Le Lézard
Classified in: Business
Subjects: ERN, DIV

Oppenheimer Holdings Inc. Reports Fourth Quarter and Full Year 2017 Earnings and Announces Quarterly Dividend


NEW YORK, Feb. 1, 2018 /PRNewswire/ - Oppenheimer Holdings Inc. (NYSE: OPY) today reported net income of $21.2 million or $1.61 basic net income per share for the fourth quarter of 2017 compared with a net loss of $1.8 million or $0.13 basic net loss per share for the fourth quarter of 2016.  Net income for the fourth quarter of 2017 was positively impacted by a net discrete after-tax benefit of $9.0 million, or $0.69 basic net income per share, related to the enactment of the Tax Cuts and Jobs Act ("TCJA") on December 22, 2017 as described below(^).  Income before income taxes from continuing operations was $16.6 million for the fourth quarter of 2017 compared with a loss before income taxes from continuing operations of $7.5 million for the fourth quarter of 2016.  Net income from discontinued operations was $29,000 for the fourth quarter of 2017 compared with net income from discontinued operations of $759,000 for the fourth quarter of 2016.  Revenue from continuing operations for the fourth quarter of 2017 was $265.0 million compared with revenue from continuing operations of $218.9 million for the fourth quarter of 2016, an increase of 21.0%.  Revenue from discontinued operations for the fourth quarter of 2017 was $279,000 compared with revenue from discontinued operations of $1.9 million for the fourth quarter of 2016.

For the year ended December 31, 2017, the Company reported net income of $22.8 million or $1.72 basic net income per share compared with a net loss of $1.2 million or $0.09 basic net loss per share for the year ended December 31, 2016.  Income before income taxes from continuing operations for the year ended December 31, 2017 was $19.7 million compared with a loss before income taxes from continuing operations of $21.9 million for the year ended December 31, 2016.  Net income from discontinued operations was $1.1 million for the year ended December 31, 2017 compared with net income from discontinued operations of $10.1 million for the year ended December 31, 2016.  Revenue from continuing operations for the year ended December 31, 2017 was $920.3 million, an increase of 7.3% compared with revenue from continuing operations of $857.8 million for the year ended December 31, 2016.  Revenue from discontinued operations for the year ended December 31, 2017 was $2.2 million compared with revenue from discontinued operations of $25.3 million for the year ended December 31, 2016.


Summary Operating Results (Unaudited)

('000s, except Per Share Amounts)

For the 3-Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

% Change

2017

2016

% Change

Revenue

$

264,973

$

218,945

21.0

$

920,338

$

857,779

7.3

Expenses

248,403

226,441

9.7

900,602

879,671

2.4

Income (Loss) Before Income Taxes

16,570

(7,496)

*

19,736

(21,892)

*

Income Taxes

(4,598)

(5,072)

(9.3)

(2,134)

(12,262)

(82.6)

Net Income (Loss) from Continuing Operations

21,168

(2,424)

*

21,870

(9,630)

*

Net Income from Discontinued Operations

29

759

(96.2)

1,130

10,121

(88.8)

Net Income (Loss)

21,197

(1,665)

*

23,000

491

*

Less Net Income Attributable to Non-Controlling Interest

4

125

(96.8)

184

1,652

(88.9)

Net Income (Loss) Attributable to Oppenheimer Holdings Inc.

$

21,193

$

(1,790)

*

$

22,816

$

(1,161)

*







Basic Net Income (Loss) Per Share (1)








Continuing Operations

$

1.61

$

(0.18)

*

$

1.65

$

(0.72)

*

Discontinued Operations

?

0.05

(100.0)

0.07

0.63

(88.9)

Net Income (Loss) Per Share

$

1.61

$

(0.13)

*

$

1.72

$

(0.09)

*








Diluted Net Income (Loss) Per Share (1)








Continuing Operations

$

1.54

$

(0.18)

*

$

1.60

$

(0.72)

*

Discontinued Operations

?

0.05

(100.0)

0.07

0.63

(88.9)

Net Income (Loss) Per Share

$

1.54

$

(0.13)

*

$

1.67

$

(0.09)

*







Weighted Average Number of Common Shares Outstanding






Basic

13,116

13,361

(1.8)

13,246

13,369

(0.9)

Diluted

13,747

13,361

2.9

13,673

13,369

2.3











As of December 31,








2017

2016

% Change



Book Value Per Share (1)

$

39.55

$

38.22

3.5



Tangible Book Value Per Share (1)(2)

$

26.74

$

25.53

4.7



(1)

Attributable to Oppenheimer Holdings Inc.

(2)

Represents book value less goodwill and intangible assets divided by number of shares outstanding.

*

Percentage not meaningful.

