# Oppenheimer Holdings Inc: Form 10-Q for the period ended Mar 31, 2021

- Company: [Oppenheimer Holdings Inc](/companies/opy.md) (CIK 791963)
- Form: 10-Q
- Filed: 2021-04-30
- Accepted by EDGAR: Apr 30, 2021, 09:00 ET
- Period: 2021-03-31
- Accession: 0000791963-21-000011
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/791963/000079196321000011/opy-20210331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/791963/000079196321000011/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-01-01 to 2021-03-31 | $350.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2021-01-01 to 2021-03-31 | $52.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-01-01 to 2021-03-31 | $2.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $13.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | $38.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | $2.91 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | $3.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 13,299,243 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | $7.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-01-01 to 2021-03-31 | $999.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2021-01-01 to 2021-03-31 | $1.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2021-01-01 to 2021-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-03-31 | $28.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2021-03-31 | $2.71bn | us-gaap:Assets |
| Total liabilities | at 2021-03-31 | $1.99bn | us-gaap:Liabilities |
| Long-term debt | at 2021-03-31 | $123.9m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2021-03-31 | $719.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,599 characters.

### BACKGROUND

The condensed consolidated financial statements include the accounts of Oppenheimer Holdings Inc. and its consolidated subsidiaries (together, the "Company", "Firm", "we", "our" or "us"). The Company's condensed 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 condensed consolidated financial statements and notes thereto which appear elsewhere in this quarterly 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 March 31, 2021, we provided our services from 92 offices in 24 states located throughout the United States, offices in Tel Aviv, Israel, Hong Kong, China, London, England, St. Helier, Isle of Jersey, Munich, Germany and Geneva, Switzerland. Client assets under administration ("CAUA") administered as of March 31, 2021 totaled $111.4 billion. The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial advisor direct programs. At March 31, 2021, client assets under management ("AUM") totaled $40.2 billion. We also provide trust services and products through Oppenheimer Trust Company of Delaware and discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., we offer syndication as well as trading of issued syndicated corporate loans. At March 31, 2021, the Company employed 2,894 employees (2,854 full-time and 40 part-time), of whom 1,000 were financial advisors.

### Outlook

We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisors in our existing branch system and employment of experienced money management personnel in our asset management business as well as deploying our capital for expansion through targeted acquisitions. We are also focused on opportunities in our capital market businesses where we can acquire experienced personnel and/or business 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 grow our footprint by adding experienced bankers within our existing industry practices as well as new industry expansions 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 are committed to continuing to improve our technology capabilities to ensure compliance with industry regulations, support client service and expand our wealth management and capital markets capabilities. We recognize the importance of compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort, and investing in people and programs, while providing a platform with first class investment programs and services.

The Company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where competitors 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 shareholders with incremental value. We review potential acquisition opportunities from time to time on the basis of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses. In addition, the Company may from time to time make minority private investments out of excess capital in allied or unrelated businesses with the goal of syndicating the investment to eligible clients or to retain ownership because we believe them to be an attractive investment.

### Impact of Interest Rates

The Federal Reserve has reduced short-term interest rates, largely due to the impact of the COVID-19 Pandemic and its out-sized negative impact on the economy, resulting in a decrease in fees the Company earned from FDIC insured deposits of clients through a program offered by the Company. Decreases in short-term interest rates, increases in deposit rates paid to clients, and/or a significant decline in our clients’ cash balances have a negative impact on our earnings. The Federal Reserve reduced its benchmark rate significantly during two separate unscheduled meetings in March 2020 by a total of 1.50%. Accordingly, the Company’s earnings during the first quarter of 2021 continued to be negatively impacted by such decreases. The impact will continue to be significant for the foreseeable future as the Federal Reserve has stated that these lower rates are likely to persist at least until next year.

