Oppenheimer Holdings Inc. Reports Third Quarter 2017 Earnings and Announces Quarterly Dividend

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Oppenheimer Holdings Inc.

27 Oct, 2017, 08:00 ET

NEW YORK, Oct. 27, 2017 /CNW/ - Oppenheimer Holdings Inc. (NYSE: OPY) today reported net income of $7.8 million or $0.59 basic net income per share for the third quarter of 2017 compared with a net loss of $712,000 or $0.05 basic net loss per share for the third quarter of 2016.  Income before income taxes from continuing operations was $11.8 million for the third quarter of 2017 compared with a loss before income taxes from continuing operations of $1.8 million for the third quarter of 2016.  Net income from discontinued operations was $461,000 for the third quarter of 2017 compared with net income from discontinued operations of $413,000 for the third quarter of 2016.  Revenue from continuing operations for the third quarter of 2017 was $226.2 million compared with revenue from continuing operations of $211.8 million for the third quarter of 2016, an increase of 6.8%.  Revenue from discontinued operations for the third quarter of 2017 was $785,000 compared with revenue from discontinued operations of $1.8 million for the third quarter of 2016.

Summary Operating Results (Unaudited)

('000s, except Per Share Amounts)





For the 3-Months Ended

For the 9-Months Ended


9/30/2017

9/30/2016

% Change

9/30/2017

9/30/2016

% Change

Revenue

$

226,220

$

211,804

6.8

$

655,365

$

638,834

2.6

Expenses

214,392

213,614

0.4

652,199

653,230

(0.2)

Income (Loss) Before Income Taxes from Continuing Operations

11,828

(1,810)

*

3,166

(14,396)

*

Income Taxes

4,425

(751)

*

2,464

(7,190)

*

Net Income (Loss) from Continuing Operations

7,403

(1,059)

*

702

(7,206)

*

Net Income from Discontinued Operations

461

413

11.6

1,101

9,362

(88.2)

Net Income (Loss )

7,864

(646)

*

1,803

2,156

(16.4)

Less Net Income Attributable to Non-Controlling Interest, Net of Tax

75

66

13.6

180

1,527

(88.2)

Net Income (Loss) Attributable to Oppenheimer Holdings Inc.

$

7,789

$

(712)

*

$

1,623

$

629

158.0












Basic Net Income (Loss) Per Share (1)











Continuing Operations

$

0.56

$

(0.08)

*

$

0.05

$

(0.54)

*

Discontinued Operations

0.03

0.03

—

0.07

0.59

(88.1)

Net Income (Loss) Per Share                                           

$

0.59

$

(0.05)

*

$

0.12

$

0.05

140.0












Diluted Net Income (Loss) Per Share (1)











Continuing Operations

$

0.54

$

(0.08)

*

$

0.05

$

(0.54)

(109.3)

Discontinued Operations

0.03

0.03

—

0.07

0.59

(88.1)

Net Income (Loss) Per Share

$

0.57

$

(0.05)

*

$

0.12

$

0.05

140.0












Weighted Average Number of Common Shares Outstanding










Basic

13,213

13,367

(1.2)

13,290

13,371

(0.6)

Diluted

13,764

13,367

3.0

13,790

13,371

3.1


As of

As of


9/30/2017

9/30/2016

% Change

9/30/2017

12/31/2016

% Change

Book Value Per Share

$

38.48

$

38.41

0.2

$

38.48

$

38.22

0.7

Tangible Book Value Per Share

$

25.54

$

25.73

(0.7)

$

25.54

$

25.53

—













*

Percentage not meaningful.









(1)   Attributable to Oppenheimer Holdings Inc.









The S&P 500 index increased 4.0% during the third quarter of 2017 driven by improving economic conditions, low interest rates, and improved corporate earnings. Despite geopolitical issues around the world (North Korea, Syria, and South China Sea) and destructive hurricanes hitting the U.S. mainland, the U.S. Virgin Islands and Puerto Rico, market volatility remained at historic lows during the period.  Expectations of another increase in short-term interest rates by the Federal Reserve in December 2017, the unwinding of the Federal Reserve's balance sheet, and the prospects of tax reform resulted in a stronger U.S. dollar and an increase in U.S. Treasury yields. The 10-Year Treasury yield ended the quarter at 2.33%.

Albert G. Lowenthal, Chairman and CEO commented, "Results from continuing operations improved significantly over the comparable period last year driven by increased investment banking activity, higher fee-based revenues from investment management, as well as higher fees from the FDIC-insured bank deposit program.  Investment banking results were positively impacted by increased participations in equities and debt underwritings.   The fee-based business continued to perform well driven by strong equity markets and the continued adoption of fee-based strategies by our wealth management clients propelling assets under management to record highs.  Trading activity and transaction revenues continued to decline as retail and institutional investor activity levels continued their long-term decline amid record low levels of volatility.  Spreads increased on our interest rate sensitive assets as we began to see the full benefit of the June 2017 increase in short-term interest rates."

