SIEB

SIEBERT FINANCIAL CORP. - 10-K Summary (Fiscal Year Ended Dec 31, 1999)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 1999. Siebert Financial Corp. is a holding company operating through its wholly-owned subsidiary, Muriel Siebert & Co., Inc. The Company is a retail discount broker and investment bank, recognized as the largest Woman-Owned Business Enterprise in the capital markets. It offers discount brokerage services via telephone and the Internet (SiebertNet), as well as institutional equity execution and underwriting services through its Capital Markets division. The Company is majority-owned (approx. 87%) by Chairwoman Muriel Siebert.

Key Financial Metrics

Liquidity: The Company maintains highly liquid assets, with 87.6% of total assets classified as highly liquid (cash, money market funds, and salable securities). Regulatory net capital of $15.2 million significantly exceeds the minimum requirement of $250,000.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 18.5% to $36.1 million, driven primarily by a 34.9% increase in commission and fee income ($32.5 million) due to higher trading volume.
• Investment Banking Decline: Investment banking revenues dropped 59.6% to $1.3 million, largely due to the shift in accounting for the Siebert, Brandford, Shank & Co., LLC (SBS) affiliate to the equity method and a decrease in municipal bond offerings.
• Expense Increases: Total expenses rose 22.3% to $28.1 million. Notable increases included clearing fees (46.6% increase due to volume) and advertising/promotion (69.5% increase due to TV advertising).
• Capital Structure: The Company completed a rights offering in January 1999, raising approximately $7.0 million net. Additionally, the Company repaid $3.0 million in subordinated borrowings to the majority shareholder in September 1999.
• Acquisition: On May 28, 1999, the Company acquired Andrew Peck Associates, Inc. in a pooling of interests transaction, issuing 600,000 shares of common stock.

Outlook, Risks, and Management Commentary

Management Commentary: Management notes that while trading volume was strong, competition from ultra-low-cost flat-fee brokers and the shift to electronic trading (SiebertNet accounted for 46% of retail trades) continues to pressure commission rates per trade. Proprietary trading activity was curtailed in July 1999 to reduce risk, with capital shifted to lower-risk money market funds.

Risks and Contingencies:

• Market Risk: Earnings are sensitive to securities market volume and price fluctuations. A decline in trading activity could adversely affect profitability due to fixed operating costs.
• Competition: Intense competition from larger, better-capitalized firms and new online entrants offering lower fees.
• Systems Risk: Operations rely heavily on automated information systems; failures could materially impact the ability to process transactions.
• Credit Risk: Risk of customer non-payment on margin accounts, though the Company has not had significant credit losses in the last five years.

Investor Verification Checklist

• Revenue Mix: Verify the sustainability of commission growth given the trend toward lower per-trade fees and the high percentage of trades executed on SiebertNet.
• Investment Banking Volatility: Assess the impact of the SBS affiliate's performance and the cyclical nature of municipal underwriting on future revenue.
• Capital Adequacy: Confirm that the $15.2 million regulatory net capital remains sufficient relative to aggregate debit balances as trading volume fluctuates.
• Majority Shareholder Influence: Note that Muriel Siebert owns approximately 87% of the stock and has waived dividends, which may affect future dividend policy and capital allocation decisions.
• Acquisition Integration: Monitor the financial integration and performance contribution of the Andrew Peck Associates acquisition.