# SWBC INVESTMENT SERVICES, LLC X-17A-5 (2019-02-28) — Broker-dealer annual report - Company: SWBC INVESTMENT SERVICES, LLC - Form: X-17A-5 - Filed: 2019-02-28 - Period: 2018-12-31 - Accession: 0001311274-19-000001 - CIK: 1311274 - File #: 8-66764 - Material weakness: No - Auditor: Ernst & Young LLP - Auditor location: San Antonio, TX - Contact: Patrick Muras - Phone: 210-376-3481 - Signed by: John P. Tuohy (Chief Executive Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1311274/000131127419000001/SWBCISPublicAudit2018.pdf --- {0}------------------------------------------------ UNITED STATES OMB APPROVAL SECURITIESANDEXCHANGECOMMISSION OMB Number: 3235-0123 Washington, D.C. 20549 Expires: August 31, 2020 Estimated average burden # ANNUAL AUD'TED REPORT hoursperresponse...... 12.00 FORM X'17A'5 SEC FILE NUMBER PART III 866764 | SEC FILE NUMBER | |-----------------| | 100701 | FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a~5 Thereunder | BEGINNING
REPORT
FOR
THE
PERIOD | 01/01/2018 | ENDING
AND | 2/31/20]
8
1
MMI'DDIYY | | | | |--------------------------------------------------------------------------------------------|------------------------------------------|-------------------------------|---------------------------------|-------------|--|--| | | MM/DD/YY | | | | | | | A. | REGISTRANT
IDENTIFICATION | | | | | | | NAME
OF
BROKER—DEALER:
SWBC | Services,
Investment | LLC | OFFtGlAL | USE
ONLY | | | | ADDRESS
OF
PRINCIPAL
PLACE
OF
BUSINESS: | (Do
No.)
Box
not
9.0.
use | | FIRM | ID.
NO | | | | San
9311 | Pedro,
Suite
600 | | | | | | | | (No.
Street)
and | | | | | | | Antonio
San | Texas | | 78216 | | | | | (City) | (State) | | (Zip
Code) | | | | | NAME
AND
TELEPHONE
NUMBER
OF
PERSON
(210)376-3481
Patrick
J. Muras | TO
CONTACT
IN | REGARD
TO
THIS | REPORT | | | | | | | | (Area
Code
Telephone
— | Number) | | | | B. | ACCOUNTANT | IDENTIFICATION | | | | | | PUBLIC
ACCOUNTANT
whose
INDEPENDENT | opinion
is
contained | in
this
Report" | | | | | | Ernst
& | Young
LLP | | | | | | | (Name | -ifIndividual,
state
lust, | first,
Hallie)
Irriddle | | | | | | 100
W.
Houston,
Suite
1700 | Antonio
San | Texas | | 78205 | | | | (Address) | (City) | (State) | (Zip | Code) | | | | CHECK
ONE: | | | | | | | | / Certified
Public
Accountant | | | | | | | | Public
Accountant | | | | | | | | Accountant
resident
in
United
not | of its
States
or any | possessions. | | | | | | FOR
OFFICIAL
USE
ONLY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | \*Claimsfor exemptionfl'om the requirement that the annual report be covered by the opinion ofon independent public accountant must be supported by a statement of\_facts and circumstances relied on as the bosisfor the exemption. See Section 240.17a-5(e)(2) Potential persons who are to respond to the collection of information contained in this form are not required to respond SEC 1410 (1 1'05) unless theform displays acurrentiyvatid OMB control number. {1}------------------------------------------------ ### OATH OR AFFIRMATION I, John P. Tuohy , swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of SWBC Investment Services, LLC , as of December 31 , 2018 , 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: // // [karts glide/QM \_ ., Signature plef Executive Officer %MA%W' Notary Public El T j This report \*\* contains (check all applicable boxes): (a) Facing Page. (b) Statement ofFinancial Condition. C] (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.I-02 of Regulation S-X). ((1) Statement of Changes in Financial Condition. (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. El (1') Statement of Changes in Liabilities Subordinated to Ciaims of Creditors. (g) Computation ofNet Capital. (11) Computation for Determination of Reserve Requirements Pursuant to Rule 1503—3. (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. (j) A Reconciliation, including appropriate explanation ofthe Computation ofNet Capital Under Rule 15c3—1 and the Computation for Determination of the Reserve Requirements Under Exhibit A ofRule 1503-3. D (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of - consolidation. (1) An Oath or Affirmation. - I (m) A copy of the SIPC Supplemental Report. - E] (n) Areport describing any material inadequacies found to exist or found to have existed since the date ofthe previous audit. \*\*For conditions ofconfidential treatment ofcertain portions ofthisfiling, see section 240.17a-5(e)(3). {2}------------------------------------------------ ### S TATEMENT OF F INANCIAL C ONDITION STATEMENT OF FINANCIAL CONDITION SWBC Investment Services, LLC December 31, 2018 With Report of Independent Registered Public Accounting Firm SWBC Investment Services, LLC December 31, 2018 With Report ofIndependent Registered Public Accounting Firm {3}------------------------------------------------ SWBC Investment Services, LLC SWBC Investment Services, LLC Statement of Financial Condition Statement of Financial Condition > December 31, 2018 December 31, 2018 ### **Contents** Contents | Facing Page and Oath or Affirmation
Affirmation
or
Facing
Oath
and
Page | | |------------------------------------------------------------------------------------------------------------------------------------------------|--| | ofIndependent
Report of Independent Registered Public Accounting Firm
Accounting
Firm
1
Report
Public

Registered
1 | | | ofFinancial
Statement of Financial Condition
Condition
2

Statement
2 | | | ofFinancial
Notes to Statement of Financial Condition
3
Condition

Notes
to
Statement
3 | | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) Ernst C'. Young LLP Teli+12102289690 Frost Bnnlx Tower Fax: +1 21') 221, 252 State 1700 921.com lOC t'Jest Houston Street San Antonio, TX 78205 Building a better ## Report of Independent Registered Public Accounting Firm To the Member and Board ot~ Directors of SWBC Investment Services. LLC ### Opinion on the Financial Statement We have audited the accompanying statement 01' financial condition of SWBC Investment Services. LIJC. (the Company) as of December 31. 2018 and the related notes (the "financial statement"). In our opinion. the financial statement presents l'airly. in all material respects, the financial position ol' the Company at December 3t. 2018. in conformity with US. generally accepted accounting principles. ### Basis for Opinion This financial statement is the responsibility ot'the Company's management. Our responsibility is to express an opinion on the Company'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 Company in accordance with the US. federal securities laws and the applicable rules and regulations ol'the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards ol'the PCAOB. Those standards require that we plan and pert'orm the audit to obtain reasonable assurance about whether the financial statement is tree 01' material misstatement. whether due to error or hand. Our audit included performing procedures to assess the risks of material misstatement ot' 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 financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management. as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 6M "1/ '19"? LL19 We have served as the Company's auditor since 2012. February 28. 2019 {5}------------------------------------------------ ### SWBC Investment Services, LLC SWBC Investment Services, LLC ### Statement of Financial Condition Statement of Financial Condition ### December 31, 2018 December 31, 2018 | Assets
Assets | | |--------------------------------------------------------------------------------------------------------|--------------------------------------| | Cash and cash equivalents
equivalents
Cash
and
cash | \$
1,494,958
\$
1,494,958 | | Restricted cash
Restricted
cash | 6,240,598
6,240,598 | | Securities owned, at fair value
fair
Securities
owned,
value
at | 32,681,780
32,681,780 | | Commissions receivable
Commissions
receivable | 278,122
278,122 | | Trading income receivable
Trading
income
receivable | 434,951
434,951 | | fiom
Receivable from related parties
Receivable
related
parties | 721,145
721,145 | | Property and equipment, net
Property
equipment,
and
net | 88,408
88,408 | | Other assets
Other
assets | 239,410
239,410 | | Total assets
Total
assets | \$
42,179,372
\$
42,179,372 | | Liabilities
Liabilities and Member's equity
Member's
equity
and | | | Liabilities:
Liabilities: | | | Securities sold, not yet purchased
not
yet
Securities
sold,
purchased | 5,954,790
5,954,790 | | firm
Payable to clearing firm
Payable
to
clearing | 22,178,826
22,178,826 | | Accounts payable and accrued expenses
Accounts
payable
accrued
and
expenses | 427,527
427,527 | | Accrued compensation expenses
Accrued
compensation
expenses | 3,021,075
3,021,075 | | Commissions and administrative fees payable
Commissions
administrative
payable
and
fees | 945,708
945,708 | | Payable
to related parties
to
Payable
related
parties | 687,724
687,724 | | Total
liabilities
liabilities
Total | 33,215,650
33,215,650 | | Member's equity
Member's
equity | 8,963,722
8,963,722 | | Total liabilities and Member's equity
liabilities
Total
Member's
equity
and | \$
42,179,372
42,179,372
\$ | *Notes to financial statements form an integral part of this statements.* Notes to financial statementsform an integral part ofthis statements. {6}------------------------------------------------ ### **1. Reporting Entity and Nature of Operations** 1. Reporting Entity and Nature of Operations SWBC Investment Services, LLC (the Company) is a single member limited liability company organized in the state of Texas. The Company's single member is Southwest Business Corporation (SWBC or the Member). The Company operates as a fully disclosed, introducing broker-dealer under the Securities Exchange Act of 1934, whose primary business is executing general securities transactions on behalf of clients. The Company also engages in proprietary trading of fixed income securities, primarily U.S. municipal bonds, and brokered certificates of deposit from U.S. financial institutions. SWBC Investment Services, LLC (the Company) is a single member limited liability company organized in the state ofTexas. The Company's single member is Southwest Business Corporation (SWBC or the Member). The Company operates as a fully disclosed, introducing broker—dealer under the Securities Exchange Act of 1934, Whose primary business is executing general securities transactions on behalfofclients. The Company also engages in proprietary trading offixed income securities, primarily U.S. municipal bonds, and brokered certificates ofdeposit fiom U.S. financial institutions. The Company is a member of the Financial Industry Regulatory Authority (FINRA) and is subject to regulation under the United States Securities and Exchange Commission (SEC) and FINRA. The Company operates with an exemption from SEC Rule 15c3-3 under section k(2)(ii). The Company is also a member of the Securities Investor Protection Corporation (SIPC), a nonprofit membership corporation designed to protect, up to specified amounts, customers' cash and securities. The Company is a member ofthe Financial Industry Regulatory Authority (FINRA) and is subject to regulation under the United States Securities and Exchange Commission (SEC) and FINRA. The Company operates with an exemption fiom SEC Rule 1503—3 under section k(2)(ii). The Company is also a member of the Securities Investor Protection Corporation (SIPC), a nonprofit membership corporation designed to protect, up to specified amounts, customers' cash and securities. The Company operates under a clearing agreement with National Financial Services, LLC (National Financial), whereby National Financial maintains the Company's customer accounts on a fully disclosed basis. The Company does not hold customer cash or securities in connection with these customer transactions. The Company operates under a clearing agreement with National Financial Services, LLC (National Financial), whereby National Financial maintains the Company's customer accounts on a fully disclosed basis. The Company does not hold customer cash or securities in connection with these customer transactions. The accompanying statement of financial condition has been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The accompanying statement of financial condition has been prepared in conformity with accounting principles generally accepted in the United States ofAmerica (GAAP). ### **2. Summary of Significant Accounting Policies** 2. Summary of Significant Accounting Policies #### **Use of estimates in financial statements presentation** Use of estimates in financial statements presentation The preparation of financial statements in conformity with 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 financial statement. Actual results could differ from those estimates. The preparation of financial statements in conformity with 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 ofthe financial statement. Actual results could differ fiom those estimates. {7}------------------------------------------------ ### **2. Summary of Significant Accounting Policies (continued)** 2. Summary of Significant Accounting Policies (continued) ### **Cash and cash equivalents** Cash and cash equivalents Cash and cash equivalents consists of interest‐bearing and non-interest‐bearing deposit accounts with financial institutions. Cash and cash equivalents consists of interest-bearing and non—interest-bearing deposit accounts with financial institutions. ### **Restricted cash** Restricted cash Restricted cash consists of required cash balances for contractual escrow deposits and capital requirements in accordance with the clearing agreement at National Financial. As of December 31, 2018, the restricted balance totaled \$6,240,598. Restricted cash consists of required cash balances for contractual escrow deposits and capital requirements in accordance with the clearing agreement at National Financial. As of December 31, 2018, the restricted balance totaled \$6,240,598. #### **Securities owned** Securities owned Securities owned are valued at estimated fair value as determined by listed market exchanges and pricing services. Management understands how the quote or price is determined by the pricing service, including the source of the information and the inputs and assumptions used. The Company intends to hold these securities for a short period of time, typically less than 30 days. Securities owned are valued at estimated fair value as determined by listed market exchanges and pricing services. Management understands how the quote or price is determined by the pricing service, including the source of the information and the inputs and assumptions used. The Company intends to hold these securities for a short period oftime, typically less than 30 days. #### **Commissions receivable** Commissions receivable Commissions receivable is primarily comprised of revenue related to brokerage commissions and sales concessions due the Company from various third parties. The Company considers brokerage commissions receivable fully collectible as the majority of the receivable has been collected subsequent to period end but before the date the financial statement was issued. It is management's opinion that any losses from the remaining receivables, if incurred, would not materially affect the statement of financial condition; therefore management has concluded that no allowance is required. Commissions receivable is primarily comprised ofrevenue related to brokerage commissions and sales concessions due the Company from various third parties. The Company considers brokerage commissions receivable fully collectible as the majority of the receivable has been collected subsequent to period end but before the date the financial statement was issued. It is management's opinion that any losses fiom the remaining receivables, ifincurred, would not materially affect the statement of financial condition; therefore management has concluded that no allowance is required. ### **Trading income receivable** Trading income receivable Trading income receivable consists of trading gains and the interest earned from trade transactions that have not been received. At December 31, 2018, no allowance for doubtful accounts was established, as it is management's opinion that losses, if incurred, would not materially affect the statement of financial condition. Trading income receivable consists oftrading gains and the interest earned fiom trade transactions that have not been received. At December 31, 2018, no allowance for doubtful accounts was established, as it is management's opinion that losses, if incurred, would not materially affect the statement of financial condition. {8}------------------------------------------------ ### **2. Summary of Significant Accounting Policies (continued)** 2. Summary of Significant Accounting Policies (continued) ### **Related parties** Related parties SWBC provides certain services to the Company and the Company provides certain services to an affiliated SWBC subsidiary in accordance with cost sharing agreements. Services provided for the Company and by the Company include, but are not limited to, payroll processing, financial operations, and payable disbursement processing. Related party receivables and payables are settled monthly on a net basis. See Note 6 - Related-Party Transactions. SWBC provides certain services to the Company and the Company provides certain services to an affiliated SWBC subsidiary in accordance with cost sharing agreements. Services provided for the Company and by the Company include, but are not limited to, payroll processing, financial operations, and payable disbursement processing. Related party receivables and payables are settled monthly on a net basis. See Note 6 — Related—Party Transactions. ### **Property and equipment, net** Property and equipment, net Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Repairs and maintenance expenses are charged against earnings as incurred and expenditures for renewals and betterments are capitalized. Property and equipment are stated at cost and depreciated using the straight—line method over the estimated useful lives ofthe assets. Leasehold improvements are amortized over the shorter ofthe lease term or the estimated useful life ofthe asset. Repairs and maintenance expenses are charged against earnings as incurred and expenditures for renewals and betterments are capitalized. The Company reviews the carrying value of property and equipment for impairment whenever events or circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current operating results, trends and prospects, the effects of obsolescence and other economic factors. Based on this assessment there was no impairment at December 31, 2018. The Company reviews the carrying value of property and equipment for impairment whenever events or circumstances indicate the carrying value of an asset may not be recoverable fiom the estimated future cash flows expected to result fiom its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current operating results, trends and prospects, the effects ofobsolescence and other economic factors. Based on this assessment there was no impairment at December 31, 2018. #### **Securities sold, not yet purchased** Securities sold, not yet purchased Securities sold, not yet purchased represents the Company's obligation to deliver the specified security at the contracted price, and thereby creates a liability to purchase the security in the market at prevailing rates. The Company intends to hold these securities for a short period of time, typically less than 30 days. Securities sold, not yet purchased represents the Company's obligation to deliver the specified security at the contracted price, and thereby creates a liability to purchase the security in the market at prevailing rates. The Company intends to hold these securities for a short period of time, typically less than 30 days. #### **Commissions and administrative fees payable** Commissions and administrative fees payable Commissions and administrative fees payable represents brokerage commissions and sales concessions due to Company employees and third party financial institutions under revenue sharing agreements. Commissions and administrative fees payable represents brokerage commissions and sales concessions due to Company employees and third party financial institutions under revenue sharing agreements. {9}------------------------------------------------ ### **2. Summary of Significant Accounting Policies (continued)** 2. Summary of Significant Accounting Policies (continued) #### **Federal and state income taxes** Federal and state income taxes There is no federal income tax liability included in the statement of financial condition, as the Company is a single member limited liability company. As such, the Company is a disregarded entity for federal tax purposes as SWBC is responsible for reporting all federal taxes due. A state tax liability is only recognized for those states that do not recognize the federal treatment of single member limited liability companies. At December 31, 2018, the Company has a state tax payable of \$16,800 reflected in Accounts payable and accrued expenses on the accompanying statement of financial condition. There is no federal income tax liability included in the statement of financial condition, as the Company is a single member limited liability company. As such, the Company is a disregarded entity for federal tax purposes as SWBC is responsible for reporting all federal taxes due. A state tax liability is only recognized for those states that do not recognize the federal treatment of single member limited liability companies. At December 31, 2018, the Company has a state tax payable of \$16,800 reflected in Accounts payable and accrued expenses on the accompanying statement of financial condition. ### **Recent accounting pronouncements** Recent accounting pronouncements ### **Not yet adopted** Not yet adopted In February 2016, the FASB issued ASU 2016-02, "Leases." The ASU requires the recognition of a right-of use asset and lease liability on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The ASU is effective for fiscal years beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provides an optional transition method that allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company expects to adopt the provisions of this guidance on January 1, 2019. The Company has evaluated the impact of implementing ASU 2016-02 and determined that the standard will not have a material effect on the Company's Statement of Financial Condition. In February 2016, the FASB issued ASU 2016-02, "Leases." The ASU requires the recognition of a right—of use asset and lease liability on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The ASU is effective for fiscal years beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018—1 1, Leases — Targeted Improvements, which provides an optional transition method that allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance ofretained earnings in the period of adoption. The Company expects to adopt the provisions of this guidance on January 1, 2019. The Company has evaluated the impact of implementingASU 2016-02 and determined that the standard will not have a material effect on the Company's Statement ofFinancial Condition. {10}------------------------------------------------ ### **2. Summary of Significant Accounting Policies (continued)** 2. Summary of Significant Accounting Policies (continued) #### **Recently adopted** Recently adopted On January 1, 2018, the Company adopted FASB *Accounting Standards Update ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash*. This accounting update requires an entity to include in its cash and cash equivalents amounts that are deemed to be restricted cash. Restricted cash represents cash and cash equivalents that are subject to withdrawal or usage restrictions. For purposes of the statement of cash flows, cash, cash equivalents, and restricted cash consist of "cash and cash equivalents" and "restricted cash." On January 1, 2018, the Company adopted FASB Accounting Standards Update ASU 2016—18, Statement 0fCash Flows (Topic 230) — Restricted Cash. This accounting update requires an entity to include in its cash and cash equivalents amounts that are deemed to be restricted cash. Restricted cash represents cash and cash equivalents that are subject to withdrawal or usage restrictions. For purposes ofthe statement of cash flows, cash, cash equivalents, and restricted cash consist of"cash and cash equivalents" and "restricted cash." ### **3. Securities Owned and related Trading Income, net** 3. Securities Owned and related Trading Income, net At December 31, 2018, securities owned totaled \$32,681,780 and consisted mainly of fixed income securities and brokered certificates of deposit. Securities owned are reported at fair value. Brokered certificates of deposit are classified as money market instruments for regulatory purposes. At December 31, 2018, securities owned totaled \$32,681,780 and consisted mainly offixed income securities and brokered certificates ofdepo sit. Securities owned are reported at fair value. Brokered certificates of deposit are classified as money market instruments for regulatory purposes. Trading income during 2018 was as follows: Trading income during 2018 was as follows: | Net
Net gains on sales transactions
on
transactions
gains
sales | \$ 4,294,936
4,294,936
'5 | |--------------------------------------------------------------------------------|---------------------------------| | Interest income, net
Interest
income,
net | 1,580,455
1,580,455 | | Net unrealized gains
Net
unrealized
gains | 41,242
41,242 | | Trading income, net
Trading
income,
net | \$ 5,916,633
5,916,633
'5 | The Company has an agreement with National Financial that allows the Company to trade securities on margin up to a maximum debt level of \$40 million using the securities as collateral. The margin account bears interest at the prevailing Targeted Fed Funds rate plus 90 basis points. At December 31, 2018, the margin payable to National Financial totaled \$22,178,826. The Company has an agreement with National Financial that allows the Company to trade securities on margin up to a maximum debt level of \$40 million using the securities as collateral. The margin account bears interest at the prevailing Targeted Fed Funds rate plus 90 basis points. At December 31, 2018, the margin payable to National Financial totaled \$22,178,826. ### **4. Fair Value** 4. Fair Value All U.S. municipal debt and other securities held by the Company are recorded at fair value. The Company utilizes a recognized independent pricing service as the primary pricing source for all of the Company's Securities owned and Securities purchased, not yet sold transactions. The Company does not adjust prices received from third parties or obtain multiple prices when measuring the fair value of the securities. All U.S. municipal debt and other securities held by the Company are recorded at fair value. The Company utilizes a recognized independent pricing service as the primary pricing source for all of the Company's Securities owned and Securities purchased, not yet sold transactions. The Company does not adjust prices received fiom third parties or obtain multiple prices when measuring the fair value ofthe securities. {11}------------------------------------------------ ### **4. Fair Value (continued)** 4. Fair Value (continued) The fair value of all the Company's other financial assets and financial liabilities approximates the carrying amounts of such instruments due to their short maturities. The fair value ofall the Company's other financial assets and financial liabilities approximates the carrying amounts of such instruments due to their short maturities. The requirements of fair value measurements and disclosures apply to all financial instruments and all nonfinancial assets and nonfinancial liabilities that are being measured and reported on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The requirements of fair value measurements and disclosures apply to all financial instruments and all nonfinancial assets and nonfinancial liabilities that are being measured and reported on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements and disclosures also establish a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels: Fair value measurements and disclosures also establish a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels: - Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. 0 Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. - Level 2 Inputs are observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities. 0 Level 2 Inputs are observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that can be corroborated by observable market data for substantially the full term ofthe assets or liabilities. - Level 3 Inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. 0 Level 3 Inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value ofthe assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. {12}------------------------------------------------ #### **4. Fair Value (continued)** 4. Fair Value (continued) The following table summarizes the Company's fair value hierarchy: The following table summarizes the Company's fair value hierarchy: | | | December 31, 2018
December
31,
2018 | | | | | | |----------------------------------------------------------------------------------------|-----------------------|----------------------------------------------|-----------------------------------|--------------------------|-----------------------|---|--| | | Level 1
Level
1 | | Level 2
Level
2 | | Level 3
Level
3 | | | | Assets
Assets | | | | | | | | | Securities owned:
Securities
owned: | | | | | | | | | U.S. municipal debt securities
U.S.
municipal
debt
securities | \$
'5 | – | \$
\$ | 28,801,884
28,801,884 | \$
'5 | – | | | Money market instruments
Money
market
instruments | | –
— | | 3,293,835
3,293,835 | | – | | | Mortgage backed securities
Mortgage
backed
securities | | – | | 323,022
323,022 | | – | | | Corporate obligations
Corporate
obligations | | – | | 263,039
263,039 | | – | | | | \$
\$ | –
— | \$ 32,681,780
32,681,780
\$ | | \$
\$ | – | | | Liabilities
Liabilities | | | | | | | | | Securities sold, not yet purchased:
Securities
not
yet
sold,
purchased: | | | | | | | | | U.S. treasury securities
U.S.
treasury
securities | '5 | \$ 5,913,420
5,913,420 | \$
\$ | –
— | \$ | – | | | Corporate obligations
Corporate
obligations | –
— | | | 41,370
41,370 | | – | | | | \$ | \$ 5,913,420
5,913,420 | \$
\$ | 41,370
41,370 | \$
\$ | – | | {13}------------------------------------------------ ### **5. Property and Equipment** 5. Property and Equipment Property and equipment consist of the following: Property and equipment consist ofthe following: | | Life
Useful Life
Useful | December 31, 2018
December
31,
2018 | |--------------------------------------------------------------------------------------------------------------|-------------------------------|----------------------------------------------| | Furniture, fixtures
and equipment
Furniture,
fixtures
equipment
and | 3-10 years
3-10
years | \$
277,164
277,164
'5 | | Software
Software | 3-6 years
years
3—6 | 46,725
46,725 | | Leasehold improvements
improvements
Leasehold | 3-7 years
years
3—7 | 136,450
136,450 | | | | 460,339
460,339 | | Less accumulated depreciation and amortization
amortization
accumulated
depreciation
Less
and | | 371,931
371,931 | | | | \$
88,408
\$
88,408 | #### **6. Related-Party Transactions** 6. Related-Party Transactions The Company maintains cost sharing agreements with SWBC and an affiliated SWBC subsidiary. The cost sharing agreements cover such services as employee payroll and benefit processing, facilities, financial operations, and other allocated services, which are based on actual usage. The Company uses intercompany payable and receivable accounts with SWBC and the affiliated subsidiary to reflect the activity. The Company maintains cost sharing agreements with SWBC and an affiliated SWBC subsidiary. The cost sharing agreements cover such services as employee payroll and benefit processing, facilities, financial operations, and other allocated services, which are based on actual usage. The Company uses intercompany payable and receivable accounts with SWBC and the affiliated subsidiary to reflect the activity. The Company maintains a \$10,000,000 Revolving Credit Facility Agreement (the Agreement) with SWBC to fund the trading and holding of inventory in certain securities. Interest is payable at *Wall Street Journal* prime plus 1%. The Agreement expires in October 2019 and automatically renews annually under the same terms. At December 31, 2018, the Company had no borrowings outstanding under the Agreement. The Company maintains a \$10,000,000 Revolving Credit Facility Agreement (the Agreement) with SWBC to fund the trading and holding of inventory in certain securities. Interest is payable at Wall Street Journal prime plus 1%. The Agreement expires in October 2019 and automatically renews annually under the same terms. At December 31, 2018, the Company had no borrowings outstanding under the Agreement. ### **7. Employee Benefits** 7. Employee Benefits The Company participates in the SWBC 401(k) Profit Sharing Plan (the Plan). The Plan is a defined contribution plan covering employees of the Company when they begin employment. Participants may contribute up to 90% of their compensation, subject to Internal Revenue Service limitations, and may elect to invest in various investment options offered by the Plan. The Company participates in the SWBC 401(k) Profit Sharing Plan (the Plan). The Plan is a defined contribution plan covering employees of the Company when they begin employment. Participants may contribute up to 90% oftheir compensation, subject to Internal Revenue Service limitations, and may elect to invest in various investment options offered by the Plan. The Company offers a discretionary matching program which matches 50% of participant contributions up to 6% of a participant's compensation. The Company may also make discretionary profit sharing contributions to the Plan. The Company offers a discretionary matching program which matches 50% of participant contributions up to 6% of a participant's compensation. The Company may also make discretionary profit sharing contributions to the Plan. {14}------------------------------------------------ ### **7. Employee Benefits (continued)** 7. Employee Benefits (continued) The Company's employees participate in SWBC's medical and dental plans, which cover all full‐ time employees. SWBC is self‐insured under these plans up to a maximum of \$250,000 per covered person. The Company's employees participate in SWBC's medical and dental plans, which cover all fulltime employees. SWBC is self-insured under these plans up to a maximum of \$250,000 per covered person. Certain employees of the Company participate in The Executive Nonqualified Excess Plan of Southwest Business Corporation (NQDC Plan) which provides the opportunity for eligible employees to defer compensation in excess of qualified retirement plan limits on a pre-tax basis and accumulate tax-deferred earnings. The NQDC Plan stipulates eligible compensation and deferral limits and qualifying distribution events, as well as special death benefits. The liability for the NQDC Plan, which is included in Accrued compensation expenses, was \$2,926,791 at December 31, 2018. Certain employees of the Company participate in The Executive Nonqualified Excess Plan of Southwest Business Corporation (NQDC Plan) which provides the opportunity for eligible employees to defer compensation in excess of qualified retirement plan limits on a pre—tax basis and accumulate tax—deferred earnings. The NQDC Plan stipulates eligible compensation and deferral limits and qualifying distribution events, as well as special death benefits. The liability for the NQDC Plan, which is included in Accrued compensation expenses, was \$2,926,791 at December 31, 2018. ### **8. Commitments, Contingencies and Credit Risks** 8. Commitments, Contingencies and Credit Risks The Company is party to claims and legal proceedings arising in the ordinary course of business. The Company believes it is unlikely the final outcome of claims or any proceedings to which the Company is a party would have a material adverse effect on its statement of financial condition. The Company is party to claims and legal proceedings arising in the ordinary course of business. The Company believes it is unlikely the final outcome of claims or any proceedings to which the Company is a party would have a material adverse effect on its statement of financial condition. The Company's customer accounts are carried by National Financial. All execution and clearing services are also performed by National Financial. The agreement between the Company and National Financial stipulates that all losses resulting from the Company's inability to fulfill its contractual obligations are the responsibility of the Company. The Company's customer accounts are carried by National Financial. All execution and clearing services are also performed by National Financial. The agreement between the Company and National Financial stipulates that all losses resulting fiom the Company's inability to fulfill its contractual obligations are the responsibility ofthe Company. The Company maintains its cash in deposit accounts, which, at times, may exceed federally insured limits. Accounts are guaranteed by the Securities Investor Protection Corporation or the Federal Deposit Insurance Corporation up to a maximum of \$250,000. The Company has not experienced any losses in such accounts. The Company maintains its cash in deposit accounts, which, at times, may exceed federally insured limits. Accounts are guaranteed by the Securities Investor Protection Corporation or the Federal Deposit Insurance Corporation up to a maximum of \$250,000. The Company has not experienced any losses in such accounts. ### **9. Net Capital Requirements** 9. Net Capital Requirements The Company is subject to the United States Securities and Exchange Commission Uniform Net Capital Rule (SEC Rule 15c3‐1). The Company's minimum net capital requirement is the greater of \$100,000 or 1/15 of aggregate indebtedness, and requires that the ratio of aggregate indebtedness to net capital shall not exceed 15 to 1. At December 31, 2018, the Company had net capital of \$5,907,192, which was \$5,568,390 in excess of its required net capital of \$338,802. The Company's percentage of aggregate indebtedness to net capital was 86.03% at December 31, 2018. The Company is subject to the United States Securities and Exchange Commission Uniform Net Capital Rule (SEC Rule 1503-1). The Company's minimum net capital requirement is the greater of \$100,000 or 1/15 of aggregate indebtedness, and requires that the ratio of aggregate indebtedness to net capital shall not exceed 15 to 1. At December 31, 2018, the Company had net capital of \$5,907,192, which was \$5,568,390 in excess ofits required net capital of \$338,802. The Company's percentage ofaggregate indebtedness to net capital was 86.03% at December 31, 2018. {15}------------------------------------------------ #### **10. Subsequent Events** 10. Subsequent Events The Company has evaluated subsequent events through the date the statement of financial condition was available to be issued. The Company is not aware of any events occurring subsequent to December 31, 2018 that would have a material effect on its financial condition. The Company has evaluated subsequent events through the date the statement of financial condition was available to be issued. The Company is not aware of any events occurring subsequent to December 31, 2018 that would have a material effect on its financial condition. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.