What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-22 · 298 added, 334 removed, 1079 unchanged (37% of the section changed)

12 unchanged sentences

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 7 - Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Note 8 - Property and Equipment, Net

Note 9 - Goodwill and Other Intangibles, Net

Note 10 - Other Assets and Other Liabilities

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

Note 11 - Corporate Debt and Other Borrowings, Net

Note 12 - Leases

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Note 15 - Stockholders’ Equity

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

Note 16 - Share-based Compensation, Employee Incentives and Benefit Plans

Note 17 - Earnings per Share

Note 18 - Net Capital and Regulatory Requirements

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

Note 2 0 - Subsequent Event s

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

Note 20 - Subsequent Events

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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LPL Financial Holdings Inc.

San Diego, California

Opinion on the Financial Statements

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We believe that our audits provide a reasonable basis for our opinion.

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

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.

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

Critical Audit Matter Description

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

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

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

The estimate is based on commissions revenue 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.

3 unchanged sentences

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 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 tested the effectiveness of internal controls over the accrual for trailing commission revenue, 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

3 unchanged sentences

• 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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Advisory $ 3,875,154 $ 3,525,430 $ 2,327,519

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

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

Trailing 1,292,358 1,404,628 1,135,796

Sales-based 1,033,806 974,055 770,764

Total commission 2,326,164 2,378,683 1,906,560

Client cash 953,624 360,847 481,388

Other asset-based 806,649 787,220 563,129

Total asset-based 1,760,273 1,148,067 1,044,517

Service and fee 467,381 411,761 357,722

Transaction 181,260 156,336 148,349

Interest income 28,577 29,412 46,508

Interest income, net 77,126 28,577 29,412

Other ( 86,533 ) 71,976 57,561

6 unchanged sentences

Interest expense on borrowings 126,234 104,414 105,765

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

Amortization of other intangibles 87,560 79,260 67,358

Brokerage, clearing and exchange 86,063 86,023 71,185

Professional services 72,519 73,231 57,067

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Cash and equivalents $ 847,519 $ 495,246

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

Cash and equivalents segregated under federal or other regulations 2,199,362 1,496,463

Restricted cash 90,389 80,655

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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 — — — — — 459,866 459,866

29 unchanged sentences

Provision for credit losses 13,667 9,168 5,824

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

Deferred (benefit) provision for income taxes ( 93,349 ) 18,464 ( 23,684 )

Loss on extinguishment of debt — 24,400 —

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

Purchases of other investments ( 7,410 ) — —

Net cash used in investing activities ( 376,400 ) ( 458,641 ) ( 187,499 )

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Principal payment of finance leases and obligations ( 408 ) ( 1,356 ) ( 1,169 )

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

Net cash (used in) provided by financing activities ( 504,271 ) 278,837 ( 275,186 )

NET INCREASE IN CASH AND EQUIVALENTS, CASH AND EQUIVALENTS SEGREGATED UNDER FEDERAL OR OTHER REGULATIONS AND RESTRICTED CASH 1,064,906 273,330 327,256

CASH AND EQUIVALENTS, CASH AND EQUIVALENTS SEGREGATED UNDER FEDERAL OR OTHER REGULATIONS AND RESTRICTED CASH — Beginning of year 2,072,364 1,799,034 1,471,778

CASH AND EQUIVALENTS, CASH AND EQUIVALENTS SEGREGATED UNDER FEDERAL OR OTHER REGULATIONS AND RESTRICTED CASH — End of year $ 3,137,270 $ 2,072,364 $ 1,799,034

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

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Lease assets obtained in exchange for operating lease liabilities $ 10,785 $ 3,602 $ 7,968

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

2022 2021 2020

Cash and equivalents $ 847,519 $ 495,246 $ 808,612

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

Cash and equivalents segregated under federal or other regulations 2,199,362 1,496,463 923,158

Restricted cash 90,389 80,655 67,264

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

Total cash and equivalents, cash and equivalents segregated under federal or other regulations and restricted cash shown in the statements of cash flows $ 3,137,270 $ 2,072,364 $ 1,799,034

See notes to consolidated financial statements.

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LPL Financial Holdings Inc.

