Quarterly Report (10-q)

Date : 04/27/2018 @ 8:49AM
Source : Edgar (US Regulatory)
Stock : Oppenheimer Holdings Class A (DE) (OPY)
Quote : 29.05  -0.05 (-0.17%) @ 3:59PM

Quarterly Report (10-q)



 
 
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, 2018
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, 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
(Do not check if a smaller reporting company)
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 27, 2018 was 13,141,103 and 99,665 shares, respectively.
 




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

 
 
 
 
 
 
Page No.
PART I
 
Item 1.
 
 
 
 
 
 
 
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, 2018
 
December 31, 2017
ASSETS
 
 
 
Cash and cash equivalents
$
42,715

 
$
48,154

Deposits with clearing organizations
70,938

 
42,222

Receivable from brokers, dealers and clearing organizations
171,130

 
187,115

Receivable from customers, net of allowance for credit losses of $809 ($769 in 2017)
881,941

 
848,226

Income tax receivable
3,132

 
2,939

Securities purchased under agreements to resell, at fair value

 
658

Securities owned, including amounts pledged of $688,647 ($655,683 in 2017), at fair value
999,627

 
926,597

Notes receivable, net of accumulated amortization and allowance for uncollectibles of $24,680 and $8,120, respectively ($24,705 and $7,975, respectively, in 2017)
42,386

 
40,520

Furniture, equipment and leasehold improvements, net of accumulated depreciation of $84,344 ($82,826 in 2017)
28,341

 
27,187

Intangible assets
32,100

 
31,700

Goodwill
137,889

 
137,889

Other assets
123,777

 
145,310

Total assets
$
2,533,976

 
$
2,438,517

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Drafts payable
$
20,993

 
$
42,412

Bank call loans
147,400

 
118,300

Payable to brokers, dealers and clearing organizations
255,126

 
211,483

Payable to customers
445,085

 
385,907

Securities sold under agreements to repurchase
576,017

 
586,478

Securities sold but not yet purchased, at fair value
147,886

 
94,486

Accrued compensation
103,751

 
173,116

Accounts payable and other liabilities
94,172

 
92,495

Senior secured notes, net of debt issuance costs of $1,098 ($1,163 in 2017)
198,902

 
198,837

Deferred tax liabilities, net of deferred tax assets of $44,138 ($47,597 in 2017)
14,135

 
11,092

Total liabilities
2,003,467

 
1,914,606

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, 13,141,103 and 13,139,203 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
58,396

 
58,359

Class B voting common stock, par value $0.001 per share, 99,665 shares authorized, issued and outstanding
133

 
133

 
58,529

 
58,492

Contributed capital
37,996

 
36,546

Retained earnings
432,179

 
426,930

Accumulated other comprehensive income
1,440

 
1,582

Total Oppenheimer Holdings Inc. stockholders' equity
530,144

 
523,550

Non-controlling interest
365

 
361

Total stockholders' equity
530,509

 
523,911

Total liabilities and stockholders' equity
$
2,533,976

 
$
2,438,517

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

3


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
(Expressed in thousands, except number of shares and per share amounts)
2018
 
2017
REVENUE
 
 
 
Commissions
$
83,407

 
$
86,717

Advisory fees
77,548

 
69,409

Investment banking
28,210

 
18,021

Bank deposit sweep income
25,297

 
14,126

Interest
12,227

 
10,565

Principal transactions, net
2,726

 
5,373

Other
5,115

 
9,050

Total revenue
234,530

 
213,261

EXPENSES
 
 
 
Compensation and related expenses
153,104

 
143,878

Communications and technology
18,688

 
17,706

Occupancy and equipment costs
15,428

 
15,272

Clearing and exchange fees
6,096

 
5,854

Interest
8,963

 
5,356

Other
22,626

 
32,220

Total expenses
224,905

 
220,286

Income (Loss) before income taxes from continuing operations
9,625

 
(7,025
)
Income taxes
2,916

 
(1,687
)
Net income (loss) from continuing operations
6,709

 
(5,338
)
 
