# LINCOLN FINANCIAL DISTRIBUTORS, INC. X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: LINCOLN FINANCIAL DISTRIBUTORS, INC. - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0000019033-21-000002 - CIK: 19033 - File #: 8-13431 - Material weakness: No - Auditor: Carl Pawssat - Auditor location: Greensboro, NC - Contact: Carl Pawsat - Phone: (606) 407-3406 - Signed by: Carl Pawsat (AVP, Financial and Operations Principal) Original filing: https://www.sec.gov/Archives/edgar/data/19033/000001903321000002/bwLFDPbulic2020.pdf --- {0}------------------------------------------------ #### STATEMENT OF FINANCIAL CONDITION Lincoln Financial Distributors, Inc. Year Ended December 31, 2020 With Duly Authorized Officer Affirmation {1}------------------------------------------------ #### UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 # ANNUAL AUDITED REPORT FORM X-17A-5 PART III | OMB APPROVAL | | | |---------------------------|------------------|--| | OMB Number: | 3235-0123 | | | Expires: | October 31, 2023 | | | Estimated average burden | | | | hours per response 12.00 | | | | SEC FILE NUMBER | |-----------------| | 8- 13431 | FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder REPORT FOR THE PERIOD BEGINNING 01/01/20 MM/DD/VV AND ENDING 12/31/2020 MM/DD/YY A. REGISTRANT IDENTIFICATION NAME OF BROKER-DEALER: Lincoln Financial Distributors, Inc ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) 130 N. Radnor - Chester Road (City) Carl R. Pawsat Radnor (No. and Street) PA (State) (Zip Code) NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT 19087 (336) 691-3486 (Area Code - Telephone Number) OFFICIAL USE ONLY FIRM I.D. NO. # B. ACCOUNTANT IDENTIFICATION INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report\* Lincoln Financial Distributor, Inc, claims exemption the Partices of firmation pursuant to Rule 17-5(6)(2) under the Securities Exchange Act of 1934, (Name - if individual, state last, first, middle name) (Address) (City) (State) (Zip Code) CHECK ONE: Certified Public Accountant Public Accountant Accountant not resident in United States or any of its possessions. FOR OFFICIAL USE ONLY \*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent ma must be supported by a statement of facts and circumstances relied on as the basis for the exemption. See Section 240.17a-5(c)(2) > Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 1410 (11-05) {2}------------------------------------------------ #### OATH OR AFFIRMATION | Carl R. Pawsat | | swear (or affirm) that, to the best of | | | | | |----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|--|--|--|--| | | | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of | | | | | | Lincoln Financial Distributors, Inc | | ડી ટે | | | | | | of December 31 | 20 20 - 20 | , are true and correct. I further swear (or affirm) that | | | | | | neither the company nor any partner, principal officer or director has any proprietary interest in any account | | | | | | | | classified solely as that of a customer, except as follows: | | | | | | | Signature Title AVP, Financial and Operations Principal | FORIC KNIBB | | |-------------------------------|--| | Notary Public, North Carolina | | | Guilford County | | | My Commission Expires | | | | | | | | Notary Public This report \*\* contains (check all applicable boxes): - V (a) Facing Page. - 7 (b) Statement of Financial Condition. - (c) Statement of Income (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement of Comprehensive Income (as defined in §210.1-02 of Regulation S-X). - (d) Statement of Changes in Financial Condition. - (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. - (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. - (g) Computation of Net Capital. - (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. - (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. - (i) A Reconciliation, including appropriate explanation of Net Capital Under Rule 15c3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. - (k) A Reconciliation between the audited Statements of Financial Condition with respect to methods of consolidation. - (1) An Oath or Affirmation. - (m) A copy of the SIPC Supplemental Report. - (n) A report describing any material inadequacies found to exist or found to have ex isted since the date of the previous audit. \*\* For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(e)(3). {3}------------------------------------------------ ## Lincoln Financial Distributors, Inc. # Statement of Financial Condition Year Ended December 31, 2020 # Contents | Duly Authorized Officer Affirmation | | |-----------------------------------------------|--| | Statement of Financial Condition | | | Notes to the Statement of Financial Condition | | {4}------------------------------------------------ # Duly Authorized Officer Affirmation Pursuant to Rule 17a-5 under the Securities Exchange Act of 1934 December 31, 2020 Lincoln Financial Distributors, Inc. (the "Company") is a registered broker-dealer subject to Rule 17a-5 promulgated by the Securities and Exchange Commission (17 C.F.R. §240.17a-5, "Reports to be made by certain brokers and dealers"). Pursuant to 17 C.F.R. § 240.17a-5(e)(1)(A), the Company is exempt from the requirement to engage an independent public accountant to provide the reports required under 17 C.F.R. § 240.17a-5(d)(1)(i)(C). This Duly Authorized Officer Affirmation was prepared as required by 17 C.F.R. § 240.17a-5(e)(1) and (2). To the best of its knowledge and belief, the Company states the following: - 1. The financial report is true and correct. - 2. Neither the broker or dealer, nor any partner, office, director or equivalent person, as the case may be, has any proprietary interest in any account classified solely as a customer. Dated: February 26, 2021 Name: Carl R. Pawsat Title: AVP, Financial and Operations Principal {5}------------------------------------------------ # Lincoln Financial Distributors, Inc. # Statement of Financial Condition (in thousands) | | Year Ended
December 31,
2020 | | |----------------------------------------------------------|------------------------------------|---------| | Assets | | | | Cash and invested cash | ಿರ | 3,898 | | Commissions and fees receivable | | 31,158 | | Due from affiliates | | 213 | | Other assets | | 502 | | Total assets | ಕಿ | 35,771 | | Liabilities and stockholder's equity | | | | Liabilities: | | | | Due to affiliates | ನಿ | 31,141 | | Other liabilities | | 45 | | Total liabilities | | 31,186 | | Stockholder's equity: | | | | Common stock - \$25 par value; 10,000 shares authorized; | | | | 8,000 shares issued and outstanding | | 200 | | Additional paid-in capital | | 12,632 | | Accumulated deficit | | (8,247) | | Total stockholder's equity | | 4,585 | | Total liabilities and stockholder's equity | ಕಿ | 35,771 | | | | | See accompanying notes. {6}------------------------------------------------ ## Lincoln Financial Distributors, Inc. ## Notes to the Statement of Financial Condition (in thousands) December 31, 2020 #### 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards #### Nature of Operations Lincoln Financial Distributors, Inc. ("LFD" or the "Company," which also may be referred to as "we," "our" or "us") is a registered broker-dealer that is engaged in the business of wholesaling and marketing financial services products, such as mutual funds, variable life insurance, and variable annuities through financial intermediaties, such as stock brokerage firms, banks, and independent insurance agencies. LFD also receives commissions from affiliated insurance companies via intercompany transfers. LFD does not solicit or sell products directly to the general public. LFD is licensed to engage in broker-dealer activity throughout the United States. LFD is a wholly owned subsidiary of The Lincoln National Life Insurance Company ("LNL"), which is a wholly owned subsidiary of Lincoln National Corporation ("LNC"). #### Basis of Presentation The accompanying financial statements are prepared in accordance with United States of America generally accepted accounting principles ("GAAP"). Certain GAAP policies, which are summarized below, significantly affect the determination of financial position, results of operations and cash flows. Additionally, uncertainties, including those associated with the COVID-19 pandemic, may impact our estimates and the determination of financial condition, results of operations and cash flows. The Company and other affiliated entities that provide services to the Company are under common ownership and management control. The existence of this control could result in the Company's financial position being significantly different from those that would have been obtained if the Company were autonomous. The Company operates in one reportable segment given the similarities of all the products and services provided. #### Summary of Significant Accounting Policies #### Accounting Estimates and Assumptions The preparation of the statement of financial condition in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the statement of financial condition. Those estimates are inherently subject to change and actual results could differ from those estimates. {7}------------------------------------------------ ## Lincoln Financial Distributors, Inc # Notes to the Statement of Financial Condition (continued) ## 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) #### Cash and Invested Cash Cash and invested cash is carried at cost and includes all highly liquid investments purchased with an original maturity of three months or less. #### Commission and Fee Revenue and Expense LFD is the principal underwriter for the wholesale distribution of all variable life and annuity products of LNL and Lincoln Life & Annuity Company of New York ("LLANY"). We recognize all commission and fee revenue and corresponding commission expense for the distribution of these products. The selling costs related to the distribution of these products are then passed on to LNL who, through the processing and services agreements, pays the commissions on LFD's behalf. LFD also recognizes wholesaling revenue on 12b-1 fees received from separate account fund sponsors as compensation for distributing the underlying mutual funds. These 12b-1 fees are passed on to LNL to offset wholesale distribution expenses incurred on LFD's behalf. All other commission and fee revenue amounts are received from affiliates. Given the similarities of the revenue earned, the company categorizes all revenue in one source: distribution and wholesaling revenue. See Note 2 for more information on revenue recognized from contracts with customers. #### Income Taxes LNC files a U.S. consolidated income tax return that includes all eligible subsidiaries, including LFD and LNL. Pursuant to an intercompany tax-sharing agreement with LNL, LFD provides for income taxes on a separate return filing basis. The tax-sharing agreement also provides that LFD will receive benefit for net operating losses, capital losses, and tax credits, which may not be usable on a separate return basis to the extent such items may be utilized in the consolidated federal income tax returns of LNC. Deferred income taxes are recognized, based on enacted rates, when assets and liabilities have different values for financial statement and tax reporting purposes. A valuation allowance is recorded to the extent required. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. See Note 3 for additional information. {8}------------------------------------------------ # Notes to the Statement of Financial Condition (continued) ## 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) #### Adoption of New Accounting Standards The following table provides a description of our adoption of new Accounting Standards Updates ("ASUs") issued by the FASB and the impact of the adoption on our statement of financial condition. ASUs not listed below were assessed and determined to be either not applicable or insignificant in presentation or amount. | | | | Effect on the Statement | |--------------------|----------------------------------------------------------|-----------------|-------------------------| | | | | of Financial Condition | | | | | or Other Significant | | Standard | Description | Effective Date | Matters | | ASU 2016-13, | These amendments adopt a new model in ASC | January 1, 2020 | The adoption of this | | Financial | Topic 326 to measure and recognize credit losses | | guidance did not have a | | Instruments - | for most financial assets. The ASU requires a | | material impact on our | | Credit Losses | financial asset measured at amortized cost to be | | Statement of Financial | | (Topic 326): | presented at the net amount expected to be | | Condition. | | Measurement of | collected over the life of the asset using a credit loss | | | | Credit Losses on | allowance. Changes in the allowance are charged to | | | | Financial | earnings. The measurement of expected credit | | | | Instruments ("ASU | losses is based on relevant information about past | | | | 2016-13"), | events, including historical experience, as well as | | | | Measurement of | current economic conditions and reasonable and | | | | Credit Losses on | supportable forecasts that affect the collectability of | | | | Financial | the financial asset. The method used to measure | | | | Instruments and | estimated credit losses for fixed maturity AFS | | | | related amendments | securities will be unchanged from current GAAP; | | | | | however, the amendments require credit losses to | | | | | be recognized through an allowance rather than as a | | | | | reduction to the amortized cost of those securities. | | | | | The amendments permit entities to recognize | | | | | improvements in credit loss estimates on fixed | | | | | maturity AFS securities by reducing the allowance | | | | | account immediately through earnings. The | | | | | amendments are adopted through a cumulative | | | | | effect adjustment to the beginning balance of | | | | | retained earnings as of the first reporting period in | | | | | which the amendments are effective. 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XMNV]Z^P_x | | | | | | | | & & & & {10}------------------------------------------------ # Notes to the Statement of Financial Condition (continued) ### 2. Revenues from Contracts with Customers The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events. #### 3. Income Taxes The federal income tax liability was as follows: | | December 31,
2020 | | |------------------------------------|----------------------|--| | Current | ನಿರ್ವ | | | Deferred | | | | Total federal income tax liability | | | Current federal income taxes payable of \$1 at December 31, 2020, is included in due to affiliates on the Statement of Financial Condition. Current state income taxes receivable of \$502 at December 31, 2020, is included in other assets on the Statement of Financial Condition. The Company is required to establish a valuation allowance for any gross deferred tax assets that are unlikely to reduce taxes payable in future years' tax returns. As of December 31, 2020, our deferred tax asset was \$0. The LNC consolidated group is subject to examination by U.S. federal, state, local and non-U.S. income authorities. With few exceptions for limited scope review, the Company is no longer subject to U.S. federal examinations for years before 2017. In the first quarter 2021 the Internal Revenue Service (IRS) commenced an examination of the Company's refund claims for 2014 and 2015 that is anticipated to be completed by the end of 2021. We recognize interest and penalties accrued, if any, related to unrecognized tax benefits as a component of tax expense. For the year ended December 31, 2020, we recognized interest and penalty expense (benefit) related to uncertain tax positions of zero. There was no accrued interest and penalty expense related to the unrecognized tax benefits as of December 31, 2020. There are no uncertain tax positions related to the Company in the current year. {11}------------------------------------------------ ## Lincoln Financial Distributors, Inc ## Notes to the Statement of Financial Condition (continued) #### 3. Agreements and Transactions with Affiliates In order to be compliant with the Financial Industry Authority ("FINRA") rules regarding proper expense recognition and expense-sharing agreements, LFD has entered into various costsharing agreements with affiliates. Amounts due from affiliates primarily represent amounts due to LFD for the settlement of general and administrative expenses, and taxes and fees, as stipulated in the Master Services Agreement. Amounts due to affiliates primarily represent amounts due to LNL related to separate account 12b-1 fees as well as intercompany cost and tax-sharing agreements. #### 4. Contingencies #### Regulatory and Litigation Matters Regulatory bodies, such as the Securities and Exchange Commission ("SEC") and FINRA, regulatly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, securities laws and laws governing the activities of broker-dealers and registered investment advisers. While LFD is involved in various pending or threatened legal proceedings arising from the conduct of business either in the ordinary course or otherwise, such legal expenses are a part of our affiliate cost-sharing agreements. Based on information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LFD's financial condition. #### 5. Net Capital Requirements LFD operates under the alternative standard provisions of the SEC Uniform Net Capital Rule (Rule 15c3-1), which requires the minimum net capital to be the greater of \$250,000 or 2% of aggregate debit items computed in accordance with the SEC Customer Protection Rule (Rule 15c3-3) reserve requirements. Our operations do not include the physical handling of securities or the maintenance of open customer accounts; therefore, there are no reserve provisions pursuant to Rule 15c3-3. Accordingly, our minimum net capital requirement is \$250. | | | December 31,
2020 | | |------------------------------------------------|----|----------------------|--| | Minimum net capital requirement
Net capital | ನಿ | 250
3,802 | | | Excess net capital | | 3,552 | | #### 6. Subsequent Events The Company has evaluated subsequent events for recognition and disclosure through the date the statement of financial condition were issued. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.