What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-29 · 147 added, 136 removed, 257 unchanged (52% of the section changed)

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("Oppenheimer") and Oppenheimer Asset Management Inc.

As of September 30, 2021, we provided our services from 92 offices in 24 states located throughout the United States and offices in Tel Aviv, Israel, Hong Kong, China, London, England, St.

As of March 31, 2022, we provided our services from 93 offices in 24 states located throughout the United States and offices in Tel Aviv, Israel, Hong Kong, China, London, England, St.

Helier, Isle of Jersey, Munich, Germany and Geneva, Switzerland.

Client assets under administration ("CAUA") as of September 30, 2021 totaled $117.8 billion.

Client assets under administration ("CAUA") as of March 31, 2022 totaled $117.2 billion.

The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial advisor directed programs.

At September 30, 2021, client assets under management ("AUM") totaled $43.6 billion.

At March 31, 2022, client assets under management ("AUM") totaled $42.7 billion.

We also provide trust services and products through Oppenheimer Trust Company of Delaware and discount brokerage services through Freedom Investments, Inc.

Through OPY Credit Corp., we offer syndication as well as trading of issued syndicated corporate loans.

At September 30, 2021, the Company employed 2,917 employees (2,878 full-time and 39 part-time), of whom 1,003 were financial advisors.

At March 31, 2022, the Company employed 2,896 employees (2,853 full-time and 43 part-time), of whom 993 were financial advisors.

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.

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We are also focused on opportunities in our capital market businesses where we can employ individual 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.

We are continuously reviewing ways in which we can increase security around our data and our platform as the risks of cybercrime increase.

In investment banking we are committed to grow our footprint by adding experienced bankers within our existing industry practices as well as new industry exposure where we believe we can be successful.

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Impact of Interest Rates

The Federal Reserve has reduced short-term interest rates, largely due to the impact of the COVID-19 Pandemic and its out-sized negative impact on the economy, resulting in a decrease in fees the Company earned from FDIC-insured deposits of clients through a program offered by the Company.

Decreases in short-term interest rates, increases in deposit rates paid to clients, and/or a significant decline in our clients’ cash balances have a negative impact on our earnings.

The Federal Reserve reduced its benchmark rate significantly during two separate unscheduled meetings in March 2020.

Low interest rates have continued to negatively impact our earnings in an otherwise favorable environment.

The Federal Reserve has announced its intention to begin to taper its purchase of U.S.

Treasuries and mortgage-backed securities in the near future which could lead to increased interest rates as early as the second half of 2022.

The Federal Reserve ("FED") has announced its intention to increase the Federal Funds Rate over future periods and began this process by increasing the FED Funds Rate by 25bps in March 2022.

As a result of the risk of continued inflation, it is likely that interest rates across the spectrum will increase significantly from the record low levels of recent years.

In addition, the FED has announced that it will reduce its balance sheet as it allows maturing bonds to runoff without re-investing the proceeds.

The increase in interest rates, if and when they take place will be favorable to the Company’s interest-based revenues.

These changes in policy are intended to reduce inflation and are likely to also reduce economic activity possibly leading to a recession.

However increases in interest rates will increase fees the Company earns from FDIC-insured deposits of clients through a program offered by the Company.

These rate increases will also increase the rates the Company charges on margin balances and have a positive impact on our earnings.

However, such increases while bringing down inflationary pressures may also prove detrimental to economic expansion and thereby to financial markets in general.

The impact of rate increases seems likely to increase volatility in financial markets, decrease the value of fixed income investments and impact equity share prices.

In February 2022, without provocation, Russia invaded Ukraine.

Over ensuing weeks, the war has lasted longer than previously thought, and it seems likely will last for a more extended period of time than previously thought as the Ukrainians continue to be more successful than initially expected at turning back Russian forces and as NATO countries supply the Ukrainians with armaments and supplies.

The European Union and the United States have imposed broad-based sanctions and impounded financial assets of Russia, its companies and various notable Russian individuals.

The impact of the sanctions has been to increase the price of hydrocarbons and the costs of various agricultural products produced by both Russia and Ukraine and disrupted supplies to further increase inflationary pressures in Europe as well as the rest of the world.

It has also had the indirect effect of lowering consumer confidence and consumer spending, all of which could have an adverse impact on financial markets and thus on our business.

