# SVB LEERINK LLC X-17A-5 (2021-03-01) — Broker-dealer annual report - Company: SVB LEERINK LLC - Form: X-17A-5 - Filed: 2021-03-01 - Period: 2020-12-31 - Accession: 0000949896-21-000002 - CIK: 949896 - File #: 8-48535 - Material weakness: No - Auditor: BDO USA, LLP - Auditor location: Boston, MA - Contact: Joseph Gentile - Phone: 212-277-6042 - Website: bdo.com - Signed by: Joseph Gentile (Chief Administrative Officer) Original filing: https://www.sec.gov/Archives/edgar/data/949896/000094989621000002/public_x17a-5.pdf --- {0}------------------------------------------------ **S T A T E M E N T O F F I N A N C I A L C O N D I T I O N** **SVB Leerink LLC December 31, 2020 Filed Pursuant to Rule 17a-5(e)(3) as a Public Document** {1}------------------------------------------------ | | UNITED STATES | | 0MB APPROVAL | |------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|------------|-------------------------------------------------------| | | 0MB Number:
3235-0123
SECURITIES AND EXCHANGE COMMISSION | | | | | Expires:
October 31, 2023
Washington, D.C. 20549 | | | | | | | Estimated average burden
hours per response 12.00 | | | ANNUAL AUDITED REPORT | | | | PUBLIC | FORM X-17 A-5 | | SEC FILE NUMBER | | | PART Ill | | | | | FACING PAGE | | 8-48535 | | | 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 | AND ENDING | 12/31/20 | | | MM/DD/YY | | MM/DD/YY | | | | | | | | A. REGISTRANT IDENTIFICATION | | | | NAME OF BROKER DEALER: SVB Leerink LLC | | | | | | | | OFFICIAL USE ONLY | | | | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM ID. NO. | | | | | | | | One Federal Street, 37th Floor | | | | | (No. and Street) | | | | | | | | | Boston | MA | 02110 | | | (City) | (State) | | (Zip Code) | | | | | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | Joseph Gentile | | | 212-277-6042 | | | | | (Area Code -
Telephone No.) | | | | | | | | | | | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | | | | | | | BDOUSA,LLP | | | | | if individual, state last, first, middle name)
(Name - | | | | One International Place | Boston | | MA
02110 | | (Address) | (City) | (State) | (Zip Code) | | CHECK ONE: | | | | | 181 Certified Public Accountant | | | | | D Public Accountant | | | | | D Accountant not in residence 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 public accountant | | | | | must be supported by a statement of facts and circumstances relied on as the basis for the exemvtion. See section 240.17a-5(e)(2). | | | | | | Potential persons who are to respond to the collection of information | | | | I | contained in this form are not required to respond unless the form | | | | SEC 1410 (11-05) | displays a currently valid 0MB control number. | | | {2}------------------------------------------------ #### **OATH OR AFFIRMATION** I, Joseph Gentile, swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of SVB Leerink LLC, as of December 31, 2020, are true and correct. I further swear (or affirm) that neither the company nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer, except as follows: Chief Administrative Officer Title C Notary Public This report\*\* contains (check all applicable boxes): **KATHLEEN** CHIODO Notary Public, State of New York No. 01CH6314151 Qualified in Westchester County *Y...,* Commission Expires November 3, 20\_ ;;---- l:ZI (a) Facing Page. l:ZI (b) Statement of Financial Condition. D (c) Statement oflncome (Loss). D ( d) Statement of Cash Flows. D (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. D (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. D (g) Computation of Net Capital for Broker Dealers Pursuant to Rule 15c3-l. D (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. D (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. D (j) A Reconciliation, including appropriate explanation of the Computation of Net Capital Under Rule 15c3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. D (k) A reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of consolidation. l:ZI (I) An Oath or Affirmation. □ □ (m) A Copy of the Securities Investor Protection Corporation Supplemental Report. (n) A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. D (o) A report describing the Broker-Dealer's compliance with the Exemption Provisions of Section k of SEC Rule 15c3- 3 (the "Exemption Report") and Report of Independent Registered Public Accounting thereon. \*\* *For conditions of confidential treatment of certain portions of this filing, see section 240.17 a-5(e)(3).* {3}------------------------------------------------ # SVB Leerink LLC ## Statement of Financial Condition December 31, 2020 # **Contents** | Report of Independent Registered Public Accounting Firm1 | | |----------------------------------------------------------|--| | | | | Statement of Financial Condition
