Oppenheimer Holdings 8-K 2017
As filed with the Securities and Exchange Commission on October 27, 2017
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
October 27, 2017
OPPENHEIMER HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Commission File Number 1-12043
85 Broad Street
New York, New York 10004
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CRF 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
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SECTION 2 – FINANCIAL INFORMATION
ITEM 2.02. Results of Operations and Financial Condition.
(a)On October 27, 2017, Oppenheimer Holdings Inc. (the "Company") issued a press release announcing its third quarter 2017 earnings. A copy of the October 27, 2017 press release is furnished as Exhibit 99.1 to this Report and is incorporated herein by reference.
The information contained in this Item 2.02 and the related exhibit attached hereto shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall such information or such exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. The information set forth in this Item 2.02 or any exhibit related to this Item 2.02 on this Form 8-K shall not be deemed an admission as to the materiality of any information in the referenced items.
SECTION 9 – FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01. Financial Statements and Exhibits.
The following exhibit is furnished (not filed) with this Current Report on Form 8-K:
99.1 Oppenheimer Holdings Inc.'s Press Release dated October 27, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Oppenheimer Holdings Inc.
Oppenheimer Holdings Inc. Reports Third Quarter 2017
Earnings and Announces Quarterly Dividend
New York, October 27, 2017 – 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.
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."
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.
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.
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.
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 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.
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.
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:
Balance Sheet and Liquidity
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.
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.
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.