SIEB

SIEBERT FINANCIAL CORP. - 10-K Summary (Fiscal Year Ended Dec 31, 2008)

Business Context and Reporting Period

This Annual Report (Form 10-K) covers the fiscal year ended December 31, 2008. Siebert Financial Corp. is a holding company operating through its wholly-owned subsidiary, Muriel Siebert & Co., Inc. The company functions as a retail discount broker and investment bank, specializing in municipal underwriting through its affiliate, Siebert, Brandford, Shank & Co., LLC ("SBS"). The company is a smaller reporting company with approximately 90% of its common stock owned by Chairwoman Muriel F. Siebert.

Key Financial Metrics

Note: The company reported a net loss in 2008 compared to net income in 2007. Regulatory net capital remained significantly above the $250,000 minimum requirement.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased by $4.2 million (12.3%) to $29.75 million. This was driven primarily by a $1.9 million decrease in commission and fee income due to lower average commissions per trade as more customers utilized lower-cost online platforms, and a $965,000 decrease in interest income due to lower yields on U.S. Treasury Bills.
• Expense Increase: Total expenses rose by $2.9 million (9.3%) to $34.2 million. Significant increases included professional fees (up $1.4 million due to legal disputes and compliance costs), communications expenses (up $550,000 for a new website launch), and clearing fees (up $771,000).
• Equity Investment Volatility: While income from the municipal underwriting affiliate (SBS) increased by $743,000 to $2.1 million, the company recorded a $435,000 loss from its equity investment in SBS Financial Products Company (SBSFPC), a derivatives entity, due to a decline in fair value in the fourth quarter.
• Stock Performance: The common stock price ranged from a high of $3.30 to a low of $1.00 in the fourth quarter of 2008, closing at $1.39 on March 17, 2009.

Outlook, Risks, and Management Commentary

• Market Conditions: Management notes that the global financial crisis created historic volatility. However, they state that to date, the crisis has not had a material effect on their liquidity or financial position, as working capital is invested in short-term U.S. Treasury Bills.
• Competition: The company faces intense competition from larger, better-capitalized discount brokers and flat-fee online platforms, which continues to pressure commission rates.
• Legal Contingencies: The company is involved in routine litigation. A significant past dispute with Pershing LLC regarding a $1.5 million advance was charged off in 2004; management believes current claims are without merit and will not have a material adverse effect.
• Capital Resources: The company maintains a strong liquidity position with $31.3 million (69% of total assets) in highly liquid assets. They have a $1.2 million subordinated lending facility with SBS.
• Dividends: A dividend of $0.10 per share was declared in June 2008. The CEO waived her right to receive dividends in excess of the aggregate amount paid to other shareholders.

Investor Verification Checklist

• Revenue Mix Sensitivity: Verify the impact of declining average commission rates on future profitability as online trading volumes increase.
• Derivatives Exposure: Review the specific risks and valuation methods for the SBSFPC equity investment, which contributed to the 2008 net loss.
• Concentration Risk: Assess the operational risk associated with Muriel F. Siebert owning approximately 90% of the outstanding common stock and her central role in management.
• Legal Exposure: Monitor the status of the Pershing LLC dispute and any new litigation arising from the volatile 2008 market environment.
• Liquidity vs. Profitability: Confirm that the high cash balance ($29.6 million) is sufficient to cover fixed operating expenses during periods of reduced trading volume.