Quarterly Report (10-q)

Date : 07/26/2019 @ 12:36PM
Source : Edgar (US Regulatory)
Stock : Oppenheimer Holdings Inc (OPY)
Quote : 27.44  0.06 (0.22%) @ 9:02PM

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 June 30, 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)

 
 


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock
OPY
The New York Stock Exchange
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 July 26, 2019 was 12,756,308 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 June 30, 2019 and December 31, 2018
 
Condensed Consolidated Income Statements for the three and six months ended June 30, 2019 and 2018
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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)
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
71,307

 
$
90,675

Deposits with clearing organizations
65,491

 
67,678

Receivable from brokers, dealers and clearing organizations
167,931

 
166,493

Receivable from customers, net of allowance for credit losses of $920 ($886 in 2018)
807,581

 
720,777

Income tax receivable

 
1,014

Securities purchased under agreements to resell
39

 
290

Securities owned, including amounts pledged of $547,326 ($517,951 in 2018), at fair value
995,370

 
837,584

Notes receivable, net of accumulated amortization and allowance for uncollectibles of $32,369 and $6,827 respectively ($25,109 and $6,800, respectively, in 2018)
43,413

 
44,058

Furniture, equipment and leasehold improvements, net of accumulated depreciation of $90,633 ($89,182 in 2018)
32,327

 
28,988

Right-of-use lease assets, net of accumulated amortization of $12,983
166,612

 

Goodwill
137,889

 
137,889

Intangible assets
32,100

 
32,100

Other assets
132,356

 
112,768

Total assets
$
2,652,416

 
$
2,240,314

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Drafts payable
$
17,456

 
$
16,348

Bank call loans
50,100

 
15,000

Payable to brokers, dealers and clearing organizations
418,719

 
289,207

Payable to customers
325,754

 
336,616

Securities sold under agreements to repurchase
521,837

 
484,218

Securities sold but not yet purchased, at fair value
155,979

 
85,446

Accrued compensation
130,879

 
167,348

Income tax payable
849

 

Accounts payable and other liabilities
42,709

 
87,630

Lease liabilities
210,255

 

Senior secured notes, net of debt issuance costs of $775 ($904 in 2018)
199,225

 
199,096

Deferred tax liabilities, net of deferred tax assets of $43,682 ($41,722 in 2018)
15,044

 
14,083

Total liabilities
2,088,806

 
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, 12,756,308 and 12,941,809 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
48,069

 
53,259

Class B voting common stock, par value $0.001 per share, 99,665 shares authorized, issued and outstanding as of June 30, 2019 and December 31, 2018
133

 
133

 
48,202

 
53,392

Contributed capital
43,626

 
41,776

Retained earnings
470,693

 
449,989

Accumulated other comprehensive income
1,089

 
165

Total stockholders' equity
563,610

 
545,322

Total liabilities and stockholders' equity
$
2,652,416

 
$
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 June 30,
 
For the Six Months Ended June 30,
(Expressed in thousands, except number of shares and per share amounts)
2019
 
2018
 
2019
 
2018
REVENUE
 
 
 
 
 
 
 
Commissions
$
80,896

 
$
82,850

 
$
160,305

 
$
166,257

Advisory fees
80,707

 
77,270

 
154,354

 
154,818

Investment banking
32,006

 
27,904

 
60,049

 
56,114

Bank deposit sweep income
31,830

 
28,853

 
65,798

 
54,150

Interest
13,550

 
13,056

 
26,277

 
25,283

Principal transactions, net
3,045

 
6,400

 
14,483

 
9,126

Other
8,901

 
6,223

 
21,439

 
11,338

Total revenue
250,935

 
242,556

 
502,705

 
477,086

EXPENSES
 
 
 
 
 
 
 
Compensation and related expenses
155,783

 
151,871

 
316,138

 
304,975

Communications and technology
20,499

 
17,997

 
40,585

 
36,685

Occupancy and equipment costs
15,573

 
14,901

 
30,846

 
30,329

Clearing and exchange fees
5,678

 
5,780

 
11,010

 
11,876

Interest
13,192

 
10,909

 
26,178

 
19,872

Other
22,819

 
28,581

 
44,505

 
51,211

Total expenses
233,544

 
230,039

 
469,262

 
454,948

Income before income taxes
17,391

 
12,517

 
33,443

 
22,138

Income taxes
5,016

 
3,662

 
9,874

 
6,578

Net income
$
12,375

 
$
8,855

 
$
23,569

 
$
15,560

 
 
