Oppenheimer Holdings Inc. Reports First Quarter 2024 Earnings
Oppenheimer Holdings Inc. reported strong financial results for the first quarter of 2024, with net income of $26.1 million, an increase of 78.2% year-over-year, and revenue reaching $353.1 million, up by 9.8%. The company's positive performance was driven by growth in its investment banking franchise and Wealth Management business, supported by favorable macroeconomic conditions. Assets under management and administration reached record levels, leading to increased advisory fee revenue. The firm ended the quarter with record book value per share levels, positioning it well for future growth.
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Insights
Oppenheimer Holdings Inc.'s reported increase in net income of roughly
Another key aspect to consider is the expansion of assets under management (AUM), which rose significantly, underpinning future recurring revenues from management fees. Moreover, record book value per share indicates a strong equity position, which could be a signal of intrinsic value growth beneficial to shareholders. However, investors should monitor the compensation expenses, which have increased, possibly due to strategic hires and wage inflation, a trend that if not matched by productivity gains could pressure margins in the future.
Lastly, the stock repurchase program indicates confidence by management in the company's valuation, potentially signaling a positive outlook. The execution of share repurchases can be accretive to earnings per share (EPS), which is a critical metric for investors. However, the capital used for buybacks is not available for other investments or acquisitions, presenting a trade-off.
The favorable macroeconomic conditions, coupled with improving capital markets as suggested by the firm, are beneficial not only for Oppenheimer Holdings but for the investment services industry at large. Increased volatility and higher volumes in fixed income markets, as seen in the firm's fixed income division, are often opportunities for trading revenues. However, the impact of potential Federal Reserve rate changes will be a pivotal factor to observe as it affects investment yields and client investment behavior.
It’s noteworthy that the wealth management business is prospering with rising equity markets—a trend that if prolonged, may continue to enhance client asset values and, consequently, management fees. The increase in private placement and underwriting transactions is particularly promising, suggesting that Oppenheimer’s investment banking division is well-positioned to capitalize on the current environment for capital raising.
An investor examining Oppenheimer's performance may find optimism in the company's ability to leverage rising markets, as evidenced by the growth in AUM and the uptick in advisory fee revenues. These parameters are key in assessing the sustained ability of asset managers to attract and retain capital. The firm's pre-tax margins in its Private Client and Asset Management segments improved, which should be seen positively as they reflect operational leverage and potentially enhanced profitability.
The declining bank deposit sweep income and the capital markets division reporting a pre-tax loss, albeit reduced from last year, are areas of concern. These factors could reflect broader industry trends that may warrant cautious evaluation of risk and strategy. Investors should also consider the increased effective tax rate, as it may influence net income going forward.
Albert G. Lowenthal, Chairman and CEO commented, "The Firm registered outstanding operating results for the first quarter of 2024, reflecting the solid performance of our investment banking franchise amidst an improving capital market and strong results from our Wealth Management business responding to the impact of rising equity markets. Our overall performance was favorably impacted by improving macroeconomic conditions, highlighted by the continued rise of the equity markets with the S&P 500 reaching record highs owing to positive economic data and expectations that the Federal Reserve will pivot to reducing rates in the second half of the year.
The stock market rally propelled assets under management within our Wealth Management business to all-time highs, which drove a large increase in AUM-based advisory fee revenue when compared with the prior year period. We also saw encouraging signs of improvement in the capital raising environment, as our investment banking results were boosted by a meaningful uptick in the number of private placement and underwriting transactions in our pipeline that crystallized during the quarter. The still-high interest rate environment boded well for our fixed income division, which saw continued strength within its sales and trading revenue largely due to higher volumes and increased volatility. Higher rates also benefited several of our other interest-sensitive revenue streams, though we did see a pullback in FDIC sweep deposit balances which reduced these revenues.
The Company ended the quarter on a high note with record book value per share levels resulting from positive earnings and share repurchases. Our strong balance sheet and ample capital levels have us well-positioned for growth and to continue providing value-added investment services to our clients."
