What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-23 compared with 2020-02-21 · 63 added, 1283 removed, 105 unchanged (93% of the section changed)

47 unchanged sentences

Exhibits and Financial Statement Schedules

(a) Consolidated Financial Statements

Our consolidated financial statements appearing on pages F-1 through F-39 are incorporated herein by reference.

(a) Consolidated Financial Statements and Schedules

Our consolidated financial statements are included in “Item 8.

Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Other financial statement schedules have been omitted because they are not applicable, not material, or the information is otherwise included.

Description of Exhibit

Asset Purchase Agreement, by and among National Planning Holdings, Inc., SII Investments, Inc., National Planning Corporation, IFC Holdings, Inc., Investment Centers of America, Inc., LPL Financial LLC and Brooke Holdings LLC, dated as of August 15, 2017.

Amended and Restated Certificate of Incorporation of LPL Investment Holdings Inc., dated November 23, 2010.

3.1 Amended and Restated Certificate of Incorporation of LPL Investment Holdings Inc., dated November 23, 2010 (incorporated by reference to Amendment No.

2 to the Registration Statement on Form S-1 filed on July 9, 2010, File No.

3.2 Certificate of Ownership and Merger Merging LPL Financial Holdings Inc.

with and into LPL Investment Holdings Inc., dated June 14, 2012.

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of LPL Financial Holdings Inc., dated May 8, 2014.

with and into LPL Investment Holdings Inc., dated June 14, 2012 (incorporated by reference to the Form 8-K filed on June 19, 2012, File No.

3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of LPL Financial Holdings Inc., dated May 8, 2014 (incorporated by reference to the Form 8-K filed on May 9, 2014, File No.

3.4 Fifth Amended and Restated Bylaws of LPL Financial Holdings Inc .

(incorporated by reference to the Form 8-K filed on March 12, 2014, File No.

4.1 Indenture, dated as of March 10, 2017, by and among LPL Holdings, Inc., the Guarantors listed thereto and U.S.

Bank National Association, as Trustee.

Bank National Association, as Trustee (incorporated by reference to the Form 8-K filed on March 10, 2017, File No.

4.2 First Supplemental Indenture, dated as of September 21, 2017, among LPL Holdings, Inc., certain subsidiaries of the Company as Guarantors and U.S.

Bank National Association, as Trustee .

Bank National Association, as Trustee (incorporated by reference to the Form 8-K filed on September 21, 2017, File No.

4.3 Indenture, dated as of November 12, 2019, among LPL Holdings, U.S.

Bank National Association, as trustee, and certain subsidiaries of LPL Holdings, as guarantors.

Description of Registrant’s Securities.*

Form of Indemnification Agreement.

Bank National Association, as trustee, and certain subsidiaries of LPL Holdings, as guarantors (incorporated by reference to the Form 8-K filed on November 12, 2019, File No.

4.4 Description of Registrant’s Securities (incorporated by reference to the Form 10-K filed on February 21, 2020 File No.

10.1 Form of Indemnification Agreement (incorporated by reference to Amendment No.

2 to the Registration Statement on Form S-1 filed on July 9, 2010, File No.

10.2 LPL Investment Holdings Inc.

2010 Omnibus Equity Incentive Plan.

2010 Omnibus Equity Incentive Plan (incorporated by reference to Amendment No.

2 to the Registration Statement on Form S-1 filed on July 9, 2010, File No.

10.3 Form of Senior Management Stock Option Award granted under the LPL Investment Holdings Inc.

2010 Omnibus Equity Incentive Plan.

2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2013, File No.

10.4 Form of Employee Stock Option Award granted under the LPL Financial Holdings Inc.

Amended and Restated 2010 Omnibus Equity Incentive Plan .

Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 24, 2017, File No.

10.5 Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc.

Amended and Restated 2010 Omnibus Equity Incentive Plan .

Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 24, 2017, File No.

10.6 Form of Employee Performance Stock Unit Award granted under the LPL Financial Holdings Inc.

Amended and Restated 2010 Omnibus Equity Incentive Plan .

Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 24, 2017, File No.

10.7 Form of Employee Stock Option Award granted under the LPL Financial Holdings Inc.

Amended and Restated 2010 Omnibus Equity Incentive Plan (11)

Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2014, File No.

10.8 Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc.

Amended and Restated 2010 Omnibus Equity Incentive Plan (11)

Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2014, File No.

Description of Exhibit

10.9 Form of Advisor Restricted Stock Unit Award granted under the LPL Financial Holdings Inc.

2010 Omnibus Equity Incentive Plan.

2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2014, File No.

10.10 Form of Financial Institution Restricted Stock Unit Award granted under the LPL Financial Holdings Inc.

2010 Omnibus Equity Incentive Plan.

2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2014, File No.

10.11 Amended and Restated LPL Financial Holdings Inc.

2010 Omnibus Equity Incentive Plan.

LPL Financial LLC Executive Severance Plan, amended and restated as of February 23, 2017.

2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 8-K filed on May 15, 2015, File No.

10.12 LPL Financial LLC Executive Severance Plan, amended and restated as of February 23, 2017 (incorporated by reference to the Form 10-K filed on February 24, 2017, File No.

10.13 LPL Financial Holdings Inc.

Non-Employee Director Compensation Policy.*

Non-Employee Director Compensation Policy (incorporated by reference to the Form 10-K filed on February 21, 2020 File No.

10.14 LPL Financial Holdings Inc.

Non-Employee Director Deferred Compensation Plan.

Non-Employee Director Deferred Compensation Plan (incorporated by reference to the Form 10-K filed on February 25, 2016, File No.

10.15 Credit Agreement, dated as of March 29, 2012, by and among LPL Investment Holdings Inc., LPL Holdings, Inc., the several lenders from time to time party thereto, and Bank of America, N.A.

as Administrative Agent Collateral Agent, Letter of Credit Issuer, and Swingline Lender.

Description of Exhibit

as Administrative Agent Collateral Agent, Letter of Credit Issuer, and Swingline Lender (incorporated by reference to the Form 8-K filed on April 2, 2012, File No.

10.16 First Amendment and Incremental Assumption Agreement, dated as of May 13, 2013, by and among LPL Financial Holdings Inc., LPL Holdings, Inc., certain subsidiaries of the Company, as Guarantors, the several lenders from time to time party thereto, and Bank of America, N.A.

as Administrative Agent.

as Administrative Agent (incorporated by reference to the Form 8-K filed on May 13, 2013, File No.

10.17 Second Amendment, Extension and Incremental Assumption Agreement, dated as of October 1, 2014, by and among LPL Financial Holdings Inc., LPL Holdings, Inc., certain subsidiaries of the Company as Guarantors, the lenders and additional lenders party thereto, Bank of America, N.A.

as Administrative Agent and Current Agent and JP Morgan Chase Bank, N.A., as Future Agent.

as Administrative Agent and Current Agent and JP Morgan Chase Bank, N.A., as Future Agent (incorporated by reference to the Form 10-Q filed on October 30, 2014, File No.

10.18 Third Amendment, Extension, and Incremental Assumption Agreement, dated as of November 20, 2015 by and among LPL Financial Holdings Inc., LPL Holdings, Inc., certain subsidiaries of the Company, as Guarantors, the lenders and additional lenders party thereto, and JPMorgan Chase Bank, N.A.

as Administrative Agent.

as Administrative Agent (incorporated by reference to the Form 10-K filed on February 25, 2016, File No.

10.19 Fourth Amendment Agreement, dated as of March 10, 2017, among LPL Financial Holdings Inc., LPL Holdings, Inc., certain subsidiaries of the Company, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase bank, N.A.

and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A.

and Morgan Stanley Bank, N.A., as Swingline Lenders .

and Morgan Stanley Bank, N.A., as Swingline Lenders (incorporated by reference to the Form 8-K filed on March 10, 2017, File No.

10.20 Amendment Agreement, dated June 20, 2017, among LPL Holdings, Inc., LPL Financial Holdings Inc.

and JPMorgan Chase Bank, N.A.

as Administrative Agent .

as Administrative Agent (incorporated by reference to the Form 10-Q filed on August 1, 2017, File No.

10.21 Second Amendment, dated as of September 21, 2017, among LPL Financial Holdings Inc., LPL Holdings Inc., certain subsidiaries of the Company, as Guarantors, the incremental lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase bank, N.A.

and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A.

and Goldman Sachs Bank USA, as Swingline Lenders .

and Goldman Sachs Bank USA, as Swingline Lenders (incorporated by reference to the Form 8-K filed on September 21, 2017, File No.

10.22 Third Amendment, dated as of April 25, 2019, among LPL Financial Holdings Inc., LPL Holdings Inc., certain subsidiaries of the Company, as Guarantors, the incremental lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase Bank, N.A.

and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A.

and Goldman Sachs Bank USA, as Swingline Lenders.

and Goldman Sachs Bank USA, as Swingline Lenders (incorporated by reference to the Form 10-Q filed on July 30, 2019, File No.

10.23 Fourth Amendment, dated as of November 12, 2019, among LPL Financial Holdings Inc., LPL Holdings Inc., certain subsidiaries of the Company, as Guarantors, the incremental lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase Bank, N.A.

and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A.

and Goldman Sachs Bank USA, as Swingline Lenders.

and Goldman Sachs Bank USA, as Swingline Lenders (incorporated by reference to the Form 8-K filed on November 12, 2019, File No.

Description of Exhibit

10.24 BETAHost Master Subscription Agreement dated as of January 5, 2009 between LPL Financial Corporation and Refinitiv US LLC (f/k/a Thomson Financial LLC), as amended.

(incorporated by reference to the Form 10-K filed on February 23, 2021 File No.

10.25 LPL Financial Holdings Inc.

2012 Employee Stock Purchase Plan, as amended and restated, effective as of October 29, 2019 .

21.1 List of Subsidiaries of LPL Financial Holdings Inc.*

6 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

XBRL Taxonomy Extension Schema*

XBRL Taxonomy Extension Calculation*

XBRL Taxonomy Extension Definition*

XBRL Taxonomy Extension Label*

XBRL Taxonomy Extension Presentation*

101.SCH Inline XBRL Taxonomy Extension Schema*

101.CAL Inline XBRL Taxonomy Extension Calculation*

101.DEF Inline XBRL Taxonomy Extension Definition*

101.LAB Inline XBRL Taxonomy Extension Label*

101.PRE Inline XBRL Taxonomy Extension Presentation*

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

1 unchanged sentence

* Filed herewith.

** Furnished herewith.

† Pursuant to 17 C.F.R.

§§230.406 and 230.83, the confidential portions of this exhibit have been omitted and are marked accordingly.

