OPPENHEIMER HOLDINGS INC 10-Q

Item 1. FINANCIAL STATEMENTS (UNAUDITED) OPPENHEIMER HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Expressed in thousands, except number of shares and per share amounts) September 30, 2022 December 31, 2021 (1) ASSETS Cash and cash equivalents $ 36,578 $ 213,759 Deposits with clearing organizations 95,645 66,968 Restricted cash 128,280 127,765 Receivable from brokers, dealers and clearing organizations 177,206 169,902 Receivable from customers, net of allowance for credit losses of $ 3,367 ($ 3,326 in 2021) 1,178,713 1,221,450 Securities purchased under agreements to resell — 935 Securities owned, including amounts pledged of $ 385,820 ($ 266,428 in 2021), at fair value 662,677 634,504 Notes receivable, net 57,205 53,983 Furniture, equipment and leasehold improvements, net of accumulated depreciation of $ 98,047 ($ 92,785 in 2021) 33,946 28,036 Right-of-use lease assets, net of accumulated amortization of $ 77,531 ($ 76,462 in 2021) 148,479 150,121 Goodwill 137,889 137,889 Intangible assets 32,100 32,100 Other assets 167,307 205,838 Total assets $ 2,856,025 $ 3,043,250 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Drafts payable $ 9,644 $ — Bank call loans 53,600 69,500 Payable to brokers, dealers and clearing organizations 493,446 422,057 Payable to customers 381,112 456,958 Securities sold under agreements to repurchase 284,032 277,322 Securities sold but not yet purchased, at fair value 94,893 71,958 Accrued compensation 196,948 342,125 Income tax payable 1,788 13,536 Accounts payable and other liabilities 91,119 76,655 Lease liabilities 189,298 192,019 Senior secured notes, net of debt issuance costs of $ 737 ($ 926 in 2021) 124,263 124,074 Deferred tax liabilities, net of deferred tax assets of $ 53,059 ($ 54,957 in 2021) 35,542 44,016 Total liabilities 1,955,685 2,090,220 Commitments and contingencies (Note 14) Redeemable noncontrolling interests 127,765 127,765 Stockholders' equity Common stock ($ 0.001 par value per share): Class A: shares authorized: 50,000,000 ; shares issued and outstanding: 10,874,990 and 12,447,036 as of September 30, 2022 and December 31, 2021, respectively Class B: shares authorized, issued and outstanding: 99,665 as of September 30, 2022 and December 31, 2021 11 13 Additional paid-in capital 25,918 78,032 Retained earnings 743,650 740,926 Accumulated other comprehensive income 1,163 4,225 Total Oppenheimer Holdings Inc. stockholders' equity 770,742 823,196 Noncontrolling interest (Note 2) 1,833 2,069 Total Stockholders' equity 772,575 825,265 Total Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity $ 2,856,025 $ 3,043,250 (1) Certain prior period reported amounts were reclassified to conform to the current period presentation, See Note 2 . The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents OPPENHEIMER HOLDINGS INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, (Expressed in thousands, except number of shares and per share amounts) 2022 2021 2022 2021 REVENUE Commissions $ 89,608 $ 90,889 $ 282,307 $ 300,531 Advisory fees 102,927 116,751 326,098 332,399 Investment banking 38,393 86,901 93,516 316,144 Bank deposit sweep income 35,769 3,909 54,968 11,629 Interest 17,361 9,340 38,667 26,915 Principal transactions, net 6,502 4,494 10,124 21,664 Other 3,551 3,058 ( 8,319 ) 19,635 Total revenue 294,111 315,342 797,361 1,028,917 EXPENSES Compensation and related expenses 179,134 206,312 543,144 693,053 Communications and technology 21,500 19,718 63,981 59,497 Occupancy and equipment costs 15,457 14,964 44,701 45,371 Clearing and exchange fees 6,705 5,237 18,923 16,667 Interest 7,018 2,468 13,158 7,563 Other 57,059 29,249 98,172 74,077 Total expenses 286,873 277,948 782,079 896,228 Pre-tax income 7,238 37,394 15,282 132,689 Income taxes provision 2,573 11,144 5,559 36,622 Net income $ 4,665 $ 26,250 $ 9,723 $ 96,067 Net income (loss) attributable to noncontrolling interest, net of tax 145 — ( 215 ) — Net income attributable to Oppenheimer Holdings Inc. $ 4,520 $ 26,250 $ 9,938 $ 96,067 Earnings per share attributable to Oppenheimer Holdings Inc. Basic $ 0.40 $ 2.07 $ 0.84 $ 7.59 Diluted $ 0.37 $ 1.92 $ 0.78 $ 7.10 Weighted average shares outstanding Basic 11,270,589 12,690,386 11,901,727 12,653,310 Diluted 12,190,425 13,664,214 12,809,000 13,539,373 Period end shares outstanding 10,974,655 12,615,399 10,974,655 12,615,399 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents OPPENHEIMER HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, (Expressed in thousands) 2022 2021 2022 2021 Net income $ 4,665 $ 26,250 $ 9,723 $ 96,067 Other comprehensive income (loss), net of tax Currency translation adjustment ( 410 ) 235 ( 3,062 ) ( 64 ) Comprehensive income $ 4,255 $ 26,485 6,661 96,003 Less net income (loss) attributable to noncontrolling interests 145 — ( 215 ) — Comprehensive income attributable to Oppenheimer Holdings Inc. $ 4,110 $ 26,485 $ 6,876 $ 96,003 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents OPPENHEIMER HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (unaudited) For the Three Months Ended September 30 (1) , For the Nine Months Ended September 30 (1) , (Expressed in thousands, except per share amount) 2022 2021 2022 2021 Common stock ($ 0.001 par value per share) Beginning Balance $ 11 $ 13 $ 12 $ 13 Issuance of Class A non-voting common stock — — — — Repurchase of Class A non-voting common stock for cancellation — — ( 1 ) — Ending Balance 11 13 11 13 Additional paid-in capital Balance at beginning of period 35,461 81,152 78,034 80,801 Issuance of Class A non-voting common stock 518 850 2,862 4,846 Repurchase of Class A non-voting common stock for cancellation ( 12,206 ) ( 4,715 ) ( 58,581 ) ( 4,715 ) Share-based expense 2,631 2,608 8,684 7,827 Vested employee share plan awards ( 486 ) ( 875 ) ( 5,081 ) ( 9,739 ) Balance at end of period 25,918 79,020 25,918 79,020 Retained earnings Balance at beginning of period 742,614 668,193 740,926 601,406 Repurchase of Class A non-voting common stock for cancellation ( 1,781 ) — ( 1,781 ) — Net income (2) 4,520 26,250 9,938 96,067 Dividends paid ( 1,703 ) ( 1,906 ) ( 5,433 ) ( 4,936 ) Balance at end of period 743,650 692,537 743,650 692,537 Accumulated other comprehensive income Balance at beginning of period 1,573 3,149 4,225 3,448 Currency translation adjustment ( 410 ) 235 ( 3,062 ) ( 64 ) Balance at end of period 1,163 3,384 1,163 3,384 Total Oppenheimer Holdings Inc. stockholders' equity $ 770,742 $ 774,954 $ 770,742 $ 774,954 Noncontrolling interest Balance at beginning of period 1,709 — 2,069 — Capital distribution to noncontrolling interest ( 21 ) — ( 21 ) — Net income (loss) attributable to noncontrolling interest 145 — ( 215 ) — Balance at end of period 1,833 — 1,833 — Total stockholders' equity $ 772,575 $ 774,954 $ 772,575 $ 774,954 Redeemable Noncontrolling Interests Balance at beginning of period 127,765 — 127,765 — Contributions during the year — — — — Balance at end of period $ 127,765 $ — $ 127,765 $ — Dividends paid per share $ 0.15 $ 0.15 $ 0.45 $ 0.39 (1) Certain prior period reported amounts were reclassified to conform to the current period presentation, See Note 2. (2) Attributable to Oppenheimer Holdings Inc. The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents OPPENHEIMER HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Expressed in thousands) 2022 2021 Cash flows from operating activities Net income $ 9,723 $ 96,067 Adjustments to reconcile net income to net cash (used in)/provided by operating activities Non-cash items included in net income: Depreciation and amortization of furniture, equipment and leasehold improvements 5,717 5,975 Deferred income taxes ( 5,890 ) ( 2,575 ) Amortization of notes receivable 10,480 9,786 Amortization of debt issuance costs 189 188 Provision for credit losses 61 3,030 Share-based compensation ( 1,152 ) 25,097 Amortization of right-of-use lease assets 20,041 19,514 Decrease (increase) in operating assets: Deposits with clearing organizations ( 28,677 ) ( 1,752 ) Receivable from brokers, dealers and clearing organizations ( 7,304 ) ( 39,020 ) Receivable from customers 42,676 ( 165,640 ) Securities purchased under agreements to resell 935 — Securities owned ( 28,173 ) 48,834 Notes receivable ( 13,702 ) ( 18,723 ) Other assets 34,278 92,294 Increase (decrease) in operating liabilities: Drafts payable 9,644 — Payable to brokers, dealers and clearing organizations 71,389 64,141 Payable to customers ( 75,846 ) 48,612 Securities sold under agreements to repurchase 6,710 1,487 Securities sold but not yet purchased 22,935 ( 42,026 ) Accrued compensation ( 135,341 ) 1,487 Accounts payable and other liabilities ( 21,797 ) ( 11,588 ) Cash provided by/(used in) operating activities ( 83,104 ) 135,188 Cash flows from investing activities Purchase of furniture, equipment and leasehold improvements ( 11,627 ) ( 7,513 ) Proceeds from the settlement of Company-owned life insurance 1,191 2,001 Cash provided by/(used in) investing activities ( 10,436 ) ( 5,512 ) Cash flows from financing activities Cash dividends paid on Class A non-voting and Class B voting common stock ( 5,433 ) ( 4,936 ) Issuance of Class A non-voting common stock 65 58 Repurchase of Class A non-voting common stock for cancellation ( 59,554 ) ( 4,715 ) Payments for employee taxes withheld related to vested share-based awards ( 2,283 ) ( 4,966 ) Distribution to noncontrolling interests ( 21 ) — Debt issuance costs — ( 22 ) Decrease in bank call loans, net ( 15,900 ) ( 9,700 ) Cash provided by/(used in) financing activities ( 83,126 ) ( 24,281 ) Net (decrease)/increase in cash, cash equivalents and restricted cash ( 176,666 ) 105,395 Cash, cash equivalents and restricted cash, beginning of period 341,524 35,424 Cash, cash equivalents and restricted cash, end of period $ 164,858 $ 140,819 Reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets: 2022 2021 Cash and cash equivalents $ 36,578 $ 140,819 Restricted cash 128,280 — Total cash, cash equivalents and restricted cash $ 164,858 $ 140,819 Schedule of non-cash financing activities Employee share plan issuance $ 4,288 $ 7,361 Supplemental disclosure of cash flow information Cash paid during the period for interest $ 14,184 $ 9,502 Cash paid during the period for income taxes, net $ 25,683 $ 52,950 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Organization Oppenheimer Holdings Inc. ("OPY" or the "Parent") is incorporated under the laws of the State of Delaware. The condensed consolidated financial statements include the accounts of OPY and its consolidated subsidiaries (together, the "Company"). Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, investment banking (corporate and public finance), equity and fixed income research, market-making, trust services, and investment advisory and asset management services. The Company is headquartered in New York and has 91 retail branch offices in the United States and institutional businesses located in London, Tel Aviv, and Hong Kong. The principal subsidiaries of OPY are Oppenheimer & Co. Inc. ("Oppenheimer"), a registered broker-dealer in securities and investment adviser under the Investment Advisers Act of 1940; Oppenheimer Asset Management Inc. ("OAM") and its wholly-owned subsidiary, Oppenheimer Investment Management LLC, both registered investment advisers under the Investment Advisers Act of 1940; Oppenheimer Trust Company of Delaware ("Oppenheimer Trust"), a limited purpose trust company that provides fiduciary services such as trust and estate administration and investment management; OPY Credit Corp., which offers syndication as well as trading of issued corporate loans; Oppenheimer Europe Ltd., based in the United Kingdom, with offices in the Isle of Jersey, Germany, and Switzerland, which provides institutional equities and fixed income brokerage and corporate finance and is regulated by the Financial Conduct Authority; and Oppenheimer Investments Asia Limited, based in Hong Kong, China, which provides fixed income and equities brokerage services to institutional investors and is regulated by the Securities and Futures Commission. Oppenheimer owns Freedom Investments, Inc. ("Freedom"), a registered broker dealer in securities, which provides discount brokerage services, and Oppenheimer Israel (OPCO) Ltd., which is engaged in offering investment services in the State of Israel. Oppenheimer holds a trading permit on the New York Stock Exchange. 