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 subsidiaries, covering the period ended September 30, 2009. The Company operates as a discount and online broker and investment banking firm. It is classified as a Smaller Reporting Company. As of October 20, 2009, there were 22,193,288 shares of Common Stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 25.2% ($1.8M) for the three months and 12.5% ($2.8M) for the nine months compared to the prior year periods. This was primarily driven by a 27.5% drop in commissions and fees due to lower trading volumes and reduced average commission rates.
• Investment Banking Growth: Investment banking revenues increased 44.0% ($176k) for the quarter and 41.0% ($1.2M) for the nine months, attributed to increased participation in new equity and debt capital market issues.
• Equity Investee Income: Income from equity investees (primarily Siebert Brandford Shank & Co., LLC) surged 430.1% for the quarter and 77.4% for the nine months, significantly offsetting operating losses.
• Expense Reduction: Total expenses decreased 18.2% for the quarter and 6.4% for the nine months. Notable reductions included professional fees (down 34.4% QoQ due to resolved legal disputes) and employee compensation (down 13.1% QoQ).
• Tax Benefit: The Company recorded a significant tax benefit of approximately $330,000 related to prior years, resulting in effective tax rates of 65% (quarter) and 74% (nine months), compared to 42% in the prior year periods.

Outlook, Risks, and Management Commentary

• Market Environment: Management notes that while the stock market rebounded in Q3 2009, competition remains intense, particularly in retail account acquisition. Profitability is sensitive to market volume and interest rates.
• Liquidity: The Company maintains strong liquidity with $28.4 million (64% of total assets) in highly liquid assets. Regulatory net capital of $23.9 million is significantly above the $250,000 minimum requirement.
• Capital Allocation: The Board authorized a buyback of up to 300,000 shares. During the nine months ended Sep 30, 2009, 12,673 shares were repurchased at an average price of $1.86. In Q3 alone, 4,656 shares were purchased.
• Risks: Key risks include fluctuations in securities volume and prices, competition from electronic discount brokers, and potential losses from customer non-payment. The Company is currently contesting a New York City tax examination for years 2005-2006 with a potential adjustment of approximately $300,000.
• Equity Method Investments: The Company holds significant interests in Siebert Brandford Shank & Co., LLC (49%) and SBS Financial Products Company, LLC (33.33%). While SBS was profitable, SBSFPC reported a net loss of $340,000 for the nine months due to unrealized losses on derivative contracts.

Investor Verification Checklist

• Equity Investee Dependence: Verify the sustainability of the significant income contribution from Siebert Brandford Shank & Co., LLC, which offset the core brokerage operating loss.
• Trading Volume Trends: Monitor retail and institutional trading volumes to assess the trajectory of commission revenue recovery.
• Tax Examination Status: Track the outcome of the New York City tax examination regarding the potential $300,000 adjustment.
• Derivative Exposure: Review the performance of SBS Financial Products Company, LLC, specifically regarding unrealized losses on derivative contracts.
• Share Repurchase Activity: Observe future share repurchase activity under the authorized plan to gauge management's confidence in the stock price.