Oppenheimer Holdings Inc. (OPY) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Oppenheimer Holdings, Inc. [Operator Instructions] It is now my pleasure to turn today's meeting over to Albert Lowenthal, Chairman and CEO of Oppenheimer Holdings, Inc. Mr. Lowenthal, the floor is yours.

Thank you. Good afternoon, ladies and gentlemen. I want to welcome you to the 2023 Annual Meeting of Oppenheimer Holdings, Inc. This meeting is again to be held virtually. I am Bud Lowenthal, and I will be chairing the meeting. It is now 4:30 p.m., and I would ask that the meeting come to order. I asked Mr. Dennis McNamara, the Secretary of the Corporation, to act as Secretary of the meeting and Ms. Ericka Ortiz-Indart of Computershare Shareholder Services, our transfer agent, to act as Inspector of Election. Ms. Ortiz-Indart has executed an affidavit to execute her duties as the inspector faithfully. I direct that the secretary attach the affidavit to the minutes of the meeting. The meeting will first address the formalities as described in our recent proxy statement. We have posted to our virtual meeting site a copy of our recent proxy statement and our annual report for the 2022 fiscal year, consisting of the annual report and the SEC Form 10-K. And I hope that each of you had an opportunity to review them. The first order of business today will be to address the meeting's formalities, after which I will make a presentation and answer questions. The notice calling this meeting, together with the proxy statement, was mailed to stockholders on March 20, 2023. I have before me an affidavit of mailing of William Valentin of Computershare relating to the proof of mailing of the notice calling this meeting and the proxy statement, in accordance with the bylaws of the Corporation, and I direct that this affidavit of mailing be filed with the minutes of this meeting. I have before me a certified list of the holders of the Class B voting stock at the close of business on March 10, 2023, the record date fixed by the Board of Directors for the purpose of determining the stockholders entitled to vote at this meeting, which has been certified by Sharon Barton of Computershare Shareholder Services, our transfer agent. The list indicates that there are 99,665 shares of Class B voting common stock entitled to vote at this meeting. The list will be open for inspection by any stockholder of the corporation for the duration of this meeting. The Inspector of Elections report has now been received. The number of shares of Class B voting common stock represented in person by stockholders at this meeting is 0. The number of shares of Class B voting common stock represented by proxies received from stockholders is 97,746, being a sufficient representation for a quorum. The total number of shares of Class B voting common stock represented at the meeting represent approximately 98% of the issued and outstanding Class B voting common stock of the corporation. Legal notice of the meeting having been given and a quorum being present, I now declare the meeting lawfully called and convened, and ready for the transaction of business. I propose to proceed with the formalities of this meeting before addressing you with respect to the year ended December 31, 2022, and the current year, and answering any questions you may have. The first order of business is the nomination and election of directors. The nominating Corporate Governance Committee in accordance with its charter has recommended that the 9 persons named in the proxy statement, all of whom currently serve as directors, be nominated. I now will ask a holder of Class B voting shares to nominate the slate of nominees named in the proxy statement for election as directors of the corporation.

I nominate the following persons for election as members of the Board of Directors of the corporation to serve until the next Annual Meeting of Stockholders and until their successors have been elected and qualified. Evan Behrens, Tim Dwyer, William Ehrhardt, Paul Friedman, Tessa (sic) [ Teresa ] Glasser, Albert Lowenthal, Robert Lowenthal, [ Weman ] (sic) [ A. Winn ] Oughtred, Larry Roth.

Is there a second to the motion?

I second the motion.

Are there any other nominees? If not, I will entertain the motion that nominations be closed.

I move that nominations be closed.

Is there a second to the motion?

I second the motion.

