Oppenheimer 8K Results of Operations and Financial Condition

As filed with the Securities and Exchange Commission on October 28, 2016

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 8-K

_____________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported):

October 28, 2016

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OPPENHEIMER HOLDINGS INC.

(Exact name of registrant as specified in its charter)

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Commission File Number 1-12043



Delaware		98-0080034
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

85 Broad Street

New York, New York 10004

(Address of principal executive offices) (Zip Code)

(212) 668-8000

(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))

SECTION 2 – FINANCIAL INFORMATION

ITEM 2.02. Results of Operations and Financial Condition.

(a)On October 28, 2016, Oppenheimer Holdings Inc. (the “Company”) issued a press release announcing its third quarter 2016 earnings. A copy of the October 28, 2016 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.

(d)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 28, 2016

SIGNATURES

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.

Date: October 28, 2016

By: /s/ Jeffrey J. Alfano
---------------------------------
Jeffrey J. Alfano
Chief Financial Officer
(Duly Authorized Officer)

EXHIBIT INDEX

Exhibit

Number Description

99.1 Oppenheimer Holdings Inc.’s Press Release dated October 28, 2016

Exhibit 99.1

Oppenheimer Holdings Inc. Reports Third Quarter 2016

Earnings and Announces Quarterly Dividend

New York, October 28, 2016 – Oppenheimer Holdings Inc. (NYSE: OPY) today reported a net loss of $712,000 or $0.05 basic loss per share for the third quarter of 2016 compared with a net loss of $908,000 or $0.07 basic loss per share for the third quarter of 2015. Loss before income taxes from continuing operations was $1.8 million for the third quarter of 2016 compared with a loss before income taxes of $2.6 million for the third quarter of 2015. Net income from discontinued operations was $413,000 for the third quarter of 2016 compared with net income from discontinued operations of $359,000 for the third quarter of 2015. Revenue from continuing operations for the third quarter of 2016 was $211.8 million compared with revenue from continuing operations of $207.5 million for the third quarter of 2015, an increase of 2.1%.



Summary Operating Results (Unaudited)
('000s, except Earnings (Loss) Per Share and Book Value Per Share)
		For the 3-Months Ended								For the 9-Months Ended
		9/30/2016			9/30/2015 ⁽²⁾			% Change		9/30/2016			9/30/2015 ⁽²⁾		% Change
Revenue		$	211,804		$	207,478		2.1		$	638,834		$	672,612	(5.0	)
Expenses		213,614			210,051			1.7		653,230			670,472		(2.6	)
Income (Loss) Before Income Taxes		(1,810		)	(2,573		)	(29.7	)	(14,396		)	2,140		*
Income Taxes		(751		)	(1,437		)	(47.7	)	(7,190		)	1,118		*
Net Income (Loss) from Continuing Operations		(1,059		)	(1,136		)	(6.8	)	(7,206		)	1,022		*
Net Income from Discontinued Operations		413			359			15.0		9,362			4,967		88.5
Net Income (Loss)		(646		)	(777		)	(16.9	)	2,156			5,989		(64.0	)
Less Net Income Attributable to Non-Controlling Interest		66			131			(49.6	)	1,527			883		72.9
Net Income (Loss) Attributable to Oppenheimer Holdings Inc.		$	(712	)	$	(908	)	(21.6	)	$	629		$	5,106	(87.7	)

Basic Earnings (Loss) Per Share ⁽¹⁾
	Continuing Operations	$	(0.08	)	$	(0.08	)	—		$	(0.54	)	$	0.07	*
	Discontinued Operations	0.03			0.01			200.0		0.59			0.30		96.7
	Net Earnings (Loss) Per Share	$	(0.05	)	$	(0.07	)	(28.6	)	$	0.05		$	0.37	(86.5	)

