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SIEB > SEC Filings for SIEB > Form 10-Q on 15-May-2014All Recent SEC Filings

Show all filings for SIEBERT FINANCIAL CORP

Form 10-Q for SIEBERT FINANCIAL CORP


15-May-2014

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, 2013, and our 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 recent financial crisis 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. Our affiliate, Siebert, Brandford, Shank & Co., L.L.C. had income for the current period of approximately $1,481,000. This resulted in income to the Company of $726,000 for the current three 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 operations 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 and for the three months ended March 31, 2014 and 2013, respectively, which we use in evaluating our business.

                                                           For the Three Months
                                                             ended March 31,
              Retail Customer Activity:                     2014          2013


Total retail trades:                                          80,782       81,982
Average commission per retail trade:                     $     20.16    $   23.44

Retail customer balances:
Retail customer net worth (in billions):                         7.3    $     6.9
Retail customer money market fund value (in billions):           1.0    $     1.0
Retail customer margin debit balances (in millions):           240.0    $   186.0
Retail customer accounts with positions:                      34,871       40,904

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 debit 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.


We like other securities firms, 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 financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, including salaries and related costs, portions of communications costs and occupancy expenses. Accordingly, earnings or loss for any period should not be considered representative of any other period.

Recent Developments

On January 23, 2008, our Board of Directors authorized a buy back of up to 300,000 shares of common stock. Under this program, shares are purchased from time to time, at our discretion, in the open market and in private transactions. The Company did not purchase shares in the first quarter of 2014.

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. 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 market value of intangible assets. Our management believes that its estimates are reasonable.

Results of Operations

We had a net income of $28,000 and a net loss of $1.4 million for the three months ended March 31, 2014 and 2013, respectively.

Total revenues for the three months ended March 31, 2014 were $3.7 million, a decrease of $548,000 or 12.8% from the same corresponding period in 2013.

Commission and fee income for the three months ended March 31, 2014 was $3.0 million, a decrease of $5,000 or 0.2% from the same corresponding period in 2013 primarily due to a decrease in the retail customer commission ticket average offset by an increase in margin debit rebates as a result of higher margin debit balances.

Investment banking revenues for the three months ended March 31, 2014 were $435,000, a decrease of $295,000 or 40.4% from the same corresponding period in 2013 primarily due to a decrease in participation in new issues in the equity and debt markets.

Trading profits were $289,000 for the three months ended March 31, 2014, a decrease of $246,000 or 46.0% from the same corresponding period in 2013 due to an overall decrease in customer trading volume in the debt markets.


Interest and dividends for the three months ended March 31, 2014 were $14,000, a decrease of $2,000 or 12.5% from the same corresponding period in 2013 primarily due to lower cash balances.

Total expenses for the three months ended March 31, 2014 were $4.4 million, a decrease of $525,000 or 10.6% from the same corresponding period in 2013.

Employee compensation and benefit costs for the three months ended March 31, 2014 was $2.0 million, a decrease of $308,000 or 13.6% from the same corresponding period in 2013 due to a decrease in commissions and bonuses paid based on production in the debt capital markets and retail operations. In addition, savings resulted from a lower headcount in 2014.

Clearing and floor brokerage costs for the three months ended March 31, 2014 were $522,000, a decrease of $62,000 or 10.6% from the same corresponding period in 2013 primarily due to lower retail customer trading volumes.

Professional fees were $763,000 for the three months ended March 31, 2014, a decrease of $81,000, or 9.6% from the same corresponding period in 2013 primarily due to a decrease in legal fees relating to a dispute with a former employee and a decrease in consulting fees in our commission recapture business.

Advertising and promotion expenses for the three months ended March 31, 2014 were $70,000, a decrease of $29,000 or 29.3% from the same corresponding period in 2013 due to a decrease in online advertising.

Communications expense for the three months ended March 31, 2014 was $270,000, a decrease of $77,000 or 22.2% from the same corresponding period in 2013 primarily due to savings in communication and line charges with our new phone vendor Shoretel.

Occupancy costs for the three months ended March 31, 2014 were $243,000, a decrease of $14,000 or 5.4% from the same corresponding period in 2013 due to a decrease in our Jersey City office lease operating expenses.
Other general and administrative expenses were $597,000, an increase of $46,000 or 8.3% from the same corresponding period in 2013 due to an increase in depreciation from leasehold improvements written off over the life of the NY office lease.

Income from Siebert's equity investment in Siebert, Brandford, Shank & Co., L.L.C., an entity in which Siebert holds a 49% equity interest ("SBS"), for the three months ended March 31, 2014 was $726,000, compared to a loss of $602,000 from the same corresponding period in 2013 due to SBS participating in more municipal bond offerings as senior- and co-manager. Income from 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 March 31, 2014 was zero as compared to a loss of $92,000 from the same corresponding period in 2013. In 2014, operations are winding down. The loss in 2013 was due to the mark to market loss in positions.

There is no provision for income taxes for the three months ended March 31, 2014 because the Company utilized its net operating loss carry forward for which no benefit was previously recognized. No tax benefit related to the pre-tax loss was recorded for the three months ended March 31, 2013 due to the recording of a full valuation allowance to offset deferred tax assets based on recent losses and the likelihood of realization of such assets.


Liquidity and Capital Resources

Our assets are highly liquid, consisting generally of cash, money market funds and commercial paper. Our total assets at March 31, 2014 were $27.2 million. As of that date, $14.2 million, or 52.2%, of our total assets were regarded by us as highly liquid.

Siebert is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At March 31, 2014, Siebert's regulatory net capital was $12.5 million, $12.3 million in excess of its minimum capital requirement of $250,000.

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. The Company did not purchase shares in the 1st quarter of 2014.

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 March 31, 2014. 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, 2015 at which time SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.

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