the second half of 2020 will be lower compared to the second quarter, reflecting this pause in activity.



Market conditions were favorable for corporate capital raising in the second
quarter of 2020 as both public and private companies completed transactions to
strengthen their balance sheets. Our pipeline remains strong and we expect
capital raising activity will continue as long as market conditions remain
favorable.

In our equity brokerage business, equity market volumes and volatility remain
elevated from historical levels as clients seek liquidity in the changing market
environment. We believe that client activity and our equity brokerage revenues
will decline from levels in the first half of 2020 as volatility has started to
subside and the market historically experiences a slowdown during the summer
months. We believe that our revenues will continue to follow institutional
trading volumes and the uncertainty of the current market conditions could lead
to further spikes in volatility and volumes in future periods.

The actions taken by the U.S. Federal Reserve to inject liquidity into the
market toward the end of March helped to stabilize the fixed income markets in
the second quarter of 2020. Fixed income client activity remained strong for
taxable and tax-exempt products. We believe that our fixed income services
revenues will remain strong as clients continue to reposition in a changing
market.

Our public finance underwriting business benefited from market stability, low
yields and strong investor demand in the second quarter of 2020. We expect
revenues in the third quarter to moderate from these levels. Volatility, rate
stability and client demand will impact the level of municipal finance activity
going forward.
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Results of Operations

Financial Summary for the three months ended June 30, 2020 and June 30, 2019

The following table provides a summary of the results of our operations on a U.S. GAAP basis and the results of our operations as a percentage of net revenues for the periods indicated.


                                                                                                               As a Percentage of
                                                                                                              Net Revenues for the
                                                            Three Months Ended                                                                     Three Months Ended
                                                                 June 30,                                                                               June 30,
                                                                                      2020
(Amounts in thousands)                         2020               2019               v2019                  2020                  2019
Revenues:
Investment banking                         $ 199,827          $ 118,739                 68.3  %                68.3  %              68.9  %
Institutional brokerage                       89,339             32,204                177.4                   30.5                 18.7
Interest income                                3,065              6,863                (55.3)                   1.0                  4.0
Investment income                              3,733             17,605                (78.8)                   1.3                 10.2
Total revenues                               295,964            175,411                 68.7                  101.2                101.7

Interest expense                               3,526              2,993                 17.8                    1.2                  1.7

Net revenues                                 292,438            172,418                 69.6                  100.0                100.0

Non-interest expenses:
Compensation and benefits                    213,560            102,476                108.4                   73.0                 59.4
Outside services                               9,899              8,451                 17.1                    3.4                  4.9
Occupancy and equipment                       13,269              8,425                 57.5                    4.5                  4.9
Communications                                11,096              6,849                 62.0                    3.8                  4.0
Marketing and business development             2,588              8,089                (68.0)                   0.9                  4.7
Deal-related expenses                         11,204              6,725                 66.6                    3.8                  3.9
Trade execution and clearance                  4,312              1,017                324.0                    1.5                  0.6
Restructuring and integration costs            3,724              6,395                (41.8)                   1.3                  3.7

Intangible asset amortization                 11,637                753                     N/M                 4.0                  0.4
Other operating expenses                       3,752              2,313                 62.2                    1.3                  1.3
Total non-interest expenses                  285,041            151,493                 88.2                   97.5                 87.9

Income from continuing operations before
income tax expense/(benefit)                   7,397             20,925                (64.6)                   2.5                 12.1

Income tax expense/(benefit)                   4,700               (180)                    N/M                 1.6                 (0.1)

Income from continuing operations              2,697             21,105                (87.2)                   0.9                 12.2

Discontinued operations:
Loss from discontinued operations, net of
tax                                                -             (2,166)                    N/M                   -                 (1.3)
Net income                                     2,697             18,939                (85.8)                   0.9                 11.0

Net income applicable to noncontrolling
interests                                      1,243              8,550                (85.5)                   0.4                  5.0

Net income applicable to Piper Sandler
Companies                                  $   1,454          $  10,389                (86.0)                   0.5  %               6.0  %


N/M - Not meaningful

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For the three months ended June 30, 2020, we recorded net income from continuing
operations applicable to Piper Sandler Companies of $1.5 million. Net revenues
from continuing operations for the three months ended June 30, 2020 were
$292.4 million, a 69.6 percent increase compared to $172.4 million in the
year-ago period, reflecting the impact of our acquisitions of Sandler O'Neill
and Weeden & Co. In the second quarter of 2020, investment banking revenues were
$199.8 million, up 68.3 percent compared with $118.7 million in the prior-year
period, driven by robust corporate financing revenues, as well as higher
municipal financing and advisory services revenues. For the three months ended
June 30, 2020, institutional brokerage revenues increased 177.4 percent to
$89.3 million, compared with $32.2 million in the second quarter of 2019, due to
the acquisitions of Weeden & Co. and Sandler O'Neill, as well as elevated levels
of trading volumes. For the three months ended June 30, 2020, net interest
expense was $0.5 million, compared to net interest income of $3.9 million in the
prior-year period. Net interest expense resulted from a decline in interest
income on our long inventory positions combined with incremental interest
expense on our long-term financing arrangements, which consist of our fixed rate
senior notes issued on October 15, 2019, and the unsecured promissory notes we
entered into on April 3, 2020 to fund a portion of the Valence purchase price.
In the second quarter of 2020, we recorded investment income of $3.7 million,
compared with $17.6 million in the prior-year period. In the current quarter, we
recorded lower gains on our investment and the noncontrolling interests in the
merchant banking funds that we manage. Non-interest expenses from continuing
operations were $285.0 million for the three months ended June 30, 2020, up 88.2
percent compared to $151.5 million in the prior-year period, driven by higher
compensation and non-compensation expenses resulting from the acquisitions of
Sandler O'Neill, Weeden & Co. and Valence.

Consolidated Non-Interest Expenses from Continuing Operations



Compensation and Benefits - Compensation and benefits expenses, which are the
largest component of our expenses, include salaries, incentive compensation,
benefits, stock-based compensation, employment taxes, income associated with the
forfeiture of stock-based compensation and other employee-related costs. A
portion of compensation expense is comprised of variable incentive arrangements,
including discretionary incentive compensation, the amount of which fluctuates
in proportion to the level of business activity, increasing with higher revenues
and operating profits. Other compensation costs, primarily base salaries and
benefits, are more fixed in nature. The timing of incentive compensation
payments, which generally occur in February, has a greater impact on our cash
position and liquidity than is reflected on our consolidated statements of
operations. We have granted restricted stock and restricted cash with service
conditions as a component of our acquisition deal consideration, which is
amortized to compensation expense over the service period.

For the three months ended June 30, 2020, compensation and benefits expenses
increased 108.4 percent to $213.6 million, compared with $102.5 million in the
corresponding period of 2019. The increase in compensation and benefits expenses
was driven by higher revenues and incremental headcount from the acquisitions of
Sandler O'Neill and Valence in the first half of 2020 and Weeden & Co. in the
third quarter of 2019, along with higher acquisition-related compensation
related to restricted consideration and retention awards associated with these
acquisitions. Compensation and benefits expenses as a percentage of net revenues
was 73.0 percent in the second quarter of 2020, compared with 59.4 percent in
the second quarter of 2019. The compensation ratio was impacted by increased
acquisition-related compensation related to our recent acquisitions.

Outside Services - Outside services expenses include securities processing
expenses, outsourced technology functions, outside legal fees, fund expenses
associated with our consolidated alternative asset management funds and other
professional fees. Outside services expenses increased 17.1 percent to $9.9
million in the second quarter of 2020, compared with $8.5 million in the
corresponding period of 2019. The increase was primarily due to higher
securities processing fees resulting from higher trading volumes due to the
addition of Weeden & Co. onto our platform and higher levels of trading
volatility during the quarter resulting from the economic impacts of the
COVID-19 pandemic. The increase was also due to incremental expenses related to
the acquisition of Sandler O'Neill and higher professional fees.

Occupancy and Equipment - For the three months ended June 30, 2020, occupancy
and equipment expenses increased to $13.3 million, compared with $8.4 million
for the three months ended June 30, 2019. The increase was primarily the result
of incremental occupancy and software maintenance expenses related to our recent
acquisitions.

Communications - Communication expenses include costs for telecommunication and
data communication, primarily consisting of expenses for obtaining third party
market data information. For the three months ended June 30, 2020, communication
expenses increased 62.0 percent to $11.1 million, compared with $6.8 million for
the three months ended June 30, 2019 due to increased market data services
expenses resulting from incremental headcount related our recent acquisitions.

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Marketing and Business Development - Marketing and business development expenses
include travel and entertainment costs, advertising and third party marketing
fees. For the three months ended June 30, 2020, marketing and business
development expenses decreased 68.0 percent to $2.6 million, compared with $8.1
million in the corresponding period of 2019. The decrease was driven by lower
travel and entertainment costs.

Deal-Related Expenses - Deal-related expenses include costs we incurred over the
course of a completed investment banking deal, which primarily consist of legal
fees, offering expenses, and travel and entertainment costs. For the three
months ended June 30, 2020, deal-related expenses were $11.2 million, compared
with $6.7 million for the three months ended June 30, 2019. The amount of
deal-related expenses is principally dependent on the level of deal activity and
may vary from period to period as the recognition of deal-related costs
typically coincides with the closing of a transaction.

