SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Siebert Financial Corp. and its subsidiaries, covering the period ended June 30, 2010. The Company operates as a discount brokerage and investment banking firm. It is classified as a Smaller Reporting Company. As of July 27, 2010, there were 22,180,277 shares of Common Stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2010 |
|---|---|---|
| Total Revenues | $7,396,000 | $11,709,000 |
| Net Income (Loss) | $782,000 | $(412,000) |
| EPS (Basic & Diluted) | $0.04 | $(0.02) |
| Operating Cash Flow | N/A | $3,080,000 |
| Cash and Equivalents | $27,129,000 (Balance Sheet) | $27,129,000 (Balance Sheet) |
| Regulatory Net Capital | $22,455,000 | $22,455,000 |
| Total Assets | $45,373,000 | $45,373,000 |
Material Changes vs. Prior Period
- Revenue Composition: Total revenues for the three months ended June 30, 2010, increased 1.7% to $7.4 million compared to the prior year. However, for the six-month period, revenues decreased 18.0% to $11.7 million.
- Unusual Item (Clearing Agreement): Commission and fee income included a one-time $3.0 million resolution of a dispute with a clearing firm. Without this item, commission revenue would have been significantly lower.
- Investment Banking: Revenues dropped 73.5% (Q3) and 77.9% (YTD) due to participation in fewer new equity and debt issues.
- Equity Investees: Income from equity investees (primarily SBS) decreased 66.9% for the quarter and 25.9% for the six months, reflecting fewer municipal bond underwriting transactions.
- Expenses: Total expenses decreased 15.2% for the quarter and 11.7% for the six months, driven by reduced employee compensation and clearing fees.
Outlook, Risks, and Management Commentary
- Market Environment: Management notes historic volatility and reduced market participation due to the global financial crisis, which adversely affects revenues. Competition remains intense, particularly from electronic discount brokers.
- Cost Management: The Company is actively reducing expenses, including occupancy costs and operational overhead, to maintain profitability in a low-volume environment.
- Liquidity: The Company maintains high liquidity with $28.3 million (62% of assets) in cash and money market funds. Regulatory net capital is $22.4 million, well above the $250,000 minimum requirement.
- Risks: Key risks include fluctuations in securities volume and prices, customer non-payment on margin accounts, and reliance on equity investees (SBS and SBSFPC) for a material portion of income.
- Share Repurchases: The Company purchased 2,812 shares in Q2 2010 under an authorized buyback program.
Investor Verification Checklist
- Verify the sustainability of the $3.0 million clearing fee resolution included in Q2 revenue; this is a non-recurring item.
- Monitor the performance of equity investees SBS and SBSFPC, as their results are integral to the Company's profitability and showed significant declines.
- Assess the impact of declining retail trading volumes (down 10.2% YTD) on future commission revenue.
- Review the professional fees increase ($1.7M for Q2), attributed to legal fees regarding a dispute with a former employee.
- Confirm the Company's ability to maintain regulatory net capital requirements amidst market volatility.