Oppenheimer(US:OPY)2022-04-29 12:31markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section details the unaudited condensed consolidated financial statements and management's analysis for Q1 2022 [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section provides Oppenheimer Holdings Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q1 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's condensed consolidated balance sheets as of March 31, 2022, and December 31, 2021 Key Balance Sheet Metrics | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $3,019,457 | $3,043,250 | | Total Liabilities | $2,074,746 | $2,090,220 | | Total Stockholders' Equity | $816,946 | $825,265 | - Total assets decreased by **$23.793 million** (**0.78%**) from December 31, 2021, to March 31, 2022. Total liabilities decreased by **$15.474 million** (**0.74%**) over the same period. Total stockholders' equity decreased by **$8.319 million** (**1.01%**) from December 31, 2021, to March 31, 2022[9](index=9&type=chunk) [Condensed Consolidated Income Statements](index=5&type=section&id=Condensed%20Consolidated%20Income%20Statements) This section details the company's income statements for Q1 2022 and Q1 2021, highlighting revenue and net income changes Income Statement Highlights | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change (YoY) | % Change (YoY) | | :--------------------------------- | :--------------------- | :--------------------- | :----------- | :------------- | | Total Revenue | $266,028 | $373,282 | $(107,254) | (28.7%) | | Total Expenses | $251,815 | $321,155 | $(69,340) | (21.6%) | | Pre-tax income | $14,213 | $52,127 | $(37,914) | (72.7%) | | Income taxes | $4,435 | $13,469 | $(9,034) | (67.1%) | | Net income attributable to Oppenheimer Holdings Inc. | $9,292 | $38,658 | $(29,366) | (76.0%) | | Basic EPS | $0.75 | $3.07 | $(2.32) | (75.6%) | | Diluted EPS | $0.69 | $2.91 | $(2.22) | (76.3%) | - The company experienced a **significant decline** in financial performance in Q1 2022 compared to Q1 2021, with total revenue decreasing by **28.7%** and net income attributable to Oppenheimer Holdings Inc. falling by **76.0%**. Basic EPS also saw a **substantial drop** of **75.6%**[11](index=11&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents comprehensive income for Q1 2022 and Q1 2021, including currency translation adjustments Comprehensive Income Summary | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :------------------------------------------ | :--------------------- | :--------------------- | | Net income | $9,778 | $38,658 | | Currency translation adjustment | $(614) | $(836) | | Comprehensive income | $9,164 | $37,822 | | Comprehensive income attributable to Oppenheimer Holdings Inc. | $8,678 | $37,822 | - Comprehensive income attributable to Oppenheimer Holdings Inc. decreased significantly from **$37.822 million** in Q1 2021 to **$8.678 million** in Q1 2022, primarily driven by the decrease in net income[13](index=13&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section outlines changes in stockholders' equity for Q1 2022 and Q1 2021, including share capital and dividends Stockholders' Equity Changes | Metric | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Share capital (end of period) | $22,628 | $43,141 | | Contributed capital (end of period) | $39,829 | $35,429 | | Retained earnings (end of period) | $748,323 | $638,558 | | Accumulated other comprehensive income (end of period) | $3,611 | $2,612 | | Total Oppenheimer Holdings Inc. stockholders' equity | $814,391 | $719,740 | | Dividends paid per share | $0.15 | $0.12 | - Total Oppenheimer Holdings Inc. stockholders' equity increased by **$94.651 million** year-over-year. The company repurchased **$16.158 million** of Class A non-voting common stock for cancellation in Q1 2022, compared to no repurchases in Q1 2021. **Dividends paid per share increased from $0.12 to $0.15**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flow activities for Q1 2022 and Q1 2021, covering operating, investing, and financing Cash Flow Activities Summary | Cash Flow Activity | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :---------------------------------------- | :--------------------- | :--------------------- | | Cash (used in)/provided by operating activities | $(152,146) | $7,268 | | Cash used in investing activities | $(2,490) | $(999) | | Cash used in financing activities | $(11,654) | $(13,148) | | Net decrease in cash, cash equivalents and restricted cash | $(166,290) | $(6,879) | | Cash, cash equivalents and restricted cash, end of period | $175,234 | $28,545 | - The company experienced a **significant shift from cash provided by operating activities in Q1 2021 to cash used in operating activities in Q1 2022**, resulting in a **substantial net decrease in cash, cash equivalents, and restricted cash** for the period[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the accounting policies and specific financial statement items [1. Organization](index=9&type=section&id=1.%20Organization) This section outlines Oppenheimer Holdings Inc.'s business structure, services, and global operational footprint - Oppenheimer Holdings Inc. is a **leading middle market investment bank and full-service broker-dealer**, offering retail securities brokerage, institutional sales and trading, investment banking, research, market-making, trust services, and investment advisory and asset management services[20](index=20&type=chunk) - The Company operates from its **New York headquarters**, **93 retail branch offices in the U.S.**, and institutional businesses in **London, Tel Aviv, and Hong Kong**, through key subsidiaries like Oppenheimer & Co. Inc., Oppenheimer Asset Management Inc., and Oppenheimer Trust Company of Delaware[21](index=21&type=chunk) [2. Summary of significant accounting policies and estimates](index=9&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies%20and%20estimates) This section summarizes key accounting policies and estimates used in preparing the interim financial statements - The financial statements are prepared under U.S. GAAP for interim reporting, requiring management estimates and assumptions, which may differ from actual results[23](index=23&type=chunk) - The company consolidated Oppenheimer Acquisition Corp. I (OHAA), a special purpose acquisition company, and Oppenheimer Principal Investments LLC (OPI), designed to retain employees and deploy capital into private market investments[27](index=27&type=chunk)[32](index=32&type=chunk) - Restricted cash of **$127.8 million** represents OHAA deposits held in a trust account, classified as temporary equity, with changes in redemption value recognized immediately[28](index=28&type=chunk)[30](index=30&type=chunk)[35](index=35&type=chunk) [3. Financial Instruments - Credit Losses](index=12&type=section&id=3.%20Financial%20Instruments%20-%20Credit%20Losses) This section details the company's financial instruments, particularly notes receivable and credit loss allowances - Notes receivable, primarily recruiting and retention payments to financial advisors, **totaled $57.9 million** as of March 31, 2022, amortizing over 3 to 10 years contingent on continued employment[37](index=37&type=chunk) - The **allowance for uncollectibles for defaulted notes was $5.2 million** as of March 31, 2022, **covering $7.6 million in uncollected defaulted notes**, with **100% reserved for notes five years and older**[40](index=40&type=chunk) Uncollected Defaulted Notes by Year | Year of Default | As of March 31, 2022 (in thousands) | | :---------------- | :---------------------------------- | | 2022 | $598 | | 2021 | $2,334 | | 2020 | $585 | | 2019 | $365 | | 2018 | $138 | | 2017 and prior | $3,567 | | Total | $7,587 | [4. Leases](index=13&type=section&id=4.%20Leases) This section describes the company's operating lease arrangements, including right-of-use assets and liabilities - The Company holds operating leases for office space and equipment, with **right-of-use assets totaling $151.2 million** and corresponding **lease liabilities of $194.1 million** as of March 31, 2022[48](index=48&type=chunk) Weighted Average Lease Terms and Discount Rates | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Weighted average remaining lease term (in years) | 7.23 | 7.38 | | Weighted average discount rate | 6.79% | 6.89% | Operating Lease Costs | Operating Lease Costs (in thousands) | Q1 2022 | Q1 2021 | | :----------------------------------- | :------ | :------ | | Real estate leases - Right-of-use lease asset amortization | $6,157 | $6,056 | | Real estate leases - Interest expense | $3,356 | $3,596 | | Equipment leases - Right-of-use lease asset amortization | $414 | $445 | | Equipment leases - Interest expense | $32 | $39 | [5. Revenue from contracts with customers](index=15&type=section&id=5.%20Revenue%20from%20contracts%20with%20customers) This section explains the company's revenue recognition policies and details key revenue streams by source - Revenue is recognized when performance obligations are satisfied, either over time or at a point in time, with variable consideration included when probable of no significant reversal[53](index=53&type=chunk)[54](index=54&type=chunk) - Key revenue streams include commissions (sales and trading, mutual fund income), advisory fees (management and performance fees), investment banking (underwriting, financial advisory), and bank deposit sweep income[55](index=55&type=chunk)[58](index=58&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk) Revenue by Source | Revenue Source (in thousands) | Q1 2022 | Q1 2021 | | :-------------------------------- | :------ | :------ | | Commissions from sales and trading | $90,002 | $104,195 | | Mutual fund and insurance income | $8,319 | $9,276 | | Advisory fees | $115,766 | $104,496 | | Investment banking - capital markets | $16,530 | $88,579 | | Investment banking - advisory | $21,940 | $35,922 | | Bank deposit sweep income | $4,354 | $4,008 | | Other | $3,277 | $3,693 | | Total revenue from contracts with customers | $260,188 | $350,169 | [6. Earnings per share](index=19&type=section&id=6.%20Earnings%20per%20share) This section presents the calculation of basic and diluted earnings per share for Q1 2022 and Q1 2021 Earnings Per Share Details | Metric | Q1 2022 | Q1 2021 | | :------------------------------------------ | :------ | :------ | | Basic weighted average number of shares outstanding | 12,467,632 | 12,579,130 | | Diluted weighted average number of shares outstanding | 13,499,334 | 13,299,243 | | Net income attributable to Oppenheimer Holdings Inc. | $9,292 | $38,658 | | Basic EPS | $0.75 | $3.07 | | Diluted EPS | $0.69 | $2.91 | - Basic EPS decreased by **75.6%** and diluted EPS decreased by **76.3%** year-over-year, reflecting the **significant decline** in net income[75](index=75&type=chunk) [7. Receivable from and payable to brokers, dealers and clearing organizations](index=19&type=section&id=7.%20Receivable%20from%20and%20payable%20to%20brokers,%20dealers%20and%20clearing%20organizations) This section details balances with brokers, dealers, and clearing organizations, including securities borrowed and loaned Receivable from Brokers, Dealers, and Clearing Organizations | Receivable from (in thousands) | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Securities borrowed | $98,276 | $99,752 | | Receivable from brokers | $38,165 | $39,716 | | Securities failed to deliver | $37,028 | $9,212 | | Clearing organizations | $19,758 | $19,518 | | Other | $16,210 | $1,704 | | Total | $209,437 | $169,902 | Payable to Brokers, Dealers, and Clearing Organizations | Payable to (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Securities loaned | $300,323 | $244,223 | | Securities failed to receive | $18,614 | $6,457 | | Payable to brokers | $566 | $2,077 | | Clearing organizations and other | $0 | $169,300 | | Total | $319,503 | $422,057 | - Receivable from brokers, dealers and clearing organizations increased by **$39.535 million**, primarily due to a rise in securities failed to deliver and other receivables. Payable to brokers, dealers and clearing organizations decreased by **$102.554 million**, largely due to the absence of a significant balance related to U.S. Government Securities trade/settlement date adjustment present in December 2021[76](index=76&type=chunk) [8. Fair value measurements](index=20&type=section&id=8.%20Fair%20value%20measurements) This section describes the company's fair value measurement practices for financial instruments and assets - The Company values securities owned, securities sold but not yet purchased, investments, and derivative contracts at fair value, recognizing changes in earnings each period[78](index=78&type=chunk) - Valuation techniques vary by instrument, utilizing quoted market prices for U.S. Treasury securities and corporate equities, and model-derived prices or external pricing data for U.S. Agency obligations, corporate debt, and mortgage-backed securities[79](index=79&type=chunk)[80](index=80&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[86](index=86&type=chunk) - **As of March 31, 2022, the Company owned $31.8 million of Auction Rate Securities (ARS)**, **valued at the tender offer price and categorized in Level 3 due to illiquidity, with a $5.2 million valuation adjustment**[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) Fair Value Assets by Level | Fair Value Assets (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------- | :------ | :------ | :------ | :------ | | Deposits with clearing organizations | $38,566 | $0 | $0 | $38,566 | | Securities owned | $589,569 | $67,673 | $31,804 | $689,046 | | Investments | $0 | $13,934 | $0 | $13,934 | | Derivative contracts | $0 | $6 | $0 | $6 | | Total Assets | $628,135 | $81,613 | $31,804 | $741,552 | Fair Value Liabilities by Level | Fair Value Liabilities (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------ | :------ | :------ | :------ | :------ | | Securities sold but not yet purchased | $80,649 | $16,722 | $0 | $97,371 | | Derivative contracts | $1,832 | $26 | $0 | $1,858 | | Total Liabilities | $82,481 | $16,748 | $0 | $99,229 | [9. Collateralized transactions](index=34&type=section&id=9.%20Collateralized%20transactions) This section outlines the company's use of collateralized transactions and associated credit risk management - The Company uses collateralized transactions, including bank call loans, securities borrowed/loaned, and repurchase/reverse repurchase agreements, to manage liquidity, meet customer needs, and finance trading positions[133](index=133&type=chunk)[137](index=137&type=chunk) - As of March 31, 2022, **bank call loans totaled $78.2 million**, **collateralized by $26.0 million of Company securities and $65.3 million of customer securities**. The Company also **had $1.8 billion of customer securities available to be pledged under margin loans**[134](index=134&type=chunk)[135](index=135&type=chunk) Gross Collateralized Obligations | Gross Obligation (in thousands) | Overnight and Open | | :------------------------------------------ | :----------------- | | Repurchase agreements: U.S. Government and Agency securities | $525,314 | | Securities loaned: Equity securities | $300,323 | | Total | $825,637 | - The Company manages credit exposure from these transactions through master netting agreements and collateral arrangements, **actively monitoring collateral values and requesting additional collateral when necessary**[150](index=150&type=chunk) [10. Variable interest entities ("VIEs")](index=39&type=section&id=10.%20Variable%20interest%20entities%20(%22VIEs%22)) This section explains the company's consolidation of variable interest entities and their financial impact - The Company consolidates subsidiaries where it has a controlling financial interest and VIEs where it is the primary beneficiary, having power over economic performance and exposure to significant losses or benefits[155](index=155&type=chunk) - **Oppenheimer Acquisition LLC I and Oppenheimer Acquisition Corp. I (OHAA) are consolidated VIEs** because the **Company and its employees control OHAA through the Sponsor's ownership of Class A founder shares**[158](index=158&type=chunk)[159](index=159&type=chunk) Consolidated VIEs Financials | Consolidated VIEs (in thousands) | March 31, 2022 | | :------------------------------- | :------------- | | Total Assets | $130,094 | | Total Liabilities | $63 | [11. Long-term debt](index=40&type=section&id=11.%20Long-term%20debt) This section details the company's long-term debt, including Senior Secured Notes and associated covenants Long-Term Debt Summary | Debt Instrument | Maturity Date | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :------------ | :---------------------------- | :------------------------------- | | 5.50% Senior Secured Notes | 10/1/2025 | $125,000 | $125,000 | | Unamortized Debt Issuance Cost | | $(863) | $(926) | | Net | | $124,137 | $124,074 | - The Company **issued $125.0 million of 5.50% Senior Secured Notes due 2025** in September 2020, using proceeds to redeem prior 6.75% notes. These notes are **guaranteed by subsidiary guarantors and secured by a first-priority interest in assets**[164](index=164&type=chunk)[166](index=166&type=chunk)[171](index=171&type=chunk) - The Indenture for the Notes includes covenants restricting indebtedness, dividends, asset sales, and liens, with specific exceptions for brokerage operations and regulated subsidiaries. The Company was **in compliance with all covenants as of March 31, 2022**[167](index=167&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk) [12. Income taxes](index=41&type=section&id=12.%20Income%20taxes) This section discusses the company's effective income tax rate and factors influencing its quarterly changes - The **effective income tax rate for Q1 2022 was 31.2%**, an **increase from 25.8% in Q1 2021**, primarily due to unfavorable permanent items in the current period and favorable discrete items in the prior year[173](index=173&type=chunk) [13. Share capital](index=41&type=section&id=13.%20Share%20capital) This section describes the company's authorized and outstanding share capital, including repurchase activities - The Company's authorized share capital includes 50 million Class A non-voting common shares and 99,665 Class B voting common shares, with **12,156,174 Class A shares outstanding** as of March 31, 2022[174](index=174&type=chunk)[176](index=176&type=chunk) - During Q1 2022, the Company **repurchased and canceled 377,313 shares of Class A Stock for $16.2 million ($42.82 per share)** under its buy-back program, with **364,508 shares remaining available for repurchase**[180](index=180&type=chunk) [14. Contingencies](index=42&type=section&id=14.%20Contingencies) This section addresses potential liabilities from legal actions, arbitrations, and regulatory investigations - The Company faces **substantial liability risks** from legal actions, arbitrations, and regulatory investigations related to securities brokerage, asset management, and investment banking activities[182](index=182&type=chunk) - As of March 31, 2022, the **estimated aggregate range of possible loss in excess of accrued amounts for legal and regulatory proceedings is $0 to $32.0 million**, though actual losses may exceed this estimate[187](index=187&type=chunk) - **Oppenheimer is a defendant in a class action and twenty FINRA arbitrations related to client investments in Horizon Private Equity, III, LLC**, with **alleged damages of approximately $38.0 million** in aggregate for specific claims[188](index=188&type=chunk)[189](index=189&type=chunk) [15. Regulatory requirements](index=43&type=section&id=15.%20Regulatory%20requirements) This section outlines the company's compliance with net capital and other regulatory requirements for its entities - Oppenheimer & Co. Inc. maintained **net capital of $440.4 million** (**30.40%** of aggregate debit items) as of March 31, 2022, **exceeding the minimum required by $411.4 million** under SEC Rule 15c3-1[190](index=190&type=chunk) - Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited were **in compliance with their respective regulatory capital requirements**, with **capital held significantly above minimums**[192](index=192&type=chunk)[193](index=193&type=chunk) - Oppenheimer Europe Ltd.'s capital ratios as of March 31, 2022, were: **Common Equity Tier 1 ratio 171% (required 56.0%)**, **Tier 1 Capital ratio 171% (required 75.0%)**, and **Total Capital ratio 228% (required 100.0%)**[197](index=197&type=chunk) [16. Segment information](index=44&type=section&id=16.%20Segment%20information) This section provides financial performance data for the company's Private Client, Asset Management, and Capital Markets segments - The Company's reportable segments are Private Client, Asset Management, and Capital Markets, with performance evaluated based on profitability and resources allocated accordingly[195](index=195&type=chunk)[196](index=196&type=chunk) Segment Revenue Performance | Segment Revenue (in thousands) | Q1 2022 | Q1 2021 | % Change | | :----------------------------- | :------ | :------ | :------- | | Private Client | $150,847 | $164,023 | (8.0%) | | Asset Management | $27,117 | $24,230 | 11.9% | | Capital Markets | $85,051 | $183,599 | (53.7%) | | Corporate/Other | $3,013 | $1,430 | 110.7% | | Total | $266,028 | $373,282 | (28.7%) | Segment Pre-Tax Income (Loss) Performance | Segment Pre-Tax Income (Loss) (in thousands) | Q1 2022 | Q1 2021 | % Change | | :------------------------------------------- | :------ | :------ | :------- | | Private Client | $24,146 | $24,263 | (0.5%) | | Asset Management | $9,474 | $7,553 | 25.4% | | Capital Markets | $1,166 | $49,991 | (97.7%) | | Corporate/Other | $(20,573) | $(29,680) | (30.7%) | | Total | $14,213 | $52,127 | (72.7%) | [17. Subsequent events](index=45&type=section&id=17.%20Subsequent%20events) This section reports significant events occurring after the balance sheet date, such as dividend declarations - **On April 29, 2022, the Company announced a quarterly dividend of $0.15 per share**, payable on May 27, 2022[202](index=202&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition and results for Q1 2022 [BACKGROUND](index=46&type=section&id=BACKGROUND) This section provides an overview of Oppenheimer Holdings Inc.'s business, services, and operational scale - Oppenheimer Holdings Inc. is a middle-market investment bank and full-service broker-dealer with 93 U.S. offices and international presence in Tel Aviv, Hong Kong, and Europe[204](index=204&type=chunk) Company Overview Metrics | Metric | As of March 31, 2022 | | :-------------------------------- | :------------------- | | Client assets under administration (CAUA) | $117.2 billion | | Client assets under management (AUM) | $42.7 billion | | Total employees | 2,896 (993 financial advisors) | [Outlook](index=46&type=section&id=Outlook) This section outlines the company's strategic priorities for growth, including advisor recruitment and technology - The Company focuses on growing private client and asset management businesses by adding experienced financial advisors and money management personnel, and expanding through targeted acquisitions[205](index=205&type=chunk) - Strategic initiatives include creating private market opportunities, enhancing capital market businesses with experienced personnel, continuously improving technology platforms, and investing in cybersecurity[205](index=205&type=chunk)[206](index=206&type=chunk) [Impact of Interest Rates](index=47&type=section&id=Impact%20of%20Interest%20Rates) This section discusses the potential effects of changing interest rates on the company's revenues and market conditions - The Federal Reserve's intention to increase the Federal Funds Rate, starting with a **25bps hike in March 2022**, is expected to **increase interest rates across the spectrum**, which will be **favorable to the Company's interest-based revenues**, including fees from FDIC-insured deposits and margin balances[208](index=208&type=chunk) - However, rising interest rates and the FED's balance sheet reduction could lead to **reduced economic activity, increased financial market volatility, decreased fixed income investment values, and impact equity share prices**[208](index=208&type=chunk) [Ukraine War](index=47&type=section&id=Ukraine%20War) This section addresses the indirect impact of the Ukraine war on global economic conditions and the company's business - The ongoing Ukraine war and associated sanctions have increased hydrocarbon and agricultural product prices, exacerbating inflationary pressures in Europe and globally[209](index=209&type=chunk) - The conflict has indirectly lowered consumer confidence and spending, which could adversely impact financial markets and the Company's business[209](index=209&type=chunk) [CORONAVIRUS DISEASE 2019 ("COVID-19 PANDEMIC")](index=47&type=section&id=CORONAVIRUS%20DISEASE%202019%20(%22COVID-19%20PANDEMIC%22)) This section details the company's ongoing response to the COVID-19 pandemic and its operational adjustments - The Company continues to monitor and respond to the COVID-19 pandemic, maintaining enhanced health protocols and remote work arrangements for most employees, with no significant business disruptions to date[210](index=210&type=chunk) - Despite recent improvements in attendance as local regulations loosen and vaccination rates rise, the Company continues to closely monitor the situation, acknowledging that these improvements may not be sustained[210](index=210&type=chunk) [EXECUTIVE SUMMARY](index=47&type=section&id=EXECUTIVE%20SUMMARY) This section provides a high-level overview of Q1 2022 financial performance, highlighting key drivers and challenges - Q1 2022 results were **significantly impacted by a downturn in equity capital market issuance**, particularly IPOs, secondary offerings, and the SPAC market, which **dramatically reduced capital market revenues**[211](index=211&type=chunk) - **Wealth Management delivered solid results with near-record AUM and net investor flows**, partially offsetting the revenue decline. However, **overall firm results were significantly reduced from 2021** due to market concerns over inflation, interest rates, and geopolitical events[212](index=212&type=chunk) [RESULTS OF OPERATIONS](index=48&type=section&id=RESULTS%20OF%20OPERATIONS) This section presents a detailed analysis of the company's consolidated financial results for Q1 2022 versus Q1 2021 Consolidated Financial Performance Summary | Metric | 1Q-2022 | 1Q-2021 | Change | % Change | | :---------------------------------------- | :------ | :------ | :----- | :------- | | Revenue | $266,028 | $373,282 | $(107,254) | (28.7) | | Compensation expense | $186,031 | $255,601 | $(69,570) | (27.2) | | Non-compensation expense | $65,784 | $65,554 | $230 | 0.4 | | Pre-Tax Income | $14,213 | $52,127 | $(37,914) | (72.7) | | Net Income | $9,292 | $38,658 | $(29,366) | (76.0) | | Earnings per share (basic) | $0.75 | $3.07 | $(2.32) | (75.6) | | Book Value Per Share | $66.45 | $56.74 | $9.71 | 17.1 | | Tangible Book Value Per Share | $52.58 | $43.34 | $9.24 | 21.3 | | CAUA ($ billions) | $117.2 | $111.4 | $5.8 | 5.2 | | AUM ($ billions) | $42.7 | $40.2 | $2.5 | 6.2 | - The Company reported a **76.0% decrease in net income** and a **75.6% decrease in basic EPS** for Q1 2022 compared to Q1 2021, driven by a **28.7% decline in revenue**[213](index=213&type=chunk)[214](index=214&type=chunk) - Despite the revenue and earnings decline, **client assets under administration (CAUA) and under management (AUM) reached near-record levels, increasing by 5.2% and 6.2% respectively**, and **book value and tangible book value per share also reached record levels**[214](index=214&type=chunk)[217](index=217&type=chunk) [BUSINESS SEGMENTS](index=49&type=section&id=BUSINESS%20SEGMENTS) This section analyzes the financial performance of the company's Private Client, Asset Management, and Capital Markets segments [Private Client](index=49&type=section&id=Private%20Client) This section details the financial performance of the Private Client segment, including revenue and pre-tax income Private Client Segment Performance | Metric | 1Q-2022 | 1Q-2021 | Change | % Change | | :---------------------------------------- | :------ | :------ | :----- | :------- | | Revenue | $150,847 | $164,023 | $(13,176) | (8.0) | | Retail commissions | $51,677 | $57,596 | $(5,919) | (10.3) | | Advisory fee revenue | $88,527 | $80,254 | $8,273 | 10.3 | | Bank deposit sweep income | $4,354 | $4,008 | $346 | 8.6 | | Interest | $8,147 | $6,476 | $1,671 | 25.8 | | Pre-tax Income | $24,146 | $24,263 | $(117) | (0.5) | | Pre-tax Margin | 16.0 % | 14.8 % | 120 bps | 8.1 | | Financial Advisor Headcount | 993 | 1,000 | (7) | (0.7) | - **Private Client revenue decreased by 8.0%** due to **lower commissions and decreases in Company-owned life insurance cash surrender value**, partially offset by **increased bank deposit sweep income and interest revenue from higher rates and margin balances**[219](index=219&type=chunk)[224](index=224&type=chunk) - **Pre-tax income remained stable with a slight decrease of 0.5%**, resulting in an **improved pre-tax profit margin of 16.0%**, despite a slight reduction in financial advisor headcount[219](index=219&type=chunk)[220](index=220&type=chunk) [Asset Management](index=50&type=section&id=Asset%20Management) This section details the financial performance of the Asset Management segment, including revenue and AUM growth Asset Management Segment Performance | Metric | 1Q-2022 | 1Q-2021 | Change | % Change | | :-------------------------------- | :------ | :------ | :----- | :------- | | Revenue | $27,117 | $24,230 | $2,887 | 11.9 | | Advisory fee revenue | $27,113 | $24,227 | $2,886 | 11.9 | | Pre-tax Income | $9,474 | $7,553 | $1,921 | 25.4 | | Pre-tax Margin | 34.9 % | 31.2 % | 370 bps | 11.9 | | AUM (billions) | $42.7 | $40.2 | $2.5 | 6.2 | - **Asset Management revenue increased by 11.9%** and **pre-tax income rose by 25.4% year-over-year**, driven by **higher assets under management (AUM) and positive net asset flows**[222](index=222&type=chunk)[225](index=225&type=chunk) - **AUM reached a near-record $42.7 billion at March 31, 2022**, reflecting **$1.9 billion in asset value appreciation and $0.6 billion in net contributions**[225](index=225&type=chunk)[226](index=226&type=chunk) [Capital Markets](index=52&type=section&id=Capital%20Markets) This section details the financial performance of the Capital Markets segment, highlighting revenue and income declines Capital Markets Segment Performance | Metric | 1Q-2022 | 1Q-2021 | Change | % Change | | :-------------------------------- | :------ | :------ | :----- | :------- | | Revenues | $85,051 | $183,599 | $(98,548) | (53.7) | | Investment Banking | $32,975 | $116,836 | $(83,861) | (71.8) | | Advisory fees | $21,905 | $35,922 | $(14,017) | (39.0) | | Equities underwriting | $11,236 | $74,582 | $(63,346) | (84.9) | | Fixed income underwriting | $1,987 | $5,487 | $(3,500) | (63.8) | | Sales and Trading | $51,603 | $66,063 | $(14,460) | (21.9) | | Equities | $35,928 | $43,556 | $(7,628) | (17.5) | | Fixed Income | $15,675 | $22,507 | $(6,832) | (30.4) | | Pre-tax Income | $1,166 | $49,991 | $(48,825) | (97.7) | | Pre-tax Margin | 1.4 % | 27.2 % | (2,580 bps) | (94.9) | - **Capital Markets revenue decreased by 53.7%** and **pre-tax income plummeted by 97.7% year-over-year**, primarily due to a **significant decline in investment banking activities, including advisory fees and equity/fixed income underwriting**[231](index=231&type=chunk)[234](index=234&type=chunk) - **Sales and trading revenue also declined, with equities down 17.5% and fixed income down 30.4%**, reflecting **reduced market volumes**[234](index=234&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=53&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section confirms no material changes to critical accounting policies during the first quarter of 2022 - There were **no material changes to the Company's critical accounting policies** during the three months ended March 31, 2022, as discussed in the Annual Report on Form 10-K for December 31, 2021[237](index=237&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=53&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's funding strategies, capital structure, and regulatory capital requirements - The Company finances short-term needs through **internally generated funds, collateralized/uncollateralized borrowings (bank call loans, stock loans), and uncommitted lines of credit**, while longer-term needs are met by **5.50% Senior Secured Notes due 2025**[238](index=238&type=chunk) - Overseas subsidiaries (Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited) are **subject to local regulatory capital requirements, restricting capital utilization**, with **liquid assets primarily in cash deposits and U.S. Treasuries**[239](index=239&type=chunk)[240](index=240&type=chunk) - The Company **permanently reinvests eligible earnings of its foreign subsidiaries**, estimating an **unrecognized deferred tax liability of $3.8 million** if these earnings were repatriated[241](index=241&type=chunk) [Liquidity](index=55&type=section&id=Liquidity) This section details the company's liquid assets and short-term funding activities, including bank call loans - The Company's **assets are largely liquid, consisting of cash, cash equivalents, and readily convertible receivables** from brokers, dealers, clearing organizations, and customers, which are **mostly collateralized**[249](index=249&type=chunk) - **Bank call loans increased to $78.2 million at March 31, 2022, from $69.5 million at December 31, 2021**, with an **average daily outstanding balance of $87.1 million for Q1 2022**[251](index=251&type=chunk) - **Securities loan balances increased to $300.3 million at March 31, 2022, from $244.2 million at December 31, 2021**, with an **average daily balance of $304.1 million for Q1 2022**[252](index=252&type=chunk) [Liquidity Management](index=56&type=section&id=Liquidity%20Management) This section describes the company's approach to managing liquidity, including stress testing and long-term obligations - The Company **manages liquidity to meet obligations and regulatory requirements**, conducting **internal stress analyses to plan for potential liquidity disruptions and asset liquidation**[257](index=257&type=chunk)[259](index=259&type=chunk) - **Primary long-term cash requirements include $124.1 million in Senior Secured Notes (due 2025) and $194.1 million in operating lease obligations**, with an **estimated $37.7 million for interest and lease expenses in 2022**[260](index=260&type=chunk) [Funding Risk](index=56&type=section&id=Funding%20Risk) This section addresses potential risks related to funding availability and costs in the securities industry - Management believes current funds from operations, capital base, and credit facilities are **sufficient for foreseeable liquidity needs**, but acknowledges **risks from banks reducing funding to the securities industry or increased funding costs**[261](index=261&type=chunk) - During high volatility, the Company has experienced **increased collateral calls from clearinghouses and more stringent collateral arrangements with bank lenders**, which have been met with available collateral[262](index=262&type=chunk) [CYBERSECURITY](index=56&type=section&id=CYBERSECURITY) This section outlines the company's cybersecurity efforts to protect data and infrastructure from evolving threats - The Company **continuously reviews and enhances its cybersecurity policies and procedures** to **protect client data and infrastructure**, especially given **increased global cyberattacks and heightened regulatory oversight**[263](index=263&type=chunk)[265](index=265&type=chunk) - **Significant resources are dedicated to cybersecurity**, with expectations of further increases due to the growing sophistication of attacks, though **no guarantee of preventing all security breaches exists**[265](index=265&type=chunk) [REGULATORY MATTERS AND DEVELOPMENTS](index=58&type=section&id=REGULATORY%20MATTERS%20AND%20DEVELOPMENTS) This section details the company's compliance with Reg BI and DOL PTE, and responses to regulatory inquiries - The Company has **implemented significant structural, technological, and operational changes to comply with the SEC's Regulation Best Interest (Reg BI) Rules**, which impose a **federal standard of conduct for broker-dealers with retail clients**[267](index=267&type=chunk)[268](index=268&type=chunk) - **Compliance with the DOL's final prohibited transaction exemption (PTE) for investment advice fiduciaries, effective February 1, 2022, was largely achieved through actions taken for Reg BI**, with additional processes implemented[269](index=269&type=chunk) - **Oppenheimer is responding to SEC Division of Enforcement information requests regarding a former financial advisor and his relationship with Southport Capital and its affiliates**[272](index=272&type=chunk) [FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"](index=59&type=section&id=FACTORS%20AFFECTING%20%22FORWARD-LOOKING%20STATEMENTS%22) This section identifies key risks and uncertainties that could impact the company's forward-looking statements - Forward-looking statements are **subject to various risks and uncertainties, including market volatility, interest rate fluctuations, regulatory changes, economic conditions (inflation, consumer confidence), competition, cybersecurity threats, legal developments, and geopolitical events like the Ukraine war and the COVID-19 pandemic**[273](index=273&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section confirms no material changes to the company's market risk disclosures during the first quarter of 2022 - **No material changes occurred in the Company's market risk disclosures during Q1 2022**[275](index=275&type=chunk) [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and no material changes to internal controls in Q1 2022 - **The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022**[276](index=276&type=chunk)[278](index=278&type=chunk) - **No material changes in internal control over financial reporting occurred during the three months ended March 31, 2022**[279](index=279&type=chunk) [PART II. OTHER INFORMATION](index=61&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and exhibits for the first quarter of 2022 [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal actions, arbitrations, and regulatory investigations, including estimated loss ranges - The Company is **subject to substantial liability risks from customer complaints, lawsuits, arbitrations, and governmental/self-regulatory agency investigations**[281](index=281&type=chunk) - As of March 31, 2022, the **estimated aggregate range of possible loss in excess of accrued amounts for legal and regulatory proceedings is $0 to $32.0 million**, though **actual losses could be materially higher**[285](index=285&type=chunk) - **Oppenheimer is a defendant in a class action and twenty FINRA arbitrations concerning investments in Horizon Private Equity, III, LLC**, with **specific monetary damages claimed in arbitrations totaling approximately $38.0 million**[286](index=286&type=chunk)[287](index=287&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to the company's risk factors during the first quarter of 2022 - **No material changes to the Company's risk factors were reported during Q1 2022**[288](index=288&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports the issuance of Class A Stock to employees under share-based compensation plans in Q1 2022 - The Company **issued 86,451 shares of Class A Stock to employees under share-based compensation plans in Q1 2022, without cash consideration, exempt from registration**[290](index=290&type=chunk) [Item 6. Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and Interim CFO, and interactive data files for the condensed consolidated financial statements - Exhibits include **certifications from the CEO and Interim CFO (31.1, 31.2, 32) and interactive data files (101) for the condensed consolidated financial statements**[292](index=292&type=chunk) [Signatures](index=64&type=section&id=Signatures) This section contains the duly authorized signatures of Oppenheimer Holdings Inc.'s Chairman and Chief Executive Officer, Albert G. Lowenthal, and Interim Chief Financial Officer, Salvatore F. Agosta, for the quarterly report - The report is **signed by Albert G. Lowenthal, Chairman and CEO, and Salvatore F. Agosta, Interim CFO, on April 29, 2022**[294](index=294&type=chunk)[295](index=295&type=chunk)