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

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

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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.

and Austin, Texas, is a clearing broker-dealer and an investment advisor that principally transacts business as an agent for its advisors and enterprises 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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• Fortigent Holdings Company, Inc.

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

and its subsidiaries provide solutions and consulting services to registered investment advisors (“RIAs”), banks and trust companies serving high-net-worth clients.

• LPL Insurance Associates, Inc.

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

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

PTC, together with its affiliate Fiduciary Trust Company of New Hampshire, 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.

• LPL Employee Services, LLC and its subsidiary, Allen & Company of Florida, LLC, provide primary support for the Company’s employee advisor affiliation model.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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 reclassified certain financial statement line items in the consolidated statements of income during the year ended December 31, 2021 to more closely align with industry practice and the Company’s business, and to better serve financial statement users.

Prior period amounts in the consolidated statements of income have been reclassified to conform to this presentation 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;

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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

These changes did not impact total net income for the periods presented.

Consolidation

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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.

Additionally, through its subsidiary LPL Financial, the Company provides services and charitable contributions to LPL Financial Charitable Foundation Inc., a 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 $ 5.7 million, $ 6.1 million and $ 4.8 million during the years ended December 31, 2022, 2021 and 2020, respectively.

10 unchanged sentences

Share-Based Compensation

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.

Certain employees, officers, directors, advisors and enterprises 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.

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

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

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

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

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 Company makes assumptions regarding the number of 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.

23 unchanged sentences

government obligations.

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 and for use by the Captive Insurance Subsidiary.

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

Cash and Equivalents Segregated Under Federal or Other Regulations

At December 31, 2022, this line item included interest bearing deposits, U.S.

treasury bills with original maturities of 90 days or less and approximately $ 100,000 of cash for the proprietary accounts of broker-dealers.

treasury bills accrue income as earned.

Discounts are accreted using a method that approximates the effective yield method over the term of the bill and are recorded to interest income, net as an adjustment to the investment yield.

Restricted Cash

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

Receivables from Clients, Net and Client Payables

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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, 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.

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

When establishing this allowance for credit losses, 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):

1 unchanged sentence

Beginning balance — January 1 $ 987 $ 520 $ 115

Impact of ASU 2016-13 adoption — — —

Provision for credit losses 66 424 432

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

(Charge-offs) recoveries, net ( 144 ) 43 ( 27 )

Ending balance — December 31 $ 909 $ 987 $ 520

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 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.

Advisor loans, net include loans made to new and existing advisors and enterprises to facilitate their partnership with the Company, transition to the Company’s platform or fund business development activities.

The decision to extend credit to an advisor or enterprise is generally based on their credit history and ability to generate future revenue.

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

Forgivable loans are not repaid in cash and are amortized over the term of the loan.

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

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.

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

An allowance for credit losses is recorded at the inception of a repayable loan or upon conversion to a repayable loan upon termination or change in agreed upon terms 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 $ 280.0 million and $ 191.2 million as of December 31, 2022 and 2021.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

3 unchanged sentences

Provision for credit losses 4,790 7,074 3,642

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

Recoveries (charge-offs), net 361 ( 4,296 ) ( 17,054 )

Other ( 1,582 ) — —

Ending balance — December 31 $ 15,144 $ 11,575 $ 8,797

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.

Other receivables, net primarily consist of receivables due from product sponsors and others and miscellaneous receivables.

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.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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Charge-offs, net of recoveries ( 8,688 ) ( 1,655 ) ( 2,444 )

Other 1,582 — —

Ending balance — December 31 $ 2,788 $ 1,083 $ 1,068

1 unchanged sentence

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 also has securities that 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.

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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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 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.

5 unchanged sentences

No i mpairment occurred for the years ended December 31, 2022, 2021 or 2020.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

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.

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

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.

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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.

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

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.

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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 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.

There was no impairment of

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

definite-lived intangibles recognized for the years ended December 31, 2022, 2021 or 2020.

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

Securities Borrowed

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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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

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.

The Company acts in a principal capacity in respect of fractional shares resulting from the dividend reinvestment program (“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 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.

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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.

Lease assets and 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.

3 unchanged sentences

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

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

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

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

1 unchanged sentence

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 broker-dealer subsidiary and has cash reserves to cover losses, including $ 77.4 million in restricted cash at the Captive Insurance Subsidiary.

