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SIEB > SEC Filings for SIEB > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for SIEBERT FINANCIAL CORP

Form 10-Q for SIEBERT FINANCIAL CORP


14-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2012, and the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Business Environment

Our working capital is invested primarily in money market funds, so that liquidity has not been materially affected. The financial crisis that started in 2008 did have the effect of reducing participation in the securities market by our retail and institutional customers, which had an adverse effect on our revenues. The stock market has improved in the six months ended June 30, 2013, however our revenue has not improved during this period. Our affiliate, Siebert,


Brandford, Shank & Co., L.L.C. ("SBS") had a loss for the current six months period of approximately $1.9 million compared to a gain of $1.4 million for the same period last year. SBS's loss resulted in a loss to the Company of $951,000 for the current six month period. Our expenses include the costs of an arbitration proceeding commenced by a former employee following the termination of his employment, which remains unresolved. The Company believes that the action is without merit, but the costs of defense, which are included as professional expenses, have adversely affected the Company's results of operation and may continue to affect the results of operations until the action is completed. Competition in the brokerage industry remains intense.

The following table sets forth certain metrics as of June 30, 2013 and 2012 and for the three and six months ended June 30, 2013 and 2012, respectively, which we use in evaluating our business.

                                          For the Three Months        For the Six Months
                                             ended June 30,             ended June 30,
    Retail Customer Activity:              2013          2012          2013         2012


Total retail trades:                         89,382       86,096       175,376      189,219

Average commission per retail trade:    $     22.35    $   30.16        $24.05    $   31.03

                                             As of June 30,

Retail customer balances:                  2013          2012

Retail customer net worth (in
billions):                              $       6.8    $     6.5
Retail customer money market fund
value (in billions):                    $       1.1    $     1.0
Retail customer margin debit
balances (in millions):                 $     204.8    $   221.6
Retail customer accounts with
positions:                                   39,585       42,934

Description:

Total retail trades represent retail trades that generate commissions.

Average commission per retail trade represents the average commission generated for all types of retail customer trades.

Retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits.

Retail customer money market fund value represents all retail customers accounts invested in money market funds.

Retail customer margin debits balances represent credit extended to our customers to finance their purchases against current positions.

Retail customer accounts with positions represent retail customers with cash and/or securities in their accounts.


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. Shares will be purchased from time to time, in our discretion, in the open market and in private transactions. During the six months ended June 30, 2013, the Company purchased 12,266 shares at an average price of $1.56.

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 affect 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. Estimates are also used in determining the useful lives of intangible assets, and the fair market value of intangible assets and securities. Our management believes that its estimates are reasonable.

Results of Operations

We had a net loss of $1,353,000 and $2,722,000 for the three months and six months ended June 30, 2013, respectively.

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Total revenues for the three months ended June 30, 2013 were $4.3 million, a decrease of $1.3 million or 23.9% from the same period in 2012.

Commission and fee income for the three months ended June 30, 2013 was $2.9 million, a decrease of 975,000 or 25.1% from the same period in 2012 primarily due to a decrease in average commissions charged per trade as a result of a decrease in retail options trading by one customer who accounted for approximately 26.0% of total commission and fees in the three months ended June 30, 2012, as well as a decrease in our commission recapture operations and our institutional trading commissions.

Investment banking revenues for the three months ended June 30, 2013 were $751,000, an decrease of $447,000 or 37.3% from the same period in 2012 due to our reduced participation in new issues in the equity and debt capital markets.

Trading profits were $607,000 for the three months ended June 30, 2013, an increase of $76,000 or 14.3% from the same period in 2012 due to an overall increase in trading volume primarily in the debt markets.


Interest and dividends for the three months ended June 30, 2013 were $16,000, a decrease of $1,000 or 5.9% from the same period in 2012 .

Total expenses for each of the three months ended June 30, 2013 and 2012 were $5.3 million, a decrease of 763,000 or 12.7% from the same period in 2012.

Employee compensation and benefit costs for the three months ended June 30, 2013 were $2.2 million, a decrease $382,000 or 14.5% from the same period in 2012 due to a decrease in commission and bonus paid based on production in the capital markets and retail operations.

Clearing and floor brokerage costs for the three months ended June 30, 2013 were $675,000, an increase of $8,000 or 1.2% from the same period in 2012 due to an increase in execution charges for institutional trading operations.

Professional fees for the three months ended June 30, 2013, were $1.1 million, an increase of $289,000 or 35.2% from the same period in 2012 primarily due to increases in legal fees relating to a dispute with a former employee.

Advertising and promotion expenses for the three months ended June 30, 2013 were $76,000, a decrease of $13,000 or 14.6% from the same period in 2012 due to a decrease in public relations costs.

Communications expense for the three months ended June 30, 2013, was $328,000, a decrease of $170,000 or 34.1% from the same period in 2012 primarily due to a decrease in Bloomberg devices due to fewer employees in the Institutional Trading department and the elimination of costs associated with the discontinuance of our website developed and maintained by a software vendor as of June 2012.

Occupancy costs for the three months ended June 30, 2013 were $259,000, an increase of $33,000 or 14.6% from the same period in 2012 due to the increase in our New York office rents.

Write off of software development costs of $433,000 was due to the Company's discontinuation of its relationship with a software vendor on June 30, 2012, which had developed and maintained its website. As a result, the Company wrote off its remaining unamortized carrying value of development costs of $433,000. Effective July 1, 2012, such services have been provided by our clearing broker.

Other general and administrative expenses for the three months ended June 30, 2013 were $558,000, a decrease of $95,000 or 14.5% from the same period in 2012 due to a decrease in depreciation.