 
 
 
Discontinued operations
 
 
 
Income from discontinued operations

 
976

Income taxes

 
389

Net income from discontinued operations

 
587

 
 
 
 
Net income (loss)
6,709

 
(4,751
)
Less net income attributable to non-controlling interest, net of tax
4

 
96

Net income (loss) attributable to Oppenheimer Holdings Inc.
$
6,705

 
$
(4,847
)
 
 
 
 
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
Continuing operations
$
0.51

 
$
(0.40
)
Discontinued operations

 
0.04

Net income (loss) per share
$
0.51

 
$
(0.36
)
 
 
 
 
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
Continuing operations
$
0.48

 
$
(0.40
)
Discontinued operations

 
0.04

Net income (loss) per share
$
0.48

 
$
(0.36
)
 
 
 
 
Weighted average shares
 
 
 
Basic
13,239,628

 
13,399,250

Diluted
13,977,492

 
13,399,250

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

4


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
(Expressed in thousands)
2018
 
2017
Net income (loss)
$
6,709

 
$
(4,751
)
Other comprehensive income (loss), net of tax (1)
 
 
 
Currency translation adjustment
(142
)
 
1,424

Comprehensive income (loss)
6,567

 
(3,327
)
Net income attributable to non-controlling interest, net of tax
4

 
96

Comprehensive income (loss) attributable to Oppenheimer Holdings Inc.
$
6,563

 
$
(3,423
)
 
(1)
No other comprehensive income (loss) is attributable to non-controlling interests.
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)
2018
 
2017
Share capital
 
 
 
Balance at beginning of period
$
58,492

 
$
59,361

Issuance of Class A non-voting common stock
37

 
3,857

Repurchase of Class A non-voting common stock for cancellation

 
(4,357
)
Balance at end of period
58,529

 
58,861

Contributed capital
 
 
 
Balance at beginning of period
36,546

 
41,765

Share-based expense
1,509

 
1,317

Vested employee share plan awards
(59
)
 
(6,060
)
Cumulative-effect adjustment from adoption of new accounting update of employee share-based accounting

 
425

Balance at end of period
37,996

 
37,447

Retained earnings
 
 
 
Balance at beginning of period
426,930

 
410,258

Net income (loss) attributable to Oppenheimer Holdings Inc.
6,705

 
(4,847
)
Dividends paid ($0.11 per share)
(1,456
)
 
(1,480
)
Dividends received from non-controlling interest

 
6

Cumulative-effect adjustment from adoption of new accounting update of employee share-based accounting

 
(314
)
Balance at end of period
432,179

 
403,623

Accumulated other comprehensive income
 
 
 
Balance at beginning of period
1,582

 
(681
)
Currency translation adjustment
(142
)
 
1,424

Balance at end of period
1,440

 
743

Total Oppenheimer Holdings Inc. stockholders' equity
530,144

 
500,674

Non-controlling interest
 
 
 
Balance at beginning of period
361

 
2,631

Net income attributable to non-controlling interest, net of tax
4

 
96

Dividends paid to non-controlling interest

 
(816
)
Dividends paid to parent

 
(6
)
Balance at end of period
365

 
1,905

Total stockholders' equity
$
530,509

 
$
502,579

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)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income (loss)
$
6,709

 
$
(4,751
)
Adjustments to reconcile net income (loss) to net cash used in operating activities
 
 
 
Non-cash items included in net income (loss):
 
 
 
Depreciation and amortization of furniture, equipment and leasehold improvements
1,542

 
1,432

Deferred income taxes
3,043

 
807

Amortization of notes receivable
3,205

 
2,782

Amortization of debt issuance costs
65

 
121

Provision for (reversal of) credit losses
40

 
(33
)
Share-based compensation
1,484

 
739

Decrease (increase) in operating assets:
 
 
 
Deposits with clearing organizations
(28,716
)
 
(3,717
)
Receivable from brokers, dealers and clearing organizations
15,985

 
(17,651
)
Receivable from customers
(33,755
)
 
