# Oppenheimer Holdings Inc: Form 10-Q for the period ended Mar 31, 2015

- Company: [Oppenheimer Holdings Inc](/companies/opy.md) (CIK 791963)
- Form: 10-Q
- Filed: 2015-05-01
- Accepted by EDGAR: May 1, 2015, 14:52 ET
- Period: 2015-03-31
- Accession: 0000791963-15-000008
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/791963/000079196315000008/opy-3312015x10xq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/791963/000079196315000008/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-01-01 to 2015-03-31 | $245.6m | us-gaap:Revenues |
| Interest expense | 3 months, 2015-01-01 to 2015-03-31 | $3.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-01-01 to 2015-03-31 | $3.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-01-01 to 2015-03-31 | $5.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-01-01 to 2015-03-31 | $0.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-01-01 to 2015-03-31 | $0.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-01-01 to 2015-03-31 | 14,282,270 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2015-01-01 to 2015-03-31 | −$36.6m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2015-01-01 to 2015-03-31 | $474.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2015-01-01 to 2015-03-31 | $1.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2015-03-31 | $66.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2015-03-31 | $2.78bn | us-gaap:Assets |
| Total liabilities | at 2015-03-31 | $2.25bn | us-gaap:Liabilities |
| Shareholders' equity | at 2015-03-31 | $530.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 73,684 characters.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Reference is also made to the Company’s consolidated financial statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2014.

The Company engages in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, trust services and investment advisory and asset management services. Its principal subsidiaries are Oppenheimer & Co. Inc. ("Oppenheimer") and Oppenheimer Asset Management Inc. ("OAM"). As of March 31, 2015, the Company provided its services from 93 offices in 24 states located throughout the United States, and offices in Tel Aviv, Israel, Hong Kong and Beijing, China, London, England, St. Helier, Isle of Jersey and Geneva, Switzerland. Client assets administered by the Company as of March 31, 2015 totaled approximately $88.0 billion. The Company provides investment advisory services through OAM and Oppenheimer Investment Management, LLC ("OIM") and Oppenheimer’s Fahnestock Asset Management, Alpha and OMEGA Group divisions. At March 31, 2015, client assets under management totaled approximately $26.6 billion. The Company provides trust services and products through Oppenheimer Trust Company of Delaware. The Company provides discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., the Company offers syndication as well as trading of issued syndicated corporate loans. Oppenheimer Multifamily Housing & Healthcare Finance, Inc. ("OMHHF") is engaged in Federal Housing Administration ("FHA")-insured commercial mortgage origination and servicing. At March 31, 2015, the Company employed 3,428 employees (3,336 full-time and 92 part-time), of whom approximately 1,301 were financial advisers.

### Critical Accounting Policies

The Company’s accounting policies are essential to understanding and interpreting the financial results reported in 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 the Company’s consolidated financial statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2014. 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 three months ended March 31, 2015, 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, 2014.

### Business Environment

The securities industry is directly affected by general economic and market conditions, including fluctuations in volume and price levels of securities and changes in interest rates, inflation, political events, investor confidence, investor participation levels, legal and regulatory, accounting, tax and compliance requirements and competition, all of which have an impact on commissions, firm trading, fees from accounts under investment management as well as fees for investment banking services, and investment and interest income as well as on liquidity. Substantial fluctuations can occur in revenue and net income due to these and other factors.

For a number of years, the Company offered auction rate securities ("ARS") to its clients. A significant portion of the market in ARS ‘failed’ because, in the tight credit market in and subsequent to 2008, dealers were no longer willing or able to purchase the imbalance between supply and demand for ARS. These securities have auctions scheduled on either a 7, 28 or 35 day cycle. Clients of the Company own ARS in their individual accounts. The absence of a liquid market for these securities presents a significant problem to clients continuing to own ARS and, as a result, to the Company. It should be noted that this is a failure of liquidity and not a default. These securities in almost all cases have not failed to pay interest or principal when due. These securities are fully collateralized for the most part and, for the most part, remain good credits. The Company did not act as an auction agent for ARS.

Interest rates on ARS typically reset through periodic auctions. Due to the auction mechanism and generally liquid markets, ARS historically were categorized as Level 1 in the fair value hierarchy. Beginning in February 2008, uncertainties in the credit markets resulted in substantially all of the ARS market experiencing failed auctions. Once the auctions failed, the ARS could no longer be valued using observable prices set in the auctions. The Company has used less observable determinants of the fair value of ARS, including the strength in the underlying credits, announced issuer redemptions, completed issuer redemptions, and announcements from issuers regarding their intentions with respect to their outstanding ARS. The Company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions. Due to liquidity problems associated with the ARS market, ARS that lack liquidity are setting their interest rates according to a maximum rate formula defined in their registration statements.

The Company has sought financing from a number of sources, without success, in order to try to find a means for all its clients to find liquidity from their ARS holdings. It seems likely that liquidity will ultimately come from issuer redemptions which, to date, combined with purchases by the Company have reduced client holdings by 92%. There can be no assurance that the Company will be successful in finding a liquidity solution for all its clients’ ARS. See "Risk Factors – The Company may continue to be adversely affected by the failure of the Auction Rate Securities Market" appearing in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and "Factors Affecting ‘Forward-Looking Statements’" herein.

Recent events have caused increased review and scrutiny of the methods utilized by financial service companies to finance their short term requirements for liquidity. The Company utilizes commercial bank loans, securities lending, and repurchase agreements to finance its short term liquidity needs (See "Liquidity"). All repurchase agreements and reverse repurchase agreements are collateralized by short term U.S. Government obligations and U.S. Government Agency obligations.

The Company is focused on growing its private client and asset management businesses through strategic additions of experienced financial advisers in its existing branch system and employment of experienced money management personnel in its asset management business. In addition, the Company is committed to the improvement of its technology capability to support client service and the expansion of its capital markets capabilities while addressing the issue of managing its expenses.

### Regulatory and Legal Environment

The brokerage business is subject to regulation by, among others, the SEC, the Commodity Futures Trading Commission ("CFTC") and FINRA in the United States, the Financial Conduct Authority ("FCA") in the United Kingdom, the Jersey Financial Services Commission ("JFSC") in the Isle of Jersey, the Securities and Futures Commission in Hong Kong ("SFC"), and various state securities regulators in the United States. In addition, Oppenheimer Israel (OPCO) Ltd. operates under the supervision of the Israeli Securities Authority. Past events surrounding corporate accounting and other activities leading to investor losses resulted in the enactment of the Sarbanes-Oxley Act and have caused increased regulation of public companies. The financial crisis of 2008-9 accelerated this trend. New regulations and new interpretations and enforcement of existing regulations have created increased costs of compliance and increased investment in systems and procedures to comply with these more complex and onerous requirements. The SEC has increased their enforcement activities with an intent to bring more actions against firms and individuals for violations of existing rules as well as for conduct that stems from violations of new interpretations of existing rules and to assert significant penalties in connection with such activities. Various states are imposing their own regulations that make compliance more difficult and more expensive to monitor.