2 | | | Notes to Statement of Financial Condition3 | | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) Tel: 617-422-0700 Fax: 617-422-0909 **www.bdo.com** #### **Report of Independent Registered Public Accounting Firm** SVB Leerink Holdings LLC, the sole member of SVB Leerink LLC Boston, Massachusetts #### **Opinion on Financial Statement** We have audited the accompanying statement of financial condition of SVB Leerink LLC (the "Broker-Dealer") as of December 31, 2020, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Broker-Dealer at December 31, 2020**,** in conformity with accounting principles generally accepted in the United States of America. #### **Basis for Opinion** The financial statement is the responsibility of the Broker-Dealer's management. Our responsibility is to express an opinion on the Broker-Dealer's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Broker-Dealer in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the statement of financial condition. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. We have served as SVB Leerink LLC's auditor since 2013. Boston, Massachusetts February 25, 2021 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. {5}------------------------------------------------ #### **Assets** | Cash and cash equivalents | \$352,604,930 | |------------------------------------------------------------------------|---------------| | Receivable from and deposit with clearing organization | 6,386,379 | | Receivable from clients, net of allowance for doubtful | | | accounts of \$408,179 | 81,455,049 | | Due from employees | 522,351 | | Due from affiliates | 5,240 | | Notes receivable from employees, net of
accumulated amortization of | | | \$404,270 | 2,047,719 | | Marketable securities, at fair value | 26,507,672 | | Non-marketable securities, at fair value | 171,770 | | Prepaid expenses | 2,755,918 | | Furniture and equipment, net of accumulated depreciation | | | of \$8,442,707 | 3,347,183 | | Goodwill | 623,026 | | Other assets | 3,033,809 | | Total assets | \$479,461,046 | | Liabilities and member's equity | | | Liabilities: | | | Securities sold, not yet purchased, at fair value | \$
375,390 | | Accrued compensation
and
employee benefits | 254,527,009 | | Accounts payable
and
accrued expenses | 9,978,990 | | Payable to broker-dealers | 20,103,235 | | Due to affiliate | 2,318,916 | | Total liabilities | 287,303,540 | | Commitments and contingencies (Note 9) | | | Member's equity | 192,157,506 | | Total liabilities and member's equity | \$479,461,046 | *The accompanying notes are an integral part of this financial statement.* {6}------------------------------------------------ #### **1. Organization and Nature of Business** SVB Leerink LLC (the "Company") is an investment bank focused on providing companies with capital-raising services, financial advice on mergers and acquisitions, sales and trading services and research. The Company is registered with the Securities and Exchange Commission ("SEC") as a securities broker-dealer under Section 15(b) of the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority ("FINRA"). The Company is a whollyowned subsidiary of SVB Leerink Holdings LLC ("Holdings"). Holdings is the sole member of the Company. SVB Financial Group ("SVB") is the ultimate parent company of the Company. The Company operates under the exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and as such introduces all customer transactions on a fully disclosed basis to an unrelated third-party clearing broker ("Pershing LLC"), which is also a registered broker-dealer. ## **2. Significant Accounting Policies** #### **Basis of Presentation** The statement of financial condition is presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). #### **Use of Estimates** The preparation of the Company's statement of financial condition in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of financial condition and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. #### **Cash and Cash Equivalents** The Company has defined cash and cash equivalents as cash held at financial institutions and highly liquid investments with original maturities of less than three months that are not held for sale in the ordinary course of business. Cash and cash equivalents held at financial institutions, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. #### **Receivable from Clients** Receivable from clients consists primarily of corporate finance fees and expense reimbursements charged to the Company's clients. The Company records Receivable from clients, net of any allowance for doubtful accounts, when relevant revenue recognition criteria has been achieved and payment is conditioned on the passage of time. The Company maintains an allowance for doubtful accounts to provide coverage for estimated losses from its client receivables. The Company determines the adequacy of the allowance by estimating the probability of loss based on the Company's analysis of historical credit loss experience of its client receivables and by taking into consideration current market conditions and reasonable and supportable forecasts that affect the {7}------------------------------------------------ collectability of the reported amount. The Company has determined that long-term forecasted information is not relevant to its client receivables, which are primarily short-term. The Company updates its average credit loss rates annually and maintains an annual allowance review process to consider current factors that would require an adjustment to the credit loss allowance. In addition, the Company periodically performs a qualitative assessment to monitor risks associated with current and forecasted conditions that