What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-02-23 · 646 added, 526 removed, 767 unchanged (60% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019

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Note 1 - Organization and Description of the Company

Note 2 - Summary of Significant Accounting Practices

Note 3 - Revenues

Note 2 - Summary of Significant Accounting Policies

Note 3 - Revenue

Note 4 - Acquisitions

Note 5 - Fair Value Measurements

Note 6 - Held-to-Maturity Securities

Note 7 - Receivables and Payables

Note 8 - Fixed Assets

Note 9 - Goodwill and Other Intangible Assets

Note 10 - Accounts Payable and Accrued Liabilities

Note 11 - Long-term and Other Borrowings

Note 6 - Investment Securities

Note 7 - Receivables from and Payables to Br okers, Dealers and Clearing O rganizations

Note 8 - Property and E quipment , Net

Note 9 - Goodwill and Other Intangible s , Net

Note 10 - Other Assets and Other Liabilities

Note 1 1 - C orporate Debt and Other Borrowings , Net

Note 1 2 - Leases

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Note 1 5 - Stockholders’ Equity

Note 16 - Share-based Compensation

Note 1 6 - Share-based Compensation , E mployee Incentives and Ben efit Plans

Note 1 7 - Earnings per Share

Note 18 - Employee and Advisor Benefit Plans

Note 19 - Related Party Transactions

Note 1 8 - Net Capital and Regulatory Requirements

Note 21 - Financial Instruments with Off-Balance-Sheet Credit Risk and Concentration of Credit Risk

Note 22 - Subsequent Event

Note 19 - Financial Instruments with Off-Balance-Sheet Credit Risk and Concentration s of Credit Risk

Note 2 0 - Subsequent Event s

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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

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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.

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.

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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 tested the design and 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

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• We tested the mathematical accuracy of the accrual

Acquisition of Waddell & Reed Financial, Inc.

— Refer to Notes 4 and 9 to the financial statements

Critical Audit Matter Description

On April 30, 2021, the Company acquired the wealth management business of Waddell & Reed Financial, Inc.

for $300 million.

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values, including intangible assets of $122.7 million, comprised primarily of advisor relationships.

Management used the income approach to estimate the fair value of the advisor relationship intangible assets, which included using the multi-period excess earnings method.

The fair value determination of the advisor relationship intangible assets required management to make significant estimates and assumptions related to future net cash flows and the selection of the discount rate.

Given the fair value determination of advisor relationship intangible assets requires management to make significant estimates and assumptions related to the forecasts of future net cash flows and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future net cash flows and the selection of the discount rate for the advisor relationship intangible assets included the following, among others:

• We tested the design and effectiveness of internal controls over the valuation of the advisory relationship intangible assets, including management’s controls over forecasts of future net cash flows and selection of the discount rate and the valuation methodology used

• We assessed the knowledge, skill, ability, and objectivity of management’s valuation specialist and evaluated the work performed

• When assessing the reasonableness of assumptions related to future net cash flows for advisor relationship intangible assets, we evaluated whether the assumptions used were reasonable considering the past performance of the acquired company, the Company’s strategic plan going forward, and previous acquisitions by the Company

• With the assistance of our fair value specialists, we tested:

▪ the reasonableness of the income approach valuation methodology by assessing management’s application of the multi-period excess earnings method

▪ the reasonableness of the discount rate by developing a range of independent estimates and comparing those to the discount rate selected by management

▪ the mathematical accuracy of the valuation by performing a recalculation

• We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit

/s/ DELOITTE & TOUCHE LLP

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Asset-based 1,148,067 1,044,517 1,165,979

Transaction and fee 506,071 480,328 471,299

Interest income, net of interest expense 29,412 46,508 40,210

Service and fee 411,761 357,722 357,844

Transaction 156,336 148,349 122,484

Interest income 28,577 29,412 46,508

Other 71,976 57,561 56,765

Total net revenues

5,871,640 5,624,856 5,188,400

Total revenue 7,720,830 5,871,640 5,624,856

Advisory and commission 5,180,090 3,697,147 3,388,186

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Promotional 302,285 208,250 205,537

Depreciation and amortization 109,732 95,779 87,656

Amortization of intangible assets 67,358 65,334 60,252

Occupancy and equipment 185,531 166,389 136,163

Professional services 57,067 73,887 85,651

Depreciation and amortization 151,428 109,732 95,779

Interest expense on borrowings 104,414 105,765 130,001

Brokerage, clearing and exchange 86,023 71,185 64,445

Amortization of other intangibles 79,260 67,358 65,334

Professional services 73,231 57,067 73,887

Communications and data processing 60,296 52,399 49,859

Other 101,018 114,546 119,278

Total operating expenses

5,139,802 4,749,864 4,470,740

Non-operating interest expense and other 105,765 130,001 125,023

Loss on extinguishment of debt 24,400 — 3,156

Other 131,540 101,018 114,546

Total expense 7,119,501 5,245,567 4,883,021

INCOME BEFORE PROVISION FOR INCOME TAXES 601,329 626,073 741,835

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NET INCOME $ 459,866 $ 472,640 $ 559,880

EARNINGS PER SHARE (Note 17)

EARNINGS PER SHARE

Earnings per share, basic $ 5.75 $ 5.96 $ 6.78

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(In thousands, except share data)

Cash and cash equivalents $ 808,612 $ 590,209

Cash segregated under federal and other regulations 923,158 822,697

Cash and equivalents $ 495,246 $ 808,612

Cash segregated under federal or other regulations 1,496,463 923,158

Restricted cash 80,655 67,264

Receivables from:

405,106 433,986

Product sponsors, broker-dealers and clearing organizations 233,192 177,654

Receivables from clients, net 578,889 405,106

Receivables from brokers, dealers and clearing organizations 102,503 97,245

Advisor loans, net 963,869 587,553

547,372 441,743

306,640 298,790

Securities owned:

Trading — at fair value 29,252 46,447

Held-to-maturity — at amortized cost 13,235 11,806

Securities borrowed 30,130 17,684

Fixed assets, net

582,868 533,044

Operating lease assets 101,921 102,477

Other receivables, net 581,483 435,012

Investment securities 49,192 42,487

Property and equipment, net 658,841 582,868

Goodwill 1,642,443 1,513,866

Intangible assets, net

397,486 439,838

Deferred income taxes, net 24,112 —

Other intangibles, net 455,028 397,486

Other assets 886,988 735,505

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LIABILITIES AND STOCKHOLDERS’ EQUITY

Drafts payable $ 178,403 $ 218,636

Payables to clients 1,356,083 1,058,873

Payables to broker-dealers and clearing organizations 89,743 92,002

Client payables $ 1,712,224 $ 1,534,486

Payables to brokers, dealers and clearing organizations 170,119 89,743

Accrued advisory and commission expenses payable 222,379 187,040

Corporate debt and other borrowings, net 2,814,044 2,345,414

Accounts payable and accrued liabilities 384,025 309,159

Income taxes payable 28,145 20,129

Unearned revenue 95,328 82,842

Securities sold, but not yet purchased — at fair value 206 176

Long-term and other borrowings, net

2,345,414 2,398,818

Operating lease liabilities 139,377 141,900

Finance lease liabilities 107,424 108,592

Deferred income taxes, net — 2,098

Other liabilities 1,018,276 815,466

Total liabilities 6,321,067 5,281,308

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Retained earnings 2,327,602 1,943,019

1,943,019 1,554,567

Total stockholders’ equity 1,670,533 1,314,854

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(In thousands)

Capital Accumulated Other

Comprehensive

Income (Loss) Retained

Capital Retained

Earnings Total

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BALANCE — December 31, 2018 124,910 $ 125 $ 1,634,337 39,821 $ ( 1,730,535 ) $ 1,070,146 $ 974,073

Net income, net of tax expense — 439,459 439,459

Cumulative effect of accounting change — — — — — 5,724 5,724

Net income — — — — — 559,880 559,880

Issuance of common stock to settle restricted stock units 366 — — 75 ( 5,863 ) — ( 5,863 )

Treasury stock purchases — — — 6,419 ( 500,370 ) — ( 500,370 )

Cash dividends on common stock ( 88,360 ) ( 88,360 )

Cash dividends on common stock - $ 1.00 per share

— — — — — ( 82,597 ) ( 82,597 )

Stock option exercises and other 1,218 1 36,772 ( 55 ) 1,975 1,414 40,162

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Cumulative effect of accounting change — — — — — ( 7,317 ) ( 7,317 )

Net income, net of tax expense — 559,880 559,880

Net income — — — — — 472,640 472,640

Issuance of common stock to settle restricted stock units 417 — — 134 ( 9,420 ) — ( 9,420 )

Treasury stock purchases — — — 1,810 ( 150,036 ) — ( 150,036 )

Cash dividends on common stock ( 82,597 ) ( 82,597 )

Cash dividends on common stock - $ 1.00 per share

— — — — — ( 79,097 ) ( 79,097 )

Stock option exercises and other 675 1 24,822 ( 89 ) 3,187 2,226 30,236

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BALANCE — December 31, 2020 127,586 $ 127 $ 1,762,770 48,115 $ ( 2,391,062 ) $ 1,943,019 $ 1,314,854

Cumulative effect of accounting change ( 7,317 ) ( 7,317 )

Net income, net of tax expense — 472,640 472,640

Net income — — — — — 459,866 459,866

Issuance of common stock to settle restricted stock units 406 — — 147 ( 20,230 ) — ( 20,230 )

Treasury stock purchases — — — 580 ( 90,011 ) — ( 90,011 )

Cash dividends on common stock ( 79,097 ) ( 79,097 )

Cash dividends on common stock - $ 1.00 per share

— — — — — ( 80,095 ) ( 80,095 )

