Siebert Financial Corp. — Q1 2021 Form 10-Q
Business context and period: Siebert Financial Corp. is a U.S. financial services company focused on securities brokerage and asset management, with retail brokerage, advisory, insurance, technology and prime brokerage activities. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. The company reports one operating segment.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $18.924 million | $14.801 million |
| Expenses | $15.914 million | $13.290 million |
| Income before taxes | $3.010 million | $1.511 million |
| Net income | $2.275 million | $0.976 million |
| Diluted and basic EPS | $0.07 | $0.03 |
| Net cash from operating activities | $9.787 million | $3.390 million |
- Revenue increased 28%; net income increased 133%. The calculated pretax margin rose to approximately 15.9% from 10.2%, and net margin to approximately 12.0% from 6.6%.
- Revenue growth came mainly from commissions and fees ($7.008 million, up $1.425 million), principal transactions ($4.248 million, up $1.045 million), market making ($1.614 million, up $1.144 million), and stock borrow/loan ($1.847 million, up $1.403 million). Management attributed increases to stronger market activity, institutional clients, and growth in securities finance.
- Interest, marketing and distribution fees declined to $3.459 million from $4.625 million, principally reflecting near-zero interest rates. Employee compensation rose $1.875 million to $9.166 million, largely alongside higher revenue and payouts; clearing and referral fees also increased.
- Operating cash flow was $9.787 million. The filing’s cash-flow statement shows substantial effects from securities borrowed and loaned and other working-capital movements; operating cash flow should not be read as equivalent to recurring earnings.
- At March 31, assets were $1.237 billion, liabilities $1.196 billion, and stockholders’ equity $41.642 million. Assets and liabilities fell by $135.833 million and $139.489 million, respectively, from year-end, primarily as securities borrowed and securities loaned decreased.
- Cash and cash equivalents were $4.097 million, versus $3.632 million at year-end. Separately, $332.973 million was segregated for regulatory purposes and is not the same as unrestricted cash. MSCO reported $29.2 million of net capital, $26.8 million above its requirement; its customer reserve deposit exceeded the requirement by $9.3 million.
- Debt included $4.406 million outstanding under East West Bank’s term loan and $5.2 million of related-party notes payable, both due in 2021 in whole or in part. The company had $5.0 million of remaining East West borrowing capacity and an undrawn $15 million overnight line with BMO Harris Bank. It reported compliance with East West covenants.
Material changes, outlook and risks
- In January 2021, Siebert acquired a 5% interest in OpenHand for $2.231 million—$850,000 cash and 329,654 restricted Siebert shares—and received an option to buy an additional 7.5% for approximately $4.5 million after the platform launches. The investment is carried at cost; the platform partnership is intended to support zero-commission trading and brokerage services.
- Management said COVID-19-related market volatility benefited transaction, commission, market-making and institutional revenue, while lower interest rates pressured interest-related revenue. It did not expect short-term rates to return to early-2020 levels during 2021. The pandemic’s ultimate effects remain uncertain.
- Management stated that liquidity was sufficient for foreseeable needs and expected operating cash generation to continue. It was negotiating with vendors and transitioning offices to reduce costs, with savings anticipated beginning in Q2 2021. No specific earnings or revenue guidance was provided.
- Regulatory contingencies include a January 2021 California proposed consent order seeking approximately $900,000 and an April 2021 FINRA-proposed settlement with a $300,000 fine, both concerning pre-acquisition StockCross activities. Management did not expect either matter to materially affect results or financial position; outcomes remain subject to resolution.
- Other stated risks include market and interest-rate volatility, liquidity and counterparty exposure, regulatory and net-capital requirements, operational and cybersecurity risks, competition, and dependence on external service providers. The filing also notes the possibility of a limited public float and stock-price volatility.
Important facts for investors to verify
- Whether Q1’s trading- and securities-finance-driven revenue growth is sustainable as market activity and volatility change.
- The composition and repeatability of operating cash flow, given substantial securities-borrow/loan and other working-capital movements.
- Unrestricted liquidity and the timing of 2021 related-party note maturities and East West Bank debt payments, notwithstanding large regulatory-segregated balances.
- OpenHand’s launch, commercial contribution, investment valuation and any exercise of the additional-investment option.
- Final resolution and financial impact of the California and FINRA matters, and continued compliance with regulatory capital and bank covenants.