Each holder of class -- of shares of Class B voting common stock entitled to vote will have the right to vote -- to 1 vote for each share recorded in his or her name. The 9 nominees for director receiving the highest number of votes shall be elected. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the Vote button on your screen now. [Voting]

The inspector's report having been filed, I report on the voting as follows: each of the 9 nominees for director has been elected to serve as Director of the Corporation until the next Annual Meeting of Stockholders or until his or her respective successor has been elected and qualified, each nominee having received at least 97,350 votes in favor of his or her election. I now propose to move to the ratification of the appointment of auditors for this fiscal year. The Audit Committee of your Board of Directors has, pursuant to its charter, the sole authority and responsibility to appoint independent directors -- independent auditors for ratification by the stockholders. The Audit Committee has selected Deloitte & Touche LLP for appointment as the corporation's independent registered public accounting firm for 2023. Accordingly, I request that a holder of Class B voting common stock move that the selection by the Audit Committee of Deloitte & Touche LLP as the corporation's auditors for the 2023 fiscal year be ratified.

I move that Deloitte & Touche LLP be appointed as the corporation's independent registered public accounting firm for the corporation's 2023 fiscal year, at a remuneration to be fixed by the Audit Committee.

Is there a second to the motion?

I second the motion.

Each holder of shares of Class B voting common stock entitled to vote will have the right to 1 vote for each share recorded in his or her name. To pass, this matter requires the approval of a simple majority of the votes cast by the holders of Class B voting stock represented in person or by proxy at this meeting. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the Vote button on your screen now. [Voting]

The inspector's report having been filed, I report that the appointment of Deloitte & Touche LLP as the corporation's independent registered public accounting firm for the corporation's 2023 fiscal year, at a rate of remuneration to be set by the Audit Committee, has been ratified, having received 97,746 shares -- votes in favor of the proposal. I now propose to move to the say-on-pay proposal. I will now ask a holder of Class B voting stock to move the approval, on an advisory nonbinding basis, of the 2022 compensation paid to Oppenheimer Holding, Inc.'s named executives, including the compensation discussion and analysis, compensation tables, and narrative discussions set forth in the proxy statement.

Mr. Chairman, I move that the 2022 compensation paid to Oppenheimer Holdings, Inc.'s named executive officers, as disclosed pursuant to the Securities and Exchange Commission's compensation disclosure rules, including the compensation discussion and analysis, compensation tables and narrative discussions set forth on Pages 38 to 56 of the corporation's proxy statement, be approved.

Is there a second to the motion?

I second the motion.

Each holder of shares of Class B voting common stock entitled to vote will have the right to 1 vote for each share recorded in his or her name. To pass, this resolution requires the approval of a simple majority of the votes cast by the holders of Class B voting stock represented in person or by proxy at this meeting. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the Vote button on your screen now. [Voting]

The inspector's report having been filed, I report that the advisory nonbinding vote on 2022 executive compensation has been approved, having received 97,344 votes in favor of the proposal. I now propose to move to the say when on pay proposal. I will now ask a holder of Class B voting stock to move the approval on an advisory nonbinding basis that the frequency of a stockholder vote on executive compensation be held every 3 years.

Mr. Chairman, I move that an advisory nonbinding proposal that the frequency of a stockholder vote on compensation of the corporation's executives to be named in the corporation's proxy statement be held every 3 years, be approved.

Is there a second to the motion?

I second the motion.

Each holder of shares of Class B voting common stock entitled to vote will have the right to 1 vote for each share recorded in his or her name. To pass, this resolution requires the approval of a simple majority of the votes cast by the holders of Class B voting stock represented in person or by proxy at this meeting. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the Vote button on your screen now. [Voting]

The inspector's report having been filed, I report that the advisory nonbinding vote on the frequency of a stockholder vote on executive compensation every 3 years has been approved, having received 97,340 votes in favor of the proposal. I now propose to move to the approval of an amendment to the corporation's 2014 incentive plan as described in the proxy statement. I will now ask a holder of Class B voting stock to move the approval of the amendment to the corporation's 2014 incentive plan, providing for the issue of up to 1,250,000 shares of Class A stock as described in the proxy statement.

Mr. Chairman, I move that the amendment to the corporation's 2014 incentive plan as described in the proxy statement, providing for the issue of up to 1,250,000 shares of Class A stock be approved, ratified and confirmed, and the proper officers and directors of the corporation be authorized and directed to take all such action and execute all such documents as are necessary to implement the terms of the foregoing resolution.

