As a reminder, this call is being recorded. Now I'd like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin your call.
Good morning, and thank you for joining us. I am here with Deb Schoneman, our President, and Tim Carter, our CFO. We will go through our prepared remarks and then open up the call for questions. While the global economy continues to face headwinds, Piper Sandler delivered solid results during the third quarter. As I've stated before, our diversified business model continues to perform well, and I'm particularly pleased with the results we've achieved in our equities business. While we remain focused on adding scale and increasing market share in our financing and brokerage businesses, our number one priority remains growing our advisory business through sector and product expansion. Thus far in 2022, we have completed three acquisitions and made multiple senior hires, which has moved us forward on both objectives.
To that point, in October, we closed on our acquisition of DBO Partners, a technology investment banking firm. DBO roughly doubles the number of senior producers and provides additional scale to our technology practice. DBO's franchise also enhances our credibility with both large cap corporate and large cap sponsor clients within the technology landscape, given their established track record of working with market-leading clients on high-profile transactions. In addition, DBO adds a general partner advisory practice that is highly complementary and increasingly important to our private equity clients. We're excited to welcome the DBO team to the Piper Sandler family. Turning to our financial results, during the third quarter of 2022, we generated adjusted net revenues of $335 million, a 17.3% operating margin, and adjusted diluted EPS of $2.32.
During the first nine months of 2022, we recorded adjusted net revenues of $1 billion, an 18.6% operating margin and adjusted diluted EPS of $7.93. Our results, although lower compared to the exceptional prior year period, reflect the increased earnings capacity of our platform, driven by the investments we have made over the last several years. Next, let me review our corporate investment banking business, beginning with advisory services. Advisory revenues of $175 million during the third quarter of 2022 increased 3% sequentially and declined 18% from the strong third quarter of last year. Our revenues improved compared to the second quarter as we advised on more transactions with larger fees. However, market volatility continues to impact transaction timelines. Performance during the quarter was diversified across our business sectors.
Our energy and power team had a particularly strong quarter benefiting from renewed interest and increased activity in this space. In addition, our revenues continue to reflect meaningful contributions from our healthcare and financial services teams. More broadly, Piper Sandler was the No. 2 advisor for U.S. M&A deals under $1 billion based on number of announced transactions during the first nine months of this year. Our advisory pipelines across verticals remain strong, and we expect the fourth quarter of 2022 to be stronger than the prior two quarters. However, conversion of these pipelines is being increasingly impacted by the more challenging market environment. Turning to corporate financing, we generated $40 million of financing revenues during the third quarter of 2022, an increase of 37% compared to the prior quarter and down 49% from the third quarter of last year.
Although the equity capital markets remain largely shut, we improved on a sequential basis, driven by a brief window in August when the market was more accommodating. Overall, we underwrote 20 equity deals during the quarter, serving as book runner on 18. We also completed several preferred and debt capital raises for financial services companies. Despite the improved performance during the quarter, market conditions continue to remain challenging. However, in the coming quarters, we expect increased capital markets activity as clients that require access to capital will take advantage of market window opportunities or more stable conditions. Turning to investment banking managing director headcount. Inclusive of the DBO Partners acquisition, we now have 159 Managing Directors, the most in our history. Our success and momentum continue to resonate in the marketplace. Both our recruiting efforts and the development of our own talent continue to be priorities.
In closing, there is no question that market conditions remain challenged and have had an impact on asset prices and market activity. That said, we remain focused on factors that we can control and executing on our growth initiatives. We've transformed our business model significantly during the past five years, which has put the company in a position of relative strength that should drive growth in the coming years.
Client engagement remains strong, and we're enthusiastic about the opportunities in front of us. I am confident in our ability to navigate the market environment and deliver long-term value to our shareholders. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.
Thanks, Chad. I'll begin with an update on our public finance business. We generated $27 million of municipal financing revenues during the third quarter, down 25% from the second quarter of 2022. Higher nominal interest rates and increased rate volatility negatively impacted activity for us and the market. In particular, refinancing activity has essentially come to a halt. Overall market issuance during the quarter declined to approximately $94 billion, with the number of issues down 33% from the second quarter of 2022. We've seen investor demand weaken as the market experienced significant municipal fund outflows. During the third quarter of this year, we underwrote 93 municipal negotiated issues with an aggregate par value of $3.4 billion and ranked as the number two underwriter based on number of issues in this market. Activity for us was led by our governmental business.
Looking ahead, we expect the fourth quarter of 2022 to be similar to the third quarter based upon current market conditions and investor sentiment. Our backlog of specialty sector financings is significant, and we could experience upside if market conditions allow for execution of this pipeline. Turning to equity brokerage. Equity markets continued to experience elevated volatility and volumes during the third quarter. Our equity brokerage business generated record quarterly revenues of $53 million, benefiting from the elevated volumes and the addition of Cornerstone Macro to our platform. Performance during the quarter was broad with our high touch, derivatives, program, and algo trading all generating increased activity, highlighting our robust trading platform. We are experiencing strong momentum across our platform, and client flows and market share metrics have been increasing.
We maintain the fourth-largest U.S. active client base and rank as one of the largest research platforms in the SMID cap category based on companies under coverage. In addition, our market-leading macro research franchise, combined with our full suite of trading capabilities, make us an attractive destination for clients. We continue to pursue opportunities to deepen client relationships and cross-sell products across the platform. From an outlook perspective, we expect to finish 2022 strong, driven by continued volatility, market share gains, and clients positioning their portfolios for 2023. Lastly, turning to our fixed income business. Market conditions became extremely challenging during the quarter, driven by increased rate volatility as well as aggressive Federal Reserve monetary tightening and expectations for further tightening. Inflation has remained elevated, and the market has begun pricing in a recession, resulting in an inverted yield curve.
For the third quarter of 2022, we generated fixed income revenues of $37 million, down 31% from a strong second quarter this year as market dynamics have significantly muted client activity. Our depository client activity was particularly soft, driven by lower deposit levels combined with an increase in bank lending. Activity among our municipal-centric clients has been reasonably solid given the relative value in municipal securities. While the near-term outlook for fixed income is challenging and difficult to predict, over the long term, our business will benefit from interest rate stabilization at higher rates. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.
Thanks, Deb. As a reminder, my comments will be focused on our adjusted non-GAAP financial results. We generated net revenues of $335 million for the third quarter of 2022, driven by solid performances across corporate investment banking and equity brokerage. Compared to the second quarter, net revenues decreased 3% as lower fixed income and municipal financing revenues offset the increase in corporate investment banking revenues. Net revenues for the third quarter of 2022 decreased 24% from the prior year quarter due to lower corporate investment banking revenues as well as lower fixed income and municipal financing activity, offset in part by higher equity brokerage revenues. Net revenues for the first nine months of 2022 totaled $1 billion, down from the year ago period, which benefited from record corporate investment banking activity. Turning to operating expenses and margin.
Our compensation ratio was 62.5% for the third quarter of 2022, in line with the compensation ratio for the second quarter of this year as well as the first nine months of 2022. Based on our current outlook, we expect our full year compensation ratio to be near the current year-to-date level. Non-compensation expenses, excluding reimbursed deal expenses for the third quarter of 2022, were $60 million, flat compared to the second quarter of this year and consistent with our expectations. During the third quarter, we generated operating income of $58 million and an operating margin of 17.3%. For the first nine months of 2022, operating income totaled $194 million, with an operating margin of 18.6%.
Our adjusted tax rate was 27.4%. For the third quarter of 2022 and 25.1% for the first nine months of the year, which included a $5 million tax benefit related to restricted stock vesting at prices higher than the grant date price. Excluding this tax benefit, the adjusted tax rate for the year-to-date period was 27.9%. We continue to expect our full year adjusted tax rate will be within our targeted range of 26%-28%, excluding the impact from stock vestings. During the third quarter of 2022, we generated net income of $41 million and diluted EPS of $2.32. On a year-to-date basis, net income totaled $141 million, and diluted EPS was $7.93. Let me finish with an update on capital.
We continue to generate significant levels of cash to deploy through corporate development, share buybacks and dividends to drive shareholder returns while maintaining our capital-light business model. We have deployed capital during the year to build out our platform capabilities and drive long-term growth through the acquisitions of Cornerstone Macro, Stamford Partners, and DBO Partners. During the third quarter of 2022, we repurchased approximately 199,000 shares of our common stock, or $22 million. On a year-to-date basis, we have repurchased approximately 1.4 million shares of our common stock or $186 million, which more than offset the share count dilution from this year's annual stock grants and acquisitions. Combined with our dividends paid, we have returned an aggregate of $285 million to shareholders during the first nine months of this year.
In addition, today, the board approved a quarterly cash dividend of $0.60 per share to be paid on December 9th to shareholders of record as of the close of business on November twenty-third. With that, I'm gonna stop there and open up the call for questions.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Steven Chubak with Wolfe Research. Please go ahead.
Good morning. This is Brendan filling in for Steven.
Hey, Brendan.
Hi, Brendan.
To start, one of your peers noted that they've seen some improvement in M&A conditions this quarter. Based on your commentary, it sounds like you have a little bit more of a measured take on the overall environment. At the same time, the sequential pickup in your advisory business would suggest that you are seeing at least some improvement in the overall financing conditions and buyer seller expectations narrowing. Just wanted to get a sense as to how you see the environment today relative to last quarter.
Yeah, I would say to be honest, not much has changed. I mean, we had a small sequential pickup. I mean, you know, that can be from, you know, just a couple of larger fees that closed. I mean, we continue to see things, you know, a pretty difficult market. You know, deals are getting done. They're taking longer to get announced, longer to get closed. Financing market's still tough. You know, maybe as with the passage of time, buyer and seller expectations start to line up. But I think we just sort of view it as more of the same and, you know, that's sort of the trend we've seen into Q4 here.
Gotcha. On your equity trading business, momentum there was quite impressive. While your comps are obviously skewed by the Cornerstone acquisition, I believe you're one of the only names to actually see revenues grow quarter on quarter. Just wanted to get a sense as to whether you're seeing greater synergies from the Cornerstone acquisition than you previously anticipated, or what has driven these share gains and whether that impacts your view on the overall runway for the business going forward.
Yeah. At the end of the day, we're seeing the benefits and clearly of Cornerstone, which you just announced, but it's really the combination of that with the overall platform that we've built. The trading platform that we've built over time and having those come together. It's just we're seeing from our clients our ability to add more value where, you know, a lot of this is the collaboration that's happening between these teams, single stock, macro views, liquidity and trading, what we're doing relative to getting corporate access and insights out there for our clients. I would agree that this has been positive relative to Cornerstone coming on board. I think we're additionally helped by the volatility in the marketplace, which is, you know, giving us a little more of a tailwind.
We feel good about the business and where it's going forward.
Thanks for taking my question.
Thank you.
We will take our next question from Devin Ryan with JMP Securities. Please go ahead.
Hi, this is actually Michael Falco standing in for Devin. Thanks for taking my question. I wanted to start with fixed income brokerage. You know, revenue is obviously down quite a bit sequentially, and you noted muted activity among depository clients. How should we be thinking about that business going forward? Is this quarter a good jumping off point in the current environment, or could there be another like down here as depositories have less excess liquidity?
Yeah. You know, I would say, you know, as we look into what visibility we've had so far into this quarter, which is one month, we see more of the same from what we had been seeing in the third quarter. The bottom line is though, right, there's been significant volatility in rates, sharp move upward, no sign that that's necessarily stopping near term and a lot of actually uncertainty in the market, which is probably the biggest thing that's been driving the softness in that business. Yes, a significant part of our business is depositories, which as you know, much less liquidity for banks and credit unions now, as well as they had seen some increase in loan demand.
I would say on the other client verticals that we have, we had seen some strength in those, maybe in second quarter offsetting depositories that has not been the case as you saw in Q3. Again, see that somewhat continuing here as they're dealing with this inverted yield curve and uncertainty in rates. I guess the other thing I would
Go ahead.
I would just add at the end of the day, I mean, if we just step back and think about the business, we are doing work to continue to build out products and the client verticals so that when we get to a more conducive and receptive market, we feel confident in the platform to take advantage of that.
Thanks. That's very clear. Appreciate the color. Maybe shifting gears a little bit, obviously growing the advisory business remains a priority. You closed DBO earlier this month. Can you talk about the capacity for additional M&A from here? You know, we're hearing there are still some middle market advisory firms in the market potentially for sale. Assuming that it's a better time for consolidation than a year ago, you know, what are you seeing, and what's the level of appetite? Maybe remind us as well, what your top priorities are right now for sector and geographic expansion as well. Thanks.
Yeah, sure. Yeah, I mean, you know, we've had a lot of success obviously with Simmons and Sandler and Valence and, you know, really adding those verticals. We're really excited about DBO. I think, you know, that's been the priority for, you know, internally from our internal partners, you know, from leadership. It's just a big sector. You know, obviously it's a tougher time in the software and tech M&A market. You know, frankly, that's when we like to build the platform. I, you know, I would concur some of the best things we've done is when things are a little more difficult. You know, what I would say about the market is, you know, pretty much every boutique, every investment bank, you know, had a record in 2021.
You know, I think reality is setting in a little more in 2022. That takes time, you know, just like you know, some of our clients on the buyer-seller expectations. You know, you need to see that in the boutiques. You know, we expect next year to be a good time to be in the market and looking at transactions. I would say our priorities, you know, are the same. You know, we're still very interested in building our tech business to be as big as our financials and healthcare business. I would say, you know, even given the challenges in Europe, we think there's still just low-hanging fruit for us as relative to other middle-market banks who are under-penetrated in Europe.
Again, we're not gonna stretch too far, but in the areas healthcare, financials, you know, some of the things, we're really good at consumer. Obviously, we added Stamford Partners, so you know, we're gonna continue to look to grow in Europe. Then, you know, there still are white spaces for us. You know, we've looked, you know, more and more at just with all the things we do in public finance and real estate, all the things we do in financial services and real estate. You know, is there more we can do collaboratively across the organization in the real estate vertical? Can we build a bigger business there? Just as an example.
Great. I appreciate all the color. I'll hop back in the queue.
Thank you.
We will take our next question from James Yaro with Goldman Sachs. Please go ahead.
Good morning, Chad, Devin, Tim, and thanks for taking my questions. Maybe I have to start with,
Hey, good morning.
Morning. Maybe I'll start with you, Chad. We've seen a much faster pace of rate hikes than I think people expected, you know, earlier in the year. How has this factored into your client dialogues? Is there sort of an absolute level of rates that you think would more significantly impact M&A activity going forward?
Yeah, I mean, it obviously depends so much on the various, you know, business lines relative to rates. I would say, you know, one of our biggest business lines, obviously with, you know, in the sponsor business. You know, it's a lot more expensive to finance some of the deals. I think if you look over a longer time, you know, it's still okay on financing, but it takes a while to set those expectations. You know, that is certainly one example. I would say in financial services, you know, we were doing a lot of sub-debt deals in the bank space and frankly other areas of financials. Obviously, those rates have changed quite a bit. You know, that's affected that business. You know, will it.
You know, part of financial services, the question will be, you know, will that then prompt people to raise more equity capital markets, which, you know, is possible. It's a very different outcome. Obviously, you saw we had tough public finance results. You know, it's taken a while for those clients to reset. You know, I do think, you know, the bigger question is just where are rates going, how fast, sort of people trying to get an understanding. Certainly if the absolute rate is much higher from here, there will be, you know, certain parts of the business that will be long-term impacted. There'll also be other parts, you know, that will be helped, you know, like I do believe, you know, per Deb's comments in fixed income.
Once we get to higher rates and it's sort of stable, you know, I think that's gonna be a very good run for fixed income. You know, your crystal ball is as good as mine.
Okay, that's very clear. Deb, maybe if you know, we just turn to muni financing. Or, you know, how would you sort of think about, you know, helping us with sort of the KPIs or key drivers for that business over the long term? Is it, you know, focusing on the absolute level of rates or market volatility? Is that sort of what's driven the lower activity, you know, in the near term and, you know, just over the long term, you know, how should we expect that to sort of recover?
I would actually break it into two parts, James. I would say on the governmental side, think of more the investment-grade business that had been helped over the last number of years, really many years, with refinancing opportunities. Being able to look at just market dynamics on new issue versus just refinancing. We have seen, I would say this year, where the new issue had helped to offset really, I think, new money year to date is probably flat year-over-year. There hasn't been a decline there. It's been all the refinancing that, you know, as I had mentioned, previously has pretty much come to a halt. In that business, that's really where the rates matter.
I think with new money, many times, you know, as long as the rates don't go up too significantly, deals can still get done as there's new projects. On the specialty side, whether that's special district, healthcare, education, et cetera, those areas, it's really right now being impacted by, because these are high-yield, impacted by flows. I guess I would say across the board, you can look at muni flows, but in particular, high-yield flows have made much more challenging to get deals done as there's just not the liquidity in the marketplace. The last thing I would say is, again, as Chad just mentioned, it's stability of rates.
If you think about, we've had these situations where we've been working with clients on deals thinking it's one market environment, and very quickly rates increase, and now we're in a very different market environment. You're back to the drawing board. I do think just stability in rates is going to help significantly. Right now, it's tough out there.
Thank you. That's super helpful.
As a reminder, if you would like to ask a question, please press star one. We will take our next question from Mike Grondahl with Northland Securities. Please go ahead.
Yeah. Hey, thanks, and good morning. Chad, in the press release, it talks about the advisory pipeline being strong, but conversion is tough. Can you just help us understand what strong means with the advisory pipeline, sort of relative to, you know, to what period of time? Like last year's peak or kind of, you know, before that era. Then secondly, any comments on October? Should we think of October just kind of a continuation of the third quarter? Yeah. What I would say about the advisory business, you know, it's not like other, you know, you can just look at our results relative, you know, obviously, relative to last year, our advisory results are down.
Look back four, five, six years, I mean, it's still, you know, good revenue levels as we built the capacity and we built this MD count to 159 MDs. What I would say is, you know, we're still pitching business. We're still putting deals in the pipeline. We have clients now that sort of say, "Hey, should we launch, or should we start in Q1?" You know, launches are taking longer. People are more cautious. You know, when we used to get a whole slate of bidders on a private equity deal, you know, maybe it's a few. You know, trying to get one of them to close is much more difficult.
I would say relative, you know, to the last five or 10 years where you get, you know, long periods of M&A shutdowns or what happened in the beginning of COVID, you know, it's nothing like that. Every deal is harder, every deal takes longer. The financing for sponsors has certainly changed the pricing. You know, the longer this goes on, you know, sellers aren't going to wait forever. They'll, you know, come into line on pricing expectations. I would just say that's more of what we're seeing in October. You know, we said in the script, you know, we expect our advisory business could be a bit better than Q2 and Q3. You know, that's lower than what it would be in a normal year.
You know, normally Q4 is quite strong. I think just given the environment, you know, while it could be our, you know, one of our better quarters of the year for advisory, the step up won't be like usual. As you know, we continue to see deals push out and deals not close, but it'll be a good quarter for advisory.
Got it. That extra color is helpful. Thank you.
We will take our next question from Michael Brown with KBW. Please go ahead.
Good morning. This is Aidan Hall filling in for Mike. Thanks for taking my question. Most of them have been asked, but just talking about the DBO team coming onto the platform, you noted the GP advisory practice that they bring. Can you just talk about the potential there in the medium term and as it relates to Piper's broader capabilities? Thanks.
Yeah, we're excited about that. I mean, obviously, you know, some of our competitors have big businesses, you know, working with private equity firms on, you know, other things besides M&A for their clients. You know, DBO has a history of doing some of these transactions, frankly, with even some, you know, large cap sponsors. Obviously, what we bring to the table is hundreds of other sponsor relationships to get those guys introduced. I think we're still in the early innings of opportunities. I mean, you know, private equity was selling, you know, maybe part of their GP. You can think about, you know, will there be more partial sales? Will there be full sales? You know, the impact of continuation funds, other vehicles that these folks set up.
I just think, you know, there's a big opportunity for us as we've really expanded this MD base and our sponsor relationships. You know, it's a pretty specialized capability that frankly, you know, some of the talent at DBO has that we didn't have. We're excited about where we can take this segment as we continue to believe private equity will be one of the biggest parts of our total advisory business.
That's great color. I appreciate it. Thanks for taking my question.
We will take a follow-up question from Devin Ryan with JMP Securities. Please go ahead.
Thanks. This is Mike for Devin again. Appreciate you taking the follow-up. Just wanted to ask how you're thinking about more normalized revenue and earnings levels. Obviously, 2021 wasn't normal, but a lot of aspects of 2022 aren't normal either. You know, are there any frameworks we should have in mind, especially as you've added a lot of talent over the last year? I think banker MD headcount is up 15% or so from 2020, and also made acquisitions on the brokerage side, so the baseline keeps moving higher.
Yeah. What I would say is just, you know, the way I at least look at the investment banking part of the business, you know, obviously we haven't had. You know, we've just had the DBO team. We haven't, you know, we did Stamford in the middle of the year. It's not like we did, you know, some pretty good hiring this year. It's not like we've had those 159 MDs all year. You know, new MDs on the platform take time. You know, the way I look at least the investment banking part, which is, you know, two-thirds or more of our business, you know, you look over time. For a while we were kinda averaging you know, $4, $5, $6 million per MD.
You know, obviously, as we've grown the platform and the products and we're doing bigger deals, you know, that productivity got, you know, in the good times to $8 million or $9 million per MD. I think, you know, some range in there is the opportunity of where total banking can go. Obviously, relative to equities, you know, we think we're at a pretty good run rate. You know, on fixed income, you sort of have to have a view on when rates stabilize.
You know, the one other segment of the business that we don't think is sort of a long-term run rate is, you know, our ECM business, you know, even though it's at least open with a trickle now, and certainly better than the first couple quarters, it's still way below historical means. We're not saying it's gonna march back to 2020 or 2021 levels, but we're pretty confident that we'll do more ECM business next year than we did this year.
That's helpful. Appreciate the color. Thank you.
Thank you.
There are no further questions at this time. Mr. Abraham, I will turn the conference back to you for any additional or closing remarks.
All right. Thank you, operator, and thanks everyone. We look forward to updating you on our fourth quarter and full year results. Have a great day.
This concludes today's call. Thank you for your participation, and you may now disconnect.