Diluted Earnings (Loss) Per Share ⁽¹⁾
	Continuing Operations	$	(0.08	)	$	(0.08	)	—		$	(0.54	)	$	0.07	*
	Discontinued Operations	0.03			0.01			200.0		0.59			0.29		103.4
	Net Earnings (Loss) Per Share	$	(0.05	)	$	(0.07	)	(28.6	)	$	0.05		$	0.36	(86.1	)

Weighted Average Number of Common Shares Outstanding
	Basic	13,367			13,691			(2.4	)	13,371			13,714		(2.5	)
	Diluted	13,367			13,691			(2.4	)	13,371			14,339		(6.8	)

		As of								As of
		9/30/2016			9/30/2015			% Change		9/30/2016			12/31/2015		% Change
Book Value Per Share		$	38.41		$	38.92		(1.3	)	$	38.41		$	38.84	(1.1	)
Tangible Book Value Per Share		$	25.73		$	26.29		(2.1	)	$	25.73		$	26.13	(1.5	)

(1)	Attributable to Oppenheimer Holdings Inc.
(2)	Amounts have been recast for discontinued operations.
*	Not comparable

The U.S. equities markets performed well during the third quarter of 2016 with the S&P 500 returning 3.3%. Much of the gains during the quarter came in July following the market reaction in response to the Brexit vote. Uncertainty continues around global economic growth, China's economy, and the upcoming elections in the U.S. The 10-Year U.S. Treasury yield ended the period at 1.59% up from 1.49% at the end of the second quarter of 2016, reflecting an increased likelihood of the Federal Reserve increasing short-term interest rates by year end.

Albert G. Lowenthal, Chairman and CEO, commented, "Operating results for the period continued to reflect the extremely challenging environment. These challenges included uncertainty around global economic growth, the implications of Brexit, as well as the domestic political environment which collectively weighed on investor confidence. Closer to home, the financial services industry and the Company are facing changes in investor behavior and the accelerating transition from a transaction-based commission model to a fee-based model. The Company is well prepared for this transition as it has offered a fee-based alternative for over a decade. Asset management fees were approximately 55% of our Wealth Management revenues for the nine-month period ended September 30, 2016. The reduction in transaction-based commissions has had a negative impact on the Company's operating results in recent quarters. The lackluster environment also was reflected in lower equity underwriting activities during the period. M&A activity increased during the quarter in both our U.S. and European banking businesses with the pipeline of business looking promising for the fourth quarter of 2016.

During the quarter we continued the build out of our technology platform in our managed product business as well as other technology initiatives that will result in better information and control over our business as the compliance requirements for the investment community continue to evolve. The Company believes that its readiness efforts around implementing the new Department of Labor Fiduciary Rules will position it well as the first phase of the rules go into effect in the second quarter of 2017. During the quarter, the Company also substantially completed the sale of assets of its Oppenheimer Multifamily Housing and Healthcare Finance Inc. business."

Financial Highlights


•	Commission revenue was $90.0 million for the third quarter of 2016, a decrease of 11.1% compared with $101.2 million for the third quarter of 2015 due to reduced transaction volumes from retail investors and a lower financial adviser headcount during the third quarter of 2016.


•	Advisory fees were $67.5 million for the third quarter of 2016, a decrease of 3.0% compared with $69.6 million for the third quarter of 2015 due to a lower level of client assets under management.


•	Investment banking revenue increased 22.6% to $20.3 million for the third quarter of 2016 compared with $16.5 million for the third quarter of 2015 due to higher merger and acquisition advisory fees offset by lower equity underwriting income during the third quarter of 2016.


•	Principal transactions revenue increased 113.2% to $4.9 million during the third quarter of 2016 compared with $2.3 million for the third quarter of 2015 as increases in corporate bonds, equities, and firm investments were offset by decreases in municipal and agency bonds as well as the change in the value of auction rate securities.



Business Segment Results (Unaudited)
('000s)
		For the 3-Months Ended								For the 9-Months Ended
		9/30/2016			9/30/2015			% Change		9/30/2016			9/30/2015			% Change
Revenue
	Private Client	$	127,835		$	122,324		4.5		$	376,737		$	396,039		(4.9	)
	Asset Management	23,234			23,849			(2.6	)	68,978			73,654			(6.3	)
	Capital Markets	60,703			60,585			0.2		187,292			202,282			(7.4	)
	Corporate/Other	32			720			(95.6	)	5,827			637			814.8
		211,804			207,478			2.1		638,834			672,612			(5.0	)
Income (Loss) Before Income Taxes from Continuing Operations
	Private Client	20,137			14,905			35.1		50,799			45,064			12.7
	Asset Management	9,380			7,563			24.0		21,851			23,250			(6.0	)
	Capital Markets	(1,103		)	(2,016		)	(45.3	)	(3,856		)	8,342			*
	Corporate/Other	(30,224		)	(23,025		)	31.3		(83,190		)	(74,516		)	11.6
		$	(1,810	)	$	(2,573	)	(29.7	)	$	(14,396	)	$	2,140		*

*	Not comparable

Private Client

Private Client reported revenue of $127.8 million for the third quarter of 2016, 4.5% higher than the third quarter of 2015 due to higher fees earned on client deposits in the FDIC-insured bank deposit program and positive changes in the cash surrender value of Company-owned life insurance offset by lower retail commissions during the third quarter of 2016. Income before income taxes was $20.1 million for the third quarter of 2016, an increase of 35.1% compared with the third quarter of 2015 due to the aforementioned FDIC-insured bank deposit fees during the third quarter of 2016.


•	Client assets under administration were $79.7 billion at September 30, 2016 compared to $78.7 billion at December 31, 2015, an increase of 1.3%.

•

Financial adviser headcount was 1,177 at the end of the third quarter of 2016 (1,199 at the end of the second quarter of 2016), down from 1,262 at the end of the third quarter of 2015. The decline in financial adviser headcount has been a result of the Company's attention to productivity and compliance leading to attrition for less productive financial advisers and the elimination of financial advisers who could lead to future compliance-related issues. The decline in headcount has been also related to retirements and normal attrition. The Company expects a further reduction in headcount as the Company addresses the Department of Labor's new overtime rules for exempt employees which go into effect in the fourth quarter of 2016.


•	Retail commissions were $54.4 million for the third quarter of 2016, a decrease of 9.0% from the third quarter of 2015 due to reduced transaction volumes from retail investors and a lower financial adviser headcount during the third quarter of 2016.


•	Advisory fee revenue on traditional and alternative managed products was $45.2 million for the third quarter of 2016, a decrease of 4.0% over the third quarter of 2015 (see Asset Management below for further information).


•	Fees earned on client cash deposits in the FDIC-insured bank deposit program were $9.6 million during the third quarter of 2016 versus $3.3 million for the third quarter of 2015. The increase primarily was due to higher short-term interest rates during the third quarter of 2016.

Asset Management

Asset Management reported revenue of $23.2 million for the third quarter of 2016, 2.6% lower than the third quarter of 2015. Income before income taxes was $9.4 million for the third quarter of 2016, an increase of 24.0% compared with the third quarter of 2015.

•

Advisory fee revenue on traditional and alternative managed products was $22.3 million for the third quarter of 2016, a decrease of 0.4% over the third quarter of 2015. Advisory fees are calculated based on the value of client assets under management ("AUM") at the end of the prior quarter which totaled $24.3 billion at June 30, 2016 ($25.6 billion at June 30, 2015) and are allocated to the Private Client and Asset Management business segments.


•	AUM increased 3.8% to $24.6 billion at September 30, 2016 compared to $23.7 billion at September 30, 2015, which is the basis for advisory fee billings for the fourth quarter of 2016. The increase in AUM was comprised of asset appreciation of $1.2 billion and net redemption of assets of $0.3 billion.

Capital Markets

Capital Markets reported revenue of $60.7 million for the third quarter of 2016, relatively flat compared with the third quarter of 2015. Loss before income taxes was $1.1 million for the third quarter of 2016, a decrease of 45.3% compared with a loss before income taxes of $2.0 million for the third quarter of 2015.


•	Institutional equities commissions decreased 14.7% to $25.0 million for the third quarter of 2016 compared with the third quarter of 2015 due to lower levels of portfolio activity by institutional clients.


•	Advisory fees from investment banking activities increased 170.8% to $13.0 million in the third quarter of 2016 compared with the prior year quarter due to an increase in completed mergers and acquisitions activity during the third quarter of 2016.


•	Equity underwriting fees decreased 46.2% to $3.5 million for the third quarter of 2016 compared with the prior year quarter due to a significant decrease in equity issuances leading to reduced equity underwriting activity during the third quarter of 2016.


•	Revenue from Taxable Fixed Income was $14.4 million for the third quarter of 2016, relatively flat compared with the third quarter of 2015.


•	Public Finance and Municipal Trading revenue decreased 46.4% to $3.0 million for the third quarter of 2016 compared with the third quarter of 2015.

Discontinued Operations

During the second and third quarter of 2016, the Company substantially completed the dissolution of its Oppenheimer Multifamily Housing and Healthcare Finance Inc. subsidiary. The following table is a summary of revenue and expenses from discontinued operations for the three and nine months ended September 30, 2016 and 2015:



		For the 3-Months Ended						For the 9-Months Ended
(Expressed in thousands)		9/30/2016			9/30/2015			9/30/2016			9/30/2015
Revenue
	Interest	$	112		$	625		$	921		$	1,674
	Principal transactions, net	(2,380		)	(5,648		)	(9,008		)	2,579
	Other	4,073			11,081			31,547			21,160
	Total revenue	1,805			6,058			23,460			25,413
Expenses
	Compensation and related expenses	573			3,432			4,225			10,108
	Communications and technology	40			79			201			275
	Occupancy and equipment costs	37			75			399			225
	Interest	28			313			408			853
	Other	239			1,113			2,630			5,138
	Total expenses	917			5,012			7,863			16,599
Income before income taxes		888			1,046			15,597			8,814
Income taxes		475			687			6,235			3,847
Net income from discontinued operations		$	413		$	359		$	9,362		$	4,967

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 $142.3 million during the third quarter of 2016, an increase of 2.1% compared to the third quarter of 2015. The increase was due to higher incentive, share-based compensation, and deferred compensation expenses offset by lower production-related expenses during the third quarter of 2016. Compensation and related expenses as a percentage of revenue was 67.2% during the third quarter of 2016 compared to 67.1% during the third quarter of 2015.

Non-Compensation Expenses

Non-compensation expenses were $71.3 million during the third quarter of 2016, an increase of 0.8% compared to the same period in 2015 as higher communications and technology costs were offset by lower occupancy and equipment costs during the third quarter of 2016.

Income Taxes

The effective income tax rate from continuing operations for the third quarter of 2016 was 41.5% compared with 55.8% for the third quarter of 2015. The effective income tax rate during the third quarter of 2016 was impacted by the valuation allowance established on deferred tax assets related to net operating losses of a foreign subsidiary offset by the release of reserves taken on uncertain tax positions.

Balance Sheet and Liquidity


•	At September 30, 2016, total equity was $516.0 million compared with $525.1 million at December 31, 2015.


•	At September 30, 2016, book value per share was $38.41 (compared with $38.84 at December 31, 2015) and tangible book value per share was $25.73 (compared with $26.13 at December 31, 2015).


•	The Company’s level 3 assets, primarily auction rate securities, were $91.2 million at September 30, 2016 (compared with $96.2 million at December 31, 2015). The decrease in level 3 assets was primarily due to decreases in interest rate lock commitments offset by increases in auction rate securities.

Dividend Announcement

The Company today announced a quarterly dividend in the amount of $0.11 per share payable on November 25, 2016 to holders of Class A non-voting and Class B voting common stock of record on November 11, 2016.

Oppenheimer (OPY) 8-KResults of Operations and Financial Condition