Trade Execution and Clearance - For the three months ended June 30, 2020, trade
execution and clearance expenses were $4.3 million, compared with $1.0 million
in the corresponding period of 2019. The increase in trade execution and
clearance expenses was reflective of higher trading volumes driven by the
addition of Weeden & Co. onto our platform and higher levels of trading
volatility during the quarter.

Restructuring and Integration Costs - For the three months ended June 30, 2020,
we incurred acquisition-related restructuring and integration costs of $3.7
million primarily related to the acquisitions of Sandler O'Neill and Valence.
The expenses consisted of $2.2 million of transaction costs, $2.0 million of
severance benefits and $0.1 million for vacated leased office space. These
expenses were partially offset by a credit of $0.6 million related to previously
accrued contract termination costs that were settled favorably. We expect to
incur additional restructuring and integration costs in the third quarter of
2020. For the three months ended June 30, 2019, we incurred acquisition-related
restructuring and integration costs of $6.4 million related to the acquisitions
of Weeden & Co. and Sandler O'Neill. The expenses consisted of $2.8 million of
contract termination costs, $2.5 million of transaction costs and $1.1 million
of severance benefits.

Intangible Asset Amortization - Intangible asset amortization includes the
amortization of definite-lived intangible assets consisting of customer
relationships, internally developed software and the trade name that we acquired
from Simmons & Company International. For the three months ended June 30, 2020,
intangible asset amortization was $11.6 million, compared with $0.8 million for
the three months ended June 30, 2019. The increase was due to incremental
intangible amortization expense related to identifiable intangible assets
associated with the acquisitions of Sandler O'Neill, Weeden & Co. and Valence.

Other Operating Expenses - Other operating expenses include insurance costs,
license and registration fees, expenses related to our charitable giving program
and litigation-related expenses, which consist of the amounts we reserve and/or
pay out related to legal and regulatory matters. Other operating expenses were
$3.8 million in the second quarter of 2020, compared with $2.3 million in the
corresponding period in 2019. The increase was primarily due to higher expense
related to our charitable giving program and increased insurance costs.

Income Taxes - For the three months ended June 30, 2020, our provision for
income taxes was $4.7 million, which included $3.2 million of income tax expense
related to the reversal of income tax credits taken in the first quarter of 2020
related to the tax provisions in the CARES Act. The CARES Act contains tax
provisions allowing a five-year carry back of any net operating losses incurred
during federal tax years 2018, 2019 and 2020, to periods when the corporate
federal tax rate was 35 percent. Given our improved performance in the second
quarter, we reduced some of these tax credits. Excluding this impact and
noncontrolling interests, our effective tax rate was 24.9 percent.

For the three months ended June 30, 2019, our benefit from income taxes was $0.2
million, which included a $3.5 million tax benefit related to stock-based
compensation awards vesting at values greater than the grant price. Excluding
the impact of this benefit and noncontrolling interests, our effective tax rate
was 26.5 percent.


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Financial Performance from Continuing Operations

Our activities as an investment bank and institutional securities firm constitute a single business segment.



Throughout this section, we have presented results on both a U.S. GAAP and
non-GAAP basis. Management believes that presenting results and measures on an
adjusted, non-GAAP basis in conjunction with the corresponding U.S. GAAP
measures provides a more meaningful basis for comparison of its operating
results and underlying trends between periods, and enhances the overall
understanding of our current financial performance by excluding certain items
that may not be indicative of our core operating results. The non-GAAP results
should be considered in addition to, not as a substitute for, the results
prepared in accordance with U.S. GAAP.

The adjusted financial results exclude (1) revenues and expenses related to
noncontrolling interests, (2) interest expense on long-term financing, (3)
amortization of intangible assets related to acquisitions, (4) compensation and
non-compensation expenses from acquisition-related agreements and (5)
acquisition-related restructuring and integration costs. For U.S. GAAP purposes,
these items are included in each of their respective line items on the
consolidated statements of operations.

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Table of Contents The following table sets forth the adjusted, non-GAAP financial results and adjustments necessary to reconcile to our consolidated U.S. GAAP financial results for the periods presented:


                                                                                             Three Months Ended June 30,
                                                                 2020                                                                                                                   2019
                                                           Adjustments (1)                                                                                     Adjustments (1)
                                  Total           Noncontrolling            Other              U.S.              Total           Noncontrolling            Other               U.S.
(Amounts in thousands)          Adjusted            Interests            Adjustments           GAAP            Adjusted            Interests            Adjustments            GAAP
Investment banking
Advisory services              $ 85,569          $           -          $        -          $ 85,569          $ 75,238          $           -          $         -          $ 75,238
Corporate financing              83,448                      -                   -            83,448            25,718                      -                    -            25,718
Municipal financing              30,810                      -                   -            30,810            17,783                      -                    -            17,783
Total investment banking        199,827                      -                   -           199,827           118,739                      -                    -           118,739

Institutional brokerage
Equity brokerage                 40,644                      -                   -            40,644            15,468                      -                    -            15,468
Fixed income services            48,695                      -                   -            48,695            16,736                      -                    -            16,736
Total institutional brokerage    89,339                      -                   -            89,339            32,204                      -                    -            32,204

Interest income                   3,065                      -                   -             3,065             6,863                      -                    -             6,863
Investment income                 1,498                  2,235                   -             3,733             7,966                  9,639                    -            17,605

Total revenues                  293,729                  2,235                   -           295,964           165,772                  9,639                    -           175,411

Interest expense                  1,062                      -               2,464             3,526             2,993                      -                    -             2,993

Net revenues                    292,667                  2,235              (2,464)          292,438           162,779                  9,639                    -           172,418

Non-interest expenses           240,900                    992              43,149           285,041           141,927                  1,089                8,477           151,493

Pre-tax income                 $ 51,767          $       1,243          $  (45,613)         $  7,397          $ 20,852          $       8,550          $    (8,477)         $ 20,925

Pre-tax margin                     17.7  %                                                       2.5  %           12.8  %                                                       12.1  %


(1)The following is a summary of the adjustments needed to reconcile our
consolidated U.S. GAAP financial results to the adjusted financial results:
Noncontrolling interests - The impacts of consolidating noncontrolling interests
in our alternative asset management funds are not included in our adjusted
financial results.
Other adjustments - The following items are not included in our adjusted
financial results:
                                                                           Three Months Ended June 30,
(Amounts in thousands)                                                       2020                  2019
Interest expense on long-term financing                               $        2,464           $        -

Compensation from acquisition-related agreements                              27,788                1,329
Acquisition-related restructuring and integration costs                        3,724                6,395
Amortization of intangible assets related to acquisitions                     11,637                  753

                                                                              43,149                8,477

Total other adjustments                                               $       45,613           $    8,477



Net revenues on a U.S. GAAP basis were $292.4 million for the three months ended
June 30, 2020, compared with $172.4 million in the prior-year period. For the
three months ended June 30, 2020, adjusted net revenues were $292.7 million,
compared with $162.8 million in the second quarter of 2019. The variance
explanations for net revenues and adjusted net revenues are consistent on both a
U.S. GAAP and non-GAAP basis unless stated otherwise.

Investment banking revenues comprise all of the revenues generated through
advisory services activities, which includes mergers and acquisitions, equity
private placements, debt and restructuring advisory, and municipal financial
advisory transactions, as well as equity and debt corporate financing activities
and municipal financings.

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In the second quarter of 2020, investment banking revenues increased 68.3
percent to $199.8 million, compared with $118.7 million in the corresponding
period of the prior year. For the three months ended June 30, 2020, advisory
services revenues were $85.6 million, up 13.7 percent compared to $75.2 million
in the second quarter of 2019. Revenues for the second quarter of 2020, which
reflect the addition of Sandler O'Neill to our platform, increased
year-over-year due to more completed transactions. The uncertainty associated
with COVID-19, and the potential near- and long-term impacts on the economy,
continue to influence advisory services activity market-wide, as evidenced by
the decline in the number of announced deals in the market. We expect this
dynamic to continue for the remainder of 2020. The uneven distribution of the
number and size of deals results in revenue fluctuations from quarter to
quarter. For the three months ended June 30, 2020, corporate financing revenues
were a record $83.4 million, up significantly compared with $25.7 million for
the three months ended June 30, 2019, due to more completed and book run equity
deals, and the addition of Sandler O'Neill to our platform, which book ran debt
offerings for financial services companies. Following a substantial halt to
capital raising activity in March, market conditions became favorable for
capital raising during the second quarter of 2020 driven by a sharp rebound in
valuations combined with lower volatility. We expect capital raising activity
will continue as long as market conditions remain favorable. Municipal financing
revenues for the three months ended June 30, 2020 were $30.8 million, up 73.3
percent compared to $17.8 million in the prior-year period, driven by robust
issuance activity within the governmental space, which benefited from low
interest rates and strong investor demand in a more stabilized market
environment.