CORONAVIRUS DISEASE 2019 ("COVID-19 PANDEMIC")

The Company continues to monitor the effects of the pandemic both on a national level as well as regionally and locally and is responding accordingly.

In addition, we continue to provide frequent communications to clients, employees, and regulators.

We have adopted enhanced cleaning practices and other health protocols in our offices and taken measures to significantly restrict non-essential business travel and have practices in place to mandate that employees who may have been exposed to COVID-19, or show any relevant symptoms, self-quarantine.

The Company continues to monitor the effects of the COVID-19 pandemic both on a national level as well as regionally and locally and is responding accordingly.

In addition, we continue to provide frequent communications to clients, employees, and regulators regarding the impact of COVID-19 on our business.

We have adopted enhanced cleaning practices and other health protocols in our offices, taken measures to significantly restrict non-essential business travel and have practices in place to mandate that employees who may have been exposed to COVID-19, or show any relevant symptoms, self-quarantine.

In early March 2020, the Company executed on its Business Continuity Plan whereby the vast majority of our employees began to work remotely with only "essential" employees reporting to our offices.

We accomplished this by significantly expanding the use of technology infrastructure that facilitates remote operations.

Our ability to avoid significant business disruptions was reliant on the continued ability to have the vast majority of employees work remotely.

Due to the widespread distribution and inoculation of the U.S.

population with vaccines that have proven to be safe and effective, the Company implemented a re-entry plan for our fully vaccinated employees at our corporate headquarters in New York City on October 4, 2021.

For employees outside of our corporate headquarters, the Company will be implementing a re-entry plan for other locations in the U.S.

that will be in accordance with applicable state and local regulations.

Vaccinated employees have begun re-engaging with clients and traveling for business purposes.

Our ability to avoid significant business disruptions is reliant on the continued ability to have the vast majority of employees work remotely.

To date, there have been no significant disruptions to our business or control processes as a result of this dispersion of employees.

Given the recent surge in COVID-19 cases related to the Omicron variant, many employees from our home office and branch locations are working remotely while employees from select groups are working from office locations given the nature of their responsibilities.

We anticipate employees returning to offices once the risks associated with the Omicron variant subside while maintaining flexible work arrangements.

In recent weeks, we have seen increased attendance at the workplace as local regulations have been loosened, hospital visits reduced and a larger portion of the population vaccinated.

There can be no assurance at this time that these improvements will continue and we continue to closely monitor the situation.

EXECUTIVE SUMMARY

The results for the quarter reflect the significant impact of our investment in the Capital Markets franchise over the past several years.

Robust demand for investment banking services continues to propel revenue and earnings in the Capital Markets business.

These results, coupled with the continued steady performance of our Wealth Management business, led to the Firm's best first nine months in its history for revenue, net income and earnings per share.

Wealth management continued to deliver solid results driven by near record AUM and strong net investor flows, despite being negatively impacted by lower interest rates, while a significant increase in M&A advisory and placement fees in Capital Markets topped off a very successful quarter.

Concerns around inflation, higher oil prices, the Federal Reserve's tapering of bond buying, and congressional uncertainty weighed on equity markets during the period.

These concerns drove up the yield on the 10-Year Treasury to 1.52% as the period of ultra-low interest rates may be coming to an end.

The results for the quarter reflect the significant downturn in equity capital market issuance, which had an out-sized impact on the Company during the period.

Markets reflected the continuing impact of COVID on the economy, the changed interest rate environment and the impact on consumer confidence of the invasion of Ukraine by Russia early in the quarter.

The emerging high inflationary environment at the highest levels in 40 years, due to continued supply chain issues and higher inflation expectations are propelling consumer prices higher and draining energy from the equity markets.

By quarter’s end, interest rates reached the highest levels since 2018.

While the Company’s pipeline of potential future banking business remains strong, the closing of the window for IPO’s and secondary offerings, and the closing down of the SPAC market dramatically reduced capital market revenues for the first quarter of 2022 compared to the record number of offerings during the first quarter of 2021.

Wealth Management continued to deliver solid results driven by near record AUM and net investor flows.

The continued steady performance of our Wealth Management business offset some of the impact of disappointing revenue, but, nevertheless, the Firm's reported results were significantly reduced from 2021.

