What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 114 added, 128 removed, 288 unchanged (46% of the section changed)

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("Oppenheimer") and Oppenheimer Asset Management Inc.

As of March 31, 2023, we provided our services from 92 offices in 25 states located throughout the United States and offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St.

As of June 30, 2023, we provided our services from 92 offices in 25 states located throughout the United States and offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St.

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

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

At March 31, 2023, client assets under management ("AUM") totaled $39.3 billion.

At June 30, 2023, client assets under management ("AUM") totaled $41.2 billion.

AUM includes the total market value of client investments in discretionary and non-discretionary advisory programs as well as the net asset value of private placements of alternative investments offered by and held by clients of the firm.

Client assets under administration ("CAUA") as of March 31, 2023 totaled $108.9 billion.

Client assets under administration ("CAUA") as of June 30, 2023 totaled $113.2 billion.

CAUA includes AUM and the other assets for which the firm provides services.

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

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

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

At March 31, 2023, the Company employed 2,916 employees (2,876 full-time and 40 part-time), of whom 959 were financial advisors.

At June 30, 2023, the Company employed 3,011 employees (2,897 full-time, 47 part-time and 67 summer interns), of whom 964 were financial advisors.

We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisors in our existing branch system and employment of experienced money management personnel in our asset management business as well as deploying our capital for expansion through targeted acquisitions.

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

The Company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where others have shown some success.

The Company also reviews its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where others have shown some success.

Equally important is the search for viable acquisition candidates.

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

In addition, the Company may from

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

Impact of Interest Rates

During the first quarter of 2023, the Federal Reserve ("FED") remained committed to tightening monetary policy as a means of combating inflation.

While modest decreases in key inflationary measures such as the Consumer Price Index demonstrated that the rate increases implemented throughout 2022 were beginning to have their intended impact, unexpectedly strong job growth and consumer spending data led the FED to conclude that further short-term rate increases were necessary.

As a result, the FED increased the Federal funds rate by 50 basis point to a target range of 4.75% to 5.00% during the three months ended March 31, 2023.

However, the smaller nature (25 basis point) of both first quarter 2023 rate increases balances the FED’s intention not to ‘over-tighten,’ while also acknowledging that a contraction in bank lending in light of the Silicon Valley Bank and Signature Bank failures will likely help ease inflation.

As a result of the banking failures, the FED has signaled that it will proceed with both prudence and patience in determining whether additional rate increases are warranted when it meets in May 2023.

The unexpected failure of two commercial banks (Silicon Valley Bank and Signature Bank) during the quarter, resulted from the rapid increase in interest rates during 2022 and the consequential impact on the value of fixed income investments by these banks and many others.

The increases in rates, which are intended to reduce inflation, are also likely to reduce economic activity possibly leading to a recession in the coming months.

These factors have already reduced customer confidence and are likely to continue to reduce discretionary spending, increase volatility in financial markets, and reduce revenues the Company derives from commissions and possibly from fees based on the value of client assets managed by the Company should equity prices decline.

In addition, the Company may from time to time make minority

private investments out of excess capital in allied or unrelated businesses with the goal of either syndicating the investment to eligible clients or retaining ownership because we believe them to be an attractive investment.

Impact of Change in Short-term Interest Rates

At its May 2023 meeting, the Federal Reserve ("FED") remained committed to tightening monetary policy as a means to lower inflation and, as a result, increased the Federal Funds rate by 25 basis points to a new target range of 5.00% to 5.25%.

While several macroeconomic factors continued to suggest that further policy action would be necessary to cool the economy to achieve its 2% inflation target, the FED decided against enacting further rate increases for the first time in 10 meetings at its meeting in June, largely out of caution to see how the existing rate increases have impacted the broader economy and to prevent overtightening in light of the collapse of three midsized banks in the spring.

However, based on a continuation of strong employment and other positive economic data throughout the quarter, it is likely that another rate increase will occur in the third quarter of 2023.