The Captive Insurance Subsidiary is funded by payments

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

from LPL Financial and has cash reserves to cover losses, including $ 88.7 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.”

For additional information, see Note 14 - Commitments and Contingencies - “Legal and Regulatory Matters.”

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.

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.

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

There were no new accounting pronouncements adopted during the year ended December 31, 2022 that materially impacted the Company’s consolidated financial statements and related disclosures.

NOTE 3 - REVENUE

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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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

over the product or service before control is transferred to a customer.

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

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

6 unchanged sentences

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

Advisory revenue collected on the Company’s corporate advisory platform is proposed by the advisor and agreed to by the client and was approximately 1 % of the underlying assets for the year ended December 31, 2022.

The Company also supports independent RIA firms that conduct their business through separate registered investment advisor firms (“Independent RIAs”) through its Independent RIA advisory platform, which allows advisors to engage the Company for technology, clearing and custody services, as well as access the capabilities of the Company’s investment platforms.

The assets held under an Independent 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 an Independent RIA is not included in the Company’s advisory revenue.

The Company charges separate fees to Independent 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.

The Company earns commission revenue from sales commissions generated by advisors for their clients’ purchases and sales of securities or other investment products and from product sponsors for the selling, distribution and marketing, or any combination thereof, of investment products to such clients both of which are viewed as a single performance obligation.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company is generally 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.

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$ 2,326,164 $ 2,378,683 $ 1,906,560

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company generates two types of commission revenue:

23 unchanged sentences

$ 2,326,164 $ 2,378,683 $ 1,906,560

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 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.

1 unchanged sentence

Notes to Consolidated Financial Statements

Sponsorship Programs

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.

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 a combination of these.

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.

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 on advisors’ clients’ cash balances in insured bank sweep accounts and a money market account based on a rate applied, as a percentage, to the deposits placed.

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

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

Recordkeeping

2 unchanged sentences

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 also includes revenue from networking services.

Networking revenue on brokerage assets is correlated to the number of positions or value of assets that the Company administers and is 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.

Sponsorship Programs

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.

Sponsorship revenue is generally recognized over time as the Company fulfills its performance obligations.

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

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$ 953,624 $ 360,847 $ 481,388

Sponsorship programs

385,791 272,935 251,899

Recordkeeping 412,468 401,429 290,194

Sponsorship programs

394,181 385,791 272,935

1 unchanged sentence

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.

Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing, business services and planning and advice services, 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.

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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.

Performance obligations for service and fee revenue recognized over time are

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

considered a series of distinct services that are substantially the same and are satisfied each day over the contract term.

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

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____________________

(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.

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

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

Transaction revenue includes transaction charges generated by advisory and brokerage accounts from mutual funds, exchange-traded funds 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.

Interest Income, net

The Company earns interest income primarily from client margin loans, cash and equivalents segregated under federal or other regulations and advisor repayable loans and pays interest on certain client cash balances held in the client cash account.

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 generally 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, 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.

Unearned revenue decreased from $ 160.9 million as of December 31, 2021 to $ 138.1 million as of December 31, 2022.

The decrease in unearned revenue for the year ended December 31, 2022 is primarily driven by $ 159.5 million of revenue recognized during the year ended December 31, 2022 that was included in the unearned revenue balance as of December 31, 2021, partially offset by cash payments received or due in advance of satisfying the Company’s performance obligations.

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

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NOTE 4 - ACQUISITIONS

On November 2, 2022, the Company entered into a definitive purchase agreement to acquire Financial Resources Group Investment Services, LLC (“FRGIS”), a broker-dealer and independent branch office.

T he transaction closed on January 31, 2023 for an initial payment of approximately $ 140 million with potential contingent payments over the three years following the closing.

Given the recent closing, the purchase accounting analysis has not yet been completed.

During the year ended December 31, 2022, the Company acquired client relationship intangible assets of $ 54.1 million as a result of acquisitions under its Liquidity & Succession solution.

These acquisitions were accounted for as asset acquisitions with an assigned useful life of 9 years.

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

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.

for $ 300.0 million in order to expand its addressable markets and complement organic growth (the “Waddell & Reed Acquisition”).

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 Company 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.

Riley Investments, LLC (“E.K.

