Company Quick10K Filing
Quick10K
Oppenheimer Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$26.45 13 $344
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-14 Shareholder Vote, Regulation FD, Exhibits
8-K 2019-04-29 Regulation FD, Exhibits
8-K 2019-04-26 Earnings, Exhibits
8-K 2019-02-04 Regulation FD, Exhibits
8-K 2019-02-01 Earnings, Exhibits
8-K 2018-11-08 Regulation FD, Exhibits
8-K 2018-07-27 Earnings, Exhibits
8-K 2018-07-25 Officers
8-K 2018-05-15 Shareholder Vote, Regulation FD, Exhibits
8-K 2018-03-29 Regulation FD, Exhibits
8-K 2018-02-01 Earnings, Exhibits
AZN AstraZeneca 100,930
WES Western Gas Partners 13,020
FIVE Five Below 7,620
NOAH Noah Holdings 2,890
IBOC International Bancshares 2,680
OCSL Oaktree Specialty Lending 772
TPGH TPG Pace Holdings 581
DEST Destination Maternity 31
ODYY Odyssey Group 0
RCAR RenovaCare 0
OPY 2019-03-31
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex311-3312019.htm
EX-31.2 ex312-3312019.htm
EX-32 ex32-3312019.htm

Oppenheimer Holdings Earnings 2019-03-31

OPY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 opy-3312019x10q.htm 10-Q Document


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

 
 
FORM 10-Q
 
  
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
 
Commission file number 1-12043
 
 
OPPENHEIMER HOLDINGS INC.
(Exact name of registrant as specified in its charter)

 
 
Delaware
98-0080034
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

85 Broad Street
New York, NY 10004
(Address of principal executive offices) (Zip Code)

(212) 668-8000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
x
 
 
 
 
 
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
 
 
Emerging growth company
o
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The number of shares of the Company's Class A non-voting common stock and Class B voting common stock (being the only classes of common stock of the Company) outstanding on April 26, 2019 was 12,923,517 and 99,665 shares, respectively.
 




OPPENHEIMER HOLDINGS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

 
 
 
 
 
 
Page No.
PART I
 
Item 1.
 
 
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018
 
Condensed Consolidated Income Statements for the three months ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018
 
Item 2.
Item 3.
Item 4.
PART II
 
Item 1.
Item 1A.
Item 2.
Item 6.
 




PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(Expressed in thousands, except number of shares and per share amounts)
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
83,073

 
$
90,675

Deposits with clearing organizations
55,069

 
67,678

Receivable from brokers, dealers and clearing organizations
180,221

 
166,493

Receivable from customers, net of allowance for credit losses of $898 ($886 in 2018)
753,625

 
720,777

Income tax receivable

 
1,014

Securities purchased under agreements to resell
589

 
290

Securities owned, including amounts pledged of $390,832 ($517,951 in 2018), at fair value
911,468

 
837,584

Notes receivable, net of accumulated amortization and allowance for uncollectibles of $24,548 and $6,841 respectively ($25,109 and $6,800, respectively, in 2018)
43,921

 
44,058

Furniture, equipment and leasehold improvements, net of accumulated depreciation of $90,974 ($89,182 in 2018)
30,728

 
28,988

Right-of-use lease assets, net of accumulated amortization of $6,797
171,224

 

Goodwill
137,889

 
137,889

Intangible assets
32,100

 
32,100

Other assets
127,657

 
112,768

Total assets
$
2,527,564

 
$
2,240,314

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Drafts payable
$
13,533

 
$
16,348

Bank call loans

 
15,000

Payable to brokers, dealers and clearing organizations
634,333

 
289,207

Payable to customers
334,376

 
336,616

Securities sold under agreements to repurchase
268,621

 
484,218

Securities sold but not yet purchased, at fair value
137,286

 
85,446

Accrued compensation
106,869

 
167,348

Income tax payable
1,162

 

Accounts payable and other liabilities
48,862

 
87,630

Lease liabilities
212,970

 

Senior secured notes, net of debt issuance costs of $840 ($904 in 2018)
199,160

 
199,096

Deferred tax liabilities, net of deferred tax assets of $42,309 ($41,722 in 2018)
15,905

 
14,083

Total liabilities
1,973,077

 
1,694,992

Commitments and contingencies (note 12)

 

Stockholders' equity
 
 
 
Share capital
 
 
 
Class A non-voting common stock, par value $0.001 per share, 50,000,000 shares authorized, 12,923,517 and 12,941,809 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
52,386

 
53,259

Class B voting common stock, par value $0.001 per share, 99,665 shares authorized, issued and outstanding as of March 31, 2019 and December 31, 2018
133

 
133

 
52,519

 
53,392

Contributed capital
41,489

 
41,776

Retained earnings
459,751

 
449,989

Accumulated other comprehensive income
728

 
165

Total stockholders' equity
554,487

 
545,322

Total liabilities and stockholders' equity
$
2,527,564

 
$
2,240,314

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
 
 
(Expressed in thousands, except number of shares and per share amounts)
2019
 
2018
REVENUE
 
 
 
Commissions
$
79,409

 
$
83,407

Advisory fees
73,647

 
77,548

Investment banking
28,043

 
28,210

Bank deposit sweep income
33,968

 
25,297

Interest
12,727

 
12,227

Principal transactions, net
11,438

 
2,726

Other
12,538

 
5,115

Total revenue
251,770

 
234,530

EXPENSES
 
 
 
Compensation and related expenses
160,355

 
153,104

Communications and technology
20,086

 
18,688

Occupancy and equipment costs
15,273

 
15,428

Clearing and exchange fees
5,332

 
6,096

Interest
12,986

 
8,963

Other
21,686

 
22,630

Total expenses
235,718

 
224,909

Income before income taxes
16,052

 
9,621

Income taxes
4,858

 
2,916

Net income
$
11,194

 
$
6,705

 


 
 
Net income per share

 
 
Basic
$
0.86

 
$
0.51

Diluted
$
0.81

 
$
0.48

 
 
 
 
Weighted average shares
 
 
 
Basic
13,020,344

 
13,239,628

Diluted
13,851,321

 
13,977,492


The accompanying notes are an integral part of these condensed consolidated financial statements.

