What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-01 compared with 2023-02-28 · 115 added, 126 removed, 358 unchanged (40% of the section changed)

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

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

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

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

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As of December 31, 2023, we provided our services from 90 offices in 25 states located throughout the United States, offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St.

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

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 December 31, 2022, client assets under management LLC ("AUM") totaled $36.8 billion.

At December 31, 2023, client assets under management ("AUM") totaled $43.9 billion.

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

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

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

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

At December 31, 2023, the Company employed 2,942 employees (2,903 full-time and 39 part-time), of whom 931 were financial advisors.

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

Impact of Interest Rates

The Federal Reserve ("FED") increased the federal funds rate by 425 basis point during 2022, with the majority of that increase occurring during the second half of the year.

While we have seen indications in the fourth quarter that inflation has peaked and is beginning to slowly abate, it remains at elevated levels.

As a result, it is likely that the FED will continue to increase the federal funds rate when it meets in early 2023, though at a slower pace, and in fact did so on February 1, 2023, with a 25 basis point increase.

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

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

However, the FED's current policies, which are intended to reduce inflation, are also likely to reduce economic activity possibly leading to a recession.

Such increases, while bringing down inflationary pressures may also prove detrimental to economic activity and thereby to financial markets in general.

The impact of rate increases seems likely to increase volatility in financial markets, decrease the value of fixed income investments and negatively impact equity share prices while reducing revenues the Company derives from commissions and from fees based on the value of client assets managed by the Company.

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

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 has been to increase the price of hydrocarbons and the costs of various agricultural products produced by both Russia and Ukraine.

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

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

and, thus on our business.

Inflation Reduction Act of 2022

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

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

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

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

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

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

COVID-19 PANDEMIC

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

In early March 2020, the Company executed on its Business Continuity Plan whereby the vast majority of our employees began to work remotely with only "essential" employees reporting to our offices.

We accomplished this by significantly expanding the use of technology infrastructure that facilitates remote operations.

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

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

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.

Throughout 2022, most of our employees worked under a hybrid arrangement that recognizes the benefits of collaboration and hands-on training associated with in-person engagement, along with the importance of flexibility associated with a work from home/remote option.

At the same time, employees from our home office and branch locations continue to work remotely.

There can be no assurance at this time that these improvements will continue and we continue to closely monitor the situation.

Impact of Change in Short-term Interest Rates

After increasing rates by 425 basis points in 2022, the Federal Reserve (the “FED”) slowed both the pace and magnitude of rate increases in 2023.

To prevent overtightening in the midst of conflicting economic data and stress within the regional banking sector at the outset of the year, the FED proceeded cautiously and enacted four federal funds rate increases – 25 basis points each – between its February and July meetings.

The FED paused on further tightening actions for the remainder of 2023, largely due to improved inflationary readings, resulting in the target federal funds rate remaining at 5.25% to 5.50% as of December 31, 2023.

The FED’s forecast currently projects three rate decreases during 2024, though this is subject to change.

Increases in the federal funds rate will be favorable to the Company’s interest-based revenues though any future federal funds rate decreases may result in reductions to these revenues.

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 hundreds of 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 or elsewhere.

“Dutch Auction” Tender Offer

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 results for the full year 2022 are significantly reduced from the prior year’s record levels, largely reflecting the impact of challenging macroeconomic conditions as well as an adverse arbitration decision in 2022.

Concerns around whether inflation, rising interest rates and other geopolitical tensions could induce a recession weighed negatively on market sentiment during the year.

This resulted in significant declines in transaction volumes and in the valuations of the equity and fixed income markets, which drove a meaningful reduction in both our transaction based revenues and advisory fee revenues.

The volatile markets also led to a cooling of equity IPOs, secondary offerings and M&A transaction activity, which negatively impacted our capital markets income.

Nevertheless, in spite of these headwinds, we were able to deliver profitable results for the year owing to the diversity and countercyclical nature of our revenue streams.

In particular, bank deposit sweep income and interest income on margin loans increased significantly throughout the year, as both received a benefit from the short-term interest rate increases enacted by the FED.

Importantly, while we experienced higher legal expenses during the year, we remain focused on managing our controllable costs and maintaining discipline on our overall expense levels.

The Company continues to maintain a strong balance sheet with a significant excess in regulatory capital.

During the year, the Company took advantage of the lower level of its share price to purchase 1,684,287 shares (15%) of its Class A Stock at an average price of $36.00 per share in the open market under its share repurchase program.

This resulted in 10,868,556 shares of Class A Stock remaining outstanding at December 31, 2022.

We remain confident in the strength of our brand, the resiliency of our businesses and our ability to continue to provide essential investment services to our clients.

The Company generated profitable results for the full year 2023 despite mixed macroeconomic conditions and significantly higher legal and regulatory costs.

The costs of a particular legal matter (which we now believe is mostly behind us from a financial point of view) and, the impact of a non-recurring accrual related to an SEC industry-wide focus on ‘off-channel communications’ was approximately $70 million for the year.

But for these, the Company would have produced a stronger return despite the ongoing drought in Investment Banking activity.

The year began with markets anticipating either a mild recession or a "soft landing" with nominal growth and high but declining inflation driven by a FED committed to interest rate increases.

The economic outlook gradually improved as inflation receded, unemployment held steady and the FED signaled potential rate cuts in 2024.

The financial markets improved along with the economic outlook, as what began as a narrow rally focused on generative A.I.

stocks eventually broadened into an “everything rally” by the year’s end, with most major indices ending the year at or near their all-time highs in spite of continued geopolitical tensions in Ukraine and Gaza.

Throughout these evolving market conditions, our diversified businesses registered a year-over-year increase in total revenues.

Higher short-term interest rates propelled record high full-year bank deposit sweep and margin interest income in our Wealth Management business as well as large increases in fixed income sales and trading revenues in our Capital Markets segment.

The rising markets and addition of new client assets also drove improvements in the valuation of client assets under management throughout the year, though asset-based advisory fees did not fully recover to 2022 levels.

Investment banking revenues continue to be adversely impacted by reduced corporate transactions and a moribund IPO environment.

The Company ended the year with a strong balance sheet and record high book value per share levels.

Additionally, the Class A share count is significantly reduced from the prior year due to share repurchases during the year.

RESULTS OF OPERATIONS

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Pre-tax income 46,770 45,554 2.7 45,554 224,641 (79.7)

Income taxes 13,444 65,677 (79.5) 65,677 46,014 42.7

Income tax provision 16,498 13,444 22.7 13,444 65,677 (79.5)

Net Income $ 30,272 $ 32,110 (5.7) $ 32,110 $ 158,964 (79.8)

Net income (loss) attributable to noncontrolling interest, net of tax (241) — * — — *

Net income (loss) attributable to non-controlling interest, net of tax 93 (241) * (241) — *

Net income attributable to Oppenheimer Holdings Inc.

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Fiscal 2023 compared to Fiscal 2022

• Commission revenue was $349.2 million for the year ended December 31, 2023, a decrease of 5.7% compared with $370.4 million for the year ended December 31, 2022 due to decreased client activity in listed securities, OTC products and options, partially offset by higher commission income on annuities.

• Advisory fees were $415.7 million for the year ended December 31, 2023, a decrease of 2.3% compared with $425.6 million for the year ended December 31, 2022 due to lower management fees from advisory programs attributable to reduced billable AUM levels and lower incentive fees from alternative investments during the year.

• Investment banking revenue was $117.7 million for the year ended December 31, 2023, a decrease of 7.7% compared with $127.5 million for the year ended December 31, 2022 driven by an industry-wide slowdown in M&A transactions and lower levels of fixed income capital issuances, partially offset by higher equity underwriting fees.

• Bank deposit sweep income was $172.8 million for the year ended December 31, 2023, an increase of 65.3% compared with $104.6 million for the year ended December 31, 2022 due to higher short-term interest rates, partially offset by lower cash sweep balances.

• Interest revenue was $104.6 million for the year ended December 31, 2023, an increase of 72.2% compared with $60.7 million for the year ended December 31, 2022 due to higher short-term interest rates, which drove record full year margin interest income.

• Principal transactions revenue was $65.3 million for the year ended December 31, 2023, an increase of 210.7% compared with $21.0 million for the year ended December 31, 2022 primarily due to higher fixed income trading volumes.

• Other revenue was $23.5 million for the year ended December 31, 2023, a significant increase compared to $1.1 million for the year ended December 31, 2022 primarily due to increases in the cash surrender value of Company-owned life insurance during 2023, which fluctuates based on changes in fair value of the policies' underlying investments.

• Compensation and related expenses totaled $782.4 million during the year ended December 31, 2023, an increase of 5.6% compared with the year ended December 31, 2022 primarily due to higher base salary and deferred compensation costs.

Compensation and related expenses as a percentage of revenue was 62.7% for the year ended December 31, 2023 compared with 66.7% for the year ended December 31, 2022.

• Non-compensation expenses were $419.7 million during the year ended December 31, 2023, an increase of 29.3% compared with $324.6 million during the year ended December 31, 2022 due to the impact of significant legal costs and an accrual for a regulatory settlement.

• The effective income tax rate for the year ended December 31, 2023 was 35.3% compared with 29.5% for the year ended December 31, 2022 primarily due to the impact of a non-deductible regulatory settlement totaling $13.0 million.

Fiscal 2022 compared to Fiscal 2021

• Commission revenue was $370.4 million for the year ended December 31, 2022, a decrease of 7.8% compared with $401.6 million for the year ended December 31, 2021 due to decreased client activity in mutual funds, listed securities, OTC products and annuities, partially offset by higher commission income on municipal bonds.

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• The effective income tax rate for the year ended December 31, 2022 was 29.5% compared with 29.2% for the year ended December 31, 2021.

Fiscal 2021 compared to Fiscal 2020

• Commission revenue was $401.6 million for the year ended December 31, 2021, an increase of 1.6% compared with $395.1 million for the year ended December 31, 2020 due to increased client activity in mutual funds, options, annuities, and mortgage backed securities partially offset by lower commission income on municipal bonds.

• Advisory fees were $451.2 million for the year ended December 31, 2021, a decrease of 0.9% compared with $455.3 million for the year ended December 31, 2020 due to a significant decrease in incentive fees from alternative investments partially offset by higher management fees from advisory programs during 2021.

• Investment banking revenue was $435.9 million for the year ended December 31, 2021, an increase of 96.1% compared with $222.3 million for the year ended December 31, 2020 driven by increased M&A activity and fees associated with a significant number of capital raising transactions (PIPES) in the healthcare and technology sectors completed during the 2021 year.

• Bank deposit sweep income was $15.6 million for the year ended December 31, 2021, a decrease of 55.3% compared with $34.8 million for the year ended December 31, 2020 due to lower short-term interest rates partially offset by higher average cash sweep balances.

• Interest revenue was $36.5 million for the year ended December 31, 2021, an increase of 9.0% compared with $33.5 million in 2020 due to higher average margin balances partially offset by lower short-term interest rates.

• Principal transactions revenue was $24.0 million for the year ended December 31, 2021, a decrease of 14.0% compared with $27.9 million for the year ended December 31, 2020 driven by lower income from investment grade, high yield, Emerging Markets, and municipal bonds partially offset by higher income from corporate and convertible bonds.

• Other revenue was $29.3 million for the year ended December 31, 2021, a decrease of 1.7% compared to $29.8 million for the year ended December 31, 2020 primarily due to a decrease in the cash surrender value of Company-owned life insurance during 2021.

• Compensation and related expenses totaled $886.8 million during the year ended December 31, 2021, an increase of 15.0% compared with the year ended December 31, 2020.

The increase was due to increased incentive compensation costs during the year tied to significant increases in revenue during the year ended December 31, 2021.

Compensation and related expenses as a percentage of revenue was 63.6% for the year ended December 31, 2021 compared with 64.3% for the year ended December 31, 2020.

• Non-compensation expenses were $282.6 million during the year ended December 31, 2021, an increase of 9.2% compared with $258.7 million during the year ended December 31, 2020 due to increased legal, underwriting, travel and entertainment, and conference costs partially offset by reduced interest costs during the year ended December 31, 2021.

BUSINESS SEGMENTS

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Pre-tax income was $194.4 million, an increase of 36.7% from the prior year.

Financial advisor headcount declined amid retirements to 968 at the end of 2022 compared to 996 at the end of 2021.

(Expressed in thousands, except financial advisor headcount or otherwise indicated)

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Financial Advisor Headcount 931 968 (3.8)

• Retail commissions decreased 12.5% from the prior year primarily due to decreased client activity in mutual funds, listed securities, OTC products and annuities, partially offset by higher commission income on municipal bonds.

• Advisory fees decreased 5.9% due to the reduced valuations of assets under management.

• Bank deposit sweep income increased $89.0 million or 572.1% from the prior year due to significant increases in short-term interest rates.

• Interest revenue increased 77.1% from the prior year due to higher average margin balances and higher short-term interest rates.

• Other revenue declined 95.7% compared with the prior year primarily due to decreases 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 15.5% from the prior year primarily due to decreased production, share-based and incentive compensation costs, partially offset by the inflationary impact on salaries.

• Non-compensation expenses increased 33.2% from the prior year primarily due to higher legal costs recorded during third quarter of 2022 which related to an adverse arbitration decision.

• Retail commissions decreased slightly from the prior year due to lower overall client activity, though transaction volumes improved later in the year.

• Advisory fees decreased 2.2% from the prior year due to lower billable AUM during the year.

• Bank deposit sweep income for the full year was a record high and increased $68.2 million or 65.3% from the prior year due to higher short-term interest rates, partially offset by lower cash sweep balances.

• Interest revenue increased 64.1% from the prior year due to record full year margin interest income attributable to higher short-term interest rates.

• Other revenue increased significantly compared with the prior year 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 5.7% from the prior year primarily due to higher deferred compensation costs.

• Non-compensation expenses increased 33.6% from the prior year primarily due to the impact of significant legal costs.

Asset Management

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AUM (billions) $ 43.9 $ 36.8 19.3

• Advisory fee revenue on traditional and alternative managed products decreased 5.1% from the prior year primarily due to lower management fees from advisory programs, partially offset by higher incentive fees from alternative investments during the year.

• AUM were at reduced levels of $36.8 billion at December 31, 2022, which is the basis for advisory fee billings for January 2023.

The decrease in AUM from December 31, 2021 to December 31, 2022 was comprised of lower asset values of $7.6 billion on existing client holdings and a net distribution of assets of $1.8 billion.

• Compensation expenses were down 12.8% when compared to the prior year driven primarily by lower incentive compensation costs.

• Non-compensation expenses were down 4.1% when compared to the prior year primarily due to lower external portfolio management costs which are directly related to the decrease in AUM, partially offset by an increase in total communications and technology expenses.

* Percentage not meaningful

• Advisory fee revenue decreased 3.0% from the prior year primarily due to lower management fees from advisory programs attributable to reduced billable AUM levels and lower incentive fees from alternative investments during the year.

• Other revenue decreased $7.8 million from a year ago primarily due to a decrease in the fair value of positions held in private equity investments.

• AUM were $43.9 billion at December 31, 2023, which is the basis for advisory fee billings for January 2024.

• The increase in AUM from December 31, 2022 to December 31, 2023 was comprised of higher asset values of $6.0 billion on existing client holdings and a net contribution of assets of $1.1 billion.

• Compensation expenses and non-compensation expenses were relatively flat when compared to the prior year.

The following table provides a breakdown of the change in assets under management for the year ended December 31, 2023:

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Capital Markets

Capital Markets reported revenue of $337.8 million for the year ended December 31, 2022, 46.0% lower compared with the prior year.

Pre-tax loss was $25.7 million compared with a pre-tax income of $204.1 million for the prior year.

Capital Markets reported revenue of $345.9 million for the year ended December 31, 2023, 2.4% higher compared with the prior year.

Pre-tax loss was $63.0 million compared with a pre-tax loss of $25.7 million for the prior year.

(Expressed in thousands )

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Non-compensation 139,528 102,543 36.1

Pre-Tax Income (Loss) $ (25,696) $ 204,090 *

Pre-Tax Loss $ (62,961) $ (25,696) 145.0

Compensation Ratio 77.9 % 77.3 % 0.8

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* Percentage not meaningful

• Advisory fees earned from investment banking activities decreased 56.6% compared with the prior year driven by an industry-wide decrease in M&A transactions.

• Equities underwriting fees decreased 86.8% compared with the prior year due to significantly lower levels of capital issuances in the equity markets, particularly in the healthcare and technology sectors.

• Fixed income underwriting fees were down 67.0% compared with the prior year primarily driven by fewer public finance debt issuances during the year.

• Equities sales and trading increased 1.9% compared with the prior year.

• Fixed income sales and trading increased 2.1% compared with the prior year driven by higher trading income from U.S.

government securities.

• Compensation expenses decreased 18.2% compared with the prior year primarily due to decreased incentive compensation costs.

• Non-compensation expenses were 0.2% lower compared with the prior year.

• Advisory fees earned from investment banking activities decreased 17.7% compared with the prior year driven by an industry-wide slowdown in M&A transactions.

• Equities underwriting fees increased 37.9% compared with the prior year due to higher new issuance volumes and deal sizes, primarily during the third quarter.

• Fixed income underwriting fees were down 25.9% compared with the prior year primarily driven by less overall new issuance activity.

• Equities sales and trading decreased 9.1% compared with the prior year due to reduced volumes as a result of lower market volatility.

• Fixed income sales and trading increased 35.1% compared with the prior year driven by higher trading income attributable to higher volumes.

• Compensation expenses were slightly higher than the prior year due to opportunistic hires and inflationary pressures on wages as well as higher deferred compensation costs.

• Non-compensation expenses were 36.1% higher compared with the prior year mainly due to an increase in interest expense in financing trading inventories.

CRITICAL ACCOUNTING ESTIMATES

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The significant accounting policies used in the preparation of the Company's consolidated financial statements are summarized in note 2 to those statements.

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.

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.

The following is a discussion of these estimates:

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See note 8 to the consolidated financial statements appearing in Item 8 for further information on the fair value definition, Level 1, Level 2 and Level 3 and related valuation techniques.

I mpact if actual results differ from assumptions – We established an independent valuation process to evaluate and approve the valuation of our financial instruments.

Impact if actual results differ from assumptions – We established an independent valuation process to evaluate and approve the valuation of our financial instruments.

For financial instruments that are classified in Level 3, we review the appropriateness of the unobservable inputs to ensure consistency with how a market participant would arrive at the unobservable input.

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and applicable legal precedents and case law.

Each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is

adjusted as deemed appropriate by management.

Each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management.

Any change in the reserve amount is recorded in the results of that period.

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New Accounting Pronouncements

The potential impact of recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in Item 8.

The following Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board ("FASB") has not yet been adopted by the Company:

ASU 2023-07 – Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued this ASU to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The revised guidance will require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM and how the CODM uses the reported measures of segment profit or loss in assessing segment performance, among other requirements.

While this ASU will have no impact on the Company’s financial position or results of operations, the Company is currently evaluating the impact of this ASU on its segment disclosures.

LIQUIDITY AND CAPITAL RESOURCES

Total assets decreased by 10.8% from December 31, 2021 to December 31, 2022.

Total assets increased by 5.9% from December 31, 2022 to December 31, 2023.

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, changes in stock loan balances and financing through repurchase agreements.

At December 31, 2022, the Company had no such borrowings outstanding compared to outstanding borrowings of $69.5 million at December 31, 2021.

At December 31, 2023 and December 31, 2022, the Company had no such borrowings outstanding.

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 $5.14 million and $383,963, respectively, at December 31, 2022.

and Oppenheimer Investments Asia Limited were $5.4 million and $384,120,

respectively, at December 31, 2023.

The liquid assets at Oppenheimer Europe Ltd.

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We did not receive any proceeds in the exchange offer.

During the fourth quarter of 2022, the Company repurchased and subsequently cancelled $10.95 million of the 5.50% Senior Secured Notes, recognizing a small extinguishment gain.

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 remain outstanding.

During the first quarter of 2023, the Company repurchased and cancelled $1.0 million aggregate principal amount of its Notes in the open market.

As of December 31, 2023, the Company repurchased and cancelled $1.0 million aggregate principal amount of its Notes in the open market.

As of December 31, 2023, $113.05 million aggregate principal amount of the Notes remain outstanding.

See note 13 to the consolidated financial statements appearing in Item 1 for further discussion.

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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 results of operations for the twelve months ended December 31, 2022 and balance sheet at December 31, 2022 for the Parent and Guarantors.

The following tables present the selected financial information for the twelve months ended December 31, 2023 for the Parent and Subsidiary Guarantors.

(Expressed in thousands) As of

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Pre-Tax Loss 114

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.

Net Income 1,520

S&P’s Corporate Family rating and the 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.

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

We advanced $21.5 million in forgivable notes (which are inherently illiquid) to employees for the year ended December 31, 2023 ($19.8 million for the year ended December 31, 2022) as upfront or backend inducements to commence or continue employment as the case may be.

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

At December 31, 2022, bank call loans were zero ($69.5 million at December 31, 2021).

At December 31, 2023, bank call loans were zero (zero at December 31, 2022).

The average daily bank loan outstanding for the year ended December 31, 2023 was $49.4 million ($79.4 million for the year ended December 31, 2022).

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Repurchase and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase and reverse repurchase agreements exist in "book entry" form and certain other requirements are met.

Certain of our repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company's fair value option election.

We elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date in order for these instruments to more accurately reflect market and economic events in our earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e.

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

At December 31, 2022, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At December 31, 2023, the gross balances of reverse repurchase agreements and repurchase agreements were $8.9 million and $643.4 million, respectively.

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The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the year ended December 31, 2023 was $506.4 million and $806.9 million, respectively ($663.9 million and $668.3 million, respectively, for the year ended December 31, 2022).

In connection with both its trading and brokerage activities, Oppenheimer borrows securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date and lends securities to other brokers and dealers for similar purposes.

Oppenheimer earns interest on its cash collateral provided and pays interest on the cash collateral received less a rebate earned for lending securities.

Liquidity Management

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Our reviews have resulted in plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.

Our primary long-term cash requirements include $113.4 million principal outstanding as of December 31, 2022 under our Senior Secured Notes (due in 2025) and $182.6 million of operating lease obligations.

Our primary long-term cash requirements include $113.1 million principal outstanding as of December 31, 2023 under our Notes (due in 2025) and $183.3 million of operating lease obligations.

The total cash requirement for interest expense related to the Notes and operating lease obligations is estimated to be approximately $18.7 million for the 2024 year.

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For the Years Ended December 31,

Cash provided by operating activities $ 64,492 $ 227,786

Cash provided by/(used in) operating activities $ (18,810) $ 64,492

Cash used in investing activities (15,561) (14,137)

Cash provided by/(used in) financing activities (253,912) 84,581

Net increase/(decrease) in cash and cash equivalents and restricted cash $ (203,557) $ 306,100

Cash used in financing activities (74,761) (253,912)

Net decrease in cash and cash equivalents and restricted cash $ (109,132) $ (203,557)

Management believes that funds from operations, combined with our capital base and available credit facilities, are sufficient for our liquidity needs in the foreseeable future.

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All such requirements have been met in the ordinary course with available collateral.

CYBERSECURITY

For many years, we have sought to maintain the security of our clients' data, limit access to our data processing environment, and protect our data processing facilities.

See "Risk Factors — Cybersecurity – Security breaches of our technology systems, or those of our clients or other third-party vendors we rely on, could subject us to significant liability and harm our reputation" in Item 1A.

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

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

The Company has significantly increased the resources dedicated to this effort and believes that further increases may be required in the future, in anticipation of increases in the sophistication and persistency of such attacks.

There can be no guarantee that our cybersecurity efforts will be successful in discovering or preventing a security breach.

REGULATORY MATTERS AND DEVELOPMENTS

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

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

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

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

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

The new rules and processes related thereto may limit revenue and have increased, and most likely will continue to increase costs, including, but not limited to, compliance costs associated with new or 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.

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Other Regulatory Matters

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 responded to the information request and continues to cooperate with the SEC inquiry.

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

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

On January 4, 2024, Oppenheimer submitted an Offer of Settlement to the SEC.

On February 9, 2024, the SEC issued an order (the “Order”) pursuant to which Oppenheimer will pay a fine in an amount of $12 million and agree to certain undertakings.

In addition to the Order Oppenheimer received a waiver of certain

statutory disqualifications from the SEC.

On February 7, 2024, Oppenheimer submitted an Offer of Settlement to the CFTC pursuant to which Oppenheimer offered to pay a fine of $1 million and agree to certain undertakings.

FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"

From time to time, the Company may publish or make oral statements that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 which provides a safe harbor for forward-looking statements.

These forward-looking statements may relate to such matters as anticipated financial performance, future revenues, earnings, liabilities or expenses, business prospects, projected ventures, new products, anticipated market performance, and similar matters.

These forward-looking statements may relate to such matters as anticipated financial performance, future revenues, earnings, liabilities or expenses, liquidity and cash flows, business prospects, strategic objectives, projected ventures, new products, anticipated market performance, and similar matters.

Words such as “believes,” “expects,” “anticipates,” “estimates,” “will,” “may,” “could,” “should” and “would” are intended to identify forward-looking statements.

Forward-looking statements are not guarantees and involve risks, uncertainties and assumptions.

The Company cautions readers that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements.

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(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, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) cybersecurity threats, (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, including the Inflation Reduction Act.

(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 Western sanctions, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”) and economic uncertainty in the UK, EU, and elsewhere, (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, changes in or uncertainty surrounding regulation, and the potential for default by the U.S.

(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 Western sanctions and the Israel-Hamas war and related unrest in the Middle East, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”) and economic uncertainty in the UK, EU, and elsewhere, (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, changes in or uncertainty surrounding regulation, and the potential for default by the U.S.

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

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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-K

Item 7. Management’s Discussion and Analysis