Incorporated by reference to the Form 8-K filed on August 15, 2017 (File No.

Incorporated by reference to Amendment No.

2 to the Registration Statement on Form S-1 filed on July 9, 2010 (File No.

Incorporated by reference to the Form 8-K filed on June 19, 2012 (File No.

Incorporated by reference to the Form 8-K filed on May 9, 2014 (File No.

Incorporated by reference to the Form 8-K filed on March 12, 2014 (File No.

Incorporated by reference to the Form 8-K filed on March 10, 2017 (File No.

Incorporated by reference to the Form 8-K filed on September 21, 2017 (File No.

Incorporated by reference to the Form 8-K filed on November 12, 2019 (File No.

Incorporated by reference to the Form 10-K filed on February 26, 2013 (File No.

Incorporated by reference to the Form 10-K filed on February 24, 2017 (File No.

Incorporated by reference to the Form 10-K filed on February 26, 2014 (File No.

Incorporated by reference to the Form 8-K filed on May 15, 2015 (File No.

Incorporated by reference to the Form 10-K filed on February 25, 2016 (File No.

Incorporated by reference to the Form 8-K filed on April 2, 2012 (File No.

Incorporated by reference to the Form 8-K filed on May 13, 2013 (File No.

Incorporated by reference to the Form 10-Q filed on October 30, 2014 (File No.

Incorporated by reference to the Form 10-Q filed on August 1, 2017 (File No.

Incorporated by reference to the Form 10-Q filed on July 30, 2019 (File No.

Form 10-K Summary

4 unchanged sentences

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

President, Chief Executive Officer, and Director

(Principal Executive Officer)

February 21, 2020

Signature Title Date

Arnold President, Chief Executive Officer, and Director

(Principal Executive Officer) February 23, 2021

/s/ Matthew J.

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

February 21, 2020

Audette Chief Financial Officer (Principal Financial Officer) February 23, 2021

Simonich Chief Accounting Officer (Principal Accounting Officer) February 23, 2021

/s/ Edward Bernard

Edward Bernard Director February 23, 2021

/s/ Paulett Eberhart

Paulett Eberhart

February 21, 2020

Paulett Eberhart Director February 23, 2021

/s/ William F.

February 21, 2020

Director February 23, 2021

/s/ Allison Mnookin

Allison Mnookin

February 21, 2020

Allison Mnookin Director February 23, 2021

Mulcahy Director February 23, 2021

Putnam Director February 23, 2021

/s/ Richard P.

February 21, 2020

LPL FINANCIAL HOLDINGS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of LPL Financial Holdings Inc.

are included in response to Item 8:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income for the years ended December 31, 2019, 2018, and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017

Consolidated Statements of Financial Condition as of December 31, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018, and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017

Notes to Consolidated Financial Statements

Organization and Description of the Company

Summary of Significant Accounting Practices

Fair Value Measurements

Held-to-Maturity Securities

Receivables and Payables

Goodwill and Other Intangible Assets

Accounts Payable and Accrued Liabilities

Commitments and Contingencies

Stockholders’ Equity

Share-based Compensation

Earnings per Share

Employee and Advisor Benefit Plans

Related Party Transactions

Net Capital and Regulatory Requirements

Financial Instruments with Off-Balance-Sheet Credit Risk and Concentration of Credit Risk

Selected Quarterly Financial Data

Subsequent Event

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

LPL Financial Holdings Inc.

San Diego, California

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of LPL Financial Holdings Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2018 , the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2019 , 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 Company as of December 31, 2019 and 2018 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2020 , expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the 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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenues - Trailing Commission Revenue Accrual - Refer to Note 3 to the financial statements

Critical Audit Matter Description

The Company’s trailing commission revenues are generally received in arrears and therefore estimated and accrued at year-end.

The estimate is based on commission revenues received in prior periods, adjusted using change factors based on market performance and the payment frequency for each investment product type and sponsor.

Because of the volume of investment product types and sponsors and variability in the corresponding payment frequencies, the Company performs manual calculations and exercises judgment in determining the revenue estimate.

We identified the Company’s trailing commission revenue accrual as a critical audit matter because of the judgments necessary for management to estimate the revenue accrual.

This required an increased extent of audit effort and a high degree of auditor judgment when performing audit procedures to evaluate the inputs and judgments related to the revenue accrual and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the inputs and judgments used by management to estimate the year-end accrual for trailing commission revenues included the following, among others:

We tested the effectiveness of internal controls over the accrual for trailing commission revenues, including those over the inputs and judgments used by management in the calculation of the accrual and the historical lookback analysis comparing monthly accruals to subsequent cash receipts

We compared management’s market performance data to external sources and challenged their methodology for potential management bias by evaluating the sensitivity of changes in market factors on the accrual

We compared the accrual to actual trailing commission revenue received subsequent to year-end

We tested the historical cash receipts used to estimate the year-end accrual by comparing them to bank statements

We evaluated the payment frequency assumption used by management in the estimation of the accrual for a sample of investment product types and sponsors by comparing the assumption to the actual cash receipts frequency

We tested the mathematical accuracy of the accrual

/s/ DELOITTE & TOUCHE LLP

San Diego, California

February 21, 2020

We have served as the Company's auditor since 2001.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data)

Years Ended December 31,

Transaction and fee

Interest income, net of interest expense

Total net revenues

Commission and advisory

Compensation and benefits

Depreciation and amortization

Amortization of intangible assets

Occupancy and equipment

Professional services

Brokerage, clearing, and exchange

Communications and data processing

Total operating expenses

Non-operating interest expense and other

Loss on extinguishment of debt

INCOME BEFORE PROVISION FOR INCOME TAXES

PROVISION FOR INCOME TAXES

EARNINGS PER SHARE (Note 17)

Earnings per share, basic

Earnings per share, diluted

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

See notes to consolidated financial statements.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

Years Ended December 31,

Other comprehensive income, net of tax:

Unrealized gain on cash flow hedges, net of tax expense of $0, $0, and $187 for the years ended December 31, 2019, 2018, and 2017, respectively

Reclassification adjustment for realized gain on cash flow hedges included in professional services in the consolidated statements of income, net of tax expense of $0, $0, and $406 for the years ended December 31, 2019, 2018, and 2017, respectively

Total other comprehensive loss, net of tax

TOTAL COMPREHENSIVE INCOME

See notes to consolidated financial statements.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except par value)

Cash and cash equivalents

Cash segregated under federal and other regulations

Restricted cash

Receivables from:

Product sponsors, broker-dealers, and clearing organizations

Advisor loans, net

Securities owned:

Trading — at fair value

Held-to-maturity

Securities borrowed

Fixed assets, net

Operating lease assets

Intangible assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

Drafts payable

Payables to clients

Payables to broker-dealers and clearing organizations

Accrued commission and advisory expenses payable

Accounts payable and accrued liabilities

Income taxes payable

Unearned revenue

Securities sold, but not yet purchased — at fair value

Long-term borrowings, net

Operating lease liabilities

Finance lease liabilities

Leasehold financing and capital lease obligations

Deferred income taxes, net

Total liabilities

Commitments and contingencies (Note 14)

STOCKHOLDERS’ EQUITY:

Common stock, $0.001 par value;

600,000,000 shares authorized;

126,494,028 shares and 124,909,796 shares issued at December 31, 2019 and 2018, respectively

Additional paid-in capital

Treasury stock, at cost — 46,259,989 shares and 39,820,646 shares at December 31, 2019 and 2018, respectively

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

See notes to consolidated financial statements.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In thousands)

Accumulated Other

Comprehensive

Income (Loss)

Stockholders’

Treasury Stock

BALANCE — December 31, 2016

Net income and other comprehensive loss, net of tax expense

Issuance of common stock to settle restricted stock units

Treasury stock purchases

Cash dividends on common stock

Stock option exercises and other

Share-based compensation

BALANCE — December 31, 2017

Net income, net of tax expense

Issuance of common stock to settle restricted stock units

Treasury stock purchases

Cash dividends on common stock

Stock option exercises and other

Share-based compensation

BALANCE — December 31, 2018

Net income, net of tax expense

Cumulative effect of accounting change

Issuance of common stock to settle restricted stock units

Treasury stock purchases

Cash dividends on common stock

Stock option exercises and other

Share-based compensation

BALANCE — December 31, 2019

See notes to consolidated financial statements.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

Noncash items:

Depreciation and amortization

Amortization of intangible assets

Amortization of debt issuance costs

Share-based compensation

Provision for bad debts

Deferred income taxes

Loss on extinguishment of debt

Loan forgiveness

Changes in operating assets and liabilities:

Receivables from clients

Receivables from product sponsors, broker-dealers, and clearing organizations

Advisor loans

Receivables from others

Securities owned

Securities borrowed

Operating leases

Drafts payable

Payables to clients

Payables to broker-dealers and clearing organizations

Accrued commission and advisory expenses payable

Accounts payable and accrued liabilities

Income taxes receivable/payable

Unearned revenue

Securities sold, but not yet purchased

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

Acquisitions, net of cash acquired

Proceeds from disposal of fixed assets

Purchase of securities classified as held-to-maturity

Proceeds from maturity of securities classified as held-to-maturity

National Planning Holdings acquisition

Net cash used in investing activities

Continued on following page

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facility

Repayments of revolving credit facility

Repayment of senior secured term loans

Proceeds from senior secured term loans and senior notes

Payment of debt issuance costs

Tax payments related to settlement of restricted stock units

Repurchase of common stock

Dividends on common stock

Proceeds from stock option exercises and other

Principal payment of finance leases and obligations

Net cash (used in) provided by financing activities

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of year

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of year

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid

Income taxes paid

NONCASH DISCLOSURES:

Capital expenditures included in accounts payable and accrued liabilities

Finance and capital lease obligations

Lease assets obtained in exchange for operating lease liabilities

Fixed assets obtained in exchange for finance lease liabilities

Discount on proceeds from senior secured credit facilities recorded as debt issuance costs

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

The following table provides a reconciliation of cash, cash equivalent, and restricted cash reported within the consolidated statements of financial condition that sum to the total of the same such amounts shown in the consolidated statements of cash flows.

Cash and cash equivalents

Cash segregated under federal and other regulations

Restricted cash

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows

See notes to consolidated financial statements.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Organization and Description of the Company

LPL Financial Holdings Inc.

( “ LPLFH ” ), a Delaware holding corporation, together with its consolidated subsidiaries (collectively, the “ Company ” ), provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at financial institutions (collectively, “ advisors ” ) in the United States.