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

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.

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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At December 31, 2022 and 2021, the Company had the following financial assets and liabilities that are measured at fair value on a recurring basis:

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

Cash Equivalents — The Company’s cash equivalents include money market funds and U.S.

government obligations, which are short term in nature with readily determinable values derived from active markets.

Cash Equivalents Segregated Under Federal or Other Regulations — The Company’s cash equivalents segregated under federal or other regulations include U.S.

treasury bills, which are short term in nature with readily determinable values derived from active markets.

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 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.

Prices received from the pricing services are validated using various methods including

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

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.

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.

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

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

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

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

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

At December 31, 2022 and 2021, the Company did not adjust prices received from the independent third-party pricing services.

Other Assets — The Company’s other assets include:

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

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

(1) deferred compensation plan assets that are invested in life insurance, money market and other mutual funds, which are actively traded and valued based on quoted market prices, and (2) certain non-traded real estate investment trusts and auction rate notes, which are valued using quoted prices for identical or similar securities and other inputs that are observable or can be corroborated by observable market data.

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.

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Cash equivalents $ 13,639 $ — $ — $ 13,639

Cash equivalents segregated under federal or other regulations 1,131,040 — — 1,131,040

Investment securities - trading:

Money market funds 123 — — 123

treasury obligations 24,402 — — 24,402

Mutual funds 10,679 — — 10,679

Equity securities 980 — — 980

treasury obligations 19,599 — — 19,599

Debt securities — 585 — 585

Money market funds 112 — — 112

Total investment securities - trading 36,173 585 — 36,758

1 unchanged sentence

Deferred compensation plan 489,976 — — 489,976

Other investments — 9,166 — 9,166

Fractional shares - investment (1)

122,253 — — 122,253

Other investments — 5,248 — 5,248

Total other assets 612,229 5,248 — 617,477

3 unchanged sentences

Securities sold, but not yet purchased:

Equity securities 467 — — 467

Debt securities — 61 — 61

Equity securities 20 — — 20

Mutual funds 4 — — 4

Total securities sold, but not yet purchased 24 61 — 85

Fractional shares - repurchase obligation (1)

122,253 — — 122,253

Total other liabilities 122,277 61 — 122,338

Total liabilities at fair value $ 122,277 $ 61 $ 3,860 $ 126,198

____________________

(1) Investment in and related repurchase obligation for fractional shares resulting from the Company’s DRIP.

LPL FINANCIAL HOLDINGS INC.

5 unchanged sentences

Investment securities - trading:

Money market funds 125 — — 125

treasury obligations 19,599 — — 19,599

Mutual funds 19,112 — — 19,112

Equity securities 440 — — 440

treasury obligations

19,498 — — 19,498

Money market funds 123 — — 123

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

3 unchanged sentences

Fractional shares - investment (1)

114,574 — — 114,574

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

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Fractional shares - repurchase obligation (1)

114,574 — — 114,574

Total other liabilities 115,041 105 — 115,146

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

____________________

(1) Investment in and related repurchase obligation for fractional shares resulting from the Company’s DRIP.

LPL FINANCIAL HOLDINGS INC.

4 unchanged sentences

December 31, 2022 Carrying Value Level 1 Level 2 Level 3 Total Fair Value

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

Cash $ 833,880 $ 833,880 $ — $ — $ 833,880

Cash segregated under federal or other regulations 1,068,322 1,068,322 — — 1,068,322

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Securities borrowed 9,626 — 9,626 — 9,626

Deferred compensation plan (2)

6,343 6,343 — — 6,343

Other investments (3)

4 unchanged sentences

Corporate debt and other borrowings, net 2,717,444 — 2,530,011 — 2,530,011

____________________

(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, 2021 Carrying Value Level 1 Level 2 Level 3 Total Fair Value

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

Cash $ 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 of allowance 405,106 — 405,106 — 405,106

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

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

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____________________

(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.

(1) Includes repayable loans and forgivable loans which have converted to repayable upon advisor termination or change in agreed upon terms.

(2) Includes cash balances awaiting investment or distribution to plan participants.

(3) Other investments include Depository Trust Company common shares and Federal Reserve stock.

LPL FINANCIAL HOLDINGS INC.

8 unchanged sentences

Trading securities - at fair value:

Money market funds $ 123 $ 125

treasury obligations $ 24,402 $ 19,599

Mutual funds 10,679 19,112

Equity securities 980 440

treasury obligations 19,599 19,498

Debt securities 585 —

Money market funds 112 123

Total trading securities $ 36,758 $ 39,274

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government notes — at fair value $ 5,427 $ 10,044 $ — $ — $ 15,471

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.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

1 unchanged sentence

Receivables from clearing organizations $ 46,075 $ 80,548

Receivables from brokers and dealers 4,977 2,550

Securities failed-to-deliver 9,083 16,978

Receivables from brokers and dealers 1,118 4,977

Total receivables

$ 56,276 $ 102,503

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

Payables to brokers and dealers $ 82,685 78,080

Payables to clearing organizations 41,495 20,112

Securities failed-to-receive 23,572 71,927

1 unchanged sentence

$ 147,752 $ 170,119

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 - PROPERTY AND EQUIPMENT, NET

The components of property and equipment, net were as follows at December 31, 2022 (in thousands):

Gross Carrying Value Accumulated Depreciation and Amortization Net Carrying Value

Historical Cost Accumulated Depreciation and Amortization Net Carrying Value

Internally developed software $ 942,432 $ ( 476,653 ) $ 465,779

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____________________

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

(1) Construction in progress includes $ 69.2 million of internal software in development and related hardware and software at December 31, 2022.

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

Historical Cost Accumulated Depreciation and Amortization Net Carrying Value

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

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____________________

(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

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

Depreciation and amortization was $ 199.8 million, $ 151.4 million and $ 109.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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.

On April 30, 2021, the Company completed the Waddell & Reed Acquisition.

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

6 unchanged sentences

Balance at December 31, 2022 $ 1,642,468

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The components of other intangibles, net were as follows at December 31, 2022 (thousands):

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Definite-lived intangibles, net:

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

Advisor and enterprise relationships 5.1 $ 809,872 $ ( 542,415 ) $ 267,457

Product sponsor relationships 3.2 234,086 ( 197,165 ) 36,921

Client relationships (1)

8.0 102,491 ( 30,318 ) 72,173

Technology 5.4 19,040 ( 7,734 ) 11,306

4 unchanged sentences

Total other intangibles, net $ 427,676

____________________

(1) During the year ended December 31, 2022, the Company acquired client relationship intangible assets of $ 54.1 million as a result of acquisitions under its Liquidity & Succession solution.

These acquisitions were accounted for as asset acquisitions with an assigned useful life of 9 years.

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

3 unchanged sentences

Definite-lived intangibles, net:

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

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

Product sponsor relationships 4.1 234,086 ( 185,255 ) 48,831

6 unchanged sentences

Total other intangibles, net $ 455,028

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Total amortization of other intangibles was $ 87.6 million, $ 79.3 million and $ 67.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

2 unchanged sentences

Thereafter 66,284

Total $ 387,857

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 10 - OTHER ASSETS AND OTHER LIABILITIES

2 unchanged sentences

Deferred compensation $ 496,319 $ 499,548

Prepaid assets 144,607 115,018

Fractional shares - investment (1)

122,253 114,574

Prepaid assets 115,018 100,448

Deferred tax assets, net (2)

Operating lease assets (3)

1 unchanged sentence

Debt issuance costs, net 6,422 7,303

Deferred income taxes, net (3)

Other 62,098 49,822

14 unchanged sentences

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

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

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

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

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

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

2031 Senior Notes (1)

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

Total Corporate Debt 2,737,900 2,748,600

Unamortized Premium — 7,083

Unamortized Debt Issuance Cost ( 20,456 ) ( 24,556 )

2 unchanged sentences

Revolving Credit Facility (2)(3)

55,000 ABR+ 25 bps

— LIBOR+ 125 bps

5.64 % 55,000 ABR+ 25 bps

3.50 % 3/15/2026

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

1.00 % — Broker Base Rate+ 75 bps

Unsecured, Uncommitted Lines of Credit (3)

— Rate Determined at Time of Borrowing — % 35,000 Broker Base Rate+ 75 bps

1.00 % 9/30/2023

3 unchanged sentences

(1) No leverage or interest coverage maintenance covenants.