The following table provides investment banking deal information:


                                                 Three Months Ended
                                                      June 30,
(Dollars in billions)                          2020                2019
Advisory services
Aggregate transaction value                $    7.8              $ 4.8
Total transactions                               55                 46

Corporate financings
Total equity transactions                        42                 22
Book run equity transactions                     30                 15
Total debt and preferred transactions            21                  -
Book run debt and preferred transactions         16                  -

Municipal negotiated issues
Aggregate par value                        $    5.9              $ 3.1
Total issues                                    223                134



Institutional brokerage revenues comprise all of the revenues generated through
trading activities, which consist of facilitating customer trades, executing
competitive municipal underwritings and our strategic trading activities in
municipal bonds. Our results may vary from quarter to quarter as a result of
changes in trading margins, trading gains and losses, net interest spreads,
trading volumes, the timing of payments for research services, and the timing of
transactions based on market opportunities.

For the three months ended June 30, 2020, institutional brokerage revenues were
$89.3 million, compared with $32.2 million in the prior-year period. Equity
brokerage revenues were $40.6 million in the second quarter of 2020, up 162.8
percent compared with $15.5 million in the corresponding period of 2019, as
market-wide volumes and volatility remained elevated from historical levels.
Additionally, our results in the second quarter of 2020 reflect our expanded
client base with the acquisitions of Sandler O'Neill and Weeden & Co., execution
expertise and product capabilities. For the three months ended June 30, 2020,
fixed income services revenues were $48.7 million, up 191.0 percent compared
with $16.7 million in the prior-year period. Revenues in the second quarter of
2020 were driven by the addition of Sandler O'Neill to our platform and strong
client activity for taxable and tax-exempt products. The financial services team
acquired with Sandler O'Neill contributed strong revenues as they leveraged
their expertise with banks to provide strategic advice on repositioning balance
sheets, maximizing yields and managing risk.

Interest income represents amounts earned from economically hedging and holding
long inventory positions. For the three months ended June 30, 2020, interest
income decreased to $3.1 million, compared with $6.9 million for the three
months ended June 30, 2019, reflecting lower long inventory balances. We have
focused on only carrying inventory where clients need liquidity within our areas
of expertise.

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Investment income includes realized and unrealized gains and losses on
investments, including amounts attributable to noncontrolling interests, in our
merchant banking and energy funds, as well as management and performance fees
generated from those funds. For the three months ended June 30, 2020, we
recorded investment income of $3.7 million, compared with $17.6 million in the
corresponding period of 2019. In the second quarter of 2020, we recorded lower
gains on our investment and the noncontrolling interests in the merchant banking
funds that we manage. Excluding the impact of noncontrolling interests, adjusted
investment income was $1.5 million and $8.0 million for the three months ended
June 30, 2020 and 2019, respectively.

Interest expense represents amounts associated with financing, economically
hedging and holding short inventory positions, including interest paid on our
long-term financing arrangements, as well as commitment fees on our line of
credit and revolving credit facility. For the three months ended June 30, 2020,
interest expense was $3.5 million, compared with $3.0 million in the prior-year
period. In the second quarter of 2020, we recorded incremental interest expense
on our long-term financing arrangements, which consist of the $175 million of
fixed rate senior notes we issued on October 15, 2019, and $20 million of
unsecured promissory notes we entered into on April 3, 2020 to fund a portion of
the Valence purchase price. The increase was partially offset by a decline in
interest expense resulting from lower average short inventory balances.
Excluding the impact of interest expense on long-term financing, adjusted
interest expense was $1.1 million for the three months ended June 30, 2020.

Pre-tax margin for the three months ended June 30, 2020 was 2.5 percent,
compared with 12.1 percent for the corresponding period of 2019. The decrease in
pre-tax margin was primarily due to an increased compensation ratio resulting
from higher acquisition-related compensation. Adjusted pre-tax margin for the
three months ended June 30, 2020 was 17.7 percent, up compared with 12.8 percent
for the corresponding period of 2019, reflecting the operating leverage in our
business at higher revenue levels.

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Financial Summary for the six months ended June 30, 2020 and June 30, 2019

The following table provides a summary of the results of our operations on a U.S. GAAP basis and the results of our operations as a percentage of net revenues for the periods indicated.


                                                                                                               As a Percentage of
                                                                                                              Net Revenues for the
                                                             Six Months Ended                                                                      Six Months Ended
                                                                 June 30,                                                                              June 30,
                                                                                      2020
(Amounts in thousands)                         2020               2019               v2019                  2020                  2019
Revenues:
Investment banking                         $ 358,825          $ 259,800                 38.1  %                67.9  %              73.2  %
Institutional brokerage                      178,482             67,169                165.7                   33.8                 18.9
Interest income                                9,130             14,430                (36.7)                   1.7                  4.1
Investment income/(loss)                     (10,093)            19,197                     N/M                (1.9)                 5.4
Total revenues                               536,344            360,596                 48.7                  101.5                101.6

Interest expense                               7,738              5,636                 37.3                    1.5                  1.6

Net revenues                                 528,606            354,960                 48.9                  100.0                100.0

Non-interest expenses:
Compensation and benefits                    401,684            219,603                 82.9                   76.0                 61.9
Outside services                              18,338             17,022                  7.7                    3.5                  4.8
Occupancy and equipment                       25,507             16,774                 52.1                    4.8                  4.7
Communications                                22,730             14,714                 54.5                    4.3                  4.1
Marketing and business development            12,627             14,827                (14.8)                   2.4                  4.2
Deal-related expenses                         16,144             11,453                 41.0                    3.1                  3.2
Trade execution and clearance                 11,463              2,823                306.1                    2.2                  0.8
Restructuring and integration costs            5,626              6,395                (12.0)                   1.1                  1.8

Intangible asset amortization                 21,515              1,506                     N/M                 4.1                  0.4
Other operating expenses                      19,604              5,781                239.1                    3.7                  1.6
Total non-interest expenses                  555,238            310,898                 78.6                  105.0                 87.6

Income/(loss) from continuing operations
before income tax expense/(benefit)          (26,632)            44,062                     N/M                (5.0)                12.4

Income tax expense/(benefit)                  (7,074)             4,012                     N/M                (1.3)                 1.1

Income/(loss) from continuing operations     (19,558)            40,050                     N/M                (3.7)                11.3

Discontinued operations:
Loss from discontinued operations, net of
tax                                                -             (2,305)                    N/M                   -                 (0.6)
Net income/(loss)                            (19,558)            37,745                     N/M                (3.7)                10.6

Net income/(loss) applicable to
noncontrolling interests                      (6,285)             7,934                     N/M                (1.2)                 2.2

Net income/(loss) applicable to Piper
Sandler Companies                          $ (13,273)         $  29,811                     N/M                (2.5) %               8.4  %


N/M - Not meaningful

Except as discussed below, the description of non-interest expenses and net revenues as well as the underlying reasons for variances to prior year are substantially the same as the comparative quarterly discussion.


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For the six months ended June 30, 2020, we recorded a net loss from continuing
operations applicable to Piper Sandler Companies of $13.3 million. Net revenues
from continuing operations for the six months ended June 30, 2020 increased 48.9
percent to $528.6 million, compared with $355.0 million in the year-ago period,
as the acquisitions of Sandler O'Neill and Weeden & Co. have provided
diversification, scale and durability across our platform. In the first half of
2020, investment banking revenues increased 38.1 percent to $358.8 million,
compared with $259.8 million the prior-year period, primarily due to higher
corporate and municipal financing revenues. For the six months ended June 30,
2020, institutional brokerage revenues increased 165.7 percent to $178.5
million, compared with $67.2 million in the first half of 2019. The increase was
due to the acquisitions of Weeden & Co. and Sandler O'Neill, as well as higher
volatility in the financial markets, particularly in the first quarter of 2020,
driving higher trading volumes. In the first six months of 2020, net interest
income decreased to $1.4 million, compared with $8.8 million in the prior-year
period, driven by a decline in interest income on our long inventory positions
and incremental interest expense on our long-term financing arrangements. For
the six months ended June 30, 2020, we recorded an investment loss of
$10.1 million, compared with income of $19.2 million in the prior-year period.
In the first half of 2020, we recorded unrealized losses on our investment and
the noncontrolling interests in the merchant banking funds that we manage.
Non-interest expenses from continuing operations were $555.2 million for the six
months ended June 30, 2020, up 78.6 percent compared with $310.9 million in the
year-ago period, primarily due to higher compensation and non-compensation
expenses resulting from our recent acquisitions.

Consolidated Non-Interest Expenses from Continuing Operations



Compensation and Benefits - For the six months ended June 30, 2020, compensation
and benefits expenses increased 82.9 percent to $401.7 million, compared with
$219.6 million in the corresponding period of 2019. The increase in compensation
and benefits expenses was driven by increased revenues and incremental headcount
from our recent acquisitions, as well as higher acquisition-related compensation
related to restricted consideration and retention awards associated with these
acquisitions. We also recorded additional compensation expense for an earnout
associated with the acquisition of Weeden & Co. related to our expectations of
achieving a net revenue target, as our equity brokerage business is
outperforming initial projections. Compensation and benefits expenses as a
percentage of net revenues was 76.0 percent in the first half of 2020, compared
with 61.9 percent in the corresponding period of 2019. The compensation ratio
was impacted by increased acquisition-related compensation related to our recent
acquisitions.

