Oppenheimer Holdings Inc. Reports Second Quarter 2016 Earnings and Announces Quarterly Dividend

News provided by

Oppenheimer Holdings Inc.

Jul 29, 2016, 08:00 ET

NEW YORK, July 29, 2016 /CNW/ - Oppenheimer Holdings Inc. (NYSE: OPY) today reported net income of $5.2 million or $0.39 basic earnings per share for the second quarter of 2016 compared with net income of $295,000 or $0.02 basic earnings per share for the second quarter of 2015.  Loss before income taxes from continuing operations was $5.2 million for the second quarter of 2016 compared with loss before income taxes of $1.1 million for the second quarter of 2015.  Net income from discontinued operations was $9.3 million for the second quarter of 2016 compared with net income from discontinued operations of $2.1 million for the second quarter of 2015.  Revenue from continuing operations for the second quarter of 2016 was $212.1 million compared with revenue from continuing operations of $228.0 million for the second quarter of 2015, a decrease of 7.0%.

Summary Operating Results (Unaudited)

('000s, except Earnings (Loss) Per Share and Book Value Per Share)








For the 3-Months Ended

For the 6-Months Ended



6/30/2016

6/30/2015 (2)

% Change

6/30/2016

6/30/2015 (2)

% Change

Revenue

$

212,074

$

227,959

(7.0)

$

427,030

$

465,134

(8.2)

Expenses

217,320

229,060

(5.1)

439,616

460,421

(4.5)

Income (Loss) Before Income Taxes

(5,246)

(1,101)

376.5

(12,586)

4,713

*

Income Taxes

(2,627)

400

*

(6,439)

2,555

*

Net Income (Loss) from Continuing Operations

(2,619)

(1,501)

74.5

(6,147)

2,158

*

Net Income from Discontinued Operations

9,330

2,146

334.8

8,949

4,608

94.2

Net Income

6,711

645

940.5

2,802

6,766

(58.6)

Less Net Income Attributable to Non-Controlling Interest

1,523

350

335.1

1,461

752

94.3

Net Income Attributable to Oppenheimer Holdings Inc.

$

5,188

$

295

1,658.6

$

1,341

$

6,014

(77.7)













Basic Earnings (Loss) Per Share (1)












Continuing Operations

$

(0.20)

$

(0.11)

81.8

$

(0.46)

$

0.16

*

Discontinued Operations

0.59

0.13

353.8

0.56

0.28

100.0

Net Earnings Per Share

$

0.39

$

0.02

1,850.0

$

0.10

$

0.44

(77.3)













Diluted Earnings (Loss) Per Share (1)












Continuing Operations

$

(0.20)

$

(0.11)

81.8

$

(0.46)

$

0.15

*

Discontinued Operations

0.59

0.13

353.8

0.56

0.27

107.4

Net Earnings Per Share

$

0.39

$

0.02

1,850.0

$

0.10

$

0.42

(76.2)













Weighted Average Number of Common Shares Outstanding








Basic

13,367

13,746

(2.8)

13,374

13,725

(2.6)

Diluted

13,367

13,746

(2.8)

13,374

14,342

(6.7)
















As of

As of



6/30/2016

6/30/2015

% Change

6/30/2016

12/31/2015

% Change

Book Value Per Share

$

38.45

$

38.68

(0.6)

$

38.45

$

38.84

(1.0)

Tangible Book Value Per Share

$

25.75

$

26.34

(2.2)

$

25.75

$

26.13

(1.5)

(1)

Attributable to Oppenheimer Holdings Inc.

(2)

Amounts have been recast for discontinued operations.

*

Not comparable

Weak investor confidence and low levels of engagement continued to impact business conditions in the second quarter of 2016.  Volatility in the debt and equity markets and low volumes significantly weighed on operating results for the period.  The S&P 500 increased 1.9% despite a significant pullback in response to the June 24th "Brexit" vote including a rebound during the final trading days of the quarter.  The surprise results of the Brexit vote impacted volatility with the CBOE Volatility Index ("VIX") hitting a high for the quarter of 25.76 on June 24th before declining to 15.63 to close the quarter.  Uncertainty around global economic growth, China's economy, Brexit, and the domestic political environment resulted in difficult business conditions during the quarter in both retail transactions and capital markets activity.  The 10-year U.S. Treasury yield ended the period at 1.49% down from 2.27% at year end reflecting the continued global economic uncertainty and flight to safety after the Brexit vote, further reducing the likelihood of the Federal Reserve increasing short-term interest rates by year end.

