SIEB

SIEBERT FINANCIAL CORP. - 10-K Summary (Fiscal Year Ended Dec 31, 2010)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2010. Siebert Financial Corp. is a holding company operating through its wholly-owned subsidiary, Muriel Siebert & Co., Inc., providing retail discount brokerage and investment banking services. The company is a Woman-Owned Business Enterprise (WBE) and holds a 49% interest in Siebert, Brandford, Shank & Co., L.L.C. (SBS), a major tax-exempt underwriter. The company is controlled by Muriel F. Siebert, who owns approximately 90% of the outstanding common stock.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 18.2% to $20.77 million. Commission and fee income dropped 6.0% due to lower institutional and retail trading volumes. Investment banking revenues fell 58.5% to $2.24 million due to fewer new issues and the loss of a debt investment banker.
• Expense Reduction: Total expenses decreased 19.4% to $25.88 million. Significant reductions included employee compensation (down 24.8% due to headcount reduction and elimination of bonuses) and clearing fees (down 43.4% due to a new Fully Disclosed Clearing Agreement).
• Net Loss Expansion: The net loss widened to $2.64 million from $1.18 million. This was driven by a $1.61 million income tax expense (recording a full valuation allowance on deferred taxes) and a $150,000 impairment charge on intangible assets, offset partially by income from equity investees ($4.08 million).
• Customer Metrics: Total retail trades decreased to 414,485 from 463,797. Average commission per trade declined to $20.92 from $22.04. However, retail customer margin debit balances increased to $204.8 million from $150.2 million.

Outlook, Risks, and Unusual Items

• Nasdaq Listing Compliance: The company received notice from Nasdaq on January 4, 2011, that the Market Value of Publicly Held Shares fell below the $5 million minimum requirement. The company has a 180-day grace period (until July 5, 2011) to regain compliance. Failure to do so could result in delisting or transfer to the Nasdaq Capital Market.
• Unusual Items:
  • Clearing Agreement: A $3 million resolution from a clearing firm was recorded as commission and fee income in 2010.
  • Legal Costs: Expenses include costs for an unresolved arbitration proceeding with a former employee, which management believes is without merit.
  • Intangible Impairment: A $150,000 write-down of unamortized intangible assets was recorded due to declining revenues.
• Risks: The company faces intense competition from larger, better-capitalized firms and flat-fee brokers. It is highly dependent on the services of key personnel, particularly Muriel F. Siebert. Market volatility and reduced trading volumes continue to pose significant risks to profitability.

Investor Verification Checklist

• Nasdaq Compliance Status: Verify if the company has regained compliance with the $5 million Market Value of Publicly Held Shares requirement by the July 5, 2011 deadline.
• Arbitration Outcome: Monitor the resolution of the arbitration proceeding with the former employee and any potential financial impact.
• Equity Investee Performance: Review the continued profitability of SBS (49% interest), which contributed $4.1 million to income, as it is integral to operations.
• Valuation Allowance: Assess the likelihood of realizing deferred tax assets given the full valuation allowance recorded in 2010.
• Share Repurchases: Note that the company repurchased 62,647 shares in 2010 under an authorized plan, with 208,415 shares remaining available for purchase.