Oppenheimer Holdings Inc 10-Q for FY2024 Q3
Oppenheimer Holdings Inc (OPY)
10-Q
2024-10-25
For: 2024-09-30
View Original
Added on
April 11, 2026
About this 10-Q
Oppenheimer Holdings Inc filed this 10-Q on October 25, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $373.35M
- up 19.4% from $312.67M a year earlier
- Net income
- $24.51M
- up 76.8% from net income of $13.86M a year earlier
- Diluted EPS
- $2.16
- up 78.5% from $1.21 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2024
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(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 | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | ☒ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the Company's Class A non-voting common stock and Class B voting common stock (being the only classes of common stock of the Company) outstanding on October 25, 2024 was 10,231,736 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 5. | ||||||||
| 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, 2024 | December 31, 2023 | |||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Deposits with clearing organizations | |||||||||||
| Receivable from brokers, dealers and clearing organizations | |||||||||||
Receivable from customers, net of allowance for credit losses of $ | |||||||||||
| Income tax receivable | |||||||||||
| Securities purchased under agreements to resell | |||||||||||
Securities owned, including amounts pledged of $ | |||||||||||
| Notes receivable, net | |||||||||||
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $ | |||||||||||
Right-of-use lease assets, net of accumulated amortization of $ | |||||||||||
| Corporate-owned life insurance | |||||||||||
| Goodwill | |||||||||||
| Intangible assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Liabilities | |||||||||||
| Drafts payable | $ | $ | |||||||||
| Bank call loans | |||||||||||
| Payable to brokers, dealers and clearing organizations | |||||||||||
| Payable to customers | |||||||||||
| Securities sold under agreements to repurchase | |||||||||||
| Securities sold but not yet purchased, at fair value | |||||||||||
| Accrued compensation | |||||||||||
| Accounts payable and other liabilities | |||||||||||
| Lease liabilities | |||||||||||
Senior secured notes, net of debt issuance costs of $ | |||||||||||
Deferred tax liabilities, net of deferred tax assets of $ | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 14) | |||||||||||
Stockholders' equity | |||||||||||
Common stock ($ Class A: shares authorized: Class B: shares authorized, issued and outstanding: | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Total Oppenheimer Holdings Inc. stockholders' equity | |||||||||||
| Noncontrolling interest (Note 2) | |||||||||||
| Total Stockholders' equity | |||||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| (Expressed in thousands, except number of shares and per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Commissions | $ | $ | $ | $ | |||||||||||||||||||
| Advisory fees | |||||||||||||||||||||||
| Investment banking | |||||||||||||||||||||||
| Bank deposit sweep income | |||||||||||||||||||||||
| Interest | |||||||||||||||||||||||
| Principal transactions, net | |||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Compensation and related expenses | |||||||||||||||||||||||
| Communications and technology | |||||||||||||||||||||||
| Occupancy and equipment costs | |||||||||||||||||||||||
| Clearing and exchange fees | |||||||||||||||||||||||
| Interest | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Pre-tax income | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net loss attributable to noncontrolling interest, net of tax | ( | ( | ( | ||||||||||||||||||||
| Net income attributable to Oppenheimer Holdings Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share attributable to Oppenheimer Holdings Inc. | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Period end shares outstanding | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| (Expressed in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | |||||||||||||||||||||
| Less net loss attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income attributable to Oppenheimer Holdings Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| (Expressed in thousands, except per share amount) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Common stock ($ | |||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
| Issuance of Class A non-voting common stock | |||||||||||||||||||||||
| Repurchase of Class A non-voting common stock for cancellation | ( | ( | |||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Additional paid-in capital | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Issuance of Class A non-voting common stock | |||||||||||||||||||||||
| Repurchase of Class A non-voting common stock for cancellation | ( | ( | ( | ||||||||||||||||||||
| Share-based expense | |||||||||||||||||||||||
| Vested employee share plan awards | ( | ( | ( | ( | |||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interests | ( | ( | |||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Repurchase of Class A non-voting common stock for cancellation | ( | ( | ( | ( | |||||||||||||||||||
Net income (1) | |||||||||||||||||||||||
| Dividends paid | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Accumulated other comprehensive income | |||||||||||||||||||||||
| Balance at beginning of period | ( | ||||||||||||||||||||||
| Currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Balance at end of period | ( | ( | |||||||||||||||||||||
| Total Oppenheimer Holdings Inc. stockholders' equity | $ | $ | $ | $ | |||||||||||||||||||
| Noncontrolling interest | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Capital addition to noncontrolling interest | |||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | ( | ( | ( | ||||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interests | ( | ( | |||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Total stockholders' equity | $ | $ | $ | $ | |||||||||||||||||||
| Redeemable Noncontrolling Interests | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Redemption of redeemable noncontrolling interests | ( | ||||||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interests | |||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||
| Dividends paid per share | $ | $ | $ | $ | |||||||||||||||||||
(1) Attributable to Oppenheimer Holdings Inc. | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
| (Expressed in thousands) | 2024 | 2023 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| 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 | |||||||||||
| Deferred income taxes | |||||||||||
| Amortization of intangible assets | |||||||||||
| Amortization of notes receivable | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Write-off of debt issuance costs | |||||||||||
| Provision for credit losses | ( | ||||||||||
| Share-based compensation | |||||||||||
| Amortization of right-of-use lease assets | |||||||||||
| Gain on repurchase of senior secured notes | ( | ||||||||||
| Decrease (increase) in operating assets: | |||||||||||
| Deposits with clearing organizations | ( | ( | |||||||||
| Receivable from brokers, dealers and clearing organizations | ( | ||||||||||
| Receivable from customers | ( | ||||||||||
| Income tax receivable | ( | ||||||||||
| Securities purchased under agreements to resell | |||||||||||
| Securities owned | ( | ( | |||||||||
| Notes receivable | ( | ( | |||||||||
| Corporate-owned life insurance | ( | ( | |||||||||
| Other assets | |||||||||||
| Increase (decrease) in operating liabilities: | |||||||||||
| Drafts payable | |||||||||||
| Payable to brokers, dealers and clearing organizations | ( | ( | |||||||||
| Payable to customers | ( | ( | |||||||||
| Securities sold under agreements to repurchase | |||||||||||
| Securities sold but not yet purchased | ( | ||||||||||
| Accrued compensation | ( | ( | |||||||||
| Income tax payable | ( | ||||||||||
| Accounts payable and other liabilities | ( | ( | |||||||||
| Cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchase of furniture, equipment and leasehold improvements | ( | ( | |||||||||
| Proceeds from the settlement of Company-owned life insurance | |||||||||||
| Cash used in investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
| Cash dividends paid on Class A non-voting and Class B voting common stock | ( | ( | |||||||||
| Issuance of Class A non-voting common stock | |||||||||||
| Repurchase of Class A non-voting common stock for cancellation | ( | ( | |||||||||
| Payments for employee taxes withheld related to vested share-based awards | ( | ( | |||||||||
| Addition to noncontrolling interests | |||||||||||
| Redemption of redeemable noncontrolling interests | ( | ||||||||||
| Repurchase of senior secured notes | ( | ||||||||||
| Increase in bank call loans | |||||||||||
| Cash provided by financing activities | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
| Reconciliation of cash and cash equivalents and restricted cash within the condensed consolidated balance sheets: | 2024 | 2023 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | |||||||||
| Schedule of non-cash financing activities | |||||||||||
| Employee share plan issuance | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Cash paid during the period for income taxes, net | $ | $ | |||||||||
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
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"). Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, investment banking (corporate and public finance), equity and fixed income research, market-making, trust services, and investment advisory and asset management services.
The Company is headquartered in New York and has 89 retail branch offices in 25 states located throughout the United States and offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St. Helier, Isle of Jersey, and Geneva, Switzerland. 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 conducts secondary trading activities related to the purchase and sale of loans, primarily on a riskless principal basis; 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 finance and is regulated by the Financial Conduct Authority; and Oppenheimer Investments Asia Limited, based in Hong Kong, China, which provides fixed income and equities brokerage services to institutional investors and is regulated by the Securities and Futures Commission.
Oppenheimer owns Freedom Investments, Inc. ("Freedom"), a registered broker dealer in securities, which provides discount brokerage services on a limited basis, and Oppenheimer Israel (OPCO) Ltd., based in Tel Aviv, Israel, which provides investment services in the State of Israel and operates subject to the authority of the Israel Securities Authority.
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") 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, 2023 (the "Form 10-K"). The accompanying condensed consolidated balance sheet data was derived from the same sources as 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 that 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. Certain reclassifications have been made to prior periods to place them on a basis comparable with current period presentation. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management's knowledge of current events and actions that the Company may undertake in the future, actual results may differ materially from the estimates. The condensed consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for any future interim or annual period.
Oppenheimer Acquisition Corp. I
On October 26, 2021, OPY Acquisition Corp. I (“OHAA”), a special purpose acquisition company, consummated its $126.5 million initial public offering (the “OHAA IPO”). OPY Acquisition LLC I (the “Sponsor”), a Delaware series limited liability company and the Company’s subsidiary, was the sponsor of and consolidated OHAA. Upon IPO completion, funds totaling $127.8 million, including proceeds from the OHAA IPO of $126.5 million and $1.3 million of investment from the Sponsor, were held in a trust account until the earlier of (i) the completion of a Business Combination or (ii) business days after April 29, 2023, 18 months from the closing of the OHAA IPO (“Combination Period”), pursuant to OHAA's certificate of incorporation.
7
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
On October 26, 2023, OHAA’s stockholders approved an amendment to its certificate of incorporation to extend the deadline by which it must complete its initial business combination from October 30, 2023 to June 30, 2024 on a month-to-month basis.
In the fourth quarter of 2023, after careful consideration of the special purpose acquisition company market and after having completed an extensive search, OHAA determined it would be unable to deliver and fund a high quality value enhancing transaction to stockholders despite the extension. Therefore, on December 18, 2023, OHAA determined not to further extend the term it had to complete an initial business combination and instead announced its intention to dissolve and liquidate. On December 28, 2023, all OHAA Class A ordinary shares were cancelled with shareholders receiving their respective share redemption amounts. Accordingly, there were no “Redeemable non-controlling interests” or restricted cash balances associated with the publicly held OHAA Class A ordinary shares recorded on the Company’s consolidated balance sheet as of December 31, 2023. OHAA was dissolved in March 2024.
Oppenheimer Principal Investments LLC
Non-controlling Interests
3. Financial Instruments - Credit Losses
Under ASC 326, "Financial Instruments - Credit Losses", the Company can elect to use an approach to measure the allowance for credit losses using the fair value of collateral where the borrower is required to, and reasonably expected to, continually adjust and replenish the amount of collateral securing the instrument to reflect changes in the fair value of such collateral. The Company has elected to use this approach for securities borrowed, margin loans, and reverse repurchase agreements. No material historical losses have been reported on these assets. See note 9 for details.
As of September 30, 2024, the Company had $65.6 million of notes receivable ($62.6 million as of December 31, 2023). Notes receivable represent recruiting and retention payments generally in the form of upfront loans to financial advisors and key revenue producers as part of the Company's overall growth strategy. These notes generally amortize over a service period of 3 to 9 years from the initial date of the note or based on productivity levels of employees. All such notes are contingent on the employees' continued employment with the Company. The unforgiven portion of the notes becomes due on demand in the event the employee departs during the service period. At that point, any uncollected portion of the notes is reclassified into a defaulted notes category.
8
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
The allowance for uncollectibles is a valuation account that is deducted from the amortized cost basis of the defaulted notes balance to present the net amount expected to be collected. Balances are charged-off against the allowance when management deems the amount to be uncollectible.
The Company reserves 100 % of the uncollected balance of defaulted notes which are five years and older and applies an expected loss rate to the remaining balance. The expected loss rate is based on historical collection rates of defaulted notes. The expected loss rate is adjusted for changes in environmental and market conditions such as changes in unemployment rates, changes in interest rates and/or other relevant factors. For the three and nine months ended September 30, 2024, no adjustments were made to the expected loss rates. The Company will continuously monitor the effect of these factors on the expected loss rate and adjust it as necessary.