Albert G. Lowenthal, Chairman and CEO, commented, "Operating results for the period continued to reflect the extremely challenging business environment.  Market turbulence and economic uncertainty negatively impacted retail client transactions as well as M&A and equity underwriting activities during the period.  Despite the ongoing uncertainty, we continue to offer up objective advice to clients, both institutional and retail, in order to aid them in navigating the uncertain pathway of ultra-low interest rates and volatile equity markets.  During the quarter, we completed the sale of substantially all of the assets of the Commercial Mortgage Banking business with the balance expected to be liquidated in the upcoming quarter.  The business, which we launched over 15 years ago, was a strong contributor to our financial results and I would like to thank Jim Moore, President of the Company's Oppenheimer Multifamily Housing and Healthcare Finance Inc. subsidiary ("OMHHF"), for his leadership and many years of service to that business.  The Company will look to redeploy proceeds from the sale of this business to our core businesses of wealth management and institutional and corporate capital market businesses."

Financial Highlights

  • During the second quarter of 2016, the Company recorded a net gain of $14.9 million on the sale of its permanent mortgage loan portfolio including the associated mortgage servicing rights from its Commercial Mortgage Banking business.

  • Commission revenue was $92.6 million for the second quarter of 2016, a decrease of 10.6% compared with $103.6 million for the second quarter of 2015, due to a lower financial adviser headcount and reduced transaction volumes from retail investors during the second quarter of 2016.

  • Advisory fees were $66.1 million for the second quarter of 2016, a decrease of 8.5% compared with $72.2 million for the second quarter of 2015, due to lower client assets under management.

  • Investment banking revenue decreased 34.9% to $18.9 million for the second quarter of 2016 compared with $29.0 million for the second quarter of 2015 due to lower merger and acquisition advisory fees and equity underwriting income during the second quarter of 2016.

  • Principal transactions revenue increased 114.0% to $7.6 million during the second quarter of 2016 compared with $3.5 million for the second quarter of 2015 due primarily to mark-to-market volatility in equities trading and in the valuation allowance for auction rate securities.

Business Segment Results (Unaudited)

('000s)














For the 3-Months Ended

For the 6-Months Ended



6/30/2016

6/30/2015

% Change

6/30/2016

6/30/2015

% Change

Revenue












Private Client

$

121,358

$

133,783

(9.3)

$

248,902

$

273,715

(9.1)

Asset Management

22,770

25,344

(10.2)

45,744

49,805

(8.2)

Capital Markets

65,524

69,531

(5.8)

126,589

141,697

(10.7)

Corporate/Other

2,422

(699)

*

5,795

(83)

*



212,074

227,959

(7.0)

427,030

465,134

(8.2)

Income (Loss) Before Income Taxes from Continuing Operations




Private Client

14,345

13,402

7.0

30,662

30,159

1.7

Asset Management

5,703

7,801

(26.9)

12,471

15,687

(20.5)

Capital Markets

4,045

3,623

11.6

(2,753)

10,358

*

Corporate/Other

(29,339)

(25,927)

13.2

(52,966)

(51,491)

2.9



$

(5,246)

$

(1,101)

376.5

$

(12,586)

$

4,713

*














*

 Not comparable











Private Client

Private Client reported revenue of $121.4 million for the second quarter of 2016, 9.3% lower than the second quarter of 2015, due to lower levels of transaction-based business during the second quarter of 2016.  Income before income taxes was $14.3 million for the second quarter of 2016, an increase of 7.0% compared with the second quarter of 2015, due to lower legal and regulatory costs attributed to Private Client during the second quarter of 2016.

  • Client assets under administration were $78.7 billion at both June 30, 2016 and December 31, 2015.

  • Financial adviser headcount was 1,199 at the end of the second quarter of 2016 (1,223 at the end of the first quarter of 2016), down from 1,273 at the end of the second quarter of 2015.

  • Retail commissions were $51.9 million for the second quarter of 2016, a decrease of 17.5% from the second quarter of 2015.

  • Advisory fee revenue on traditional and alternative managed products was $44.5 million for the second quarter of 2016, a decrease of 7.6% over the second quarter of 2015 (see Asset Management below for further information).

  • Fees earned on client cash deposits in the FDIC-insured bank deposit program were $8.4 million during the second quarter of 2016 versus $3.0 million for the second quarter of 2015. The increase was due to higher short-term interest rates as well as to the discontinued offering of retail money market funds to clients and the transfer of these balances into the FDIC-insured bank deposit program during the second quarter of 2015.

Asset Management

Asset Management reported revenue of $22.8 million for the second quarter of 2016, 10.2% lower than the second quarter of 2015.  Income before income taxes was $5.7 million for the second quarter of 2016, a decrease of 26.9% compared with the second quarter of 2015.

