# INCENTER SECURITIES GROUP LLC X-17A-5 (2020-02-27) — Broker-dealer annual report - Company: INCENTER SECURITIES GROUP LLC - Form: X-17A-5 - Filed: 2020-02-27 - Period: 2019-12-31 - Accession: 0001678092-20-000001 - CIK: 1678092 - File #: 8-69803 - Material weakness: No - Auditor: BDO - Auditor location: Minneapolis, MN - Contact: Peter Harrison - Phone: 646-810-8576 - Website: bdo.com - Signed by: Peter Harrison (President) Original filing: https://www.sec.gov/Archives/edgar/data/1678092/000167809220000001/2019ISGBalSht1.pdf --- {0}------------------------------------------------ UNITEDSTAl'ES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ### **ANNUAL AUDITED REPORT FORM X-17A-5 PART Ill** OMS APPROVAL 0MB Number: 3235-0123 Expires: August 31, 2020 Estimated average burden hours '"""r resoonse ...... 12.00 | SEC RLE NUMBER | |----------------| | s.69803 | **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 PERlOD BEGINNING_0_1_/_0_1_/1_9 | _____ | AND ENDING_1_2_/3_1_/_19 | ____
_ | |-------------------------------------------------------------------------------------------|--------------------------------------------------------|--------------------------|--------------------------------| | | MM/DDIYY | | MM/DD/YY | | | A. REGISTRANT IDENTIFICATION | | | | NAME OF BROKER-DEALER: lncenter Securities Group LLC | | | OFFICIAL USE ONLY | | ADDRESS OF PRlNCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM!.D. NO. | | 489 Fifth Avenue, 11th Floor | | | | | | (No, and Street) | | | | New York | NY | | 10017 | | (City) | (State) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Peter Harrison | | | {646) 810-8576 | | | | | {Area Code - Telephone Number) | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*
BDO USA, LLP | | | | | | (Name - if individual, slate last, first, middle name) | | | | 800 Nicollet Mall, Suite 600 | Minneapolis | MN | 55402 | | (Address) | (City) | (State) | {Zip Code) | | CHECK ONE:
!certified Public Accountant
B
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/or the exemption. &e 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 currentlyvalid 0MB control number. SEC 1410 (11-05) {1}------------------------------------------------ #### **OATH OR AFFIRMATION** | I, | Peter Harrison | , swear (or affirm) that, to the best of | | | | | |-------|-----------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--| | | lncenter Securities Group LLC | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of
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as | | | | | | | of December 31 | 20 19
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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature | | | | | | | | | | | | | | | | President
Title | | | | | | | | | | | | | | | | Anna K. Rosales
NOTARY PUBLIC, STATE OF NEW YO | | | | | | | | Registration No.01R06239140
RK/ | | | | | | | This report** contains (check all applicable boxes): | Qualified In New Yori( Gou
Commission &pfres | | | | | | | 0 (a) Facing Page. | A . nty Pn/18,2023 | | | | | | | 0 (b) Statement of Financial Condition. | | | | | | | | | D (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). | | | | | | | B | (
d) Statement of Changes in Financial Condition.
(e) Statement of Changes in Stockholders' Equity or Partners• or Sole Proprietors' Capital. | | | | | | | | D (!) 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 15c3-3. | | | | | | | | (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. | | | | | | | | | D G) A Reconciliation, including appropriate explanation of the Computation of Net Capital Under Rule 15c3-I and the
Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. | | | | | | 0 (k) | consolidation. | A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of | | | | | | | 0 (l) An Oath or Affirmation. | | | | | | | | D (m) A copy of the SJPC Supplemental Report. | | | | | | | | | D (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.l 7a-5(e)(3).* {2}------------------------------------------------ ![](_page_2_Picture_0.jpeg) Financial Statements As of December 31, 2019 and 2018 {3}------------------------------------------------ # 1,.\_SA. **INCENTER** ### **Incenter Securities Group LLC** | Table of Contents | Page | |---------------------------------------------------------|------| | Report of Independent Registered Public Accounting Firm | 3 | | Financial Statements | | | Statements of Financial Condition | 6 | | Notes to Financial Statements | 7 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) Fax: 612-367-3001 www.bdo.com 800 Nicollet Mall, Suite 600 Minneapolis, MN 55402 #### **Report of Independent Registered Public Accounting Firm** Directors and Member lncenter Securities Group LLC Charlotte, North Carolina #### **Opinion on Financial Statements** We have audited the accompanying statements of financial condition of lncenter Securities Group LLC (the "Broker-Dealer") as of December 31, 2019 and 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Broker-Dealer at December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America. #### **Basis for Opinion** These financial statements are the responsibility of the Broker-Dealer's management. Our responsibility is to express an opinion on the Broker-Dealer's financial statements based on our audits. 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 audits 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 statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, 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 statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. BDo USA, *LLP* We have served as the Broker-Dealer's auditor since 2017. Minneapolis, Minnesota February 21, 2020 BDO USA, LLP, a Delaware limited liability partnership. is the iJ.S. member of BDO !nternatioria( Limited. a UK company limited by guarantee, and forms part crf the lnternationai 300 network of independent member firms. {5}------------------------------------------------ # j,.\_~J,,. INCENTER ## Incenter Securities Group LLC Financial Statement {6}------------------------------------------------ #### Incenter Securities Group **LLC Statements of Financial Condition** (Dollars in thousands) | | December 31, | | |---------------------------------------------------------------|--------------|-------------| | | 2019 | 2018 | | Assets | | | | Cash and cash equivalents | 6,737
\$ | \$
4,664 | | Receivable from clearing organization | 1,018 | 1,000 | | Computer hardware and software, less accumulated depreciation | 2 | 2 | | Lease right-of-use asset, net | 176 | | | Receivable from affiliate | | 526 | | Prepaid expenses and_deposits | 38 | 76 | | Total assets | 7,971
\$ | \$
6,268 | | | | | | Liabilities and member's equity | | | | Accounts payable, accrued_ expenses_ and other liabilities | 674 | 639 | | Due to affiliate | 108 | 45 | | Lease liability | 339 | 198 | | Total liabilities | 1,121 | 882 | | | | | | Commitments and contingencies (Note 9) | | | | | | | | Member's equity | 6,850 | 5,386 | | Total member's equity | 6,850 | 5,386 | | Total liabilities and member's equity | 7,971
\$ | \$
6,268 | *See accompanying notes to financial statements.* {7}------------------------------------------------ ![](_page_7_Picture_0.jpeg) ### Incenter Securities Group LLC Notes to Financial Statement {8}------------------------------------------------ Incenter Securities Group LLC Notes to Financial Statement ![](_page_8_Picture_1.jpeg) #### **1. Organization and Description of Bnsiness** Commencing operations on February 17, 2017, Incenter Securities Group LLC (the "Company") is a broker-dealer **registered with the Securities and Exchange Commission ( 11 SEC") and is a member of the Financial Industry Regulatory** Authority ("FINRA"). The Company is a Delaware Limited Liability Company that is a wholly-owned subsidiary of **Incenter LLC ("Incenter'' or "Parent''). lncenter is a Delaware Limited Liability Company that is a wholly-owned** subsidiary ofUFG Holdings LLC ("UFG"). UFG is a Delaware Limited Liability Company. The Company operates under the exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and as such introduces all customer transactions on a fully disclosed basis to an unrelated third-party clearing organization, which is also a registered broker-dealer. #### **2. Summary** of **Significant Accounting Policies** #### *Basis of Presentation* **The Company is engaged in a single line ofbusiness as a fixed income securities broker-dealer, which comprises several classes of services, including principal transactions, transaction underwriting, and agency transactions. The Company's current business model focuses on transaction underwriting, and thus, some disclosures may not apply for current year's results.** **The accompanying financial statements have been prepared in accordance with accounting principles generally accepted** in the United States of America ("GAAP") as contained within the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). #### *Use of Estimates* **The preparation of :financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the** reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates **and assumptions, and such differences could be material.** #### *Cash and Cash Equivalents* Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its temporary cash investments with high credit quality fmancial institutions. At **times such cash balances and investments may be in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limit. Deposit amounts at each institution are insured by the FDIC up to certain limits. At December 31,** 2019 and 2018, the Company had approximately \$6,737 thousand and \$4,664 thousand, respectively, on deposit with Texas Capital Bank, N.A. of which \$6,487 thousand and \$4,414 thousand, respectively, was in excess ofFDIC insured **limits.** #### *Securities Owned, at Fair Value* **Proprietary securities transactions in regular-way trades are recorded on the trade date, as if they had settled. Profit and loss arising from all securities and commodities transactions entered into for the account and risk of the Company** {9}------------------------------------------------ ### Incenter Securities Group LLC Notes to Financial Statement *J..f>1.* **INCENTER** ![](_page_9_Picture_1.jpeg) are recorded on a trade date basis. Securities and derivative positions are recorded at fair value in accordance with FASB ASC 820, *Fair Value Measurement* ("ASC 820"). There were no securities owned *as* of December 31, 2019 or 2018. #### *Fixed Assets and Leasehold Improvements* Fixed assets and leasehold improvements are stated at cost, net of accumulated depreciation. Major repairs and betterments are capitalized and normal maintenance and repairs are charged to expense as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets, which range from three to five years. #### *Securities Purchased Under Agreements to Resell* The Company purchases securities under short-term agreements to resell ("reverse repurchase agreements"). Additionally, the Company sells securities under agreements *to* repurchase ("repurchase agreements"). Both reverse repurchase agreements and repurchase agreements are accounted for as collateralized financings and are carried at fair value. To mitigate credit exposure, the Company receives collateral with a fair value equal to or in excess of the principal amount loaned under the reverse repurchase agreements. To ensure that the market value of the underlying collateral remains sufficient, the securities are valued daily, and collateral is obtained from or returned to the counterparty when contractually required. There were no securities purchased under agreements to resell as of December 31, 2019 or 2018. #### *Receivable from Clearing Organization* The Company clears all of its proprietary and all of its customer transactions through another broker-dealer on a fully disclosed basis. Securities transactions are recorded on the trade date *as* if they had settled. The related amounts receivable and payable for unsettled securities transactions along with contractual deposits, are recorded in receivables from or payable to clearing organization on the Company's Statements of Financial Condition. #### *Securities Sold Under Agreements to Repurchase* Transactions involving securities purchased underagreements to resell (reverse repurchase agreements orreverse repos) or securities sold under agreements to repurchase (repurchase agreements or repos) are acc0tmted for as collateralized agreements or financings except where the Company does not have an agreement to sell ( or purchase) the same or substantially the same securities before maturity at a fIXed or determinable price. It is the policy of the Company to obtain possession of collateral with a fair value equal to or in excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged when appropriate. Securities sold under agreement to repurchase are recorded at face amount, less any discount or plus any premium. In accordance with FASB ASC 860-10-40, repurchase to maturity transactions should be accounted for as secured borrowings. The collateral pledged as part of repurchase agreements and securities loaned is subject to changes in market price and thus may decline in value during the time of the agreement. In this case, the Company may be required to post additional collateral to the counterparty to appropriately collateralize the contract (and similarly may receive a portion of the collateral posted back when the collateral posted experiences a market value increase). The market risk of the collateral posted is reviewed by the Company's risk function, and these risks are managed using a variety of mechanisms including review of the type and grade of securities posted as collateral and the Company entering into offsetting agreements to hedge a decline in the market value of collateral posted. There were no securities sold under agreements to repurchase as of December 31, 2019 or 2018. {10}------------------------------------------------ ![](_page_10_Picture_1.jpeg) #### *Offsetting of Amounts Related to Certain Contracts* When the requirements ofFASBASC 815-10-45-5 are met, the Company offsets certain fair value amounts recognized for cash collateral receivables or payables against fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting arrangement. #### *Leases* The Company adopted accounting standards update ASU 2016-02, Leases ("ASU 2016-02") on January I, 2019. ASU 2016-02 requires lessees to recognize a right-of use asset and lease liability on the Statement of Financial Condition. The Company elected the modified retrospective method which did not result in a cumulative-effect adjustment at the date of adoption. Because of the modified retrospective method of adoption, the comparative results as of and for the year ended December 31, 2018 have not been restated and continue to be reported under former lease accounting standards. The new standard provides for a set of practical expedients, which have been elected by the Company, and include, among other items, an exemption from having to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company has also elected the short-term lease recognition exemption for all leases that qualify. Under this practical expedient, for those leases that qualify, the Company does not recognize a right-of-use ("ROU") asset or lease liability, which includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company also elected the practical expedient to not separate lease and non-lease components for all of our leases. Income received for subleases that are treated as operating leases and where the Company has retained the primary obligations of the head lease are recognized on a straight-line basis. #### *Income Taxes* The Company and Incenter are disregarded entities whose operational results are included in the federal and state income tax returns filed by UFG. UFG does not allocate income taxes to Incenter or to the Company. There is no formal tax-sharing arrangement between the Company, Incenter and UFG, nor is there any commitment on behalf of the Company to fund any tax liability of either Incenter or UFG. Considering the tax status of the Company and its ultimate parent, and applicable guidance from ASC 740, *Income Taxes,* and ASC 272, *Limited Liability Entities,* regarding single member LLCs that are disregarded for tax purposes, no federal or state income tax provision, or deferred tax asset or liability will be presented or recognized in these financial statements. #### *Reclassifications* Certain amounts from the prior year financial statement have been reclassified to conform to the current year financial presentation. #### 3. Net Capital Requirements As a registered broker-dealer, the Company operates in a highly regulated environment and is subject to federal and state laws, SEC rules and FINRA rules and guidance. Applicable laws and regulations, among other things, restrict permissible activities and require compliance with a wide range of financial and customer-related protections. The {11}------------------------------------------------ ### **Incenter Securities Group LLC Notes to Financial Statement ....\_5 .... INCENTER** ![](_page_11_Picture_1.jpeg) consequences of noncompliance can include substantial monetary and non monetary sanctions. fu addition, the Company is subject to comprehensive examination by its regulators. These regulators have broad discretion to impose restrictions and limitations on the operations of the Company and to impose sanctions for noncompliance. The Company is subject to the SEC's Unifonn Net Capital Rule (SEC Rule 15c3-l) ("the Rule"), which requires the maintenance of minimum net capital. The Company computes net capital under the alternative method. Under this method, the required minimum net capital is equal to \$250 thousand. At December 31,2019 and 2018, the Company had net capital under the alternative methodofapproximately \$6,811 thousandand\$4, 782 thousand, respectively, which was approximately\$6,561 thousand and \$4,532 thousand in excess of its required net capital, respectively. Additionally, the Company claims the exemption provision of SEC Rule 15c3-3(k)(2)(ii). The Company does not hold customer funds or safe keep customer securities. The Company introduces and clears its customers' transactions through a third-party on a fully-disclosed basis. See Note 6 - Clearing Arrangement for details. #### **4. Fair Value** ASC 820, *Fair Value Measurement* ("ASC 820"), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the infonnation used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets **(i.e.,** observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity's own credit standing, when measuring the fair value of a liability. ASC 820 established a three level hierarchy to be used when measuring and disclosing fair value. An instrument's categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels: - **Level 1** Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity. - **Level 2** Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities. - **Level 3** Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation. The Company does not have Level 3 instruments. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable **in** the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3. {12}------------------------------------------------ ### **Incenter Securities Group LLC Notres to Financial Statement J..e,.\_ INCENTER** ![](_page_12_Picture_1.jpeg) The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in that fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. #### *Fair Value Measurements* Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized. #### *Investment securities:* *US. Government Securities.* U.S. government secuntres are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are generally categorized in level I of the fair value hierarchy. *US. Agency Securities.* U.S. agency securities are composed of two main categories consisting of agency mortgage pass-through pool securities, and collateralized mortgage obligations. The fair value of agency mortgage passthrough pool securities is model-driven based on spreads of the comparable to-be-announced (TBA) security. Collateralized mortgage obligations are valued using quoted market prices and trade data, if available for identical or comparable securities. Agency mortgage pass-through pool securities and collateralized mortgage obligations are generally categorized in level 2 of the fair value hierarchy. #### *Derivative instruments:* *Listed Derivative Contracts.* Listed derivatives that are not actively traded are valued using the same approaches as those applied to over the counter ("OTC") derivatives; they are generally categorized in level 2 of the fair value hierarchy. *Other Derivative Contracts.* The Company also enters into certain other derivative financial instruments, such as to-be-announced (TBA) securities. These instruments are similar in form to the Company's investment securities and TBA securities are generally valued using quoted market prices or readily observable trade data. TBAs are generally categorized in level 2 of the fair value hierarchy. For further information on derivative instruments, see Note 7 - Financial Instruments. The Company did not have any assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 or 2018. #### **5. Receivable from and Payable to Clearing Organization** Amounts receivable from and payable to clearing organization consist of deposits with clearing organiz.ation \$1,018 thousand and \$1,000 thousand as of December 31, 2019 and December 31, 2018, respectively. The Company clears all of its proprietary and all of its customer transactions through another broker-dealer on a fully disclosed basis. {13}------------------------------------------------ ## **Incenter Secnrities Group LLC** ![](_page_13_Picture_1.jpeg) Deposits with clearing organization represent contractual amounts the Company is required to deposit with its clearing agent. Securities transactions are recorded on the trade date as if they had settled. The related amounts receivable and payable for unsettled securities transactions are recorded in receivables from or payables to clearing organization on the Company's Statements of Financial Condition. #### **6. Clearing Arrangement** During 2019, the Company did not have any securities transactions to clear, but still maintains a clearing relationship on a fully-disclosed basis with Bank of America Merrill Lynch (BAML). The services inc!nde, but are not limited to the following: - Executing customer trades; - Generating, preparing, and mailing customer trade confirmations and account statements; Settling transactions in securities between the Company and other brokers and dealers; - Performing cashiering functions for the receipt, delivery, and transfer of securities purchased and sold; and - Carrying customer account balances and positions. on the Clearing Agent's books, records and Statement of Financial Condition. Typically, the clearing organization settles transactions executed on behalf of customers within three business days after the trade date. The risk of loss on unsettled transactions relates to the customers' or brokers' inability to meet the terms of their contracts. On all transactions, the Company is responsible to the clearing organization for any loss, liability, cost, or expense incurred by the clearing organization as a result of the failure of any customer of the Company introduced to the clearing organization to make timely payment for securities purchased by the customer. This includes timely compliance with margin or maintenance margin calls or liquidations as the result of the customer failing to meet their financial obligations. As of December 31, 2019 and 2018, there were no receivables or liabilities payable to B.Al\11., related to customer activities. Although the Company does not have any intention at this point to terminate the clearing agreement with BAML prior to the expiration date, the Company and BAML agreed there would not be a termination fee associated with either party electing to terminate the agreement. ### 7. **Financial Instruments** Derivative financial instruments used for trading purposes, including economic hedges of trading instruments, are carried at fair value. Fair value for to be announced ("TBA") instruments is derived from quoted market prices for the same or similar instruments. Factors taken into consideration in estimating the fair value of OTC derivatives include credit spreads, market liquidity, concentrations, and funding and administrative costs incurred over the life of the instruments. Derivatives used for economic hedging purposes include swaps, forwards, futures, and TBAs. The Company does not apply hedge accounting as defined by FASB ASC 815, *Derivatives and Hedging,* therefore all financial instruments are recorded at fair value with changes in fair values reflected in earnings. The unrealized gains for delayed-delivery, TBA, and when-issued securities generally are recorded in the Statements of Financial Condition net of unrealized losses by counterparty where master netting agreements are in place. {14}------------------------------------------------ A,\_\_fJJ.. I **NCENTER** #### *Financial Instruments with Off-Balance-Sheet Risk* The Company enters into various transactions involving derivatives and other off-balance sheet financial instnunents. These financial instruments include futures, forward and foreign exchange contracts, exchange-traded and over-thecounter options, delayed deliveries, mortgage-backed TBAs, securities purchased and sold on a when-issued basis (when-issued securities), and interest rate swaps. These derivative financial instruments are used to meet the needs of customers, conduct trading activities, and manage market risks and are, therefore, subject to varying degrees of market and credit risk. Derivative transactions are entered into for trading purposes or to economically hedge other positions or transactions. Futures, forward contracts, TB As and when-issued securities provide for the delayed delivery of the underlying financial instrument. Interest rate swaps involve the exchange of payments based on fixed or floating rates applied to notional amounts. The contractual or notional amounts related to these financial instruments reflect the volume and activity and generally do not reflect the amounts at risk. Futures contracts are executed on an exchange, and cash settlement is made on a daily basis for market movements. Accordingly, futures contracts generally do not have credit risk. The credit risk for forward contracts, TBAs, swaps, and when-issued securities is limited to the unrealized fair valuation gains recorded in the Statements ofFinancial Condition. Market risk is substantially dependent upon the value of the underlying financial instruments and is affected by market forces such as volatility and changes in interest and foreign exchange rates. fu the normal course of business, the Company's customer activities involve the execution, settlement and financing of various customer securities transactions. These activities may expose the Company to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss. #### *Concentration of Credit Risk* The Company is engaged in various trading and brokerage activities in which counterparties primarily include brokerdealers, banks and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty of issuer of the instrument. It is the Company's policy to review, as necessary, the credit standing of each counterparty. #### **8. Leases** The Company has a single lease agreement under which it is the lessee. Specifically, this relates to one office building space rental that was determined to represent an operating lease. In addition, the Company has sub-let out this office space and accounted for the sublease as an operating lease. In October 2018, the Company moved out of the office building described above which still had remaining lease commitments through January 2023. As a result of this decision and prior to the adoption of ASU 2016-02, the Company had recorded an abandoned lease liability equal to the present value of all expected future lease payments, net of estimated future sublease rental payments the Company will receive over the remaining term of the lease. As of December 31, 2018, the abandoned lease liability was \$198 thousand and is included in lease liability on the Statement ofFinancial Condition. Upon adoption of ASU 2016-02 on January 1, 2019, the company calculated the value of the right-of-use asset for this lease by determining the remaining lease liability of \$432 thousand, less the carrying value of the abandoned lease liability of \$198 thousand, to anive at the right-of-use asset of\$234 thousand. {15}------------------------------------------------ ### Incenter Securities Group LLC Notes to Financial Statement ,;,.\_~,;. I **NCENTER** ![](_page_15_Picture_1.jpeg) The lease does contain optional renewal periods. Generally, the Company does not consider renewal periods to be reasonably certain of being exercised, as comparable locations could generally be identified within the same area for comparable lease rates. The sublease had an initial term of one year. Prior to the end of the one-year term, the tenant had an option to renew or extend the contract to June 2022. During 2019 the tenant notified the Company of their intent to accept the option to renew. The lease and sublease include fixed lease payments. In addition, the lease and sublease included lease payments which will increase at pre-determined dates based upon the rates documented in lease and sublease agreements. The lease payments include payments to the lessor based upon the lessor's property and casualty insurance costs, maintenance and property taxes assessed on the property as well as a portion of the common area maintenance ("CAM") associated with the property. We segregate the lease payment from CAM charges. As of December 31, 2019, no impairment indicators were identified regarding the right-of-use asset. Supplemental information related to leases is as follows (in thousands): | | As of December 31, | | | |---------------------------------------------------------------------------------------------------------------------|------------------------|----------|--| | Leases | 2019 | 2018 | | | Assets:
Operating leases
Total leased assets | \$
176
176
\$ | \$
\$ | | | Liabilities:
Operating leases
Total leased liabilities | 339
\$
339
\$ | \$
\$ | | | Lease Term and Discount Rate:
Weighted average remaining lease term (in years)
Weighted average discount rate | 3.1 years
5.0% | | | The Company conducts its operations in leased facilities. The future minimum rental commitments under noncancelable real estate operating leases in effect at December 31, 2019 are as follows (in thousands): | Year Ending December 31, | Lease
Commitments | Sublease
Income | Net Lease
Commitments | |-----------------------------------|----------------------|--------------------|--------------------------| | 2020 | 115 \$
\$ | | 68 \$
47 | | 202] | 118 | 70 | 48 | | 2022 | 122 | 36 | 86 | | 2023 | IO | | 10 | | Total lease payments | \$
365 \$ | 174 \$ | 191 | | Less: interest | (26) | | | | Present value oflease liabilities | \$
339 | | | {16}------------------------------------------------ ![](_page_16_Picture_1.jpeg) #### 9. Commitments and Contingencies In the normal course of business, the Company may be involved in legal, regulatory and arbitration proceedings, including class actions, primarily concerning matters arising in connection with the conduct of its broker-dealer activities. These include proceedings specific to the Company, as well as proceedings generally applicable to business practices in the industries in which it operates. Uncertain economic conditions, heightened and sustained volatility in the financial markets, and significant reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or the regulators may increase the scope or frequency of examinations of the Company or the financial services industry generally. As ofDecember 31, 2019 and 2018, there were no known legal proceedings. #### **10. Related Party Transactions** The Company is a wholly-owned subsidiary oflncenter and utilizes its parent's resources in the course of its business. Services such as payroll, accounts payable, accounting, compliance, legal and human resources are provided to the Company by Incenter and billed via an expense sharing agreement on a monthly basis. The Company had a receivable from Incenter of \$0 and \$526 thousand as of December 31, 2019 and December 31, 2018, respectively, which is included in receivables from affiliates on the Statements of Financial Condition. The Company had a payable to other related parties under common ownership of\$108 thousand and \$45 thousand as of December 31, 2019 and 2018, respectively, which is included on the Statements of Financial Condition. #### *Revolving Facility* On March 22, 2018, the Company entered into a Revolving Credit Agreement with UFG, which had an original maturity date of April 1, 2019, and renews for successive 90 day periods unless either party gives notice to terminate the agreement. Under the terms of the Revolving Credit Agreement, the Company may borrow funds from UFG for an aggregate principal amount ofup to \$7,000 thousand. The Revolving Credit Agreement accrues interest at an annual interest rate ofLIBOR + 350 basis points. As of December 31, 2019 and 2018 there were no borrowings outstanding under the Revolving Credit Agreement. #### **11. Subsequent Events** The Company has evaluated subsequent events from the date of the financial statements ofDecember 31, 2019 through February 21, 2020, the date these financial statements were issued. No events or transactions were identified that would have an impact on the financial position of the Company as of December 31, 2019 as reported herein. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.