The allowance is measured on a pool basis as the Company has determined that the entire defaulted portion of notes receivable has similar risk characteristics.
As of September 30, 2024, the balance of defaulted notes was $6.0 million and the allowance for uncollectibles was $3.6 million. The allowance for uncollectibles consisted of $2.0 million related to defaulted notes balances (five years and older) and $1.6 million (under five years).
The following table presents the disaggregation of defaulted notes by year of default as of September 30, 2024:
| (Expressed in thousands) | |||||
As of September 30, 2024 | |||||
| 2024 | $ | ||||
| 2023 | |||||
| 2022 | |||||
| 2021 | |||||
| 2020 | |||||
| 2019 and prior | |||||
| Total | $ | ||||
The following table presents activity in the allowance for uncollectibles of defaulted notes for the three and nine months ended September 30, 2024 and 2023:
| (Expressed in thousands) | |||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Write-offs | ( | ( | ( | ( | |||||||||||||||||||
| Recoveries | |||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
4. Leases
The Company has 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 Company 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,
9
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
the Company has 89 retail branch offices in the United States as well as offices in London, England, St. Helier, Isle of Jersey, Geneva, Switzerland, Tel Aviv, Israel and Hong Kong, China.
The Company is constantly assessing its needs for office space and, on a rolling basis, has many leases that expire in any given year.
Substantially all of the leases are held by the Company's subsidiary, Viner Finance Inc., which is a wholly owned subsidiary of 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 the Company's 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. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As of September 30, 2024, the Company had right-of-use operating lease assets of $128.7 million (net of accumulated amortization of $114.4 million) which are comprised of real estate leases of $126.3 million (net of accumulated amortization of $111.6 million) and equipment leases of $2.4 million (net of accumulated amortization of $2.8 million). As of September 30, 2024, the Company had operating lease liabilities of $167.4 million which are comprised of real estate lease liabilities of $165.0 million and equipment lease liabilities of $2.4 million. The Company had no finance leases as of September 30, 2024.
As most of the Company's leases do not provide an implicit rate, the Company uses the 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 that commenced subsequent to January 1, 2019.
The following table presents the weighted average lease term and weighted average discount rate for the Company's operating leases as of September 30, 2024 and December 31, 2023, respectively:
| As of | ||||||||||||||||||||
September 30, 2024 | December 31, 2023 | |||||||||||||||||||
| Weighted average remaining lease term (in years) | ||||||||||||||||||||
| Weighted average discount rate | ||||||||||||||||||||
The following table presents operating lease costs recognized for the three and nine months ended September 30, 2024 and September 30, 2023, respectively, which are included in occupancy and equipment costs on the condensed consolidated income statements:
| (Expressed in thousands) | |||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating lease costs: | |||||||||||||||||||||||
| Real estate leases - Right-of-use lease asset amortization | $ | $ | $ | $ | |||||||||||||||||||
| Real estate leases - Interest expense | |||||||||||||||||||||||
| Equipment leases - Right-of-use lease asset amortization | |||||||||||||||||||||||
| Equipment leases - Interest expense | |||||||||||||||||||||||
10
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
The maturities of lease liabilities as of September 30, 2024 and December 31, 2023 are as follows:
| (Expressed in thousands) | |||||||||||||||||
| As of | |||||||||||||||||
September 30, 2024 | December 31, 2023 | ||||||||||||||||
| 2024 | $ | $ | |||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| 2027 | |||||||||||||||||
| 2028 | |||||||||||||||||
| After 2028 | |||||||||||||||||
| Total lease payments | $ | $ | |||||||||||||||
| Less interest | ( | ( | |||||||||||||||
| Present value of lease liabilities | $ | $ | |||||||||||||||
As of September 30, 2024, the Company had $23.3 million of additional real estate operating leases that have not yet commenced ($5.8 million as of December 31, 2023).
5. Revenue from contracts with customers
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company's progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised good or service.
The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services (i.e., the "transaction price"). In determining the transaction price, the Company considers multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, the Company considers the range of possible outcomes, the predictive value of its past experiences, the time period during which uncertainties are expected to be resolved and the amount of consideration that is susceptible to factors outside of the Company's influence, such as market volatility or the judgment and actions of third parties.
The Company earns revenue from contracts with customers and other sources (principal transactions, interest and other). The following provides detailed information on the recognition of the Company's revenue from contracts with customers:
Commissions
Commissions from Sales and Trading — The Company earns commission revenue by executing, settling and clearing transactions with clients primarily in exchange-traded and over-the-counter corporate equity and debt securities, money market instruments and exchange-traded options and futures contracts. A substantial portion of the 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 business day after trade date. The Company records a receivable on the trade date and receives a payment on the settlement date.
11
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
Mutual Fund Income — The Company earns mutual fund income for sales and distribution of mutual fund shares, which consists of a fixed fee amount and a variable amount. The Company recognizes mutual fund income at a point in time on the trade date when the performance obligation is satisfied which is when the mutual fund interest is sold to the investor. The ongoing distribution fees for distributing investment products from mutual fund companies are generally considered variable consideration because they are based on the value of AUM and are uncertain on trade date. The Company recognizes distribution fees over the investment period as the amounts become known and the portion recognized in the current period may relate to distribution services performed in prior periods. 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, asset-based programs 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 are met. 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 time. 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 consolidated income statements.
Revenue from financial advisory services includes fees generated in connection with mergers, acquisitions and restructuring transactions. Such revenue and fees are primarily recorded at a point in time when services for the performance obligations have been completed and income is reasonably determinable, generally as set forth under the terms of the engagement. Payment for advisory services is generally due upon a completion of the transaction or milestone. Retainer fees and fees earned from certain advisory services are recognized ratably over the service period as the customer receives the benefit of the services throughout the term of the contracts, and such fees are collected based on the terms of the contracts.
Bank Deposit Sweep Income
Bank deposit sweep income consists of 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 nine months ended September 30, 2024 and 2023:
| (Expressed in thousands) | For the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||
| Reportable Segments | |||||||||||||||||||||||||||||
| Private Client | Asset Management | Capital Markets | Corporate/Other | Total | |||||||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||||||||
| Commissions from sales and trading | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Mutual fund and insurance income | |||||||||||||||||||||||||||||
| Advisory fees | |||||||||||||||||||||||||||||
| Investment banking - capital markets | |||||||||||||||||||||||||||||
| Investment banking - advisory | |||||||||||||||||||||||||||||
| Bank deposit sweep income | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | |||||||||||||||||||||||||||||
| Other sources of revenue: | |||||||||||||||||||||||||||||
| Interest | |||||||||||||||||||||||||||||
| Principal transactions, net | |||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Total other sources of revenue | ( | ||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| (Expressed in thousands) | For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| Reportable Segments | |||||||||||||||||||||||||||||
| Private Client | Asset Management | Capital Markets | Corporate/Other | Total | |||||||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||||||||
| Commissions from sales and trading | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Mutual fund and insurance income | |||||||||||||||||||||||||||||
| Advisory fees | |||||||||||||||||||||||||||||
| Investment banking - capital markets | |||||||||||||||||||||||||||||
| Investment banking - advisory | |||||||||||||||||||||||||||||
| Bank deposit sweep income | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | |||||||||||||||||||||||||||||
| Other sources of revenue: | |||||||||||||||||||||||||||||
| Interest | |||||||||||||||||||||||||||||
| Principal transactions, net | ( | ||||||||||||||||||||||||||||
| Other | ( | ( | ( | ||||||||||||||||||||||||||
| Total other sources of revenue | ( | ||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
13
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
| (Expressed in thousands) | For the Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||
| Reportable Segments | |||||||||||||||||||||||||||||
| Private Client | Asset Management | Capital Markets | Corporate/Other | Total | |||||||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||||||||
| Commissions from sales and trading | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Mutual fund and insurance income | |||||||||||||||||||||||||||||
| Advisory fees | |||||||||||||||||||||||||||||
| Investment banking - capital markets | ( | ||||||||||||||||||||||||||||
| Investment banking - advisory | |||||||||||||||||||||||||||||
| Bank deposit sweep income | ( | ||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Total revenue from contracts with customers | |||||||||||||||||||||||||||||
| Other sources of revenue: | |||||||||||||||||||||||||||||
| Interest | |||||||||||||||||||||||||||||
| Principal transactions, net | |||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Total other sources of revenue | ( | ||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| (Expressed in thousands) | For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| Reportable Segments | |||||||||||||||||||||||||||||
| Private Client | Asset Management | Capital Markets | Corporate/Other | Total | |||||||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||||||||
| Commissions from sales and trading | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Mutual fund and insurance income | |||||||||||||||||||||||||||||
| Advisory fees | |||||||||||||||||||||||||||||
| Investment banking - capital markets | |||||||||||||||||||||||||||||
| Investment banking - advisory | |||||||||||||||||||||||||||||
| Bank deposit sweep income | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total revenue from contracts with customers | |||||||||||||||||||||||||||||
| Other sources of revenue: | |||||||||||||||||||||||||||||
| Interest | |||||||||||||||||||||||||||||
| Principal transactions, net | |||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Total other sources of revenue | ( | ||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Contract Assets and Liabilities
The timing of the Company's revenue recognition may differ from the timing of payment by its customers. The Company records contract assets when payment is due from a client conditioned on future performance or the occurrence of other events. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied.
14
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
The Company had receivables related to revenue from contracts with customers of $32.8 million and $39.9 million at September 30, 2024 and December 31, 2023, respectively. The Company had no significant impairments related to these receivables during the three months ended September 30, 2024.
Deferred revenue relates to IRA fees received annually in advance on customers' IRA accounts managed by the Company, software license fees received upfront from customers and retainer fees and other fees earned from certain advisory transactions where the performance obligations have not yet been satisfied. Total deferred revenue was $2.4 million and $1.1 million at September 30, 2024 and December 31, 2023, respectively.
The following presents the Company's receivables and deferred revenue balances from contracts with customers, which are included in other assets and other liabilities, respectively, on the consolidated balance sheet:
| (Expressed in thousands) | As of | ||||||||||
September 30, 2024 | December 31, 2023 | ||||||||||
| Receivables | |||||||||||
Commission (1) | $ | $ | |||||||||
Mutual fund and insurance income (2) | |||||||||||
Advisory fees (3) | |||||||||||
Bank deposit sweep income (4) | |||||||||||
Investment banking fees (5) | |||||||||||
| Other | |||||||||||
| Total receivables | $ | $ | |||||||||
| Deferred revenue (payables): | |||||||||||
Investment Banking fees (6) | $ | $ | |||||||||
Software license fees (7) | |||||||||||
IRA fees (8) | |||||||||||
| $ | $ | ||||||||||
(1)Commissions earned but not yet received.
(2)Mutual fund and insurance 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 received from certain advisory transactions where the performance obligations have not yet been satisfied.
(7)Software license fees received upfront from customers and recognized ratably over the contract period
(8)Fee received in advance on an annual basis.
15
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
6. Earnings per share
Basic earnings per share is computed by dividing net income over the weighted average number of shares of Class A non-voting common stock ("Class A Stock") and Class B voting common stock ("Class B Stock") outstanding. Diluted earnings per share includes the weighted average number of shares of Class A Stock and Class B Stock outstanding and options to purchase Class A Stock and unvested restricted stock awards of Class A Stock using the treasury stock method.
Earnings per share have been calculated as follows:
| (Expressed in thousands, except number of shares and per share amounts) | |||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Basic weighted average number of shares outstanding | |||||||||||||||||||||||
Net dilutive effect of share-based awards, treasury stock method (1) | |||||||||||||||||||||||
| Diluted weighted average number of shares outstanding | |||||||||||||||||||||||
| Net income attributable to Oppenheimer Holdings Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share attributable to Oppenheimer Holdings Inc. | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
(1) For the three months ended September 30, 2024, there were no no 286,185 shares of Class A Stock granted under share-based compensation arrangements. For the nine months ended September 30, 2023, the diluted net income per share computation did not include the anti-dilutive effect of 277,435 shares of Class A Stock granted under share-based compensation arrangements.
7. Receivable from and payable to brokers, dealers and clearing organizations
| (Expressed in thousands) | |||||||||||
| As of | |||||||||||
| September 30, 2024 | December 31, 2023 | ||||||||||
| Receivable from brokers, dealers and clearing organizations consisting of: | |||||||||||
| Securities borrowed | $ | $ | |||||||||
| Receivable from brokers | |||||||||||
| Clearing organizations and other | |||||||||||
| Securities failed to deliver | |||||||||||
| Total | $ | $ | |||||||||
| Payable to brokers, dealers and clearing organizations consisting of: | |||||||||||
| Securities loaned | $ | $ | |||||||||
| Securities failed to receive | |||||||||||
| Payable to brokers | |||||||||||
Clearing organizations and other (1) | |||||||||||
| Total | $ | $ | |||||||||
(1) As of December 31, 2023, approximately $48.4 million of this balance represents a payable for trades executed, but not yet settled.
16
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
8. Fair value measurements
Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period.
Valuation Techniques
A description of the valuation techniques applied, and inputs used in measuring the fair value of the Company's financial instruments, is as follows:
U.S. Government Obligations
U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers.
U.S. Agency Obligations
U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices, quoted market prices for comparable securities or discounted cash flow models. 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 is 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.
Loans
The fair value of loans is estimated using recently executed transactions and current price quotations, which are usually observable. In rare occurrences when observable pricing information is not available, fair value is generally determined based on cash flow models using discounted cash flow models, competitor comparable data and other valuation metrics.
17
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
Trade Claims
The fair value of trade claims is estimated using recently executed transaction prices.
Auction Rate Securities ("ARS")
The Company has valued the ARS securities owned at the tender offer price and categorized them in Level 3 of the fair value hierarchy due to the illiquid nature of the securities and the period of time since the last tender offer.
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 records these investments within other assets and uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment unless another method provides a better indicator of fair value. Changes in the fair value of these investments are reflected within other income in the consolidated financial statements.
The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2024:
| (Expressed in thousands) | |||||||||||||||||||||||
| Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period | ||||||||||||||||||||
Hedge funds (1) | $ | $ | Quarterly - Annually | ||||||||||||||||||||
Private equity funds (2) | N/A | N/A | |||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.
(2) Includes private equity funds and private equity fund of funds with diversified portfolios focusing on but not limited to technology companies, venture capital and global natural resources.
The following table provides information about the Company's investments in Company-sponsored funds as of December 31, 2023:
| (Expressed in thousands) | |||||||||||||||||||||||
| Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period | ||||||||||||||||||||
Hedge funds (1) | $ | $ | Quarterly - Annually | ||||||||||||||||||||
Private equity funds (2) | N/A | N/A | |||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.
(2) Includes private equity funds and private equity fund of funds with diversified portfolios focusing on but not limited to technology companies, venture capital and global natural resources.
The Company owns an investment in a financial technologies firm. The Company elected the fair value option for this investment and it is included in other assets on the consolidated balance sheet. The Company determined the fair value of the investment based on an implied market-multiple approach and observable market data, including comparable company transactions. As of September 30, 2024, the fair value of the investment was $7.4 million and was categorized in Level 2 of the fair value hierarchy.
18
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
Assets and Liabilities Measured at Fair Value
The Company's assets and liabilities, recorded at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, 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, 2024:
| (Expressed in thousands) | |||||||||||||||||||||||
Fair Value Measurements as of September 30, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Deposits with clearing organizations | $ | $ | $ | $ | |||||||||||||||||||
| Securities owned: | |||||||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||
| U.S. Agency securities | |||||||||||||||||||||||
| Sovereign obligations | |||||||||||||||||||||||
| Corporate debt and other obligations | |||||||||||||||||||||||
| Mortgage and other asset-backed securities | |||||||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Convertible bonds | |||||||||||||||||||||||
| Corporate equities | |||||||||||||||||||||||
| Money markets | |||||||||||||||||||||||
| Auction rate securities | |||||||||||||||||||||||
| Securities owned, at fair value | |||||||||||||||||||||||
Investments (1) | |||||||||||||||||||||||
Trade claims(1) | |||||||||||||||||||||||
Loans(1) | |||||||||||||||||||||||
| Derivative contracts: | |||||||||||||||||||||||
| TBAs | |||||||||||||||||||||||
| Derivative contracts, total | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Securities sold but not yet purchased: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Agency securities | |||||||||||||||||||||||
| Sovereign obligations | |||||||||||||||||||||||
| Corporate debt and other obligations | |||||||||||||||||||||||
| Convertible bonds | |||||||||||||||||||||||
| Corporate equities | |||||||||||||||||||||||
| Securities sold but not yet purchased, at fair value | |||||||||||||||||||||||
| Derivative contracts: | |||||||||||||||||||||||
| Futures | |||||||||||||||||||||||
| TBAs | |||||||||||||||||||||||
| Derivative contracts, total | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) Included in other assets on the consolidated balance sheet.
19
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, 2023:
| (Expressed in thousands) | |||||||||||||||||||||||
Fair Value Measurements as of December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Deposits with clearing organizations | $ | $ | $ | $ | |||||||||||||||||||
| Securities owned: | |||||||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||
| U.S. Agency securities | |||||||||||||||||||||||
| Corporate debt and other obligations | |||||||||||||||||||||||
| Mortgage and other asset-backed securities | |||||||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Convertible bonds | |||||||||||||||||||||||
| Corporate equities | |||||||||||||||||||||||
| Money markets | |||||||||||||||||||||||
| Auction rate securities | |||||||||||||||||||||||
| Securities owned, at fair value | |||||||||||||||||||||||
Investments (1) | |||||||||||||||||||||||
| Securities purchased under agreements to resell | |||||||||||||||||||||||
| Derivative contracts: | |||||||||||||||||||||||
| Futures | |||||||||||||||||||||||
| TBAs | |||||||||||||||||||||||
| Derivative contracts, total | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Securities sold but not yet purchased: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt and other obligations | |||||||||||||||||||||||
| Mortgage and other asset-backed securities | |||||||||||||||||||||||
| Convertible bonds | |||||||||||||||||||||||
| Corporate equities | |||||||||||||||||||||||
| Securities sold but not yet purchased, at fair value | |||||||||||||||||||||||
| Derivative contracts: | |||||||||||||||||||||||
| Futures | |||||||||||||||||||||||
| TBAs | |||||||||||||||||||||||
| Derivative contracts, total | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) Included in other assets on the consolidated balance sheet.
20
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 and nine months ended September 30, 2024 and 2023:
| (Expressed in thousands) | ||||||||||||||||||||||||||||||||||||||
| Level 3 Assets and Liabilities | ||||||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Total Realized | ||||||||||||||||||||||||||||||||||||||
| Beginning | and Unrealized | Purchases | Sales and | Transfers | Ending | |||||||||||||||||||||||||||||||||
| Balance | Gain | and Issuances | Settlements | In (Out) | Balance | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
Auction rate securities (1) | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
(1) Represents auction rate securities that failed in the auction rate market.
| (Expressed in thousands) | ||||||||||||||||||||||||||||||||||||||
| Level 3 Assets and Liabilities | ||||||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Total Realized | ||||||||||||||||||||||||||||||||||||||
| Beginning | and Unrealized | Purchases | Sales and | Transfers | Ending | |||||||||||||||||||||||||||||||||
| Balance | Losses | and Issuances | Settlements | In (Out) | Balance | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
Auction rate securities (1) | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
(1) Represents auction rate securities that failed in the auction rate market.
| (Expressed in thousands) | ||||||||||||||||||||||||||||||||||||||
| Level 3 Assets and Liabilities | ||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Total Realized | ||||||||||||||||||||||||||||||||||||||
| Beginning | and Unrealized | Purchases | Sales and | Transfers | Ending | |||||||||||||||||||||||||||||||||
| Balance | Losses | and Issuances | Settlements | In (Out) | Balance | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
Auction rate securities (1) | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
(1) Represents auction rate securities that failed in the auction rate market.
| (Expressed in thousands) | ||||||||||||||||||||||||||||||||||||||
| Level 3 Assets and Liabilities | ||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Total Realized | ||||||||||||||||||||||||||||||||||||||
| Beginning | and Unrealized | Purchases | Sales and | Transfers | Ending | |||||||||||||||||||||||||||||||||
| Balance | Losses | and Issuances | Settlements | In (Out) | Balance | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
Auction rate securities (1) | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
(1) Represents auction rate securities that failed in the auction rate market.
21
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
Financial Instruments Not Measured at Fair Value
The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., furniture, equipment and leasehold improvements and accrued compensation).
The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 (e.g., cash and receivables from customers) approximates fair value because of the relatively short-term nature of the underlying assets. The fair value of the Company's senior secured notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the notes trade.
Assets and liabilities not measured at fair value as of September 30, 2024:
| (Expressed in thousands) | Fair Value Measurement: Assets | ||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Deposits with clearing organizations | |||||||||||||||||||||||||||||
| Receivable from brokers, dealers and clearing organizations: | |||||||||||||||||||||||||||||
| Securities borrowed | |||||||||||||||||||||||||||||
| Receivables from brokers | |||||||||||||||||||||||||||||
| Securities failed to deliver | |||||||||||||||||||||||||||||
| Clearing organizations and other | |||||||||||||||||||||||||||||
| Receivable from customers | |||||||||||||||||||||||||||||
| Notes receivable, net | |||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | |||||||||||||||||||||||||||||
| Corporate-owned life insurance | |||||||||||||||||||||||||||||
Investments(1) | |||||||||||||||||||||||||||||
(1) Included within other assets on the consolidated balance sheet.
| (Expressed in thousands) | Fair Value Measurement: Liabilities | ||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Drafts payable | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Bank call loans | |||||||||||||||||||||||||||||
| Payables to brokers, dealers and clearing organizations: | |||||||||||||||||||||||||||||
| Securities loaned | |||||||||||||||||||||||||||||
| Payable to brokers | |||||||||||||||||||||||||||||
| Securities failed to receive | |||||||||||||||||||||||||||||
| Clearing organization and other | |||||||||||||||||||||||||||||
| Payables to customers | |||||||||||||||||||||||||||||
| Securities sold under agreements to repurchase | |||||||||||||||||||||||||||||
| Senior secured notes | |||||||||||||||||||||||||||||
22
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
Assets and liabilities not measured at fair value as of December 31, 2023:
| (Expressed in thousands) | Fair Value Measurement: Assets | ||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Deposits with clearing organization | |||||||||||||||||||||||||||||
| Receivable from brokers, dealers and clearing organizations: | |||||||||||||||||||||||||||||
| Securities borrowed | |||||||||||||||||||||||||||||
| Receivables from brokers | |||||||||||||||||||||||||||||
| Securities failed to deliver | |||||||||||||||||||||||||||||
| Clearing organizations | |||||||||||||||||||||||||||||
| Receivable from customers | |||||||||||||||||||||||||||||
| Notes receivable, net | |||||||||||||||||||||||||||||
| Corporate-owned life | |||||||||||||||||||||||||||||
Investments (1) | |||||||||||||||||||||||||||||
(1) Included within other assets on the consolidated balance sheet.
| (Expressed in thousands) | Fair Value Measurement: Liabilities | ||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Drafts payable | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Payables to brokers, dealers and clearing organizations: | |||||||||||||||||||||||||||||
| Securities loaned | |||||||||||||||||||||||||||||
| Payable to brokers | |||||||||||||||||||||||||||||
| Securities failed to receive | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Payables to customers | |||||||||||||||||||||||||||||
| Securities sold under agreements to repurchase | |||||||||||||||||||||||||||||
| Senior secured notes | |||||||||||||||||||||||||||||
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 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 or other liabilities on the consolidated balance sheet and other income in the consolidated income statement.
23
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
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 consolidated balance sheet in payable to or receivable from brokers, dealers and clearing organizations and in the consolidated income statement 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 consolidated balance sheet in receivable from brokers, dealers and clearing organizations or payable to brokers, dealers and clearing organizations and in the consolidated income statement as principal transactions revenue, net.
The notional amounts and fair values of the Company's derivatives as of September 30, 2024 and December 31, 2023 by product were as follows:
| (Expressed in thousands) | |||||||||||||||||
Fair Value of Derivative Instruments as of September 30, 2024 | |||||||||||||||||
| Description | Notional | Fair Value | |||||||||||||||
| Assets: | |||||||||||||||||
Derivatives not designated as hedging instruments (1) | |||||||||||||||||
| Other contracts | TBAs | $ | $ | ||||||||||||||
Commodity contracts | Futures | ||||||||||||||||
| $ | $ | ||||||||||||||||
| Liabilities: | |||||||||||||||||
Derivatives not designated as hedging instruments (1) | |||||||||||||||||
Commodity contracts | Futures | $ | $ | ||||||||||||||
| Other contracts | TBAs | ||||||||||||||||
| $ | $ | ||||||||||||||||
(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.
24
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
| (Expressed in thousands) | |||||||||||||||||
| Fair Value of Derivative Instruments as of December 31, 2023 | |||||||||||||||||
| Description | Notional | Fair Value | |||||||||||||||
| Assets: | |||||||||||||||||
Derivatives not designated as hedging instruments (1) | |||||||||||||||||
| Other contracts | TBAs | $ | $ | ||||||||||||||
Commodity contracts | Futures | ||||||||||||||||
| $ | $ | ||||||||||||||||
| Liabilities: | |||||||||||||||||
Derivatives not designated as hedging instruments (1) | |||||||||||||||||
Commodity contracts | Futures | $ | $ | ||||||||||||||
| Other contracts | TBAs | ||||||||||||||||
| $ | $ | ||||||||||||||||
(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.
The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the consolidated income statements for the three and nine months ended September 30, 2024 and 2023:
| (Expressed in thousands) | ||||||||||||||||||||
| The Effect of Derivative Instruments in the Income Statement | ||||||||||||||||||||
For the Three Months Ended September 30, 2024 | ||||||||||||||||||||
| Recognized in Income on Derivatives (pre-tax) | ||||||||||||||||||||
| Types | Description | Location | Net (Loss) | |||||||||||||||||
| Commodity contracts | Futures | Principal transactions revenue, net | $ | ( | ||||||||||||||||
| Other contracts | TBAs | Principal transactions revenue, net | ( | |||||||||||||||||
| $ | ( | |||||||||||||||||||
| (Expressed in thousands) | ||||||||||||||||||||
| The Effect of Derivative Instruments in the Income Statement | ||||||||||||||||||||
For the Three Months Ended September 30, 2023 | ||||||||||||||||||||
| Recognized in Income on Derivatives (pre-tax) | ||||||||||||||||||||
| Types | Description | Location | Net Gain | |||||||||||||||||
| Commodity contracts | Futures | Principal transactions revenue, net | $ | |||||||||||||||||
| Other contracts | TBAs | Principal transactions revenue, net | ||||||||||||||||||
| $ | ||||||||||||||||||||
25
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
| (Expressed in thousands) | ||||||||||||||||||||
| The Effect of Derivative Instruments in the Income Statement | ||||||||||||||||||||
For the Nine Months Ended September 30, 2024 | ||||||||||||||||||||
| Recognized in Income on Derivatives (pre-tax) | ||||||||||||||||||||
| Types | Description | Location | Net (Loss) | |||||||||||||||||
| Commodity contracts | Futures | Principal transactions revenue, net | $ | ( | ||||||||||||||||
| Other contracts | Foreign exchange forward contracts | Other revenue/(Compensation and related expenses) | $ | ( | ||||||||||||||||
| Other contracts | TBAs | Principal transactions revenue, net | ||||||||||||||||||
| $ | ( | |||||||||||||||||||
| (Expressed in thousands) | ||||||||||||||||||||
| The Effect of Derivative Instruments in the Income Statement | ||||||||||||||||||||
For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||
| Recognized in Income on Derivatives (pre-tax) | ||||||||||||||||||||
| Types | Description | Location | Net Gain | |||||||||||||||||
| Commodity contracts | Futures | Principal transactions revenue, net | $ | |||||||||||||||||
| Other contracts | Foreign exchange forward contracts | Other revenue/(Compensation and related expenses) | $ | ( | ||||||||||||||||
| Other contracts | TBAs | Principal transactions revenue, net | $ | |||||||||||||||||
| $ | ||||||||||||||||||||
9. 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 September 30, 2024, the outstanding balance of bank call loans was $206.7 million (zero as of December 31, 2023). As of September 30, 2024, such loans with commercial banks were collateralized by the Company's securities and customer securities with market values of approximately $35.7 million and $197.4 million, respectively.
As of September 30, 2024, the Company had approximately $1.8 billion of customer securities under customer margin loans that are available to be pledged, of which the Company has re-pledged approximately $203.8 million under securities loan agreements.
As of September 30, 2024, the Company had pledged $19.5 million of customer securities directly with the Options Clearing Corporation to secure obligations and margin requirements under option contracts written by customers.
As of September 30, 2024, the Company had no outstanding letters of credit.
26
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
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 September 30, 2024:
| (Expressed in thousands) | |||||
| Overnight and Open | |||||
| Repurchase agreements: | |||||
| U.S. Government | $ | ||||
| Securities loaned: | |||||
| Equity securities | |||||
| Gross amount of recognized liabilities for repurchase agreements and securities loaned | $ | ||||
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 September 30, 2024 and December 31, 2023:
| As of September 30, 2024 | |||||||||||||||||||||||||||||||||||
(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 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Securities borrowed (1) | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
(1)Included in receivable from brokers, dealers and clearing organizations on the consolidated balance sheet.
| (Expressed in thousands) | 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 | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
Securities loaned (2) | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
(2)Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.
27
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
(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 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Securities borrowed (1) | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
(1)Included in receivable from brokers, dealers and clearing organizations on the condensed consolidated balance sheet.
(Expressed in thousands) | 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 | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
Securities loaned (2) | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
(2)Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.
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 September 30, 2024, the fair value of securities received as collateral under securities borrowed transactions and reverse repurchase agreements was $138.0 million ($151.9 million as of December 31, 2023) and $243.8 million ($8.8 million as of December 31, 2023), respectively, of which the Company has sold and re-pledged approximately $56.5 million ($61.5 million as of December 31, 2023) under securities loaned transactions and $243.8 million under repurchase agreements ($8.8 million as of December 31, 2023).
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 $792.3 million, as presented on the face of the consolidated balance sheet as of September 30, 2024 ($689.4 million as of December 31, 2023).
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.
28
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
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 September 30, 2024 were receivables from four major U.S. broker-dealers totaling approximately $117.8 million. Included in receivable from customers as of September 30, 2024 were fully secured margin loans from our two largest customer accounts totaling approximately $631.1 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 business day 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"), the 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 September 30, 2024 are 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, a global clearing financial institution located in the United Kingdom. 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 September 30, 2024, 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.
10. 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.
The Company serves as general partner of hedge funds and private equity funds that were established for the purpose of providing alternative investments to both its institutional and qualified retail clients. The Company's investment in and additional capital commitments to these hedge funds and private equity funds are 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 and additional capital commitments represent its maximum exposure to loss. The subsidiaries' general partnership and limited partnership interests are included in other assets on the condensed consolidated balance sheet.
In addition, the Company previously served as general partner of Oppenheimer Acquisition LLC I and Oppenheimer Acquisition LLC II (the "Sponsors"). They were sponsors of two special purpose acquisition companies, OHAA and Oppenheimer Acquisition Corp. II (the "SPACs”). Both the Sponsors and the SPACs have been liquidated. See note 2 for further details.
29
OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
The following table sets forth the total assets and liabilities of VIEs consolidated on our condensed consolidated balance sheet:
| (Expressed in thousands) | |||||||||||
As of September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Asset | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted Cash | |||||||||||
| Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Other Liabilities | |||||||||||
| Total Liabilities | $ | $ | |||||||||
11. Long-term debt
| (Expressed in thousands) | ||||||||||||||||||||
| Issued | Maturity Date | September 30, 2024 | December 31, 2023 | |||||||||||||||||
| 10/1/2025 | $ | $ | ||||||||||||||||||
| Unamortized Debt Issuance Cost | ( | ( | ||||||||||||||||||
| $ | $ | |||||||||||||||||||
On September 22, 2020, in a private offering, the Company issued $125.0 million aggregate principal amount of 5.50 % Senior Secured Notes due 2025 (the "Unregistered Notes") under an indenture at an issue price of 100 % of the principal amount. Interest on the Unregistered Notes is payable semi-annually on April 1st and October 1st. The Company used the net proceeds from the offering of the Unregistered Notes, along with cash on hand, to redeem in full our 6.75 % Senior Secured Notes due July 1, 2022 (the "Old Notes") in the principal amount of $150.0 million (the Company held $1.4 million in treasury for a net outstanding amount of $148.6 million), and pay all related fees and expenses in relation thereto.
On November 23, 2020, we completed an exchange offer in which we exchanged 99.8 % of the Unregistered Notes for a like principal amount of notes (the "Notes") with identical terms, except that such new Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act").
As of September 30, 2024, $113.05 million aggregate principal amount of the Notes remain outstanding. On September 19, 2024, the Company issued a notice of redemption to the holders of its Notes stating that it intends to redeem all of the $113.05 million aggregate principal amount of the Notes outstanding on October 10, 2024. On October 10, 2024, the Company completed its redemption of all of the $113.05 million aggregate principal amount of the Notes outstanding at a redemption price equal to 100 % of the principal amount of the Notes redeemed, plus accrued and unpaid interest.
Interest expense on the Notes for the three and nine months ended September 30, 2024 was $1.6 million and $4.7 million, respectively. Interest expense on the Notes for the three and nine months ended September 30, 2023 was $1.6 million and $4.7 million, respectively.
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OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
12. Income taxes
The effective income tax rate for the three and nine months ended September 30, 2024 was 30.7 % and 31.8 % respectively, compared with 36.2 % and 35.5 % for the three and nine months ended September 30, 2023 and reflects the Company's annual estimate of the statutory federal and state tax rates adjusted for certain discrete items. The effective tax rate for the third quarter of 2024 was impacted by permanent items and non-deductible losses in non-U.S. businesses.
13. Stockholders' Equity
The Company's authorized shares consist 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
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 September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Class A Stock outstanding, beginning of period | |||||||||||||||||||||||
| Issued pursuant to share-based compensation plans | |||||||||||||||||||||||
| Repurchased and cancelled | ( | ( | ( | ( | |||||||||||||||||||
| Class A Stock outstanding, end of period | |||||||||||||||||||||||
Stock buy-back
On May 31, 2023, the Company announced the commencement of a modified “Dutch Auction” tender offer to purchase up to $30.0 million of its Class A Stock at a price not less than $34.00 per share or more than $40.00 per share. The Company completed its repurchases pursuant to the tender offer on July 6, 2023, when it successfully repurchased and cancelled 437,183 shares of Class A Stock at $40.00 per share for an aggregate purchase price of $17.49 million. As a result, the Company had 10,447,392 shares outstanding on July 6, 2023 after the purchase.
During the year ended December 31, 2023, the Company purchased and canceled an aggregate of 463,335 shares of Class A Stock for a total consideration of $17.6 million ($38.07 per share) under its share repurchase program. As of December 31, 2023, 223,699 shares remained available to be purchased under its share repurchase program.
On March 1, 2024, the Company's Board of Directors approved a share repurchase program that authorizes the Company to purchase up to 518,000 shares of the Company's Class A Stock, representing approximately 5.0 % of its 10,357,376 then issued and outstanding shares of Class A Stock. This authorization supplemented the 120,155 shares that remained authorized and available under the Company's previous share repurchase program for a total of 638,155 shares authorized.
During the three months ended September 30, 2024, the Company purchased and canceled an aggregate of 5,981 shares of Class A Stock for a total consideration of $294,862 ($49.30 per share) under its share repurchase program. During the nine months ended September 30, 2024, the Company purchased and canceled an aggregate of 243,806 shares of Class A Stock for a total consideration of $9.6 million ($39.39 per share) under its share repurchase program. During the three months ended September 30, 2023, the Company purchased and canceled an aggregate of 168,904 shares of Class A Stock for a total consideration of $6.5 million ($38.30 per share) under this program. During the nine months ended September 30, 2023, the Company purchased and canceled an aggregate of 360,094 shares of Class A Stock for a total consideration of $13.8 million ($38.20 per share) under this program. As of September 30, 2024, 497,893 shares remained available to be purchased under the share repurchase program.
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OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
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 shares 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.
On October 25, 2024, the Company announced a quarterly dividend in the amount of $0.18
14. 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 other regulators.
The Company accrues for estimated loss contingencies related to legal and regulatory matters within Other Expenses in the consolidated income statement 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 losses.
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 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 up to $5 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 some 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.
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OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
Beginning on or about August 31, 2021, Oppenheimer was named as a respondent in numerous arbitrations, many containing multiple claimants, each filed before FINRA, relating to those claimants’ purported investment in Horizon Private Equity, III, LLC (“Horizon”). Horizon is alleged to be a fraudulent scheme involving, among others, a former Oppenheimer employee, John Woods. John Woods left Oppenheimer’s employ in 2016 and Oppenheimer never received a complaint from any of the investors prior to the SEC bringing a complaint against Woods and his co-conspirators in 2021. Oppenheimer has settled or an award has been rendered and paid in all the Horizon-related arbitrations except for two arbitrations which allege losses of approximately $2.75 million in the aggregate.
In addition, in June and August of 2023, Oppenheimer was served with two Horizon-related complaints in Georgia State Court, by plaintiffs, virtually all of whom were never Oppenheimer customers, alleging unspecified losses. In 2024, each of those complaints was dismissed by the trial court. Plaintiffs in each case subsequently filed an appeal of the court’s order dismissing the cases, each of which is currently pending.
On June 30, 2022, Oppenheimer received a "Wells Notice" from the SEC requesting that Oppenheimer make a written submission to the SEC to explain why Oppenheimer should not be charged with violations of Section 15c2-12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules G-17 and G-27 in relation to its sales of municipal notes pursuant to an exemption from continuing disclosure contained in Rule 15c2-12. On September 13, 2022, the SEC filed a complaint against Oppenheimer in the United States District Court for the Southern District of New York (the “Court") alleging that Oppenheimer violated Section 15B(c)(1) of the Exchange Act and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules. The SEC asked the Court to enter an order enjoining Oppenheimer from violating the above-referenced rules and requiring disgorgement and payment of a civil penalty. On January 30, 2024, Oppenheimer and the SEC reached an agreement in principle to settle the litigation pursuant to which Oppenheimer would pay a civil penalty of $1.2 million. The settlement is subject to Oppenheimer obtaining a waiver of certain statutory disqualifications.
15. 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 Exchange Act. 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 September 30, 2024, the net capital of Oppenheimer as calculated under the Rule was $487.5 million or 42.54 % of Oppenheimer's aggregate debit items. This was $464.6 million in excess of the minimum required net capital at that date. The Company's subsequent redemption of all outstanding Notes on October 10, 2024 reduced Oppenheimer's net capital by approximately $113 million. This reduction did not have an impact of Oppenheimer's compliance with the Rule or its ability to continue with business-as-usual operating activities. See note 11 for additional details.
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 September 30, 2024, Freedom had net capital of $3.8 million, which was $3.7 million in excess of the $100,000 required to be maintained at that date.
As of September 30, 2024, the capital required and held under the Financial Conduct Authority's Investment Firms’ Prudential Regime (“IFPR”) for Oppenheimer Europe Ltd. was as follows:
•Common Equity Tier 1 ratio 94 % (required 56.0 %);
•Tier 1 Capital ratio 94 % (required 75.0 %); and
•Total Capital ratio 128 % (required 100.0 %).
As of September 30, 2024, Oppenheimer Europe Ltd. was in compliance with its regulatory requirements.
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OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
As of September 30, 2024, the regulatory capital of Oppenheimer Investments Asia Limited was $3.4 million, which was $3.0 million in excess of the $386,133 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. As of September 30, 2024, Oppenheimer Investment Asia Limited was in compliance with its regulatory requirements.
16. 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. The Company also includes activities associated with BondWave, LLC, a cloud-based financial markets software service provider in Corporate/Other.
The table below presents information about the reported revenue and pre-tax income (loss) of the Company for the three and nine months ended September 30, 2024 and 2023. 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.
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OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
| (Expressed in thousands) | |||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
Private client (1) | $ | $ | $ | $ | |||||||||||||||||||
Asset management (1) | |||||||||||||||||||||||
| Capital markets | |||||||||||||||||||||||
| Corporate/Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Pre-Tax Income (Loss) | |||||||||||||||||||||||
Private client (1) | $ | $ | $ | $ | |||||||||||||||||||
Asset management (1) | |||||||||||||||||||||||
| Capital markets | ( | ( | ( | ( | |||||||||||||||||||
| Corporate/Other | ( | ( | ( | ( | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1)Clients investing in the OAM advisory program are charged fees based on the value of AUM. Advisory fees are allocated 10.0 90.0
Revenue, classified by the major geographic areas in which it was earned, for the three and nine months ended September 30, 2024 and 2023 was:
| (Expressed in thousands) | |||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Americas | $ | $ | $ | $ | |||||||||||||||||||
| Europe/Middle East | |||||||||||||||||||||||
| Asia | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
17. Subsequent events
The Company has performed an evaluation of events that occurred since September 30, 2024 and through the date on which the
condensed consolidated financial statements were issued, and determined there are no events that have occurred that would require recognition or additional disclosure except as disclosed in Note 11, Note 13 and Note 15.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The condensed consolidated financial statements include the accounts of Oppenheimer Holdings Inc. and its consolidated subsidiaries (together, the "Company", "Firm", "Parent", "we", "our" or "us"). The Company's condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto which appear elsewhere in this quarterly report.
Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the 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 September 30, 2024, we provided our services from 89 offices in 25 states located throughout the United States and offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St. Helier, Isle of Jersey and Geneva, Switzerland. The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial advisor directed programs. At September 30, 2024, client assets under management ("AUM") totaled $49.1 billion. AUM includes the total market value of client investments in discretionary and non-discretionary advisory programs as well as the net asset value of private placements of alternative investments offered by and held by clients of the Firm. Client assets under administration ("CAUA") as of September 30, 2024 totaled $129.8 billion. CAUA includes AUM and the other assets held for which the Firm provides services. We also provide trust services and products through Oppenheimer Trust Company of Delaware and limited discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., we conduct our secondary trading activities related to the purchase and sale of loans, primarily on a riskless principal basis. At September 30, 2024, the Company employed 2,993 employees (2,951 full-time, 41 part-time and 1 intern), of whom 928 were financial advisors.
Outlook
We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisors 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. We are increasingly creating and investing in private market opportunities on our own behalf and on behalf of qualified clients. We are also focused on opportunities in our capital market businesses, including integrating new technology platforms to expand the suite of services offered to our clients and onboarding experienced personnel and/or small units that will improve our ability to attract institutional clients in both equities and fixed income without significantly raising our risk profile. In investment banking, we are committed to growing our footprint by adding experienced bankers within our existing industry practices as well as new industry practices where we believe we can be successful.
We continuously invest in and improve our technology platform to support client service and to remain competitive, while continuously 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 recognize employee work habits have changed in a post-pandemic world. As a result, we are continuously reviewing our physical footprint on lease renewals, and in many cases reducing office size and configuration. We are committed to continuing to improve our 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, and investing in people and programs, while providing a platform with first class investment programs and services.
The Company also reviews its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where others 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 with the aim of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses. In addition, the Company may from time to time make an acquisition of 100% of a business or make minority private investments out of excess capital in allied or unrelated
36
businesses with the goal of either syndicating the investment to eligible clients or retaining ownership because we believe them to be an attractive investment.
Impact of Change in Short-term Interest Rates
After holding the target federal funds rate steady for nearly 14 months, the Federal Reserve (the “FED”) voted to cut rates by one half percent at its September 2024 meeting as their attention turned to addressing employment data, given the progress made on reducing underlying inflation in recent months. Projections of the federal funds rate released by the FED in September indicate that the FED expects rate decreases through the end of 2024, with further reductions in the coming year.
Potential decreases to the federal funds rate may impact our interest-based revenues. While decreases in interest rates will lower fees the Company earns from FDIC insured deposits of clients through a program offered by the Company, such decreases may be offset to a degree if the cash sweep balances increase as clients find fewer higher-yielding alternatives to deploy these balances. Future rate decreases will also reduce the rates the Company charges on customer margin loans, which will have a negative impact on our earnings.
Israel-Hamas War and Conflict with Hezbollah and Iran
On October 7, 2023, Hamas initiated an unprovoked invasion of Israel from the Gaza Strip, resulting in thousands of casualties. Israel formally declared war on Hamas in response to the attack and initiated several military operations in an effort to clear militants from the area. The war is now in its second year and has seen a significant escalation in a longstanding conflict between Israel and Hezbollah, the Lebanese-based militant group. The conflict was further intensified by the direct entry of Iran, which launched a missile attack on Israel. There remains a risk that these conflicts could expand into a wider regional war which could have an adverse impact on the worldwide economy, financial markets and thus on our business. At this time, these conflicts have not yet had a material impact on our business operations in Israel or elsewhere.
Impact of Hurricane Helene and Hurricane Milton
On September 26, 2024, Hurricane Helene ("Helene") made landfall in the Big Bend region of Florida and proceeded to cause widespread destruction across the southeastern United States for the next several days. The storm resulted in hundreds of fatalities and caused billions of dollars in property damages, leaving many communities isolated and without power for weeks. Helene was followed by Hurricane Milton ("Milton"), which caused widespread destruction across Florida. Early estimates of damage from Milton exceed $60 billion. While our offices in the impacted region remained closed throughout the storm, branch operations were largely unaffected given the back-up branch system we have in place as well as the ability of our key employees to work safely from a remote location. The hurricanes did not cause significant damage to our branches in the region, most of which have now fully reopened. Weather related incidents continue to increase and may cause disruptions to our normal business operations since they impact not only our employees, but also our clients.
EXECUTIVE SUMMARY
The Firm delivered strong operating results for the third quarter of 2024 in a still-resilient economic environment. During the third quarter of 2024, all major indices reached new highs, mostly spurred by the FED’s long-awaited decision to reduce the federal funds rate by one half percent with the view that lower borrowing costs will slow the uptick in unemployment without rekindling higher inflation. Based on recent economic indicators, it appears that the U.S. economy is headed for a soft landing, amidst continued growth in the economy as we move into 2025.
The continued outperformance of the equity markets aided our Wealth Management franchise by driving better than expected retail trading volumes and related commission revenues during what is typically a seasonally slower summer trading period. The markets also propelled our AUM to our third consecutive record, resulting in higher asset-based advisory fees. Additionally, higher average margin loans drove a meaningful improvement in our interest revenues from the prior year, though our interest sensitive sweep income was somewhat reduced due to lower average sweep balances.
37
Our investment banking revenues also rose due to an uptick in our advisory fees, particularly in our restructuring practice. Equity underwriting fees were adversely impacted by lower issuance levels as we have seen economic uncertainty restrict issuances despite the general improvement in market breadth and market averages. We believe that that Firm is well positioned to benefit as issuance volumes improve.
Our results drove yet another fresh record in our book value per share levels and provided us with the opportunity to further strengthen our balance sheet as we announced our plans to redeem all outstanding senior secured notes ($113.05 million) at their par amounts, and we retired the Notes on October 10, 2024. Access to capital for expansion will continue to be available as needed.
RESULTS OF OPERATIONS
The Company reported net income of $24.5 million or $2.38 basic earnings per share for the third quarter of 2024, compared with net income of $13.9 million or $1.32 per share for the third quarter of 2023. Revenue for the third quarter of 2024 was $373.4 million, an increase of 19.4%, compared to revenue of $312.7 million for the third quarter of 2023.
| (Expressed in thousands, except Per Share Amounts or otherwise indicated) | |||||||||||||||||||||||
| 3Q-2024 | 3Q-2023 | Change | % Change | ||||||||||||||||||||
| Revenue | $ | 373,352 | $ | 312,667 | $ | 60,685 | 19.4 | ||||||||||||||||
| Compensation expense | $ | 237,935 | $ | 195,684 | $ | 42,251 | 21.6 | ||||||||||||||||
| Non-compensation expense | $ | 100,047 | $ | 95,396 | $ | 4,651 | 4.9 | ||||||||||||||||
| Pre-tax Income | $ | 35,370 | $ | 21,587 | $ | 13,783 | 63.8 | ||||||||||||||||
| Income tax provision | $ | 10,862 | $ | 7,808 | $ | 3,054 | 39.1 | ||||||||||||||||
Net Income (1) | $ | 24,508 | $ | 13,861 | $ | 10,647 | 76.8 | ||||||||||||||||
Earnings per share (basic) (1) | $ | 2.38 | $ | 1.32 | $ | 1.06 | 80.3 | ||||||||||||||||
Earnings per share (diluted) (1) | $ | 2.16 | $ | 1.21 | $ | 0.95 | 78.5 | ||||||||||||||||
| Book Value Per Share | $ | 81.10 | $ | 75.01 | $ | 6.09 | 8.1 | ||||||||||||||||
Tangible Book Value Per Share (2) | $ | 64.03 | $ | 58.65 | $ | 5.38 | 9.2 | ||||||||||||||||
| Class A Shares Outstanding | 10,231,736 | 10,289,233 | (57,497) | (0.6) | |||||||||||||||||||
| AUA ($ billions) | $ | 129.8 | $ | 110.7 | $ | 19.1 | 17.3 | ||||||||||||||||
| AUM ($ billions) | $ | 49.1 | $ | 40.4 | $ | 8.7 | 21.5 | ||||||||||||||||
| (1) Attributable to Oppenheimer Holdings Inc. | |||||||||||||||||||||||
| (2) Represents book value less goodwill and intangible assets divided by number of shares outstanding. | |||||||||||||||||||||||
Highlights
•Increased revenue for the third quarter of 2024 was primarily driven by significantly higher advisory fees attributable to a rise in billable AUM, an increase in transaction-based commissions as well as improved investment banking and interest revenues.
•Announced plans to further strengthen balance sheet through the redemption of all outstanding Senior Secured Notes which occurred on October 10, 2024.
•Assets under administration and under management were both at record levels at September 30, 2024, benefiting from market appreciation.
•Compensation expenses increased from the prior year quarter largely as a result of higher incentive compensation expenses, deferred compensation and production-related expenses.
•Non-compensation expenses increased from the prior year quarter primarily due to higher interest and technology related expenses partially offset by lower legal costs.
•Total stockholders' equity, book value and tangible book value per share reached new record highs as a result of positive earnings.
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BUSINESS SEGMENTS
The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three and nine months ended September 30, 2024 and 2023:
| (Expressed in thousands) | |||||||||||||||||||||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Private Client | $ | 218,787 | $ | 193,254 | 13.2 | $ | 640,521 | $ | 597,920 | 7.1 | |||||||||||||||||||||||||
| Asset Management | 27,262 | 20,830 | 30.9 | 78,015 | 66,987 | 16.5 | |||||||||||||||||||||||||||||
| Capital Markets | 124,030 | 94,576 | 31.1 | 328,254 | 264,440 | 24.1 | |||||||||||||||||||||||||||||
| Corporate/Other | 3,273 | 4,007 | (18.3) | 10,289 | 11,189 | (8.0) | |||||||||||||||||||||||||||||
| Total | $ | 373,352 | $ | 312,667 | 19.4 | $ | 1,057,079 | $ | 940,536 | 12.4 | |||||||||||||||||||||||||
| Pre-Tax Income (Loss) | |||||||||||||||||||||||||||||||||||
| Private Client | $ | 62,894 | $ | 65,249 | (3.6) | $ | 186,582 | $ | 140,499 | 32.8 | |||||||||||||||||||||||||
| Asset Management | 9,121 | 4,951 | 84.2 | 25,449 | 17,965 | 41.7 | |||||||||||||||||||||||||||||
| Capital Markets | (6,144) | (15,254) | (59.7) | (34,621) | (44,782) | (22.7) | |||||||||||||||||||||||||||||
| Corporate/Other | (30,501) | (33,359) | (8.6) | (88,720) | (84,744) | 4.7 | |||||||||||||||||||||||||||||
| Total | $ | 35,370 | $ | 21,587 | 63.8 | $ | 88,690 | $ | 28,938 | 206.5 | |||||||||||||||||||||||||
Private Client
Private Client reported revenue for the current quarter of $218.8 million, 13.2% higher compared with a year ago mostly due to higher advisory fees driven by appreciation in AUM and an increase in commission revenue due to higher transactional volume. Pre-tax income of $62.9 million in the current quarter resulted in a pre-tax margin of 28.8%. Financial advisor headcount at the end of the current quarter was 928 compared to 946 at the end of the third quarter of 2023. We saw improved adviser productivity throughout the period.
| ('000s unless otherwise indicated) | |||||||||||||||||||||||
| 3Q-2024 | 3Q-2023 | Change | % Change | ||||||||||||||||||||
| Revenue | $ | 218,787 | $ | 193,254 | $ | 25,533 | 13.2 | ||||||||||||||||
| Commissions | $ | 54,872 | $ | 44,385 | $ | 10,487 | 23.6 | ||||||||||||||||
| Advisory fee revenue | $ | 94,187 | $ | 82,774 | $ | 11,413 | 13.8 | ||||||||||||||||
| Bank deposit sweep income | $ | 34,875 | $ | 42,304 | $ | (7,429) | (17.6) | ||||||||||||||||
| Interest | $ | 24,331 | $ | 21,248 | $ | 3,083 | 14.5 | ||||||||||||||||
| Other | $ | 10,522 | $ | 2,543 | $ | 7,979 | 313.8 | ||||||||||||||||
| Total Expenses | $ | 155,893 | $ | 128,005 | $ | 27,888 | 21.8 | ||||||||||||||||
| Compensation | $ | 118,674 | $ | 92,383 | $ | 26,291 | 28.5 | ||||||||||||||||
| Non-compensation | $ | 37,219 | $ | 35,622 | $ | 1,597 | 4.5 | ||||||||||||||||
| Pre-tax Income | $ | 62,894 | $ | 65,249 | $ | (2,355) | (3.6) | ||||||||||||||||
| Compensation Ratio | 54.2 | % | 47.8 | % | 6.4 | % | 13.4 | ||||||||||||||||
| Non-compensation Ratio | 17.0 | % | 18.4 | % | (1.4) | % | (7.6) | ||||||||||||||||
| Pre-tax Margin | 28.8 | % | 33.8 | % | (5.0) | % | (14.8) | ||||||||||||||||
| Asset Under Administration (billions) | $ | 129.8 | $ | 110.7 | $ | 19.1 | 17.3 | ||||||||||||||||
| Cash Sweep Balances (billions) | $ | 2.8 | $ | 3.5 | $ | (0.7) | (20.0) | ||||||||||||||||
39
•Retail commissions increased 23.6% from a year ago primarily due to higher retail trading activity.
•Advisory fees increased 13.8% due to higher AUM during the billing period for the current quarter when compared to the third quarter of last year.
•Bank deposit sweep income decreased $7.4 million from a year ago due to lower cash sweep balances.
•Interest revenue increased 14.5% from the prior year period due to higher interest earned from margin loans.
•Other revenue increased from a year ago primarily due to increases in the cash surrender value of Company-owned life insurance policies, which fluctuates based on changes in the fair value of the policies' underlying investments.
•Compensation expenses increased 28.5% from a year ago primarily due to higher production related expenses and deferred compensation costs.
•Non-compensation expenses increased 4.5% from a year ago primarily due to higher interest expense.
Asset Management
Asset Management reported revenue for the current quarter of $27.3 million, 30.9% higher compared with a year ago. Pre-tax income was $9.1 million, an increase of 84.2% compared with the prior year period.
| ('000s unless otherwise indicated) | 3Q-2024 | 3Q-2023 | Change | % Change | |||||||||||||||||||
| Revenue | $ | 27,262 | $ | 20,830 | $ | 6,432 | 30.9 | ||||||||||||||||
| Advisory fee revenue | $ | 27,432 | $ | 25,188 | $ | 2,244 | 8.9 | ||||||||||||||||
| Other | $ | (170) | $ | (4,358) | $ | 4,188 | * | ||||||||||||||||
| Total Expenses | $ | 18,141 | $ | 15,879 | $ | 2,262 | 14.2 | ||||||||||||||||
| Compensation | $ | 6,596 | $ | 5,585 | $ | 1,011 | 18.1 | ||||||||||||||||
| Non-compensation | $ | 11,545 | $ | 10,294 | $ | 1,251 | 12.2 | ||||||||||||||||
| Pre-tax Income | $ | 9,121 | $ | 4,951 | $ | 4,170 | 84.2 | ||||||||||||||||
| Compensation Ratio | 24.2 | % | 26.8 | % | (2.6) | % | (9.7) | ||||||||||||||||
| Non-compensation Ratio | 42.3 | % | 49.4 | % | (7.1) | % | (14.4) | ||||||||||||||||
| Pre-tax Margin | 33.5 | % | 23.8 | % | 9.7 | % | 40.8 | ||||||||||||||||
| AUM (billions) | $ | 49.1 | $ | 40.4 | $ | 8.7 | 21.5 | ||||||||||||||||
*Percentage not meaningful | |||||||||||||||||||||||
•Advisory fee revenue increased 8.9% from a year ago due to increased management fees resulting from the higher net value of billable AUM during the current quarter.
•AUM increased to $49.1 billion at September 30, 2024, the third consecutive record high, which is the basis for advisory fee billings for October 2024.
•The increase in AUM was comprised of higher asset values of $9.4 billion on existing client holdings, partially offset by payments of $0.7 billion.
•Compensation expenses were up 18.1% from a year ago primarily resulting from increases in incentive compensation.
•Non-compensation expenses were up 12.2% when compared to the prior year period mostly due to higher external portfolio management costs which are directly related to the increase in AUM.
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The following table provides a breakdown of the change in assets under management for the three months ended September 30, 2024:
| (Expressed in millions) | ||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
| Fund Type | Beginning Balance | Contributions | Redemptions/Profit Distribution | Appreciation (Depreciation) | Ending Balance | |||||||||||||||||||||||||||
Traditional (1) | $ | 41,257 | $ | 1,661 | $ | (2,193) | $ | 2,178 | $ | 42,903 | ||||||||||||||||||||||
Institutional Fixed Income (2) | 870 | 32 | (12) | 37 | 927 | |||||||||||||||||||||||||||
| Alternative Investments: | ||||||||||||||||||||||||||||||||
Hedge funds (3) | 3,993 | 52 | (167) | 19 | 3,897 | |||||||||||||||||||||||||||
Private Equity Funds (4) | 1,133 | 6 | (6) | (31) | 1,102 | |||||||||||||||||||||||||||
Portfolio Enhancement Program (5) | 268 | — | (22) | — | 246 | |||||||||||||||||||||||||||
| $ | 47,521 | $ | 1,751 | $ | (2,400) | $ | 2,203 | $ | 49,075 | |||||||||||||||||||||||
(1)Traditional investments include Unified Managed Accounts, third party investment managers, mutual funds and/or exchange-traded funds (ETFs), and Oppenheimer financial adviser managed advisory programs, as well as 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 strategies in areas including global equities, fixed income, diversifying
strategies, credit, real estate and special opportunities.
(4)Private equity funds represent single strategy, multi-strategy or direct investments in private investments across various sectors.
(5)The portfolio enhancement program sells uncovered, out-of-money puts and calls on the S&P 500 Index. The program is intended to be 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 for the current quarter of $124.0 million, 31.1% higher when compared with the prior year period. Pre-tax loss was $6.1 million, compared with a pre-tax loss of $15.3 million a year ago.
| ('000s) | 3Q-2024 | 3Q-2023 | Change | % Change | |||||||||||||||||||
| Revenues | $ | 124,030 | $ | 94,576 | $ | 29,454 | 31.1 | ||||||||||||||||
| Investment Banking | $ | 50,098 | $ | 36,000 | $ | 14,098 | 39.2 | ||||||||||||||||
| Advisory fees | $ | 32,798 | $ | 18,001 | $ | 14,797 | 82.2 | ||||||||||||||||
| Equities underwriting | $ | 12,588 | $ | 15,246 | $ | (2,658) | (17.4) | ||||||||||||||||
| Fixed income underwriting | $ | 4,390 | $ | 2,049 | $ | 2,341 | 114.3 | ||||||||||||||||
| Other | $ | 322 | $ | 704 | $ | (382) | (54.3) | ||||||||||||||||
| Sales and Trading | $ | 72,755 | $ | 58,102 | $ | 14,653 | 25.2 | ||||||||||||||||
| Equities | $ | 33,303 | $ | 30,985 | $ | 2,318 | 7.5 | ||||||||||||||||
| Fixed Income | $ | 39,452 | $ | 27,117 | $ | 12,335 | 45.5 | ||||||||||||||||
| Other | $ | 1,177 | $ | 474 | $ | 703 | 148.3 | ||||||||||||||||
| Total Expenses | $ | 130,174 | $ | 109,830 | $ | 20,344 | 18.5 | ||||||||||||||||
| Compensation | $ | 87,649 | $ | 72,933 | $ | 14,716 | 20.2 | ||||||||||||||||
| Non-compensation | $ | 42,525 | $ | 36,897 | $ | 5,628 | 15.3 | ||||||||||||||||
| Pre-tax Loss | $ | (6,144) | $ | (15,254) | $ | 9,110 | * | ||||||||||||||||
| Compensation Ratio | 70.7 | % | 77.1 | % | (6.4) | % | (8.3) | ||||||||||||||||
| Non-compensation Ratio | 34.3 | % | 39.0 | % | (4.7) | % | (12.1) | ||||||||||||||||
| Pre-tax Margin | (5.0) | % | (16.1) | % | 11.1 | % | (68.9) | ||||||||||||||||
*Percentage not meaningful | |||||||||||||||||||||||
•Advisory fees earned from investment banking activities increased 82.2% compared with a year ago primarily due to higher restructuring-related transaction activity.
•Equity underwriting fees decreased 17.4% when compared with a year ago due to lower new issuance levels.
•Fixed income underwriting fees were modestly higher than the prior year period.
•Equities sales and trading revenue increase 7.5% compared with the prior year period mostly due to higher volumes.
•Fixed income sales and trading revenue increased 45.5% compared with a year ago primarily due to an increase in trading income attributable to higher interest rates and volumes.
•Compensation expenses increased 20.2% compared with a year ago largely due to costs associated with opportunistic new hires and higher incentive compensation.
•Non-compensation expenses were 15.3% higher than a year ago primarily due to an increase in interest expense in financing trading inventories.
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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 condensed consolidated financial statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2023.
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 the notes thereto found in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. 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 nine months ended September 30, 2024, 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, 2023.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2024, total assets increased by 17.1% from December 31, 2023. 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 repurchase agreements. 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 September 30, 2024, the Company had bank call loans of $206.7 million compared to zero at December 31, 2023. 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 $6.1 million and $386,133, respectively, at September 30, 2024. The liquid assets at Oppenheimer Europe Ltd. are primarily comprised of cash deposits in bank accounts.
The liquid assets at Oppenheimer Investments Asia Limited are primarily comprised of investments in U.S. Treasuries and cash deposits in bank accounts. Any 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.
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 $3.4 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. 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.
Senior Secured Notes
At September 30, 2024 the Company had $113.05 million outstanding in 5.50% Senior Secured Notes due in 2025 (the “Notes”). On September 19, 2024, the Company issued a notice of redemption to the holders of its Notes stating that it intends to redeem all of the $113.05 million aggregate principal amount of the Notes outstanding on October 10, 2024. The redemption price is equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. All of the Notes were redeemed on October 10, 2024 and none remain outstanding.
43
The Notes were jointly and severally and fully and unconditionally guaranteed on a senior secured basis by E.A. Viner International Co. and Viner Finance Inc. (together, the "Subsidiary Guarantors"). The following tables present the required selected financial information as of September 30, 2024 and for the nine months ended September 30, 2024 for the Parent and Subsidiary Guarantors related to the previously outstanding Notes.
| (Expressed in thousands) | As of | |||||||
| September 30, 2024 | ||||||||
| Total Assets | $ | 2,312,705 | ||||||
| Due From Non-Guarantor Subsidiary | 17,222 | |||||||
| Total Liabilities | 577,822 | |||||||
| Due To Non-Guarantor Subsidiary | 77,476 | |||||||
| For the Nine Months Ended | ||||||||
| September 30, 2024 | ||||||||
| Total Revenue | $ | 7,991 | ||||||
| Pre-Tax (Loss) | (136) | |||||||
| Net (Loss) | 344 | |||||||
As of September 30, 2024, S&P’s Corporate Family rating and rating on the Notes was a 'BB-' with a stable outlook. Moody’s Corporate Family rating and the rating on the Notes was a “Ba3” with a stable outlook. Subsequent to our redemption of the Notes on October 10, 2024, at the Company's request, both S&P and Moody 's withdrew the above mentioned ratings.
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 and 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 are mainly comprised of actively traded readily marketable securities. We issued $1.8 million in forgivable notes (which are inherently illiquid) to employees for the three months ended September 30, 2024 ($4.5 million for the three months ended September 30, 2023) 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. 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 September 30, 2024, the Company had $206.7 million of bank call loans (zero at December 31, 2023). The average daily bank loan outstanding for the three and nine months ended September 30, 2024 was $235.0 million and $147.5 million, respectively ($43.8 million and $59.7 million for the three and nine months ended September 30, 2023). The largest daily bank loans outstanding for both the three and nine months ended September 30, 2024 was $346.9 million ($112.2 million and $167.3 million for the three and nine months ended September 30, 2023, respectively).
At September 30, 2024, securities loan balances totaled $272.0 million ($285.0 million at December 31, 2023 and $292.9 million at September 30, 2023). The average daily securities loan balances outstanding for the three and nine months ended September 30, 2024 were $299.6 million and $296.6 million, respectively ($314.3 million and $339.4 million for the three and nine months ended September 30, 2023, respectively). The largest daily stock loan balance for both of the three and nine months ended September 30, 2024 was $375.5 million ($359.0 million and $391.5 million for the three and nine months ended September 30, 2023, respectively).
44
We finance our government trading operations through the use of securities purchased under reverse repurchase agreements and repurchase agreements. Except as described below, repurchase and reverse repurchase agreements, primarily 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.
At September 30, 2024, the gross balances of reverse repurchase agreements and repurchase agreements were $244.4 million and $1,009.5 million, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended September 30, 2024 was $233.0 million and $915.8 million, respectively ($48.2 million and $720.8 million, respectively, for the three months ended September 30, 2023). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended September 30, 2024 was $569.1 million and $1,035.9 million, respectively ($227.1 million and $801.2 million, respectively, for the three months ended September 30, 2023).
Liquidity Management
We manage our liquidity to meet our current obligations and upcoming liquidity needs as well as 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 $98.1 million as of September 30, 2024.
We regularly review our sources of liquidity and financing and conduct internal stress analyses 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. Regulators are increasingly focused on liquidity management and we have seen increased regulatory scrutiny of liquidity management by our industry. Should a disruption occur in our liquidity and financing sources, we have plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.
Our primary long-term cash requirements related to $167.4 million of operating lease obligations. The total cash requirement for interest expense related to operating lease obligations is estimated to be $3.0 million for the remainder of 2024.
Funding Risk
| (Expressed in thousands) | |||||||||||
| For the Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash used in operating activities | $ | (182,880) | $ | (84,226) | |||||||
| Cash used in investing activities | 455 | (10,309) | |||||||||
| Cash provided by financing activities | 185,832 | 13,290 | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | 3,407 | $ | (81,245) | |||||||
Management believes that funds from operations, combined with our capital base and available credit facilities, are sufficient for our liquidity needs for the foreseeable future. Under some circumstances, banks including those on whom we rely may 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.
45
During periods of high volatility, we have seen increased calls for deposits of collateral to offset perceived risk between the Company's settlement liability to industry clearinghouses such as the Options Clearing Corporation (“OCC”) and National Securities Clearing Corp. (“NSCC”) as well as more stringent collateral arrangements with our bank lenders. The recent reduction of the settlement cycle for security transactions in the U.S. have substantially reduced settlement risks. All such requirements have been and will be met in the ordinary course with available collateral.
CYBERSECURITY
Cybersecurity presents significant challenges to the business community in general, including to the financial services industry. Increasingly, bad actors, both domestic and international, attempt to steal personal data and/or interrupt the normal functioning of businesses through accessing individuals' and companies' files and equipment connected to the internet. Recent incidents have reflected the increasing sophistication of intruders and their intent to steal personally identifiable information as well as funds and securities. These intruders sometimes use instructions that are seemingly from authorized parties but in fact, are from parties intent on attempting to steal. In other instances, these intruders attempt to bypass normal safeguards and disrupt or steal significant amounts of information and then either release it to the Internet or hold it for ransom. Regulators are increasingly requiring companies to provide heightened levels of sophisticated defenses. The Company maintains processes and systems with an aim to preventing any such attack from disrupting its services to clients as well as to prevent any loss of data concerning its clients, and their financial affairs, as well as Company privileged information.
Our management is actively involved in the oversight of our cybersecurity risk management program. We have devoted significant financial and personnel resources to implement and maintain security measures to meet regulatory requirements and customer expectations. We have incorporated cybersecurity processes to assess, identify and manage risks from cybersecurity threats into our overall risk assessment process. The Company maintains a cybersecurity program that is designed to identify, protect from, detect, respond to, and recover from cybersecurity threats and risks, and protect the confidentiality, integrity, and availability of its information systems, including the information residing on such systems. The National Institute of Standards and Technology Cybersecurity Framework helps the Company inform its cybersecurity agenda and prioritize its cybersecurity activities. The Company takes a risk-based approach to cybersecurity, which begins with the identification and evaluation of cybersecurity risks or threats that could affect the Company’s operations, finances, legal or regulatory compliance, or reputation. The Company has processes in place for assessing, identifying and managing material risks from cybersecurity threats along with risk assessment procedures designed to allow such processes to remain responsive to emerging risks. Our processes include, but are not limited to, the following:
•we engage third-party cybersecurity firms and tools to assist with network monitoring, endpoint protection, vulnerability assessments and penetration testing;
•we engage cyber security consultants, auditors, and other third parties to assess and enhance our cybersecurity practices, such as to perform tabletop exercises and evaluate our cyber processes including an assessment of our incident response procedures. Identified risks are formally tracked until mitigated or eliminated;
•we perform regular scanning of our systems to identify and resolve critical vulnerabilities;
•we provide periodic training and testing, including phishing tests, to help our employees understand cybersecurity risks and their responsibility in mitigating those risks; and
•we insure against potential losses from cyber incidents by maintaining cybersecurity insurance.
We have a written incident response plan that identifies the steps to be taken in response to a cybersecurity incident that includes investigation, escalation and remediation provisions. The incident response plan includes standard processes for reporting and escalating cybersecurity incidents to senior management.
We have processes to evaluate third party service providers and vendors that have access to sensitive systems and Company and customer data, which may include the use of cybersecurity questionnaires and due diligence procedures such as assessments of that service provider’s cybersecurity posture.
46
Management’s Role
Management has implemented risk management structures, policies and procedures, and manages our risk exposure on a day-to-day basis. The Company has a dedicated cybersecurity organization within its technology department that focuses on current and emerging cybersecurity matters. The Company’s cybersecurity function is led by the Company’s Chief Information Officer ("CIO"), and the Company’s Chief Information Security Officer ("CISO"), who reports to the Company’s CIO. The CIO and his direct reports, including the CISO, discuss action items related to risks at a standing monthly meeting. The CISO and many members of his team have multiple decades of cybersecurity-related experience. Risk reporting is provided at monthly meetings of the Firm’s cross-business Cybersecurity Committee and periodic presentations to the Firm’s Risk Management Committee, at which many members of the Company’s senior management are present.
The CEO meets regularly with the CIO to discuss cybersecurity threats and existing and potentially new technology systems including those related to cybersecurity. The CIO and CISO have a standing monthly meeting with the President and General Counsel to discuss potential vulnerabilities in the cyber environment. The President formerly ran the Information Technology Department at the Firm and as a result has significant systems experience including experience related to cybersecurity.
Board Oversight
The Board of Directors, both directly and through the Audit Committee, oversees management’s responsibility of ensuring proper functioning of our cybersecurity risk management program. In particular, the Audit Committee assists the Board in its oversight of management’s responsibility to assess, manage and mitigate cybersecurity risks. The Audit Committee receives a cybersecurity update at each regular meeting of the Board covering cybersecurity risks, cybersecurity staffing and staff development including certifications and training. These updates are given either in person by the CIO and CISO or in written presentations created by them.
Like other U.S. broker dealers, in May 2024 the Company began submitting client personal information to the Consolidated Audit Trail National Market System. The CAT NMS is the world’s largest repository of securities transactions and client information and as a result, presents a significant cybersecurity threat to customer personally identifiable information.
As of the date of this filing, the Company has not identified any cybersecurity threats that have materially affected or are reasonably anticipated to have a material effect on the Company’s business strategy, results of operations or financial condition. Although the Company has not experienced cybersecurity incidents that are individually, or in the aggregate, material, the Company has experienced cyberattacks in the past, which the Company believes have thus far been mitigated by preventative, detective, and responsive measures put in place by the Company. Given the continuing reports of cyber incidents in general, we believe that the Company will most likely continue to be a target of cybersecurity attacks by bad actors. There is no guarantee that the Company will be able to prevent any or all such attacks.
REGULATORY MATTERS AND DEVELOPMENTS
Regulation Best Interest (U.S.)
On June 5, 2019, the SEC adopted Regulation Best Interest (“Reg BI”) as Rule 151-1 under the Exchange Act. Reg BI imposes a 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 clients 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. Required compliance with Reg BI became effective on June 30, 2020. In addition to adopting Reg BI, the SEC 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 Investment Advisers Act of 1940 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”).
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Reg BI requires enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the cessation of certain practices and limitations on certain kinds of transactions previously conducted in the normal course of business. The rules and processes required under Reg BI limit revenue and involve increased costs, including, but not limited to, compliance costs associated with enhanced technology as well as increased litigation risks. The Company made significant structural, technological and operational changes to our business practices to comply with the requirements of the Reg BI Rules and it is likely that additional changes may be necessary to continue to comply as more experience with the Reg BI Rules is gained. Regulators have commenced in-depth reviews of the industry’s compliance with the requirements of Reg BI, including that of the Company.
On December 18, 2020, the Department of Labor ("DOL") published its final prohibited transaction exemption (“PTE”) addressing investment advice for fiduciaries of ERISA plans and IRAs. Similar to the proposal the DOL released in June of 2020, the final exemption takes a principles-based (rather than a prescriptive) approach to resolving conflicts that arise under ERISA when an investment advice fiduciary, its affiliate or a related party is paid certain types of compensation (such as commissions, trailing fees or revenue-sharing) or engages in certain principal transactions. The final exemption should provide a new and more flexible approach to ERISA compliance for certain types of transactions, which financial institutions may choose to utilize in place of other existing exemptions. Like the proposal (but in contrast to the precursor rule the DOL finalized in April 2016 that the U.S. Court of Appeals for the Fifth Circuit later vacated in June 2018), the final exemption does not materially change the scope of fiduciary activities under ERISA, with the exception of including certain rollover-related advice as fiduciary advice. The effective date for compliance with the PTE was February 1, 2022. The Company believes many of the steps taken by the Company to achieve compliance with the Reg BI Rules have enabled and will enable the Company to comply with the PTE. The Company implemented certain additional processes to accompany the actions taken to comply with the Reg BI Rules in order to ensure full compliance with the PTE.
On April 25, 2024, the DOL finalized a collection of regulatory changes in its ongoing quest to update the definition of a “fiduciary” under ERISA and Section 4975 of the Internal Revenue Code (the “2024 Fiduciary Rule”). In finalizing the 2024 Fiduciary Rule, the DOL sought to confer ERISA fiduciary status on professional investment advisers and wealth managers, particularly with regard to participant-directed 401(k) plans and individual retirement accounts. Along with the 2024 Fiduciary Rule, the DOL published amendments to a collection of prohibited transaction exemptions. The 2024 Fiduciary Rule was set to become effective on September 23, 2024.
On July 25 and 26, 2024, the U.S. District Court for the Eastern District of Texas and the U.S. District Court for the Northern District of Texas, respectively, issued stays on the effective date of the fiduciary rulemaking package. Both courts found that the challenges to the rulemaking package were likely to succeed on the merits because the rulemaking exceeds the DOL’s authority and is not consistent with the U.S. Court of Appeals for the Fifth Circuit’s decision in Chamber of Commerce v. U.S. Department of Labor, (5th Cir. 2018), which vacated the DOL’s 2016 fiduciary rulemaking.
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” in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.
Oppenheimer and many of its affiliates are each subject to various regulatory capital requirements. As of September 30, 2024, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. See note 15 to the condensed consolidated financial statements in Item 1 for further information on regulatory capital requirements.
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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, including inflation, recession, and changes in consumer confidence and spending, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) potential cybersecurity threats and attacks, (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 “Regulation Best Interest” and other regulations adopted in recent years, (xi) war, terrorist acts and nuclear confrontation as well as political unrest, including events relating to the Israel-Hamas war, the conflict with Hezbollah and Iran and related unrest in the Middle East and Russia's invasion of Ukraine and related Western sanctions, (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, (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, bank failures, changes in or uncertainty surrounding regulation, and the potential for default by the U.S. government on the nation's debt, (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 and (xix) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, climate-related risks such as natural disasters and extreme weather events. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company's business. See “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the nine months ended September 30, 2024, 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, 2023.
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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 breakdowns 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 and 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 nine months ended September 30, 2024 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 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, FINRA and other regulators.
The Company accrues for estimated loss contingencies related to legal and regulatory matters within Other Expenses in the consolidated income statement 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 losses.
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 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 up to $5 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 some 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.
Beginning on or about August 31, 2021, Oppenheimer was named as a respondent in numerous arbitrations, many containing multiple claimants, each filed before FINRA, relating to those claimants’ purported investment in Horizon Private Equity, III, LLC (“Horizon”). Horizon is alleged to be a fraudulent scheme involving, among others, a former Oppenheimer employee, John Woods. John Woods left Oppenheimer’s employ in 2016 and Oppenheimer never received a complaint from any of the investors prior to the SEC bringing a complaint against Woods and his co-conspirators in 2021. Oppenheimer has settled or an award has been rendered and paid in all the Horizon-related arbitrations except for two arbitrations which allege losses of approximately $2.75 million in the aggregate.
In addition, in June and August of 2023, Oppenheimer was served with two Horizon-related complaints in Georgia State Court, by plaintiffs, virtually all of whom were never Oppenheimer customers, alleging unspecified losses. In 2024, each of those complaints was dismissed by the trial court. Plaintiffs in each case subsequently filed an appeal of the court’s order dismissing the cases, each of which is currently pending.
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On June 30, 2022, Oppenheimer received a "Wells Notice" from the SEC requesting that Oppenheimer make a written submission to the SEC to explain why Oppenheimer should not be charged with violations of Section 15c2-12 of the Securities Exchange Act of 1934, and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules G-17 and G-27 in relation to its sales of municipal notes pursuant to an exemption from continuing disclosure contained in Rule 15c2-12. On September 13, 2022, the SEC filed a complaint against Oppenheimer in the United States District Court for the Southern District of New York (the “Court") alleging that Oppenheimer violated Section 15B(c)(1) of the Exchange Act and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules. The SEC asked the Court to enter an order enjoining Oppenheimer from violating the above-referenced rules and requiring disgorgement and payment of a civil penalty. On January 30, 2024, Oppenheimer and the SEC reached an agreement in principle to settle the litigation pursuant to which Oppenheimer would pay a civil penalty of $1.2 million. The settlement is subject to Oppenheimer obtaining a waiver of certain statutory disqualifications.
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Item 1A. RISK FACTORS
During the three months ended September 30, 2024, 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, 2023.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information with respect to shares of the Company’s Class A Stock purchased by the Company during each of the three months in the Company’s quarter ended September 30, 2024:
| (a) | (b) | (c) | (d) | ||||||||||||||||||||
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs (1) | |||||||||||||||||||
| July 1 - 31, 2024 | — | $— | — | 503,874 | |||||||||||||||||||
| August 1 - 31, 2024 | — | $— | 503,874 | ||||||||||||||||||||
September 1 - 30, 2024 | 5,981 | $49.30 | 5,981 | 497,893 | |||||||||||||||||||
| Q3 2024 Total | 5,981 | $49.30 | 5,981 | 503,874 | |||||||||||||||||||
(1) None of the foregoing authorizations is subject to expiration. | |||||||||||||||||||||||
Item 5. OTHER INFORMATION
During the period covered by this Quarterly Report on Form 10-Q, no director or officer of the Company adopted terminated
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Item 6. EXHIBITS
31.1* | |||||
31.2* | |||||
32* | |||||
101* | Interactive data files pursuant to Rule 405 of Regulation S-T (unaudited): (i) the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, (ii) the Condensed Consolidated Income Statements for the three and nine months ended September 30, 2024 and 2023, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023, (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity and Redeemable Noncontrolling Interests for the three and nine months ended September 30, 2024 and 2023, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023, and (vi) the notes to the Condensed Consolidated Financial Statements.+ | ||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
| * | Filed herewith | ||||
| + | 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.
| OPPENHEIMER HOLDINGS INC. | ||
| Signed at New York, New York, this 25th day of October, 2024 | ||
| By: /s/ Albert G. Lowenthal | ||
| Albert G. Lowenthal, Chairman and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: /s/ Brad M. Watkins | ||
| Brad M. Watkins, Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Albert G. Lowenthal, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Oppenheimer Holdings Inc.; | |||||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||||||
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||||||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||||||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): | |||||||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||||||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||||||
/s/ Albert G. Lowenthal | ||
Name: Albert G. Lowenthal | ||
Title: Chief Executive Officer | ||
October 25, 2024 | ||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brad M. Watkins, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Oppenheimer Holdings Inc.; | |||||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||||||
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||||||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||||||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): | |||||||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||||||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||||||
/s/ Brad M. Watkins | ||
Name: Brad M. Watkins | ||
Title: Chief Financial Officer | ||
October 25, 2024 | ||
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADPOTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Albert G. Lowenthal, Chairman and Chief Executive Officer of Oppenheimer Holdings Inc. (the "Company"), and Brad M. Watkins, Chief Financial Officer of the Company, hereby certify that to his knowledge the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 of the Company filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period specified.
Signed at New York, New York, this 25th day of October, 2024
/s/ Albert G. Lowenthal | ||
Albert G. Lowenthal | ||
Chairman and Chief Executive Officer | ||
/s/ Brad M. Watkins | ||
Brad M. Watkins | ||
Chief Financial Officer | ||
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.