Is there a second to the motion?

I second the motion.

Each holder of shares of Class B voting common stock entitled to vote will have the right to 1 vote for each share recorded in his or her name. To pass, this matter requires the approval of a simple majority of the votes cast by the holders of Class B voting stock represented in person or by proxy at this meeting. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the Vote button on your screen now. [Voting]

The inspector's report having been filed, I report that the amendment of the corporation's 2014 incentive plan as described in the proxy statement, providing for the issue of up to 1,250,000 shares of Class A stock, has been approved and the proper officers and directors of the corporation have been authorized and directed to take all such action and execute such documents as necessary to implement the terms of the foregoing resolution, such proposal having received 97,344 votes in favor thereof. Is there any additional business to properly come before the meeting? There being no additional business, I ask that a holder of Class B voting common stock move that the meeting be adjourned, subject to the presentation of the business presentation to take place shortly.

I move that the meeting be adjourned.

Is there a second to the motion?

I second the motion.

All in favor, say aye.

Aye.

Aye.

I declare the meeting adjourned. I'll now begin a presentation of the business of the corporation for 2022 as well as for the current year 2023. Continue and move to Slide #4? So to begin the meeting, I would just like to present to our shareholders our new brand campaign that began just 10 days ago, which emphasizes the power of Oppenheimer thinking. It will begin -- it was begun with a full page ad, appearing in Barron's and after that in the Wall Street Journal. A sample of the ad is shown on the presentation. And as the months go on, you will see presentations in Barron's, the Wall Street Journal, Bloomberg Radio as well as CNBC. As you know, Oppenheimer is a leading investment bank and full-service investment firm. The 2 lines of business that we're principally in are wealth management, providing services to private clients and asset management solutions tailored to individuals' unique financial objectives. The second line of business is our capital markets business, which includes our investment banking as well as trading in both equity and fixed income securities for institutions and corporations. In the pie chart, you will see that during 2022, our revenue was $1.110 billion, with Capital Markets representing 30% of that business, $337 million, and Wealth Management representing 70% or $775 million. And shareholders' equity at March 31 was $800 million, and our book value reached a new record of $72.27. Our basic earnings for the first quarter were $1.32 per share and our P/E ratio was 11.38 compared to 15.28 at the end of December of 2022. At March 31, we had a total of 2,793 employees, of which 959 were financial advisers working out of 92 retail branches throughout the United States. I'm pleased to say that we had an increase in our client assets under administration reaching $108.9 billion at March 31, and our assets under management in our fee-based programs totaled $39.3 billion as of the end of the first quarter. As you will see on this map of the United States, you can see where our branch offices are located as we have 92 retail branches throughout the United States. Overall, we have 2,800 employees, made up of 959 of financial advisers, 185 institutional sales professionals and 38 senior research analysts, operating out of 6 offices, including London, Geneva, St. Helier on the Isle of Jersey, Munich, Germany, Tel Aviv, Israel and Hong Kong. During 2022, amid declining markets and Fed rate increases which temporarily closed down the capital markets, we thought that our business held up relatively well. Our revenue was $1.1 billion with net income of $32.4 million and basic earnings per share of $2.77 for the full year of 2022. Our compensation expense as a percentage of total revenue was up to 66.7% compared to 63.6% during the boom year of 2021. During the year, we repurchased a total of 1 million 684 million -- 684,000 shares of our Class A nonvoting common stock, as we thought that they represented good value for all of our shareholders. As you can see from the table, our overall revenue was down 20.3% for the year, and our earnings also had a steep decline where we earned $2.77 per share compared to $12.57 during the boom year of 2021. During the first quarter, we were pleased with our results overall, although there were some issues related to the closing down of capital markets again during the first quarter. Our commissions overall were $86.6 million, compared to $98 million during the same quarter of 2022. But one bright spot that we had was our bank deposit sweep income which reached $49 million compared to $4.3 million in the same period of -- in the first quarter of March of 2022. Overall, our revenue for the first quarter was $321,679,000 compared to $266 million for the first