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Oppenheimer Holdings Inc. Reports Fourth Quarter and Full Year 2019 Earnings and Announces Quarterly Dividend

January 31, 2020 GMT

NEW YORK, Jan. 31, 2020 /PRNewswire/ - Oppenheimer Holdings Inc. (NYSE: OPY) today reported net income of $25.4 million or $1.99 basic net income per share for the fourth quarter of 2019 compared with net income of $8.3 million or $0.62 basic net income per share for the fourth quarter of 2018. Revenue for the fourth quarter of 2019 was $295.9 million compared to revenue of $243.3 million for the fourth quarter of 2018, an increase of 21.6%.

For the year ended December 31, 2019, the Company reported net income of $53.0 million or $4.10 basic net income per share compared with net income of $28.9 million or $2.18 basic net income per share for the year ended December 31, 2018. Revenue for the year ended December 31, 2019 was $1.03 billion compared to revenue of $958.2 million for the year ended December 31, 2018, an increase of 7.9%.

Summary Operating Results (Unaudited)

('000s, except per share amounts)









For the Three Months Ended


For the Year Ended



December 31,


December 31,



2019


2018


% Change


2019


2018


% Change

Revenue

$

295,881


$

243,254


21.6


$

1,033,379


$

958,154


7.9

Expenses

260,908


227,677


14.6


958,467


913,285


4.9

Income Before Income Taxes

34,973


15,577


124.5


74,912


44,869


67.0

Income Taxes

9,538


7,316


30.4


21,959


15,977


37.4

Net Income

$

25,435


$

8,261


207.9


$

52,953


$

28,892


83.3














Net Income Per Share












Basic


$

1.99


$

0.62


221.0


$

4.10


$

2.18


88.1

Diluted


$

1.84


$

0.59


211.9


$

3.82


$

2.05


86.3





























As of December 31,









12/31/2019


12/31/2018


% Change







Book Value Per Share


46.31


41.81


10.8







Tangible Book Value Per Share (1)

33.03


28.78


14.8




















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

Fourth Quarter and Full Year 2019 Highlights

The major stock indices in the U.S. increased 8.5% during the fourth quarter of 2019 and 28.9% for the year ended December 31, 2019 as the U.S. equities market had its strongest year since 2013 ending the year at all-time highs. The extended rally in the equities markets was driven by Federal Reserve interest rate cuts during the second half of the year, progress made in the China trade negotiations, strong corporate earnings combined with strong consumer confidence, and a positive economic outlook going into 2020. As the year ended, investors chose to look beyond the uncertainty provided by ongoing geopolitical concerns, domestic political infighting as well as headwinds in economic conditions in many other economies around the world. Interest rates declined overall during the year as the Federal Reserve cut its benchmark interest rate three times during 2019. The Federal Reserve’s funding of the Repo market through significant purchases of U.S. Treasury bills provided powerful stimulus during the final quarter of the year. The 10-year Treasury yield began the year yielding 2.69% and ended the year at 1.92%.

Albert G. Lowenthal, Chairman and CEO commented, “We are very pleased with the operating results for the fourth quarter and full year of 2019. Total revenue, after-tax income, and earnings per share were the second best the firm has ever reported. The strong operating results were driven by robust investment banking activity, particularly in mergers and acquisitions advisory work and debt capital markets activity. Also, the performance for the year of the hedge funds that we sponsor led to a significant increase in incentive fees from alternative investments in the fourth quarter of 2019 which are measured and earned at the end of each year.

Asset management fees rebounded during the year after the sell-off in the equities markets in the later part of 2018 which led to lower fees to begin 2019. The prolonged rally in U.S. equities drove an increase in assets under management to record levels at the end of the year which will positively impact advisory fees for the first quarter of 2020. This helped offset lower cash sweep income for the fourth quarter and full year 2019 due to decreases in short-term interest rates. Our fixed income business remained strong in the fourth quarter of 2019 and was a significant contributor to quarterly and year-end results. Although commission income in the fourth quarter of 2019 was flat compared to the fourth quarter of 2018, we continued to see clients move to fee-based relationships. We continue to be bullish on the U.S. economy and the stock market which should benefit our major business lines. We continue to invest in our investment banking business as we head into the new year and remain positive on the progress we continue to make in developing an already significant franchise.”