4


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
 
 
 
 
 
 
(Expressed in thousands)
2019
 
2018
Net income
$
11,194

 
$
6,705

Other comprehensive income (loss), net of tax
 
 
 
Currency translation adjustment
563

 
(142
)
Comprehensive income
$
11,757

 
$
6,563

 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
 
 
 
 
 
 
 
 
(Expressed in thousands)
2019
 
2018
Share capital
 
 
 
Balance at beginning of period
$
53,392

 
$
58,492

Issuance of Class A non-voting common stock
1,162

 
37

Repurchase of Class A non-voting common stock for cancellation
(2,035
)
 

Balance at end of period
52,519

 
58,529

Contributed capital
 
 
 
Balance at beginning of period
41,776

 
36,546

Share-based expense
1,889

 
1,509

Vested employee share plan awards
(2,176
)
 
(59
)
Balance at end of period
41,489

 
37,996

Retained earnings
 
 
 
Balance at beginning of period
449,989

 
427,295

Net income
11,194

 
6,705

Dividends paid ($0.11 per share)
(1,432
)
 
(1,456
)
Balance at end of period
459,751

 
432,544

Accumulated other comprehensive income
 
 
 
Balance at beginning of period
165

 
1,582

Currency translation adjustment
563

 
(142
)
Balance at end of period
728

 
1,440

Total stockholders' equity
$
554,487

 
$
530,509

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
(Expressed in thousands)
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
11,194

 
$
6,705

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
Non-cash items included in net income:
 
 
 
Depreciation and amortization of furniture, equipment and leasehold improvements
1,708

 
1,542

Deferred income taxes
1,894

 
3,043

Amortization of notes receivable
3,388

 
3,205

Amortization of debt issuance costs
64

 
65

Provision for credit losses
12

 
40

Share-based compensation
3,042

 
1,484

Decrease (increase) in operating assets:
 
 
 
Deposits with clearing organizations
12,609

 
(28,716
)
Receivable from brokers, dealers and clearing organizations
(13,728
)
 
15,985

Receivable from customers
(32,860
)
 
(33,755
)
Income tax receivable
1,014

 
(193
)
Securities purchased under agreements to resell
(299
)
 
658

Securities owned
(73,884
)
 
(73,030
)
Notes receivable
(3,251
)
 
(5,071
)
Other assets
(14,326
)
 
21,395

Increase (decrease) in operating liabilities:
 
 
 
Drafts payable
(2,815
)
 
(21,419
)
Payable to brokers, dealers and clearing organizations
345,126

 
43,643

Payable to customers
(2,240
)
 
59,178

Income taxes payable
1,162

 

Securities sold under agreements to repurchase
(215,597
)
 
(10,461
)
Securities sold but not yet purchased
51,840

 
53,400

Accrued compensation
(61,633
)
 
(69,340
)
Accounts payable and other liabilities
2,907

 
4,099

Cash provided by (used in) operating activities
15,327

 
(27,543
)
Cash flows from investing activities
 
 
 
Purchase of furniture, equipment and leasehold improvements
(3,448
)
 
(2,696
)
Purchase of intangible assets

 
(400
)
Cash used in investing activities
(3,448
)
 
(3,096
)
Cash flows from financing activities
 
 
 
Cash dividends paid on Class A non-voting and Class B voting common stock
(1,432
)
 
(1,456
)
Repurchase of Class A non-voting common stock for cancellation
(2,035
)
 

Payments for employee taxes withheld related to vested share-based awards
(1,014
)
 
(2,444
)
(Decrease) increase in bank call loans, net
(15,000
)
 
29,100

Cash (used in) provided by financing activities
(19,481
)
 
25,200

Net decrease in cash and cash equivalents
(7,602
)
 
(5,439
)
Cash and cash equivalents, beginning of period
90,675

 
48,154

Cash and cash equivalents, end of period
$
83,073

 
$
42,715

 
 
 
 
Schedule of non-cash financing activities
 
 
 
Employee share plan issuance
$
1,706

 
$
37

 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
9,385

 
$
12,578

Cash paid during the period for income taxes, net
$
792

 
$
100

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)


1.    Organization
Oppenheimer Holdings Inc. ("OPY" or the "Parent") is incorporated under the laws of the State of Delaware. The condensed consolidated financial statements include the accounts of OPY and its consolidated subsidiaries (together, the "Company" or "we"). The Company engages in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, market-making, research, investment banking (both corporate and public finance), investment advisory and asset management services and trust services.
The Company has 94 retail branch offices in the United States and has institutional businesses located in London, Tel Aviv, and Hong Kong. The principal subsidiaries of OPY are Oppenheimer & Co. Inc. ("Oppenheimer"), a registered broker-dealer in securities and investment adviser under the Investment Advisers Act of 1940; Oppenheimer Asset Management Inc. ("OAM") and its wholly-owned subsidiary, Oppenheimer Investment Management LLC, both registered investment advisers under the Investment Advisers Act of 1940; Oppenheimer Trust Company of Delaware ("Oppenheimer Trust"), a limited purpose trust company that provides fiduciary services such as trust and estate administration and investment management; OPY Credit Corp., which offers syndication as well as trading of issued corporate loans; Oppenheimer Europe Ltd., based in the United Kingdom, with offices in the Isle of Jersey, Germany and Switzerland, which provides institutional equities and fixed income brokerage and corporate finance and is regulated by the Financial Conduct Authority; Oppenheimer Investments Asia Limited, based in Hong Kong, China, which provides fixed income and equities brokerage services to institutional investors and is regulated by the Securities and Futures Commission; and Oppenheimer Multifamily Housing & Healthcare Finance, Inc. ("OMHHF"), which was formerly engaged in Federal Housing Administration ("FHA")-insured commercial mortgage origination and servicing. During 2016, the Company sold substantially all of the assets of OMHHF and ceased its operations.
Oppenheimer owns Freedom Investments, Inc. ("Freedom"), a registered broker dealer in securities, which provides discount brokerage services, and Oppenheimer Israel (OPCO) Ltd., which is engaged in offering investment services in the State of Israel. Oppenheimer holds a trading permit on the New York Stock Exchange and is a member of several other regional exchanges in the United States.
2.    Summary of significant accounting policies and estimates
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America ("U.S. GAAP") for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "Form 10-K"). The accompanying condensed consolidated balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management's knowledge of current events and actions that the Company may undertake in the future, actual results may differ materially from the estimates. The condensed consolidated results of operations for the three month period ended March 31, 2019 are not necessarily indicative of the results to be expected for any future interim or annual period.





