Siebert Financial Corp. — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012; filed April 1, 2013. This is an annual filing, not a standalone fourth-quarter report. Siebert provides retail discount brokerage and investment banking services and holds a 49% interest in municipal underwriter Siebert, Brandford, Shank & Co. (SBS).
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $20.983 million | $20.199 million |
| Expenses | $21.926 million | $25.584 million |
| Income from equity investees | $806,000 | $29,000 |
| Loss before taxes | $137,000 | $5.356 million |
| Net loss | $171,000; $0.01 per share | $5.379 million; $0.24 per share |
| Cash flow from operations | $(2.014) million | $(1.470) million |
| Cash and cash equivalents, year-end | $18.902 million | $21.167 million |
| Total assets / stockholders’ equity, year-end | $33.456 million / $31.040 million | $34.823 million / $31.224 million |
Fourth-quarter 2012 revenue was $4.732 million and net loss was $331,000 ($0.01 per share), compared with revenue of $4.341 million and a net loss of $994,000 in fourth-quarter 2011. No operating margin is stated; the company remained loss-making for the full year.
Revenue mix in 2012: commissions and fees $14.630 million; investment banking $3.917 million; trading profits $2.360 million; interest and dividends $76,000. The filing reports no dividends declared in 2012. It does not provide a clear consolidated debt balance; reported liabilities were $2.416 million, while Siebert also had a secured lending commitment to SBS of up to $1.2 million.
Changes and notable items
- Revenue rose 3.9% year over year, while expenses declined 14.3%, substantially narrowing the net loss.
- Commission and fee income increased 2.2%, investment banking revenue rose 3.1%, and trading profits increased 17.7%. Retail trades fell to 336,412 from 423,501, while average commission per retail trade increased to $26.59 from $20.71.
- SBS-related equity income increased to $774,000 from $8,000 as SBS participated in more municipal offerings. Total income from equity investees, including SBS Financial Products Company, was $806,000.
- 2012 included a $300,000 impairment of intangibles and a $433,000 write-off of website development costs after changing providers. Professional fees fell to $3.106 million from $5.057 million, partly reflecting lower legal costs.
- Cash declined by $2.265 million during the year. Management described assets as highly liquid and reported $21.1 million, or 63% of assets, as highly liquid. Regulatory net capital was approximately $16.962 million, versus a $250,000 minimum.
Outlook, risks, and contingencies
The filing gives no numerical guidance or earnings forecast. Management said market improvement supported 2012 revenue, while warning that results depend on trading activity, market conditions, interest rates, and demand for brokerage and underwriting services. Competition and pressure on brokerage fees remain significant.
- Customer concentration: one customer generated approximately 12% of total 2012 revenue; another customer’s options activity accounted for approximately 18% of commission and fee income, as separately described in the filing.
- The Lehman-related securities class action settlement of $1 million was paid into escrow and court-approved in 2012. Additional liability remains possible for claims not covered by the settlement; the amount, if any, is undetermined.
- An arbitration brought by a former employee remained unresolved. Management considers it without merit, but defense costs may continue.
- Risks include market volatility, underwriting exposures, customer or counterparty nonpayment, regulatory capital requirements, reliance on electronic systems and clearing providers, and dependence on key personnel. Ms. Siebert owned approximately 90% of common stock.
- Siebert’s $1.2 million subordinated lending facility to SBS is collateralized by approximately $1.532 million of restricted cash equivalents and bears 4% interest; it expires August 31, 2014.
The independent auditor issued an unqualified opinion on the consolidated financial statements. Management reported effective disclosure controls and internal control over financial reporting as of year-end.
Key facts for investors to verify
- Whether recurring brokerage revenue and retail trading activity can improve, given lower trade counts and customer concentration.
- Whether SBS’s improved 2012 results can be sustained and whether its earnings are available for distribution to Siebert.
- The eventual cost or resolution of the former-employee arbitration and any residual Lehman-related claims.
- Cash-flow trends, restricted cash, regulatory net-capital headroom, and the SBS lending commitment.
- Progress and costs following the website provider transition, and the basis for the 2012 intangible impairment.