Business Segment Results (Unaudited)

('000s)








For the Three Months Ended


For the Year Ended


December 31,


December 31,


2019


2018


% Change


2019


2018


% Change

Revenue












Private Client

$

175,900


$

149,141


17.9


$

653,409


$

617,871


5.8

Asset Management

35,179


18,476


90.4


88,755


71,696


23.8

Capital Markets

83,982


74,854


12.2


290,830


272,719


6.6

Corporate/Other

820


783


4.7


385


(4,132)


*

Total

295,881


243,254


21.6


1,033,379


958,154


7.9













Income (Loss) Before Income Taxes









Private Client

42,416


37,814


12.2


163,917


149,097


9.9

Asset Management

19,114


6,787


181.6


31,606


18,590


70.0

Capital Markets

(2,891)


(5,084)


43.1


(13,724)


(13,416)


(2.3)

Corporate/Other

(23,666)


(23,940)


1.1


(106,887)


(109,402)


2.3

Total

$

34,973


$

15,577


124.5


$

74,912


$

44,869


67.0













* Percentage not meaningful

Private Client

Fourth Quarter
Private Client reported revenue of $175.9 million for the fourth quarter of 2019, 17.9% higher than the fourth quarter of 2018 due to higher incentive fees, and an increase in the cash surrender value of Company-owned life insurance partially offset by lower bank deposit sweep income during the fourth quarter of 2019. Income before income taxes was $42.4 million for the fourth quarter of 2019, an increase of 12.2% compared with the fourth quarter of 2018 due to the foregoing revenue items and lower legal and regulatory costs partially offset by higher producer-related, incentive, share-based and deferred compensation costs during the fourth quarter of 2019.

Full Year

Private Client reported revenue of $653.4 million for the year ended December 31, 2019, 5.8% higher than the year ended December 31, 2018 due to higher incentive fees an increase in the cash surrender value of Company-owned life insurance, and an increase in investment income related to a deferred compensation plan partially offset by decreases in commissions and margin interest revenue. Income before income taxes was $163.9 million for the year ended December 31, 2019, an increase of 9.9% compared with the year ended December 31, 2018 due to the foregoing plus lower legal and regulatory costs partially offset by higher producer-related, incentive, share-based and deferred compensation costs during the year ended December 31, 2019.

Asset Management

Fourth Quarter
Asset Management reported revenue of $35.2 million for the fourth quarter of 2019, 90.4% higher than the fourth quarter of 2018 due to higher incentive fees earned from alternative investments. Income before income taxes was $19.1 million for the fourth quarter of 2019, an increase of 181.6% compared with the fourth quarter of 2018.

Full Year
Asset Management reported revenue of $88.8 million for the year ended December 31, 2019, 23.8% higher than the year ended December 31, 2018 due to higher incentive fees earned from alternative investments. Income before income taxes was $31.6 million for the year ended December 31, 2019, an increase of 70.0% compared with the year ended December 31, 2018.

Capital Markets

Fourth Quarter
Capital Markets reported revenue of $84.0 million for the fourth quarter of 2019, 12.2% higher than the fourth quarter of 2018 due to higher fees from equities and debt underwriting transactions during the fourth quarter of 2019 partially offset by lower commissions and fees from mergers and acquisition activity. Loss before income taxes was $2.9 million for the fourth quarter of 2019, a decrease of 43.1% compared with a loss before income taxes of $5.1 million for the fourth quarter of 2018.

Full Year
Capital Markets reported revenue of $290.8 million for the year ended December 31, 2019, 6.6% higher than the year ended December 31, 2018 due to higher fees from mergers and acquisitions activity, and debt underwriting transactions, and higher trading revenue partially offset by lower equity capital market transactions during the year ended December 31, 2019. Loss before income taxes was $13.7 million for the year ended December 31, 2019 compared with a loss before income taxes of $13.4 million for the year ended December 31, 2018. The increase in the loss before income taxes during the year ended December 31, 2019 is primarily due to higher salaries, producer-related, incentive, and share-based compensation.

Compensation and Related Expenses

Fourth Quarter
Compensation and related expenses totaled $190.3 million during the fourth quarter of 2019, an increase of 27.4% compared with the fourth quarter of 2018. The increase was due to higher production, incentive, share-based and deferred compensation expenses during the fourth quarter of 2019. The Company recorded a credit to compensation and related expenses of $2.1 million related to its OARs Plan due to the price of its Class A Stock decreasing from $29.93 at the end of the third quarter of 2019 to $27.48 at the end of the fourth quarter of 2019. During the fourth quarter of 2018, the Company recorded a credit to compensation and related expenses of $5.8 million related to its OARs Plan due to the price of its Class A Stock decreasing from $31.60 at the end of the third quarter of 2018 to $25.55 at the end of the fourth quarter of 2018. Compensation and related expenses as a percentage of revenue was 64.3% for the fourth quarter of 2019 compared with 61.4% for the fourth quarter of 2018.