The increases in the Federal funds rate are favorable to the Company's interest-based revenue.

However, increases in interest rates will increase fees the Company earns from FDIC-insured deposits of clients through a program offered by the Company, though such increases may be offset to some extent if the cash sweep balances decrease as clients seek higher-yielding investments.

While increases in interest rates will increase fees the Company earns from FDIC-insured deposits of clients through a program offered by the Company, such increases may be offset to some extent if the cash sweep balances continue to decrease as clients seek higher-yielding investments.

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

In February 2022, without provocation, Russia invaded Ukraine.

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

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

The impact of the sanctions initially was to significantly increase the price of hydrocarbons and the cost of various agricultural products produced by both Russia and Ukraine.

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

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

and, thus on our business.

However, that impact has largely abated and the equity markets have performed quite well in early 2023 as they continue to try to discern the likely direction of the world economy as it is impacted by these crosscurrents.

COVID-19 PANDEMIC

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

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

Since the direct impact of the virus has been substantially reduced, we have seen increased attendance at the workplace as local regulations have been loosened, hospital visits reduced and a larger portion of the population vaccinated.

The aftermath of the pandemic has continued to produce lower office attendance than pre-pandemic and had an ongoing impact on attitudes surrounding work-life balance.

Some employees from our home office and branch locations continue to work remotely at least part of each week but the efforts continue to encourage office attendance.

There can be no assurance at this time that improvements in attendance will continue and we continue to closely monitor the long term impact and to adjust our office footprints as real estate leases expire.

“Dutch auction” Tender Offer

On May 31, 2023, the Company announced the commencement of a modified “Dutch Auction” tender offer to purchase up to $30.0 million of its Class A non-voting common stock at a price not less than $34.00 per share or more than $40.00 per share.

The purpose of the tender offer, among others, was to assure that sufficient liquidity existed for our stockholders that may be required to sell Class A shares when they were removed from the Russell 2000 and 3000 indices.

The Company was advised that, as a result of the fact that voting rights are exclusively associated with the Company’s Class B voting common stock, which does not publicly trade, the Company’s Class A non-voting common stock was to be removed from the Russell 2000 and Russell 3000 on June 23, 2023.

The Company completed its repurchases pursuant to the tender offer on July 6, 2023, when it successfully repurchased and cancelled 437,183 shares of Class A non-voting common stock for an aggregate purchase price of $17.49 million.

As a result, the Company had 10,447,392 shares outstanding on July 6, 2023 after the purchase.

EXECUTIVE SUMMARY

The profitable results for the quarter reflect our ability to continue supporting and advising our clients and prudently managing our business in all types of markets.

Due to a combination of macroeconomic factors and turmoil within the

regional banking industry, the equity and fixed income markets were volatile during the first quarter of the year.

Convinced that Federal Reserve ("FED") tightening would soon end, the equity markets rallied to start the year.

However, unexpected bank failures created large uninsured bank deposit withdrawals at certain regional banks that led to the fear of a broader bank contagion.

Early action by the regulators to provide liquidity to banks seems to have dramatically slowed the move of funds into money market funds and short-term government securities.

While the Company did not have any direct exposures to the failed institutions, the events caused a reaction in equity and fixed income markets, impacted portfolio turnover and our transaction-based revenues.

Rising interest rates and fear of a recession significantly limited issuers' access to capital, resulting in markedly lower investment banking revenues associated with new equity issuances and secondary offerings.

Strong M&A advisory fees and trading revenues offset some of the weakness seen in the IPO market.

Our Wealth Management business continues to perform well, as its revenue mix has benefited from the rising interest rate environment.

Income from our FDIC-insured bank deposit program and interest income on margin loans approached record quarterly levels as a result of the FED’s 50 basis point rate increase during the quarter.

These revenue increases were partially offset by lower valuations in client portfolios, which drove decreased fee income.

