SIEB

SIEBERT FINANCIAL CORP. - 10-K Summary (Fiscal Year Ended Dec 31, 2009)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2009. 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 smaller reporting company and is majority-owned (approx. 90%) by its Chairwoman and President, Muriel F. Siebert. The firm operates retail offices in New York, New Jersey, Florida, and California, and maintains a significant equity interest in Siebert, Brandford, Shank & Co., LLC ("SBS"), a leading municipal underwriter.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 14.7% to $25.39 million. Commission and fee income dropped 24.7% to $18.24 million due to reduced institutional trading volumes and lower retail customer activity.
• Investment Banking Growth: Investment banking revenues increased 54.8% to $5.39 million, driven by increased participation in equity and debt capital market offerings.
• Equity Investee Performance: Income from equity investees (primarily SBS) surged 147.5% to $4.22 million, offsetting operating losses. SBS reported record revenues of $45.39 million.
• Expense Reduction: Total expenses decreased 6.2% to $32.11 million. Professional fees dropped 13.5% due to reduced legal fees regarding a former employee dispute, though an accrual for a legal settlement was recorded.
• Net Loss Improvement: The net loss narrowed to $1.18 million from $1.76 million in 2008, aided by the strong performance of the SBS affiliate and a tax benefit of $1.32 million.

Outlook, Risks, and Management Commentary

Management Commentary: Management noted that the global financial crisis reduced market participation, adversely affecting revenues. However, the Capital Markets division expanded its revenue base, and the affiliate SBS achieved a record year. Expenses were impacted by an unresolved arbitration proceeding with a former employee, which increased professional fees.

Liquidity and Capital: The company maintains high liquidity with $27.8 million (63% of assets) in cash and money market funds. Regulatory net capital of $21.1 million significantly exceeds the $250,000 minimum requirement. No dividends were declared in 2009.

Risks and Contingencies:

• Market Volatility: Revenues are highly sensitive to trading volumes and market conditions.
• Competition: Intense competition from larger, better-capitalized discount brokers and flat-fee online platforms pressures commission rates.
• Legal Proceedings: An unresolved arbitration with a former employee continues to incur defense costs. A prior dispute with Pershing LLC regarding a $1.5 million advance was charged off in 2004, with the statute of limitations expiring in July 2009.
• System Reliance: Operations depend heavily on third-party clearing agents and electronic systems; failures could disrupt trading.

Investor Verification Checklist

• Equity Investee Dependency: Verify the sustainability of the $4.22 million income from SBS, which turned an operating loss into a net loss reduction.
• Legal Exposure: Monitor the status and potential cost of the unresolved arbitration with the former employee.
• Shareholder Concentration: Note that Muriel F. Siebert owns approximately 90% of outstanding stock, controlling all key decisions.
• Stock Repurchases: Confirm the remaining capacity under the 2008 buyback program (271,062 shares remaining as of Dec 31, 2009).
• Regulatory Capital: Ensure continued compliance with SEC Net Capital Rule 15c3-1, though current levels are well above minimums.