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MINNEAPOLIS, Oct 20, 2010 (BUSINESS WIRE) -- Piper Jaffray Companies (NYSE: PJC) today announced net income of $7.1 million, or $0.36 per diluted common share, for the third quarter ended September 30, 2010, compared to net income of $9.3 million, or $0.47 per diluted common share, for the third quarter of 2009 and net income of $7.4 million, or $0.36 per diluted common share, for the second quarter of 2010. Third quarter 2010 net revenues were $116.5 million, compared to $119.7 million in the year-ago period, and $127.7 million for the second quarter of 2010.

There were two non-core items that impacted third quarter 2010 financial results:

For the nine months ending September 30, 2010, net income was $14.9 million, or $0.75 per diluted common share, compared to $18.1 million, or $0.93 per diluted common share, in 2009. Net revenues were $353.7 million for the nine months, up 5 percent compared to the prior year.

"Our third quarter financial results reflected the lower activity industry-wide in growth company IPOs and reduced equity trading volumes. However, fixed income institutional brokerage revenues rebounded from the difficult sequential second quarter, advisory services revenues continued the solid trend, and municipal financing revenues were at the highest level year-to-date," said Andrew S. Duff, chairman and chief executive officer.

Duff added: "We expect the economic recovery will proceed at a slower pace than originally anticipated earlier in the year, which will keep capital markets activity below historical levels for the next 12-18 months. Therefore, we expect the improvement in our business will also be slower than anticipated, but we are committed to improving our profitability and achieving a competitive return on equity. Our financial performance in Asia has been improving and the business is profitable. Our business in Europe continues to be challenged given the economic and market headwinds. During the quarter, we re-evaluated our European strategy and plan to restructure our operations to focus resources on two areas of strength: the distribution of U.S. and Asia securities to European institutional investors, and M&A advisory services aligned with our core global industry teams."

Consolidated Expenses
For the third quarter, compensation and benefits expenses were $66.1 million, which included a $6.6 million reversal of a previously recognized compensation expense related to a performance-based restricted stock grant awarded to the firm's senior leadership team in May 2008. This performance grant requires the firm to meet a return on adjusted common equity target of 11 percent over a twelve-month period by May 2013. If the target is met, the award vests in its entirety. Given current financial results and the economic environment, management has now determined it is not probable that the return on equity target will be achieved. Therefore, the previously recognized expense was reversed in the current period.

For the third quarter, compensation as a percentage of net revenues was 56.7 percent. The reversal of the prior compensation expense reduced the ratio by 5.6 percentage points. Compensation as a percentage of net revenues was 60.0 percent for the third quarter of 2009 and 60.9 for the second quarter of 2010.

Non-compensation expenses were $36.8 million, an increase of 14 percent compared to the third quarter of 2009, mainly driven by expenses related to Advisory Research, including intangible amortization, and the restructuring charge. Non-compensation costs decreased 3 percent compared to the second quarter of 2010.

Business Segment Results
The firm has two reportable business segments: Capital Markets and Asset Management. Consolidated net revenues and expenses are fully allocated to these two segments.

Capital Markets
Capital Markets generated pre-tax operating income of $9.3 million, compared to $15.0 million in the third quarter of 2009, and $8.9 million in the second quarter of 2010. Net revenues were $99.4 million, down 14 percent and 11 percent compared to the year-ago period and the second quarter of 2010, respectively.

The following is a recap of completed deal information for the third quarter of 2010:

Asset Management
For the quarter ended September 30, 2010, asset management generated pre-tax operating income of $4.3 million, compared to $0.5 million in the third quarter of 2009, and $3.0 million in the second quarter of 2010. Net revenues were $17.0 million, compared to $3.8 million in the year-ago period, primarily attributable to the acquisition of Advisory Research. Asset management revenues increased 9 percent compared to the second quarter of 2010.

Other Matters
In the third quarter of 2010, $15.2 million, or 540,532 shares, of the firm's common stock were repurchased pursuant to a share repurchase authorization. The average price per share repurchased was $28.16. The firm has $59.8 million remaining on a share repurchase authorization which expires on September 30, 2012.

