Siebert Financial Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Siebert is a financial-services holding company with retail and prime brokerage, investment advisory, insurance, and technology operations. It reports one operating segment.
Key financial results
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $10.344 million | $18.924 million; down 45% |
| Net income (loss) available to common stockholders | $(0.973) million; $(0.04) per diluted share | $2.275 million; $0.07 per diluted share |
| Operating expenses | $11.883 million | $15.914 million; down 25% |
| Pre-tax income (loss) | $(1.374) million | $3.010 million |
| Cash flow from operations | $(44.088) million | $9.787 million |
| Cash and cash equivalents | $7.669 million | $3.758 million at December 31, 2021 |
| Total assets / liabilities | $1.128 billion / $1.075 billion | $1.404 billion / $1.354 billion at December 31, 2021 |
Revenue composition included $3.578 million from stock borrow/loan, $2.362 million in interest, marketing and distribution fees, and $2.340 million in commissions and fees. Principal transactions and proprietary trading recorded a $267,000 loss. The filing does not provide a consolidated operating-margin measure.
At March 31, 2022, debt included approximately $4.0 million of mortgage borrowing, $3.4 million outstanding on an East West Bank line of credit, and $4.12 million of related-party notes. The company also had $5.0 million of additional capacity under the East West Bank line and an unused $15 million overnight borrowing facility with BMO Harris. Operating lease liabilities were $2.529 million.
Material changes and management commentary
- Revenue fell substantially year over year, mainly reflecting institutional customer losses after Goldman Sachs & Co. terminated RISE’s clearing arrangement, as well as weaker market-related trading activity. Retail trades declined to 109,952 from 142,875.
- Principal transactions included an approximately $2.2 million unrealized loss on Treasury securities as mid-term yields rose. The company said it intends to hold the securities to maturity, with maturities through early 2024, and expects the loss to be temporary; further rate-driven losses remain possible.
- Stock borrow/loan revenue rose by $1.731 million, which management attributed to business growth and expanded lending and locate relationships. Lower compensation and clearing costs partly offset lower revenue.
- Siebert’s direct ownership of RISE declined from 76% to approximately 44%. After reassessing control, Siebert continued consolidating RISE as a variable interest entity because it concluded it is RISE’s primary beneficiary and may bear funding obligations disproportionate to its ownership.
- The company exchanged $2.88 million of related-party notes payable for a 24% interest in RISE. RISE was relaunched with a woman-owned prime brokerage strategy and an agreement involving Hedge Connection’s capital-introduction platform; management described the plan as new and untested.
- Operating cash flow was negative, with large movements in securities borrowed/loaned and customer balances. The company said cash, operating cash flows, borrowing capacity, and access to capital markets should be sufficient for foreseeable needs.
Liquidity, outlook, risks, and contingencies
- MSCO reported $30.5 million of net capital, $28.7 million above its $1.8 million requirement. Its special reserve account held $278.6 million, $4.5 million above the stated requirement at quarter-end. RISE reported approximately $1.7 million of net capital, $1.5 million above its $250,000 minimum.
- The East West Bank line’s incremental borrowing availability was due to terminate in July 2022; management said it intended to renew it. The company also planned approximately $1.4 million of Miami office build-out, with $338,000 expected to be financed through the bank commitment.
- No earnings or revenue guidance was provided. Results are exposed to equity and fixed-income market conditions, trading activity, interest rates, competition, regulation, liquidity, counterparty and systems risks. Management cautioned that rising rates could increase funding costs without corresponding asset-yield increases.
- A FINRA investigation concerns pre-acquisition StockCross UIT transactions that the regulator believes may have been terminated early. The company could face sanctions or customer restitution; management could not assess the likely outcome or potential amount.
- Early termination of the NFS clearing agreement could trigger fees ranging from $8.0 million before August 2022 to $3.25 million before August 2025. The company considered a material payment unlikely and recorded no liability.
- The company reported an uncertain tax position of $2.418 million, primarily related to amended 2017–2019 returns. It also disclosed a $100 million shelf registration statement, subject to Form S-3 issuance limits; no offering was committed.
Important facts for investors to verify
- Whether RISE’s relaunched prime brokerage business can attract customers and offset the lost institutional business, and whether Siebert continues to qualify as RISE’s primary beneficiary.
- The Treasury portfolio’s market value, maturity profile, and exposure to further interest-rate increases.
- The status of the FINRA UIT investigation, potential restitution or sanctions, and any developments affecting the NFS termination-fee exposure.
- Renewal or replacement of the East West Bank line before its borrowing window ends, covenant compliance, and planned Miami build-out spending.
- Related-party financing and governance arrangements, including the notes-for-RISE-interest exchange and any future funding obligations to RISE.