SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Siebert Financial Corp. and its subsidiaries, covering the period ended September 30, 2010. The Company operates as a discount brokerage and investment banking firm. It is classified as a Smaller Reporting Company. As of November 5, 2010, there were 22,141,403 shares of Common Stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenues | $3,742,000 | $15,451,000 |
| Net Loss | $(3,558,000) | $(3,970,000) |
| Loss Per Share (Basic & Diluted) | $(0.16) | $(0.18) |
| Cash and Cash Equivalents | $23,491,000 (Balance Sheet) | $23,491,000 (Balance Sheet) |
| Net Capital (Regulatory) | $20,465,000 | $20,465,000 |
| Net Cash Used in Operating Activities | N/A | $(384,000) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues for the nine months ended September 30, 2010, decreased by 21.3% ($4.2 million) compared to the same period in 2009. This was driven by a 67.3% drop in investment banking revenues and a 39.5% drop in trading profits.
- Commission Income: Commission and fee income decreased 6.6% for the nine-month period. However, this decline was partially offset by a one-time $3 million resolution from a clearing firm dispute, recorded as commission income.
- Expense Reduction: Total expenses decreased 13.3% ($3.1 million) for the nine-month period, primarily due to reduced employee compensation (down 17.3%) and clearing fees (down 39.2%).
- Widening Losses: The net loss for the nine months ended September 30, 2010, was $3.97 million, a significant increase from the $219,000 net loss in the same period in 2009.
- Tax Provision: The Company recorded a deferred tax provision of $1.555 million in the third quarter to establish a full valuation allowance against its deferred tax assets due to cumulative losses.
Guidance, Outlook, and Risks
- Market Conditions: Management notes that the global financial crisis has created historic volatility, reducing participation in securities markets and adversely affecting revenues. Competition remains intense, particularly from electronic discount brokers offering lower rates.
- Equity Investments: Income from equity investees (SBS and SBSFPC) is integral to operations. While income from SBS increased in the quarter, it decreased for the nine-month period. SBSFPC reported a small loss.
- Liquidity: The Company maintains high liquidity with approximately 62% of total assets in cash and cash equivalents. Regulatory net capital ($20.5 million) significantly exceeds the minimum requirement ($250,000).
- Risks: Key risks include customer non-payment on unsettled transactions, system failures, and the inability to realize deferred tax assets. There are no material pending legal proceedings expected to have a material adverse effect.
- Stock Repurchase: The Company continues a buyback program authorized in 2008. During the nine months ended September 30, 2010, it purchased 13,150 shares at an average price of $2.07.
Investor Verification Checklist
- Verify the sustainability of the $3 million one-time clearing fee resolution included in Q3 2010 revenue.
- Monitor the trend in retail trading volumes and average commission per trade, which have both declined year-over-year.
- Assess the impact of the full valuation allowance on deferred tax assets on future profitability.
- Review the performance of equity investees (SBS and SBSFPC), which contribute significantly to income but carry their own market risks.
- Confirm the Company's ability to maintain regulatory net capital requirements amidst continued market volatility.