Siebert Financial Corp. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. Unaudited consolidated results include Siebert Financial Corp. and wholly owned subsidiaries. The company noted it relied on SEC Hurricane Sandy filing relief because some finance personnel lost power and communications service.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $4.073 million | $5.857 million | $16.251 million | $15.858 million |
| Total expenses | $5.123 million | $7.421 million | $16.859 million | $19.828 million |
| Income (loss) before taxes | ($805,000) | ($590,000) | $322,000 | ($4.372 million) |
| Net income (loss) | ($912,000) | ($591,000) | $160,000 | ($4.385 million) |
| Net income (loss) per share, basic and diluted | ($0.04) | ($0.03) | $0.01 | ($0.20) |
- Q3 revenue declined 30.5% year over year, mainly from lower commissions and investment-banking revenue. Nine-month revenue increased 2.5%.
- Q3 commissions and fees were $2.595 million, down 28.1%; investment banking revenue was $875,000, down 49.6%. Trading profits rose 16.3% to $585,000.
- Nine-month commissions and fees rose 4.9% to $11.632 million and trading profits rose 40.8% to $1.979 million, while investment-banking revenue fell 22.1% to $2.582 million.
- Nine-month income from equity investees was $930,000, versus a $402,000 loss a year earlier, principally reflecting Siebert’s share of SBS income: $888,000 versus a $392,000 loss.
Liquidity, capital and balance sheet
- At September 30, 2012, total assets were $35.079 million, including cash and cash equivalents of $20.789 million and restricted cash equivalents of $1.532 million. Total liabilities reported were $3.707 million of accounts payable and accrued liabilities; the balance sheet also lists contingencies.
- Cash and cash equivalents decreased $378,000 from year-end 2011. Nine-month operating cash flow was negative $161,000; investing cash flow was negative $205,000 and financing cash flow was negative $12,000.
- Management described assets as highly liquid and reported $22.3 million, or 64% of total assets, as highly liquid. Siebert’s regulatory net capital was approximately $17.603 million, $17.353 million above its $250,000 minimum.
- No corporate debt balance is reported in the filing’s balance sheet. Siebert had an arrangement to lend SBS up to $1.2 million on a subordinated basis, collateralized by $1.532 million of restricted cash; the facility bears 4% interest and expires August 31, 2014.
Material changes, outlook and risks
- Management attributed improved nine-month results to stronger markets and higher SBS income, alongside lower expenses. Expense reductions included lower compensation, clearing, professional, communications and occupancy costs; the Florida Naples and Surfside branches had closed in Q4 2011.
- The company wrote off $433,000 of remaining website development costs after ending its software-vendor relationship on June 30, 2012; its clearing broker began providing the services July 1.
- The $1 million Lehman-related class-action settlement was accrued in 2011, paid into escrow in Q1 2012 and approved by the court in May 2012. Additional liability remains possible for plaintiffs or securities not covered by the settlement; the company says the potential amount is uncertain.
- An arbitration brought by a former employee remained unresolved. Management considered the claim without merit, but defense costs included in professional fees had adversely affected results and could continue to do so. Management considered other ordinary-course claims immaterial.
- Management provided no numerical guidance. It cautioned that results for interim periods are not necessarily indicative of full-year results and highlighted sensitivity to market activity, interest rates, trading volume, brokerage competition, technology failures, customer nonpayment and regulatory requirements.
- A full valuation allowance of $4.209 million was recorded against net deferred tax assets at September 30, 2012, reflecting management’s conclusion that realization was more likely than not not to occur. A $34,000 state tax assessment related to 2007–2009 was included in the 2012 tax provision.
- Customer concentration is notable: one customer accounted for approximately 10% of total revenue for the first nine months; MD&A also says one customer generated approximately 21% of commissions and fees. Retail trades fell to 260,396 from 331,927 year over year, while average commission per trade rose to $28.19 from $20.86.
Important facts for investors to verify
- Whether the Lehman settlement fully resolves claims and the potential exposure from plaintiffs or securities outside its coverage.
- The status and future defense costs of the former employee arbitration.
- Customer concentration and the sustainability of commissions and fees, particularly the contribution from the options-trading customer.
- Whether SBS can distribute undistributed earnings: Siebert reported $8.638 million of its share of SBS undistributed earnings, which may not be immediately available.
- The effect of market activity, affiliate results and the website-services transition on subsequent periods; the filing provides no formal forecast.