Income from Siebert's equity investment in SBS, an entity in which Siebert holds a 49% equity interest, for the three months ended June 30, 2013, was a loss of $349,000, compared to income of $847,000 from the same period in 2012 due to SBS participating in fewer senior managed and co-managed transactions. Loss from our equity investment in SBS Financial Products Company, LLC, an entity in which we hold a 33.33% equity interest ("SBSFPC") for the three months ended June 30, 2013, was $28,000 as compared to $8,000 for the same period in 2012. The losses in 2013 and 2012 were due to the mark to market loss in positions. Income and loss from equity investees is considered to be integral to our operations and material to the results of operations.

No tax benefit related to the pre-tax loss was recorded for the three months ended June 30, 2013 due to the recording of a full valuation allowance to offset deferred tax assets based on recent cumulative losses and the likelihood of realization of such assets. There is no provision for income taxes for the three months ended June 30, 2012 because the Company utilized its net operating loss carry forward for which no benefit was previously recognized.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012


Total revenues for the six months ended June 30, 2013 were $8.5 million, a decrease of $3.6 million or 29.8% from the same period in 2012.

Commission and fee income for the six months ended June 30, 2013 was $5.9 million, a decrease of $3.1 million or 34.8% from the same period in 2012 primarily due to an decrease in average commissions charged per trade as a result of a decrease in retail options trading by one customer, which accounted for approximately 26.0% of total commission and fees in the six months ended June 30, 2012, as well as a decrease in our commission recapture and institutional trading commissions.

Investment banking revenues for the six months ended June 30, 2013 were $1.5 million, a decrease of $226,000 or 13.2% from the same period in 2012 due to our reduced participation in new issues in the equity and debt capital markets.

Trading profits were $1.1 million for the six months ended June 30, 2013, a decrease of $252,000 or 18.1% from the same period in 2012 due to an overall decrease in customer trading volume in the debt markets.

Interest and dividends for the six months ended June 30, 2013 were $32,000, a decrease of $8,000 or 20.0% from the same period in 2012 primarily due to lower cash balances.

Total expenses for the six months ended June 30, 2013 were $10.2 million, a decrease of $1.6 million or 13.5% from the same period in 2012.

Employee compensation and benefit costs for the six months ended June 30, 2013 were $4.5 million, a decrease of $612,000 or 12.0% from the same period in 2012 due to a decrease in commissions paid based on production in the capital markets.

Clearing and floor brokerage costs for the six months ended June 30, 2013 were $1.3 million, a decrease of $375,000 or 22.9% from the same period in 2012 due to overall decrease in retail trading volume. The decrease in costs reflects a lower volume of retail options trading which costs more to clear as well as a decrease in clearing charges for our commission recapture operations.

Professional fees for the six months ended June 30, 2013 were $2.0 million, an increase of $343,000 or 21.3% from the same period in 2012 primarily due to increases in legal fees relating to a dispute with a former employee.

Advertising and promotion expenses for the six months ended June 30, 2013 were $175,000, a decrease of $52,000 or 22.9% from the same period in 2012 primarily due to a decrease in online advertising.

Communications expense for the six months ended June 30, 2013 were $675,000, a decrease of $311,000 or 31.5% from the same period in 2012 primarily due to a decrease in Bloomberg devices due to fewer employees in the Institutional Trading department and the elimination of costs associated with the discontinuance of our website developed and maintained by a software vendor as of June 2012.

Occupancy costs for the six months ended June 30, 2013 were $516,000, an increase of $39,000 or 8.2% from the same period in 2012 due to an increase in our New York office rents.

Write off of software development costs of $433,000 was due to the Company's discontinuation of its relationship with a software vendor on June 30, 2012, which had developed and maintained its website. As a result, the Company wrote off its remaining unamortized carrying value of development costs of $433,000. Effective July 1, 2012, such services have been provided by our clearing broker.

Other general and administrative expenses for the six months ended June 30, 2013 were $1.1 million, a decrease of $195,000 or 15.0% from the same period in 2012 due to a decrease in depreciation, training and computer updates.


Income from Siebert's equity investment in SBS, an entity in which Siebert holds a 49% equity interest for the six months ended June 30, 2013, was a loss of $951,000, compared to income of $701,000 from the same period in 2012 due to SBS participating in fewer senior managed and co-managed transactions. Loss from our equity investment in SBSFPC, an entity in which we hold a 33.33% equity interest, for the six months ended June 30, 2013, was a loss $120,000 as compared to a loss of $16,000 from the same period in 2012. The losses in 2013 and 2012 were due to the mark to market loss in positions. Income and loss from equity investees is considered to be integral to our operations and material to the results of operations.

No tax benefit related to the pre-tax loss was recorded for the six months ended June 30, 2013 due to the recording of a full valuation allowance to offset deferred tax assets based on recent cumulative losses and the likelihood of realization of such assets. There is no provision for income taxes for the six months ended June 30, 2012 because the Company utilized its net operating loss carry forward for which no benefit was previously recognized.

Liquidity and Capital Resources

Our assets are highly liquid, consisting generally of cash in money market funds. Our total assets at June 30, 2013 were $30.8 million. As of that date, we regarded $20.4 million, or 66%, 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, 2013, Siebert's regulatory net capital was $17.1 million, $16.9 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, 2013, 12,266 shares were purchased at an average price of $1.56 per share.

Siebert has entered into a Secured Demand Note Collateral Agreement with SBS under which Siebert is obligated to lend to SBS up to $1.2 million on a subordinated basis collateralized by cash equivalents of approximately $1.5 million as of June 30, 2013. Amounts obligated to be loaned 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, 2014 at which time SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.

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