Other Operating Expenses - For the six months ended June 30, 2020, other
operating expenses were $19.6 million, compared with $5.8 million in the
corresponding period of 2019. In the first quarter of 2020, we recorded a $12.1
million fair value adjustment related to the earnout for former Weeden & Co.
equity owners who did not transition to our platform. We are required to record
the full value of the projected earnout as the non-employee equity owners do not
have service requirements.

Income Taxes - For the six months ended June 30, 2020, our provision for income
taxes was a benefit of $7.1 million, which included $2.6 million of income tax
benefits related to new tax provisions in the CARES Act. Excluding the impact of
these benefits and noncontrolling interests, our effective tax rate was 22.2
percent.

For the six months ended June 30, 2019, our provision for income taxes was
$4.0 million. In the first half of 2019, we recorded a $5.1 million tax benefit
related to stock-based compensation awards vesting at values greater than the
grant price. Excluding the impact of this benefit and noncontrolling interests,
our effective tax rate was 25.3 percent.



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Financial Performance from Continuing Operations

The following table sets forth the adjusted, non-GAAP financial results and adjustments necessary to reconcile to our consolidated U.S. GAAP financial results for the periods presented:


                                                                                               Six Months Ended June 30,
                                                                 2020                                                                                                                     2019
                                                           Adjustments (1)                                                                                       Adjustments (1)
                                 Total            Noncontrolling            Other               U.S.              Total            Noncontrolling            Other               U.S.
(Amounts in thousands)          Adjusted            Interests            Adjustments            GAAP             Adjusted            Interests            Adjustments            GAAP
Investment banking
Advisory services             $ 196,795          $           -          $        -          $ 196,795          $ 190,117          $           -          $        -          $ 190,117
Corporate financing             108,624                      -                   -            108,624             39,234                      -                   -             39,234
Municipal financing              53,406                      -                   -             53,406             30,449                      -                   -             30,449
Total investment banking        358,825                      -                   -            358,825            259,800                      -                   -            259,800

Institutional brokerage
Equity brokerage                 88,497                      -                   -             88,497             31,374                      -                   -             31,374
Fixed income services            89,985                      -                   -             89,985             35,795                      -                   -             35,795
Total institutional brokerage   178,482                      -                   -            178,482             67,169                      -                   -             67,169

Interest income                   9,130                                                         9,130             14,430                                                        14,430
Investment income/(loss)         (5,792)                (4,301)                  -            (10,093)             9,145                 10,052                   -             19,197

Total revenues                  540,645                 (4,301)                  -            536,344            350,544                 10,052                   -            360,596

Interest expense                  3,056                      -               4,682              7,738              5,636                      -                   -              5,636

Net revenues                    537,589                 (4,301)             (4,682)           528,606            344,908                 10,052                   -            354,960

Non-interest expenses           456,809                  1,984              96,445            555,238            297,129                  2,118              11,651            310,898

Pre-tax income/(loss)         $  80,780          $      (6,285)         $ (101,127)         $ (26,632)         $  47,779          $       7,934          $  (11,651)         $  44,062

Pre-tax margin                     15.0  %                                                       (5.0) %            13.9  %                                                       12.4  %


(1)  The following is a summary of the adjustments needed to reconcile our
consolidated U.S. GAAP financial results to the adjusted financial results:
Noncontrolling interests - The impacts of consolidating noncontrolling interests
in our alternative asset management funds are not included in our adjusted
financial results.
Other adjustments - The following items are not included in our adjusted
financial results:
                                                                              Six Months Ended June 30,
(Amounts in thousands)                                                      2020                       2019
Interest expense on long-term financing                               $       4,682                $        -

Compensation from acquisition-related agreements                             57,219                     3,636
Acquisition-related restructuring and integration costs                       5,626                     6,395
Amortization of intangible assets related to acquisitions                    21,515                     1,506
Non-compensation expenses from acquisition-related agreements                12,085                       114

                                                                             96,445                    11,651

Total other adjustments                                               $     101,127                $   11,651



Net revenues on a U.S. GAAP basis were $528.6 million for the six months ended
June 30, 2020, compared with $355.0 million in the prior-year period. In the
first half of 2020, adjusted net revenues were $537.6 million, compared with
$344.9 million in the first half of 2019. The variance explanations for net
revenues and adjusted net revenues are consistent on both a U.S. GAAP and
non-GAAP basis unless stated otherwise.

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In the first half of 2020, investment banking revenues were $358.8 million, up
38.1 percent compared with $259.8 million in the corresponding period of the
prior year. For the six months ended June 30, 2020, advisory services revenues
were $196.8 million, up slightly compared with $190.1 million in the first half
of 2019. Incremental revenues from the addition of Sandler O'Neill to our
platform offset the decline in revenues resulting from market-wide decreases in
completed and announced deals, which reflects a pause in advisory services
activity as companies evaluate the changing and uncertain environment due to
COVID-19. For the six months ended June 30, 2020, corporate financing revenues
were $108.6 million, an increase of 176.9 percent compared with $39.2 million in
the prior-year period, due to more completed and book run equity deals, and the
addition of Sandler O'Neill to our platform. In the first half of 2020, our
revenues on equity offerings in the sub-$5 billion fee pool were up
approximately 144 percent compared to approximately 46 percent for the overall
market. Additionally, activity in the first quarter of 2019 was impacted by the
U.S. federal government shut-down. Municipal financing revenues for the six
months ended June 30, 2020 were $53.4 million, up 75.4 percent compared with
$30.4 million in the year-ago period. Despite a rapid decline in the level of
activity in March due to significant volatility in the fixed income markets, our
results in the first half of 2020 were driven by robust new issuance and
refunding activity as interest rates remained low. The par amount of our
negotiated municipal issuances increased approximately 98 percent in the first
half of 2020, compared to an increase of approximately 34 percent for the
industry.

The following table provides investment banking deal information:


                                               Six Months Ended
                                                   June 30,
(Dollars in billions)                         2020          2019
Advisory services
Aggregate transaction value                $   15.4       $ 16.7
Total transactions                              112           81

Corporate financings
Total equity transactions                        54           34
Book run equity transactions                     41           22
Total debt and preferred transactions            29            -
Book run debt and preferred transactions         19            -

Municipal negotiated issues
Aggregate par value                        $    9.5       $  4.8
Total issues                                    371          218



For the six months ended June 30, 2020, institutional brokerage revenues
increased 165.7 percent to $178.5 million, compared with $67.2 million in the
prior-year period. Equity brokerage revenues increased 182.1 percent to
$88.5 million in the first half of 2020, compared with $31.4 million in the
corresponding period of 2019. In the first quarter of 2020, the increased
volatility market-wide drove a significant increase in volumes as investors
repositioned in response to market uncertainty and fund outflows. Volatility and
volumes remained at elevated levels in the second quarter of 2020, albeit down
from the significant levels experienced in the first quarter. Additionally, we
continue to leverage our expanded client base, execution expertise and product
capabilities. For the six months ended June 30, 2020, fixed income services
revenues were $90.0 million, up 151.4 percent compared with $35.8 million in the
prior-year period, due to the addition of Sandler O'Neill to our platform.
Additionally, in the first quarter of 2020, the historically volatile quarter
and higher volumes in municipals drove client activity as we provided liquidity
to municipal bond funds which saw significant outflows by identifying buyers who
took advantage of meaningfully higher yields. The strong client activity was
partially offset by trading losses in municipal securities due to the sharp and
sudden market dislocation.

Interest income for the six months ended June 30, 2020 decreased 36.7 percent to
$9.1 million, compared with $14.4 million in the prior-year period, reflecting
lower levels of long inventory positions.

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For the six months ended June 30, 2020, we recorded an investment loss of
$10.1 million, compared with income of $19.2 million in the year-ago period. In
the first six months of 2020, we recorded unrealized losses on our investment
and the noncontrolling interests in the merchant banking funds that we manage.
Lower equity valuations and an uncertain and challenging operating environment
for some of our portfolio companies drove the fair value adjustments in our
merchant banking portfolio. Excluding the impact of noncontrolling interests,
adjusted investment loss was $5.8 million for the six months ended June 30,
2020, compared with adjusted investment income of $9.1 million for the six
months ended June 30, 2019.

Interest expense for the six months ended June 30, 2020 was $7.7 million, up
compared with $5.6 million in the prior-year period, driven by incremental
interest expense from our long-term financing arrangements. Long-term financing
consists of our fixed rate senior notes issued on October 15, 2019 and the
unsecured promissory notes we entered into on April 3, 2020 to fund a portion of
the Valence purchase price. The increase was partially offset by a decline in
interest expense resulting from lower average short inventory balances.
Excluding the impact of interest expense on long-term financing, adjusted
interest expense was $3.1 million for the six months ended June 30, 2020.

Pre-tax margin for the six months ended June 30, 2020 was a negative 5.0
percent, compared with 12.4 percent for the corresponding period of 2019. The
negative pre-tax margin for the six months ended June 30, 2020 primarily
resulted from higher acquisition-related compensation and non-compensation
expenses, and intangible asset amortization. Adjusted pre-tax margin for the six
months ended June 30, 2020 was 15.0 percent, compared with 13.9 percent for the
corresponding period of 2019. Adjusted pre-tax margin increased driven by the
scale of our platform and cost synergies realized through the Sandler O'Neill
and Weeden & Co. acquisitions.