Through its custody and clearing platform, using both proprietary and third-party technology, the Company provides access to diversified financial products and services, enabling its advisors to offer independent financial advice and brokerage services to retail investors (their “ clients ” ).

Description of Subsidiaries

LPL Holdings, Inc.

( “ LPLH ” ), a Massachusetts holding corporation, owns 100 % of the issued and outstanding common stock or other ownership interest in each of LPL Financial LLC (“LPL Financial”), AW Subsidiary, Inc., LPL Employee Services, LLC, Fortigent Holdings Company, Inc.

and LPL Insurance Associates, Inc.

( “ LPLIA ” ), as well as a series captive insurance subsidiary (the “Captive Insurance Subsidiary”) that underwrites insurance for various legal and regulatory risks of the Company.

LPLH is also the majority stockholder in PTC Holdings, Inc.

( “ PTCH ” ), and owns 100 % of the issued and outstanding voting common stock.

Each member of PTCH’s board of directors meets the direct equity ownership interest requirements that are required by the Office of the Comptroller of the Currency.

LPL Financial, with primary offices in San Diego, California;

Fort Mill, South Carolina;

and Boston, Massachusetts, is a clearing broker-dealer and an investment adviser that principally transacts business as an agent for its advisors and financial institutions on behalf of their clients in a broad array of financial products and services.

LPL Financial is licensed to operate in all 50 states, Washington D.C., Puerto Rico, and the U.S.

Virgin Islands.

Fortigent Holdings Company, Inc.

and its subsidiaries provide solutions and consulting services to registered investment advisers, banks, and trust companies serving high-net-worth clients.

LPLIA operates as an insurance brokerage general agency that offers life and disability insurance products and services for LPL Financial advisors.

AW Subsidiary, Inc.

is a holding company for AdvisoryWorld, which offers technology products, including proposal generation, investment analytics and portfolio modeling, to both the Company’s advisors and external clients in the wealth management industry.

PTCH is a holding company for The Private Trust Company, N.A.

PTC is chartered as a non-depository limited purpose national bank, providing a wide range of trust, investment management oversight, and custodial services for estates and families.

PTC also provides Individual Retirement Account (“IRA”) custodial services for LPL Financial.

LPL Employee Services, LLC is a holding company for Allen & Company of Florida, LLC (“Allen & Company”), a broker-dealer and registered investment adviser.

Summary of Significant Accounting Policies

Basis of Presentation

These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ( “ GAAP ” ), which require the Company to make estimates and assumptions regarding the valuation of certain financial instruments, intangible assets, allowance for doubtful accounts, share-based compensation, accruals for liabilities, income taxes, revenue and expense accruals, and other matters that affect the consolidated financial statements and related disclosures.

Actual results could differ from those estimates under different assumptions or conditions and the differences may be material to the consolidated financial statements.

Consolidation

These consolidated financial statements include the accounts of LPLFH and its subsidiaries.

Intercompany transactions and balances have been eliminated.

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Notes to Consolidated Financial Statements

Reportable Segment

Management has determined that the Company operates in one segment, given the similarities in economic characteristics between its operations and the common nature of its products and services, production and distribution process, and regulatory environment.

Revenue Recognition

Revenues are recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

For additional information, see Note 3 .

Compensation and Benefits

The Company records compensation and benefits expense for all cash and deferred compensation, benefits, and related taxes as earned by its employees.

Compensation and benefits expense also includes fees earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees, primarily software development and project management activities.

Share-Based Compensation

Certain employees, officers, directors, advisors, and financial institutions of the Company participate in various long-term incentive plans that provide for granting stock options, warrants, restricted stock awards, restricted stock units, deferred stock units and performance stock units.

Stock options, warrants and restricted stock units generally vest in equal increments over a three-year period and expire on the tenth anniversary following the date of grant.

Restricted stock awards and deferred stock units generally vest over a one-year period, and performance stock units generally vest in full at the end of a three-year performance period.

The Company recognizes share-based compensation for equity awards granted to employees, officers, and directors as compensation and benefits expense on the consolidated statements of income.

The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant.

The fair value of restricted stock awards, restricted stock units, and deferred stock units is equal to the closing price of the Company’s stock on the date of grant.

The fair value of performance stock units is estimated using a Monte-Carlo simulation model on the date of grant.

Share-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period.

The Company recognizes share-based compensation for equity awards granted to advisors and financial institutions as commissions and advisory expense on the consolidated statements of income.

The fair value of restricted stock units is equal to the closing price of the Company’s stock on the date of grant.

Share-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period.

The Company also makes assumptions regarding the number of stock options, warrants, restricted stock awards, restricted stock units, deferred stock units and performance stock units that will be forfeited.

The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.

Therefore, changes in the forfeiture assumptions do not impact the total amount of expense ultimately recognized over the vesting period.

Rather, different forfeiture assumptions would only impact the timing of expense recognition over the vesting period.

See Note 16 .

Share-Based Compensation , for additional information regarding share-based compensation for equity awards granted.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the basic weighted-average number of shares of common stock outstanding during the period.

The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if dilutive potential shares of common stock had been issued.

In preparing the consolidated financial statements, the Company estimates income tax expense based on various jurisdictions where it conducts business.

The Company then must assess the likelihood that the deferred tax assets will be realized.

A valuation allowance is established to the extent that it is more-likely-than-not that such

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deferred tax assets will not be realized.

When the Company establishes a valuation allowance or modifies the existing allowance in a certain reporting period, it generally records a corresponding increase or decrease to tax expense in the consolidated statements of income.

Management makes significant judgments in determining the provision for income taxes, the deferred tax assets and liabilities, and any valuation allowances recorded against the deferred tax asset.

Changes in the estimate of these taxes occur periodically due to changes in the tax rates, changes in the business operations, implementation of tax planning strategies, resolution with taxing authorities of issues where the Company had previously taken certain tax positions, and newly enacted statutory, judicial, and regulatory guidance.

These changes could have a material effect on the Company’s consolidated statements of income, financial condition, or cash flows in the period or periods in which they occur.

Income tax credits are accounted for using the flow-through method as a reduction of income tax in the years utilized.

The Company recognizes the tax effects of a position in the consolidated financial statements only if it is more-likely-than-not to be sustained based solely on its technical merits;

otherwise no benefits of the position are to be recognized.

The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit.

Moreover, each tax position meeting the recognition threshold is required to be measured as the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with an original maturity of 90 days or less that are not required to be segregated under federal or other regulations.

The Company’s cash and cash equivalents are composed of interest and noninterest-bearing deposits, money market funds, and U.S.

government obligations.

Cash Segregated Under Federal and Other Regulations

The Company’s subsidiary, LPL Financial, is required to maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of its customers in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other regulations.

Held within this account is approximately $ 100,000 for the proprietary accounts of broker-dealers.

Restricted Cash

Restricted cash primarily represents cash held by and for use by the Captive Insurance Subsidiary.

Receivables from and Payables to Clients

Receivables from clients include amounts due on cash and margin transactions.

The Company extends credit to clients of its advisors to finance their purchases of securities on margin and receives income from interest charged on such extensions of credit.

Payables to clients represent credit balances in client accounts arising from deposits of funds, proceeds from sales of securities, and dividend and interest payments received on securities held in client accounts at LPL Financial.

The Company pays interest on certain client payable balances.

At December 31, 2019 and 2018 , $ 1,014.7 million and $ 935.5 million , respectively, of the balance represent free credit balances that are held pending re-investment by the clients.

Receivables from clients are generally fully secured by securities held in the clients’ account.

To the extent that margin loans and other receivables from clients are not fully collateralized by client securities, management establishes an allowance that it believes is sufficient to cover any probable losses.

When establishing this allowance, management considers a number of factors, including its ability to collect from the client or the client’s advisor and the Company’s historical experience in collecting on such transactions.

The following schedule reflects the Company’s activity in providing for an allowance for uncollectible amounts due from clients (in thousands):

Beginning balance — January 1

Provision for bad debts, net of recoveries

Ending balance — December 31

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Notes to Consolidated Financial Statements

Advisor Loans

The Company periodically extends credit to its advisors in the form of recruiting loans, commission advances, and other loans.

The decisions to extend credit to advisors are generally based on the advisors’ credit history and their ability to generate future commissions.

Certain loans made in connection with recruiting are forgivable over terms of up to ten years provided that the advisor remains licensed through LPL Financial.

At December 31, 2019 , $ 338.0 million of the advisor loan balance was forgivable.

If an advisor terminates their arrangement with the Company prior to the forgivable loan term date, the remaining balance becomes due immediately.

An allowance for uncollectible amounts is recorded using an analysis that takes into account the advisors’ registration status and the specific type of receivable.

The aging thresholds and specific percentages used represent management’s best estimates of probable losses.

Management monitors the adequacy of these estimates through periodic evaluations against actual trends experienced.

The following schedule reflects the Company’s activity in providing for an allowance for uncollectible amounts for advisor loans (in thousands):

Beginning balance — January 1

Provision for bad debts, net of recoveries

Reclassification from receivables from others

Ending balance — December 31

For the year ended December 31, 2017 , the Company reclassified the provision for bad debt for advisor loans out of the provision for bad debt for receivables from others.

Receivables from Others

Receivables from others primarily consist of accrued fees from product sponsors and amounts due from advisors.

Management maintains an allowance for uncollectible amounts using an aging analysis that takes into account the specific type of receivable.

The aging thresholds and specific percentages used represent management’s best estimates of probable losses.

Management monitors the adequacy of these estimates through periodic evaluations against actual trends experienced .

The following schedule reflects the Company’s activity in providing for an allowance for uncollectible amounts due from others (in thousands):

Beginning balance — January 1

Provision for bad debts, net of recoveries

Reclassification to advisor loans

Ending balance — December 31

Securities Owned and Securities Sold, But Not Yet Purchased

Securities owned and securities sold, but not yet purchased include trading and held-to-maturity securities.

The Company generally classifies its investments in debt and equity instruments (including mutual funds, annuities, corporate bonds, government bonds, and municipal bonds) as trading securities, except for U.S.

government notes held by PTC, which are classified as held-to-maturity securities.

The Company has not classified any investments as available-for-sale.

Investment classifications are subject to ongoing review and can change.

Securities classified as trading are carried at fair value, while securities classified as held-to-maturity are carried at amortized cost.

The Company uses prices obtained from independent third-party pricing services to measure the fair value of its trading securities.

Prices received from the pricing services are validated using various

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Notes to Consolidated Financial Statements

methods including comparison to prices received from additional pricing services, comparison to available quoted market prices, and review of other relevant market data including implied yields of major categories of securities.

In general, these quoted prices are derived from active markets for identical assets or liabilities.

When quoted prices in active markets for identical assets and liabilities are not available, the quoted prices are based on similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly.

For certificates of deposit and treasury securities, the Company utilizes market-based inputs, including observable market interest rates that correspond to the remaining maturities or the next interest reset dates.

At December 31, 2019 , the Company did not adjust prices received from the independent third-party pricing services.

Interest income is accrued as earned.

Premiums and discounts are amortized using a method that approximates the effective yield method over the term of the security and are recorded as an adjustment to the investment yield.

The Company makes estimates about the fair value of investments and the timing for recognizing losses based on market conditions and other factors.

If these estimates change, the Company may recognize additional losses.

Both unrealized and realized gains and losses on trading securities are recognized in other revenue on a net basis in the consolidated statements of income.

Securities Borrowed

The Company borrows securities from other broker-dealers to make deliveries or to facilitate customer short sales.

Securities borrowed are accounted for as collateralized financings and are recorded at contract value, representing the amount of cash provided for securities borrowed transactions (generally in excess of market values).

The adequacy of the collateral deposited, which is determined by comparing the market value of the securities borrowed to the cash loaned , is continuously monitored and is adjusted when considered necessary to minimize the risk associated with this activity.

As of December 31, 2019 , the contract and collateral market values of borrowed securities were $ 17.7 million and $ 17.2 million , respectively.

As of December 31, 2018 , the contract and collateral market values of borrowed securities were $ 4.8 million and $ 5.0 million , respectively.

Internally developed software, leasehold improvements, computers and software, and furniture and equipment are recorded at historical cost, net of accumulated depreciation and amortization.

Depreciation is recognized using the straight-line method over the estimated useful lives of the assets.

The Company charges software development costs to operations as incurred during the preliminary project stage, while capitalizing costs at the point at which the conceptual formulation, design, and testing of possible software project alternatives are complete and management authorizes and commits to funding the project.

The costs of internally developed software that qualify for capitalization are capitalized as fixed assets and subsequently amortized over the estimated useful life of the software, which is generally three years.

The Company does not capitalize pilot projects or projects for which it believes that the future economic benefits are less than probable.

Leasehold improvements are amortized over the lesser of their useful lives or the terms of the underlying leases.

Computers and software, as well as furniture and equipment, are depreciated over a period of three to seven years.

Land is not depreciated.

Management reviews fixed assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable.

No impairment occurred for the years ended December 31, 2019 , 2018 , and 2017 .

When acquiring companies, the Company recognizes separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of income.

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Notes to Consolidated Financial Statements

Accounting for business combinations requires the Company’s management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, liabilities assumed, and pre-acquisition contingencies.

These assumptions are based in part on historical experience, market data, and information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets the Company has acquired include, but are not limited to:

(i) future expected cash flows from assets and advisor relationships;

and (ii) discount rates.

Goodwill and Other Intangible Assets

Goodwill and other indefinite-lived intangible assets are tested annually for impairment in the fourth fiscal quarter and between annual tests if certain events occur indicating that the carrying amounts may be impaired.

If a qualitative assessment is used and the Company determines that the fair value of a reporting unit or indefinite-lived intangible asset is more likely than not (i.e., a likelihood of more than 50%) less than its carrying amount, a quantitative impairment test will be performed.

If goodwill or other indefinite-lived intangible assets are quantitatively assessed for impairment, a two-step approach is applied.

The Company first compares the estimated fair value of the reporting unit or indefinite-lived intangible asset to its carrying value.

The second step, if necessary, measures the amount of such impairment by comparing the implied fair value of the asset to its carrying value.

No impairment of goodwill or other indefinite-lived intangible assets was recognized for the years ended December 31, 2019 , 2018 , or 2017 .

Intangible assets that are deemed to have definite lives are amortized over their useful lives, generally ranging from 5 to 20 years.

They are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount may not be recoverable.

Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated.

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value.

There was no impairment of definite-lived intangible assets recognized for the years ended December 31, 2019 , 2018 , or 2017 .

Goodwill and Other Intangible Assets , for additional information regarding the Company’s goodwill and other intangible assets.

Debt Issuance Costs

Debt issuance and amendment costs have been capitalized and are being amortized as additional interest expense over the expected terms of the related debt agreements.

Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt liability.

Costs incurred while obtaining the revolving credit facility are included in other assets and subsequently amortized ratably over the term of the revolving credit facility, regardless of whether there are any outstanding borrowings on the revolving credit facility.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are carried at fair value or at amounts that, because of their short-term nature, approximate current fair value, with the exception of its held-to-maturity securities and indebtedness, which are carried at amortized cost.

The Company measures the implied fair value of its debt instruments using trading levels obtained from a third-party service provider.

Accordingly, the debt instruments qualify as Level 2 fair value measurements.

Fair Value Measurements , for additional information regarding the Company’s fair value measurements.

As of December 31, 2019 , the carrying amount and fair value of the Company’s indebtedness was approximately $ 2,415.0 million and $ 2,476.0 million , respectively.

As of December 31, 2018 , the carrying amount and fair value was approximately $ 2,381.3 million and $ 2,271.9 million , respectively.

Commitments and Contingencies

The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability has occurred and the amount can be reasonably estimated.

If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount.

When no amount within the range is a better estimate than any other amount, however, the Company accrues the minimum amount in the range.

The Company has established an accrual for those legal proceedings and regulatory matters for which a loss is both probable and the amount can be reasonably estimated.

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Notes to Consolidated Financial Statements

The Company also accrues for losses at its Captive Insurance Subsidiary for those matters covered by self-insurance.

The Captive Insurance Subsidiary records losses and loss reserve liabilities based on actuarially determined estimates of losses incurred, but not yet reported to the Company as well as specific reserves for proceedings and matters that are probable and estimable.

The Captive Insurance Subsidiary is funded by payments from the Company’s other subsidiaries and has cash reserves to cover losses.

Assessing the probability of a loss occurring and the timing and amount of any loss related to a legal proceeding or regulatory matter is inherently difficult and requires management to make significant judgments.

For additional information, see Note 14 .

Commitments and Contingencies - “Legal & Regulatory Matters.”

Lease assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the lease commencement date.

The Company estimates its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments.

For additional information, see Note 12 .

Prior to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), the Company was involved in a build-to-suit lease arrangement in Fort Mill, South Carolina, under which it served as the construction agent on behalf of the landlord and bore substantially all of the risks and rewards of ownership.

The Company was required to report the landlord’s costs of construction as a fixed asset during the construction period as if the Company owned such asset and an equal and off-setting leasehold financing obligation on the consolidated statements of financial condition.

The construction was completed in October 2016 and it was determined that the asset did not qualify for sale-leaseback accounting treatment.

As such, the Company accounted for this arrangement as a capital lease in which the asset was depreciated and the lease payments were recognized as a reduction of the financing obligation and interest expense over the lease term on the consolidated statements of income.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

ASU 2016-13 also requires additional disclosures regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.

The Company adopted the provisions of this guidance on January 1, 2020.

The adoption had no material impact on the Company’s recognition of credit losses but will impact the Company’s disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement .

ASU 2018-13 removes or modifies certain current disclosures, and requires additional disclosures.

The changes are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity’s performance and cash flows.

Certain disclosures in ASU 2018-13 will need to be applied on a retrospective basis and others on a prospective basis.

The Company adopted the provisions of this guidance on January 1, 2020.

The adoption will not have a material impact on the Company’s related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which aligns the accounting for costs to implement a cloud computing arrangement that is a service with the guidance on capitalizing costs for developing or obtaining internal-use software.

The Company prospectively adopted the provisions of this guidance on January 1, 2020.

The adoption had no material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations.

The new standard also requires disclosures that

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Notes to Consolidated Financial Statements

provide additional information on recorded lease arrangements.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provides an optional transition method that allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the provisions of this guidance, including the optional transition method, on January 1, 2019.

Operating lease assets and corresponding lease liabilities were recognized on the Company’s consolidated statements of financial condition.

There was no material impact to its consolidated statements of income.

Refer to Note 12 .

Leases , for additional disclosure and significant accounting policies affecting leases.

In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718):

Improvements to Non-employee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payments granted to non-employees.

Consistent with the requirement for employee share-based payment awards, non-employee share-based payment awards within the scope of Topic 718 will be measured at grant-date fair value of the equity instruments.

The Company adopted the provisions of this guidance on January 1, 2019 and no longer adjusts the fair value of advisor and financial institution equity awards in the consolidated statements of income.

Revenues are analyzed to determine whether the Company is the principal (i.e., reports revenues on a gross basis) or agent (i.e., reports revenues on a net basis) in the contract.

Principal or agent designations depend primarily on the control an entity has over the product or service before control is transferred to a customer.

The indicators of which party exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred and discretion in establishing the price.

Commission Revenue

Commission revenue represents sales commissions generated by advisors for their clients’ purchases and sales of securities on exchanges and over-the-counter, as well as purchases of other investment products.

The Company views the selling, distribution and marketing, or any combination thereof, of investment products to such clients as a single performance obligation to the product sponsors.

The Company is the principal for commission revenue, as it is responsible for the execution of the clients’ purchases and sales, and maintains relationships with the product sponsors.

Advisors assist the Company in performing its obligations.

Accordingly, total commission revenues are reported on a gross basis.

The following table presents total commission revenue disaggregated by investment product category (in thousands):

Years Ended December 31,

Commission revenue

Total commission revenue

The Company generates two types of commission revenue:

sales-based commission revenue that is recognized at the point of sale on the trade date and trailing commission revenue that is recognized over time as earned.

Sales-based commission revenue varies by investment product and is based on a percentage of an investment product’s current market value at the time of purchase.

Trailing commission revenue is generally based on a percentage of the current market value of clients’ investment holdings in trail-eligible assets, and is recognized over the period during which services, such as ongoing support, are performed.

As trailing commission revenue is based on the market value of clients’ investment holdings, the consideration is variable and an estimate of the

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Notes to Consolidated Financial Statements

variable consideration is constrained due to dependence on unpredictable market impacts.

The constraint is removed once the investment holdings value can be determined.

The following table presents sales-based and trailing commission revenues disaggregated by product category (in thousands):

Years Ended December 31,

Commission revenue

Total sales-based revenue

Total trailing revenue

Total commission revenue

Advisory Revenue

Advisory revenue represents fees charged to advisors’ clients’ accounts on the Company’s corporate advisory platform.

The Company provides ongoing investment advice and acts as a custodian, providing brokerage and execution services on transactions, and performs administrative services for these accounts.

This series of performance obligations transfers control of the services to the client over time as the services are performed.

This revenue is recognized ratably over time to match the continued delivery of the performance obligations to the client over the life of the contract.

The advisory revenue generated from the Company’s corporate advisory platform is based on a percentage of the market value of the eligible assets in the clients’ advisory accounts.

As such, the consideration for this revenue is variable and an estimate of the variable consideration is constrained due to dependence on unpredictable market impacts on client portfolio values.

The constraint is removed once the portfolio value can be determined.

The Company provides advisory services to clients on its corporate advisory platform through the advisor.

The Company is the principal in these arrangements and recognizes advisory revenue on a gross basis, as the Company is responsible for satisfying the performance obligations and has control over determining the fees.

Asset-Based Revenue

Asset-based revenue is comprised of fees from the Company’s client cash programs, which consist of fees from its money market programs and insured cash sweep vehicles, sponsorship programs, and recordkeeping.

Client Cash Revenue

Client cash revenues are generated based on advisors’ clients’ cash balances in insured sweep accounts and money market programs at various banks.

The Company receives fees based on account type and invested balances for administration and recordkeeping.

These fees are paid and recognized over time.

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Notes to Consolidated Financial Statements

Sponsorship Programs

The Company receives fees from product sponsors, primarily mutual fund and annuity companies, for marketing support and sales force education and training efforts.

Compensation for these performance obligations is either a fixed fee, a percentage of the average annual amount of product sponsor assets held in advisors’ clients’ accounts, a percentage of new sales, or some combination.

As the value of product sponsor assets held in advisor’s clients’ accounts is susceptible to unpredictable market changes, this revenue includes variable consideration and is constrained until the date that the fees are determinable.

Recordkeeping

The Company generates this revenue by providing recordkeeping, account maintenance, reporting and other related services to product sponsors.

This includes revenue from omnibus processing in which the Company establishes and maintains sub-account records for its clients to reflect the purchase, exchange and redemption of mutual fund shares, and consolidates clients’ trades within a mutual fund.

Omnibus processing fees are paid to the Company by the mutual fund or its affiliates and are based on the value of mutual fund assets in accounts for which the Company provides omnibus processing services and the number of accounts in which the related mutual fund positions are held.

Recordkeeping revenue also includes revenues from networking recordkeeping services.

Networking revenues on brokerage assets are correlated to the number of positions or value of assets that the Company administers and are paid by mutual fund and annuity product manufacturers.

These recordkeeping revenues are recognized over time as the Company fulfills its performance obligations.

As recordkeeping fees are susceptible to unpredictable market changes that influence market value and fund positions, these revenues include variable consideration and are constrained until the date that the fees are determinable.

Depending on the contract, the Company is either principal or agent for recordkeeping revenue.

In instances in which the Company is providing services to financial product manufacturers on behalf of third parties and does not have ultimate control of the service before transfer to the customer, the Company is considered to be an agent and reports revenues on a net basis.

In other cases, where the Company uses a sub-contractor to provide services and is responsible for unperformed services, the Company is considered principal and reports revenues on a gross basis.

The following table sets forth asset-based revenue at a disaggregated level (in thousands):

Years Ended December 31,

Asset-based revenue

Sponsorship programs

Recordkeeping

Total asset-based revenue

Transaction and Fee Revenue

Transaction revenue primarily includes fees the Company charges to advisors and their clients for executing certain transactions in brokerage and fee-based advisory accounts.

Transaction revenue is recognized at the point-in-time that a transaction is executed, which is generally the trade-date.

Fee revenue may be generated from advisors or their clients.

Fee revenues primarily include IRA custodian fees, contract and licensing fees, and other client account fees.

In addition, the Company hosts certain advisor conferences that serve as training, education, sales, and marketing events, for which a fee is charged for attendance.

Fee revenue is recognized when the Company satisfies its performance obligations.

Recognition varies from point-in-time to over time depending on whether the service is provided once at an identifiable point-in-time or if the service is provided continually over the contract life.

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Notes to Consolidated Financial Statements

The following table sets forth transaction and fee revenue disaggregated by recognition pattern (in thousands):

Years Ended December 31,

Transaction and fee revenue

Point-in-time (1)

Over time (2)

Total transaction and fee revenue

____________________

Transaction and fee revenue recognized point-in-time includes revenue such as transaction fees, IRA termination fees, and conference service fees.

Transaction and fee revenue recognized over time includes revenue such as error and omission insurance fees, IRA custodian fees, and technology fees.

The Company is the principal and recognizes transaction and fee revenue on a gross basis as it is primarily responsible for delivering the respective services being provided, which is demonstrated by the Company’s ability to control the fee amounts charged to customers.

Interest Income, Net of Interest Expense

The Company earns interest income from client margin accounts and cash equivalents, less interest expense on related transactions.

This revenue is not generated from contracts with customers.

Interest expense incurred in connection with cash equivalents and client margin balances is completely offset by revenue on related transactions;

therefore, the Company considers such interest to be an operating expense.

Interest expense from operations for the years ended December 31, 2019 , 2018 , and 2017 was not material.

Other Revenue

Other revenue primarily includes unrealized gains and losses on assets held by the Company for its advisor non-qualified deferred compensation plan and model research portfolios, marketing allowances received from certain financial product manufacturers, primarily those who offer alternative investments, such as non-traded real estate investment trusts and business development companies, and other miscellaneous revenues.

These revenues are not generated from contracts with customers.

Arrangements with Multiple Performance Obligations

The Company’s contracts with customers may include multiple performance obligations.

Contracts with customers that include multiple performance obligations have performance obligations that follow the same revenue recognition pattern and are recorded in the same financial statement line item.

Unearned Revenue

The Company records unearned revenue when cash payments are received or due in advance of the Company’s performance obligations, including amounts which are refundable.

The increase in the unearned revenue balance for the year ended December 31, 2019 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by $ 80.4 million of revenues recognized that were included in the unearned revenue balance as of December 31, 2018 .

The Company receives cash revenues for advisory services not yet performed and conferences not yet held.

For advisory services, revenue is recognized as the Company provides the administration, brokerage and execution services over time to satisfy the performance obligations.

For conference revenue, the Company recognizes revenue as the conferences are held.

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Notes to Consolidated Financial Statements

On August 1, 2019 , the Company acquired all of the outstanding equity interests of Allen & Company.

Under the transaction structure, Allen & Company advisors and staff became employees of the Company, and Allen & Company will maintain its operations and brand.

The Company paid approximately $ 24.9 million at closing and also agreed to a potential contingent payment of up to $ 10.0 million (“Contingent Payment”), payable approximately six months after the closing date based on the percentage of assets retained by Allen & Company advisors.

The fair value of the Contingent Payment is included in accounts payable and accrued liabilities on the consolidated statements of financial condition.

Fair Value Measurements , for additional information.

On December 3, 2018 , the Company acquired all of the outstanding common stock of AdvisoryWorld, to enhance the Company’s technology capabilities.

The Company paid $ 28.1 million at the closing of the transaction and allocated the purchase price primarily to intangible assets and goodwill in the consolidated statements of financial condition.

During 2017, the Company entered into an asset purchase agreement with National Planning Holdings, Inc.

(“NPH”) and its four broker-dealer subsidiaries to acquire certain assets and rights, including business relationships with financial advisors.

In accordance with ASC 805, Business Combinations, control transferred when the Company onboarded NPH advisors and client assets onto its platform, which occurred in two waves.

The Company recorded intangible assets of $ 112.7 million in advisor relationships and $ 49.0 million in goodwill in the first quarter of 2018, following the completion of the second wave.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

Inputs used to measure fair value are prioritized within a three-level fair value hierarchy.

This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets;

quoted prices for identical or similar assets and liabilities in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

There have been no transfers of assets or liabilities between these fair value measurement classifications during the years ended December 31, 2019 and 2018 .

The Company’s fair value measurements are evaluated within the fair value hierarchy, based on the nature of inputs used to determine the fair value at the measurement date.

At December 31, 2019 and December 31, 2018 , the Company had the following financial assets and liabilities that are measured at fair value on a recurring basis:

Cash Equivalents — The Company’s cash equivalents include money market funds, which are short term in nature with readily determinable values derived from active markets.

Securities Owned and Securities Sold, But Not Yet Purchased — The Company’s trading securities consist of house account model portfolios established and managed for the purpose of benchmarking the performance of its fee-based advisory platforms and temporary positions resulting from the processing of client transactions.

Examples of these securities include money market funds, U.S.

treasury obligations, mutual funds, certificates of deposit, and traded equity and debt securities.

The Company uses prices obtained from independent third-party pricing services to measure the fair value of its trading securities.

Prices received from the pricing services are validated using various methods including comparison to prices received from additional pricing services, comparison to available quoted market prices, and review of other relevant market data including implied yields of major categories of securities.

In general, these quoted prices are derived from active markets for identical assets or liabilities.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

certificates of deposit and treasury securities, the Company utilizes market-based inputs, including observable market interest rates that correspond to the remaining maturities or the next interest reset dates.

At December 31, 2019 and December 31, 2018 , the Company did not adjust prices received from the independent third-party pricing services.

Other Assets — The Company’s other assets include:

(1) deferred compensation plan assets that are invested in money market and other mutual funds, which are actively traded and valued based on quoted market prices;

and (2) certain non-traded real estate investment trusts and auction rate notes, which are valued using quoted prices for identical or similar securities and other inputs that are observable or can be corroborated by observable market data.

Accounts Payable and Accrued Liabilities — The Company’s accounts payable and accrued liabilities include contingent consideration liabilities that are measured using Level 3 inputs.

Level 3 Recurring Fair Value Measurements

The Company determines the fair value for its contingent consideration obligations using a scenario based approach whereby the Company assesses the expected retention percentage of the acquired assets under management.

The contingent payment is estimated by applying a discount rate to the expected payment to calculate the fair value as of the valuation date.

The Company’s management evaluates the underlying projections and other related factors used in determining fair value each period and makes updates when there have been significant changes in management’s expectations.

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis at December 31, 2019 (in thousands):

Cash equivalents

Securities owned — trading:

Money market funds

Equity securities

Debt securities

treasury obligations

Total securities owned — trading

Total assets at fair value

Securities sold, but not yet purchased:

Equity securities

Debt securities

Total securities sold, but not yet purchased

Accounts payable and accrued liabilities

Total liabilities at fair value

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis at December 31, 2018 (in thousands):

Cash equivalents

Securities owned — trading:

Money market funds

Equity securities

Debt securities

treasury obligations

Total securities owned — trading

Total assets at fair value

Securities sold, but not yet purchased:

Equity securities

Debt securities

Total securities sold, but not yet purchased

Total liabilities at fair value

Held-to-Maturity Securities

The Company holds certain investments in securities, primarily U.S.

government notes, which are recorded at amortized cost because the Company has both the intent and the ability to hold these investments to maturity.

Interest income is accrued as earned.

Premiums and discounts are amortized using a method that approximates the effective yield method over the term of the security and are recorded as an adjustment to the investment yield.

The amortized cost, gross unrealized gain (loss), and fair value of securities held-to-maturity were as follows (in thousands):

Amortized cost

Gross unrealized gain (loss)

At December 31, 2019 , the securities held-to-maturity were scheduled to mature as follows (in thousands):

Within one year

After one but within five years

After five but within ten years

government notes — at amortized cost

government notes — at fair value

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Receivables from Product Sponsors, Broker-Dealers, and Clearing Organizations and Payables to Broker-Dealers and Clearing Organizations

Receivables from product sponsors, broker-dealers, and clearing organizations and payables to broker-dealers and clearing organizations were as follows (in thousands):

Commissions receivable from product sponsors and others

Receivable from clearing organizations

Receivable from broker-dealers

Securities failed-to-deliver

Total receivables

Payable to clearing organizations

Payable to broker-dealers

Securities failed-to-receive

Total payables

The components of fixed assets were as follows at December 31, 2019 (in thousands):

Depreciation and Amortization

Internally developed software

Computers and software

Leasehold improvements

Furniture and equipment

Construction in progress (1)

Total fixed assets

____________________

Construction in progress includes internal software in development of $ 133.3 million at December 31, 2019 .

The components of fixed assets were as follows at December 31, 2018 (in thousands):

Depreciation and Amortization

Internally developed software

Computers and software

Leasehold improvements

Furniture and equipment

Construction in progress (1)

Total fixed assets

____________________

Construction in progress includes internal software in development of $ 85.0 million at December 31, 2018 .

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

Depreciation and amortization expense was $ 95.8 million , $ 87.7 million , and $ 84.1 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Goodwill and Other Intangible Assets

A summary of the activity in goodwill is presented below (in thousands):

Balance at December 31, 2017

Goodwill acquired (1)

Balance at December 31, 2018

Goodwill acquired

Balance at December 31, 2019

____________________

Goodwill acquired during 2018 included $ 49.0 million from the NPH acquisition and $ 13.5 million from the AdvisoryWorld acquisition.

The components of intangible assets were as follows at December 31, 2019 (dollars in thousands):

Weighted-Average Life

Definite-lived intangible assets:

Advisor and financial institution relationships

Product sponsor relationships

Client relationships

Total definite-lived intangible assets

Indefinite-lived intangible assets:

Trademark and trade name

Total intangible assets

The components of intangible assets were as follows at December 31, 2018 (dollars in thousands):

Weighted-Average Life

Definite-lived intangible assets:

Advisor and financial institution relationships

Product sponsor relationships

Client relationships

Total definite-lived intangible assets

Indefinite-lived intangible assets:

Trademark and trade name

Total intangible assets

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Total amortization expense of intangible assets was $ 65.3 million , $ 60.3 million , and $ 38.3 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Future amortization expense is estimated as follows (in thousands):

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities were as follows (in thousands):

Advisor deferred compensation plan liability

Accrued compensation

Deferred rent

Accounts payable

Other accrued liabilities

Total accounts payable and accrued liabilities

On November 12, 2019, LPLFH and LPLH entered into a fourth amendment agreement (the “Amendment”) to the Company’s amended and restated credit agreement (“Credit Agreement”), and repriced its senior secured Term Loan B facility (“Term Loan B”), increased the size of its senior secured revolving credit facility from $ 500.0 million to $ 750.0 million , extended the maturity dates applicable to its Term Loan B and its senior secured revolving credit facility, and made certain other changes to its credit agreement.

Additionally, LPLH raised $ 400.0 million in aggregate principal amount of 4.625 % senior unsecured notes which were issued at par (“2027 Notes”).

The proceeds from the 2027 Notes were used to pay down the Term Loan B principal balance to $ 1,070.0 million .

In connection with the execution of the Amendment, the Company incurred $ 13.5 million in costs which are capitalized as debt issuance costs in the consolidated statements of financial condition, and accelerated the recognition of $ 3.2 million of unamortized debt issuance costs as a loss on extinguishment of debt in the consolidated statements of income.

Issuance of 4.625 % Senior Notes due 2027

The 2027 Notes are unsecured obligations, governed by an indenture, that will mature on November 15, 2027, and bear interest at the rate of 4.625 % per year, with interest payable semi-annually, beginning on May 15, 2020.

The Company may redeem all or part of the 2027 Notes at any time prior to November 15, 2022 (subject to a customary “equity claw” redemption right) at 100% of the principal amount redeemed plus a “make-whole” premium.

Thereafter the Company may redeem all or part of the 2027 Notes at annually declining redemption premiums until November 15, 2024, at and after which date the redemption price will be equal to 100% of the principal amount redeemed plus any accrued and unpaid interest thereon.

Issuance of 5.75 % Senior Notes due 2025

LPLH issued $ 500.0 million aggregate principal amount of 5.75 % senior notes on March 10, 2017 (the “Original Notes”) and $ 400.0 million aggregate principal amount of 5.75 % senior notes on September 21, 2017 (together with the Original Notes, the “2025 Notes”).

The 2025 Notes are unsecured obligations, governed by an indenture, that will mature on September 15, 2025, and bear interest at the rate of 5.75 % per year, with interest payable semi-annually, beginning September 15, 2017.

The Company may redeem all or part of the 2025 Notes at any time prior to March 15, 2020 (subject to a customary “equity claw” redemption right) at 100% of the principal amount redeemed plus a “make-whole” premium.

Thereafter the Company may redeem all or part of the 2025

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

Notes at annually declining redemption premiums until March 15, 2023, at and after which date the redemption price will be equal to 100% of the principal amount redeemed.

The Company’s outstanding borrowings were as follows (dollars in thousands):

December 31, 2019

December 31, 2018

Long-Term Borrowings

Applicable Margin

Interest Rate

Applicable Margin

Interest Rate

Revolving Credit Facility (1)

Senior Secured Term Loan B (2)

LIBOR+175 bps

LIBOR+225 bps

Senior Unsecured Notes (2)(3)

Senior Unsecured Notes (2)(4)

Total long-term borrowings

Unamortized Premium

Unamortized Debt Issuance Cost

Net Carrying Value

____________________

The alternate base rate (ABR) was the effective PRIME rate on December 31, 2019, the date of the borrowing.

No leverage or interest coverage maintenance covenants.

The 2025 Notes were issued in two separate transactions;

$ 500.0 million in original notes were issued in March 2017 at par;

$ 400.0 million in additional notes were issued in September 2017 and priced at 103.0 % of the aggregate principal amount.

The 2027 Notes were issued in November 2019 at par.

The Company is required to make quarterly payments on the Term Loan B facility equal to 0.25 % of the aggregate principal amount of the loans under the Term Loan B facility.

Borrowings under the Term Loan B facility bear interest at a rate per annum of 175 basis points over the Eurodollar Rate or 75 basis points over the base rate (as defined in the Credit Agreement), and have no leverage or interest coverage maintenance covenants.

Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 125 to 175 basis points over the Eurodollar Rate or 25 to 75 basis points over the base rate, depending on the Consolidated Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement).

The Eurodollar Rate option is the one-, two-, three-, or six-month LIBOR rate, as selected by LPLH, or, with the approval of the applicable lenders, twelve-month LIBOR rate or the LIBOR rate for another period acceptable to the Administrative Agent (including a shorter period).

The LIBOR rate, on which the Eurodollar Rate is based, is expected to be discontinued by the end of 2021.

The Credit Agreement permits LPLH to agree with the administrative agent for the Credit Agreement on a replacement benchmark rate subject to certain conditions (including that a majority of the lenders do not object to such replacement rate within a specified period of time following notice thereof from the administrative agent).

As of December 31, 2019 , the Company had $ 3.7 million of irrevocable letters of credit, with an applicable interest rate margin of 1.25 % , which were supported by the credit facility.

The Credit Agreement subjects the Company to certain financial and non-financial covenants.

As of December 31, 2019 , the Company was in compliance with such covenants.

Broker-Dealer Credit Facility

On July 31, 2019, LPL Financial, the Company’s broker-dealer subsidiary, entered into a committed, unsecured revolving credit facility that matures on July 31, 2024 and allows for a maximum borrowing of up to $ 300.0 million (the “LPL Financial Credit Facility”).

LPL Financial incurred approximately $ 1.5 million in debt issuance costs.

Borrowings under the LPL Financial Credit Facility bear interest at a rate per annum ranging from 112.5 to 137.5 basis points over the Federal Funds Rate or Eurodollar Rate, depending on the Parent Leverage Ratio (each as defined in the credit agreement related to the LPL Financial Credit Facility).

The credit agreement related to the LPL Financial Credit Facility subjects LPL Financial to certain financial and non-financial covenants.

LPL Financial was in compliance with such covenants, and there were no borrowings outstanding on this credit facility, as of December 31, 2019 .

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Bank Loans Payable

The Company maintained three uncommitted lines of credit as of December 31, 2019 .

Two of the lines have unspecified limits, which are primarily dependent on the Company’s ability to provide sufficient collateral.

The third line has a $ 150.0 million limit and allows for both collateralized and uncollateralized borrowings.

There were no balances outstanding as of December 31, 2019 or December 31, 2018 .

The minimum calendar year payments and maturities of the long-term borrowings as of December 31, 2019 are as follows (in thousands):

Adoption of ASC Topic 842, Leases

On January 1, 2019, the Company adopted ASC Topic 842, Leases (“Topic 842”).

Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting guidance, ASC Topic 840.

The Company previously recorded a build-to-suit related asset and liability for a lease in Fort Mill, South Carolina.

The asset and liability were derecognized and reevaluated as a result of the adoption.

The Fort Mill lease was determined to be a finance lease under Topic 842 and the changes in values from the derecognition and reevaluation were recorded to retained earnings under cumulative effect of accounting change in the consolidated statements of stockholders’ equity.

Lease Recognition

The Company determines if an arrangement is a lease or contains a lease at inception.

The Company has operating and finance leases for corporate offices and equipment with remaining lease terms of 2 years to 17 years, some of which include options to extend the lease for up to 20 years.

For leases with renewal options, the lease term is extended to reflect renewal options the Company is reasonably certain to exercise.

Operating lease assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date.

As most of the Company’s leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments.

Lease expense for net present value of payments is recognized on a straight-line basis over the lease term.

Finance lease assets are included in fixed assets in the consolidated statements of financial condition and at December 31, 2019 were $ 107.4 million .

The components of lease expense were as follows (in thousands):

Year Ended December 31,

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Total finance lease cost

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Supplemental cash flow information related to leases was as follows (in thousands):

Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Supplemental weighted-average information related to leases was as follows:

Weighted-average remaining lease term (years):

Finance leases

Operating leases

Weighted-average discount rate:

Finance leases

Operating leases

Maturities of lease liabilities as of December 31, 2019 were as follows (in thousands):

Operating Leases

Finance Leases

Total lease payments

Less imputed interest

Maturities of lease liabilities as of December 31, 2018 under ASC Topic 840 were as follows (in thousands):

____________________

Amounts above exclude $ 75.7 million related to non-lease commitments from the schedule included in Note 13 .

Commitments and Contingencies , in the Company’s audited consolidated financial statements and the related notes in the 2018 Annual Report on Form 10-K.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company’s provision for income taxes was as follows (in thousands):

Current provision:

Total current provision

Deferred benefit:

Total deferred benefit

Provision for income taxes

A reconciliation of the U.S.

federal statutory income tax rates to the Company’s effective income tax rates is set forth below:

Years Ended December 31,

Federal statutory income tax rates

State income taxes, net of federal benefit

Non-deductible expenses

Share-based compensation

Tax Cuts and Jobs Act of 2017

Domestic production activities deduction

Research & development credits

Effective income tax rates

The Company’s effective income tax rate differs from the federal corporate tax rate of 21.0 % , primarily as a result of state taxes, settlement contingencies, tax credits and other permanent differences in tax deductibility of certain expenses.

These items resulted in effective tax rates of 24.5 % , 25.8 % , and 34.5 % for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

The decrease in the Company’s effective income tax rate in 2019 compared to 2018 was due to decreases in non-deductible expenses.

The decrease in the Company’s effective income tax rate in 2018 compared to 2017 was due to the tax benefit associated with the federal corporate income tax rate reduction from 35% to 21% under the Tax Cuts and Jobs Act of 2017.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (H.R.

1), the tax reform bill (the "Tax Act"), was signed into law.

The Tax Act provided a permanent reduction in the Company's federal corporate income tax rate from 35% to 21% effective January 1, 2018.

During the quarter ended December 31, 2018, the Company finalized its accounting of the Tax Act pursuant to SEC Staff Accounting Bulletin No.

No significant impacts were recorded by the Company as a result of finalizing the accounting.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The components of the net deferred income taxes included in the consolidated statements of financial condition were as follows (in thousands):

Deferred tax assets:

Accrued liabilities

Share-based compensation

Operating lease liabilities

Finance lease liabilities

Deferred rent

Provision for bad debts

Forgivable loans

Captive insurance

Total deferred tax assets

Deferred tax liabilities:

Amortization of intangible assets

Depreciation of fixed assets

Operating lease assets

Total deferred tax liabilities

Deferred income taxes, net

The following table reflects a reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits, including interest and penalties (in thousands):

Balance — Beginning of year

Increases for tax positions taken during the current year

Reductions as a result of a lapse of the applicable statute of limitations

Balance — End of year

At December 31, 2019 and 2018 , there were $ 46.1 million and $ 40.7 million , respectively, of unrecognized tax benefits that if recognized, would favorably affect the effective income tax rate in any future periods.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes within the consolidated statements of financial condition.

At December 31, 2019 and 2018 , the liability for unrecognized tax benefits included accrued interest of $ 6.4 million and $ 5.1 million , respectively, and penalties of $ 4.4 million and $ 4.3 million , respectively.

The Company and its subsidiaries file income tax returns in the federal jurisdiction, as well as most state jurisdictions, and are subject to routine examinations by the respective taxing authorities.

The Company has concluded all federal income tax matters for years through 2011 and all state income tax matters for years through 2007.

The tax years of 2012 to 2018 remain open to examination in the federal jurisdiction.

The tax years of 2008 to 2018 remain open to examination in the state jurisdictions.

In the next 12 months, it is reasonably possible that the Company expects a reduction in unrecognized tax benefits of $ 3.7 million primarily related to the statute of limitations expiration in various state jurisdictions.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Commitments and Contingencies

Service and Development Contracts

The Company is party to certain long-term contracts for systems and services that enable back office trade processing and clearing for its product and service offerings.

Future minimum payments under service, development, and agency contracts, and other contractual obligations with initial terms greater than one year were as follows at December 31, 2019 (in thousands):

The Company occasionally enters into contracts that contingently require it to indemnify certain parties against third-party claims.

The terms of these obligations vary and, because a maximum obligation is not explicitly stated, the Company has determined that it is not possible to make an estimate of the amount that it could be obligated to pay under such contracts.

LPL Financial provides guarantees to securities clearing houses and exchanges under their standard membership agreements, which require a member to guarantee the performance of other members.

Under these agreements, if a member becomes unable to satisfy its obligations to the clearing houses and exchanges, all other members would be required to meet any shortfall.

The Company’s liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral.

However, the potential requirement for the Company to make payments under these agreements is remote.

Accordingly, no liability has been recognized for these transactions.

Loan Commitments

From time to time, LPL Financial makes loans to its advisors, primarily to newly recruited advisors to assist in the transition process, which may be forgivable.

Due to timing differences, LPL Financial may make commitments to issue such loans prior to actually funding them.

These commitments are generally contingent upon certain events occurring, including but not limited to the advisor joining LPL Financial.

LPL Financial had no significant unfunded commitments at December 31, 2019 .

Legal & Regulatory Matters

The Company is subject to extensive regulation and supervision by U.S.

federal and state agencies and various self-regulatory organizations.

The Company and its advisors periodically engage with such agencies and organizations, in the context of examinations or otherwise, to respond to inquiries, informational requests, and investigations.

From time to time, such engagements result in regulatory complaints or other matters, the resolution of which has in the past and may in the future include fines, customer restitution and other remediation.

Assessing the probability of a loss occurring and the timing and amount of any loss related to a legal proceeding or regulatory matter is inherently difficult.

While the Company exercises significant and complex judgments to make certain estimates presented in its consolidated financial statements, there are particular uncertainties and complexities involved when assessing the potential outcomes of legal proceedings and regulatory matters.

The Company’s assessment process considers a variety of factors and assumptions, which may include:

the procedural status of the matter and any recent developments;

prior experience and the experience of others in similar matters;

the size and nature of potential exposures;

available defenses;

the progress of fact discovery;

the opinions of counsel and experts;

potential opportunities for settlement and the status of any settlement discussions;

as well as the potential for insurance coverage and indemnification, if available.

The Company monitors these factors and assumptions for new developments and re-assesses the likelihood that a loss will occur and the estimated range or amount of loss,

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

if those amounts can be reasonably determined.

The Company has established an accrual for those legal proceedings and regulatory matters for which a loss is both probable and the amount can be reasonably estimated.

On May 1, 2018 the Company agreed to a settlement structure with the North American Securities Administrators Association that related to the Company’s historical compliance with certain state “blue sky” laws and resulted in aggregate fines of approximately $ 26.4 million , all of which were covered by the Captive Insurance Subsidiary’s loss reserves.

As part of the settlement structure, the Company engaged independent third party consultants to conduct a historical review of securities transactions and an operational review of the Company’s systems for complying with blue sky securities registration requirements, each of which has been completed.

The Company also agreed to offer customers remediation in the form of reimbursement for any actual losses, plus interest.

As of the date of this annual report, customer remediation remains in process, although the cost is not expected to be material.

Third-Party Insurance

The Company maintains third-party insurance coverage for certain potential legal proceedings, including those involving certain client claims.

With respect to such client claims, the estimated losses on many of the pending matters are less than the applicable deductibles of the insurance policies.

Self-Insurance

The Company has self-insurance for certain potential liabilities through the Captive Insurance Subsidiary.

Liabilities associated with the risks that are retained by the Company are not discounted and are estimated by considering, in part, historical claims experience, severity factors, and other actuarial assumptions.

The estimated accruals for these potential liabilities could be significantly affected if future occurrences and claims differ from such assumptions and historical trends, so there are particular complexities and uncertainties involved when assessing the adequacy of loss reserves for potential liabilities that are self-insured.

As of December 31, 2019 and 2018 , these self-insurance liabilities are included in accounts payable and accrued liabilities in the consolidated statements of financial condition.

Self-insurance related charges are included in other expenses in the consolidated statements of income for the years ended December 31, 2019 , 2018 , and 2017 .

Other Commitments

As of December 31, 2019 , the Company had approximately $ 347.9 million of client margin loans that were collateralized with securities having a fair value of approximately $ 487.1 million that it can repledge, loan, or sell.

Of these securities, approximately $ 71.8 million were client-owned securities pledged to the Options Clearing Corporation as collateral to secure client obligations related to options positions.

As of December 31, 2019 , there were no restrictions that materially limited the Company’s ability to repledge, loan, or sell the remaining $ 415.3 million of client collateral.

Trading securities on the consolidated statements of financial condition includes $ 5.5 million and $ 4.7 million pledged to the Options Clearing Corporation at December 31, 2019 and 2018 , respectively, and $ 15.0 million and $ 14.9 million pledged to the National Securities Clearing Corporation at December 31, 2019 and December 31, 2018 , respectively.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Stockholders’ Equity

The payment, timing, and amount of any dividends are subject to approval by the Company’s board of directors (the “Board of Directors”) as well as certain limits under the Credit Agreement and indentures.

Cash dividends per share of common stock and total cash dividends paid on a quarterly basis were as follows (in millions, except per share data):

Dividend per Share

Total Cash Dividend

Dividend per Share

Total Cash Dividend

Dividend per Share

Total Cash Dividend

First quarter

Second quarter

Third quarter

Fourth quarter

Share Repurchases

The Company engages in share repurchase programs, which are approved by the Board of Directors, pursuant to which the Company may repurchase its issued and outstanding shares of common stock from time to time.

Repurchased shares are included in treasury stock on the consolidated statements of financial condition.

On November 13, 2018, the Board of Directors authorized an increase to the Company’s existing share repurchase program, enabling the Company to repurchase its issued and outstanding common stock from time to time.

As of December 31, 2019 , the Company had $ 499.8 million remaining under the existing share repurchase program.

Future share repurchases may be effected in open market or privately negotiated transactions, including transactions with affiliates, with the timing of purchases and the amount of stock purchased generally determined at the discretion of the Company within the constraints of the Credit Agreement, the indentures, and the Company’s general working capital needs.

The Company had the following activity under its approved share repurchase programs (dollars in millions, except per share data):

Total Number of Shares Purchased

Weighted-Average Price Paid Per Share

Total Cost (1)(2)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

____________________

Included in the total cost of shares purchased is a commission fee of $ 0.02 per share.

Total may not foot due to rounding.

Share-Based Compensation

Certain employees, advisors, institutions, officers, and directors of the Company participate in various long-term incentive plans, which provide for granting stock options, warrants, restricted stock awards, restricted stock units, deferred stock units and performance stock units.

In November 2010, the Company adopted the 2010 Omnibus Equity Incentive Plan (as amended and restated in May 2015, the “2010 Plan”), which provides for the granting of stock options, warrants, restricted stock awards, restricted stock units, deferred stock units, performance stock units, and other equity-based compensation.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Since its adoption, awards have been and are only made out of the 2010 Plan.

As of December 31, 2019 , there were 20,055,945 shares authorized for grant and 5,231,656 shares remaining available for future issuance.

Stock Options and Warrants

The following table presents the weighted-average assumptions used in the Black-Scholes valuation model by the Company in calculating the fair value of its employee and officer stock options that have been granted:

Years Ended December 31,

Expected life (in years)

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Fair value of options

The following table summarizes the Company’s stock option and warrant activity as of and for the year ended December 31, 2019 :

Exercise Price

(In thousands)

Outstanding — December 31, 2018

Forfeited and Expired

Outstanding — December 31, 2019

Exercisable — December 31, 2019

Exercisable and expected to vest — December 31, 2019

The following table summarizes information about outstanding stock options and warrants as of December 31, 2019 :

Range of Exercise Prices

$18.04 - $25.00

$25.01 - $35.00

$35.01 - $45.00

$45.01 - $65.00

$65.01 - $75.00

$75.01 - $80.00

The Company recognized share-based compensation related to the vesting of stock options awarded to employees and officers of $ 9.8 million , $ 8.1 million , and $ 7.2 million during the years ended December 31, 2019 , 2018 , and 2017 , respectively.

As of December 31, 2019 , total unrecognized compensation cost related to non-vested stock options granted to employees and officers was $ 7.9 million , which is expected to be recognized over a weighted-average period of 1.81 years.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Restricted Stock and Stock Units

The following summarizes the Company’s activity in its restricted stock awards and stock units, which include restricted stock units, deferred stock units, and performance stock units, for the year ended December 31, 2019 :

Restricted Stock Awards

Weighted-Average

Outstanding — December 31, 2018

Nonvested — December 31, 2019

Expected to vest — December 31, 2019

____________________

Includes 50,765 vested and undistributed deferred stock units.

The Company grants restricted stock awards and deferred stock units to its directors, restricted stock units to its employees and officers, and performance stock units to its officers.

Restricted stock awards and stock units must vest or are subject to forfeiture;

however, restricted stock awards are included in shares outstanding upon grant and have the same dividend and voting rights as the Company’s common stock.

The Company recognized $ 18.2 million , $ 13.8 million , and $ 11.5 million of share-based compensation related to the vesting of these restricted stock awards and stock units during the years ended December 31, 2019 , 2018 , and 2017 , respectively.

As of December 31, 2019 , total unrecognized compensation cost for restricted stock awards and stock units was $ 22.5 million , which is expected to be recognized over a weighted-average remaining period of 1.86 years.

The Company also grants restricted stock units to its advisors and to financial institutions.

The Company recognized share-based compensation of $ 3.0 million , $ 6.1 million and $ 7.3 million related to the vesting of these awards during the years ended December 31, 2019 , 2018 , and 2017 , respectively.

As of December 31, 2019 , total unrecognized compensation cost for restricted stock units granted to advisors and financial institutions was $ 4.4 million , which is expected to be recognized over a weighted-average remaining period of 2.08 years.

Earnings per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

The calculation of basic and diluted earnings per share for the years noted was as follows (in thousands, except per share data):

Years Ended December 31,

Basic weighted-average number of shares outstanding

Dilutive common share equivalents

Diluted weighted-average number of shares outstanding

Basic earnings per share

Diluted earnings per share

The computation of diluted earnings per share excludes stock options, warrants, and stock units that are anti-dilutive.

For the years ended December 31, 2019 , 2018 , and 2017 , stock options, warrants, and stock units

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

representing common share equivalents of 407,059 shares, 391,632 shares, and 1,909,288 shares, respectively, were anti-dilutive.

Employee and Advisor Benefit Plans

The Company participates in a 401(k) defined contribution plan sponsored by LPL Financial.

All employees meeting minimum age and length of service requirements are eligible to participate.

The Company has an employer matching program whereby employer contributions are made to the 401(k) plan, and employees are eligible for matching contributions after completing six months of service.

For eligible employees, the Company matches up to 75 % of the first 8 % of an employee’s designated deferral of their eligible compensation.

The Company’s total cost related to the 401(k) plan was $ 16.2 million , $ 13.1 million , and $ 10.5 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively, which is classified as compensation and benefits expense in the consolidated statements of income.

The Company established the 2012 Employee Stock Purchase Plan (the “ ESPP ” ) as a benefit to enable eligible employees to purchase common stock of LPLFH at a discount from the market price through payroll deductions, subject to limitations.

The ESPP provides for a 15 % discount on the market value of the stock at the lower of the grant date price (first day of the offering period) and the purchase date price (last day of the offering period).

The Company maintains a non-qualified deferred compensation plan for the purpose of attracting and retaining advisors who operate, for tax purposes, as independent contractors, by providing an opportunity for participating advisors to defer receipt of a portion of their gross commissions generated primarily from commissions earned on the sale of various products.

The deferred compensation plan has been fully funded to date by participant contributions.

Plan assets are invested in mutual funds, which are held by the Company in a Rabbi Trust.

The liability for benefits accrued under the non-qualified deferred compensation plan totaled $ 269.3 million at December 31, 2019 , which is included in accounts payable and accrued liabilities in the consolidated statements of financial condition.

The cash values of the related trust assets was $ 264.1 million at December 31, 2019 , which is measured at fair value and included in other assets in the consolidated statements of financial condition.

Certain employees of the Company participate in a non-qualified deferred compensation plan that permits participants to defer portions of their compensation and earn interest on the deferred amounts.

Plan assets are held by the Company in a Rabbi Trust and accounted for in the manner described above.

As of December 31, 2019 , the Company has recorded assets of $ 4.9 million and liabilities of $ 5.3 million , which are included in other assets and accounts payable and accrued liabilities, respectively, in the consolidated statements of financial condition.

Related Party Transactions

In the ordinary course of business, the Company has related party transactions with a beneficial owner of more than ten percent of the Company’s outstanding common stock.

Additionally, through its subsidiary LPL Financial, the Company provides services and charitable contributions to the LPL Financial Foundation, an organization that provides volunteer and financial support within the Company’s local communities.

During the years ended December 31, 2019 , 2018 , and 2017 , the Company recognized revenue for services provided to these related parties of $ 4.1 million , $ 3.5 million , and $ 3.1 million , respectively.

The Company incurred expenses for the services provided by these related parties of $ 3.2 million , $ 2.9 million , and $ 1.9 million , during the years ended December 31, 2019 , 2018 , and 2017 , respectively.

As of December 31, 2019 and 2018 , receivables and payables to related parties were not material.

Net Capital and Regulatory Requirements

The Company’s registered broker-dealer, LPL Financial, is subject to the SEC’s Net Capital Rule (Rule 15c3-1 under the Exchange Act), which requires the maintenance of minimum net capital.

The net capital rules also provide that the broker-dealer’s capital may not be withdrawn if resulting net capital would be less than minimum requirements.

Additionally, certain withdrawals require the approval of the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than minimum requirements.

Net capital and the related net capital requirement may fluctuate on a daily basis.

LPL Financial is a clearing broker-dealer and, as of December 31, 2019 , had net capital of $ 109.7 million with a minimum net capital requirement of $ 9.3 million .

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company’s subsidiary, PTC, also operates in a highly regulated industry and is subject to various regulatory capital requirements.

Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts to PTC’s operations.

As of December 31, 2019 and 2018 , LPL Financial and PTC met all capital adequacy requirements to which they were subject.

Financial Instruments with Off-Balance-Sheet Credit Risk and Concentrations of Credit Risk

LPL Financial’s client securities activities are transacted on either a cash or margin basis.

In margin transactions, LPL Financial extends credit to the advisor’s client, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the client’s account.

As clients write options contracts or sell securities short, LPL Financial may incur losses if the clients do not fulfill their obligations and the collateral in the clients’ accounts is not sufficient to fully cover losses that clients may incur from these strategies.

To control this risk, LPL Financial monitors margin levels daily and clients are required to deposit additional collateral, or reduce positions, when necessary.

LPL Financial is obligated to settle transactions with brokers and other financial institutions even if its advisors’ clients fail to meet their obligation to LPL Financial.

Clients are required to complete their transactions on the settlement date, generally two business days after the trade date.

If clients do not fulfill their contractual obligations, LPL Financial may incur losses.

In addition, the Company occasionally enters into certain types of contracts to fulfill its sale of when, as, and if issued securities.

When, as, and if issued securities have been authorized but are contingent upon the actual issuance of the security.

LPL Financial has established procedures to reduce this risk by generally requiring that clients deposit cash or securities into their account prior to placing an order.

LPL Financial may at times hold equity securities on both a long and short basis that are recorded on the consolidated statements of financial condition at market value.

While long inventory positions represent LPL Financial’s ownership of securities, short inventory positions represent obligations of LPL Financial to deliver specified securities at a contracted price, which may differ from market prices prevailing at the time of completion of the transaction.

Accordingly, both long and short inventory positions may result in losses or gains to LPL Financial as market values of securities fluctuate.

To mitigate the risk of losses, long and short positions are marked-to-market daily and are continuously monitored by LPL Financial.

Selected Quarterly Financial Data (Unaudited)

(In thousands, except per share data)

Basic earnings per share

Diluted earnings per share

Dividends declared per share

(In thousands, except per share data)

Basic earnings per share

Diluted earnings per share

Dividends declared per share

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Subsequent Event

On January 27, 2020 , the Board of Directors declared a cash dividend of $ 0.25 per share on the Company’s outstanding common stock to be paid on March 31, 2020 to all stockholders of record on March 18, 2020 .

Schifter Director February 23, 2021

Thomas Director February 23, 2021

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures