Siebert Financial Corp. — Q1 2012 Form 10-Q
Business context and period: The company provides brokerage and investment-banking services through Muriel Siebert & Co. and holds interests in municipal-underwriting and related affiliates. This unaudited report covers the three months ended March 31, 2012, compared with Q1 2011. Management cautions that quarterly results may not indicate full-year performance.
Financial results and position
| Metric | Q1 2012 / March 31, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $6.553 million | $5.503 million in Q1 2011; up 19.1% |
| Net income (loss) | $625,000; $0.03 per share | Loss of $2.004 million; loss of $0.09 per share in Q1 2011 |
| Total expenses | $5.762 million | $6.412 million in Q1 2011; down 10.1% |
| Cash flow from operations | $(416,000) | $369,000 provided in Q1 2011 |
| Cash and cash equivalents | $20.545 million | $21.167 million at December 31, 2011 |
| Total assets / stockholders’ equity | $34.839 million / $31.843 million | $34.823 million / $31.224 million at December 31, 2011 |
| Regulatory net capital | $18.477 million | $250,000 minimum requirement |
Revenue comprised $5.158 million in commissions and fees, $509,000 in investment banking, $863,000 in trading profits, and $23,000 in interest and dividends. Pre-tax income was $637,000. No debt balance is identified in the presented balance sheet; accounts payable and accrued liabilities were $2.996 million. The company reported $1.532 million of restricted cash equivalents pledged in connection with its SBS facility. Management described approximately $22 million, or 64% of assets, as highly liquid.
Material changes and management commentary
- Commissions and fees rose 30.8%, mainly reflecting higher average commissions per trade, more retail options trading, margin-debit fees, institutional commissions, and commission-recapture revenue. Average retail commission per trade increased to $31.75 from $21.72, while retail trades declined to 103,123 from 114,029.
- Trading profits increased 128.9% to $863,000, primarily on increased customer debt-market trading. Investment-banking revenue fell 56.6% to $509,000 because the company participated in fewer new issues.
- Expenses declined 10.1%. Professional fees fell 44.1%, principally due to lower legal fees related to a former-employee dispute; employee compensation was broadly stable. Branch closures in Florida contributed to lower communications and occupancy costs.
- Equity-investee losses improved to $154,000 from $1.084 million. SBS, in which Siebert owns 49%, reported a $299,000 quarterly loss; Siebert’s share was $146,000. SBSFPC contributed an $8,000 share of loss.
- Retail accounts with positions fell to 44,003 from 48,639 year over year; customer net worth was $6.8 billion versus $7.0 billion. Margin debit balances were $237.0 million versus $237.6 million.
Liquidity, risks, contingencies, and outlook
- Cash declined by $622,000 during the quarter. Operating cash use of $416,000, investing cash use of $200,000, and $6,000 of treasury-share purchases drove the decline. The filing gives no formal earnings or revenue guidance.
- Siebert has a secured demand-note arrangement with SBS, under which it is obligated to lend up to $1.2 million on a subordinated basis; the filing reports a $1.2 million note due from SBS and approximately $1.5 million of restricted cash collateral. The facility expires August 31, 2013.
- A previously accrued $1 million settlement of a Lehman-related class action was paid into escrow during Q1 2012, subject to court approval scheduled for June 21, 2012. The company said possible additional liability relating to non-settling defendants was uncertain.
- A former employee’s arbitration remains unresolved. Management considers the action without merit, but defense costs have affected results and may continue to do so. The company also disclosed ordinary-course claims and customer-counterparty exposure; no material unsettled-customer-transaction losses were reported.
- The company recorded a full valuation allowance against its $3.997 million net deferred tax asset, citing cumulative prior-year losses and uncertainty about realization. Management cited improved market conditions in Q1, while emphasizing sensitivity to market activity, trading volumes, competition, interest rates, and demand for brokerage and underwriting services.
Important facts for investors to verify
- Whether the Lehman settlement receives court approval and whether non-settling defendants create further exposure.
- Progress and cost of the unresolved former-employee arbitration.
- Whether SBS can generate earnings and make distributions; its $7.7 million of undistributed earnings may not be immediately available to Siebert.
- Whether improved revenue and profitability persist despite lower retail trade counts and fewer investment-banking engagements.
- Liquidity availability after accounting for restricted cash, affiliate advances, and regulatory capital requirements.