What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 112 added, 110 removed, 292 unchanged (43% of the section changed)

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("Oppenheimer") and Oppenheimer Asset Management Inc.

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.

As of September 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, Munich, Germany, Hong Kong, China, London, England, St.

Helier, Isle of Jersey, 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 June 30, 2023, client assets under management ("AUM") totaled $41.2 billion.

At September 30, 2023, client assets under management ("AUM") totaled $40.4 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 June 30, 2023 totaled $113.2 billion.

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

Client assets under administration ("CAUA") as of September 30, 2023 totaled $110.7 billion.

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

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 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.

Through OPY Credit Corp., we conduct our secondary trading activities related to the purchase and sale of loans, primarily on a riskless principal basis.

At September 30, 2023, the Company employed 2,956 employees (2,916 full-time, 36 part-time and 4 summer interns), of whom 946 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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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.

During the third quarter, the Federal Reserve (“FED”) continued at a slower pace and magnitude of rate increases in what we believe to be the final stages of its tightening cycle.

In response to inflation remaining above the FED’s 2% target coupled with strong job gains, the FED increased the Federal Funds rate by 25 basis points at its July 2023 meeting to a new target range of 5.25% to 5.50%, which is the highest level in 22 years.

After eleven meetings with a rate increase, the FED paused on further tightening actions at its September 2023 meeting, in light of an improved outlook on core inflation and a desire to proceed carefully given the uncertainty that exists around energy costs, labor strife and other potential headwinds including the geopolitical risks emanating from the wars in the Ukraine and now Israel.

The FED’s forecast currently projects one additional rate increase during 2023.

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

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.

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 an 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 which have a positive impact on our earnings.

2023 Israel-Hamas War

On October 7, 2023, Hamas initiated an unprovoked invasion of Israel from the Gaza Strip, resulting in thousands of casualties.

Israel formally declared war on Hamas in response to the attack and initiated several military operations in an effort to clear militants from the area.

The war has triggered a humanitarian crisis, with thousands displaced from their homes and many without food, water or electricity.

There remains a risk that the conflict could expand into a wider regional war, which could have an adverse impact on the worldwide economy, financial markets and thus on our business.

At this time, the conflict has not yet had a material impact on our business operations in Israel.

“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.

On July 6, 2023, the Company completed its “Dutch Auction” tender offer.

A total of 437,183 shares of the Company's Class A Stock, par value $0.001 per share were properly tendered at a purchase price of $40.00 per share for an aggregate cost of approximately $17.49 million.

The purpose of the tender offer, among others, was to assure that sufficient liquidity existed for our stockholders that might have been required to sell shares of Class A Stock when they were removed from the Russell 2000 and 3000 indices at the end of June 2023.

EXECUTIVE SUMMARY

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.

The profitable results for the quarter reflect improved performance across many of our businesses, owing to higher interest rates and increased market volumes emanating from a still resilient economy.

The rate of inflation continued to stabilize, while the labor market remained strong despite higher interest rates and labor unrest.

economy can perhaps yet achieve a “soft landing”.

The stronger economy, however, has led to a market expectation that the Federal Reserve will maintain "higher for longer" interest rates well into 2024 which, in conjunction with continued fighting in Ukraine and the new eruption of unparalleled violence in Israel and Gaza, has resulted in a pullback in most major equity indices.

Our Wealth Management business continued to benefit from recent macroeconomic conditions, with the elevated interest rate environment driving large increases in bank deposit sweep income and margin interest revenue compared to the prior year period.

Higher valuations in client portfolios and the addition of new client assets also resulted in meaningful improvements in advisory fees, though these were offset to some extent by the stock market retreat during the quarter and lower transaction-based fees due to subdued client activity.

Our Capital Markets business also generated strong results, with higher fixed income sales and trading and somewhat higher equities underwriting revenues offsetting lower M&A advisory fees.

We finished the quarter with a strong balance sheet and ample capital levels that will permit us to continue seeking investment opportunities across our businesses.

During the quarter, the Company completed its previously disclosed “Dutch auction” tender offer in which we repurchased 437,183 shares of our Class A non-voting common stock at a price of $40.00 per share.

During the quarter, the Company also purchased 168,904 shares (2%) of our Class A non-voting common stock at an average price of $38.30 per share in the open market under our share repurchase program.

This resulted in 10,289,233 shares of Class A non-voting common stock remaining outstanding, resulting in book value and tangible book value per share at record levels as of September 30, 2023.

RESULTS OF OPERATIONS

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.

The Company reported a net income of $13.9 million or $1.32 basic earnings per share for the third quarter of 2023, compared with net income of $4.5 million or $0.40 per share for the third quarter of 2022.

Revenue for the third quarter of 2023 was $312.7 million, an increase of 6.3% compared to revenue of $294.1 million for the third quarter of 2022.

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

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Non-compensation expense $ 95,396 $ 107,739 $ (12,343) (11.5)

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

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

Net (Loss) (1)

Pre-Tax Income $ 21,587 $ 7,238 $ 14,349 198.2

Income Taxes Provision $ 7,808 $ 2,573 $ 5,235 203.5

Net Income (1)

$ 13,861 $ 4,520 $ 9,341 206.7

(Loss) per share (basic) (1)

Earnings per share (basic) (1)

$ 1.32 $ 0.40 $ 0.92 230.0

(Loss) per share (diluted) (1)

Earnings per share (diluted) (1)

$ 1.21 $ 0.37 $ 0.84 227.0

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

• 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.

• Increased revenue for the third quarter of 2023 was primarily driven by a rise in interest sensitive income, including margin interest and bank deposit sweep income, as well as higher fixed income sales and trading and equities underwriting revenues.

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

• Non-compensation expenses decreased from the prior year quarter largely due to lower legal costs partially offset by higher interest expense.

• The Company completed its “Dutch Auction” tender offer, resulting in the repurchase of 437,183 shares of the Company's Class A non-voting common stock.

The Company also repurchased 168,904 shares of Class A Stock during the third quarter of 2023 under its previously announced share repurchase program, or approximately 2% of shares outstanding at year-end 2022.

• Book value and tangible book value per share reached new record highs as a result of positive earnings and share re-purchases.

BUSINESS SEGMENTS

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

(Expressed in thousands)

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

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

2023 2022 % Change 2023 2022 % Change

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Pre-tax income was $65.2 million, compared with pre-tax income of $30.0 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)

Financial advisor headcount at the end of the current quarter was 946 compared to 985 at the end of the third quarter of 2022.

('000s unless otherwise indicated)

3Q-2023 3Q-2022 Change % Change

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Cash Sweep Balances (billions) $ 3.5 $ 6.5 $ (3.0) (46.2)

*Percentage not meaningful

• 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.

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

• Advisory fees increased 6.0% from a year ago primarily due to higher AUM during the billing period for the current quarter when compared to the third quarter of last year.

• Bank deposit sweep income increased $6.5 million or 18.3% 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 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.

• Interest revenue increased 46.8% from a year ago due to higher short-term interest rates.

• Other revenue decreased from a year ago primarily due to lower Company-owned life insurance death benefit proceeds.

• Compensation expenses increased 5.5% from a year ago primarily due to higher production-related expenses and deferred compensation costs, partially offset by lower share-based compensation expenses.

• Non-compensation expenses decreased 41.7% from a year ago primarily due to lower legal costs.

Asset Management

Asset Management reported revenue for the current quarter of $20.8 million, 16.2% 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.

Pre-tax income was $5.0 million, a decrease of $3.4 million compared with the prior year period.

('000s unless otherwise indicated) 3Q-2023 3Q-2022 Change % Change

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AUM (billions) $ 40.4 $ 35.3 $ 5.1 14.4

• 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.

*Percentage not meaningful

• Advisory fees increased 1.6% from a year ago due to an increase in management fees resulting from the higher net value of billable AUM during the quarter.

• Other revenue decreased $4.4 million from a year ago due to a decrease in fair value of the positions held in private equity funds.

• AUM increased to $40.4 billion at September 30, 2023, which is the basis for advisory fee billings for October 2023.

• The increase in AUM was comprised of higher asset values of $4.4 billion on existing client holdings and a net contribution of $0.7 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:

• Compensation expenses were down 16.7% from a year ago which was due to decreases in incentive compensation.

• Non-compensation expenses were up 4.6% when compared to the prior year period mostly due to higher external portfolio management costs which are directly related to the increase in billable AUM.

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

(Expressed in millions)

For the Three Months Ended June 30, 2023

For the Three Months Ended September 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 $94.6 million, 4.0% higher when compared with the prior year period.

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

Pre-tax loss was $15.3 million, compared with pre-tax income of $2.4 million in the prior year period.

('000s) 3Q-2023 3Q-2022 Change % Change

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Non-compensation $ 36,897 $ 28,131 $ 8,766 31.2

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

Pre-tax Income (Loss) $ (15,254) $ 2,401 $ (17,655) *

Compensation Ratio 77.1 % 66.4 % 1,070 16.1

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Pre-tax Margin (16.1) % 2.6 % (18.7) % (719.2)

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

• 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.

*Percentage not meaningful

• Advisory fees earned from investment banking activities decreased 38.5% compared with a year ago due to fewer M&A transactions.

• Equities underwriting fees increased 201.2% when compared with a year ago due to higher new issuance volumes and deal sizes.

• Fixed income underwriting fees were relatively flat with the prior year.

• Equities sales and trading revenue decreased 11.2% 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.

• Fixed income sales and trading revenue increased by 48.9% compared with a year ago primarily due to an increase in trading income attributable to higher volatility and higher volumes.

• Compensation expenses increased 20.7% compared with a year ago primarily due to costs associated with opportunistic hiring and increased incentive compensation.

• Non-compensation expenses were 31.2% higher than a year ago primarily due to an increase in interest expense in financing trading inventories.

CRITICAL ACCOUNTING POLICIES

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

During the 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.

During the nine months ended September 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 June 30, 2023, total assets increased by 13.9% from December 31, 2022.

At September 30, 2023, total assets increased by 9.6% 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 June 30, 2023, the Company had bank call loans of $94.4 million compared to zero at December 31, 2022.

At September 30, 2023, the Company had bank call loans of $56.2 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 $5.4 million and $382,854, respectively, at June 30, 2023.

and Oppenheimer Investments Asia Limited were $5.4 million and $383,083, respectively, at September 30, 2023.

The liquid assets at Oppenheimer Europe Ltd.

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

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

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

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During the fourth quarter of 2022, the Company repurchased and subsequently cancelled $10.95 million of the Notes, recognizing a small extinguishment gain.

As of December 31, 2022, $114.05 million aggregate principal amount of the Notes remains outstanding.

As of December 31, 2022, $114.05 million aggregate principal amount of the Notes remained outstanding.

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

As of September 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 six months ended June 30, 2023 and the balance sheet at June 30, 2023 for the Parent and Subsidiary Guarantors.

The following tables present the selected financial information as of September 30, 2023 and for the nine months ended September 30, 2023 for the Parent and Subsidiary Guarantors.

(Expressed in thousands) As of

June 30, 2023

September 30, 2023

Total Assets $ 2,061,253

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Due To Non-Guarantor Subsidiary 48,164

For the Six Months Ended

June 30, 2023

For the Nine Months Ended

September 30, 2023

Total Revenue $ 7,800

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Net Income (Loss) (147)

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

On August 23, 2021, Moody’s upgraded the Company's Corporate Family rating and the rating on the Unregistered Notes from “B1” with a stable outlook to “Ba3” with a stable outlook.

S&P’s Corporate Family rating and rating on the Notes is a 'BB-' with a stable outlook.

Moody’s Corporate Family rating and the rating on the Notes is a “Ba3” with a stable outlook.

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

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Our collateral maintenance policies and procedures are designed to limit our exposure to credit risk.

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

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.

Securities owned are mainly comprised of actively trading readily marketable securities.

We issued $4.5 million in forgivable notes (which are inherently illiquid) to employees for the three months ended September 30, 2023 ($1.9 million for the three months ended September 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 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).

At September 30, 2023, the Company had $56.2 million of bank call loans (zero at December 31, 2022).

The average daily bank loan outstanding for the three and nine months ended September 30, 2023 was $43.8 million and $59.7 million, respectively ($67.1 million and $88.5 million for the three and nine months ended September 30, 2022).

The largest daily bank loans outstanding for the three and nine months ended September 30, 2023 was $112.2 million and $167.3 million, respectively ($176.5 million and $226.6 million for the three and nine months ended September 30, 2022).

At September 30, 2023, securities loan balances totaled $292.9 million ($320.8 million at December 31, 2022 and $307.4 million at September 30, 2022).

The average daily securities loan balance outstanding for the three and nine months ended September 30, 2023 was $314.3 million and $339.4 million, respectively ($300.9 million and $291.6 for the three and nine months ended September 30, 2022).

The largest daily stock loan balance for the three and nine months ended September 30, 2023 were $359.0 million and $391.5 million, respectively ($339.2 million and $350.1 million for the three and nine months ended September 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 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).

At September 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 September 30, 2023, the gross balances of reverse repurchase agreements and repurchase agreements were $5.2 million and $685.2 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended September 30, 2023 was $48.2 million and $720.8 million, respectively ($250.2 million and $360.1 million, respectively, for the three months ended September 30, 2022).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended September 30, 2023 was $227.1 million and $801.2 million, respectively ($526.7 million and $668.3 million, respectively, for the three months ended September 30, 2022).

Liquidity Management

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

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

Certain policies which could provide additional liquidity if needed had a cash surrender value of $80.9 million as of September 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.

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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 June 30, 2023 under our Senior Secured Notes (due in 2025) and $196.9 million of operating lease obligations.

Our primary long-term cash requirements include $112.6 million principal outstanding as of September 30, 2023 under our Senior Secured Notes (due in 2025) and $194.0 million of operating lease obligations.

The total cash requirement for interest expense related to the Notes and operating lease obligations is estimated to be approximately $4.9 million for the remainder of 2023.

(Expressed in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash used in operating activities $ (84,226) $ (83,104)

Cash used in investing activities (10,309) (10,436)

Cash provided by financing activities 76,971 55,444

Cash provided by (used in) financing activities 13,290 (83,126)

Net decrease in cash, cash equivalents and restricted cash $ (81,245) $ (176,666)

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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 those of the Company.

The commencement of hostilities between Ukraine and Russia as well as hostilities in Israel have resulted in increased attacks on the infrastructure of data processing facilities around the world and heightened awareness of potential vulnerabilities including those of the Company.

Requirements to submit client data to industry-wide databases increases the vulnerability of that data and the Company has no control over the protections afforded such data but continues to have exposure to its unwarranted release.

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

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

The final exemption should provide a new and more flexible approach to ERISA compliance for certain types of transactions, which financial institutions may choose to utilize in place of other existing exemptions.

The final exemption should provide a new and more flexible approach to ERISA compliance for certain types of transactions, which financial

institutions may choose to utilize in place of other existing exemptions.

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

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

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

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

As of September 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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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.

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 customer reserve computation requirements, climate change and investment advisory custodial practices.

The Company continues to monitor these developments and cannot currently determine what, if any, impact they may have on its business.

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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.

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 the Israel-Hamas war and 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 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.

During the nine months ended September 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