SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended September 30, 2003. Siebert Financial Corp. operates primarily through its wholly owned subsidiary, Muriel Siebert & Co., Inc., a discount brokerage firm. The company also holds a 49% equity interest in Siebert Brandford Shank & Co., LLC (SBS), a municipal bond underwriter. The reporting period reflects a challenging environment for discount brokers, characterized by intense competition and market volatility, though the third quarter showed signs of strength due to lower interest rates and increased consumer spending.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 |
|---|---|---|
| Total Revenues | $6,008,000 | $18,223,000 |
| Net Income (Loss) | $115,000 | $67,000 |
| Net Income Per Share (Basic) | $0.01 | $0.00 |
| Total Assets | $40,151,000 | $40,151,000 |
| Cash and Cash Equivalents | $21,746,000 | $21,746,000 |
| Regulatory Net Capital | $15,508,000 | $15,508,000 |
| Operating Cash Flow (9 Months) | $885,000 |
Revenue Composition (9 Months): Commissions and fees accounted for $14.6 million (80% of total revenue). Income from the equity investee (SBS) contributed $1.7 million. Investment banking revenues were $931,000.
Liquidity: The company maintains highly liquid assets, with approximately 68% of total assets ($27.3 million) classified as cash, money market funds, or marketable securities. Regulatory net capital of $15.5 million significantly exceeds the minimum requirement of $250,000.
Material Changes vs. Prior Period
- Quarterly Performance: Net income of $115,000 for the three months ended September 30, 2003, represents a significant turnaround from a net loss of $726,000 in the same period in 2002. Total revenues increased 5.5% to $6.0 million, driven by a 12.5% rise in commission and fee income due to higher trading volumes.
- Year-to-Date Performance: For the nine months ended September 30, 2003, the company reported a net income of $67,000, compared to a net loss of $1.3 million in the prior year. Total revenues remained relatively flat, decreasing slightly by 0.4% to $18.2 million.
- Expense Reduction: Total expenses decreased 15.5% quarter-over-quarter and 11.8% year-to-date. Notable reductions included advertising and promotion expenses (down 67.2% for the quarter and 52.1% for the nine months) and employee compensation (down 7.7% for the quarter), reflecting cost-cutting measures and reduced headcount.
- Equity Investee Income: Income from SBS increased 66.6% year-to-date to $1.7 million due to increased activity in the municipal bond market, though it decreased 39.3% on a quarterly basis.
Guidance, Outlook, Risks, and Contingencies
Strategic Alliance with Intuit (JBS): The Joint Brokerage Service (JBS) with Intuit Inc. has produced results "substantially below expectations" with nominal revenues. The company incurred approximately $1.6 million in charges related to the JBS for the nine months ended September 30, 2003. No new accounts are being accepted, and the service is expected to be terminated in December 2003.
Legal Proceedings:
- Suit vs. Intuit: Siebert filed a lawsuit against Intuit on September 17, 2003, alleging breach of contract, fiduciary duties, and fraud. Siebert is seeking at least $11.1 million in compensatory damages and $33.3 million in punitive damages. The case is currently stayed pending a motion for arbitration.
- Dispute with Pershing: Siebert terminated its clearing agreement with Pershing LLC and disputes a $1.5 million advance made for software customization. Pershing claims entitlement to the advance plus additional fees totaling up to $8 million. Siebert believes these claims are without merit.
Outlook: Management believes the business is performing relatively well given the difficult environment. The company continues to implement cost reduction programs and evaluate acquisition opportunities. It anticipates saving approximately $50,000 per month upon consolidating clearing operations with National Financial Services, LLC.
Risks: The company faces risks related to market volatility, competition from electronic discount brokers, and the outcome of ongoing litigation with Intuit and Pershing. Forward-looking statements are subject to uncertainties regarding economic conditions and regulatory requirements.
Investor Verification Checklist
- Intuit Litigation Status: Verify the current status of the lawsuit against Intuit and the potential impact of the $44.4 million total damages claim on future financials.
- Pershing Dispute Resolution: Monitor the outcome of the dispute regarding the $1.5 million advance and potential counter-claims from Pershing.
- JBS Termination Costs: Assess the final financial impact of terminating the Joint Brokerage Service, including any remaining disputed liabilities with Intuit.
- Stock Repurchase Program: Track the execution of the authorized buyback program (721,803 shares purchased to date at an average of $4.69).
- SBS Performance: Review the volatility of income from the 49% equity interest in SBS, which is heavily dependent on municipal bond market activity.