Piper Jaffray Companies Announces Third Quarter Results

Business Wire, Oct 15, 2008

Asset Management

For the quarter ended September 30, 2008, asset management revenues were $4.3 million, compared to $0.9 million in the year-ago period and $4.7 million in the second quarter of 2008. FAMCO revenues were negatively impacted by lower assets under management driven by a decline in equity prices.

Non-Interest Expenses

For the third quarter of 2008, compensation and benefits expense was $78.0 million, up 44 percent compared to the prior-year period and up 23 percent compared to the second quarter of 2008. The firm increased its compensation expense in the third quarter with the goal of achieving a minimum competitive full-year compensation level in order to retain its talent base and to cover fixed compensation costs. Despite the increase in compensation expenses, the firm expects that 2008 incentives will be down significantly compared to 2007. The compensation ratio for the third quarter was 107.3 percent, up from 58.5 percent in the year-ago period and 66.6 percent in the second quarter of 2008. A significant portion of the increased ratio was attributable to the TOB loss and the remainder was mainly driven by higher compensation costs, including fixed compensation expenses, over a lower revenue base.

Non-compensation expenses were $39.8 million for the current quarter, up 22 percent compared to the year-ago period, and down 13 percent compared to the second quarter of 2008. The current quarter included a $4.6 million restructuring charge, which included $2.2 million for additional severance actions taken in the third quarter and $2.4 million for exiting leased office space in two locations.

For the third quarter of 2008, pre-tax operating margin from continuing operations was negative 62.0 percent, compared to positive 6.5 percent in the year-ago period. The decline was mainly driven by higher compensation expenses. Pre-tax operating margin was negative 15.1 percent in the second quarter of 2008.

During the quarter, the company repurchased $15.0 million, or 444,225 shares, of its common stock at an average price of $33.75. The company has $85.0 million remaining under its current repurchase authorization, which runs through June 2010.

Results of Discontinued Operations

Discontinued operations related to the Private Client Services business, which the company sold to UBS Financial Services on August 11, 2006.

For the quarter ended September 30, 2008, discontinued operations recorded a net loss of $0.7 million, or $0.04 per share, related to changes in estimates on office space leases.

Additional Shareholder Information

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1Tangible shareholders' equity equals total shareholders' equity less goodwill and identifiable intangible assets. Annualized return on average tangible shareholders' equity is computed by dividing annualized net earnings by average monthly tangible shareholders' equity. Management believes that annualized return on tangible shareholders' equity is a meaningful measure of performance because it reflects the tangible equity deployed in our businesses. This measure excludes the portion of our shareholders' equity attributable to goodwill and identifiable intangible assets. The majority of our goodwill is a result of the 1998 acquisition of our predecessor company, Piper Jaffray Companies Inc., and its subsidiaries by U.S. Bancorp. The following table sets forth a reconciliation of shareholders' equity to tangible shareholders' equity. Shareholders' equity is the most directly comparable GAAP financial measure to tangible shareholders' equity.