2. Summary of significant accounting policies and estimates Basis of Presentation The accompanying condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America ("U.S. GAAP") and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Form 10-K"). The accompanying condensed consolidated balance sheet data was derived from the audited consolidated financial statements but does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management's knowledge of current events and actions that the Company may undertake in the future, actual results may differ materially from the estimates. The condensed consolidated results of operations for the three-month and nine-month periods ended September 30, 2022 are not necessarily indicative of the results to be expected for any future interim or annual period. Reclassification Effective June 30, 2022, the Company reclassified certain stockholders' equity amounts on the condensed consolidated balance sheet and condensed consolidated statements of changes in stockholders' equity and redeemable noncontrolling interests. The reclassification included separately presenting the par value of common stock, and combining previously disclosed share capital and contributed capital amounts in the currently reported additional paid-in capital amount. The reclassification had no impact on previously reported total stockholders’ equity amounts. 8 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Oppenheimer Acquisition Corp. I On October 26, 2021, Oppenheimer Acquisition Corp. I (“OHAA”) consummated its $ 126.5 million initial public offering (the “OHAA IPO”). OHAA is a special purpose acquisition company, incorporated in Delaware for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a “Business Combination”). Oppenheimer Acquisition LLC I (the “Sponsor”), a Delaware series limited liability company and the Company’s subsidiary, is the sponsor of OHAA. The Company and its employees control OHAA through the Sponsor’s ownership of Class A founder shares of OHAA. As a result, both OHAA and the Sponsor are consolidated in the Company’s financial statements. Funds totaling $ 127.8 million, including proceeds from the OHAA IPO of $ 126.5 million and $ 1.3 million in investment from the Sponsor, are held in a trust account until the earlier of (i) the completion of a Business Combination or (ii) ten business days after April 29, 2023, 18 months from the closing of the OHAA IPO (“Combination Period”). The cash held in the trust account is recorded in “Restricted Cash” on the condensed consolidated balance sheet. Transaction costs, which consisted of a net underwriting fee of $ 2.5 million and $ 0.5 million of other offering costs, were charged during the fourth quarter of 2021 against the gross proceeds of the OHAA IPO consistent with SEC Staff Accounting Bulletin (SAB) Topic 5. “Redeemable noncontrolling interests” of $ 127.8 million associated with the publicly held OHAA Class A ordinary shares are recorded on the Company’s consolidated balance sheet as of September 30, 2022 at redemption value and classified as temporary equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. Changes in redemption value are recognized immediately as they occur and will adjust the carrying value of redeemable noncontrolling interests to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable noncontrolling interests shall be affected by charges to additional paid-in-capital and noncontrolling interests attributable to certain members of the Sponsor on a pro rata ownership basis. The public warrants and private warrants exercisable for OHAA Class A ordinary shares that were issued in connection with the OHAA IPO (the “OHAA Warrants”) qualify for equity accounting treatment under FASB ASC Topic 815. Oppenheimer Principal Investments LLC Oppenheimer Principal Investments LLC ("OPI") is a Delaware special purpose "Series" limited liability company formed in December 2020 and designed to retain and reward talented employees of the Company, primarily in connection with the deployment of Company capital into successful private market investments, and also in connection with the Company's receipt of non-cash compensation from investment banking assignments. OPI is designed to promote alignment of Company, client and employee interests as they relate to profitable investment opportunities. This program acts as an incentive for senior employees to identify attractive private investments for the Company and its clients, and as a retention tool for key employees of the Company. OPI treats its members as partners for tax purposes generally and with respect to the separate Series formed to participate in (i) the incentive fees generated by successful client investments in the Company's Private Market Opportunities program, or (ii) principal investments made by the Company or a portion of the gains thereon, either through the outright purchase of an investment or consideration earned in lieu of an investment banking fee or other transaction fee. Employees who become members of a Series receive a "profit interest", as that term is used in IRS regulations, and receive an allocation of capital appreciation of the investment held by the particular Series that exceeds a threshold amount established for each Series. Participating employees are also subject to vesting and forfeiture requirements for each Series investment. The Company’s policy is to consolidate those entities where it owns the majority voting interests. The Company owns the majority voting interest of OPI through Oppenheimer Alternative Investment Management (“OAIM”), the managing member of OPI and a subsidiary of OAM. Pursuant to the Company’s policy for consolidation, the Company consolidates OPI. 9 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Noncontrolling Interests Noncontrolling interests represents ownership interests in the Sponsor of OHAA, OHAA Class A founder and Class A ordinary shares held by management and employees of the Company, as well as OHAA Class B shares held by directors and officers of OHAA and an employee of the Company. Noncontrolling interests also include publicly held warrants to purchase OHAA Class A ordinary shares. Additionally, noncontrolling interests include the profits allocated to employees who have profit interests in OPI's Series. Restricted Cash Restricted cash represents OHAA deposits held in trust as indicated above. 3. Financial Instruments - Credit Losses Under ASC 326 "Financial Instruments - Credit Losses", the Company can elect to use an approach to measure the allowance for credit losses using the fair value of collateral where the borrower is required to, and reasonably expected to, continually adjust and replenish the amount of collateral securing the instrument to reflect changes in the fair value of such collateral. The Company has elected to use this approach for securities borrowed, margin loans, and reverse repurchase agreements. No material historical losses have been reported on these assets. See note 9 for details. As of September 30, 2022, the Company had $ 57.2 million of notes receivable ($ 54.0 million as of December 31, 2021). Notes receivable represent recruiting and retention payments generally in the form of upfront loans to financial advisors and key revenue producers as part of the Company's overall growth strategy. These notes generally amortize over a service period of 3 to 10 years from the initial date of the note or based on productivity levels of the respective employees. All such notes are contingent on the employees' continued employment with the Company. The unforgiven portion of the notes becomes due on demand in the event the employee departs during the service period. At this point, any uncollected portion of the notes is reclassified into a defaulted notes category. The allowance for uncollectibles is a valuation account that is deducted from the amortized cost basis of the defaulted notes balance to present the net amount expected to be collected. Balances are charged-off against the allowance when management deems the amount to be uncollectible. The Company reserves 100 % of the uncollected balance of defaulted notes which are five years and older and applies an expected loss rate to the remaining balance. The expected loss rate is based on historical collection rates of defaulted notes. The expected loss rate is adjusted for changes in market conditions such as changes in unemployment rates, changes in interest rates and other relevant factors. For the three months and nine months ended September 30, 2022, no adjustments were made to the expected loss rates. The Company will continuously monitor the effect of these factors on the expected loss rate and adjust it as necessary. The allowance is measured on a pool basis as the Company has determined that the entire defaulted portion of notes receivable has similar risk characteristics. As of September 30, 2022, the uncollected balance of defaulted notes was $ 7.7 million and the allowance for uncollectibles was $ 5.2 million. The allowance for uncollectibles consisted of $ 3.4 million related to defaulted notes balances (five years and older) and $ 1.8 million related to defaulted notes balances (under five years). 10 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) The following table presents the disaggregation of defaulted notes by year of default as of September 30, 2022: (Expressed in thousands) As of September 30, 2022 2022 $ 859 2021 2,327 2020 542 2019 353 2018 132 2017 and prior 3,449 Total $ 7,662 The following table presents activity in the allowance for uncollectibles of defaulted notes for the three and nine months ended September 30, 2022 and 2021: (Expressed in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30 2022 2021 2022 2021 Beginning balance $ 5,106 $ 4,701 $ 4,923 $ 4,234 Additions and other adjustments 97 28 280 495 Ending balance $ 5,203 $ 4,729 $ 5,203 $ 4,729 4. Leases The Company and its subsidiaries have operating leases for office space and equipment expiring at various dates through 2034. The Company leases its corporate headquarters at 85 Broad Street, New York, New York which houses its executive management team and many administrative functions for the firm as well as its research, trading, investment banking, and asset management divisions and an office in Troy, Michigan, which among other things, houses its payroll and human resources departments. In addition, the Company has 91 retail branch offices in the United States as well as offices in London, England, St. Helier, Isle of Jersey, Geneva, Switzerland, Munich, Germany, Tel Aviv, Israel and Hong Kong, China. The Company is constantly assessing its needs for office space and, on a rolling basis, has many leases that expire in any given year. The majority of the leases are held by the Company's subsidiary, Viner Finance Inc., which is a consolidated subsidiary and 100 % owned by the Company. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Most leases include an option to renew and the exercise of lease renewal options is at the Company's sole discretion. The Company did not include the renewal options as part of the right of use assets and liabilities. The depreciable life of assets and leasehold improvements is limited by the expected lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. 