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OPPENHEIMER HOLDINGS INC - Quarter Report: 2019 June (Form 10-Q)

Table of Contents


 
 
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.
 



Table of Contents

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.
 



Table of Contents

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

Table of Contents


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

Table of Contents

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

Table of Contents

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

Table of Contents

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

 
$

 
$
92,226

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







21


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 June 30, 2019 and 2018:
(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Three Months Ended June 30, 2019
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains(2)(3)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In (Out)
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Auction rate securities (1)
$
21,700

 
$

 
$

 
$
(350
)
 
$
(21,350
)
 
$

Investments
104

 
2

 

 

 
(106
)
 

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

(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Three Months Ended June 30, 2018
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains (losses) (3)(4)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In (Out)
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Auction rate securities (1)
$
87,350

 
$
(902
)
 
$
4,050

 
$
(275
)
 
$
(17,602
)
 
$
72,621

Investments
168

 
(4
)
 

 

 

 
164

Liabilities
 
 
 
 
 
 
 
 
 
 
 
ARS purchase commitments (2)
183

 
(39
)
 

 

 
91

 
131


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




22


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

(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Six Months Ended June 30, 2019
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains (2)(3)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In (Out)
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Auction rate securities (1)
$
21,699

 
$
1

 
$

 
$
(350
)
 
$
(21,350
)
 
$

Investments
101


5






(106
)



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

(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Six Months Ended June 30, 2018
 
Beginning
Balance
 
Total Realized
and Unrealized
Gains
(Losses) (3)(4)
 
Purchases
and Issuances
 
Sales and Settlements
 
Transfers
In (Out)
 
Ending
Balance
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Municipal obligations
$
35

 
$
14

 
$
76

 
$
(125
)
 
$

 
$

Auction rate securities (1)
87,398

 
(55
)
 
4,100

 
(1,220
)
 
(17,602
)
 
72,621

Investments
169

 
(5
)
 

 

 

 
164

Liabilities
 
 
 
 
 
 
 
 
 
 
 
ARS purchase commitments (2)
8

 
(214
)
 

 

 
91

 
131

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

23


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

Financial Instruments Not Measured at Fair Value
The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., right-of-use lease assets, lease liabilities, furniture, equipment and leasehold improvements and accrued compensation).
The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 approximates fair value because of the relatively short-term nature of the underlying assets. The fair value of the Company's senior secured notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the notes trade.
Assets and liabilities not measured at fair value as of June 30, 2019
(Expressed in thousands)
 
 
Fair Value Measurement: Assets
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
60,807

 
$
60,807

 
$

 
$

 
$
60,807

Deposits with clearing organization
34,198

 
34,198

 

 

 
34,198

Receivable from brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities borrowed
103,148

 

 
103,148

 

 
103,148

Receivables from brokers
22,521

 

 
22,521

 

 
22,521

Securities failed to deliver
14,898

 

 
14,898

 

 
14,898

Clearing organizations
25,604

 

 
25,604

 

 
25,604

Other
1,791

 

 
1,791

 

 
1,791

 
167,962

 

 
167,962

 

 
167,962

Receivable from customers
807,581

 

 
807,581

 

 
807,581

Securities purchased under agreements to resell
39

 

 
39

 

 
39

Notes receivable, net
43,413

 

 
43,413

 

 
43,413

Investments (1)
69,070

 

 
69,070

 

 
69,070

 
(1) Included in other assets on the condensed consolidated balance sheet.
(Expressed in thousands)
 
 
Fair Value Measurement: Liabilities
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Drafts payable
$
17,456

 
$
17,456

 
$

 
$

 
$
17,456

Bank call loans
50,100

 

 
50,100

 

 
50,100

Payables to brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities loaned
247,714

 

 
247,714

 

 
247,714

Payable to brokers
8,667

 

 
8,667

 

 
8,667

Securities failed to receive
30,570

 

 
30,570

 

 
30,570

Other
129,987

 

 
129,987

 

 
129,987

 
416,938

 

 
416,938

 

 
416,938

Payables to customers
325,754

 

 
325,754

 

 
325,754

Securities sold under agreements to repurchase
521,837

 

 
521,837

 

 
521,837

Senior secured notes
200,000

 

 
205,356

 

 
205,356

 

24


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

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

 
$
80,175

 
$

 
$

 
$
80,175

Deposits with clearing organization
33,079

 
33,079

 

 

 
33,079

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

 

 
108,144

 

 
108,144

Receivables from brokers
20,140

 

 
20,140

 

 
20,140

Securities failed to deliver
7,021

 

 
7,021

 

 
7,021

Clearing organizations
28,777

 

 
28,777

 

 
28,777

Other
2,411

 

 
2,411

 

 
2,411

 
166,493

 

 
166,493

 

 
166,493

Receivable from customers
720,777

 

 
720,777

 

 
720,777

Securities purchased under agreements to resell
290

 

 
290

 

 
290

Notes receivable, net
44,058

 

 
44,058

 

 
44,058

Investments (1)
59,765

 

 
59,765

 

 
59,765

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

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

 
$
16,348

 
$

 
$

 
$
16,348

Bank call loans
15,000

 

 
15,000

 

 
15,000

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

 

 
146,815

 

 
146,815

Payable to brokers
158

 

 
158

 

 
158

Securities failed to receive
27,799

 

 
27,799

 

 
27,799

Other
113,628

 

 
113,628

 

 
113,628

 
288,400

 

 
288,400

 

 
288,400

Payables to customers
336,616

 

 
336,616

 

 
336,616

Securities sold under agreements to repurchase
484,218

 

 
484,218

 

 
484,218

Senior secured notes
200,000

 

 
199,722

 

 
199,722


25


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

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 June 30, 2019, 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.
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.

26


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

The notional amounts and fair values of the Company's derivatives as of June 30, 2019 and December 31, 2018 by product were as follows:
(Expressed in thousands)
 
 
 
 
 
 
Fair Value of Derivative Instruments as of June 30, 2019
 
Description
 
Notional
 
Fair Value
Assets:
 
 
 
 
 
Derivatives not designated as hedging instruments (1)
 
 
 
 
 
Other contracts
TBAs
 
$
12,680

 
$
14

 
 
 
$
12,680

 
$
14

Liabilities:
 
 
 
 
 
Derivatives not designated as hedging instruments (1)
 
 
 
 
 
Commodity contracts
Futures
 
$
5,176,000

 
$
1,781

Other contracts
Foreign exchange forward contracts
 
400

 
4

 
TBAs
 
19,180

 
45

 
ARS purchase commitments
 
5,554

 
764

 
 
 
$
5,201,134

 
$
2,594

 
(1)
See "Derivative Instruments and Hedging Activities" above for description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the
related amounts are not offset.

(Expressed in thousands)
 
 
 
 
 
 
Fair Value of Derivative Instruments as of December 31, 2018
 
Description
 
Notional
 
Fair Value
Assets:
 
 
 
 
 
Derivatives not designated as hedging instruments (1)
 
 
 
 
 
Other contracts
TBAs
 
$
729,500

 
$
4,873

 
 
 
$
729,500

 
$
4,873

Liabilities:
 
 
 
 
 
Derivatives not designated as hedging instruments (1)
 
 

 

Commodity contracts
Futures
 
$
4,580,800

 
$
807

       Other contracts
Foreign exchange forward contracts
 
200

 
4

 
TBAs
 
729,500

 
4,873

 
ARS purchase commitments
 
7,305

 
1,096

 
 
 
$
5,317,805

 
$
6,780

(1)
See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the
related amounts are not offset.


27


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

The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the condensed consolidated statements of income for the three months ended June 30, 2019 and 2018:
(Expressed in thousands)
 
 
 
 
 
 
 
 
The Effect of Derivative Instruments in the Income Statement
 
 
For the Three Months Ended June 30, 2019
 
 
 
 
Recognized in Income on Derivatives
(pre-tax)
Types
 
Description
 
Location
 
Net Gain (Loss)
Commodity contracts
 
Futures
 
Principal transactions revenue
 
$
(2,090
)
Other contracts
 
Foreign exchange forward contracts
 
Other revenue
 
(4
)
 
 
TBAs
 
Principal transactions revenue
 
(86
)
 
 
ARS purchase commitments
 
Principal transactions revenue
 
350

 
 
 
 
 
 
$
(1,830
)
 
 
 
 
 
 
 
(Expressed in thousands)
 
 
 
 
 
 
 
 
The Effect of Derivative Instruments in the Income Statement
 
 
For the Three Months Ended June 30, 2018
 
 
 
 
Recognized in Income on Derivatives
(pre-tax)
Types
 
Description
 
Location
 
Net Gain (Loss)
Commodity contracts
 
Futures
 
Principal transactions revenue
 
$
322

Other contracts
 
Foreign exchange forward contracts
 
Other revenue
 
(5
)
 
 
TBAs
 
Principal transactions revenue
 
162

 
 
Other TBAs
 
Other revenue
 
72

 
 
ARS purchase commitments
 
Principal transactions revenue
 
(39
)
 
 
 
 
 
 
$
512

 

28


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

(Expressed in thousands)
 
 
 
 
 
 
 
 
The Effect of Derivative Instruments in the Income Statement
 
 
For the Six Months Ended June 30, 2019
 
 
 
 
Recognized in Income on Derivatives
(pre-tax)
Types
 
Description
 
Location
 
Net Gain (Loss)
Commodity contracts
 
Futures
 
Principal transactions revenue
 
$
(2,666
)
Other contracts
 
Foreign exchange forward contracts
 
Other revenue
 
(6
)
 
 
TBAs
 
Principal transactions revenue
 
(76
)
 
 
ARS purchase commitments
 
Principal transactions revenue
 
332

 
 
 
 
 
 
$
(2,416
)
 
 
 
 
 
 
 
(Expressed in thousands)
 
 
 
 
 
 
 
 
The Effect of Derivative Instruments in the Income Statement
 
 
For the Six Months Ended June 30, 2018
 
 
 
 
Recognized in Income on Derivatives
(pre-tax)
Types
 
Description
 
Location
 
Net Gain (Loss)
Commodity contracts
 
Futures
 
Principal transactions revenue
 
$
1,351

Other contracts
 
Foreign exchange forward contracts
 
Other revenue
 
(5
)
 
 
TBAs
 
Principal transactions revenue
 
196

 
 
Other TBAs
 
Other revenue
 
147

 
 
ARS purchase commitments
 
Principal transactions revenue
 
(214
)
 
 
 
 
 
 
$
1,475










29


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

8.    Collateralized transactions
The Company enters into collateralized borrowing and lending transactions in order to meet customers' needs and earn interest rate spreads, obtain securities for settlement and finance trading inventory positions. Under these transactions, the Company either receives or provides collateral, including U.S. Government and Agency, asset-backed, corporate debt, equity, and non-U.S. Government and Agency securities.
The Company obtains short-term borrowings primarily through bank call loans. Bank call loans are generally payable on demand and bear interest at various rates. As of June 30, 2019, the Company's bank call loans outstanding balance was $50.1 million ($15.0 million as of December 31, 2018). As of June 30, 2019, such loans were collateralized by firm securities with market values of approximately $81.1 million with commercial banks.
As of June 30, 2019, the Company had approximately $1.0 billion of customer securities under customer margin loans that are available to be pledged, of which the Company has re-pledged approximately $209.0 million under securities loan agreements.
As of June 30, 2019, the Company had pledged $210.6 million of customer securities directly with the Options Clearing Corporation to secure obligations and margin requirements under option contracts written by customers.
As of June 30, 2019, the Company had no outstanding letters of credit.
The Company enters into reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions to, among other things, acquire securities to cover short positions and settle other securities obligations, to accommodate customers' needs and to finance the Company's inventory positions. Except as described below, repurchase and reverse repurchase agreements, principally involving U.S. Government and Agency securities, are carried at amounts at which the securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest. Repurchase agreements and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase agreements and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase agreements and reverse repurchase agreements exist in "book entry" form and certain other requirements are met.
The following table presents a disaggregation of the gross obligation by the class of collateral pledged and the remaining contractual maturity of the repurchase agreements and securities loaned transactions as of June 30, 2019:
(Expressed in thousands)
 
 
Overnight and Open
Repurchase agreements:
 
U.S. Government and Agency securities
$
689,922

Securities loaned:
 
Equity securities
247,714

Gross amount of recognized liabilities for repurchase agreements and securities loaned
$
937,636


30


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

The following tables present the gross amounts and the offsetting amounts of reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions as of June 30, 2019 and December 31, 2018:
As of June 30, 2019
 (Expressed in thousands)
 
 
 
 
 
 
Gross Amounts Not Offset
on the Balance Sheet
 
 
 
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts
Offset on the
Balance Sheet
 
Net Amounts
of Assets
Presented on
the Balance
Sheet
 
Financial
Instruments
 
Cash
Collateral
Received
 
Net Amount
Reverse repurchase agreements
$
168,124

 
$
(168,085
)
 
$
39

 
$

 
$

 
$
39

Securities borrowed (1)
103,148

 

 
103,148

 
(100,192
)
 

 
2,956

Total
$
271,272

 
$
(168,085
)
 
$
103,187

 
$
(100,192
)
 
$

 
$
2,995

(1)
Included in receivable from brokers, dealers and clearing organizations on the condensed consolidated balance sheet.
 
 
 
 
 
 
 
Gross Amounts Not Offset
on the Balance Sheet
 
 
 
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts
Offset on the Balance Sheet
 
Net Amounts
of Liabilities
Presented on
the Balance
Sheet
 
Financial
Instruments
 
Cash
Collateral
Pledged
 
Net Amount
Repurchase agreements
$
689,922

 
$
(168,085
)
 
$
521,837

 
$
(521,022
)
 
$

 
$
815

Securities loaned (2)
247,714

 

 
247,714

 
(239,713
)
 

 
8,001

Total
$
937,636

 
$
(168,085
)
 
$
769,551

 
$
(760,735
)
 
$

 
$
8,816

 
(2)
Included in payable to brokers, dealers and clearing organizations on the condensed consolidated
balance sheet.
As of December 31, 2018
(Expressed in thousands) 
 
 
 
 
 
 
Gross Amounts Not Offset
on the Balance Sheet
 
 
 
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts
Offset on the Balance Sheet
 
Net Amounts
of Assets
Presented on
the Balance
Sheet
 
Financial
Instruments
 
Cash
Collateral
Received
 
Net Amount
Reverse repurchase agreements
$
82,429

 
$
(82,139
)
 
$
290

 
$

 
$

 
$
290

Securities borrowed (1)
108,144

 

 
108,144

 
(105,960
)
 

 
2,184

Total
$
190,573

 
$
(82,139
)
 
$
108,434

 
$
(105,960
)
 
$

 
$
2,474

 
(1)
Included in receivable from brokers, dealers and clearing organizations on the condensed consolidated balance sheet.
 
 
 
 
 
 
 
Gross Amounts Not Offset
on the Balance Sheet
 
 
 
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts
Offset on the Balance Sheet
 
Net Amounts
of Liabilities
Presented on
the Balance
Sheet
 
Financial
Instruments
 
Cash
Collateral
Pledged
 
Net Amount
Repurchase agreements
$
566,357

 
$
(82,139
)
 
$
484,218

 
$
(480,322
)
 
$

 
$
3,896

Securities loaned (2)
146,815

 

 
146,815

 
(139,232
)
 

 
7,583

Total
$
713,172

 
$
(82,139
)
 
$
631,033

 
$
(619,554
)
 
$

 
$
11,479

 
(2)
Included in payable to brokers, dealers and clearing organizations on the condensed consolidated
balance sheet.

31


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

The Company elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. As of June 30, 2019, the Company did not have any repurchase agreements or reverse repurchase agreements that do not settle overnight or have an open settlement date.
The Company receives collateral in connection with securities borrowed and reverse repurchase agreement transactions and customer margin loans. Under many agreements, the Company is permitted to sell or re-pledge the securities received (e.g., use the securities to enter into securities lending transactions, or deliver to counterparties to cover short positions). As of June 30, 2019, the fair value of securities received as collateral under securities borrowed transactions and reverse repurchase agreements was $100.5 million ($104.9 million as of December 31, 2018) and $170.9 million ($83.0 million as of December 31, 2018), respectively, of which the Company has sold and re-pledged approximately $29.5 million ($27.6 million as of December 31, 2018) under securities loaned transactions and $170.9 million under repurchase agreements ($83.0 million as of December 31, 2018).
The Company pledges certain of its securities owned for securities lending and repurchase agreements and to collateralize bank call loan transactions. The carrying value of pledged securities owned that can be sold or re-pledged by the counterparty was $547.3 million, as presented on the face of the condensed consolidated balance sheet as of June 30, 2019 ($518.0 million as of December 31, 2018). The carrying value of securities owned by the Company that have been loaned or pledged to counterparties where those counterparties do not have the right to sell or re-pledge the collateral was $81.1 million as of June 30, 2019 ($20.2 million as of December 31, 2018).
The Company manages credit exposure arising from repurchase and reverse repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Company, in the event of a customer default, the right to liquidate securities and the right to offset a counterparty's rights and obligations. The Company manages market risk of repurchase agreements and securities loaned by monitoring the market value of collateral held and the market value of securities receivable from others. It is the Company's policy to request and obtain additional collateral when exposure to loss exists. In the event the counterparty is unable to meet its contractual obligation to return the securities, the Company may be exposed to off-balance sheet risk of acquiring securities at prevailing market prices.
Credit Concentrations
Credit concentrations may arise from trading, investing, underwriting and financing activities and may be impacted by changes in economic, industry or political factors. In the normal course of business, the Company may be exposed to credit risk in the event customers, counterparties including other brokers and dealers, issuers, banks, depositories or clearing organizations are unable to fulfill their contractual obligations. The Company seeks to mitigate these risks by actively monitoring exposures and obtaining collateral as deemed appropriate. Included in receivable from brokers, dealers and clearing organizations as of June 30, 2019 were receivables from four major U.S. broker-dealers totaling approximately $69.6 million.
The Company is obligated to settle transactions with brokers and other financial institutions even if its clients fail to meet their obligations to the Company. Clients are required to complete their transactions on the settlement date, generally one to two business days after the trade date. If clients do not fulfill their contractual obligations, the Company may incur losses. The Company has clearing/participating arrangements with the National Securities Clearing Corporation, the Fixed Income Clearing Corporation ("FICC"), R.J. O'Brien & Associates (commodities transactions), Mortgage-Backed Securities Division (a division of FICC) and others. With respect to its business in reverse repurchase and repurchase agreements, substantially all open contracts as of June 30, 2019 were with the FICC. In addition, the Company clears its non-U.S. international equities business carried on by Oppenheimer Europe Ltd. through Global Prime Partners, Ltd. The clearing organizations have the right to charge the Company for losses that result from a client's failure to fulfill its contractual obligations. Accordingly, the Company has credit exposures with these clearing brokers. The clearing brokers can re-hypothecate the securities held on behalf of the Company. As the right to charge the Company has no maximum amount and applies to all trades executed through the clearing brokers, the Company believes there is no maximum amount assignable to this right. As of June 30, 2019, the Company had recorded no liabilities with regard to this right. The Company's policy is to monitor the credit standing of the clearing brokers and banks with which it conducts business.

32


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

9.    Variable interest entities ("VIEs")
The Company's policy is to consolidate all subsidiaries in which it has a controlling financial interest, as well as any VIEs where the Company is deemed to be the primary beneficiary, when it has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb significant losses or the right to receive benefits that could potentially be significant to the VIE.
For funds that the Company has concluded are not VIEs, the Company then evaluates whether the fund is a partnership or similar entity. If the fund is a partnership or similar entity, the Company evaluates the fund under the partnership consolidation guidance. Pursuant to that guidance, the Company consolidates funds in which it is the general partner, unless presumption of control by the Company can be overcome. This presumption is overcome only when unrelated investors in the fund have the substantive ability to liquidate the fund or otherwise remove the Company as the general partner without cause, based on a simple majority vote of unaffiliated investors, or have other substantive participating rights. If the presumption of control can be overcome, the Company accounts for its interest in the fund pursuant to the equity method of accounting.
The Company serves as general partner of hedge funds and private equity funds that were established for the purpose of providing investment alternatives to both its institutional and qualified retail clients. The Company holds variable interests in these funds as a result of its right to receive management and incentive fees. The Company's investment in and additional capital commitments to these hedge funds and private equity funds are also considered variable interests. The Company's additional capital commitments are subject to call at a later date and are limited to the amount committed.
The Company assesses whether it is the primary beneficiary of the hedge funds and private equity funds in which it holds a variable interest in the form of general and limited partner interests. In each instance, the Company has determined that it is not the primary beneficiary and therefore need not consolidate the hedge funds or private equity funds. The subsidiaries' general and limited partnership interests, additional capital commitments, and management fees receivable represent its maximum exposure to loss. The subsidiaries' general partnership and limited partnership interests and management fees receivable are included in other assets on the condensed consolidated balance sheet.
The following tables set forth the total VIE assets, the carrying value of the subsidiaries' variable interests, and the Company's maximum exposure to loss in Company-sponsored non-consolidated VIEs in which the Company holds variable interests and other non-consolidated VIEs in which the Company holds variable interests as of June 30, 2019 and December 31, 2018:
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
As of June 30, 2019
 
Total
VIE Assets (1)
 
Carrying Value of the
Company's Variable Interest
 
Capital
Commitments
 
Maximum
Exposure
to Loss in
Non-consolidated
VIEs
 
Assets (2)
 
Liabilities
 
Hedge funds
$
365,259

 
$
360

 
$

 
$

 
$
360

Private equity funds
7,454

 
8

 

 

 
8

Total
$
372,713

 
$
368

 
$

 
$

 
$
368

 
(1) Represents the total assets of the VIEs and does not represent the Company's interests in the VIEs.
(2) Represents the Company's interest in the VIEs and is included in other assets on the condensed
consolidated balance sheet.




33


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

(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
Total
VIE Assets 
(1)
 
Carrying Value of the
Company's Variable Interest
 
Capital
Commitments
 
Maximum
Exposure
to Loss in
Non-consolidated
VIEs
 
Assets (2)
 
Liabilities
 
Hedge funds
$
291,200

 
$
337

 
$

 
$

 
$
337

Private equity funds
7,454

 
8

 

 

 
8

Total
$
298,654

 
$
345

 
$

 
$

 
$
345

 
(1) Represents the total assets of the VIEs and does not represent the Company's interests in the VIEs.
(2) Represents the Company's interest in the VIEs and is included in other assets on the condensed
consolidated balance sheet.

10.    Long-term debt
 
(Expressed in thousands)
 
 
 
 
 
 
Issued
 
Maturity Date
 
June 30, 2019
 
December 31, 2018
6.75% Senior Secured Notes
 
7/1/2022
 
$
200,000

 
$
200,000

Unamortized Debt Issuance Cost
 
 
 
(775
)
 
(904
)
 
 
 
 
$
199,225

 
$
199,096

6.75% Senior Secured Notes
On June 23, 2017, the Parent issued in a private offering $200.0 million aggregate principal amount of 6.75% Senior Secured Notes due 2022 (the "Unregistered Notes") under an indenture at an issue price of 100% of the principal amount. On September 19, 2017, the Parent completed an exchange offer in which the Parent exchanged 99.8% of its Unregistered Notes for a like principal amount of notes with identical terms except that such new notes had been registered under the Securities Act of 1933, as amended (the "Notes"). The Parent did not receive any proceeds in the exchange offer. Interest on the Notes is payable semi-annually on January 1st and July 1st, beginning January 1, 2018. On June 23, 2017, the Parent used a portion of the net proceeds from the offering of the Unregistered Notes to redeem in full its 8.75% Senior Secured Notes due April 15, 2018 (the "Old Notes") in the principal amount of $120.0 million, and pay all fees and expenses related thereto. The cost to issue the Notes was $4.3 million, of which $3.0 million was paid to its subsidiary, Oppenheimer, who served as the initial purchaser of the offering, and was eliminated in consolidation. The Company capitalized the remaining $1.3 million and will amortize it over the term of the Notes.
The indenture governing the Notes contains covenants that place restrictions on the incurrence of indebtedness, the payment of dividends, the repurchase of equity, the sale of assets, mergers and acquisitions and the granting of liens. Pursuant to the indenture governing the Notes, the Parent is restricted from paying any dividend or making any payment or distribution on account of its equity interests unless, among other things, (i) the dividend, payment or distribution (together with all other such dividends, payments or distributions made since July 1, 2017) is less than an amount calculated based in part on the Consolidated Adjusted Net Income (as defined in the indenture governing the Notes) of the Parent and its restricted and regulated subsidiaries since July 1, 2017, or (ii) the dividend, payment or distribution fits within one or more exceptions, including:

it is less than $20 million in any fiscal year; or 
when combined with all other Restricted Payments (as defined in the indenture governing the Notes) that rely upon this exception, it does not exceed $10 million.

34


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

The Notes provide for events of default including, among other things, nonpayment, breach of covenants and bankruptcy. The Parent's obligations under the Notes are guaranteed by certain of the Parent's subsidiaries and are secured by a first-priority security interest in substantially all of the assets of the Parent and the subsidiary's guarantors. These guarantees and the collateral may be shared, on a pari passu basis, under certain circumstances, with debt incurred. As of June 30, 2019, the Parent was in compliance with all of its covenants.
Interest expense for both the three and six months ended June 30, 2019 and 2018 on the Notes was $3.4 million and $6.8 million, respectively.
On July 26, 2019, the Company announced that it will be redeeming a total of $50.0 million (25%) of its Notes. The Company has delivered to the Trustee for the holders of the Notes a notice of partial redemption, notifying the Trustee of the Company’s intent to redeem on August 25, 2019 (the “Redemption Date”) $50.0 million aggregate principal amount of the outstanding Notes at a redemption price equal to 103.375% (“Call Premium”) of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest thereon to the Redemption Date. The Company will incur $1.7 million in costs associated with paying the Call Premium on the Notes during the third quarter of 2019. Upon completion of the redemption, $150.0 million aggregate principal amount of the Notes will remain outstanding. The redemption of 25% of the Notes will reduce the Company’s interest costs by $3.8 million annually. 
11.    Share capital
The Company's authorized share capital consists of (a) 50,000,000 shares of Preferred Stock, par value $0.001 per share; (b) 50,000,000 shares of Class A Stock, par value $0.001 per share; and (c) 99,665 shares of Class B Stock, par value $0.001 per share. No Preferred Stock has been issued. 99,665 shares of Class B Stock have been issued and are outstanding.
The Class A Stock and the Class B Stock are equal in all respects except that the Class A Stock is non-voting.
The following table reflects changes in the number of shares of Class A Stock outstanding for the periods indicated:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Class A Stock outstanding, beginning of period
12,923,517

 
13,141,103

 
12,941,809

 
13,139,203

Issued pursuant to share-based compensation plans

 
15,250

 
61,091

 
17,150

Repurchased and canceled pursuant to the stock buy-back
(167,209
)
 

 
(246,592
)
 

Class A Stock outstanding, end of period
12,756,308

 
13,156,353

 
12,756,308

 
13,156,353

Stock buy-back

Under the previous share repurchase program which was announced on May 5, 2017, the Company was authorized to purchase up to 650,000 shares of its Class A Stock. As of January 1, 2019, 272,784 shares were available to be purchased under this program. During the three months ended June 30, 2019, the Company purchased and canceled 167,209 shares of Class A Stock for a total consideration of $4.3 million ($25.82 per share) under this program. During the six months ended June 30, 2019, the Company purchased and canceled 246,592 shares of Class A Stock for a total consideration of $6.4 million ($25.76 per share) under this program. As of June 30, 2019, 26,192 shares remained available to be purchased under the previous share repurchase program.
On July 26, 2019, the Company announced that its Board of Directors approved a share repurchase program that authorizes the Company to purchase up to 640,000 shares of the Company's Class A Stock, representing approximately 5% of its 12,756,308 currently issued and outstanding shares of Class A Stock. This authorization will supplement the 26,192 shares that remain authorized and available under the Company's previous share repurchase program for a total of 666,192 shares authorized and available for repurchase.

35


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

Any such share purchases will be made by the Company from time to time in the open market at the prevailing open market price using cash on hand, in compliance with the applicable rules and regulations of the New York Stock Exchange and federal and state securities laws and the terms of the Company's Notes. All shares purchased will be canceled. The share repurchase program is expected to continue indefinitely. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of Class A Stock. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice.

12.    Contingencies
Many aspects of the Company's business involve substantial risks of liability. In the normal course of business, the Company has been named as defendant or co-defendant in various legal actions, including arbitrations, class actions and other litigation, creating substantial exposure and periodic expenses. Certain of the actual or threatened legal matters include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. These proceedings arise primarily from securities brokerage, asset management and investment banking activities. The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company's business, which may result in expenses, adverse judgments, settlements, fines, penalties, injunctions or other relief. The investigations include inquiries from the SEC, the Financial Industry Regulatory Authority ("FINRA") and various state regulators.
The Company accrues for estimated loss contingencies related to legal and regulatory matters when available information indicates that it is probable a liability had been incurred and the Company can reasonably estimate the amount of that loss. In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is often not possible to reasonably estimate the size of the possible loss or range of loss or possible additional losses or range of additional losses.
For certain legal and regulatory proceedings, the Company cannot reasonably estimate such losses, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial, indeterminate or special damages. Counsel may be required to review, analyze and resolve numerous issues, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before the Company can reasonably estimate a loss or range of loss or additional loss for the proceeding. Even after lengthy review and analysis, the Company, in many legal and regulatory proceedings, may not be able to reasonably estimate possible losses or range of loss.
For certain other legal and regulatory proceedings, the Company can estimate possible losses, or range of loss in excess of amounts accrued, but does not believe, based on current knowledge and after consultation with counsel, that such losses individually, or in the aggregate, will have a material adverse effect on the Company's condensed consolidated financial statements as a whole.
For legal and regulatory proceedings where there is at least a reasonable possibility that a loss or an additional loss may be incurred, the Company estimates a range of aggregate loss in excess of amounts accrued of $0 to $3.0 million. This estimated aggregate range is based upon currently available information for those legal proceedings in which the Company is involved, where the Company can make an estimate for such losses. For certain cases, the Company does not believe that it can make an estimate. The foregoing aggregate estimate is based on various factors, including the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the numerous yet-unresolved issues in many of the proceedings and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Company's estimate will change from time to time, and actual losses may be more than the current estimate.
As discussed in note 7 Fair value measurements, the Company reached settlements with the Regulators and various clients to repurchase ARS. Under the settlements with Regulators the Company has $2.0 million remaining of ARS to purchase from Eligible Investors at June 30, 2019. In addition, the Company has one remaining commitment to purchase $3.6 million in ARS from a client by June 30, 2020.
Since September 2016, Oppenheimer has been responding to information requests from FINRA (including from FINRA's Enforcement Department) regarding the supervision of Oppenheimer's sale of unit investment trusts from 2011 to 2015. The inquiry is part of a larger targeted examination involving other brokerage firms. Oppenheimer is continuing to cooperate with the FINRA inquiry.


36


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

13.
Regulatory requirements
The Company's U.S. broker dealer subsidiaries, Oppenheimer and Freedom, are subject to the uniform net capital requirements of the SEC under Rule 15c3-1 (the "Rule") promulgated under the Securities Exchange Act of 1934. Oppenheimer computes its net capital requirements under the alternative method provided for in the Rule which requires that Oppenheimer maintain net capital equal to two percent of aggregate customer-related debit items, as defined in SEC Rule 15c3-3. As of June 30, 2019, the net capital of Oppenheimer as calculated under the Rule was $201.7 million or 24.14% of Oppenheimer's aggregate debit items. This was $185.0 million in excess of the minimum required net capital at that date. Freedom computes its net capital requirement under the basic method provided for in the Rule, which requires that Freedom maintain net capital equal to the greater of $100,000 or 6-2/3% of aggregate indebtedness, as defined. As of June 30, 2019, Freedom had net capital of $5.2 million, which was $5.1 million in excess of the $100,000 required to be maintained at that date.
As of June 30, 2019, the capital required and held under the Capital Requirements Directive ("CRD IV") for Oppenheimer Europe Ltd. was as follows:
Common Equity Tier 1 ratio 15.85% (required 4.5%);
Tier 1 Capital ratio 15.85% (required 6.0%); and
Total Capital ratio 15.89% (required 8.0%).

In December 2017, Oppenheimer Europe Ltd. received approval from the Financial Conduct Authority ("FCA") for a variation of permission to remove the limitation of "matched principal business" from the firm's scope of permitted businesses and become a "Full-Scope Prudential Sourcebook for Investment Firms (IFPRU) €730K" firm which was effective January 2018. In addition to the capital requirement under CRD IV above, Oppenheimer Europe Ltd. is required to maintain a minimum capital of EUR 730,000. As of June 30, 2019, Oppenheimer Europe Ltd. was in compliance with its regulatory requirements.
As of June 30, 2019, the regulatory capital of Oppenheimer Investments Asia Limited was $1.4 million, which was $1.0 million in excess of the $384,000 required to be maintained on that date. Oppenheimer Investments Asia Limited computes its regulatory capital pursuant to the requirements of the Securities and Futures Commission of Hong Kong.
14.     Segment information
The Company has determined its reportable segments based on the Company's method of internal reporting, which disaggregates its retail business by branch and its proprietary and investment banking businesses by product. The Company evaluates the performance of its segments and allocates resources to them based upon profitability.
The Company's reportable segments are:
Private Client — includes commissions and a proportionate amount of fee income earned on assets under management ("AUM"), net interest earnings on client margin loans and cash balances, fees from money market funds, custodian fees, net contributions from stock loan activities and financing activities, and direct expenses associated with this segment.
Asset Management — includes a proportionate amount of fee income earned on AUM from investment management services of Oppenheimer Asset Management Inc. Oppenheimer's asset management divisions employ various programs to manage client assets either in individual accounts or in funds, and includes direct expenses associated with this segment; and
Capital Markets — includes investment banking, institutional equities sales, trading, and research, taxable fixed income sales, trading, and research, public finance and municipal trading, as well as the Company's operations in the United Kingdom, Hong Kong and Israel, and direct expenses associated with this segment.
The Company does not allocate costs associated with certain infrastructure support groups that are centrally managed for its reportable segments. These areas include, but are not limited to, legal, compliance, operations, accounting, and internal audit. Costs associated with these groups are separately reported in a Corporate/Other category and primarily include compensation and benefits.

37


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

The table below presents information about the reported revenue and income (loss) before income taxes of the Company for the three and six months ended June 30, 2019 and 2018. Asset information by reportable segment is not reported, since the Company does not produce such information for internal use by the chief operating decision maker.
(Expressed in thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Private client (1)
$
161,928

 
$
156,553

 
$
325,455

 
$
310,647

Asset management (1)
18,622

 
17,706

 
35,208

 
35,350

Capital markets
71,819

 
68,206

 
142,780

 
129,735

Corporate/Other
(1,434
)
 
91

 
(738
)
 
1,354

Total
$
250,935

 
$
242,556

 
$
502,705

 
$
477,086

Income (loss) before income taxes
 
 
 
 
 
 
 
Private client (1)
$
43,416

 
$
33,513

 
$
86,250

 
$
73,675

Asset management (1)
5,318

 
3,958

 
7,560

 
7,676

Capital markets
(1,801
)
 
(199
)
 
(4,448
)
 
(6,256
)
Corporate/Other
(29,542
)
 
(24,755
)
 
(55,919
)
 
(52,957
)
Total
$
17,391

 
$
12,517

 
$
33,443

 
$
22,138

(1)
Clients investing in the OAM advisory program are charged fees based on the value of AUM.
Advisory fees are allocated 10.0% to the Asset Management and 90.0% to the Private Client
segments.

Revenue, classified by the major geographic areas in which it was earned, for the three and six months ended June 30, 2019 and 2018 was as follows:
(Expressed in thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Americas
$
242,464

 
$
234,471

 
$
485,863

 
$
460,083

Europe/Middle East
7,666

 
7,222

 
15,335

 
14,745

Asia
805

 
863

 
1,507

 
2,258

Total
$
250,935

 
$
242,556

 
$
502,705

 
$
477,086

15.    Subsequent events
On July 26, 2019, the Company announced a quarterly dividend in the amount of $0.12 per share, payable on August 23, 2019 to holders of Class A Stock and Class B Stock of record on August 9, 2019.

On July 26, 2019, the Company announced that it will be redeeming a total of $50.0 million (25%) of its Notes. The Company has delivered to the Trustee for the holders of the Notes a notice of partial redemption, notifying the Trustee of the Company’s intent to redeem on August 25, 2019 (the “Redemption Date”) $50.0 million aggregate principal amount of the outstanding Notes at a redemption price equal to 103.375% (“Call Premium”) of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest thereon to the Redemption Date. The Company will incur $1.7 million in costs associated with paying the Call Premium on the Notes during the third quarter of 2019. Upon completion of the redemption, $150.0 million aggregate principal amount of the Notes will remain outstanding. The redemption of 25% of the Notes will reduce the Company’s interest costs by $3.8 million annually. 
 

38


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

16.    Condensed consolidating financial information
On June 23, 2017, the Parent issued in a private offering $200.0 million aggregate principal amount of the Notes. The Company used a portion of the net proceeds from the offering of the Unregistered Notes to redeem in full its Old Notes. See note 10 for further details.
The Notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by E.A. Viner International Co. and Viner Finance Inc. (together, the "Guarantors"), unless released as described below. Each of the Guarantors is 100% owned by the Parent. The indenture for the Notes contains covenants with restrictions which are discussed in note 10. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of the Parent, the Guarantor subsidiaries, the Non-Guarantor subsidiaries and elimination entries necessary to consolidate the Company.
Each Guarantor will be automatically and unconditionally released and discharged upon: the sale, exchange or transfer of the capital stock of a Guarantor and the Guarantor ceasing to be a direct or indirect subsidiary of the Parent if such sale does not constitute an asset sale under the indenture for the Notes or does not constitute an asset sale effected in compliance with the asset sale and merger covenants of the indenture for the Notes; a Guarantor being dissolved or liquidated; a Guarantor being designated unrestricted in compliance with the applicable provisions of the Notes; or the exercise by the Parent of its legal defeasance option or covenant defeasance option or the discharge of the Parent's obligations under the indenture for the Notes in accordance with the terms of such indenture.

39


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


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2019
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
38,235

 
$
475

 
$
32,597

 
$

 
$
71,307

Deposits with clearing organizations

 

 
65,491

 

 
65,491

Receivable from brokers, dealers and clearing organizations

 

 
167,931

 

 
167,931

Receivable from customers, net of allowance for credit losses of $920

 

 
807,581

 

 
807,581

Income tax receivable
47,917

 
22,247

 
(702
)
 
(69,462
)
 

Securities purchased under agreements to resell

 

 
39

 

 
39

Securities owned, including amounts pledged of $547,326 at fair value

 
1,493

 
993,877

 

 
995,370

Notes receivable, net of accumulated amortization and allowance for uncollectibles of $32,369 and $6,827, respectively

 

 
43,413

 

 
43,413

Furniture, equipment and leasehold improvements, net of accumulated depreciation of $90,633

 
23,297

 
9,030

 

 
32,327

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

 
160,202

 
6,410

 

 
166,612

Subordinated loan receivable

 
112,558

 

 
(112,558
)
 

Intangible assets

 
400

 
31,700

 

 
32,100

Goodwill

 

 
137,889

 

 
137,889

Other assets
125

 
1,956

 
130,275

 

 
132,356

Deferred tax assets
155

 
(29
)
 
17,573

 
(17,699
)
 

Investment in subsidiaries
692,030

 
580,920

 

 
(1,272,950
)
 

Intercompany receivables
(12,892
)
 
46,960

 
(7,420
)
 
(26,648
)
 

Total assets
$
765,570

 
$
950,479

 
$
2,435,684

 
$
(1,499,317
)
 
$
2,652,416

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Drafts payable
$

 
$

 
$
17,456

 
$

 
$
17,456

Bank call loans

 

 
50,100

 

 
50,100

Payable to brokers, dealers and clearing organizations

 

 
418,719

 

 
418,719

Payable to customers

 

 
325,754

 

 
325,754

Securities sold under agreements to repurchase

 

 
521,837

 

 
521,837

Securities sold but not yet purchased, at fair value

 

 
155,979

 

 
155,979

Accrued compensation

 

 
130,879

 

 
130,879

Income tax payable
2,440

 
22,189

 
45,683

 
(69,463
)
 
849

Accounts payable and other liabilities
295

 
(10,302
)
 
52,725

 
(9
)
 
42,709

Lease liabilities

 
203,240

 
7,015

 

 
210,255

Senior secured notes, net of debt issuance cost of $775
199,225

 

 

 

 
199,225

Subordinated indebtedness

 

 
112,558

 
(112,558
)
 

Deferred tax liabilities

 
(808
)
 
33,546

 
(17,694
)
 
15,044

Intercompany payables

 
(193,967
)
 

 
193,967

 

Total liabilities
201,960

 
20,352

 
1,872,251

 
(5,757
)
 
2,088,806

Stockholders' equity
 
 
 
 
 
 
 
 
 
Total stockholders' equity
563,610

 
930,127

 
563,433

 
(1,493,560
)
 
563,610

Total liabilities and stockholders' equity
$
765,570

 
$
950,479

 
$
2,435,684

 
$
(1,499,317
)
 
$
2,652,416


40


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


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2018
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
53,526

 
$
3,826

 
$
33,323

 
$

 
$
90,675

Deposits with clearing organizations

 

 
67,678

 

 
67,678

Receivable from brokers, dealers and clearing organizations

 

 
166,493

 

 
166,493

Receivable from customers, net of allowance for credit losses of $886

 

 
720,777

 

 
720,777

Income tax receivable
45,733

 
23,491

 
(702
)
 
(67,508
)
 
1,014

Securities purchased under agreements to resell

 

 
290

 

 
290

Securities owned, including amounts pledged of $517,951 at fair value

 
1,358

 
836,226

 

 
837,584

Notes receivable, net of accumulated amortization and allowance for uncollectibles of $25,109 and $6,800, respectively

 

 
44,058

 

 
44,058

Furniture, equipment and leasehold improvements, net of accumulated depreciation of $89,182

 
20,722

 
8,266

 

 
28,988

Subordinated loan receivable

 
112,558

 

 
(112,558
)
 

Intangible assets

 
400

 
31,700

 

 
32,100

Goodwill

 

 
137,889

 

 
137,889

Other assets
135

 
2,581

 
110,052

 

 
112,768

Deferred tax assets
1

 
455

 
18,494

 
(18,950
)
 

Investment in subsidiaries
661,837

 
546,704

 

 
(1,208,541
)
 

Intercompany receivables
(14,211
)
 
46,840

 
(6,299
)
 
(26,330
)
 

Total assets
$
747,021


$
758,935

 
$
2,168,245

 
$
(1,433,887
)
 
$
2,240,314

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Drafts payable
$

 
$

 
$
16,348

 
$

 
$
16,348

Bank call loans

 

 
15,000

 

 
15,000

Payable to brokers, dealers and clearing organizations

 

 
289,207

 

 
289,207

Payable to customers

 

 
336,616

 

 
336,616

Securities sold under agreements to repurchase

 

 
484,218

 

 
484,218

Securities sold but not yet purchased, at fair value

 

 
85,446

 

 
85,446

Accrued compensation

 

 
167,348

 

 
167,348

Accounts payable and other liabilities
163

 
31,653

 
55,823

 
(9
)
 
87,630

Income tax payable
2,440

 
22,189

 
42,878

 
(67,507
)
 

Senior secured notes, net of debt issuance cost of $904
199,096

 

 

 

 
199,096

Subordinated indebtedness

 

 
112,558

 
(112,558
)
 

Deferred tax liabilities

 

 
33,029

 
(18,946
)
 
14,083

Intercompany payables

 
26,334

 

 
(26,334
)
 

Total liabilities
201,699

 
80,176

 
1,638,471

 
(225,354
)
 
1,694,992

Stockholders' equity
 
 
 
 
 
 
 
 
 
Total stockholders' equity
545,322

 
678,759

 
529,774

 
(1,208,533
)
 
545,322

Total liabilities and stockholders' equity
$
747,021

 
$
758,935

 
$
2,168,245

 
$
(1,433,887
)
 
$
2,240,314


41


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


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 2019
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
REVENUES
 
 
 
 
 
 
 
 
 
Commissions
$

 
$

 
$
80,896

 
$

 
$
80,896

Advisory fees

 

 
81,067

 
(360
)
 
80,707

Investment banking

 

 
32,006

 

 
32,006

Bank deposit sweep income

 

 
31,830

 

 
31,830

Interest
91

 
2,060

 
13,473

 
(2,074
)
 
13,550

Principal transactions, net

 
40

 
3,005

 

 
3,045

Other

 
1

 
8,899

 
1

 
8,901

Total revenue
91

 
2,101

 
251,176

 
(2,433
)
 
250,935

EXPENSES
 
 
 
 
 
 
 
 
 
Compensation and related expenses
380

 

 
155,402

 
1

 
155,783

Communications and technology
52

 

 
20,447

 

 
20,499

Occupancy and equipment costs

 

 
15,573

 

 
15,573

Clearing and exchange fees

 

 
5,678

 

 
5,678

Interest
3,375

 

 
11,890

 
(2,073
)
 
13,192

Other
234

 
122

 
22,824

 
(361
)
 
22,819

Total expenses
4,041

 
122

 
231,814

 
(2,433
)
 
233,544

Income (loss) before income taxes
(3,950
)
 
1,979

 
19,362

 

 
17,391

Income taxes
(995
)
 
510

 
5,501

 

 
5,016

Net income (loss)
(2,955
)
 
1,469

 
13,861

 

 
12,375

 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
15,330

 
13,861

 

 
(29,191
)
 

Net income
12,375

 
15,330

 
13,861

 
(29,191
)
 
12,375

Other comprehensive income

 

 
361

 

 
361

Total comprehensive income
$
12,375

 
$
15,330

 
$
14,222

 
$
(29,191
)
 
$
12,736


42


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


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 2018
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
REVENUES
 
 
 
 
 
 
 
 
 
Commissions
$

 
$

 
$
82,850

 
$

 
$
82,850

Advisory fees

 

 
77,589

 
(319
)
 
77,270

Investment banking

 

 
27,904

 

 
27,904

Bank deposit sweep income

 

 
28,853

 

 
28,853

Interest
3

 
2,060

 
13,070

 
(2,077
)
 
13,056

Principal transactions, net

 

 
6,409

 
(9
)
 
6,400

Other

 
95

 
6,222

 
(94
)
 
6,223

Total revenue
3

 
2,155

 
242,897

 
(2,499
)
 
242,556

EXPENSES
 
 
 
 
 
 
 
 
 
Compensation and related expenses
522

 

 
151,349

 

 
151,871

Communications and technology
49

 

 
17,948

 

 
17,997

Occupancy and equipment costs

 

 
14,995

 
(94
)
 
14,901

Clearing and exchange fees

 

 
5,780

 

 
5,780

Interest
3,375

 

 
9,611

 
(2,077
)
 
10,909

Other
278

 
849

 
27,782

 
(328
)
 
28,581

Total expenses
4,224

 
849

 
227,465

 
(2,499
)
 
230,039

Income (loss) before income taxes
(4,221
)
 
1,306

 
15,432

 

 
12,517

Income taxes
(1,065
)
 
369

 
4,358

 

 
3,662

Net income (loss)
(3,156
)
 
937

 
11,074

 

 
8,855

 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
12,011

 
11,074

 

 
(23,085
)
 

Net income
8,855

 
12,011

 
11,074

 
(23,085
)
 
8,855

Other comprehensive loss

 

 
(837
)
 

 
(837
)
Total comprehensive income
$
8,855


$
12,011


$
10,237


$
(23,085
)

$
8,018



43


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

OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2019
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
REVENUES
 
 
 
 
 
 
 
 
 
Commissions
$

 
$

 
$
160,305

 
$

 
$
160,305

Advisory fees

 

 
155,049

 
(695
)
 
154,354

Investment banking

 

 
60,049

 

 
60,049

Bank deposit sweep income

 

 
65,798

 

 
65,798

Interest
175

 
4,122

 
26,127

 
(4,147
)
 
26,277

Principal transactions, net

 
101

 
14,394

 
(12
)
 
14,483

Other

 
2

 
21,436

 
1

 
21,439

Total revenue
175

 
4,225

 
503,158

 
(4,853
)
 
502,705

EXPENSES
 
 
 
 
 
 
 
 
 
Compensation and related expenses
825

 

 
315,318

 
(5
)
 
316,138

Communications and technology
91

 

 
40,494

 

 
40,585

Occupancy and equipment costs

 

 
30,846

 

 
30,846

Clearing and exchange fees

 

 
11,010

 

 
11,010

Interest
6,750

 

 
23,575

 
(4,147
)
 
26,178

Other
550

 
244

 
44,412

 
(701
)
 
44,505

Total expenses
8,216

 
244

 
465,655

 
(4,853
)
 
469,262

Income (loss) before income taxes
(8,041
)

3,981


37,503




33,443

Income taxes
(2,338
)
 
1,436

 
10,776

 

 
9,874

Net income (loss)
(5,703
)
 
2,545

 
26,727

 

 
23,569

 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
29,272

 
26,726

 

 
(55,998
)
 

Net income
23,569

 
29,271

 
26,727

 
(55,998
)
 
23,569

Other comprehensive income

 

 
924

 

 
924

Total comprehensive income
$
23,569


$
29,271


$
27,651


$
(55,998
)

$
24,493



44


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

OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
REVENUES
 
 
 
 
 
 
 
 
 
Commissions
$

 
$

 
$
166,257

 
$

 
$
166,257

Advisory fees

 

 
155,463

 
(645
)
 
154,818

Investment banking

 

 
56,114

 

 
56,114

Bank deposit sweep income

 

 
54,150

 

 
54,150

Interest
3

 
4,120

 
25,317

 
(4,157
)
 
25,283

Principal transactions, net

 

 
9,168

 
(42
)
 
9,126

Other

 
191

 
11,336

 
(189
)
 
11,338

Total revenue
3

 
4,311

 
477,805

 
(5,033
)
 
477,086

EXPENSES
 
 
 
 
 
 
 
 
 
Compensation and related expenses
848

 

 
304,127

 

 
304,975

Communications and technology
88

 

 
36,597

 

 
36,685

Occupancy and equipment costs

 

 
30,518

 
(189
)
 
30,329

Clearing and exchange fees

 

 
11,876

 

 
11,876

Interest
6,750

 

 
17,279

 
(4,157
)
 
19,872

Other
665

 
1,102

 
50,131

 
(687
)
 
51,211

Total expenses
8,351

 
1,102

 
450,528

 
(5,033
)
 
454,948

Income (loss) before income taxes
(8,348
)
 
3,209

 
27,277

 

 
22,138

Income taxes
(2,105
)
 
633

 
8,050

 

 
6,578

Net income (loss)
(6,243
)
 
2,576

 
19,227

 

 
15,560

 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
21,803

 
19,227

 

 
(41,030
)
 

Net income
15,560

 
21,803

 
19,227

 
(41,030
)
 
15,560

Other comprehensive loss

 

 
(979
)
 

 
(979
)
Total comprehensive income
$
15,560

 
$
21,803

 
$
18,248

 
$
(41,030
)
 
$
14,581




45


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


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Cash used in operating activities
$
(5,060
)
 
$
(3,351
)
 
$
(29,580
)
 
$

 
$
(37,991
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of furniture, equipment and leasehold improvements

 

 
(6,941
)
 

 
(6,941
)
Purchase of tangible assets

 

 

 

 

Proceeds from the settlement of Company-owned life insurance

 

 
695

 

 
695

Cash used in investing activities

 

 
(6,246
)
 

 
(6,246
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Cash dividends paid on Class A non-voting and Class B voting common stock
(2,865
)
 

 

 

 
(2,865
)
Repurchase of Class A non-voting common stock
(6,352
)
 

 

 

 
(6,352
)
Payments for employee taxes withheld related to vested share-based awards
(1,014
)
 

 

 

 
(1,014
)
Decrease in bank call loans, net

 

 
35,100

 

 
35,100

Cash provided by (used in) financing activities
(10,231
)
 

 
35,100

 

 
24,869

Net decrease in cash and cash equivalents
(15,291
)
 
(3,351
)
 
(726
)
 

 
(19,368
)
Cash and cash equivalents, beginning of the period
53,526

 
3,826

 
33,323

 

 
90,675

Cash and cash equivalents, end of the period
$
38,235

 
$
475

 
$
32,597

 
$

 
$
71,307


46


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


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(Expressed in thousands)
Parent
 
Guarantor
subsidiaries
 
Non-guarantor
subsidiaries
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Cash provided by (used in) operating activities
$
(1,417
)
 
$
1,272

 
$
11,456

 
$

 
$
11,311

Cash flows from investing activities:
 
 
 
 
 
 
 
 

Purchase of furniture, equipment and leasehold improvements

 

 
(3,947
)
 

 
(3,947
)
Purchase of intangible assets

 
(400
)
 

 

 
(400
)
Cash used in investing activities

 
(400
)
 
(3,947
)
 

 
(4,347
)
Cash flows from financing activities:

 

 

 

 

Cash dividends paid on Class A non-voting and Class B voting common stock
(2,913
)
 

 

 

 
(2,913
)
Payments for employee taxes withheld related to vested share-based awards
(2,444
)
 

 

 

 
(2,444
)
Increase in bank call loans, net

 

 
(10,800
)
 

 
(10,800
)
Cash used in financing activities
(5,357
)
 

 
(10,800
)
 

 
(16,157
)
Net increase (decrease) in cash and cash equivalents
(6,774
)
 
872

 
(3,291
)
 

 
(9,193
)
Cash and cash equivalents, beginning of the period
7,442

 
3,716

 
36,996

 

 
48,154

Cash and cash equivalents, end of the period
$
668

 
$
4,588

 
$
33,705

 
$

 
$
38,961




47

Table of Contents

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
Oppenheimer Holdings Inc. (the "Company", "we", "our" or "us") engages in a broad range of activities in the securities 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. Its principal subsidiaries are Oppenheimer & Co. Inc. ("Oppenheimer") and Oppenheimer Asset Management Inc. ("OAM"). As of June 30, 2019, we provided our services from 94 offices in 24 states located throughout the United States, offices in Tel Aviv, Israel, Hong Kong, China, London, England, St. Helier, Isle of Jersey, Frankfurt, Germany and Geneva, Switzerland. Client assets administered as of June 30, 2019 totaled $87.3 billion. The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial adviser direct programs. At June 30, 2019, client assets under management ("AUM") totaled $30.2 billion. We also provide trust services and products through Oppenheimer Trust Company of Delaware and discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., we offer syndication as well as trading of issued syndicated corporate loans. At June 30, 2019, the Company employed 2,970 employees (2,897 full-time and 73 part-time), of whom 1,036 were financial advisers.

Outlook

We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisers in our existing branch system and employment of experienced money management personnel in our asset management business as well as deploying our capital for expansion through targeted acquisitions. In addition, we commit to the improvement of our technology capability to support client service and the expansion of our capital markets capabilities while addressing the issue of managing expenses.
The Company's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations, and to continue to grow and develop the existing trading, investment banking, investment advisory and other divisions. We are committed to continuing to improve our technology capabilities to ensure compliance with industry regulations, support client service and expand our wealth management and capital markets capabilities. We recognize the importance of compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort, investing in people and programs, and providing a platform with first class investment programs and services.
The Company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where competitors have shown some success. Equally important is the search for viable acquisition candidates. Our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of corporate goals and personnel at a price that would provide our shareholders with incremental value. We review potential acquisition opportunities from time to time on the basis of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses.

Impact of Interest Rates

The Federal Reserve Bank has implemented a series of increases in its benchmark short-term interest rate since 2017. These increases in short-term interest rates have had a significant impact on our overall financial performance, as we have programs offered to our clients (for the investment of short-term funds as well as margin loans) which are sensitive to changes in interest rates. Given the relationship of our interest-sensitive assets to liabilities, increases in short-term interest rates generally result in an overall increase in our net earnings. Clients’ domestic cash sweep balances have decreased over the past several quarters as clients increased their allocations to other investments including other short-term fixed income investments, largely driven by the improvement of equity market conditions and also due to tax-related seasonal factors.
While short-term interest rates have risen due to rate increases by the Federal Reserve in recent periods, market deposit rates paid on client cash balances have not been impacted to as great a degree, resulting in an increase in fees the Company earned from third-party banks. Any decreases in short-term interest rates, increases in deposit rates paid to clients, and/or a significant decline in our clients’ cash balances would likely have a negative impact on our earnings.


48

Table of Contents

EXECUTIVE SUMMARY
The Company reported net income attributable to Oppenheimer Holdings Inc. of $12.4 million or $0.95 basic net income per share for the three months ended June 30, 2019 compared with net income attributable to Oppenheimer Holdings Inc. of $8.9 million or $0.67 basic net income per share for the three months ended June 30, 2018. Income before income taxes was $17.4 million for the three months ended June 30, 2019 compared with income before income taxes of $12.5 million for the three months ended June 30, 2018. Revenue for the three months ended June 30, 2019 was $250.9 million compared with revenue of $242.6 million for the three months ended June 30, 2018, an increase of 3.5%.
During the second quarter of 2019, the major stock indices in the U.S. increased 3.8% adding on to the 13.1% gains in the first quarter of 2019. The equities markets had their best June in decades while all three major indices closed near all-time highs. The markets benefited from expectations that the U.S. Federal Reserve will decrease short-term interest rates in the near term. A continued strong U.S. economy, record low unemployment, and optimism around trade negotiations between the U.S. and China helped fuel the rally in the equities markets. The 10-year Treasury yield was 2.41% at the end of the first quarter of 2019 and fell to 2.00% at the end of the second quarter of 2019 due to expectations around the Fed's loosening of monetary policy.

While the Company’s strong operating results for the period were aided by a strong equities market, the Company’s core businesses also performed well. After the significant increases in the equities markets during the first quarter of 2019, asset management fees for the second quarter increased 4.4%. The investment banking business produced solid results as a result of increased fees from advisory assignments and equity underwritings.
The institutional equities commission business showed improvement during the second quarter of 2019 as a result of strong execution-driven commission growth in block trading and better recognition and monetization of the Company’s high value research content. The Company’s operating results continued to benefit from the present level of short-term interest rates as the Company continues to realize the effect of interest rate hikes in 2018. However, the transaction-based business in the Private Client Division declined during the period reflecting an ongoing secular reduction in portfolio turnover as clients continue to move to more passive investment strategies through investments in exchange traded funds ("ETFs") and other index related securities. Legal and regulatory costs declined significantly during the period as many of the investments in the Company’s compliance efforts continue to be realized.
The strong operating results of the business and increased liquidity from recent tenders for ARS will enable the Company to reduce its outstanding debt by 25% during the third quarter of 2019 and also gives it the ability to return additional capital to our shareholders through an increase of the dividend effective August 2019.


49

Table of Contents

RESULTS OF OPERATIONS
The following table and discussion summarizes the changes in the major revenue and expense categories for the three and six months ended June 30, 2019 compared with the same period in 2018:
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Commissions
$
80,896

 
$
82,850

 
(2.4
)
 
$
160,305

 
$
166,257

 
(3.6
)
Advisory fees
80,707

 
77,270

 
4.4

 
154,354

 
154,818

 
(0.3
)
Investment banking
32,006

 
27,904

 
14.7

 
60,049

 
56,114

 
7.0

Bank deposit sweep income
31,830

 
28,853

 
10.3

 
65,798

 
54,150

 
21.5

Interest
13,550

 
13,056

 
3.8

 
26,277

 
25,283

 
3.9

Principal transactions, net
3,045

 
6,400

 
(52.4
)
 
14,483

 
9,126

 
58.7

Other
8,901

 
6,223

 
43.0

 
21,439

 
11,338

 
89.1

Total revenue
250,935

 
242,556

 
3.5

 
502,705

 
477,086

 
5.4

Expenses
 
 
 
 
 
 
 
 
 
 
 
Compensation and related expenses
155,783

 
151,871

 
2.6

 
316,138

 
304,975

 
3.7

Communications and technology
20,499

 
17,997

 
13.9

 
40,585

 
36,685

 
10.6

Occupancy and equipment costs
15,573

 
14,901

 
4.5

 
30,846

 
30,329

 
1.7

Clearing and exchange fees
5,678

 
5,780

 
(1.8
)
 
11,010

 
11,876

 
(7.3
)
Interest
13,192

 
10,909

 
20.9

 
26,178

 
19,872

 
31.7

Other
22,819

 
28,581

 
(20.2
)
 
44,505

 
51,211

 
(13.1
)
Total expenses
233,544

 
230,039

 
1.5

 
469,262

 
454,948

 
3.1

Income before income taxes
17,391

 
12,517

 
38.9

 
33,443

 
22,138

 
51.1

Income taxes
5,016

 
3,662

 
37.0

 
9,874

 
6,578

 
50.1

Net income
$
12,375

 
$
8,855

 
39.8

 
$
23,569

 
$
15,560

 
51.5


Second Quarter 2019
Revenue
Commission revenue was $80.9 million for the three months ended June 30, 2019, a decrease of 2.4% compared with $82.9 million for the three months ended June 30, 2018.
Advisory fees were $80.7 million for the three months ended June 30, 2019, an increase of 4.4% compared with $77.3 million for the three months ended June 30, 2018 due to a higher level of AUM.
Investment banking revenue increased 14.7% to $32.0 million for the three months ended June 30, 2019 compared with $27.9 million for the three months ended June 30, 2018 due to an increase in mergers and acquisitions transactions during the three months ended June 30, 2019.
Bank deposit sweep income was $31.8 million for the three months ended June 30, 2019, an increase of 10.3% compared with $28.9 million for the three months ended June 30, 2018 due to higher short-term interest rates during the three months ended June 30, 2019.
Interest revenue was $13.6 million for the three months ended June 30, 2019, an increase of 3.8% compared with $13.1 million for the three months ended June 30, 2018.

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Principal transactions revenue was $3.0 million for the three months ended June 30, 2019, a decrease of 52.4% compared with $6.4 million for the three months ended June 30, 2018 primarily due to unrealized losses of $2.4 million related to the Company's intent to participate in ARS tender offers in July 2019 which resulted in marking the positions held to the issuer tender offer price during the three months ended June 30, 2019.
Other revenue was $8.9 million for the three months ended June 30, 2019, an increase of 43.0% compared to $6.2 million for the three months ended June 30, 2018 due to the increase in cash surrender value of the Company's life insurance policies and proceeds received under those insurance policies as well as to a favorable legal settlement during the three months ended June 30, 2019.
Expenses
Compensation and related expenses totaled $155.8 million during the three months ended June 30, 2019, an increase of 2.6% compared with the three months ended June 30, 2018. The increase was due to higher salaries, production, and incentive compensation costs partially offset by lower share-based and traders' compensation costs during the three months ended June 30, 2019. Compensation and related expenses as a percentage of revenue was 62.1% during the three months ended June 30, 2019 compared with 62.6% during the three months ended June 30, 2018.
Non-compensation expenses were $77.8 million during the three months ended June 30, 2019, a decrease of 0.5% compared with $78.2 million during the three months ended June 30, 2018 due primarily to higher interest costs and communication and technology costs partially offset by lower legal and regulatory costs during the three months ended June 30, 2019.
The effective income tax rate from continuing operations for the three months ended June 30, 2019 was 28.8%, slightly lower when compared with 29.3% for the three months ended June 30, 2018. The effective rate reflects the Company's estimate of the annual effective tax rate adjusted for certain discrete items.
Year-to-date 2019

Revenue
Commission revenue was $160.3 million for the six months ended June 30, 2019, a decrease of 3.6% compared with $166.3 million for the six months ended June 30, 2018.
Advisory fees were $154.4 million for the six months ended June 30, 2019, a decrease of 0.3% compared with $154.8 million for the six months ended June 30, 2018.
Investment banking revenue increased 7.0% to $60.0 million for the six months ended June 30, 2019 compared with $56.1 million for the six months ended June 30, 2018 due to increase in merger and acquisitions transactions during the second quarter of 2019.
Bank deposit sweep income was $65.8 million for the six months ended June 30, 2019, an increase of 21.5% compared with $54.2 million for the six months ended June 30, 2018 due to higher short-term interest rates during the six months ended June 30, 2019.
Interest revenue was $26.3 million for the six months ended June 30, 2019, an increase of 3.9% compared with $25.3 million for the six months ended June 30, 2018 due primarily to an increase in interest revenue on margin extended to customers during the first quarter of 2019.
Principal transactions revenue was $14.5 million for the six months ended June 30, 2019, an increase of 58.7% compared with $9.1 million for the six months ended June 30, 2018 due to higher trading income from taxable fixed income and public finance and municipal trading during the first quarter of 2019, offset by unrealized losses of $2.4 million related to the Company's intent to participate in ARS tender offers in July 2019 which resulted in marking the positions held to the issuer tender offer price during the three months ended June 30, 2019.
Other revenue was $21.4 million for the six months ended June 30, 2019, an increase of 89.1% compared to $11.3 million for the six months ended June 30, 2018 due primarily to the increase in cash surrender value of the Company's life insurance policies and proceeds received under those insurance policies as well as to a favorable legal settlement during the six months ended June 30, 2019.

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Expenses
Compensation and related expenses (including salaries, production and incentive compensation, share-based compensation, deferred compensation, and other benefit-related items) totaled $316.1 million during the six months ended June 30, 2019, an increase of 3.7% compared with the six months ended June 30, 2018. The increase was due to higher salary, deferred and share-based compensation expenses, partially offset by lower production-related compensation costs during the six months ended June 30, 2019. Compensation and related expenses as a percentage of revenue was 62.9% during the six months ended June 30, 2019 compared with 63.9% during the six months ended June 30, 2018.
Non-compensation expenses were $153.1 million during the six months ended June 30, 2019, an increase of 2.1% compared with $150.0 million during the six months ended June 30, 2018 due to higher communication and technology costs and interest costs partially offset by lower legal and regulatory costs during the six months ended June 30, 2019.
The effective income tax rate from continuing operations for the six months ended June 30, 2019 was 29.5% slightly lower when compared with 29.7% for the six months ended June 30, 2018. The effective rate reflects the Company's estimate of the annual effective tax adjusted for uncertain discrete items.
BUSINESS SEGMENTS
The table below presents information about the reported revenue and income (loss) before income taxes of the Company's reportable business segments for the three and six months ended June 30, 2019 and 2018:
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
Private Client
$
161,928

 
$
156,553

 
3.4

 
$
325,455

 
$
310,647

 
4.8

Asset Management
18,622

 
17,706

 
5.2

 
35,208

 
35,350

 
(0.4
)
Capital Markets
71,819

 
68,206

 
5.3

 
142,780

 
129,735

 
10.1

Corporate/Other
(1,434
)
 
91

 
*

 
(738
)
 
1,354

 
*

Total
$
250,935

 
$
242,556

 
3.5

 
$
502,705

 
$
477,086

 
5.4

Income (loss) before income taxes
 
 
 
 
 
 
Private Client
$
43,416

 
$
33,513

 
29.5

 
$
86,250

 
$
73,675

 
17.1

Asset Management
5,318

 
3,958

 
34.4

 
7,560

 
7,676

 
(1.5
)
Capital Markets
(1,801
)
 
(199
)
 
(805.0
)
 
(4,448
)
 
(6,256
)
 
(28.9
)
Corporate/Other
(29,542
)
 
(24,755
)
 
(19.3
)
 
(55,919
)
 
(52,957
)
 
5.6

Total
$
17,391

 
$
12,517

 
38.9

 
$
33,443

 
$
22,138

 
51.1

* Percentage not meaningful.
Private Client
Private Client reported revenue of $161.9 million for the second quarter of 2019, 3.4% higher than the second quarter of 2018 due to higher asset management fees, bank deposit sweep income, and an increase in the cash surrender value of Company-owned life insurance partially offset by lower retail commissions during the second quarter of 2019. Income before income taxes was $43.4 million for the second quarter of 2019, an increase of 29.5% compared with the second quarter of 2018 due to the aforementioned items and lower legal and regulatory costs partially offset by higher interest costs during the second quarter of 2019.
Client assets under administration were $87.3 billion at June 30, 2019, compared with $80.1 billion at December 31, 2018, an increase of 9.0%
Financial adviser headcount was 1,036 at the end of the second quarter of 2019, down from 1,083 at the end of the second quarter of 2018. The decline in financial adviser headcount since the second quarter of 2018 has resulted from the Company's emphasis on adviser productivity as well as retirements and attrition.
Retail commissions were $47.1 million for the second quarter of 2019, a decrease of 4.8% from the second quarter of 2018.

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Advisory fee revenue on traditional and alternative managed products was $62.1 million for the second quarter of 2019, an increase of 3.8% from the second quarter of 2018 (see Asset Management below for further information). The increase in advisory fees was due to an increase in assets under management ("AUM") at March 31, 2019 as a result of the increase in the equities markets and net new assets during the first quarter of 2019.
Bank deposit sweep income was $31.8 million for the second quarter of 2019, an increase of 10.3% compared with $28.9 million for the second quarter of 2018 due to higher short-term interest rates during the second quarter of 2019.
Asset Management
Asset Management reported revenue of $18.6 million for the second quarter of 2019, 5.2% higher than the second quarter of 2018 due to higher AUM at March 31, 2019, which is the basis for advisory fees earned during the second quarter of 2019, as a result of the increase in the equities markets and net new assets during the first quarter of 2019. Income before income taxes was $5.3 million for the second quarter of 2019, an increase of 34.4% compared with the second quarter of 2018 due to higher AUM at March 31, 2019.
Advisory fee revenue on traditional and alternative managed products was $18.6 million for the second quarter of 2019, an increase of 6.3% from the second quarter of 2018 primarily due to higher AUM at March 31, 2019.
Advisory fees are calculated based on the value of client AUM at the end of the prior quarter which totaled $29.5 billion at March 31, 2019 ($28.2 billion at March 31, 2018) and are allocated between the Private Client and Asset Management business segments.
AUM increased 5.2% to $30.2 billion at June 30, 2019, a record high, compared with $28.7 billion at June 30, 2018, which is the basis for advisory fee billings for the third quarter of 2019. The increase in AUM was comprised of asset appreciation of $0.6 billion and a positive net contribution of assets of $0.9 billion.
The following table provides a breakdown of the change in assets under management for the three months ended June 30, 2019:
(Expressed in millions)
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended June 30, 2019
 
 
Beginning
Balance
 
 
 
 
 
Appreciation
(Depreciation)
 
Ending
Balance
Fund Type
 
 
Contributions
 
Redemptions
 
 
Traditional (1)
 
$
25,302

 
$
830

 
$
(648
)
 
$
284

 
$
25,768

Institutional Fixed Income (2)
 
726

 
21

 
(17
)
 
18

 
748

Alternative Investments:
 
 
 
 
 
 
 
 
 


Hedge funds (3)
 
2,766

 
56

 
(35
)
 
218

 
3,005

Private Equity Funds (4)
 
213

 

 

 
13

 
226

Portfolio Enhancement Program (5)
 
469

 

 
(23
)
 

 
446

 
 
$
29,476

 
$
907

 
$
(723
)
 
$
533

 
$
30,193

 
(1)
Traditional investments include third party advisory programs, Oppenheimer financial adviser managed and advisory programs, and Oppenheimer Asset Management taxable and tax-exempt portfolio management strategies.
(2)
Institutional fixed income provides solutions to institutional investors including: Taft-Hartley Funds, Public Pension Funds, Corporate Pension Funds, and Foundations and Endowments.
(3)
Hedge funds represent single manager hedge fund strategies in areas including hedged equity, technology and financial services, and multi-manager and multi-strategy fund of funds.
(4)
Private equity funds represent private equity fund of funds including portfolios focused on natural resources and related assets.
(5)
The portfolio enhancement program sells uncovered, far out-of-money puts and calls on the S&P 500 Index. The program is market neutral and uncorrelated to the index. Valuation is based on collateral requirements for a series of contracts representing the investment strategy.

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Capital Markets
Capital Markets reported revenue of $71.8 million for the second quarter of 2019, 5.3% higher than the second quarter of 2018 primarily due to higher investment banking fees. Loss before income taxes was $1.8 million for the second quarter of 2019 compared with loss before income taxes of $0.2 million for the second quarter of 2018.
Institutional equities commissions increased 6.9% to $24.8 million for the second quarter of 2019 compared with the second quarter of 2018 due to strong execution-driven commission growth in block trading and better recognition and monetization of our high value research content.
Advisory fees earned from investment banking activities increased 62.5% to $13.0 million for the second quarter of 2019 compared with $8.0 million for the second quarter of 2018 due to an increase in mergers and acquisitions transactions during the second quarter of 2019.
Equities underwriting fees increased modestly to $15.3 million for the second quarter of 2019 compared with $15.2 million for the second quarter of 2018 as the Company participated in more transactions with lower economics due to a decrease in the number of lead managed deals during the second quarter of 2019.
Revenue from taxable fixed income decreased marginally to $15.2 million during the second quarter of 2019 from $15.3 million during the second quarter of 2018 due to lower trading income in taxable fixed income products partially offset by higher institutional fixed income commissions.
Revenue from public finance and municipal trading decreased to $4.7 million during the second quarter of 2019 from $5.7 million during the second quarter of 2018 due to lower commission income partially offset by higher municipal trading income during the second quarter of 2019.
CRITICAL ACCOUNTING POLICIES
The Company's condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Reference is also made to the Company's consolidated financial statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2018.
The Company's accounting policies are essential to understanding and interpreting the financial results reported on the condensed consolidated financial statements. The significant accounting policies used in the preparation of the Company's condensed consolidated financial statements are summarized in note 2 to those statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2018. Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

During the six months ended June 30, 2019, there were no material changes to matters discussed under the heading "Critical Accounting Polices" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2019, total assets increased by 18.4% from December 31, 2018. The Company satisfies its need for short-term financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit. We finance our trading in government securities through the use of securities sold under agreements to repurchase ("repurchase agreements"). We met our longer-term capital needs through the issuance of the 6.75% Senior Secured Notes due 2022 (the "Notes") (see "Refinancing" below). Oppenheimer has arrangements with banks for borrowings on a fully-collateralized basis. The amount of Oppenheimer's bank borrowings fluctuates in response to changes in the level of the Company's securities inventories and customer margin debt, changes in notes receivable from employees, investment in furniture, equipment and leasehold improvements, and changes in stock loan balances and financing through repurchase agreements. At June 30, 2019, the Company had $50.1 million of such borrowings outstanding compared to outstanding borrowings of $15.0 million at December 31, 2018. The Company also has some availability of short-term bank financing on an unsecured basis.
The Company's overseas subsidiaries, Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited, are subject to local regulatory capital requirements that restrict our ability to utilize their capital for other purposes. The regulatory capital requirements for Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited were $4.1 million and $384,000, respectively, at June 30, 2019. The liquid assets at Oppenheimer Investments Asia Limited are primarily comprised of investments in U.S. Treasuries and cash deposits in bank accounts. Any restrictions on transfer of these liquid assets from Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited to the Company or its other subsidiaries would be limited by regulatory capital requirements.

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The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if these earnings were repatriated. The unrecognized deferred tax liability associated with the outside basis difference of its foreign subsidiaries is estimated at $3.1 million for those subsidiaries. We have continued to reinvest permanently the excess earnings of Oppenheimer Israel (OPCO) Ltd. in its own business and in the businesses in Europe and Asia to support business initiatives in those regions. With the passage of the Tax Cuts and Jobs Act, we will continue to review our historical treatment of these earnings to determine whether our historical practice will continue or whether a change is warranted.
Refinancing
On June 23, 2017, in a private offering, we issued $200.0 million aggregate principal amount of 6.75% Senior Secured Notes due 2022 (the "Unregistered Notes") under an indenture at an issue price of 100% of the principal amount. On September 19, 2017, we completed an exchange offer in which we exchanged 99.8% of our Unregistered Notes for a like principal amount of notes with identical terms except that such new notes had been registered under the Securities Act of 1933, as amended (the "Notes"). We did not receive any proceeds in the exchange offer. The interest on the Notes is payable semi-annually on January 1st and July 1st. We used a portion of the net proceeds from the offering of the Unregistered Notes to redeem in full our 8.75% Senior Secured Notes due April 15, 2018 in the principal amount of $120.0 million, and pay all related fees and expenses related thereto. On July 26, 2019, the Company announced that it will be redeeming a total of $50.0 million (25%) of its Notes. The Company has delivered to the Trustee for the holders of the Notes a notice of partial redemption, notifying the Trustee of the Company’s intent to redeem on August 25, 2019. See note 10 to the condensed consolidated financial statements appearing in Item 1 for further discussion.
On April 23, 2019, Moody's Corporation affirmed the Company's 'B2' Corporate Family rating and 'B1' rating on the Notes and changed its outlook to positive. On June 7, 2019, S&P affirmed the Company's 'B+' Corporate Family rating and 'B+' rating on the Notes and changed its outlook to positive.
Liquidity
For the most part, the Company's assets consist of cash and cash equivalents and assets that it can readily convert into cash. The receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement. The receivable from customers represents margin balances and amounts due on transactions awaiting settlement. Our receivables are, for the most part, collateralized by marketable securities. Our collateral maintenance policies and procedures are designed to limit our exposure to credit risk. Securities owned, with the exception of the ARS, are mainly comprised of actively trading readily marketable securities. We advanced $2.7 million in forgivable notes (which are inherently illiquid) to employees for the three months ended June 30, 2019 ($3.3 million for the three months ended June 30, 2018) as upfront or backend inducements to commence or continue employment as the case may be. The amount of funds allocated to such inducements will vary with hiring activity.
We satisfy our need for short-term liquidity from internally generated funds, collateralized and uncollateralized bank borrowings, stock loans and repurchase agreements and warehouse facilities. Bank borrowings are, in most cases, collateralized by firm and customer securities.
We obtain short-term borrowings primarily through bank call loans. Bank call loans are generally payable on demand and bear interest at various rates. At June 30, 2019, the Company had $50.1 million of bank call loans ($15.0 million at December 31, 2018 and $107.5 million at June 30, 2018). The average daily bank loan outstanding for the three and six months ended June 30, 2019 was $21.6 million and $18.7 million, respectively ($86.1 million and $91.2 million for the three and six months ended June 30, 2018). The largest daily bank loan outstanding for both the three and six months ended June 30, 2019 was $100.9 million ($516.5 million for both the three and six months ended June 30, 2018, respectively). The average weighted interest rate on bank call loans applicable on June 30, 2019 was 3.40%.
At June 30, 2019, securities loan balances totaled $247.7 million ($146.8 million at December 31, 2018 and $199.6 million at June 30, 2018). The average daily securities loan balance for the three and six months ended June 30, 2019 was $253.7 million and $236.3 million, respectively ($222.5 million and $207.9 million for the three and six months months ended June 30, 2018, respectively). The largest daily stock loan balance for both the three and six months ended June 30, 2019 was $285.5 million ($274.6 million for both the three and six months ended June 30, 2018).

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We finance our government trading operations through the use of securities purchased under agreements to resell ("reverse repurchase agreements") and repurchase agreements. Except as described below, repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest. Repurchase and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase and reverse repurchase agreements exist in "book entry" form and certain other requirements are met.
Certain of our repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company's fair value option election. We elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. We have elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At June 30, 2019, we did not have any repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date.
At June 30, 2019, the gross balances of reverse repurchase agreements and repurchase agreements were $168.1 million and $689.9 million, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended June 30, 2019 was $151.6 million and $559.7 million, respectively ($137.9 million and $734.4 million, respectively, for the three months ended June 30, 2018). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended June 30, 2019 was $246.6 million and $814.4 million, respectively ($394.8 million and $1.1 billion, respectively, for the three months ended June 30, 2018).
At June 30, 2019, the gross leverage ratio was 4.7.
Liquidity Management
We manage our need for liquidity on a daily basis to ensure compliance with regulatory requirements. Our liquidity needs may be affected by market conditions, increased inventory positions, business expansion and other unanticipated occurrences. In the event that existing financial resources do not satisfy our liquidity needs, we may have to seek additional external financing. The availability of such additional external financing may depend on market factors outside our control.

We have company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans. Certain policies which could provide additional liquidity if needed had a cash surrender value of $66.0 million as of June 30, 2019.
We regularly review our sources of liquidity and financing and conduct internal stress analysis to determine the impact on the Company of events that could remove sources of liquidity or financing and to plan actions the Company could take in the case of such an eventuality. Our reviews have resulted in plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.
Funding Risk
(Expressed in thousands)
 
 
 
 
For the Six Months Ended June 30,
 
2019
 
2018
Cash (used in) provided by operating activities
$
(37,991
)
 
$
11,311

Cash used in investing activities
(6,246
)
 
(4,347
)
Cash provided by (used in) financing activities
24,869

 
(16,157
)
Net decrease in cash and cash equivalents
$
(19,368
)
 
$
(9,193
)
Management believes that funds from operations, combined with our capital base and available credit facilities, are sufficient for our liquidity needs in the foreseeable future. Changes in capital requirements under international standards that will impact the costs and relative returns on loans may cause banks including those upon whom we rely to back away from providing funding to the securities industry. Such a development might impact our ability to finance our day-to-day activities or increase the costs to acquire funding. We may or may not be able to pass such increased funding costs on to our clients.

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OFF-BALANCE SHEET ARRANGEMENTS
Information concerning our off-balance sheet arrangements is included in note 7 to the condensed consolidated financial statements appearing in Item 1. Such information is hereby incorporated by reference. Also, see "Risk Factors — The Company may continue to be significantly affected by the failure of the Auction Rate Securities Market" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 as well as "Regulatory and Legal Environment — Other Regulatory Matters" herein for additional details.
CONTRACTUAL OBLIGATIONS
The following table sets forth the Company's contractual obligations as of June 30, 2019:
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Less than 1
Year
 
 
 
 
 
More than 5
Years
 
Total
 
 
1-3 Years
 
3-5 Years
 
Operating Lease Obligations (1)(2)
$
294,427

 
$
41,404

 
$
104,305

 
$
51,855

 
$
96,863

Future Lease Obligation (3)
13,950

 
569

 
3,240

 
2,846

 
7,295

Committed Capital
1,399

 
1,399

 

 

 

Senior Secured Notes (4)(5)
240,538

 
13,500

 
27,000

 
200,038

 

ARS Purchase Commitments (6)
5,554

 
2,000

 
3,554

 

 

Total
$
555,868

 
$
58,872

 
$
138,099

 
$
254,739

 
$
104,158

 
(1)
See note 3 to the condensed consolidated financial statements appearing in Item 1 for additional information.
(2)
Includes interest liability of $84.2 million.
(3)
Obligation includes legally binding minimum lease payments for leases signed but not yet commenced.
(4)
See note 10 to the condensed consolidated financial statements appearing in Item 1 for additional information.
(5)
Includes interest payable of $40.5 million through maturity.
(6)
See note 12 to the condensed consolidated financial statements appearing in Item 1 for additional information.     
CYBERSECURITY
For many years, we have sought to maintain the security of our clients' data, limit access to its data processing environment, and protect our data processing facilities. See "Risk Factors The Company may be exposed to damage to its business or its reputation by cybersecurity incidents" as further described in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. Recent examples of vulnerabilities by other companies and the government that have resulted in loss of client data and fraudulent activities by both domestic and foreign actors have caused us to continuously review our security policies and procedures and to take additional actions to protect our network and our information.
Given the importance of the protection of client data, regulators have developed increased oversight of cybersecurity planning and protections that broker-dealers and other financial service providers have implemented. Such planning and protection are subject to the SEC's and FINRA's oversight and examination on a periodic or targeted basis. We expect that regulatory oversight will intensify, as a result of publicly announced data breaches by other organizations involving tens of millions of items of personally identifiable information. We continue to implement protections and adopt procedures to address the risks posed by the current information technology environment. The Company has significantly increased the resources dedicated to this effort and believes that further increases may be required in the future, in anticipation of increases in the sophistication and persistency of such attacks. There can be no guarantee that our cybersecurity efforts will be successful in discovering or preventing a security breach.

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REGULATORY MATTERS AND DEVELOPMENTS

Regulation Best Interest (U.S.)
On April 18, 2018, the SEC announced its proposed "Regulation Best Interest," a package of rulemakings and interpretations that address customers' relationships with investment advisers and broker-dealers. The public comment period applicable to Regulation Best Interest expired on August 7, 2018.
On June 5, 2019, the SEC adopted a final version of this rulemaking package that included the adoption of Regulation Best Interest (“Reg BI”) as Rule 15l-1 under the Securities Exchange Act of 1934. Reg BI imposes a new federal standard of conduct on registered broker-dealers and their associated persons when dealing with retail clients and requires that a broker-dealer and its representatives act in the best interest of such client and not place its own interests ahead of the customer’s interests. Reg BI does not define the term “best interest” but instead sets forth four distinct obligations, disclosure, care, conflict of interest and compliance that a broker-dealer must satisfy in each transaction. The effective date for compliance with Reg BI is June 30, 2020. In addition to passing Reg BI the SEC also adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Advisers Act including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).
It is too early to predict what all the effects of the Reg BI Rules will have on the Company. However, it appears likely that there will be a need for enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the curtailment of certain practices and limitations on certain kinds of transactions previously carried on in the normal course of business. The new rules and processes related thereto will possibly limit revenue and most likely involve increased costs, including, but not limited to, compliance costs associated with new or enhanced technology as well as increased litigation costs.
We are reviewing our business and operating models in light of the Reg BI Rules and may make structural and operational changes to our business in anticipation of the June 30, 2020 compliance effective date of Reg BI Rules.
Regulatory Environment
See the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in Item 1 “Business - Regulation” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory and Legal Environment” of Annual Report on Form 10-K for the year ended December 31, 2018.
Oppenheimer and many of its affiliates are each subject to various regulatory capital requirements. As of June 30, 2019, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. See note 13 of the Notes to Condensed Consolidated Financial Statements in Item 1 for further information on regulatory capital requirements.
Regulatory Matters
On January 27, 2015, the SEC approved an Offer of Settlement from Oppenheimer and issued an Order Instituting Administrative and Cease and Desist Proceedings (the "SEC Order"). Pursuant to the SEC Order, Oppenheimer was ordered to, amongst other things, retain an independent consultant to review Oppenheimer's policies and procedures relating to anti-money laundering and Section 5 of the Securities Act of 1933. In July 2015, the Company created a Compliance Committee made up of independent directors to oversee our compliance with applicable rules and regulations.

In May and June 2017, our initial independent consultant delivered to the Company reports in connection with the January 2015 SEC Order, and another report in connection with the SEC's Municipalities Continuing Disclosure Cooperation "MCDC Initiative " (collectively, the "Required Reports"). Each of the reports has been reviewed by the Company and the Compliance Committee. In June 2018, the SEC began an examination of the Company to review our assertions with respect to our fulfillment of our initial independent consultant's recommendations appearing in the Required Reports. That examination concluded in November of 2018. On October 29, 2018, the Company's initial independent consultant resigned. On February 1, 2019 we engaged successor independent consultants (“Successor ICs”) to complete the review of the implementation of the recommendations made in the Required Reports. On May 14, 2019, the Company certified to the SEC that it had complied with the undertakings required by the MCDC Initiative Order. On July 1, 2019, the Company certified to the SEC that it had complied with the undertakings required by the 2015 SEC Order.