(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.

(2) Borrowings 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 (PRIME rate) depending on the Consolidated Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement).

(3) Balances outstanding under our external lines of credit at December 31, 2021 were repaid in January 2022.

The minimum calendar year payments and maturities of the corporate debt and other borrowings as of December 31, 2022 were as follows (in thousands):

3 unchanged sentences

Total $ 2,737,900

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, 2022 (in millions):

Description Borrower Maturity Date Outstanding (1)

Description Borrower Maturity Date Outstanding Available

Senior secured, revolving credit facility LPL Holdings, Inc.

March 2026 $ — $ 1,000

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

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

Broker-dealer revolving credit facility LPL Financial LLC August 2023 $ — $ 1,000

Unsecured, uncommitted lines of credit LPL Financial LLC September 2023 $ — $ 75

3 unchanged sentences

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

(1) Outstanding balances were repaid in January 2022.

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Notes to Consolidated Financial Statements

Issuance of 2031 Senior Notes

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.

The Company used the proceeds from the issuance to repay borrowings made under the senior secured revolving credit facility related to the Waddell & Reed Acquisition.

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 in the consolidated statements of financial condition.

Issuance of 2029 Senior Notes

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.

The Company used the proceeds from the issuance of the 2029 Senior Notes, along with existing corporate cash available, to redeem its 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 for the year ended December 31, 2021.

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.

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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.

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Notes to Consolidated Financial Statements

financial and non-financial covenants.

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

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

As of December 31, 2022, the Company was in compliance with such covenants.

2 unchanged sentences

Broker-Dealer Revolving Credit Facility

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

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).

On August 4, 2022, LPL Financial, the Company’s broker-dealer subsidiary, entered into a committed senior unsecured revolving credit facility that matures on August 3, 2023 and allows for a maximum borrowing of up to $ 1.0 billion.

This revolving credit facility replaced the $ 300.0 million credit facility that was due to mature on July 31, 2024.

Borrowings under the credit facility bear interest at a rate per annum equal to 1.25 % per annum plus the greatest of (i) the secured overnight financing rate plus 0.10 %, (ii) the effective federal funds rate and (iii) the overnight bank funding rate, in each case, as such rate is administered or determined by the Federal Reserve Bank of New York from time to time.

In connection with the credit facility, LPL Financial incurred $ 1.9 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition.

The broker-dealer credit agreement subjects LPL Financial to certain financial and non-financial covenants.

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

At December 31, 2022, LPL Financial’s net capital was 8% of its aggregate debits, below the 10% aggregate debits required by a financial covenant.

The agreement allows 5 days to cure non-compliance with this financial covenant, and it was cured within that allowable time period.

LPL Financial was in compliance with all other covenants as of December 31, 2022.

Other External Lines of Credit

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

LPL Financial maintained five uncommitted lines of credit as of December 31, 2022.

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.

The other three lines have a total limit of $ 200.0 million, which allow for uncollateralized borrowings.

There was $ 35 million outstanding under these lines of credit as of December 31, 2021 and no balances outstanding as of December 31, 2022.

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Notes to Consolidated Financial Statements

NOTE 12 - LEASES

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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.

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

Finance lease assets are included in Property and equipment, net in the consolidated statements of financial condition and were $ 92.4 million and $ 97.1 million at December 31, 2022 and December 31, 2021, respectively.

7 unchanged sentences

Total finance lease cost $ 13,170 $ 13,510 $ 13,564

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Notes to Consolidated Financial Statements

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

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Total $ 125,280 $ 105,660

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Notes to Consolidated Financial Statements

NOTE 13 - INCOME TAXES

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

Years Ended December 31,

2022 2021 2020

3 unchanged sentences

Total current provision for income taxes 359,300 122,999 177,117

Deferred provision (benefit) for income taxes:

Deferred (benefit) provision for income taxes:

( 69,656 ) 14,446 ( 17,991 )

( 23,693 ) 4,018 ( 5,693 )

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

Total deferred (benefit) provision for income taxes ( 93,349 ) 18,464 ( 23,684 )

Provision for income taxes $ 265,951 $ 141,463 $ 153,433

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Notes to Consolidated Financial Statements

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

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State income taxes, net of federal benefit

Non-deductible expenses

Share-based compensation ( 1.8 ) ( 2.7 ) ( 1.0 )

( 2.7 ) ( 1.0 ) ( 1.4 )

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

Non-deductible expenses

Effective income tax rates 23.9 % 23.5 % 24.5 %

The Company’s effective income tax rate differs from the federal corporate tax rate of 21.0 % primarily as a result of 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.