Summary Operating Results (Unaudited) | ||||||
('000s, except per share amounts or otherwise indicated) | ||||||
Firm | 1Q-24 | 1Q-23 | ||||
Revenue | $ 353,138 | $ 321,679 | ||||
Compensation Expenses | $ 221,713 | $ 206,292 | ||||
Non-compensation Expenses | $ 93,970 | $ 96,338 | ||||
Pre-Tax Income | $ 37,455 | $ 19,049 | ||||
Income Taxes | $ 11,711 | $ 4,585 | ||||
Net Income (1) | $ 26,054 | $ 14,617 | ||||
Earnings Per Share (Basic) (1) | $ 2.50 | $ 1.32 | ||||
Earnings Per Share (Diluted) (1) | $ 2.37 | $ 1.22 | ||||
Book Value Per Share | $ 77.47 | $ 72.27 | ||||
Tangible Book Value Per Share (2) | $ 60.41 | $ 56.92 | ||||
Private Client | ||||||
Revenue | $ 213,033 | $ 203,421 | ||||
Pre-Tax Income | $ 68,151 | $ 54,456 | ||||
Assets Under Administration (billions) | $ 124.9 | $ 108.9 | ||||
Asset Management | ||||||
Revenue | $ 24,928 | $ 23,959 | ||||
Pre-Tax Income | $ 7,634 | $ 6,481 | ||||
Assets Under Management (billions) | $ 46.6 | $ 39.3 | ||||
Capital Markets | ||||||
Revenue | $ 112,083 | $ 90,282 | ||||
Pre-Tax Income (Loss) | $ (6,702) | $ (15,477) | ||||
(1) Attributable to Oppenheimer Holdings Inc. | ||||||
(2) Represents book value less goodwill and intangible assets divided by number of shares outstanding. | ||||||
Highlights
- Increased revenue for the first quarter of 2024 was primarily driven by a significant improvement in private placement and underwriting-related fees generated by our investment banking business, higher advisory fees attributable to a rise in billable AUM as well as continued strength in fixed income sales and trading revenue.
- Assets under administration and under management were both at record levels at March 31, 2024, benefiting from market appreciation and positive net asset flows.
- Compensation expenses increased from the prior year quarter largely as a result of higher base salary expense associated with opportunistic new hires and inflationary pressures on wages in addition to higher production-related expenses.
- Non-compensation expenses decreased from the prior year quarter primarily due to lower legal costs partially offset by higher interest expense.
- Book value and tangible book value per share reached new record highs as a result of positive earnings and share repurchases.
Private Client
Private Client reported revenue for the current quarter of
('000s, except otherwise indicated) | ||
1Q-24 | 1Q-23 | |
Revenue | ||
Commissions | ||
Advisory Fees | ||
Bank Deposit Sweep Income | ||
Interest | ||
Other | ||
Total Expenses | ||
Compensation | ||
Non-compensation | ||
Pre-Tax Income | ||
Compensation Ratio | 51.2 % | 46.7 % |
Non-compensation Ratio | 16.8 % | 26.5 % |
Pre-Tax Margin | 32.0 % | 26.8 % |
Assets Under Administration (billions) | $ 124.9 | $ 108.9 |
Cash Sweep Balances (billions) | $ 4.4 | |
Revenue:
- Retail commissions increased
13.2% from a year ago primarily due to higher retail trading activity - Advisory fees increased
16.1% due to higher AUM during the billing period for the current quarter when compared to the first quarter of last year and increased net new client assets - Bank deposit sweep income decreased
$12.2 million - Interest revenue was relatively flat with the prior year period
- Other revenue increased from a year ago primarily due to increases in the cash surrender value of Company-owned life insurance policies, which fluctuates based on changes in the fair value of the policies' underlying investments
Total Expenses:
- Compensation expenses increased
14.8% from a year ago primarily due to higher production related expenses - Non-compensation expenses decreased
33.7% from a year ago primarily due to lower legal costs
Asset Management
Asset Management reported revenue for the current quarter of
('000s, except otherwise indicated) | ||
1Q-24 | 1Q-23 | |
Revenue | $ 24,928 | $ 23,959 |
Advisory Fees | $ 25,960 | $ 23,954 |
Other | $ (1,032) | $ 5 |
Total Expenses | $ 17,294 | $ 17,478 |
Compensation | $ 6,424 | $ 7,615 |
Non-compensation | $ 10,870 | $ 9,863 |
Pre-Tax Income | $ 7,634 | $ 6,481 |
Compensation Ratio | 25.8 % | 31.8 % |
Non-compensation Ratio | 43.6 % | 41.2 % |
Pre-Tax Margin | 30.6 % | 27.1 % |
AUM (billions) | $ 46.6 | $ 39.3 |
Revenue:
- Advisory fee revenue increased
8.4% from a year ago due to increased management fees resulting from the higher net value of billable AUM during the quarter and increased net new client assets - Other revenue decreased
$1.0 million
Assets under Management (AUM):
- AUM increased to
$46.6 billion - The increase in AUM was comprised of higher asset values of
$7.1 billion $0.2 billion
Total Expenses:
- Compensation expenses were down
15.6% from a year ago which was due to decreases in incentive compensation - Non-compensation expenses were up
10.2% when compared to the prior year period mostly due to higher external portfolio management costs which are directly related to the increase in AUM
Capital Markets
Capital Markets reported revenue for the current quarter of
