Siebert(SIEB) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the company's condensed consolidated financial statements and accompanying detailed notes CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION The company's total assets and liabilities decreased while stockholders' equity increased as of September 30, 2021 Financial Condition Summary | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | | :--------------------------------- | :------------- | :------------- | :----- | | Total Assets | $1,247,204,000 | $1,372,987,000 | -$125,783,000 | | Total Liabilities | $1,204,581,000 | $1,335,001,000 | -$130,420,000 | | Total Stockholders' Equity | $42,623,000 | $37,986,000 | +$4,637,000 | | Securities borrowed | $791,349,000 | $905,785,000 | -$114,436,000 | | Securities loaned | $789,836,000 | $920,811,000 | -$130,975,000 | CONDENSED CONSOLIDATED STATEMENTS OF INCOME Revenue and net income grew significantly for both the three and nine months ended September 30, 2021 Three Months Ended September 30, 2021 vs 2020 | Metric | Sep 30, 2021 | Sep 30, 2020 | YoY Change | | :--------------------------------- | :------------- | :------------- | :--------- | | Total Revenue | $17,051,000 | $12,575,000 | +35.6% | | Net Income | $870,000 | $581,000 | +49.7% | | Basic and Diluted EPS | $0.03 | $0.02 | +50.0% | | Principal transactions | $3,924,000 | $2,342,000 | +67.5% | | Market making | $1,514,000 | $423,000 | +257.9% | | Stock borrow / stock loan | $3,465,000 | $1,267,000 | +173.5% | | Employee compensation and benefits | $9,294,000 | $6,584,000 | +41.2% | | Impairment loss | $699,000 | $0 | N/A | Nine Months Ended September 30, 2021 vs 2020 | Metric | Sep 30, 2021 | Sep 30, 2020 | YoY Change | | :--------------------------------- | :------------- | :------------- | :--------- | | Total Revenue | $52,768,000 | $39,995,000 | +31.9% | | Net Income | $4,574,000 | $2,056,000 | +122.5% | | Basic and Diluted EPS | $0.15 | $0.07 | +114.3% | | Principal transactions | $12,279,000 | $8,126,000 | +51.1% | | Market making | $4,886,000 | $1,508,000 | +224.0% | | Stock borrow / stock loan | $7,552,000 | $2,482,000 | +204.3% | | Employee compensation and benefits | $27,205,000 | $20,489,000 | +32.8% | | Impairment loss | $699,000 | $0 | N/A | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Stockholders' equity increased due to net income and shares issued for an acquisition - Stockholders' Equity increased from $37,986,000 at January 1, 2021, to $42,623,000 by September 30, 2021[19] - Net income for the nine months ended September 30, 2021, contributed $4,574,000 to equity[19] - Shares issued for OpenHand purchase added $1,381,000, while shares retired from the OpenHand transaction reduced equity by $1,318,000[19] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Net cash from operating activities decreased significantly, while investing and financing activities used cash Nine Months Ended September 30 Cash Flow Summary | Cash Flow Activity | 2021 | 2020 | Change | | :--------------------------------- | :------------- | :------------- | :----- | | Net cash provided by / (used in) operating activities | $5,352,000 | $36,352,000 | -$31,000,000 | | Net cash provided by / (used in) investing activities | -$1,333,000 | -$334,000 | -$999,000 | | Net cash provided by / (used in) financing activities | -$948,000 | $2,904,000 | -$3,852,000 | | Net change in cash and cash equivalents, and cash and securities segregated for regulatory purposes | $3,071,000 | $38,922,000 | -$35,851,000 | - The significant decrease in operating cash flow was primarily due to changes in securities loaned (from $96.3M provided in 2020 to $131.0M used in 2021) and securities borrowed (from $90.2M used in 2020 to $114.4M provided in 2021)[21] - Investing activities in 2021 included the purchase of OpenHand common stock ($850,000) and furniture/equipment ($274,000)[21] NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS These notes detail the company's organization, accounting policies, acquisitions, and financial instruments 1. Organization and Basis of Presentation The company operates through subsidiaries in brokerage and asset management, with recent key clearing arrangement changes - Siebert operates through subsidiaries in retail brokerage (MSCO), investment advisory (SNXT), insurance (PW), robo-advisory tech (STCH), prime brokerage (WPS), and an inactive subsidiary (STXD)[27] - On August 23, 2021, the company signed a non-binding letter of intent with Tigress Holdings, LLC to exchange 24% membership interests in Tigress Financial Partners, LLC for 24% of WPS and Siebert