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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):

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$ 149,501 $ 148,566

Share-based compensation

16,597 15,890

Operating lease liabilities 33,826 35,182

35,182 37,632

Finance lease liabilities 28,528 28,647

28,647 28,519

Provision for credit losses 3,691 2,810

Forgivable loans 19,688 17,369

Share-based compensation

19,246 16,597

Provision for credit losses 5,040 3,691

Total deferred tax assets

1 unchanged sentence

Deferred tax liabilities:

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

Depreciation of property and equipment ( 94,136 ) ( 147,659 )

Amortization of other intangibles ( 50,072 ) ( 58,833 )

Operating lease assets

( 25,146 ) ( 25,832 )

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

Unrealized gains — ( 22,338 )

Total deferred tax liabilities

( 169,354 ) ( 254,662 )

Deferred income taxes, net $ 5,648 $ 24,112

Deferred tax assets, net $ 98,997 $ 5,648

The increase in deferred tax assets, net as of December 31, 2022 compared to December 31, 2021 was primarily driven by deferred tax estimates the Company recorded as a result of the change in Internal Revenue Code Section 174, which requires research and development costs to be capitalized and amortized.

Prior to this change the Company deducted these costs in the year incurred.

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

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Balance — end of year $ 52,270 $ 57,014 $ 54,435

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Notes to Consolidated Financial Statements

At December 31, 2022 and 2021, there were $ 46.6 million and $ 53.8 million, respectively, of unrecognized tax benefits that if recognized, would favorably affect the effective income tax rate in any future periods.

5 unchanged sentences

The tax years of 2012 to 2021 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.

In the next 12 months it is reasonably possible that the Company m ay realize a reduction in unrecognized tax benefits of $ 3.7 million relate d to settleme nts and the statute of limitations expiration in federal and various state jurisdictions.

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Notes to Consolidated Financial Statements

NOTE 14 - COMMITMENTS AND CONTINGENCIES

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2023 $ 137,212

Thereafter 161

Total $ 209,955

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Loan Commitments

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

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

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

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

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

LPL Financial had no significant unfunded loan commitments at December 31, 2022 or December 31, 2021.

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Notes to Consolidated Financial Statements

Legal and Regulatory Matters

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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.

The Company has

LPL FINANCIAL HOLDINGS INC.

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Notes to Consolidated Financial Statements

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

In October 2022, the Company received a request for information from the Securities and Exchange Commission (“SEC”) in connection with an investigation of the Company’s compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging platforms that have not been approved by the Company.

The Company intends to cooperate fully with the SEC’s inquiry.

The Company has estimated that it is reasonably possible that it could incur losses as a result of this request;

however, the Company cannot estimate a possible loss or range of loss at this time.

At this time, the Company does not believe that this request will have a material adverse effect on its results of operations, financial position, or cash flows.

Third-Party Insurance

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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.

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.

Self-insurance liabilities are included in accounts payable and accrued liabilities in the consolidated statements of financial condition.

Self-insurance related charges are included in other expense in the consolidated statements of income.

The following table provides a reconciliation of the beginning and ending balances of self-insurance liabilities for the years presented (in thousands):

2022 2021 2020

Beginning balance — January 1 $ 67,152 $ 51,501 $ 40,096

Losses incurred 36,462 34,756 34,784

Losses paid ( 29,543 ) ( 19,105 ) ( 23,379 )

Ending balance — December 31 $ 74,071 $ 67,152 $ 51,501

Other Commitments

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As of December 31, 2022, there were no restrictions that materially limited the Company’s ability to repledge, loan or sell the remaining $ 531.4 million of client collateral.

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.

Investment securities on the consolidated statements of financial condition include $ 4.5 million and $ 4.6 million of trading securities pledged to the Options Clearing Corporation at December 31, 2022 and 2021, respectively, and $ 19.9 million and $ 15.0 million of trading securities pledged to the National Securities Clearing Corporation at December 31, 2022 and 2021.

