Good morning, and welcome to the Piper Sandler Companies third quarter 2026 earnings conference call. Today's call is being recorded and will include remarks by Piper Sandler management, followed by a Q&A session. I'll begin by turning the call over to Kate Winslow. Please go ahead.
Thank you, operator. Good morning, and thank you for joining the Piper Sandler Companies third quarter 2026 earnings conference call . Hosting the call today are Chairman and CEO Chad Abraham, our President Deb Schoneman, and CFO Kate Clune. Earlier this morning, we issued a press release announcing Piper Sandler's Third Quarter 2026 financial results, which is available on our website at pipersandler.com/earnings. Today's discussion of the results is complementary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements that are not historical or current facts, including statements about beliefs and expectations, and involve inherent risks and uncertainties.
Factors that could cause actual results to differ materially from those anticipated are identified in the company's reports on file with the SEC, which are available on our website at pipersandler.com and on the SEC website at sec.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. The non-GAAP measures should be considered in addition to, and not a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad.
Thank you, Kate. Good morning, everyone. Thank you for joining us. Our business produced strong results against market conditions that were increasingly selective during the third quarter. M&A faced headwinds as overall activity and sponsor activity declined year-over-year. Equity issuance remained open for attractive opportunities, but investors were more selective, and the fee pool declined sequentially. The sharp rise in yields created a challenging execution environment in public finance, but led to increased trading activity in fixed income. Across our businesses, the quarter reinforced the importance of sector expertise, strong client relationships, and disciplined execution in a market where activity varied meaningfully by transaction and issuer. We generated third quarter adjusted net revenues of $456 million, a 19.8% operating margin, and adjusted EPS of $0.87. Corporate investment banking accounted for 67% of adjusted net revenues, or $307 million, our strongest third quarter on record.
Advisory revenues were $250 million, up 18% over last year. We completed 81 advisory transactions, and average fees increased. Performance was led by our Financial Strategies Group and our energy, power, and infrastructure team, with a solid contribution from our healthcare franchise. Within financial services, depositories led our performance as we continued to advise on some of the most significant transactions in this sector. We advised on six of the 10 largest bank M&A deals announced during the third quarter and remained at the top of the year-to-date league tables for both deal count and deal value, underscoring the ongoing strength of this franchise. Increased demand for energy to power the growth in AI data centers helped drive record quarterly revenues for our diversified energy group. The team completed 19 transactions, more than double the year-ago quarter, with energy and power services and equipment leading.
We ranked as the top advisor in that sector based on the number of completed M&A deals. As investments in power generation and grid infrastructure continue to accelerate, we are well-positioned to advise clients and capture share within this space. Our third quarter advisory revenues from private equity clients grew 17% year-over-year, outperforming the broader U.S. private equity market, where both deal value and deal counts declined. This resilience underscores the breadth of our coverage model and our ability to deliver a full suite of solutions to our sponsor clients. More specifically, we continue to experience positive momentum within our private capital advisory group, which recorded its best quarter on our platform. The group has already exceeded its full year 2025 revenues through the first nine months of this year.
Drawing on our sector experience, the team has collaborated with our industry groups to advise clients on raising capital through fund formation, as well as returning capital through continuation vehicles. Looking to the fourth quarter, our advisory pipeline is healthy, positioning us for what we expect will be our strongest quarter of the year, although below last year's record fourth quarter. Turning to corporate financing, third quarter revenues were $57 million, up 50% from the second quarter, but down from the strong third quarter of 2025. We completed 25 financings, raising $11 billion for corporate clients, primarily in healthcare and financial services. Client engagement remains active. However, we expect corporate financing activity to slow in the fourth quarter as investors become increasingly selective. Shifting to talent.