Stock option exercises and other 766 2 34,457 ( 74 ) 2,703 4,812 41,974

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

Noncash items:

Depreciation and amortization 151,428 109,732 95,779

Amortization of intangible assets 67,358 65,334 60,252

Amortization of other intangibles 79,260 67,358 65,334

Amortization of debt issuance costs 5,733 5,384 4,672

Share-based compensation 44,175 33,975 32,864

Provision for bad debts 5,824 6,698 6,113

Provision for credit losses 9,168 5,824 6,698

Deferred income taxes 18,464 ( 23,684 ) ( 18,615 )

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Changes in operating assets and liabilities:

Receivables from clients 28,475 ( 20,602 ) ( 68,888 )

Receivables from product sponsors, broker-dealers and clearing organizations

( 55,538 ) ( 7,180 ) 29,414

Advisor loans ( 225,518 ) ( 235,499 ) ( 152,227 )

Receivables from others ( 11,090 ) ( 52,365 ) ( 20,894 )

Securities owned 16,072 ( 16,848 ) ( 13,741 )

Securities borrowed ( 12,446 ) ( 12,855 ) 7,660

Operating leases ( 1,967 ) ( 1,446 ) —

Receivables from clients, net ( 174,236 ) 28,475 ( 20,602 )

Receivables from brokers, dealers and clearing organizations ( 4,764 ) ( 57,372 ) ( 1,863 )

Advisor loans, net ( 526,677 ) ( 219,813 ) ( 246,465 )

Other receivables, net ( 140,021 ) ( 18,480 ) ( 49,185 )

Investment securities - trading ( 8,732 ) 16,072 ( 16,848 )

Other assets ( 136,182 ) ( 126,641 ) ( 93,627 )

Drafts payable ( 40,233 ) ( 6,398 ) 39,105

Payables to clients 297,210 107,927 ( 11,945 )

Payables to broker-dealers and clearing organizations ( 2,259 ) 15,822 21,918

Client payables 177,703 256,977 101,529

Payables to brokers, dealers and clearing organizations 80,376 ( 2,259 ) 15,822

Accrued advisory and commission expenses payable 29,771 12,710 8,462

Accounts payable and accrued liabilities 12,390 ( 6,585 ) 272

Income taxes receivable/payable 8,016 ( 12,861 ) 32,521

Unearned revenue 12,201 2,318 8,302

Securities sold, but not yet purchased 30 7 ( 1,013 )

Other liabilities 211,819 137,142 96,973

Operating lease assets ( 2,227 ) ( 1,967 ) ( 1,446 )

Net cash provided by operating activities 453,134 789,941 623,871

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Acquisitions, net of cash acquired ( 245,913 ) ( 30,556 ) ( 25,853 )

Purchase of securities classified as held-to-maturity ( 6,511 ) ( 3,745 ) ( 6,137 )

Proceeds from maturity of securities classified as held-to-maturity 5,100 5,000 5,000

Purchases of securities classified as held-to-maturity ( 1,741 ) ( 6,511 ) ( 3,745 )

Proceeds from maturities of securities classified as held-to-maturity 5,000 5,100 5,000

Net cash used in investing activities ( 458,641 ) ( 187,499 ) ( 180,987 )

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Repayment of senior secured term loans ( 10,700 ) ( 10,700 ) ( 411,250 )

Proceeds from senior secured term loans and senior notes — 400,000 —

Repayment of senior unsecured notes ( 900,000 ) — —

Proceeds from senior unsecured notes 1,300,000 — 400,000

Payment of debt issuance costs ( 15,929 ) — ( 17,615 )

Make-whole premium on redemption of senior unsecured notes ( 25,875 ) — —

Payment of contingent consideration ( 8,941 ) ( 10,000 ) —

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Principal payment of finance leases and obligations ( 1,356 ) ( 1,169 ) ( 692 )

Net cash (used in) financing activities ( 275,186 ) ( 533,225 ) ( 483,363 )

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 327,256 ( 90,341 ) ( 63,536 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of year 1,471,778 1,562,119 1,625,655

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of year $ 1,799,034 $ 1,471,778 $ 1,562,119

Net cash provided by (used in) financing activities 278,837 ( 275,186 ) ( 533,225 )

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS AND RESTRICTED CASH 273,330 327,256 ( 90,341 )

CASH AND EQUIVALENTS AND RESTRICTED CASH — Beginning of year 1,799,034 1,471,778 1,562,119

CASH AND EQUIVALENTS AND RESTRICTED CASH — End of year $ 2,072,364 $ 1,799,034 $ 1,471,778

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

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Income taxes paid $ 144,556 $ 169,237 $ 213,339

Cash paid for amounts included in the measurement of operating lease liabilities $ 22,355 $ 21,368 $ 19,117

Cash paid for amounts included in the measurement of finance lease liabilities $ 9,716 $ 9,592 $ 9,079

NONCASH DISCLOSURES:

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Lease assets obtained in exchange for operating lease liabilities $ 3,602 $ 7,968 $ 108,879

Fixed assets obtained in exchange for finance lease liabilities

$ — $ 1,453 $ —

The following table provides a reconciliation of cash, cash equivalents 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.

Property and equipment obtained in exchange for finance lease liabilities $ — $ — $ 1,453

2021 2020 2019

Cash and cash equivalents $ 808,612 $ 590,209 $ 511,096

Cash segregated under federal and other regulations 923,158 822,697 985,195

Cash and equivalents $ 495,246 $ 808,612 $ 590,209

Cash segregated under federal or other regulations 1,496,463 923,158 822,697

Restricted cash 80,655 67,264 58,872

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

$ 1,799,034 $ 1,471,778 $ 1,562,119

Total cash and equivalents and restricted cash shown in the consolidated statements of cash flows $ 2,072,364 $ 1,799,034 $ 1,471,778

See notes to consolidated financial statements.

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( “ 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 ” ).

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 personalized financial advice and brokerage services to retail investors (their “ clients ” ).

The Company’s most significant, wholly owned subsidiaries are described below:

• 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 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;

(“LPLH” or “Parent”), a Massachusetts holding corporation, is an intermediate holding company and directly or indirectly owns 100 % of the issued and outstanding common stock of all of LPLFH’s indirect subsidiaries, including a captive insurance subsidiary (the “Captive Insurance Subsidiary”) that underwrites insurance for various legal and regulatory risks of the Company.

• LPL Financial LLC (“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.

Boston, Massachusetts;

and Austin, Texas, 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.

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and its subsidiaries provide solutions and consulting services to registered investment advisers (“RIAs”), 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.

• LPL Insurance Associates, Inc.

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

• AW Subsidiary, Inc.

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AdvisoryWorld 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.

Blaze offers a trading and rebalancing platform to both the Company’s advisors and external clients.

Blaze provides an advisor-facing trading and portfolio rebalancing platform.

• PTC Holdings, Inc.

(“PTCH”) is a holding company for The Private Trust Company, N.A.

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

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 (“OCC”).

• LPL Employee Services, LLC is a holding company for Allen & Company of Florida, LLC (“Allen & Company”), an RIA.

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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.

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, goodwill and other intangibles, allowance for credit losses on receivables, 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.

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

Consolidated Financial Statement Presentation Changes

Certain financial statement line items in the consolidated statements of income and the consolidated statements of financial condition have been reclassified to more closely align with industry practice and the Company’s business, and to better serve financial statement users.

Prior period amounts have been reclassified to conform to the current presentation as follows:

• The consolidated statements of income have been reclassified as follows:

◦ The Company has disaggregated the activity previously reported in the Transaction and fee line item in Total revenue into its Service and fee and Transaction components;

◦ The Company has included Interest expense on borrowings and Loss on extinguishment of debt in Total expense.

Previously, these amounts were presented after Total operating expense.

• The consolidated statements of financial condition have been reclassified as follows:

◦ Receivables from product sponsors have been reclassified to Other receivables, net.

These were previously included in Receivables from product sponsors, broker-dealers and clearing organizations;

◦ Advisor accounts receivable and institutional loans, net of related allowance have been reclassified to Advisor loans, net.

These were previously included in Other receivables, net and Other assets, respectively;

◦ Trading and held-to-maturity securities, which were previously reported as discrete line items, were reclassified to Investment securities;

◦ Certain other financial statement line items which were previously reported as discrete line items, including securities borrowed, operating lease assets, and deferred income taxes, net have been reclassified to Other assets;

◦ Drafts payable and Payables to clients, which were previously reported as discrete line items, were reclassified to Client payables;

◦ Liabilities related to the Company’s deferred compensation plans have been reclassified to Other liabilities.

These were previously included in Accounts payable and accrued liabilities;

◦ Certain other financial statement line items which were previously reported as discrete line items, including income taxes payable, unearned revenue, securities sold, but not yet purchased, and lease liabilities have been reclassified to Other liabilities.

These changes did not impact total assets, total liabilities, or total net income;

however, the consolidated statements of cash flows have been updated to conform to the current presentation on the statements of financial condition.

In addition, during the year ended December 31, 2021, the Company concluded that it is acting in a principal capacity for fractional shares held in customer brokerage accounts resulting from the dividend reinvestment program (“DRIP”) that the Company offers.

The Company concluded that it should account for these shares as a secured borrowing with underlying financial assets pledged as collateral, and as a result has corrected its consolidated statement of financial condition to include an asset and related liability of $ 72.6 million at December 31, 2020 to reflect the investments in fractional shares and the corresponding repurchase obligation in other assets and other liabilities, respectively.

The Company also corrected its consolidated statements of cash flows for the years ended December 31, 2020 and December 31, 2019, respectively, to reflect the changes in the consolidated statements of financial condition related to this activity in prior years.