Despite the volatility and market stress seen in the first quarter, the Company continues to maintain a strong balance sheet with capital near its historic highs and ample levels of liquidity.

During the first quarter, the Company took advantage of the lower level of its share price to purchase 95,055 shares (approximately 1%) of its Class A non-voting common stock at an average price of $38.79 per share in the open market under its share repurchase program.

This resulted in 10,975,723 shares of Class A non-voting common stock remaining outstanding at March 31, 2023.

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

The growth in our total revenue highlighted the ability of our diversified business mix to successfully operate in a mixed but still growing economy.

While our operating businesses performed quite well, the Company’s overall results were adversely impacted by the accrual of a significant legal reserve related to a previously disclosed matter.

We believe that this reserve will permit us to cover anticipated costs related to the matter, even though the reserve created a net loss for the quarter.

During the quarter, the markets performed better than expected, as the S&P 500 and Nasdaq continued to advance upward in large part due to investor enthusiasm for generative A.I.

On the economic front, unemployment hovered near historic lows and strong consumer spending on travel and services continued to buoy the economy along with increases in wages.

The Federal Reserve continued its 15-month tightening campaign, though at a moderated pace, owing to encouraging inflationary trends and general reservations about over-tightening in light of the earlier regional bank failures.

These conditions strongly aided our Wealth Management business, where interest sensitive margin interest and sweep revenue registered large increases from the prior year and AUM began approaching levels reached prior to last year’s market decline.

The lack of speculative activity resulted in continued lower transaction-based commission revenue.

Capital Markets’ operating results showed modest improvement with higher M&A advisory fees, equities underwriting and sales and trading revenue offsetting lower fixed income underwriting revenue, as continued uncertainty and higher interest rates limited issuances.

The Company’s balance sheet and capital position remain strong, with ample levels of liquidity.

During the second quarter, the Company purchased 96,135 shares (1%) of its Class A Stock at an average price of $37.43 per share in the open market under its share repurchase program.

This resulted in 10,884,575 shares of Class A Stock remaining outstanding at June 30, 2023.

The Company also launched a “Dutch auction” tender offer during the quarter through which it committed to repurchase an additional 437,183 shares at a price of $40.00 per share.

The repurchase of shares in conjunction with the tender offer was completed in July and after adjusting for shares repurchased under the Tender Offer, there were 10,447,392 shares of Class A Stock remaining outstanding at July 6, 2023.

Both of these actions permitted us to reach record levels in book value and tangible book value per share.

We remain confident in our businesses and ability to continue delivering value to our stakeholders.

RESULTS OF OPERATIONS

The Company reported net income of $14.6 million or $1.32 basic earnings per share for the first quarter of 2023, compared with net income of $9.3 million or $0.75 basic earnings per share for the first quarter of 2022.

Revenue for the first quarter of 2023 was $321.7 million, an increase of 20.9% compared to revenue of $266.0 million for the first quarter of 2022.

The Company reported a net loss of $9.4 million or $(0.85) per share for the second quarter of 2023, compared with a loss of $3.9 million or $(0.32) per share for the second quarter of 2022.

Revenue for the second quarter of 2023 was $306.2 million, an increase of 29.1% compared to revenue of $237.2 million for the second quarter of 2022.

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

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Non-compensation expense $ 130,664 $ 65,412 $ 65,252 99.8

Pre-Tax Income $ 19,049 $ 14,213 $ 4,836 34.0

Income Taxes Provision $ 4,585 $ 4,435 $ 150 3.4

Net Income (1)

Pre-Tax (Loss) $ (11,699) $ (6,169) $ (5,530) 89.6

Income Taxes (Benefit) $ (2,131) $ (1,449) $ (682) 47.1

Net (Loss) (1)

$ (9,400) $ (3,874) $ (5,526) 142.6

Earnings per share (basic) (1)

(Loss) per share (basic) (1)

$ (0.85) $ (0.32) $ (0.53) 165.6

Earnings per share (diluted) (1)

(Loss) per share (diluted) (1)

$ (0.85) $ (0.32) $ (0.53) 165.6

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

• Gross revenue, net income, and earnings per share for the first quarter of 2023 primarily reflected increases in our interest sensitive revenues, growth in M&A advisory fees and stronger sales and trading revenues partially offset by lower activity levels and valuations in client portfolios.