Discontinued Operations



Discontinued operations includes our traditional asset management subsidiary,
ARI, which we sold in the third quarter of 2019. For the three and six months
ended June 30, 2019, we recorded a loss from discontinued operations, net of
tax, of $2.2 million and $2.3 million, respectively. See Note 4 to our unaudited
consolidated financial statements for further discussion of our discontinued
operations.

Recent Accounting Pronouncements

Recent accounting pronouncements are set forth in Note 2 to our unaudited consolidated financial statements, and are incorporated herein by reference.

Critical Accounting Policies



Our accounting and reporting policies comply with U.S. GAAP and conform to
practices within the securities industry. The preparation of financial
statements in compliance with U.S. GAAP and industry practices requires us to
make estimates and assumptions that could materially affect amounts reported in
our consolidated financial statements. Critical accounting policies are those
policies that we believe to be the most important to the portrayal of our
financial condition and results of operations and that require us to make
estimates that are difficult, subjective or complex. Most accounting policies
are not considered by us to be critical accounting policies. Several factors are
considered in determining whether or not a policy is critical, including whether
the estimates are significant to the consolidated financial statements taken as
a whole, the nature of the estimates, the ability to readily validate the
estimates with other information (e.g., third party or independent sources), the
sensitivity of the estimates to changes in economic conditions and whether
alternative accounting methods may be used under U.S. GAAP.

We believe that of our significant accounting policies, the following are our critical accounting policies:



•Valuation of Financial Instruments
•Goodwill and Intangible Assets
•Compensation Plans
•Income Taxes

See the "Critical Accounting Policies" section and Note 2 to our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2019 for further information on our critical accounting
policies.

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Liquidity, Funding and Capital Resources

Liquidity is of critical importance to us given the nature of our business.
Insufficient liquidity resulting from adverse circumstances contributes to, and
may be the cause of, financial institution failure. Accordingly, we regularly
monitor our liquidity position and maintain a liquidity strategy designed to
enable our business to continue to operate even under adverse circumstances,
although there can be no assurance that our strategy will be successful under
all circumstances.

The majority of our tangible assets consist of assets readily convertible into
cash. Financial instruments and other inventory positions owned are stated at
fair value and are generally readily marketable in most market conditions.
Receivables and payables with brokers, dealers and clearing organizations
usually settle within a few days. As part of our liquidity strategy, we
emphasize diversification of funding sources to the extent possible while
considering tenor and cost. Our assets are financed by our cash flows from
operations, equity capital and our funding arrangements. The fluctuations in
cash flows from financing activities are directly related to daily operating
activities from our various businesses. One of our most important risk
management disciplines is our ability to manage the size and composition of our
balance sheet. While our asset base changes due to client activity, market
fluctuations and business opportunities, the size and composition of our balance
sheet reflect our overall risk tolerance, our ability to access stable funding
sources and the amount of equity capital we hold.

Certain market conditions can impact the liquidity of our inventory positions, requiring us to hold larger inventory positions for longer than expected or requiring us to take other actions that may adversely impact our results.



A significant component of our employees' compensation is paid in annual
discretionary incentive compensation. The timing of these incentive compensation
payments, which generally are made in February, has a significant impact on our
cash position and liquidity.

Our capital and liquidity positions remain strong, our leverage is low, and our
risk posture remains conservative. We have reduced inventory levels and remain
prudent in allocating capital as we continue to adapt and respond to the
changing market conditions.

Our dividend policy is intended to return between 30 percent and 50 percent of
our adjusted net income from the previous fiscal year to shareholders. This
includes the payment of a quarterly and an annual special cash dividend, payable
in the first quarter of each year. Our board of directors determines the
declaration and payment of dividends on an annual and quarterly basis, and is
free to change our dividend policy at any time.

Although the quarterly cash dividend of $0.30 per share declared by our board of
directors on July 31, 2020 increased compared to the previous quarter, it is
lower compared to our 2019 quarterly dividends, as we prudently manage capital
and maintain our balance sheet strength and flexibility during this challenging
environment.

Our board of directors declared the following dividends on shares of our common
stock:
                                    Dividend
       Declaration Date            Per Share             Record Date            Payment Date
       February 1, 2019 (1)      $  1.010          February 25, 2019          March 15, 2019
       February 1, 2019          $  0.375          February 25, 2019          March 15, 2019
       April 26, 2019            $  0.375               May 24, 2019           June 14, 2019
       July 26, 2019             $  0.375            August 23, 2019      September 13, 2019
       October 30, 2019          $  0.375          November 22, 2019       December 13, 2019
       January 31, 2020 (2)      $  0.750              March 2, 2020          March 13, 2020
       January 31, 2020          $  0.375              March 2, 2020          March 13, 2020
       May 1, 2020               $  0.200               May 29, 2020           June 12, 2020
       July 31, 2020             $  0.300            August 28, 2020      September 11, 2020


(1)  Represents the annual special cash dividend based on our fiscal year 2018
results.
(2)  Represents the annual special cash dividend based on our fiscal year 2019
results.

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Effective January 1, 2020, our board of directors authorized the repurchase of
up to $150.0 million in common shares through December 31, 2021. During the six
months ended June 30, 2020, we repurchased 128,865 shares of our common stock at
an average price of $71.58 per share for an aggregate purchase price of
$9.2 million related to this authorization. At June 30, 2020, we had
$140.8 million remaining under this authorization.

We also purchase shares of common stock from restricted stock award recipients
upon the award vesting or as recipients sell shares to meet their employment tax
obligations. During the first half of 2020, we purchased 98,136 shares or $8.3
million of our common stock for these purposes.

Leverage



The following table presents total assets, adjusted assets, total shareholders'
equity and tangible shareholders' equity with the resulting leverage ratios:
                                                        June 30,        December 31,
     (Dollars in thousands)                               2020              2019
     Total assets                                    $ 1,710,908       $ 1,628,719
     Deduct: Goodwill and intangible assets             (383,080)         

(104,335)


     Deduct: Right-of-use lease asset                    (91,929)         

(40,030)

Deduct: Assets from noncontrolling interests (69,067) (76,516)


     Adjusted assets                                 $ 1,166,832       $ 

1,407,838


     Total shareholders' equity                      $   813,712       $  

806,528


     Deduct: Goodwill and intangible assets             (383,080)         

(104,335)


     Deduct: Noncontrolling interests                    (67,756)         

(75,245)


     Tangible common shareholders' equity            $   362,876       $   626,948

     Leverage ratio (1)                                      2.1               2.0

     Adjusted leverage ratio (2)                             3.2               2.2


(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. The right-of-use lease asset is also subtracted from total assets in
determining adjusted assets as it is not an operating asset that can be deployed
in a liquid manner. Amounts attributed to noncontrolling interests are
subtracted from total assets and total shareholders' equity in determining
adjusted assets and tangible common shareholders' equity, respectively, as they
represent assets and equity interests in consolidated entities that are not
attributable, either directly or indirectly, to Piper Sandler Companies. We view
the resulting measure of adjusted leverage, also a non-GAAP financial measure,
as a more relevant measure of financial risk when comparing financial services
companies. Our adjusted leverage ratio increased from December 31, 2019
primarily due to the goodwill and intangible assets related to our acquisitions
of Sandler O'Neill and Valence.

Funding and Capital Resources



The primary goal of our funding activities is to ensure adequate funding over a
wide range of market conditions. Given the mix of our business activities,
funding requirements are fulfilled through a diversified range of short-term and
long-term financing. We attempt to ensure that the tenor of our borrowing
liabilities equals or exceeds the expected holding period of the assets being
financed. Our ability to support increases in total assets is largely a function
of our ability to obtain funding from external sources. Access to these external
sources, as well as the cost of that financing, is dependent upon various
factors, including market conditions, the general availability of credit and
credit ratings. We currently do not have a credit rating, which could adversely
affect our liquidity and competitive position by increasing our financing costs
and limiting access to sources of liquidity that require a credit rating as a
condition to providing the funds.

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Our day-to-day funding and liquidity is obtained primarily through the use of
our clearing arrangement with Pershing LLC ("Pershing"), commercial paper
issuance, a prime broker agreement, and a bank line of credit, and is typically
collateralized by our securities inventory. These funding sources are critical
to our ability to finance and hold inventory, which is a necessary part of our
institutional brokerage business. The majority of our inventory is liquid and is
therefore funded by short-term facilities. Certain of these short-term
facilities (i.e., committed line and commercial paper) have been established to
mitigate changes in the liquidity of our inventory based on changing market
conditions. In the case of our committed line, it is available to us regardless
of changes in market liquidity conditions through the end of its term, although
there may be limitations on the type of securities available to pledge. Our
commercial paper program helps mitigate changes in market liquidity conditions
given it is not an overnight facility, but provides funding with a term of 27 to
270 days. Our funding sources are also dependent on the types of inventory that
our counterparties are willing to accept as collateral and the number of
counterparties available. Funding is generally obtained at rates based upon the
federal funds rate or the London Interbank Offered Rate ("LIBOR").