common stock[26] - Goldman Sachs & Co LLC terminated its clearing arrangement with WPS on August 30, 2021, leading to a full impairment of WPS customer relationships intangible asset and expected significant reduction in WPS revenue in future periods[28][29][30][31] 2. New Accounting Standards Recently adopted accounting standards for investments and income taxes did not have a material impact - ASU 2020-01, clarifying interactions between accounting for equity securities, equity method, and derivatives, was adopted on January 1, 2021, with no material impact[40][41][42] - ASU 2019-12, simplifying income tax accounting, was adopted on January 1, 2021, with no material impact[43] - ASU 2016-13, changing the impairment model for credit losses, is yet to be adopted, and its impact is currently being assessed[44] 3. Acquisitions The acquisition of StockCross Financial Services, Inc was completed as a common control transaction - The company acquired the remaining 85% of StockCross' outstanding shares on January 1, 2020, for 3,298,774 shares of common stock, merging StockCross into MSCO[32][47] - The acquisition was accounted for as a transaction between entities under common control, with net assets combined at historical carrying amounts and no goodwill recorded[33][48][49] - Net assets acquired from StockCross totaled $15,714,000[49] 4. Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations Receivables from broker-dealers decreased while payables increased as of September 30, 2021 Receivables from and deposits with broker-dealers and clearing organizations | Category | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------------------------------------- | :------------- | :------------- | :----- | | DTCC / OCC / NSCC | $11,030,000 | $17,841,000 | -$6,811,000 | | Total Receivables and Deposits | $15,877,000 | $23,023,000 | -$7,146,000 | Payables to broker-dealers and clearing organizations | Category | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------------------------------------- | :------------- | :------------- | :----- | | Securities fail-to-receive | $3,093,000 | $1,810,000 | +$1,283,000 | | Total Payables | $3,132,000 | $1,810,000 | +$1,322,000 | 5. Prepaid Service Contract The company has a prepaid asset with InvestCloud for platform development being amortized over three years - The company entered into a Master Services Agreement with InvestCloud on April 21, 2020, for platform development and an annual license fee of $600,000, plus an upfront professional service fee of $1.0 million[51] - A prepaid asset of $2.1 million for professional services is being amortized over the 3-year contract term[53] Total Cost Related to InvestCloud (Nine Months Ended Sep 30) | Year | Amount | | :--- | :----- | | 2021 | $782,000 | | 2020 | $436,000 | 6. Fair Value Measurements Financial assets and liabilities are categorized into a three-level hierarchy based on input observability - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[58][59] - Receivables, payables, securities borrowed, and securities loaned are primarily classified as Level 2, approximating fair value due to their short-term nature or daily mark-to-market adjustments[70][71][72] Securities Owned, at Fair Value (As of September 30, 2021) | Category | Level 1 | Level 2 | Level 3 | Total | | :------------------------ | :---------- | :-------- | :-------- | :---------- | | U.S. government securities | $2,990,000 | — | — | $2,990,000 | | Certificates of deposit | — | $92,000 | — | $92,000 | | Corporate bonds | — | $38,000 | — | $38,000 | | Equity securities | $648,000 | $248,000 | — | $896,000 | | Total | $3,638,000 | $378,000 | — | $4,016,000 | 7. Leases Lease assets and liabilities increased, while rent and occupancy expenses decreased due to office relocations Lease Right-of-Use Assets and Lease Liabilities | Metric | Sep 30, 2021 | Dec 31, 2020 | | :------------------------ | :------------- | :------------- | | Lease right-of-use assets | $3,002,000 | $2,290,000 | | Lease liabilities | $3,292,000 | $2,612,000 | Total Rent and Occupancy Expense | Period | 2021 | 2020 | Change | | :------------------------ | :--------- | :--------- | :----- | | Three Months Ended Sep 30 | $441,000 | $694,000 | -$253,000 | | Nine Months Ended Sep 30 | $1,481,000 | $2,119,000 | -$638,000 | Future Annual Minimum Lease Payments (Operating Leases, as of Sep 30, 2021) | Year | Amount | | :--- | :--------- | | 2021 | $397,000 | | 2022 | $1,344,000 | | 2023 | $940,000 | | 2024 | $399,000 | | 2025 | $325,000 | | Thereafter | $139,000 | | Total Lease Liabilities | $3,292,000 | 8. Investments, Cost The company terminated its working relationship with OpenHand, retaining a smaller interest for cash - On January 31, 2021, the company acquired a 5% interest in OpenHand Holdings, Inc for $850,000 in cash and 329,654 restricted shares of the company's common stock valued at $1,381,000[82] - The working relationship with OpenHand was terminated on August 18, 2021; the company now holds a 2% interest for $850,000 cash, and the stock portion of the original purchase was rescinded[84] - A downward adjustment of $63,000 was recorded for the three and nine months ended September 30, 2021, due to a change in an observable price related to the investment[88] 9. Goodwill and Intangible Assets, Net Goodwill remained unimpaired, but the WPS customer relationships intangible asset was fully impaired - Goodwill remained at $1,989,000 as of September 30, 2021, with no impairment recognized[89][92] - A full impairment loss of $699,000 was recognized for the WPS customer relationships intangible asset for the three and nine months ended September 30, 2021[93] - The impairment was triggered by the termination of WPS's clearing arrangement with Goldman Sachs & Co LLC, which is expected to significantly reduce WPS's revenue-producing customers[91][93] 10. Deferred Contract Incentive An amended clearing agreement with NFS included a $3 million business development credit - MSCO's clearing agreement with National Financial Services LLC (NFS) was amended on August 1, 2021, extending the term for an additional four years until July 31, 2025[95] - The company received a one-time business development credit of $3 million from NFS, recorded as a deferred contract incentive[96] - This credit is recognized as a contra expense over the term of the agreement, with $125,000 recognized for the three and nine months ended September 30, 2021, and a balance of $2.9 million as of September 30, 2021[96] 11. Long-Term Debt The company has a $10 million line of credit with an outstanding balance of $3.9 million - The company has a Loan and Security Agreement with East West Bank, allowing borrowing up to $10 million, with a 4-year term per draw and a 5-year amortization period[97] - As of September 30, 2021, $5.0 million has been drawn, with an outstanding balance of $3.9 million and an additional $5.0 million remaining to draw[101] Future Annual Minimum Payments for East West Bank Line of Credit (as of Sep 30, 2021) | Year | Amount | | :--- | :--------- | | 2021 | $250,000 | | 2022 | $998,000 | | 2023 | $998,000 | | 2024 | $1,661,000 | | Total | $3,907,000 | 12. Notes Payable - Related Party The company has $5.0 million in notes payable to a principal stockholder - As of September 30, 2021, the company had $5,000,000 in notes payable to Gloria E Gebbia, the principal stockholder[103] - This includes a $2,000,000 note at 4.00% due October 31, 2021 (renewed from September 30, 2021) and a $3,000,000 note at 4.00% due November 30, 2022, which is subordinated to MSCO[103][104] Interest Expense for Related Party Notes Payable (Nine Months Ended Sep 30) | Year | Amount | | :--- | :--------- | | 2021 | $156,000 | | 2020 | $220,000 | 13. Revenue Recognition Revenue is primarily generated from trading activities, advisory fees, and interest, with varying recognition timing - The company has soft dollar arrangements where revenue from certain client trades is recognized net of costs paid to third parties for research, brokerage services, and market data[123] Revenue Categories and Recognition Timing | Revenue Category | Timing of Recognition | | :------------------------------------------------- | :-------------------- | | Commissions and fees | Recorded on trade date | | Principal transactions | Recorded on trade date | | Market making | Recorded on trade date | | Stock borrow / stock loan | Recorded as earned | | Advisory fees | Recorded as earned | | Interest, marketing and distribution fees | Recorded as earned | | Other income | Recorded as earned | Stock Borrow / Stock Loan Revenue (Nine Months Ended Sep 30) | Year | Gross Revenue | Expenses | Net Revenue | | :--- | :------------ | :------- | :---------- | | 2021 | $19,605,000 | $12,053,000 | $7,552,000 | | 2020 | $6,170,000 | $3,688,000 | $2,482,000 | 14. Referral Fees Referral fees related to institutional relationships increased significantly in 2021 - The increase in referral fees is primarily due to the expansion of institutional relationships and market activity[222][236] Referral Fees Expense (Three Months Ended Sep 30) | Year | Amount | | :--- | :--------- | | 2021 | $374,000 | | 2020 | $154,000 | Referral Fees Expense (Nine Months Ended Sep 30) | Year | Amount | | :--- | :--------- | | 2021 | $1,134,000 | | 2020 | $427,000 | 15. Income Taxes The company recorded an income tax provision with an effective tax rate of 24% for the nine months of 2021 - As of September 30, 2021, the company recorded an uncertain tax position of $1,103,000, primarily related to anticipated tax refunds from 2017-2019 amended tax returns[134] Income Tax Provision and Effective Tax Rate (Three Months Ended Sep 30) | Year | Amount | Effective Tax Rate | | :--- | :--------- | :----------------- | | 2021 | $265,000 | 23% | | 2020 | -$486,000 | -512% | Income Tax Provision and Effective Tax Rate (Nine Months Ended Sep 30) | Year | Amount | Effective Tax Rate | | :--- | :--------- | :----------------- | | 2021 | $1,484,000 | 24% | | 2020 | $39,000 | 2% | 16. Earnings Per Share Basic and diluted earnings per share increased significantly, reflecting higher net income Net Income (Three Months Ended Sep 30) | Year | Amount | | :--- | :--------- | | 2021 | $870,000 | | 2020 | $581,000 | Net Income (Nine Months Ended Sep 30) | Year | Amount | | :--- | :--------- | | 2021 | $4,574,000 | | 2020 | $2,056,000 | Basic and Diluted EPS | Period | 2021 | 2020 | | :------------------------ | :---- | :---- | | Three Months Ended Sep 30 | $0.03 | $0.02 | | Nine Months Ended Sep 30 | $0.15 | $0.07 | 17. Capital Requirements Subsidiaries MSCO and WPS maintained net capital well in excess of minimum regulatory requirements - As of September 30, 2021, MSCO's net capital was $35.5 million, exceeding its required net capital of $2.1 million by approximately $33.4 million[136] - MSCO had $327.4 million in cash deposits in its special reserve accounts as of September 30, 2021, which was $30 million in excess of the $297.4 million deposit requirement[138] - WPS's net capital was approximately $3.2 million as of September 30, 2021, exceeding its minimum requirement of $250,000 by $3.0 million[141] 18. Financial Instruments with Off-Balance Sheet Risk The company is exposed to off-balance sheet risk from customer margin and securities lending activities - The company's customer activities, including margin transactions and securities lending, expose it to off-balance sheet risk if customers or other brokers fail to fulfill contractual obligations[143][145][147] - As of September 30, 2021, margin loans extended to customers totaled approximately $1.2 billion[144] - Risks are controlled by requiring customers to maintain margin collateral, daily monitoring of margin levels, establishing credit limits, and utilizing clearing organization programs to guarantee cash return in securities lending[146][147][148] 19. Commitments, Contingencies, and Other The company is involved in legal matters from pre-acquisition activities and has various financial commitments - StockCross (pre-acquisition) faced FINRA actions, resulting in a $250,000 fine, and a California Consent Order, leading to $100,000 administrative costs and a $315,000 restitution offer (rejected by customers)[151][152][154] - The company has a $15 million available line of credit for short-term overnight demand borrowing with BMO Harris Bank, with no outstanding balance as of September 30, 2021[156] NFS Clearing Agreement Early Termination Fees | Date of Termination | Early Termination Fee | | :------------------ | :-------------------- | | Prior to August 1, 2022 | $8,000,000 | | Prior to August 1, 2023 | $7,250,000 | | Prior to August 1, 2024 | $4,500,000 | | Prior to August 1, 2025 | $3,250,000 | 20. Related Party Disclosures The company engages in various transactions with related parties, including acquisitions, services, and debt agreements - The acquisition of StockCross on January 1, 2020, was a transaction between entities under common control of the Gebbia Family[164] - Kennedy Cabot Acquisition, LLC (KCA), an affiliate, serves as a paymaster for payroll and related functions and has purchased naming rights for the company, passing through all revenues and expenses[165][167] - The company has various debt agreements with Gloria E Gebbia and its obligations under the East West Bank line of credit are guaranteed by John J Gebbia and Gloria E Gebbia[169][170] 21. Subsequent Events Subsequent events include a note renewal and an agreement to transfer WPS customers to JonesTrading - On October 31, 2021, a $2 million note payable to Gloria E Gebbia was renewed with a maturity of December 31, 2021[173] - On October 7, 2021, the company signed an agreement with JonesTrading to transfer certain WPS customers, with JonesTrading paying a