Siebert Financial Corp. — Q3 2021 Form 10-Q
Business context and reporting period. This quarterly report covers the three and nine months ended September 30, 2021, with comparisons to 2020. Siebert is a U.S. financial-services company operating retail brokerage, investment advisory, insurance, securities finance and prime brokerage businesses. It reports one operating segment.
Financial performance and condition
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $17.051 million | $12.575 million | $52.768 million | $39.995 million |
| Net income | $0.870 million | $0.581 million | $4.574 million | $2.056 million |
| Diluted EPS | $0.03 | $0.02 | $0.15 | $0.07 |
| Operating cash flow | — | $5.352 million | $36.352 million |
Q3 revenue increased about 36% year over year; nine-month revenue increased about 32%. Net income rose about 50% for the quarter and 122% for the nine-month period. Nine-month pretax margin was approximately 11.5%, compared with 5.2% in 2020; Q3 pretax margin was approximately 6.7%, versus 0.8%.
Growth reflected higher principal transactions, market making and stock borrow/loan revenue. For the nine months, these categories rose to $12.279 million, $4.886 million and $7.552 million, respectively. Commissions and fees were nearly flat year over year for the nine-month period. Interest, marketing and distribution fees declined 3%, primarily due to lower short-term rates and reduced money-market 12b-1 fees.
Total assets were $1.247 billion at September 30, down from $1.373 billion at December 31, 2020, mainly reflecting lower securities borrowed; liabilities fell to $1.205 billion from $1.335 billion, mainly due to lower securities loaned. Stockholders’ equity was $42.623 million. Cash and cash equivalents were $4.260 million; an additional $327.367 million was segregated for regulatory purposes and is not equivalent to unrestricted cash.
Nine-month operating cash flow was $5.352 million, versus $36.352 million in 2020. The filing attributes substantial balance-sheet cash-flow movements to securities borrowed and securities loaned, among other working-capital changes. Investing cash outflow was $1.333 million, including the OpenHand investment; financing cash outflow was $0.948 million.
At September 30, debt included $3.907 million outstanding under the East West Bank term loan and $5.0 million in notes payable to principal stockholder Gloria E. Gebbia. The company had $5.0 million of remaining East West borrowing capacity and a $15 million BMO Harris overnight line with no balance outstanding. Management said liquidity was sufficient for the next twelve months. MSCO reported $35.5 million of net capital, approximately $33.4 million above its regulatory minimum; the filing states the company was compliant with East West Bank covenants.
Material changes, outlook and risks
- WPS clearing termination: Goldman Sachs notified WPS on August 30 that its clearing arrangement would end. Siebert said substantially all WPS revenue-producing customers would move to other providers. WPS represented approximately 22% of company revenue and 31% of pretax income for the first nine months of 2021; management expects a material adverse effect on future-period results, though not materially on full-year 2021 results. The company recorded a $699,000 full impairment of WPS customer relationships. A subsequent JonesTrading agreement provides declining revenue sharing through October 2024; its financial impact was not yet determinable.
- Operating trends: Employee compensation and benefits rose to $27.205 million for nine months, largely alongside revenue growth and related commission payouts. Rent and occupancy fell to $1.481 million, reflecting moves to lower-cost offices. Q3 results also included the $699,000 impairment.
- NFS agreement: The clearing agreement was extended through July 31, 2025. Siebert received a $3 million business-development credit, recognized as contra-expense over the contract term; $2.9 million remained deferred at quarter-end. Early termination fees range from $8.0 million before August 2022 to $3.25 million before August 2025. Management said it did not expect to terminate early.
- OpenHand: The parties ended their working relationship and revised the investment to $850,000 for a 2% interest, with an option to acquire another 2%. Siebert recorded a $63,000 adjustment for an observable price change.
- Contingencies and related matters: Siebert paid a $250,000 FINRA fine and $100,000 in California administrative costs related to pre-acquisition StockCross activities; customers rejected an approximately $315,000 restitution offer. The company disclosed a $1.103 million uncertain tax position related mainly to amended 2017–2019 tax returns. It also has related-party notes and East West debt guaranteed by members of the controlling family.
- Outlook and risks: No numerical earnings or revenue guidance was provided. Management cited market conditions, interest rates, competition, regulation, liquidity, counterparty and credit exposure, cybersecurity and systems risks, and COVID-19 uncertainty. It expected low short-term interest rates to continue weighing on some interest-related revenue. COVID-19 had not materially affected liquidity or operations as of the filing, according to management.
Important facts for investors to verify
- Timing and extent of WPS customer departures, the resulting revenue and profit decline, and actual JonesTrading revenue-sharing proceeds.
- Whether growth in securities finance, market making and other businesses can offset WPS losses, particularly as market conditions change.
- Unrestricted liquidity after distinguishing the $4.260 million of cash and equivalents from regulatory-segregated cash and securities.
- Debt maturities, related-party borrowing renewals, East West covenant compliance, and the availability and terms of borrowing facilities.
- Costs or consequences of the NFS agreement, including the deferred credit recognition and potential early termination fees.
- Resolution of the uncertain tax position and any further regulatory, legal, self-insurance or customer-credit exposures.