Siebert Financial Corp. 2013 Form 10-K Summary
Business context and reporting period
Siebert Financial Corp. is a discount brokerage and investment banking holding company. Its wholly owned subsidiary provides retail brokerage and institutional execution and underwriting services. Siebert also owns 49% of municipal underwriter Siebert, Brandford, Shank & Co. (SBS) and 33% of SBS Financial Products Company (SBSFPC). This annual report covers the fiscal year ended December 31, 2013; the filing also reports fourth-quarter results.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $16.401 million | $20.983 million |
| Expenses | $22.229 million | $21.926 million |
| Net loss | $5.912 million | $171,000 |
| Net loss per share, basic and diluted | $0.27 | $0.01 |
| Net cash used in operating activities | $2.944 million | $2.014 million |
| Cash and cash equivalents at year-end | $15.424 million | $18.902 million |
| Total assets | $27.970 million | $33.456 million |
| Liabilities, excluding subordinated borrowings | $2.861 million | $2.416 million |
| Stockholders’ equity | $25.109 million | $31.040 million |
Revenue comprised $11.945 million in commissions and fees, $2.418 million in investment banking, $1.976 million in trading profits, and $62,000 in interest and dividends. Siebert reported no cash dividends. The filing does not provide a debt balance for the parent company; it reports a $1.2 million subordinated lending commitment to SBS, secured by $1.532 million of restricted cash equivalents.
At year-end, regulatory net capital was approximately $12.986 million, versus the $250,000 minimum. The company described $15.4 million, or 55.1% of assets, as highly liquid. Its cash and cash equivalents decreased by $3.478 million during 2013. Total operating lease obligations were $1.887 million.
Material changes versus the prior year
- Revenue fell $4.582 million, or 21.8%. Commissions and fees declined 18.4% to $11.945 million, primarily due to lower average commissions associated with reduced options trading by one customer, as well as lower institutional trading and commission recapture activity.
- Investment banking revenue declined 38.3% to $2.418 million because Siebert participated in fewer equity and debt offerings. Trading profits declined 16.3% to $1.976 million.
- Expenses rose 1.4%. Professional fees increased 70.4% to $5.293 million, primarily from legal costs related to a former employee dispute. Compensation and clearing fees declined.
- Income from SBS fell to $94,000 from $774,000, reflecting fewer municipal offerings and lower spreads. SBSFPC generated a $159,000 equity-method loss, compared with $32,000 of income in 2012; total results from equity investees were a $65,000 loss versus $806,000 of income.
- Cash and cash equivalents fell from $18.902 million to $15.424 million, while equity decreased by $5.931 million, largely reflecting the year’s net loss.
Outlook, management commentary, risks and unusual items
- Management gave no numerical earnings or revenue guidance. It said market activity improved in 2013 but Siebert’s revenue did not, and noted continuing intense brokerage competition and pressure on commissions and fees.
- In the fourth quarter, management decided to substantially reduce resources allocated to its Women Financial Network operation and wrote off its remaining $300,000 intangible asset. The company and SBSFPC principals planned to wind down SBSFPC operations in 2014.
- A former employee’s arbitration remains unresolved. The company says it believes the claim is without merit, but defense costs have adversely affected results and may continue to do so. The separate Lehman-related claims were dismissed or settled in 2013 for amounts described as not material.
- SBSFPC incurred losses connected with City of Detroit derivative contracts. After Detroit filed for bankruptcy, contracts were unwound and assigned in July 2013; SBSFPC reported no continuing rights or obligations related to them. SBSFPC had no derivative positions at year-end.
- Risks include market and trading volatility, customer nonpayment, underwriting exposure, extensive regulation and capital requirements, reliance on technology and third-party clearing systems, and competition from larger or lower-cost brokers. The estate of the late founder owned approximately 90% of outstanding shares, giving its executors substantial voting control; the public float was limited.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end. The independent auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether commission revenue can recover and how dependent it remains on individual customers; the filing cites one customer responsible for approximately 18% of 2012 commission and fee income.
- The duration, cost and potential outcome of the unresolved former employee arbitration and its effect on professional fees.
- Progress and financial consequences of reducing WFN resources and winding down SBSFPC, including any remaining exposure related to affiliate derivatives.
- Availability of cash and affiliate investment value, including restrictions on capital and the $1.2 million secured demand note arrangement with SBS.
- Whether SBS’s weaker 2013 results and Siebert’s customer, trading and offering activity improve or remain under pressure.