In July 2010, Congress enacted extensive legislation entitled the Wall Street Reform and Consumer Protection Act ("Dodd Frank") in which it mandated that the SEC and other regulators conduct comprehensive studies and issue new regulations based on their findings to control the activities of financial institutions in order to protect the financial system, the investing public and consumers from issues and failures that occurred in the 2008-9 financial crisis. All relevant studies have not yet been completed, but they are widely expected to extensively impact the regulation and practices of financial institutions including the Company. The changes are likely to significantly reduce leverage available to financial institutions and to increase transparency to regulators and investors of risks taken by such institutions. It continues to be impossible to predict the nature and impact of such rulemaking. In addition, new rules have been adopted to regulate and/or prohibit proprietary trading for certain deposit taking institutions, control the amount and timing of compensation to "highly paid" employees, create new regulations around financial transactions with consumers requiring the adoption of a uniform fiduciary standard of care of broker-dealers and investment advisers providing personalized investment advice about securities to retail customers, increase the disclosures provided to clients, and create a tax on securities transactions. The Consumer Financial Protection Bureau has stated its intention to implement new rules affecting the interaction between financial institutions and consumers. In addition, the U.S. Department of Labor has proposed rules for financial institutions surrounding their fiduciary duty to retirement plans which could have significant negative implications for the industry’s relationships with this broad group of clients including individuals holding Individual Retirement Accounts ("IRAs"). The proposed rules contemplate a contract between plan owners and custodians and managers in which all elements of the relationship are described including all relevant conflicts of interest. It is too early to tell if these rules will become final and their impact on the Company. In December 2012, France began applying a 0.2% transaction tax on financial transactions in American Depository Receipts of French companies that trade on U.S. exchanges. Italy implemented its own financial transaction tax in March 2013. The imposition of financial transaction taxes are likely to impact the jurisdictions in which securities are traded and the "spreads" demanded by market participants in order to make up for the cost of any such tax. Such a tax may be implemented throughout the European Union. Recent publicity around "high speed trading" has created suggestions by legislators to create a financial transaction tax in the U.S. to inhibit such trading. FINRA has proposed a data collection system (CARDS- Comprehensive Automated Risk Data System) that would collect data on virtually every transaction involving clients and process and retain the information. It is possible that client reaction to this information collection will drive client activity to non-broker dealers, and have a detrimental impact on the business of the Company. If and when enacted, such regulations will likely increase compliance costs and reduce returns earned by financial service providers and intensify compliance overall. It is difficult to predict the nature of the final regulations and their impact on the business of the Company.

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (the "Volcker Rule") was published by the U.S. Federal Reserve Board as required by Dodd-Frank in 2011. The Volcker Rule is intended to restrict U.S. banks and other financial institutions that accept deposits from conducting proprietary trading activities, as well as investing in hedge funds and private equity funds for their own account. The intent of the Volcker Rule is to reduce risk to the capital of such institutions through reducing speculation and risk-taking with bank capital. The draft form of the proposed rule was exposed for comment until February 13, 2012 and is scheduled to become effective on July 21, 2015 (subject to possible additional delays). There may be additional changes to the requirements of the Volcker Rule and it is impossible to determine the Volcker Rule’s impact on market liquidity and on the liquidity of issued sovereign debt in Europe and Asia. Various committees of Congress are reviewing the impact of the Volcker Rule and are potentially moving to reduce its impact on smaller institutions. The Company believes that the Volcker Rule will not directly affect its operations, but indirect effects cannot be predicted with any certainty. Additionally, the Federal Reserve in conjunction with other U.S. regulatory organizations has analyzed the U.S. financial system and the impact that might result from the failure of one or more "Strategically Important Financial Institutions" ("SIFI"). To date, less than 50 such institutions have been identified and will be made subject to special regulations including the requirement to create a plan for their orderly demise in the event of a failure. Oppenheimer has not been identified as a SIFI. Recently one SIFI has proposed voluntarily discontinuing significant portions of its business to be relieved of the SIFI designation. There can be no assurance that this list will not grow to include more SIFI institutions. The identification process has not been completed and is subject to appeal by the affected institutions. The Company has no reason to believe that it will be identified as a SIFI. But, this requirement may have broader implications for the capital markets as capital becomes less available.

Recent revelations concerning the potential manipulation of LIBOR ("London Interbank Offered Rate") during the period from 2008-2010 make it likely that more regulation surrounding the fixing of interest rates on commercial bank loans and reference rates on derivatives can be expected. Similar investigations are underway with respect to the setting of foreign exchange rates over a broad time period and there is no way to predict the outcome of these investigations although recently enforcement has been instituted against a number of international banks as well as employees of such banks with sizable fines being assessed.

The rules and requirements that were created by the passage of the Patriot Act, and the anti-money laundering regulations (AML) in the U.S. and similar laws in other countries that are related, have created significant costs of compliance and can be expected to continue to do so. FinCEN ("Financial Crimes Enforcement Network") has heightened their review of activities of broker-dealers where heretofore their focus had been on commercial banks. This increased focus is likely to lead to significantly higher levels of enforcement and higher fines and penalties on broker dealers. Regulators have expanded their views of the requirements of the Patriot Act, as well as through enforcement of the provisions of the Bank Secrecy Act ("BSA") and the Foreign Corrupt Practices Act ("FCPA") with respect to the amount of diligence required by financial institutions of both their foreign and domestic clients and their activities.

Pursuant to FINRA Rule 3130 (formerly NASD Rule 3013 and NYSE Rule 342), the chief executive officers ("CEOs") of regulated broker-dealers (including the CEO of Oppenheimer) are required to certify that their companies have processes in place to establish and test supervisory policies and procedures reasonably designed to achieve compliance with federal securities laws and regulations, including applicable regulations of self-regulatory organizations. The CEO of the Company is required to make such a certification on an annual basis and did so in March 2014.

On July 30, 2013, the SEC adopted final amendments to the financial responsibility rules ("FRRs") and reporting rules under SEC Rule 17a-5 ("Reporting Rule") for broker-dealers. The final amendments to the FRRs make changes to the rules related to proprietary accounts for broker-dealers, special reserve deposits with banks, bank sweep programs, deductions from net worth, solvency requirements, the SEC’s ability to restrict withdrawals of capital, books and records requirements, and notifications to regulators. The rules were effective at March 3, 2014.

The Reporting Rule requires all broker-dealers to file a new unaudited quarterly Form Custody report which provides information around custodial practices and was effective December 31, 2013. In addition, the new Reporting Rule provides significant changes to annual reporting of broker-dealers by eliminating the internal control report referred to as the Material Inadequacy Letter, providing for a new Compliance Report asserting the effectiveness of internal controls for compliance with net capital, customer reserve formula, quarterly security count, and customer account statements. Also, the new Reporting Rule makes changes to the audit and attestation requirements for auditor reporting from American Institute of Certified Public Accountants ("AICPA") standards to Public Company Accounting Oversight Board ("PCAOB") standards as well as provides the SEC with access to auditors and audit workpapers. These rules were effective for fiscal years ending on or after June 1, 2014.

