SIEB

SIEBERT FINANCIAL CORP. - 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for the period ended June 30, 2009. Siebert Financial Corp. operates as a discount brokerage and investment banking firm, primarily through its subsidiary Muriel Siebert & Co., Inc. The company also holds significant equity interests in Siebert Brandford Shank & Co., LLC (SBS), a municipal bond underwriter, and SBS Financial Products Company, LLC (SBSFPC), which engages in derivatives transactions.

Key Financial Metrics

Liquidity: The company regards $31.1 million (67% of total assets) as highly liquid. Regulatory net capital of $24.4 million is significantly above the minimum requirement of $250,000.

Material Changes vs. Prior Period

• Revenue Trends: Total revenues for the six months ended June 30, 2009, decreased by 6.5% ($998,000) compared to the same period in 2008. This was driven by an 18.9% decline in commissions and fees due to lower institutional trading and margin debit balances.
• Investment Banking Growth: Investment banking revenues increased 40.5% ($989,000) for the six-month period, attributed to participation in more new equity and debt capital market issues.
• Trading Profits: Trading profits surged 312.3% ($787,000) for the six months, primarily due to increased volume in debt markets.
• Interest Income Decline: Interest and dividends dropped 90.6% ($492,000) for the six months due to lower yields on U.S. Treasury Bills and reduced cash balances.
• Expense Management: Total expenses remained relatively flat, increasing only $10,000 for the six-month period. Professional fees increased 8.1% due to legal fees, while advertising expenses decreased 19.4%.
• Equity Investee Performance: Income from SBS (49% interest) increased 54.7% for the six months. Conversely, losses from SBSFPC (33.33% interest) widened to $182,000 for the six months due to mark-to-market losses on derivative contracts.

Guidance, Outlook, and Risks

Management Commentary: Management notes that the stock market rebounded in Q2 2009 despite global financial crisis volatility. The company faces intense competition in retail account acquisition. Profitability remains sensitive to market volume and interest rates, with fixed costs (salaries, occupancy) posing risks during periods of reduced activity.

Capital Actions: The Board authorized a buyback of up to 300,000 shares in 2008. During the six months ended June 30, 2009, the company repurchased 8,017 shares at an average price of $1.67. As of June 30, 2009, 280,133 shares remained available for purchase under the plan.

Risks and Contingencies:

• Legal Proceedings: A dispute with Pershing LLC regarding a $1.5 million advance from 2003 remains unresolved, though management believes the claims are without merit and the outcome will not be material.
• Market Risk: The company is exposed to market and credit risk through off-balance sheet transactions and customer margin requirements. Retail transactions are cleared through third-party brokers on a fully disclosed basis.
• Accounting Changes: The company adopted SFAS 165 (Subsequent Events) and is evaluating the impact of SFAS 166 and 167 regarding financial asset transfers and variable interest entities.

Investor Verification Checklist

• Verify the sustainability of the 40.5% increase in investment banking revenues given the volatile market environment.
• Monitor the performance of the SBSFPC equity investment, which recorded a net loss of $182,000 for the six months due to derivative mark-to-market losses.
• Review the status of the Pershing LLC legal dispute to ensure no material adverse impact on cash reserves.
• Assess the impact of continued low interest rates on the company's interest and dividend income, which has declined significantly year-over-year.
• Confirm the company's ability to maintain regulatory net capital well above the $250,000 minimum requirement amidst market fluctuations.