  • Advisory fee revenue on traditional and alternative managed products was $21.6 million for the second quarter of 2016, a decrease of 10.3% over the second quarter of 2015.  Advisory fees are calculated based on the value of client assets under management ("AUM") at the end of the prior quarter which totaled $23.7 billion at March 31, 2016 ($26.6 billion at March 31, 2015) and are allocated to the Private Client and Asset Management business segments.

  • AUM decreased 5.1% to $24.3 billion at June 30, 2016 compared to $25.6 billion at June 30, 2015, which is the basis for advisory fee billings for the third quarter of 2016.  The decrease in AUM was comprised of asset depreciation of $0.9 billion and net redemption of assets of $0.4 billion.

Capital Markets

Capital Markets reported revenue of $65.5 million for the second quarter of 2016, 5.8% lower than the second quarter of 2015, primarily due to lower merger and acquisition advisory fees and equity underwriting income during the second quarter of 2016.  Income before income taxes was $4.0 million for the second quarter of 2016, an increase of 11.6% compared with income before income taxes of $3.6 million for the second quarter of 2015 due to lower incentive compensation costs during the second quarter of 2016.

  • Institutional equities commissions decreased 2.4% to $26.9 million for the second quarter of 2016 compared with the second quarter of 2015.

  • Advisory fees from investment banking activities decreased 28.8% to $7.2 million in the second quarter of 2016 compared with the prior year quarter due to a decrease in completed mergers and acquisitions activity during the second quarter of 2016.

  • Equity underwriting fees decreased 47.5% to $5.4 million for the second quarter of 2016 compared with the prior year quarter due to a significant decrease in equity underwriting activity during the second quarter of 2016.

  • Revenue from Taxable Fixed Income increased 15.0% to $18.0 million for the second quarter of 2016 compared with the second quarter of 2015 due to increases in debt capital markets activity during the period.

  • Public Finance and Municipal Trading revenue increased 2.8% to $6.1 million for the second quarter of 2016 compared with the second quarter of 2015.

Discontinued Operations

On June 2, 2016, OMHHF entered into a definitive agreement to sell OMHHF's entire portfolio of permanent mortgage loans (consisting of over 480 permanent loans insured by the U.S. Department of Housing and Urban Development), including the associated mortgage servicing rights, to Walker & Dunlop, LLC.  On June 20, 2016, OMHHF completed the transaction for cash consideration of approximately $45.0 million.  An amount equal to $1.4 million was withheld from the purchase price until such time as one loan in the mortgage loan portfolio becomes current or is modified.  The Company recorded a net gain of $14.9 million related to this transaction. During the second quarter of 2016, the Company also sold its business pipeline of mortgage loans for approximately $1.5 million.  The sale of the remainder of OMHHF's operating assets (of which the Company owns 83.68%), primarily its portfolio of construction mortgage loans including the associated servicing rights, is expected to be completed in the next reporting period at which time the Company intends to substantially complete the wind down of the OMHHF business.

The following table is a summary of revenue and expenses from discontinued operations for the three and six months ended June 30, 2016 and 2015:



For the 3-Months Ended

For the 6-Months Ended

(Expressed in thousands)

6/30/2016

6/30/2015

6/30/2016

6/30/2015

Revenue

Interest

$

472

$

717

$

809

$

1,049

Principal transactions, net

(1,541)

(1,831)

(6,628)

8,226

Other *

18,986

12,082

27,474

10,079

Total revenue

17,917

10,968

21,655

19,354

Expenses


Compensation and related expenses

735

4,409

3,652

6,676

Communications and technology

59

100

161

196

Occupancy and equipment costs

286

74

362

150

Interest

159

399

380

540

Other

1,312

2,255

2,391

4,024

Total expenses

2,551

7,237

6,946

11,586

Income before income taxes

15,366

3,731

14,709

7,768

Income taxes

6,036

1,585

5,760

3,160

Net income from discontinued operations

$

9,330

$

2,146

$

8,949

$

4,608


*

Includes net gain of $14.9 million on the sale of portfolio of permanent mortgage loans including the associated mortgage servicing rights during the
three-month period ended June 30, 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 $141.7 million during the second quarter of 2016, a decrease of 7.9% compared to the second quarter of 2015.  The decrease was due to lower production, incentive, and share-based compensation expenses during the second quarter of 2016.  Compensation and related expenses as a percentage of revenue was 66.8% during the second quarter of 2016 compared to 67.5% during the second quarter of 2015.

Non-Compensation Expenses

Non-compensation expenses were $75.6 million during the second quarter of 2016, roughly flat compared to the same period in 2015, as higher communications and technology costs were offset by lower occupancy and equipment costs during the second quarter of 2016.

Income Taxes

The effective income tax rate from continuing operations for the second quarter of 2016 was 50.1% (benefit) compared with 36.3% (expense) for the second quarter of 2015.  The elevated income tax benefit during the second quarter of 2016 was primarily due to book-to-tax return adjustments recorded during the period partially offset by non-deductible regulatory charges.  The effective income tax rate from continuing operations for the second quarter of 2015 was negatively impacted due to increases in reserves taken on tax positions, non-deductible regulatory charges, as well as lower operating results of the international businesses (which benefit from lower tax rates) and by the size of these factors relative to loss before income taxes.

Balance Sheet and Liquidity

  • At June 30, 2016, total equity was $522.1 million compared with $525.1 million at December 31, 2015.

  • At June 30, 2016, book value per share was $38.45 (compared with $38.84 at December 31, 2015) and tangible book value per share was $25.75 (compared with $26.13 at December 31, 2015).

  • The Company's level 3 assets, primarily auction rate securities, were $103.6 million at June 30, 2016 (compared with $96.2 million at December 31, 2015). The increase in level 3 assets was primarily due to increases in auction rate securities and interest rate lock commitments.

Dividend Announcement

The Company today announced a quarterly dividend in the amount of $0.11 per share payable on August 26, 2016 to holders of Class A non-voting and Class B voting common stock of record on August 12, 2016.

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 94 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 Part 1A – Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Oppenheimer Holdings Inc.

Consolidated Income Statement (unaudited)

('000s, except EPS)

For the 3-Months Ended

For the 6-Months Ended



6/30/2016

6/30/2015

% Change

6/30/2016

6/30/2015

% Change

REVENUE


















Commissions

$

92,591

$

103,556

(10.6)

$

196,424

$

213,251

(7.9)

Advisory fees

66,104

72,243

(8.5)

132,130

143,209

(7.7)

Investment banking

18,881

29,020

(34.9)

31,264

56,325

(44.5)

Interest

12,007

11,313

6.1

25,049

22,016

13.8

Principal transactions, net

7,577

3,541

114.0

14,195

12,038

17.9

Other

14,914

8,286

80.0

27,968

18,295

52.9

Total revenue

212,074

227,959

(7.0)

427,030

465,134

(8.2)

EXPENSES






Compensation and related expenses

141,721

153,805

(7.9)

290,216

314,629

(7.8)

Communications and technology

17,638

16,307

8.2

35,318

33,379

5.8

Occupancy and equipment costs

14,984

15,911

(5.8)

29,887

31,612

(5.5)

Clearing and exchange fees

6,199

6,231

(0.5)

13,120

12,633

3.9

Interest

4,972

4,105

21.1

9,839

7,875

24.9

Other

31,806

32,701

(2.7)

61,236

60,293

1.6

Total expenses

217,320

229,060

(5.1)

439,616

460,421

(4.5)

Income (loss) before income taxes

(5,246)

(1,101)

376.5

(12,586)

4,713

*

Income taxes

(2,627)

400

*

(6,439

2,555

*

Net income (loss) from continuing operations

(2,619)

(1,501)

74.5

(6,147)

2,158

*













Discontinued operations











Income from discontinued operations

15,366

3,731

311.8

14,709

7,768

89.4

Income taxes

6,036

1,585

280.8

5,760

3,160

82.3

Net income from discontinued operations

9,330

2,146

334.8

8,949

4,608

94.2













Net income

6,711

645

940.5

2,802

6,766

(58.6)

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

1,523

350

335.1

1,461

752

94.3

Net income attributable to Oppenheimer Holdings Inc.

$

5,188

$

295

1,658.6

$

1,341

$

6,014

(77.7)









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







Continuing operations

$

(0.20)

$

(0.11)

81.8

$

(0.46)

$

0.16

*

Discontinued operations

0.59

0.13

353.8

0.56

0.28

100.0

Net earnings per share attributable to Oppenheimer Holdings Inc.

$

0.39

$

0.02

1,850.0

$

0.10

$

0.44

(77.3)

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







Continuing operations

$

(0.20)

$

(0.11)

81.8

$

(0.46)

$

0.15

*

Discontinued operations

0.59

0.13

353.8

0.56

0.27

107.4

Net earnings per share attributable to Oppenheimer Holdings Inc.

$

0.39

$

0.02

1,850.0

$

0.10

$

0.42

(76.2)

Weighted Average Number of Common Shares Outstanding









Basic

13,367

13,746

(2.8)

13,374

13,725

(2.6)

Diluted

13,367

13,746

(2.8)

13,374

14,342

(6.7)










*

Not comparable







SOURCE Oppenheimer Holdings Inc.

Jeffrey Alfano, 212-825-4331

Organization Profile

Oppenheimer Holdings Inc.