quarter of 2022, an increase of 20.9%. From an earnings standpoint, we earned $14,617,000 compared to $9.2 million during 2022, for a 57% increase. Our earnings per share were $1.32 compared to $0.75 during March 31, '22's first quarter, a 76% increase. During the first quarter, the company repurchased 95,055 shares of Class A nonvoting stock, again, a period during which we thought it offered uncommon value to the shareholders. Our book value, intangible book value per share increased from the prior year, largely as a result of the share repurchase as well as positive earnings. As you can see, during the pandemic -- and I'm now in the below left-hand corner, the pandemic propelled our equity markets, and Fed fiscal policies and spending drove our earnings from $4.10 in 2019 to $9.73 in 2020 and $12.57 during 2021. With the rapid increase of interest rates, you can see the significant decline we had during the fiscal period of 2022, although we had some recovery in the first quarter of 2023. At the end of the first quarter of 2023, our total shareholders' equity equaled $800.4 million. On this slide representing the movement of our equity share price, you can see the significant decline in recent weeks, as our stock price was impacted by the failure of several very large midsized banks, SVB and FRC, which impacted all of the financial sector. As at March 31, 2023, we had total assets of $2,920,000,000 and shareholders' equity of $800 million. Our long-term debt was $113 million, with a total capitalization of $913 million available for use by the company. Our debt-to-equity ratio was an enviable 14.1%, and our gross leverage ratio was down to 3.6x. Another key determinant of our success is our regulatory net capital was $440 million at the end of March. Our regulatory excess net capital was $418 million, well in excess of our requirements. Our book value and tangible book value were $72.27 for book value per share and $56.92, a new record for our tangible book value. We've been very active in the last several years with corporate buyback activity, with 718,000 shares purchased in 2020, going down to 177,000 in 2021, a total of 1,685,000 in 2022 and then again, 95,000 in the first quarter of 2023. We continue to purchase our stock when we think it is attractive. And as you can see, in 2022, the average price of our purchases were $36 and in the first quarter of 2023, the average price paid was $38.79. At the end of the first quarter, we had a total of 11.1 million shares outstanding. Key to our business and our Wealth Management business are interest and fee revenue. At the end of the first quarter, we had $4.4 billion of insured bank deposits in our FDIC program. The sweep income for the trailing 12 months ending 3/31 was a significant increase from any prior period at $149 million, as a result of rising interest rates induced by Fed increases in the discount rate throughout the period. Our average customer debit [ balance ] margin debits was $1.215 billion for the trailing 12 months ending 3/31/23, with our margin interest revenue totaling $61.3 million for the same period. You can see from the bar chart below the significant increase in revenues from both interest and fee revenue. In the next chart, we show our segment revenue breakdown for both 2022 versus the full year of 2021. As you can see, our revenue overall was down. 2021, we had revenue of $1.394 billion, whereas in 2022 it was $1.111 billion. Sweep income, as I just mentioned, was significant, going from $44.8 million during the calendar year 2021 to $156.4 million during 2022. Our pretax income broken down by segment shows for our Private Client Division, pretax income of $101 million for 2021 and for 2022 $142.3 million, where we give credit to our Private Client Division for our sweep income. Our asset management business was about flat for the 2 periods compared. In 2021, we had a historically good year in capital markets, with $204 million of pretax income compared to a loss in 2022 of $25.7 million as a result of the near closedown of capital markets due to the increase in interest rates induced by the Fed. In the next slide, we show you first quarter of '23 versus first quarter of 2022. Again, sweep income was significant, showing $48.9 million of income and revenue in the first quarter of 2023 compared to a mere $4.4 million during 2021 -- 2022, excuse me. Looking at the various segments. As you can see, the pretax income in the first quarter of 2022 was $24.1 million in our wealth -- Private Client and Wealth Management business compared to $94.5 million (sic) [ $54.5 million ] in the first quarter of 2023. Our asset management revenue and income contribution was $9.5 million in 2022, and $6.5 million in 2023 due to a lesser amount of assets under management during the period. In Capital Markets in the first quarter of 2022, we had $1.2 million of contribution compared to a loss of $15.5 million in the first quarter of '23. The loss in 2023 was largely a result of increased compensation costs, [ related to ] revenues based on annualized revenue expectations, which may or may not