Siebert Financial Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Figures are unaudited. Siebert operates brokerage, advisory, insurance, technology and prime brokerage businesses; it reports one operating segment.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $14.336 million | $17.051 million | $36.367 million | $52.768 million |
| Income (loss) before tax | $1.440 million | $1.135 million | $(0.451) million | $6.058 million |
| Net income | $0.967 million | $0.870 million | $0.385 million | $4.574 million |
| Net income available to common shareholders | $1.052 million | $0.870 million | $0.790 million | $4.574 million |
| Basic and diluted earnings per share | $0.03 | $0.03 | $0.02 | $0.15 |
Cash flow: For the nine months, operating activities used $28.657 million, compared with $5.352 million provided in 2021. Investing activities used $1.264 million and financing activities used $1.041 million. Cash and cash equivalents plus regulatory cash and securities decreased $30.962 million to $299.622 million; only $4.489 million was unrestricted cash and cash equivalents.
Balance sheet and liquidity: At September 30, total assets were $1.025 billion, total liabilities $970.901 million and total equity $54.246 million. Assets and liabilities fell $379.088 million and $382.828 million, respectively, from year-end 2021, mainly reflecting lower securities-borrowed, securities-loaned and customer balances. Debt included a $4.386 million mortgage, $2.909 million bank line and $3.250 million related-party notes. The company reported compliance with debt covenants. A separate $25 million overnight borrowing facility was available and undrawn.
Margins: The filing does not provide a headline operating-margin measure. Q3 total expenses were $12.748 million; nine-month expenses were $36.885 million.
Material changes versus comparable periods
- Nine-month revenue declined 31% to $36.367 million. Commissions and fees fell $9.409 million, and principal transactions and proprietary trading fell $10.512 million, reflecting lost RISE institutional customers and market conditions.
- Q3 revenue fell $2.715 million year over year, but Q3 net income rose to $0.967 million from $0.870 million. Lower compensation and clearing costs helped offset lower trading-related revenue.
- Stock borrow/stock loan revenue increased to $11.909 million for nine months from $7.552 million; interest, marketing and distribution fees were broadly stable at $10.717 million.
- The company recorded $4.189 million of nine-month unrealized losses on its U.S. government securities portfolio as yields rose. Management intends to hold the securities to maturity, with the latest maturity in August 2024.
- Retail customer accounts increased to 120,929 from 115,380 at year-end 2021, while retail customer net worth declined to $12.8 billion from $16.8 billion. Retail trades fell to 285,418 for nine months from 348,608.
Outlook, commentary, risks and unusual items
- No numerical earnings or revenue guidance was provided. Management said it believes operating cash flow, cash, borrowing capacity and capital-market access will be sufficient for foreseeable operating, investing and financing needs.
- Management said RISE’s future strategy is under assessment; the plan is untested and may not attract enough customers or revenue. The former GSCO clearing arrangement ended, and the company does not expect JonesTrading referral income to offset lost customer contribution.
- In September, Siebert and a technology partner terminated their service agreements. The partner returned 193,906 shares and agreed to pay $950,000; $475,000 remained receivable at quarter-end. Siebert recognized the payment in other income and wrote off $532,000 of prepaid service costs. The company also began a new retail trading-platform development relationship.
- In October 2022, Siebert agreed to exchange its 7% Tigress interest for Tigress’s RISE ownership and agreed to unwind its Hedge Connection investment and related arrangements. The remaining $250,000 Hedge Connection note was cancelled. Management was assessing the impact, which could include a material one-time charge.
- Interest-rate increases can benefit interest revenue but may raise funding costs or reduce earnings on interest-earning assets. Market declines, customer/counterparty defaults, regulatory requirements and market volatility are additional risks.
- A FINRA investigation involving StockCross UIT transactions remains pending; management could not assess its likely outcome, and sanctions or customer restitution could be material. Early termination of the NFS clearing agreement could trigger fees of $7.25 million, $4.5 million or $3.25 million depending on timing; management considered material payment unlikely and recorded no liability.
Most important facts for investors to verify
- Whether the October RISE, Tigress and Hedge Connection transactions result in a material charge, and how they affect ownership, control and future RISE economics.
- Whether Siebert can sustain earnings as institutional-related revenue remains lower and the new RISE strategy develops.
- The realization and timing of the $4.2 million government-securities unrealized loss, and any effect of further rate increases.
- Cash-flow trends and the distinction between unrestricted cash and customer/regulatory-segregated funds.
- Developments in the FINRA investigation, debt covenant compliance and potential NFS termination exposure.