Pershing Clearing Arrangement - We have established an arrangement to obtain
financing from Pershing related to the majority of our trading activities. Under
our fully disclosed clearing agreement, the majority of our securities
inventories and all of our customer activities are held by or cleared through
Pershing. Financing under this arrangement is secured primarily by securities,
and collateral limitations could reduce the amount of funding available under
this arrangement. Our clearing arrangement activities are recorded net from
trading activity and reported within receivables from or payables to brokers,
dealers and clearing organizations. The funding is at the discretion of Pershing
(i.e., uncommitted) and could be denied without a notice period. Our fully
disclosed clearing agreement includes a covenant requiring Piper Sandler & Co.,
our U.S. broker dealer subsidiary, to maintain excess net capital of $120
million. At June 30, 2020, we had $0.2 million of financing outstanding under
this arrangement.

Commercial Paper Program - Piper Sandler & Co. issues secured commercial paper
to fund a portion of its securities inventory. This commercial paper is
currently issued under the CP Series II A program, and is secured by different
inventory classes, which is reflected in the interest rate paid. The program can
issue commercial paper with maturities of 27 to 270 days. CP Series II A
includes a covenant that requires Piper Sandler & Co. to maintain excess net
capital of $100 million. We retired the CP Series A program on January 2, 2020.

The following table provides information about our CP Series II A program at June 30, 2020:


         (Dollars in millions)                                       CP

Series II A


         Maximum amount that may be issued                          $       

200.0


         Amount outstanding                                                 

50.0



         Weighted average maturity, in days                                        6
         Weighted average maturity at issuance, in days                           32



Prime Broker Arrangement - We have established an overnight financing
arrangement with a broker dealer related to our convertible securities
inventories. Financing under this arrangement is secured primarily by
convertible securities and collateral limitations could reduce the amount of
funding available. The funding is at the discretion of the prime broker and
could be denied subject to a notice period. This arrangement is reported within
receivables from or payables to brokers, dealers and clearing organizations, net
of trading activity. At June 30, 2020, we had $99.5 million of financing
outstanding under this prime broker arrangement.

Committed Line - Our committed line is a one-year $125 million revolving secured
credit facility. Advances under this facility are secured by certain marketable
securities. The facility includes a covenant that requires Piper Sandler & Co.
to maintain a minimum regulatory net capital of $120 million, and the unpaid
principal amount of all advances under the facility will be due on December 11,
2020. This credit facility has been in place since 2008 and we renewed the
facility for another one-year term in the fourth quarter of 2019. At June 30,
2020, we had no advances against this line of credit.

Revolving Credit Facility - Our parent company, Piper Sandler Companies, has an
unsecured $50 million revolving credit facility with U.S. Bank N.A. The credit
agreement will terminate on December 20, 2022, unless otherwise terminated, and
is subject to a one-year extension exercisable at our option. At June 30, 2020,
we had advances of $50 million against this credit facility. Early in the third
quarter of 2020, we repaid $25 million related to this credit facility.

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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 June 30, 2020, we were in compliance with all covenants.

The following table presents the average balances outstanding for our various funding sources by quarter for 2020 and 2019:



                                                       Average Balance for the
                                                          Three Months Ended
(Amounts in millions)                                   June 30, 2020      Mar. 31, 2020
Funding source:
Pershing clearing arrangement                          $       17.7       $      117.8

Commercial paper                                               50.0               50.0
Prime broker arrangement                                       81.9               72.3
Revolving credit facility                                      50.0                7.1

Total                                                  $      199.6       $      247.2



                                                                   Average Balance for the Three Months Ended
(Amounts in millions)                              Dec. 31, 2019         

Sept. 30, 2019 June 30, 2019 Mar. 31, 2019 Funding source: Pershing clearing arrangement

$       22.9          $        94.6          $      170.2          $       82.1

Commercial paper                                          50.0                   50.0                  50.0                  50.0
Prime broker arrangement                                  99.7                   68.0                  77.1                 106.4

Total                                             $      172.6          $       212.6          $      297.3          $      238.5



The average funding in the second quarter of 2020 decreased to $199.6 million,
compared with $247.2 million during the first quarter of 2020 and $297.3 million
during the second quarter of 2019, due to lower inventory balances during the
current quarter, as well as the accumulation of cash from operations. The
decrease was offset by borrowings under our revolving credit facility, which we
drew on to finance the upfront cash consideration of our acquisition of Valence,
which closed on April 3, 2020.

The following table presents the maximum daily funding amount by quarter for
2020 and 2019:
(Amounts in millions)         2020          2019
First Quarter              $ 642.1       $ 362.7
Second Quarter             $ 378.3       $ 427.1
Third Quarter                            $ 416.0
Fourth Quarter                           $ 330.7



Long-term Financing

Senior Notes - On October 15, 2019, we entered into a note purchase agreement
("Note Purchase Agreement") under which we issued unsecured fixed rate senior
notes ("Notes") in the amount of $175 million. The initial holders of the Notes
are certain entities advised by Pacific Investment Management Company ("PIMCO").
The Notes consist of two classes, Class A Notes and Class B Notes, with
principal amounts of $50 million and $125 million, respectively. The Class A
Notes bear interest at an annual fixed rate of 4.74 percent and mature on
October 15, 2021. The Class B Notes bear interest at an annual fixed rate of
5.20 percent and mature on October 15, 2023. Interest on the Notes is payable
semi-annually. The unpaid principal amounts are due in full on the respective
maturity dates and may not be prepaid.

The Note Purchase Agreement includes customary events of default and covenants
that, among other things, require Piper Sandler & Co. to maintain a minimum
regulatory net capital, limit our leverage ratio and require maintenance of a
minimum ratio of operating cash flow to fixed charges. At June 30, 2020, we were
in compliance with all covenants.

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Valence Notes - On April 3, 2020, we entered into unsecured promissory notes as
part of the acquisition of Valence totaling $20 million (the "Valence Notes").
The Valence Notes bear interest at an annual fixed rate of 5.0 percent and
mature on October 15, 2021. Interest is payable quarterly in arrears.

Contractual Obligations



Our contractual obligations have not materially changed from those reported in
Part II, Item 7 of our Annual Report on Form 10-K for the year ended December
31, 2019, except for our operating lease obligations, purchase commitments and
long-term financing. In conjunction with our acquisitions of Sandler O'Neill and
Valence, we acquired various leases and agreements related to new purchase
commitments. Additionally, we entered into the Valence Notes, which are included
in long-term financing on the consolidated statements of financial condition.
                                 Remainder of           2021                 2023                2025 and
(Amounts in millions)                2020                         - 2022               - 2024                 thereafter                Total
Operating lease obligations      $     12.8          $   44.5             $   33.4             $    35.4                   $  126.1
Purchase commitments                   12.7              23.2                  7.6                   8.8                       52.3

Long-term financing                       -              70.0                125.0                     -                      195.0



Purchase commitments include agreements to purchase goods or services that are
enforceable and legally binding and that specify all significant terms,
including fixed or minimum quantities to be purchased, fixed, minimum or
variable price provisions, and the approximate timing of the transaction.
Purchase commitments with variable pricing provisions are included in the table
based on the minimum contractual amounts. Certain purchase commitments contain
termination or renewal provisions. The table reflects the minimum contractual
amounts likely to be paid under these agreements assuming the contracts are not
terminated.

Capital Requirements

As a registered broker dealer and member firm of the Financial Industry
Regulatory Authority, Inc. ("FINRA"), Piper Sandler & Co. is subject to the
uniform net capital rule of the SEC and the net capital rule of FINRA. We have
elected to use the alternative method permitted by the uniform net capital rule
which requires that we maintain minimum net capital of $1.0 million. Advances to
affiliates, repayment of subordinated liabilities, dividend payments and other
equity withdrawals are subject to certain approvals, notifications and other
provisions of the uniform net capital rules. We expect that these provisions
will not impact our ability to meet current and future obligations. At June 30,
2020, our net capital under the SEC's uniform net capital rule was
$153.4 million, and exceeded the minimum net capital required under the SEC rule
by $152.4 million.

Although we operate with a level of net capital substantially greater than the
minimum thresholds established by FINRA and the SEC, a substantial reduction of
our capital would curtail many of our capital markets revenue producing
activities.

Our committed short-term credit facility, revolving credit facility and senior
notes with PIMCO include covenants requiring Piper Sandler & Co. to maintain a
minimum regulatory net capital of $120 million. Secured commercial paper issued
under CP Series II A includes a covenant that requires Piper Sandler & Co. to
maintain excess net capital of $100 million. Our fully disclosed clearing
agreement with Pershing also includes a covenant requiring Piper Sandler & Co.
to maintain excess net capital of $120 million.

At June 30, 2020, Piper Sandler Ltd., our broker dealer subsidiary registered in
the U.K., was subject to, and was in compliance with, the capital requirements
of the Prudential Regulation Authority and the Financial Conduct Authority
pursuant to the Financial Services Act of 2012.