11 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) As of September 30, 2022, the Company had right-of-use operating lease assets of $ 148.5 million (net of accumulated amortization of $ 77.5 million) which are comprised of real estate leases of $ 145.6 million (net of accumulated amortization of $ 75.2 million) and equipment leases of $ 2.9 million (net of accumulated amortization of $ 2.3 million). As of September 30, 2022, the Company had operating lease liabilities of $ 189.3 million which are comprised of real estate lease liabilities of $ 186.4 million and equipment lease liabilities of $ 2.9 million. The Company had no finance leases as of September 30, 2022. As most of the Company's leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date. The Company used the incremental borrowing rate as of the lease commencement date for the operating leases that commenced subsequent to January 1, 2019. The following table presents the weighted average lease term and weighted average discount rate for the Company's operating leases as of September 30, 2022 and December 31, 2021, respectively: As of September 30, 2022 December 31, 2021 Weighted average remaining lease term (in years) 6.96 7.38 Weighted average discount rate 6.67 % 6.89 % The following table presents operating lease costs recognized for the three and nine months ended September 30, 2022 and September 30, 2021, respectively, which are included in occupancy and equipment costs on the condensed consolidated income statements: (Expressed in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Operating lease costs: Real estate leases - Right-of-use lease asset amortization $ 6,450 $ 6,053 $ 18,796 $ 18,171 Real estate leases - Interest expense 3,258 3,523 9,881 10,726 Equipment leases - Right-of-use lease asset amortization 422 453 1,246 1,343 Equipment leases - Interest expense 41 34 108 110 The maturities of lease liabilities as of September 30, 2022 and December 31, 2021 are as follows: 12 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) (Expressed in thousands) As of September 30, 2022 December 31, 2021 2022 $ 10,716 $ 41,696 2023 41,964 38,477 2024 37,630 33,573 2025 31,542 27,703 2026 29,672 26,342 After 2026 86,261 78,593 Total lease payments $ 237,785 $ 246,384 Less interest ( 48,487 ) ( 54,365 ) Present value of lease liabilities $ 189,298 $ 192,019 As of September 30, 2022, the Company had $ 30.0 million of additional real estate operating leases that have not yet commenced ($ 16.2 million as of December 31, 2021). 5. Revenue from contracts with customers Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company's progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services (i.e., the "transaction price"). In determining the transaction price, the Company considers multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, the Company considers the range of possible outcomes, the predictive value of its past experiences, the time period during which uncertainties are expected to be resolved and the amount of consideration that is susceptible to factors outside of the Company's influence, such as market volatility or the judgment and actions of third parties. The Company earns revenue from contracts with customers and other sources (principal transactions, interest and other). The following provides detailed information on the recognition of the Company's revenue from contracts with customers: Commissions Commissions from Sales and Trading — The Company earns commission revenue by executing, settling and clearing transactions with clients primarily in exchange-traded and over-the-counter corporate equity and debt securities, money market instruments and exchange-traded options and futures contracts. A substantial portion of the Company's revenue is derived from commissions from private clients through accounts with transaction-based pricing. Trade execution and clearing services, when provided together, represent a single performance obligation, as the services are not separately identifiable in the context of the contract. Commission revenue associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade date when the performance obligation is satisfied. Commission revenue is generally paid on settlement date, which is generally two business days after trade date for equity securities and corporate bond transactions and one day for government securities, options and commodities transactions. The Company records a receivable on the trade date and receives a payment on the settlement date. 13 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Mutual Fund Income — The Company earns mutual fund income for sales and distribution of mutual fund shares, which consists of a fixed fee amount and a variable amount. The Company recognizes mutual fund income at a point in time on the trade date when the performance obligation is satisfied which is when the mutual fund interest is sold to the investor. The ongoing distribution fees for distributing investment products from mutual fund companies are generally considered variable consideration because they are based on the value of AUM and are uncertain on trade date. The Company recognizes distribution fees over the investment period as the amounts become known and the portion recognized in the current period may relate to distribution services performed in prior periods. Mutual fund income is generally received within 90 days. Advisory Fees The Company earns management and performance (or incentive) fees in connection with the advisory and asset management services it provides to various types of funds, asset-based programs and investment vehicles through its subsidiaries. Management fees are generally based on the account value at the valuation date per the respective asset management agreements and are recognized over time as the customer receives the benefits of the services evenly throughout the term of the contract. Performance fees are recognized when the return on client AUM exceeds a specified benchmark return or as other performance targets over a 12-month measurement period are met. Performance fees are considered variable and they are recognized at a point in time as they are subject to fluctuation and/or are contingent on a future event over the measurement period and are not subject to adjustment once the measurement period ends. Such fees are computed as of the fund's year-end when the measurement period ends and generally are recorded as earned in the fourth quarter of the Company's fiscal year. Both management and performance fees are generally received within 90 days. Investment Banking The Company earns underwriting revenues by providing capital raising solutions for corporate clients through initial public offerings, follow-on offerings, equity-linked offerings, private investments in public entities, and private placements. Underwriting revenues are recognized at a point in time on trade date, as the client obtains the control and benefit of the capital markets offering at that point. These fees are generally received within 90 days after the transactions are completed. Transaction-related expenses, primarily consisting of legal, travel and other costs directly associated with the transaction, are deferred and recognized in the same period as the related investment banking transaction revenue. Underwriting revenues and related expenses are presented gross on the condensed consolidated income statements. Revenue from financial advisory services includes fees generated in connection with mergers, acquisitions, and restructuring transactions. Such revenue and fees are primarily recorded at a point in time when services for the transactions are completed and income is reasonably determinable, generally as set forth under the terms of the engagement. Payment for advisory services is generally due upon completion of the transaction or milestone. Retainer fees and fees earned from certain advisory services are recognized ratably over the service period as the customer receives the benefit of the services throughout the term of the contracts, and such fees are collected based on the terms of the contracts. Bank Deposit Sweep Income Bank deposit sweep income consists of revenue earned from the FDIC-insured bank deposit program. Under this program, client funds are swept into deposit accounts at participating banks and are eligible for FDIC deposit insurance up to FDIC standard maximum deposit insurance amounts. Fees are earned over time and are generally received within 30 days. 14 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Disaggregation of Revenue The following presents the Company's revenue from contracts with customers disaggregated by major business activity and other sources of revenue for the three and nine months ended September 30, 2022 and 2021: (Expressed in thousands) For the Three Months Ended September 30, 2022 Reportable Segments Private Client Asset Management Capital Markets Corporate/Other Total Revenue from contracts with customers: Commissions from sales and trading $ 39,290 $ — $ 42,699 $ 12 $ 82,001 Mutual fund and insurance income 7,603 — 1 3 7,607 Advisory fees 78,055 24,865 — 7 102,927 Investment banking - capital markets 1,950 — 7,173 — 9,123 Investment banking - advisory — — 29,270 — 29,270 Bank deposit sweep income 35,769 — — — 35,769 Other 5,126 — 652 39 5,817 Total revenue from contracts with customers 167,793 24,865 79,795 61 272,514 Other sources of revenue: Interest 14,471 — 2,265 625 17,361 Principal transactions, net ( 884 ) — 8,637 ( 1,251 ) 6,502 Other ( 2,766 ) 5 250 245 ( 2,266 ) Total other sources of revenue 10,821 5 11,152 ( 381 ) 21,597 Total revenue $ 178,614 $ 24,870 $ 90,947 $ ( 320 ) $ 294,111 (Expressed in thousands) For the Three Months Ended September 30, 2021 Reportable Segments Private Client Asset Management Capital Markets Corporate/Other Total Revenue from contracts with customers: Commissions from sales and trading $ 42,214 $ — $ 39,535 $ ( 2 ) $ 81,747 Mutual fund and insurance income 9,134 — 2 6 9,142 Advisory fees 89,849 26,890 — 12 116,751 Investment banking - capital markets 5,599 — 29,488 — 35,087 Investment banking - advisory — — 51,814 — 51,814 Bank deposit sweep income 3,909 — — — 3,909 Other 2,765 — 196 10 2,971 Total revenue from contracts with customers 153,470 26,890 121,035 26 301,421 Other sources of revenue: Interest 7,624 — 1,631 85 9,340 Principal transactions, net ( 189 ) — 5,804 ( 1,121 ) 4,494 Other ( 41 ) 4 115 9 87 Total other sources of revenue 7,394 4 7,550 ( 1,027 ) 13,921 Total revenue $ 160,864 $ 26,894 $ 128,585 $ ( 1,001 ) $ 315,342 15 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) (Expressed in thousands) For the Nine Months Ended September 30, 2022 Reportable Segments Private Client Asset Management Capital Markets Corporate/Other Total Revenue from contracts with customers: Commissions from sales and trading $ 120,753 $ — 137,760 29 $ 258,542 Mutual fund and insurance income 23,733 — 7 25 23,765 Advisory fees 249,667 76,289 117 25 326,098 Investment banking - capital markets 7,615 — 26,407 — 34,022 Investment banking - advisory 35 — 59,459 — 59,494 Bank deposit sweep income 54,968 — — — 54,968 Other 12,770 — 1,449 227 14,446 Total revenue from contracts with customers 469,541 76,289 225,199 306 771,335 Other sources of revenue: Interest 32,987 — 4,950 730 38,667 Principal transactions, net ( 5,050 ) — 16,717 ( 1,543 ) 10,124 Other ( 23,546 ) 13 406 362 ( 22,765 ) Total other sources of revenue 4,391 13 22,073 ( 451 ) 26,026 Total revenue $ 473,932 $ 76,302 $ 247,272 $ ( 145 ) $ 797,361 (Expressed in thousands) For the Nine Months Ended September 30, 2021 Reportable Segments Private Client Asset Management Capital Markets Corporate/Other Total Revenue from contracts with customers: Commissions from sales and trading $ 135,122 $ — $ 137,742 $ ( 1 ) $ 272,863 Mutual fund and insurance income 27,575 — 6 87 27,668 Advisory fees 255,701 76,658 3 37 332,399 Investment banking - capital markets 19,879 — 157,765 — 177,644 Investment banking - advisory 250 — 138,250 — 138,500 Bank deposit sweep income 11,629 — — — 11,629 Other 10,359 — 957 43 11,359 Total revenue from contracts with customers 460,515 76,658 434,723 166 972,062 Other sources of revenue: Interest 21,335 — 5,449 131 26,915 Principal transactions, net 1,987 — 19,636 41 21,664 Other 7,913 10 321 32 8,276 Total other sources of revenue 31,235 10 25,406 204 56,855 Total revenue $ 491,750 $ 76,668 $ 460,129 $ 370 $ 1,028,917 16 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Contract Balances The timing of the Company's revenue recognition may differ from the timing of payment by its customers. The Company records receivables when revenue is recognized prior to payment and it has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had receivables related to revenue from contracts with customers of $ 32.9 million and $ 37.2 million at September 30, 2022 and December 31, 2021, respectively. The Company had no significant impairments related to these receivables during the three and nine months ended September 30, 2022. Deferred revenue relates to IRA fees received annually in advance on customers' IRA accounts and investment banking fees received from certain advisory transactions where the performance obligations have not yet been satisfied. Total deferred revenue was $ 994,000 and $ 235,000 at September 30, 2022 and December 31, 2021, respectively. The following presents the Company's contract assets and deferred revenue balances from contracts with customers, which are included in other assets and other liabilities, respectively, on the condensed consolidated balance sheet: (Expressed in thousands) As of September 30, 2022 December 31, 2021 Contract assets (receivables): Commission (1) $ 5,990 $ 2,886 Mutual fund income (2) 5,078 6,205 Advisory fees (3) 3,404 4,546 Bank deposit sweep income (4) 6,625 595 Investment banking fees (5) 7,065 17,765 Other 4,765 5,195 Total contract assets $ 32,927 $ 37,192 Deferred revenue (payables): Investment banking fees (6) $ 230 $ 235 IRA fees (7) 764 — Total deferred revenue $ 994 $ 235 (1) Commission recorded on trade date but not yet settled. (2) Mutual fund income earned but not yet received. (3) Management and performance fees earned but not yet received. (4) Fees earned from FDIC-insured bank deposit program but not yet received. (5) Underwriting revenue and advisory fees earned but not yet received. (6) Retainer fees and fees received from certain advisory transactions where the performance obligations have not yet been satisfied. (7) Fee received in advance on an annual basis. 17 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) 6. Earnings per share Basic earnings per share are computed by dividing net income over the weighted average number of shares of Class A non-voting common stock ("Class A Stock") and Class B voting common stock ("Class B Stock") outstanding. Diluted earnings per share includes the weighted average number of shares of Class A Stock and Class B Stock outstanding and options to purchase Class A Stock and unvested restricted stock awards of Class A Stock using the treasury stock method. Earnings per share have been calculated as follows: (Expressed in thousands, except number of shares and per share amounts) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Basic weighted average number of shares outstanding 11,270,589 12,690,386 11,901,727 12,653,310 Net dilutive effect of share-based awards, treasury stock method (1) 919,836 973,828 907,273 886,063 Diluted weighted average number of shares outstanding 12,190,425 13,664,214 12,809,000 13,539,373 Net income attributable to Oppenheimer Holdings Inc. $ 4,520 $ 26,250 $ 9,938 $ 96,067 Earnings per share attributable to Oppenheimer Holdings Inc. Basic $ 0.40 $ 2.07 $ 0.84 $ 7.59 Diluted $ 0.37 $ 1.92 $ 0.78 $ 7.10 (1) For the three months ended September 30, 2022, the diluted net income per share computation did not include the anti-dilutive effect of 398,198 shares of Class A Stock granted under share-based compensation arrangements. For the nine months ended September 30, 2022, the diluted net income per share computation did not include the anti-dilutive effect of 22,250 shares of Class A Stock granted under share-based compensation arrangements. For the three and nine months ended September 30, 2021, there was no Class A Stock granted under share-based compensation arrangements that was anti-dilutive. 7. Receivable from and payable to brokers, dealers and clearing organizations (Expressed in thousands) As of September 30, 2022 December 31, 2021 Receivable from brokers, dealers and clearing organizations consists of: Securities borrowed $ 72,267 $ 99,752 Receivable from brokers 69,653 39,716 Clearing organizations 22,287 19,518 Securities failed to deliver 9,801 9,212 Other 3,198 1,704 Total $ 177,206 $ 169,902 Payable to brokers, dealers and clearing organizations consists of: Securities loaned $ 307,383 $ 244,223 Securities failed to receive 22,359 6,457 Payable to brokers 199 2,077 Clearing organizations and other (1) 163,505 169,300 Total $ 493,446 $ 422,057 (1) The balances are primarily related to a trade/settlement date adjustment for U.S. Government Securities. 18 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) 8. Fair value measurements Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period. Valuation Techniques A description of the valuation techniques applied, and inputs used in measuring the fair value of the Company's financial instruments, is as follows: U.S. Government Obligations U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers. U.S. Agency Obligations U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities are model driven with respect to spreads of the comparable to-be-announced ("TBA") security. Sovereign Obligations The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs. Corporate Debt and Other Obligations The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information. Mortgage and Other Asset-Backed Securities The Company values non-agency securities collateralized by home equity and various other types of collateral based on external pricing and spread data provided by independent pricing services. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds. Municipal Obligations The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information. Convertible Bonds The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs. Corporate Equities Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads. 19 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Auction Rate Securities ("ARS") Background In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General's office ("NYAG") and the Massachusetts Securities Division ("MSD" and, together with the NYAG, the "Regulators") concluding proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients. As of September 30, 2021, the Company had completed its ARS purchase obligations related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer had also reached settlements of and received adverse awards in legal proceedings with various clients where the Company was obligated to purchase ARS. As of September 30, 2022, the Company no longer had any obligations to purchase ARS from such legal settlements or adverse awards. As of September 30, 2022, the Company owned $ 33.1 million of ARS. This amount represents the unredeemed or unsold amount that the Company holds as a result of ARS buybacks pursuant to the settlements with the Regulators and legal settlements and awards referred to above. Valuation The Company’s ARS owned referred to above have, for the most part, been subject to issuer tender offers. The Company has valued the ARS securities owned at the tender offer price and categorized them in Level 3 of the fair value hierarchy due to the illiquid nature of the securities and the period of time since the last tender offer. The fair value of ARS is particularly sensitive to movements in interest rates. However, an increase or decrease in short-term interest rates may or may not result in a higher or lower tender offer in the future or the tender offer price may not provide a reasonable estimate of the fair value of the securities. In such cases, other valuation techniques might be necessary. As of September 30, 2022, the Company had a valuation allowance totaling $ 5.2 million relating to ARS owned (which is included as a reduction to securities owned on the condensed consolidated balance sheet). Investments In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment. The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2022: (Expressed in thousands) Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Hedge funds (1) $ 589 $ — Quarterly - Annually 30 - 120 Days Private equity funds (2) 8,327 3,161 N/A N/A $ 8,916 $ 3,161 (1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies (2) Includes private equity funds and private equity fund of funds with diversified portfolios focusing on but not limited to technology companies, venture capital and global natural resources 20 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) The following table provides information about the Company's investments in Company-sponsored funds as of December 31, 2021: (Expressed in thousands) Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Hedge funds (1) $ 900 $ — Quarterly - Annually 30 - 120 Days Private equity funds (2) 4,621 4,035 N/A N/A $ 5,521 $ 4,035 (1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies. (2) Includes private equity funds and private equity fund of funds with diversified portfolios focusing on but not limited to technology companies, venture capital and global natural resources. During 2020, the Company made an investment in a financial technologies firm. The Company elected the fair value option for this investment and it is included in other assets on the condensed consolidated balance sheet. The Company determined the fair value of the investment based on an implied market-multiple approach and observable market data, including comparable company transactions. As of September 30, 2022, the fair value of the investment was $ 5.8 million and was categorized in Level 2 of the fair value hierarchy. Assets and Liabilities Measured at Fair Value The Company's assets and liabilities, recorded at fair value on a recurring basis as of September 30, 2022, and December 31, 2021, have been categorized based upon the above fair value hierarchy as follows: 21 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 : (Expressed in thousands) Fair Value Measurements as of September 30, 2022 Level 1 Level 2 Level 3 Total Assets Deposits with clearing organizations $ 41,389 $ — $ — $ 41,389 Securities owned: U.S. Treasury securities 519,569 — — 519,569 U.S. Agency securities — 19,063 — 19,063 Sovereign obligations — 345 — 345 Corporate debt and other obligations — 12,174 — 12,174 Mortgage and other asset-backed securities — 2,050 — 2,050 Municipal obligations — 31,838 — 31,838 Convertible bonds — 17,139 — 17,139 Corporate equities 27,298 — — 27,298 Money markets 78 — — 78 Auction rate securities — — 33,123 33,123 Securities owned, at fair value 546,945 82,609 33,123 662,677 Investments (1) — 8,650 — 8,650 Total $ 588,334 $ 91,259 $ 33,123 $ 712,716 Liabilities Securities sold but not yet purchased: U.S. Treasury securities $ 72,842 $ — $ — $ 72,842 U.S. Agency securities — 6 — 6 Corporate debt and other obligations — 6,931 — 6,931 Convertible bonds — 3,799 — 3,799 Corporate equities 11,315 — — 11,315 Securities sold but not yet purchased, at fair value 84,157 10,736 — 94,893 Derivative contracts: Futures 149 — — 149 Derivative contracts, total 149 — — 149 Total $ 84,306 $ 10,736 $ — $ 95,042 (1) Included in other assets on the condensed consolidated balance sheet. 22 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021: (Expressed in thousands) Fair Value Measurements as of December 31, 2021 Level 1 Level 2 Level 3 Total Assets Deposits with clearing organizations $ 29,083 $ — $ — $ 29,083 Securities owned: U.S. Treasury securities 505,875 — — 505,875 U.S. Agency securities — 5,622 — 5,622 Sovereign obligations — 1,494 — 1,494 Corporate debt and other obligations — 8,111 — 8,111 Mortgage and other asset-backed securities — 3,889 — 3,889 Municipal obligations — 18,520 — 18,520 Convertible bonds — 13,778 — 13,778 Corporate equities 45,380 — — 45,380 Money markets 31 — — 31 Auction rate securities — — 31,804 31,804 Securities owned, at fair value 551,286 51,414 31,804 634,504 Investments (1) — 12,970 — 12,970 Derivative contracts: TBAs — 92 — 92 Total $ 580,369 $ 64,476 $ 31,804 $ 676,649 Liabilities Securities sold but not yet purchased: U.S. Treasury securities $ 42,298 $ — $ — $ 42,298 U.S. Agency securities — 4 — 4 Corporate debt and other obligations — 2,515 — 2,515 Convertible bonds — 8,462 — 8,462 Corporate equities 18,679 — — 18,679 Securities sold but not yet purchased, at fair value 60,977 10,981 — 71,958 Derivative contracts: Futures 287 — — 287 TBAs — 81 — 81 Derivative contracts, total 287 81 — 368 Total $ 61,264 $ 11,062 $ — $ 72,326 (1) Included in other assets on the condensed consolidated balance sheet. 23 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2022 and 2021: (Expressed in thousands) Level 3 Assets and Liabilities For the Three Months Ended September 30, 2022 Total Realized Beginning and Unrealized Purchases Sales and Transfers Ending Balance Losses (3) (4) and Issuances Settlements In (Out) Balance Assets Auction rate securities (1) $ 31,977 $ ( 29 ) $ 1,175 $ — $ — $ 33,123 (1) Represents auction rate securities that failed in the auction rate market. (Expressed in thousands) Level 3 Assets and Liabilities For the Three Months Ended September 30, 2021 Total Realized Beginning and Unrealized Purchases Sales and Transfers Ending Balance Losses (3)(4) and Issuances Settlements In (Out) Balance Assets Auction rate securities (1) $ 31,422 $ ( 68 ) $ 450 $ — $ — $ 31,804 Liabilities ARS Purchase Commitments (2) 66 — — ( 66 ) — — (1) Represents auction rate securities that failed in the auction rate market. (2) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period. (3) Included in principal transactions in the condensed consolidated income statement. (4) Unrealized gains are attributable to assets or liabilities that are still held at the reporting date. Level 3 Assets and Liabilities For the Nine Months Ended September 30, 2022 Total Realized Beginning and Unrealized Purchases Sales and Transfers Ending Balance Losses (3) (4) and Issuances Settlements In (Out) Balance Assets Auction rate securities (1) $ 31,804 $ ( 56 ) $ 1,375 $ — $ — $ 33,123 (1) Represents auction rate securities that failed in the auction rate market. . Level 3 Assets and Liabilities For the Nine Months Ended September 30, 2021 Total Realized Beginning and Unrealized Purchases Sales and Transfers Ending Balance Losses (3)(4) and Issuances Settlements In (Out) Balance Assets Auction rate securities (1) $ 30,701 $ ( 197 ) $ 2,325 $ ( 1,025 ) $ — $ 31,804 Liabilities ARS Purchase Commitments (2) 195 ( 1 ) — ( 196 ) — — (1) Represents auction rate securities that failed in the auction rate market. (2) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period. (3) Included in principal transactions in the condensed consolidated income statement. (4) Unrealized losses are attributable to assets or liabilities that are still held at the reporting date. 24 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Financial Instruments Not Measured at Fair Value The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., furniture, equipment and leasehold improvements, and accrued compensation). The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 (e.g., cash and receivables from customers) approximates fair value because of the relatively short-term nature of the underlying assets. The fair value of the Company's senior secured notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the notes trade. Assets and liabilities not measured at fair value as of September 30, 2022: (Expressed in thousands) Fair Value Measurement: Assets Carrying Value Level 1 Level 2 Level 3 Total Cash $ 36,578 $ 36,578 $ — $ — $ 36,578 Restricted cash 128,280 128,280 — — 128,280 Deposits with clearing organization 54,256 54,256 — — 54,256 Receivable from brokers, dealers and clearing organizations: Securities borrowed 72,267 — 72,267 — 72,267 Receivables from brokers 69,653 — 69,653 — 69,653 Securities failed to deliver 9,801 — 9,801 — 9,801 Clearing organizations 22,287 — 22,287 — 22,287 Other 3,198 — 3,198 — 3,198 177,206 — 177,206 — 177,206 Receivable from customers 1,178,713 — 1,178,713 — 1,178,713 Notes receivable, net 57,205 — 57,205 — 57,205 Investments (1) 75,437 — 75,437 — 75,437 (1) Included in other assets on the condensed consolidated balance sheet. (Expressed in thousands) Fair Value Measurement: Liabilities Carrying Value Level 1 Level 2 Level 3 Total Drafts payable $ 9,644 $ 9,644 $ — $ — $ 9,644 Bank call loans $ 53,600 $ — $ 53,600 $ — $ 53,600 Payables to brokers, dealers and clearing organizations: Securities loaned 307,383 — 307,383 — 307,383 Payable to brokers 199 — 199 — 199 Securities failed to receive 22,359 — 22,359 — 22,359 Other 163,356 — 163,356 — 163,356 493,297 — 493,297 — 493,297 Payables to customers 381,112 — 381,112 — 381,112 Securities sold under agreements to repurchase 284,032 — 284,032 — 284,032 Senior secured notes 125,000 — 124,423 — 124,423 25 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Assets and liabilities not measured at fair value as of December 31, 2021: (Expressed in thousands) Fair Value Measurement: Assets Carrying Value Level 1 Level 2 Level 3 Total Cash $ 213,759 $ 213,759 $ — $ — $ 213,759 Restricted cash 127,765 127,765 — — 127,765 Deposits with clearing organization 37,885 37,885 — — 37,885 Receivable from brokers, dealers and clearing organizations: Securities borrowed 99,752 — 99,752 — 99,752 Receivables from brokers 39,716 — 39,716 — 39,716 Securities failed to deliver 9,212 — 9,212 — 9,212 Clearing organizations 19,518 — 19,518 — 19,518 Other 1,693 — 1,693 — 1,693 169,891 — 169,891 — 169,891 Receivable from customers 1,221,450 — 1,221,450 — 1,221,450 Securities purchased under agreements to resell 935 — 935 — 935 Notes receivable, net 53,983 — 53,983 — 53,983 Investments (1) 99,169 — 99,169 — 99,169 (1) Included in other assets on the condensed consolidated balance sheet. (Expressed in thousands) Fair Value Measurement: Liabilities Carrying Value Level 1 Level 2 Level 3 Total Bank call loans $ 69,500 $ — $ 69,500 $ — $ 69,500 Payables to brokers, dealers and clearing organizations: Securities loaned 244,223 — 244,223 — 244,223 Payable to brokers 2,077 — 2,077 — 2,077 Securities failed to receive 6,457 — 6,457 — 6,457 Other 169,013 — 169,013 — 169,013 421,770 — 421,770 — 421,770 Payables to customers 456,958 — 456,958 — 456,958 Securities sold under agreements to repurchase 277,322 — 277,322 — 277,322 Senior secured notes 125,000 — 131,094 — 131,094 Fair Value Option The Company elected the fair value option for securities sold under agreements to repurchase ("repurchase agreements") and securities purchased under agreements to resell ("reverse repurchase agreements") that do not settle overnight or have an open settlement date. The Company has elected the fair value option for these instruments to reflect more accurately market and economic events in its earnings and to mitigate a potential mismatch in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. As of September 30, 2022, the Company did not have any repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. Derivative Instruments and Hedging Activities The Company transacts, on a limited basis, in exchange traded and over-the-counter derivatives for both asset and liability management as well as for trading and investment purposes. Risks managed using derivative instruments include interest rate 26 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) risk and, to a lesser extent, foreign exchange risk. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the condensed consolidated balance sheet. Foreign exchange hedges From time to time, the Company also utilizes forward and options contracts to hedge the foreign currency risk associated with compensation obligations to Oppenheimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekel ("NIS"). Such hedges have not been designated as accounting hedges. Unrealized gains and losses on foreign exchange forward contracts are recorded in other assets or other liabilities on the condensed consolidated balance sheet and other income in the condensed consolidated income statement. Derivatives used for trading and investment purposes Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. Notional or contractual amounts are used to express the volume of these transactions and do not represent the amounts potentially subject to market risk. The Company uses futures contracts, including U.S. Treasury notes, Federal Funds, General Collateral futures, and Eurodollar contracts primarily as an economic hedge of interest rate risk associated with government trading activities. Unrealized gains and losses on futures contracts are recorded on the condensed consolidated balance sheet in payable to brokers, dealers and clearing organizations and in the condensed consolidated income statement as principal transactions revenue, net. To-be-announced securities The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the TBA market as economic hedges against mortgage-backed securities that it owns or has sold but not yet purchased. TBAs provide for the forward or delayed delivery of the underlying instrument with settlement up to 180 days. The contractual or notional amounts related to these financial instruments reflect the volume of activity and do not reflect the amounts at risk. Net unrealized gains and losses on TBAs are recorded on the condensed consolidated balance sheet in receivable from brokers, dealers and clearing organizations or payable to brokers, dealers and clearing organizations and in the condensed consolidated income statement as principal transactions revenue, net. The notional amounts and fair values of the Company's derivatives as of September 30, 2022 and December 31, 2021 by product were as follows: (Expressed in thousands) Fair Value of Derivative Instruments as of September 30, 2022 Description Notional Fair Value Liabilities: Derivatives not designated as hedging instruments (1) Commodity contracts Futures $ 5,000,000 $ 149 $ 5,000,000 $ 149 (1) See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset. 27 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) (Expressed in thousands) Fair Value of Derivative Instruments as of December 31, 2021 Description Notional Fair Value Assets: Derivatives not designated as hedging instruments (1) Other contracts TBAs $ 14,300 $ 92 $ 14,300 $ 92 Liabilities: Derivatives not designated as hedging instruments (1) Commodity contracts Futures $ 3,520,000 $ 287 Other contracts TBAs 14,300 81 $ 3,534,300 $ 368 (1) See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset. The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the condensed consolidated income statements for the three and nine months ended September 30, 2022 and 2021: (Expressed in thousands) The Effect of Derivative Instruments in the Income Statement For the Three Months Ended September 30, 2022 Recognized in Income on Derivatives (pre-tax) Types Description Location Net Gain Commodity contracts Futures Principal transactions revenue, net $ 349 Other contracts TBAs Principal transactions revenue, net 1 $ 350 (Expressed in thousands) The Effect of Derivative Instruments in the Income Statement For the Three Months Ended September 30, 2021 Recognized in Income on Derivatives (pre-tax) Types Description Location Net Loss Commodity contracts Futures Principal transactions revenue, net $ ( 13 ) Other contracts TBAs Principal transactions revenue, net ( 15 ) Purchase commitments Principal transactions revenue, net ( 497 ) $ ( 525 ) 28 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) The Effect of Derivative Instruments in the Income Statement For the Nine Months Ended September 30, 2022 Recognized in Income on Derivatives (pre-tax) Types Description Location Net Gain/(Loss) Commodity contracts Futures Principal transactions revenue, net $ 3,868 Other contracts Foreign exchange forward contracts Other revenue ( 20 ) TBAs Principal transactions revenue, n et 57 $ 3,905 (Expressed in thousands) The Effect of Derivative Instruments in the Income Statement For the Nine Months Ended September 30, 2021 Recognized in Income on Derivatives (pre-tax) Types Description Location Net Gain/(Loss) Commodity contracts Futures Principal transactions revenue, net $ 482 Other contracts Foreign exchange forward contracts Other revenue ( 8 ) TBAs Principal transactions revenue, net 146 Purchase commitments Principal transactions revenue, net ( 987 ) ARS purchase commitments Principal transactions revenue, net ( 1 ) $ ( 368 ) 9. Collateralized transactions The Company enters into collateralized borrowing and lending transactions in order to meet customers' needs and earn interest rate spreads, obtain securities for settlement and finance trading inventory positions. Under these transactions, the Company either receives or provides collateral, including U.S. Government and Agency, asset-backed, corporate debt, equity, and non-U.S. Government and Agency securities. The Company obtains short-term borrowings primarily through bank call loans. Bank call loans are generally payable on demand and bear interest at various rates. As of September 30, 2022, the outstanding balance of bank call loans was $ 53.6 million ($ 69.5 million as of December 31, 2021). Such loans with commercial banks were collateralized by the Company's securities and customer securities with market values of approximately $ 39.0 million and $ 24.8 million, respectively. As of September 30, 2022, the Company had approximately $ 1.7 billion of customer securities under customer margin loans that are available to be pledged, of which the Company has re-pledged approximately $ 263.1 million under securities loan agreements. As of September 30, 2022, the Company had pledged $ 391.4 million of customer securities directly with the Options Clearing Corporation to secure obligations and margin requirements under option contracts written by customers. As of September 30, 2022, the Company had no outstanding letters of credit. The Company enters into reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions in order to, among other things, acquire securities to cover short positions and settle other securities obligations, so as to accommodate customers' needs and to finance the Company's inventory positions. Except as described below, repurchase and reverse repurchase agreements, principally involving U.S. Government and Agency securities, are carried at amounts at which the securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest. 29 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Repurchase agreements and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase agreements and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase agreements and reverse repurchase agreements exist in "book entry" form and certain other requirements are met. The following table presents a disaggregation of the gross obligation by the class of collateral pledged and the remaining contractual maturity of the repurchase agreements and securities loaned transactions as of September 30, 2022: (Expressed in thousands) Overnight and Open Repurchase agreements: U.S. Government and Agency securities $ 479,159 Securities loaned: Equity securities 307,383 Gross amount of recognized liabilities for repurchase agreements and securities loaned $ 786,542 The following tables present the gross amounts and the offsetting amounts of reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions as of September 30, 2022 and December 31, 2021: As of September 30, 2022 (Expressed in thousands) Gross Amounts Not Offset on the Balance Sheet Gross Amounts of Recognized Assets Gross Amounts Offset on the Balance Sheet Net Amounts of Assets Presented on the Balance Sheet Financial Instruments Cash Collateral Received Net Amount Reverse repurchase agreements $ 195,127 $ ( 195,127 ) $ — $ — $ — $ — Securities borrowed (1) 72,267 — 72,267 ( 72,056 ) — 211 Total $ 267,394 $ ( 195,127 ) $ 72,267 $ ( 72,056 ) $ — $ 211 (1) Included in receivable from brokers, dealers and clearing organizations on the condensed consolidated balance sheet. Gross Amounts Not Offset on the Balance Sheet Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Balance Sheet Net Amounts of Liabilities Presented on the Balance Sheet Financial Instruments Cash Collateral Pledged Net Amount Repurchase agreements $ 479,159 $ ( 195,127 ) $ 284,032 $ ( 283,850 ) $ — $ 182 Securities loaned (2) 307,383 — 307,383 ( 292,623 ) — 14,760 Total $ 786,542 $ ( 195,127 ) $ 591,415 $ ( 576,473 ) $ — $ 14,942 (2) Included in payable to brokers, dealers and clearing organizations on the condensed consolidated balance sheet. 30 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) As of December 31, 2021 (Expressed in thousands) Gross Amounts Not Offset on the Balance Sheet Gross Amounts of Recognized Assets Gross Amounts Offset on the Balance Sheet Net Amounts of Assets Presented on the Balance Sheet Financial Instruments Cash Collateral Received Net Amount Reverse repurchase agreements $ 30,406 $ ( 29,471 ) $ 935 $ — $ — $ 935 Securities borrowed (1) 99,752 — 99,752 ( 96,929 ) — 2,823 Total $ 130,158 $ ( 29,471 ) $ 100,687 $ ( 96,929 ) $ — $ 3,758 (1) Included in receivable from brokers, dealers and clearing organizations on the condensed consolidated balance sheet. Gross Amounts Not Offset on the Balance Sheet Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Balance Sheet Net Amounts of Liabilities Presented on the Balance Sheet Financial Instruments Cash Collateral Pledged Net Amount Repurchase agreements $ 306,793 $ ( 29,471 ) $ 277,322 $ ( 276,992 ) $ — $ 330 Securities loaned (2) 244,223 — 244,223 ( 236,597 ) — 7,626 Total $ 551,016 $ ( 29,471 ) $ 521,545 $ ( 513,589 ) $ — $ 7,956 (2) Included in payable to brokers, dealers and clearing organizations on the condensed consolidated balance sheet. The Company receives collateral in connection with securities borrowed and reverse repurchase agreement transactions and customer margin loans. Under many agreements, the Company is permitted to sell or re-pledge the securities received (e.g., use the securities to enter into securities lending transactions, or deliver to counterparties to cover short positions). As of September 30, 2022, the fair value of securities received as collateral under securities borrowed transactions and reverse repurchase agreements was $ 70.0 million ($ 96.4 million as of December 31, 2021) and $ 194.9 million ($ 307.3 million as of December 31, 2021), respectively, of which the Company has sold and re-pledged approximately $ 29.7 million ($ 29.4 million as of December 31, 2021) under securities loaned transactions and $ 194.9 million under repurchase agreements ($ 307.3 million as of December 31, 2021). The Company pledges certain of its securities owned for securities lending and repurchase agreements and to collateralize bank call loan transactions. The carrying value of pledged securities owned that can be sold or re-pledged by the counterparty was $ 385.8 million, as presented on the face of the condensed consolidated balance sheet as of September 30, 2022 ($ 266.4 million as of December 31, 2021). The Company manages credit exposure arising from repurchase and reverse repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Company, in the event of a customer default, the right to liquidate securities and the right to offset a counterparty's rights and obligations. The Company manages market risk of repurchase agreements and securities loaned by monitoring the market value of collateral held and the market value of securities receivable from others. It is the Company's policy to request and obtain additional collateral when exposure to loss exists. In the event the counterparty is unable to meet its contractual obligation to return the securities, the Company may be exposed to off-balance sheet risk of acquiring securities at prevailing market prices. 31 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Credit Concentrations Credit concentrations may arise from trading, investing, underwriting and financing activities and may be impacted by changes in economic, industry or political factors. In the normal course of business, the Company may be exposed to credit risk in the event customers, counterparties including other brokers and dealers, issuers, banks, depositories or clearing organizations are unable to fulfill their contractual obligations. The Company seeks to mitigate these risks by actively monitoring exposures and obtaining collateral as deemed appropriate. Included in receivable from brokers, dealers and clearing organizations as of September 30, 2022 were receivables from three major U.S. broker-dealers totaling approximately $ 57.1 million. The Company is obligated to settle transactions with brokers and other financial institutions even if its clients fail to meet their obligations to the Company. Clients are required to complete their transactions on the settlement date, generally one to two business days after the trade date. If clients do not fulfill their contractual obligations, the Company may incur losses. The Company has clearing/participating arrangements with the National Securities Clearing Corporation, the Fixed Income Clearing Corporation ("FICC"), R.J. O'Brien & Associates (commodities transactions), Mortgage-Backed Securities Division (a division of FICC), and others. With respect to its business in reverse repurchase and repurchase agreements, substantially all open contracts as of September 30, 2022 are with the FICC . In addition, the Company clears its non-U.S. international equities business carried on by Oppenheimer Europe Ltd. through Global Prime Partners, Ltd, a global clearing financial institution located in United Kingdom. The clearing organizations have the right to charge the Company for losses that result from a client's failure to fulfill its contractual obligations. Accordingly, the Company has credit exposures with these clearing brokers. The clearing brokers can re-hypothecate the securities held on behalf of the Company. As the right to charge the Company has no maximum amount and applies to all trades executed through the clearing brokers, the Company believes there is no maximum amount assignable to this right. As of September 30, 2022, the Company had recorded no liabilities with regard to this right. The Company's policy is to monitor the credit standing of the clearing brokers and banks with which it conducts business. 10. Variable interest entities ("VIEs") The Company's policy is to consolidate all subsidiaries in which it has a controlling financial interest, as well as any VIEs where the Company is deemed to be the primary beneficiary when it has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company serves as general partner of hedge funds and private equity funds that were established for the purpose of providing alternative investments to both its institutional and qualified retail clients. The Company's investment in and additional capital commitments to these hedge funds and private equity funds are considered variable interests. The Company's additional capital commitments are subject to call at a later date and are limited to the amount committed. The Company assesses whether it is the primary beneficiary of the hedge funds and private equity funds in which it holds a variable interest in the form of general and limited partner interests. In each instance, the Company has determined that it is not the primary beneficiary and therefore need not consolidate the hedge funds or private equity funds. The subsidiaries' general and limited partnership interests and additional capital commitments represent the Company's maximum exposure to loss. The subsidiaries' general partnership and limited partnership interests are included in other assets on the condensed consolidated balance sheet. As of September 30, 2022, the Company did not have any hedge funds and private equity funds that are VIE. In addition, the Company serves as general partner of the Sponsor and Oppenheimer Acquisition LLC II (the "Sponsors"). They are sponsors of two Special Purpose Acquisition Companies, respectively, OHAA and Oppenheimer Acquisition Corp. II (together, the "SPACs”), that are seeking to effect a transaction which could be in the form of a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Sponsors and the SPACs are consolidated VIEs as the Company is the primary beneficiary. On October 26, 2021, OHAA consummated its $ 126.5 million IPO. The Company and its employees control OHAA through the Sponsor's ownership of Class A founder shares of OHAA. As a result, both OHAA and such Sponsor are consolidated in the Company’s financial statements. 32 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) The following table sets forth the total assets and liabilities of VIEs consolidated on our condensed consolidated balance sheet: (Expressed in thousands) As of September 30, 2022 2021 Asset Cash and cash equivalents $ 1,369 $ — Restricted Cash 128,280 — Other Assets 456 — Total Assets $ 130,105 $ — Liabilities Other Liabilities 189 — Total Liabilities $ 189 $ — 11. Long-term debt (Expressed in thousands) Issued Maturity Date September 30, 2022 December 31, 2021 5.50 % Senior Secured Notes 10/1/2025 $ 125,000 $ 125,000 Unamortized Debt Issuance Cost ( 737 ) ( 926 ) $ 124,263 $ 124,074 5.50 % Senior Secured Notes due 2025 (the "Notes") On September 22, 2020, in a private offering, the Company issued $ 125.0 million aggregate principal amount of 5.50 % Senior Secured Notes due 2025 (the "Unregistered Notes") under an Indenture at an issue price of 100 % of the principal amount. Interest on the Unregistered Notes is payable semi-annually on April 1st and October 1st. The Company used the net proceeds from the offering of the Unregistered Notes, along with cash on hand, to redeem in full our 6.75 % Senior Secured Notes due July 1, 2022 (the "Old Notes") in the principal amount of $ 150.0 million (the Company held $ 1.4 million in treasury for a net outstanding amount of $ 148.6 million), and pay all related fees and expenses in relation thereto. On November 23, 2020, we completed an exchange offer in which we exchanged 99.8 % of the Unregistered Notes for a like principal amount of Notes with identical terms, except that such new notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"). We did not receive any proceeds in the exchange offer. The Notes will mature on October 1, 2025 and bear interest at a rate of 5.50 % per annum, payable semiannually on April 1st and October 1st, respectively, of each year. The Parent used the net proceeds from the offering of the Notes, along with cash on hand, to redeem in full its Old Notes, in the principal amount of $ 150.0 million (the Parent held $ 1.4 million in treasury for a net outstanding amount of $ 148.6 million), and pay all related fees and expenses in relation thereto. The cost to issue the Notes was $ 3.1 million, of which $ 1.9 million was paid to its subsidiary, Oppenheimer & Co Inc., who served as the initial purchaser of the offering, and was eliminated in consolidation. The remaining $ 1.2 million was capitalized and is amortized over the term of the Notes. The indenture governing the Notes contains covenants which place restrictions on the incurrence of indebtedness, the payment of dividends, the repurchase of equity, the sale of assets, the issuance of guarantees, mergers and acquisitions and the granting of liens. These covenants are subject to a number of important exceptions and qualifications. These exceptions and qualifications include, among other things, a variety of provisions that are intended to allow the Company to continue to conduct its brokerage operations in the ordinary course of business. In addition, certain of the covenants will be suspended upon the Parent attaining an investment grade debt rating for the Notes from both S&P Global Ratings and Moody’s Investors Service, Inc. 33 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Pursuant to the indenture, the following covenants apply to the Parent and its restricted subsidiaries, but generally do not apply, or apply only in part, to its Regulated Subsidiaries (as defined): • limitation on indebtedness and issuances of preferred stock, which restricts the Parent’s ability to incur additional indebtedness or to issue preferred stock; • limitation on restricted payments, which generally restricts the Parent’s ability to declare certain dividends or distributions, repurchase its capital stock or make certain investments; • limitation on dividends and other payment restrictions affecting restricted subsidiaries or Regulated Subsidiaries, which generally limits the ability of certain of the Parent’s subsidiaries to pay dividends or make other transfers; • limitation on future Subsidiary Guarantors (as hereinafter defined), which prohibits certain of the Parent’s subsidiaries from guaranteeing its indebtedness or indebtedness of any restricted subsidiary unless the Notes are comparably guaranteed; • limitation on transactions with shareholders and affiliates, which generally requires transactions among the Parent’s affiliated entities to be conducted on an arm’s-length basis; • limitation on liens, which generally prohibits the Parent and its restricted subsidiaries from granting liens unless the Notes are comparably secured; and • limitation on asset sales, which generally prohibits the Parent and certain of its subsidiaries from selling assets or certain securities or property of significant subsidiaries. The indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Notes to become or to be declared due and payable. As of September 30, 2022, the Parent was in compliance with all of its covenants. The Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by the Subsidiary Guarantors and future subsidiaries are required to guarantee the Notes pursuant to the indenture. The Notes are secured by a first-priority security interest in substantially all of the Parent’s and the Subsidiary Guarantors’ existing and future tangible and intangible assets, subject to certain exceptions and permitted liens. Interest expense on the Notes for the three and nine months ended September 30, 2022 was $ 1.7 million and $ 5.2 million, respectively. Interest expense on the Notes for the three and nine months ended September 30, 2021 was $ 1.7 million and $ 5.2 million, respectively. 12. Income taxes The effective income tax rate for the three and nine months ended September 30, 2022 was 35.5 % and 36.4 % respectively, compared with 29.8 % and 27.6 % for the three and nine months ended September 30, 2021 and reflects the Company's annual estimate of the statutory federal and state tax rates adjusted for certain discrete items. The effective tax rate for the third quarter of 2022 was negatively impacted by unfavorable permanent items. 13. Stockholders' Equity The Company's authorized shares consist of (a) 50,000,000 shares of Preferred Stock, par value $ 0.001 per share; (b) 50,000,000 shares of Class A Stock, par value $ 0.001 per share; and (c) 99,665 shares of Class B Stock, par value $ 0.001 per share. No Preferred Stock has been issued. 99,665 shares of Class B Stock have been issued and are outstanding. The Class A Stock and the Class B Stock are equal in all respects except that the Class A Stock is non-voting. The following table reflects changes in the number of shares of Class A Stock outstanding for the periods indicated: 34 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Class A Stock outstanding, beginning of period 11,270,944 12,592,646 12,447,036 12,381,778 Issued pursuant to share-based compensation plans 17,098 31,582 103,549 242,450 Repurchased and canceled pursuant to the stock buy-back ( 413,052 ) ( 108,494 ) ( 1,675,595 ) ( 108,494 ) Class A Stock outstanding, end of period 10,874,990 12,515,734 10,874,990 12,515,734 Stock buy-back On May 15, 2020, the Company announced that its Board of Directors approved a share repurchase program that authorizes the Company to purchase up to 530,000 shares of the Company's Class A Stock, representing approximately 4.2 % of its 12,636,523 then issued and outstanding shares of Class A Stock. This authorization supplemented the 98,625 shares that remained authorized and available under the Company's previous share repurchase program for a total of 628,625 shares authorized and available for repurchase at May 15, 2020. On February 28, 2022, the Company announced that its Board of Directors approved a share repurchase program that authorizes the Company to purchase up to 518,000 shares of the Company's Class A Stock, representing approximately 4.2 % of its 12,322,073 then issued and outstanding shares of Class A Stock. This authorization supplemented the 12,407 shares that remained authorized and available under the Company's previous share repurchase program for a total of 530,407 shares authorized and available for repurchase at February 28, 2022. On May 24, 2022, the Company announced that its Board of Directors approved a share repurchase program that authorizes the Company to purchase up to 550,000 shares of the Company's Class A Stock, representing approximately 4.6 % of its 11,863,559 then issued and outstanding shares of Class A Stock. This authorization supplemented the 71,893 shares that remained authorized and available under the Company's previous share repurchase program for a total of 621,893 shares authorized and available for repurchase at May 24, 2022. On July 29, 2022, the Company's Board of Directors approved a share repurchase program that authorizes the Company to purchase up to 536,500 shares of the Company's Class A Stock, representing approximately 4.8 % of its 11,251,930 then issued and outstanding shares of Class A Stock. This authorization supplemented the 4,278 shares that remained authorized and available under the Company's previous share repurchase program for a total of 540,778 shares authorized. During the three months ended September 30, 2022, the Company purchased and canceled an aggregate of 413,052 shares of Class A Stock for a total consideration of $ 14.0 million ($ 33.86 per share) under this program. During the nine months ended September 30, 2022, the Company purchased and canceled an aggregate of 1,675,595 shares of Class A Stock for a total consideration of $ 60.4 million ($ 36.02 per share) under this program. During the three and nine months ended September 30, 2021, the Company purchased and canceled an aggregate of 108,494 shares of Class A Stock for a total consideration of $ 4.7 million ($ 43.46 per share) under this program. As of September 30, 2022, 152,726 shares remained available to be purchased under the share repurchase program. The Company repurchases shares from time to time in the open market at the prevailing open market price using cash on hand, in compliance with the applicable rules and regulations of the New York Stock Exchange and federal and state securities laws and the terms of the Company's Notes. All shares purchased will be canceled. The share repurchase program is expected to continue indefinitely. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of Class A Stock. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. 35 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) 14. Contingencies Many aspects of the Company's business involve substantial risks of liability. In the normal course of business, the Company has been named as defendant or co-defendant in various legal actions, including arbitrations, class actions and other litigation, creating substantial exposure and periodic expenses. Certain of the actual or threatened legal matters include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. These proceedings arise primarily from securities brokerage, asset management and investment banking activities. The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company's business, which may result in expenses, adverse judgments, settlements, fines, penalties, injunctions or other relief. The investigations include inquiries from the SEC, the Financial Industry Regulatory Authority ("FINRA") and various state regulators. The Company accrues for estimated loss contingencies related to legal and regulatory matters within Other Expenses in the condensed consolidated income statement when available information indicates that it is probable a liability had been incurred and the Company can reasonably estimate the amount of that loss. In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is often not possible to reasonably estimate the size of the possible loss or range of loss or possible additional losses or range of additional losses. For certain legal and regulatory proceedings, the Company cannot reasonably estimate such losses, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial, indeterminate or special damages. Counsel may be required to review, analyze and resolve numerous issues, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before the Company can reasonably estimate a loss or range of loss or additional loss for the proceeding. Even after lengthy review and analysis, the Company, in many legal and regulatory proceedings, may not be able to reasonably estimate possible losses or range of loss. For certain other legal and regulatory proceedings, the Company can estimate possible losses, or range of loss in excess of amounts accrued, but does not believe, based on current knowledge and after consultation with counsel, that such losses individually, or in the aggregate, will have a material adverse effect on the Company's condensed consolidated financial statements as a whole. For legal and regulatory proceedings where there is at least a reasonable possibility that a loss or an additional loss may be incurred, the Company estimates a range of aggregate loss in excess of amounts accrued of $ 0 to $ 47.0 million as of September 30, 2022. This estimated aggregate range is based upon currently available information for those legal proceedings in which the Company is involved, where the Company can make an estimate for such losses. For certain cases, the Company does not believe that it can make an estimate. The foregoing aggregate estimate is based on various factors, including the varying stages of the proceedings (including the fact that some are currently in preliminary stages), the numerous yet-unresolved issues in many of the proceedings and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Company's estimate will change from time to time, and actual losses may be more than the current estimate. On August 31, 2021, a complaint in a class action entitled 6694 Dawson Blvd, LLC, Individually and on Behalf of a Class of Similarly Situated Persons v. Oppenheimer & Co. Inc., James Wallace Woods, Michael J. Mooney, Britt Wright, William V. Conn, Jr., Conn & Co. Tax Practice, LLC, Conn & Company Consulting, LLC and Kathleen Lloyd, was filed in the U.S. District Court for the Northern District of Georgia. Plaintiff purported to represent a class of investors in Horizon Private Equity, III, LLC (“Horizon”). Horizon is alleged to be a fraudulent scheme and the plaintiff was seeking unspecified damages sounding in violations of the Georgia RICO statute, breach of fiduciary duty, procurement of breach of fiduciary duty, negligent misrepresentation, aiding and abetting fraud, unjust enrichment, punitive damages and attorneys’ fees. Plaintiff did not allege Oppenheimer received any of the funds invested in Horizon, but rather that Oppenheimer’s purported failure to properly supervise its employees allowed the alleged scheme to occur and continue. On November 22, 2021, Oppenheimer filed a motion to dismiss the complaint on a number of grounds. The motion to dismiss was fully briefed on January 17, 2022, and the 36 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) Court heard oral argument on the motion on June 21, 2022. On August 17, 2022, the Court granted Oppenheimer’s motion and dismissed the complaint without prejudice. On September 21, 2022, 6694 Dawson Blvd, LLC filed a first amended complaint solely on behalf of itself based on substantially the same allegations as the original complaint seeking unspecified damages sounding solely in violations of the Georgia RICO statute. On October 14, 2022, Oppenheimer filed a motion to dismiss the first amended complaint on a number of grounds. On October 21, 2022, 6694 Dawson Blvd, LLC voluntarily dismissed its first amended complaint without prejudice, thereby terminating the action. In addition to the class action described in the preceding paragraph Oppenheimer has also been named as a respondent in twenty-eight arbitrations, many containing multiple claimants, each filed before FINRA, relating to investments made by former Oppenheimer clients who invested in Horizon. Claimants allege many of the causes of action alleged in the class action described in the preceding paragraph. The arbitrations claiming specific monetary damages allege damages of approximately $ 45.3 million in the aggregate while others claim unspecified damages. Oppenheimer believes these claims to be without merit and intends to defend itself vigorously against these claims. One arbitration entitled Donald Robinson, Timothy and Sharon Padden, Rhett Rainey, Kelly A. Rainey Trust, Toucan Holdings LP, Robert Goodman, Robert Daniel Burgner, Individually and as Trustee of the Burgner Family Charitable Remainder Trust, Douglas Kasemeier, Wesley Callaway, and Billy Loveless v. Oppenheimer & Co. Inc. (the “Robinson Arbitration”) was commenced on August 31, 2021. On September 6, 2022, the arbitration panel found in favor of the claimants and awarded them total compensatory damages of approximately $ 5.7 million, RICO damages pursuant to O.C.G.A. § 16-14-6(c) of approximately $ 14.2 million, and punitive damages, attorneys’ fees and costs of approximately $ 16.8 million. The total amount awarded to claimants was $ 36,744,276 (the “Robinson Award”). On October 6, 2022, Oppenheimer filed a motion to vacate the Robinson Award with the Superior Court of DeKalb County, Georgia based on, among other defects, arbitrator bias, failure to postpone the hearing to permit key witnesses to testify, and manifest disregard of the law. On October 18, 2022, the claimants in the Robinson Arbitration filed a petition to confirm the Arbitration Award. Oppenheimer intends to vigorously pursue vacatur of the Robinson Award. 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules G-17 and G-27 in relation to its sales of municipal notes pursuant to an exemption from continuing disclosure contained in Rule 15c2-12. On September 13, 2022, the SEC filed a complaint against Oppenheimer in the United States District Court for the Southern District of New York (the “Court") alleging that Oppenheimer violated Section 15B(c)(1) of the Exchange Act and Rule 15c2-12 thereunder as well as Municipal Securities Rulemaking Board Rules 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. 15. Regulatory requirements The Company's U.S. broker dealer subsidiaries, Oppenheimer and Freedom, are subject to the uniform net capital requirements of the SEC under Rule 15c3-1 (the "Rule") promulgated under the Exchange Act. Oppenheimer computes its net capital requirements under the alternative method provided for in the Rule which requires that Oppenheimer maintain net capital equal to two percent of aggregate customer-related debit items, as defined in SEC Rule 15c3-3. As of September 30, 2022, the net capital of Oppenheimer as calculated under the Rule was $ 425.8 million or 32.17 % of Oppenheimer's aggregate debit items. This was $ 399.4 million in excess of the minimum required net capital at that date. Freedom computes its net capital requirement under the basic method provided for in the Rule, which requires that Freedom maintain net capital equal to the greater of $ 100,000 or 6-2/3% of aggregate indebtedness, as defined. As of September 30, 2022, Freedom had net capital of $ 4.3 million, which was $ 4.2 million in excess of the $ 100,000 required to be maintained at that date. 37 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) As of September 30, 2022, the capital required and held under the FCA’s Investment Firms’ Prudential Regime (“IFPR”) for Oppenheimer Europe Ltd. was as follows: • Common Equity Tier 1 ratio 127 % (required 56.0 %); • Tier 1 Capital ratio 127 % (required 75.0 %); and • Total Capital ratio 169 % (required 100.0 %). Effective January 2022, IFPR changed its minimum capital requirement, which is now sterling 750,000 (previously it was Euro 730,000 ). Capital ratios are now expressed differently, but are effectively unchanged when comparing performance to required regulatory minimums. As of September 30, 2022, Oppenheimer Europe Ltd. was in compliance with its regulatory requirements. As of September 30, 2022, the regulatory capital of Oppenheimer Investments Asia Limited was $ 4.8 million, which was $ 4.4 million in excess of the $ 382,163 required to be maintained on that date. Oppenheimer Investments Asia Limited computes its regulatory capital pursuant to the requirements of the Securities and Futures Commission of Hong Kong. As of September 30, 2022, Oppenheimer Investment Asia Limited is in compliance with its regulatory requirements. 16. Segment information The Company has determined its reportable segments based on the Company's method of internal reporting, which disaggregates its retail business by branch and its proprietary and investment banking businesses by product. The Company evaluates the performance of its segments and allocates resources to them based upon profitability. The Company's reportable segments are: Private Client — includes commissions and a proportionate amount of fee income earned on assets under management ("AUM"), net interest earnings on client margin loans and cash balances, fees from money market funds, custodian fees, net contributions from stock loan activities and financing activities, and direct expenses associated with this segment; and Asset Management — includes a proportionate amount of fee income earned on AUM from investment management services of Oppenheimer Asset Management Inc. Oppenheimer's asset management divisions employ various programs to manage client assets either in individual accounts or in funds, and includes direct expenses associated with this segment; and Capital Markets — includes investment banking, institutional equities sales, trading, and research, taxable fixed income sales, trading, and research, public finance and municipal trading, as well as the Company's operations in the United Kingdom, Hong Kong and Israel, and direct expenses associated with this segment. The Company does not allocate costs associated with certain infrastructure support groups that are centrally managed for its reportable segments. These areas include, but are not limited to, legal, compliance, operations, accounting, and internal audit. Costs associated with these groups are separately reported in a Corporate/Other category and primarily include compensation and benefits. The table below presents information about the reported revenue and pre-tax income (loss) of the Company for the three and nine months ended September 30, 2022 and 2021. Asset information by reportable segment is not reported since the Company does not produce such information for internal use by the chief operating decision maker. 38 Table of Contents OPPENHEIMER HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (unaudited) (Expressed in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Revenue Private client (1) $ 178,614 $ 160,864 $ 473,932 $ 491,750 Asset management (1) 24,870 26,894 76,302 76,668 Capital markets 90,947 128,585 247,272 460,129 Corporate/Other ( 320 ) ( 1,001 ) ( 145 ) 370 Total $ 294,111 $ 315,342 $ 797,361 $ 1,028,917 Pre-Tax Income (Loss) Private client (1) $ 29,973 $ 37,426 $ 92,919 $ 83,362 Asset management (1) 8,322 9,412 25,916 25,603 Capital markets 2,401 17,888 ( 14,368 ) 107,252 Corporate/Other ( 33,458 ) ( 27,332 ) ( 89,185 ) ( 83,528 ) Total $ 7,238 $ 37,394 $ 15,282 $ 132,689 (1) Clients investing in the OAM advisory program are charged fees based on the value of AUM. Advisory fees are allocated 10.0 % to the Asset Management and 90.0 % to the Private Client segments. Revenue, classified by the major geographic areas in which it was earned, for the three and nine months ended September 30, 2022 and 2021 was: (Expressed in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Americas $ 279,043 $ 304,726 $ 756,453 $ 987,918 Europe/Middle East 13,975 9,051 36,426 36,962 Asia 1,093 1,565 4,482 4,037 Total $ 294,111 $ 315,342 $ 797,361 $ 1,028,917 17. Subsequent events On October 28, 2022, the Company announced a quarterly dividend in the amount of $ 0.15 per share, payable on November 25, 2022 to holders of Class A Stock and Class B Stock of record on November 11, 2022. 39 Table of Contents