 
 
 
 
 
 
Net income per share

 
 
 
 
 
 
Basic
$
0.95

 
$
0.67

 
$
1.81

 
$
1.17

Diluted
$
0.89

 
$
0.63

 
$
1.70

 
$
1.11

 
 
 
 
 
 
 
 
Weighted average shares
 
 
 
 
 
 
 
Basic
12,976,235

 
13,248,812

 
12,998,168

 
13,244,245

Diluted
13,861,753

 
14,050,573

 
13,857,616

 
14,005,556


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 June 30,
 
For the Six Months Ended June 30,
(Expressed in thousands)
2019
 
2018
 
2019
 
2018
Net income
$
12,375

 
$
8,855

 
$
23,569

 
$
15,560

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Currency translation adjustment
361

 
(837
)
 
924

 
(979
)
Comprehensive income
$
12,736

 
$
8,018

 
$
24,493

 
$
14,581

 
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 June 30,
 
For the Six Months Ended June 30,
(Expressed in thousands, except per share amounts)
2019
 
2018
 
2019
 
2018
Share capital
 
 
 
 
 
 
 
Balance at beginning of period
$
52,519

 
$
58,529

 
$
53,392

 
$
58,492

Issuance of Class A non-voting common stock

 
296

 
1,162

 
333

Repurchase of Class A non-voting common stock for cancellation
(4,317
)
 

 
(6,352
)
 

Balance at end of period
48,202

 
58,825

 
48,202

 
58,825

Contributed capital
 
 
 
 
 
 
 
Balance at beginning of period
41,489

 
37,996

 
41,776

 
36,546

Share-based expense
2,137

 
1,587

 
4,026

 
3,096

Vested employee share plan awards

 
(296
)
 
(2,176
)
 
(355
)
Balance at end of period
43,626

 
39,287

 
43,626

 
39,287

Retained earnings
 
 
 
 
 
 
 
Balance at beginning of period
459,751

 
432,544

 
449,989

 
426,930

Net income
12,375

 
8,855

 
23,569

 
15,560

Dividends paid
(1,433
)
 
(1,457
)
 
(2,865
)
 
(2,913
)
Other

 
(16
)
 

 
349

Balance at end of period
470,693

 
439,926

 
470,693

 
439,926

Accumulated other comprehensive income
 
 
 
 
 
 
 
Balance at beginning of period
728

 
1,440

 
165

 
1,582

Currency translation adjustment
361

 
(837
)
 
924

 
(979
)
Balance at end of period
1,089

 
603

 
1,089

 
603

Total stockholders' equity
$
563,610

 
$
538,641

 
$
563,610

 
$
538,641

 
 
 
 
 
 
 
 
Dividends paid per share
$
0.11

 
$
0.11

 
$
0.22

 
$
0.22

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 SIX MONTHS ENDED JUNE 30,
(Expressed in thousands)
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
23,569

 
$
15,560

Adjustments to reconcile net income to net cash (used in) provided by operating activities
 
 
 
Non-cash items included in net income:
 
 
 
Depreciation and amortization of furniture, equipment and leasehold improvements
3,602

 
3,140

Deferred income taxes
1,081

 
2,712

Amortization of notes receivable
6,469

 
6,378

Amortization of debt issuance costs
129

 
129

Provision for credit losses
34

 
79

Share-based compensation
6,384

 
5,216

Amortization of right-of-use lease assets
12,892

 

Decrease (increase) in operating assets:
 
 
 
Deposits with clearing organizations
2,187

 
(14,642
)
Receivable from brokers, dealers and clearing organizations
(1,438
)
 
(17,412
)
Receivable from customers
(86,838
)
 
12,439

Income tax receivable
1,014

 
121

Securities purchased under agreements to resell
251

 
(6,080
)
Securities owned
(157,786
)
 
(93,807
)
Notes receivable
(5,824
)
 
(8,268
)
Other assets
(19,359
)
 
29,452

Increase (decrease) in operating liabilities:
 
 
 
Drafts payable
1,108

 
(20,780
)
Payable to brokers, dealers and clearing organizations
129,512

 
71,059

Payable to customers
(10,862
)
 
(12,243
)
Income taxes payable
849

 

Securities sold under agreements to repurchase
37,619

 
12,673

Securities sold but not yet purchased
70,533

 
67,556

Accrued compensation
(38,827
)
 
(46,251
)
Accounts payable and other liabilities
(14,290
)
 
4,280

Cash (used in) provided by operating activities
(37,991
)
 
11,311

Cash flows from investing activities
 
 
 
Purchase of furniture, equipment and leasehold improvements
(6,941
)
 
(3,947
)
Purchase of intangible assets

 
(400
)
Proceeds from the settlement of Company-owned life insurance
695

 

Cash used in investing activities
(6,246
)
 
(4,347
)
Cash flows from financing activities
 
 
 
Cash dividends paid on Class A non-voting and Class B voting common stock
(2,865
)
 
(2,913
)
Repurchase of Class A non-voting common stock for cancellation
(6,352
)
 

Payments for employee taxes withheld related to vested share-based awards
(1,014
)
 
(2,444
)
Increase (decrease) in bank call loans, net
35,100

 
(10,800
)
Cash provided by (used in) financing activities
24,869

 
(16,157
)
Net decrease in cash and cash equivalents
(19,368
)
 
(9,193
)
Cash and cash equivalents, beginning of period
90,675

 
48,154

Cash and cash equivalents, end of period
$
71,307

 
$
38,961

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

 
$
333

 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
25,830

 
$
26,899

Cash paid during the period for income taxes, net
$
7,326

 
$
3,918

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 six month period ended June 30, 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.
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 its executive management team and many administrative functions for the firm as well as its 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.


9


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

As of June 30, 2019 , the Company had right of use operating lease assets of $166.6 million (net of accumulated amortization of $13.0 million ) which are comprised of real estate leases of $163.6 million (net of accumulated amortization of $12.0 million ) and equipment leases of $3.0 million (net of accumulated amortization of $939,000 ). As of June 30, 2019 , the Company had operating lease liabilities of $210.3 million which are comprised of real estate lease liabilities of $207.3 million and equipment lease liabilities of $3.0 million . As of June 30, 2019 , the Company had 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 had no finance leases or embedded leases as of June 30, 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 June 30, 2019 :
 
 


As of
June 30, 2019
 
 
Weighted average remaining lease term (in years)
8.61
Weighted average discount rate
7.92%

The following table presents operating lease costs recognized for the three and six months ended June 30, 2019 which are included in occupancy and equipment costs on the condensed consolidated income statement:    
   
(Expressed in thousands)
 
 
 


For the Three Months Ended June 30, 2019
 
For the Six Months Ended June 30, 2019
Operating lease cost:
 
 
 
      Real estate leases - Right-of-use lease asset amortization
$
5,712

 
$
12,044

      Real estate leases - Interest expense
4,204

 
7,647

      Equipment leases - Right-of-use lease asset amortization
474

 
939

      Equipment leases - Interest expense
57

 
114

    

10


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

The maturities of lease liabilities as of June 30, 2019 are as follows:    
(Expressed in thousands)
 


As of
June 30, 2019
 
 
2019
$
20,764

2020
41,076

2021
35,997

2022
32,125

2023
30,095

After 2024
134,370

Total lease payments
$
294,427

Less interest
(84,172
)
Present value of lease liabilities
$
210,255


As of June 30, 2019 , the Company had additional operating leases that have not yet commenced of 14.0 million . These operating leases will commence between July 1, 2019 and May 1, 2021 with lease terms of 5 years to 11 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 asset. The application of this guidance resulted in no additional charges to net capital for operating leases during the first and second quarter of 2019.

4.    Revenue 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 its 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:

11


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

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, options, and commodities transactions. The Company records a receivable on the trade date and receives a payment on the 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.
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 customers receive 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.


