# NAVY FEDERAL BROKERAGE SERVICES, LLC X-17A-5 (2020-02-26) — Broker-dealer annual report - Company: NAVY FEDERAL BROKERAGE SERVICES, LLC - Form: X-17A-5 - Filed: 2020-02-26 - Period: 2019-12-31 - Accession: 0001344803-20-000001 - CIK: 1344803 - File #: 8-67161 - Material weakness: No - Auditor: PricewaterhouseCoopers, LLP - Auditor location: Mclean, VA - Contact: Xiaoning Gunn - Phone: 7032062003 - Signed by: Patricia Wood (Chief Operating Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1344803/000134480320000001/Public2.pdf --- {0}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 0MB APPROVAL 0MB Number: 3235-0123 Expires: August 31, 2020 Estimated average burden hours per response ..... . 12.00 SEC FILE NUMBER 8-67161 # **ANNUAL AUDITED REPORT FORM X-17A-5 PART Ill** **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder** | REPORT FOR THE PERIOD BEGINNING 01/01/2019 | | -----------
AND ENDING 12/31/2019 | | |--------------------------------------------------------------------------------------------|--------------------------------------------------------|--------------------------------------|------------------------------------------------| | | MM/DD/YY | | MM/DD/YY | | | A. REGISTRANT IDENTIFICATION | | | | NAME OF BROKER-DEALER: Navy Federal Brokerage Services, LLC | | OFFICIAL USE ONLY | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM I.D. NO. | | 820 Follin Lane SE | | | | | | (No . and Street) | | | | Vienna | VA | | 22180 | | (City) | (State) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONT ACT IN REGARD TO THIS REPORT | | | | | Xiaoning Gunn | | | 703-206-2003
(Area Code - Telephone Number) | | | B. ACCOUNTANT IDENTIFICATION | | | | | | | | | INDEPENDENT PUBLIC ACCOUNT ANT whose opinion is contained in this Report* | | | | | PricewaterhouseCoopers, LLP | | | | | | (Name - if individual, state last, first, middle name) | | | | 1800 Tysons Boulevard | Mclean | VA | 22102 | | (Address) | (City) | (State) | (Zip Code) | | CHECK ONE: | | | | | I
✓
Certified Public Accountant | | | | | | | | | | E]Public Accountant
Accountant not resident in United States or any of its possessions. | | | | | | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | *\*Claims for exemption.from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis for 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** unless the form displays a currently valid 0MB control number. SEC 1410 (11-05) {1}------------------------------------------------ ## **OATH OR AFFIRMATION** | ________________________
I, _P_a_tr_ic_ia_P_. W_ o_od | , swear ( or affirm) that, to the best of | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Navy Federal Brokerage Services, LLC | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of
, as | | of December 31 | 20 19
are true and correct. I further swear ( or affirm) that | | classified solely as that of a customer, except as follows: | neither the company nor any partner, proprietor, principal officer or director has any proprietary interest in any account | | NOTARY PUBLIC
REG. #276539
COMMONWEALTH OF VIRGINIA
MY COMMISSION EXPIRES MARCH 31 , 2022 | Signature
Chief Operating Officer | | ~,Q-~
otary Pulic | Title | | This report** contains (check all applicable boxes):
0 (a) Facing Page.
0 (b) Statement of Financial Condition.
(
of Comprehensive Income (as defined in §210.1-02 of Regulation S-X).
§
d) Statement of Changes in Financial Condition.
(e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital.
(f) Statement of Changes in Liabilities Subordinated to Claims of Creditors.
§ (g) Computation of Net Capital.
(h) Computation for Determination of Reserve Requirements Pursuant to Rule l 5c3-3.
(i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3.
consolidation.
§ (I) An Oath or Affirmation.
(m) A copy of the SIPC Supplemental Report. | D (c) Statement oflncome (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement
D (j) A Reconciliation, including appropriate explanation of the Computation ofNet 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
(n) A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. | | | **For conditions of confidential treatment of certain portions of this filing, see section 240.17 a-5 (e)(3). | {2}------------------------------------------------ Navy Federal Brokerage Services, LLC (An Indirect Wholly Owned Subsidiary of Navy Federal Credit Union) (Sec I.D. No. 8-67161) > Financial Statements and Supplemental Information December 31, 2019 > > Pursuant to Rule 17a-5 of the Securities and Exchange Commission {3}------------------------------------------------ # **Navy Federal Brokerage Services, LLC** (An Indirect Wholly Owned Subsidiary of Navy Federal Credit Union) **Index December 31, 2019** | | Page(s) | |---------------------------------------------------------|---------| | Form X-17 A-5 Part III | 1 | | Oath or Affirmation | 2 | | Report of Independent Registered Public Accounting Firm | 3 | | Statement of Financial Condition | 4 | | Notes to Financial Statements | 5-8 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) # **Report of Independent Registered Public Accounting Firm** To the Member of Navy Federal Brokerage Services, LLC # *Opinion* **on** *the Financial Statement* **-** *Statement of Financial Condition* We have audited the accompanying statement of financial condition of Navy Federal Brokerage Services, LLC (the "Company") as of December 31, 2019, including 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 Company as of December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. ## *Basisfor Opinion* The financial statement is the responsibility of 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of this financial statement 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 financial statement. 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. **! .. ••••••••••••••••••••••••••••••••••••••••••••••••• .. ••••• .. •• .. •• .. •••••••••••••••••••••••• .. •••••••••••••••••••••••••••• .. • .. u•• .. •••~ • .. • • •••• .... • •••••••••••••• .. •••••••••••••••••••••• .. •••-~•••••••• .. ••••• ••••••••••n ••••••••••••••••• t** February 21, 2020 We have served as the Company's auditor since 2006 {5}------------------------------------------------ # **Navy Federal Brokerage Services, LLC** (An Indirect Wholly Owned Subsidiary of Navy Federal Credit Union) **Statement of Financial Condition As of December 31, 2019** # **Assets:** | Cash and cash equivalents | \$6,628,586 | |--------------------------------------------|--------------| | Restricted cash | 10,000 | | Accounts receivable | 469,647 | | Prepaid expenses | 317,837 | | Other assets | 19,002 | | Total assets | \$7,445,072 | | Liabilities: | | | Accrued expenses | \$2,744,317 | | Accounts payable | 93 753 | | Other liabilities | 8,476 | | Total liabilities | \$2,846,546 | | Commitments and contingencies (See Note 4) | | | Member's Interest: | | | | | | Member's interest | \$17,250,000 | | Retained deficit | (12,651.474) | | Total member's interest | \$4.598,526 | | Total liabilities and member's interest | \$7,445,072 | *The accompanying notes are an integral part of these financial statements.* {6}------------------------------------------------ # **Navy Federal Brokerage Services, LLC** (An Indirect Wholly Owned Subsidiary of Navy Federal Credit Union) **Notes to the Financial Statements For the Year Ended December 31, 2019** # **Note 1: Organization and Nature of Business** Navy Federal Brokerage Services LLC ("NFBS" or "the Company") is a registered introducing broker-dealer, a Securities Exchange Commission ("SEC") registered investment adviser, and is a member of the Financial Industry Regulatory Authority ("FINRA") and Securities Investor Protection Corporation ("SIPC"). The Company was formed in the Commonwealth of Virginia on September 6, 2005 as a limited liability company. The Company is a wholly owned subsidiary of Navy Federal Financial Group, LLC ("NFFG"), which is a wholly owned subsidiary of Navy Federal Credit Union ("NFCU"). NFBS provides broker-dealer and investment advisory services primarily to NFCU members. NFCU is a federally chartered credit union domiciled in the Commonwealth of Virginia. NFCU is the sole member of Navy Federal Financial Group, LLC and NFFG is the sole member of Navy Federal Brokerage Services, LLC. The Company operates under the provisions of paragraph (k)(2)(ii) of Rule 15c3-3 of the SEC and accordingly, is exempt from the remaining provisions of that Rule. Essentially, the requirement of paragraph (k)(2)(ii) provides that the Company clear all transactions on behalf of customers on a fully disclosed basis with a clearing broker-dealer, and promptly transmit all customer funds and securities to the clearing broker-dealer. # **Note 2: Summary of Significant Accounting Policies** # **Basis of Presentation** The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and in format prescribed by Rule 17a-5 under the Securities Exchange Act of 1934 for brokers and dealers in securities. # **Use of Estimates** The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. {7}------------------------------------------------ # **Cash and cash equivalents** Cash and cash equivalents consist of demand deposits and money market accounts with financial institutions. The Company defines cash and cash equivalents as highly liquid investments with original maturities of three months or less. # **Restricted cash** Restricted cash consists of an account held at the Company's secondary clearing broker to fund unmet obligations ofNFBS's customers to the clearing broker. The following table reconciles cash, cash equivalents and restricted cash from the Statement of Cash Flows to the amounts reported in the Statement of Financial Condition: | Cash and cash equivalents | \$ 6,628,586 | |---------------------------------------------------|--------------| | Restricted cash | 10,000 | | Total Cash, cash equivalents and restricted cash: | \$ 6,638,586 | ## **Income Taxes** NFBS is a single member limited liability company and as such is not subject to federal and state income tax. ## **Financial Instruments** The carrying amounts of cash, receivables and payables approximated fair value due to the short-term maturity of the instruments. ### **New Accounting Pronouncements** Accounting Standards Update ("ASU") 2016-13 *"Measurement of Credit Losses on Financial Instruments"* requires enhanced financial statement disclosures and introduces a new impairment model for certain financial instruments based on historical experience, current conditions and reasonable and supportable forecasts. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect any impact to its financial statements as a result of ASU 2016-13. ### **Note 3: Employee Retirement Benefit Plans** NFBS participates in NFCU's retirement benefit plans including a defined benefit pension plan, 401(k) defined contribution and 457(b) savings plan. ### **Note 4: Commitments and Contingencies** In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Company's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not {8}------------------------------------------------ occurred. The Company believes the risk of loss to be remote. NFBS maintains errors and omissions insurance as well as a fidelity bond to mitigate losses. ## **Receivables from clearing firms and other broker-dealers** Receivables include funds due from CUSO Financial Services, L.P. ("CFS"), which represents commissions receivable from Pershing, LLC, the Company's primary clearing broker, less any fees charged for the services they provide. The Company is subject to credit risk if our clearing broker or CFS are unable to repay the receivable balance reflected in the Statement of Financial Condition. The carrying value of the receivable approximates the fair value as the balance is short term, which is generally considered to be three months or less. The receivable due from CFS totaled \$443,196 as of December 31, 2019. The Company clears all of its securities transactions through clearing brokers on a fully disclosed basis. Pursuant to the terms of the agreement between the Company and the clearing broker, the clearing broker has the right to charge the Company for losses that result from a counterparty's failure to fulfill its contractual ob!igations. The Company monitors the credit standing of the clearing brokers and all counterparties with which it conducts business. ## **Note 5: Related Party Transactions** The Company has entered into a support service agreement with NFFG, and indirectly, NFCU, for the provision of services related to the business of the Company. Costs related to employees who provide substantial service to the Company have been identified and allocated to the Company, including compensation and employee benefits expense, general office expense, and administrative services. Other costs related to the provision of support services such as finance and accounting support, human resources support, marketing support, IT and risk management support, compliance support, legal support, and general management oversight of the Company are also identified and allocated to the Company. NFFG, and indirectly, NFCU, also provides services such as the payment of direct expenses which are reimbursed by the Company. The Company has a payable to parent entities related to the support service agreement of \$2,684,894 as of December 31, 2019, which is included in Accrued expenses and Accounts payable on the Statement of Financial Condition. The support service agreement is month-to-month with a 30 day right to cancel by either party. ## **Note 6: Net Capital Requirement** The Company is subject to the Uniform Net Capital Rule under Rule 15c3-lofthe Securities Exchange Act of 1934, which requires the maintenance of minimum net capital. The Company computes net capital, as defined, of not less than 6.67 {9}------------------------------------------------ percent of aggregate indebtedness, also as defined. As of December 31, 2019, the Company had net capital of \$4,138,648, which was \$3,948,879 in excess of its required net capital of\$189,770. As of December 31, 2019, the Company's aggregate indebtedness to net capital ratio was 0.69 to 1.00. ## **Note 7: Rule 15c3-3 Exemption** The Company is exempt from provisions of Rule 15c3-3 (pursuant to paragraph (k)(2)(ii) of such Rule) under the Securities Exchange Act of 1934 as an introducing broker-dealer. The Company does not hold any customer funds and/or securities and promptly transmits customer funds and/or securities to the clearing brokerdealer. Operating under such exemption, the Company is not required to provide reserve requirements nor is required to adhere to control requirements for brokers or dealers under Rule 15c3-3. ## **Note 8: Subsequent Events** The Company has evaluated subsequent events through February 21, 2020, the date these financial statements were issued. No subsequent events were identified that would require disclosure in this report. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.