Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 27, 2017)
  • 10-Q (Jul 28, 2017)
  • 10-Q (Apr 28, 2017)
  • 10-Q (Oct 28, 2016)
  • 10-Q (Jul 29, 2016)
  • 10-Q (Apr 29, 2016)

 
8-K

 
Other

Oppenheimer Holdings 10-Q 2017

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
 (Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission file number: 1-12043
 
OPPENHEIMER HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
98-0080034
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
85 Broad Street
New York, New York 10004
(Address of principal executive offices) (Zip Code)
(212) 668-8000
(Registrant’s Telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
o
  
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
 
Emerging growth company
o
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 October 27, 2017 was 13,009,648 and 99,665 shares, respectively.
 



OPPENHEIMER HOLDINGS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q 
 
 
Page
No.
PART I
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II
 
Item 1.
Item 1A.
Item 2.
Item 6.
 




PART I. FINANCIAL INFORMATION

Item 1.        Financial Statements (unaudited)

OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(Expressed in thousands, except number of shares and per share amounts)
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Cash and cash equivalents
$
44,794

 
$
64,913

Deposits with clearing organizations
44,201

 
38,185

Receivable from brokers, dealers and clearing organizations
248,891

 
214,934

Receivable from customers, net of allowance for credit losses of $782 ($794 in 2016)
775,602

 
847,386

Income tax receivable
5,061

 
5,816

Securities purchased under agreements to resell

 
24,006

Securities owned, including amounts pledged of $642,501 ($438,385 in 2016), at fair value
1,037,463

 
707,108

Notes receivable, net of accumulated amortization and allowance for uncollectibles of $24,694 and $7,519, respectively ($24,826 and $6,784, respectively, in 2016)
38,241

 
30,099

Furniture, equipment and leasehold improvements, net of accumulated depreciation of $87,861 ($84,073 in 2016)
26,554

 
27,233

Intangible assets
31,700

 
31,700

Goodwill
137,889

 
137,889

Other assets
118,005

 
107,661

Total assets
$
2,508,401

 
$
2,236,930

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Drafts payable
$
26,480

 
$
39,228

Bank call loans
130,100

 
145,800

Payable to brokers, dealers and clearing organizations
247,479

 
221,389

Payable to customers
396,515

 
449,946

Securities sold under agreements to repurchase
398,650

 
378,084

Securities sold but not yet purchased, at fair value
366,581

 
85,050

Accrued compensation
130,109

 
145,053

Accounts payable and other liabilities
91,534

 
96,557

Senior secured notes, net of debt issuance costs of $1,199 ($648 in 2016)
198,801

 
149,352

Deferred tax liabilities, net of deferred tax assets of $60,919 ($59,062 in 2016)
17,377

 
13,137

Total liabilities
2,003,626

 
1,723,596

Commitments and contingencies (Note 11)

 

Stockholders' equity
 
 
 
Share capital
 
 
 
Class A non-voting common stock, par value $0.001 per share, 50,000,000 shares authorized, 13,009,648 and 13,261,095 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively
55,989

 
59,228

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

 
133

 
56,122

 
59,361

Contributed capital
39,845

 
41,765

Retained earnings
407,179

 
410,258

Accumulated other comprehensive income (loss)
1,272

 
(681
)
Total Oppenheimer Holdings Inc. stockholders' equity
504,418

 
510,703

Noncontrolling interest
357

 
2,631

Total stockholders' equity
504,775

 
513,334

Total liabilities and stockholders' equity
$
2,508,401

 
$
2,236,930


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

2


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
(Expressed in thousands, except number of shares and per share amounts)
2017
 
2016
 
2017
 
2016
REVENUE
 
 
 
 
 
 
 
Commissions
$
77,635

 
$
90,023

 
$
248,204

 
$
286,447

Advisory fees
74,329

 
67,452

 
216,521

 
199,582

Investment banking
23,940

 
20,280

 
57,347

 
51,544

Interest
12,952

 
11,291

 
36,346

 
36,340

Principal transactions, net
5,135

 
4,922

 
15,810

 
19,117

Other
32,229

 
17,836

 
81,137

 
45,804

Total revenue
226,220

 
211,804

 
655,365

 
638,834

EXPENSES
 
 
 
 
 
 
 
Compensation and related expenses
142,090

 
142,308

 
428,625

 
432,524

Communications and technology
17,781

 
17,201

 
53,886

 
52,519

Occupancy and equipment costs
15,288

 
14,909

 
45,721

 
44,796

Clearing and exchange fees
5,622

 
5,886

 
17,392

 
19,006

Interest
6,500

 
4,687

 
18,710

 
14,526

Other
27,111

 
28,623

 
87,865

 
89,859

Total expenses
214,392

 
213,614

 
652,199

 
653,230

Income (Loss) before income taxes from continuing operations
11,828

 
(1,810
)
 
3,166

 
(14,396
)
Income taxes
4,425

 
(751
)
 
2,464

 
(7,190
)
Net income (loss) from continuing operations
7,403

 
(1,059
)
 
702

 
(7,206
)
 
 
 
 
 
 
 
 
Discontinued operations
 
 
 
 
 
 
 
Income from discontinued operations
769

 
888

 
1,834

 
15,597

Income taxes
308

 
475

 
733

 
6,235

Net income from discontinued operations
461


413


1,101


9,362

 
 
 
 
 
 
 
 
Net income (loss)
7,864

 
(646
)
 
1,803

 
2,156

Less net income attributable to noncontrolling interest, net of tax
75

 
66

 
180

 
1,527

Net income (loss) attributable to Oppenheimer Holdings Inc.
$
7,789

 
$
(712
)
 
$
1,623

 
$
629

 
 
 
 
 
 
 
 
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
 
 
 
 
Continuing operations
$
0.56

 
$
(0.08
)
 
$
0.05

 
$
(0.54
)
Discontinued operations
0.03

 
0.03

 
0.07

 
0.59

Net income (loss) per share
$
0.59

 
$
(0.05
)
 
$
0.12

 
$
0.05

Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
 
 
 
 
Continuing operations
$
0.54

 
$
(0.08
)
 
$
0.05

 
$
(0.54
)
Discontinued operations
0.03

 
0.03

 
0.07

 
0.59

Net income (loss) per share
$
0.57

 
$
(0.05
)
 
$
0.12

 
$
0.05

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.11

 
$
0.11

 
$
0.33

 
$
0.33

Weighted average shares
 
 
 
 
 
 
 
Basic
13,213,139

 
13,366,863

 
13,290,399

 
13,371,296

Diluted
13,763,516

 
13,366,863

 
13,790,136

 
13,371,296


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

3


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
(Expressed in thousands)
2017
 
2016
 
2017
 
2016
Net income (loss)
$
7,864

 
$
(646
)
 
$
1,803

 
$
2,156

Other comprehensive income (loss), net of tax (1)
 
 
 
 
 
 
 
Currency translation adjustment
(251
)
 
681

 
1,953

 
900

Comprehensive income
7,613

 
35

 
3,756

 
3,056

Net income attributable to noncontrolling interest, net of tax
75

 
66

 
180

 
1,527

Comprehensive income (loss) attributable to Oppenheimer Holdings Inc.
$
7,538

 
$
(31
)
 
$
3,576

 
$
1,529

 
(1)
No other comprehensive income (loss) is attributable to noncontrolling interests.
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Expressed in thousands)
2017
 
2016
Share capital
 
 
 
Balance at beginning of period
$
59,361

 
$
57,520

Issuance of Class A non-voting common stock
4,225

 
5,776

Repurchase of Class A non-voting common stock for cancellation
(7,464
)
 
(3,832
)
Balance at end of period
56,122

 
59,464

Contributed capital
 
 
 
Balance at beginning of period
41,765

 
44,438

Tax deficiency from share-based awards

 
(751
)
Share-based expense
4,112

 
3,955

Vested employee share plan awards
(6,457
)
 
(7,117
)
Other
425

 

Balance at end of period
39,845

 
40,525

Retained earnings
 
 
 
Balance at beginning of period
410,258

 
417,001

Net income attributable to Oppenheimer Holdings Inc.
1,623

 
629

Dividends paid ($0.33 per share)
(4,394
)
 
(4,417
)
Dividends received from noncontrolling interest
6

 
295

Other
(314
)
 

Balance at end of period
407,179

 
413,508

Accumulated other comprehensive income (loss)
 
 
 
Balance at beginning of period
(681
)
 
(901
)
Currency translation adjustment
1,953

 
900

Balance at end of period
1,272

 
(1
)
Total Oppenheimer Holdings Inc. stockholders' equity
504,418

 
513,496

Noncontrolling interest
 
 
 
Balance at beginning of period
2,631

 
7,024

Net income attributable to noncontrolling interest, net of tax
180

 
1,527

Dividends paid to noncontrolling interest
(2,448
)
 
(5,740
)
Dividends paid to parent
(6
)
 
(295
)
Balance at end of period
357

 
2,516

Total stockholders' equity
$
504,775

 
$
516,012

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

5


OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Expressed in thousands)
2017
 
2016
Cash flows from operating activities
 
 
 
Net income for the period
$
1,803

 
$
2,156

Adjustments to reconcile net income to net cash used in operating activities
 
 
 
Non-cash items included in net income:
 
 
 
Depreciation and amortization of furniture, equipment and leasehold improvements
4,185

 
4,366

Deferred income taxes
4,240

 
(4,473
)
Amortization of notes receivable
8,658

 
9,844

Amortization of debt issuance costs
287

 
363

Write-off of debt issuance costs
430

 

Amortization of mortgage servicing rights

 
44

Reversal of credit losses
(12
)
 
(42
)
Share-based compensation
3,517

 
3,230

Tax deficiency from share-based awards


 
(751
)
Gain on sale of assets

 
(17,526
)
Decrease (increase) in operating assets:
 
 
 
Deposits with clearing organizations
(6,016
)
 
13,876

Receivable from brokers, dealers and clearing organizations
(33,957
)
 
105,196

Receivable from customers
71,796

 
42,349

Income tax receivable
755

 
8,965

Securities purchased under agreements to resell
24,006

 
206,499

Securities owned
(330,355
)
 
(293,103
)
Notes receivable
(16,800
)
 
(8,115
)
Loans held for sale

 
60,234

Mortgage servicing rights

 
169

Other assets
(9,585
)
 
(10,647
)
Increase (decrease) in operating liabilities:
 
 
 
Drafts payable
(12,748
)
 
(16,597
)
Payable to brokers, dealers and clearing organizations
26,090

 
(10,378
)
Payable to customers
(53,431
)
 
(77,152
)
Securities sold under agreements to repurchase
20,566

 
(123,332
)
Securities sold but not yet purchased
281,531

 
169,014

Accrued compensation
(14,238
)
 
(29,132
)
Accounts payable and other liabilities
(5,108
)
 
(59,012
)
Cash used in operating activities
(34,386
)
 
(23,955
)
Cash flows from investing activities
 
 
 
Purchase of furniture, equipment and leasehold improvements
(3,506
)
 
(4,397
)
Proceeds from sale of assets

 
47,562

Proceeds from the settlement of company-owned life insurance
1,194

 

Cash (used in) provided by investing activities
(2,312
)
 
43,165

Cash flows from financing activities
 
 
 
Cash dividends paid on Class A non-voting and Class B voting common stock
(4,394
)
 
(4,417
)
Cash dividends paid to noncontrolling interest
(2,448
)
 
(5,740
)
Repurchase of Class A non-voting common stock for cancellation
(7,464
)
 
(3,832
)
Payments for employee taxes withheld related to vested share-based awards
(2,232
)
 
(1,341
)
Issuance of senior secured notes
200,000

 

Redemption of senior secured notes
(150,000
)
 

Debt issuance costs
(1,183
)
 

Increase in bank call loans, net
(15,700
)
 
31,800

Cash provided by financing activities
16,579

 
16,470

Net (decrease) increase in cash and cash equivalents
(20,119
)
 
35,680

Cash and cash equivalents, beginning of period
64,913

 
63,364

Cash and cash equivalents, end of period
$
44,794

 
$
99,044

Schedule of non-cash financing activities
 
 
 
Employee share plan issuance
$
4,225

 
$
5,776

Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
17,711

 
$
11,678

Cash received during the period for income taxes, net
$
2,354

 
$
4,023

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

6


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

1.        Organization and basis of presentation
Organization
Oppenheimer Holdings Inc. ("OPY") is incorporated under the laws of the State of Delaware. The condensed consolidated financial statements include the accounts of OPY and its subsidiaries (together, the "Company"). The Company engages in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, trust services, and investment advisory and asset management services.
The Company provides its services from 93 offices in 24 states located throughout the United States and in 5 foreign jurisdictions. The principal subsidiaries of OPY are Oppenheimer & Co. Inc. ("Oppenheimer"), a registered broker-dealer in securities and investment adviser under the Investment Advisers Act of 1940, Oppenheimer Asset Management Inc. ("OAM") and its wholly- owned subsidiary, Oppenheimer Investment Management LLC, both registered investment advisers under the Investment Advisers Act of 1940, Oppenheimer Trust Company of Delaware ("Oppenheimer Trust"), a limited purpose trust company that provides fiduciary services such as trust and estate administration and investment management, OPY Credit Corp., which offers syndication as well as trading of issued corporate loans, Oppenheimer Europe Ltd., based in the United Kingdom, with offices in the Isle of Jersey and Switzerland, which provides institutional equities and fixed income brokerage and corporate financial services and is regulated by the Financial Conduct Authority, and Oppenheimer Investments Asia Limited, based in Hong Kong, China, which provides assistance in accessing the U.S. equities markets and limited mergers and acquisitions advisory services to Asia-based companies, as well as offering fixed income brokerage services to institutional investors, and is regulated by the Securities and Futures Commission. Oppenheimer Multifamily Housing & Healthcare Finance, Inc. ("OMHHF") was formerly engaged in Federal Housing Administration ("FHA")-insured commercial mortgage origination and servicing. During 2016, the Company sold substantially all of the assets of OMHHF and ceased its operations.
Oppenheimer owns Freedom Investments, Inc. ("Freedom"), a registered broker dealer in securities, which provides discount brokerage services, and Oppenheimer Israel (OPCO) Ltd., which is engaged in offering investment services in the State of Israel. Oppenheimer holds a trading permit on the New York Stock Exchange and is a member of several other regional exchanges in the United States.
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission 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, 2016. The accompanying December 31, 2016 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 results of operations for the nine month period ended September 30, 2017 are not necessarily indicative of the results to be expected for any future interim or annual period.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Accounting standards require the Company to present noncontrolling interests as a separate component of stockholders' equity on the Company's condensed consolidated balance sheet. As of September 30, 2017, the Company owned 83.68% of OMHHF and the noncontrolling interest recorded on the condensed consolidated balance sheet was $357,000.

7


2.        New accounting pronouncements
Recently Issued
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers." The ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Additionally, the ASU expands the disclosure requirements for revenue recognition. In 2016, the FASB additionally issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, which provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients. All of these standards are effective either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption, during interim and annual periods beginning after December 15, 2017. The Company's implementation team is performing an in-depth review of the Company's revenue streams and evaluating the impact of the adoption of these updates on the Company's financial condition, results of operations, cash flows, and disclosures. Based on the Company's preliminary assessment, it has determined that the adoption of these updates may defer the timing of the recognition of upfront investment banking advisory fees (e.g., retainer and engagement fees) until completion of the engagement. These upfront fees are currently recognized ratably over the service period. The new guidance may also require underwriting expenses to be recorded on a gross basis while the current guidance requires recognizing underwriting revenues net of related underwriting expenses. In addition, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The Company is continuing its assessment and may identify other revenue streams that will be impacted.
In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities," which revises an entity's accounting related to the classification and measurement of investments in equity securities, changes the presentation of certain fair value changes relating to instrument specific credit risk for financial liabilities and amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for fiscal years beginning after December 15, 2017. The adoption of the ASU will not have a material impact on the Company's condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases." The ASU requires the recognition of a right-of use asset and lease liability on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this ASU which it expects will have a material impact on its condensed consolidated financial statements. Since the Company has operating leases in over 100 locations, the Company expects to recognize a significant right-of use asset and lease liability on its condensed consolidated balance sheet upon adoption of this ASU.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model ("current expected credit loss model"). Under this new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is effective for the fiscal year beginning after December 15, 2019. The Company will not early adopt this ASU. The Company is currently evaluating the impact of the ASU, but the adoption of the ASU is not expected to have a material impact on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flow. The ASU is effective for the fiscal year beginning after December 15, 2017 and early adoption is permitted. The Company will not early adopt this ASU. The Company is currently evaluating the impact of the ASU, but the adoption of the ASU is not expected to have a material impact on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flow - Restricted Cash," which adds or clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. The ASU is effective for the fiscal year beginning after December 15, 2017 and early adoption is permitted. The Company will not early adopt this ASU. The Company is currently evaluating the impact of the ASU, but the adoption of the ASU is not expected to have a material impact on its condensed consolidated financial statements.


8


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 the fiscal year 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 of the ASU, but the adoption of the ASU is not expected to have a material impact on its condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities," which amends the hedge accounting recognition and presentation requirements. The ASU improves the transparency and understandability of information conveyed to financial statement users by better aligning companies' hedging relationship to their existing risk management strategies, simplifies the application of hedge accounting and increases transparency regarding the scope and results of hedging program. The ASU is effective for the fiscal year 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 of the ASU, but the adoption of the ASU is not expected to have a material impact on its condensed consolidated financial statements.

3.        Discontinued operations
OMHHF historically was engaged in the business of originating and servicing FHA-insured multifamily and healthcare facility loans and securitizing these loans into GNMA mortgage backed securities. OMHHF offered mortgage services to developers of commercial properties including apartments, elderly housing and nursing homes that satisfy FHA criteria. OMHHF maintained a mortgage servicing portfolio for which it provided a full array of services, including the collection of mortgage payments from mortgagors which were passed on to the mortgage holders, construction loan management and asset management.
The Company owns an 83.68% controlling interest in OMHHF. The 16.32% noncontrolling interest belongs to one related party who was the President and Chief Executive Officer of OMHHF.

On June 2, 2016, OMHHF entered into a definitive agreement to sell OMHHF's entire portfolio of permanent mortgage loans (consisting of over 480 permanent loans insured by the U.S. Department of Housing and Urban Development), including the associated mortgage servicing rights. On June 20, 2016, OMHHF completed the transaction for cash consideration of approximately $45.0 million. An amount equal to $1.4 million was withheld from the purchase price until such time as one loan in the mortgage loan portfolio becomes current or is modified. The Company recorded a net gain of $14.9 million related to this transaction which was included in discontinued operations in the condensed consolidated statement of operations during the second quarter of 2016. During the second quarter of 2016, OMHHF also sold its business pipeline of mortgage loans for approximately $1.5 million. During the third quarter of 2016, the Company recognized the $1.4 million that was withheld from the purchase price of the permanent mortgage loans as a result of the loan being modified as a gain. Also, OMHHF sold its construction loan portfolio and the associated mortgage servicing rights for approximately $3.8 million.

OMHHF made dividend distributions to the noncontrolling interest in the amounts of $1.6 million and $2.4 million during the three and nine month periods ended September 30, 2017, respectively.

The Company determined that the sale of the assets of OMHHF met the criteria to be classified within discontinued operations, and the results of OMHHF are reported as discontinued operations in the condensed consolidated statement of operations.

9


The following is a summary of revenue and expenses of OMHHF for the three and nine months ended September 30, 2017 and 2016:
(Expressed in thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
REVENUE
 
 
 
 
 
 
 
Interest
$
2

 
$
112

 
$
7

 
$
921

Principal transactions, net

 
(2,380
)
 

 
(9,008
)
Gain on sale of assets

 

 

 
14,916

Other (1)
783

 
4,073

 
1,887

 
16,631

Total revenue
785


1,805


1,894


23,460

EXPENSES
 
 
 
 
 
 
 
Compensation and related expenses
1

 
573

 
18

 
4,225

Communications and technology
8

 
40

 
20

 
201

Occupancy and equipment costs

 
37

 

 
399

Interest
7

 
28

 
7

 
408

Other

 
239

 
15

 
2,630

Total expenses
16


917


60


7,863

Income before income taxes
$
769

 
$
888

 
$
1,834

 
$
15,597

Income attributable to noncontrolling interest before income taxes
$
126

 
$
145

 
$
299

 
$
2,545

(1)
Other revenue for the three and nine months ended September 30, 2017 was primarily due to an earn-out from the sale of OMHHF's pipeline business in 2016.
The following is a summary of cash flows of OMHHF for the nine months ended September 30, 2017 and 2016:
(Expressed in thousands)
 
 
 
 
For the Nine Months Ended September 30,
 
2017
 
2016
Cash provided by (used in) operating activities
$
4,789

 
$
(4,143
)
Cash provided by investing activities

 
47,562

Cash used in financing activities (1)(2)
(20,035
)
 
(35,358
)
Net (decrease) increase in cash and cash equivalents
$
(15,246
)
 
$
8,061

(1)
Includes cash dividends paid to its parent (E.A. Viner International Co.) and noncontrolling interest of $12.6 million and $2.4 million, respectively, for the nine months ended September 30, 2017.
(2)
Includes $5.0 million paid to its parent due to redemption of its outstanding preferred stock for the nine months ended September 30, 2017.


10


4.        Earnings per share
Basic earnings per share is computed by dividing net income attributable to Oppenheimer Holdings Inc. by the weighted average number of shares of Class A non-voting common stock ("Class A Stock") and Class B voting common stock ("Class B Stock") outstanding. Diluted earnings per share includes the weighted average number of shares of Class A Stock and Class B Stock outstanding and options to purchase the Class A Stock and unvested restricted stock awards of Class A Stock using the treasury stock method.
Earnings per share have been calculated as follows:
(Expressed in thousands, except number of shares and per share amounts)
 
 
 
 
 
 
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Basic weighted average number of shares outstanding
$
13,213,139

 
$
13,366,863

 
$
13,290,399

 
$
13,371,296

Net dilutive effect of share-based awards, treasury method (1)
550,377

 

 
499,737

 

Diluted weighted average number of shares outstanding
$
13,763,516

 
$
13,366,863

 
$
13,790,136

 
$
13,371,296

 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
7,403

 
$
(1,059
)
 
$
702

 
$
(7,206
)
Net income from discontinued operations
461

 
413

 
1,101

 
9,362

Net income (loss)
7,864


(646
)

1,803


2,156

Net income attributable to noncontrolling interest, net of tax
75

 
66

 
180

 
1,527

Net income (loss) attributable to Oppenheimer Holdings Inc.
$
7,789


$
(712
)

$
1,623


$
629

 
 
 
 
 
 
 
 
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
 
 
 
 
Continuing operations
$
0.56

 
$
(0.08
)
 
$
0.05

 
$
(0.54
)
Discontinued operations (2)
0.03

 
0.03

 
0.07

 
0.59

Net income (loss) per share
$
0.59


$
(0.05
)

$
0.12


$
0.05

 
 
 
 
 
 
 
 
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
 
 
 
 
 
 
 
Continuing operations
$
0.54

 
$
(0.08
)
 
$
0.05

 
$
(0.54
)
Discontinued operations (2)
0.03

 
0.03

 
0.07

 
0.59

Net income (loss) per share
$
0.57


$
(0.05
)

$
0.12


$
0.05

 
(1)
For both the three and nine months ended September 30, 2017, the diluted net income (loss) per share computation does not include the anti-dilutive effect of 15,450 shares of Class A Stock granted under share-based compensation arrangements (1,249,063 shares for the three and nine months ended September 30, 2016).
(2)
Represents net income from discontinued operations less net income attributable to noncontrolling interest, net of tax divided by weighted average number of shares outstanding.


11


5.        Receivable from and payable to brokers, dealers and clearing organizations
(Expressed in thousands)
 
 
 
 
As of
 
September 30, 2017
 
December 31, 2016
Receivable from brokers, dealers and clearing organizations consist of:
 
 
 
Securities borrowed
$
159,230

 
$
154,090

Receivable from brokers
30,964

 
25,768

Securities failed to deliver
34,305

 
6,172

Clearing organizations
21,921

 
26,081

Other
2,471

 
2,823

Total
$
248,891

 
$
214,934

Payable to brokers, dealers and clearing organizations consist of:
 
 
 
Securities loaned
$
179,159

 
$
179,875

Payable to brokers
5,997

 
610

Securities failed to receive
9,253

 
11,523

Other
53,070

 
29,381

Total
$
247,479

 
$
221,389

6.        Fair value measurements
Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period.
Valuation Techniques
A description of the valuation techniques applied and inputs used in measuring the fair value of the Company's financial instruments is as follows:
U.S. Government Obligations
U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers.
U.S. Agency Obligations
U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities are model driven with respect to spreads of the comparable to-be-announced ("TBA") security.
Sovereign Obligations
The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs.
Corporate Debt and Other Obligations
The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information.
Mortgage and Other Asset-Backed Securities
The Company holds non-agency securities collateralized by home equity and various other types of collateral which are valued 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.

12


Municipal Obligations
The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information.
Convertible Bonds
The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs.
Corporate Equities
Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads.
Auction Rate Securities ("ARS")
In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General's office ("NYAG") and the Massachusetts Securities Division ("MSD" and, together with the NYAG, the "Regulators") concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. As of September 30, 2017, the Company had $5.0 million of outstanding ARS purchase commitments related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client related legal settlements and awards to purchase ARS, as of September 30, 2017, the Company purchased and holds (net of redemptions) approximately $109.0 million in ARS from its clients. In addition, the Company is committed to purchase another $10.5 million in ARS from clients through 2020 under legal settlements and awards.
The ARS positions that the Company owns and is committed to purchase primarily represent auction rate preferred securities issued by closed-end funds and, to a lesser extent, municipal auction rate securities which are municipal bonds wrapped by municipal bond insurance and student loan auction rate securities which are asset-backed securities backed by student loans.
Interest rates on ARS typically reset through periodic auctions. Due to the auction mechanism and generally liquid markets, ARS have historically been categorized as Level 1 of the fair value hierarchy. Beginning in February 2008, uncertainties in the credit markets resulted in substantially all of the ARS market experiencing failed auctions. Once the auctions failed, the ARS could no longer be valued using observable prices set in the auctions. The Company has used less observable determinants of the fair value of ARS, including the strength in the underlying credits, announced issuer redemptions, completed issuer redemptions, and announcements from issuers regarding their intentions with respect to their outstanding ARS. The Company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions. Due to liquidity problems associated with the ARS market, ARS that lack liquidity are setting their interest rates according to a maximum rate formula. For example, an auction rate preferred security maximum rate may be set at 200% of a short-term index such as LIBOR or U.S. Treasury yield. For fair value purposes, the Company has determined that the maximum spread would be an adequate risk premium to account for illiquidity in the market. Accordingly, the Company applies a spread to the short-term index for each asset class to derive the discount rate. The Company uses short-term U.S. Treasury yields as its benchmark short-term index. The risk of non-performance is typically reflected in the prices of ARS positions where the fair value is derived from recent trades in the secondary market.
The ARS purchase commitment, or derivative asset or liability, arises from both the settlements with the Regulators and legal settlements and awards. The ARS purchase commitment represents the difference between the principal value and the fair value of the ARS the Company is committed to purchase. The Company utilizes the same valuation methodology for the ARS purchase commitment as it does for the ARS it owns. Additionally, the present value of the future principal value of ARS purchase commitments under legal settlements and awards is used in the discounted valuation model to reflect the time value of money over the period of time that the commitments are outstanding. The amount of the ARS purchase commitment only becomes determinable once the Company has met with its primary regulator and the NYAG and agreed upon a buyback amount, commenced the ARS buyback offer to clients, and received notice from its clients which ARS they are tendering. As a result, it is not possible to observe the current yields actually paid on the ARS until all of these events have happened which is typically very close to the time that the Company actually purchases the ARS. For ARS purchase commitments pursuant to legal settlements and awards, the criteria for purchasing ARS from clients is based on the nature of the settlement or award which will stipulate a time period and amount for each repurchase. The Company will not know which ARS will be tendered by

13


the client until the stipulated time for repurchase is reached. Therefore, the Company uses the current yields of ARS owned in its discounted valuation model to determine a fair value of ARS purchase commitments. The Company also uses these current yields by asset class (i.e., auction rate preferred securities, municipal auction rate securities, and student loan auction rate securities) in its discounted valuation model to determine the fair value of ARS purchase commitments. In addition, the Company uses the discount rate and duration of ARS owned, by asset class, as a proxy for the duration of ARS purchase commitments.
Additional information regarding the valuation technique and inputs for ARS used is as follows: 
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quantitative Information about ARS Level 3 Fair Value Measurements as of September 30, 2017
Product
 
Principal
 
Valuation
Adjustment
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Auction Rate Securities Owned (1)
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
$
108,675

 
$
2,198

 
$
106,477

 
Discounted Cash Flow
 
Discount Rate (2)
 
1.96% to 2.67%
 
2.25%
 
 
 
 
 
 
 
 
 
 
Duration
 
4.0 Years
 
4.0 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
1.56% to 1.93%
 
1.71%
Municipal Auction Rate Securities
 
25

 
2

 
23

 
Secondary Market Trading Activity
 
Trades in Inactive Market for in-Portfolio Securities
 
90.25% of Par
 
90.25% of Par
Student Loan Auction Rate Securities
 
300

 
16

 
284

 
Discounted Cash Flow
 
Discount Rate (4)
 
3.37%
 
3.37%
 
 
 
 
 
 
 
 
 
 
Duration
 
7.0 Years
 
7.0 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
2.52%
 
2.52%
 
 
$
109,000

 
$
2,216

 
$
106,784

 
 
 
 
 
 
 
 
Auction Rate Securities Commitments to Purchase (5)
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
$
15,496

 
$
275

 
$
15,221

 
Discounted Cash Flow
 
Discount Rate (2)
 
1.96% to 2.67%
 
2.25%
 
 
 
 
 
 
 
 
 
 
Duration
 
4.0 Years
 
4.0 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
1.56% to 1.93%
 
1.71%
Municipal Auction Rate Securities
 
2

 

 
2

 
Secondary Market Trading Activity
 
Trades in Inactive Market for in-Portfolio Securities
 
90.25% of Par
 
90.25% of Par
Student Loan Auction Rate Securities
 
25

 
1

 
24

 
Discounted Cash Flow
 
Discount Rate (4)
 
3.37%
 
3.37%
 
 
 
 
 
 
 
 
 
 
Duration
 
7.0 Years
 
7.0 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
2.52%
 
2.52%
 
 
$
15,523

 
$
276

 
$
15,247

 
 
 
 
 
 
 
 
Total
 
$
124,523

 
$
2,492

 
$
122,031

 
 
 
 
 
 
 
 
 
(1)
Principal amount represents the par value of the ARS and is included in securities owned on the condensed consolidated balance sheet as of September 30, 2017. The valuation adjustment amount is included as a reduction to securities owned on the condensed consolidated balance sheet as of September 30, 2017.
(2)
Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.78%
(3)
Based on current yields for ARS positions owned.
(4)
Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.17%.
(5)
Principal amount represents the present value of the ARS par value that the Company is committed to purchase at a future date. This principal amount is presented as an off-balance sheet item. The valuation adjustment amount is included in accounts payable and other liabilities on the condensed consolidated balance sheet as of September 30, 2017.

14


The fair value of ARS and ARS purchase commitments is particularly sensitive to movements in interest rates. Increases in short-term interest rates would increase the discount rate input used in the ARS valuation and thus reduce the fair value of the ARS (increase the valuation adjustment). Conversely, decreases in short-term interest rates would decrease the discount rate and thus increase the fair value of ARS (decrease the valuation adjustment). However, an increase (decrease) in the discount rate input would be partially mitigated by an increase (decrease) in the current yield earned on the underlying ARS asset increasing the cash flows and thus the fair value. Furthermore, movements in short-term interest rates would likely impact the ARS duration (i.e., sensitivity of the price to a change in interest rates), which would also have a mitigating effect on interest rate movements. For example, as interest rates increase, issuers of ARS have an incentive to redeem outstanding securities as servicing the interest payments gets prohibitively expensive which would lower the duration assumption thereby increasing the ARS fair value. Alternatively, ARS issuers are less likely to redeem ARS in a lower interest rate environment as it is a relatively inexpensive source of financing which would increase the duration assumption thereby decreasing the ARS fair value. For example, see the following sensitivities:
The impact of a 25 basis point increase in the discount rate at September 30, 2017 would result in a decrease in the fair value of $1.2 million (does not consider a corresponding reduction in duration as discussed above).

The impact of a 50 basis point increase in the discount rate at September 30, 2017 would result in a decrease in the fair value of $2.3 million (does not consider a corresponding reduction in duration as discussed above).
These sensitivities are hypothetical and are based on scenarios where they are "stressed" and should be used with caution. These estimates do not include all of the interplay among assumptions and are estimated as a portfolio rather than as individual assets.
Due to the less observable nature of these inputs, the Company categorizes ARS in Level 3 of the fair value hierarchy. As of September 30, 2017, the Company had a valuation adjustment (unrealized loss) of $2.2 million for ARS owned which is included as a reduction to securities owned on the condensed consolidated balance sheet. As of September 30, 2017, the Company also had a valuation adjustment of $276,000 on ARS purchase commitments from settlements with the Regulators and legal settlements and awards which is included in accounts payable and other liabilities on the condensed consolidated balance sheet. The total valuation adjustment was $2.5 million as of September 30, 2017. The valuation adjustment represents the difference between the principal value and the fair value of the ARS owned and ARS purchase commitments.
Investments
In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment.
The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2017:
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value
 
Unfunded
Commitments
 
Redemption Frequency
 
Redemption
Notice Period
Hedge funds (1)
$
2,566

 
$

 
Quarterly - Annually
 
30 - 120 Days
Private equity funds (2)
4,907

 
1,401

 
N/A
 
N/A
 
$
7,473

 
$
1,401

 
 
 
 
(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.

15


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

16


Assets and Liabilities Measured at Fair Value
The Company's assets and liabilities, recorded at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, have been categorized based upon the above fair value hierarchy as follows:
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2017
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of September 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,490

 
$

 
$

 
$
10,490

Deposits with clearing organizations
29,448

 

 

 
29,448

Securities owned:
 
 
 
 
 
 

U.S. Treasury securities
731,902

 

 


 
731,902

U.S. Agency securities
10,030

 
10,491

 

 
20,521

Sovereign obligations

 
18,439

 

 
18,439

Corporate debt and other obligations

 
18,181

 

 
18,181

Mortgage and other asset-backed securities

 
2,483

 

 
2,483

Municipal obligations

 
42,886

 
35

 
42,921

Convertible bonds

 
49,819

 

 
49,819

Corporate equities
46,239

 

 

 
46,239

Money markets
174

 

 

 
174

Auction rate securities

 

 
106,784

 
106,784

Securities owned, at fair value
788,345

 
142,299

 
106,819

 
1,037,463

Investments (1)

 

 
167

 
167

Derivative contracts:
 
 
 
 
 
 
 
TBAs

 
1,339

 

 
1,339

Total
$
828,283

 
$
143,638

 
$
106,986

 
$
1,078,907

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
272,071

 
$

 
$

 
$
272,071

U.S. Agency securities

 
3

 

 
3

Sovereign obligations

 
18,453

 

 
18,453

Corporate debt and other obligations

 
10,459

 

 
10,459

Mortgage and other asset-backed securities

 
13

 

 
13

Convertible bonds

 
23,432

 

 
23,432

Corporate equities
42,150

 

 

 
42,150

Securities sold but not yet purchased, at fair value
314,221

 
52,360

 

 
366,581

Derivative contracts:
 
 
 
 
 
 
 
Futures
663

 

 

 
663

TBAs

 
1,230

 

 
1,230

ARS purchase commitments

 

 
276

 
276

Derivative contracts, total
663

 
1,230

 
276

 
2,169

Total
$
314,884

 
$
53,590

 
$
276

 
$
368,750

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



17


Assets and liabilities measured at fair value on a recurring basis as of December 31, 2016
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
16,242

 
$

 
$

 
$
16,242

Deposits with clearing organizations
26,437

 

 

 
26,437

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities (1)
418,888

 

 

 
418,888

U.S. Agency securities
5,878

 
32,391

 

 
38,269

Sovereign obligations

 
1,894

 

 
1,894

Corporate debt and other obligations

 
17,074

 

 
17,074

Mortgage and other asset-backed securities

 
5,024

 

 
5,024

Municipal obligations

 
56,706

 
44

 
56,750

Convertible bonds

 
56,480

 

 
56,480

Corporate equities
31,174

 

 

 
31,174

Money markets
189

 

 

 
189

Auction rate securities

 

 
84,926

 
84,926

Securities owned, at fair value
456,129

 
169,569

 
84,970

 
710,668

Investments (2)

 

 
158

 
158

Securities purchased under agreements to resell (3)

 
24,006

 

 
24,006

Derivative contracts:
 
 
 
 
 
 
 
TBAs

 
814

 

 
814

ARS purchase commitments

 

 
849

 
849

Derivative contracts, total

 
814

 
849

 
1,663

Total
$
498,808

 
$
194,389

 
$
85,977

 
$
779,174

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
28,662

 
$

 
$

 
$
28,662

U.S. Agency securities

 
12

 

 
12

Corporate debt and other obligations

 
2,536

 

 
2,536

Mortgage and other asset-backed securities

 
31

 

 
31

Municipal obligations

 
516

 

 
516

Convertible bonds

 
11,604

 

 
11,604

Corporate equities
41,689

 

 

 
41,689

Securities sold but not yet purchased, at fair value
70,351

 
14,699

 

 
85,050

Derivative contracts:
 
 
 
 
 
 
 
Futures
166

 

 

 
166

Foreign exchange forward contracts
1

 

 

 
1

TBAs

 
1,212

 

 
1,212

ARS purchase commitments

 

 
645

 
645

Derivative contracts, total
167

 
1,212

 
645

 
2,024

Total
$
70,518

 
$
15,911

 
$
645

 
$
87,074

(1)
$3.6 million is included in other assets on the condensed consolidated balance sheet.
(2)
Included in other assets on the condensed consolidated balance sheet.
(3)
Included in securities purchased under agreements to resell on the condensed consolidated balance sheet where the Company has elected fair value option treatment.

18


There were no transfers between any of the levels in the three and nine months ended September 30, 2017.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2017 and 2016:
(Expressed in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Assets and Liabilities
 
For the Three Months Ended September 30, 2017
 
 
 
Total Realized

 
 
 
 
 
 
 
 
 
Beginning
 
and Unrealized
 
Purchases
 
Sales and
 
Transfers
 
Ending
 
Balance
 
Losses (3)(4)
 
and Issuances 
 
Settlements
 
In (Out)
 
Balance
Assets
 
 
 
 
 
 
 
 
 
 
 
Municipal obligations
$
36

 
$
(1
)
 
$

 
$

 
$

 
$
35

Auction rate securities (1)
107,170

 
(161
)
 
25

 
(250
)
 

 
106,784

Investments
168

 
(1
)
 

 

 

 
167

Liabilities
 
 
 
 
 
 
 
 
 
 
 
ARS purchase commitments (2)
254

 
(22
)
 

 

 

 
276

(1)
Represents auction rate preferred securities, municipal auction rate securities and student loan auction rate securities that failed in the auction rate market.
(2)
Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.
(3)
Included in principal transactions in the condensed consolidated statement of operations, except for investments which are included in other income in the condensed consolidated statement of operations.
(4)
Unrealized losses 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 September 30, 2016
 
 
 
Total Realized
 
 
 
 
 
 
 
 
 
 
 
and