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| SIEB > SEC Filings for SIEB > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
This discussion should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2008, and the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.
The stock market rebounded in the second quarter of 2009 despite the volatility in the marketplace due to the financial crisis affecting the global economy. Competition in the securities industry remains intense especially with regard to retail customer account acquisition and retention.
Like other securities firms, we are directly affected by general economic and market conditions including fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, all of which can affect our relative profitability. In periods of reduced market activity, profitability is likely to be adversely affected because certain expenses, including salaries and related costs, portions of communications costs and occupancy expenses remain relatively fixed. Earnings, or loss, for any period should not be considered representative of any other period.
Recent Developments
On January 23, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. During the six months ended June 30, 2009, the Company purchased 8,017 shares at an average price of $1.67.
Critical Accounting Policies
We generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations. Our management makes significant "estimates" that effect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements. The estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations, invoices, or other documentation at the time the books are closed for a period. We use our best judgment, based on our knowledge of these revenue transactions and expenses incurred, to estimate the amounts of such revenue and expense. We are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations, invoices or other documentation. Estimates are also used in determining the useful lives of intangible assets, and the fair value of intangible assets and securities. Our management believes that its estimates are reasonable.
Results of Operations
We believe that our business reflects the current difficult business environment for discount and online and institutional brokers. We had net income of $564,000 and $232,000 for the three months and six months ended June 30, 2009, respectively.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Total revenues for the three months ended June 30, 2009 were $7.3 million, a decrease of $101,000 or 1.4% from the same period in 2008.
Commission and fee income for the three months ended June 30, 2009 was $5.2 million, a decrease of $647,000 or 11.1% from the same period in 2008 due to a decrease in fees from margin debits due to lower margin debit balances and lower rates and a decrease in the commission recapture operation offset by an increase in institutional trading due to the addition of an equity sales-trader.
Trading profits were $508,000 for the three months ended June 30, 2009, an increase of $295,000 or 138.5% from the same period in 2008 due to an overall increase in trading volume primarily in the debt markets.
Interest and dividends for the three months ended June 30, 2009 were $25,000, a decrease of $118,000 or 82.5% from the same period in 2008 primarily due to lower yields on investments in U.S. Treasury Bills and money market funds and lower cash balances.
Total expenses for the three months ended June 30, 2009 were $7.7 million, a decrease of $344,000 or 4.3% from the same period in 2008.
Employee compensation and benefit costs for the three months ended June 30, 2009 were $2.9 million, an increase of $230,000 or 8.8% from the same period in 2008. This increase was due to increases in commissions paid based on production and health benefits offset by a reduced headcount in administrative and customer service staff and staff bonus accrual.
Clearing and floor brokerage costs for the three months ended June 30, 2009 were $1.6 million, an increase of $59,000 or 3.9% from the same period in 2008 primarily due to an increase in execution charges for institutional debt customers offset by a decrease in volume relating to the commission recapture operations.
Professional fees for the three months ended June 30, 2009, were $1.5 million, a decrease of $503,000 or 25.0% from the same period in 2008 primarily due to a decrease in legal fees relating to former employee matters and consulting fees relating to the commission recapture business.
Advertising and promotion expenses for the three months ended June 30, 2009 were $209,000, a decrease of $92,000 or 30.6% from the same period in 2008 primarily due to a decrease in production and airing of television commercials in the Florida region.
Communications expense for the three months ended June 30, 2009, was $644,000, a decrease of $2,000 from the same period in 2008 primarily due to a decrease in quotation costs associated with our retail customer base offset by an increase in local telephone usage.
Occupancy costs for the three months ended June 30, 2009 were $329,000, an increase of $12,000 or 3.8% from the same period in 2008 due to an increase in utilities and commercial rent tax at the corporate headquarters in New York.
Other general and administrative expenses for the three months ended June 30, 2009 were $620,000, a decrease of $48,000 or 7.2% from the same period in 2008 due to the decrease in travel and entertainment, subscriptions, printing and maintenance.
Income from Siebert's equity investment in Siebert Brandford Shank & Co., LLC, an entity in which Siebert holds a 49% equity interest ("SBS"), for the three months ended June 30, 2009, was $1.6 million, a decrease of $85,000 or 5.2% from the same period in 2008. SBS serves as an underwriter for municipal bond offerings. This decrease was due to SBS participating as manager or co-manager in fewer transactions. Loss from the our equity investment in SBS Financial Products Company, LLC, an entity in which we hold a 33% equity interest ("SBSFPC") for the three months ended June 30, 2008, was $115,000 as compared to a loss of $9,000 from the same period in 2008. This loss was due to the mark to market loss in positions. We consider income and loss from equity investees to be integral to our operations and material to the results of operations.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Total revenues for the six months ended June 30, 2009 were $14.3 million, a decrease of $998,000 or 6.5% from the same period in 2008.
Commission and fee income for the six months ended June 30, 2009 was $9.8 million, a decrease of $2.3 million or 18.9% from the same period in 2008 due to a decrease in institutional trading and in the commission recapture operation. Retail customer volumes decreased; however, the average commission charged per trade increased due to more retail customers executing trades via the phone, which has a higher commission charge per ticket. Additionally, there was a decrease in fees from margin debits due to lower margin debit balances and lower rates.
Investment banking revenues for the six months ended June 30, 2009 were $3.4 million, an increase of $989,000 or 40.5% from the same period in 2008 due to our participation in more new issues in the equity and debt capital markets.
Trading profits were $1.0 million for the six months ended June 30, 2009, an increase of $787,000 or 312.3% from the same period in 2008 due to an overall increase in trading volume primarily in the debt markets.
Interest and dividends for the six months ended June 30, 2009 were $51,000, a decrease of $492,000 or 90.6% from the same period in 2008 primarily due to lower yields on investments in U.S. Treasury Bills and money market funds and lower cash balances.
Total expenses for the six months ended June 30, 2009 were $16.1 million, an increase of $10,000 from the same period in 2008.
Employee compensation and benefit costs for the six months ended June 30, 2009 were $5.9 million, a decrease of $7,000 from the same period in 2008. This decrease was due to a reduction in headcount offset by an increase in commissions paid based on production, staff bonus accruals and the hiring of additional institutional equity sales traders.
Clearing and floor brokerage costs for the six months ended June 30, 2009 were $3.0 million, a decrease of $45,000 or 1.5% from the same period in 2008, due to a decrease in volume of trade executions for retail customers and volume relating to the commission recapture operation offset by an increase in execution charges for institutional debt customers.
Professional fees for the six months ended June 30, 2009, were $3.5 million, an increase of $260,000 or 8.1% from the same period in 2008 primarily due to an increase in legal fees relating to former employee matters offset by a decrease in consulting fees relating to the commission recapture business.
Advertising and promotion expenses for the six months ended June 30, 2009 were $487,000, a decrease of $117,000 or 19.4% from the same period in 2008 primarily due to decreases in marketing and promotional expenses relating to the new front end computer system and print advertising, brochures and direct mailings to our retail customers.
Communications expense for the six months ended June 30, 2009, was $1.3 million, a decrease of $8,000 from the same period in 2008 due primarily due to a decrease in quotation costs associated with our retail customer base offset by an increase in local telephone usage.
Other general and administrative expenses for the six months ended June 30, 2009 were $1.3 million, a decrease of $82,000 or 5.9% from the same period in 2008. This decrease was a result of decreases in travel and entertainment, subscriptions, printing, office equipment and exchange and registration fees offset by increases in depreciation and amortization.
Income from the Siebert's equity investment in Siebert Brandford Shank & Co., LLC, an entity in which Siebert holds a 49% equity interest ("SBS") for the six months ended June 30, 2009, was $2.5 million, an increase of $873,000 or 54.7% from the same period in 2008. This increase was due to an increase in SBS participating in more municipal bond offerings as senior managers. SBS serves as an underwriter for municipal bond offerings. Loss from our equity investment in SBS Financial Products Company, LLC an entity in which we hold a 33% equity interest ("SBSFPC") for the six months ended June 30, 2009, was $182,000 as compared to a loss of $18,000 from the same period in 2008. This loss was due to the mark to market loss in positions. We consider income and loss from equity investees to be integral to our operations and material to the results of operations.
The tax provisions for the six months ended June 30, 2009 and 2008 were $222,000 and $313,000, respectively, based on our income before income tax of $454,000 and $753,000, respectively.
Liquidity and Capital Resources
Our assets are highly liquid, consisting generally of cash, money market funds and commercial paper. Our total assets at June 30, 2009 were $46 million. As of that date, we regarded $31.1 million, or 67%, of total assets as highly liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At June 30, 2009, Siebert's regulatory net capital was $24.4 million, $24.1 million in excess of its minimum capital requirement of $250,000.
On January 22, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. During the six months ended June 30, 2009, 8,017 shares have been purchased at an average price of $1.67 per share.
Siebert has entered into a Secured Demand Note Collateral Agreement with SBS under which it is obligated to lend to SBS up to $1.2 million pursuant to a secured promissory note on a subordinated basis. Amounts pledged by Siebert under the facility are reflected on our balance sheet as "cash equivalents - restricted". SBS pays Siebert interest on this amount at the rate of 4% per annum. The facility expires on August 31, 2010, at which time SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.
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