Additional Shareholder Information

As of Sep. 30, 2010 As of June 30, 2010 As of Sep. 30, 2009
Number of employees: 1,082 1,083 1,024

Asset Management
AUM:

$12.8 billion $11.8 billion $6.7 billion
Shareholders' equity: $804.7 million $817.0 million $781.8 million

Annualized Qtrly.
Return on Avg.
Adjusted
Shareholders' Equity1

4.0%

4.0%

5.5%

Book value per share: $54.73 $53.71 $48.94

Tangible book value
per share2:

$28.97 $28.67 $38.10

1Adjusted shareholders' equity equals total shareholders' equity, including goodwill associated with acquisitions, less goodwill resulting from the 1998 acquisition of our predecessor company, Piper Jaffray Companies Inc., by U.S. Bancorp. Annualized return on average adjusted shareholders' equity is computed by dividing annualized net income by average monthly adjusted shareholders' equity. Management believes that annualized return on adjusted shareholders' equity is a meaningful measure of performance because it reflects equity deployed in our businesses after our spin off from U.S. Bancorp on December 31, 2003. The following table sets forth a reconciliation of shareholders' equity to adjusted shareholders' equity. Shareholders' equity is the most directly comparable GAAP financial measure to adjusted shareholders' equity.

Average for the
Three Months Ended Three Months Ended Three Months Ended
(Dollars in thousands) Sept. 30, 2010 June 30, 2010 Sept. 30, 2009
Shareholders' equity $ 813,318 $ 836,210 $ 779,810
Deduct: goodwill attributable to PJC Inc. acquisition by USB 105,522 105,522 105,522
Adjusted shareholders' equity $ 707,796 $ 730,688 $ 674,288

2Tangible shareholders' equity equals total shareholders' equity less all goodwill and identifiable intangible assets. Tangible book value per share is computed by dividing tangible shareholders' equity by common shares outstanding. Management believes that tangible book value per share is a more meaningful measure of our book value per share. Shareholders' equity is the most directly comparable GAAP financial measure to tangible shareholders' equity. The following is a reconciliation of shareholders' equity to tangible shareholders' equity:

As of As of As of
(Dollars in thousands) Sept. 30, 2010 June 30, 2010 Sept. 30, 2009
Shareholders' equity $ 804,682 $ 817,025 $ 781,750
Deduct: goodwill and identifiable intangible assets 378,697 380,880 173,117
Tangible shareholders' equity $ 425,985 $ 436,145 $ 608,633

Conference Call
Andrew S. Duff, chairman and chief executive officer, and Debbra L. Schoneman, chief financial officer, will host a conference call to discuss second quarter results on Wednesday, October 20, at 9 a.m. ET (8 a.m. CT). The call can be accessed via live audio webcast available through the firm's Web site at http://www.piperjaffray.com or by dialing 800-667-9701, or (212) 231-2903 internationally, and referencing reservation #21483850. Callers should dial in at least 15 minutes early to receive instructions. A replay of the conference call will be available beginning at approximately 11 a.m. ET on October 20 at the same Web address or by calling (800) 633-8284 and referencing reservation #21483850.

About Piper Jaffray
Piper Jaffray Companies (NYSE: PJC) is a leading, international investment bank and institutional securities firm, serving the needs of corporations, private equity groups, public entities, nonprofit clients and institutional investors. Founded in 1895, Piper Jaffray provides a broad set of products and services, including equity and debt capital markets products; public finance services; financial advisory services; equity and fixed-income institutional brokerage; equity research and fixed income analytics; and asset management services. Piper Jaffray headquarters are located in Minneapolis, Minnesota, with offices across the U.S. and in London and Hong Kong. Piper Jaffray & Co. is the firm's principal operating subsidiary. (http://www.piperjaffray.com)