LPL FINANCIAL HOLDINGS INC.

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NOTE 15 - STOCKHOLDERS’ EQUITY

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.

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 the indentures governing the Company’s senior unsecured notes (the “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):

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Share Repurchases

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

The Company engages in a share repurchase program that was approved by the Board of Directors (the “Board”), pursuant to which the Company may repurchase its issued and outstanding shares of common stock from time to time.

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

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

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.

The Company resumed share repurchases in the third quarter of 2021, and during the year ended December 31, 2022 repurchased 1,566,527 shares of common stock at a weighted-average price of $ 207.49 for a total of $ 325.0 million.

On September 21, 2022, the Board authorized a $ 2.1 billion increase to the amount available for repurchases of the Company’s issued and outstanding common shares.

As of December 31, 2022, the Company had $ 2.0 billion 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.

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.

In May 2021, the Company adopted its 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”).

6 unchanged sentences

Stock Options and Warrants

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:

Year Ended December 31,

Expected life (in years) 5.43

Expected stock price volatility 35.80 %

Expected dividend yield 1.49 %

Risk-free interest rate 2.47 %

Fair value of options $ 24.41

The Company has not granted stock options or warrants since 2019.

The following table summarizes the Company’s stock option and warrant activity as of and for the year ended December 31, 2022:

30 unchanged sentences

673,764 4.36 $ 53.45 673,764 $ 53.45

The Company recognized share-based compensation related to the vesting of stock options awarded to employees and officers of $ 2.6 million, $ 4.4 million and $ 9.8 million during the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, total unrecognized compensation cost related to non-vested stock options granted to employees and officers was $ 0.2 million, which is expected to be recognized over a weighted-average period of 0.17 years.

The Company recognized share-based compensation expense related to the vesting of stock options awarded to employees and officers of $ 0.2 million, $ 2.6 million and $ 4.4 million during the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, there was no unrecognized compensation cost related to non-vested stock options as the remaining share-based compensation expense was recognized during the three months ended March 31, 2022.

LPL FINANCIAL HOLDINGS INC.

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

The Company recognized $ 37.2 million, $ 25.1 million and $ 18.2 million of share-based compensation related to the vesting of these restricted stock awards and stock units during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company recognized $ 45.4 million, $ 37.2 million and $ 25.1 million of share-based compensation expense related to the vesting of these restricted stock awards and stock units during the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, total unrecognized compensation cost for restricted stock awards and stock units was $ 62.5 million, which is expected to be recognized over a weighted-average remaining period of 1.91 years.

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

The Company recognized share-based compensation of $ 2.3 million, $ 2.3 million and $ 3.0 million related to the vesting of these awards during the years ended December 31, 2021, 2020 and 2019, respectively.

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.

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

The Company recognized share-based compensation expense of $ 2.6 million, $ 2.3 million and $ 2.3 million related to the vesting of these awards during the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, total unrecognized compensation cost for restricted stock units granted to advisors and enterprises was $ 5.1 million, which is expected to be recognized over a weighted-average remaining period of 2.15 years.

Employee Incentives and Benefit Plan s

6 unchanged sentences

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 recognized $ 4.4 million, $ 2.0 million and $ 2.2 million of share-based compensation expense related to the ESPP during the years ended December 31, 2022, 2021 and 2020, respectively.

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

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NOTE 18 - NET CAPITAL AND REGULATORY REQUIREMENTS

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

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

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

2 unchanged sentences

LPL Financial is a clearing broker-dealer and, as of December 31, 2022, had net capital of $ 49.5 million, which was $ 36.2 million in excess of its minimum net capital requirement of $ 13.3 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

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

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

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

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.

As of December 31, 2022 and 2021, LPL Financial and PTC met all capital adequacy requirements to which they were subject.

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 may offer loans to new and existing advisors and enterprises to facilitate their partnership with LPL Financial, transition to LPL Financial’s platform or fund business development activities.

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

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

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

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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 .

The Company’s Board declared a cash dividend of $ 0.30 per share on the Company’s outstanding common stock to be paid on March 28, 2023 to all stockholders of record on March 14, 2023 .

T a b l e o f C o n t e n t s

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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