be spent as the year goes on. Talking about our Wealth Management platform. It's comprised of our retail services, where we have full-service brokerage, financial planning, retirement services, corporate executive service as well as trust services, as well as margin & securities lending. On the advisory side, we have asset allocation, portfolio construction, research, diligence, portfolio monitoring and reporting. Then finally, our alternative asset management, where we offer up hedge funds and fund of funds and private equity to our wealth management clients. During 2022, the Wealth Management segment produced revenue of $775 million compared to $770 million in 2021. In the first quarter of '23, it offered up $227 million of revenue compared to $178 million in 2022. As you can see, for the full year of 2022, we had 180 -- $108.4 million of client assets per financial adviser, whereas we had an increase of $113 million in the first quarter of 2023. Our wealth management profit margin showed a significant increase from 18.9% in the first quarter of 2022 to 26.8%, a new record in the first quarter of 2023. Moving on to our wealth management metrics. As you can see from this bar chart and the line drawing across it, our fee-based business becomes more and more important to the overall success of the Wealth Management business, reaching 68.1% of total revenues in the trailing 12 months ending March of 2023. Our client assets under custody was $108.9 billion at the end of the first quarter of 2023, and our client assets under management was $36.8 billion, which represented -- in 2022, and at the end of the first quarter of 2023 was $39.3 billion, representing a combination of new accounts as well as a market improvement during the period. In Capital Markets, it consists of 3 distinct businesses, our institutional equity business, our investment banking business and our fixed income business, but each of these are interdependent. In our institutional equity business, we have 35 senior research analysts covering 600 companies. They also conduct corporate access events, conferences and NDRs on a regular basis for our institutional clients. In our Investment Banking business, we have expertise in mergers and acquisitions, equity capital markets, debt capital markets, restructuring and special situations. On the fixed income side, we have taxable fixed income, which comprises both domestic U.S. taxable fixed income, municipal taxable fixed income as well as our international business, as well as our trading of municipal securities in our public finance division. In the first quarter of 2023 compared to the first quarter of 2022, Investment banking revenues were actually up 10%, our Sales & Trading revenues were up 3.4% and regrettably, our Compensation expense was up 24 - 5 - 27.5% as we accrued for year-end bonuses, which may or may not be paid depending on the results for the rest of the year. In Investment Banking, we have particular industries under focus. One is health care, technology, consumer and retail, transportation & logistics, finance and real estate, and finally, the energy sector. Which brings me to a summary of both the opportunities and a review of what we've had in the past. Our operating results for 2022 reflected the diverse nature of our business, with strength in our interest-sensitive revenues partially offset by lower underwriting, advisory and transaction-based fees when compared to 2021. During the first quarter of '23, we continued to benefit from the rising interest rate environment, which drove near-record quarterly revenue for the Private Client segment due to strong sweep and margin interest income. Our balance sheet remains well capitalized, with low overall leverage and regulatory capital far in excess of the required minimums. During -- throughout this period, we opportunistically took advantage of periodic dips in our share price to purchase approximately 1.7 million and then 95,000 nonvoting shares in the full year ending 2022 as well as the first quarter of 2023. Looking forward, the company is well positioned to provide client advice through challenging market conditions and repricing of asset classes based on uncertainty in interest rates, inflation, oil prices and foreign trade relationships. We will continue to pursue both organic and inorganic growth opportunities in our core businesses, while continuing to look at independent channel in the wealth management sector. Our interest rate-sensitive businesses are poised to continue to do well in a rising interest rate environment, which lends itself to both margin lending and bank sweep income. We will continue to opportunistically pursue hiring qualified candidates across the platform, including both wealth management and capital markets. With that, I conclude my remarks for the period of 2022 and 2023 and would ask for a motion to close the meeting.

I'll make a motion to close the meeting.

Do we have any questions, Mr. McNamara?

No, we have no questions, Mr. Chairman.

Thank you for your attendance at our meeting today.

This concludes the meeting. You may now disconnect.