### CORONAVIRUS DISEASE 2019 ("COVID-19 PANDEMIC")

The Company continues to monitor the effects of the COVID-19 Pandemic both on a national level as well as regionally and locally and is responding accordingly. In addition, we continue to provide frequent communications to clients, employees, and regulators. We have adopted enhanced cleaning practices and other health protocols in our offices, taken measures to significantly restrict non-essential business travel and have practices in place to mandate that employees who may have been exposed to COVID-19, or show any relevant symptoms, self-quarantine. In early March 2020, the Company executed on its Business Continuity Plan whereby the vast majority of our employees began to work remotely with only "essential" employees reporting to our offices. We accomplished this by significantly expanding the use of technology infrastructure that facilitates remote operations. Our ability to avoid significant business disruptions is reliant on the continued ability to have the vast majority of employees work remotely. To date, there have been no significant disruptions to our business or control processes as a result of this dispersion of employees. Recently, there has been widespread distribution and inoculation of the U.S. population with vaccines that have generally been proven to be both safe and effective. Should this program continue at its present pace (there is no assurance that this will be the case), it is likely that the negative impact of the COVID-19 Pandemic on the economy will abate by the end of the current year, with likely improvements being seen beginning in the second quarter of 2021. We currently anticipate that a large number of our employees will continue to work remotely for the near term and anticipate to begin a broader re-entry to our offices later in the year.

### EXECUTIVE SUMMARY

The Firm produced its best first quarter in its history following its best year in its history in 2020. Our performance reflected strong contributions across all of our businesses led by our Investment Banking Division. Our operating results were powered by a rapidly improving economy and optimism around the end of the pandemic as the availability of vaccines becomes more widespread. With continued stimulus spending, potential additional "infrastructure" spending, and a very accommodative Federal Reserve, investors moved equity markets to new highs with active engagement by investors of all types.

The outstanding results were driven by very robust equity underwriting activity in the healthcare and technology sectors which included our expanded activity assisting companies going public through special purpose acquisition companies (SPACs). Our M&A advisory business also picked up considerably with large completed transactions in healthcare, technology, and consumer products. Institutional equities sales and trading activity continued to be strong as volatility and activity remained elevated during the period.

Equity markets were up 5.8% during the period, contributing to record assets under management at March 31, 2021, which will drive our advisory fee revenue for April 2021. Our Wealth Management business performed extremely well with solid transaction-based revenue as well as record fee-based revenue based on asset values at year end. Wealth Management's results were tempered by continued low short-term interest rates which substantially impacted the contribution from client margin borrowing and from deposits in FDIC-insured bank deposit accounts. The operating results were offset by increased compensation costs of $11.6 million during the quarter driven by increases in the fair value of a share-based compensation plan linked to the Company's stock price which ended the period at $40.05. All in all, we are extremely pleased with the performance of the business and the resilience of our employees as we continue to deal with the ongoing challenges associated with the pandemic. We are optimistic about the business going forward given the continued strength in the equity markets amid the backdrop of an improving U.S. economy.

### RESULTS OF OPERATIONS

The Company reported net income of $38.7 million or $3.07 basic earnings per share for the three months ended March 31, 2021, an increase of approximately 400%, compared with net income of $7.8 million or $0.61 basic earnings per share for the three months ended March 31, 2020. Pre-tax income was $52.1 million for the three months ended March 31, 2021 compared with pre-tax income of $10.2 million for the three months ended March 31, 2020. Revenue for the three months ended March 31, 2021 was $373.3 million compared with revenue of $234.8 million for the three months ended March 31, 2020, an increase of 59.0%.

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

|  | 1Q-2021 | 1Q-2020 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $373,282 | $234,770 | $138,512 | 59.0 |
| Compensation expense | $255,601 | $157,676 | $97,925 | 62.1 |
| Non-compensation expense | $65,554 | $66,871 | $(1,317) | (2.0) |
| Pre-Tax Income | $52,127 | $10,223 | $41,904 | 409.9 |
| Income Taxes | $13,469 | $2,405 | $11,064 | 460.0 |
| Net Income | $38,658 | $7,818 | $30,840 | 394.5 |
| Earnings per share (basic) | $3.07 | $0.61 | $2.46 | 403.3 |
| Earnings per share (diluted) | $2.91 | $0.58 | $2.33 | 401.7 |
| Book Value Per Share | $56.74 | $46.16 | $10.58 | 22.9 |
| Tangible Book Value Per Share | $43.34 | $32.79 | $10.55 | 32.2 |
| CAUA ($ billions) | $111.4 | $79.1 | $32.3 | 40.8 |
| AUM ($ billions) | $40.2 | $28.0 | $12.2 | 43.6 |

### Highlights

- Record first quarter gross revenue, net income, and earnings per share due to a surge in equity underwriting and M&A advisory fees.
- Record revenue and earnings in Capital Markets segment for the first quarter driven by record investment banking results.
- Capital Markets pre-tax profit margin was 27.2% driven by the strength in investment banking and sales and trading.
- Client assets under administration and under management were both at record levels at March 31, 2021.
- Shareholders' Equity reached a record $719.7 million as of March 31, 2021.
- Book value and tangible book value per share reached record levels at March 31, 2021.

### BUSINESS SEGMENTS

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months ended March 31, 2021 and 2020:

*(Expressed in thousands)*

| Revenue | For the Three Months Ended March 31, 2021 | 2020 | % Change |
| --- | ---: | ---: | ---: |
| Private Client | $164,023 | $141,418 | 16.0 |
| Asset Management | 24,230 | 19,276 | 25.7 |
| Capital Markets | 183,599 | 75,542 | 143.0 |
| Corporate/Other | 1,430 | (1,466) | \* |
| Total | $373,282 | $234,770 | 59.0 |
| **Pre-Tax Income (Loss)** |  |  |  |
| Private Client | $24,263 | $33,369 | (27.3) |
| Asset Management | 7,553 | 4,305 | 75.4 |
| Capital Markets | 49,991 | (143) | \* |
| Corporate/Other | (29,680) | (27,308) | 8.7 |
| Total | $52,127 | $10,223 | 409.9 |

#### \* Percentage not meaningful

### Private Client

Private Client reported revenue of $164.0 million, 16.0% higher compared with a year ago due to higher advisory fees and increases in the cash surrender value of company-owned life insurance policies partially offset by a decrease in bank deposit sweep income from lower interest rates. Pre-tax income of $24.3 million in the current quarter resulted in a pre-tax margin of 14.8% pressured by increased compensation costs from share-based compensation, which was tied to the Company's stock price, and lower short-term interest rates. Financial advisor headcount declined to 1,000 at the end of the current quarter compared to 1,029 at the end of the first quarter of 2020, although the productivity of our financial advisors increased reflecting higher individual production levels.

| ('000s, except Financial advisor headcount or otherwise indicated) | 1Q-2021 | 1Q-2020 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | **$164,023** | **$141,418** | **$22,605** | **16.0** |
| Retail commissions | $57,596 | $56,931 | $665 | 1.2 |
| Advisory fee revenue | $80,254 | $66,882 | $13,372 | 20.0 |
| Bank deposit sweep income | $4,008 | $18,826 | $(14,818) | (78.7) |
| Interest | $6,476 | $7,681 | $(1,205) | (15.7) |
| Other | $15,689 | $(8,902) | $24,591 | \* |
| **Total Expenses** | **$139,760** | **$108,049** | **$31,711** | **29.3** |
| Compensation | $111,395 | $80,173 | $31,222 | 38.9 |
| Non-compensation | $28,365 | $27,876 | $489 | 1.8 |
| **Client Asset Under Administration (billions)** | **$111.4** | **$79.1** | **$32.3** | **40.8** |
| **Cash Sweep Balances (billions)** | **$7.4** | **$6.4** | **$1.0** | **26.0** |
| **Financial Advisor Headcount** | **1,000** | **1,029** | **(29)** | **(2.8)** |