may require an adjustment to the expected credit loss rates. ## **Notes Receivable from Employees** Notes receivable from employees represent loans to employees in anticipation of their continued employment in accordance with each specific agreement. Notes may be forgiven at some future date, typically ranging from one to five years, and they provide for interest at a fair market rate. These forgivable notes are amortized over time. Accumulated amortization represents the cumulative amortization on loans outstanding at the balance sheet date. Accumulated amortization in relation to a fully amortized loan is reversed out of the accumulated amortization balance as and when such loan is fully amortized. The Company establishes a bad debt reserve for notes receivable from employees when collection is considered by management to be doubtful, primarily in cases when the employee has left the Company before the note had been fully forgiven. Notes receivable from employees also includes loans to employees that are due back to the Company at a specified future date per the loan agreement and are not forgivable. #### **Securities** The Company measures its securities at fair value in accordance with Accounting Standards Codification ("ASC") Topic 820 – *Fair Value Measurement* ("ASC 820"). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. It also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy under ASC 820 are described below: Level 1: Financial assets and liabilities are classified as Level 1 if their value is observable in an active market for identical assets or liabilities. Level 2: Financial assets and liabilities are classified as Level 2 if they are valued using quoted prices for identical instruments in markets that are not active, quoted prices of similar instruments, or for which all significant inputs, other than Level 1, are observable, either directly or indirectly. Level 3: Financial assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs that are unobservable or supported by little or no market activity. Marketable securities are carried at fair value based upon quoted market prices. {8}------------------------------------------------ Non-marketable securities are recorded at fair value and consist of warrants to purchase common stock or preferred stock of private companies. The fair value of the warrants is determined by management after considering the available market information and its knowledge of the companies, which may include information provided by third parties familiar with such financial instruments. In all cases, the Company values its investments in non-marketable securities based upon reasonably available relevant information that it considers material. Because of the inherent uncertainty of any valuation in non-publicly traded companies, the fair value ascribed to such investments may differ significantly from the values that would have been used had a ready market for the investments held by the Company been available. Securities transactions are recorded on a trade date basis. #### *Valuation Methodologies* The following are types of financial instruments the Company held as of December 31, 2020 as well as their valuation methodologies: #### *Exchange-traded funds and common stock of publicly-traded companies* Equity securities consists of investments in exchange-traded funds ("ETFs") and common stock of publicly-traded corporations. Equity securities that are not subject to certain sales restrictions are valued based upon the reported quoted market prices and are classified as Level 1 within the fair value hierarchy. Fair value measurements of equity securities of public companies are priced based on quoted market prices less a discount if the securities are subject to certain sales restrictions and are classified as Level 2 within the fair value hierarchy. Certain sales restrictions discounts generally range from 10 percent to 20 percent depending on the duration of the sale restrictions which typically range from three to six months. #### *Warrants* The Company owns warrants to purchase common or preferred stock of private companies. These are valued based upon the use of an option pricing model and are classified as Level 3 within the fair value hierarchy. The significant input to the option pricing model is the volatilities of comparable companies. #### *Contingent consideration* Contingent consideration that meets the definition of a derivative and does not qualify for a scope exception in ASC 815 is recorded at fair value and subsequently adjusted to fair value each reporting period. {9}------------------------------------------------ #### **Furniture and Equipment** Furniture and equipment are carried at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets ranging from three to seven years for furniture and equipment. Certain internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized and amortized on a straight-line basis over the shorter of the estimated useful life of the software or four years beginning when the software project is complete and the application is put into production. Furniture and equipment and capitalized costs for developing internal use software are tested for impairment whenever changes in facts or circumstances indicate that the carrying amount of the asset may not be recoverable and it exceeds fair value. #### **Goodwill** Goodwill is not amortized but is reviewed for impairment on at least an annual basis, or more frequently when circumstances indicate impairment could exist. An impairment loss is recognized if the estimated fair value of the asset is less than its book value. Goodwill is related to the 2001 acquisition of MEDACorp, a division of the Company. The Company completed its annual evaluation of goodwill as of December 31, 2020 and determined that no impairment charge was required. ## **Payable to Broker-Dealers** Payable to broker-dealers includes amounts payable to other broker-dealers arising from unsettled equity underwriting transactions whereby the Company acted as the lead underwriter for the transaction. Such amounts are typically settled within ninety days following the closing of a corporate finance transaction. #### **Share-Based Compensation** Share-based compensation is recorded based upon the fair value of the share-based payment as of the grant date. For awards that vest upon achievement of only a service condition, the fair value as of the grant date, or cost of the award, is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for the award, referred to as the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. If vesting is based solely on one or more service, market, or performance conditions, any previously recognized compensation cost is reversed if the award does not vest (that is, the requisite service is not rendered). This would include instances when previously issued awards are forfeited by the employee. Costs not paid to SVB in exchange for the awards are recorded as capital contributions. {10}------------------------------------------------ #### **Guarantees** In the normal course of business, the Company indemnifies and guarantees certain service providers, such as clearing and custody agents, against specified potential losses in connection with their acting as an agent of, or providing services to, the Company or its affiliates. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, there are no claims currently pending for which indemnification could be sought and, accordingly, the Company has not recorded any contingent liability in the statement of financial condition for these indemnifications. #### **Income Taxes** The Company is a single-member limited liability company treated as a disregarded entity for income tax purposes and, as such, is not liable for federal, state or local income taxes. The Company's taxable income and expense are included in the consolidated federal and applicable state income tax returns filed by SVB. The Company is not a party to a master tax sharing agreement with SVB and did not make distributions to SVB for tax reimbursements. The Company has no present intention to enter into a tax-sharing agreement or make future distributions to SVB for tax reimbursements. Prior to the 2019 acquisition of Holdings by SVB, the Company was a limited liability company which was treated as a partnership and was subject to the New York City Unincorporated Business Tax ("UBT"). The Company completed an examination in New York City for UBT for the years 2016 through 2018. The Company is no longer subject to federal, state or local tax examinations by taxing authorities for years prior to 2017. The Company records uncertain tax positions using a two-step process: (i) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. #### **Adopted Accounting Standards** #### *Collaborative Arrangements* In November 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-18, *Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606.* Under the modified guidance, companies will have to assess whether transactions between collaborative arrangement participants are within the scope of the new revenue standard. The standard became effective for the year ending December 31, 2020 and did not have a material impact on the Company's statement of financial condition. {11}------------------------------------------------ #### *Fair Value Measurement* In August 2018, the FASB issued ASU No. 2018-13, *Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement*. The objective of this guidance is to improve the effectiveness of disclosure requirements on fair value measurement by eliminating certain disclosure requirements for fair value measurements for all entities, requiring public entities to disclose certain new information and modifying some disclosure requirements. The standard became effective for the year ending December 31, 2020 and did not have a material impact on the Company's statement of financial condition. #### *Cloud Computing Arrangements* In August 2018, the FASB issued ASU No. 2018-15 for accounting for upfront costs and fees paid by a customer in a cloud computing arrangement. The accounting standard aligns with requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. The standard became effective for the year ending December 31, 2020 and did not have a material impact on the Company's statement of financial condition. #### *Measurement of Credit Losses* In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 provides amendments to ASC 326, *Financial Instruments - Credit Losses*, which amend the guidance on the impairment of financial instruments and add an impairment model (the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Entities will recognize an allowance for its estimate of expected credit losses as of the end of each reporting period. The Company adopted ASU 2016-13 on January 1, 2020 using the modified retrospective approach, and the adoption did not have an impact on the Company's Member's Equity as of that date. As a result of adopting ASU 2016-13, the Company's allowance for credit losses on financial assets that are measured at amortized cost will reflect the Company's estimate of credit losses over the remaining expected life of such assets. These expected credit losses are measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amounts. The impact of the new guidance primarily relates to the Company's Receivable from clients. The Company previously used the specific identification method for establishing credit provisions and write-offs of its Receivable from clients. #### **3. Significant Risk Factors** In the normal course of business, the Company enters into transactions in various financial instruments. The Company's financial instruments are subject to, but are not limited to, the following risks: #### *Market risk* The Company's revenues are subject to substantial fluctuations due to a variety of factors that cannot be predicted with great certainty, including the overall condition of the economy and the securities markets. Fluctuations also occur due to the change in the fair value of the marketable securities owned by the Company. {12}------------------------------------------------ #### *Credit risk* The Company is engaged in various trading and brokerage activities in which counterparties primarily include broker-dealers, banks and investment companies. Credit risk represents the potential loss that the Company would incur if the counterparties failed to perform pursuant to the terms of their obligations to the Company. The Company minimizes its exposure to credit risk by conducting transactions with established and reputable financial institutions. Counterparty exposure is monitored on a regular basis. #### *Operational risk* Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Company outsources a portion of its critical business functions to third party firms. Accordingly, the Company negotiates its agreements with these firms with attention focused not only on the delivery of core services but also on the safeguards afforded by back-up systems and disaster recovery capabilities. #### *Liquidity risk* The Company's non-marketable securities include investments in warrants of privately-held companies. As a result, there is no readily available market for the Company's interests in such instruments, and those interests may be subject to legal restrictions on transfer. Therefore, there is no assurance that the Company can realize liquidity for such investments in a timely manner, if at all. #### *Cyber-security risk* Cyber-security risk is the risk that the Company's computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. To mitigate the risks related to cyber-attacks on the Company's critical data, the Company takes protective measures and devotes significant resources to maintaining and upgrading its systems and networks. Such measures include intrusion and detection prevention systems, monitoring firewalls to safeguard critical business applications, monitoring third parties that the Company does business with and employee training. #### *COVID-19 risk* During March 2020, the global novel coronavirus ("COVID-19") pandemic and initial actions taken in response wreaked havoc on the global economy and all financial markets. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law in response to the COVID-19 pandemic. The CARES Act includes many measures to provide relief to companies. The Company has not taken advantage of any such measures. Subsequently, with various government actions and more clarity from the U.S. Federal Reserve Bank on future interest rate policy, the equity markets have experienced a strong rebound and a supportive trading environment for investors has emerged along with renewed activity in the equity and debt new issue capital markets. The Company has experienced strong market volumes and increased client activity across its capital markets business with considerably improved performance. The Company's investment banking backlog remains solid and its current level of incoming new business is strong. The Company continues to monitor the impact of the pandemic {13}------------------------------------------------ on its operations. The Company's senior management is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. The Company is not able to estimate the effects, if any, of the COVID-19 pandemic on its future results of operations, financial condition, or liquidity. #### **4. Receivable from and Deposit with Clearing Organization** Receivable from and deposit with clearing organization is comprised of amounts receivable or payable for unsettled transactions, presented net, as well as a minimum deposit. As part of the Company's clearing agreement with Pershing LLC, a minimum deposit of \$250,000 is always to be maintained. The minimum deposit balance held at Pershing LLC is subject to withdrawal restrictions such that the Company would be prohibited from doing business with Pershing LLC if the minimum cash balance on deposit is not maintained. #### **5. Notes Receivable from Employees** The Company holds notes receivable from employees that are forgivable at a future date. The outstanding notes receivable balance for the forgivable loans, including accrued interest, was \$1,826,730 as of December 31, 2020 and is included in Notes receivable from employees in the Statement of Financial Condition. In 2015, the Company established a promissory note with an employee. The principal amount of the note was \$1,412,600, with an interest rate of 1.77%, due in four consecutive annual equal installments commencing on March 31, 2017. The outstanding principal and interest of \$359,398 due on March 31, 2020 was fully forgiven. In 2019, the Company established a promissory note with another employee. The principal amount of the note was \$270,000, with an interest rate of 2.59%, due in five consecutive annual equal installments commencing on February 15, 2020. All outstanding principal and interest will be due on February 15, 2024. As of December 31, 2020, the outstanding notes receivable for this loan, including accrued interest, was \$220,989, which is included in Notes receivable from employees in the Statement of Financial Condition. {14}------------------------------------------------ #### **6. Fair Value Measurements** The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis at December 31, 2020: #### **Fair Value Measurements on a Recurring Basis** | | Level 1 | Level 2 | Level 3 | Total | |-----------------------------------------------------|--------------|---------|-----------|--------------| | Assets | | | | | | Marketable securities owned: | | | | | | ETFs
and common stock | \$26,507,672 | - | - | \$26,507,672 | | Total marketable securities owned | \$26,507,672 | - | - | \$26,507,672 | | | | | | | | Non-marketable securities owned: | | | | | | Warrants | - | - | \$171,770 | \$171,770 | | Total non-marketable securities | - | - | \$171,770 | \$171,770 | | owned | | | | | | | | | | | | Total assets in the fair value hierarchy | \$26,507,672 | - | \$171,770 | \$26,679,442 | | Liabilities | | | | | | Securities sold, not yet purchased | | | | | | ETFs
and common stock | \$375,390 | - | - | \$375,390 | | Total
liabilities in the fair value
hierarchy | \$375,390 | - | - | \$375,390 | #### *Transfers in and/or out of Levels* During the year ended December 31, 2020, there were no transfers from Level 3 to Level 1. There was \$601,600 transferred from Level 2 to Level 1 due to the expiration of sales restrictions during the year ended December 31, 2020. The Company's policy is to transfer assets between Levels using the carrying value at the beginning of the year. {15}------------------------------------------------ #### *Level 3 fair value measurements* The following table shows a reconciliation of the beginning and ending fair value measurements of securities that are valued on a recurring basis and classified as Level 3 for the year ended December 31, 2020: | | Non-Marketable
Securities | |-----------------------------------|------------------------------| | Beginning balance | \$754,191 | | Security received in lieu of cash | 78,000 | | Reclassification to Other assets | (300,000) | | Unrealized losses | (360,421) | | Ending balance | \$171,770 | ## *Quantitative information about significant unobservable inputs used in Level 3 fair value measurements* The table below presents information on the valuation techniques, significant unobservable inputs and their ranges for the Company's financial assets measured at fair value on a recurring basis with a significant Level 3 balance. | Financial | | Valuation | Significant Unobservable | | Weighted | |-------------------|------------|-----------|------------------------------------|---------------|----------| | Instruments Owned | Fair Value | Technique | Input(s) | Input/Range | Average | | Warrants | \$171,770 | Market | Equity adjustment for events | 0% | 0% | | | | approach | Discount for lack of marketability | 0% | 0% | | | | | Expected remaining term | 1.6-2.4 years | 2 years | | | | | Expected term to liquidity | 1.6-2.4 years | 2 years | | | | | Price per share | \$0.01-\$0.91 | \$0.82 | ## *Sensitivity of fair values to changes in significant unobservable inputs* For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, a significant increase (decrease) in the recent transaction price of the preferred or common stock would result in a significant higher (lower) fair value measurement. ## *Fair value of other financial instruments* The fair values of the Company's other assets and liabilities which qualify as financial instruments approximate the carrying amounts presented on the Statement of Financial Condition. {16}------------------------------------------------ ## **7. Furniture and Equipment** As of December 31, 2020, furniture and equipment, net, consists of the following: | | Estimated | | |-----------------------------------|----------------------|-------------| | | Useful