percentage of revenue that will decline annually until October 2024[174] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company saw strong revenue growth in 2021 despite market challenges and significant operational changes Overview The company's financial results are highly dependent on economic conditions and U.S. financial markets - The company's business lines include retail brokerage (MSCO), investment advisory (SNXT), insurance (PW), robo-advisory technology (STCH), prime brokerage (WPS), and an inactive subsidiary (STXD)[182] - Financial results are highly correlated to general economic conditions and the direction of the U.S. equity and fixed-income markets[178] - Profitability is affected by market volatility, interest rates, economic, political, and regulatory trends, and industry competition, with certain expenses remaining relatively fixed[178] COVID-19 Impact The pandemic's primary impact was lower interest revenue, which was managed through operational adjustments - The primary financial impact of COVID-19 was lower interest revenue due to the Federal Reserve cutting the federal funds target overnight rate to near zero[180] - The company implemented remote work arrangements, restricted business travel, and temporarily closed some branch offices, which did not materially affect business operations[181] - Management actively engaged in contract negotiations with key vendors to reduce fixed costs and transitioned branch offices to more cost-efficient locations, resulting in rent and occupancy savings[182] Significant Events Key events include a new partnership LOI, termination of a key clearing arrangement, and record securities finance revenue - A non-binding letter of intent was signed with Tigress Holdings, LLC to exchange 24% membership interests in Tigress Financial Partners, LLC for 24% of WPS and Siebert common stock[186] - Goldman Sachs terminated WPS's clearing arrangement, leading to a full impairment of the WPS customer relationships intangible asset and an expected material adverse effect on future WPS operations[187][188][189] - The Securities Finance Group achieved its highest quarterly revenue of approximately $3.5 million for the three months ended September 30, 2021, representing a 173% increase from the prior year[197] Client Account and Activity Metrics Customer net worth and retail accounts grew, though total retail trades decreased Client Account Metrics | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | | :--------------------------------- | :------------- | :------------- | :----- | | Retail and institutional customer net worth (in billions) | $17.6 | $16.2 | +$1.4 | | Retail customer net worth (in billions) | $15.7 | $14.6 | +$1.1 | | Retail customer accounts | 114,155 | 110,699 | +3,456 | | Institutional customer net worth (in billions) | $1.9 | $1.6 | +$0.3 | Total Retail Trades | Period | 2021 | 2020 | Change | | :------------------------ | :------- | :------- | :----- | | Three Months Ended Sep 30 | 94,705 | 112,264 | -17,559 | | Nine Months Ended Sep 30 | 348,608 | 353,580 | -4,972 | Statements of Income and Financial Condition Revenue increased significantly in Q3 and YTD 2021, driven by strong market conditions and business growth Revenue (Three Months Ended Sep 30) | Revenue Category | 2021 | 2020 | YoY Change | Primary Driver | | :--------------------------------- | :--------- | :--------- | :--------- | :------------- | | Commissions and fees | $4,019,000 | $4,679,000 | -14.1% | Decrease in institutional business | | Interest, marketing and distribution fees | $3,435,000 | $3,226,000 | +6.5% | Increase in margin financing and institutional short stock interest | | Principal transactions | $3,924,000 | $2,342,000 | +67.5% | Strong market conditions | | Market making | $1,514,000 | $423,000 | +257.9% | Favorable market conditions and customer growth | | Stock borrow / stock loan | $3,465,000 | $1,267,000 | +173.5% | Business growth, key personnel, expansion of stock locate revenues | | Advisory fees | $441,000 | $305,000 | +44.6% | Overall expansion of advisory business | | Other income | $253,000 | $333,000 | -24.0% | Reduction in foreign exchange volumes | | Total Revenue | $17,051,000 | $12,575,000 | +35.6% | | Expenses (Three Months Ended Sep 30) | Expense Category | 2021 | 2020 | YoY Change | Primary Driver | | :--------------------------------- | :--------- | :--------- | :--------- | :------------- | | Employee compensation and benefits | $9,294,000 | $6,584,000 | +41.2% | Increased commission payouts | | Clearing fees, including execution costs | $986,000 | $1,270,000 | -22.3% | Decrease in institutional commissions | | Technology and communications | $1,196,000 | $1,322,000 | -9.6% | Decrease in InvestCloud monthly license fee | | Other general and administrative | $927,000 | $455,000 | +103.7% | Recovery of traveling activities, office expenses, exchange/regulatory fees | | Rent and occupancy | $441,000 | $694,000 | -36.4% | Transition to more cost-efficient locations | | Referral fees | $374,000 | $154,000 | +142.9% | Expansion of institutional relationships and market activity | | Impairment loss | $699,000 | — | N/A | Impairment of WPS customer relationships intangible asset | Financial Condition (Sep 30, 2021 vs Dec 31, 2020) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Primary Driver | | :--------------------------------- | :------------- | :------------- | :----- | :------------- | | Total Assets | $1,247,204,000 | $1,372,987,000 | -$125,783,000 | Decrease in securities borrowed | | Total Liabilities | $1,204,581,000 | $1,335,001,000 | -$130,420,000 | Decrease in securities loaned | Liquidity and Capital Resources The company maintains strong liquidity through operating cash flows and access to multiple credit facilities - The company has strong operating cash flows and sufficient liquidity to meet its needs, with expectations for this to continue[241][242] - Available borrowing capabilities include a $15 million short-term overnight demand line of credit with BMO Harris Bank (no outstanding balance) and a $10 million line of credit with East West Bank ($3.9 million outstanding, $5.0 million remaining to draw)[156][251][253] - MSCO and WPS consistently meet their respective regulatory net capital and segregated cash reserve requirements[247][249] Off-Balance Sheet Arrangements Risks from customer margin transactions and securities lending are managed through collateral and monitoring - The company is exposed to off-balance sheet risk from customer securities activities, including margin transactions and securities lending, where customers or counterparties may fail to fulfill obligations[257][258][259][261] - As of September 30, 2021, margin loans extended to customers totaled approximately $1.2 billion[258] - Risks are mitigated by requiring customers to maintain margin collateral, daily monitoring of margin levels, establishing credit limits, and using clearing organization programs for securities lending[260][261][262] Uncertain Tax Positions The company recorded an uncertain tax position related to anticipated refunds from amended tax returns - As of September 30, 2021, the company recorded an uncertain tax position of $1,103,000[266] - This position is primarily related to anticipated tax refunds from 2017-2019 amended tax returns that exceed the "more likely than not" recognition threshold[266] Long Term Contracts The company has long-term clearing and service agreements with NFS and InvestCloud - MSCO's clearing agreement with NFS was amended to extend until July 31, 2025, with provisions for early termination fees[267] - The company has a prepaid service contract with InvestCloud for development work and license fees related to its online platform over a three-year term[268] Related Party Disclosures The company engages in various transactions with related parties as detailed in the financial statement notes - The company has various agreements and transactions with related parties, as further detailed in Note 20[269] Fair Value Measurements Financial instruments measured at fair value are primarily classified as Level 1 or Level 2 - The majority of financial instruments measured at fair value are Level 1 U.S. government securities and equity securities, and Level 2 equity securities, within 'Securities owned, at fair value'[270] - Liabilities measured at fair value consist of relatively small amounts of Level 2 equity securities in 'Securities sold, not yet purchased, at fair value'[270] Impairment A full impairment loss was recognized for the WPS customer relationships intangible asset - No impairment was concluded for the carrying value of goodwill and tangible assets as of September 30, 2021[271] - A full impairment loss of $699,000 was recognized for the WPS customer relationships intangible asset for the three and nine months ended September 30, 2021, due to the termination of its clearing arrangement with Goldman Sachs[271] Segment The company operates as a single operating segment from a management and resource allocation perspective - The company is comprised of a single operating segment as of September 30, 2021, based on management's consolidated evaluation of performance and resource allocation[272] Critical Accounting Policies There have been no changes to the company's critical accounting policies or estimates - There have been no changes to the company's critical accounting policies or estimates as of September 30, 2021[273] Subsequent Events Subsequent events include a note renewal and an agreement to transfer certain WPS customers - A $2 million note payable to Gloria E Gebbia was renewed on October 31, 2021, with a maturity of December 31, 2021[274] - An agreement was signed with JonesTrading on October 7, 2021, to transfer certain WPS customers, with the financial impact yet to be determined[275] Other Items Shareholders approved the 2021 Equity Incentive Plan, reserving 3 million shares for awards - The Siebert Financial Corp 2021 Equity Incentive Plan was approved by shareholders on September 17, 2021, reserving 3 million shares for various equity awards[276] - No securities were issued under the Plan for the three and nine months ended September 30, 2021[276] New Accounting Standards Adopted accounting standards and policies did not have a material impact on the financial statements - All accounting standards and policies adopted in the nine months ended September 30, 2021, did not have a material impact on the financial statements[277] Regulatory Matters Regulatory actions against StockCross (pre-acquisition) resulted in fines and administrative costs - StockCross (pre-acquisition) entered into a Letter of Acceptance, Waiver, and Consent with FINRA, agreeing to a $250,000 fine for alleged excessive trading and supervisory failures[278] - StockCross also entered into a Consent Order with the California Department of Financial Protection and Innovation, agreeing to pay $100,000 for administrative costs and offer $315,000 in restitution for supervisory failures[279] - Accruals for the FINRA fine ($250,000) and California administrative costs ($100,000) were booked in Q2 2021 and paid in Q3 2021; the restitution offer was rejected by customers[281] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company does not engage in derivative transactions and has limited exposure to interest rate risk - The company does not directly engage in derivative transactions and has no interest in special purpose entities[283] - Cash and cash equivalents are temporarily invested in dollar-denominated bank accounts and are not subject to material changes in value due to interest rate movements[284] - The company is exposed to credit risk from unsettled customer transactions but mitigates this by regularly monitoring customer accounts for compliance with margin requirements[285] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective with no material changes identified - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this Report[287][288] - No material changes in the company's internal control over financial reporting were identified during the period[289] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is involved in ordinary course legal matters not expected to have a significant impact - The company is party to certain claims, suits, and complaints arising in the ordinary course of business[292] - Management believes these matters are without merit or involve amounts that would not have a significant effect on the company's results of operations or financial position[292] ITEM 1A. RISK FACTORS A supplemental risk factor regarding the limited public market and volatility of the company's stock is noted - A supplemental risk factor highlights the limited public market for the company's Common Stock and potential volatility due to a small "float" (approximately 37% of shares outstanding held by non-affiliates as of November 12, 2021)[294] - No other material changes from the risk factors disclosed in the 2020 Form 10-K were reported[293] ITEM 6. EXHIBITS This section lists the exhibits filed with the report, including agreements, certifications, and XBRL documents - Exhibits include an Amendment to Fully Disclosed Clearing Agreement with National Financial Services LLC and an Amendment No 1 to Common Stock Purchase Agreement with OpenHand Holdings, Inc[296] - Certifications pursuant to the Sarbanes-Oxley Act of 2002 (Sections 302 and 906) are included[296] - XBRL Instance Document and Taxonomy Extension files are provided[296] SIGNATURES The report is duly signed by the Executive Vice President, COO, and CFO on November 15, 2021 - The report was signed by Andrew H Reich, Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Secretary of Siebert Financial Corp[299] - The report is dated November 15, 2021[299]