• Assets under administration and under management were both at reduced levels at March 31, 2023 when compared with the same period last year.

• Non-compensation expenses increased from the prior year quarter largely due to higher interest expense and legal costs.

• Near record revenues in the Private Client segment are largely attributed to higher bank deposit sweep income and margin interest revenue, which benefited from higher short-term interest rates.

• The Company repurchased 95,055 shares of Class A non-voting common stock during the first quarter of 2023 under its previously announced share repurchase program, or approximately 1% of shares outstanding at year-end 2022.

• Book value and tangible book value per share increased from the prior year period largely as a result of share repurchases and positive earnings.

• Increased revenue for the second quarter of 2023 is primarily driven by a rise in interest sensitive income, including margin interest and bank deposit sweep income.

• The second quarter 2023 net loss is primarily attributable to an increase in non-compensation expenses, which was mostly driven by the accrual of a significant legal reserve associated with a previously disclosed matter.

• Assets under administration and under management were both at higher levels at June 30, 2023 when compared with the same period last year, benefiting from market appreciation and positive net asset flows.

• The Company repurchased 96,135 shares of Class A Stock during the second quarter of 2023 under its previously announced share repurchase program, or approximately 1% of shares outstanding at year-end.

• The Company also launched a “Dutch auction” tender offer, which resulted in the repurchase and retirement of an additional 437,183 shares of Class A non-voting common stock when the transaction closed in July 2023.

• Book value and tangible book value per share increased from the prior year period primarily as a result of share repurchases.

BUSINESS SEGMENTS

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months ended March 31, 2023 and 2022:

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three and six months ended June 30, 2023 and 2022:

(Expressed in thousands)

For the Three Months Ended March 31,

2023 2022 % Change

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

2023 2022 % Change 2023 2022 % Change

Private Client $ 201,245 $ 144,471 39.3 $ 404,666 $ 295,318 37.0

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Private Client

Private Client reported revenue for the current quarter of $203.4 million, 34.9% higher compared with a year ago mostly due to an increase in bank deposit sweep income and margin interest income driven by higher short-term interest rates.

Pre-tax income of $54.5 million in the current quarter resulted in a pre-tax profit margin of 26.8%.

Financial advisor headcount at the end of the current quarter was 959 compared to 993 at the end of the first quarter of 2022.

Private Client reported revenue for the current quarter of $201.2 million, 39.3% higher when compared with the prior year period.

Pre-tax income was $20.8 million, compared with pre-tax income of $38.8 million in the prior year period.

Financial advisor headcount at the end of the current quarter was 964 compared to 990 at the end of the second quarter of 2022.

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

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*Percentage not meaningful

• Retail commissions decreased 9.8% from a year ago primarily due to lower client activity in volatile markets.

• Advisory fees decreased 13.5% due to lower valuations of assets under management.

• Bank deposit sweep income increased $44.6 million from a year ago due to higher short-term interest rates.

• Interest revenue approached a record high and increased 152.6% from a year ago due to higher short-term interest rates.

• Retail commissions were flat compared with the prior year quarter due to continued lower retail trading activity.

• Advisory fees decreased 5.1% from a year ago primarily due to lower AUM during the billing period for the current quarter when compared to the second quarter of last year.

• Bank deposit sweep income increased $29.2 million or 197% from a year ago due to higher short-term interest rates partially offset by lower cash sweep balances.

• Interest revenue approached record level and increased 116.1% from a year ago due to higher short-term interest rates.

• Other revenue increased primarily due to increases in the cash surrender value of Company-owned life insurance policies , which fluctuates based on changes in fair value of the policies' underlying investments.