17,335

Income tax receivable
(193
)
 
(2,511
)
Securities purchased under agreements to resell
658

 
20,110

Securities owned
(73,030
)
 
(292,599
)
Notes receivable
(5,071
)
 
(6,491
)
Other assets
21,391

 
(5,860
)
Increase (decrease) in operating liabilities:
 
 
 
Drafts payable
(21,419
)
 
(6,445
)
Payable to brokers, dealers and clearing organizations
43,643

 
(46,185
)
Payable to customers
59,178

 
54,402

Securities sold under agreements to repurchase
(10,461
)
 
78,006

Securities sold but not yet purchased
53,400

 
214,422

Accrued compensation
(69,340
)
 
(49,200
)
Accounts payable and other liabilities
4,099

 
3,301

Cash used in operating activities
(27,543
)
 
(41,986
)
Cash flows from investing activities
 
 
 
Purchase of furniture, equipment and leasehold improvements
(2,696
)
 
(1,550
)
Purchase of intangible assets
(400
)
 

Cash used in investing activities
(3,096
)
 
(1,550
)
Cash flows from financing activities
 
 
 
Cash dividends paid on Class A non-voting and Class B voting common stock
(1,456
)
 
(1,480
)
Cash dividends paid to non-controlling interest

 
(816
)
Repurchase of Class A non-voting common stock for cancellation

 
(4,357
)
Payments for employee taxes withheld related to vested share-based awards
(2,444
)
 
(2,203
)
Increase in bank call loans, net
29,100

 
49,900

Cash provided by financing activities
25,200

 
41,044

Net decrease in cash and cash equivalents
(5,439
)
 
(2,492
)
Cash and cash equivalents, beginning of period
48,154

 
64,913

Cash and cash equivalents, end of period
$
42,715

 
$
62,421

Schedule of non-cash financing activities
 
 
 
Employee share plan issuance
$
37

 
$
3,857

Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
12,578

 
$
2,023

Cash paid during the period for income taxes, net
$
100

 
$
503

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 and basis of presentation
Organization
Oppenheimer Holdings Inc. ("OPY" or the "Parent") 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"). 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 92 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 and Switzerland, which provides institutional equities and fixed income brokerage and corporate financial services 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.
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, 2017 (the "Form 10-K"). The accompanying December 31, 2017 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, 2018 are not necessarily indicative of the results to be expected for any future interim or annual period.

Certain prior period amounts have been reclassified to conform to the current period presentation.
Accounting standards require the Company to present non-controlling interests as a separate component of stockholders' equity on the Company's condensed consolidated balance sheet. As of March 31, 2018 , the Company owned 83.68% of OMHHF and the non-controlling interest recorded on the condensed consolidated balance sheet was $365,000 .


8


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

2.    New accounting pronouncements
Recently Issued
In February 2016, the FASB issued ASU 2016-02, "Leases." The ASU requires the recognition of a right-of use asset and lease liability on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this ASU which it expects will have a material impact on its condensed consolidated financial statements. Since the Company has operating leases in over 100 locations, the Company expects to recognize a significant right-of use asset and lease liability on its condensed consolidated balance sheet upon adoption of this ASU.
In June 2016, the FASB issued 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 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 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities," which amends the hedge accounting recognition and presentation requirements. The ASU improves the transparency and understandability of information conveyed to financial statement users by better aligning companies' hedging relationship to their existing risk management strategies, simplifies the application of hedge accounting and increases transparency regarding the scope and results of the hedging program. 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.
 

9


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

3.    Revenues from contracts with customers

In the first quarter of 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers." The Company has elected the modified retrospective method which did not result in a cumulative-effect adjustment at the date of adoption. The implementation of this new standard had no material impact on the Company's condensed consolidated financial statements for the three months ended March 31, 2018 .
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 equities 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.

10


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

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 assets under management ("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.
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 statement of operations.
Revenues from financial advisory services includes fees generated in connection with mergers, acquisitions and restructuring transactions and such revenues 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 revenues 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.


