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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR 
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      No  
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      No  
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
Accelerated Filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
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 October 29, 2020 was 12,393,812 and 99,665 shares, respectively.



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

 
  Page No.
PART I
Item 1.
4
5
6
7
8
9
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) September 30, 2020 December 31, 2019
ASSETS
Cash and cash equivalents $ 32,080  $ 79,550 
Deposits with clearing organizations 77,202  48,415 
Receivable from brokers, dealers and clearing organizations 207,256  163,293 
Receivable from customers, net of allowance for credit losses of $418 ($451 in 2019) 1,095,035  796,934 
Income tax receivable 2,992  5,170 
Securities owned, including amounts pledged of $486,165 ($357,120 in 2019), at fair value 646,680  799,719 
Notes receivable, net of accumulated amortization and allowance for uncollectibles of $37,224 and $4,190 respectively ($38,355 and $3,673, respectively, in 2019) 44,723  43,670 
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $100,968 ($94,773 in 2019) 28,916  31,377 
Right-of-use lease assets, net of accumulated amortization of $43,933 ($25,186 in 2019) 154,666  160,297 
Goodwill 137,889  137,889 
Intangible assets 32,100  32,100 
Other assets 149,079  166,341 
Total assets $ 2,608,618  $ 2,464,755 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Drafts payable $ 18,251  $ — 
Bank call loans 156,900  — 
Payable to brokers, dealers and clearing organizations 366,949  520,975 
Payable to customers 380,746  334,735 
Securities sold under agreements to repurchase 252,827  287,265 
Securities sold but not yet purchased, at fair value 222,449  100,571 
Accrued compensation 201,616  207,358 
Accounts payable and other liabilities 43,473  44,725 
Lease liabilities 195,348  203,140 
Senior secured notes, net of debt issuance costs of $1,136 ($485 in 2019) 123,864  149,515 
Deferred tax liabilities, net of deferred tax assets of $39,099 ($43,630 in 2019) 30,979  23,749 
Total liabilities 1,993,402  1,872,033 
Commitments and contingencies (note 13)
Stockholders' equity
Share capital
Class A non-voting common stock, par value $0.001 per share, 50,000,000 shares authorized, 12,404,427 and 12,698,703 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 39,840  46,424 
Class B voting common stock, par value $0.001 per share, 99,665 shares authorized, issued and outstanding as of September 30, 2020 and December 31, 2019 133  133 
39,973  46,557 
Contributed capital 39,788  47,406 
Retained earnings 533,507  496,998 
Accumulated other comprehensive income 1,948  1,761 
Total stockholders' equity 615,216  592,722 
Total liabilities and stockholders' equity $ 2,608,618  $ 2,464,755 
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
September 30,
For the Nine Months Ended September 30,
(Expressed in thousands, except number of shares and per share amounts) 2020 2019 2020 2019
REVENUE
Commissions $ 92,241  $ 78,627  $ 297,126  $ 238,932 
Advisory fees 88,595  80,887  250,740  235,241 
Investment banking 66,245  21,798  138,159  81,847 
Bank deposit sweep income 4,619  28,894  30,567  94,692 
Interest 7,540  12,344  24,650  38,621 
Principal transactions, net 7,703  7,606  18,899  22,089 
Other 9,316  4,637  15,618  26,076 
Total revenue 276,259  234,793  775,759  737,498 
EXPENSES
Compensation and related expenses 189,654  151,284  526,924  467,422 
Communications and technology 19,474  20,872  60,689  61,457 
Occupancy and equipment costs 15,199  16,010  46,611  46,856 
Clearing and exchange fees 6,211  5,469  18,061  16,479 
Interest 3,461  11,531  12,901  37,709 
Other 20,542  23,131  55,368  67,636 
Total expenses 254,541  228,297  720,554  697,559 
Pre-tax income 21,718  6,496  55,205  39,939 
Income taxes 6,079  2,547  14,099  12,421 
Net income $ 15,639  $ 3,949  $ 41,106  $ 27,518 
Earnings per share
Basic $ 1.25  $ 0.31  $ 3.24  $ 2.13 
Diluted $ 1.19  $ 0.29  $ 3.12  $ 1.99 
Weighted average shares
Basic 12,553,802  12,825,944  12,696,143  12,940,129 
Diluted 13,146,586  13,832,994  13,194,434  13,846,139 

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
September 30,
For the Nine Months Ended September 30,
(Expressed in thousands) 2020 2019 2020 2019
Net income $ 15,639  $ 3,949  $ 41,106  $ 27,518 
Other comprehensive income, net of tax
Currency translation adjustment 244  533  187  1,457 
Comprehensive income $ 15,883  $ 4,482  $ 41,293  $ 28,975 
 