• Compensation expenses decreased 4.8% from a year ago primarily due to decreased production.

• Non-compensation expenses increased 100.7% from a year ago primarily due to higher interest expense and legal costs.

• Compensation expenses increased 28.7% from a year ago primarily due to higher share-based and deferred compensation costs.

• Non-compensation expenses increased substantially (185.7%) from a year ago primarily due to additional accrual of a significant legal reserve associated with a previously disclosed matter.

Asset Management

Asset Management reported revenue for the current quarter of $24.0 million, 11.6% lower compared with a year ago.

Asset Management reported revenue for the current quarter of $22.2 million, 8.7% lower when compared with the prior year period.

Pre-tax income was $6.5 million, a decrease of 19.5% compared with the prior year period.

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AUM (billions) $ 41.2 $ 37.1 $ 4.1 11.1

• Advisory fee revenue decreased 11.7% due to reduced management fees resulting from the lower net value of assets under management.

• AUM were at reduced l evels of $39.3 billion at March 31, 2023, which is the basis for advisory fee billings for April 2023.

• The decrease in AUM was comprised of lower asset values of $3.1 billion on existing client holdings and a net distribution of assets of $0.3 billion.

• Compensation expenses were up 7.5% from a year ago which was primarily related to increases in incentive compensation.

• Non-compensation expenses were down 6.6% when compared to the prior year period mostly due to lower external portfolio management costs which is directly related to the decrease in AUM, partially offset by higher travel-related expenses.

The following table provides a breakdown of the change in assets under management for the three months ended March 31, 2023:

• Advisory fees decreased 8.7% from a year ago due to reduced management fees resulting from the lower net value of billable AUM during the quarter.

• AUM increased to $41.2 billion at June 30, 2023, which is the basis for advisory fee billings for July 2023.

• The increase in AUM was comprised of higher asset values of $3.7 billion on existing client holdings and a net contribution of $0.4 billion in new assets.

• Compensation expenses were down 6.2% from a year ago which was primarily related to decreases in incentive compensation.

• Non-compensation expenses were down 1.2% when compared to the prior year period mostly due to lower external portfolio management costs which are directly related to the decrease in billable AUM, partially offset by higher communication and technology expenses.

The following table provides a breakdown of the change in assets under management for the three months ended June 30, 2023:

(Expressed in millions)

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Fund Type Beginning Balance Contributions Redemptions/Profit Distribution Appreciation (Depreciation) Ending Balance

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Capital Markets reported revenue for the current quarter of $79.6 million, 11.7% higher when compared with the prior year period.

Pre-tax loss was $15.5 million compared with pre-tax income of $1.2 million a year ago.

Pre-tax loss was $14.1 million, compared with a pre-tax loss of $17.9 million in the prior year period.

('000s) 2Q-2023 2Q-2022 Change % Change

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Non-compensation $ 32,378 $ 22,037 $ 10,341 46.9

Pre-tax Income (Loss) $ (15,477) $ 1,166 $ (16,643) *

Pre-tax Loss $ (14,051) $ (17,935) $ 3,884 (21.7)

Compensation Ratio 77.0 % 94.2 % (1,720) (18.3)

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Pre-tax Margin (17.7) % (25.2) % 7.5 % (29.8)

*Percentage not meaningful

• Advisory fees earned from investment banking activities increased 32.1% compared with a year ago due to an increase in M&A transactions.

• Equity underwriting fees decreased 34.6% compared with a year ago due to a continued market slowdown in equity IPOs and secondary offerings, including SPAC issuances.

• Fixed income underwriting fees were down 54.9% compared with a year ago primarily driven by lower deal volumes during the first quarter of 2023.

• Equities sales and trading revenue decreased 11.8% compared with a year ago due to reduced volumes in the equities market compared to the levels in the prior year period.

• Fixed income sales and trading revenues increased 38.4% compared with a year ago primarily due to both an increase in trading income attributable to wider spreads and also increased activity due to high volatility during the period.

• Compensation expenses increased 27.5% compared with a year ago primarily due to opportunistic hiring and increased incentive compensation.

• Equities underwriting fees modestly increased by $2.7 million when compared with a year ago, when IPO and secondary offerings were at historically low levels industry-wide.

• Fixed income underwriting fees were down 42.7% compared with a year ago primarily driven by lower deal volumes during the second quarter of 2023.

• Equities sales and trading revenue decreased 7.2% compared with a year ago due to reduced volumes as a result of lower market volatility.

• Fixed income sales and trading revenue increased by 36.7% compared with a year ago primarily due to an increase in trading income attributable to higher volumes.

• Compensation expenses decreased 8.8% compared with a year ago primarily due to decreased incentive compensation.

• Non-compensation expenses were 46.9% higher than a year ago primarily due to an increase in interest expense in financing inventories.

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Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

During the three months ended March 31, 2023, there were no material changes to matters discussed under the heading "Critical Accounting Polices" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

During the six months ended June 30, 2023, there were no material changes to matters discussed under the heading "Critical Accounting Polices" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2023, total assets increased by 7.6% from December 31, 2022.

At June 30, 2023, total assets increased by 13.9% from December 31, 2022.

The Company satisfies its need for short-term financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit.

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The amount of Oppenheimer's bank borrowings fluctuates in response to changes in the level of the Company's securities inventories and customer margin debt, changes in notes receivable from employees, investment in furniture, equipment and leasehold improvements, and changes in stock loan balances and financing through repurchase agreements.

At March 31, 2023, the Company had bank call loans of $19.3 million compared to zero at December 31, 2022.

At June 30, 2023, the Company had bank call loans of $94.4 million compared to zero at December 31, 2022.

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

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The regulatory capital requirements for Oppenheimer Europe Ltd.

and Oppenheimer Investments Asia Limited were $5.1 million and $382,172, respectively, at March 31, 2023.

and Oppenheimer Investments Asia Limited were $5.4 million and $382,854, respectively, at June 30, 2023.

The liquid assets at Oppenheimer Europe Ltd.

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We used the net proceeds from the offering of the Unregistered Notes, along with cash on hand, to redeem in full our 6.75% Senior Secured Notes due July 1, 2022 in the principal amount of $150.0 million (the Company held $1.4 million in treasury for a net outstanding amount of $148.6 million), and pay all related fees and expenses related thereto.

On November 23, 2020, we completed an exchange offer in which we exchanged 99.8% of our Unregistered Notes for a like principal

amount of notes with identical terms (the "Notes"), except that such new Notes have been registered under the Securities Act.

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

We did not receive any proceeds in the exchange offer.

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During the first quarter of 2023, the Company repurchased and subsequently cancelled $1.0 million of the Notes, recognizing a small extinguishment gain.

As of March 31, 2023, $113.05 million aggregate principal amount of the Notes remains outstanding.

As of June 30, 2023, $113.05 million aggregate principal amount of the Notes remains outstanding.

The Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by E.A.

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

The following tables present the results of operations for the three months ended March 31, 2023 and the balance sheet at March 31, 2023 for the Parent and Subsidiary Guarantors.

The following tables present the results of operations for the six months ended June 30, 2023 and the balance sheet at June 30, 2023 for the Parent and Subsidiary Guarantors.

(Expressed in thousands) As of

March 31, 2023

June 30, 2023

Total Assets $ 2,044,507

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Due To Non-Guarantor Subsidiary 20,624

For the Three Months Ended

March 31, 2023

For the Six Months Ended

June 30, 2023

Total Revenue $ 5,258

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

We issued $10.8 million in forgivable notes (which are inherently illiquid) to employees for the three months ended March 31, 2023 ($7.7 million for the three months ended March 31, 2022) as upfront or backend inducements to commence or continue employment as the case may be.

We issued $1.5 million in forgivable notes (which are inherently illiquid) to employees for the three months ended June 30, 2023 ($5.1 million for the three months ended June 30, 2022) as upfront or backend inducements to commence or continue employment as the case may be.

The amount of funds allocated to such inducements will vary with hiring activity.

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

At March 31, 2023, the Company had $19.3 million of bank call loans (zero at December 31, 2022).

The average daily bank loan outstanding for the three months ended March 31, 2023 was $57.5 million ($87.1 million for the three months ended March 31, 2022).

The largest daily bank loans outstanding for the three months ended March 31, 2023 was $167.3 million ($190.2 million for the three months ended March 31, 2022).

At March 31, 2023, securities loan balances totaled $368.1 million ($320.8 million at December 31, 2022 and $300.3 million at March 31, 2022).

The average daily securities loan balance outstanding for the three months ended March 31, 2023 was $341.4 million ($304.1 million for the three months ended March 31, 2022).

The largest daily stock loan balance for the three months ended March 31, 2023 was $388.4 million ($350.1 million for both of the three months ended March 31, 2022).

At June 30, 2023, the Company had $94.4 million of bank call loans (zero at December 31, 2022).

The average daily bank loan outstanding for the three and six months ended June 30, 2023 was $77.8 million and $67.7 million, respectively ($111.5 million and $99.4 million for the three and six months ended June 30, 2022).

The largest daily bank loans outstanding for the three and six months ended June 30, 2023 was $153.3 million and $167.3 million, respectively ($226.6 million for both the three and six months ended June 30, 2022).

At June 30, 2023, securities loan balances totaled $336.5 0 million ($320.8 million at December 31, 2022 and $281.4 million at June 30, 2022).

The average daily securities loan balance outstanding for the three and six months ended June 30, 2023 was $362.9 million and $352.1 million, respectively ($269.6 million and $286.9 for the three and six months ended June 30, 2022).

The largest daily stock loan balance for both of the three and six months ended June 30, 2023 were $391.5 million ($302.9 million and $350.1 million for the three and six months ended June 30, 2022).

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

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

At March 31, 2023, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At March 31, 2023, the gross balances of reverse repurchase agreements and repurchase agreements were $30.1 million and $310.5 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended March 31, 2023 was $179.0 million and $283.1 million, respectively ($132.4 million and $443.5 million, respectively, for the three months ended March 31, 2022).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended March 31, 2023 was $506.4 million and $634.9 million, respectively ($462.5 million and $644.1 million, respectively, for the three months ended March 31, 2022).

At June 30, 2023, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At June 30, 2023, the gross balances of reverse repurchase agreements and repurchase agreements were $40.1 million and $685.4 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended June 30, 2023 was $146.8 million and $501.8 million, respectively ($146.9 million and $291.8 million, respectively, for the three months ended June 30, 2022).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended June 30, 2023 was $392.1 million and $782.1 million, respectively ($435.7 million and $540.1 million, respectively, for the three months ended June 30, 2022).

Liquidity Management

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

Our liquidity needs may be affected by market conditions, increased inventory positions,

business expansion and other unanticipated occurrences.

Our liquidity needs may be affected by market conditions, increased inventory positions, business expansion and other unanticipated occurrences.

In the event that existing financial resources do not satisfy our liquidity needs, we may have to seek additional external financing.

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We have Company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans.

Certain policies which could provide additional liquidity if needed had a cash surrender value of $79.1 million as of March 31, 2023.

Certain policies which could provide additional liquidity if needed had a cash surrender value of $83.5 million as of June 30, 2023.

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

Regulators are increasingly focused on Liquidity Management and we anticipate both new rules regarding the management of our day-to-day liquidity as well as increased regulatory scrutiny of the compliance with any such rules.

Recent bank failures did not result in reducing the availability of funding or any disruption in the Company’s business.

Should such disruption occur in the future, we have plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.