As a result, the Company corrected the consolidated statements of cash flows to reflect an increase in the other assets line items and an offsetting increase in the other liabilities line items of $ 13.8 million and $ 20.6 million for the years ended December 31, 2020 and December 31, 2019, respectively.

This adjustment did not have an impact on earnings, earnings per share, retained earnings, or net cash provided by operating activities in prior periods.

The Company has evaluated the impact of the error on previously issued consolidated financial statements and determined, based on consideration of quantitative and qualitative factors, that the impact of the error is immaterial.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Consolidation

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

Intercompany transactions and balances have been eliminated.

Related Party Transactions

In the ordinary course of business, the Company enters into related party transactions with beneficial owners of more than five 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, a tax-exempt charitable organization that provides volunteer and financial support within the Company’s local communities.

The Company recognized revenue for services provided to these related parties of $ 6.1 million, $ 4.8 million and $ 4.1 million during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company incurred expense for services provided by these related parties of $ 2.2 million, $ 3.8 million and $ 3.2 million during the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, receivables from and payables to related parties were not material.

Reportable Segment

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Revenue Recognition

Revenues are recognized when control of the promised service 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 - Revenues .

Revenue is recognized when control of the promised service 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 - Revenue .

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.

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.

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.

Certain employees, officers, directors, advisors and financial institutions participate in the Company’s 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.

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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.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company 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.

As a result, changes in the forfeiture assumptions do not impact the total amount of expense ultimately recognized over the service period.

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

See Note 16 - Share-Based Compensation, Employee Incentives and Benefit Plans , 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 stockholders by the basic weighted-average number of shares of common stock outstanding during the period.

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 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 needs to estimate current tax obligations and to

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Notes to Consolidated Financial Statements

assess temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

The Company needs to estimate current tax obligations and to assess temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

These temporary differences result in deferred tax assets and liabilities.

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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.

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

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.

Income tax credits are accounted for using the flow-through method as a reduction of income tax expense in the period they are generated.

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;

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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 and 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.

The Company’s cash and 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.

Cash Segregated Under Federal or Other Regulations

The Company’s broker-dealer 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.

At December 31, 2021, this line item included approximately $ 100,000 of cash 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

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

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Notes to Consolidated Financial Statements

Receivables from Clients, Net and Client Payables

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.

Client payables 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.

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

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.

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Notes to Consolidated Financial Statements

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

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

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

The following table reflects a roll-forward of the allowance for credit losses on receivables from clients (in thousands):

2021 2020 2019

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Impact of ASU 2016-13 adoption — — —

Provision for bad debts 432 130 174

Provision for credit losses 424 432 130

Charge-offs, net of recoveries 43 ( 27 ) ( 655 )

Ending balance — December 31 $ 987 $ 520 $ 115

Advisor Loans

Advisor Loans, Net

Advisor loans, net includes loans made to advisors and financial institutions and other advisor fee receivables.

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

The decision to extend credit to an advisor is generally based on the advisor’s credit history and their ability to generate future revenues.

The decision to extend credit to an advisor is generally based on the advisor’s credit history and their ability to generate future revenue.

Loans made in connection with recruiting can be either repayable or forgivable over terms generally up to ten years provided that the advisor remains licensed through LPL Financial.

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If an advisor terminates their arrangement with the Company prior to the loan maturity date, the remaining balance becomes repayable immediately.

An allowance for uncollectible amounts is recorded at the inception of repayable loans and upon advisor termination for forgivable loans using estimates and assumptions based on historical lifetime loss experience and expectations of future loss rates based on current facts.

Advisor repayable loans totaled $ 128.2 million and advisor forgivable loans that have become repayable upon advisor termination totaled $ 3.0 million as of December 31, 2020.

Included in the table below is a $ 1.2 million allowance for advisor forgivable loans that have become repayable.

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

An allowance for credit losses is recorded at the inception of a repayable loan or upon advisor termination for forgivable loans using estimates and assumptions based on historical lifetime loss experience and expectations of future loss rates based on current facts.

Advisor repayable loans, net totaled $ 191.2 million and $ 127.4 million as of December 31, 2021 and 2020.

The following table reflects a roll-forward of the allowance for credit losses on advisor loans (in thousands):

2021 2020 2019

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Impact of ASU 2016-13 adoption — 8,748 —

Provision for bad debts 1,694 1,500 2,206

Provision for credit losses 7,074 3,642 4,806

Charge-offs, net of recoveries ( 4,296 ) ( 17,054 ) ( 3,658 )

Ending balance — December 31 $ 11,575 $ 8,797 $ 13,461

Receivables from Others

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

An allowance for uncollectible amounts is recorded at inception using estimates and assumptions based on historical experience, current facts and other factors.

Other Receivables, Net

Other receivables, net primarily consist of receivables due from product sponsors and others, miscellaneous receivables and short-term secured loans to clients.

An allowance for credit losses is recorded at inception using estimates and assumptions based on historical experience, current facts and other factors.

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

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Notes to Consolidated Financial Statements

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

The following table reflects a roll-forward of the allowance for credit losses on other receivables (in thousands):

2021 2020 2019

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Impact of ASU 2016-13 adoption — 1,097 —

Provision for bad debts 3,559 3,671 3,733

Provision for credit losses 1,670 1,610 365

Charge-offs, net of recoveries ( 1,655 ) ( 2,444 ) ( 426 )

Ending balance — December 31 $ 1,083 $ 1,068 $ 805

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.

Investment Securities

Investment securities include trading and held-to-maturity securities.

The Company also has securities which have been sold, but not yet purchased, which are reflected in other liabilities on the consolidated statements of financial condition.

The Company generally classifies its investments in debt and equity instruments as trading securities, except for U.S.

government notes held by its wholly owned subsidiary PTC, which are held to satisfy minimum capital requirements of the OCC and classified as held-to-maturity securities because the Company has both the intent and the ability to hold these investments to maturity.

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

Investment classifications are subject to ongoing review and may change.

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

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

Both unrealized and realized gains and losses on trading securities are recognized in other revenues 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, 2020, the contract and collateral market values of borrowed securities were $ 30.1 million and $ 29.1 million, respectively.

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

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

Property and Equipment, Net

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

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The Company expenses software development costs 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

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Notes to Consolidated Financial Statements

capitalization are capitalized as fixed assets and subsequently amortized over the estimated useful life of the software, which is generally three years .

The costs of internally developed software that qualify for capitalization are included in property and equipment and subsequently amortized over the estimated useful life of the software, which is generally 5 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 .

Computers and software are depreciated over a period of 3 to 5 years.

Furniture and equipment are depreciated over a period of 3 to 7 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, 2020, 2019 or 2018.

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

No i mpairment occurred for the years ended December 31, 2021, 2020 or 2019.

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Notes to Consolidated Financial Statements

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

These assumptions include, but are not limited to, future expected cash flows and discount rates, and are based in part on historical experience, market data and information obtained from the management of the acquired companies.

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.

Goodwill is recognized for business combinations as of the acquisition date and 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.

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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.

Accounting for business combinations requires the Company’s management to make significant estimates and assumptions 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.

The Company also enters into asset acquisitions for single identifiable assets.

Accounting for asset acquisitions requires the Company’s management to make significant estimates and assumptions with respect to the useful life of the asset purchased.

Accounting for asset acquisitions requires the Company to make significant estimates and assumptions with respect to the useful life of the asset purchased.

These assumptions are based in part on historical experience and market data.

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;

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.

Goodwill and Other Intangibles, Net

Goodwill and other indefinite-lived intangibles 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 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.

An impairment loss will be recognized if a reporting unit’s carrying amount exceeds its fair value, to the extent that it does not exceed the total carrying amount of goodwill.

No impairment of goodwill or other indefinite-lived intangible assets was recognized for the years ended December 31, 2020, 2019 or 2018.

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

No impairment of goodwill or other indefinite-lived intangibles was recognized for the years ended December 31, 2021, 2020 or 2019.

Intangibles 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.

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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, 2020, 2019 or 2018.

See Note 9 - Goodwill and Other Intangible Assets , for additional information regarding the Company’s goodwill and other intangible assets.

There was no impairment of definite-lived intangibles recognized for the years ended December 31, 2021, 2020 or 2019.

See Note 9 - Goodwill and Other Intangibles, Net , for additional information regarding the Company’s goodwill and other intangibles.

Securities Borrowed

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

Securities borrowed, which are included in other assets in the consolidated statements of financial condition, are accounted for as collateralized borrowings and are recorded at the contract value, which represents the amount of cash provided for securities borrowed transactions (generally in excess of market values).

As of December 31, 2021, the contract and collateral market values of borrowed securities were $ 10.0 million and $ 9.7 million, respectively.

As of December 31, 2020, the contract and collateral market values of borrowed securities were $ 30.1 million and $ 29.1 million, respectively.

Fractional Shares

The Company acts in a principal capacity in respect of fractional shares resulting from the DRIP that is offered to clients by aggregating dividends received by clients, executing purchases of whole shares, and allocating the whole shares to clients on a fractional basis based on the dividend amounts that are reinvested.

Shares remaining after

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Notes to Consolidated Financial Statements

this process and fractional shares purchased by the Company in client liquidations are included in the Company’s inventory and reflected as investment securities on the Company’s consolidated statements of financial condition.

Fractional shares that have been allocated to clients do not meet the criteria for sale accounting in ASC 860, Transfers and Servicing , and are accounted for as a secured borrowing (repurchase obligation related to shares held by clients) with a corresponding investment in fractional shares.

These are reflected in other assets and other liabilities, respectively, on the Company’s consolidated statements of financial condition.

The Company has elected the fair value option to measure these financial assets and the corresponding repurchase obligation and determines fair value based on quoted prices in active markets.

Debt Issuance Costs

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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.

See Note 5 - Fair Value Measurements , for additional information regarding the Company’s fair value measurements.

As of December 31, 2020, the carrying amount and fair value of the Company’s indebtedness was approximately $ 2,359.3 million and $ 2,402.4 million, respectively.

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

Costs incurred while obtaining the revolving credit facility are included in other assets in the consolidated statements of financial condition 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.

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 and reflected in other assets and other liabilities, respectively, on the consolidated statements of financial condition.

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 - Leases .

Commitments and Contingencies

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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.

The Captive Insurance Subsidiary is funded by payments from the Company’s broker-dealer subsidiary and has cash reserves to cover losses, including $ 77.4 million in restricted cash at the Captive Insurance Subsidiary.

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 - Leases .

Recently Issued Accounting Pronouncements

Recently Issued or Adopted Accounting Pronouncements

There are no recently issued accounting pronouncements that would materially impact the Company’s consolidated financial statements and related disclosures.

Recently Adopted 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 using the modified retrospective method for all financial assets measured at amortized cost and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

There are no new accounting pronouncements adopted during the year ended December 31, 2021 that materially impacted the Company’s consolidated financial statements and related disclosures.

NOTE 3 - REVENUE

Revenue is 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.

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

Principal or agent designations depend primarily on the control an entity has

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Notes to Consolidated Financial Statements

Results for reporting periods beginning after January 1, 2020 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

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

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 had no 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.

NOTE 3 - REVENUES

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.

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.

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.

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

Advisory revenue represents fees charged to advisors’ clients’ advisory accounts on the Company’s corporate RIA advisory platform and is based on a percentage of the market value of the eligible assets in the clients’ advisory accounts.

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.

These revenues are recognized ratably over time to match the continued delivery of the performance obligations to the client over the life of the contract.

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

As such, the consideration for these revenues are 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 revenues on a gross basis, as the Company is responsible for satisfying the performance obligations and has control over determining the fees.

Commission revenues represent 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.

Advisory fees are primarily billed to clients in advance, on a quarterly basis, and are recognized as revenue ratably during the quarter.

The performance obligation for advisory fees is considered a series of distinct services that are substantially the same and are satisfied daily.

As the value of the eligible assets in an advisory account is susceptible to changes due to customer activity, this revenue includes variable consideration and is constrained until the date that the fees are determinable.

The majority of our client accounts are on a calendar quarter and are billed using values as of the last business day of the preceding quarter.

The value of the eligible assets in an advisory account on the billing date is adjusted for estimates of contributions and withdrawals to determine the amount billed, and accordingly, the revenue earned in the following three-month period.

Advisory revenue collected on the Company’s corporate advisory platform is proposed by the advisor and agreed to by the client and averaged 1.0 % of the underlying assets for the year ended December 31, 2021.

The Company also supports independent registered investment adviser firms through its corporate RIA platform, which allows advisors to engage the Company for technology, clearing and custody services, as well as access to the capabilities of the Company’s investment platforms.

The assets held under a RIA’s investment advisory accounts custodied with LPL Financial are included in total advisory assets and net new advisory assets.

The advisory revenue generated by a RIA is not included in the Company’s advisory revenue.

The Company charges separate fees to RIAs for technology, clearing, administrative, oversight and custody services, which may vary and are included in service and fee revenue in the consolidated statements of income.

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 revenues, as it is responsible for the execution of the clients’ purchases and sales, and maintains relationships with 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.

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Notes to Consolidated Financial Statements

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

Accordingly, total commission revenue is reported on a gross basis.

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

Years Ended December 31,

2021 2020 2019

Commission revenues

Commission revenue

Annuities $ 1,210,899 $ 976,357 $ 1,000,806

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Other 141,098 124,495 120,353

Total commission revenues

Total commission revenue

$ 2,378,683 $ 1,906,560 $ 1,892,407

The Company generates two types of commission revenues:

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

Sales-based commission revenues vary by investment product and are based on a percentage of an investment product’s current market value at the time of purchase.

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

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

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Notes to Consolidated Financial Statements

The Company generates two types of commission revenue:

(1) sales-based commissions that are recognized at the point of sale on the trade date and are based on a percentage of an investment product’s current market value at the time of purchase and (2) trailing commissions that are recognized over time as earned and are generally based on the market value of investment holdings in trail-eligible assets.

Sales-based commission revenue, which occurs when clients trade securities or purchase various types of investment products, primarily represents gross commissions generated by the Company’s advisors and can vary from period to period based on the overall economic environment, number of trading days in the reporting period and investment activity of the Company’s advisors’ clients.

The Company earns trailing commission revenue primarily on mutual funds and variable annuities held by clients of the Company’s advisors.

Trailing commission revenue is recognized over the time the client owns the investment or holds the contract and is generally earned based on a fixed rate applied.

The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and the client's investment hold period.

The revenue will not be recognized until it is probable that a significant reversal will not occur.

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

Years Ended December 31,

2021 2020 2019

Commission revenues

Commission revenue

$ 425,164 $ 327,412 $ 380,317

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98,924 81,882 74,003

Total sales-based revenues

Total sales-based revenue

$ 974,055 $ 770,764 $ 782,852

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42,174 42,613 46,350

Total trailing revenues

Total trailing revenue

$ 1,404,628 $ 1,135,796 $ 1,109,555

Total commission revenues

Total commission revenue

$ 2,378,683 $ 1,906,560 $ 1,892,407

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

Client Cash Revenues

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

Asset-based revenue consists of fees from the Company’s client cash programs, fees from our sponsorship programs with financial product manufacturers, and fees from omnibus processing and networking services (collectively referred to as “recordkeeping”).

Client Cash Revenue

Client cash revenue is earned daily and is generated based on advisors’ clients’ cash balances in insured bank sweep accounts and money market programs based on a rate applied, as a percentage, to the deposits placed.

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

These fees are paid and recognized over time.

These fees are earned and recognized over time on a net basis as the Company acts as an agent in these arrangements.

The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day.

LPL FINANCIAL HOLDINGS INC.

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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 advisors’ clients’ accounts is susceptible to unpredictable market changes, these revenues include variable consideration and are constrained until the date that the fees are determinable.

The Company receives fees from certain financial product manufacturers in connection with sponsorship programs that support the Company’s marketing and sales force education and training efforts.

As the value of product sponsor assets held in advisors’ 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 revenues from fees it collects for providing recordkeeping, account maintenance, reporting and other related services to product sponsors.

This includes revenues 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 revenues also include 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 revenues.

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 revenues at a disaggregated level (in thousands):

The Company generates revenue from fees it collects for 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 product sponsors or their 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 also includes revenue from networking recordkeeping services.

Networking revenue 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.

Recordkeeping revenue is 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, this revenue includes variable consideration and is constrained until the date that the fees are determinable.

The following table sets forth asset-based revenue disaggregated by product category (in thousands):

Years Ended December 31,

2021 2020 2019

Asset-based revenues

Asset-based revenue

$ 360,847 $ 481,388 $ 652,793

3 unchanged sentences

401,429 290,194 261,287

Total asset-based revenues $ 1,044,517 $ 1,165,979 $ 972,515

Transaction and Fee

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

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

Fee revenues 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 the Company collects a fee for attendance.

Fee revenues are recognized when the Company satisfies its performance obligations.

Total asset-based revenue $ 1,148,067 $ 1,044,517 $ 1,165,979

Service and Fee

Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing, Business Solutions, IRA custodian, and other client account fees.

The Company charges separate fees to RIAs for technology, clearing, administrative, oversight and custody services, which may vary.

The Company also hosts certain advisor conferences that serve as training, education, sales and marketing events for which the Company collects a fee from sponsors.

Service and 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.

Performance obligations for service and fee revenue recognized over time are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term.

The Company is the principal and recognizes service and fee revenues 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.

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

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

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

Years Ended December 31,

2021 2020 2019

Transaction and fee revenues

Service and fee revenue

Point-in-time (1)

2 unchanged sentences

301,302 272,271 262,437

Total transaction and fee revenues $ 506,071 $ 480,328 $ 471,299

Total service and fee revenue $ 411,761 $ 357,722 $ 357,844

____________________

(1) Transaction and fee revenues recognized point-in-time include revenues such as transaction fees, IRA termination fees and technology fees.

(2) Transaction and fee revenues recognized over time include revenues such as error and omission insurance fees, IRA custodian fees and technology fees.

The Company is the principal and recognizes transaction and fee revenues 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, net of interest expense.

Interest expense from operations for the years ended December 31, 2020, 2019 and 2018 was not material.

Other revenues primarily include 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.

(1) Service and fee revenue recognized at a point-in-time includes revenue such as confirmation fees, IRA termination fees, and conference fees.

(2) Service and fee revenue recognized over time includes revenue such as error and omission insurance fees, Business Solutions subscription fees, IRA custodian fees, and technology fees.

Transaction revenue includes transaction charges generated by advisory and brokerage accounts from mutual funds, ETF, and fixed income products and is primarily recognized at a point-in-time.

Point-in-time transaction revenue includes revenue from clearing and transaction charges and is recognized on a trade-date basis as the performance obligation is satisfied when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to/from the customer.

The Company is the principal and recognizes transaction 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

The Company earns interest income from client margin loans, advisor loans, cash segregated under federal or other regulations and cash equivalents.

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, and other miscellaneous revenue, which is not generated from contracts with customers.

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, 2020 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by $ 82.8 million of revenues recognized that were included in the unearned revenue balance as of December 31, 2019.

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

The increase in the unearned revenue balance for the year ended December 31, 2021 compared to 2020 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by $ 94.3 million of revenue recognized that was included in the unearned revenue balance as of December 31, 2020.

The Company receives cash in advance for advisory services to be performed and conferences to be held in future periods.

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.

NOTE 4 - ACQUISITIONS

On December 2, 2020 , the Company entered into an agreement with Macquarie Management Holdings, Inc.(“Macquarie”) to acquire the wealth management business of Waddell & Reed Financial, Inc.

(“Waddell & Reed”) for $ 300.0 million upon completion of Macquarie’s acquisition of all of the issued and outstanding common shares of Waddell & Reed.

The transaction is expected to close in the middle of 2021, subject to satisfaction of closing conditions.

On October 26, 2020 , the Company acquired Blaze Portfolio Systems LLC, a technology company that provides an advisor-facing trading and portfolio rebalancing platform.

The Company paid $ 11.6 million at closing and agreed to a potential contingent payment of up to $ 4.0 million.

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

NOTE 4 - ACQUISITIONS

On April 30, 2021, the Company acquired the wealth management business of Waddell & Reed Financial, Inc.

for $ 300.0 million in order to expand its addressable markets and complement organic growth.

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

At December 31, 2021, the Company had provisionally allocated $ 128.6 million of the purchase price to goodwill, $ 122.7 million to definite-lived intangible assets, $ 62.3 million to cash acquired, and the remainder to other assets acquired and liabilities assumed as part of the acquisition.

The goodwill primarily includes the synergies expected to result from combining operations and onboarding advisors and assets to the Company’s platform and is deductible for tax purposes.

The intangible assets are comprised primarily of advisor relationships, which were valued using the income approach, which included using the multi-period excess earnings method, with a weighted average useful life of approximately 9 years.

The fair value determination of the advisor relationships required the Company to make significant estimates and assumptions related to future net cash flows and the selection of the discount rate.

See Note 9 - Goodwill and Other Intangibles, Net , for additional information.

On October 26, 2020 , the Company acquired Blaze Portfolio Systems LLC, a technology company that provides an advisor-facing trading and portfolio rebalancing platform.

The Company paid $ 11.6 million at closing and agreed to a potential contingent payment of up to $ 4.0 million.

On August 18, 2020 , the Company acquired business relationships with advisors from E.K.

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Riley”) and Lucia Securities, LLC (“Lucia”), two unrelated broker-dealers and RIAs, for a combined $ 18.4 million.

Both transactions have potential contingent payments.

Both transactions had potential contingent payments.

On August 1, 2019 , the Company acquired Allen & Company, and under the transaction structure Allen & Company advisors and staff became employees of the Company.

The Company paid approximately $ 24.9 million at closing and made an additional contingent payment of $ 10.0 million in February 2020.

On December 3, 2018 , the Company acquired AdvisoryWorld, a technology company that provides proposal generation, investment analytics and portfolio modeling capabilities in the wealth management industry, for $ 28.1 million.

The Company incurred $ 76.4 million of acquisition costs to setup, onboard and integrate the acquired entities during the year ended December 31, 2021.

NOTE 5 - FAIR VALUE MEASUREMENTS

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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, 2020 and 2019.

There have been no transfers of assets or liabilities between these fair value measurement classifications during the years ended December 31, 2021 or 2020.

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.

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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 equity and debt securities.

Trading Securities 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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

of its fee-based advisory platforms and temporary positions resulting from the processing of client transactions.

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

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(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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

valued using quoted prices for identical or similar securities and other inputs that are observable or can be corroborated by observable market data.

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.

Fractional Shares — The Company’s investment in fractional shares held by customers is reflected in other assets while the related purchase obligation for such shares is reflected in other liabilities.

The Company uses prices obtained from independent third-party pricing services to measure the fair value of its investment in fractional shares held by customers and the related repurchase obligation.

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.

At December 31, 2021 and 2020, the Company did not adjust prices received from the independent third-party pricing services.

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

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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, 2020 (in thousands):

Level 1 Level 2 Level 3 Total

The Company 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.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Recurring Fair Value Measurements

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

December 31, 2021 Level 1 Level 2 Level 3 Total

Cash equivalents $ 12,056 $ — $ — $ 12,056

Securities owned — trading:

Investment securities - trading:

Money market funds 123 — — 123

2 unchanged sentences

treasury obligations 19,599 — — 19,599

Total securities owned — trading 29,252 — — 29,252

Total investment securities - trading 39,274 — — 39,274

Other assets:

Deferred compensation plan 499,548 — — 499,548

Other investments — 9,166 — 9,166

Fractional shares - investment 114,574 — — 114,574

Total other assets 614,122 9,166 — 623,288

Total assets at fair value $ 665,452 $ 9,166 $ — $ 674,618

Accounts payable and accrued liabilities $ — $ — $ 3,530 $ 3,530

Other liabilities:

Securities sold, but not yet purchased:

2 unchanged sentences

Total securities sold, but not yet purchased 467 105 — 572

Accounts payable and accrued liabilities — — 3,228 3,228

Fractional shares - repurchase obligation 114,574 — — 114,574

Total other liabilities 115,041 105 — 115,146

Total liabilities at fair value $ 115,041 $ 105 $ 3,530 $ 118,676

2 unchanged sentences

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, 2019 (in thousands):

Level 1 Level 2 Level 3 Total

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

December 31, 2020 Level 1 Level 2 Level 3 Total

Cash equivalents $ 6,205 $ — $ — $ 6,205

Securities owned — trading:

Investment securities - trading:

Money market funds 125 — — 125

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Equity securities 492 — — 492

Debt securities — 151 — 151

treasury obligations

19,498 — — 19,498

Total securities owned — trading 46,296 151 — 46,447

Total investment securities — trading 29,252 — — 29,252

Other assets:

Deferred compensation plan 371,202 — — 371,202

Other investments — 8,953 — 8,953

Fractional shares - investment 72,591 — — 72,591

Total other assets 443,793 8,953 — 452,746

Total assets at fair value $ 479,250 $ 8,953 $ — $ 488,203

Accounts payable and accrued liabilities $ — $ — $ 3,228 $ 3,228

Other liabilities:

Securities sold, but not yet purchased:

2 unchanged sentences

Total securities sold, but not yet purchased 203 3 — 206

Accounts payable and accrued liabilities — — 10,000 10,000

Fractional shares - repurchase obligation 72,591 — — 72,591

Total other liabilities 72,794 3 — 72,797

Total liabilities at fair value $ 72,794 $ 3 $ 3,228 $ 76,025

NOTE 6 - HELD-TO-MATURITY SECURITIES

The Company holds 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 and fair value of held-to-maturity securities were as follows (in thousands):

Amortized cost $ 13,235 $ 11,806

Gross unrealized gain 159 83

Fair value $ 13,394 $ 11,889

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Fair Value of Financial Instruments Not Measured at Fair Value

The following tables summarize the carrying values, fair values and fair value hierarchy level classification of financial instruments that are not measured at fair value (in thousands):

December 31, 2021 Carrying Value Level 1 Level 2 Level 3 Total Fair Value

Cash and equivalents $ 483,190 $ 483,190 $ — $ — $ 483,190

Cash segregated under federal or other regulations 1,496,463 1,496,463 — — 1,496,463

Restricted cash 80,655 80,655 — — 80,655

Receivables from clients, net 578,889 — 578,889 — 578,889

Receivables from brokers, dealers and clearing organizations 102,503 — 102,503 — 102,503

Advisor repayable loans, net (1)

191,242 — — 176,864 176,864

Other receivables, net 581,483 — 581,483 — 581,483

Investment securities - held-to-maturity securities 9,918 — 9,915 — 9,915

Other assets:

Securities borrowed 9,958 — 9,958 — 9,958

Other investments (2)

4,595 — 4,595 — 4,595

Total other assets 14,553 — 14,553 — 14,553

Client payables $ 1,712,224 $ — $ 1,712,224 $ — $ 1,712,224

Payables to brokers, dealers and clearing organizations 170,119 — 170,119 — 170,119

Corporate debt and other borrowings, net 2,814,044 — 2,885,536 — 2,885,536

____________________

(1) Includes repayable loans and forgivable loans which have converted to repayable upon advisor termination.

(2) Other investments include DTC common shares and Federal Reserve stock.

December 31, 2020 Carrying Value Level 1 Level 2 Level 3 Total Fair Value

Cash and equivalents $ 802,407 $ 802,407 $ — $ — $ 802,407

Cash segregated under federal or other regulations 923,158 923,158 — — 923,158

Restricted cash 67,264 67,264 — — 67,264

Receivables from clients, net of allowance 405,106 — 405,106 — 405,106

Receivables from brokers, dealers and clearing organizations 97,245 — 97,245 — 97,245

Advisor repayable loans, net (1)

127,432 — — 115,898 115,898

Other receivables, net 435,012 — 435,012 — 435,012

Investment securities - held-to-maturity securities 13,235 — 13,394 — 13,394

Other assets:

Securities borrowed 30,130 — 30,130 — 30,130

Other investments (2)

5,799 — 5,799 — 5,799

Total other assets 35,929 — 35,929 — 35,929

Client payables $ 1,534,486 $ — $ 1,534,486 $ — $ 1,534,486

Payables to brokers, dealers and clearing organizations 89,743 — 89,743 — 89,743

Corporate debt and other borrowings, net 2,345,414 — 2,402,441 — 2,402,441

____________________

(1) Includes repayable loans and forgivable loans which have converted to repayable upon advisor termination.

(2) Other investments include DTC common shares and Federal Reserve stock.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 6 - INVESTMENT SECURITIES

The Company’s investment securities include debt and equity securities that the Company has classified as trading securities, which are carried at fair value, as well as investments in U.S.

government notes, which are held by The Private Trust Company, N.A.

to satisfy minimum capital requirements of the OCC.

These securities are recorded at amortized cost and classified as held-to-maturity as the Company has both the intent and ability to hold these investments to maturity.

The following table summarizes investment securities (in thousands):

Trading securities - at fair value:

Money market funds $ 123 $ 125

Mutual funds 19,112 9,137

Equity securities 440 492

treasury obligations 19,599 19,498

Total trading securities $ 39,274 $ 29,252

Held-to-maturity securities - at amortized cost:

government notes $ 9,918 $ 13,235

Total held-to-maturity securities $ 9,918 $ 13,235

Total investment securities $ 49,192 $ 42,487

At December 31, 2021, the held-to-maturity securities were scheduled to mature as follows (in thousands):

Within one year After one but within five years After five but within ten years Total

Within one year After one but within five years After five but within ten years After ten years Total

government notes — at amortized cost $ 5,013 $ 4,905 $ — $ — $ 9,918

government notes — at fair value $ 5,034 $ 4,881 $ — $ — $ 9,915

The Company realized gains of $ 2.0 million, $ 1.2 million and $ 54.6 million and losses of $ 1.0 million, $ 2.4 million and $ 54.6 million on trading securities sold during the years ended December 31, 2021, 2020 and 2019, respectively.

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

NOTE 7 - 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 $ 135,991 $ 138,258

NOTE 7 - RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS

Receivables from and payables to brokers, dealers, and clearing organizations were as follows (in thousands):

Receivables from clearing organizations 80,548 89,838

Receivables from broker-dealers 2,550 1,020

Receivables from brokers and dealers 4,977 2,550

Securities failed-to-deliver 16,978 4,857

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Payables to clearing organizations $ 20,112 $ 19,117

Payables to broker-dealers 50,528 58,130

Payables to brokers and dealers 78,080 50,528

Securities failed-to-receive 71,927 20,098

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$ 170,119 $ 89,743

NOTE 8 - FIXED ASSETS

The components of fixed assets were as follows at December 31, 2020 (in thousands):

Value Accumulated

Depreciation and Amortization Net

NOTE 8 - PROPERTY AND EQUIPMENT, NET

The components of property and equipment, net were as follows at December 31, 2021 (in thousands):

Gross Carrying Value Accumulated Depreciation and Amortization Net Carrying Value

Internally developed software $ 716,179 $ ( 342,408 ) $ 373,771

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68,318 — 68,318

Total fixed assets

$ 1,072,865 $ ( 489,997 ) $ 582,868

Total property and equipment, net $ 1,283,165 $ ( 624,324 ) $ 658,841

____________________

(1) Construction in progress includes internal software in development of $ 37.7 million at December 31, 2021.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Value Accumulated

Depreciation and Amortization Net

The components of property and equipment, net were as follows at December 31, 2020 (in thousands):

Gross Carrying Value Accumulated Depreciation and Amortization Net Carrying Value

Internally developed software $ 418,018 $ ( 241,390 ) $ 176,628

6 unchanged sentences

174,974 — 174,974

Total fixed assets

$ 921,399 $ ( 388,355 ) $ 533,044

Total property and equipment, net $ 1,072,865 $ ( 489,997 ) $ 582,868

____________________

(1) Construction in progress includes internal software in development of $ 161.3 million at December 31, 2020.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Depreciation and amortization was $ 151.4 million, $ 109.7 million and $ 95.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS

For the year ended December 31, 2020, the Company recorded $ 10.2 million in goodwill in connection with the acquisition of Blaze and $ 18.9 million in advisor relationships, $ 1.4 million in client relationships, and $ 3.5 million in technology in connection with the acquisitions of Blaze, E.K.

Riley and Lucia.

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

NOTE 9 - GOODWILL AND OTHER INTANGIBLES, NET

On April 30, 2021, the Company acquired the wealth management business of Waddell & Reed Financial, Inc.

for $ 300.0 million.

At December 31, 2021, the Company had provisionally allocated $ 128.6 million of the purchase price to goodwill, $ 122.7 million to definite-lived intangible assets, and the remainder to other assets acquired and liabilities assumed as part of the acquisition.

The intangible assets are comprised primarily of advisor relationships with a weighted average useful life of approximately 9 years.

See Note 4 - Acquisitions , for additional information.

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

Balance at December 31, 2019 $ 1,503,648

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Balance at December 31, 2021 $ 1,642,443

The components of intangible assets were as follows at December 31, 2020 (dollars in thousands):

The components of other intangibles, net were as follows at December 31, 2021 (thousands):

Weighted-Average Life

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Value Accumulated Amortization Net

Definite-lived intangible assets:

Definite-lived intangibles, net:

Advisor and financial institution relationships 5.9 $ 806,531 $ ( 476,000 ) $ 330,531

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Trade names 0.3 1,200 ( 1,160 ) 40

Total definite-lived intangible assets $ 969,678 $ ( 612,011 ) $ 357,667

Indefinite-lived intangible assets:

Total definite-lived intangible assets, net $ 1,106,480 $ ( 691,271 ) $ 415,209

Other indefinite-lived intangibles:

Trademark and trade name 39,819

Total intangible assets $ 397,486

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Total other intangibles, net $ 455,028

The components of other intangibles, net were as follows at December 31, 2020 (thousands):

Weighted-Average Life

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Value Accumulated Amortization Net

Definite-lived intangible assets:

Definite-lived intangibles, net:

Advisor and financial institution relationships 5.4 $ 670,542 $ ( 415,169 ) $ 255,373

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Trade names 1.3 1,200 ( 1,040 ) 160

Total definite-lived intangible assets $ 944,672 $ ( 544,653 ) $ 400,019

Indefinite-lived intangible assets:

Total definite-lived intangibles, net $ 969,678 $ ( 612,011 ) $ 357,667

Other indefinite-lived intangibles:

Trademark and trade name 39,819

Total intangible assets $ 439,838

Total amortization of intangible assets was $ 67.4 million, $ 65.3 million and $ 60.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Total other intangibles, net $ 397,486

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Total amortization of other intangibles was $ 79.3 million, $ 67.4 million and $ 65.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Future amortization is estimated as follows (in thousands):

1 unchanged sentence

Thereafter 70,530

NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

Advisor deferred compensation plan liability $ 372,395 $ 269,289

Accrued compensation 104,069 77,202

Accounts payable 60,984 68,436

Other accrued liabilities 144,106 143,042

Total accounts payable and accrued liabilities $ 681,554 $ 557,969

NOTE 10 - OTHER ASSETS AND OTHER LIABILITIES

The components of other assets and other liabilities were as follows (dollars in thousands):

Other assets:

Deferred compensation $ 499,548 $ 371,202

Fractional shares - investment (1)

114,574 72,591

Prepaid assets 115,018 100,448

Operating lease assets (2)

95,075 101,921

Debt issuance costs, net 7,303 6,052

Deferred income taxes, net (3)

Other 49,822 59,179

Total other assets $ 886,988 $ 735,505

Other liabilities:

Deferred compensation $ 499,245 $ 372,395

Unearned revenue (4)

160,926 95,328

Operating lease liabilities (2)

130,304 139,377

Fractional shares - repurchase obligation (1)

114,574 72,591

Finance lease liabilities (2)

106,067 107,424

Other 7,160 28,351

Total other liabilities $ 1,018,276 $ 815,466

_______________________________

(1) See Note 2 - Summary of Significant Accounting Policies for further information.

(2) See Note 12 - Leases for further information.

(3) See Note 13 - Income Taxes for further information.

(4) See Note 3 - Revenue for further information.

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

NOTE 11 - LONG-TERM AND OTHER BORROWINGS

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

NOTE 11 - CORPORATE DEBT AND OTHER BORROWINGS, NET

The Company’s outstanding corporate debt and other borrowings, net were as follows (in thousands):

December 31, 2021 December 31, 2020

Long-Term Borrowings

Corporate Debt

Balance Applicable

2 unchanged sentences

Margin Interest rate Maturity

Senior Secured Term Loan B (1)

Term Loan B (1)

$ 1,048,600 LIBOR+ 175 bps

1 unchanged sentence

1.90 % 11/12/2026

Senior Unsecured Notes (1)(2)

2025 Senior Notes (1)

— Fixed Rate — % 900,000 Fixed Rate 5.75 % 9/15/2025

Senior Unsecured Notes (1)(3)

2027 Senior Notes (1)

400,000 Fixed Rate 4.63 % 400,000 Fixed Rate 4.63 % 11/15/2027

Total long-term borrowings 2,359,300 2,370,000

2029 Senior Notes (1)

900,000 Fixed Rate 4.00 % — Fixed Rate — % 3/15/2029

2031 Senior Notes (1)

400,000 Fixed Rate 4.38 % — Fixed Rate — % 5/15/2031

Total Corporate Debt 2,748,600 2,359,300

Unamortized Premium — 7,083

Unamortized Debt Issuance Cost ( 24,556 ) ( 20,969 )

Net Carrying Value

$ 2,345,414 $ 2,353,818

Corporate debt, net $ 2,724,044 $ 2,345,414

Other Borrowings

3 unchanged sentences

— % 3/15/2026

Broker-Dealer Revolving Credit Facility — FFR+ 125 bps

— — FFR+ 125 bps

Total borrowings $ 2,345,414 $ 2,398,818

Unsecured, Uncommitted Lines of Credit 35,000 Broker Base Rate+ 75 bps

1.00 % — Broker Base Rate+ 75 bps

— % 9/30/2022

Total other borrowings $ 90,000 $ —

Corporate Debt and Other Borrowings, Net $ 2,814,044 $ 2,345,414

_______________________________

(1) No leverage or interest coverage maintenance covenants.

(2) The 2025 Notes were issued in two separate transactions:

$ 500.0 million in original notes were issued in March 2017 at par and $ 400.0 million in additional notes were issued in September 2017 and priced at 103.0 % of the aggregate principal amount.

(3) The 2027 Notes were issued in November 2019 at par.

(2) The alternate base rate (ABR) was the PRIME rate and reflects the interest rate incurred on the senior secured revolving credit facility on the outstanding balances as of December 31, 2021.

2019 Credit Agreement Amendment

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 to $ 750.0 million and extended the maturity dates applicable to its Term Loan B and its senior secured revolving credit facility.

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.

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

As of December 31, 2020, the Company was in compliance with such covenants.

The minimum calendar year payments and maturities of the corporate debt and other borrowings as of December 31, 2021 were as follows (in thousands):

2022 $ 45,700

2026 1,060,800

Thereafter 1,700,000

Total $ 2,838,600

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table presents amounts outstanding and available under the Company’s external lines of credit at December 31, 2021 (in millions):

Description Borrower Maturity Date Outstanding (1)

Senior secured, revolving credit facility LPL Holdings, Inc.

March 2026 $ 55 $ 945

Broker-dealer revolving credit facility LPL Financial LLC July 2024 $ — $ 300

Secured, uncommitted lines of credit LPL Financial LLC March 2022 $ — $ 75

Unsecured, uncommitted lines of credit LPL Financial LLC September 2022 $ 35 $ 40

Unsecured, uncommitted lines of credit LPL Financial LLC September 2022 $ — $ 50

Unsecured, uncommitted lines of credit LPL Financial LLC None $ — $ 75

Secured, uncommitted lines of credit LPL Financial LLC None $ — unspecified

(1) Outstanding balances were repaid in January 2022.

Issuance of 2031 Senior Notes

LPLH raised $ 400.0 million in aggregate principal amount of 4.625 % senior notes on November 12, 2019, which were issued at par (“2027 Notes”).

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.

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.

LPLH raised $ 400.0 million in aggregate principal amount of 4.375 % senior notes on May 18, 2021, which were issued at par (“2031 Senior Notes”).

The Company used the proceeds from the issuance to repay borrowings made under the senior secured revolving credit facility related to the acquisition of the wealth management business of Waddell & Reed Financial, Inc.

The 2031 Senior Notes are unsecured obligations, governed by an indenture, that will mature on May 15, 2031, and bear interest at the rate of 4.375 % per year, with interest payable semi-annually.

The Company may redeem all or part of the 2031 Senior Notes at any time prior to May 15, 2026 at 100 % of the principal amount redeemed plus any accrued and unpaid interest thereon and a “make-whole” premium (subject to a customary “equity claw” that permits the Company to redeem up to 40 % of the aggregate principal amount of the 2031 Senior Notes prior to May 15, 2024 with the proceeds of equity offerings at a redemption price equal to 104.375 %, plus accrued and unpaid interest).

Thereafter, the Company may redeem all or part of the 2031 Senior Notes at annually declining redemption premiums until May 15, 2029, 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.

In connection with the issuance of the 2031 Senior Notes, the Company incurred $ 3.8 million in costs, which were capitalized as debt issuance costs included in other assets in the consolidated statements of financial condition.

Issuance of 2029 Senior Notes

LPLH issued $ 500.0 million aggregate principal amount of 5.75 % senior notes on March 10, 2017 and $ 400.0 million aggregate principal amount of 5.75 % senior notes on September 21, 2017 (together, 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.

The Company may redeem all or part of the 2025 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.

LPLH raised $ 900.0 million in aggregate principal amount of 4.00 % senior notes on March 15, 2021, which were issued at par (“2029 Senior Notes”).

The Company used the proceeds from the issuance of the 2029 Senior Notes, along with existing corporate cash available, to redeem our existing 5.75% senior unsecured notes due in 2025.

In connection with this redemption, the Company recognized $ 24.4 million as a loss on extinguishment of debt on the consolidated statements of income.

The 2029 Senior Notes are unsecured obligations, governed by an indenture, that will mature on March 15, 2029, and bear interest at the rate of 4.00 % per year, with interest payable semi-annually.

The Company may redeem all or part of the 2029 Senior Notes at any time prior to March 15, 2024 at 100 % of the principal amount redeemed plus any accrued and unpaid interest thereon and a “make-whole” premium (subject to a customary “equity claw” that permits the Company to redeem up to 40 % of the aggregate principal amount of the 2029 Senior Notes prior to March 15, 2024 with the proceeds of equity offerings at a redemption price equal to 104 %, plus accrued and unpaid interest).

Thereafter, the Company may redeem all or part of the 2029 Senior Notes at annually declining redemption premiums until March 15, 2026, 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.

In connection with the issuance of the 2029 Senior Notes, the Company incurred $ 9.0 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition.

Credit Agreement

On March 15, 2021, LPLFH and LPLH entered into a fifth amendment agreement (the “Amendment”) to the Company’s amended and restated credit agreement (“Credit Agreement”), which, among other things, increased the size of its senior secured revolving credit facility to $ 1.0 billion and extended its maturity date.

In connection with the execution of the Amendment, the Company incurred $ 3.2 million in costs, which are capitalized as debt issuance costs in the consolidated statements of financial condition.

The Credit Agreement subjects the Company to certain

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

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.

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 June 30, 2023.

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).

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.

Revolving Credit Facility

financial and non-financial covenants.

As of December 31, 2021, the Company was in compliance with such covenants.

Parent Revolving Credit Facility

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).

1 unchanged sentence

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.

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

Borrowings 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 broker-dealer credit agreement).

1 unchanged sentence

LPL Financial was in compliance with such covenants as of December 31, 2021.

The minimum calendar year payments and maturities of the long-term borrowings as of December 31, 2020 were as follows (in thousands):

2021 $ 10,700

Thereafter 1,405,800

Total $ 2,359,300

Other External Lines of Credit

LPL Financial maintained six uncommitted lines of credit as of December 31, 2021.

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

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

The other four lines have a total limit of $ 275.0 million, one of which allows for collateralized borrowings while the other three allow for uncollateralized borrowings.

There were no balances outstanding as of December 31, 2020 or December 31, 2019.

There was $ 35 million outstanding under these lines of credit as of December 31, 2021 and no balances outstanding as of December 31, 2020.

NOTE 12 - LEASES

3 unchanged sentences

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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.

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, 2020 were $ 102.2 million.

Finance lease assets are included in property and equipment, net in the consolidated statements of financial condition and were $ 97.1 million and $ 102.2 million at December 31, 2021 and December 31, 2020, respectively.

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

Years Ended December 31,

2021 2020 2019

Operating lease cost $ 19,712 $ 18,757 $ 17,610

3 unchanged sentences

Total finance lease cost $ 13,510 $ 13,564 $ 13,173

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

Years Ended December 31,

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

Operating cash flows from operating leases $ 21,368 $ 19,117

Operating cash flows from finance leases $ 8,423 $ 8,387

Financing cash flows from finance leases $ 1,169 $ 692

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

16 unchanged sentences

Total $ 130,304 $ 106,067

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 13 - INCOME TAXES

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

2020 2019 2018

Current provision:

$ 137,360 $ 156,378 $ 120,211

The components of the provision for income taxes were as follows (in thousands):

2021 2020 2019

Total current provision

Current provision for income taxes:

$ 96,389 $ 137,360 $ 156,378

Deferred expense (benefit):

26,610 39,757 44,192

Total current provision for income taxes 122,999 177,117 200,570

Deferred provision (benefit) for income taxes:

14,446 ( 17,991 ) ( 13,971 )

Total deferred benefit

4,018 ( 5,693 ) ( 4,644 )

Total deferred provision (benefit) for income taxes 18,464 ( 23,684 ) ( 18,615 )

Provision for income taxes $ 141,463 $ 153,433 $ 181,955

A reconciliation of the U.S.

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table reflects a reconciliation of the U.S.

federal statutory income tax rates to the Company’s effective income tax rates:

Years Ended December 31,

5 unchanged sentences

( 2.7 ) ( 1.0 ) ( 1.4 )

Research & development credits

( 0.3 ) ( 0.3 ) ( 0.3 )

Research and development credits ( 0.4 ) ( 0.3 ) ( 0.3 )

Effective income tax rates 23.5 % 24.5 % 24.5 %

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 %, 24.5 % and 25.8 % for the years ended December 31, 2020, 2019 and 2018, 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 Company’s effective income tax rate differs from the federal corporate tax rate of 21.0 % primarily as a result of certain state taxes, benefits from share-based compensation, and other permanent differences in tax deductibility of certain expenses.

The decrease in the Company’s effective tax rate for the year ended December 31, 2021 was primarily due to an increased benefit from share-based compensation recognized during 2021.

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):

8 unchanged sentences

28,647 28,519

Provision for bad debts

Provision for credit losses 3,691 2,810

Forgivable loans

3 unchanged sentences

Deferred tax liabilities:

Amortization of intangible assets

( 64,907 ) ( 70,953 )

Depreciation of fixed assets

( 97,612 ) ( 87,739 )

Amortization of other intangibles ( 58,833 ) ( 64,907 )

Depreciation of property and equipment ( 147,659 ) ( 97,612 )

Operating lease assets

( 25,832 ) ( 27,681 )

( 11,896 ) ( 2,702 )

Unrealized gains and losses ( 22,338 ) ( 13,941 )

Total deferred tax liabilities

8 unchanged sentences

Balance — end of year $ 57,014 $ 54,435 $ 52,098

At December 31, 2020 and 2019, there were $ 48.1 million and $ 46.1 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, 2020 and 2019, the liability for unrecognized tax benefits included accrued interest of $ 7.3 million and $ 6.4 million, respectively, and penalties of $ 4.4 million.

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 2019 remain open to examination in the federal jurisdiction.

The tax years of 2008 to 2019 remain open to examination in the state jurisdictions.

In the next 12 months, it is reasonably possible that the Company may realize a reduction in unrecognized tax benefits of $ 2.7 million primarily related to the statute of limitations expiration in various state jurisdictions.

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

At December 31, 2021 and 2020, there were $ 53.8 million and $ 48.1 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, 2021 and 2020, the liability for unrecognized tax benefits included accrued interest of $ 7.5 million and $ 7.3 million, respectively, and penalties of $ 3.9 million and $ 4.4 million, respectively.

The Company and its subsidiaries file federal and state income tax returns which are subject to routine examinations by the respective taxing authorities.

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

The tax years of 2012 to 2016 and 2018 to 2020 remain open to examination in the federal jurisdiction.

The tax years of 2012 to 2020 remain open to examination in the state jurisdictions.

In the next 12 months it is reasonably possible that the Company may realize a reduction in unrecognized tax benefits of $ 9.3 million related to settleme nts and the statute of limitations expiration in federal and various state jurisdictions.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

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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 loan commitments at December 31, 2020.

LPL Financial had no significant unfunded loan commitments at December 31, 2021 or December 31, 2020.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Legal and Regulatory Matters

12 unchanged sentences

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

new developments and re-assesses the likelihood that a loss will occur and the estimated range or amount of loss, if those amounts can be reasonably determined.

or the potential opportunities for settlement and the status of any settlement discussions.

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, 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, the majority 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.

The Company also agreed to offer customers remediation in the form of reimbursement for any actual losses, plus interest, and these costs were not material.

Third-Party Insurance

3 unchanged sentences

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, 2021 and 2020, these self-insurance liabilities were $ 67.2 million and $ 51.5 million, respectively, and 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, 2020, 2019 and 2018.

The increase in self-insurance liabilities during the year ended December 31, 2021 was driven by $ 34.8 million of additional reserves for claims that had been incurred but not reported, which were partially offset by $ 19.1 million of payments made during the period.

Self-insurance related charges are included in other expense in the consolidated statements of income for the years ended December 31, 2021, 2020 and 2019.

Other Commitments

2 unchanged sentences

As of December 31, 2021, there were no restrictions that materially limited the Company’s ability to repledge, loan or sell the remaining $ 657.6 million of client collateral.

Securities owned, trading, on the consolidated statements of financial condition includes $ 4.5 million and $ 5.5 million pledged to the Options Clearing Corporation at December 31, 2020 and 2019, respectively, and $ 15.0 million pledged to the National Securities Clearing Corporation at December 31, 2020 and 2019.

Investment securities on the consolidated statements of financial condition include $ 4.6 million and $ 4.5 million of trading securities pledged to the Options Clearing Corporation at December 31, 2021 and 2020, respectively, and $ 15.0 million of trading securities pledged to the National Securities Clearing Corporation at December 31, 2021 and 2020.

LPL FINANCIAL HOLDINGS INC.

2 unchanged sentences

NOTE 15 - 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.

The payment, timing, and amount of any dividends are subject to approval by the Company’s 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):

9 unchanged sentences

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.

The Company suspended share repurchases in early 2020 in light of the business and financial uncertainties created by the COVID-19 pandemic.

The Company resumed share repurchases in the third quarter of 2021 and during the year ended December 31, 2021 had repurchased 579,771 shares of common stock at a weighted-average price of $ 155.25 for a total of $ 90.0 million.

As of December 31, 2021, the Company had $ 259.8 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.

During the first quarter of 2020, the Company repurchased 1.8 million shares of common stock at a weighted-average price of $ 82.91 for a total of $ 150.0 million.

The Company suspended share repurchases in early 2020 in light of the business and financial uncertainties created by the COVID-19 pandemic.

NOTE 16 - 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.

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

As of December 31, 2020, there were 20,055,945 shares authorized for grant and 3,531,003 shares remaining available for future issuance.

NOTE 16 - SHARE-BASED COMPENSATION, EMPLOYEE INCENTIVES AND BENEFIT PLANS

In May 2021, the Company adopted the 2021 Omnibus Equity Incentive Plan (the “2021 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 to the Company’s employees, non-employee directors and other service providers.

The 2021 Plan serves as the successor to the Company’s 2010 Omnibus Equity Incentive Plan (the “2010 Plan”).

Following the adoption of the 2021 Plan, the Company is no longer making grants under the 2010 Plan, and the 2021 Plan is the only plan under which equity awards are granted.

However, awards previously granted under the 2010 Plan will remain outstanding until vested, exercised or forfeited, as applicable.

There were 17,754,197 shares authorized for grant under the 2021 Plan and 14,787,930 shares remaining available for future issuance at December 31, 2021.

LPL FINANCIAL HOLDINGS INC.

2 unchanged sentences

Stock Options and Warrants

The Company did not grant stock options or warrants during the year ended December 31, 2020.

The Company did not grant stock options or warrants during the years ended December 31, 2021 or December 31, 2020.

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,

Year Ended December 31,

Expected life (in years) 5.43

50 unchanged sentences

— $ — ( 82,903 ) $ 109.47

Nonvested — December 31, 2020 5,560 $ 64.74 904,445 (1)

Outstanding — December 31, 2021 1,051 $ 156.54 915,907 (1)

Expected to vest — December 31, 2021 1,051 $ 156.54 805,492 $ 114.94

9 unchanged sentences

As of December 31, 2021, total unrecognized compensation cost for restricted stock units granted to advisors and financial institutions was $ 5.0 million, which is expected to be recognized over a weighted-average remaining period of 2.15 years.

Employee Incentives and Benefit Plan s

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 $ 20.9 million, $ 18.8 million and $ 16.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, which is classified as compensation and benefits expense in the consolidated statements of income.

The Company established its 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 recognized $ 2.0 million, $ 2.2 million and $ 1.8 million of share-based compensation related to the ESPP during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company’s 2012 Employee Stock Purchase Plan was replaced by its 2021 Employee Stock Purchase Plan in May 2021.

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 $ 499.2 million and $ 372.4

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

million at December 31, 2021 and 2020, respectively, which is included in other liabilities in the consolidated statements of financial condition.

The cash value of the related trust assets was $ 482.5 million and $ 361.1 million at December 31, 2021 and 2020, respectively, 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 may receive a return based on the allocation of notional investments offered under the plan.

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

As of December 31, 2021, the Company has recorded assets of $ 17.1 million and liabilities of $ 17.1 million, which are included in other assets and other liabilities, respectively, in the consolidated statements of financial condition.

As of December 31, 2020 , the Company had recorded assets of $ 10.1 million and liabilities of $ 10.1 million.

NOTE 17 - EARNINGS PER SHARE

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Diluted earnings per share $ 5.63 $ 5.86 $ 6.62

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

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

For the years ended December 31, 2021, 2020 and 2019, stock options, warrants and stock units representing common share equivalents of 684 shares, 376,598 shares and 407,059 shares, respectively, were anti-dilutive.

NOTE 18 - 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 $ 18.8 million, $ 16.2 million and $ 13.1 million for the years ended December 31, 2020, 2019 and 2018, 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 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 $ 372.4 million at December 31, 2020, 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 $ 361.1 million at December 31, 2020, 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, 2020, the Company has recorded assets of $ 10.1 million and liabilities of $ 10.1 million, which are included in other assets and accounts payable and accrued liabilities, respectively, in the consolidated statements of financial condition.

NOTE 19 - RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Company has related party transactions with beneficial owners 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.

The Company recognized revenues for services provided to these related parties of $ 4.8 million, $ 4.1 million and $ 3.5 million, during the years ended December 31, 2020, 2019 and 2018, respectively.

The Company incurred expenses for the services provided by these related parties of $ 3.8 million, $ 3.2 million and $ 2.9 million, during the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020 and 2019, receivables from and payables to related parties were not material.

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

NOTE 18 - NET CAPITAL AND REGULATORY REQUIREMENTS

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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, 2020, had net capital of $ 119.0 million with a minimum net capital requirement of $ 11.1 million.

LPL Financial is a clearing broker-dealer and, as of December 31, 2021, had net capital of $ 87.5 million, which was $ 73.2 million in excess of its minimum net capital requirement of $ 14.3 million.

In April 2021, the Company acquired the Waddell & Reed broker-dealer.

The Waddell & Reed broker-dealer was required to maintain net capital of $250,000, which represents the greater of 2% of its aggregate debits or the minimum net capital requirement of $250,000.

In December 2021 the SEC and FINRA approved the Form BDW

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

filed by the Waddell & Reed broker-dealer, which terminated registration with FINRA, all other self-regulatory organizations, the SEC and all jurisdictions.

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

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As of December 31, 2021 and 2020, LPL Financial and PTC met all capital adequacy requirements to which they were subject.

NOTE 21 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK

AND CONCENTRATIONS OF CREDIT RISK

NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK AND CONCENTRATIONS OF CREDIT RISK

LPL Financial may offer repayable loans to recruit or support the transition of an advisor to its platform.

LPL Financial also offers forgivable loans for similar purposes that may convert to repayable loans upon advisor termination.

LPL Financial may incur losses if advisors do not fulfill their obligations with respect to these loans.

To mitigate this risk, LPL Financial monitors the performance and creditworthiness of the advisor prior to offering repayable loans.

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.

In margin transactions, LPL Financial extends credit to the advisor’s client, subject to various regulatory and internal margin requirements, which is 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.

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

NOTE 22 - SUBSEQUENT EVENT

On February 1, 2021 , 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 30, 2021 to all stockholders of record on March 16, 2021 .

NOTE 20 - SUBSEQUENT EVENTS

On February 3, 2022 , the Company announced that 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 29, 2022 to all stockholders of record on March 15, 2022 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Other Information

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 8. Financial Statements and Supplementary Data