Siebert Financial Corp. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a quarterly filing. Siebert provides discount brokerage and related services, holds a 49% interest in municipal underwriting affiliate SBSF, and began operating a registered investment adviser subsidiary in 2014.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $15.815 million | $16.401 million |
| Net loss | $6.557 million | $5.912 million |
| Net loss per share | $0.30 | $0.27 |
| Cash used in operating activities | $8.694 million | $2.944 million |
| Total assets | $20.728 million | $27.970 million |
| Total liabilities, excluding subordinated borrowings | $2.176 million | $2.861 million |
| Stockholders’ equity | $18.552 million | $25.109 million |
Net loss was approximately 41% of reported revenue. Cash and cash equivalents were $6.749 million; an additional $1.532 million was restricted as collateral. Management described $7.7 million, or 37.2% of assets, as highly liquid. The filing reports no conventional parent-company debt, but Siebert had a secured lending commitment to SBS of up to $1.2 million, and SBS had a separate $4 million subordinated loan from its clearing broker at year-end, repaid January 22, 2015. Siebert’s regulatory net capital was $5.1 million, $4.8 million above its $250,000 minimum. Operating lease commitments totaled $1.177 million.
Changes and notable items
- Revenue declined year over year. Commissions and fees fell 9.9% to $10.757 million; investment banking revenue fell 24.3% to $1.830 million; and trading gains fell 31.6% to $1.351 million. Retail trades decreased to 293,419 from 327,285, while average commission per trade fell to $19.50 from $21.70.
- Total expenses were $22.476 million, up slightly from $22.229 million. The 2014 results included a $4.3 million settlement payment to a former employee; all claims and counterclaims were dismissed and released.
- On November 4, 2014, Siebert sold substantially all capital-markets assets to affiliate SBSF. The stated purchase price is $3 million, payable in future installments tied to the transferred business’s earnings, with any unpaid balance due by March 1, 2021. Siebert recorded a $1.820 million gain based on a discounted, Level 3 valuation; this is not equivalent to cash received at closing. It also recorded approximately $37,000 of interest income through year-end.
- SBSF income attributable to Siebert was $84,000, down from $94,000. SBSF reported net income of $171,000, compared with $193,000 in 2013. The related derivatives venture SBSFPC ceased operations in December 2014.
- Cash and cash equivalents declined from $15.424 million to $6.749 million, and stockholders’ equity decreased by $6.557 million, reflecting the annual net loss. No dividends were declared, and no shares were repurchased in 2014.
Outlook, risks and governance
The filing provides no quantified revenue or earnings guidance. Management said the market improved in 2014 but Siebert’s revenue did not, citing lower trading activity and commissions, fewer investment-banking offerings, and intense competition. The new investment-adviser subsidiary’s 2014 results were described as immaterial.
Key risks include market and trading-volume volatility, commission and fee pressure, regulatory and net-capital requirements, customer and counterparty defaults, underwriting exposure, and reliance on electronic systems and third-party clearing infrastructure. Management also cited dependence on key personnel. The estate of former chair and CEO Muriel Siebert owned approximately 90% of outstanding shares, giving its executors substantial control. Suzanne Shank completed her role as acting CEO on March 3, 2015; Joseph Ramos was listed as COO, CFO and secretary.
Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2014. The independent auditor issued an unqualified opinion on the consolidated financial statements and stated it was not engaged to audit internal control.
Important facts for investors to verify
- Reconcile the revenue presentation: the audited statement of operations totals $15.815 million, while selected financial data and management’s discussion cite approximately $15.852 million. The filing text does not clearly explain the $37,000 difference.
- Assess the recoverability and timing of the affiliate sale receivable: its year-end carrying value was $1.857 million, based on a Level 3 estimate, and cash payments depend initially on future earnings of the transferred business.
- Review liquidity and capital availability, including the restricted $1.532 million, the SBS lending facility’s August 2015 maturity, and the availability of affiliate earnings for distribution.
- Consider whether the $4.3 million settlement and declining brokerage activity obscure the underlying recurring earnings trend; 2014 operating cash outflow was $8.694 million.
- Verify leadership succession, related-party governance and the implications of approximately 90% ownership by the former chair’s estate.