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 September 30, 2008. The Company operates as a discount and institutional brokerage firm, with significant equity interests in municipal bond underwriting entities (Siebert Brandford Shank & Co., LLC and SBS Financial Products Company, LLC). The report highlights the impact of the global financial crisis and historic market volatility on operations.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $7,165,000 | $22,437,000 |
| Net (Loss) Income | $(931,000) | $(491,000) |
| Net Income (Loss) Per Share (Basic/Diluted) | $(0.04) | $(0.02) |
| Cash and Cash Equivalents | $31,365,000 (Balance Sheet) | $31,365,000 (Balance Sheet) |
| Net Capital (Regulatory) | $28,236,000 | $28,236,000 |
| Operating Cash Flow (9 Months) | $(2,188,000) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 3.8% for the quarter and 5.2% for the nine-month period compared to 2007. Commission and fee income dropped due to lower retail trading volumes and reduced average commissions per trade, partially offset by institutional trading growth.
- Expense Increase: Total expenses rose 11.8% for the quarter and 10.6% for the nine-month period. Key drivers included a 15.8% increase in employee compensation (due to stock option expensing and health insurance costs) and a 36.6% increase in clearing fees (due to higher floor executions and volume).
- Trading Profits: Trading profits increased significantly, up 189% for the quarter and 102.8% for the nine-month period, attributed to the addition of a debt sales-trader and increased volume.
- Interest Income: Interest and dividends fell 63.6% for the quarter and 47.1% for the nine-month period, primarily due to lower yields on U.S. Treasury Bills.
- Equity Investees: Income from equity investees (primarily Siebert Brandford Shank & Co., LLC) improved significantly, turning a loss of $395,000 in the prior year quarter into a profit of $108,000, driven by increased municipal bond offerings.
Guidance, Outlook, and Risks
- Market Environment: Management notes that the financial crisis has created historic volatility. While working capital is invested in short-term U.S. Treasury Bills and liquidity remains strong, profitability is sensitive to market volume and fixed costs.
- Liquidity: As of September 30, 2008, 72% of total assets ($33.3 million) were highly liquid. Regulatory net capital was $28.2 million, significantly exceeding the $250,000 minimum requirement.
- Capital Actions: The Company declared a $0.10 per share dividend in June 2008. A share repurchase program authorized in January 2008 (up to 300,000 shares) has seen 8,112 shares purchased at an average price of $3.30.
- Risks: Key risks include customer non-payment, system failures, competition from electronic discount brokers, and the potential for losses from unsettled customer transactions. The Company is also involved in a dispute with Pershing LLC regarding a $1.5 million advance, though management believes the outcome will not be materially adverse.
Investor Verification Checklist
- Verify the sustainability of the 189% increase in trading profits given the volatile market environment.
- Monitor the impact of rising fixed costs (compensation, clearing fees) against declining commission revenues.
- Review the status of the dispute with Pershing LLC and any potential future liabilities.
- Assess the liquidity of the $1.2 million secured demand note facility with Siebert Brandford Shank & Co., LLC.
- Confirm the effectiveness of the new website launch (Q4 2008) in reversing the trend of declining average commissions per retail trade.