11


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

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, 2018 :
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
Reportable Segments
 
Private Client
 
Asset Management
 
Capital Markets
 
Corporate/Other
 
Total
Revenues from contracts with customers:
 
 
 
 
 
 
 
 
 
Commissions from sales and trading
$
40,278

 
$

 
$
31,997

 
$
15

 
$
72,290

Mutual fund income
10,827

 
283

 
2

 
5

 
11,117

Advisory fees
60,136

 
17,353

 
51

 
8

 
77,548

Investment banking - capital markets
4,370

 

 
14,396

 

 
18,766

Investment banking - advisory

 

 
9,444

 

 
9,444

Bank deposit sweep income
25,297

 

 

 

 
25,297

Other
4,275

 
3

 
(25
)
 
1

 
4,254

Total revenues from contracts with customers
145,183

 
17,639

 
55,865

 
29

 
218,716

Other sources of revenue:
 
 
 
 
 
 
 
 
 
Interest
8,837

 
5

 
3,205

 
180

 
12,227

Principal transactions, net
(80
)
 

 
2,392

 
414

 
2,726

Other
154

 

 
67

 
640

 
861

Total other sources of revenue
8,911

 
5

 
5,664

 
1,234

 
15,814

Total revenue
$
154,094

 
$
17,644

 
$
61,529

 
$
1,263

 
$
234,530


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 $24.6 million and $18.6 million at March 31, 2018 and January 1, 2018, respectively. The Company had no significant impairments related to these receivables during the three months ended March 31, 2018 .
Deferred revenue primarily relates to IRA fees received annually in advance on customer's IRA accounts managed by the Company where the performance obligation has not yet been satisfied. Deferred revenue was $2.2 million and $ nil at March 31, 2018 and January 1, 2018, respectively.

12


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

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, 2018
 
Opening Balance
at January 1, 2018
Contract assets:
 
 
 
 
Commission (1)
 
$
3,152

 
$
2,007

Mutual fund income (2)
 
7,823

 
7,779

Advisory fees (3)
 
821

 
1,460

Bank deposit sweep income (4)
 
4,477

 
3,459

Investment banking fees (5)
 
8,335

 
3,926

  Total contract assets
 
$
24,608

 
$
18,631

Deferred income:
 
 
 
 
IRA fees
 
$
2,220

 
$

(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 fee earned but not yet received.

Contract Costs
The Company incurs incremental transaction-related costs to obtain and/or fulfill contracts associated with investment banking and advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. For the three months ended March 31, 2018 , the contract costs were $1.7 million . There were no significant charges recognized in relation to these costs for the three months ended March 31, 2018 .



13


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

4.    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,
 
2018
 
2017
Basic weighted average number of shares outstanding
13,239,628

 
13,399,250

Net dilutive effect of share-based awards, treasury method (1)
737,864

 

Diluted weighted average number of shares outstanding
13,977,492

 
13,399,250

 
 
 
 
Net income (loss) from continuing operations
$
6,709

 
$
(5,338
)
Net income from discontinued operations

 
587

Net income (loss)
6,709

 
(4,751
)
Less net income attributable to non-controlling interest, net of tax
4

 
96

Net income (loss) attributable to Oppenheimer Holdings Inc.
$
6,705

 
$
(4,847
)
 
 
 
 
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
Continuing operations
$
0.51

 
$
(0.40
)
Discontinued operations (2)

 
0.04

Net income (loss) per share
$
0.51

 
$
(0.36
)
 
 
 
 
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
Continuing operations
$
0.48

 
$
(0.40
)
Discontinued operations (2)

 
0.04

Net income (loss) per share
$
0.48

 
$
(0.36
)
 
(1)
For the three months ended March 31, 2018 , the diluted earnings per share computation does not include the anti-dilutive effect of 4,050 shares of Class A Stock granted under share-based compensation arrangements ( 1,334,607 shares for the three months ended March 31, 2017 ).
(2)
Represents net income from discontinued operations less net income attributable to non-controlling interest, net of tax divided by weighted average number of shares outstanding.