Financial Highlights

  • Commission revenue was $77.6 million for the third quarter of 2017, a decrease of 13.8% compared with $90.0 million for the third quarter of 2016 due to reduced transaction volumes from retail and institutional investors and a lower financial adviser headcount during the third quarter of 2017.

  • Advisory fees were $74.3 million for the third quarter of 2017, an increase of 10.2% compared with $67.5 million for the third quarter of 2016 due to a higher level of client assets under management.

  • Investment banking revenue increased 18.0% to $23.9 million for the third quarter of 2017 compared with $20.3 million for the third quarter of 2016 due to higher equity and debt underwriting fees partially offset by lower merger and acquisition advisory fees during the third quarter of 2017.

  • Principal transactions revenue increased 4.3% to $5.1 million for the third quarter of 2017 compared with $4.9 million for the third quarter of 2016 due to higher income from fixed income trading during the third quarter of 2017.

Business Segment Results (Unaudited)

('000s)










For the 3-Months Ended

For the 9-Months Ended


9/30/2017

9/30/2016

% Change

9/30/2017

9/30/2016

% Change

Revenue











Private Client (1)

$

147,428

$

127,835

15.3

$

425,069

$

376,737

12.8

Asset Management (1)

19,277

23,234

(17.0)

57,247

68,978

(17.0)

Capital Markets

58,808

60,703

(3.1)

168,418

187,292

(10.1)

Corporate/Other

707

32

2,109.4

4,631

5,827

(20.5)


226,220

211,804

6.8

655,365

638,834

2.6

Income (Loss) Before Income Taxes from Continuing Operations







Private Client(1)

36,950

20,137

83.5

93,763

50,799

84.6

Asset Management(1)

3,338

9,380

(64.4)

11,130

21,851

(49.1)

Capital Markets

(1,639)

(1,103)

48.6

(25,235)

(3,856)

554.4

Corporate/Other

(26,821)

(30,224)

(11.3)

(76,492)

(83,190)

(8.1)


$

11,828

$

(1,810)

(753.5)

$

3,166

$

(14,396)

(122.0)

(1) Effective January 1, 2017, the allocation of advisory fees between Private Client and Asset Management changed from 77.5% and 22.5% to 90.0% and 10.0%, respectively.

Private Client

Private Client reported revenue of $147.4 million for the third quarter of 2017, 15.3% higher than the third quarter of 2016 due to increased advisory fee revenue from higher client assets under management, changes in the revenue allocation with the Asset Management segment (see below) and higher fees earned on client deposits in the FDIC-insured bank deposit program offset by lower retail commissions during the third quarter of 2017.  The third quarter of 2017 was also positively impacted by an arbitration award and insurance proceeds, totaling $4.1 million.  Income before income taxes was $37.0 million for the third quarter of 2017, an increase of 83.5% compared with the third quarter of 2016 due to the increases in revenue referred to above during the third quarter of 2017.

  • Client assets under administration were $82.8 billion at September 30, 2017 compared with $77.2 billion at December 31, 2016, an increase of 7.3%.

  • Financial adviser headcount was 1,117 at the end of the third quarter of 2017, down from 1,177 at the end of the third quarter of 2016. The decline in financial adviser headcount since the third quarter of 2016 has resulted from the Company's attention to adviser productivity leading to attrition for less productive financial advisers. The decline in headcount also has been impacted by retirements and normal attrition.

  • Retail commissions were $48.1 million for the third quarter of 2017, a decrease of 11.6% from the third quarter of 2016 due to reduced transaction volumes from retail investors and a lower financial adviser headcount during the third quarter of 2017.

  • Advisory fee revenue on traditional and alternative managed products was $55.2 million for the third quarter of 2017, an increase of 22.1% from the third quarter of 2016 (see Asset Management below for further information). The increase in advisory fees was due to the increase in the value of client assets under management ("AUM") and the change in the allocation of advisory fees between the Private Client and Asset Management segments, effective January 1, 2017, which contributed to an increase of $5.6 million in revenue in the Private Client segment.

  • Fees earned on client cash deposits in the FDIC-insured bank deposit program were $21.1 million during the third quarter of 2017 versus $9.6 million for the third quarter of 2016. The increase was due primarily to higher short-term interest rates during the third quarter of 2017.

Asset Management

Asset Management reported revenue of $19.3 million for the third quarter of 2017, 17.0% lower than the third quarter of 2016 primarily due to the change in revenue allocation (see below).  Income before income taxes was $3.3 million for the third quarter of 2017, a decrease of 64.4% compared with the third quarter of 2016.

  • Advisory fee revenue on traditional and alternative managed products was $19.1 million for the third quarter of 2017, a decrease of 14.3% from the third quarter of 2016. Advisory fees are calculated based on the value of AUM at the end of the prior quarter which totaled $26.1 billion at June 30, 2017 ($24.3 billion at June 30, 2016) and are allocated to the Private Client and Asset Management business segments. Advisory fees decreased $5.6 million due to the change in the allocation of advisory fees between the Private Client and Asset Management segments which became effective January 1, 2017.

  • At September 30, 2017, AUM hit a record high of $27.2 billion, an increase of 10.6% compared with $24.6 billion at September 30, 2016. AUM at September 30, 2017 is the basis for advisory fee billings for the fourth quarter of 2017. The increase in AUM was comprised of asset appreciation of $1.7 billion and net contributions of assets of $0.9 billion.

Capital Markets

Capital Markets reported revenue of $58.8 million for the third quarter of 2017, 3.1% lower than the third quarter of 2016 due to lower institutional equities and fixed income commissions offset by higher fees from investment banking activities during the third quarter of 2017.  Loss before income taxes was $1.6 million for the third quarter of 2017, compared with a loss before income taxes of $1.1 million for the third quarter of 2016 due to the decreases in revenue referred to above offset by lower salaries and production-related compensation expenses during the third quarter of 2017.

  • Institutional equities commissions decreased 14.0% to $21.5 million for the third quarter of 2017 compared with the third quarter of 2016 due to lower volatility and trading volumes in the equity markets.

  • Advisory fees from investment banking activities decreased 47.7% to $6.8 million in the third quarter of 2017 compared with the third quarter of 2016 due to lower fees earned on completed mergers and acquisitions transactions during the third quarter of 2017.

  • Equity underwriting fees increased 234.3% to $11.7 million for the third quarter of 2017 compared with the third quarter of 2016 due to the Company's increased focus on equity issuance and penetration in the healthcare and technology sectors leading to higher equity underwriting activity during the period.

  • Revenue from Taxable Fixed Income decreased 7.6% to $13.3 million for the third quarter of 2017 compared with the third quarter of 2016 due to low volatility which led to decreased institutional fixed income activity during the third quarter of 2017.

  • Public Finance and Municipal Trading revenue increased 16.7% to $3.5 million for the third quarter of 2017 compared with the third quarter of 2016.

Compensation and Related Expenses

Compensation and related expenses (including salaries, production and incentive compensation, share-based compensation, deferred compensation, and other benefit-related items) totaled $142.1 million during the third quarter of 2017, roughly flat compared with the third quarter of 2016.  Lower production-related expenses were offset by higher incentive and share-based compensation costs during the third quarter of 2017. Compensation and related expenses as a percentage of revenue was 62.8% during the third quarter of 2017 compared with 67.2% during the third quarter of 2016.

Non-Compensation Expenses

Non-compensation expenses were $72.3 million during the third quarter of 2017, an increase of 1.4% compared with $71.3 million during the third quarter of 2016 due to higher interest and external portfolio manager expenses partially offset by lower legal and regulatory costs during the third quarter of 2017.

Income Taxes

The effective income tax rate from continuing operations for the third quarter of 2017 was 37.4% compared with 41.5% for the third quarter of 2016 and reflects the Company's estimate of the annual effective tax rate adjusted for certain discrete items.

Discontinued Operations

During 2016, the Company completed the sales of substantially all of the assets of its Oppenheimer Multifamily Housing and Healthcare Finance Inc. ("OMHHF") subsidiary.  The following table is a summary of revenue and expenses from discontinued operations for the three and nine months ended September 30, 2017 and 2016:


('000s)




For the 3-Months Ended

For the 9-Months Ended


9/30/2017

9/30/2016

9/30/2017

9/30/2016

Revenue







Interest

$

2

$

112

$

7

$

921

Principal transactions, net

—

(2,380)

—

(9,008)

Other (1)

783

4,073

1,887

31,547

Total revenue

785

1,805

1,894

23,460

Expenses







Compensation and related expenses

1

573

18

4,225

Communications and technology

8

40

20

201

Occupancy and equipment costs

—

37

—

399

Interest

7

28

7

408

Other

—

239

15

2,630

Total expenses

16

917

60

7,863

Income before income taxes

769

888

1,834

15,597

Income taxes

308

475

733

6,235

Net income from discontinued operations

$

461

$

413

$

1,101

$

9,362

(1)   Other revenue for the three and nine months ended September 30, 2017 was primarily due to an earn-out from the sale of OMHHF's pipeline of business in 2016.

Balance Sheet and Liquidity

  • At September 30, 2017, total equity was $504.8 million compared with $513.3 million at December 31, 2016.

  • At September 30, 2017, book value per share was $38.48 (compared with $38.22 at December 31, 2016) and tangible book value per share was $25.54 (compared with $25.53 at December 31, 2016).

  • The Company's level 3 assets, primarily auction rate securities, were $107.0 million at September 30, 2017 (compared with $86.0 million at December 31, 2016). The increase in level 3 assets was primarily due to the purchase of auction rate securities during the nine-month period ended September 30, 2017 pursuant to regulatory and legal settlements.

Dividend Announcement

The Company today announced a quarterly dividend in the amount of $0.11 per share payable on November 24, 2017 to holders of Class A non-voting and Class B voting common stock of record on November 10, 2017.

Company Information

Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that provides a wide range of financial services including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, trust, and investment management.  With roots tracing back to 1881, the firm is headquartered in New York and has 93 offices in 24 states and 5 foreign jurisdictions.

Forward-Looking Statements

This press release includes certain "forward-looking statements" relating to anticipated future performance.  For a discussion of the factors that could cause future performance to be different than anticipated, reference is made to Factors Affecting "Forward-Looking Statements" and Exhibit 99.1 – Risk Factors in the Company's Current Report on Form 8-K filed with the SEC on June 7, 2017.

Oppenheimer Holdings Inc.

Consolidated Statements of Operations (unaudited)

('000s, except Per Share Amounts)










For the 3-Months Ended

For the 9-Months Ended


9/30/2017

9/30/2016

% Change

9/30/2017

9/30/2016

% Change

REVENUE











Commissions

$

77,635

$

90,023

(13.8)

$

248,204

$

286,447

(13.4)

Advisory fees

74,329

67,452

10.2

216,521

199,582

8.5

Investment banking

23,940

20,280

18.0

57,347

51,544

11.3

Interest

12,952

11,291

14.7

36,346

36,340

—

Principal transactions, net

5,135

4,922

4.3

15,810

19,117

(17.3)

Other

32,229

17,836

80.7

81,137

45,804

77.1

Total revenue

226,220

211,804

6.8

655,365

638,834

2.6

EXPENSES











Compensation and related expenses

142,090

142,308

(0.2)

428,625

432,524

(0.9)

Communications and technology

17,781

17,201

3.4

53,886

52,519

2.6

Occupancy and equipment costs

15,288

14,909

2.5

45,721

44,796

2.1

Clearing and exchange fees

5,622

5,886

(4.5)

17,392

19,006

(8.5)

Interest

6,500

4,687

38.7

18,710

14,526

28.8

Other

27,111

28,623

(5.3)

87,865

89,859

(2.2)

Total expenses

214,392

213,614

0.4

652,199

653,230

(0.2)

Income (Loss) before income taxes from continuing operations

11,828

(1,810)

*

3,166

(14,396)

*

Income taxes

4,425

(751)

*

2,464

(7,190)

*

Net income (loss) from continuing operations

7,403

(1,059)

*

702

(7,206)

*












Discontinued operations










Income from discontinued operations

769

888

(13.4)

1,834

15,597

(88.2)

Income taxes

308

475

(35.2)

733

6,235

(88.2)

Net income from discontinued operations

461

413

11.6

1,101

9,362

(88.2)












Net income (loss)

7,864

(646)

*

1,803

2,156

(16.4)

Less net income attributable to non-controlling interest, net of tax

75

66

13.6

180

1,527

(88.2)

Net income (loss) attributable to Oppenheimer Holdings Inc.

$

7,789

$

(712)

*

$

1,623

$

629

158.0












Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.






Continuing operations

$

0.56

$

(0.08)

*

$

0.05

$

(0.54)

*

Discontinued operations

0.03

0.03

—

0.07

0.59

(88.1)

Net income (loss) per share

$

0.59

$

(0.05)

*

$

0.12

$

0.05

140.0

Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.






Continuing operations

$

0.54

$

(0.08)

*

$

0.05

$

(0.54)

(109.3)

Discontinued operations

0.03

0.03

—

0.07

0.59

(88.1)

Net income (loss) per share

$

0.57

$

(0.05)

*

$

0.12

$

0.05

140.0

Weighted Average Number of Common Shares Outstanding









Basic

13,213

13,367

(1.2)

13,290

13,371

(0.6)

Diluted

13,764

13,367

3.0

13,790

13,371

3.1











*  Percentage not meaningful.









SOURCE Oppenheimer Holdings Inc.

For further information: Jeffrey Alfano, (212) 825-4331

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Oppenheimer Holdings Inc.