12


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 and six months ended June 30, 2019 and 2018:
(Expressed in thousands)
For the Three Months Ended June 30, 2019
 
Reportable Segments
 
Private Client
 
Asset Management
 
Capital Markets
 
Corporate/Other
 
Total
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
Commissions from sales and trading
$
37,026

 
$

 
$
33,736

 
$
4

 
$
70,766

Mutual fund income
10,124

 
1

 
1

 
4

 
10,130

Advisory fees
62,080

 
18,617

 
2

 
8

 
80,707

Investment banking - capital markets
4,262

 

 
14,699

 

 
18,961

Investment banking - advisory

 

 
13,045

 

 
13,045

Bank deposit sweep income
31,830

 

 

 

 
31,830

Other
3,526

 

 
522

 
1,537

 
5,585

Total revenue from contracts with customers
148,848

 
18,618

 
62,005

 
1,553

 
231,024

Other sources of revenue:
 
 
 
 
 
 
 
 
 
Interest
9,639

 

 
3,459

 
452

 
13,550

Principal transactions, net
538

 

 
6,312

 
(3,805
)
 
3,045

Other
2,903

 
4

 
43

 
366

 
3,316

Total other sources of revenue
13,080

 
4

 
9,814

 
(2,987
)
 
19,911

Total revenue
$
161,928

 
$
18,622

 
$
71,819

 
$
(1,434
)
 
$
250,935

(Expressed in thousands)
For the Three Months Ended June 30, 2018
 
Reportable Segments
 
Private Client
 
Asset Management
 
Capital Markets
 
Corporate/Other
 
Total
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
Commissions from sales and trading
$
39,093

 
$

 
$
33,022

 
$
62

 
$
72,177

Mutual fund income
10,441

 
222

 
5

 
5

 
10,673

Advisory fees
59,774

 
17,485

 
3

 
8

 
77,270

Investment banking - capital markets
3,469

 

 
16,196

 

 
19,665

Investment banking - advisory

 

 
8,239

 

 
8,239

Bank deposit sweep income
28,853

 

 

 

 
28,853

Other
3,430

 
3

 
457

 
(47
)
 
3,843

Total revenue from contracts with customers
145,060

 
17,710

 
57,922

 
28

 
220,720

Other sources of revenue:
 
 
 
 
 
 
 
 
 
Interest
9,514

 
(4
)
 
3,263

 
283

 
13,056

Principal transactions, net
212

 

 
6,989

 
(801
)
 
6,400

Other
1,767

 

 
32

 
581

 
2,380

Total other sources of revenue
11,493

 
(4
)
 
10,284

 
63

 
21,836

Total revenue
$
156,553

 
$
17,706

 
$
68,206

 
$
91

 
$
242,556



13


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

(Expressed in thousands)
For the Six Months Ended June 30, 2019
 
Reportable Segments
 
Private Client
 
Asset Management
 
Capital Markets
 
Corporate/Other
 
Total
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
Commissions from sales and trading
$
74,502

 
$

 
$
66,052

 
$
7

 
$
140,561

Mutual fund income
19,738

 
(5
)
 
2

 
9

 
19,744

Advisory fees
119,124

 
35,206

 
7

 
17

 
154,354

Investment banking - capital markets
7,011

 

 
23,292

 

 
30,303

Investment banking - advisory

 

 
29,746

 

 
29,746

Bank deposit sweep income
65,798

 

 

 

 
65,798

Other
6,805

 

 
841

 
1,793

 
9,439

Total revenue from contracts with customers
292,978

 
35,201

 
119,940

 
1,826

 
449,945

Other sources of revenue:
 
 
 
 
 
 
 
 
 
Interest
19,047

 

 
6,294

 
936

 
26,277

Principal transactions, net
2,222

 

 
16,469

 
(4,208
)
 
14,483

Other
11,208

 
7

 
77

 
708

 
12,000

Total other sources of revenue
32,477

 
7

 
22,840

 
(2,564
)
 
52,760

Total revenue
$
325,455

 
$
35,208

 
$
142,780

 
$
(738
)
 