 

The U.S. equities markets continued to surge during the fourth quarter of 2017 driven by optimism around the passage of corporate tax reform, strong corporate earnings, and improving economic indicators both in the U.S. and globally.  The S&P 500 increased 6.1% for the fourth quarter of 2017 and was up 19.4% for the full year 2017.  Low volatility and decreased transaction volumes in the equities markets persisted during the period. The Federal Reserve raised short-term interest rates by 25 basis points in December 2017, the fifth 25 basis point increase since the Fed began raising rates in December 2015.  The increase in short-term interest rates has led to a flattening of the yield curve as long-term rates have remained historically low reflecting low inflation expectations and heightened demand from overseas investors taking advantage of the relatively higher U.S. interest rates.  The 10-Year Treasury Yield ended the quarter at 2.41%.

Albert G. Lowenthal, Chairman and CEO commented, "We are encouraged by operating results for the period which continued to be positively impacted by higher equities markets and higher interest rates.  Our fee-based business within Asset Management continued to perform well driven by higher equity prices and the continued adoption of fee-based strategies by our wealth management clients.  Assets under management rose to new highs during the quarter.  The performance for the year of the hedge funds that we sponsor led to a significant increase in incentive fees from alternative investments which are measured and earned at the end of each year.

Spreads continue to widen on our interest rate sensitive assets which will likely further benefit from the December 2017 rate hike by the Federal Reserve.  Trading activity and transaction revenues continued to be negatively impacted by low volatility and changing investor behavior leading to lower retail and institutional commission revenues for the fourth quarter of 2017 and full year 2017.  We are optimistic about the investment banking pipeline as we begin 2018 and continue to see the benefits of the changes made to our investment banking business.

The enactment of corporate tax reform had a significant positive effect on the fourth quarter of 2017 with the one-time gains associated with the re-measurement of our deferred taxes.  The Company is also positioned to benefit from corporate tax reform through a lower effective tax rate on the business going forward.  The positive performance of our stock price during the period led to a significant increase in compensation costs from the Oppenheimer Stock Appreciation Rights Plan ("OARs Plan").  The environment continues to look bright for the economy and for our business as we move into 2018."

Notable Items for the Fourth Quarter of 2017

Financial Highlights


Business Segment Results (Unaudited)

('000s)

For the 3-Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

% Change

2017

2016

% Change

Revenue











Private Client (1)

$

167,684

$

127,455

31.6

$

592,753

$

504,192

17.6

Asset Management (1)

32,649

23,874

36.8

89,896

92,852

(3.2)

Capital Markets

63,214

67,641

(6.5)

231,632

254,933

(9.1)

Corporate/Other

1,426

(25)

*

6,057

5,802

4.4

264,973

218,945

21.0

920,338

857,779

7.3









Income (Loss) Before Income Taxes from Continuing Operations








Private Client (1)

35,077

15,273

129.7

128,840

66,072

95.0

Asset Management (1)

15,555

9,561

62.7

26,685

31,412

(15.0)

Capital Markets

(14,743)

(13,857)

6.4

(39,978)

(17,713)

125.7

Corporate/Other

(19,319)

(18,473)

4.6

(95,811)

(101,663)

(5.8)

$

16,570

$

(7,496)

*

$

19,736

$

(21,892)

*











(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%.

*

Percentage not meaningful.

 

FOURTH QUARTER 2017 RESULTS

Private Client

Private Client reported revenue of $167.7 million for the fourth quarter of 2017, 31.6% higher than the fourth quarter of 2016 due to higher management and incentive fees, fees earned on the FDIC-insured bank deposit program, and margin interest as well as the increase in the cash surrender value of Company-owned life insurance partially offset by lower commissions during the fourth quarter of 2017.  Income before income taxes was $35.1 million for the fourth quarter of 2017, an increase of 129.7% compared with the fourth quarter of 2016 due to the foregoing as well as lower legal and regulatory costs partially offset by increases in share-based (see discussion on OARs Plan above) and deferred compensation expenses during the fourth quarter of 2017.

Asset Management

Asset Management reported revenue of $32.6 million for the fourth quarter of 2017, 36.8% higher than the fourth quarter of 2016 due to higher management and incentive fees partially offset by the change in the allocation of advisory fees between the Private Client and Asset Management segments which became effective January 1, 2017.  Income before income taxes was $15.6 million for the fourth quarter of 2017, an increase of 62.7% compared with the fourth quarter of 2016.

Capital Markets

Capital Markets reported revenue of $63.2 million for the fourth quarter of 2017, 6.5% lower than the fourth quarter of 2016 due to lower fees from mergers and acquisition activity and debt capital market transactions partially offset by higher fees from equities underwriting transactions during the fourth quarter of 2017.  Loss before income taxes was $14.7 million for the fourth quarter of 2017, an increase of 6.4% compared with a loss before income taxes of $13.9 million for the fourth 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 $173.5 million during the fourth quarter of 2017, an increase of 14.0% compared with the fourth quarter of 2016.  The increase was due to higher production, incentive, share-based, and deferred compensation expenses partially offset by lower healthcare costs during the fourth quarter of 2017.  As indicated above, compensation and related expenses of $7.6 million were recorded during the fourth quarter of 2017 related to the Company's OARs Plan due to the price of its Class A Stock increasing from $17.35 at the end of the third quarter of 2017 to $26.80 at the end of the fourth quarter of 2017.  Compensation and related expenses as a percentage of revenue was 65.5% during the fourth quarter of 2017 compared with 69.5% during the fourth quarter of 2016.

Non-Compensation Expenses

Non-compensation expenses were $74.9 million during the fourth quarter of 2017, a decrease of 0.9% compared with $74.3 million during the fourth quarter of 2016 due primarily to lower legal and regulatory costs partially offset by higher interest costs during the fourth quarter of 2017.

Provision for Income Taxes

The effective income tax rate from continuing operations for the fourth quarter of 2017 was 27.7% (benefit) compared with 67.7% (benefit) for the fourth quarter of 2016.  The effective income tax rate for the fourth quarter of 2017 was positively impacted by the estimated impact of the TCJA which resulted in a net discrete after-tax benefit of $9.0 million(^).  The net discrete after-tax benefit was comprised of a benefit of $29.0 million related to the re-measurement of deferred tax liabilities offset by a detriment of $19.6 million related to the re-measurement of deferred tax assets as well as a detriment of $0.4 million related to miscellaneous non-deductible items.  The effective income tax rate for the fourth quarter of 2016 was positively impacted by income tax provision to tax return true-ups and higher nontaxable benefits received with respect to Company-owned life insurance.

FULL-YEAR 2017 RESULTS

Private Client

Private Client reported revenue of $592.8 million for the year ended December 31, 2017, 17.6% higher than the year ended December 31, 2016 due to higher management and incentive fees, fees earned on the FDIC-insured bank deposit program, and margin interest as well as the increase in the cash surrender value of Company-owned life insurance partially offset by lower commissions during the year ended December 31, 2017.  Income before income taxes was $128.8 million for the year ended December 31, 2017, an increase of 95.0% compared with the year ended December 31, 2016 due to the foregoing partially offset by increases in share-based (see discussion on OARs Plan above) and deferred compensation expenses during the year ended December 31, 2017.

Asset Management

Asset Management reported revenue of $89.9 million for the year ended December 31, 2017, 3.2% lower than the year ended December 31, 2016 due to the change in the allocation of advisory fees between the Private Client and Asset Management segments which became effective January 1, 2017 partially offset by higher management and incentive fees.  Income before income taxes was $26.7 million for the year ended December 31, 2017, a decrease of 15.0% compared with the year ended December 31, 2016.

Capital Markets

Capital Markets reported revenue of $231.6 million for the year ended December 31, 2017, 9.1% lower than the year ended December 31, 2016 due to lower commissions, fees from mergers and acquisition activity and debt capital market transactions partially offset by higher fees from equities underwriting transactions during the year ended December 31, 2017.  Loss before income taxes was $40.0 million for the year ended December 31, 2017 compared with a loss before income taxes of $17.7 million for the year ended December 31, 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 $602.1 million during the year ended December 31, 2017, an increase of 3.0% compared with the year ended December 31, 2016.  The increase was due to higher producer, incentive, share-based, and deferred compensation expenses partially offset by lower salary and healthcare expenses during the year ended December 31, 2017.  Compensation and related expenses as a percentage of revenue was 65.4% during the year ended December 31, 2017 compared with 68.2% during the year ended December 31, 2016.

Non-Compensation Expenses

Non-compensation expenses were $298.5 million during the year ended December 31, 2017, an increase of 1.2% compared with $295.0 million during the year ended December 31, 2016 due primarily to higher interest costs and the charge of $6.4 million associated with the settlement with the Israeli VAT Authority in the first quarter of 2017 partially offset by lower legal and regulatory costs during the year ended December 31, 2017.

Provision for Income Taxes

The effective income tax rate from continuing operations for the year ended December 31, 2017 was 10.8% (benefit) compared with 56.0% (benefit) for the year ended December 31, 2016.  The effective income tax rate for the year ended December 31, 2017 was positively impacted by the estimated impact of the TCJA which resulted in a net discrete after-tax benefit of $9.0 million as discussed above in the Provision for Income Taxes for the fourth quarter of 2017(^).  The effective income tax rate for the year ended December 31, 2016 was positively impacted by income tax provision to tax return true-ups and higher nontaxable benefits received with respect to Company-owned life insurance partially offset by the valuation allowance established on deferred tax assets related to net operating losses of a foreign subsidiary.

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 months and year ended December 31, 2017 and 2016, respectively:


Discontinued Operations (Unaudited)

('000s)

For the 3-Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

2017

2016

Revenue




Interest

$

1

$

22

$

8

$

943

Principal transactions, net

?

(14)

?

(9,022)

Other (1)

278

1,845

2,165

33,392

Total revenue

279

1,853

2,173

25,313

Expenses




Compensation and related expenses

?

86

18

4,311

Communications and technology

7

20

27

221

Occupancy and equipment costs

?

16

?

415

Interest

5

?

12

408

Other

30

(11)

45

2,619

Total expenses

42

111

102

7,974

Income before income taxes

237

1,742

2,071

17,339

Income taxes

208

983

941

7,218

Net income from discontinued operations

$

29

$

759

$

1,130

$

10,121
















(1)

Other revenue for the year ended December 31, 2017 was primarily due to an earn-out from the sale of OMHHF's pipeline of business in 2016.

 

Balance Sheet and Liquidity

Dividend Announcement

The Company today announced a quarterly dividend in the amount of $0.11 per share payable on February 26, 2018 to holders of Class A non-voting and Class B voting common stock of record on February 12, 2018.

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 92 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.

(^)   The estimated enactment net discrete after-tax benefit incorporates assumptions made based upon the Company's current interpretations of the TCJA, and may change as it receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time.


Oppenheimer Holdings Inc.

Consolidated Income Statement (Unaudited)

('000s, except Per Share Amounts)








For the 3-Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

% Change

2017

2016

% Change

REVENUE











Commissions

$

88,416

$

90,870

(2.7)

$

336,620

$

377,317

(10.8)

Advisory fees

104,225

69,537

49.9

320,746

269,119

19.2

Investment banking

20,868

29,467

(29.2)

78,215

81,011

(3.5)

Interest

12,152

11,309

7.5

48,498

47,649

1.8

Principal transactions, net

7,463

1,364

447.1

23,273

20,481

13.6

Other

31,849

16,398

94.2

112,986

62,202

81.6

Total revenue

264,973

218,945

21.0

920,338

857,779

7.3

EXPENSES










Compensation and related expenses

173,513

152,186

14.0

602,138

584,710

3.0

Communications and technology

18,092

17,871

1.2

71,978

70,390

2.3

Occupancy and equipment costs

15,443

15,995

(3.5)

61,164

60,791

0.6

Clearing and exchange fees

6,153

6,120

0.5

23,545

25,126

(6.3)

Interest

9,644

4,911

96.4

28,354

19,437

45.9

Other

25,558

29,358

(12.9)

113,423

119,217

(4.9)

Total expenses

248,403

226,441

9.7

900,602

879,671

2.4

Income (Loss) before income taxes

16,570

(7,496)

*

19,736

(21,892)

*

Income taxes

(4,598)

(5,072)

(9.3)

(2,134)

(12,262)

(82.6)

Net income (loss) from continuing operations

21,168

(2,424)

*

21,870

(9,630)

*











Discontinued operations










Income from discontinued operations

237

1,742

(86.4)

2,071

17,339

(88.1)

Income taxes

208

983

(78.8)

941

7,218

(87.0)

Net income from discontinued operations

29

759

(96.2)

1,130

10,121

(88.8)











Net income (loss)

21,197

(1,665)

*

23,000

491

*

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

4

125

(96.8)

184

1,652

(88.9)

Net income (loss) attributable to Oppenheimer Holdings Inc.

$

21,193

$

(1,790)

*

$

22,816

$

(1,161)

*











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







Continuing operations

$

1.61

$

(0.18)

*

$

1.65

$

(0.72)

*

Discontinued operations

?

0.05

(100.0)

0.07

0.63

(88.9)

Net income (loss) per share

$

1.61

$

(0.13)

*

$

1.72

$

(0.09)

*

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






Continuing operations

$

1.54

$

(0.18)

*

$

1.60

$

(0.72)

*

Discontinued operations

?

0.05

(100.0)

0.07

0.63

(88.9)

Net income (loss) per share

$

1.54

$

(0.13)

*

$

1.67

$

(0.09)

*

Weighted Average Number of Common Shares Outstanding





Basic

13,116

13,361

(1.8)

13,246

13,369

(0.9)

Diluted

13,747

13,361

2.9

13,673

13,369

2.3

*

Percentage not meaningful.






 

SOURCE Oppenheimer Holdings Inc.


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