Cautionary Note Regarding Forward-Looking Statements
This press release and the conference call to discuss the contents of this press release contain forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are subject to significant risks and uncertainties that are difficult to predict. These forward-looking statements cover, among other things, statements made about general economic and market conditions, anticipated financial results (including expectations regarding revenue and expense levels, operating margins, the compensation ratio, earnings per share, and return on equity), the environment and prospects for capital markets transactions and institutional brokerage activity, current deal pipelines, return on equity performance and its impact on a long-term, performance-based equity award, the estimated restructuring charge related to, and future profitability of, our European operations, hiring activity and business prospects in Asia, tax rates, or other similar matters. These statements involve inherent risks and uncertainties, both known and unknown, and important factors could cause actual results to differ materially from those anticipated or discussed in the forward-looking statements, including (1) market and economic conditions or developments may be unfavorable, including in specific sectors in which we operate, and these conditions or developments (including market fluctuations or volatility) may adversely affect the environment for capital markets transactions and activity and our business, revenue levels and profitability, (2) the volume of anticipated investment banking transactions as reflected in our deal pipelines (and the net revenues we earn from such transactions) may differ from expected results if any transactions are delayed or not completed at all or if the terms of any transactions are modified, (3) we may not be able to compete successfully with other companies in the financial services industry, (4) our ability to manage expenses may be limited by the fixed nature of certain expenses as well as the impact from unanticipated expenses, (5) anticipated restructuring charges and tax rates involve significant judgment by management and could vary from estimates, (6) the business operations that we conduct outside of the United States, including in Asia, subject us to unique risks, (7) hiring of additional senior talent may not yield the benefits we anticipate or yield them within expected timeframes, and (8) the other factors described under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009, and updated in our subsequent reports filed with the SEC (available at our Web site at http://www.piperjaffray.com and at the SEC Web site at http://www.sec.gov). Forward-looking statements speak only as of the date they are made, and readers are cautioned not to place undue reliance on them. We undertake no obligation to update them in light of new information or future events.

© 2010 Piper Jaffray & Co., 800 Nicollet Mall, Suite 800, Minneapolis, Minnesota 55402-7020

Piper Jaffray Companies
Preliminary Unaudited Results of Operations
Three Months Ended Percent Inc/(Dec) Nine Months Ended
Sept. 30, Jun. 30, Sept. 30, 3Q '10 3Q '10 Sept. 30, Sept. 30, Percent
(Amounts in thousands, except per share data) 2010 2010 2009 vs. 2Q '10 vs. 3Q '09 2010 2009 Inc/(Dec)
Revenues:
Investment banking $ 56,243 $ 71,745 $ 48,115 (21.6 ) % 16.9 % $ 171,736 $ 134,615 27.6 %
Institutional brokerage 40,432 32,084 59,576 26.0 (32.1 ) 121,611 175,455 (30.7 )
Interest 11,497 14,313 11,854 (19.7 ) (3.0 ) 39,259 29,024 35.3
Asset management 16,812 15,873 3,568 5.9 371.2 41,839 9,817 326.2
Other income/(loss) (368 ) 3,495 3,340 N/M N/M 6,054 (1,209 ) N/M
Total revenues 124,616 137,510 126,453 (9.4 ) (1.5 ) 380,499 347,702 9.4
Interest expense 8,153 9,857 6,784 (17.3 ) 20.2 26,797 11,861 125.9
Net revenues 116,463 127,653 119,669 (8.8 ) (2.7 ) 353,702 335,841 5.3
Non-interest expenses:
Compensation and benefits 66,058 77,678 71,802 (15.0 ) (8.0 ) 208,832 201,503 3.6
Occupancy and equipment 8,853 8,056 7,703 9.9 14.9 24,578 21,901 12.2
Communications 5,943 6,199 5,474 (4.1 ) 8.6 18,631 17,003 9.6
Floor brokerage and clearance 2,879 3,307 2,974 (12.9 ) (3.2 ) 8,803 9,088 (3.1 )
Marketing and business development 5,863 6,095 5,498 (3.8 ) 6.6 17,280 13,362 29.3
Outside services 7,945 7,735 6,234 2.7 27.4 23,684 21,168 11.9
Restructuring-related expenses 1,333 - - N/M N/M 1,333 3,572 (62.7 )
Other operating expenses 4,011 6,747 4,402 (40.6 ) (8.9 ) 15,992 10,700 49.5
Total non-interest expenses 102,885 115,817 104,087 (11.2 ) (1.2 ) 319,133 298,297 7.0
Income before income tax expense 13,578 11,836 15,582 14.7 (12.9 ) 34,569 37,544 (7.9 )
Income tax expense 6,524 4,458 6,316 46.3 3.3 19,627 19,427 1.0
Net income 7,054 7,378 9,266 (4.4 ) (23.9 ) 14,942 18,117 (17.5 )
Net income allocated to restricted participating shares (1,639 ) (1,666 ) (1,690 ) (1.6 ) (3.0 ) (3,271 ) (3,254 ) 0.5
Net income applicable to common shareholders $ 5,415 $ 5,712 $ 7,576 (5.2 ) % (28.5 ) % $ 11,671 $ 14,863 (21.5 ) %
Earnings per common share
Basic $ 0.36 $ 0.36 $ 0.47 0.0 % (23.8 ) % $ 0.75 $ 0.93 (19.4 ) %
Diluted $ 0.36 $ 0.36 $ 0.47 0.0 % (23.3 ) % $ 0.75 $ 0.93 (19.4 ) %
Weighted average number of common shares outstanding
Basic 15,035 15,901 16,031 (5.4 ) % (6.2 ) % 15,588 16,001 (2.6 ) %
Diluted 15,038 15,925 16,131 (5.6 ) % (6.8 ) % 15,626 16,039 (2.6 ) %
N/M - Not meaningful
Piper Jaffray Companies
Preliminary Unaudited Segment Data
Three Months Ended Percent Inc/(Dec) Nine Months Ended
Sept. 30, Jun. 30, Sept. 30, 3Q '10 3Q '10 Sept. 30, Sept. 30, Percent
(Dollars in thousands) 2010 2010 2009 vs. 2Q '10 vs. 3Q '09 2010 2009 Inc/(Dec)
Capital Markets
Investment banking
Financing
Equities $ 19,839 $ 34,776 $ 17,769 (43.0 ) % 11.6 % $ 71,603 $ 45,126 58.7 %
Debt 16,486 14,355 20,493 14.8 (19.6 ) 46,022 53,007 (13.2 )
Advisory services 20,595 23,197 10,138 (11.2 ) 103.1 55,767 38,527 44.7
Total investment banking 56,920 72,328 48,400 (21.3 ) 17.6 173,392 136,660 26.9
Institutional sales and trading
Equities 24,292 27,501 31,438 (11.7 ) (22.7 ) 78,720 92,484 (14.9 )
Fixed income 20,159 9,733 32,101 107.1 (37.2 ) 57,268 95,072 (39.8 )
Total institutional sales and trading 44,451 37,234 63,539 19.4 (30.0 ) 135,988 187,556 (27.5 )
Other income/(loss) (1,956 ) 2,423 3,954 N/M N/M 2,452 1,644 49.1
Net revenues 99,415 111,985 115,893 (11.2 ) (14.2 ) 311,832 325,860 (4.3 )
Operating expenses 90,136 103,114 100,852 (12.6 ) (10.6 ) 286,276 286,305 -
Segment pre-tax operating income $ 9,279 $ 8,871 $ 15,041 4.6 % (38.3 ) % $ 25,556 $ 39,555 (35.4 ) %
Segment pre-tax operating margin 9.3 % 7.9 % 13.0 % 8.2 % 12.1 %
Asset Management
Management and performance fees $ 16,812 $ 15,873 $ 3,568 5.9 % 371.2 % $ 41,839 $ 9,817 326.2 %
Other income/(loss) 236 (205 ) 208 N/M 13.5 31 164 (81.1 )
Net revenues 17,048 15,668 3,776 8.8 351.5 41,870 9,981 319.5
Operating expenses 12,749 12,703 3,235 0.4 294.1 32,857 11,992 174.0 %
Segment pre-tax operating income/(loss) $ 4,299 $ 2,965 $ 541 45.0 % 694.6 % $ 9,013 $ (2,011 ) N/M
Segment pre-tax operating margin 25.2 % 18.9 % 14.3 % 21.5 % (20.1 )%
Total
Net revenues $ 116,463 $ 127,653 $ 119,669 (8.8 ) % (2.7 ) % $ 353,702 $ 335,841 5.3 %
Operating expenses 102,885 115,817 104,087 (11.2 ) (1.2 ) 319,133 298,297 7.0
Total segment pre-tax operating income $ 13,578 $ 11,836 $ 15,582 14.7 % (12.9 ) % $ 34,569 $ 37,544 (7.9 ) %
Pre-tax operating margin 11.7 % 9.3 % 13.0 % 9.8 % 11.2 %
N/M - Not meaningful

SOURCE: Piper Jaffray Companies

Piper Jaffray Companies
Jennifer A. Olson-Goude, 612-303-6277
Investor and Media Relations