Siebert Financial Corp. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results. Siebert is a holding company operating a retail discount brokerage, investment banking and trading business; it owns 49% of municipal-underwriting affiliate Siebert, Brandford, Shank & Co. (SBS).
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $20.199 million | $20.770 million |
| Net loss | $5.379 million | $2.640 million |
| Basic and diluted loss per share | $0.24 | $0.12 |
| Net cash used in operating activities | $1.470 million | $1.112 million |
| Cash and cash equivalents at year-end | $21.167 million | $22.646 million |
| Total assets at year-end | $34.823 million | $40.103 million |
| Stockholders’ equity at year-end | $31.224 million | $36.626 million |
- 2011 revenue comprised $14.314 million commissions and fees, $3.801 million investment banking, $2.005 million trading profits, and $79,000 interest and dividends. Net loss was approximately 26.6% of revenue.
- Total expenses were $25.584 million, down 1.1%. The $5.057 million professional-fee line remained significant; other notable costs included $9.993 million employee compensation and $2.842 million clearing fees.
- Siebert reported $22.2 million of highly liquid assets, or 64% of total assets. Regulatory net capital was $17.8 million, $17.6 million above the $250,000 minimum. The parent balance sheet showed no conventional borrowings; it had a secured lending commitment to SBS of up to $1.2 million, supported by $1.532 million restricted cash.
- Fourth-quarter 2011 revenue was $4.341 million and net loss was $994,000, compared with fourth-quarter 2010 revenue of $5.319 million and net income of $1.330 million.
Material changes versus 2010
- Revenue declined 2.8%. Commissions and fees fell 16.5% to $14.314 million; the comparison is affected by a $3 million clearing-agreement-related revenue item recorded in 2010.
- Investment banking revenue rose 69.8% to $3.801 million and trading profits rose 62.1% to $2.005 million, partly offsetting lower commissions.
- Income from equity investees dropped to $29,000 from $4.078 million. Siebert’s 49% share of SBS income fell to $8,000 from $4.102 million as municipal offerings contracted and the Build America Bonds program expired.
- The larger net loss also reflects a $1 million provision for the Lehman-related class-action settlement and the reduced affiliate earnings. Total assets and equity declined, while operating cash use increased.
- Retail trades increased to 423,501 from 414,485, while average commission per trade slipped to $20.71 from $20.92. Customer accounts with positions declined to 44,834 from 49,296; margin debit balances increased to $243.5 million from $204.8 million.
Outlook, risks and unusual items
- The filing provides no numerical earnings or revenue guidance. Management describes continued pressure from market conditions, subdued participation, intense brokerage competition and commission pricing, and says earnings in any period should not be considered representative of another.
- The Lehman offering class-action settlement calls for a $1 million payment and was accrued at year-end, subject to court approval. Because other defendants did not settle, Siebert said potential additional liability was uncertain. A former-employee arbitration remained unresolved; defense costs had affected and could continue to affect results.
- Key risks include securities-market volatility, lower trading activity, underwriting exposure, customer or counterparty defaults, extensive regulation and net-capital requirements, reliance on electronic systems and third-party clearing, and dependence on key personnel. Muriel F. Siebert owned approximately 90% of common shares, giving her substantial control.
- The stock transferred from the NASDAQ Global Market to the NASDAQ Capital Market in June 2011 after the public float failed to meet the required market-value threshold. The company reported that disclosure controls and internal control over financial reporting were effective at year-end.
Important facts for investors to verify
- Final court approval, payment and any residual exposure from the Lehman settlement, plus status and costs of the former-employee arbitration.
- Whether SBS’s municipal underwriting activity and earnings recover, and how much of its undistributed earnings is available to Siebert.
- How recurring commission and fee revenue performs excluding the $3 million clearing-agreement item recorded in 2010.
- Cash burn, liquidity and regulatory net capital, including the terms and repayment status of SBS-related subordinated financing.
- Trading activity, commission trends, customer account balances and ongoing NASDAQ listing requirements.