Business context and reporting period
Siebert Financial Corp. filed this unaudited Form 10-Q for the three months ended March 31, 2015. The company operates a retail discount brokerage and, since 2014, a registered investment-advisory subsidiary. Its 49% equity-method investment in Siebert Brandford Shank Financial (SBSF) remains material to results.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 or comparison |
|---|---|---|
| Revenue | $2.568 million | $3.718 million; down 30.9% |
| Expenses | $3.414 million | $4.416 million; down 22.7% |
| Equity-investee income (loss) | $(688,000) | $726,000 |
| Net income (loss) | $(1.534) million; $(0.07) per share | $28,000; $0.00 per share |
| Cash used in operating activities | $(1.161) million | $(1.063) million |
| Cash and cash equivalents | $5.573 million at March 31 | $6.749 million at December 31, 2014 |
| Total assets / stockholders’ equity | $18.742 million / $17.018 million | $20.728 million / $18.552 million at December 31, 2014 |
Revenue was led by commissions and fees of $2.377 million, followed by trading profits of $169,000; investment banking revenue was $8,000. The filing reports $1.724 million of accounts payable and accrued liabilities and no conventional borrowings in the balance sheet. Separately, $1.532 million of cash equivalents was restricted as collateral for a facility under which Siebert could be obligated to lend SBS up to $1.2 million. Siebert’s regulatory net capital was $4.608 million, $4.358 million above its $250,000 minimum. Management described working capital as primarily invested in money market funds and liquidity as not materially affected.
Material changes versus the prior period
- Commissions and fees fell 20.2%, partly reflecting the capital-markets asset sale and closure of the rebate-recapture business. Retail trades declined to 68,542 from 80,782, while average commission per trade rose to $21.41 from $20.16.
- Investment banking revenue fell 98.2% following the November 2014 sale of substantially all capital-markets assets. Trading profits declined 41.5%, which management attributed to lower debt-market customer trading volume.
- Expenses decreased 22.7%, including lower employee costs (down 27.1%) and clearing fees (down 23.2%), but the decline did not offset lower revenue and the adverse swing in affiliate results.
- SBSF reported a Q1 2015 net loss of approximately $1.521 million, compared with SBS net income of $1.481 million in Q1 2014. Siebert recognized a $688,000 equity-investment loss in 2015, including $56,000 of interest income on the sale receivable.
Outlook, risks, contingencies and unusual items
No numerical guidance was provided. Management cautioned that results are sensitive to market conditions, trading volume and prices, interest rates, demand for brokerage and investment-banking services, and intense competition; quarterly results are not necessarily indicative of full-year performance. Other stated risks include systems failures, trading errors, customer nonpayment and regulatory-capital requirements.
The 2014 capital-markets sale carried a stated $3.0 million purchase price payable in annual installments beginning in 2016, with payments tied to earnings from the transferred business and a final payment provision for 2021. The company recorded a $1.820 million gain in 2014; the obligation’s estimated fair value uses Level 3 assumptions. The filing reports $56,000 of related interest income in Q1 2015. The company recorded no tax benefit on its 2015 loss because of a valuation allowance against deferred tax assets. Management said routine legal matters were not expected to have a material adverse effect, and no material unsettled-customer-transaction losses were reported. Disclosure controls were deemed effective; no material changes to internal control were reported.
Important facts for investors to verify
- Clarify the share-repurchase disclosure: the narrative says no shares were purchased in Q1 2015, while the repurchase table is garbled and appears inconsistent with that statement and says purchases were made in open-market transactions.
- Assess the collectability and timing of the capital-markets sale receivable, whose payments depend substantially on future business earnings and valuation estimates.
- Monitor SBSF’s losses and the availability of Siebert’s share of undistributed earnings; the filing says $6.7 million was undistributed and may not be immediately distributable.
- Review liquidity alongside restricted cash, the SBS lending commitment and its August 31, 2015 expiration.
- Compare brokerage activity, revenue trends and regulatory net capital in subsequent filings; no forward-period guidance was provided.