Life | Amount | | Furniture | Three to Seven Years | \$2,718,144 | | Machinery, equipment and software | Three to Five Years | 9,071,746 | | | | 11,789,890 | | Less: accumulated depreciation | | (8,442,707) | | | | \$3,347,183 | During the year ended December 31, 2020, the Company determined that certain capital assets with a historical cost of \$235,412 and remaining net book value of \$1,159 were no longer in use or were obsolete. #### **8. Employee Compensation and Benefits** #### **Retention Awards** In conjunction with retention agreements that were signed as part of the 2019 acquisition of Holdings by SVB, certain employees of the Company were granted cash awards and restricted share awards consisting of SVB's publicly-traded common stock. #### *Cash compensation retention awards* During the year ended December 31, 2019, certain employees of the Company were granted cash retention awards totaling \$30,000,000. The Company recognizes an expense for these awards on a straight-line basis over the vesting period of up to five years. #### *Share-based compensation retention awards* During the year ended December 31, 2019, employees of the Company were granted 125,160 shares of restricted stock of SVB at a fair value of \$238.28 per share, which was the fair value of SVB's publicly traded stock as of the close of business on the grant date. The Company recognizes an expense for these awards on a straight-line basis over the vesting period of up to five years. #### **Defined Contribution Plan** The Company maintains a qualified defined contribution profit sharing plan for essentially all fulltime employees under which the Company may contribute out of available profits. As of December 31, 2020, the liability accrued for the profit sharing plan contribution was \$409,095. {17}------------------------------------------------ #### **Deferred Compensation Plan** The Company maintains a deferred compensation plan (the "Plan"). This is a non-qualified plan under Internal Revenue Code Section 409A. The Plan requires employees who exceed certain compensation levels to defer a portion of their compensation into the Plan which vests over five years. A portion of the compensation deferral is in the form of cash compensation, and a portion of the deferral is in the form of share-based compensation. #### *Cash compensation* The cash deferral as part of the Plan was unfunded by the Company as of December 31, 2020. ## *Share-based compensation* During the year ended December 31, 2020, employees of the Company were granted 33,669 and 2,988 shares of restricted stock of SVB's publicly-traded stock at a fair value of \$208.16 per share and \$244.69 per share, respectively, which was the fair value of SVB's stock as of the close of business on the grant dates. #### **Parent Cash Award** Prior to the acquisition of Holdings by SVB in 2019, certain employees of the Company were issued Class C restricted stock units of Holdings. Any unvested restricted stock units of Holdings as of the acquisition date were not converted into the right to receive consideration from the acquisition, but instead, were converted into a cash-based award (the "Parent Cash Award"). The holders of each Parent Cash Award shall continue to be governed by the same terms and conditions, inclusive of vesting terms, as were applicable to the restricted stock units of Holdings. Should an employee leave the Company prior to the vesting of their Parent Cash Award, the forfeited amount is to be allocated to each holder of vested units and to each holder of a vested Parent Cash Award. #### **9. Commitments and Contingencies** #### *Operating Leases* Holdings leases office facilities, and the Company leases equipment under various non-cancelable operating leases. The leases for the office space require minimum annual rental payments and clauses for operating cost adjustments. At the inception of a lease, the lease is evaluated to determine whether the lease will be accounted for as an operating or a finance lease. The Company recognized the present value of its existing minimum lease payments as a \$206,927 right-of-use asset and a \$208,442 lease liability, which is included in Other assets and Accounts payable and accrued expenses in the Statement of Financial Condition, respectively. As of December 31, 2020, the remaining terms of our operating leases range from 1 to 2 years. {18}------------------------------------------------ The weighted average remaining lease term and weighted average discount rate of our operating leases are as follows: | Weighted-average remaining term (in years) | 1.43 | |--------------------------------------------|-------| | Weighted-average discount rate | 2.11% | Cash paid for amounts included in the measurement of the lease liabilities was \$189,601 for the year ended December 31, 2020. There were no new operating lease assets obtained in exchange for operating lease liabilities for the year ended December 31, 2020. The following table presents our undiscounted future cash payments for our operating lease liabilities: Year Ending December 31, | 2021 | \$148,726 | |-----------------------------|-----------| | 2022 | 62,835 | | Total future lease payments | 211,561 | | Less: imputed interest | (3,119) | | Operating lease liabilities | \$208,442 | #### *Finance Lease Obligations* The Company has entered into various finance leases for copiers. The Company's finance lease right-of-use assets are \$475,161 as of December 31, 2020 and are included in Other assets in the Statement of Financial Condition. These finance lease obligations are \$480,223 as of December 31, 2020 and are included in Accounts payable and accrued expenses in the Statement of Financial Condition. The weighted average remaining lease term and weighted average discount rate of our finance leases are as follows: | Weighted-average remaining term (in years) | 2.67 | |--------------------------------------------|-------| | Weighted-average discount rate | 1.62% | Cash paid for amounts included in the measurement of the lease liabilities was \$183,837 for the year ended December 31, 2020. There were no new finance lease assets obtained in exchange for finance lease liabilities for the year ended December 31, 2020. {19}------------------------------------------------ | 2021 | \$183,837 | |-----------------------------|-----------| | 2022 | 183,837 | | 2023 | 122,558 | | Total future lease payments | 490,232 | | Less: imputed interest | (10,009) | | Finance lease liabilities | \$480,223 | The following table presents our finance lease obligations: #### *Other Contingencies* The Company has been named as a defendant in various legal actions arising from its normal business activities in which varying amounts are claimed. The Company is also involved, from time to time, in examinations and regulatory reviews. Although the liability associated with these matters, if any, cannot be quantified at this time, it is management's belief, after consultation with counsel, that the amount of such liability is unlikely to have a material impact on the Company's financial position or results of operations. #### **10. Regulatory Net Capital Requirements** The Company is subject to the SEC Uniform Net Capital Rule, SEC Rule 15c3-1 (the "Rule"), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, should not exceed 15 to 1. Under the basic method permitted by the Rule, the Company is required to maintain minimum net capital, as defined, equivalent to the greater of \$1,000,000 or 6-2/3% of aggregate indebtedness. The Company is not permitted to withdraw equity if certain minimum net capital requirements, as defined, are not met. At December 31, 2020, the Company had net capital of \$253,156,812, which was \$244,572,281 in excess of its required net capital of \$8,584,531. The Company's aggregate indebtedness to net capital ratio was 0.51 to 1 at December 31, 2020. #### **11. Revenues from Contracts with Customers** #### *Contract Balances* The timing of revenue recognition may differ from the timing of payment by customers. The Company records a receivable when revenue is recognized prior to payment, and it has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue (contract liability) until the performance obligations are satisfied. The Company had receivables related to revenues from contracts with customers of \$81,455,049 as of December 31, 2020. The Company had \$200,000 of deferred revenue at December 31, 2020. {20}------------------------------------------------ #### *Contract Costs* The Company capitalizes costs to fulfill contracts associated with investment banking engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. At December 31, 2020, the Company's capitalized costs to fulfill a contract were \$390,388, which are recorded in Receivable from clients in the Statement of Financial Condition. #### **12. Related Party Transactions** #### *Due from Affiliates and Due to Affiliate* Amounts receivable and payable between the Company and its affiliates arise primarily from the receipts and payments of cash on behalf of SVB, Holdings and SVB Leerink Capital LLC ("SVB Leerink Capital"), a wholly-owned subsidiary of Holdings. These balances are generally settled through cash on at least a quarterly basis. Amounts receivable from SVB Leerink Capital and SVB are \$500 and \$4,740, respectively, as of December 31, 2020. Amounts payable to Holdings are \$2,318,916 as of December 31, 2020. #### *Revolving Note and Cash Subordination Agreement* The Company has a \$25,000,000 revolving note and cash subordination agreement with SVB (the "SVB Revolver"). The SVB Revolver has a credit period of one year, which expires in March 2021 and a scheduled maturity date of March 2022 on any outstanding advances. Interest payments are based on Prime Rate or the Fed Funds Effective Rate, plus 3%. The agreement contains an origination fee of 1% of \$25,000,000 payable to SVB. During the year ended December 31, 2020, the Company borrowed and subsequently repaid \$20,000,000 on the SVB Revolver. #### **13. Subsequent Events** Management has evaluated the possibility of subsequent events existing in the Company's statement of financial condition through February 25, 2021, the date the Company's statement of financial condition was issued. Management has determined that there are no material events that would require adjustments to, or disclosures in, the Company's statement of financial condition. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.