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FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"
From time to time, the Company may publish or make oral statements that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 which provides a safe harbor for forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues, earnings, liabilities or expenses, business prospects, projected ventures, new products, anticipated market performance, and similar matters. The Company cautions readers that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. These risks and uncertainties, many of which are beyond the Company’s control, include, but are not limited to: (i) transaction volume in the securities markets, (ii) the volatility of the securities markets, (iii) fluctuations in interest rates, (iv) changes in regulatory requirements that could affect the cost and method of doing business, (v) general economic conditions, both domestic and international, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) potential cybersecurity threats, (viii) legal developments affecting the litigation experience of the securities industry and the Company, (ix) changes in foreign, federal and state tax laws that could affect the popularity of products sold by the Company or impose taxes on securities transactions, (x) the adoption and implementation of the SEC’s proposed “Regulation Best Interest” and other regulations adopted in recent years, (xi) war, terrorist acts and nuclear confrontation as well as political unrest, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s June 23, 2016 referendum to exit the EU in 2019 (“Brexit”), (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, government shutdowns and investigations, trade wars, changes in or uncertainty surrounding regulation and threats of default by the Federal government, and (xviii) risks related to changes in capital requirements under international standards that may cause banks to back away from providing funding to the securities industry. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company’s business. The Company does not undertake any obligation to publicly update or revise any forward-looking statements. See “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.


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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the six months ended June 30, 2019, there were no material changes to the information contained in Part II, Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Item 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a–15(e) of the Exchange Act. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision–making can be faulty and that break-downs can occur because of a simple error or omission. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.
The Company confirms that its management, including its Chief Executive Officer and its Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in its reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the six months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.


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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of liability. In the normal course of business, the Company has been the subject of customer complaints and has been named as a defendant or co-defendant in various lawsuits or arbitrations creating substantial exposure. The Company is also involved from time to time in certain governmental and self-regulatory agency investigations and proceedings. These proceedings arise primarily from securities brokerage, asset management and investment banking activities. There has been an increased incidence of regulatory investigations in the financial services industry since the financial crisis of 2008, including investigations by multiple regulators of matters involving the same or similar underlying facts and seeking substantial penalties, fines or other monetary relief.
While the ultimate resolution of routine pending litigation, regulatory and other matters cannot be currently determined, in the opinion of management, after consultation with legal counsel, the Company does not believe that the resolution of these matters will have a material adverse effect on its condensed consolidated balance sheet and statement of cash flow. However, the Company's results of operations could be materially affected during any period if liabilities in that period differ from prior estimates.
Notwithstanding the foregoing, an adverse result in any of the matters set forth below or multiple adverse results in arbitrations, litigations or regulatory proceedings currently filed or to be filed against the Company, could have a material adverse effect on the Company's results of operations and financial condition, including its cash position.
The materiality of legal and regulatory matters to the Company's future operating results depends on the level of future results of operations as well as the timing and ultimate outcome of such legal and regulatory matters. See "Risk Factors — The Company may continue to be adversely affected by the failure of the Auction Rate Securities Market" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory and Legal Environment — Other Regulatory Matters" and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting 'Forward-Looking Statements'" in Part I, Item 2.
In accordance with applicable accounting guidance, the Company establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and reasonably estimable. When loss contingencies are not both probable and reasonably estimable, the Company does not establish reserves. In some of the matters described below, loss contingencies are not probable and reasonably estimable in the view of management and, accordingly, the Company has not established reserves for those matters. For legal or regulatory proceedings where there is at least a reasonable possibility that a loss or an additional loss may be incurred, the Company estimates a range of aggregate loss in excess of amounts accrued of $0 to approximately $3.0 million. This estimated aggregate range is based upon currently available information for those legal proceedings in which the Company is involved, where an estimate for such losses can be made. For certain cases, the Company does not believe that it can make an estimate. The foregoing estimate is based on various factors, including the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the numerous yet-unresolved issues in many of the proceedings and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Company's estimate will change from time to time, and actual losses may be more than the current estimate.
Auction Rate Securities Matters
For a number of years, the Company offered auction rate securities ("ARS") to its clients. A significant portion of the market in ARS 'failed' in February 2008 due to credit market conditions, and dealers were no longer willing or able to purchase the imbalance between supply and demand for ARS. See "Risk Factors — The Company may continue to be adversely affected by the failure of the Auction Rate Securities Market" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory and Legal Environment — Other Regulatory Matters" in Part I, Item 2 for additional details.
As previously disclosed, Oppenheimer, without admitting or denying liability, entered into a Consent Order (the "Order") with the Massachusetts Securities Division (the "MSD") on February 26, 2010 and an Assurance of Discontinuance ("AOD") with the New York Attorney General ("NYAG" and together with the MSD, the "Regulators") on February 23, 2010, each in connection with Oppenheimer's sales of ARS to retail and other investors in the Commonwealth of Massachusetts and the State of New York.

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Pursuant to the terms of the Order and AOD, the Company commenced and closed eighteen offers to purchase ARS from customer accounts when the Company's latest offer to purchase was fully accepted on June 7, 2019. As of June 30, 2019, the Company had purchased and holds (net of redemptions) $48.5 million of ARS pursuant to settlements with the Regulators and legal settlements and awards.
Oppenheimer has agreed with the NYAG that it will offer to purchase Eligible ARS from Eligible Investors who did not receive an initial purchase offer, periodically, as excess funds become available to Oppenheimer. At June 30, 2019, the Company has $2.0 million of ARS to purchase from Eligible Investors related to the settlements with the Regulators.
In addition, pursuant to the Order, Oppenheimer agreed to offer margin loans against eligible collateral for other Massachusetts clients not covered by the offers to purchase. As of June 30, 2019, Oppenheimer had extended margin loans to two holders of Eligible ARS from Massachusetts.
Further, Oppenheimer has agreed to (1) no later than 75 days after Oppenheimer has completed extending a purchase offer to all Eligible Investors (as defined in the AOD), use its best efforts to identify any Eligible Investor who purchased Eligible ARS (as defined in the AOD) and subsequently sold those securities below par between February 13, 2008 and February 23, 2010 and pay the investor the difference between par and the price at which the Eligible Investor sold the Eligible ARS, plus reasonable interest thereon; (2) no later than 75 days after Oppenheimer has completed extending a Purchase Offer to all Eligible Investors, use its best efforts to identify Eligible Investors who took out loans from Oppenheimer after February 13, 2008 that were secured by Eligible ARS that were not successfully auctioning at the time the loan was taken out from Oppenheimer and who paid interest associated with the ARS-based portion of those loans in excess of the total interest and dividends received on the Eligible ARS during the duration of the loan (the "Loan Cost Excess") and reimburse such investors for the Loan Cost Excess, plus reasonable interest thereon; (3) upon providing liquidity to all Eligible Investors, participate in a special arbitration process for the exclusive purpose of arbitrating any Eligible Investor's claim for consequential damages against Oppenheimer related to the investor's inability to sell Eligible ARS; and (4) work with issuers and other interested parties, including regulatory and governmental entities, to expeditiously provide liquidity solutions for institutional investors not within the definition of Small Businesses and Institutions (as defined in the AOD) that held ARS in Oppenheimer brokerage accounts on February 13, 2008. Oppenheimer believes that because Items (1) through (3) above will occur only after it has provided liquidity to all Eligible Investors.
If Oppenheimer fails to comply with any of the terms set forth in the Order, the MSD may institute an action to have the Order declared null and void and reinstitute the previously pending administrative proceedings. If Oppenheimer defaults on any obligation under the AOD, the NYAG may terminate the AOD, at his sole discretion, upon 10 days written notice to Oppenheimer.
Reference is made to the Order and the AOD, each as described in Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 2009 and attached thereto as Exhibits 10.24 and 10.22 respectively, as well as the subsequent disclosures related thereto in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 through September 30, 2018 and in the Company's Annual Reports on Form 10-K for the years ended December 31, 2010 through and including 2018, for additional details of the agreements with the MSD and NYAG.
As of June 30, 2019, there were no pending ARS-related cases against Oppenheimer. As of June 30, 2019, eleven ARS matters were concluded in either court or arbitration with Oppenheimer prevailing in four of those matters and the claimants prevailing in seven of those matters. The Company has purchased approximately $7.6 million in ARS from the prevailing claimants in those seven actions. In addition, the Company has made cash payments of approximately $12.7 million as a result of legal settlements with clients. As of June 30, 2019, the Company has one remaining commitment to purchase $3.6 million in ARS on June 30, 2020. It is possible, though the Company believes unlikely, that other individuals or entities that purchased ARS from Oppenheimer may bring additional claims against Oppenheimer in the future for repurchase or rescission.
See "Risk Factors — The Company may continue to be adversely affected by the failure of the Auction Rate Securities Market" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory and Legal Environment — Other Regulatory Matters" and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements" in Part I, Item 2.

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Other Pending Matters
On or about March 13, 2008, Oppenheimer was served in a matter pending in the United States Bankruptcy Court, Northern District of Georgia, captioned William Perkins, Trustee for International Management Associates v. Lehman Brothers, Oppenheimer & Co. Inc., JB Oxford & Co., Bank of America Securities LLC and TD Ameritrade Inc. The Trustee seeks to set aside as fraudulent transfers in excess of $25.0 million in funds embezzled by the sole portfolio manager for International Management Associates, a hedge fund. The portfolio manager purportedly used the broker-dealer defendants, including Oppenheimer, as conduits for his embezzlement. Oppenheimer filed its answer to the complaint on June 18, 2010. Oppenheimer filed a motion for summary judgment, which was argued on March 31, 2011. Immediately thereafter, the Bankruptcy Court dismissed all of the Trustee's claims against all defendants including Oppenheimer. In June 2011, the Trustee filed an appeal with the United States District Court for the Northern District of Georgia ("U.S.N.D. GA"). In addition, on June 10, 2011, the Trustee filed a petition for permission to appeal the dismissal to the United States Court of Appeals for the Eleventh Circuit (the "Court of Appeals"). On July 27, 2011, the Court of Appeals denied the Trustee's Petition. The Trustee then appealed to the U.S.N.D. GA. On March 30, 2012, the U.S.N.D. GA affirmed in part and reversed in part the ruling from the Bankruptcy Court and remanded the matter to the Bankruptcy Court. Discovery has closed and Oppenheimer filed a motion for summary judgment at the end of February 2014. On January 10, 2017, Oppenheimer's motion for summary judgment was granted in full, and judgment was entered in Oppenheimer's favor and the court dismissed the case. On January 24, 2017, the Trustee appealed the summary judgment order to the U.S.N.D. GA. On February 12, 2018, the U.S.N.D. GA issued an order (the "District Court Order") reversing the Bankruptcy Court's summary judgment order and remanding the proceedings to the Bankruptcy Court. In March 2018, Oppenheimer moved to certify the District Court Order for interlocutory appeal. The Trustee opposed the motion for interlocutory appeal. On June 28, 2018, the Eleventh Circuit dismissed the direct appeal. On February 27, 2019, Oppenheimer's motion for interlocutory appeal before the U.S.N.D. GA was denied. The U.S.N.D. GA will set a date for trial to commence sometime in 2019. Oppenheimer believes it has meritorious defenses and intends to defend the claims vigorously.

On April 15, 2011, in an action styled State of Oklahoma ex rel. Holland v. Providence Holdings, Inc., et al. in the Oklahoma County District Court, Providence Holdings, Inc. ("PHI") asserted cross-claims against Oppenheimer Holdings Inc., Oppenheimer Asset Management Inc., Oppenheimer Investment Management LLC, and Oppenheimer Trust Company of Delaware Inc. ("Oppenheimer Entities") alleging that Oppenheimer held itself out as having expertise in the insurance industry generally and managing insurance companies' investment portfolios but inappropriately allowed plaintiffs' bond portfolios to be used by Park Avenue Insurance Company to secure the sale of Providence Property and Casualty Insurance Company to Park Avenue Insurance Company. On July 11, 2019, PHI and Oppenheimer Entities reached an agreement pursuant to which each party would drop all claims against the other with no consideration to be paid by any party.



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Item 1A. RISK FACTORS
During the six months ended June 30, 2019, there were no material changes to the information contained in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)
There were no issuances of shares of Class A Stock during the second quarter of 2019 pursuant to the Company's share-based compensation plans. Such issuances are exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.
(b)
Not applicable.
(c)
Not applicable.

Item 6. EXHIBITS
 
 
 
 
 
 
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Interactive data files pursuant to Rule 405 of Regulation S-T (unaudited): (i) the Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, (ii) the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018, (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and six months ended June 30, 2019 and 2018, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018, and (vi) the notes to the Condensed Consolidated Financial Statements.*
 
 
*
This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
 


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 26th day of July, 2019.
OPPENHEIMER HOLDINGS INC.
 
BY: /s/ Albert G. Lowenthal
Albert G. Lowenthal, Chairman and Chief Executive Officer
(Principal Executive Officer)
 
BY: /s/ Jeffrey J. Alfano
Jeffrey J. Alfano, Chief Financial Officer
(Principal Financial and Accounting Officer)
 


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