Siebert Financial Corp. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Siebert operates a retail discount brokerage business and an investment advisory business. The interim financial statements are unaudited.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $2.379 million | $2.498 million; down 4.8% |
| Expenses | $2.321 million | $2.999 million; down 22.6% |
| Net income (loss) | $58,000 | $(501,000) |
| Net margin | Approximately 2.4% | Approximately (20.1%) |
| Operating cash flow | $(468,000) | $(1.256) million |
| Cash and cash equivalents, March 31 | $2.047 million | $2.730 million at December 31, 2016 |
| Total assets / liabilities, March 31 | $3.398 million / $284,000 | $3.816 million / $1.563 million at December 31, 2016 |
Cash decreased by $683,000 during the quarter, including $215,000 used for furniture, equipment and leasehold improvements. The filing reports no debt balance; it does not provide a separate debt metric. MSCO reported regulatory net capital of approximately $2.5 million, $2.27 million above its $250,000 minimum. The company described $2.0 million, or 60% of assets, as highly liquid.
Changes versus Q1 2016
- Revenue declined $119,000. Commissions and fees fell 2.2% to $1.183 million; margin interest, marketing and distribution fees rose 24.4% to $1.080 million, primarily attributed to rising interest rates.
- Trading profits fell 58.8% to $109,000, which management attributed to lower customer trading volume in debt markets. Interest and dividend income declined to $2,000 from $143,000, largely because notes had been distributed to the former majority shareholder in 2016.
- Expenses fell $678,000, attributed to streamlining. Compensation decreased 19.2% and professional fees decreased 36.5%; clearing fees rose 10.5%, primarily with increased retail trading volume.
- Retail trades increased to 59,370 from 52,697, while average commission per trade declined to $20.01 from $21.68. Customer margin debit balances fell to $205 million from $247 million; customer net worth rose to $7.3 billion from $6.8 billion.
Outlook, risks and unusual items
No formal guidance or quantified outlook is provided. Management said cash and working capital were sufficient to service operations and noted that market activity, interest rates, securities volumes and prices, and demand for brokerage services can affect profitability; fixed expenses may pressure results during periods of lower activity.
Q1 2017 net income included approximately $233,000 of non-recurring expenses, primarily for relocating the call center and staff reductions. A former employee’s FINRA arbitration was settled in February 2017 for $825,000; the control entity paid the settlement, and the balance sheet showed no accrued settlement liability at March 31. The control entity also paid $803,000 of company obligations, treated as a capital contribution. The company recorded no tax benefit because of a full valuation allowance against deferred tax assets.
Risks include customer or counterparty failure to meet obligations on unsettled transactions, market and interest-rate changes, competition, operational system failures, trading errors, and regulatory capital requirements. The filing reports no material unsettled-transaction losses and no material changes to the risks in the 2016 Form 10-K. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the lower expense base and return to profitability can be sustained after the disclosed restructuring and relocation costs.
- Whether rising margin-interest revenue can offset pressure from lower average commissions and trading profits.
- The source, timing and ongoing implications of the control entity’s $803,000 capital contribution and payment of the $825,000 settlement.
- Liquidity and regulatory net capital levels, particularly given the quarter’s operating cash outflow and capital expenditures.