#### \* Percentage not meaningful

- Retail commissions were $57.6 million for the first quarter of 2021, an increase of 1.2% from a year ago amidst continued elevated client participation levels.
- Advisory fees increased 20.0% due to higher assets under management at December 31, 2020 compared with December 31, 2019.
- Bank deposit sweep income decreased $14.8 million or 78.7% from a year ago due to lower short-term interest rates partially offset by higher average cash sweep balances.
- Interest revenue declined 15.7% from a year ago due to lower short-term interest rates partially offset by higher average margin balances.
- Other revenue increased primarily due to increases in the cash surrender value of company-owned life insurance policies during the current period compared to decreases in the value of those policies in the prior period.
- Compensation expenses increased 38.9% from a year ago primarily due to increased production, share-based and deferred compensation costs.
- Non-compensation expenses increased 1.8% from a year ago primarily due to an increase in allowance for credit losses partially offset by lower interest costs on client balances associated with the bank deposit sweep program.

### Asset Management

Asset Management reported revenue of $24.2 million for the first quarter of 2021, 25.7% higher than the first quarter of 2020. Pre-tax income was $7.6 million for the first quarter of 2021, an increase of 75.4% compared with the first quarter of 2020.

| ('000s unless otherwise indicated) | 1Q-2021 | 1Q-2020 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | **$24,230** | **$19,276** | **$4,954** | **25.7** |
| Advisory fee revenue | $24,227 | $19,270 | $4,957 | 25.7 |
| Other | $3 | $6 | $(3) | (50.0) |
| **Total Expenses** | **$16,677** | **$14,971** | **$1,706** | **11.4** |
| Compensation | $7,259 | $6,351 | $908 | 14.3 |
| Non-compensation | $9,418 | $8,620 | $798 | 9.3 |
| **AUM (billions)** | **$40.2** | **$28.0** | **$12.2** | **43.6** |

- Advisory fee revenue on traditional and alternative managed products was $24.2 million for the first quarter of 2021, an increase of 25.7% due to higher AUM at December 31, 2020 compared with December 31, 2019 and positive net asset flows.
- AUM hit a record level of $40.2 billion at March 31, 2021, which is the basis for advisory fee billings for April 2021.
- The increase in AUM was comprised of higher asset values of $11.4 billion on existing client holdings and a net contribution of assets of $0.8 billion.
- The firm is changing its advisory fee billings from quarterly in advance to monthly in advance starting on April 1, 2021.
- Compensation expenses were up 14.3% from a year ago which was primarily related to increases in incentive compensation.
- Non-compensation expenses were up 9.3% when compared to the prior period due to higher payments due to portfolio managers.

The following table provides a breakdown of the change in assets under management for the three months ended March 31, 2021:

*(Expressed in millions)*

| Fund Type | For the Three Months Ended March 31, 2021 Beginning Balance Contributions | Redemptions |  | Appreciation (Depreciation) | Ending Balance |
| --- | ---: | ---: | ---: | ---: | ---: |
| Traditional (1) | $23,349 | $6,648 | $(6,150) | $9,688 | $33,535 |
| Institutional Fixed Income (2) | 744 | 86 | (79) | 58 | 809 |
| Alternative Investments: |  |  |  |  |  |
| Hedge funds (3) | 3,167 | 736 | (507) | 1,375 | 4,771 |
| Private Equity Funds (4) | 308 | 169 | (35) | 252 | 694 |
| Portfolio Enhancement Program (5) | 422 | 6 | (39) | — | 389 |
|  | $27,990 | $7,645 | $(6,810) | $11,373 | $40,198 |

(1) Traditional investments include third party advisory programs, Oppenheimer financial adviser

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 single manager hedge fund strategies in areas including hedged equity,

technology and financial services, and multi-manager and multi-strategy fund of funds.

(4) Private equity funds represent private equity fund of funds including portfolios focused on natural

resources and related assets.

(5) The portfolio enhancement program sells uncovered, far out-of-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.

### Capital Markets

Capital Markets reported revenue of $183.6 million for the first quarter of 2021, 143.0% higher than the first quarter of 2020. Pre-tax income was $50.0 million for the first quarter of 2021 compared with pre-tax loss of $0.1 million for the first quarter of 2020.

| ('000s) | 1Q-2021 | 1Q-2020 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenues** | **$183,599** | **$75,542** | **$108,057** | **143.0** |
| **Investment Banking** | **$116,836** | **$22,036** | **$94,800** | **430.2** |
| Advisory fees | $35,922 | $9,836 | $26,086 | 265.2 |
| Equities underwriting | $74,582 | $8,315 | $66,267 | 797.0 |
| Fixed income underwriting | $5,487 | $3,627 | $1,860 | 51.3 |
| Other | $845 | $258 | $587 | 227.5 |
| **Sales and Trading** | **$66,063** | **$52,840** | **$13,223** | **25.0** |
| Equities | $43,556 | $30,990 | $12,566 | 40.5 |
| Fixed Income | $22,507 | $21,850 | $657 | 3.0 |
| **Other** | **$700** | **$666** | **$34** | **5.1** |
| **Total Expenses** | **$133,608** | **$75,685** | **$57,923** | **76.5** |
| Compensation | $111,930 | $51,004 | $60,926 | 119.5 |
| Non-compensation | $21,678 | $24,681 | $(3,003) | (12.2) |

41

- Advisory fees earned from investment banking activities increased 265.2% to $35.9 million for the first quarter of 2021 compared with $9.8 million for the first quarter of 2020 driven by large completed M&A transactions in healthcare, technology, and consumer products.
- Equity underwriting fees increased 797.0% to $74.6 million for the first quarter of 2021 compared with $8.3 million for the first quarter of 2020 due to a significant increase in equity underwriting activity in the healthcare and technology sectors, particularly for companies utilizing the SPAC framework to access the public markets.
- Fixed income underwriting fees increased 51.3% to $5.5 million for the first quarter of 2021 compared with $3.6 million for the first quarter of 2020 primarily driven by new issuances in public finance during the period.
- Equities sales and trading revenue increased to $43.6 million for the first quarter of 2021, 40.5% higher compared to $31.0 million during the first quarter of 2020 due to continued elevated volatility driving higher volumes in the equities market.
- Fixed Income sales and trading increased 3.0% from the first quarter of 2020 driven by higher municipal underwriting fees.
- Compensation expenses increased 119.5% compared with a year ago primarily due to increased production and incentive compensation tied to increases in revenue as well as costs associated with additional staffing.
- Non-compensation expenses were 12.2% lower than a year ago due to decreased interest costs and reduced costs associated with business travel and entertainment and conferences.

### CRITICAL ACCOUNTING POLICIES

The Company's condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Reference is also made to the Company's condensed consolidated financial statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2020.

The Company's accounting policies are essential to understanding and interpreting the financial results reported on the condensed consolidated financial statements. The significant accounting policies used in the preparation of the Company's condensed consolidated financial statements are summarized in note 2 to those statements and the notes thereto found in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

During the three months ended March 31, 2021, there were no material changes to matters discussed under the heading "Critical Accounting Polices" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

### LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2021, total assets decreased by 0.2% from December 31, 2020. The Company satisfies its need for short-term financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit. We finance our trading in government securities through the use of securities sold under agreements to repurchase ("repurchase agreements"). We met our longer-term capital needs through the issuance of the 5.50% Senior Secured Notes due 2025 (see "Senior Secured Notes" below). Oppenheimer has 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, and changes in stock loan balances and financing through repurchase agreements. At March 31, 2021, the Company had bank call loans of $75.1 million compared to $82.0 million at December 31, 2020. 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 $4.5 million and $385,887, respectively, at March 31, 2021. 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. The Company has begun assessing the impact that the new presidential administration’s tax proposals will have on its operations, cash flows and financial condition.

