What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-28 compared with 2022-07-29 · 115 added, 104 removed, 295 unchanged (43% of the section changed)

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The condensed consolidated financial statements include the accounts of Oppenheimer Holdings Inc.

and its consolidated subsidiaries (together, the "Company", "Firm", "we", "our" or "us").

and its consolidated subsidiaries (together, the "Company", "Firm", "Parent", "we", "our" or "us").

The Company's condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

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("Oppenheimer") and Oppenheimer Asset Management Inc.

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.

As of September 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 June 30, 2022 totaled $104.0 billion.

Client assets under administration ("CAUA") as of September 30, 2022 totaled $100.3 billion.

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

At June 30, 2022, client assets under management ("AUM") totaled $37.1 billion.

At September 30, 2022, client assets under management ("AUM") totaled $35.3 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 June 30, 2022, the Company employed 2,913 employees (2,866 full-time and 47 part-time), of whom 990 were financial advisors.

At September 30, 2022, the Company employed 2,938 employees (2,889 full-time and 49 part-time), of whom 985 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 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.

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

We continuously invest in and improve our technology platform to support client service and to remain competitive, while continuously managing expenses.

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Impact of Interest Rates

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 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.

The Federal Reserve ("FED") increased the federal funds rate by 300 basiss point during the first nine months of 2022, with half of that increase occurring during the three months ended September 30, 2022.

Since inflation remains at elevated levels, it is likely that the federal funds rate will continue to increase in the coming months from the low levels of recent years.

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

The increases in the federal funds rate will be favorable to the Company’s interest-based revenues.

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

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 negatively impact equity share prices while reducing revenues the Company derives from commissions and from fees based on the value of client assets managed by the Company.

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 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.

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 war has lasted longer than previously anticipated, and it seems likely it 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 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.

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.

In addition, the disruption of supplies for those products has further increased inflationary pressures in Europe as well as the rest of the world and in addition has led to significant cutbacks in economic activity due to anticipated shortages of natural gas in the coming winter period due to actions taken by Russia and OPEC.

It has also had the indirect effect of lowering consumer confidence and consumer spending in Europe, all of which could have an adverse impact on financial markets in Europe as well as the U.S.

and, thus on our business.

Inflation Reduction Act of 2022

On August 16, 2022, President Biden signed H.R.

5376, commonly referred to as the Inflation Reduction Act (the "IRA"), into law, which includes an excise tax on stock buybacks, a new alternative minimum tax and significant tax incentives for energy and climate initiatives, among other provisions.

Effective for repurchases occurring after December 31, 2022, the IRA imposes a nondeductible 1% excise tax on the net value of certain stock that is repurchased during the tax year.

The value of stock repurchases subject to the tax is reduced by the value of any stock issued during the tax year.

Additionally, effective for tax years beginning after December 31, 2022, the IRA imposes a 15% corporate alternative minimum tax on companies with adjusted financial statement income exceeding $1 billion over a three-year period.

While we are currently assessing the impact of the IRA’s provisions, we do not expect it to have a material impact on the Company’s financial statements although future buybacks by the Company occurring after December 31, 2022 may be subject to the 1% excise tax.

CORONAVIRUS DISEASE 2019 ("COVID-19 PANDEMIC")

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 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.

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

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.

While the direct impact of the virus has been substantially reduced, many employees from our home office and branch locations continue to work remotely.

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.

An increased numbers of employees have returned to offices in recent weeks and months but we continue to maintain flexible work arrangements for our employees in keeping with the change in expectations and work habits that have developed during the past several years.

EXECUTIVE SUMMARY

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.

The results for the quarter were significantly impacted by an adverse arbitration decision, but we were able to deliver profitable results reflecting the diversity and general health of our business.

Volatile market conditions and emerging economic headwinds reduced valuations in both equity and fixed income markets.

The high rate of inflation resulted in the Federal Reserve raising interest rates at the fastest speed in over 40 years with multiple 75 basis point increases during the quarter.

Our Wealth Management business saw a benefit from the higher interest rate environment, as income from our FDIC-insured bank deposit program and interest income on margin loans were markedly greater than the prior year although this was offset to some extent by lower activity levels and lower valuations in client portfolios which drive fee income.

The macroeconomic environment drove all major equity indices into bear market territory during the third quarter.

The declining valuations negatively impacted our advisory fee revenues.

The volatile markets also led to a marked slowdown in equity IPOs and secondary offerings and a significant decline in capital markets income.

Investment banking advisory fees, while lower than the record Q3 results recorded in 2021, picked up considerably from the second quarter.

The Company maintains a strong balance sheet with near record regulatory capital despite the volatile market environment and the impact of an adverse arbitration decision.

The Company took advantage of the lower level of its share price to purchase 413,052 shares (3%) of its Class A non-voting common stock at an average price of $33.86 per share in the open market under its share repurchase program resulting in 10,874,990 Class A non-voting common shares outstanding at September 30, 2022.

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

RESULTS OF OPERATIONS

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.

The Company reported net income of $4.5 million or $0.40 basic earnings per share for the third quarter of 2022, compared with net income of $26.3 million or $2.07 basic earnings per share for the third quarter of 2021.

Revenue for the third quarter of 2022 was $294.1 million, a decrease of 6.7% compared to revenue of $315.3 million for the third quarter of 2021.

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

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Non-compensation expense $ 107,739 $ 71,636 $ 36,103 50.4

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)

Pre-Tax Income $ 7,238 $ 37,394 $ (30,156) (80.6)

Income Taxes Provision $ 2,573 $ 11,144 $ (8,571) (76.9)

Net Income (1)

$ 4,520 $ 26,250 $ (21,730) (82.8)

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

Earnings per share (basic) (1)

$ 0.40 $ 2.07 $ (1.67) (80.7)

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

Earnings per share (diluted) (1)

$ 0.37 $ 1.92 $ (1.55) (80.7)

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$ 54.74 $ 47.95 $ 6.79 14.2

CAUA ($ billions) $ 104.0 $ 117.3 $ (13.3) (11.3)

Class A Shares Outstanding 10,874,990 12,515,734 (1,640,744) (13.1)

AUA ($ billions) $ 100.3 $ 117.8 $ (17.5) (14.9)

AUM ($ billions) $ 35.3 $ 43.6 $ (8.3) (19.0)

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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 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.

• Gross revenue, net income, and earnings per share for the third quarter of 2022 reflected the positive impact of the rising rate environment on our interest-sensitive revenues offset by lower activity levels and valuations in client portfolios and fewer underwriting and M&A transactions.

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

• Increased revenues in the Private Client segment are largely attributed to bank deposit sweep income, which exceeded the related revenue recorded during all of 2021 due to higher short-term interest rates.

• Non-compensation expenses increased from the prior year quarter, reflecting the impact of an adverse arbitration decision in September 2022, which has since been appealed.

• The Company repurchased 413,052 shares of Class A non-voting common stock during the third quarter of 2022 under its previously announced buy-back plan or 3% of shares outstanding at year-end 2021, bringing the total shares purchased under the plan during the first 9 months of 2022 to 1,675,595.

• Book value and tangible book value per share reached record levels at September 30, 2022 largely as a result of share buy-backs.

BUSINESS SEGMENTS

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

(Expressed in thousands)

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

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

2022 2021 % Change 2022 2021 % Change

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Private Client

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 990 compared to 1,004 at the end of the second quarter of 2021.

Private Client reported revenue for the current quarter of $178.6 million, 11.0% higher when compared with the previous year.

Pre-tax income was $30.0 million, a decrease of 19.9% compared with the prior year quarter.

Financial advisor headcount at the end of the current quarter was 985 compared to 1,003 at the end of the third quarter of 2021.

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

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Pre-tax Margin 16.8 % 23.3 % (6.5) % (27.9)

Client Asset Under Administration (billions) $ 104.0 $ 117.3 $ (13.3) (11.3)

Asset Under Administration (billions) $ 100.3 $ 117.8 $ (17.5) (14.9)

Cash Sweep Balances (billions) $ 6.5 $ 7.7 $ (1.2) 26.0

*Percentage not meaningful

• Retail commissions decreased 8.7% 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.

• Advisory fees decreased 13.1% from a year ago primarily due to the impact of lower equity and fixed income valuations on assets under administration.

• Bank deposit sweep income increased $31.9 million (815%) from a year ago due to higher short-term interest rates.

• Interest revenue increased 89.8% 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 same period last year.

• Other revenue decreased from a year ago primarily due to decreases in the cash surrender value of Company-owned life insurance policies.

• Compensation expenses decreased 10.2% 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.

• Non-compensation expenses increased $35.2 million from a year ago primarily due to the impact of an adverse arbitration decision.

Asset Management

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

Asset Management reported revenue for the current quarter of $24.9 million, 7.5% lower when compared with the prior year.

Pre-tax income was $8.3 million, a decrease of 11.6% compared with the prior year period.

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AUM (billions) $ 35.3 $ 43.6 $ (8.3) (19.0)

• 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.

• Advisory fee revenue decreased 7.5% from a year ago due to the lower net value of assets under management, partially offset by incentive fees earned during the third quarter of 2022.

• AUM were at reduced l evels of $35.3 billion at September 30, 2022, which is the basis for advisory fee billings for October 2022.

• The decrease in AUM was comprised of lower asset values of $7.6 billion on existing client holdings and a net distribution of assets of $0.7 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:

• Compensation expenses were up 9.5% from a year ago primarily due to increases in fixed and discretionary compensation.

• Non-compensation expenses were down 13.3% when compared to the prior year period due to lower portfolio manager expenses in line with the decrease in AUM.

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

(Expressed in millions)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Balance Appreciation

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Capital Markets reported revenue for the current quarter of $90.9 million, 29.3% lower when compared with the prior year period.

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

Pre-tax income was $2.4 million compared with pre-tax income of $17.9 million in the prior year period.

('000s) 3Q-2022 3Q-2021 Change % Change

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Non-compensation $ 28,131 $ 29,007 $ (876) (3.0)

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

Pre-tax Income $ 2,401 $ 17,888 $ (15,487) (86.6)

Compensation Ratio 66.4 % 63.5 % 290 4.6

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Pre-tax Margin 2.6 % 13.9 % (11.3) % (81.3)

*Percentage not meaningful

• Advisory fees earned from investment banking activities decreased 83.6% 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 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.

• Advisory fees earned from investment banking activities decreased 43.5% compared with a year ago due to an industry-wide decrease in deal volumes.

• Equity underwriting fees decreased 80.8% compared with a year ago due to a significant decrease in equity IPOs and secondary offerings, including SPAC issuances.

• Fixed income underwriting fees were down 32.8% compared with a year ago primarily driven by a decrease in issuances of public finance and emerging market debt during the third quarter of 2022.

• Equities sales and trading revenue increased 13.0% compared with a year ago due to a marked increase in volatility resulting in increased volumes in the equities market compared to the levels in the prior year period.

• Fixed income sales and trading revenue increased by 18.3% compared with a year ago primarily due to an increase in trading income attributable to higher trading volumes.

• Compensation expenses decreased 26.0% compared with a year ago primarily due to decreased incentive compensation.

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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 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.

During the three months ended September 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 June 30, 2022, total assets decreased by 4.0% from December 31, 2021.

At September 30, 2022, total assets decreased by 6.2% 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 June 30, 2022, the Company had bank call loans of $177.3 million compared to $69.5 million at December 31, 2021.

At September 30, 2022, the Company had bank call loans of $53.6 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 $5.2 million and $382,297, respectively, at June 30, 2022.

and Oppenheimer Investments Asia Limited were $5.2 million and $382,163, respectively, at September 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 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

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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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 six months ended June 30, 2022 and the balance sheet at June 30, 2022 for the Parent and Subsidiary Guarantors.

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

(Expressed in thousands) As of

June 30, 2022

September 30, 2022

Total Assets $ 2,000,542

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Due To Non-Guarantor Subsidiary 2,237

For the Six Months Ended

June 30, 2022

For the Nine Months Ended

September 30, 2022

Total Revenue $ 7,481

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

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.

We issued $1.9 million in forgivable notes (which are inherently illiquid) to employees for the three months ended September 30, 2022 ($6.2 million for the three months ended September 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 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).

At September 30, 2022, the Company had $53.6 million of bank call loans ($69.5 million at December 31, 2021).

The average daily bank loan outstanding for the three and nine months ended September 30, 2022 was $67.1 million and $88.50 million, respectively ($76.0 million and $80.1 million for the three and nine months ended September 30, 2021).

The largest daily bank loans outstanding for the three and nine months ended September 30, 2022 was $176.5 million and $226.6 million ($227.7 million for both of the three and nine months ended September 30, 2021).

At September 30, 2022, securities loan balances totaled $307.4 million ($244.2 million at December 31, 2021 and $286.2 million at September 30, 2021).

The average daily securities loan balance outstanding for the three and nine months ended September 30, 2022 was $300.9 million and $291.6 million, respectively ($296.9 million and $280.3 million for the three and nine months ended September 30, 2021).

The largest daily stock loan balance for the three and nine months ended September 30, 2022 was $339.2 million and $350.1 million, respectively ($320.6 million for both of the three and nine months ended September 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 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).

At September 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 September 30, 2022, the gross balances of reverse repurchase agreements and repurchase agreements were $195.1 million and $479.2 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended September 30, 2022 was $250.2 million and $360.1 million, respectively ($134.9 million and $289.9 million, respectively, for the three months ended September 30, 2021).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended September 30, 2022 was $526.7 million and $668.3 million, respectively ($423.9 million and $441.1 million, respectively, for the three months ended September 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 $74.4 million as of June 30, 2022.

Certain policies which could provide additional liquidity if needed had a cash surrender value of $71.6 million as of September 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 $124.2 million principal outstanding as of June 30, 2022 under our Senior Secured Notes (due in 2025) and $187.5 million of operating lease obligations.

Our primary long-term cash requirements include $124.3 million principal outstanding as of September 30, 2022 under our Senior Secured Notes (due in 2025) and $189.3 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 $4.9 million for the 2022 year.

(Expressed in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash (used in)/provided by operating activities $ (83,104) $ 135,188

Cash used in investing activities (10,436) (5,512)

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

Cash used in financing activities (83,126) (24,281)

Net (decrease)/increase in cash, cash equivalents and restricted cash $ (176,666) $ 105,395

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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 by ERISA plans and IRAs.

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

Similar to the proposal the DOL released in June of 2020, the final exemption takes a principles-based (rather than a prescriptive) approach to resolving conflicts that arise under ERISA when an investment advice fiduciary, its affiliate or a related party is paid certain types of compensation (such as commissions, trailing fees or revenue- sharing) or engages in certain principal transactions.

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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.

In 2021, the SEC adopted reforms under the Investment Advisers Act of 1940 to modernize rules that govern investment adviser advertisements and payments to solicitors.

The amendments create a single rule (“Marketing Rule”) that replaced the previous regulatory guidance.

Registered investment advisers like Oppenheimer (OPCO) and Oppenheimer Asset Management (OAM) and their employees need to comply with the new rule beginning on November 4, 2022.

The SEC Marketing Rule is designed to regulate adviser’s marketing communications to their prospects and clients.

The Rule prohibits misleading advertisements and creates specific requirements for the presentation of performance data to clients and prospects.

The Rule defines an advertisement as any direct or indirect communication between an FA and a client or prospect regarding advisory services such as OPCO and OAM’s advisory programs or investments in private funds such as many of the hedge funds offered on the OAM hedge fund platform.

The Company has updated its policies and implemented certain processes in order to comply with the Marketing Rule.

Regulatory Environment

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

As of June 30, 2022, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

As of September 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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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 Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules G-17 and G-27 in relation to its sales of municipal notes pursuant to an exemption from continuing disclosure contained in Rule 15c2-12.

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.

On September 13, 2022, the SEC filed a complaint against Oppenheimer in the United States District Court for the Southern District of New York (the "Court") alleging that Oppenheimer violated Section 15B(c)(1) of the Exchange Act and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules G-17 and G-27 for not having fully complied with the exemption from the continuing disclosure obligations under Rule 15c2-12.

The SEC asked the Court to enter an order enjoining Oppenheimer from violating the above referenced rules and requiring it to disgorge approximately $1.9 million plus interest.

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

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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 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.

(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”) and economic uncertainty in the UK, EU and elsewhere, (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.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

During the nine months ended September 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