SIEB

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 wholly owned subsidiaries, including Muriel Siebert & Co., Inc. (a broker-dealer) and Siebert Women's Financial Network, Inc. The reporting period covers the three months ended March 31, 2011. The company operates in the brokerage and investment banking sectors, offering retail and institutional services.

Key Financial Metrics

Revenue Breakdown (Q1 2011): Commissions and fees ($3.9M), Investment banking ($1.2M), Trading profits ($377k), Interest and dividends ($9k).
Expense Breakdown (Q1 2011): Employee compensation ($2.5M), Professional fees ($1.4M), Clearing fees ($924k).

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by 27.6% ($1.2M) compared to Q1 2010. This was driven by a 237.8% surge in investment banking revenue ($825k increase) due to increased participation in equity and debt underwritings, and a 6.4% rise in commissions due to higher retail trading volumes and margin debit balances.
• Expense Reduction: Total expenses decreased by 15.9% ($1.2M). Significant reductions occurred in professional fees (down 33.7% due to lower legal fees regarding a former employee dispute) and clearing fees (down 26.2% due to a new clearing agreement).
• Equity Investment Loss: A major negative variance was the loss from equity investees, which swung from a $1.3M gain in Q1 2010 to a $1.1M loss in Q1 2011. This was primarily due to a $2.2M loss at affiliate Siebert, Brandford, Shank & Co., L.L.C. (SBS) caused by declining municipal bond volumes and the expiration of the Build America Bonds program.
• Tax Impact: The company recorded a tax expense of $11,000 in Q1 2011, compared to a tax benefit of $795,000 in Q1 2010. No tax benefit was recorded for the current loss due to a full valuation allowance on deferred tax assets.

Outlook, Risks, and Management Commentary

• Market Conditions: Management notes that while the global financial crisis has created volatility, liquidity remains strong with assets primarily in money market funds. However, reduced participation in securities markets continues to affect revenues.
• Legal Contingencies: The company is defending an arbitration proceeding commenced by a former employee. While management believes the claim is without merit, defense costs have adversely affected results and may continue to do so.
• Liquidity: The company maintains strong liquidity with $25M (64% of total assets) in highly liquid instruments. Regulatory net capital of $19.7M is significantly above the $250k minimum requirement.
• Share Repurchases: The company continues its share buyback program, purchasing 3,927 shares at an average price of $1.89 in Q1 2011. Approximately 204,488 shares remain available for purchase under the plan.
• Risks: Key risks include fluctuations in market volume, competition from electronic discount brokers, customer non-payment on margin accounts, and the performance of equity affiliates (SBS and SBSFPC).

Investor Verification Checklist

• Verify the sustainability of the 237% increase in investment banking revenue given the cyclical nature of underwriting markets.
• Monitor the resolution of the arbitration with the former employee and its potential impact on future professional fees.
• Assess the financial health of affiliate SBS, which contributed a $1.1M loss, and its exposure to municipal bond market volatility.
• Review the valuation allowance on deferred tax assets ($2.87M) and the likelihood of future realization given cumulative losses.
• Confirm the status of the $1.2M secured demand note collateralized by restricted cash equivalents owed by SBS.