Oppenheimer Holdings Inc. Reports Second Quarter 2020 Earnings

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Oppenheimer Holdings Inc.

Jul 30, 2020, 08:00 ET

NEW YORK, July 30, 2020 /CNW/ - Oppenheimer Holdings Inc. (NYSE: OPY) (the "Company" or "Firm") today reported net income of $17.6 million or $1.40 basic earnings per share for the second quarter of 2020 compared with net income of $12.4 million or $0.95 basic earnings per share for the second quarter of 2019. Revenue for the second quarter of 2020 was $264.7 million compared to revenue of $250.9 million for the second quarter of 2019.

Albert G. Lowenthal, Chairman and CEO commented, "I am extremely proud of how our employees have risen to the challenges of the current environment.  While navigating new working arrangements, whether remotely or in a less populated office environment, the Firm's associates were able to work productively and contribute to what turned out to be a very solid quarter, both in terms of revenue and profit, given the headwinds created by a very low interest rate environment.  Continued volatility in the equity markets and huge demand for capital raising led to stronger than expected operating results for the period.

Investment banking led the way with a significant increase in the number of equity underwriting transactions in May and June. We also saw substantially increased activity in fixed income, both taxable and municipal finance, including higher public finance issuances.  This helped offset lower M&A activity during the quarter. The broader equities markets saw the largest quarterly increase in two decades contributing to higher retail and institutional commission revenue as investors reacted to very high levels of volatility.  The recovery in asset values also contributed to record assets under management at June 30, 2020, which will drive advisory fee revenue for the third quarter of 2020. A continuation of market volatility and robust capital markets activity would drive positive operating results for the last half of the year".

Summary Operating Results (Unaudited)

('000s, except per share amounts or otherwise indicated)

Firm

2Q-20

2Q-19

Revenue

$

264,730

$

250,935

Compensation expense

$

179,594

$

155,783

Non-compensation expense

$

61,872

$

77,761

Pre-Tax Income

$

23,264

$

17,391

Income Taxes

$

5,615

$

5,016

Net Income

$

17,649

$

12,375

Earnings per share (basic)

$

1.40

$

0.95

Earnings per share (diluted)

$

1.34

$

0.89

Book Value Per Share

$

47.92

$

43.84

Tangible Book Value Per Share (1)

$

34.37

$

30.62



Private Client

Revenue

$

141,825

$

161,928

Pre-Tax Income

$

24,349

$

43,416

Assets Under Administration (billions)

$

89.7

$

87.3



Asset Management

Revenue

$

17,515

$

18,622

Pre-Tax Income

$

3,983

$

5,318

Assets Under Management (billions)

$

32.7

$

30.2



Capital Markets

Revenue

$

105,270

$

71,819

Pre-Tax Income (Loss)

$

22,322

$

(1,801)



(1) Represents book value less goodwill and intangible assets divided by number of shares outstanding

Highlights

  • The Firm's operating results demonstrated the resiliency of the franchise
  • Our balance sheet, capital levels, and liquidity remain strong during these unprecedented times
  • Revenue increased 5.5% during the period driven by robust underwriting revenue, increased institutional equities and fixed income sales and trading activity, and higher retail investor participation
  • Compensation expense increased 15.3% due to higher production, incentive, and deferred compensation costs resulting from higher incentive compensation tied to commissionable revenue and asset values underlying deferred compensation programs
  • Compensation expense as a percentage of revenue was higher at 67.8% during the current period versus 62.1% last year due to substantially lower bank deposit sweep income which has no associated compensation costs
  • Book value and tangible book value per share reached record levels at June 30, 2020
  • Private Client pre-tax profit margin was 17.2% reflecting strong underlying business fundamentals
  • Assets under management were at a record level of $32.7 billion at June 30, 2020
  • Investment banking had its best quarter since the fourth quarter of 2010 with revenue of $46.2 million

Private Client

Private Client reported revenue for the current quarter of $141.8 million, 12.4% lower compared with a year ago.  Pre-tax income of $24.3 million in the current quarter resulted in a pre-tax profit margin of 17.2%.