Full Year
Compensation and related expenses totaled $657.7 million during the year ended December 31, 2019, an increase of 8.3% compared with the year ended December 31, 2018. The increase was due to higher salaries, producer, incentive, share-based, and deferred compensation expenses during the year ended December 31, 2019. The Company recorded compensation and related expenses of $3.7 million related to its OARs Plan during the year ended December 31, 2019 compared with $0.7 million during the year ended December 31, 2018. Compensation and related expenses as a percentage of revenue was 63.6% for the year ended December 31, 2019 compared with 63.4% for the year ended December 31, 2018.

Non-Compensation Expenses

Fourth Quarter
Non-compensation expenses were $70.6 million during the fourth quarter of 2019, a decrease of 9.8% compared with $78.3 million during the fourth quarter of 2018 due primarily to lower legal and regulatory costs, and interest costs partially offset by higher communication and technology costs, external portfolio management costs, and underwriting deal-related costs during the fourth quarter of 2019.

Full Year
Non-compensation expenses were $300.8 million during the year ended December 31, 2019, a decrease of 1.7% compared with $306.1 million during the year ended December 31, 2018 due primarily to lower legal and regulatory costs partially offset by higher communication and technology costs and underwriting deal-related costs during the year ended December 31, 2019.

Provision for Income Taxes

Fourth Quarter
The effective income tax rate for the fourth quarter of 2019 was 27.3% compared with 46.9% for the fourth quarter of 2018. The lower effective tax rate for the fourth quarter of 2019 was primarily due to higher income before income taxes while non-deductible items remained relatively stable. The elevated effective tax rate for the fourth quarter of 2018 was primarily due to the establishment of a valuation allowance for the deferred tax asset related to net operating losses of the Company’s operations in Europe.

Full Year
The effective income tax rate for the year ended December 31, 2019 was 29.3% compared with 35.6% for the year ended December 31, 2018. The elevated effective tax rate for the year ended December 31, 2018 was partially due to the establishment of a valuation allowance for the deferred tax asset related to net operating losses of the Company’s operations in Europe.

Balance Sheet and Liquidity

Dividend Announcement

The Company today announced a quarterly dividend in the amount of $0.12 per share effective for the fourth quarter of 2019 and payable on February 28, 2020 to holders of Class A non-voting and Class B voting common stock of record on February 14, 2020.

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. 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 Form10-K for the year ended December 31, 2018.

Oppenheimer Holdings Inc.

Consolidated Income Statement (Unaudited)

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


For the Three Months Ended


For the Year Ended


December 31,


December 31,


2019


2018


% Change


2019


2018


% Change

REVENUE













Commissions

$

81,182


$

83,733


(3.0)


$

320,114


$

329,668


(2.9)

Advisory fees

118,430


81,377


45.5


353,671


314,349


12.5

Investment banking

44,364


30,911


43.5


126,211


115,353


9.4

Bank deposit sweep income

22,730


31,849


(28.6)


117,422


116,052


1.2

Interest

12,102


13,798


(12.3)


50,723


52,484


(3.4)

Principal transactions, net

8,005


5,351


49.6


30,094


14,461


108.1

Other

9,068


(3,765)


*


35,144


15,787


122.6

Total revenue

295,881


243,254


21.6


1,033,379


958,154


7.9

EXPENSES











Compensation and related expenses

190,292


149,371


27.4


657,714


607,192


8.3

Communications and technology

20,131


19,192


4.9


81,588


74,479


9.5

Occupancy and equipment costs

15,342


15,736


(2.5)


62,198


61,171


1.7

Clearing and exchange fees

5,483


5,731


(4.3)


21,962


22,985


(4.5)

Interest

7,978


13,609


(41.4)


45,687


46,396


(1.5)

Other

21,682


24,038


(9.8)


89,318


101,062


(11.6)

Total expenses

260,908


227,677


14.6


958,467


913,285


4.9

Income before income taxes

34,973


15,577


124.5


74,912


44,869


67.0

Income taxes

9,538


7,316


30.4


21,959


15,977


37.4

Net income

$

25,435


$

8,261


207.9


$

52,953


$

28,892


83.3












Net income per share











Basic

$

1.99


$

0.62


221.0


$

4.10


$

2.18


88.1

Diluted

$

1.84


$

0.59


211.9


$

3.82


$

2.05


86.3











Weighted average number of common shares outstanding







Basic

12,798,368


13,237,839


(3.3)


12,904,397


13,248,876


(2.6)

Diluted

13,860,637


14,118,181


(1.8)


13,851,832


14,061,369


(1.5)











* Percentage not meaningful

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SOURCE Oppenheimer Holdings Inc.