What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 118 added, 123 removed, 281 unchanged (46% of the section changed)

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("Oppenheimer") and Oppenheimer Asset Management Inc.

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.

As of June 30, 2022, we provided our services from 91 offices in 25 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 March 31, 2022 totaled $117.2 billion.

Client assets under administration ("CAUA") as of June 30, 2022 totaled $104.0 billion.

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

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

At June 30, 2022, client assets under management ("AUM") totaled $37.1 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 March 31, 2022, the Company employed 2,896 employees (2,853 full-time and 43 part-time), of whom 993 were financial advisors.

At June 30, 2022, the Company employed 2,913 employees (2,866 full-time and 47 part-time), of whom 990 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.

We are increasingly creating and investing in private market opportunities on our own behalf and on behalf of qualified clients.

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

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The Company's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations, and to continue to grow and develop the existing trading, investment banking, investment advisory and other divisions.

We are committed to continuing to improve our technology capabilities to ensure compliance with industry regulations, support client service and expand our wealth management and capital markets capabilities.

We are committed to continuing to improve our capabilities to ensure compliance with industry regulations, support client service and expand our wealth management and capital markets capabilities.

We recognize the importance of compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort, and investing in people and programs, while providing a platform with first class investment programs and services.

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Our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of corporate goals and personnel at a price that would provide our shareholders with incremental value.

We review potential acquisition opportunities from time to time on the basis of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses.

We review potential acquisition opportunities from time to time with the aim of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses.

In addition, the Company may from time to time make minority private investments out of excess capital in allied or unrelated businesses with the goal of either syndicating the investment to eligible clients or retaining ownership because we believe them to be an attractive investment.

Impact of Interest Rates

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.

The Federal Reserve ("FED") increased the FED Funds Rate by 25bps in March 2022, 50bps in May 2022, 75bps in June 2022 and 75bps in July 2022.

As a result of recent increased rate of inflation, it is likely that interest rates will continue to increase 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.

The increases 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.

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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.

However, such increases while bringing down inflationary pressures may also prove detrimental to economic activity 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 war has lasted longer than previously anticipated, and it seems likely will last for an extended period of time 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.

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 to disrupt supplies for those products, which has further increased 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.

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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.

We have adopted enhanced cleaning practices and other health protocols in our offices, taken measures to limit 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 is reliant on the continued ability to have the vast majority of employees work remotely.

Our ability to avoid significant business disruptions is reliant on the continued ability to support our employees that continue to 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.

Given the surge in COVID-19 cases related to the Omicron variant and its offspring, some employees from our home office and branch locations continue to work remotely.

We anticipate more employees returning to offices once the risks associated with the COVID-19 subside while maintaining flexible work arrangements for our employees in keeping with the change in expectations and work habits that have developed during the past two years of the pandemic.

In recent months, 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 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.

Macroeconomic factors drove lower results for the second quarter.

While the economy continued to grow and unemployment remained at a record low level, waning consumer confidence, driven by high inflation and rising interest rates, created significantly higher volatility and markedly lower valuations in both equity and fixed income markets.

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

By quarter’s end, interest rates reached the highest levels since 2018 and higher mortgage rates were already impacting construction and home sales.

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

Higher interest rates and the beginning of quantitative tightening reduced bond issuances across markets, but particularly impacted the high yield and emerging markets as spreads off U.S Treasuries widened dramatically during the quarter.

These factors reduced revenues from capital markets (down 52%) for the quarter.

Wealth Management continued to deliver solid results driven by continued high levels of assets under management but below recent all-time highs.

The continued performance of our Wealth Management business and the increase in fees from our FDIC program offset some of the impact of lower revenue from capital markets as well as the increase in operating costs reflecting the inflationary environment, with the Firm showing a loss for the period.

Declines in the Company’s share price and equity prices in general had an outsized impact on the costs associated with deferred compensation plans and share awards during the period.

Despite the unfavorable environment, the Company still maintains the strongest balance sheet and the highest capital level in its history.

The Company took advantage of the lower level of its share price to purchase 885,230 shares (7%) of its Class A non-voting common shares at an average price of $34.13 in the open market under its share repurchase program.

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

RESULTS OF OPERATIONS

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.

The Company reported net loss of $3.9 million or $(0.32) basic earnings per share for the second quarter of 2022, a decrease of 112.4%, compared with net income of $31.2 million or $2.46 basic earnings per share for the second quarter of 2021.

Revenue for the second quarter of 2022 was $237.2 million, a decrease of 30.3% compared to revenue of $340.3 million for the second quarter of 2021.

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

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Non-compensation expense $ 65,412 $ 65,985 $ (573) (0.9)

Pre-Tax Income $ 14,213 $ 52,127 $ (37,914) (72.7)

Income Taxes $ 4,435 $ 13,469 $ (9,034) (67.1)

Net Income (1)

Pre-Tax Income (Loss) $ (6,169) $ 43,168 $ (49,337) (114.3)

Income Taxes Provision (Benefit) $ (1,449) $ 12,009 $ (13,458) (112.1)

Net Income (Loss) (1)

$ (3,874) $ 31,159 $ (35,033) (112.4)

Earnings per share (basic) (1)

Earnings (Loss) per share (basic) (1)

$ (0.32) $ 2.46 $ (2.78) (113.0)

Earnings per share (diluted) (1)

Earnings (Loss) per share (diluted) (1)

$ (0.32) $ 2.28 $ (2.60) (114.0)

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(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.

• Client assets under administration and under management were both at reduced levels at June 30, 2022 and also down from the first quarter of 2022 as well as the same period last year.

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

• The Company repurchased 885,230 shares of Class A non-voting common stock during the second quarter of 2022 under its previously announced buy-back plan or 7% of shares outstanding at year-end 2021, bringing the total shares purchased during the first 6 months of 2022 to 1,262,543.

• Book value and tangible book value per share reached record levels at June 30, 2022 largely as a result of share buybacks.

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 ended March 31, 2022 and 2021:

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three and six months ended June 30, 2022 and 2021:

(Expressed in thousands)

For the Three Months Ended March 31,

2022 2021 % Change

For the Three Months Ended June 30, For the Six Months Ended June 30,

2022 2021 % Change 2022 2021 % Change

Private Client $ 144,471 $ 166,863 (13.4) $ 295,318 $ 330,886 (10.7)

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Total $ (6,169) $ 43,168 (114.3) $ 8,044 $ 95,295 (91.6)

*Percentage not meaningful

Private Client

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.

Private Client reported revenue for the current quarter of $144.5 million, 13.4% lower when compared with a year ago due to lower commissions as well as decreases in the cash surrender value of Company-owned life insurance policies, partially offset by an increase in bank deposit sweep income and higher average margin balances.

Pre-tax income of $38.8 million in the current quarter resulted in a pre-tax profit margin of 26.9%.

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.

Financial advisor headcount at the end of the current quarter was 990 compared to 1,004 at the end of the second quarter of 2021.

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

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Cash Sweep Balances (billions) $ 7.5 $ 7.3 $ 0.2 26.0

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

*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.

• Retail commissions decreased 14.6% from a year ago due to a decrease in client activity compared to the significantly elevated levels from a year ago.

• Advisory fees decreased 2.9% due to lower assets under management.

• Bank deposit sweep income increased $11.1 million or 300% from a year ago due to higher balances and higher short-term interest rates.

• Interest revenue increased 43.3% 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.

• Compensation expenses decreased 34.2% from a year ago primarily due to decreased production, and decreased share-based and deferred compensation costs.

• Non-compensation expenses increased 2.5% from a year ago primarily due to higher interest, travel and legal expenses, offset by a decrease in allowance for credit losses.

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 $9.5 million, an increase of 25.4% compared with the prior year period.

Asset Management reported revenue for the current quarter of $24.3 million, 4.8% lower compared with a year ago.

Pre-tax income was $8.1 million, a decrease of 6.0% compared with the prior year period.

('000s unless otherwise indicated) 2Q-2022 2Q-2021 Change % Change

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AUM (billions) $ 37.1 $ 43.7 $ (6.6) (15.1)

• 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 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:

• Advisory fee revenue decreased 4.8% due to lower net value of assets under management during the second quarter of 2022 compared with the second quarter of 2021.

• AUM was at a reduced l evels of $37.1 billion at June 30, 2022, which is the basis for advisory fee billings for July 2022.

• The decrease in AUM was comprised of lower asset values of $6.0 billion on existing client holdings and a net distribution of assets of $0.6 billion.

• Compensation expenses were up 7.0% from a year ago primarily due to increases in fixed compensation.

• Non-compensation expenses were down 10.8% when compared to the prior year period due to lower portfolio manager expense.

The following table provides a breakdown of the change in assets under management for the three months ended June 30, 2022:

(Expressed in millions)

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Balance Appreciation

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$ 42,703 $ 1,511 $ (2,084) $ (5,060) $ 37,070

(1) Traditional investments include third party advisory programs, Oppenheimer financial adviser

managed advisory programs and Oppenheimer Asset Management taxable and tax-exempt

portfolio management strategies.

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

(2) Institutional fixed income provides solutions to institutional investors including:

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technology and financial services, and multi-manager and multi-strategy fund of funds.

(4) Private equity funds represent private equity fund of funds including portfolios focused on natural

resources and related assets.

(5) The portfolio enhancement program sells uncovered, far out-of-money puts and calls on the S&P

The program is market neutral and uncorrelated to the index.

Valuation is based on

collateral requirements for a series of contracts representing the investment strategy.

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

(5) The portfolio enhancement program sells uncovered, out-of-money puts and calls on the S&P 500 Index.

The program is intended to be market neutral and uncorrelated to the index.

Valuation is based on collateral requirements for a series of contracts representing the investment strategy.

Capital Markets

Capital Markets reported revenue for the current quarter of $71.3 million, 51.8% 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.

Pre-tax loss was $17.9 million compared with the pre-tax income of $39.4 million in the prior year period.

('000s) 2Q-2022 2Q-2021 Change % Change

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Non-compensation $ 22,037 $ 22,909 $ (872) (3.8)

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

Pre-tax Income (Loss) $ (17,935) $ 39,373 $ (57,308) *

Compensation Ratio 94.2 % 57.9 % 3,630 62.7

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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.

• Equity underwriting fees decreased 93.0% compared with a year ago due to a significant decrease in equity underwriting activity in the healthcare and technology sectors, particularly for SPAC issuances to access the public markets.

• Fixed income underwriting fees were down 63.1% compared with a year ago primarily driven by a decrease in public finance issuances and emerging market debt during the second quarter of 2022.

• Equities sales and trading revenue increased 22.9% compared with a year ago due to a marked increase in volatility in the equities market compared to the levels in the prior year period.

• Fixed Income sales and trading revenues increased by 2.4% compared with a year ago.

• Compensation expenses decreased 21.6% 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.

• Non-compensation expenses were 3.8% lower than a year ago due to a decrease in underwriting expenses, partially offset by an increase in business travel and entertainment expenses.

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 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.

During the three months ended June 30, 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 March 31, 2022, total assets increased by 0.8% from December 31, 2021.

At June 30, 2022, total assets decreased by 4.0% 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 March 31, 2022, the Company had bank call loans of $78.2 million compared to $69.5 million at December 31, 2021.

At June 30, 2022, the Company had bank call loans of $177.3 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 $4.8 million and $383,007, respectively, at March 31, 2022.

and Oppenheimer Investments Asia Limited were $5.2 million and $382,297, respectively, at June 30, 2022.

The liquid assets at Oppenheimer Europe Ltd.

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We will continue to review our historical treatment of these earnings to determine whether our historical practice will continue or whether a change is warranted.

The Company has begun assessing the impact that the new administration’s proposed increased corporate tax proposals will have on its operations, cash flows and financial condition.

The Company has been assessing the impact that the administration’s proposed increased corporate tax proposals will have on its operations, cash flows and financial condition, although changes during this fiscal year seem increasingly unlikely.

Senior Secured Notes

On September 22, 2020, in a private offering, we issued $125.0 million aggregate principal amount of 5.50% Senior Secured Notes due 2025 (the "Unregistered Notes") under an indenture at an issue price of 100% of the principal amount.

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

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The guarantees rank:

• 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);

• 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 Subsidiary 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 Subsidiary Guarantor);

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

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

Each Guarantor will be automatically and unconditionally released and discharged upon the sale, exchange or transfer of the capital stock of a Guarantor and the Guarantor ceasing to be a direct or indirect subsidiary of the Parent if such sale does not constitute an asset sale under the indenture for the Notes or does not constitute an asset sale effected in compliance with the asset sale and merger covenants of the indenture for the Notes;

a Guarantor being dissolved or liquidated;

a Guarantor being designated unrestricted in compliance with the applicable provisions of the Notes;

Each Subsidiary Guarantor will be automatically and unconditionally released and discharged upon the sale, exchange or transfer of the capital stock of a Subsidiary Guarantor and the Subsidiary Guarantor ceasing to be a direct or indirect subsidiary of the Parent if such sale does not constitute an asset sale under the indenture for the Notes or does not constitute an asset sale effected in compliance with the asset sale and merger covenants of the indenture for the Notes;

a Subsidiary Guarantor being dissolved or liquidated;

a Subsidiary Guarantor being designated unrestricted in compliance with the applicable provisions of the Notes;

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

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.

The following tables present the results of operations for the six months ended June 30, 2022 and the balance sheet at June 30, 2022 for the Parent and Subsidiary Guarantors.

(Expressed in thousands) As of

March 31, 2022

June 30, 2022

Total Assets $ 1,995,212

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Due To Non-guarantor Subsidiary 1,895

For the Three Months Ended

March 31, 2022

For the Six Months Ended

June 30, 2022

Total Revenue $ 4,976

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

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.

We issued $5.1 million in forgivable notes (which are inherently illiquid) to employees for the three months ended June 30, 2022 ($7.0 million for the three months ended June 30, 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.

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

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).

At June 30, 2022, the Company had $177.3 million of bank call loans ($69.5 million at December 31, 2021).

The average daily bank loan outstanding for the three and six months ended June 30, 2022 was $111.5 million and $99.40 million, respectively ($88.9 million and $69.7 million for the three and six months ended June 30, 2021).

The largest daily bank loans outstanding for both of the three and six months ended June 30, 2022 was $226.6 million ($148.1 million for both of the three and six months ended June 30, 2021).

At June 30, 2022, securities loan balances totaled $281.4 million ($244.2 million at December 31, 2021 and $267.5 million at June 30, 2021).

The average daily securities loan balance outstanding for the three and six months ended June 30, 2022 was $269.6 million and $286.9 million, respectively ($280.8 million and $271.7 million for the three and six months ended June 30, 2021).

The largest daily stock loan balance for the three and six months ended June 30, 2022 was $302.9 million and $350.1 million, respectively ($314.0 million for both of the three and six months ended June 30, 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 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).

At June 30, 2022, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At June 30, 2022, the gross balances of reverse repurchase agreements and repurchase agreements were $240.7 million and $411.7 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended June 30, 2022 was $146.9 million and $291.8 million, respectively ($91.4 million and $356.8 million, respectively, for the three months ended June 30, 2021).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended June 30, 2022 was $435.7 million and $540.1 million, respectively ($327.6 million and $496.9 million, respectively, for the three months ended June 30, 2021).

Liquidity Management

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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 $88.9 million as of March 31, 2022.

Certain policies which could provide additional liquidity if needed had a cash surrender value of $74.4 million as of June 30, 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.

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.

Our primary long-term cash requirements include $124.2 million principal outstanding as of June 30, 2022 under our Senior Secured Notes (due in 2025) and $187.5 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 $9.7 million for the 2022 year.

(Expressed in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash (used in)/provided by operating activities $ (231,371) $ 20,140

Cash used in investing activities (1,116) (5,431)

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

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

Cash provided by/(used in) financing activities 55,444 (10,335)

Net (decrease)/increase in cash, cash equivalents and restricted cash $ (177,043) $ 4,374

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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See "Risk Factors — Cybersecurity – Security breaches of our technology systems, or those of our clients or other third-party vendors we rely on, could subject us to significant liability and harm our reputation" as further described in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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.

Recent examples of vulnerabilities of 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 has 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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Reg BI does not define the term “best interest” but instead sets forth four distinct obligations, disclosure, care, conflict of interest and compliance that a broker-dealer must satisfy in each transaction.

Compliance with Reg BI became effective on June 30, 2020.

In addition to adopting Reg BI, the SEC also adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Investment Advisers Act of 1940 including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).

Compliance with Reg BI became required on June 30, 2020.

In addition to adopting Reg BI, the SEC adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Investment Advisers Act of 1940 including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).

Reg BI requires enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the cessation of certain practices and limitations on certain kinds of transactions previously conducted in the normal course of business.

The new rules and processes related thereto may limit revenue and most likely will involve increased costs, including, but not limited to, compliance costs associated with new or enhanced technology as well as increased litigation costs.

The rules and processes required under Reg BI limit revenue and involve increased costs, including, but not limited to, compliance costs associated with enhanced technology as well as increased litigation costs.

The Company made significant structural, technological and operational changes to our business practices to comply with the requirements of the Reg BI Rules and it is likely that additional changes may be necessary to continue to comply as more experience with the Reg BI Rules is gained.

Regulators have commenced in-depth reviews of the industry’s compliance with the requirements of Reg BI, including that of the Company.

On December 18, 2020, the DOL published its final prohibited transaction exemption (“PTE”) addressing investment advice fiduciaries to ERISA plans and IRAs.

On December 18, 2020, the DOL published its final prohibited transaction exemption (“PTE”) addressing investment advice fiduciaries by 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.

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

As of March 31, 2022, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

As of June 30, 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.

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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.

On June 30, 2022, the Company received a "Wells Notice" from the SEC requesting that Oppenheimer make a written submission to the SEC to explain why Oppenheimer should not be charged with violations of Section 15c2-12 of the Exchange Act and Rule15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules G-17 and G-27 in relation to its sales of municipal notes pursuant to an exemption from continuing disclosure contained in Rule 15c2-12.

As a result of the foregoing the Company believes the SEC may institute an administrative proceeding against Oppenheimer for not having fully complied with the exemption from the continuing disclosure obligations under Rule 15c2-12.

The Company believes such claim to be without merit and intends to vigorously defend itself against any such claim.

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, 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 including supply chain disruptions ;

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

(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 events 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 (xix) 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 including supply chain disruptions, and Federal, state and local governmental responses to the COVID-19 Pandemic.

There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company's business.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

During the six months ended June 30, 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