Concerns around inflation, higher oil prices, the FED's announced intention of raising short-term rates and the commencement of the run-off of the FED’s balance sheet all weighed on equity markets during the period.

These concerns drove up the yield on the 10-Year Treasury to 2.52% at period end.

We remain confident in the resiliency of our platform and our ability to provide essential investment services to our clients.

RESULTS OF OPERATIONS

The Company reported net income of $26.3 million or $2.07 basic earnings per share for the third quarter of 2021, an increase of 67.8%, compared with net income of $15.6 million or $1.25 basic earnings per share for the third quarter of 2020.

Revenue for the third quarter of 2021 was $315.3 million, an increase of 14.1% compared to revenue of $276.3 million for the third quarter of 2020.

The Company reported net income of $9.3 million or $0.75 basic earnings per share for the first quarter of 2022, a decrease of 76.0%, compared with net income of $38.7 million or $3.07 basic earnings per share for the first quarter of 2021.

Revenue for the first quarter of 2022 was $266.0 million, a decrease of 28.7% compared to revenue of $373.3 million for the first quarter of 2021.

(Expressed in thousands, except Per Share Amounts or otherwise indicated)

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Net Income (1)

$ 9,292 $ 38,658 $ (29,366) (76.0)

Earnings per share (basic) (1)

$ 0.75 $ 3.07 $ (2.32) (75.6)

Earnings per share (diluted) (1)

$ 0.69 $ 2.91 $ (2.22) (76.3)

Book Value Per Share $ 66.45 $ 56.74 $ 9.71 17.1

Tangible Book Value Per Share (2)

$ 52.58 $ 43.34 $ 9.24 21.3

CAUA ($ billions) $ 117.2 $ 111.4 $ 5.8 5.2

AUM ($ billions) $ 42.7 $ 40.2 $ 2.5 6.2

• Record revenue, net income, and earnings per share for the first nine months of the year.

• Record third quarter gross revenue was driven by investment banking revenue and advisory fees from near record high assets under management.

• Record revenue in Capital Markets segment for the third quarter was driven by strong M&A advisory and placement fees in investment banking.

• Client assets under administration at record level while client assets under management near record level at September 30, 2021.

• Shareholders' Equity reached a record high of $775.0 million at September 30, 2021.

• Book value and tangible book value per share reached record levels at September 30, 2021.

(1) Attributable to Oppenheimer Holdings Inc.

(2) Represents book value less goodwill and intangible assets divided by number of shares outstanding.

• Client assets under administration and under management were both at near record levels at March 31, 2022 and up from the same period in 2021.

• Advisory fees increased from the same period last year due to near record high assets under management.

• Book value and tangible book value per share reached record levels at March 31, 2022.

• Reduced first quarter 2022 gross revenue, net income, and earnings per share reflected a significant decline in industry-wide activity, and lower net revenues in underwriting, trading and M&A fees.

• Significantly reduced revenue and earnings in the Capital Markets segment for the first quarter of 2022 were driven by reduced capital markets activity.

• The Company repurchased 377,313 shares of Class A non-voting common stock during the first quarter of 2022 under its previously announced buy-back plan or 3% of shares outstanding at year-end.

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 months and nine months ended September 30, 2021 and 2020:

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months ended March 31, 2022 and 2021:

(Expressed in thousands)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 % Change 2021 2020 % Change

For the Three Months Ended March 31,

2022 2021 % Change

Private Client $ 150,847 $ 164,023 (8.0)

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Total $ 14,213 $ 52,127 (72.7)

* Percentage not meaningful

Private Client

Private Client reported revenue for the current quarter of $160.9 million, 14.0% higher than the previous year.

Private Client reported revenue for the current quarter of $150.8 million, 8.0% lower than the prior year period due to lower commissions and decreases in the cash surrender value of Company-owned life insurance policies partially offset by an increase in bank deposit sweep income from higher interest rates.

Pre-tax income of $24.1 million in the current quarter resulted in a pre-tax profit margin of 16.0%.

Financial advisor headcount at the end of the current quarter was 993 compared to 1,000 at the end of the first quarter of 2021.

The productivity of our financial advisors increased, reflecting higher individual production levels.

('000s, except Financial advisor headcount or otherwise indicated)

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Non-compensation $ 26,846 $ 28,365 $ (1,519) (5.4)

Pre-tax Income $ 24,146 $ 24,263 $ (117) (0.5)

Compensation Ratio 66.2 % 67.9 % (170) (2.5)

Non-compensation Ratio 17.8 % 17.3 % 50 2.9

Pre-tax Margin 16.0 % 14.8 % 120 8.1

Client Asset Under Administration (billions) $ 117.2 $ 111.4 $ 5.8 5.2

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Financial Advisor Headcount 993 1,000 (7) (0.7)

• Retail commissions increased 5.1% from a year ago amidst continued elevated client trading activity.

• Advisory fees increased 32.2% due to higher assets under management during the billing period for the third quarter of 2021 compared with that of the third quarter of 2020.

• Bank deposit sweep income decreased $0.7 million or 15.4% from a year ago due to lower short-term interest rates partially offset by higher average cash sweep balances which are at record levels.

• Interest revenue increased 28.4% from a year ago due to higher average margin balances partially offset by lower short-term interest rates.

• Other revenue decreased 40.8% primarily due to decreases in the cash surrender value of Company-owned life insurance policies during the current quarter compared to a year ago.

• Compensation expenses increased 8.9% from a year ago primarily due to increased production-related compensation costs partially offset by lower share-based and deferred compensation costs.

• Non-compensation expenses increased 0.6% from a year ago.

*Percentage not meaningful

• Retail commissions decreased 10.3% from a year ago due to a decrease in client activity compared to the significantly elevated levels of a year ago.

• Advisory fees increased 10.3% due to higher assets under management.

• Bank deposit sweep income increased $0.3 million or 8.6% from a year ago due to higher balances and higher short-term interest rates.

• Interest revenue increased 25.8% from a year ago due to higher short-term interest rates and higher average margin balances.

• Other revenue decreased primarily due to decreases in the cash surrender value of Company-owned life insurance policies during the current period compared to increases in the value of those policies in the prior year period.

• Compensation expenses decreased 10.4% from a year ago primarily due to decreased production, share-based and deferred compensation costs.

• Non-compensation expenses decreased 5.4% from a year ago primarily due to a decrease in the allowance for credit losses partially offset by higher interest and travel expenses.

Asset Management

Asset Management reported revenue for the current quarter of $27.1 million, 11.9% higher compared with a year ago.

Pre-tax income was $9.4 million, an increase of 46.5% compared with the prior year.

Pre-tax income was $9.5 million, an increase of 25.4% compared with the prior year period.

('000s unless otherwise indicated) 1Q-2022 1Q-2021 Change % Change

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Non-compensation $ 10,557 $ 9,418 $ 1,139 12.1

Pre-tax Income $ 9,474 $ 7,553 $ 1,921 25.4

Compensation Ratio 26.1 % 30.0 % (390) (13.0)

Non-compensation Ratio 38.9 % 38.9 % — —

Pre-tax Margin 34.9 % 31.2 % 370 11.9

AUM (billions) $ 42.7 $ 40.2 $ 2.5 6.2

• Advisory fee revenue increased 30.3% due to higher assets under management during the billing period for the third quarter of 2021 compared with tha t of the third quarter of 2020.

• AUM was $43.6 billion at September 30, 2021 , which is the basis for advisory fee billings for October 2021.

• Advisory fee revenue increased 11.9% due to higher assets under management during the first quarter of 2022 compared with the first quarter of 2021 and positive net asset flows.

• The Firm changed its advisory fee billings from quarterly in advance to monthly in advance starting on April 1, 2022.

• AUM was near a record l evel of $42.7 billion at March 31, 2022 , which is the basis for advisory fee billings for April 2022.

• The increase in AUM was comprised of higher asset values of $1.9 billion on existing client holdings and a net contribution of assets of $0.6 billion.

• Compensation expenses were up 2.1% from a year ago which was primarily due to increases in incentive compensation.

• Non-compensation expenses were up 38.4% when compared to the prior period due to higher portfolio management costs in line with the increase in AUM.

The following table provides a breakdown of the change in assets under management for the three months ended September 30, 2021:

• Compensation expenses were down 2.4% from a year ago which was primarily due to decreases in incentive compensation.

• Non-compensation expenses were up 12.1% when compared to the prior year period due to a higher communication and technology expenses and portfolio manager expense.

The following table provides a breakdown of the change in assets under management for the three months ended March 31, 2022:

(Expressed in millions)

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Balance Appreciation

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Capital Markets

Capital Markets reported revenue for the current quarter of $128.6 million, 12.5% higher when compared with the prior year.

Pre-Tax income was $17.9 million compared with pre-tax income of $19.4 million a year ago.

Capital Markets reported revenue for the current quarter of $85.1 million, 53.7% lower when compared with the prior year period.

Pre-Tax income was $1.2 million, a decreased of 97.7% compared with pre-tax income of $50.0 million a year ago.

('000s) 1Q-2022 1Q-2021 Change % Change

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Non-compensation $ 23,662 $ 21,678 $ 1,984 9.2

• Advisory fees earned from investment banking activities increased 68.7% compared with a year ago driven by higher M&A advisory and placement fees.

• Equity underwriting fees decreased 5.8% compared with a year ago as underwriting activity tapered off in August and September 2021.

• Fixed income underwriting fees decreased 13.0% compared with a year ago primarily driven by lower fees from public finance transactions during the current period.

• Equities sales and trading revenue increased 1.2% compared with a year ago due to increased trading activity by our institutional clients.

• Fixed Income sales and trading decreased 23.7% compared with a year ago primarily driven by lower income from municipal commissions and trading during the current period.

• Compensation expenses increased 14.5% compared with a year ago primarily due to increased salary and incentive compensation partially offset by lower production-related compensation.

• Non-compensation expenses were 23.0% higher than a year ago due to increased underwriting expenses related to high transaction volumes and higher costs associated with business travel and entertainment and conferences.

Pre-tax Income $ 1,166 $ 49,991 $ (48,825) (97.7)

Compensation Ratio 70.8 % 61.0 % 980 16.1

Non-compensation Ratio 27.8 % 11.8 % 1,600 135.6

Pre-tax Margin 1.4 % 27.2 % (2,580) (94.9)

*Percentage not meaningful

• Advisory fees earned from investment banking activities decreased 39.0% compared with a year ago.

The high advisory fees from the prior year period were driven by large completed M&A transactions in healthcare, technology, and consumer products.

• Equity underwriting fees decreased 84.9% compared with a year ago due to a significant decrease in equity underwriting activity in the healthcare and technology sectors, particularly for companies utilizing the SPAC framework to access the public markets.

• Fixed income underwriting fees were down 63.8% compared with a year ago primarily driven by a decrease in public finance issuances during the 2022 period.

• Equities sales and trading revenue decreased 17.5% compared with a year ago due to a marked decline in volumes in the equities market compared to the elevated levels in the prior year period.

• Fixed Income sales and trading revenue declined significantly by 30.4% compared with a year ago driven by lower trading volumes in the fixed income and municipal market.

• Compensation expenses decreased 46.2% compared with a year ago primarily due to decreased incentive compensation.

• Non-compensation expenses were 9.2% higher than a year ago due to increased interest costs and increased costs associated with business travel and entertainment and conferences.

CRITICAL ACCOUNTING POLICIES

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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 September 30, 2021, 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, 2020.

During the three months ended March 31, 2022, 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, 2021.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2021, total assets increased by 6.5% from December 31, 2020.

At March 31, 2022, total assets increased by 0.8% from December 31, 2021.

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.

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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, 2021, the Company had bank call loans of $72.3 million compared to $82.0 million at December 31, 2020.

At March 31, 2022, the Company had bank call loans of $78.2 million compared to $69.5 million at December 31, 2021.

The Company also has some availability of short-term bank financing on an unsecured basis.

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The regulatory capital requirements for Oppenheimer Europe Ltd.

and Oppenheimer Investments Asia Limited were $4.3 million and $385,295, respectively, at September 30, 2021.

and Oppenheimer Investments Asia Limited were $4.8 million and $383,007, respectively, at March 31, 2022.

The liquid assets at Oppenheimer Europe Ltd.

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Interest on the Unregistered Notes is payable semi-annually on April 1st and October 1st.

We 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 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 related thereto.

We 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 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 related thereto.

On November 23, 2020, we completed an exchange offer in which we exchanged 99.8% of our Unregistered Notes for a like principal amount of notes with identical terms (the "Notes"), except that such new notes have been registered under the Securities Act.

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• effectively senior in right of payment to all unsecured and unsubordinated obligations of such guarantor, to the extent of the value of the collateral owned by such guarantor (and, to the extent of any unsecured remainder after payment of the value of the collateral, rank equally in right of payment with such unsecured and unsubordinated indebtedness of such guarantor);

• senior in right of payment to any subordinated debt of the such guarantor;

• senior in right of payment to any subordinated debt of such guarantor;

• secured on a first-priority basis by the collateral, subject to certain exceptions and permitted liens, and it is intended that pari passu lien indebtedness, if any, will be secured on an equal and ratable basis.

Each subsidiary guarantee is limited so that it does not constitute a fraudulent conveyance under applicable law, which may reduce the subsidiary’s obligation under the guarantee.

Each subsidiary guarantee is limited so that it does not constitute a fraudulent conveyance under applicable law, which may reduce the subsidiary’s obligations under the guarantee.

There are no externally imposed restrictions on transfers of assets between the Company and its subsidiaries.

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or the exercise by the Parent of its legal defeasance option or covenant defeasance option or the discharge of the Parent's obligations under the indenture for the Notes in accordance with the terms of such indenture.

The following tables present the results of operations for the nine months ended September 30, 2021 and the balance sheet at September 30, 2021 for the Parent and Guarantors.

The following tables present the results of operations for the three months ended March 31, 2022 and the balance sheet at March 31, 2022 for the Parent and Guarantors.

(Expressed in thousands) As of

September 30, 2021

March 31, 2022

Total Assets $ 2,013,404

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Due To Non-guarantor Subsidiary 1,210

For the Nine Months Ended

September 30, 2021

For the Three Months Ended

March 31, 2022

Total Revenue $ 2,473

Pre-Tax Loss 854

Pre-Tax Income (Loss) (217)

Net Income (Loss) (129)

On June 17, 2021, S&P upgraded the Company's Corporate Family rating and rating on the Unregistered Notes from 'B+' with a stable outlook to 'BB-' with a stable outlook.

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For the most part, the Company's assets consist of cash and cash equivalents and assets that it can readily convert into cash.

The receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement.

The receivable from 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.

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Securities owned, with the exception of the ARS, are mainly comprised of actively trading readily marketable securities.

We advanced $6.2 million in forgivable notes (which are inherently illiquid) to employees for the three months ended September 30, 2021 ($3.8 million for the three months ended September 30, 2020) 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 and retention requirements.

We issued $7.7 million in forgivable notes (which are inherently illiquid) to employees for the three months ended March 31, 2022 ($6.4 million for the three months ended March 31, 2021) 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.

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Bank call loans are generally payable on demand and bear interest at various rates.

At September 30, 2021, the Company had $72.3 million of bank call loans ($82.0 million at December 31, 2020).

The average daily bank loan outstanding for the three and nine months ended September 30, 2021 was $76.0 million and $80.1 million respectively ($97.5 million and $73.4 million for the three and nine months ended September 30, 2020).

The largest daily bank loans outstanding for the three and nine months ended September 30, 2021 were both $227.7 million, ($235.1 million and $324.3 million for the three and nine months ended September 30, 2020).

At September 30, 2021, securities loan balances totaled $286.2 million ($249.5 million at December 31, 2020 and $292.0 million at September 30, 2020).

The average daily securities loan balance outstanding for the three and nine months ended September 30, 2021 was $296.9 million and $280.3 million, respectively, ($281.8 million and $241.3 million for the three and nine months ended September 30, 2020).

The largest daily stock loan balances for the three and nine months ended September 30, 2021 were both $320.6 million ($316.9 million for both the three and nine months ended September 30, 2020).

At March 31, 2022, the Company had $78.2 million of bank call loans ($69.5 million at December 31, 2021).

The average daily bank loan outstanding for the three months ended March 31, 2022 was $87.1 million ($50.3 million for the three months ended March 31, 2021).

The largest daily bank loans outstanding for the three months ended March 31, 2022 were both $190.2 million, ($128.8 million for the three months ended March 31, 2021).

At March 31, 2022, securities loan balances totaled $300.3 million ($244.2 million at December 31, 2021 and $257.3 million at March 31, 2021).

The average daily securities loan balance outstanding for the three months ended March 31, 2022 was $304.1 million, ($262.4 million for the three months ended March 31, 2021).

The largest daily stock loan balance for the three months ended March 31, 2022 was $350.1 million ($285.7 million for the three months ended March 31, 2021).

We finance our government trading operations through the use of securities purchased under reverse repurchase agreements and repurchase agreements.

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fair value versus carrying value) for certain assets and liabilities.

At September 30, 2021, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At September 30, 2021, the gross balances of reverse repurchase agreements and repurchase agreements were $96.8 million and $440.7 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended September 30, 2021 was $134.9 million and $289.9 million, respectively ($185.4 million and $393.1 million, respectively, for the three months ended September 30, 2020).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended September 30, 2021 was $423.9 million and $441.1 million, respectively ($521.9 million and $803.0 million, respectively, for the three months ended September 30, 2020).

At September 30, 2021, the gross leverage ratio was 3.7.

At March 31, 2022, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At March 31, 2022, the gross balances of reverse repurchase agreements and repurchase agreements were $44.2 million and $525.3 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended March 31, 2022 was $132.4 million and $443.5 million, respectively ($156.9 million and $395.9 million, respectively, for the three months ended March 31, 2021).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended March 31, 2022 was $462.5 million and $644.1 million, respectively ($424.2 million and $621.8 million, respectively, for the three months ended March 31, 2021).

Liquidity Management

Senior management establishes our liquidity planning and framework.

The evaluation includes review of short- and long-term cash flow forecasts, review of capital expenditures, monitoring of the availability of sources of financing, and daily monitoring of liquidity.

Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and, liquidity and maintains our relationships with various lenders.

The purpose of these reviews is to assure we can meet the needs of our business while ensuring we have sufficient liquidity to conduct our current business needs and to provide for anticipated growth.

We manage our liquidity to meet our current obligations and upcoming liquidity needs as well as to ensure compliance with regulatory requirements.

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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 $89.5 million as of September 30, 2021.

Certain policies which could provide additional liquidity if needed had a cash surrender value of $88.9 million as of March 31, 2022.

We regularly review our sources of liquidity and financing and conduct internal stress analysis to determine the impact on the Company of events that could remove sources of liquidity or financing and to plan actions the Company could take in the case of such an eventuality.

Recently we have begun conducting stress reviews that are based on the potential that the U.S.

Government could fail to increase the debt limit thereby creating a default in payment of either principal or interest on U.S.

government obligations.

Our reviews have resulted in plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.

Our primary long-term cash requirements include $124.1 million principal outstanding as of March 31, 2022 under our Senior Secured Notes (due in 2025) and $194.1 million of operating lease obligations.

The total cash requirement for interest expense related to the Notes and operating lease obligations is estimated to be approximately $37.7 million for the 2022 year.

(Expressed in thousands)

For the Nine Months Ended September 30,

Cash provided by (used in) operating activities $ 135,188 $ (148,383)

For the Three Months Ended March 31,

Cash (used in)/provided by operating activities $ (152,146) $ 7,268

Cash used in investing activities (2,490) (999)

Cash (used in) provided by financing activities (24,281) 104,621

Net increase (decrease) in cash and cash equivalents $ 105,395 $ (47,470)

Cash used in financing activities (11,654) (13,148)

Net decrease in cash, cash equivalents and restricted cash $ (166,290) $ (6,879)

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.

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All such requirements have been and will be met in the ordinary course with available collateral.

On October 14, 2021, President Biden signed legislation temporarily raising the U.S.

government’s borrowing limit pushing the deadline for a potential debt default to December 2021.

The Company has assessed the risks associated with a potential default by the U.S.

government from a market, credit, and liquidity standpoint and believes that the direct impact on a short-term basis would likely not have a significant effect on our operations, liquidity, or financial condition based on our exposure to U.S.

Treasury securities.

The consensus in the marketplace indicates that the probability of a default is relatively low, however, there are heightened concerns given the current political environment.

Treasury markets appear to have priced in a small discount for a default on U.S.

government bonds maturing in December 2021.

In the event that a default were to occur, it would likely lead to considerable volatility, widening spreads, less observable pricing, and illiquidity that would most likely vary with the duration of the default.

A default that is relatively short lived would not be expected to have a significant impact on the Company, while a longer period of default could cause massive disruption in the economy and global markets and thus could have a significant negative impact the Company’s operations, liquidity, and financial condition.

OFF-BALANCE SHEET ARRANGEMENTS

Information concerning our off-balance sheet arrangements is included in note 8 to the condensed consolidated financial statements appearing in Item 1.

CONTRACTUAL OBLIGATIONS

The following table sets forth the Company's contractual obligations as of September 30, 2021:

(Expressed in thousands)

Year More than 5

Total 1-3 Years 3-5 Years

Operating Lease Obligations (1)(2)

$ 256,933 $ 41,781 $ 74,367 $ 55,698 $ 85,087

Committed Capital (3)

4,379 4,379 — — —

Senior Secured Notes (4)(5)

152,500 6,875 13,750 131,875 —

Total $ 413,812 $ 53,035 $ 88,117 $ 187,573 $ 85,087

(1) See note 4 to the condensed consolidated financial statements for additional information.

(2) Includes interest liability of $57.6 million.

(3) See note 8 to the condensed consolidated financial statements for additional information.

(4) See note 11 to the condensed consolidated financial statements for additional information.

(5) Includes interest payable of $27.5 million through maturity.

CYBERSECURITY

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Recent examples of vulnerabilities by other companies and the government that have resulted in loss of client data and fraudulent activities by both domestic and foreign actors have caused us to continuously review our security policies and procedures and to take additional actions to protect our network and our information.

The commencement of hostilities between Ukraine and Russia have resulted in increased attacks on the

infrastructure of data processing facilities around the world and heightened awareness of potential vulnerabilities including those of the Company.

Given the importance of the protection of client data, regulators have developed increased oversight of cybersecurity planning and protections that broker-dealers and other financial service providers have implemented.

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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 reviews of the industry’s compliance with the requirements of Reg BI, including that of the Company.

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 DOL published its final prohibited transaction exemption (“PTE”) addressing investment advice fiduciaries to 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 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.

Regulatory Environment

The recent failure of a family office through the use of excessive leverage provided by various broker-dealers and the resultant financial losses to some of those credit providers is likely to lead to greater regulatory surveillance over financial swaps as well as over the activities of “family offices” that were previously unregulated.

The Company does not originate swaps or trade swaps for its clients and thus would not anticipate any such regulations impacting the Company’s present lines of business.

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, 2021 for additional information.

Oppenheimer and many of its affiliates are each subject to various regulatory capital requirements.

As of September 30, 2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

As of March 31, 2022, 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.

Other Regulatory Matters

Oppenheimer has been responding to information requests from the SEC’s Division of Enforcement relating to a former Oppenheimer financial advisor and his relationship with registered investment adviser Southport Capital and its affiliates.

Since August 2021, Oppenheimer has been responding to information requests from the SEC’s Division of Enforcement relating to a former Oppenheimer financial advisor and his relationship with registered investment adviser, Southport Capital and its affiliates.

FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"

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These risks and uncertainties, many of which are beyond the Company’s control, include, but are not limited to:

(i) transaction volume in the securities markets, (ii) the volatility of the securities markets, (iii) fluctuations in interest rates, (iv) changes in regulatory requirements that could affect the cost and method of doing business, (v) general economic conditions, both domestic and international, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) potential cybersecurity threats, (viii) legal developments affecting the litigation experience of the securities industry and the Company, (ix) changes in foreign, federal and state tax laws that could affect the popularity of products sold by the Company or impose taxes on securities transactions, (x) the adoption and implementation of the SEC’s “Regulation Best Interest” and other regulations adopted in recent years, (xi) war, terrorist acts and nuclear confrontation as well as political unrest, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”), (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, changes in or uncertainty surrounding regulation, and the potential for default by the U.S.

(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 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 event relating to 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, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”), (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, 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 (xviv) risks related to the severity and duration of the COVID-19 Pandemic;

the COVID-19 Pandemic’s impact on the U.S.

and global economies;

and global economies including supply chain disruptions ;

and Federal, state and local governmental responses to the COVID-19 Pandemic.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the nine months ended September 30, 2021, 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, 2020.

During the three months ended March 31, 2022, 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, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis