Siebert Financial Corp. — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015; filed March 30, 2016. The company principally operates a retail discount brokerage through Muriel Siebert & Co. and began investment-advisory operations in 2014. It sold its capital-markets assets in 2014 and its 49% interest in Siebert Brandford Shank Financial (SBSF) on November 9, 2015.
Financial performance and condition
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $10.096 million | $15.852 million |
| Expenses | $13.188 million | $22.476 million |
| Loss from continuing operations | $2.817 million | $6.597 million |
| Net loss | $2.869 million; $0.13 per share | $6.557 million; $0.30 per share |
| Operating cash flow | $(1.392) million | $(8.694) million |
| Cash and cash equivalents, year-end | $9.420 million | $6.749 million |
| Total assets, year-end | $17.785 million | $20.728 million |
| Stockholders’ equity, year-end | $15.683 million | $18.552 million |
- Revenue fell 36.3%, while expenses fell 41.3%; the smaller net loss reflected lower costs and the absence of the 2014 $4.3 million former-employee arbitration settlement charge. Revenue remained pressured despite improved stock markets.
- Commission and fee income declined 14.9% to $9.155 million, reflecting weaker retail activity and the prior sale of capital-markets operations. Investment-banking revenue fell to $40,000 from $1.830 million; trading gains declined to $575,000 from $1.351 million. Interest and dividends rose to $326,000, including interest on affiliate-related receivables.
- Retail trades decreased to 259,624 from 293,419; average commission per trade increased to $22.29 from $19.50. Accounts with positions declined to 30,851 from 32,962; customer margin debit balances rose to $254.7 million from $232.3 million.
- Calculated net-loss margin was approximately 28.4% of revenue (continuing-operations loss margin approximately 27.9%); the filing does not present these as reported margin measures.
- Cash increased by $2.671 million: operating cash use of $1.392 million was more than offset by $4.063 million of investing cash inflow, principally the $4 million cash proceeds from the SBSF interest sale. No cash dividends were declared.
- Year-end liabilities were $2.102 million, mainly accounts payable and accrued liabilities; no corporate borrowings are shown on Siebert’s consolidated balance sheet. Regulatory net capital was $8.1 million versus a $250,000 minimum. Management described $9.4 million, or 53% of assets, as highly liquid.
Material changes, transactions, and unusual items
- Siebert sold its 49% SBSF interest for $8 million: $4 million cash and a $4 million secured junior subordinated note, bearing 8% interest compounded monthly and due November 9, 2020. The note is junior to up to $5 million of SBSF senior debt and secured by pledged SBSF membership interests. The sale produced a $448,000 loss versus carrying value; affiliate results and the disposal loss are classified as discontinued operations.
- The company retained a receivable for the 2014 capital-markets asset sale. Its December 31, 2015 carrying amount was $2.092 million, net of discount; installments depend on the sold business’s earnings, with a $3 million stated aggregate purchase price and a final settlement provision in 2021. The $493,000 installment for 2015 earnings was paid March 3, 2016. Interest income on this obligation was $235,000 in 2015.
- Cash flow was also affected by the $4 million cash received for the SBSF stake sale. The company reported an additional $4.046 million receivable from the former affiliate, including accrued interest, at year-end.
- Fourth-quarter 2015 revenue was $2.832 million and net loss was $200,000; the quarter included a $448,000 loss on disposal of the SBSF investment. Fourth-quarter 2014 included a $1.820 million business-sale gain.
- Deferred tax assets were fully offset by a valuation allowance. The filing reports federal NOL carryforwards of $20.3 million and state NOL carryforwards of $15.4 million, subject to expiration and applicable limits.
Outlook, commentary, risks, and contingencies
- The filing provides no quantified earnings or revenue guidance. Management cautions that results vary with trading volumes, securities prices, interest rates, commission pricing, and market activity; certain expenses remain relatively fixed.
- Key risks include intense competition from larger and lower-cost brokerages, pressure on commissions and order-flow economics, extensive regulation and net-capital requirements, customer credit and unsettled-trade exposure, and reliance on electronic systems and third-party clearing and technology services. The company said electronic channels handled up to approximately 70% of trade orders in 2015.
- The $4 million SBSF note and the capital-markets sale receivable depend on a former affiliate and its business performance; the SBSF note is subordinated, making collectability and recovery important risks. The filing also describes the company’s dependence on NFS for clearing and core technology.
- A current employee’s FINRA arbitration alleges retaliation under the Dodd-Frank Act; management considers the claim without merit and does not expect a significant financial effect. Other ordinary-course claims were described as not expected to be material. The former employee dispute was settled in 2014 for $4.3 million, with claims and counterclaims released.
- The estate of Muriel F. Siebert owns approximately 90% of common shares, giving it control over shareholder decisions; the public float is 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, but was not engaged to audit internal control.
Important facts for investors to verify
- Payment history, collateral, senior-debt priority, covenant compliance, and ultimate collectability of the $4 million SBSF note.
- Actual future installments and final settlement on the capital-markets sale receivable, including whether the stated purchase-price balance will be recovered.
- Reconciliation of the filing’s selected-financial-data revenue for 2014 ($15.815 million) with the audited statements and MD&A, which report $15.852 million.
- Whether retail trade volumes, customer accounts, and commission economics stabilize, and how much of the lower reported loss reflects sustainable cost reductions versus discontinued businesses and transaction effects.
- Impact of the employee arbitration and any other regulatory, legal, technology, or customer-credit events not considered material by management.