$
502,705


(Expressed in thousands)
For the Six Months Ended June 30, 2018
 
Reportable Segments
 
Private Client
 
Asset Management
 
Capital Markets
 
Corporate/Other
 
Total
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
Commissions from sales and trading
$
79,371

 
$

 
$
65,019

 
$
77

 
$
144,467

Mutual fund income
21,268

 
505

 
7

 
10

 
21,790

Advisory fees
119,910

 
34,838

 
54

 
16

 
154,818

Investment banking - capital markets
7,839

 

 
30,592

 

 
38,431

Investment banking - advisory

 

 
17,683

 

 
17,683

Bank deposit sweep income
54,150

 

 

 

 
54,150

Other
7,705

 
6

 
432

 
(46
)
 
8,097

Total revenue from contracts with customers
290,243

 
35,349

 
113,787

 
57

 
439,436

Other sources of revenue:
 
 
 
 
 
 
 
 
 
Interest
18,351

 
1

 
6,468

 
463

 
25,283

Principal transactions, net
132

 

 
9,381

 
(387
)
 
9,126

Other
1,921

 

 
99

 
1,221

 
3,241

Total other sources of revenue
20,404

 
1

 
15,948

 
1,297

 
37,650

Total revenue
$
310,647

 
$
35,350

 
$
129,735

 
$
1,354

 
$
477,086







14


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 $35.3 million and $23.7 million at June 30, 2019 and January 1, 2019, respectively. The Company had no significant impairments related to these receivables during the three and six months ended June 30, 2019 .
Deferred revenue relates to IRA fees received annually in advance on customers' 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 $3.7 million and $318,000 at June 30, 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 June 30, 2019
 
Opening Balance
at January 1, 2019
Contract assets (receivables):
 
 
 
Commission (1)
$
4,142

 
$
3,738

Mutual fund income (2)
6,798

 
7,241

Advisory fees (3)
901

 
1,214

Bank deposit sweep income (4)
4,208

 
4,622

Investment banking fees (5)
10,583

 
3,996

  Other
8,638

 
2,869

Total contract assets
$
35,270

 
$
23,680

Deferred revenue (payables):
 
 
 
Investment banking fees (6)
$
2,396

 
$
318

IRA fees (7)
1,333

 

Total deferred revenue
$
3,729

 
$
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.
(7) Fee received in advance on an annual basis.



15


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 June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Basic weighted average number of shares outstanding
12,976,235

 
13,248,812

 
12,998,168

 
13,244,245

Net dilutive effect of share-based awards, treasury method (1)
885,518

 
801,761

 
859,448

 
761,311

Diluted weighted average number of shares outstanding
13,861,753

 
14,050,573

 
13,857,616

 
14,005,556

 
 
 
 
 
 
 
 
Net income
$
12,375

 
$
8,855

 
$
23,569

 
$
15,560

 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
       Basic
$
0.95

 
$
0.67

 
$
1.81

 
$
1.17

       Diluted
$
0.89

 
$
0.63

 
$
1.70

 
$
1.11

(1)
For both the three and six months ended June 30, 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 both the three and six months ended June 30, 2018).

6.    Receivable from and payable to brokers, dealers and clearing organizations
(Expressed in thousands)
 
 
 
 
As of
 
June 30, 2019
 
December 31, 2018
Receivable from brokers, dealers and clearing organizations consists of:
 
 
 
Securities borrowed
$
103,148

 
$
108,144

Receivable from brokers
22,521

 
20,140

Securities failed to deliver
14,898

 
7,021

Clearing organizations
25,604

 
28,777

Other
1,760

 
2,411

Total
$
167,931

 
$
166,493

Payable to brokers, dealers and clearing organizations consists of:
 
 
 
Securities loaned
$
247,714

 
$
146,815

Payable to brokers
8,667

 
158

Securities failed to receive
30,570

 
27,799

Other
131,768

 
114,435

Total
$
418,719

 
$
289,207

 


16


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.

17


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

Auction Rate Securities ("ARS")
Background
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 (the "Regulators") concluding 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. Over the last nine years, the Company has bought back $137.2 million of ARS pursuant to these settlements. These buybacks coupled with ARS issuer redemptions and tender offers have significantly reduced the level of ARS held by Eligible Investors. As of June 30, 2019 , the Company had $2.0 million of ARS to purchase from Eligible Investors 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. Over the last nine years, the Company has purchased $102.3 million of ARS pursuant to these legal settlements and awards. As of June 30, 2019 , the Company had one remaining commitment to purchase $3.6 million in ARS by June 30, 2020 .
As of June 30, 2019 , the Company owned $48.5 million of ARS securities. This amount represents the unredeemed or unsold amount that the Company holds as a result of ARS buybacks pursuant to the settlements with the Regulators and legal settlements and awards referred to above.
Valuation
The Company’s ARS securities owned and ARS purchase commitments referred to above have, for the most part, been subject to recent issuer tender offers. As a result, the Company has valued the ARS securities owned and the ARS purchase commitments at the observable tender offer price which provides the basis to categorize them in Level 2 of the fair value hierarchy. The ARS purchase commitments related to the settlements with the Regulators and legal settlements and awards are considered derivative assets or liabilities. The ARS purchase commitments represent the difference between the principal value and the fair value of the ARS the Company is committed to purchase.
As of June 30, 2019 , the Company had a valuation adjustment (unrealized loss) totaling $6.8 million which consists of $6.1 million for ARS owned (which is included as a reduction to securities owned on the condensed consolidated balance sheet) and $0.7 million for ARS purchase commitments from legal settlements and awards (which is included in accounts payable and other liabilities on the condensed consolidated balance sheet).
During the three months ended June 30, 2019 , the Company had unrealized losses of $2.4 million in its condensed consolidated statements of income related to the Company's participation in a recent tender offer by an ARS issuer. The unrealized loss is the result of marking the positions to the issuer tender offer price.

18


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

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 June 30, 2019 :
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value
 
Unfunded
Commitments
 
Redemption
Frequency
 
Redemption
Notice Period
Hedge funds (1)
$
1,664

 
$

 
Quarterly - Annually
 
30 - 120 Days
Private equity funds (2)
4,665

 
1,399

 
N/A
 
N/A
 
$
6,329

 
$
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.
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.
Assets and Liabilities Measured at Fair Value
The Company's assets and liabilities, recorded at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 , have been categorized based upon the above fair value hierarchy as follows:

19


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

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2019
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,500

 
$

 
$

 
$
10,500

Deposits with clearing organizations
31,293

 

 

 
31,293

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities
689,992

 

 

 
689,992

U.S. Agency securities
4,540

 
20,213

 

 
24,753

Sovereign obligations

 
1,063

 

 
1,063

Corporate debt and other obligations

 
25,556

 

 
25,556

Mortgage and other asset-backed securities

 
1,956

 

 
1,956

Municipal obligations

 
141,362

 

 
141,362

Convertible bonds

 
26,123

 

 
26,123

Corporate equities
39,430

 

 

 
39,430

Money markets
2,674

 

 

 
2,674

Auction rate securities

 
42,461

 

 
42,461

Securities owned, at fair value
736,636

 
258,734

 

 
995,370

Investments (1)

 
106

 


 
106

Derivative contracts:
 
 
 
 
 
 
 
TBAs

 
14

 

 
14

Total
$
778,429

 
$
258,854

 
$

 
$
1,037,283

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
97,720

 
$

 
$

 
$
97,720

U.S. Agency securities

 
19

 

 
19

Sovereign obligations

 
1,066

 

 
1,066

Corporate debt and other obligations

 
20,907

 

 
20,907

Mortgage and other asset-backed securities

 
1

 

 
1

Convertible bonds

 
17,779

 

 
17,779

Corporate equities
18,487

 

 

 
18,487

Securities sold but not yet purchased, at fair value
116,207

 
39,772

 

 
155,979

Derivative contracts:
 
 
 
 
 
 
 
Futures
1,781

 

 

 
1,781

Foreign exchange forward contracts
4

 

 

 
4

TBAs

 
45

 

 
45

ARS purchase commitments

 
764

 

 
764

Derivative contracts, total
1,785

 
809

 

 
2,594

Total
$
117,992

 
$
40,581

 
$

 
$
158,573

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




20


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