SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Siebert Financial Corp. for the period ended June 30, 2008. The Company operates as a broker-dealer and investment banking firm, primarily through its subsidiary Muriel Siebert & Co., Inc. The report covers the three and six months ended June 30, 2008, comparing results to the same periods in 2007.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2008 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $7,375,000 | $15,272,000 |
| Net Income | $568,000 | $440,000 |
| Net Income Per Share (Diluted) | $0.03 | $0.02 |
| Total Assets | $46,484,000 | $46,484,000 |
| Cash and Cash Equivalents | $6,699,000 | $6,699,000 |
| Regulatory Net Capital | $28,283,000 | $28,283,000 |
| Operating Cash Flow (6 Months) | $(2,262,000) (Used) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 9.4% for the quarter and 5.8% for the six-month period compared to 2007. This was driven by an 11.7% drop in commissions and fees due to reduced institutional trading and lower average commissions per retail trade.
- Expense Increase: Total expenses rose 10.2% for the quarter and 10.0% for the six-month period. Significant increases were noted in professional fees (up 57.9% QoQ) due to legal fees and system development, and communications expenses (up 61.5% QoQ) related to a new website.
- Profitability Drop: Net income for the six months ended June 30, 2008, fell to $440,000 from $1,701,000 in the prior year period. Income before taxes dropped from $2.9 million to $753,000.
- Equity Investment Income: Income from equity investees (primarily Siebert Brandford Shank & Co., LLC) increased significantly, offsetting some operating declines. Income from SBS rose 249% for the quarter.
- Liquidity Shift: Cash and cash equivalents decreased from $34.6 million at year-end 2007 to $6.7 million at June 30, 2008, largely due to a $24.8 million purchase of Treasury bills.
Outlook, Risks, and Management Commentary
Management Commentary: Management cites a difficult business environment characterized by economic uncertainty, a downturn in real estate and mortgage markets, and high oil prices. While competition remains intense, many competitors have consolidated or exited the market. The Company is investing in a new front-end computer system, driving up professional and advertising costs.
Capital Actions:
- Dividend: A dividend of $0.10 per share was declared and paid on June 30, 2008.
- Stock Repurchase: The Board authorized a buyback of up to 300,000 shares. During the six months ended June 30, 2008, 3,916 shares were repurchased at an average price of $3.39.
Risks and Contingencies:
- Market Risk: The Company is exposed to market and credit risk through off-balance sheet transactions and customer margin requirements.
- Legal Proceedings: A dispute with Pershing LLC regarding a $1.5 million advance was charged off in 2004. Management believes remaining claims are without merit and will not have a material adverse effect.
- Regulatory Capital: The Company maintains net capital of approximately $28.3 million, significantly exceeding the minimum requirement of $250,000.
Investor Verification Checklist
- Cash Flow Usage: Verify the sustainability of the $2.3 million cash outflow from operating activities for the six-month period.
- Expense Trajectory: Monitor if professional fees and communication costs stabilize following the implementation of the new computer system and website.
- Equity Investment Dependence: Assess the reliance on income from Siebert Brandford Shank & Co., LLC (SBS), which contributed significantly to net income despite operating revenue declines.
- Commission Trends: Track the impact of the shift to online retail trading on average commission rates and total fee revenue.
- Regulatory Compliance: Confirm continued adherence to SEC Net Capital rules, though current levels are well above minimums.