# CITIZENS CAPITAL MARKETS, INC. X-17A-5 (2021-06-30) — Broker-dealer annual report - Company: CITIZENS CAPITAL MARKETS, INC. - Form: X-17A-5 - Filed: 2021-06-30 - Period: 2020-12-31 - Accession: 0001647978-21-000011 - CIK: 1647978 - File #: 8-69651 - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Boston, MA - Contact: Thomas Kosinski - Phone: 203-952-6177 - Website: deloitte.com - Signed by: William Casserly (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/1647978/000164797821000011/ccmi_financialstatementshort.pdf --- {0}------------------------------------------------ | OMB APPROVAL | | |--------------------------------------------|------------------| | OMB Number | 3235-0123 | | Expires | October 31, 2023 | | Estimated avg burden
hours per response | 12.00 | # **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549** SEC FILE NUMBER **8-69651** # **ANNUAL AUDITED REPORT FORM X-17A-5 PART III** # **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder** REPORT FOR THE PERIOD BEGINNING 01/01/20 AND ENDING 12/31/20 # **A. REGISTRANT IDENTIFICATION** NAME OF BROKER - DEALER: **Citizens Capital Markets, Inc.** ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) **28 State Street, MS1240 Boston, Massachusetts 02118** ![](_page_0_Picture_9.jpeg) NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT: **William Casserly (603) 634-7507** # **B. ACCOUNTANT IDENTIFICATION** INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report\* **Deloitte & Touche LLP 200 Berkeley Street Boston, Massachusetts 02116** ## **CHECK ONE:** Certified Public Accountant Public Accountant Accountant not resident in United States or any of its possessions FOR OFFICIAL USE ONLY \*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent 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). {1}------------------------------------------------ ![](_page_1_Picture_6.jpeg) ![](_page_1_Picture_8.jpeg) {2}------------------------------------------------ CITIZENS CAPITAL MARKETS, INC. (SEC I.D. No. 8-69651) STATEMENT OF FINANCIAL CONDITION FOR THE YEAR ENDED DECEMBER 31, 2020 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM \*\*\*\*\*\* Filed pursuant to Rule 17a-5(e)(3) as a **PUBLIC DOCUMENT** {3}------------------------------------------------ # **TABLE OF CONTENTS** | This report contains (check all applicable boxes): | | Page No. | | |----------------------------------------------------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---| | (x) | (a) | Facing Page | | | (x) | (l) | An Oath or Affirmation | 2 | | (x) | | Report of Independent Registered Public Accounting Firm | 5 | | (x) | | Financial Statements | | | (x) | (b) | Statement of Financial Condition | 6 | | | (c) | Statement of Operations | | | | (e) | Statement of Changes in Stockholder's Equity | | | | (d) | Statement of Cash Flows | | | | (f) | Statement of Changes in Liabilities Subordinated to Claims of General Creditors | | | (x) | | Notes to Financial Statements | 7 | | | | Supplemental Schedules | | | | (g) | Computation of Net Capital | | | | (h) | Computation for Determination of Reserve Requirement Pursuant to Rule 15c3-3 | | | | (i) | Information Relating to the Possession or Control Requirements Under Rule 15c3-3 | | | | (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 (N/A) | | | | (k) | A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of
consolidation (N/A) | | | | (m) | A copy of the SIPC Supplemental Report (filed separately) | | | | (n) | A report describing any material inadequacies found to exist or found to have existed since the date of the previous
audit (N/A) | | {4}------------------------------------------------ Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 USA Tel: +1 617 437 2000 Fax: +1 617 437 2111 www.deloitte.com # **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Stockholder and Board of Directors of Citizens Capital Markets, Inc. 28 State Street Boston, Massachusetts # **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of Citizens Capital Markets, Inc., (the "Company") a wholly owned subsidiary of Citizens Financial Group, Inc. 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 Company as of 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 Company's management. Our responsibility is to express an opinion on this 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 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 of the financial statement provides a reasonable basis for our opinion. February 25, 2021 We have served as the Company's auditor since 2016. {5}------------------------------------------------ # **STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2020 (IN THOUSANDS, EXCEPT SHARE FIGURES)** ## **ASSETS** | Cash, cash equivalents and restricted cash | \$
154,607 | |-------------------------------------------------------------------|---------------| | Goodwill | 51,919 | | Investment securities, at fair value | 19,339 | | Fees receivable | 13,799 | | Intangible assets - net of accumulated amortization of \$3,725 | 5,040 | | Deferred tax asset | 1,573 | | Premises and equipment - net of accumulated depreciation of \$447 | 775 | | Operating lease right-of-use asset | 327 | | Prepaid and other assets | 1,608 | | | | | TOTAL ASSETS | \$
248,987 | |--------------|---------------| | | | | | | ### **LIABILITIES AND STOCKHOLDER'S EQUITY** | LIABILITIES: | | |---------------------------------------------------------------------------|---------------| | Due to Parent - subordinated debt | \$
105,000 | | Accrued incentive compensation | 12,472 | | Investment securities sold but not yet purchased, at fair value | 12,466 | | Income taxes payable | 6,498 | | Payable to clearing organization | 3,967 | | Operating lease liability | 329 | | Due to Parent and affiliate - other liabilities | 137 | | Accrued expenses and other liabilities | 16,311 | | TOTAL LIABILITIES | 157,180 | | STOCKHOLDER'S EQUITY: | | | Common stock, \$1 par value, 10 shares authorized, issued and outstanding | — | | Additional paid-in capital | 40,000 | | Retained earnings | 51,807 | | TOTAL STOCKHOLDER'S EQUITY | 91,807 | | TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | \$
248,987 | See accompanying notes to Statement of Financial Condition. {6}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** # **1. NATURE OF OPERATIONS** Citizens Capital Markets, Inc. (the "Company" or "CCMI"), is a Massachusetts corporation incorporated on September 21, 1995, a registered broker-dealer with the Securities and Exchange Commission ("SEC") and a member of the Financial Industry Regulatory Authority ("FINRA"). The Company is registered with FINRA as an introducing broker-dealer and does not hold customer funds or securities. CCMI is a wholly-owned subsidiary of Citizens Financial Group, Inc. ("CFG", or "Parent"), and provides investment banking and advisory services related to merger & acquisitions ("M&A"), capital raises, and financial & strategic advisory, as well as business valuation services. The Company is also engaged in underwriting, dealing and trading corporate debt obligations for institutional clients. CCMI clears all securities transactions on a fully disclosed basis through third-party clearing brokers. Although the COVID-19 pandemic did not materially impact CCMI's business in 2020, the impact it may have, if any, in the future cannot be reasonably determined. # **2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** # **Basis of Presentation and Use of Estimates** The financial statement includes the accounts of the Company and are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The U.S. dollar is the functional currency of the Company. The preparation of the financial statement in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. # **Cash, Cash Equivalents and Restricted Cash** For the purposes of reporting cash flows, balances include highly liquid investments with an original maturity date of less than 90 days. At December 31, 2020, cash, cash equivalents and restricted cash was \$154,607, which included \$106,405 of U.S. Treasury securities, \$21,805 of cash, \$25,897 of cash due from clearing organization and \$500 of restricted cash. Restricted cash represents cash kept on deposit with the clearing organization. This balance is subject to withdrawal restrictions such that the Company would be prohibited from doing business with the clearing organization if the minimum cash deposit is not maintained. Dividends recognized from money market mutual fund investments are recorded in interest income, within the Statement of Operations. # **Securities Transactions** Gains and losses from principal securities transactions, and the related revenues and expenses, are recorded on a trade date basis. Investment securities, at fair value, investment securities held at clearing broker and investment securities sold, not yet purchased, at fair value, are all valued at market with related unrealized gains and losses netted in other income or losses on the Statement of Operations. Interest income on investment securities owned, at fair value is included within interest income in the Statement of Operations. # **Goodwill and Other Intangible Assets** Goodwill is the purchase premium associated with the acquisition of a business and is assigned to reporting units at the acquisition date. A reporting unit is a business operating segment or a component of a business operating segment. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill. The entire goodwill balance is allocated to one reporting unit, M&A and Financial Advisory. Goodwill is not amortized, but is subject to annual impairment tests. The goodwill impairment analysis involves comparing each reporting unit's fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is deemed not impaired. If the carrying value exceeds fair value, {7}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** goodwill is deemed impaired by the amount the carrying value exceeds the fair value of the reporting unit. The goodwill impairment recognized cannot not exceed the carrying value of goodwill. The Company reviews goodwill for impairment annually as of October 31, or more often if events or circumstances indicate that it is more likely than not that the fair value of one or more reporting unit is below its carrying value. The fair values of the Company's reporting units are determined using a combination of income and market-based approaches. The Company relies on the income approach (discounted cash flow method) for determining fair value. Market and transaction approaches are used as benchmarks only to corroborate the value determined by the discounted cash flow method. The Company relies on several assumptions when estimating the fair value of its reporting unit using the discounted cash flow method. These assumptions include the discount rate, as well as income tax and capital retention rates. Other intangible assets represent purchased long-lived intangible assets, primarily a client referral network, trade name, and customer list which can be distinguished from goodwill. Other intangible assets, which are also subject to annual evaluation for impairment, are amortized on a straight-line basis over periods ranging from two to five years, with such amortization recorded in intangibles amortization in the Statement of Operations. Refer to Note 5 for further details. # **Premises and Equipment** Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straightline method over the estimated useful lives of the assets. Additions to premises and equipment are recorded at cost. The cost of major additions, improvements and betterments is capitalized. Normal repairs and maintenance and other costs that do not improve the property, extend the useful life or otherwise do not meet capitalization criteria are charged to expense as incurred. The Company evaluates premises and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Refer to Note 6 for further details. # **Leases** The Company determines if an arrangement is a lease at inception. At commencement, the Company recognizes a rightof-use asset and a corresponding lease liability based on the present value of the lease payments over the non-cancelable lease term. A right-of-use asset represents the value of the Company's contractual right to use an underlying leased asset and a lease liability represents the Company's contractual obligation to make payments on the same underlying leased asset. As the Company's lease does not specify an implicit rate, the Company uses the incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. In its normal course of business, the Company may lease equipment and office space. Lease terms predominantly range from one year to ten years and may include options to extend the lease, terminate the lease, or purchase the underlying asset at the end of the lease. Certain lease agreements may include rental payments based on an index or are adjusted periodically for inflation. When the Company has lease agreements that contain lease and non-lease components, these components are accounted for as a single lease component. Leases with an initial term of 12 months or less are recognized in occupancy expense in the Statement of Operations on a straight-line basis over the remaining lease term. Refer to Note 7 for further details. The Company evaluates right-of-use assets for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. ### **Revenue Recognition** The Company recognizes revenue from contracts with customers in the amount of consideration it expects to receive upon the transfer of control of a good or service. The timing of recognition is dependent on whether the Company satisfies a performance obligation by transferring control of the product or service to a customer over time or at a point in time. Judgments are made in the recognition of income including the timing of satisfaction of performance obligations and determination of the transaction price. The Company has elected the practical expedient to exclude disclosure of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts {8}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** for which the Company recognized revenue at the amount to which the Company has the right to invoice for services performed. A description of the components of revenue from contracts with customers is presented below: - *Underwriting Fees* The Company helps clients raise capital via public offering and private placement of various types of debt instruments and equity securities. Underwriting fees are based on the issuance price and quantity of the underlying instruments. Fees are recognized, at a point in time, upon pricing of the underwriting transaction. Underwriting expenses passed through from lead underwriters are recognized within underwriting services expense on the Statement of Operations. - *M&A Advisory Fees* M&A advisory fees are recognized as advice is provided to the client over time, based on the progress of work and when revenue is not probable of a significant reversal. Success fees are recognized at the completion of the transaction. Reimbursements of out of pocket costs are recognized as additional transaction revenue. - *Referral Fees* Referral fees are recognized, at a point in time, upon completion of a referral transaction. - *Other Advisory Services* Valuation services are recognized, at a point in time, upon completion of the advisory service. Reimbursements of out of pocket costs are recognized as additional transaction revenue. Fairness opinions are recognized, at a point in time, upon completion of the advisory service. # **Fair Value of Financial Instruments** The Company categorizes financial instruments carried at fair value on its Statement of Financial Condition based on a three-level hierarchy. 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 on the measurement date. The aforementioned three-level hierarchy is defined as follows: - *• Level 1* Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities; - *• Level 2* Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets; quoted prices in markets that are not active; and other inputs that are observable or can be corroborated by market data for substantially the full term of the financial instrument; and - *• Level 3* Unobservable inputs to the valuation methodology that are supported by little or no market information and are significant to the fair value measurement. Financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Refer to Note 10 for further details. {9}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** ### **Pronouncement Summary of Guidance Effect on Financial Statements** Goodwill - *Issued January 2017* -Requires an impairment loss to be recognized when the estimated fair value of a reporting unit falls below its carrying value. - The Company adopted the new standard on January 1, 2020. Adoption of the guidance did not have a material impact on the Company's financial statements. -Eliminates the second condition that requires an impairment loss to be recognized only if the estimated implied fair value of the goodwill is below its carrying value -Applied prospectively to all goodwill impairment tests performed after the adoption date Disclosure Requirements - Fair Value Measurement - *Issued August 2018* - Eliminates requirements for certain disclosures that are no longer considered relevant or cost beneficial, requires new disclosures and modifies existing disclosures that are expected to enhance the usefulness of the financial statements. - The Company adopted the new standard on January 1, 2020. Adoption of the guidance did not have a material impact on the Company's financial statements. - Prospective application is required for new disclosure requirements. - Retrospective application is required for all other amendments for all periods presented. 'Financial Instruments - Credit Losses *Issued June 2016* -Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost, which will reflect the Company's estimate of credit losses over the full remaining expected life of the financial assets. - The Company adopted the new standard on January 1, 2020. Adoption of the guidance did not have a material impact on the Company's financial statements. # **Recently Adopted Accounting Pronouncements** # **3. ACQUISITIONS** On March 4, 2020, CCMI acquired Trinity Capital, LLC ("Trinity") for \$7,563. Trinity is a Los Angeles-based advisory firm that delivers a range of financial services to commercial clients nationwide. The acquisition strengthens CCMI's ability to serve clients by further accelerating the build-out of its M&A and financial advisory capabilities. The acquired business contributed total revenues of \$4,662 and a pre-tax income of \$1,333 to CCMI for the period from March 4, 2020 to December 31, 2020. The following summarizes the fair value of the consideration transferred and the amounts of identified assets acquired at the acquisition date. CCMI did not assume any liabilities upon acquisition of Trinity. # **Fair value of consideration transferred:** The total fair value of cash consideration, as of the acquisition date, was \$7,563. Total payments, inclusive of imputed interest, are \$2,800 at closing and \$4,763 of contingent consideration in 2022. # **Recognized amounts of identifiable assets acquired:** | Goodwill | \$
6,097 | |---------------------------|-------------| | Referral network | 1,241 | | Accounts receivable | 88 | | Prepaid expenses | 68 | | Fixed assets | 39 | | Other assets | 30 | | Total identifiable assets | \$
7,563 | {10}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** # **4. RELATED PARTY TRANSACTIONS** The Company has entered into service agreements with its affiliates Citizens Bank, National Association ("CBNA") and CFG (collectively, the "Affiliates"). The Affiliates provides support services to the Company and allocate direct and indirect costs attributable to the Company. Such costs include, but are not limited to, costs of the bank personnel providing services to the Company, including finance, human resources, technology, risk, audit, and facilities. The Company had outstanding payables of \$131 and \$6 due to CBNA and the Parent, respectively, as of December 31, 2020. The Company has a subordinated credit facility with CFG. There was no change to the borrowing limit of \$175,000 as of December 31, 2020. The subordinated loan drawn on this credit facility matures on September 15, 2023 and bears interest at 1.06% per annum. The Company maintains four checking accounts with CBNA and cash held was \$21,805 as of December 31, 2020. Dividends of \$39,918 were paid to the Parent as of December 31, 2020. # **5. GOODWILL AND INTANGIBLE ASSETS** On March 4, 2020, the Company acquired the assets of Trinity and recorded goodwill of \$6,097. Goodwill deductible for tax purposes was \$6,097 as of December 31, 2020. The purchase price for the Trinity acquisition was \$7,563, of which \$2,800 was paid in 2020 and the remaining amount of \$4,763 will be paid in 2022, including \$454 of imputed interest. On March 1, 2019, the Company acquired the net assets of Bowstring Advisors, LLC ("Bowstring") and recorded goodwill of \$34,552. Goodwill deductible for tax purposes was \$36,646 as of December 31, 2020. The purchase price for the Bowstring acquisition was \$40,451, of which \$27,045 was paid in 2019, \$7,750 was paid in 2020, and the remaining amount to be paid over the next two years is \$7,750, including \$2,094 of imputed interest. On May 15, 2017, the Company acquired the net assets of Western Reserve Partners LLC ("WRP") and recorded goodwill of \$11,269. The purchase price for the WRP acquisition was \$14,450, of which \$5,450 was paid in 2017, \$2,000 was paid in 2018, \$3,000 was paid in 2019, \$3,000 was paid in 2020, and the remaining amount to be paid in 2021 is \$1,000. As part of these acquisitions, the Company acquired referral networks and a customer list, which were recorded as intangible assets. The intangibles will be amortized on a straight-line basis over their expected useful lives. The following table summarizes the intangible assets as of December 31, 2020 and future expected amortization expenses: | (dollars in thousands) | | December 31, 2020 | | | | Future expected amortization expense | | | | | | | | | | |--------------------------|-------------|-------------------|-------------------------|----|-----------------------------|--------------------------------------|-----------|----|-------|------|-------|------|------|----|----| | | Useful Life | | Gross
carrying value | | Accumulated
amortization | Net | 2021 | | 2022 | 2023 | | 2024 | 2025 | | | | Trinity referral network | 5 years | \$ | 1,241 | \$ | 207 | \$
1,034 | \$
248 | \$ | 248 | \$ | 248 | \$ | 248 | \$ | 42 | | Bowstring customer list | 5 years | | 5,454 | | 2,000 | 3,454 | 1,091 | | 1,091 | | 1,091 | | 181 | | — | | WRP referral network | 5 years | | 2,070 | | 1,518 | 552 | 414 | | 138 | | — | | — | | — | No impairments of goodwill or intangible assets were recorded for the year ended December 31, 2020. {11}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** # **6. PREMISES AND EQUIPMENT** Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straightline method over the estimated useful life of the assets, typically five to ten years. | | December 31, 2020 | | | |--------------------------------|-------------------|-------|--| | Premises | \$ | 490 | | | Equipment | | 732 | | | Total premises and equipment | | 1,222 | | | Less: accumulated depreciation | | (447) | | | Premises and equipment, net | \$ | 775 | | # **7. LEASES** The Company has one operating lease for office space with a weighted average remaining lease term of three years, with an option to extend the lease an additional five years, and a weighted average discount rate of 0.4%. Operating lease cost is recognized on a straight-line basis over the lease term in the Statement of Operations. At December 31, 2020, lease liabilities maturing in 2021 under non-cancelable operating leases were \$329. # **8. NET CAPITAL REQUIREMENTS** The Company is a registered broker-dealer and, therefore, subject to the SEC's Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital. The Company has elected to use the alternative method, permitted by the rule, which requires the Company maintain minimum net capital, as defined, equal to \$250. As of December 31, 2020, the Company had net capital of \$78,159, which was in excess of the required net capital of \$250 by \$77,909. # **9. INCOME TAXES** The Company, along with other affiliates, is included in the consolidated federal tax return filed by CFG and in certain combined and unitary state returns. For federal taxes and for taxes in states in which the Company is included in a combined or unitary return, the Company computes its current and deferred tax provision using the applicable consolidated, combined or unitary tax rate. The Company settles its income tax provision (benefit) with CFG by agreement through intercompany accounts. At December 31, 2020, the net amount payable to CFG was approximately \$6,498, which is included in income taxes payable in the Statement of Financial Condition. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. {12}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** The tax effects of temporary differences that give rise to significant portions of deferred taxes for the year ended December 31, 2020, are as follows: | Deferred tax assets: | | |-------------------------------------------------------|-------------| | Deferred compensation | \$
1,832 | | Prepaid expenses | 245 | | Deferred income | 87 | | State net operating loss carryforwards | 5 | | Total deferred tax assets | 2,169 | | Valuation allowance | (5) | | Total deferred tax assets, net of valuation allowance | 2,164 | | Deferred tax liabilities: | | | Amortization of intangibles | 427 | | Depreciation | 164 | | Total deferred tax liabilities | 591 | | Net deferred tax asset | \$
1,573 | There was no change in the valuation allowance during 2020. The Company, as part of certain consolidated or combined returns, is subject to examination by the Internal Revenue Service ("IRS") and various state and local tax jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2017. There were no uncertain tax positions relating to the Company as of December 31, 2020. # **10. FAIR VALUE MEASUREMENTS** The valuation techniques used to measure the Company's assets and liabilities at fair value depend upon the specific nature of the asset and liability. The following is a description of the valuation methodologies and summary of assets and liabilities measured at fair value on the Statement of Financial Condition on a recurring basis at December 31, 2020: Financial instruments measured at Level 1: *U.S. Treasury obligations:* U.S Treasury obligations are measured based on quoted prices for identical instruments in active markets. Financial instruments measured at Level 2: *Corporate Bonds:* Debt obligations of domestic corporations are valued using quoted prices for similar assets and liabilities in active markets. Financial instruments measured at level 3: *Business acquisitions consideration payable*: The carrying amount of the future amount payable relating to business acquisitions approximates fair value. {13}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31,2020 (Amounts in thousands except share data)** The following table presents the estimated fair value for financial instruments recorded in the Statement of Financial Condition under the caption indicated: | | Level 1 | Level 2 | Level 3 | | Total | |----------------------------------------------------------------------|---------------|---------|--------------|--------------|---------| | Financial assets: | | | | | | | Investment securities, at fair
value: | | | | | | | U.S. treasury obligations | \$
106,405 | \$ | —
\$ | —
\$ | 106,405 | | Corporate Bonds | — | | 19,339 | — | 19,339 | | Total financial assets | 106,405 | | 19,339 | — | 125,744 | | Financial liabilities:
Accrued expenses and other
liabilities: | | | | | | | Business acquisitions payable | — | | — | 12,496 | 12,496 | | Investment securities sold but
not yet purchased, at fair value: | | | | | | | Corporate Bonds | — | | 12,466 | — | 12,466 | | Total financial liabilities | \$
— | \$ | 12,466
\$ | 12,496
\$ | 24,962 | For the Company's financial assets and liabilities not measured at fair value, the carrying values reported in the Statement of Financial Condition approximate fair value. # **11. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES** The Company, from time to time, is involved in litigation or other proceedings related to various claims. The aggregate liabilities, if any, arising from such proceedings are not expected to have a material adverse effect on the Company's financial position, results of operations, or cash flows. Legal reserves are established when it is probable that a liability has been incurred at the date of the financial statement and the amount of the loss can be reasonably estimated. Once established, reserves are adjusted when there is additional information available or when an event occurs requiring a change. In the normal course of business, the Company may enter 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 against the Company. The Company expects the risk of loss to be remote. # **12. SUBSEQUENT EVENTS** Based on the Company's evaluation, there are no further events that have occurred subsequent to December 31, 2020 through February 25, 2021 that would require disclosure or adjustment in the financial statements. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.