Business context and reporting period
Siebert Financial Corp. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. Its business is retail discount brokerage through Muriel Siebert & Co., Inc., with investment advisory services through Siebert Investment Advisors. The company sold its 49% interest in Siebert Brandford Shank Financial, LLC (SBSF) in November 2015; results from that former affiliate are presented as discontinued operations in the 2015 comparative periods.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $2.462 million | $2.104 million | $4.960 million | $4.728 million |
| Loss from continuing operations | $728,000 | $1.394 million | $1.229 million | $2.184 million |
| Net loss | $728,000 | $407,000 | $1.229 million | $1.941 million |
- Q2 revenue increased 17%; six-month revenue increased 4.9%. Six-month net loss narrowed, while Q2 net loss widened because Q2 2015 included $987,000 of discontinued-operation income from SBSF.
- Six-month commissions and fees were $4.266 million, down 0.7%; trading profits were $390,000, up 43.9%; and interest and dividends were $281,000, up 96.5%. Six-month expenses declined 10.5% to $6.189 million.
- Cash and cash equivalents were $7.851 million at June 30, down from $9.420 million at December 31, 2015. Total assets were $15.772 million versus $17.785 million; total liabilities were $1.318 million versus $2.102 million; stockholders’ equity was $14.454 million.
- Six-month operating cash use was $2.032 million; investing activities provided $463,000, including $493,000 collected from a former affiliate. Net cash decreased by $1.569 million.
- Siebert reported regulatory net capital of approximately $3.067 million, $2.817 million above its $250,000 minimum. Management described $7.9 million, or 50% of total assets, as highly liquid. The presented balance sheet reports no borrowing liability; it includes substantial receivables from a former affiliate, including a $4.0 million secured junior note and a separate receivable from the business sale.
Material changes versus prior period
- Retail trade counts fell 18% in Q2 and 21% for the six-month period. Higher average commission per trade partly offset lower activity: $25.57 versus $18.68 in Q2, and $23.56 versus $20.14 for six months.
- Management attributed stronger commission revenue in Q2 to higher-value option trades and new 12b-1 fees from the largest money market fund, which began paying six basis points in May 2016. Lower headcount, clearing costs, legal fees, communications costs, and other expenses helped reduce costs.
- Customer metrics at June 30, 2016 versus June 30, 2015 included net worth of $6.8 billion versus $7.2 billion, money market fund balances of $0.9 billion versus $1.0 billion, margin debit balances of $254.2 million versus $264.1 million, and 29,968 versus 32,038 customer accounts with positions.
Outlook, commentary, and risks
The filing provides no quantitative earnings or revenue guidance. Management cautioned that results are sensitive to market conditions, trading volumes, securities prices, interest rates, customer demand, and competition; lower activity can pressure profitability because some costs are relatively fixed. The company noted that its working capital is invested primarily in money market funds and considered those holdings not materially exposed to interest-rate-driven value changes.
Key exposures include the ability of customers and counterparties to meet obligations and collection of amounts due from former affiliates. The company reported no material losses on unsettled customer transactions. Two employee-related matters—a FINRA arbitration and a New York State Division of Human Rights complaint—were described by management as without merit and not expected to significantly affect financial position. No tax benefit was recognized for losses because deferred tax assets were fully offset by a valuation allowance. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Collection terms, payment performance, and credit support for the former-affiliate receivables, including the SBSF junior note and the business-sale obligation.
- Whether increased average commissions, option-trading mix, and money-market distribution fees can offset continued declines in customer trading activity.
- Ongoing cash consumption, liquidity needs, and compliance with broker-dealer net capital requirements.
- Developments in the employee claims and any changes to the company’s stated assessment of contingencies.
- That interim results are not necessarily indicative of full-year performance; the filing states no specific forward guidance.