On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) released an updated version of its Internal Control – Integrated Framework (the "2013 Framework"), which supersedes the original framework that was developed in 1992. The Company adopted the 2013 Framework on December 15, 2014 as a basis for its compliance with the Sarbanes-Oxley Act of 2002.

### Other Regulatory Matters

On January 27, 2015, the SEC approved an Offer of Settlement from Oppenheimer and issued an Order Instituting Administrative and Cease and Desist Proceedings (the "Order") relating to Oppenheimer’s failing to report a customer’s suspicious activities which occurred through its Oppenheimer account in violation of the Exchange Act; violating the Exchange Act provisions requiring broker-dealers to maintain ledgers accurately reflecting liabilities and expenses; failing to accurately maintain records for each account showing the true beneficial owner as required by Exchange Act rule; and violating the securities registration provisions contained in Section 5 of the Securities Act and failing to prevent and detect such violations of Section 5 of the Securities Act as required by the Exchange Act. Pursuant to the Order, Oppenheimer was ordered to (i) cease and desist from committing or causing any violations of the relevant provisions of the federal securities laws; (ii) be censured; (iii) pay to the SEC $10.0 million comprised of $4.2 million in disgorgement, $753,500 in prejudgment interest and $5.1 million in civil penalties; and (iv) retain an independent consultant to review Oppenheimer’s policies and procedures relating to anti-money laundering and Section 5 of the Securities Act. Oppenheimer made a payment of $5.0 million to the SEC on February 17, 2015 and agreed to make a second payment of $5.0 million to the SEC before January 27, 2017. On the same date the Order was issued a division of the United States Department of the Treasury ("FinCEN") issued a Civil Monetary Assessment (the "Assessment") against Oppenheimer relating to potential violations of the Bank Secrecy Act and the regulations promulgated thereunder related primarily to, in the Company’s view, the SEC matters discussed immediately above. Pursuant to the terms of the Assessment, Oppenheimer admitted that it violated the Bank Secrecy Act and consented to the payment of a civil money penalty, which, as a result of the payments to the SEC described above, obligates Oppenheimer to make an aggregate payment of $10.0 million to FinCEN. On February 9, 2015, Oppenheimer made a payment of $5.0 million to FinCEN and has agreed to make a second payment of $5.0 million before January 27, 2017. Oppenheimer further agreed to provide FinCEN copies of any reports or other recommendations prepared by the independent compliance consultant retained pursuant to the SEC settlement described above. The Company had fully reserved the $20.0 million related to the aforementioned matters through the period ended June 30, 2014.

As a result of the resolution of the SEC action, Oppenheimer became subject to a disqualification that would have negatively impacted the Company’s business and its results of operations. Accordingly, the Company sought and on January 27, 2015, received a waiver from the disqualification that would have prohibited the sale of certain privately-placed securities, including third party alternative investments. Oppenheimer believes that any disqualification resulting from the issuance of the Order for which Oppenheimer has not received a waiver or similar relief is not material to the business of Oppenheimer or its affiliates.

On February 19, 2015, the Board of Directors of the Company (the “Board”) formed a Special Committee of the Board (the “Special Committee”) in order to engage an independent law or consulting firm to conduct a review of Oppenheimer and OAM’s broker dealer and investment adviser compliance processes and related internal controls and governance processes and provide recommendations to the Special Committee on how to improve any of the foregoing. On February 19, 2015, the Special Committee agreed to engage an independent law firm to conduct the aforementioned review. As part of its engagement, the Company agreed that the recommendations of the review of the independent law firm shall be shared with the SEC. Moreover, Oppenheimer and OAM have agreed to adopt the recommendations made by the independent law firm.

For several quarters, Oppenheimer has been responding to information requests from FINRA regarding the sale of leveraged and inverse exchange traded funds ("ETFs"). Several Oppenheimer employees have provided on-the-record testimony in connection with the investigation.

In May 2014, Oppenheimer received a "Wells Notice" from FINRA requesting that Oppenheimer make a written submission to explain why Oppenheimer should not be charged with violations of FINRA rules relating to the supervision of one former financial adviser and associated charges related to alleged deficient supervisory systems, late FINRA U/4/U/5 filings and record retention. On March 26, 2015 FINRA issued a Letter of Acceptance, Waiver and Consent ("AWC") pursuant to which Oppenheimer, without admitting or denying the findings, consented to FINRA’s findings that Oppenheimer (i) failed to supervise a former financial adviser and failed to prevent him from trading multiple customer accounts at excessive levels; (ii)

lacked supervisory systems reasonably designed to detect and prevent wire transfers between Oppenheimer customers and the former financial adviser; (iii) failed to timely make hundreds of required updates on Forms U4 and U5; and (iv) failed to provide timely responses to six FINRA information requests. In so doing FINRA found that Oppenheimer violated, among others, FINRA rules 2010, 2110, 3010 and 8210. Oppenheimer agreed to pay a fine and restitution of approximately $3.8 million and agreed to retain an independent consultant to review Oppenheimer’s supervisory systems related to wire transfers, Form U/4/U5 reporting and excessive trading.

Since early 2014, Oppenheimer has been responding to information requests from FINRA regarding the supervision of one of its former financial advisers who was indicted by the United States Attorney's Office for the District of New Jersey in March 2014 on allegations of insider trading. In August 2014, Oppenheimer received information requests from the SEC regarding supervision of the same financial adviser. Oppenheimer is continuing to cooperate with both the FINRA and SEC inquiries.

In November, 2014, Oppenheimer received a Notice of Contemplated Action from the New Mexico Securities Division (the "Division") alleging that certain federal agency bonds purchased by Bernalillo County, New Mexico in 2012 and 2013 were not suitable. Oppenheimer and a former registered representative were both named as respondents. This matter is in its preliminary stages, discovery has not commenced in this matter and a hearing date has not been scheduled. The Company believes that it has meritorious defenses to these allegations.

In March 2011, the Division of Securities for the State of Delaware ("Division of Securities") commenced an inquiry regarding a customer complaint received from an Oppenheimer customer resident in Delaware. The customer complaint was settled in December 2012 and a Delaware state court approved the settlement. As part of its investigation, several employees gave on the record testimony concerning the customer’s accounts. In November 2014, Oppenheimer received a letter from the Department of Justice for the State of Delaware advising Oppenheimer that the results of their investigation indicated potential violations of the Delaware Securities Act (the "Act") and the rules and regulations pursuant to the Act as they relate to excessive trading, unsuitable recommendations, and failure to supervise. Oppenheimer continues to cooperate with the Division of Securities inquiry.

In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer’s marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client related legal settlements and awards to purchase ARS, as of March 31, 2015, the Company purchased and holds (net of redemptions) approximately $105.2 million in ARS from its clients. As of March 31, 2015, the Company had $2.0 million of outstanding ARS purchase commitments related to the settlements with the Regulators. In addition, the Company is committed to purchase another $14.2 million from clients through 2017 under legal settlements and awards.

The ARS positions that the Company owns and are committed to purchase primarily represent auction rate preferred securities issued by closed-end funds and, to a lesser extent, municipal auction rate securities which are municipal bonds wrapped by municipal bond insurance and student loan auction rate securities which are asset-backed securities backed by student loans.

The Company’s clients held at Oppenheimer approximately $122.2 million of ARS at March 31, 2015 exclusive of amounts that 1) were owned by Qualified Institutional Buyers ("QIBs"), 2) were transferred to the Company after February 2008, 3) were purchased by clients after February 2008, or 4) were transferred from the Company to other securities firms after February 2008. See "Off-Balance Sheet Arrangements" herein for additional details.

### Other Matters

The Company operates in all state jurisdictions in the United States and is thus subject to regulation and enforcement under the laws and regulations of each of these jurisdictions. The Company has been and expects that it will continue to be subject to investigations and some or all of these may result in enforcement proceedings as a result of its business conducted in the various states.

As part of its ongoing business, the Company records reserves for legal expenses, judgments, fines and/or awards attributable to litigation and regulatory matters. In connection therewith, the Company has maintained its legal reserves at levels it believes will resolve outstanding matters, but may increase or decrease such reserves as matters warrant. In accordance with applicable accounting guidance, the Company establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and reasonably estimable. When loss contingencies are not both probable and reasonably estimable, the Company does not establish reserves. See "Legal Proceedings" herein.

### Business Continuity

The Company is committed to an on-going investment in its technology and communications infrastructure including extensive business continuity planning and investment. These costs are on-going and the Company believes that current and future costs will exceed historic levels due to business and regulatory requirements. The Company built a new data center in 2010 which is housed in a location different than its headquarters. The move to new headquarters in 2012 required additional outlays for business continuity purposes although considerable savings have begun to be realized by the availability of independent electric generating capacity for the entire building which will support the Company’s infrastructure and occupancy.

The fourth quarter of 2012 was impacted by Superstorm Sandy which occurred on October 29, 2012 causing the Company to vacate its then two principal offices in downtown Manhattan and displaced 800 of the Company’s employees including substantially all of its capital markets, operations and headquarters staff for in excess of 30 days. The Company continues to review both internally and with its landlords and vendors the infrastructure necessary to withstand a similar event in light of the issues that arose in the fall of 2012.

### Cybersecurity

The Company has been focused for many years on the issues of maintaining the security of its clients’ data, access to its data processing environment, and its data processing facilities. Recent examples of vulnerabilities by other companies which have resulted in loss of client data and fraudulent activities by both domestic and foreign entities have caused the Company to review its security policies and procedures and to take additional actions to protect its network and its information. Such threats are ongoing and the Company believes that increased resources will need to be dedicated to this effort in the future.

### Outlook

The Company recognizes the regulatory requirements of our industry, and we must perform a rigorous and ongoing assessment of our compliance and risk management efforts, invest in people and programs, all while continuing to provide a platform with first class investment ideas and services. 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, thus maximizing the potential of each office and the development of existing trading, investment banking, investment advisory and other activities. Equally important is the search for viable acquisition candidates. As opportunities are presented, it is the long-term intention of the Company to pursue growth by acquisition where a comfortable match can be found in terms of corporate goals and personnel at a price that would provide the Company’s stockholders with incremental value. The Company may review potential acquisition opportunities, and will continue to focus its attention on the management of its existing business and may, from time to time, dispose of business activities that are no longer strategic to its business operations or which have limited opportunities for growth. In addition, the Company is committed to improving its technology capabilities to support client service and the expansion of its capital markets capabilities.

### Results of Operations

The Company reported net income attributable to Oppenheimer Holdings Inc. of $5.7 million or $0.42 basic earnings per share for the first quarter of 2015 compared with net income attributable to Oppenheimer Holdings Inc. of $3.2 million or $0.24 basic earnings per share for the first quarter of 2014, an increase of 77.4%. Income before income tax provision was $9.9 million for the first quarter of 2015 compared with income before tax income tax provision of $5.1 million for the first quarter of 2014, an increase of 92.8%. Revenue for the first quarter of 2015 was $245.6 million compared with $255.2 million in the first quarter of 2014, a decrease of 3.8%.

The following table and discussion summarizes the changes in the major revenue and expense categories for the three months ended March 31, 2015 compared to the same period in 2014:

*(Expressed in thousands)*

| Revenue | For the Three Months Ended March 31, 2015 Amount Change | % Change |
| --- | ---: | ---: |
| Commissions | $(12,443) | (10.2) |
| Advisory fees | 2,761 | 4.0 |
| Investment banking | (6,219) | (18.6) |
| Interest | (1,355) | (10.9) |
| Principal transactions, net | 9,738 | 110.4 |
| Other | (2,089) | (20.7) |
| Total revenue | (9,607) | (3.8) |
| **Expenses** |  |  |
| Compensation and related expenses | (8,859) | (5.2) |
| Communications and technology | 434 | 2.6 |
| Occupancy and equipment costs | 381 | 2.5 |
| Clearing and exchange fees | 510 | 8.7 |
| Interest | (1,254) | (24.3) |
| Other | (5,561) | (15.9) |
| Total expenses | (14,349) | (5.7) |
| Income before income tax provision | 4,742 | 92.8 |
| Income tax provision | 2,041 | 120.8 |
| Net income for the period | 2,701 | 79.0 |
| Less net income attributable to noncontrolling interest, net of tax | 206 | 105.1 |
| Net income attributable to Oppenheimer Holdings Inc. | $2,495 | 77.4 |

### Revenue

Commission revenue was $109.7 million for the first quarter of 2015, a decrease of 10.2% compared with $122.1 million for the first quarter of 2014 due to a lower financial adviser headcount coupled with reduced transaction volumes from retail investors during the first quarter of 2015.

Advisory fees were $71.0 million for the first quarter of 2015, an increase of 4.0% compared with $68.2 million for the first quarter of 2014 due to increases in advisory fees on traditional managed products. Assets under management increased 2.3% from $25.3 billion to $25.9 billion from December 31, 2013 to December 31, 2014, which contributed to the aforementioned advisory fee increase as the fees are calculated quarterly based on the market value at the end of the previous period. Assets under management for the period ended March 31, 2015 increased 2.8% to $26.6 billion as compared to $25.9 billion at December 31, 2014. The increase was comprised of asset appreciation of $0.7 billion.

Investment banking revenue decreased 18.6% to $27.3 million for the first quarter of 2015 compared with $33.5 million for the first quarter of 2014 due to lower fees from mergers and acquisitions activity during the first quarter of 2015.

Interest revenue was $11.0 million for first quarter of 2015, a decrease of 10.9% compared with $12.4 million for the first quarter of 2014. The decrease is primarily attributable to a decrease of $1.0 million in interest from lower holdings of U.S. government and agency securities.

Principal transactions revenue increased 110.4% to $18.6 million during the first quarter of 2015 compared with $8.8 million for the first quarter of 2014 primarily due to higher volumes and dollar-value of loan modifications of commercial mortgages during the first quarter of 2015.

Other revenue was $8.0 million for the first quarter of 2015, a decrease of 20.7% compared to $10.1 million for the first quarter of 2014. The decrease is primarily due to prepayment penalties related to loan modifications of commercial mortgages during the first quarter of 2015.

### Expenses

Compensation and related expenses (including salaries, production and incentive compensation, share-based compensation, deferred compensation, and other benefit-related items) totaled $163.1 million during the first quarter of 2015, a decrease of 5.2% compared to the first quarter of 2014. The decrease was due to lower production and incentive compensation expenses as well as lower share-based compensation expenses during the first quarter of 2015. Compensation and related expenses as a percentage of revenue was 66.4% during the first quarter of 2015 compared to 67.4% during the first quarter of 2014.

Non-compensation expenses were $72.6 million during the first quarter of 2015, a decrease of 7.0% compared to $78.1 million during the same period in 2014 primarily due to lower legal and regulatory costs during the first quarter of 2015.

The table below presents information about the reported revenue and net income before taxes of the Company’s reportable business segments for the three months ended March 31, 2015 and 2014:

*(Expressed in thousands)*

| Revenue | For the Three Months Ended March 31, 2015 | 2014 | % Change |
| --- | ---: | ---: | ---: |
| Private Client | $139,932 | $147,820 | (5.3) |
| Asset Management | 24,461 | 24,610 | (0.6) |
| Capital Markets | 72,166 | 77,881 | (7.3) |
| Commercial Mortgage Banking | 8,386 | 4,872 | 72.1 |
| Corporate/Other | 616 | (15) | \* |
|  | $245,561 | $255,168 | (3.8) |
| **Income (Loss) before income tax provision** |  |  |  |
| Private Client | $16,757 | $10,308 | 62.6 |
| Asset Management | 7,886 | 7,683 | 2.6 |
| Capital Markets | 6,735 | 11,184 | (39.8) |
| Commercial Mortgage Banking | 4,037 | 1,849 | 118.3 |
| Corporate/Other | (25,564) | (25,915) | (1.4) |
|  | $9,851 | $5,109 | 92.8 |

\* Not comparable

### Private Client

Private Client reported revenue of $139.9 million for the first quarter of 2015, 5.3% lower than the first quarter of 2014, due to decreases in transaction-based business partially offset by increases in advisory fees earned on traditional managed products during the first quarter of 2015. Income before income tax provision was $16.8 million for the first quarter of 2015, an increase of 62.6% compared with the first quarter of 2014 due to decreases in legal and regulatory costs and share-based compensation expenses during the first quarter of 2015.

- Client assets under administration were $88.0 billion at March 31, 2015 compared to $87.3 billion at December 31, 2014, an increase of 0.8%.
- Financial adviser headcount was 1,301 at the end of the first quarter of 2015, down from 1,390 at the end of the first quarter of 2014, as a result of headcount reductions of financial advisers who did not meet our current standards for productivity and client service.
- Retail commissions were $65.8 million for the first quarter of 2015, a decrease of 17.1% from the first quarter of 2014.
- Advisory fee revenue on traditional and alternative managed products was $48.0 million for the first quarter of 2015, an increase of 6.1% over the first quarter of 2014 (see Asset Management below for further information).
- Money market fee waivers totaled $5.5 million during the first quarter of 2015 versus waivers of $7.9 million during the first quarter of 2014. The decline in money market fee waivers was due to the movement of client assets out of money market fund products and into FDIC-insured bank deposits reflecting the upcoming changes in regulatory rules that govern money market fund products which will make such temporary investment vehicles significantly less attractive to investors. The Company will be discontinuing the offering of retail money market funds and expects that all client money market fund balances will be transferred to FDIC-insured bank deposits by the end of the second quarter of 2015.

### Asset Management

Asset Management reported revenue of $24.5 million for the first quarter of 2015, 0.6% lower than the first quarter of 2014. Income before income tax provision was $7.9 million for the first quarter of 2015, an increase of 2.6% compared with the first quarter of 2014.

- Advisory fee revenue on traditional and alternative managed products was $23.1 million for the first quarter of 2015, an increase of 0.3% over the first quarter of 2014. Advisory fees are calculated based on the value of client assets under management (“AUM”) at the end of the prior quarter which totaled $25.9 billion at December 31, 2014 ($25.3 billion at December 31, 2013) and are allocated to the Private Client and Asset Management business segments.
- AUM increased 3.9% to $26.6 billion at March 31, 2015, compared to $25.6 billion at March 31, 2014, which is the basis for advisory fee billings for the second quarter of 2015. The increase in AUM was comprised of asset appreciation of $0.8 billion and net new assets of $0.2 billion.

The following table provides a breakdown of the change in assets under management for the three months ended March 31, 2015:

*(Expressed in millions)*

| Fund Type | For the Three Months Ended March 31, 2015 Beginning Balance | Contributions | Redemptions | Appreciation (Depreciation) | Ending Balance |
| --- | ---: | ---: | ---: | ---: | ---: |
| Traditional (1) | $21,803 | $700 | $(533) | $582 | $22,552 |
| Institutional Fixed Income (2) | 1,194 | 9 | (10) | 18 | 1,211 |
| Alternative Investments: |  |  |  |  |  |
| Hedge Funds (3) | 2,542 | 68 | (232) | 94 | 2,472 |
| Private Equity Funds (4) | 344 | — | — | 39 | 383 |
|  | $25,883 | $777 | $(775) | $733 | $26,618 |

(1) Traditional investments include third party advisory programs, Oppenheimer financial adviser managed and advisory programs, and Oppenheimer Asset Management taxable and tax-exempt portfolio management strategies.

(2) Institutional fixed income provides solutions to institutional investors including: Taft-Hartley Funds, Public Pension Funds, Corporate Pension Funds, and Foundations and Endowments.

(3) Hedge funds represent single manager hedge fund strategies in areas including hedged equity, technology and financial services, and multi-manager and multi-strategy fund of funds.

(4) Private equity funds represent private equity fund of funds including portfolios focused on natural resources and related assets.

### Capital Markets

Capital Markets reported revenue of $72.2 million for the first quarter of 2015, 7.3% lower than the first quarter of 2014, primarily due to lower fees from mergers and acquisitions activity during the first quarter of 2015. Income before income tax provision was $6.7 million for the first quarter of 2015, a decrease of 39.8% compared with income before income tax provision of $11.2 million for the first quarter of 2014.

- Institutional equities commissions were $28.6 million for the first quarter of 2015, a decrease of 1.7% compared with the first quarter of 2014.
- Advisory fees from investment banking activities decreased 56.2% to $5.9 million in the first quarter of 2015 compared with the prior year quarter due to a decrease in mergers and acquisitions activity during the first quarter of 2015.
- Equity underwriting fees decreased 4.0% to $13.4 million for the first quarter of 2015 compared with the first quarter of 2014.
- Revenue from Taxable Fixed Income increased 9.6% to $18.9 million for the first quarter of 2015 compared with the first quarter of 2014.
- Public Finance and Municipal Trading revenue decreased 3.7% to $4.8 million for the first quarter of 2015 compared with the first quarter of 2014.

### Commercial Mortgage Banking

Commercial Mortgage Banking reported revenue of $8.4 million for the first quarter of 2015, 72.1% higher than the first quarter of 2014, primarily due to an increase in loan modifications of commercial mortgages during the first quarter of 2015. Income before income tax provision was $4.0 million for the first quarter of 2015, an increase of 118.3% compared with the first quarter of 2014.

- Premium income earned from loan modifications was $3.5 million in the first quarter of 2015 compared with $604,000 in the first quarter of 2014 as the Company modified 8 commercial loans (5 in the first quarter of 2014) with an aggregate principal loan balance of $92.1 million ($16.6 million in the first quarter of 2014).
- Loan origination fees for the first quarter of 2015 were $401,000, a decrease of 41.3% compared with the first quarter of 2014, as the Company originated 2 commercial loans (5 in the first quarter of 2014) with an aggregate principal loan balance of $8.7 million ($62.4 million in the first quarter of 2014).
- Net servicing revenue for the first quarter of 2015 was $1.5 million compared with $1.3 million for the comparable period in 2014, an increase of 15.4%.
- Principal loan balances related to servicing activities totaled $4.0 billion at March 31, 2015, up 2.6% from March 31, 2014.

### Liquidity and Capital Resources

Total assets at March 31, 2015 decreased by 0.1% from December 31, 2014. The Company satisfies its need for short-term funds from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, uncommitted lines of credit, and warehouse facilities. The Company finances its trading in government securities through the use of repurchase agreements. The Company’s longer-term capital needs are met through the issuance of the Notes (see "Refinancing" below). 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 office facilities, and changes in stock loan balances and financing through repurchase agreements. Oppenheimer has arrangements with banks for borrowings on a fully-collateralized basis. At March 31, 2015, the Company had $101.4 million of such borrowings outstanding compared to outstanding borrowings of $59.4 million at December 31, 2014. The Company also has some availability of short-term bank financing on an unsecured basis.

Volatility in the financial markets and ongoing concerns about the speed and degree of economic recovery has had an adverse effect on the availability of credit through traditional sources. As a result of concerns around financial markets generally and the strength of counterparties specifically, lenders have reduced and, in some cases, ceased to provide funding on both a secured and unsecured basis to financial service providers.

The Company’s overseas subsidiaries, Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited, are subject to local regulatory capital requirements which restrict the Company’s ability to utilize this capital for other purposes. The regulatory capital requirements for Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited were $3.9 million and $386,000, respectively, at March 31, 2015. See Note 12 to the condensed consolidated financial statements in Item 1 herein for further details. The liquid assets at Oppenheimer Europe Ltd. are primarily comprised of money market funds and to a lesser extent cash deposits in bank accounts. The liquid assets at Oppenheimer Investments Asia Limited are primarily comprised of investments in U.S. Treasuries and to a lesser extent cash and money market funds. Any restrictions on transfer of these liquid assets from Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited to the Company or its other subsidiaries would be limited by the regulatory capital requirements.

The Company permanently reinvests eligible earnings of its foreign subsidiaries in such 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 earnings of foreign subsidiaries, net of associated U.S. foreign tax credits, is estimated at $2.4 million for those subsidiaries with respect to which the Company would be subject to residual U.S. tax on cumulative earnings through March 31, 2015 were those earnings to be repatriated. The Company intends to continue to permanently reinvest 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.

On August 5, 2011, Standard & Poor’s ("S&P") lowered its long term sovereign credit rating on the United States of America from AAA to AA+. Credit agencies have also reduced the credit ratings of various sovereign nations, including Greece, Italy and France. The negative impact of any future downgrade could adversely affect our credit ratings, as well as those of our clients and/or counterparties and could require us to post additional collateral on loans collateralized by U.S. Treasury securities. See Item 1A "Risk Factors – The downgrade of U.S. long term sovereign debt obligations and issues affecting the sovereign debt of European nations may adversely affect markets and our business" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings concerning Oppenheimer’s marketing and sale of ARS. Pursuant to those settlements and legal settlements and awards, the Company has purchased and will, subject to the terms and conditions of the settlements, continue to purchase ARS on a periodic basis. The ultimate amount of ARS to be repurchased by the Company cannot be predicted with any certainty and will be impacted by redemptions by issuers and legal and other actions by clients during the relevant period which cannot be predicted. See "Off-Balance Sheet Arrangements" herein.

Additional settlements of regulatory matters could have an adverse effect on the Company’s liquidity depending on the size and composition of any such settlement.

### Refinancing

On April 12, 2011, the Company completed the private placement of $200.0 million in aggregate principal amount of 8.75% Senior Secured Notes due April 15, 2018 (the "Notes") at par. Interest on the Notes is payable semi-annually on April 15th and October 15th. On April 15, 2014, the Company retired early a total of $50.0 million (25%) of the Notes. Upon completion of the redemption and retirement on April 15, 2014, $150.0 million aggregate principal amount of the Notes remains outstanding. See Note 9 to the condensed consolidated financial statements in Item 1 herein for further discussion.

On May 28, 2014, Moody’s Corporation affirmed the Company’s ‘B2’ Corporate Family rating and ‘B2’ rating on the Notes with a stable outlook. On August 8, 2014, S&P affirmed the Company's and its Notes' “B” rating and revised its outlook on the Notes to stable from positive.

### Liquidity

For the most part, the Company’s assets consist of cash and cash equivalents and assets which can be readily converted into cash. Receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement. Receivable from customers represents margin balances and amounts due on transactions awaiting settlement. The Company’s receivables are, for the most part, collateralized by marketable securities. The Company’s collateral maintenance policies and procedures are designed to limit the Company’s exposure to credit risk. Securities owned, with the exception of the ARS, are mainly comprised of actively trading, readily marketable securities. The Company advanced $4.2 million in forgivable notes to employees (which are inherently illiquid) for the three months ended March 31, 2015 ($2.5 million for the three months ended March 31, 2014) as upfront or backend inducements. The amount of funds allocated to such inducements will vary with hiring activity.

The Company satisfies its need for short-term liquidity from internally generated funds, collateralized and uncollateralized bank borrowings, stock loans and repurchase agreements and warehouse facilities. Bank borrowings are collateralized by firm and customer securities. In addition, letters of credit are issued in the normal course of business to satisfy certain collateral requirements in lieu of depositing cash or securities.

The Company does not repatriate the earnings of its foreign subsidiaries. Foreign earnings are permanently reinvested for the use of the foreign subsidiaries and therefore these foreign earnings are not available to satisfy the domestic liquidity requirements of the Company.

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 not exceeding the broker call rate. At March 31, 2015, bank call loans were $101.4 million ($59.4 million at December 31, 2014 and $197.0 million at March 31, 2014). The average daily bank loan outstanding for the three months ended March 31, 2015 and 2014 was $86.6 million and $200.6 million, respectively. The largest daily bank loan outstanding for the three months ended March 31, 2015 and 2014 was $186.7 million and $392.3 million, respectively. The average weighted interest rate on bank call loans applicable on March 31, 2015 was 1.28%.

At March 31, 2015, securities loaned balances totaled $165.0 million ($137.9 million at December 31, 2014 and $209.2 million at March 31, 2014). The average daily securities loan balance for the three months ended March 31, 2015 and 2014 was $152.2 million and $217.6 million, respectively. The largest daily stock loan balance for the three months ended March 31, 2015 and 2014 was $183.0 million and $272.4 million, respectively.

The Company finances its government trading operations through the use of securities purchased under agreements to resell ("reverse repurchase agreements") and securities sold under agreements to repurchase ("repurchase agreements"). Except as described below, repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest. Repurchase and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase and reverse repurchase agreements exist in "book entry" form and certain other requirements are met.

Certain of the Company’s repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company’s fair value option election. The Company elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. The Company has elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At March 31, 2015, the Company did not have any reverse repurchase agreements and repurchase agreements that elected the fair value option.

At March 31, 2015, the gross balances of reverse repurchase agreements and repurchase agreements were $222.2 million and $619.6 million, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended March 31, 2015 was $321.5 million and $796.4 million, respectively ($412.8 million and $978.8 million, respectively, for the three months ended March 31, 2014). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended March 31, 2015 was $632.5 million and $1.2 billion, respectively ($832.4 million and $1.3 billion, respectively, for the three months ended March 31, 2014).

At March 31, 2015, the notional value of the repo-to-maturity was $nil. The average balance for the repo-to-maturity for the three months ended March 31, 2015 was $nil. At March 31, 2015, the gross leverage ratio was 5.2.

OMHHF, which is engaged in commercial mortgage origination and servicing, has obtained an uncommitted warehouse facility line through PNC Bank ("PNC") under which OMHHF pledges FHA-guaranteed mortgages for a period averaging 15 business days and PNC table funds the principal payment to the mortgagee. At March 31, 2015, OMHHF had $87.6 million outstanding under the warehouse facility line at a variable interest rate of 1 month LIBOR plus a spread. Interest expense for the three months ended March 31, 2015 and 2014 was $125,000 and $144,000, respectively.

### Liquidity Management

The Company manages its need for liquidity on a daily basis to ensure compliance with regulatory requirements. The Company’s 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 the Company’s needs, the Company may have to seek additional external financing. The availability of such additional external financing may depend on market factors outside the Company’s control.

The Company regularly reviews its sources of liquidity and financing and conducts internal stress analysis to determine the impact on the Company of events that could remove sources of liquidity or financing and to plan actions the Company could take in the case of such an eventuality. The Company’s reviews have resulted in plans that the Company believes would result in a reduction of assets through liquidation that would significantly reduce the Company’s need for external financing.

### Funding Risk

*(Expressed in thousands)*

|  | For the Three Months Ended March 31, 2015 | 2014 |
| --- | ---: | ---: |
| Cash used in operating activities | $(36,583) | $(52,596) |
| Cash used in investing activities | (474) | (1,397) |
| Cash provided by financing activities | 40,168 | 78,741 |
| Net increase in cash and cash equivalents | $3,111 | $24,748 |

Management believes that funds from operations, combined with the Company’s capital base and available credit facilities, are sufficient for the Company’s liquidity needs in the foreseeable future. Changes in capital requirements under international standards that will impact the costs and relative returns on loans may cause banks including those with whom the Company relies to back away from providing funding to the securities industry. Such a development might impact the Company’s ability to finance its day to day activities or increase the costs to acquire funding. The Company may or may not be able to pass such increased funding costs on to its clients. (See "Factors Affecting ‘Forward-Looking Statements’").

### Other Matters

On February 27, 2015, the Company paid cash dividends of $0.11 per share of Class A and Class B Stock totaling approximately $1.5 million from available cash on hand.

On May 1, 2015, the Board of Directors declared a regular quarterly cash dividend of $0.11 per share of Class A and Class B Stock payable on May 29, 2015 to stockholders of record on May 15, 2015.

The book value of the Company’s Class A and Class B Stock was $38.60 at March 31, 2015 compared to $38.71 at December 31, 2014, based on total outstanding shares of 13,734,511 and 13,630,368, respectively.

The diluted weighted average number of shares of Class A and Class B Stock outstanding for the three months ended March 31, 2015 was 14,282,270 compared to 14,114,957 outstanding for the same period in 2014.

### Off-Balance Sheet Arrangements

In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer’s marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with Regulators and client related legal settlements and awards to purchase ARS, as of March 31, 2015, the Company purchased and holds (net of redemptions) approximately $105.2 million in ARS from its clients. In addition, the Company is committed to purchase another $14.2 million from clients through 2017 under legal settlements and awards.

The Company’s purchases of ARS from its clients holding ARS eligible for repurchase will, subject to the terms and conditions of the settlements with the Regulators, continue on a periodic basis. Pursuant to these terms and conditions, the Company is required to conduct a financial review every six months, until the Company has extended Purchase Offers to all Eligible Investors (as defined), to determine whether it has funds available, after giving effect to the financial and regulatory capital constraints applicable to the Company, to extend additional Purchase Offers. The financial review is based on the Company’s operating results, regulatory net capital, liquidity, and other ARS purchase commitments outstanding under legal settlements and awards (described below). There are no predetermined quantitative thresholds or formulas used for determining the final agreed upon amount for the Purchase Offers. Upon completion of the financial review, the Company first meets with its primary regulator, FINRA, and then with representatives of the NYAG and other regulators to present the results of the review and to finalize the amount of the next Purchase Offer. Various offer scenarios are discussed in terms of which Eligible Investors should receive a Purchase Offer. The primary criteria to date in terms of determining which Eligible Investors should receive a Purchase Offer has been the amount of household account equity each Eligible Investor had with the Company in February 2008. Once various Purchase Offer scenarios have been discussed, the regulators, not the Company, make the final determination of which Purchase Offer scenario to implement. The terms of settlements provide that the amount of ARS to be purchased during any period shall not risk placing the Company in violation of regulatory requirements.

Outside of the settlements with the Regulators, the Company has also reached various legal settlements with clients and received unfavorable legal awards requiring it to purchase ARS. The terms and conditions including the ARS amounts committed to be purchased under legal settlements are based on the specific facts and circumstances of each legal proceeding. In most instances, the purchase commitments are in increments and extend over a period of time. At March 31, 2015, no ARS purchase commitments related to legal settlements extended past 2017. To the extent the Company receives an unfavorable award, the Company usually must purchase the ARS provided for by the award within 30 days of the rendering of the award. The ultimate amount of ARS to be repurchased by the Company under both the settlements with Regulators and the legal settlements and awards cannot be predicted with any certainty and will be impacted by redemptions by issuers, the Company’s financial and regulatory constraints, and legal and other actions by clients during the relevant period, which also cannot be predicted.

The ARS positions that the Company owns and are committed to purchase primarily represent auction rate preferred securities issued by closed-end funds and, to a lesser extent, municipal auction rate securities which are municipal bonds wrapped by municipal bond insurance and student loan auction rate securities which are asset-backed securities backed by student loans. At March 31, 2015, the amount of ARS held by the Company that was below investment grade was $3.7 million and the amount of ARS that was unrated was $50,000.

*Auction Rate Securities Owned and Committed to Purchase at March 31, 2015*

| (Expressed in thousand) Product | Principal | Valuation Adjustment | Fair Value |
| --- | ---: | ---: | ---: |
| Auction Rate Securities ("ARS") Owned (1) | $105,250 | $6,193 | $99,057 |
| ARS Commitments to Purchase Pursuant to: (2)(3) |  |  |  |
| Settlements with the Regulators (4) | 1,975 | 94 | 1,881 |
| Legal Settlements and Awards (5) | 12,274 | 703 | 11,571 |
| Total | $119,499 | $6,990 | $112,509 |

(1) Principal amount represents the par value of the ARS and is included in securities owned in the condensed consolidated balance sheet at March 31, 2015. The valuation adjustment amount is included as a reduction to securities owned in the condensed consolidated balance sheet at March 31, 2015.

(2) Principal amount represents the present value of the ARS par value that the Company is committed to purchase at a future date. This principal amount is presented as an off-balance sheet item. The valuation adjustment amount is included in accounts payable and other liabilities on the condensed consolidated balance sheet at March 31, 2015.

(3) Specific ARS to be purchased under ARS Purchase Commitments are unknown until the beneficial owner selects the individual ARS to be purchased.

(4) Commitments to purchase under settlements with the Regulators at March 31, 2015. Eligible Investors for future buybacks under the settlements with the Regulators held approximately $97.4 million of ARS as of March 31, 2015.

(5) Commitments to purchase under various legal settlements and awards with clients through 2017.

Per the above table, the Company has recorded a valuation adjustment on its ARS owned and ARS purchase commitments of $7.0 million as of March 31, 2015. The valuation adjustment is comprised of $6.2 million which represents the difference between the principal value and the fair value of the ARS the Company owns as of March 31, 2015 and $797,000 which represents the difference between the principal value and the fair value of the ARS the Company is committed to purchase under the settlements with the Regulators and legal settlements and awards. As of March 31, 2015, the Company did not have any outstanding ARS purchase commitments related to the settlements with Regulators. However, Eligible Investors for future buybacks under the settlements with Regulators held approximately $97.4 million of ARS as of March 31, 2015. Since the Company was not committed to purchase this amount as of March 31, 2015, there were no valuation adjustments booked to recognize the difference between the principal value and the fair value for this remaining amount.

Additional information concerning the Company’s off-balance sheet arrangements is included in Note 5 to the condensed consolidated financial statements in Item 1 herein.

### Contractual Obligations

The following table sets forth the Company’s contractual obligations as of March 31, 2015:

*(Expressed in millions)*

|  | Total | Less than 1 year | 1-3 Years | 3-5 Years | More than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating Lease Obligations | $296 | $41 | $72 | $56 | $127 |
| Committed Capital | 5 | 5 | — | — | — |
| Senior Secured Notes (1) | 196 | 13 | 26 | 157 | — |
| ARS Purchase Commitments (2) | 14 | 8 | 6 | — | — |
| Total | $511 | $67 | $104 | $213 | $127 |

(1) Includes interest payable of $45.9 million through maturity.

(2) Represents payments to be made pursuant to the ARS settlements entered into with the Regulators in February 2010 as well as commitments to purchase ARS as a result of settlements with the Regulators and legal settlements and awards.

### Inflation

Because the assets of the Company’s brokerage subsidiaries are highly liquid, and because securities inventories are carried at current market values, the impact of inflation generally is reflected in the financial statements. However, the rate of inflation affects the Company’s costs relating to employee compensation, rent, communications and certain other operating costs, and such costs may not be recoverable in the level of commissions or fees charged. To the extent inflation results in rising interest rates and has other adverse effects upon the securities markets, it may adversely affect the Company’s financial position and results of operations.

### Factors Affecting "Forward-Looking Statements"

From time to time, the Company may publish "Forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act or make oral statements that constitute forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products, anticipated market performance, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, 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 which could affect the cost and method of doing business and reduce returns, (v) fluctuations in currency rates, (vi) general economic conditions, both domestic and international, (vii) changes in the rate of inflation and the related impact on the securities markets, (viii) competition from existing financial institutions and other participants in the securities markets, (ix) legal developments affecting the litigation experience of the securities industry and the Company, including developments arising from the failure of the Auction Rate Securities markets, the trading of low-priced securities, stepped up enforcement efforts by the SEC, FinCEN and other regulators and the results of pending litigation and regulatory proceedings involving the Company, (x) changes in federal and state tax laws which could affect the popularity of products sold by the Company or impose taxes on securities transactions, (xi) the effectiveness of efforts to reduce costs and eliminate overlap, (xii) war and nuclear confrontation as well as political unrest and regime changes and health epidemics, (xiii) the Company’s ability to achieve its business plan, (xiv) corporate governance issues, (xv) the impact of the credit crisis and tight credit markets on business operations, (xvi) the effect of bailout, financial reform and related legislation including, without limitation, the Dodd-Frank Act and the Volcker Rule and the rules and regulations thereunder, (xvii) the consolidation of the banking and financial services industry, (xviii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xix) credit, operations, legal and regulatory risks, (xx) risks related to foreign operations, (xxi) risks related to the downgrade of U.S. long-term sovereign debt obligations and the sovereign debt of European nations, (xxii) risks related to the manipulation of LIBOR and concerns over high speed trading, (xxiii) potential cyber security threats, (xxiv) risks related to the lowering by S&P of its rating on the Company and on the Notes, and (xxv) risks related to pending election results, Congressional gridlock, government shutdowns and threats of default by the federal government. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company’s business. The Company does not undertake any obligation to publicly update or revise any forward-looking statements. See Item 1A – "Risk Factors" appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

## Market risk

As filed, 207 characters.

During the three months ended March 31, 2015, 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, 2014.

## Controls and procedures

As filed, 3,022 characters.

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 as defined in Rule 13a–15(e) and 15d-15(e) of the Securities Exchange Act of 1934. 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 errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision–making can be faulty and that break-downs can occur because of a simple error or omission. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events 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 control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 206 characters.

During the three months ended March 31, 2015, 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, 2014.

Filed May 1, 2015.
Source: SEC EDGAR, the filing index for accession 0000791963-15-000008. Last ingested by Listed: Nov 9, 2026, 19:54 ET. No prices; not investment advice.