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
September 30,
For the Nine Months Ended September 30,
(Expressed in thousands, except per share amounts) 2020 2019 2020 2019
Share capital
Balance at beginning of period $ 40,917  $ 48,202  $ 46,557  $ 53,392 
Issuance of Class A non-voting common stock 1,018  403  7,644  1,565 
Repurchase of Class A non-voting common stock for cancellation (1,962) (2,048) (14,228) (8,400)
Balance at end of period 39,973  46,557  39,973  46,557 
Contributed capital
Balance at beginning of period 39,140  43,626  47,406  41,776 
Share-based expense 1,944  2,045  5,763  6,071 
Vested employee share plan awards (1,296) (322) (13,381) (2,498)
Balance at end of period 39,788  45,349  39,788  45,349 
Retained earnings
Balance at beginning of period 519,376  470,693  496,998  449,989 
Net income 15,639  3,949  41,106  27,518 
Dividends paid (1,508) (1,543) (4,597) (4,408)
Balance at end of period 533,507  473,099  533,507  473,099 
Accumulated other comprehensive income
Balance at beginning of period 1,704  1,089  1,761  165 
Currency translation adjustment 244  533  187  1,457 
Balance at end of period 1,948  1,622  1,948  1,622 
Total stockholders' equity $ 615,216  $ 566,627  $ 615,216  $ 566,627 
Dividends paid per share $ 0.12  $ 0.12  $ 0.36  $ 0.34 
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 NINE MONTHS ENDED SEPTEMBER 30,
(Expressed in thousands) 2020 2019
Cash flows from operating activities
Net income $ 41,106  $ 27,518 
Adjustments to reconcile net income to net cash provided by operating activities
Non-cash items included in net income:
Depreciation and amortization of furniture, equipment and leasehold improvements 6,169  5,575 
Deferred income taxes 7,254  422 
Amortization of notes receivable 8,736  9,679 
Amortization of debt issuance costs 149  187 
Write-off of debt issuance costs 341  184 
Provision for credit losses 33  55 
Share-based compensation 4,877  11,858 
Amortization of right-of-use lease assets 18,747  19,141 
     Gain on repurchase of senior secured notes (86) — 
Decrease (increase) in operating assets:
Deposits with clearing organizations (28,787) (6,052)
Receivable from brokers, dealers and clearing organizations (43,963) 8,759 
Receivable from customers (298,134) (34,205)
Income tax receivable 2,178  (1,319)
Securities purchased under agreements to resell —  290 
Securities owned 153,039  184,390 
Notes receivable (9,789) (9,541)
Other assets 17,449  (11,980)
Increase (decrease) in operating liabilities:
Drafts payable 18,251  1,446 
Payable to brokers, dealers and clearing organizations (154,026) 75,388 
Payable to customers 46,011  (23,560)
Securities sold under agreements to repurchase (34,438) (230,498)
Securities sold but not yet purchased 121,878  36,434 
Accrued compensation (4,856) (23,273)
Accounts payable and other liabilities (20,522) (18,001)
Cash (used in)/provided by operating activities (148,383) 22,897 
Cash flows from investing activities
Purchase of furniture, equipment and leasehold improvements (3,708) (8,672)
Proceeds from the settlement of Company-owned life insurance —  1,720 
Cash used in investing activities (3,708) (6,952)
Cash flows from financing activities
Cash dividends paid on Class A non-voting and Class B voting common stock (4,597) (4,408)
Issuance of Class A non-voting common stock 34  83 
Repurchase of Class A non-voting common stock for cancellation (14,228) (8,400)
Payments for employee taxes withheld related to vested share-based awards (5,771) (1,014)
Issuance of senior secured notes 125,000  — 
Redemption of senior secured notes (148,574) (50,000)
Repurchase of senior secured notes (1,426) — 
Debt issuance costs (210) — 
Debt redemption costs (2,507) (1,688)
Increase in bank call loans, net 156,900  (15,000)
Cash provided by/(used in) financing activities 104,621  (80,427)
Net decrease in cash and cash equivalents (47,470) (64,482)
Cash and cash equivalents, beginning of period 79,550  90,675 
Cash and cash equivalents, end of period $ 32,080  $ 26,193 
Schedule of non-cash financing activities
Employee share plan issuance $ 11,940  $ 1,484 
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 17,929  $ 37,710 
Cash paid during the period for income taxes, net $ 5,918  $ 13,506 
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", the "Firm","we", "our" or "us"). Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, investment banking (corporate and public finance), equity and fixed income research, market-making, trust services, and investment advisory and asset management services.
The Company is headquartered in New York and has 93 retail branch offices in the United States and 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; and 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.
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, 2019 (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 nine-month period ended September 30, 2020 are not necessarily indicative of the results to be expected for any future interim or annual period.

On January 30, 2020, the spread of the novel coronavirus ("COVID-19") was declared a Public Health Emergency of International Concern by the World Health Organization ("WHO"). Subsequently, on March 11, 2020, the WHO characterized the COVID-19 outbreak as a pandemic (the "COVID-19 Pandemic"). The United States has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of infected individuals. The COVID-19 Pandemic coupled with the current market volatility has created an economic environment which may have significant accounting and financial reporting implications.



8


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

The disruption of businesses around the globe due to COVID-19 may be a "trigger event" for companies to reassess valuation and accounting estimates and assumptions such as, impairment of goodwill, valuation allowances of deferred tax assets, fair value of investments and collectability of receivables. We have reviewed the assumptions on which we value our goodwill, as well as valuation allowances on certain assets and the collectability of our receivables as of September 30, 2020 none of which resulted in any impairment or write off.

3.    Financial Instruments - Credit Losses

On January 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which replaces the incurred loss methodology with a current expected loss ("CECL") methodology. The Company elected the modified retrospective method which did not result in a cumulative effect adjustment at the date of adoption.

The Company utilizes the practical expedient for securities borrowed and reverse repurchase agreements as these assets are secured by collateral when the amount of collateral is continually adjusted for fair value changes. No material historical losses have been reported on these assets. See footnote 8 for details.

As of September 30, 2020, the Company has $44.7 million of notes receivable. Notes receivable represents recruiting and retention payments generally in the form of upfront loans to financial advisors and key revenue producers as part of the Company's overall growth strategy. These notes generally amortize over a service period of 3 to 10 years from the initial date of the note or based on productivity levels of employees. All such notes are contingent on the employees' continued employment with the Company. The unforgiven portion of the notes becomes due on demand in the event the employee departs during the service period. At this point any uncollected portion of the notes gets reclassified into a defaulted notes category.

The allowance for uncollectibles is a valuation account that is deducted from the amortized cost basis of the defaulted notes balance to present the net amount expected to be collected. Balances are charged-off against the allowance when management deems the amount to be uncollectible.

The Company reserves 100% of the uncollected balance of defaulted notes which are five years and older and applies an expected loss rate to the remaining balance. The expected loss rate is based on historical collection rates of defaulted notes. The expected loss rate is adjusted for changes in environmental and market conditions such as changes in unemployment rates, changes in interest rates and other relevant factors. For the three and nine months ended September 30, 2020 no adjustments were made to the expected loss rate for these factors. The Company will continuously monitor the effect of these factors on the expected loss rate and adjust it as necessary.

The allowance is measured on a pool basis as the Company has determined that the entire defaulted portion of notes receivable has similar risk characteristics.

As of September 30, 2020, the uncollected balance of defaulted notes was $5.6 million and the allowance for uncollectibles was $4.2 million. The allowance for uncollectibles consisted of $3.2 million related to defaulted notes balances (five years and older) and $1.0 million (under five years) using an expected loss rate of 42.0%.

9


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

The following table presents the disaggregation of defaulted notes by year of origination as of September 30, 2020:
(Expressed in thousands)
As of September 30, 2020
2020 $ 404 
2019 476 
2018 181 
2017 748 
2016 651 
2015 and prior 3,157 
Total $ 5,617 

The following table presents activity in the allowance for uncollectibles of defaulted notes for the three and nine months ended September 30, 2020:
(Expressed in thousands)
For the Three Months Ended
For the Nine Months Ended (1)
September 30, 2020
Beginning balance $ 3,903  $ 3,673 
      Additions and other adjustments 287  517 
Ending balance $ 4,190  $ 4,190 
(1) Beginning balance on January 1, 2020 upon adoption of ASU 2016-13
4.    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 condensed 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 93 retail branch offices in the United States as well as offices in London, England, St. Helier, Isle of Jersey, Geneva, Switzerland, Frankfurt, Germany, Tel Aviv, Israel and Hong Kong, China.

The Company is constantly assessing its needs for office space and, on a rolling basis, has many leases that expire in any given year. Given the COVID-19 Pandemic, the Company is assessing its future real estate needs and in many cases is reducing its office space required as leases come up for renewal.

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.






10


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

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 does not include the renewal options as part of the right-of-use assets and liabilities.

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

As of September 30, 2020, the Company had right-of-use operating lease assets of $154.7 million (net of accumulated amortization of $43.9 million) which are comprised of real estate leases of $152.0 million (net of accumulated amortization of $40.6 million) and equipment leases of $2.7 million (net of accumulated amortization of $3.3 million). As of September 30, 2020, the Company had operating lease liabilities of $195.3 million which are comprised of real estate lease liabilities of $192.6 million and equipment lease liabilities of $2.7 million. As of September 30, 2020, 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 September 30, 2020.

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 September 30, 2020 and December 31, 2019:
As of
September 30, 2020 December 31, 2019
Weighted average remaining lease term (in years) 8.01 8.31
Weighted average discount rate 7.46% 7.89%

The following table presents operating lease costs recognized for the three and nine months ended September 30, 2020 and 2019 which are included in occupancy and equipment costs on the condensed consolidated income statements:    
(Expressed in thousands)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2020 2019 2020 2019
Operating lease costs:
   Real estate leases - Right-of-use lease asset amortization $ 5,862  $ 5,696  $ 17,326  $ 17,740 
   Real estate leases - Interest expense 3,720  4,145  11,475  11,792 
   Equipment leases - Right-of-use lease asset amortization 473  462  1,421  1,401 
   Equipment leases - Interest expense 48  57  153  171 
    

11


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

The maturities of lease liabilities as of September 30, 2020 and December 31, 2019 are as follows:    
(Expressed in thousands)
As of
September 30, 2020 December 31, 2019
2020 $ 10,171  $ 42,585 
2021 39,729  37,531 
2022 35,707  33,416 
2023 32,819  31,187 
2024 28,604  27,234 
After 2025 115,290  108,098 
Total lease payments $ 262,320  $ 280,051 
Less interest (66,972) (76,911)
Present value of lease liabilities $ 195,348  $ 203,140 

As of September 30, 2020, the Company had $6.5 million of additional operating leases that have not yet commenced ($11.1 million as of December 31, 2019).
5.    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 when uncertainties are expected 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.




12


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

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 funds' 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 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.

13


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 nine months ended September 30, 2020 and 2019:
(Expressed in thousands) For the Three Months Ended September 30, 2020
Reportable Segments
Private Client Asset Management Capital Markets Corporate/Other Total
Revenue from contracts with customers:
Commissions from sales and trading $ 40,742  $ —  $ 43,389  $ $ 84,134 
Mutual fund income 8,097  —  8,107 
Advisory fees 67,949  20,634  —  12  88,595 
Investment banking - capital markets 3,962  —  31,577  —  35,539 
Investment banking - advisory —  —  30,706  —  30,706 
Bank deposit sweep income 4,619  —  —  —  4,619 
Other 5,720  —  32  5,761 
Total revenue from contracts with customers 131,089  20,634  105,706  32  257,461 
Other sources of revenue:
Interest 5,939  (5) 1,539  67  7,540 
Principal transactions, net 1,223  —  6,357  123  7,703 
Other 2,846  687  19  3,555 
Total other sources of revenue 10,008  (2) 8,583  209  18,798 
Total revenue $ 141,097  $ 20,632  $ 114,289  $ 241  $ 276,259 

(Expressed in thousands) For the Three Months Ended September 30, 2019
Reportable Segments
Private Client Asset Management Capital Markets Corporate/Other Total
Revenue from contracts with customers:
Commissions from sales and trading $ 35,994  $ —  $ 32,569  $ $ 68,572 
Mutual fund income 10,050  —  10,055 
Advisory fees 62,510  18,366  80,887 
Investment banking - capital markets 2,557  —  8,773  —  11,330 
Investment banking - advisory —  —  10,468  —  10,468 
Bank deposit sweep income 28,894  —  —  —  28,894 
Other 3,296  448  576  4,322 
Total revenue from contracts with customers 143,301  18,368  52,261  598  214,528 
Other sources of revenue:
Interest 8,652  —  3,272  420  12,344 
Principal transactions, net 70  —  8,515  (979) 7,606 
Other 31  —  20  264  315 
Total other sources of revenue 8,753  —  11,807  (295) 20,265 
Total revenue $ 152,054  $ 18,368  $ 64,068  $ 303  $ 234,793 


14


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

(Expressed in thousands) For the Nine Months Ended September 30, 2020
Reportable Segments
Private Client Asset Management Capital Markets Corporate/Other Total
Revenue from contracts with customers:
Commissions from sales and trading $ 129,652  $ —  $ 141,013  $ 22  $ 270,687 
Mutual fund income 26,414  15  26,439 
Advisory fees 193,297  57,411  30  250,740 
Investment banking - capital markets 11,382  —  78,991  —  90,373 
Investment banking - advisory —  —  47,786  —  47,786 
Bank deposit sweep income 30,567  —  —  —  30,567 
Other 11,983  —  1,318  115  13,416 
Total revenue from contracts with customers 403,295  57,414  269,117  182  730,008 
Other sources of revenue:
Interest 18,753  —  5,390  507  24,650 
Principal transactions, net 1,164  —  19,853  (2,118) 18,899 
Other 1,128  741  324  2,202 
Total other sources of revenue 21,045  25,984  (1,287) 45,751 
Total revenue $ 424,340  $ 57,423  $ 295,101  $ (1,105) $ 775,759 

(Expressed in thousands) For the Nine Months Ended September 30, 2019
Reportable Segments
Private Client Asset Management Capital Markets Corporate/Other Total
Revenue from contracts with customers:
Commissions from sales and trading $ 110,496  $ —  $ 98,621  $ 16  $ 209,133 
Mutual fund income 29,788  (5) 13  29,799 
Advisory fees 181,634  53,572  26  235,241 
Investment banking - capital markets 9,568  —  32,065  —  41,633 
Investment banking - advisory —  —  40,214  —  40,214 
Bank deposit sweep income 94,692  —  —  —  94,692 
Other 10,101  1,289  2,369  13,761 
Total revenue from contracts with customers 436,279  53,569  172,201  2,424  664,473 
Other sources of revenue:
Interest 27,699  —  9,566  1,356  38,621 
Principal transactions, net 2,292  —  24,984  (5,187) 22,089 
Other 11,239  97  972  12,315 
Total other sources of revenue 41,230  34,647  (2,859) 73,025 
Total revenue $ 477,509  $ 53,576  $ 206,848  $ (435) $ 737,498 


15


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 $30.9 million and $28.9 million at September 30, 2020 and December 31, 2019, respectively. The Company had no significant impairments related to these receivables during the three and nine months ended September 30, 2020.
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 $1.3 million and $408,000 at September 30, 2020 and December 31, 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) As of
September 30, 2020 December 31, 2019
Contract assets (receivables):
Commission (1)
$ 780  $ 2,824 
Mutual fund income (2)
5,866  6,746 
Advisory fees (3)
1,431  1,594 
Bank deposit sweep income (4)
697  3,454 
Investment banking fees (5)
15,983  9,284 
  Other 6,100  4,986 
Total contract assets $ 30,857  $ 28,888 
Deferred revenue (payables):
Investment banking fees (6)
$ 659  $ 408 
IRA fees (7)
636  — 
Total deferred revenue $ 1,295  $ 408 
(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.


16


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

6.    Earnings per share
Basic earnings per share is computed by dividing net income over 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
September 30,
For the Nine Months Ended September 30,
  2020 2019 2020 2019
Basic weighted average number of shares outstanding 12,553,802  12,825,944  12,696,143  12,940,129 
Net dilutive effect of share-based awards, treasury method (1)
592,784  1,007,050  498,291  906,010 
Diluted weighted average number of shares outstanding 13,146,586  13,832,994  13,194,434  13,846,139 
Net income $ 15,639  $ 3,949  $ 41,106  $ 27,518 
Earnings per share
       Basic $ 1.25  $ 0.31  $ 3.24  $ 2.13 
       Diluted $ 1.19  $ 0.29  $ 3.12  $ 1.99 
     (1) For both the three and nine months ended September 30, 2020, the diluted earnings per share
computation does not include the anti-dilutive effect of 10,770 shares of Class A Stock granted under
share-based compensation arrangements (7,628 shares for both the three and nine months ended
September 30, 2019).
    
7.    Receivable from and payable to brokers, dealers and clearing organizations
(Expressed in thousands)    
  As of
  September 30, 2020 December 31, 2019
Receivable from brokers, dealers and clearing organizations consists of:
Securities borrowed $ 128,199  $ 99,635 
Receivable from brokers 29,088  19,024 
Securities failed to deliver 14,565  7,173 
Clearing organizations 34,165  36,269 
Other 1,239  1,192 
Total $ 207,256  $ 163,293 
Payable to brokers, dealers and clearing organizations consists of:
Securities loaned $ 291,969  $ 234,343 
Payable to brokers 2,280  4,548 
Securities failed to receive 19,421  14,603 
Other 53,279  267,481 
Total $ 366,949  $ 520,975 
17


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

8.    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.






18


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 with the NYAG, 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 ten years, the Company has bought back $142.5 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 defined). As of September 30, 2020, the Company had $1.3 million of ARS remaining 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 ten years, the Company has purchased $106.1 million of ARS pursuant to these legal settlements and awards. The Company has completed its ARS purchase obligations under such legal settlements and awards.
As of September 30, 2020, the Company owned $30.7 million of ARS. 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 the legal settlements and awards referred to above.
Valuation
The Company’s ARS owned and ARS purchase commitments referred to above have, for the most part, been subject to issuer tender offers. As a result, the Company has valued the ARS securities owned and the ARS purchase commitments at the tender offer price and categorized them in Level 3 of the fair value hierarchy due to the illiquid nature of the securities. The ARS purchase commitments related to the settlements with the Regulators 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. The fair value of ARS and ARS purchase commitments is particularly sensitive to movements in interest rates. However, an increase or decrease in short-term interest rates may or may not result in a higher or lower tender offer in the future or the tender offer price may not provide a reasonable estimate of the fair value of the securities. In such cases, other valuation techniques might be necessary.

As of September 30, 2020, the Company had a valuation adjustment (unrealized loss) totaling $5.2 million which consists of $5.0 million for ARS owned (which is included as a reduction to securities owned on the condensed consolidated balance sheet) and $191,510 for ARS purchase commitments from settlements with the Regulators (which is included in accounts payable and other liabilities on the condensed consolidated balance sheet).    

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 September 30, 2020:
(Expressed in thousands)        
  Fair Value Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Hedge funds (1)
$ 1,138  $ —  Quarterly - Annually 30 - 120 Days
Private equity funds (2)
4,351  1,238  N/A N/A
$ 5,489  $ 1,238 
(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.
(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and
global natural resources
19


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

The following table provides information about the Company's investments in Company-sponsored funds as of December 31, 2019:

(Expressed in thousands)        
  Fair Value Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Hedge funds (1)
$ 1,589  $ —  Quarterly - Annually 30 - 120 Days
Private equity funds (2)
4,227  1,339  N/A N/A
$ 5,816  $ 1,339 
(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.
(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and
global natural resources.


During the third quarter of 2020, the Company made an investment in a financial technologies firm. The Company elected the fair value option for this investment and it is included in other assets on the condensed consolidated balance sheet. The Company determined the fair value of the investment based on an implied market-multiple approach and observable market data, including comparable company transactions. The investment is categorized in Level 2 of the fair value hierarchy.






































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 September 30, 2020 and December 31, 2019, 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 September 30, 2020:
(Expressed in thousands)        
  Fair Value Measurements as of September 30, 2020
  Level 1 Level 2 Level 3 Total
Assets
Deposits with clearing organizations $ 35,344  $ —  $ —  $ 35,344 
Securities owned:
U.S. Treasury securities 470,683  —  —  470,683 
U.S. Agency securities —  14,787  —  14,787 
Sovereign obligations —  207  —  207 
Corporate debt and other obligations —  27,111  —  27,111 
Mortgage and other asset-backed securities —  2,963  —  2,963 
Municipal obligations —  46,645  —  46,645 
Convertible bonds —  19,992  —  19,992 
Corporate equities 32,121  —  —  32,121 
Money markets 1,470  —  —  1,470 
Auction rate securities —  —  30,701  30,701 
Securities owned, at fair value 504,274  111,705  30,701  646,680 
Investments (1)
—  3,961  —  3,961 
Derivative contracts:
TBAs —  275  —  275 
Total $ 539,618  $ 115,941  $ 30,701  $ 686,260 
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities $ 181,419  $ —  $ —  $ 181,419 
U.S. Agency securities —  4,972  —  4,972 
Sovereign obligations —  936  —  936 
Corporate debt and other obligations —  6,049  —  6,049 
Convertible bonds —  6,434  —  6,434 
Corporate equities 22,639  —  —  22,639 
Securities sold but not yet purchased, at fair value 204,058  18,391  —  222,449 
Derivative contracts:
Futures 116  —  —  116 
TBAs —  220  —  220 
ARS purchase commitments —  —  192  192 
Derivative contracts, total 116  220  192  528 
Total $ 204,174  $ 18,611  $ 192  $ 222,977 
(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, 2019:
(Expressed in thousands)        
  Fair Value Measurements as of December 31, 2019
  Level 1 Level 2 Level 3 Total
Assets
Deposits with clearing organizations $ 25,118  $ —  $ —  $ 25,118 
Securities owned:
U.S. Treasury securities 613,030  —  —  613,030 
U.S. Agency securities 19,917  15,974  —  35,891 
Sovereign obligations —  11,405  —  11,405 
Corporate debt and other obligations —  8,310  —  8,310 
Mortgage and other asset-backed securities —  2,697  —  2,697 
Municipal obligations —  40,260  —  40,260 
Convertible bonds —  29,816  —  29,816 
Corporate equities 32,215  —  —  32,215 
Money markets 781  —  —  781 
Auction rate securities —  25,314  —  25,314 
Securities owned, at fair value 665,943  133,776  —  799,719 
Total $ 691,061  $ 133,776  $ —  $ 824,837 
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities $ 52,882  $ —  $ —  $ 52,882 
U.S. Agency securities —  18  —  18 
Sovereign obligations —  6,405  —  6,405 
Corporate debt and other obligations —  664  —  664 
Mortgage and other asset-backed securities —  18,624  —  18,624 
Corporate equities 21,978  —  —  21,978 
Securities sold but not yet purchased, at fair value 74,860  25,711  —  100,571 
Derivative contracts:
Futures 267  —  —  267 
TBAs —  124  —  124 
ARS purchase commitments —  1,023  —  1,023 
Derivative contracts, total 267  1,147  —  1,414 
Total $ 75,127  $ 26,858  $ —  $ 101,985 
 
    














22


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

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2020:
(Expressed in thousands)
Level 3 Assets and Liabilities
For the Three Months Ended September 30, 2020
Total Realized
Beginning and Unrealized Purchases Sales and Transfers Ending
Balance
Gains (Losses)(3)(4)
and Issuances Settlements In (Out) Balance
Assets
Auction rate securities (1)
29,566  (165) 1,300  —  —  30,701 
Liabilities
ARS Purchase Commitments (2)
332  140  —  —  —  192 
(1) Represents auction rate securities that failed in the auction rate market.
(2) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.
(3) Included in principal transactions in the condensed consolidated statement of income.
(4) Unrealized gains are attributable to assets or liabilities that are still held at the reporting date.

For the three months ended September 30, 2020, Level 3 assets increased by $1.1 million. There were no balances or changes in Level 3 assets and liabilities during the three months ended September 30, 2019.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020 and 2019:
(Expressed in thousands)
Level 3 Assets and Liabilities
For the Nine Months Ended September 30, 2020
Total Realized
Beginning and Unrealized Purchases Sales and Transfers Ending
Balance
Gains (Losses)(4)(5)
and Issuances Settlements In (Out) Balance
Assets
Auction rate securities (1) (2)
—  (165) 1,300  —  29,566  30,701 
Liabilities
ARS Purchase Commitments (1) (3)
—  140  —  —  332  192 
(1) Transferred to Level 3 of the fair value hierarchy due to the illiquid nature of the securities as result of the length of time since the last tender offer.
(2) Represents auction rate securities that failed in the auction rate market.
(3) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.
(4) Included in principal transactions in the condensed consolidated statement of income.
(5) Unrealized gains 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 Nine Months Ended September 30, 2019
Total Realized
Beginning and Unrealized Purchases Sales and Transfers Ending
Balance
Gains(3)(4)
and Issuances Settlements In (Out) Balance
Assets
Auction rate securities (1) (2)
21,699  —  (350) (21,350) — 
Investments 101  —  —  (106) — 
(1) Transferred to Level 2 of the fair value hierarchy as a result of recent tender offer activities.
(2) Represents auction rate securities that failed in the auction rate market.
(3) Included in principal transactions in the condensed consolidated statement of income, except for gains from investments which are included
in other income in the condensed consolidated statement of income.
(4) Unrealized gains are attributable to assets or liabilities that are still held at the reporting date.

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

Assets and liabilities not measured at fair value as of September 30, 2020:
(Expressed in thousands)   Fair Value Measurement: Assets
  Carrying Value Level 1 Level 2 Level 3 Total
Cash $ 32,080  $ 32,080  $ —  $ —  $ 32,080 
Deposits with clearing organization 41,858  41,858  —  —  41,858 
Receivable from brokers, dealers and clearing organizations:
Securities borrowed 128,199  —  128,199  —  128,199 
Receivables from brokers 29,088  —  29,088  —  29,088 
Securities failed to deliver 14,565  —  14,565  —  14,565 
Clearing organizations 34,165  —  34,165  —  34,165 
Other 1,184  —  1,184  —  1,184 
207,201  —  207,201  —  207,201 
Receivable from customers 1,095,035  —  1,095,035  —  1,095,035 
Notes receivable, net 44,723  —  44,723  —  44,723 
Investments (1)
75,785  —  75,785  —  75,785 
(1) Included in other assets on the condensed consolidated balance sheet.




24


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

(Expressed in thousands)   Fair Value Measurement: Liabilities
  Carrying Value Level 1 Level 2 Level 3 Total
Drafts payable $ 18,251  $ 18,251  $ —  $ —  $ 18,251 
Bank call loans 156,900  —  156,900  —  156,900 
Payables to brokers, dealers and clearing organizations:
Securities loaned 291,969  —  291,969  —  291,969 
Payable to brokers 2,280  —  2,280  —  2,280 
Securities failed to receive 19,421  —  19,421  —  19,421 
Other 53,163  —  53,163  —  53,163 
366,833  —  366,833  —  366,833 
Payables to customers 380,746  —  380,746  —  380,746 
Securities sold under agreements to repurchase 252,827  —  252,827  —  252,827 
Senior secured notes 125,000  —  126,111  —  126,111 
 
Assets and liabilities not measured at fair value as of December 31, 2019:
(Expressed in thousands)   Fair Value Measurement: Assets
  Carrying Value Level 1 Level 2 Level 3 Total
Cash $ 79,550  $ 79,550  $ —  $ —  $ 79,550 
Deposits with clearing organization 23,297  23,297  —  —  23,297 
Receivable from brokers, dealers and clearing organizations:
Securities borrowed 99,635  —  99,635  —  99,635 
Receivables from brokers 19,024  —  19,024  —  19,024 
Securities failed to deliver 7,173  —  7,173  —  7,173 
Clearing organizations 36,269  —  36,269  —  36,269 
Other 1,316  —  1,316  —  1,316 
163,417  —  163,417  —  163,417 
Receivable from customers 796,934  —  796,934  —  796,934 
Notes receivable, net 43,670  —  43,670  —  43,670 
Investments (1)
73,971  —  73,971  —  73,971 
(1) Included in other assets on the condensed consolidated balance sheet.







25


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

(Expressed in thousands)   Fair Value Measurement: Liabilities
  Carrying Value Level 1 Level 2 Level 3 Total
Payables to brokers, dealers and clearing organizations:
Securities loaned $ 234,343  $ —  $ 234,343  $ —  $ 234,343 
Payable to brokers 4,548  —  4,548  —  4,548 
Securities failed to receive 14,603  —  14,603  —  14,603 
Other 267,214  —  267,214  —  267,214 
520,708  —  520,708  —  520,708 
Payables to customers 334,735  —  334,735  —  334,735 
Securities sold under agreements to repurchase 287,265  —  287,265  —  287,265 
Senior secured notes 150,000  —  154,988  —  154,988 

Fair Value Option
The Company elected the fair value option for securities sold under agreements to repurchase ("repurchase agreements") and securities purchased under agreements to resell ("reverse repurchase agreements") that do not settle overnight or have an open settlement date. The Company has elected the fair value option for these instruments to reflect more accurately market and economic events in its earnings and to mitigate a potential mismatch in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. As of September 30, 2020, the Company did not have any repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date.
Derivative Instruments and Hedging Activities
The Company transacts, on a limited basis, in exchange traded and over-the-counter derivatives for both asset and liability management as well as for trading and investment purposes. Risks managed using derivative instruments include interest rate risk and, to a lesser extent, foreign exchange risk. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the condensed consolidated balance sheet.

Foreign exchange hedges
From time to time, the Company also utilizes forward and options contracts to hedge the foreign currency risk associated with compensation obligations to Oppenheimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekel ("NIS"). Such hedges have not been designated as accounting hedges. Unrealized gains and losses on foreign exchange forward contracts are recorded in other assets on the condensed consolidated balance sheet and other income in the condensed consolidated statement of income.

Derivatives used for trading and investment purposes
Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. Notional or contractual amounts are used to express the volume of these transactions and do not represent the amounts potentially subject to market risk. The Company uses futures contracts, including U.S. Treasury notes, Federal Funds, General Collateral futures and Eurodollar contracts primarily as an economic hedge of interest rate risk associated with government trading activities. Unrealized gains and losses on futures contracts are recorded on the condensed consolidated balance sheet in payable to brokers, dealers and clearing organizations and in the condensed consolidated statement of income as principal transactions revenue, net.



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

To-be-announced securities
The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the TBA market as economic hedges against mortgage-backed securities that it owns or has sold but not yet purchased. TBAs provide for the forward or delayed delivery of the underlying instrument with settlement up to 180 days. The contractual or notional amounts related to these financial instruments reflect the volume of activity and do not reflect the amounts at risk. Net unrealized gains and losses on TBAs are recorded on the condensed consolidated balance sheet in receivable from brokers, dealers and clearing organizations or payable to brokers, dealers and clearing organizations and in the condensed consolidated statement of income as principal transactions revenue, net.

The notional amounts and fair values of the Company's derivatives as of September 30, 2020 and December 31, 2019 by product were as follows:
(Expressed in thousands)      
  Fair Value of Derivative Instruments as of September 30, 2020
  Description