SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2006, and the nine months ended on that date. Siebert Financial Corp. operates primarily through its subsidiary, Muriel Siebert & Co., Inc., a discount brokerage firm. The company also holds significant equity interests in municipal bond underwriting entities (Siebert, Brandford & Shank Co., LLC and SBS Financial Products Company, LLC). As of November 8, 2006, there were 22,108,287 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2006 | Nine Months Ended Sep 30, 2006 |
|---|---|---|
| Total Revenues | $7,732,000 | $24,418,000 |
| Net Income | $897,000 | $2,790,000 |
| Diluted EPS | $0.04 | $0.13 |
| Cash and Cash Equivalents | $32,124,000 (Balance Sheet) | $32,124,000 (Balance Sheet) |
| Net Capital (Regulatory) | $27,862,000 | $27,862,000 |
| Operating Cash Flow (9mo) | N/A | $1,773,000 |
Revenue Composition (9 Months 2006): Commissions and fees ($18.2M), Income from equity investees ($3.6M), Interest and dividends ($1.2M), Trading profits ($0.6M), and Investment banking ($0.8M).
Material Changes vs. Prior Period
- Revenue: Total revenue for the nine months ended September 30, 2006, increased 4.7% to $24.4 million compared to $23.3 million in the prior year. However, for the three-month quarter, revenue decreased 4.6% to $7.7 million.
- Profitability: Net income for the nine months ended September 30, 2006, more than doubled to $2.79 million from $1.32 million in the prior year. For the quarter, net income increased 65.5% to $897,000 from $542,000.
- Equity Investee Income: A primary driver of growth was income from equity investees, which rose 135.7% for the nine months to $3.56 million (from $1.51 million), largely due to increased syndicate profits at Siebert, Brandford & Shank Co., LLC (SBS).
- Commission Revenue: Commission and fee income declined 3.4% for the nine months and 17.7% for the quarter, attributed to decreased retail trading volumes and lower commission per ticket.
- Expenses: Total expenses decreased 6.9% for the nine months to $19.6 million. Professional fees dropped significantly (27.7% decrease) due to reduced consulting and legal fees.
Guidance, Outlook, Risks, and Contingencies
Management Commentary: Management notes that the core business is performing well despite a difficult environment for discount brokers. The market was stronger in Q3 2006 due to steady interest rates and declining oil prices, though retail customer interest in stocks remained low. The company expects to continue its stock repurchase program based on market prices.
Legal Contingencies:
- Intuit Lawsuit: Siebert is involved in ongoing litigation against Intuit Inc. regarding a Joint Brokerage Service. Siebert seeks $11.1 million in compensatory damages; Intuit has counterclaimed for $6.6 million. Proceedings are stayed pending an appeal to the New York Court of Appeals, scheduled for February 2007. The outcome is unpredictable.
- Pershing Dispute: A dispute regarding a $1.5 million advance to Pershing LLC was partially resolved in 2005. Siebert believes remaining claims by Pershing are without merit and does not expect a material adverse effect.
Risk Factors: The company faces risks related to market volatility, competition from electronic discount brokers offering lower rates, and reliance on equity investees for a significant portion of income. Regulatory net capital requirements are strictly monitored.
Investor Verification Checklist
- Equity Investee Dependence: Verify the sustainability of income from SBS and SBSFPC, which contributed significantly to the 2006 profit increase ($3.56M of $24.4M revenue).
- Intuit Litigation Status: Monitor the February 2007 Court of Appeals hearing regarding the Intuit lawsuit, as the potential liability or recovery could materially impact financials.
- Commission Trends: Assess the long-term trend of declining commission revenue and the company's ability to offset this with non-commission income.
- Stock Repurchase Program: Confirm the remaining capacity under the buyback program (66,599 shares remaining as of Sept 30, 2006) and future execution plans.
- Regulatory Capital: Confirm continued compliance with SEC and NYSE net capital rules, currently holding $27.9 million against a $250,000 minimum requirement.