('000s) | ||
1Q-24 | 1Q-23 | |
Revenue | $ 112,083 | |
Investment Banking | ||
Advisory Fees | ||
Equities Underwriting | $ 7,343 | |
Fixed Income Underwriting | $ 2,447 | $ 897 |
Other | $ 424 | $ 104 |
Sales and Trading | ||
Equities | ||
Fixed Income | ||
Other | $ 506 | $ 622 |
Total Expenses | ||
Compensation | ||
Non-compensation | ||
Pre-Tax Loss | ||
Compensation Ratio | 72.8 % | 85.1 % |
Non-compensation Ratio | 33.2 % | 32.1 % |
Pre-Tax Margin | (6.0) % | (17.1) % |
Revenue:
Investment Banking
- Advisory fees earned from investment banking activities increased
14.1% compared with a year ago due to higher transaction volumes, particularly in the healthcare industry - Equity underwriting fees increased
79.5% when compared with a year ago due to higher new issuance volumes - Fixed income underwriting fees were modestly higher than the prior year
Sales and Trading
- Equities sales and trading revenue was relatively flat with the prior year
- Fixed income sales and trading revenue increased
53.9% compared with a year ago primarily due to an increase in trading income attributable to higher volumes and market volatility
Total Expenses:
- Compensation expenses increased
6.2% compared with a year ago primarily due to costs associated with opportunistic hiring and higher deferred compensation costs - Non-compensation expenses were
28.4% higher than a year ago primarily due to an increase in interest expense in financing trading inventories
Other Matters
(In millions, except number of shares and per share amounts) | ||
1Q-24 | 1Q-23 | |
Capital | ||
Stockholders' Equity (1) | $ 801.5 | $ 800.4 |
Regulatory Net Capital (2) | $ 431.4 | $ 440.0 |
Regulatory Excess Net Capital (2) | $ 412.6 | $ 418.0 |
Common Stock Repurchases | ||
Repurchases | $ 8.4 | $ 3.7 |
Number of Shares | 214,723 | 95,055 |
Average Price | $ 39.05 | $ 38.79 |
Period End Shares | 10,346,862 | 11,075,388 |
Effective Tax Rate | 31.3 % | 24.1 % |
(1) Attributable to Oppenheimer Holdings Inc. | ||
(2) Attributable to Oppenheimer & Co. Inc. broker-dealer | ||
- The Board of Directors announced a quarterly dividend in the amount of
$0.15 - Compensation expense as a percentage of revenue was lower at
62.8% during the current period versus64.1% during the same period last year due to revenue increasing by a higher rate than compensation expenses - The effective tax rate for the current period was
31.3% compared with24.1% for the prior year period. The effective tax rate for the first quarter of 2024 was negatively impacted by permanent items and non-deductible losses in non-U.S. businesses. - The Company repurchased 214,723 shares of Class A non-voting common stock at an average price of
$39.05 $38.79
Company Information
Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, investment banking (corporate and public finance), equity and fixed income research, market-making, trust services, and investment advisory and asset management services. With roots tracing back to 1881, the Company is headquartered in
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, 2023.
Oppenheimer Holdings Inc. | ||||||
Consolidated Income Statements (Unaudited) | ||||||
('000s, except number of shares and per share amounts) | ||||||
For the Three Months Ended March 31, | ||||||
2024 | 2023 | % Change | ||||
REVENUE | ||||||
Commissions | $ 95,850 | $ 86,697 | 10.6 | |||
Advisory fees | 114,847 | 100,544 | 14.2 | |||
Investment banking | 50,537 | 37,965 | 33.1 | |||
Bank deposit sweep income | 36,685 | 48,909 | (25.0) | |||
Interest | 26,766 | 24,941 | 7.3 | |||
Principal transactions, net | 18,234 | 13,490 | 35.2 | |||
Other | 10,219 | 9,133 | 11.9 | |||
Total revenue | 353,138 | 321,679 | 9.8 | |||
EXPENSES | ||||||
Compensation and related expenses | 221,713 | 206,292 | 7.5 | |||
Communications and technology | 24,576 | 22,440 | 9.5 | |||
Occupancy and equipment costs | 15,848 | 15,901 | (0.3) | |||
Clearing and exchange fees | 5,842 | 6,263 | (6.7) | |||
Interest | 20,548 | 13,142 | 56.4 | |||
Other | 27,156 | 38,592 | (29.6) | |||
Total expenses | 315,683 | 302,630 | 4.3 | |||
Pre-Tax Income | 37,455 | 19,049 | 96.6 | |||
Income tax provision | 11,711 | 4,585 | 155.4 | |||
Net Income | $ 25,744 | $ 14,464 | 78.0 | |||
Less: Net loss attributable to non-controlling interest, net of tax | (310) | (153) | * | |||
Net income attributable to Oppenheimer Holdings Inc. | $ 26,054 | $ 14,617 | 78.2 | |||
Earnings per share attributable to Oppenheimer Holdings Inc. | ||||||
Basic | $ 2.50 | $ 1.32 | 89.4 | |||
Diluted | $ 2.37 | $ 1.22 | 94.3 | |||
Weighted average number of common shares outstanding | ||||||
Basic | 10,407,454 | 11,092,603 | (6.2) | |||
Diluted | 11,001,717 | 11,963,492 | (8.0) | |||
Period end number of common shares outstanding | 10,346,862 | 11,075,388 | (6.6) | |||
* Percentage not meaningful |
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SOURCE Oppenheimer Holdings Inc.
FAQ
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