We remain focused on increasing productivity by selectively adding top producers to strengthen our product and sector teams, and ended the quarter with 191 investment banking managing directors. We added an MD in London, focused on advising infrastructure companies on debt financing and capital-raising transactions. We further strengthened our private capital advisory group with the addition of an MD focused on secondary capital advisory. Overall, our quarterly and year-to-date results reflect continued progress against our strategic priorities, despite uneven market conditions. While our pipelines remain active across our industry groups, inflation and market volatility continue to create uncertainty around the timing of deal closings as we approach year-end. That said, we continue to be excited about our platform, including growth within our private capital advisory and debt capital markets product groups, as well as continued productivity gains across investment banking.
With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.
Thanks, Chad. I will begin with an update on our public finance business. Third quarter municipal financing revenues were $25 million, down 50% from a strong second quarter and 36% from the year-ago period. Market conditions were challenging as a rapid rise in interest rates resulted in deals being delayed or downsized. In this environment, we underwrote 104 municipal negotiated transactions, raising $3.6 billion of par value for our clients. Looking ahead, we expect fourth quarter revenues to improve modestly from the third quarter. Municipal issuers are adjusting to higher rates while their funding needs persist, but it will take time for market participants to adapt to the new rate environment. Our equity brokerage business generated third quarter revenues of $54 million, down 13% sequentially, but up slightly year-over-year. Following record second quarter volumes, our results tracked with lower market volumes and volatility in the third quarter.
Year to date, our revenues are up 7% compared to 2025. Our broad product capabilities, combined with the scale we have built over the last few years, provide resiliency and upside to our performance. In September, we launched equities trading in Europe through Piper Sandler Europe, beginning to monetize investments made in recent years. This launch expands our reach and brings our leading U.S. equities franchise to European clients. Looking ahead, we expect that fourth quarter equity brokerage revenues will improve compared to the third quarter. Lastly, turning to fixed income. We recorded third quarter revenues of $60 million, up 23% sequentially and 5% year-over-year. Client activity strengthened as rising interest rates prompted investors to adjust their holdings. We saw increased activity across taxable and municipal products as investors took advantage of higher rates, increased hedging activity, or engaged in tax-loss selling.
Looking ahead, we expect fourth quarter fixed income revenues to be consistent with the third quarter. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use.
Thanks, Deb. My comments will address our adjusted non-GAAP financial results, which should be considered in addition to, and not a substitute for, the corresponding GAAP financial measures. During the third quarter of 2026, we generated net revenues of $456 million, operating income of $90 million, and an operating margin of 19.8%. Net income totaled $62 million, and diluted EPS was $0.87. For the first nine months of 2026, net revenues totaled $1.4 billion, operating income was $291 million, and our operating margin was 20.6%. We generated $208 million of net income and $2.91 of diluted EPS. Third quarter net revenues were up modestly year-over-year, as growth in advisory and fixed income offset lower financing revenues. Net revenues through the first nine months reached a record, growing 14% over the prior year period.
Corporate investment banking led this growth, with advisory revenues up 22% year-over-year and corporate financing revenues up 14%. Turning to expenses. Our compensation ratio was 61.5% for both the third quarter and first nine months of 2026, improving year-over-year. This reflects our continued focus on operating discipline while balancing employee retention with strategic investment opportunities. Non-compensation expenses for the third quarter were $85 million, or 18.7% of net revenues, up from the sequential and year-ago quarters. The increase was due primarily to higher occupancy costs in connection with our New York City office move. Outside services expenses also rose, driven by legal fees and higher fees associated with technology consulting services. For the first nine months of this year, non-compensation expenses totaled $254 million, representing 17.9% of net revenues, an improvement of 90 basis points from last year.
The litigation expense recorded in the first quarter, as well as an ongoing legal matter, continue to drive increased costs over last year. Given this pressure, we expect our full-year non-compensation expense ratio to be higher than last year. Our effective tax rate was 31.7% for the quarter and 28.6% for the first nine months of the year. Year-to-date tax expense was reduced by $7 million of benefits related to the vesting of restricted stock awards. Excluding these benefits, our effective tax rate for the first nine months was 31%. Now, finishing with capital. During the third quarter, we repurchased approximately 528,000 shares of our common stock for $39 million and paid an aggregate of $14 million to our shareholders through our quarterly cash dividend. For the first nine months of this year, we returned an aggregate of $268 million to shareholders.
This included repurchases of approximately 1.8 million shares of our common stock for $140 million. It also included $128 million in cash dividends paid, or $1.825 per share. Our cash position remains strong, and at our current valuation, we intend to deploy excess capital through share repurchases. As our existing authorization nears completion, effective today, the board approved a new authorization to repurchase up to $200 million of our outstanding common stock through the end of 2028. In addition, I am pleased to announce that effective today, the board approved a quarterly cash dividend of $0.20 per share to be paid on December 11th to shareholders of record as of the close of business on November 24th. With that, we can open up the call for questions.
Thank you. 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 the mute function is turned off to allow the signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to assemble the queue. We will take our first question from James Yaro with Goldman Sachs.
Good morning, and thanks for taking the question. Chad, I was hoping that you might be able to talk about the sponsor M&A backdrop, the degree to which this is improving, the impact of higher interest rates, and the outlook for this part of your client base from here.
Yeah. I would say it has been a little like it was the last couple quarters. I do think it is improving pretty darn slowly. Our pitch calendar the last few months has been pretty good. I just did a review of kind of this time last year versus today. I think that bodes well for sponsor activity in the first half. I would say I think it is pretty slow. I think interest rates higher on the margin are not helpful, but I think as long as it is higher slowly and not some big shock step-up, we should be okay. We are still getting plenty of debt financing done around our acquisition financing.
Great. On a similar topic, rates, it does seem to have had an impact, at least on the muni financing business, as Deb alluded to. I guess just across three businesses, muni financing, fixed income trading, and corporate financing, could you just talk about how interest rates are having an impact or in some cases not having an impact? Is it really the direction of rates or the level of rates?
Yeah. I'll maybe start here, and I'll do public finance and fixed income, and then we can move to the equity financing side of things. Within the public finance environment, I would say it's more, I mean, this whole year has been impacted by volatility of rates, but in the third quarter, I would say it was more around absolute level of rates, in particular related to municipal financing. So, you have refundings, which really aren't working in this environment. The muni rates need to go back down, looking more like they were this summer, I would say, for that to pick back up. Then you have new money projects, which can get delayed, obviously, for a few reasons. That overall level of rates can impact whether or not the projects work. So, issuers have to step back and say, "Okay, can I raise some more?
Can I do this with a little less capital raised and make it work? Should I go to the private placement market where maybe I can issue something that has a quicker refinancing ability? Maybe I just need to wait and see if rates come back down." That has delayed decisions as we need to help those clients weigh those factors. So, the pipeline is there and strong, and we have seen the MMD rates move down from what had moved up to actually highs that we hadn't seen in the last 20 years. So, I would say it's just impacting the timing of when those deals can come to market. As it relates to fixed income, I would say the opposite thing is happening there, which I guess is part of the benefit of having a diversified business.
You see a couple things happening related to rates, and I would say, again, more related to our absolute the absolute yields were. First of all, strong muni revenues. We saw muni rates, as I just mentioned, move sharply higher, which drove many asset managers to look into tax loss swaps, tax loss swaps, excuse me. We saw a lot of that activity in the quarter, see that continuing. Secondly, not only did we see balance sheet restructurings happening because of M&A closings, which would be a normal activity for us as those closings come to bear, but also we saw some balance sheet optimization that was happening outside of M&A because of where the absolute yields were. Lastly, I would say it's helped our hedging business. That may be both level of rates and also volatility of rates as we help depositories hedge their balance sheets.
Maybe I'll stop there, and Chad, do you want to make a few points?
Yeah
on equities from your side?
Yeah, I think obviously the fee pool for ECM in Q3 was a lot lower in total than it was in Q2. It is tough to tie that just to rates, but I have watched interest rates just relative to biotech and healthcare financing for a long time. As rates are moving up, that is always tougher on sort of risk on biotech trading. So, I do think it has had some impact.
Thanks so much, Chad and Deb. Really helpful.
We will take our next question from Devin Ryan with Citizens Bank.
Thanks. Good morning, Chad, Deb, and Kate. How is everyone?
Good, thank you.
Good.
Good. I want to drill down a little bit more into the advisory, but specifically depositories. I appreciate this isn't a fourth-quarter comment. As you think about 2027, I know you're still having a good year there this year. We still really haven't seen the dam break for consolidation, I think a lot of people were calling for. Your bankers are obviously very close to that market, so I would love to hear about what they're seeing and thinking as we get into 2027, and how we should think about that part of the business. Could it accelerate materially, I guess, is really the ultimate question. Thanks.
Yeah, I think, yeah, we are having a good year in depositories. We said in the release, number one in terms of number of deals and volume. The total number of deals, you're absolutely right, hasn't increased. I think just based on the pace we're on, it's actually likely the total number will be down a little bit from 2025. I don't think it's anything regulatory. I think deals are getting approved. There is interest. I will reiterate what I've said before. I think more than just worry about sort of the administration, and obviously that timeline will get closer as we get to 2028, but I think a lot of it has just been starting point of the stock prices. The bank stocks had a rougher summer.
Now, the last couple weeks has been a little better, but the starting point hasn't been great, and frankly, the performance of the banks has been pretty good. So, just to have to sell off of a just because when performance is pretty good, I don't think there's a lot of urgency. I would say we've announced a fair number of deals, so we've got a good backlog closings for the first half of next year. And I do think we feel like we'll see some increase, but certainly acknowledge we haven't seen the rush us and others expected.
Got it. Thanks, Chad. Appreciate that. As a follow-up, want to hit on obviously press reports recently about interest in another advisory firm. That firm had more of a focus on larger deals versus middle markets, where you guys are stronger. Not sure how much you can share specifically, but would love to just get a sense of how Piper Sandler's thinking about moving upstream in deal size. I know you're doing some of that in depositories and other verticals, but is that something that's important as you think about kind of the five-year plan here? Will you do that organically, or is M&A just a better strategy there? Then, just the other, if it makes sense, kind of the other potential firm-wide benefits I can imagine could help with underwriting and roles in underwriting deals, and there's kind of that halo effect.
Just would love to get some thoughts there. Thank you.
Yeah. Thanks, Devin. Yeah. Obviously, we've seen the same media reports. I think you know corporate development's a big part of our growth strategy, something we've done well. We absolutely intend to continue pursuing acquisitions where there's business and sort of cultural fit. Obviously, I'm not going to speculate on particular press comments, but I would say we're very focused on growth opportunities and deal of all sizes and good partnerships sort of up and down the size continuum. I think to your point on larger deals, we've really seen that evolution the last few years in our practice. Obviously, in healthcare and parts of medtech, we've been doing that for decades. Obviously, our depository business has that kind of franchise. Parts of our energy franchise do larger and larger deals.
I would also say just relative to our sponsor deals, I remember a couple years ago here when it was a big deal when we were doing deals north of $1 billion. Now, we're pitching so many more deals, $2 billion and $3 billion. I do think in that world, relationships in the boardroom, strategic acquirers, sort of the round trips of the sponsor sales, I think all of that continues to be important. Frankly, we're doing that organically, but would continue to look at that from a corporate development standpoint.
Got it. Thanks, Chad. No doubt you guys have been good at consolidating. If I could just squeeze one more, just to come back to some of Deb's comments and the prior question on the municipal business. That was a little bit softer than we thought. Did that just kind of shut down as rates moved aggressively, we know, on the long end? Is there potential for, and I know you're not calling for it in the fourth quarter, but if rates come off materially in some scenario, is there a lot of pent-up activity? Or is it just, like, with volatility and how quickly municipalities move, that they just can't move that quickly, is the point? So, that it's going to take time, even if rates come back down, to restart that engine.
Yeah, so starting with what happened, I would say, obviously, that sharp move in rates and everyone having to adjust, as I was speaking to previously. I'd also say sometimes if you have quarters that are and I will admit, that is a weaker quarter than we would have liked as well. Some of it actually just happened to be certain deals that were delayed almost due to administrative in nature, whether it's just deal process, lawyers, consents, and we had some of that just happen to happen this quarter as well. So, rates impacted. Some of it was just where deals moved. Then to get to your question around what does that look like, in many cases, where deals are ready to go, they can move quite quickly when we do see rates move.
They've been moving in the right direction, not maybe far enough to have that all kick in. I would say, for the most part, as we're working with these clients and have had deals ready to go, they can come back pretty quickly. The question for us around Q4 is just, where do rates go? How quickly does that happen? We have the election, so it's a little bit uncertain of what happens Q4 versus moving into next year.
Yeah, completely appreciate that. But, thanks for the additional color, Deb. Thank you.
We will take our next question from Steven Chubak with Wolfe Research.
Hi, good morning, and thanks for taking my question.
Absolutely.
So, maybe to start just on some of the corporate finance outlook commentary you guys provided. You noted you expected to see a modest pickup in activity versus 3Q and a weaker result year-on-year. Admittedly, that provides a very wide range of outcomes. So, I was hoping just to get a better sense as to whether the decline year-on-year is going to be modest or pronounced, and how to think about the sequential pickup, given historically 3Q to 4Q seasonality reflects a 50% increase. Just trying to gauge how we should think about what's a reasonable expectation for that seasonal build.
Yeah, I think for corporate finance, what we said is that I do think we expect it to be lower than last year. A lot of that, obviously, Steven, has to do with the fact that October, that fee pool hasn't been great. Usually in the fourth quarter, October and November are quite a bit better than December. That market slows down. As we already can see a decently slow October, we have pretty good visibility. Obviously, things happen fast there, so it's hard to tighten that range, but I think that's why we can pretty much see it's going to be slower than last year.
No, that's helpful context. I appreciate that, Chad. Wanted to ask also a muni-related question to an extent, just, but more focused on the fixed income brokerage side. I was actually quite surprised. We expected the slowdown in muni issuance activity, but fixed income brokerage seemed to be a real bright spot in the quarter. Especially surprising just given negative muni marks that some of your peers had incurred, and frankly, a MOVE index that was subdued for most of the quarter outside of the last couple weeks of September. Was hoping you could just speak to what drove the resiliency in the quarter, what you're hearing from some of your bank depositories in particular, especially given some of the decline in rate volatility that we saw in 3Q and the implications for 4Q.
Yeah, so maybe starting with the municipal side, and as you alluded to, some of our peers. I'd just remind you that we do have a different strategy relative to our use of capital and balance sheets. Having a much lighter approach and much more advisory approach, I think that's what you're seeing play out relative to where some of the peers came in. Proud of our traders for how they manage risk, but also reminding you, we take much less risk on the desk. As we saw the client flow, as I was mentioning a little earlier, the relationships we have with the top-tier funds are very, very strong because of our overall municipal franchise.
As they looked to benefit from the yields and where they are, and yields got to a point where tax loss swaps did make sense economically, that cost of execution was small relative to the pickup in yield. So, that drove a lot of it. Your questions on depositories, again, we saw an increase in what I'll call either restructurings related to M&A or balance sheet optimization, and the strength of that is coming from where we provide advice, our Financial Strategies Group. We can combine that with hedging. I think we were able to have the market play into where we have a lot of strengths around both municipals and our depository franchise.
Thanks so much for the color. If I could just squeeze in one more, just on the impact of the midterms on bank M&A activity, what you are hearing from corporates, do you expect to see an acceleration if there is in fact a blue wave as corporates potentially reevaluate the window for getting bank mergers completed?
Yeah, I haven't been in a lot of those particular client conversations about the midterm specifically for depositories. I think in the past when we've looked at that, I understand the question, it just hasn't had a huge impact. I take your point that if there's a big wave, do people read into that relative to the presidential election? But, yeah, I guess we sort of see the pace here continuing, and it more just bumping up against that natural deadline in 2028, and running out of time that way.
That's great color. Thanks for taking my questions.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will take our next question from Gabriel Angelini with Bank of America.
Hi. Good morning. Looking at equity brokerage, I think shares traded were up 22% year-over-year, and understand your commentary on lower volatility and volumes just in the third quarter generally. But I think relatively flat revenue year-over-year, which implies maybe some fee compression despite the growth in shares traded. Is that a product mix issue in this quarter, or is that a trend we should think about continuing going forward?
Yeah, that's a great question and good observation, and it is around product mix. A couple things. One, as we look at the year, we've seen our program trading pick up, and some of that has to do with the large rebalance activity that has happened this year. Then as we build up our electronic trading platform, and we've done work on that, you're also, obviously, that's going to mix to a lower overall average fee. But also importantly, that is a product where we have an ability to see market share gains to level that up with other products that we have. So, that's primarily what you're seeing when you look at that volume versus revenue.
Perfect. That's helpful. Then looking at investment income, I think there was a nice swing in the quarter to a loss of $13.5 million. Was that a one-time issue, or should we expect that line to be more muted going forward?
So, that is the impact of our investment in our internal private equity fund. It is a little bit noisy quarter to quarter. We had some of that volatility last year as well. I don't think about it as one time, but it does tend to be quite muted over time. It's fairly small in terms of aggregate non-GAAP impact. It's fairly noisy on a GAAP impact because of the consolidation requirements. Overall, fairly limited impact, positive or negative, to the bottom line for Piper.
Perfect. Thank you for taking the questions.
We will take our next question from Mike Grondahl with Northland Securities.
Hey, thank you. Chad, I would love your outlook on the healthcare franchise, kind of what is working there, what is a little more challenged?
Yeah, I would say this has been one of the best years we have had in healthcare. Obviously, last year was tougher, so we have an easier comp, but healthcare should be our biggest business this year. And I would say it is pretty broad-based. We have had a good year in medtech M&A. We have had a good year in biotech financings. And maybe the biggest pickup is just in sort of our private equity business, sort of in and around healthcare services and just the broader market. I think there is just more interest after a couple years of significant declines there from private equity to look at more platforms. So, frankly, we have seen pretty broad-based success with our healthcare business this year.
Got it. Then secondly, just kind of what is your appetite for adding MDs the next two to five quarters?
Yeah, I would say, and we have talked about this in the last couple calls, obviously, we went through years of significant growth, so we have had a pause where we have been focused on productivity and fit. I would also say we started an exercise just to evaluate sort of all the pockets and niches and places of interest recently, and there is a lot of white space opportunity. So, we are very much focused on doubling down there. I think when I think about some of the sponsor areas, there are parts of the services market that are what would seem pretty narrow, but pretty significant from a fee pool standpoint. So, I think we are pretty optimistic and frankly going to double down on that heading into the start of the year. Obviously, we are heavily in recruiting season now.
Got it. Well, good luck. Thank you.
There are no further questions at this time. I will turn the conference back over to Mr. Abraham for any additional or closing remarks.
All right. Thank you, operator. Thanks to everyone that joined us this morning. We look forward to updating you on our fourth quarter and full year 2026 results early next year. Have a great day.
This concludes today's call. Thank you for your participation. You may now disconnect.