('000s, except financial advisor headcount or otherwise indicated)

2Q-20

2Q-19



Revenue

$

141,825

$

161,928

Commissions

$

50,295

$

47,150

Advisory fees

$

58,465

$

62,080

Bank deposit sweep income

$

7,122

$

31,830

Interest

$

5,134

$

9,639

Other

$

20,809

$

11,229



Total Expenses

$

117,476

$

118,513

Compensation

$

90,512

$

85,540

Non-compensation

$

26,964

$

32,973



Assets Under Administration (billions)

$

89.7

$

87.3

Cash Sweep Balances (billions)

$

6.3

$

5.0

Financial Advisor Headcount

1,029

1,036



Revenue:

  • Retail commissions increased 6.7% from a year ago as a result of increased volatility and client participation
  • Advisory fees decreased 5.8% due to lower assets under management at March 31, 2020 compared with March 31, 2019
  • Bank deposit sweep income decreased $24.7 million or 77.6% from a year ago due to lower short-term interest rates partially offset by higher average cash sweep balances
  • Interest revenue declined 46.7% from a year ago due to lower short-term interest rates partially offset by higher average margin balances
  • Other revenue increased 85.3% primarily due to increases in the cash surrender value of company-owned life insurance policies

Total Expenses:

  • Compensation expenses increased 5.8% primarily due to increased deferred compensation costs tied to the performance of the overall equities markets
  • Non-compensation expenses decreased 18.2% primarily due to lower interest costs associated with the bank deposit sweep program

Asset Management

Asset Management reported revenue for the current quarter of $17.5 million, 5.9% lower compared with a year ago.  Pre-tax income was $4.0 million, a decrease of 25.1% compared with a year ago.

('000s, except otherwise indicated)

2Q-20

2Q-19



Revenue

$

17,515

$

18,622

Advisory fees

$

17,507

$

18,617

Other

$

8

$

5



Total Expenses

$

13,532

$

13,304

Compensation

$

5,676

$

5,316

Non-compensation

$

7,856

$

7,988



AUM (billions)

$

32.7

$

30.2

Revenue:

  • Advisory fee revenue decreased 6.0% due to lower assets under management at March 31, 2020 compared with March 31, 2019

Assets under Management (AUM):

  • AUM hit a record level of $32.7 billion at June 30, 2020, which is the basis for advisory fee billings for the third quarter of 2020
  • The increase in AUM was comprised of higher asset values of $1.3 billion on existing client holdings and a net contribution of assets of $1.2 billion

 Total Expenses:

  • Compensation expenses were up 6.8% which was primarily related to increases in incentive compensation
  • Non-compensation expenses were roughly flat when compared to the prior period

Capital Markets

Capital Markets reported revenue for the current quarter of $105.3 million, 46.6% higher compared with a year ago. Pre-Tax income was $22.3 million compared with a pre-tax loss of $1.8 million a year ago.

('000s)


2Q-20

2Q-19



Revenue

$

105,270

$

71,819



Investment Banking

$

42,716

$

27,742

Advisory fees

$

7,244

$

13,045

Equities underwriting

$

27,787

$

13,020

Fixed income underwriting

$

7,685

$

1,677



Sales and Trading

$

61,878

$

43,508

Equities

$

30,858

$

23,391

Fixed Income

$

31,020

$

20,117



Other

$

676

$

569



Total Expenses

$

82,949

$

73,620

Compensation

$

62,295

$

45,848

Non-compensation

$

20,654

$

27,772

Revenue:

Investment Banking

  • Advisory fees earned from investment banking activities decreased 44.5% compared with a year ago due to lower M&A activity amidst the COVID-19 pandemic
  • Equities underwriting fees more than doubled compared with a year ago due to higher levels of capital issuances in the equity markets
  • Fixed income underwriting fees were up more than four times due to increased fees earned in emerging markets and public finance offerings

Sales and Trading

  • Equities sales and trading increased 31.9% due to increased equities agency and convertible bond transactions
  • Fixed Income sales and trading increased 54.2% driven by increased client activity in investment grade, emerging market, high yield, and mortgage-backed securities

Total Expenses:

  • Compensation expenses increased 35.9% primarily due to increased incentive compensation tied to increases in revenue
  • Non-compensation expenses were 25.6% lower due to decreased interest costs and reduced costs associated with travel and entertainment and conferences

Other Matters

(In millions, except number of shares and per share amounts)

2Q-20

2Q-19

Capital

Shareholders' equity

$

601.1

$

563.6

Regulatory Net Capital (1)

$

251.3

$

201.7

Regulatory Excess Net Capital (1)