Our primary long-term cash requirements include $112.5 million principal outstanding as of March 31, 2023 under our Senior Secured Notes (due in 2025) and $193.4 million of operating lease obligations.

Our primary long-term cash requirements include $112.5 million principal outstanding as of June 30, 2023 under our Senior Secured Notes (due in 2025) and $196.9 million of operating lease obligations.

The total cash requirement for interest expense related to the Notes and operating lease obligations is estimated to be approximately $9.8 million for the remainder of 2023.

(Expressed in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash used in operating activities $ (150,811) $ (231,371)

Cash used in investing activities (9,179) (1,116)

Cash provided by/(used in) financing activities 7,033 (11,654)

Cash provided by financing activities 76,971 55,444

Net decrease in cash, cash equivalents and restricted cash $ (83,019) $ (177,043)

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

The commencement of hostilities between Ukraine and Russia has resulted in increased attacks on the infrastructure of data processing facilities around the world and heightened awareness of potential vulnerabilities including the compliance of Company.

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

Such planning and protection are subject to the SEC's and FINRA's oversight and examination on a periodic or targeted basis.

We expect that regulatory oversight will intensify, as a result of publicly announced data breaches by other organizations involving

tens of millions of items of personally identifiable information.

We expect that regulatory oversight will intensify, as a result of publicly announced data breaches by other organizations involving tens of millions of items of personally identifiable information.

We continue to implement protections and adopt procedures to address the risks posed by the current information technology environment.

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

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

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

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

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

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

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

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Like the proposal (but in contrast to the precursor rule the DOL finalized in April 2016 that the U.S.

Court of Appeals for the Fifth Circuit later vacated in June 2018), the final exemption does not materially change the scope of fiduciary activities under ERISA, with the exception of including certain rollover-related advice as fiduciary advice.

Court of Appeals for the Fifth Circuit later vacated in June 2018), the

final exemption does not materially change the scope of fiduciary activities under ERISA, with the exception of including certain rollover-related advice as fiduciary advice.

The effective date for compliance with the PTE was February 1, 2022.

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

As of March 31, 2023, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

As of June 30, 2023, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

See note 15 to the condensed consolidated financial statements in Item 1 for further information on regulatory capital requirements.

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On November 18, 2022, the Company received an information request from the SEC requesting information relating to the use of text messaging and similar forms of electronic communications by employees of the Company and whether those communications were properly retained by the Company as part of its records preservation requirements relating to the broker-dealer or investment adviser business activities of the Company.

The Company has submitted multiple responses to the information request and continues to cooperate with the SEC inquiry.

Subsequently, the Company received a similar information request from the Commodity Futures Trading Commission (“CFTC”).

The Company has submitted multiple responses to the information request and continues to cooperate with the SEC and CFTC inquiries.

The SEC has under consideration a number of rules that are believed will change the operation of the equity markets and may disrupt and/or remove liquidity from the markets as well as significant rule proposals relating to cybersecurity, climate change and investment advisory custodial practices.

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

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

tax laws that could affect the popularity of products sold by the Company or impose taxes on securities transactions, (x) the adoption and implementation of the SEC’s “Regulation Best Interest” and other regulations adopted in recent years, (xi) war, terrorist acts and nuclear confrontation as well as political unrest, including events relating to Russia's invasion of Ukraine and related Western sanctions, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU (“Brexit”) and economic uncertainty in the UK, EU and elsewhere, (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, bank failures, changes in or uncertainty surrounding regulation, and the potential for default by the U.S.

government on the nation's debt, (xviii) risks related to changes in capital requirements under international standards that may cause banks to back away from providing funding to the securities industry, and (xix) risks related to the severity and duration of the COVID-19 Pandemic, the COVID-19 Pandemic’s impact on the U.S.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the three months ended March 31, 2023, there were no material changes to the information contained in Part II, Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

During the six months ended June 30, 2023, there were no material changes to the information contained in Part II, Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis