# NAVY FEDERAL INVESTMENT SERVICES, LLC X-17A-5 (2024-02-27) — Broker-dealer annual report - Company: NAVY FEDERAL INVESTMENT SERVICES, LLC - Form: X-17A-5 - Filed: 2024-02-27 - Period: 2023-12-31 - Accession: 0001344803-24-000001 - CIK: 1344803 - File #: 8-67161 - Type: Broker-dealer - Material weakness: No - Auditor: PricewaterhouseCoopers, LLP - Auditor location: New York, NY - Contact: Tim Rosson - Phone: 7032558289 - Email: rosson@navyfederal.org - Website: navyfederal.org - Signed by: Diane Young (Chief Operating Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1344803/000134480324000001/public.pdf --- {0}------------------------------------------------ **Navy Federal Investment Services, LLC (An Indirect Wholly Owned Subsidiary of Navy Federal Credit Union) (Sec I.D. No. 8-67161)** > **Statement of Financial Condition December 31, 2023** **Pursuant to Rule 17a-5 of the Securities and Exchange Commission** {1}------------------------------------------------ # **Navy Federal Investment Services, LLC** \$Q,QGLUHFW:KROO\2ZQHG6XEVLGLDU\RI1DY\)HGHUDO&UHGLW8QLRQ **Index December 31, 2023** | | Page(s) | |----------------------------------------------------|---------| | )RUP;\$3DUW,,, | | | 2DWKRU\$IILUPDWLRQ | | | 5HSRUWRI,QGHSHQGHQW5HJLVWHUHG3XEOLF\$FFRXQWLQJ)LUP | | | Financial Statements | | | 6WDWHPHQWRI)LQDQFLDO&RQGLWLRQ | | | 1RWHVWR)LQDQFLDO6WDWHPHQWV | | {2}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 OMB APPROVAL OMB Number: 3235-0123 Expires: Nov. 30, 2026 Estimated average burden hours per response: 12 # ANNUAL REPORTS FORM X-17A-5 PART III | SEC FILE NUMBER | | |-----------------|--| | 8-67161 | | FACING PAGE Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934 AND ENDING 12/31/23 filing for the period beginning 01/01/23 MM/DD/YY MM/DD/YY A. REGISTRANT IDENTIFICATION # NAME OF FIRM: Navy Federal Investment Services, LLC TYPE OF REGISTRANT (check all applicable boxes): © Broker-dealer [ ] Check here if respondent is also an OTC derivatives dealer ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) # 1007 Electric Avenue | | (No. and Street) | | | |----------------------------------------------|-----------------------------------------------------------------------------------------------------------|---------------------------------------------------|------------| | Vienna | VA | | 22180 | | (City) | (State) | | (Zip Code) | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | Tim Rosson | 703-255-8289 | timothy rosson@navyfederal.org
(Email Address) | | | (Name) | (Area Code - Telephone Number) | | | | | | | | | | B. ACCOUNTANT IDENTIFICATION
INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | | | Pricewaterhousecoopers, LLP | | | | | 300 Madison Avenue | (Name - if individual, state last, first, and middle name)
New York | NY | 10017 | | (Address) | (City) | (State) | (Zip Code) | | 10/20/03 | | 238 | | \* Claims for exemption from the requirement that the annual reports of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR 240.17a-5(e)(1)(ii), if applicable. Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. {3}------------------------------------------------ #### OATH OR AFFIRMATION | Diane Young | | | swear (or affirm) that, to the best of my knowledge and belief, the | | |---------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|--| | | financial report pertaining to the firm of Navy Federal Investment Services, LLC | | as of | | | 12/31 | | | 2 023 | | | partner, officer, director, or equivalent person, as the case may proprietary interest in any account classified solely
as that of a customer. | | | | | | | LORI A CARTER
NOTARY PUBLIC
REG. #276-89 | Signature: | | | Title: Chief Operating Officer Notary Public #### This filing \*\* contains {check all applicable boxes): - = (a) Statement of financial condition. - = (b) Notes to consolidated statement of financial condition. - O (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S-X). - O (d) Statement of cash flows. - [ (e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - [ (f) Statement of changes in liabilities subordinated to claims of creditors. - \_ (g) Notes to consolidated financial statements. - [ (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable. COMMONWEAL TH OF VIRGINIA MY COMMISSION EXPIRES MARCH 31, 2026 - [ (i) Computation of tangible net worth under 17 CFR 240.18a-2. - | |} Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3. - □ (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable. - [1) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. - | (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - □ (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable. - □ (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - □ (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - | {g) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.18a-7, as applicable. - | (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - | (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - (t) Independent public accountant's report based on an examination of the statement of financial condition. - | |u) Independent public accountant's report based on an examination of the financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - □ (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - | (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - | (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.17a-12, as applicable. - | (y) Report describing any material inadequacies found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - □ (z) Other: - \*\*To request confidential treatment of certain portions of this filing, see 17 CFR 240.17o-5(e)(3) or 17 CFR 240.18c-7(d)(2), as applicable. {4}------------------------------------------------ # **Report of Independent Registered Public Accounting Firm** To the Executive Committee and the Member of Navy Federal Investment Services, LLC #### *Opinion on the Financial Statement – Statement of Financial Condition* We have audited the accompanying statement of financial condition of Navy Federal Investment Services, LLC (the "Company") as of December 31, 2023, 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, 2023 in conformity with accounting principles generally accepted in the United States of America. #### *Basis for 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. Washington D.C. February 27, 2024 We have served as the Company's auditor since 2006. {5}------------------------------------------------ # **Navy Federal Investment Services, LLC** \$Q,QGLUHFW:KROO\2ZQHG6XEVLGLDU\RI1DY\)HGHUDO&UHGLW8QLRQ **Statement of Financial Condition As of December 31, 2023 \_\_\_\_\_\_** #### **Assets:** | &DVKDQGFDVKHTXLYDOHQWV
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| | 7RWDOOLDELOLWLHVDQGPHPEHU¶VLQWHUHVW | | {6}------------------------------------------------ # **Note 1: Organization and Nature of Business** 1DY\)HGHUDO,QYHVWPHQW6HUYLFHV//&³1),6´RU³WKH&RPSDQ\´ IRUPHUO\ 1DY\)HGHUDO%URNHUDJH6HUYLFHV//& LVDUHJLVWHUHGLQWURGXFLQJEURNHUGHDOHUD 6HFXULWLHV([FKDQJH&RPPLVVLRQ³6(&´ UHJLVWHUHGLQYHVWPHQWDGYLVHUDQGLVD PHPEHURIWKH)LQDQFLDO,QGXVWU\5HJXODWRU\\$XWKRULW\´),15\$´ DQG6HFXULWLHV ,QYHVWRU3URWHFWLRQ&RUSRUDWLRQ³6,3&´ 7KH&RPSDQ\ZDVIRUPHGLQWKH &RPPRQZHDOWKRI9LUJLQLDRQ6HSWHPEHUDVDOLPLWHGOLDELOLW\FRPSDQ\ DQGKDVDSHUSHWXDOWHUPXQOHVVWHUPLQDWHGLQDFFRUGDQFHZLWKWKHDJUHHPHQW 7KH&RPSDQ\LVDZKROO\RZQHGVXEVLGLDU\RI1DY\)HGHUDO)LQDQFLDO\*URXS//& ³1))\*´ ZKLFKLVDZKROO\RZQHGVXEVLGLDU\RI1DY\)HGHUDO&UHGLW8QLRQ ³1)&8´ \$VDOLPLWHGOLDELOLW\FRPSDQ\WKHPHPEHU¶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¶VRWKHUEXVLQHVVDFWLYLWLHV DUHOLPLWHGWRHIIHFWLQJVHFXULWLHVWUDQVDFWLRQVYLDGLUHFWEXVLQHVVZKHUHWKHIXQGV DUHSD\DEOHWRWKHLVVXHURULWVDJHQWDQGQRWWRWKH&RPSDQ\ # **Note 2: Summary of Significant Accounting Policies** # **Basis of Presentation and Use of Estimates** 7KHVHILQDQFLDOVWDWHPHQWVKDYHEHHQSUHSDUHGLQDFFRUGDQFHZLWKDFFRXQWLQJ SULQFLSOHVJHQHUDOO\DFFHSWHGLQWKH8QLWHG6WDWHVRI\$PHULFD³86\*\$\$3´ DQG LQWKHIRUPDWSUHVFULEHGE\5XOHDXQGHUWKH6HFXULWLHV([FKDQJH\$FWRI IRUEURNHUVDQGGHDOHUVLQVHFXULWLHV7KHSUHSDUDWLRQRIILQDQFLDOVWDWHPHQWVLQ FRQIRUPLW\ZLWK86\*\$\$3UHTXLUHVPDQDJHPHQWWRPDNHHVWLPDWHVDQG DVVXPSWLRQVWKDWDIIHFWWKHUHSRUWHGDPRXQWVLQWKHILQDQFLDOVWDWHPHQWVDQG DFFRPSDQ\LQJQRWHV\$FWXDOUHVXOWVFRXOGGLIIHUIURPWKRVHHVWLPDWHV {7}------------------------------------------------ ### Cash and cash equivalents Cash and cash equivalents consist of demand deposits and money market accounts with financial institutions as well as short-term investments with stated maturities of three months or less. As of December 31, 2023, NFIS' cash, which is payable on demand, was held at two different financial institutions: Cash in the amount of \$9,765,395 was held at NFCU, of which, \$9,515,395 exceeded National Credit Union Administration ("NCUA") insurance limits. Cash in the amount of \$5,056,231 was held at an unrelated third-party bank, of which, \$4,806,231 exceeded Federal Deposit Insurance Corporation ("FDIC") insurance limits. #### Accounts Receivable Accounts receivable balances consist of commissions from brokerage, mutual fund, and other investment related transactions, as well as subscription fees from the Company's digital investor platform, that have been earned but not yet received. Additionally, accounts receivable consists of a clearing account balance held with one of the Company's clearing broker dealers as part of its carrying agreement. The Company's receivable balances were \$770,043 and \$549,897 as of December 31, 2023 and 2022, respectively. See Note 5 for additional details related to the Company's receivable balances. # Income Taxes NFIS 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. #### Recently Issued or Adopted Accounting Pronouncements On January 1, 2023, NFIS adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs (that collectively comprise ASC 326, also referred to herein as "CECL") that require the measurement of an allowance for credit losses related to financial assets, including accounts receivable. However, the adoption of CECL did not have a material impact on NFIS's financial condition or results of operations. # Note 3: Employee Retirement Benefit Plans NFIS participates in NFCU's retirement benefit plans including a defined benefit pension plan, a 401(k) defined contribution savings plan, and a 457(b) deferred compensation plan. {8}------------------------------------------------ For the year ended December 31, 2023, the Company incurred the following costs, included in Compensation, Commission, and Benefits on the Statement of Loss, related to its participation in NFCU's retirement plans: | 401(k) defined contribution plan (Company match) | \$904.376 | |--------------------------------------------------|-------------| | Defined benefit pension plan | 241.730 | | Total Employee Retirement Benefit Plan Expense | \$1,146,106 | #### 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 occurred. The Company believes the risk of loss to be remote. NFIS maintains errors and omissions insurance as well as a fidelity bond to mitigate losses. #### Receivables from clearing firms and other broker-dealers Receivables include 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 products and services they provide. NFIS is a secondary introducing broker dealer for clearing and custody in its "piggy-back" relationship with CFS, who bundles trades from other entities and routes them to Pershing for custody and clearing. Additional receivables include funds due from DriveWealth, LLC ("DriveWealth"), which represents subscription fees for the Company's digital investor platform, less fees charged for the products and services they provide, as well as funds deposited with DriveWealth for the Company's clearing deposit as required by the carrying agreement. The Company is subject to credit risk if Pershing, CFS, or DriveWealth 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, and is generally collected within 30 days or less. The Company monitors all financial assets for credit losses on an ongoing basis. As of December 31, 2023, all accounts receivable are expected to be fully collected without incurring a credit loss. A detail of the receivable balances due from CFS and DriveWealth as of December 31, 2023, is summarized in the table below: #### Receivables as of December 31, 2023 | Receivable from CFS for monthly commission | \$431,441 | |---------------------------------------------------|-----------| | Receivable from DriveWealth for subscription fees | 151,149 | | Receivable from DriveWealth for clearing deposit | 105,400 | | Receivable from CFS for quarterly trailing fees | 82,053 | | Total receivables as of December 31, 2023: | \$770,043 | {9}------------------------------------------------ The Company clears 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 obligations. As a result of the regulation of broker-dealers, the Company is subject to periodic reviews and inspections by regulatory authorities and self-regulatory organizations. The reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censure to fines and, in serious cases, temporary or permanent suspension from conducting business. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time, into industry practices, which can also result in the imposition of sanctions. As of December 31, 2023, NFIS is not subject to any fines or sanctions. # Note 5: Related Party Transactions The Company has entered into a support services 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. These expenses are included within Compensation, commission, and benefits and Office operations within the Company's Statement of Loss. 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. The Company pays a management fee to reimburse NFFG for these services. 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 services agreement of \$4,452,139 as of December 31, 2023, which is included in Accrued expenses and Accounts payable on the Statement of Financial Condition, of which, \$3,153,192 represents a liability for bonuses payable at management's discretion. The support services agreement is month-to-month with a 30 day right to cancel by either party. Management asserts that the allocation method in the support services agreement is reasonable and that no accrued interest has been recognized related to this agreement. As discussed in Note 2: Summary of Significant Accounting Policies, as of December 31, 2023, the Company held \$9,765,395 of cash and cash equivalents with its parent company, NFCU. {10}------------------------------------------------ The Company received \$55 million from its parent entity NFFG and invested \$50 million of the funds in a related party share certificate issued by NFFG's credit union parent entity, NFCU. The certificate yields a 5% return and matures in June 2024. All principal and interest will be remitted to the Company upon maturity in accordance with the terms of the investment. The Company accounts for the investment as contra equity and has included it in the Statement of Financial Condition and Statement of Changes in Member's Interest as a related party certificate in accordance with ASC 505-10-45-2. Accordingly, accrued interest related to the share certificate has not been recognized during 2023. # Capitalization In March 2023, NFFG contributed \$55,000,000 of capital to NFIS, bringing NFFG's total investment in NFIS to \$85,250,000. In exchange for the additional capital contribution, NFFG will own a total of 85,250,000 economic units and 85,250,000 participation units, which represents 100% economic interest in the Company. # Note 6: Net Capital Requirement The Company is subject to the Uniform Net Capital Rule under Rule 15c3-1 of the 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 percent of aggregate indebtedness, also as defined. As of December 31, 2023, the Company had net capital of \$6,682,495, which was \$6,580,925 in excess of its required net capital of \$101,570. As of December 31, 2023, the Company's aggregate indebtedness to net capital ratio was 0.23 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. The Company's other business activities are contemplated by Footnote 74 of SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5 and are limited to effecting securities transactions via subscriptions on a subscription way basis where the funds are payable to the issuer or its agent and not to the Company. 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. {11}------------------------------------------------ #### Note 8: Subsequent Events The Company has evaluated subsequent events through February 27, 2024, the date these financial statements were issued and concluded that no subsequent events existed that are material and would require disclosure in this report. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.