8


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Measurement of Credit Losses on Financial Instruments," which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model ("current expected credit loss model"). Under this new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact, if any, that the ASU will have on the Company; the adoption of the ASU is not currently expected to have a material impact on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other, Simplifying the Test for Goodwill Impairment," which simplifies the subsequent measurement of goodwill. The Company is no longer required to perform its Step 2 goodwill impairment test; instead, the Company should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The ASU is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company will not early adopt this ASU. The Company is currently evaluating the impact, if any, of the ASU on the Company; the adoption of the ASU is not currently expected to have a material impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for the Fair Value Measurement," which modifies the disclosure requirements related to fair value measurement. The ASU is effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted. The Company will not early adopt this ASU. The Company is currently evaluating the impact, if any, of the ASU on the Company's disclosure.


9


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

3.    Leases

In the first quarter of 2019, the Company adopted ASU 2016-02, "Leases". The ASU requires the recognition of a right-of use asset and lease liability on the consolidated balance sheet by lessees for those leases classified as operating leases under previous guidance. The Company elected the modified retrospective method which did not result in a cumulative-effect adjustment at the date of adoption.

The Company and its subsidiaries have operating leases for office space and equipment expiring at various dates through 2034. The Company leases its corporate headquarters at 85 Broad Street, New York, New York which houses their executive management team and many administrative functions for the firm as well as their research, trading, investment banking, and asset management divisions and an office in Troy, Michigan, which among other things, houses its payroll and human resources departments. In addition, the Company has 94 retail branch offices in the United States as well as offices in London, England, St. Helier, Jersey, Geneva, Switzerland, Frankfurt, Germany, Tel Aviv, Israel and Hong Kong, China.

The majority of the leases are held by the Company's subsidiary, Viner Finance Inc., which is a consolidated subsidiary and 100% owned by the Company.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Most leases include an option to renew and the exercise of lease renewal options is at our sole discretion. The Company did not include the renewal options as part of the right of use assets and liabilities.

The depreciable life of assets and leasehold improvements is limited by the expected lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of March 31, 2019, the Company has right of use operating lease assets of 171.2 million (net of accumulated amortization of $6.8 million) which are comprised of real estate leases of $168.2 million (net of accumulated amortization of $6.3 million) and equipment leases of $3.0 million (net of accumulated amortization of $465,000). As of March 31, 2019, the Company has operating lease liabilities of 213.0 million which are comprised of real estate lease liabilities of $210.0 million and equipment lease liabilities of $3.0 million. As of March 31, 2019, the Company has not made any cash payments for amounts included in the measurement of operating lease liabilities or right of use assets obtained in exchange for operating lease obligations. The Company has no finance leases or embedded leases as of March 31, 2019.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date. The Company used the incremental borrowing rate as of the lease commencement date for the operating leases commenced subsequent to January 1, 2019.

The following table presents the weighted average lease term and weighted average discount rate for our operating leases as of March 31, 2019:



As of
March 31, 2019
 
 
Weighted average remaining lease term (years)
8.76

Weighted average discount rate
7.94
%
 
 







10


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

The following table presents operating lease costs recognized for the three months ended March 31, 2019 which are included in occupancy and equipment costs on the condensed consolidated income statement:

(Expressed in thousands)
For the Three Months Ended March 31, 2019
 
 
Operating lease cost:
 
      Real estate leases - Right-of-use lease asset amortization
$
6,332

      Real estate leases - Interest expense
3,443

      Equipment leases - Right-of-use lease asset amortization
465

      Equipment leases - Interest expense
57

 
 
    
The maturities of lease liabilities as of March 31, 2019 are as follows:
(Expressed in thousands)

As of
March 31, 2019
 
 
2019
$
30,178

2020
40,151

2021
35,049

2022
31,503

2023
29,766

After 2024
134,299

Total lease payments
$
300,946

Less interest
(87,976
)
Present value of lease liabilities
$
212,970


As of March 31, 2019, the Company has additional operating leases that have not yet commenced of $11.9 million. These operating leases will commence between April 1, 2019 and December 31, 2019 with lease terms of 2 years to 13 years.

In November 2016, the SEC issued a no action letter related to the treatment of operating leases under SEC Rule 15c3-1 (the “Rule”) in the context of the adoption of ASU 2016-2, “Leases” which provided relief, if certain conditions are met, to broker-dealers in the net capital treatment of operating lease assets which would otherwise be treated as a non-allowable assets. The application of this guidance resulted in no additional charges to net capital for operating leases during the first quarter of 2019.


11


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

4.    Revenues from contracts with customers
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company's progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services (i.e., the "transaction price"). In determining the transaction price, the Company considers multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, the Company considers the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of the Company's influence, such as market volatility or the judgment and actions of third parties.
The Company earns revenue from contracts with customers and other sources (principal transactions, interest and other). The following provides detailed information on the recognition of the Company's revenue from contracts with customers:
Commissions
Commissions from Sales and Trading — The Company earns commission revenue by executing, settling and clearing transactions with clients primarily in exchange-traded and over-the-counter corporate equity and debt securities, money market instruments and exchange-traded options and futures contracts. A substantial portion of Company's revenue is derived from commissions from private clients through accounts with transaction-based pricing. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenue associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, is recognized at a point in time on trade date when the performance obligation is satisfied. Commission revenue is generally paid on settlement date, which is generally two business days after trade date for equity securities and corporate bond transactions and one day for government securities and commodities transactions. The Company records a receivable on the trade date and receives a payment on settlement date.
Mutual Fund Income — The Company earns mutual fund income for sales and distribution of mutual fund shares. Many mutual fund companies pay distribution fees to intermediaries, such as broker-dealers, for selling their shares. The fees are operational expenses of the mutual fund and are included in its expense ratio. The Company recognizes mutual fund income at a point in time on trade date when the performance obligation is satisfied which is when the mutual fund interest is sold to the investor. Mutual fund income is generally received within 90 days.
Advisory Fees
The Company earns management and performance (or incentive) fees in connection with the advisory and asset management services it provides to various types of funds and investment vehicles through its subsidiaries. Management fees are generally based on the account value at the valuation date per the respective asset management agreements and are recognized over time as the customer receives the benefits of the services evenly throughout the term of the contract. Performance fees are recognized when the return on client AUM exceeds a specified benchmark return or other performance targets over a 12-month measurement period. Performance fees are considered variable as they are subject to fluctuation and/or are contingent on a future event over the measurement period and are not subject to adjustment once the measurement period ends. Such fees are computed as of the fund's year-end when the measurement period ends and generally are recorded as earned in the fourth quarter of the Company's fiscal year. Both management and performance fees are generally received within 90 days.

12


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Investment Banking
The Company earns underwriting revenues by providing capital raising solutions for corporate clients through initial public offerings, follow-on offerings, equity-linked offerings, private investments in public entities, and private placements. Underwriting revenues are recognized at a point in time on trade date, as the client obtains the control and benefit of the capital markets offering at that point. These fees are generally received within 90 days after the transactions are completed. Transaction-related expenses, primarily consisting of legal, travel and other costs directly associated with the transaction, are deferred and recognized in the same period as the related investment banking transaction revenue. Underwriting revenues and related expenses are presented gross on the condensed consolidated income statements.
Revenue from financial advisory services includes fees generated in connection with mergers, acquisitions and restructuring transactions and such revenue and fees are primarily recorded at a point in time when services for the transactions are completed and income is reasonably determinable, generally as set forth under the terms of the engagement. Payment for advisory services is generally due upon a completion of the transaction or milestone. Retainer fees and fees earned from certain advisory services are recognized ratably over the service period as the customer receives the benefit of the services throughout the term of the contracts, and such fees are collected based on the terms of the contracts.
Bank Deposit Sweep Income
Bank deposit sweep income consists of revenue earned from the FDIC-insured bank deposit program. Under this program, client funds are swept into deposit accounts at participating banks and are eligible for FDIC deposit insurance up to FDIC standard maximum deposit insurance amounts. Fees are earned over time and are generally received within 30 days.

Disaggregation of Revenue
The following presents the Company's revenue from contracts with customers disaggregated by major business activity and other sources of revenue for the three months ended March 31, 2019:
(Expressed in thousands)
 
 
Reportable Segments
 
Private Client
 
Asset Management
 
Capital Markets
 
Corporate/Other
 
Total
Revenues from contracts with customers:
 
 
 
 
 
 
 
 
 
Commissions from sales and trading
$
37,477

 
$

 
$
32,316

 
$
2

 
$
69,795

Mutual fund income
9,614

 
(6
)
 
1

 
5

 
9,614

Advisory fees
57,044

 
16,589

 
5

 
9

 
73,647

Investment banking - capital markets
2,749

 

 
8,593

 

 
11,342

Investment banking - advisory

 

 
16,701

 

 
16,701

Bank deposit sweep income
33,968

 

 

 

 
33,968

Other
3,278

 

 
319

 
256

 
3,853

Total revenues from contracts with customers
144,130

 
16,583

 
57,935

 
272

 
218,920

Other sources of revenue:
 
 
 
 
 
 
 
 
 
Interest
9,408

 

 
2,835

 
484

 
12,727

Principal transactions, net
1,684

 

 
10,157

 
(403
)
 
11,438

Other
8,305

 
3

 
34

 
343

 
8,685

Total other sources of revenue
19,397

 
3

 
13,026

 
424

 
32,850

Total revenue
$
163,527

 
$
16,586

 
$
70,961

 
$
696

 
$
251,770



13


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Contract Balances
The timing of the Company's revenue recognition may differ from the timing of payment by its customers. The Company records receivables when revenue is recognized prior to payment and it has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied.
The Company had receivables related to revenue from contracts with customers of $26.2 million and $23.7 million at March 31, 2019 and January 1, 2019, respectively. The Company had no significant impairments related to these receivables during the three months ended March 31, 2019.
Deferred revenue relates to IRA fees received annually in advance on customer's IRA accounts managed by the Company and the retainer fees and fees earned from certain advisory transactions where the performance obligations have not yet been satisfied. Total deferred revenue was $2.4 million and $318,000 at March 31, 2019 and January 1, 2019, respectively.
The following presents the Company's contract assets and deferred revenue balances from contracts with customers, which are included in other assets and other liabilities, respectively, on the condensed consolidated balance sheet:
(Expressed in thousands)
 
 
 
 
Ending Balance
at March 31, 2019
 
Opening Balance
at January 1, 2019
Contract assets (receivables):
 
 
 
Commission (1)
$
3,201

 
$
3,738

Mutual fund income (2)
6,674

 
7,241

Advisory fees (3)
863

 
1,214

Bank deposit sweep income (4)
4,521

 
4,622

Investment banking fees (5)
7,610

 
3,996

  Other
3,341

 
2,869

Total contract assets
$
26,210

 
$
23,680

Deferred revenue (payables):
 
 
 
Investment banking fees (6)
$
415

 
$
318

IRA fees
2,000

 

Total deferred revenue
$
2,415

 
$
318

(1)
Commission recorded on trade date but not yet settled.
(2)
Mutual fund income earned but not yet received.
(3)
Management and performance fees earned but not yet received.
(4)
Fees earned from FDIC-insured bank deposit program but not yet received.
(5)
Underwriting revenue and advisory fees earned but not yet received.
(6)
Retainer fees and fees earned from certain advisory transactions where the performance obligations
have not yet been satisfied.






14


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

5.    Earnings per share
Basic earnings per share is computed by dividing net income attributable to Oppenheimer Holdings Inc. by the weighted average number of shares of Class A non-voting common stock ("Class A Stock") and Class B voting common stock ("Class B Stock") outstanding. Diluted earnings per share includes the weighted average number of shares of Class A Stock and Class B Stock outstanding and options to purchase Class A Stock and unvested restricted stock awards of Class A Stock using the treasury stock method.
Earnings per share have been calculated as follows:
(Expressed in thousands, except number of shares and per share amounts)
 
 
 
 
For the Three Months Ended March 31,
 
2019
 
2018
Basic weighted average number of shares outstanding
13,020,344

 
13,239,628

Net dilutive effect of share-based awards, treasury method (1)
830,977

 
737,864

Diluted weighted average number of shares outstanding
13,851,321

 
13,977,492

 
 
 
 
Net income
$
11,194

 
$
6,705

 
 
 
 
Net income per share
 
 
 
       Basic
$
0.86

 
$
0.51

       Diluted
$
0.81

 
$
0.48

 
 
 
 
 
(1)
For the three months ended March 31, 2019, the diluted net income per share computation does not
include the anti-dilutive effect of 7,628 shares of Class A Stock granted under share-based
compensation arrangements (4,050 shares for three months ended March 31, 2018).

6.    Receivable from and payable to brokers, dealers and clearing organizations
(Expressed in thousands)
 
 
 
 
As of
 
March 31, 2019
 
December 31, 2018
Receivable from brokers, dealers and clearing organizations consists of:
 
 
 
Securities borrowed
$
109,712

 
$
108,144

Receivable from brokers
17,438

 
20,140

Securities failed to deliver
23,524

 
7,021

Clearing organizations
27,874

 
28,777

Other
1,673

 
2,411

Total
$
180,221

 
$
166,493

Payable to brokers, dealers and clearing organizations consists of:
 
 
 
Securities loaned
$
232,370

 
$
146,815

Payable to brokers
2,256

 
158

Securities failed to receive
30,064

 
27,799

Other
369,643

 
114,435

Total
$
634,333

 
$
289,207

 


15


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

7.    Fair value measurements
Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period.
Valuation Techniques
A description of the valuation techniques applied and inputs used in measuring the fair value of the Company's financial instruments is as follows:
U.S. Government Obligations
U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers.
U.S. Agency Obligations
U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities are model driven with respect to spreads of the comparable to-be-announced ("TBA") security.
Sovereign Obligations
The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs.
Corporate Debt and Other Obligations
The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information.
Mortgage and Other Asset-Backed Securities
The Company values non-agency securities collateralized by home equity and various other types of collateral based on external pricing and spread data provided by independent pricing services. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds.
Municipal Obligations
The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information.
Convertible Bonds
The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs.
Corporate Equities
Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads.

16


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Auction Rate Securities ("ARS")
In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General's office ("NYAG") and the Massachusetts Securities Division ("MSD" and, together with the NYAG, the "Regulators") concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. As of March 31, 2019, the Company had no outstanding ARS purchase commitments related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client-related legal settlements and awards to purchase ARS, as of March 31, 2019, the Company purchased and holds (net of redemptions) approximately $40.7 million in ARS from its clients. Eligible Investors for future buybacks under the settlements with the Regulators held approximately $7.0 million of ARS as of March 31, 2019. In addition, the Company is committed to purchase another $7.4 million in ARS from clients through 2020 under legal settlements and awards.
The ARS positions that the Company owns and is committed to purchase primarily represent auction rate preferred securities issued by closed-end funds and, to a lesser extent, municipal auction rate securities that are municipal bonds wrapped by municipal bond insurance and student loan auction rate securities that are asset-backed securities backed by student loans.
Interest rates on ARS typically reset through periodic auctions. Due to the auction mechanism and generally liquid markets, ARS have historically been classified as Level 1 of the fair value hierarchy. Beginning in February 2008, uncertainties in the credit markets resulted in substantially all of the ARS market experiencing failed auctions. Once the auctions failed, the ARS could no longer be valued using observable prices set in the auctions. The Company has used less observable determinants of the fair value of ARS, including the strength in the underlying credits, announced issuer redemptions, completed issuer redemptions, and announcements from issuers regarding their intentions with respect to their outstanding ARS. The Company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions. Due to liquidity problems associated with the ARS market, ARS that lack liquidity are setting their interest rates according to a maximum rate formula. For example, an auction rate preferred security maximum rate may be set at 200% of a short-term index such as LIBOR or U.S. Treasury yield. For fair value purposes, the Company has determined that the maximum spread would be an adequate risk premium to account for illiquidity in the market. Accordingly, the Company applies a spread to the short-term index for each asset class to derive the discount rate. The Company uses short-term U.S. Treasury yields as its benchmark short-term index. The risk of non-performance is typically reflected in the prices of ARS positions where the fair value is derived from recent trades in the secondary market.
The ARS purchase commitment, or derivative asset or liability, arises from both the settlements with the Regulators and legal settlements and awards. The ARS purchase commitment represents the difference between the principal value and the fair value of the ARS the Company is committed to purchase. The Company utilizes the same valuation methodology for the ARS purchase commitment as it does for the ARS it owns. Additionally, the present value of the future principal value of ARS purchase commitments under legal settlements and awards is used in the discounted valuation model to reflect the time value of money over the period of time that the commitments are outstanding. The amount of the ARS purchase commitment only becomes determinable once the Company has met with its primary regulator and the NYAG and agreed upon a buyback amount, commenced the ARS buyback offer to clients, and received notice from its clients which ARS they are tendering. As a result, it is not possible to observe the current yields actually paid on the ARS until all of these events have happened which is typically very close to the time that the Company actually purchases the ARS. For ARS purchase commitments pursuant to legal settlements and awards, the criteria for purchasing ARS from clients is based on the nature of the settlement or award which will stipulate a time period and amount for each repurchase. The Company will not know which ARS will be tendered by the client until the stipulated time for repurchase is reached. Therefore, the Company uses the current yields of ARS owned in its discounted valuation model to determine a fair value of ARS purchase commitments. The Company also uses these current yields by asset class (i.e., auction rate preferred securities, municipal auction rate securities, and student loan auction rate securities) in its discounted valuation model to determine the fair value of ARS purchase commitments. In addition, the Company uses the discount rate and duration of ARS owned, by asset class, as a proxy for the duration of ARS purchase commitments.

17


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Additional information regarding the valuation technique and inputs for ARS used is as follows:
(Expressed in thousands)
Quantitative Information about ARS Level 3 Fair Value Measurements as of March 31, 2019
Product
 
Principal
 
Valuation
Adjustment
 
Fair
Value
 
Valuation
Technique
 
Unobservable
Input
 
Range
 
Weighted
Average
Auction Rate Securities Owned (1)
Auction Rate Preferred Securities
 
$
21,350

 
$

 
$
21,350

 
Discounted Cash Flow
 
Discount Rate (2)
 
2.63% to 3.58%
 
3.57%
 
 
 
 
 
 
 
 
 
 
Duration
 
1 Year
 
1 Year
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
2.72% to 4.09%
 
4.07%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
18,950

 
2,697

 
16,253

 
Tender Offer (7)
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal Auction Rate Securities
 
75

 

 
75

 
Discounted Cash Flow
 
Discount Rate (4)
 
3.96%
 
3.96%
 
 
 
 
 
 
 
 
 
 
Duration
 
2 Years
 
2 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
5.50%
 
5.50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student Loan Auction Rate Securities
 
275

 

 
275

 
Discounted Cash Flow
 
Discount Rate (5)
 
3.42%
 
3.42%
 
 
 
 
 
 
 
 
 
 
Duration
 
4 Years
 
4 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
3.95%
 
3.95%
 
 
$
40,650

 
$
2,697

 
$
37,953

 
 
 
 
 
 
 
 
Auction Rate Securities Commitments to Purchase (6)
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
7,429

 
1,114

 
6,315

 
Tender Offer (7)
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
7,429

 
$
1,114

 
$
6,315

 
 
 
 
 
 
 
 
Total
 
$
48,079

 
$
3,811

 
$
44,268

 
 
 
 
 
 
 
 
 
(1)
Principal amount represents the par value of the ARS and is included in Securities Owned on the
condensed consolidated balance sheet as of March 31, 2019. The valuation adjustment amount is
included as a reduction to Securities Owned on the condensed consolidated balance sheet as of
March 31, 2019.
(2)
Derived by applying a multiple to the spread of between 110% to 150% to the U.S. Treasury rate
of 2.60%.
(3)
Based on current yields for ARS positions owned.
(4)
Derived by applying a multiple to the spread of 175% to the U.S. Treasury rate of 2.49%.
(5)
Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.48%.
(6)
Principal amount represents the present value of the ARS par value that the Company is committed
to purchase at a future date. This principal amount is presented as an off-balance sheet item. The
valuation adjustment amount is included in Accounts Payable and Other Liabilities on the condensed consolidated balance sheet as of March 31, 2019.
(7)
Residual ARS amounts owned and ARS commitments to purchase that were subject to tender offers
were priced at the tender offer price. Included in Level 2 of the fair value hierarchy.

18


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

The fair value of ARS and ARS purchase commitments is particularly sensitive to movements in interest rates. Increases in short-term interest rates would increase the discount rate input used in the ARS valuation and thus reduce the fair value of the ARS (increase the valuation adjustment). Conversely, decreases in short-term interest rates would decrease the discount rate and thus increase the fair value of ARS (decrease the valuation adjustment). However, an increase (decrease) in the discount rate input would be partially mitigated by an increase (decrease) in the current yield earned on the underlying ARS asset increasing the cash flows and thus the fair value. Furthermore, movements in short term interest rates would likely impact the ARS duration (i.e., sensitivity of the price to a change in interest rates), which would also have a mitigating effect on interest rate movements. For example, as interest rates increase, issuers of ARS have an incentive to redeem outstanding securities as servicing the interest payments gets prohibitively expensive which would lower the duration assumption thereby increasing the ARS fair value. Alternatively, ARS issuers are less likely to redeem ARS in a lower interest rate environment as it is a relatively inexpensive source of financing which would increase the duration assumption thereby decreasing the ARS fair value.
Due to the less observable nature of these inputs, ARS are primarily categorized in Level 3 of the fair value hierarchy. As of March 31, 2019, the Company had a valuation adjustment (unrealized loss) of $2.7 million for ARS owned which is included as a reduction to securities owned on the condensed consolidated balance sheet. As of March 31, 2019, the Company also had a valuation adjustment of $1.1 million on ARS purchase commitments from legal settlements and awards which is included in accounts payable and other liabilities on the condensed consolidated balance sheet. The total valuation adjustment was $3.8 million as of March 31, 2019. The valuation adjustment represents the difference between the principal value and the fair value of the ARS owned and ARS purchase commitments.
Investments
In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment.
The following table provides information about the Company's investments in Company-sponsored funds as of March 31, 2019:
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value
 
Unfunded
Commitments
 
Redemption
Frequency
 
Redemption
Notice Period
Hedge funds (1)
$
1,647

 
$

 
Annually
 
30 - 120 Days
Private equity funds (2)
4,765

 
1,399

 
N/A
 
N/A
 
$
6,412

 
$
1,399

 
 
 
 
(1)
Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven,
and activist strategies. Each hedge fund has various restrictions regarding redemption; no investment
is locked-up for a period greater than one year.
(2)
Includes private equity funds and private equity fund of funds with a focus on diversified portfolios,
real estate and global natural resources. Due to the illiquid nature of these funds, investors are not
permitted to make withdrawals without the consent of the general partner. The lock-up period of the
private equity funds can extend to 10 years.

19


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Valuation Process
The Company's Finance & Accounting ("F&A") group is responsible for the Company's fair value policies, processes and procedures. F&A is independent from the business units and trading desks and is headed by the Company's Chief Financial Officer ("CFO"), who has final authority over the valuation of the Company's financial instruments. The Finance Control Group ("FCG") within F&A is responsible for daily profit and loss reporting, front-end trading system position reconciliations, monthly profit and loss reporting, and independent price verification procedures.
For financial instruments categorized in Levels 1 and 2 of the fair value hierarchy, the FCG performs a monthly independent price verification to determine the reasonableness of the prices provided by the Company's independent pricing vendor. The FCG uses its third-party pricing vendor, executed transactions, and broker-dealer quotes for validating the fair values of financial instruments.
For financial instruments categorized in Level 3 of the fair value hierarchy measured on a recurring basis, primarily for ARS, a group comprised of the CFO, the Controller, and an Operations Director are responsible for the ARS valuation model and resulting fair valuations. Procedures performed include aggregating all ARS owned by type from firm inventory accounts and ARS purchase commitments from regulatory and legal settlements and awards provided by the Legal Department. Observable and unobservable inputs are aggregated from various sources and entered into the ARS valuation model. For unobservable inputs, the group reviews the appropriateness of the inputs to ensure consistency with how a market participant would arrive at the unobservable input. For example, for the duration assumption, the group would consider recent policy statements regarding short-term interest rates by the Federal Reserve and recent ARS issuer redemptions and announcements for future redemptions. The model output is reviewed for reasonableness and consistency. Where available, comparisons are performed between ARS owned or committed to purchase with ARS that are trading in the secondary market.

20


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Assets and Liabilities Measured at Fair Value
The Company's assets and liabilities, recorded at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, have been categorized based upon the above fair value hierarchy as follows:
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2019
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,500

 
$

 
$

 
$
10,500

Deposits with clearing organizations
30,340

 

 

 
30,340

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities
747,130

 

 

 
747,130

U.S. Agency securities
987

 
10,223

 

 
11,210

Sovereign obligations

 
305

 

 
305

Corporate debt and other obligations

 
7,921

 

 
7,921

Mortgage and other asset-backed securities

 
8,905

 

 
8,905

Municipal obligations

 
45,193

 

 
45,193

Convertible bonds

 
21,906

 

 
21,906

Corporate equities
27,795

 

 

 
27,795

Money markets
3,150

 

 

 
3,150

Auction rate securities

 
16,253

 
21,700

 
37,953

Securities owned, at fair value
779,062

 
110,706

 
21,700

 
911,468

Investments (1)

 

 
104

 
104

Total
$
819,902

 
$
110,706

 
$
21,804

 
$
952,412

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
108,527

 
$

 
$

 
$
108,527

U.S. Agency securities

 
3

 

 
3

Sovereign obligations

 
240

 

 
240

Corporate debt and other obligations


 
5,324

 


 
5,324

Convertible bonds

 
9,218

 

 
9,218

Corporate equities
13,974

 

 

 
13,974

Securities sold but not yet purchased, at fair value
122,501

 
14,785

 

 
137,286

Derivative contracts:
 
 
 
 
 
 
 
Futures
959

 

 

 
959

Foreign exchange forward contracts
2

 

 

 
2

TBAs

 
47

 

 
47

ARS purchase commitments

 
1,114

 

 
1,114

Derivative contracts, total
961

 
1,161

 

 
2,122

Total
$
123,462

 
$
15,946

 
$

 
$
139,408

 
(1) Included in other assets on the condensed consolidated balance sheet.




21


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2018
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,500

 
$

 
$

 
$
10,500

Deposits with clearing organizations
34,599

 

 

 
34,599

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities
657,208

 

 

 
657,208

U.S. Agency securities
812

 
6,494

 

 
7,306

Sovereign obligations

 
214

 

 
214

Corporate debt and other obligations

 
20,665

 

 
20,665

Mortgage and other asset-backed securities

 
2,486

 

 
2,486

Municipal obligations

 
52,261

 

 
52,261

Convertible bonds

 
31,270

 

 
31,270

Corporate equities
28,215

 

 

 
28,215

Money markets
7

 

 

 
7

Auction rate securities

 
16,253

 
21,699

 
37,952

Securities owned, at fair value
686,242

 
129,643

 
21,699

 
837,584

Investments (1)

 

 
101

 
101

Derivative contracts:


 


 


 


TBAs

 
4,873

 

 
4,873

Total
$
731,341

 
$
134,516

 
$
21,800

 
$
887,657

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
53,646

 
$

 
$

 
$
53,646

U.S. Agency securities

 
3

 

 
3

Sovereign obligations

 
78

 

 
78

Corporate debt and other obligations

 
7,236

 

 
7,236

Convertible bonds

 
9,709

 

 
9,709

Corporate equities
14,774

 

 

 
14,774

Securities sold but not yet purchased, at fair value
68,420

 
17,026

 

 
85,446

Derivative contracts:
 
 
 
 
 
 
 
Futures
807

 

 

 
807

Foreign exchange forward contracts
4

 

 

 
4

TBAs

 
4,873

 

 
4,873

ARS purchase commitments

 
1,096

 

 
1,096

Derivative contracts, total
811

 
5,969

 

 
6,780

Total
$
69,231

 
$
22,995

 
$

 
$
92,226

 
(1) Included in other assets on the condensed consolidated balance sheet.







22


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2019 and 2018:
(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Three Months Ended March 31, 2019
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains(2)(3)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In / Out
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Auction rate securities (1)
$
21,699

 
$
1

 
$

 
$

 
$

 
$
21,700

Investments
101

 
3

 

 

 

 
104

 
(1)
Represents auction rate preferred securities, municipal auction rate securities and student loan
auction rate securities that failed in the auction rate market.
(2)
Included in principal transactions in the condensed consolidated statement of income, except for
gains from investments which are included in other income in the condensed consolidated
statement of income.
(3)
Unrealized gains are attributable to assets or liabilities that are still held at the reporting date.

(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Three Months Ended March 31, 2018
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains
(Losses) (3)(4)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In (Out)
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Municipal obligations
$
35

 
$
14

 
$
76

 
$
(125
)
 
$

 
$

Auction rate securities (1)
87,398

 
847

 
50

 
(945
)
 

 
87,350

Investments
169

 
(1
)
 

 

 

 
168

Liabilities
 
 
 
 
 
 
 
 
 
 
 
ARS purchase commitments (2)
8

 
(175
)
 

 

 

 
183

(1)
Represents auction rate preferred securities, municipal auction rate securities and student loan
auction rate securities that failed in the auction rate market.
(2)
Represents the difference in principal and fair value for auction rate securities purchase
commitments outstanding at the end of the period.
(3)
Included in principal transactions in the condensed consolidated statement of income, except
for gains (losses) from investments which are included in other income in the condensed
consolidated statement of income.
(4)
Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

23


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Financial Instruments Not Measured at Fair Value
The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., right-of-use lease assets, lease liabilities, furniture, equipment and leasehold improvements and accrued compensation).
The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 approximates fair value because of the relatively short term nature of the underlying assets. The fair value of the Company's senior secured notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the notes trade.
Assets and liabilities not measured at fair value as of March 31, 2019
(Expressed in thousands)
 
 
Fair Value Measurement: Assets
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
72,573

 
$
72,573

 
$

 
$

 
$
72,573

Deposits with clearing organization
24,729

 
24,729

 

 

 
24,729

Receivable from brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities borrowed
109,712

 

 
109,712

 

 
109,712

Receivables from brokers
17,438

 

 
17,438

 

 
17,438

Securities failed to deliver
23,524

 

 
23,524

 

 
23,524

Clearing organizations
27,874

 

 
27,874

 

 
27,874

Other
1,720

 

 
1,720

 

 
1,720

 
180,268

 

 
180,268

 

 
180,268

Receivable from customers
753,625

 

 
753,625

 

 
753,625

Securities purchased under agreements to resell
589

 

 
589

 

 
589

Notes receivable, net
43,921

 

 
43,921

 

 
43,921

Investments (1)
67,093

 

 
67,093

 

 
67,093

 
(1) Included in other assets on the condensed consolidated balance sheet.
(Expressed in thousands)
 
 
Fair Value Measurement: Liabilities
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Drafts payable
$
13,533

 
$
13,533

 
$

 
$

 
$
13,533

Bank call loans


 

 


 

 

Payables to brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities loaned
232,370

 

 
232,370

 

 
232,370

Payable to brokers
2,256

 

 
2,256

 

 
2,256

Securities failed to receive
30,064

 

 
30,064

 

 
30,064

Other
368,684

 

 
368,684

 

 
368,684

 
633,374

 

 
633,374

 

 
633,374

Payables to customers
334,376

 

 
334,376

 

 
334,376

Securities sold under agreements to repurchase
268,621

 

 
268,621

 

 
268,621

Senior secured notes
200,000

 

 
203,904

 

 
203,904

 

24


OPPENHEIMER HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Assets and liabilities not measured at fair value as of December 31, 2018
(Expressed in thousands)
 
 
Fair Value Measurement: Assets
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
80,175

 
$
80,175

 
$

 
$

 
$
80,175

Deposits with clearing organization
33,079

 
33,079

 

 

 
33,079

Receivable from brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities borrowed
108,144

 

 
108,144

 

 
108,144

Receivables from brokers
20,140

 

 
20,140

 

 
20,140

Securities failed to deliver
7,021

 

 
7,021

 

 
7,021

Clearing organizations
28,777

 

 
28,777

 

 
28,777

Other
2,411

 

 
2,411

 

 
2,411

 
166,493

 

 
166,493

 

 
166,493

Receivable from customers
720,777

 

 
720,777

 

 
720,777

Securities purchased under agreements to resell
290

 

 
290

 

 
290

Notes receivable, net
44,058

 

 
44,058

 

 
44,058

Investments (1)
59,765

 

 
59,765

 

 
59,765

 
(1) Included in other assets on the condensed consolidated balance sheet.

(Expressed in thousands)
 
 
Fair Value Measurement: Liabilities
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Drafts payable
$
16,348

 
$
16,348

 
$

 
$

 
$
16,348

Bank call loans
15,000

 

 
15,000

 

 
15,000

Payables to brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities loaned
146,815

 

 
146,815

 

 
146,815

Payable to brokers
158

 

 
158

 

 
158

Securities failed to receive
27,799

 

 
27,799

&