OPPENHEIMER HOLDINGS INC 10-K

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the years ended December 31, 2024 and 2023. For a discussion of our results of operations and liquidity and capital resources for the year ended December 31, 2022, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report. BACKGROUND The consolidated financial statements include the accounts of Oppenheimer Holdings Inc. ("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. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report. Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, market-making, research, investment banking (both corporate and public finance), investment advisory and asset management services and trust services. Its principal subsidiaries are Oppenheimer & Co. Inc. ("Oppenheimer") and Oppenheimer Asset Management Inc. ("OAM"). As of December 31, 2024, we provided our services from 88 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 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, 2024, client assets under management ("AUM") totaled $49.4 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. Client assets under administration ("CAUA") as of December 31, 2024 totaled $129.5 billion. CAUA includes AUM and the other assets for which the firm provides services. We also provide trust services and products through Oppenheimer Trust Company of Delaware Inc. and discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., we conduct secondary trading activities related to the purchase and sale of loans and trade claims, primarily on a riskless principal basis. At December 31, 2024, the Company employed 3,018 employees (2,977 full-time and 41 part-time), of whom 931 were financial advisors. Outlook We are focused on growing our wealth management business 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. We are increasingly creating and investing in private market opportunities on our own behalf and on behalf of qualified clients. We are also focused on opportunities in our capital market businesses, including integrating new technology platforms to expand the suite of services offered to our clients and onboarding experienced personnel and/or small units that will improve our ability to attract institutional clients in both equities and fixed income without significantly raising our risk profile. In investment banking, we are committed to growing our footprint by adding experienced bankers within our existing industry practices as well as new industry practices where we believe we can be successful. We continuously invest in and improve our technology platform to support client service and to remain competitive, while continuously managing expenses. The Company's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations, and to continue to grow and develop the existing trading, investment banking, investment advisory and other divisions. We recognize employee work habits have changed in a post-pandemic world. As a result, we are continuously reviewing our physical footprint on lease renewals, and in many cases reducing office size and configuration. We are committed to continuing to improve our capabilities to ensure compliance with industry regulations, support client service and expand our wealth management and capital markets capabilities. We recognize the importance of 36 Table of Contents compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort, and investing in people and programs, while providing a platform with first class investment programs and services. The Company also reviews its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where others have shown some success. Equally important is the search for viable acquisition candidates. Our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of corporate goals and personnel at a price that would provide our stockholders with incremental value. We review potential acquisition opportunities from time to time with the aim of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses. In addition, the Company may from time to time make an acquisition of 100% of a business or make minority private investments out of excess capital in allied or unrelated businesses with the goal of either syndicating the investment to eligible clients or retaining ownership because we believe them to be an attractive investment. Impact of Change in Short-term Interest Rates After decreasing the federal funds rate for the first time in nearly 14 months with a 50 bps reduction in September of 2024, the Federal Reserve (the “FED”) enacted two separate 0.25% rate cuts in the fourth quarter of 2024, lowering the target fed funds range to 4.25% - 4.50% – a full percent below its recent peak. Projections of the federal funds rate released by the FED after its December meeting indicate that they expect two additional rate cuts in 2025, which is reduced from previous forecasts and reflective of the FED’s stated intention of proceeding with a cautious approach dependent on inflation and employment data. Recent employment figures reflect a stronger economy than earlier projected and may impact future interest rate decisions. Plans announced by the incoming administration including actions on tariffs and immigration status of undocumented persons may tend to weaken economic activity and could also impact future interest rate decisions. Potential decreases to the federal funds rate may impact our interest-based revenues. While decreases in interest rates will lower fees the Company earns from FDIC-insured deposits of clients through a program offered by the Company, such decreases may be offset to a degree if the cash sweep balances increase as clients find fewer higher-yielding alternatives to deploy these balances. Future rate decreases will also reduce the rates the Company charges on customer margin loans and earns on other interest-sensitive assets, which will have a negative impact on our earnings. Israel-Hamas War and Conflict with Hezbollah and Iran 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 now finished its second year and has seen a significant escalation in a longstanding conflict between Israel and Hezbollah, the Lebanese-based militant group. The conflict was further intensified in 2024 by the direct entry of Iran, which launched a missile attack on Israel. Despite a recently announced ceasefire, there remains a risk that these conflicts 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, these conflicts have not yet had a material impact on our business operations in Israel or elsewhere. EXECUTIVE SUMMARY T he firm registered strong results of operations for the year ended 2024 on the back of record high revenue generated by our diverse businesses. Our reported results were negatively impacted (with full year expense totaling $32.6 million pre-tax) by the increase in our stock price in 2024 and its conversion to expense in certain liability awards previously made to employees, making the recent recognition of our stock by investors, a mixed blessing. Our results were buoyed by an equities market that had a strong increase in popular averages, as lower interest rates and a strong domestic economy powered the S&P 500 to 57 new record closes and its best consecutive years in over two decades. Equity markets were led by significant increases in the performance of the “Magnificent Seven,” propelled by the expectation of the impact of A.I. on the economy in future years. Most economic indicators currently suggest that the economy is well on its way to achieving a “soft landing” as we move further into 2025. The continued rise of the markets drove the outstanding results shown in our Wealth Management business. Asset-based advisory fees, in particular, grew significantly from the prior year in large part due to AUM reaching a fourth-consecutive all-time high at year-end. Retail trading volumes also remained elevated throughout the year, boosting transaction-based commissions. However, these positive drivers were offset to a degree by both lower interest-sensitive sweep income owing to 37 Table of Contents lower average sweep balances, as well as higher share-based compensation expenses associated with stock appreciation rights granted to financial advisors. In the fourth quarter of 2024 alone, we recognized $20.5 million of expense related to these stock appreciation rights due to the significant increase in share price of our Class A non-voting common stock. In comparison, we recognized a relatively modest expense of $4.3 million in the fourth quarter of 2023. In our Capital Markets businesses, we saw our 2024 investment banking results benefit from a somewhat improved market environment which drove higher new issuance and transaction activity levels when compared to the prior year. Though our revenues increased in 2024, we believe that capital markets conditions (and related transaction volumes) have yet to reach their full potential and expect that our business will stand to benefit when they do. Our institutional trading business also performed quite well in 2024, with higher sales and trading revenues attributed to greater volumes and increased market share. Overall, we are extremely pleased with the accomplishments that we achieved in 2024. We ended the year with record revenues, AUM, stockholders’ equity and book value per share levels, and a significantly de-levered balance sheet after completing the redemption of our senior secured notes earlier in the fourth quarter of 2024. We remain optimistic about our future and look forward to continuing to serve our clients. RESULTS OF OPERATIONS The following table and discussion summarizes the changes in the major revenue and expense categories for the past three years: (Expressed in thousands ) For the Years Ended December 31, For the Years Ended December 31, 2024 2023 % Change 2023 2022 % Change REVENUE Commissions $ 409,710 $ 349,248 17.3 $ 349,248 $ 370,382 (5.7) Advisory fees 483,433 415,679 16.3 415,679 425,615 (2.3) Investment banking 176,447 117,665 50.0 117,665 127,529 (7.7) Bank deposit sweep income 138,770 172,807 (19.7) 172,807 104,558 65.3 Interest 135,537 104,550 29.6 104,550 60,713 72.2 Principal transactions, net 54,684 65,347 (16.3) 65,347 21,031 210.7 Other 33,915 23,529 44.1 23,529 1,113 2,014.0 Total revenue 1,432,496 1,248,825 14.7 1,248,825 1,110,941 12.4 EXPENSES Compensation and related expenses 936,814 782,396 19.7 782,396 740,827 5.6 Communications and technology 99,361 91,321 8.8 91,321 85,474 6.8 Occupancy and equipment costs 63,852 66,002 (3.3) 66,002 59,897 10.2 Clearing and exchange fees 27,641 24,928 10.9 24,928 25,566 (2.5) Interest 87,991 68,599 28.3 68,599 23,846 187.7 Other 111,080 168,809 (34.2) 168,809 129,777 30.1 Total expenses 1,326,739 1,202,055 10.4 1,202,055 1,065,387 12.8 Pre-tax income 105,757 46,770 126.1 46,770 45,554 2.7 Income tax provision 34,510 16,498 109.2 16,498 13,444 22.7 Net Income $ 71,247 $ 30,272 135.4 $ 30,272 $ 32,110 (5.7) Net income (loss) attributable to non-controlling interest, net of tax (310) 93 * 93 (241) * Net income attributable to Oppenheimer Holdings Inc. $ 71,557 $ 30,179 137.1 $ 30,179 $ 32,351 (6.7) *Percentage not meaningful 38 Table of Contents Fiscal 2024 compared to Fiscal 2023 Revenue • Commission revenue was $409.7 million for the year ended December 31, 2024, an increase of 17.3% compared with $349.2 million for the year ended December 31, 2023 due to higher overall client activity. • Advisory fees were $483.4 million for the year ended December 31, 2024, an increase of 16.3% compared with $415.7 million for the year ended December 31, 2023 due to higher management fees from advisory programs attributable to record billable AUM levels. • Investment banking revenue was $176.4 million for the year ended December 31, 2024, an increase of 50.0% compared with $117.7 million for the year ended December 31, 2023 due to higher transaction and new issuance volumes. • Bank deposit sweep income was $138.8 million for the year ended December 31, 2024, a decrease of 19.7% compared with $172.8 million for the year ended December 31, 2023 due to lower cash sweep balances and lower short-term interest rates. • Interest revenue was $135.5 million for the year ended December 31, 2024, an increase of 29.6% compared with $104.6 million for the year ended December 31, 2023 primarily due to higher average margin loan balances and security inventories. • Principal transactions revenue was $54.7 million for the year ended December 31, 2024, a decrease of 16.3% compared with $65.3 million for the year ended December 31, 2023 primarily due to lower realized and unrealized gains from government securities trading activities. • Other revenue was $33.9 million for the year ended December 31, 2024, an increase of 44.1% compared to $23.5 million for the year ended December 31, 2023 primarily due to higher death benefit proceeds. Expenses • Compensation and related expenses totaled $936.8 million during the year ended December 31, 2024, an increase of 19.7% compared with the year ended December 31, 2023 primarily due to higher salary expense, production-related expenses, incentive compensation costs and elevated expenses associated with Oppenheimer stock appreciation rights (“OARs”), which were adversely impacted by the significant increase in the OPY Class A Share price. Compensation and related expenses as a percentage of revenue was 65.4% for the year ended December 31, 2024 compared with 62.7% for the year ended December 31, 2023. • Non-compensation expenses were $389.9 million during the year ended December 31, 2024, a decrease of 7.1% compared with $419.7 million during the year ended December 31, 2023 largely due to the absence of significant legal and regulatory costs, partially offset by an increase in interest expense. • The effective income tax rate for the year ended December 31, 2024 was 32.6% compared with 35.3% for the year ended December 31, 2023 primarily due to the absence of the non-deductible $13.0 million regulatory settlement, which was recorded in 2023. Fiscal 2023 compared to Fiscal 2022 Revenue • 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. 39 Table of Contents • 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 Corporate-owned life insurance during 2023, which fluctuates based on changes in fair value of the policies' underlying investments. Expenses • 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. BUSINESS SEGMENTS The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months and years ended December 31, 2024 and 2023. Effective in the fourth quarter of 2024, the Company combined the former Private Client and Asset Management business segments to form the Wealth Management segment. Our Capital Markets and Corporate/Other segments were not impacted by these changes. To provide historical information on a basis consistent with the revised segment presentation, the Company recast prior period segment results. (Expressed in thousands) For the Three Months Ended December 31, For the Years Ended December 31, 2024 2023 % Change 2024 2023 % Change Revenue Wealth Management 253,515 225,279 12.5 972,052 890,185 9.2 Capital Markets 119,325 81,457 46.5 447,579 345,897 29.4 Corporate/Other 2,577 1,553 65.9 12,865 12,743 1.0 Total 375,417 308,289 21.8 1,432,496 1,248,825 14.7 Pre-Tax Income (Loss) Wealth Management 53,708 60,070 (10.6) 265,739 218,533 21.6 Capital Markets (4,975) (18,179) (72.6) (39,596) (62,961) (37.1) Corporate/Other (31,666) (24,059) 31.6 (120,386) (108,802) 10.6 Total $ 17,067 $ 17,832 (4.3) $ 105,757 $ 46,770 126.1 40 Table of Contents Wealth Management Wealth Management reported revenue of $972.1 million for the year ended December 31, 2024, 9.2% higher compared with the prior year. Pre-tax income was $265.7 million, an increase of 21.6% from the prior year. (Expressed in thousands, except financial advisor headcount or otherwise indicated) For the Years Ended December 31, 2024 2023 % Change Revenue $ 972,052 $ 890,187 9.2 Commissions 221,558 186,496 18.8 Advisory fees 483,390 415,450 16.4 Bank deposit sweep income 138,771 172,807 (19.7) Interest 88,714 85,105 4.2 Other 39,619 30,329 30.6 Total Expenses $ 706,313 $ 671,652 5.2 Compensation 514,227 424,031 21.3 Non-compensation 192,086 247,621 (22.4) Pre-Tax Income $ 265,739 $ 218,535 21.6 Compensation Ratio 52.9 % 47.6 % 11.1 Non-compensation Ratio 19.8 % 27.8 % (28.8) Pre-Tax Margin 27.3 % 24.5 % 11.4 AUA (billions) $ 129.5 $ 118.2 9.6 AUM (billions) $ 49.4 $ 43.9 12.5 Cash Sweep Balances (billions) $ 3.0 $ 3.4 (11.8) Financial Advisor Headcount 931 931 — • Retail commissions increased significantly from the prior year due to higher overall client activity. • Advisory fees increased 16.4% from the prior year due to higher billable AUM during the year. • Bank deposit sweep income for the full year decreased $34.0 million or 19.7% from the prior year due to lower short-term interest rates and lower cash sweep balances. • Interest revenue increased 4.2% from the prior year due to higher average margin loan balances. • Other revenue increased 30.6% compared with the prior year primarily due to higher death benefit proceeds and allocated syndicate fess. • AUM were $49.4 billion, a new record at December 31, 2024, which is the basis for advisory fee billings for January 2025. • The increase in AUM from December 31, 2023 to December 31, 2024 was comprised of higher asset values of $6.4 billion on existing client holdings, offset by net distributions of $0.9 billion • Compensation expenses increased 21.3% from the prior year primarily due to greater production-related expenses and elevated costs associated with share appreciation rights. • Non-compensation expenses decreased 22.4% from the prior year primarily due to significantly lower legal and regulatory costs. 41 Table of Contents The following table provides a breakdown of the change in assets under management for the year ended December 31, 2024: (Expressed in millions) For the Year Ended December 31, 2024 Beginning Balance Appreciation (Depreciation) Ending Balance Fund Type Contributions Redemptions Traditional (1) $ 38,143 $ 7,853 $ (8,564) $ 5,607 $ 43,039 Institutional Fixed Income (2) 852 167 (139) 36 916 Alternative Investments: Hedge funds (3) 3,463 160 (381) 773 4,015 Private Equity Funds (4) 1,107 156 (53) (25) 1,185 Portfolio Enhancement Program (5) 305 5 (82) — 228 $ 43,870 $ 8,341 $ (9,219) $ 6,391 $ 49,383 (1) Traditional investments include third party advisory programs, Oppenheimer financial advisor managed and advisory programs, and Oppenheimer Asset Management taxable and tax-exempt portfolio management strategies. (2) Institutional fixed income provides solutions to institutional investors including: Taft-Hartley Funds, Public Pension Funds, Corporate Pension Funds, and Foundations and Endowments. (3) Hedge funds represent investments in strategies including long/short equity, global macro, event driven, merger arbitrage, multi-strategy and credit. They may be single manager or fund of funds. (4) Private equity funds include portfolios focused on technology, infrastructure, real estate, natural resources and specific co- investment opportunities. (5) The portfolio enhancement program sells uncovered, far out-of-the-money puts and calls on the S&P 500 Index. The program is market neutral and uncorrelated to the index. Valuation is based on collateral requirements for a series of contracts representing the investment strategy. 42 Table of Contents Capital Markets Capital Markets reported revenue of $447.6 million for the year ended December 31, 2024, 29.4% higher compared with the prior year. Pre-tax loss was $39.6 million compared with a pre-tax loss of $63.0 million for the prior year. (Expressed in thousands, except otherwise indicated ) For the Years Ended December 31, 2024 2023 % Change Revenue $ 447,579 $ 345,897 29.4 Investment Banking $ 166,785 $ 111,734 49.3 Advisory fees 107,222 69,623 54.0 Equities underwriting 46,181 33,904 36.2 Fixed income underwriting 11,844 6,594 79.6 Other 1,538 1,613 * Sales and Trading $ 277,262 $ 231,867 19.6 Equities 134,854 128,216 5.2 Fixed income 142,408 103,651 37.4 Other $ 3,532 $ 2,296 53.8 Total Expenses $ 487,175 $ 408,858 19.2 Compensation 323,612 269,330 20.2 Non-compensation 163,563 139,528 17.2 Pre-Tax Loss $ (39,596) $ (62,961) (37.1) Compensation Ratio 72.3 % 77.9 % (7.2) Non-compensation Ratio 36.5 % 40.3 % (9.4) Pre-Tax Margin (8.8) % (18.2) % (51.6) * Percentage not meaningful • Advisory fees earned from investment banking activities increased 54.0% compared with the prior year due to an increase in restructuring-related mandates and higher transaction volumes, particularly in the healthcare industry. • Equities underwriting fees increased 36.2% compared with the prior year due to higher new issuance volumes. • Fixed income underwriting fees were up 79.6% compared with the prior year primarily driven by an uptick in new issuance activity. • Equities sales and trading increased 5.2% compared with the prior year due to higher trading volumes. • Fixed income sales and trading increased 37.4% compared with the prior year driven by higher trading income attributable to higher volumes and increased market share • Compensation expenses were higher than the prior year due to greater incentive compensation accruals and higher salary expenses associated with opportunistic hires. • Non-compensation expenses were 17.2% higher compared with the prior year mainly due to an increase in interest expense in financing trading inventories. CRITICAL ACCOUNTING ESTIMATES The Company's accounting estimates are essential to understanding and interpreting the financial results reported on the consolidated financial statements. 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. The following is a discussion of these estimates: 43 Table of Contents Fair Value Measurements Critical estimates - The accounting guidance for the fair value measurement (ASC 820) of financial assets defines fair value, establishes a framework for measuring fair value, establishes a fair value measurement hierarchy, and expands fair value measurement disclosures. Fair value, as defined by the accounting guidance, is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability. Assumption and judgement - The fair value hierarchy established by ASC 820 prioritizes the inputs used in valuation techniques into the following three categories (highest to lowest priority): • Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets; • Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and • Unobservable inputs that are significant to the overall fair value measurement. The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. Financial instruments are classified as Level 3 if observable pricing inputs are not available due to limited market activity for the asset or liability. The valuation of financial instruments are classified in Level 3 of the fair value hierarchy and consists of valuation techniques that incorporate one or more significant unobservable inputs, and therefore requires the greatest amount of management judgment. As of December 31, 2024, the Company had $5.3 million in financial instruments, comprised of auction rate securities and trade claims, classified within Level 3 of the fair value hierarchy. 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. 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. Although an independent review process is in place, the fair value of the Level 3 financial instrument could be significantly different due to the sensitivity of some unobservable inputs (for example, interest rates) and any such difference could also have a material adverse effect on our consolidated financial statements. Legal and Regulatory Reserves Critical estimates – In the normal course of business, the Company has been named as defendant or co-defendant in various legal actions, including arbitrations, class actions and other litigation, creating substantial exposure and periodic expenses. Management is required to assess the probability of loss and estimate the amount of such loss when preparing its consolidated financial statements. Assumption and judgement - The determination of the levels of these reserves requires significant judgment on the part of management. In accordance with applicable accounting guidance, we established reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and we can reasonably estimate the amount of that loss. When loss contingencies are not probable or cannot be reasonably estimated, we do not establish reserves. When determining whether to record a reserve, management considers many factors including, but not limited to, the amount of the claim; the stage and forum of the proceeding, the sophistication of the claimant, the amount of the loss, if any, in the client's account and the possibility of wrongdoing, if any, on the part of an employee of the Company; the basis and validity of the claim; previous results in similar cases; 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. Any change in the reserve amount is recorded in the results of that period. See note 18 to the consolidated financial statements appearing in Item 8 for further details. Impact if actual results differ from assumptions – Due to the inherent uncertainties of the legal and regulatory proceedings, our judgement may be materially different from the actual outcome. The assumptions we used to determine the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount. 44 Table of Contents Income Taxes Critical estimates – We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. We are also subject to the tax laws of our international subsidiaries and branches. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. We record uncertain tax positions in accordance with ASC 740, "Income Taxes", on the basis of a two-step process whereby we determine whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and, for those tax positions that meet the more-likely-than-not recognition threshold, we will recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Assumption and judgement - We recognize deferred tax assets to the extent we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and the results of recent operations. In establishing a provision for income tax expense, we must make judgements and interpretations about the application of these inherently complex tax laws. We estimate when certain items will affect taxable income in the various jurisdictions in the future. We are also required to evaluate and measure all uncertain tax positions taken or expected to be taken on tax returns and to record liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the relevant taxing authorities. See note 16 to the consolidated financial statements appearing in Item 8 for further details. Impact if actual results differ from assumptions – Although we believe that our estimates and judgements are reasonable, actual results may differ from these estimates. Some or all of these judgements are subject to review by the relevant taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we recorded, and we were not able to realize this benefit, our effective income tax rate in a given financial statement period could be materially affected and it could also have a material adverse effect on our consolidated financial statements. New Accounting Pronouncements The following Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board ("FASB") have not yet been adopted by the Company: ASU 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures The FASB issued this ASU in December of 2023 to enhance the transparency and decision usefulness of income tax disclosures. The amendments require certain entities to enhance the annual reconciliation of its statutory income tax rate to its effective tax rate by mandating the disclosure of the impact associated with specific categories and requiring separate disclosure for reconciling items exceeding certain quantitative thresholds. The amendments also require entities to annually disclose the amount of taxes paid (net of refunds received) disaggregated by federal, state and foreign taxes, with separate disclosure of individual jurisdictions exceeding 5% of total income taxes paid. The new guidance, which becomes effective in 2025, will not have an impact on our financial position or results of operations since it only amends certain disclosures. ASU 2024-03 – Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses The FASB issued this ASU in November of 2024 which will require public business entities to disclose specified information about certain costs and expenses, including employee compensation, depreciation and intangible asset amortization at each interim and annual reporting period. The new guidance, which becomes effective in 2027, will not have an impact on our financial position or results of operations since it only amends certain disclosures. LIQUIDITY AND CAPITAL RESOURCES Total assets increased by 17.7% from December 31, 2023 to December 31, 2024. The Company satisfies its need for financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit. We finance our trading in government securities through the use of securities sold under agreements to repurchase ("repurchase agreements"). Oppenheimer has uncommitted arrangements with banks for borrowings on a fully-collateralized basis. 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 45 Table of Contents repurchase agreements. At December 31, 2024, the Company had a $252.1 million outstanding bank loan balance. The Company also has some availability of short-term bank financing on an unsecured basis. The Company's overseas subsidiaries, Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited, are subject to local regulatory capital requirements that restrict our ability to utilize their capital for other purposes. The regulatory capital requirements for Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited were $6.1 million and $386,200, respectively, at December 31, 2024. The liquid assets at Oppenheimer Europe Ltd. are primarily comprised of cash deposits in bank accounts. The liquid assets at Oppenheimer Investments Asia Limited are primarily comprised of investments in U.S. Treasuries and cash deposits in bank accounts. Any restrictions on transfer of these liquid assets from Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited to the Company or its other subsidiaries would be limited by regulatory capital requirements. The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if these earnings were repatriated. The unrecognized deferred tax liability associated with the outside basis difference of its foreign subsidiaries is estimated at $3.5 million for those subsidiaries. We have continued to reinvest permanently the excess earnings of Oppenheimer Israel (OPCO) Ltd. in its own business and in the businesses in Europe and Asia to support business initiatives in those regions. We will continue to review our historical treatment of these earnings to determine whether our historical practice will continue or whether a change is warranted. Senior Secured Notes On September 19, 2024, the Company issued a notice of redemption to the holders of its 5.50% Senior Secured Notes due in 2025 (the “Notes”) stating that it intended to redeem all of the $113.05 million aggregate principal amount of the Notes outstanding on October 10, 2024. The redemption price was equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. All of the Notes were redeemed on October 10, 2024 and none remain outstanding. The Notes were jointly and severally and fully and unconditionally guaranteed on a senior secured basis by E.A. Viner International Co. and Viner Finance Inc. (together, the "Subsidiary Guarantors"). The following tables present the required selected financial information as of December 31, 2024 and for the twelve months ended December 31, 2024 for the Parent and Subsidiary Guarantors related to the previously outstanding Notes. (Expressed in thousands) As of December 31, 2024 Total Assets $ 2,441,237 Due From Non-Guarantor Subsidiary 86,229 Total Liabilities 573,873 Due To Non-guarantor Subsidiary 15,486 For the Year Ended December 31, 2024 Total Revenue $ 10,558 Pre-Tax Income 1,174 Net Income 2,319 Subsequent to our redemption of the Notes on October 10, 2024, at the Company's request, both S&P and Moody's withdrew their ratings. Immediately prior to the redemption of the Notes, S&P’s Corporate Family rating and rating on the Notes was a 'BB-' with a stable outlook while Moody’s Corporate Family rating and rating on the Notes was a “Ba3” with a stable outlook. Liquidity For the most part, the Company's assets consist of cash and cash equivalents and assets that it can readily convert into cash. The receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement. The receivable from customers represents margin balances and amounts due on transactions awaiting settlement. Our receivables are, for the most part, collateralized by marketable securities. Our collateral maintenance policies and procedures are designed to limit our exposure to credit risk. Securities owned, with the exception of the auction rate securities and trade claims, are mainly comprised of actively trading, readily marketable securities. 46 Table of Contents We issued $25.4 million in forgivable notes (which are inherently illiquid) to employees for the year ended December 31, 2024 ($21.5 million for the year ended December 31, 2023) 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. We satisfy our need for liquidity from internally generated funds, collateralized and uncollateralized bank borrowings, stock loans and repurchase agreements and warehouse facilities. Bank borrowings are uncommitted in nature and, in most cases, collateralized by firm and customer securities. We obtain short-term borrowings primarily through bank call loans. Bank call loans are generally payable on demand and bear interest at various rates. At December 31, 2024, bank call loans were $252.1 million (zero at December 31, 2023). The average daily bank loan outstanding for the year ended December 31, 2024 was $167.7 million ($49.4 million for the year ended December 31, 2023). The largest daily bank loan outstanding for the year ended December 31, 2024 was $350.7 million ($167.3 million for the year ended December 31, 2023). At December 31, 2024, securities loan balances totaled $235.5 million ($285.0 million at December 31, 2023). The average daily securities loan balance for the year ended December 31, 2024 was $305.8 million ($327.0 million for the year ended December 31, 2023). The largest daily stock loan balance for the year ended December 31, 2024 was $425.3 million ($391.5 million for the year ended December 31, 2023). We finance our government trading operations through the use of securities purchased under agreements to resell ("reverse repurchase agreements") and repurchase agreements. Except as described below, repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest. 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. At December 31, 2024, the gross balances of reverse repurchase agreements and repurchase agreements were $68.1 million and $999.8 million, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the year ended December 31, 2024 was $322.0 million and $1,179.70 million, respectively ($107.6 million and $547.1 million, respectively, for the year ended December 31, 2023). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the year ended December 31, 2024 was $671.2 million and $1,118.0 million, respectively ($506.4 million and $806.9 million, respectively, for the year ended December 31, 2023). 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 We manage our need for liquidity on a daily basis to ensure compliance with regulatory requirements. Our liquidity needs may be affected by market conditions, increased inventory positions, business expansion and other unanticipated occurrences. In the event that existing financial resources do not satisfy our liquidity needs, we may have to seek additional external financing. The availability of such additional external financing may depend on market factors outside our control. We have Corporate-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 $98.8 million as of December 31, 2024. We regularly review our sources of liquidity and financing and conduct internal stress analysis to determine the impact on the Company of events that could remove sources of liquidity or financing and to plan actions the Company could take in the case of such an eventuality. Our reviews have resulted in a contingency funding plan 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 $173.3 million of operating lease obligations. The total cash requirement for operating lease obligations is estimated to be approximately $11.8 million for the 2025 year. 47 Table of Contents Funding Risk (Expressed in thousands) For the Years Ended December 31, 2024 2023 Cash used in operating activities $ (108,168) $ (18,810) Cash used in investing activities (3,839) (15,561) Cash provided by (used in) financing activities 116,322 (74,761) Net increase (decrease) in cash and cash equivalents and restricted cash $ 4,315 $ (109,132) 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. Under some circumstances, banks including those on whom we rely may back away from providing funding to the securities industry. Such a development might impact our ability to finance our day-to-day activities or increase the costs to acquire funding. We may or may not be able to pass such increased funding costs on to our clients. During periods of high volatility, we have seen increased calls for deposits of collateral to offset perceived risk between the Company's settlement liability to industry utilities such as the Options Clearing Corporation (“OCC”) and National Securities Clearing Corp. (“NSCC”) as well as more stringent collateral arrangements with our bank lenders. Recent reductions in the settlement cycle to one day are believed to have reduced such requirements. All such requirements have been met in the ordinary course with available collateral. 48 Table of Contents REGULATORY MATTERS AND DEVELOPMENTS See the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in Item 1 “Business - Regulation” herein for additional information. Oppenheimer and many of its affiliates are each subject to various regulatory capital requirements. As of December 31, 2024, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. See “Business – Regulatory - Regulatory Capital Requirements” in Part I, Item 1 and note 19 of the Notes to Consolidated Financial Statements in Item 8 for further information on regulatory capital requirements. On December 20, 2024, the SEC adopted rule amendments to SEC Rule 15c3-3 (the customer protection rule) to require certain broker-dealers, including those with average total credits (amounts owed to customers) equal to or greater than $500 million, to increase the frequency with which they perform computation of the net cash they owe customers and proprietary accounts of other broker-dealers ("PAB") from weekly to daily. Impacted entities must perform the customer and PAB reserve computations daily beginning no later than December 31, 2025. We anticipate that the new amendments will impact our principal broker dealer and may result in an increase in required staffing levels. The Organization for Economic Co-operation and Development (“OECD”) issued the Global Anti-Base Erosion Model Rules (“Pillar II”), which among its provisions, requires companies to pay a minimum corporate tax rate of 15% in each jurisdiction in which they do business. While we have foreign affiliates that operate within the scope of Pillar II, we do not believe that it will have a material impact on our consolidated results of operations or effective income tax rate. 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. 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. 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 the Israel-Hamas war, the conflict with Hezbollah and Iran and related unrest in the Middle East 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, (xvi) the effect of technological innovation on the financial services industry and securities business including but not limed to risks associated with the use of artificial intelligence, (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) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, climate-related risks such as natural disasters and extreme weather events. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company's business See “Risk Factors” in Part I, Item 1A.