### Senior Secured Notes

On September 22, 2020, in a private offering, we issued $125.0 million aggregate principal amount of 5.50% Senior Secured Notes due 2025 (the "Unregistered Notes") under an Indenture at an issue price of 100% of the principal amount. Interest on the Unregistered Notes is payable semi-annually on April 1st and October 1st. We used the net proceeds from the offering of the Unregistered Notes, along with cash on hand, to redeem in full our 6.75% Senior Secured Notes due July 1, 2022 in the principal amount of $150.0 million (the Company held $1.4 million in treasury for a net outstanding amount of $148.6 million), and pay all related fees and expenses related thereto. On November 23, 2020, we completed an exchange offer in which we exchanged 99.8% of our Unregistered Notes for a like principal amount of notes with identical terms (the "Notes"), except that such new notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"). We did not receive any proceeds in the exchange offer. See note 11 to the condensed consolidated financial statements appearing in Item 1 for further discussion.

The Notes are 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 "Guarantors"), unless released as described below. Each of the Guarantors is 100% owned by the Parent. The indenture for the Notes contains covenants with restrictions which are discussed in note 11.

The guarantees are senior secured obligations of each guarantor. The guarantees rank:

- effectively senior in right of payment to all unsecured and unsubordinated obligations of such guarantor, to the extent of the value of the collateral owned by such guarantor (and, to the extent of any unsecured remainder after payment of the value of the collateral, rank equally in right of payment with such unsecured and unsubordinated indebtedness of such guarantor);
- senior in right of payment to any subordinated debt of the such guarantor; and
- secured on a first-priority basis by the collateral, subject to certain exceptions and permitted liens, and it is intended that pari passu lien indebtedness, if any, will be secured on an equal and ratable basis.

Each subsidiary guarantee is limited so that it does not constitute a fraudulent conveyance under applicable law, which may reduce the subsidiary’s obligation under the guarantee. There are no externally imposed restrictions on transfers of assets between the Company and its subsidiaries.

Each Guarantor will be automatically and unconditionally released and discharged upon: the sale, exchange or transfer of the capital stock of a Guarantor and the Guarantor ceasing to be a direct or indirect subsidiary of the Parent if such sale does not constitute an asset sale under the indenture for the Notes or does not constitute an asset sale effected in compliance with the asset sale and merger covenants of the indenture for the Notes; a Guarantor being dissolved or liquidated; a Guarantor being designated unrestricted in compliance with the applicable provisions of the Notes; or the exercise by the Parent of its legal defeasance option or covenant defeasance option or the discharge of the Parent's obligations under the indenture for the Notes in accordance with the terms of such indenture.

The following tables present the results of operations for the three months ended March 31, 2021 and the balance sheet at March 31, 2021 for the Parent and Guarantors.

*(Expressed in thousands)*

|  | As of March 31, 2021 |
| --- | ---: |
| Total Assets | $1,759,583 |
| Due From Non-Guarantor Subsidiary | 11,063 |
| Total Liabilities | 466,952 |
| Due To Non-guarantor Subsidiary | 364 |
|  | For the Three Months Ended |
|  | March 31, 2021 |
| Total Revenue | $2,004 |
| Pre-Tax Income (Loss) | (367) |
| Net Income (Loss) | (588) |

On September 14, 2020, S&P affirmed the Company's 'B+' Corporate Family rating and 'B+' rating on the Unregistered Notes and affirmed its stable outlook. On April 4, 2021, Moody's Corporation affirmed the Company's Corporate Family ‘B1’ rating and affirmed its 'B1' rating on the Unregistered Notes and its 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 ARS, are mainly comprised of actively trading readily marketable securities. We advanced $6.4 million in forgivable notes (which are inherently illiquid) to employees for the three months ended March 31, 2021 ($4.5 million for the three months ended March 31, 2020) 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 and retention requirements.

We satisfy our need for short-term liquidity from internally generated funds, collateralized and uncollateralized bank borrowings, stock loans and repurchase agreements. Bank borrowings are, 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 March 31, 2021, the Company had $75.1 million of bank call loans ($82.0 million at December 31, 2020). The average daily bank loan outstanding for the three months ended March 31, 2021 was $50.3 million, ($61.8 million for the three months ended March 31, 2020). The largest daily bank loan outstanding for the three months ended March 31, 2021 was $128.8 million ($324.3 million for the three months ended March 31, 2020).

At March 31, 2021, securities loan balances totaled $257.3 million ($249.5 million at December 31, 2020 and $181.7 million at March 31, 2020). The average daily securities loan balance outstanding for the three months ended March 31, 2021 was $262.4 million ($220.0 million for the three months ended March 31, 2020). The largest daily stock loan balance for the three months ended March 31, 2021 was $285.7 million ($292.0 million for the three months ended March 31, 2020).

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.

Certain of our repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company's fair value option election. We elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. We have elected the fair value option for these instruments to more accurately reflect market and economic events in our earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At March 31, 2021, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At March 31, 2021, the gross balances of reverse repurchase agreements and repurchase agreements were $320.7 million and $301.9 million, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the three months ended March 31, 2021 was $156.9 million and $395.9 million, respectively ($103.7 million and $468.7 million, respectively, for the three months ended March 31, 2020). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the three months ended March 31, 2021 was $424.2 million and $621.8 million, respectively ($237.0 million and $780.0 million, respectively, for the three months ended March 31, 2020).

At March 31, 2021, the gross leverage ratio was 3.8.

### Liquidity Management

Senior management establishes our liquidity planning and framework. The evaluation includes review of short- and long-term cash flow forecasts, review of capital expenditures, monitoring of the availability of sources of financing, and daily monitoring of liquidity. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and, liquidity and maintains our relationships with various lenders. The purpose of these reviews is to assure we can meet the needs of our business while ensuring we have sufficient liquidity to conduct our current business needs and to provide for anticipated growth.

We manage our liquidity to meet our current obligations and upcoming liquidity needs as well as to ensure compliance with regulatory requirements. Our liquidity needs may be affected by market conditions, increased inventory positions, business expansion and other unanticipated occurrences. 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 Company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans. Certain policies which could provide additional liquidity if needed had a cash surrender value of $85.1 million as of March 31, 2021.

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

### Funding Risk

*(Expressed in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Cash provided by (used in) operating activities | $7,268 | $(241,023) |
| Cash used in investing activities | (999) | (1,326) |
| Cash (used in) provided by financing activities | (13,148) | 186,339 |
| Net decrease in cash and cash equivalents | $(6,879) | $(56,010) |

45

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

### OFF-BALANCE SHEET ARRANGEMENTS

Information concerning our off-balance sheet arrangements is included in note 8 to the condensed consolidated financial statements appearing in Item 1.

### CONTRACTUAL OBLIGATIONS

The following table sets forth the Company's contractual obligations as of March 31, 2021:

*(Expressed in thousands)*

|  | Total | Less than 1 Year 1-3 Years | 3-5 Years |  | More than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating Lease Obligations (1)(2) | $272,614 | $40,721 | $107,634 | $53,360 | $70,899 |
| Committed Capital (3) | 3,011 | 3,011 | — | — | — |
| Senior Secured Notes (4)(5) | 157,656 | 8,594 | 20,625 | 128,437 | — |
| ARS Purchase Commitments (3) | 435 | 435 | — | — | — |
| Total | $433,716 | $52,761 | $128,259 | $181,797 | $70,899 |

(1) See note 4 to the condensed consolidated financial statements for additional information.

(2) Includes interest liability of $61.7 million.

(3) See note 8 to the condensed consolidated financial statements for additional information.

(4) See note 11 to the condensed consolidated financial statements for additional information.

(5) Includes interest payable of $32.7 million through maturity.

### CYBERSECURITY

For many years, we have sought to maintain the security of our clients' data, limit access to our data processing environment, and protect our data processing facilities. See "Risk Factors — Cybersecurity – Security breaches of our technology systems, or those of our clients or other third-party vendors we rely on, could subject us to significant liability and harm our reputation" as further described in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Recent examples of vulnerabilities by other companies and the government that have resulted in loss of client data and fraudulent activities by both domestic and foreign actors have caused us to continuously review our security policies and procedures and to take additional actions to protect our network and our information.

Given the importance of the protection of client data, regulators have developed increased oversight of cybersecurity planning and protections that broker-dealers and other financial service providers have implemented. Such planning and protection are subject to the SEC's and FINRA's oversight and examination on a periodic or targeted basis. We expect that regulatory oversight will intensify, as a result of publicly announced data breaches by other organizations involving tens of millions of items of personally identifiable information. We continue to implement protections and adopt procedures to address the risks posed by the current information technology environment. The Company has significantly increased the resources dedicated to this effort and believes that further increases may be required in the future, in anticipation of increases in the sophistication and persistency of such attacks. There can be no guarantee that our cybersecurity efforts will be successful in discovering or preventing a security breach.

### REGULATORY MATTERS AND DEVELOPMENTS

### Regulation Best Interest (U.S.)

On June 5, 2019, the SEC adopted Regulation Best Interest (“Reg BI”) as Rule 15l-1 under the Exchange Act. Reg BI imposes a federal standard of conduct on registered broker-dealers and their associated persons when dealing with retail clients and requires that a broker-dealer and its representatives act in the best interest of clients and not place its own interests ahead of the customer’s interests. Reg BI does not define the term “best interest” but instead sets forth four distinct obligations, disclosure, care, conflict of interest and compliance that a broker-dealer must satisfy in each transaction. Compliance with Reg BI became effective on June 30, 2020. In addition to adopting Reg BI, the SEC also adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Investment Advisers Act of 1940 including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).

Reg BI requires enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the cessation of certain practices as well as limitations on certain kinds of transactions previously conducted in the normal course of business. The new rules and processes related thereto may limit revenue and most likely will involve increased costs, including, but not limited to, compliance costs associated with new or enhanced technology as well as increased litigation costs. The Company made significant structural, technological and operational changes to our business practices to comply with the requirements of the Reg BI Rules and it is likely that additional changes may be necessary to continue to comply as more experience is gained.

### Regulatory Environment

The recent failure of a family office through the use of excessive leverage provided by various broker-dealers and the resultant financial losses to some of those credit providers is likely to lead to greater regulatory surveillance over financial swaps as well as over the activities of “family offices” that were previously unregulated. The Company does not originate swaps or trade swaps for its clients nor does it serve as a prime broker and thus would not anticipate any such regulations impacting the Company’s present lines of business.

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” in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

Oppenheimer and many of its affiliates are each subject to various regulatory capital requirements. As of March 31, 2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. See note 14 to the condensed consolidated financial statements in Item 1 for further information on regulatory capital requirements.

### 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, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) potential cybersecurity threats, (viii) legal developments affecting the litigation experience of the securities industry and the Company, (ix) changes in foreign, federal and state tax laws that could affect the popularity of products sold by the Company or impose taxes on securities transactions, (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, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”), (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, changes in or uncertainty surrounding regulation, (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 (xviv) risks related to the severity and duration of the COVID-19 Pandemic; the COVID-19 Pandemic’s impact on the U.S. and global economies; and Federal, state and local governmental responses to the COVID-19 Pandemic. 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 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

## Market risk

As filed, 207 characters.

During the three months ended March 31, 2021, there were no material changes to the information contained in Part II, Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

## Controls and procedures

As filed, 2,988 characters.

The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a–15(e) of the Exchange Act. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision–making can be faulty and that break-downs can occur because of a simple error or omission. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.

The Company confirms that its management, including its Chief Executive Officer and its Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in its reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

### Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

## Risk factors

As filed, 210 characters.

**During the three months ended March 31, 2021, there were no material changes to the information contained in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.**

Filed Apr 30, 2021.
Source: SEC EDGAR, the filing index for accession 0000791963-21-000011. Last ingested by Listed: Nov 9, 2026, 19:54 ET. No prices; not investment advice.