$

228.3

$

185.0



Common Stock Repurchases

Repurchases

$

3.8

$

4.3

Number of Shares

191,044

167,209

Average Price

$

20.06

$

25.82



Period End Shares

12,445,479

12,756,308

Effective Tax Rate

24.1

%

28.8

%



(1) Attributable to Oppenheimer & Co. Inc. broker-dealer
  • Shareholders' equity reached a record high of $601.1 million on June 30, 2020
  • The Board of Directors announced a quarterly dividend in the amount of $0.12 per share effective for the second quarter of 2020 and payable on August 27, 2020 to holders of Class A non-voting and Class B voting common stock of record on August 13, 2020
  • The Company's broker-dealer regulatory net capital was near all-time highs as of June 30, 2020
  • Level 3 assets, primarily comprised of auction rate securities, were $29.6 million as of June 30, 2020
  • The effective tax rate for the current period was 24.1% compared with 28.8% for the prior period. The decrease is primarily due to the resolution of tax audits on a favorable basis during the current period

Coronavirus Pandemic ("COVID-19")

The Company continues to monitor the effects of the pandemic both on a national level as well as regional and local effects 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 are reliant on the continued ability to have the vast majority of employees working remotely.  To date, there have been no significant disruptions to our business or control processes as a result of this dispersion of employees.  Recent outbreaks in various states indicate that COVID-19 will continue to impact the economy and, by extension, our business, well into 2021.  We currently anticipate that a large number of our employees will continue to work remotely for the indefinite future.

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 retail branch offices in the United States and has institutional businesses located in London, Tel Aviv, and Hong Kong.

Forward-Looking Statements

This press release includes certain "forward-looking statements" relating to anticipated future performance including the projected impact of COVID-19 on the Company's business, financial performance, and operating results.  The following factors, among others, could cause actual results to vary from the forward-looking statements: the severity and duration of the COVID-19; COVID-19 impact on the U.S. and global economies; and Federal, state and local governmental responses to the pandemic.  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, 2019 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Oppenheimer Holdings Inc.

Consolidated Statements of Income (Unaudited)

('000s, except number of shares and per share amounts)







For the Three Months Ended
June 30,

For the Six Months Ended
June 30,


2020

2019

% Change

2020

2019

% Change

REVENUE







Commissions

$

101,636

$

80,896

25.6

$

204,885

$

160,305

27.8

Advisory fees

75,981

80,707

(5.9)

162,145

154,354

5.0

Investment banking

46,186

32,006

44.3

71,914

60,049

19.8

Bank deposit sweep income

7,122

31,830

(77.6)

25,948

65,798

(60.6)

Interest

6,220

13,550

(54.1)

17,110

26,277

(34.9)

Principal transactions, net

12,064

3,045

296.2

11,196

14,483

(22.7)

Other

15,521

8,901

74.4

6,302

21,439

(70.6)

Total revenue

264,730

250,935

5.5

$

499,500

$

502,705

(0.6)

EXPENSES







Compensation and related expenses

179,594

155,783

15.3

337,270

316,138

6.7

Communications and technology

21,324

20,499

4.0

41,215

40,585

1.6

Occupancy and equipment costs

15,334

15,573

(1.5)

31,412

30,846

1.8

Clearing and exchange fees

6,191

5,678

9.0

11,850

11,010

7.6

Interest

2,890

13,192

(78.1)

9,440

26,178

(63.9)

Other

16,133

22,819

(29.3)

34,826

44,505

(21.7)

Total expenses

241,466

233,544

3.4

466,013

469,262

(0.7)

Pre-Tax Income

23,264

17,391

33.8

33,487

33,443

0.1

Income taxes

5,615

5,016

11.9

8,020

9,874

(18.8)

Net income

$

17,649

$

12,375

42.6

$

25,467

$

23,569

8.1









Earnings per share






        Basic

$

1.40

$

0.95

47.4

$

1.99

$

1.81

9.9

        Diluted

$

1.34

$

0.89

50.6

$

1.92

$

1.70

12.9









Weighted average number of common shares outstanding




Basic

12,640,463

12,976,235

(2.6)

12,768,096

12,998,168

(1.8)

Diluted

13,124,655

13,861,753

(5.3)

13,269,494

13,857,616

(4.2)

SOURCE Oppenheimer Holdings Inc.

Jeffrey Alfano ([email protected])

Related Links

www.opco.com

Organization Profile

Oppenheimer Holdings Inc.