Piper Sandler Hong Kong Limited is licensed by the Hong Kong Securities and
Futures Commission, which is subject to the liquid capital requirements of the
Securities and Futures (Financial Resources) Rule promulgated under the
Securities and Futures Ordinance. At June 30, 2020, Piper Sandler Hong Kong
Limited was in compliance with the liquid capital requirements of the Hong Kong
Securities and Futures Commission.

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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 at December 31,                                                                                                      Total 

Contractual Amount


                                                                                               2023              2025                                   June 30,           December 31,
(Amounts in thousands)                   2020              2021             2022              - 2024            - 2026              Later                 2020                 2019
Customer matched-book derivative
contracts (1) (2)                     $ 22,840          $ 6,930          $ 24,150          $ 139,670          $ 15,160          $ 1,800,203          $ 2,008,953          $ 2,197,340
Trading securities derivative
contracts (2)                          105,400           12,000                 -                  -                 -                9,375              126,775              110,875

Equity option derivative
contracts (2)                            4,910            5,183                 -                  -                 -                    -               10,093                    -

Investment commitments (3)                   -                -                 -                  -                 -                    -               70,857               70,953


(1)Consists of interest rate swaps. We have minimal market risk related to these
matched-book derivative contracts; however, we do have counterparty risk with
one major financial institution, which is mitigated by collateral deposits. In
addition, we have a limited number of counterparties (contractual amount of
$171.9 million at June 30, 2020) who are not required to post collateral. The
uncollateralized amounts, representing the fair value of the derivative
contracts, expose us to the credit risk of these counterparties. At June 30,
2020, we had $27.5 million of credit exposure with these counterparties,
including $23.2 million of credit exposure with one counterparty.
(2)We believe the fair value of these derivative contracts is a more relevant
measure of the obligations because we believe the notional or contract amount
overstates the expected payout. At June 30, 2020 and December 31, 2019, the net
fair value of these derivative contracts approximated $20.2 million and $16.3
million, respectively.
(3)The investment commitments have no specified call dates. The timing of
capital calls is based on market conditions and investment opportunities.

Derivatives



Derivatives' notional or contract amounts are not reflected as assets or
liabilities on our consolidated statements of financial condition. Rather, the
fair value of the derivative transactions are reported on the consolidated
statements of financial condition as assets or liabilities in financial
instruments and other inventory positions owned and financial instruments and
other inventory positions sold, but not yet purchased, as applicable. For a
discussion of our activities related to derivative products, see Note 5 in the
notes to our unaudited consolidated financial statements.

Investment Commitments



We have investments, including those made as part of our merchant banking
activities, in various limited partnerships or limited liability companies that
provide financing or make investments in companies. We commit capital and/or act
as the managing partner of these entities. We have committed capital of $70.9
million to certain entities and these commitments generally have no specified
call dates.

Replacement of Interbank Offered Rates ("IBORs"), including LIBOR



Central banks and regulators in a number of major jurisdictions (e.g., U.S.,
U.K., European Union, Switzerland and Japan) have convened working groups to
find, and implement the transition to, suitable replacements for IBORs. The U.K.
Financial Conduct Authority, which regulates LIBOR, has announced that it will
not compel panel banks to contribute to LIBOR after 2021. We have a limited
number of contractual agreements which use LIBOR. We do not expect the
transition from LIBOR to a replacement rate to have a significant impact on our
operations.

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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
risks. The extent to which we properly identify and effectively manage each of
these risks is critical to our financial condition and profitability. We have a
formal risk management process to identify, assess and monitor each risk and
mitigating controls in accordance with defined policies and procedures. The risk
management functions are independent of our business lines. Our management takes
an active role in the risk management process, and the results are reported to
senior management and the Board of Directors.

The audit committee of the Board of Directors oversees management's processes
for identifying and evaluating our major risks, and the policies, procedures and
practices employed by management to govern its risk assessment and risk
management processes. The nominating and governance committee of the Board of
Directors oversees the Board of Directors' committee structures and functions as
they relate to the various committees' responsibilities with respect to
oversight of our major risk exposures. With respect to these major risk
exposures, the audit committee is responsible for overseeing management's
monitoring and control of our major risk exposures relating to market risk,
credit risk, liquidity risk, legal and regulatory risks, operational risk
(including cybersecurity), and human capital risk relating to misconduct, fraud,
and legal and compliance matters. Our compensation committee is responsible for
overseeing management's monitoring and control of our major risk exposures
relating to compensation, organizational structure, and succession. Our Board of
Directors is responsible for overseeing management's monitoring and control of
our major risk exposures related to our corporate strategy. Our Chief Executive
Officer and Chief Financial Officer meet with the audit committee on a quarterly
basis to discuss our market, liquidity, and legal and regulatory risks, and
provide updates to the Board of Directors, audit committee, and compensation
committee concerning the other major risk exposures on a regular basis.

We use internal committees to assist in governing risk and ensure that our
business activities are properly assessed, monitored and managed. Our executive
financial risk committee manages our market, liquidity and credit risks;
oversees risk management practices related to these risks, including defining
acceptable risk tolerances and approving risk management policies; and responds
to market changes in a dynamic manner. Membership is comprised of senior
leadership, including but not limited to, our Chief Executive Officer,
President, Chief Financial Officer, Treasurer, Head of Market and Credit Risk,
and Head of Fixed Income Trading. Other committees that help evaluate and
monitor risk include underwriting, leadership team and operating committees.
These committees help manage risk by ensuring that business activities are
properly managed and within a defined scope of activity. Our valuation
committee, comprised of members of senior management and risk management,
provide oversight and overall responsibility for the internal control processes
and procedures related to fair value measurements. Additionally, our operational
risk committees address and monitor risk related to information systems and
security, legal, regulatory and compliance matters, and third parties such as
vendors and service providers.

With respect to market risk and credit risk, the cornerstone of our risk
management process is daily communication among traders, trading department
management and senior management concerning our inventory positions, including
those associated with our strategic trading activities, 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, to our market-making activities and
our strategic trading activities. Market risks are inherent to both cash and
derivative financial instruments. The scope of our market risk management
policies and procedures includes all market-sensitive 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 5 of our accompanying unaudited
consolidated financial statements 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 the notional level of our fixed income
securities inventory and manage net positions within those limits.

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 the notional
level of our inventory 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. A change in the foreign currency rates could create either a
foreign currency transaction gain/loss (recorded in our consolidated statements
of operations) or a foreign currency translation adjustment (recorded to
accumulated other comprehensive income/(loss) within the shareholders' equity
section of our consolidated statements of financial condition and other
comprehensive income/ (loss) within the consolidated statements of comprehensive
income).

Value-at-Risk ("VaR")

We use the statistical technique known as VaR to measure, monitor and review the
market risk exposures in our trading portfolios. VaR is the potential loss in
value of our trading positions, excluding noncontrolling interests, due to
adverse market movements over a defined time horizon with a specified confidence
level. We perform a daily VaR analysis on substantially all of our trading
positions, including fixed income, equities, convertible bonds, mortgage-backed
securities and all associated economic hedges. These positions encompass both
customer-related and strategic trading activities. A VaR model provides a common
metric for assessing market risk across business lines and products. Changes in
VaR between reporting periods are generally due to changes in levels of risk
exposure, volatilities and/or correlations among asset classes and individual
securities.

We use a Monte Carlo simulation methodology for VaR calculations. We believe
this methodology provides VaR results that properly reflect the risk profile of
all our instruments, including those that contain optionality, and also
accurately models correlation movements among all of our asset classes. In
addition, it provides improved tail results as there are no assumptions of
distribution, and can provide additional insight for scenario shock analysis.

Model-based VaR derived from simulation has inherent limitations including:
reliance on historical data to predict future market risk; VaR calculated using
a one-day time horizon does not fully capture the market risk of positions that
cannot be liquidated or offset with hedges within one day; and published VaR
results reflect past trading positions while future risk depends on future
positions.

The modeling of the market risk characteristics of our trading positions
involves a number of assumptions and approximations. While we believe that these
assumptions and approximations are reasonable, different assumptions and
approximations could produce materially different VaR estimates. When comparing
our VaR numbers to those of other firms, it is important to remember that
different methodologies, assumptions and approximations could produce
significantly different results.

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The following table quantifies the model-based VaR simulated for each component
of market risk for the periods presented, which are computed using the past 250
days of historical data. When calculating VaR we use a 95 percent confidence
level and a one-day time horizon. This means that, over time, there is a one in
20 chance that daily trading net revenues will fall below the expected daily
trading net revenues by an amount at least as large as the reported VaR.
Shortfalls on a single day can exceed reported VaR by significant amounts.
Shortfalls can also accumulate over a longer time horizon, such as a number of
consecutive trading days. Therefore, there can be no assurance that actual
losses occurring on any given day arising from changes in market conditions will
not exceed the VaR amounts shown below or that such losses will not occur more
than once in a 20-day trading period.
                                              June 30,       December 31,
                (Amounts in thousands)          2020             2019
                Interest Rate Risk           $    254       $      428
                Equity Price Risk                  50               52
                Diversification Effect (1)        (37)             (37)
                Total Value-at-Risk          $    267       $      443


(1)Equals the difference between total VaR and the sum of the VaRs for the two
risk categories. This effect arises because the two market risk categories are
not perfectly correlated.

The aggregate VaR as of June 30, 2020 was lower than the reported VaR on December 31, 2019. The decrease in VaR was due to lower inventory levels compared to the end of 2019.



We view average VaR over a period of time as more representative of trends in
the business than VaR at any single point in time. The table below illustrates
the daily high, low and average VaR calculated for each component of market risk
during the six months ended June 30, 2020 and the year ended December 31, 2019.
(Amounts in thousands)                      High        Low        Average
For the Six Months Ended June 30, 2020
Interest Rate Risk                        $ 918       $ 229       $  556
Equity Price Risk                            63          41           51
Diversification Effect (1)                                           (40)
Total Value-at-Risk                       $ 930       $ 191       $  567


(Amounts in thousands)                   High        Low        Average
For the Year Ended December 31, 2019
Interest Rate Risk                     $ 792       $ 181       $  432
Equity Price Risk                         69          42           54
Diversification Effect (1)                                        (41)
Total Value-at-Risk                    $ 808       $ 191       $  445


(1)Equals the difference between total VaR and the sum of the VaRs for the two
risk categories. This effect arises because the two market risk categories are
not perfectly correlated. Because high and low VaR numbers for these risk
categories may have occurred on different days, high and low numbers for
diversification effect would not be meaningful.

Trading losses exceeded our one-day VaR on 17 occasions during the first half of 2020.



In addition to VaR, we also employ additional measures to monitor and manage
market risk exposure including net market position, duration exposure, option
sensitivities, and inventory turnover. All metrics are aggregated by asset
concentration and are used for monitoring limits and exception approvals. In
times of market volatility, we also perform ad hoc stress tests and scenario
analysis as market conditions dictate. Unlike our VaR, which measures potential
losses within a given confidence level, stress scenarios do not have an
associated implied probability. Rather, stress testing is used to estimate the
potential loss from market moves outside our VaR confidence levels.

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,
sales and trading, and strategic 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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Table of Contents See the section entitled "Liquidity, Funding and Capital Resources" for information regarding our liquidity and how we manage liquidity risk.



Our inventory positions, including those associated with strategic trading
activities, subject us to potential financial losses from the reduction in value
of illiquid positions. Market risk can be exacerbated in times of trading
illiquidity when market participants refrain from transacting in normal
quantities and/or at normal bid-offer spreads. Depending on the specific
security, the structure of the financial product, and/or overall market
conditions, we may be forced to hold a security for substantially longer than we
had planned or forced to liquidate into a challenging market if funding becomes
unavailable.

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.

Our different types of credit risk include:



Credit Spread Risk - Credit spread risk arises from the possibility that changes
in credit spreads will affect the value of financial instruments. Credit spreads
represent the credit risk premiums required by market participants for a given
credit quality (e.g., the additional yield that a debt instrument issued by a
AA-rated entity must produce over a risk-free alternative). Changes in credit
spreads result from potential changes in an issuer's credit rating or the
market's perception of the issuer's credit worthiness. We are exposed to credit
spread risk with the debt instruments held in our trading inventory, including
those held for strategic trading activities. We enter into transactions to hedge
our exposure to credit spread risk through the use of 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 and/or issuer of the security. We mitigate this risk by
establishing and monitoring individual and aggregate position limits for each
counterparty relative to potential levels of activity, holding and marking to
market collateral on certain transactions. Our risk management functions also
evaluate the potential risk associated with institutional counterparties with
whom we hold derivatives, TBAs and other documented institutional counterparty
agreements that may give rise to credit exposure.

Collections Risk - Collections risk arises from ineffective management and
monitoring of collecting outstanding debts and obligations, including those
related to our customer trading activities and margin lending. 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. Credit exposure associated with our customer
margin accounts in the U.S. is monitored daily. Our risk management functions
have credit risk policies establishing appropriate credit limits and
collateralization thresholds for our customers utilizing margin lending.

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. Concentration risk can occur by industry,
geographic area or type of client. Securities purchased under agreements to
resell consist primarily of securities issued by the U.S. government or its
agencies. The counterparties to these agreements typically are primary dealers
of U.S. government securities and major financial institutions. Inventory and
investment positions taken and commitments made, including underwritings, may
result in exposure to individual issuers and businesses. Potential concentration
risk is carefully monitored through review of counterparties and borrowers and
is managed through the use of policies and limits established by senior
management.

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We have concentrated counterparty credit exposure with five non-publicly rated
entities totaling $27.5 million at June 30, 2020. This counterparty credit
exposure is part of our matched-book derivative program related to our public
finance underwriting business, consisting primarily of interest rate swaps. One
derivative counterparty represented 84.1 percent, or $23.2 million, of this
exposure. Credit exposure associated with our derivative counterparties is
driven by uncollateralized market movements in the fair value of the interest
rate swap contracts and is monitored regularly by our financial risk committee.
We attempt to minimize the credit (or repayment) risk in derivative instruments
by entering into transactions with high-quality counterparties that are reviewed
periodically by senior management.

Operational Risk



Operational risk is the risk of loss, or damage to our reputation, resulting
from inadequate or failed processes, people and systems or from external events.
We rely on the ability of our employees and our systems, both internal and at
computer centers operated by third parties, to process a large number of
transactions. Our systems may fail to operate properly or become disabled as a
result of events that are wholly or partially beyond our control. In the event
of a breakdown or improper operation of our systems or improper action by our
employees or third party vendors, we could suffer financial loss, a disruption
of our businesses, regulatory sanctions and damage to our reputation. We also
face the risk of operational failure or termination of our relationship with any
of the exchanges, fully disclosed clearing firms, or other financial
intermediaries we use to facilitate our securities transactions. Any such
failure or termination could adversely affect our ability to effect transactions
and manage our exposure to risk.

Our operations rely on secure processing, storage and transmission of
confidential and other information in our internal and outsourced computer
systems and networks. Our computer systems, software and networks may be
vulnerable to unauthorized access, computer viruses or other malicious code,
internal misconduct or inadvertent errors and other events that could have an
information security impact. The occurrence of one or more of these events,
which we have experienced, could jeopardize our or our clients' or
counterparties' confidential and other information processed and stored in, and
transmitted through, our computer systems and networks, or otherwise cause
interruptions or malfunctions in our, our clients', our counterparties' or third
parties' operations. We take protective measures and endeavor to modify them as
circumstances warrant.

In order to mitigate and control operational risk, we have developed and
continue to enhance policies and procedures that are designed to identify and
manage operational risk at appropriate levels throughout the organization. We
also have business continuity plans in place that we believe will cover critical
processes on a company-wide basis, and redundancies are built into our systems
as we have deemed appropriate. These control mechanisms attempt to ensure that
operational policies and procedures are being followed and that our various
businesses are operating within established corporate policies and limits.

We operate under a fully disclosed clearing model for all of our clearing
operations. In a fully disclosed clearing model, we act as an introducing broker
for client transactions and rely on Pershing, our clearing broker dealer, to
facilitate clearance and settlement of our clients' securities transactions. The
clearing services provided by Pershing are critical to our business operations,
and similar to other services performed by third party vendors, any failure by
Pershing with respect to the services we rely upon Pershing to provide could
cause financial loss, significantly disrupt our business, damage our reputation,
and adversely affect our ability to serve our clients and manage our exposure to
risk.

Human Capital Risk

Our business is a human capital business and our success is dependent upon the
skills, expertise and performance of our employees. Human capital risks
represent the risks posed if we fail to attract and retain qualified individuals
who are motivated to serve the best interests of our clients, thereby serving
the best interests of our company. Attracting and retaining employees depends,
among other things, on our company's culture, management, work environment,
geographic locations and compensation. There are risks associated with the
proper recruitment, development and rewards of our employees to ensure quality
performance and retention.

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Legal and Regulatory Risk

Legal and regulatory risk includes the risk of non-compliance with applicable
legal and regulatory requirements and loss to our reputation we may suffer as a
result of failure to comply with laws, regulations, rules, related
self-regulatory organization standards and codes of conduct applicable to our
business activities. We are generally subject to extensive regulation in the
various jurisdictions in which we conduct our business. We have established
procedures that are designed to ensure compliance with applicable statutory and
regulatory requirements, such as public company reporting obligations,
regulatory net capital requirements, sales and trading practices, potential
conflicts of interest, anti-money laundering, privacy and recordkeeping. We have
also established procedures that are designed to require that our policies
relating to ethics and business conduct are followed. The legal and regulatory
focus on the financial services industry presents a continuing business
challenge for us.

Our business also subjects us to the complex income tax laws of the
jurisdictions in which we have business operations, and these tax laws may be
subject to different interpretations by the taxpayer and the relevant
governmental taxing authorities. We must make judgments and interpretations
about the application of these inherently complex tax laws when determining the
provision for income taxes.

Effects of Inflation

Because our assets are liquid and generally short-term in nature, they are not
significantly affected by inflation. However, the rate of inflation affects our
expenses, such as employee compensation, office space leasing costs and
communications charges, which may not be readily recoverable in the price of
services we offer to our clients. To the extent inflation results in rising
interest rates and has adverse effects upon the securities markets, it may
adversely affect our financial position and results of operations.

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