14


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

5.    Receivable from and payable to brokers, dealers and clearing organizations
(Expressed in thousands)
 
 
 
 
As of
 
March 31, 2018
 
December 31, 2017
Receivable from brokers, dealers and clearing organizations consists of:
 
 
 
Securities borrowed
$
112,272

 
$
132,368

Receivable from brokers
15,333

 
19,298

Securities failed to deliver
16,862

 
9,442

Clearing organizations
24,296

 
24,361

Other
2,367

 
1,646

Total
$
171,130

 
$
187,115

Payable to brokers, dealers and clearing organizations consists of:
 
 
 
Securities loaned
$
174,567

 
$
180,270

Payable to brokers
3,405

 
1,567

Securities failed to receive
23,677

 
17,559

Other
53,477

 
12,087

Total
$
255,126

 
$
211,483

 

6.    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.

15


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

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.
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, 2018 , the Company had $5.0 million in 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, 2018 , the Company purchased and holds (net of redemptions) approximately $88.5 million in ARS from its clients. In addition, the Company is committed to purchase another $11.0 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.

16


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

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, 2018
Product
 
Principal
 
Valuation
Adjustment
 
Fair
Value
 
Valuation
Technique
 
Unobservable
Input
 
Range
 
Weighted
Average
Auction Rate Securities Owned (1)
Auction Rate Preferred Securities
 
$
87,950

 
$
1,158

 
$
86,792

 
Discounted Cash Flow
 
Discount Rate  (2)
 
2.56% to 3.49%
 
3.05%
 
 
 
 
 
 
 
 
 
 
Duration
 
2.5 Years
 
2.5 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
2.15% to 2.79%
 
2.49%
Municipal Auction Rate Securities
 
300

 
10

 
290

 
Discounted Cash Flow
 
Discount Rate (4)
 
4.17%
 
4.17%
 
 
 
 
 
 
 
 
 
 
Duration
 
3 Years
 
3 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
3.00%
 
3.00%
Student Loan Auction Rate Securities
 
275

 
7

 
268

 
Discounted Cash Flow
 
Discount Rate (5)
 
3.79%
 
3.79%
 
 
 
 
 
 
 
 
 
 
Duration
 
5.5 Years
 
5.5 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
3.23%
 
3.23%
 
 
$
88,525

 
$
1,175

 
$
87,350

 
 
 
 
 
 
 
 
Auction Rate Securities Commitments to Purchase (6)
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
$
15,974

 
$
181

 
$
15,793

 
Discounted Cash Flow
 
Discount Rate (2)
 
2.56% to 3.49%
 
3.05%
 
 
 
 
 
 
 
 
 
 
Duration
 
2.5 Years
 
2.5 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
2.15% to 2.79%
 
2.49%
Municipal Auction Rate Securities
 
27

 
1

 
26

 
Discounted Cash Flow
 
Discount Rate (4)
 
4.17%
 
4.17%
 
 
 
 
 
 
 
 
 
 
Duration
 
3 Years
 
3 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
3.00%
 
3.00%
Student Loan Auction Rate Securities
 
25

 
1

 
24

 
Discounted Cash Flow
 
Discount Rate (5)
 
3.79%
 
3.79%
 
 
 
 
 
 
 
 
 
 
Duration
 
5.5 Years
 
5.5 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
3.23%
 
3.23%
 
 
$
16,026

 
$
183

 
$
15,843

 
 
 
 
 
 
 
 
Total
 
$
104,551

 
$
1,358

 
$
103,193

 
 
 
 
 
 
 
 
 
(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, 2018 . The valuation adjustment amount is included as a reduction to securities owned on the condensed consolidated balance sheet as of March 31, 2018 .
(2)
Derived by applying a multiple to a spread between 110% to 150% to the U.S. Treasury rate of 2.32% .
(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 2.38% .
(5)
Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.59% .
(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, 2018 .

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. For example, see the following sensitivities:  
The impact of a 25 basis point increase in the discount rate at March 31, 2018 would result in a decrease in the fair value of $614,000 (does not consider a corresponding reduction in duration as discussed above).
The impact of a 50 basis point increase in the discount rate at March 31, 2018 would result in a decrease in the fair value of $1.2 million (does not consider a corresponding reduction in duration as discussed above).
These sensitivities are hypothetical and are based on scenarios where they are "stressed" and should be used with caution. These estimates do not include all of the interplay among assumptions and are estimated as a portfolio rather than as individual assets.
Due to the less observable nature of these inputs, the Company categorizes ARS in Level 3 of the fair value hierarchy. As of March 31, 2018 , the Company had a valuation adjustment (unrealized loss) of $1.2 million for ARS owned which is included as a reduction to securities owned on the condensed consolidated balance sheet. As of March 31, 2018 , the Company also had a valuation adjustment of $183,000 on ARS purchase commitments from settlements with the Regulators and legal settlements and awards, which is included in accounts payable and other liabilities on the condensed consolidated balance sheet. The total valuation adjustment was $1.4 million as of March 31, 2018 . 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, 2018 :
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value
 
Unfunded
Commitments
 
Redemption
Frequency
 
Redemption
Notice Period
Hedge funds (1)
$
2,556

 
$

 
Quarterly - Annually
 
30 - 120 Days
Private equity funds (2)
4,980

 
1,400

 
N/A
 
N/A
 
$
7,536

 
$
1,400

 
 
 
 
(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, 2018 and December 31, 2017 , 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, 2018
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of March 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,490

 
$

 
$

 
$
10,490

Deposits with clearing organizations
41,387

 

 

 
41,387

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities
708,250

 

 

 
708,250

U.S. Agency securities
13,556

 
10,740

 

 
24,296

Sovereign obligations

 
557

 

 
557

Corporate debt and other obligations

 
21,659

 

 
21,659

Mortgage and other asset-backed securities

 
1,980

 

 
1,980

Municipal obligations

 
91,523

 

 
91,523

Convertible bonds

 
31,465

 

 
31,465

Corporate equities
31,974

 

 

 
31,974

Money markets
573

 

 

 
573

Auction rate securities

 

 
87,350

 
87,350

Securities owned, at fair value
754,353

 
157,924

 
87,350

 
999,627

Investments (1)

 

 
168

 
168

Derivative contracts:
 
 
 
 
 
 
 
TBAs

 
3,752

 

 
3,752

Total
$
806,230

 
$
161,676

 
$
87,518

 
$
1,055,424

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
108,819

 
$

 
$

 
$
108,819

U.S. Agency securities

 
5

 

 
5

Sovereign obligations

 
1,336

 

 
1,336

Corporate debt and other obligations

 
5,048

 

 
5,048

Mortgage and other asset-backed securities

 
8

 

 
8

Convertible bonds

 
8,237

 

 
8,237

Corporate equities

 
24,433

 

 
24,433

Securities sold but not yet purchased, at fair value
108,819

 
39,067

 

 
147,886

Derivative contracts:
 
 
 
 
 
 
 
Futures
1,218

 

 

 
1,218

TBAs

 
3,667

 

 
3,667

ARS purchase commitments

 

 
183

 
183

Derivative contracts, total
1,218

 
3,667

 
183

 
5,068

Total
$
110,037

 
$
42,734

 
$
183

 
$
152,954

 
(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, 2017
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,490

 
$

 
$

 
$
10,490

Deposits with clearing organizations
34,293

 

 

 
34,293

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities
640,337

 

 

 
640,337

U.S. Agency securities
3,011

 
6,894

 

 
9,905

Sovereign obligations

 
608

 

 
608

Corporate debt and other obligations

 
12,538

 

 
12,538

Mortgage and other asset-backed securities

 
4,037

 

 
4,037

Municipal obligations

 
89,618

 
35

 
89,653

Convertible bonds

 
23,216

 

 
23,216

Corporate equities
34,067

 

 

 
34,067

Money markets
383

 

 

 
383

Auction rate securities

 
24,455

 
87,398

 
111,853

Securities owned, at fair value
677,798

 
161,366

 
87,433

 
926,597

Investments (1)

 

 
169

 
169

Derivative contracts:


 


 


 


TBAs

 
716

 

 
716

Total
$
722,581

 
$
162,082

 
$
87,602

 
$
972,265

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
53,425

 
$

 
$

 
$
53,425

U.S. Agency securities

 
13

 

 
13

Sovereign obligations

 
1,179

 

 
1,179

Corporate debt and other obligations

 
4,357

 

 
4,357

Mortgage and other asset-backed securities

 
10

 

 
10

Convertible bonds

 
10,109

 

 
10,109

Corporate equities
25,393

 

 

 
25,393

Securities sold but not yet purchased, at fair value
78,818

 
15,668

 

 
94,486

Derivative contracts:
 
 
 
 
 
 
 
Futures
766

 

 

 
766

TBAs

 
614

 

 
614

ARS purchase commitments

 

 
8

 
8

Derivative contracts, total
766

 
614

 
8

 
1,388

Total
$
79,584

 
$
16,282

 
$
8

 
$
95,874

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







22


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

There were no transfers between any of the levels in the three months ended March 31, 2018 and 2017 .
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, 2018 and 2017 :
(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 operations, except for gains (losses) from investments which are included in other income in the condensed consolidated statement of operations.
(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)

(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Three Months Ended March 31, 2017
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains
(Losses) (3)(4)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In (Out)
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Municipal obligations
$
44

 
$
(8
)
 
$

 
$

 
$

 
$
36

Auction rate securities (1)(5)(6) 
84,926

 
642

 
5,000

 
(825
)
 

 
89,743

Investments
158

 
6

 

 

 

 
164

ARS purchase commitments (2)
849

 
29

 

 

 

 
878

Liabilities

 

 

 

 

 

ARS purchase commitments (2)
645

 
286

 

 

 

 
359

(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 operations, except for gains (losses) from investments which are included in other income in the condensed consolidated statement of operations.
(4)
Unrealized gains are attributable to assets or liabilities that are still held at the reporting date.
(5)
Purchases and issuances in connection with ARS purchase commitments represent instances in which the Company purchased ARS securities from clients during the period pursuant to regulatory and legal settlements and awards that satisfy the outstanding commitment to purchase obligation. This also includes instances where the ARS issuer has redeemed ARS where the Company had an outstanding purchase commitment prior to the Company purchasing those ARS.
(6)
Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the period for regulatory and legal ARS settlements and awards.

24


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 consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., 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 (e.g., cash and receivables from customers) 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, 2018
(Expressed in thousands)
 
 
Fair Value Measurement: Assets
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
32,225

 
$
32,225

 
$

 
$

 
$
32,225

Deposits with clearing organization
29,551

 
29,551

 

 

 
29,551

Receivable from brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities borrowed
112,272

 

 
112,272

 

 
112,272

Receivables from brokers
15,333

 

 
15,333

 

 
15,333

Securities failed to deliver
16,862

 

 
16,862

 

 
16,862

Clearing organizations
24,296

 

 
24,296

 

 
24,296

Other
2,007

 

 
2,007

 

 
2,007

 
170,770

 

 
170,770

 

 
170,770

Receivable from customers
881,941

 

 
881,941

 

 
881,941

Notes receivable, net
42,386

 

 
42,386

 

 
42,386

Investments (1)
65,563

 

 
65,563

 

 
65,563

 
(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
$
20,993

 
$
20,993

 
$

 
$

 
$
20,993

Bank call loans
147,400

 

 
147,400

 

 
147,400

Payables to brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities loaned
174,567

 

 
174,567

 

 
174,567

Payable to brokers
3,405

 

 
3,405

 

 
3,405

Securities failed to receive
23,677

 

 
23,677

 

 
23,677

Other
51,984

 

 
51,984

 

 
51,984

 
253,633

 

 
253,633

 

 
253,633

Payables to customers
445,085