What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-23 · 326 added, 210 removed, 1167 unchanged (31% of the section changed)

29 unchanged sentences

LPL Financial Holdings Inc.

San Diego, California

Opinion on the Financial Statements

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Fram ework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

12 unchanged sentences

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

Acquisition of Financial Resources Group Investment Services, LLC — Valuation of acquired definite-lived intangible assets and contingent consideration — Refer to Notes 4 and 5 to the financial statements

Critical Audit Matter Description

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.

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

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

On January 31, 2023, the Company acquired the equity of Financial Resources Group Investment Services, LLC, a broker-dealer and independent branch office.

Total consideration for the transaction was $189.2 million, which included an initial cash payment of $143.8 million and a liability of $45.4 million for contingent consideration, which represents the acquisition date fair value of the additional cash consideration that may be transferred to the sellers if certain asset growth is achieved in the three years following the closing.

During the three months ended December 31, 2023, the Company recorded a $26.7 million fair value adjustment in other expense to increase the fair value of the contingent consideration liability as a result of asset and market growth during the quarter.

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

The purchase price is allocated across the estimated fair value of the definite-lived intangible and tangible assets acquired and liabilities assumed, with the excess purchase price allocated to goodwill.

The Company used the income approach to estimate the fair value of the intangible assets, which are comprised of $34.7 million of bank relationships and $18.8 million of advisor relationships.

The fair value of the intangible assets required management to make significant estimates and assumptions related to future net cash flows and discount rates.

The Company determines the fair value for its contingent consideration obligations using a Monte-Carlo simulation model.

Contingent payments are estimated by applying significant unobservable inputs, including forecasted growth rates applied to project future revenue or asset growth and discount rates which are based on the cost of debt and equity.

Given the fair value determination of intangible assets and contingent consideration requires management to make significant estimates and assumptions related to the forecasts of future net cash flows and asset growth and the selection of the discount rates, 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 inputs and judgments used by management to estimate the year-end accrual for trailing commission revenues included the following, among others:

• We tested the effectiveness of internal controls over the accrual for trailing commission 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

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

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

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

• We tested the mathematical accuracy of the accrual

Our audit procedures related to the valuation of intangible assets and contingent consideration included the following, among others:

• We tested the design, implementation and operating effectiveness of internal controls over the valuation of the intangible assets and contingent consideration, including understanding management’s processes and controls over forecasts of future net cash flows and asset growth and the selection of the discount rates.

• We evaluated management’s policies and methodology for establishing the fair value of intangible assets, and contingent consideration used in the purchase price allocation and remeasured at December 31, 2023.

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

• We evaluated the reasonableness of business assumptions related to future net cash flows for the intangible assets and projected future revenue or asset growth over the earnout periods for the contingent consideration, considering the past performance of the acquired company, the Company’s strategic plan going forward, previous acquisitions by the Company, and evidence obtained in other areas of the audit, and obtained audit support to substantiate the material assumptions therein.

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

– the reasonableness of the income approach valuation methodology by challenging key valuation assumptions related to future net cash flows and discount rates and comparing them to industry benchmarks and data, and testing the mathematical accuracy of the valuation of intangible assets by performing a recalculation.

– the reasonableness of the Monte-Carlo simulation model by independently running Monte-Carlo simulations to calculate independent estimates of the fair value of contingent consideration.

We compared the results of our estimates of fair value of the contingent consideration to the Company’s fair value estimates.

– the reasonableness of the discount rates by developing a range of independent estimates and comparing those to the discount rates selected by management.

/s/ Deloitte & Touche LLP

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Brokerage, clearing and exchange 105,984 86,063 86,023

Professional services 72,519 73,231 57,067

Communications and data processing 75,717 67,687 60,296

Professional services 72,583 72,519 73,231

Loss on extinguishment of debt — — 24,400

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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

84 unchanged sentences

Net cash (used in) provided by financing activities ( 208,532 ) ( 504,271 ) 278,837

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

NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS, CASH AND EQUIVALENTS SEGREGATED UNDER FEDERAL OR OTHER REGULATIONS AND RESTRICTED CASH

( 556,107 ) 1,064,906 273,330

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

8 unchanged sentences

Lease assets obtained in exchange for operating lease liabilities $ 17,517 $ 10,785 $ 3,602

Contingent consideration liabilities recognized at acquisition date

$ 88,132 $ — $ —

2023 2022 2021

Cash and equivalents $ 465,671 $ 847,519 $ 495,246

12 unchanged sentences

• LPL Holdings, Inc.

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

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

• LPL Financial LLC (“LPL Financial”), with primary offices in San Diego, California;

1 unchanged sentence

Boston, Massachusetts;

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.

and Austin, Texas, is a clearing broker-dealer and an investment advisor that principally transacts business 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.

Virgin Islands.

• Fortigent Holdings Company, Inc.

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.

8 unchanged sentences

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

• LPL Employee Services, LLC and its subsidiary, Allen & Company of Florida, LLC, along with their affiliate Financial Resources Group Investment Services, LLC (“FRGIS”), provide primary support for the Company’s employee advisor affiliation model.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

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

Consolidated Financial Statement Presentation Changes

Certain financial statement line items have been reclassified in the consolidated statement of financial

condition to better align with industry practice and the Company’s business.

The Company reclassified liabilities for contingent consideration, which were previously included in accounts payable and accrued liabilities, to other liabilities in the consolidated statement of financial condition as of December 31, 2023.

This reclassification has not been applied retroactively as the impact on the prior year was not material.

This change did not impact total

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

Consolidated Financial Statement Presentation Changes

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;

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

Previously, these amounts were presented after Total operating expense.

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

liabilities for the periods presented;

however, the consolidated statement of cash flows for the year ended December 31, 2023 has been updated to conform to the current presentation on the consolidated statement of financial condition.

Consolidation

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The Company incurred expense for services provided by these related parties of $ 3.6 million, $ 3.4 million and $ 2.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, receivables from and payables to related parties were not material.

As of December 31, 2023, receivables from and payables to related parties were $ 5.0 million and $ 0.4 million, respectively.

As of December 31, 2022, receivables from and payables to related parties were not material.

Reportable Segment

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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.

4 unchanged sentences

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.

The fair value of restricted stock units

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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.

16 unchanged sentences

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

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

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

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

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

The Company’s cash equivalents are composed of U.S.

government obligations.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Cash and Equivalents Segregated Under Federal or Other Regulations

1 unchanged sentence

At December 31, 2023, 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 with original maturities of 90 days or less and approximately $ 0.3 million 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.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Restricted Cash

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

Restricted cash primarily represents cash held and for use by the captive insurance subsidiary and is primarily comprised of money market funds.

Receivables from Clients, Net and Client Payables

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Advisor repayable loans, net totaled $ 341.0 million and $ 280.0 million as of December 31, 2023 and 2022.

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):

1 unchanged sentence

Beginning balance — January 1 $ 15,144 $ 11,575 $ 8,797

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

Provision for credit losses 8,393 4,790 7,074

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

(Charge-offs) recoveries, net

( 10,560 ) 361 ( 4,296 )

Other — ( 1,582 ) —

Ending balance — December 31 $ 12,977 $ 15,144 $ 11,575

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Other Receivables, Net

5 unchanged sentences

Beginning balance — January 1 $ 2,788 $ 1,083 $ 1,068

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

Provision for credit losses 6,500 8,811 1,670

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

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 Company expenses software development costs as incurred during the preliminary project and post-implementation stages.

The Company capitalizes software development costs for projects during the application development phase, in which management has authorized and committed to funding the project and it is probable that the project will be completed and utilized as intended.

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 3 to 5 years.

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

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

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

2 unchanged sentences

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

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

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 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.

No impairment occurred for the years ended December 31, 2023, 2022 or 2021.

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

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

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

Certain of the Company’s acquisitions include contingent consideration, which may result in the transfer of additional cash consideration to the sellers if certain asset or revenue growth is achieved in the years following an acquisition.

For acquisitions accounted for under the acquisition method of accounting for business combinations, any such contingent consideration is recognized at its estimated fair value on the date of acquisition.

This contingent consideration is remeasured at its fair value at each subsequent reporting date until the contingency is resolved.

Any changes in fair value are recognized in other expense in the consolidated statements of operations.

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

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

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

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

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

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

The Company also enters into asset acquisitions for single identifiable intangible assets which are accounted for under a cost accumulation model in which cash consideration and transaction costs are allocated to the intangible assets acquired.

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

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

The Company does not recognize a liability for contingent payments in acquisitions that are accounted for as asset acquisitions as the amounts to be paid will be uncertain until a future measurement date.

Goodwill and Other Intangibles, Net

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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.

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

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

13 unchanged sentences

The Company also accrues for losses at its captive insurance subsidiary for those matters covered by self-insurance.

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

The Captive Insurance Subsidiary is funded by payments

The captive insurance subsidiary records losses and loss reserve liabilities based on actuarially

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

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.

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 LPL Financial and has cash reserves to cover losses, including $ 103.4 million in restricted cash.

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 and Regulatory Matters.”

Recently Issued or Adopted Accounting Pronouncements

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

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures to enhance the transparency of income tax disclosures relating to the rate reconciliation, disclosure of income taxes paid, and certain other disclosures.

The ASU should be applied prospectively and is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact on the related disclosures;

however, it does not expect this update to have an impact on its financial condition or results of operations.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures to improve the disclosures about reportable segments and include more detailed information about a reportable segment’s expenses.

This ASU also requires that a public entity with a single reportable segment, like the Company, provide all of the disclosures required as part of the amendments and all existing disclosures required by Topic 280.

The ASU should be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact on the related disclosures;

however, it does not expect this update to have an impact on its financial condition or results of operations.

Recently Adopted Accounting Pronouncements

There were no new accounting pronouncements adopted during the year ended December 31, 2023 that materially impacted the Company’s consolidated financial statements and related disclosures.

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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.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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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.

12 unchanged sentences

$ 2,552,623 $ 2,326,164 $ 2,378,683

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company generates two types of commission revenue:

12 unchanged sentences

35,610 39,864 42,174

Total trailing revenue

$ 1,299,840 $ 1,292,358 $ 1,404,628

$ 739,760 $ 542,310 $ 425,164

Total sales-based revenue

154,177 119,196 126,543

2 unchanged sentences

102,506 103,112 98,924

Total trailing revenue

Total sales-based revenue

$ 1,252,783 $ 1,033,806 $ 974,055

1 unchanged sentence

$ 2,552,623 $ 2,326,164 $ 2,378,683

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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”).

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

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

Omnibus processing fees are paid to the Company by the mutual fund product sponsors or their affiliates and are based on the value of

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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 services.

12 unchanged sentences

$ 1,509,869 $ 953,624 $ 360,847

Recordkeeping 412,468 401,429 290,194

Sponsorship programs

452,753 394,181 385,791

Recordkeeping 415,107 412,468 401,429

Total asset-based revenue $ 2,377,729 $ 1,760,273 $ 1,148,067

1 unchanged sentence

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.

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

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

1 unchanged sentence

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

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.

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.

3 unchanged sentences

Service and fee revenue

Point-in-time (1)

$ 115,916 $ 110,459 $ 85,451

Over time (1)

$ 387,763 $ 351,465 $ 301,302

Point-in-time (2)

120,674 115,916 110,459

Total service and fee revenue $ 508,437 $ 467,381 $ 411,761

____________________

(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.

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

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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.

6 unchanged sentences

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.

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.

Unearned revenue increased from $ 138.1 million as of December 31, 2022 to $ 156.2 million as of December 31, 2023.

The increase in unearned revenue for the year ended December 31, 2023 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, partially offset by $ 136.9 million of revenue recognized during the year ended December 31, 2023 that was included in the unearned revenue balance as of December 31, 2022.

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

1 unchanged sentence

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

NOTE 4 - ACQUISITIONS

Acquisition of Financial Resources Group Investment Services, LLC

On January 31, 2023, the Company acquired the equity of Financial Resources Group Investment Services, LLC, a broker-dealer and independent branch office, in order to expand its addressable markets and complement organic growth.

Total consideration for the transaction was $ 189.2 million, which included an initial cash payment of $ 143.8 million and a liability of $ 45.4 million for contingent consideration, which represents the acquisition date fair value of the additional cash consideration that may be transferred to the sellers if certain asset growth is achieved in the three years following the closing.

The Company recognized $ 1.4 million of transaction costs as part of this acquisition.

During the three months ended December 31, 2023, the Company recorded a $ 26.7 million fair value adjustment in other expense to increase the fair value of the contingent consideration liability as a result of asset and market growth during the quarter.

The Company estimates that this contingent consideration may be settled for an amount up to $ 85.0 million in the years following the closing.

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

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.

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

At December 31, 2023, the Company had allocated $ 129.7 million of the purchase price to goodwill, $ 53.5 million to definite-lived intangible assets, $ 9.0 million to cash acquired, and the remainder to other assets acquired and liabilities assumed as part of the acquisition.

The goodwill primarily includes synergies expected to result from combining operations and is deductible for tax purposes.

The intangible assets are comprised of $ 34.7 million of bank relationships and $ 18.8 million of advisor relationships which were assigned useful lives of 15 years and 6 years respectively.

These intangible assets were valued using the income approach and are included in the Advisor and enterprise relationships line item in Note 9 - Goodwill and Other Intangibles, Net .

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

Other Acquisitions

During the year ended December 31, 2023, the Company completed a total of 19 acquisitions under the Liquidity & Succession solution, in which the Company buys advisor practices.

The Company also completed the acquisition of Boenning & Scattergood’s Private Client Group on January 31, 2023.

Certain of these acquisitions have been accounted for as business combinations and certain have been accounted for as asset acquisitions.

The Company recognized $ 6.0 million of transaction costs as part of these acquisitions.

Business Combinations

The assets and liabilities acquired as part of acquisitions that qualify as business combinations are recognized at fair value as of the acquisition date.

This fair value determination requires the Company to make significant estimates and assumptions about market conditions, future expected cash flows, asset or revenue growth, discount rates, and market conditions which are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to assets acquired, liabilities assumed, liabilities for contingent consideration, or goodwill as additional information becomes available.

The Com pany accounted for five Liquidity & Succession transactions under the acquisition method of accounting for business combinations.

Total consideration for these transactions was $ 190.2 million, which included initial consideration of $ 147.4 million, including $ 140.3 million of cash, and a liability of $ 42.7 million for contingent consideration, which represents the acquisition date fair value of the additional cash consideration that may be transferred to the sellers if certain asset growth is achieved in the three to five years following the closing.

The Company estimates that this contingent consideration may be settled for amounts up to $ 107.2 million in the years following the closing.

At December 31, 2023, the Company allocated $ 84.5 million of the purchase price to goodwill and $ 105.7 million to the definite-lived intangible assets acquired as part of these acquisitions.

The goodwill primarily includes synergies expected to result from combining operations and is deductible for tax purposes.

The intangible assets are comprised of $ 59.5 million of client relationships, $ 31.8 million of advisor relationships, and $ 14.4 million of technology which were valued using the income approach and assigned useful lives ranging from seven to 15 years.

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

The fair value determination of client relationships, advisor relationships and technology required the Company to make significant estimates and assumptions related to future net cash flows and discount rates.

Additionally, certain fair value determinations relate to acquisitions that were completed during the fourth quarter of 2023.

The Company has provisionally allocated $ 37.5 million to definite-lived intangible assets, $ 62.3 million to goodwill, and $ 22.7 million to liabilities for contingent consideration related to these acquisitions;

however, these allocations may change as the Company completes its purchase accounting analysis.

Asset Acquisitions

The Compan y accounted for fifteen other acquisitions as asset acquisitions.

These transactions included initial consideration of $ 180.4 million, including $ 142.3 million which was allocated to client relationships and $ 38.1 million which was allocated to advisor relationships.

The client and advisor relationship intangible assets were assigned useful lives of 14 years and 15 years, respectively.

These transactions include potential contingent payments of up to $ 73.1 million in the three years following the closing if certain asset growth is achieved.

The Company has not recognized a liability for these contingent payments as the amounts to be paid will be uncertain until a future measurement date.

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

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Acquisitions Completed in Prior Periods

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.

2 unchanged sentences

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

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

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

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

22 unchanged sentences

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

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

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

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 negotiable certificates of deposit and treasury securities, the Company utilizes market-based inputs, including

LPL FINANCIAL HOLDINGS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

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.

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.

observable market interest rates that correspond to the remaining maturities or the next interest reset dates.

At December 31, 2023 and 2022, the Company did not adjust prices received from the independent third-party pricing services.

5 unchanged sentences

At December 31, 2023 and 2022, the Company did not adjust prices received from the independent third-party pricing services.

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

Contingent Consideration — The Company measures contingent consideration liabilities at fair value at the acquisition date, as applicable, and thereafter on a recurring basis using unobservable (Level 3) inputs.

These contingent consideration liabilities are reflected in other liabilities at December 31, 2023 and in accounts payable and accrued liabilities at December 31, 2022.

See Note 2 - Summary of Significant Accounting Policies and Note 4 - Acquisitions for additional information.

Level 3 Recurring Fair Value Measurements

The Company determines the fair value for its contingent consideration obligations using a scenario-based approach whereby the Company assesses the expected number of future transactions.

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

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

The Company determines the fair value for its contingent consideration obligations using Monte-Carlo simulation and discounted cash flows models.

These projections are measured against the performance targets specified in each respective acquisition agreement, which may include growth in assets under management, net new assets, asset conversion or retention, or revenue growth.

Significant increases or decreases in the Company’s forecasted growth rates over the measurement period or discount rates would result in a higher or lower fair value measurement.

The following table summarizes inputs used in the measurement of contingent consideration using Monte-Carlo simulation models (dollars in thousands):

December 31, Quantitative Information About Level 3 Fair Value Measurements

2023 2022 Type

Valuation Techniques

Unobservable Inputs

$ 114,844 $ — Contingent Consideration Monte-Carlo Simulation Model

Forecasted Growth Rates 12.0 % - 29.5 %

Discount Rate 13.6 % - 15.7 %

The Company also had contingent consideration of $ 4.0 million and $ 3.9 million at December 31, 2023 and 2022, respectively, that was measured using a discounted cash flow model in which a discount rate is applied to an estimated payment based on an expectation of future transactions.

LPL FINANCIAL HOLDINGS INC.

6 unchanged sentences

Cash equivalents segregated under federal or other regulations 720,077 — — 720,077

Restricted cash

103,226 — — 103,226

Investment securities - trading:

treasury obligations 24,402 — — 24,402

Mutual funds 50,518 — — 50,518

treasury obligations 25,388 — — 25,388

Money market funds 107 — — 107

Equity securities 43 — — 43

Debt securities — 32 — 32

Money market funds 112 — — 112

Total investment securities - trading 76,056 32 — 76,088

6 unchanged sentences

Total assets at fair value $ 1,754,204 $ 3,992 $ — $ 1,758,196

Accounts payable and accrued liabilities $ — $ — $ 3,860 $ 3,860

Other liabilities:

Securities sold, but not yet purchased:

Debt securities — 61 — 61

Equity securities $ 487 $ — $ — $ 487

3 unchanged sentences

177,131 — — 177,131

Contingent consideration

— — 118,844 118,844

Total other liabilities 177,673 — 118,844 296,517

8 unchanged sentences

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

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

Investment securities - trading:

2 unchanged sentences

Equity securities 980 — — 980

Debt securities — 585 — 585

Money market funds 112 — — 112

2 unchanged sentences

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

Total assets at fair value $ 1,793,081 $ 5,833 $ — $ 1,798,914

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

Accounts payable and accrued liabilities — contingent consideration

$ — $ — $ 3,860 $ 3,860

Other liabilities:

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

42 unchanged sentences

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

Deferred compensation plan (2)

6,343 6,343 — — 6,343

Other investments (3)

18 unchanged sentences

Trading securities - at fair value:

treasury obligations $ 24,402 $ 19,599

Mutual funds $ 50,518 $ 10,679

treasury obligations 25,388 24,402

Money market funds 107 112

Equity securities 43 980

Debt securities 32 585

Money market funds 112 123

Total trading securities $ 76,088 $ 36,758

31 unchanged sentences

Land 4,678 — 4,678

Construction in progress (1)

Work in progress (1)

109,765 — 109,765

1 unchanged sentence

____________________

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

(1) Work in progress includes $ 34.6 million of internal software in development and related hardware and software at December 31, 2023.

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

6 unchanged sentences

Land 4,678 — 4,678

Construction in progress (1)

Work in progress (1)

69,794 — 69,794

Total property and equipment, net $ 1,597,352 $ ( 816,995 ) $ 780,357

____________________

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

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

Depreciation and amortization was $ 247.0 million, $ 199.8 million and $ 151.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

NOTE 9 - GOODWILL AND OTHER INTANGIBLES, NET

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

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

During the year ended December 31, 2023, the Company completed various acquisitions, which were accounted for under the acquisition method of accounting for business combinations and as asset acquisitions.

See Note 4 - Acquisitions , for additional information.

18 unchanged sentences

Technology 8.7 33,460 ( 10,162 ) 23,298

Trade names 0.0 1,200 ( 1,200 ) —

Total definite-lived intangible assets, net $ 1,516,609 $ ( 884,843 ) $ 631,766

3 unchanged sentences

____________________

(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.

(1) During the year ended December 31, 2023, the Company completed various acquisitions which were accounted for under the acquisition method of accounting for business combinations and as asset acquisitions.

See Note 4 - Acquisitions , for additional information .

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

6 unchanged sentences

Client relationships (1)

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

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

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

Total definite-lived intangibles, net $ 1,165,489 $ ( 777,632 ) $ 387,857

2 unchanged sentences

Total other intangibles, net $ 427,676

(1) During the year ended December 31, 2022, t he Company completed various acquisitions which were accounted for under the acquisition method of accounting for business combinations and as asset acquisitions.

See Note 4 - Acquisitions , for additional information .

Total amortization of other intangibles was $ 107.2 million, $ 87.6 million and $ 79.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Future amortization is estimated as follows (in thousands):

2023 $ 86,288

2024 - remainder $ 111,227

Thereafter 239,765

11 unchanged sentences

Deferred tax assets, net (2)

167,450 98,997

Operating lease assets (3)

13 unchanged sentences

105,465 105,660

Taxes payable 24,522 113,503

Other 169,386 86

17 unchanged sentences

Term Loan B (1)(2)

$ 1,037,900 LIBOR+ 175 bps

$ 1,027,200 SOFR+ 185 bps

7.206 % $ 1,037,900 LIBOR+ 175 bps

3 unchanged sentences

2028 Senior Notes (1)

750,000 Fixed Rate

6.750 % — Fixed Rate

— % 11/17/2028

2029 Senior Notes (1)

900,000 Fixed Rate 4.000 % 900,000 Fixed Rate 4.000 % 3/15/2029

6 unchanged sentences

Revolving Credit Facility (2)(3)

280,000 ABR+ 37.5 bps / SOFR+ 147.5 bps

6.966 % — LIBOR+125 bps

5.64 % 55,000 ABR+ 25 bps

5.642 % 3/15/2026

Unsecured, Uncommitted Lines of Credit (3)

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

1.00 % 9/30/2023

Total other borrowings $ 280,000 $ —

2 unchanged sentences

(1) No leverage or interest coverage maintenance covenants.

(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.

(2) In March 2023, the Company amended its Credit Agreement to transition the Parent Revolving Credit Facility and Term Loan B from London Interbank Offered Rate (“LIBOR”)-based to Secured Overnight Financing Rate (“SOFR”)-based interest rates, which became effective in March and April 2023, respectively.

(3) The Parent’s outstanding balance at December 31, 2023 was comprised of an alternate base rate (“ABR”)-based balance of $ 18.0 million with the applicable margin of ABR + 37.5 bps ( 8.875 %) and a SOFR-based balance of $ 262.0 million with the applicable margin of SOFR + 147.5 bps ( 6.835 %).

The minimum calendar year payments and maturities of the corporate debt and other borrowings as of December 31, 2023 were as follows (in thousands):

7 unchanged sentences

March 2026 $ 280 $ 1,720

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

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

Unsecured, uncommitted lines of credit LPL Financial LLC September 2023 $ — $ 50

Broker-dealer revolving credit facility LPL Financial LLC July 2024 $ — $ 1,000

Unsecured, uncommitted lines of credit LPL Financial LLC None

Unsecured, uncommitted lines of credit LPL Financial LLC September 2024 $ — $ 50

Secured, uncommitted lines of credit LPL Financial LLC March 2025 $ — $ 75

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

4 unchanged sentences

Issuance of 2028 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 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 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.

LPLH issued $ 750.0 million in aggregate principal amount of 6.750 % senior notes on November 17, 2023 at 99.929 % (“2028 Senior Notes”).

The 2028 Senior Notes are unsecured obligations that will mature on November 17, 2028, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company.

Interest on the 2028 Senior Notes is payable semi-annually.

The Company used the proceeds from the issuance to repay borrowings made under its senior secured revolving credit facility and for general corporate purposes.

The Company may redeem all or part of the 2028 Senior Notes at any time and from time to time prior to October 17, 2028 at a redemption price equal to the greater of:

the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming the 2028 Senior Notes matured on October 17, 2028) on a semi-annual basis at the Treasury Rate (as defined in the First Supplemental Indenture dated November 17, 2023) plus 35 basis points less interest accrued to, but excluding, the redemption date, or 100% of the principal amount of the 2028 Senior Notes to be redeemed, plus, in either case, accrued and unpaid interest thereon to, but excluding, the redemption date.

Thereafter, the Company may redeem all or part of the 2028 Senior Notes at any time and from time to time, at a redemption price equal to 100% of the principal amount of the 2028 Senior Notes being redeemed plus accrued and unpaid interest thereon.

In connection with the issuance of the 2028 Senior Notes, the Company incurred $ 6.3 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition.

Credit Agreement

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

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

On March 13, 2023, LPLFH and LPLH entered into a sixth amendment agreement to the Company’s amended and restated credit agreement (the “Credit Agreement”), which, among other things, replaced LIBOR with SOFR.

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

1 unchanged sentence

Parent Revolving Credit Facility

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

On July 18, 2023, LPLH amended its revolving credit facility to, among other things, increase the maximum borrowing from $ 1.0 billion to $ 2.0 billion.

Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 112.5 to 187.5 basis points over SOFR plus 10 basis points or 12.5 to 87.5 basis points over the alternate base rate (the greatest of (i) the NYFRB Rate plus 1/2 of 1%, (ii) the Prime Rate and (iii) the Adjusted Term SOFR Rate for a one month Interest Period plus 1 %, each as defined in the Credit Agreement) depending on the Debt Ratings (as defined in the Credit Agreement).

In connection with the amendment of the credit facility, LPLH incurred $ 5.5 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition.

Broker-Dealer Revolving Credit Facility

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.

On July 18, 2023, LPL Financial, the Company’s broker-dealer subsidiary, renewed its committed senior unsecured revolving credit facility that matures on July 16, 2024 and allows for a maximum borrowing of up to $ 1.0 billion.

Borrowings under the credit facility bear interest at a rate per annum equal to 1.25 % per annum plus the greatest of (i) SOFR 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 renewal of the credit facility, LPL Financial incurred $ 1.7 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.

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.

LPL Financial was in compliance with such covenants as of December 31, 2023.

Other External Lines of Credit

2 unchanged sentences

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.

There were no balances outstanding under these lines at December 31, 2023 or December 31, 2022.

LPL FINANCIAL HOLDINGS INC.

57 unchanged sentences

State income taxes, net of federal benefit

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

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

Non-deductible expenses

Research and development credits ( 0.6 ) ( 0.4 ) ( 0.4 )

Share-based compensation ( 0.2 ) ( 1.8 ) ( 2.7 )

Effective income tax rates 26.2 % 23.9 % 23.5 %

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 Company’s effective income tax rate differs from the federal corporate tax rate of 21.0 % primarily as a result of state taxes, non-deductible expenses, tax credits and benefits from the vesting and exercise of share-based compensation.

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.

4 unchanged sentences

Deferred tax assets:

Accrued liabilities

Deferred compensation (1)

$ 183,054 $ 134,316

Operating lease liabilities 33,319 33,826

Tax credit carryforwards

Finance lease liabilities 28,475 28,528

Forgivable loans 23,864 19,688

Capitalized research and development expenditures (2)

19,294 28,855

Accrued liabilities (1)

18,973 15,185

Share-based compensation

15,254 19,246

Provision for credit losses 5,040 3,691

Deferred tax assets

366,708 297,206

valuation allowance

Total deferred tax assets

1 unchanged sentence

Deferred tax liabilities:

Internally developed software (2)

( 58,020 ) ( 70,906 )

Depreciation of property and equipment (2)

( 48,036 ) ( 52,085 )

Amortization of other intangibles ( 31,801 ) ( 50,072 )

1 unchanged sentence

( 25,488 ) ( 25,146 )

Unrealized gains — ( 22,338 )

Total deferred tax liabilities

1 unchanged sentence

Deferred tax assets, net $ 167,450 $ 98,997

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):

_______________________________

(1) The deferred tax asset for deferred compensation as of December 31, 2022 has been reclassified from the accrued liabilities category, as previously reported for the period ending December 31, 2022.

(2) The deferred tax asset for capitalized research and development expenditures and the deferred tax liability for internally developed software as of December 31, 2022 has been reclassified from the deferred tax liability for depreciation of property and equipment category, as previously reported for the period ending December 31, 2022.

The increase in deferred tax assets, net as of December 31, 2023 compared to December 31, 2022 was primarily driven by accruals of deferred compensation that are deductible when paid.

Our $ 9.3 million of gross capital losses realized during 2023 can be carried back three years and carried forward five years.

At December 31, 2023, there were $ 33.9 million of tax credits that can be carried forward 15 years and will begin to expire during 2032, and $ 1.3 million of tax credits that can be carried forward 10 years and will begin to expire during 2032.

We believe that it is more likely than not that the tax credit carryforwards will not be realized and have recorded a valuation allowance of $ 33.9 million on the deferred tax assets related to these tax credit carryforwards.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

2023 2022 2021

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

1 unchanged sentence

10,433 8,365 3,672

Increases for tax positions taken in the prior years

10,606 6,412 11,965

Reductions as a result of a lapse of the applicable statute of limitations and decreases in prior-year tax positions ( 11,717 ) ( 19,521 ) ( 13,058 )

7 unchanged sentences

The tax years of 2012 to 2022 remain open to examination in the 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.

LPL FINANCIAL HOLDINGS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In the next 12 months it is reasonably possible that the Company m ay realize a reduction in unrecognized tax benefits of $ 23.0 million related to settleme nts and the statute of limitations expiration in federal and various state jurisdictions.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

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

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

However, the potential requirement for the Company to

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make payments under these agreements is remote.

Accordingly, no liability has been recognized for these transactions.

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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.

LPL Financial had no significant unfunded loan commitments at December 31, 2023 or 2022.

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

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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.

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.

In October 2022, the Company received a request for information from the 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 staff of the SEC proposed a potential settlement with the Company to resolve its civil investigation.

Under the SEC’s proposed resolution, the Company would pay a $ 50.0 million civil monetary penalty.

As a result of the foregoing, the Company has recorded $ 40.0 million in other expense in the consolidated statements of income for the year ended December 31, 2023 to reflect the amount of the penalty that is not covered by the Company’s captive insurance subsidiary.

The Company has not yet reached a settlement in principle with the SEC, and any settlement agreement remains subject to the negotiation of the civil monetary penalty and definitive documentation.

Third-Party Insurance

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Self-Insurance

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

The Company has self-insurance for certain potential liabilities through its captive insurance subsidiary.

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

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

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Notes to Consolidated Financial Statements

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

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As of December 31, 2023, there were no restrictions that materially limited the Company’s ability to repledge, loan or sell the remaining $ 387.5 million of client collateral.

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.

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Notes to Consolidated Financial Statements

Investment securities on the consolidated statements of financial condition include $ 5.5 million and $ 4.5 million of trading securities pledged to the Options Clearing Corporation at December 31, 2023 and 2022, respectively, and $ 19.9 million of trading securities pledged to the National Securities Clearing Corporation at both December 31, 2023 and 2022.

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 the indentures governing the Company’s senior unsecured notes (the “Indentures”).

The payment, timing, and amount of any dividends are subject to approval by LPLFH’s Board of Directors as well as certain limits under the Credit Agreement.

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 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.

The Company engages in a share repurchase program that was approved by the Board, pursuant to which LPLFH 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.

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.

During the year ended December 31, 2023 LPLFH repurchased 5,075,900 shares of common stock at a weighted-average price of $ 216.73 for a total of $ 1.1 billion.

The Company also recognized $ 9.9 million of excise tax in connection with these repurchases during the year ended December 31, 2023 .

As of December 31, 2023, the Company had $ 900.0 million remaining under the existing share repurchase program.

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

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

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There were 17,754,197 shares authorized for grant under the 2021 Plan and 12,796,123 shares remaining available for future issuance at December 31, 2023.

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Notes to Consolidated Financial Statements

Stock Options and Warrants

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Forfeited and Expired

( 3,061 ) $ 51.19

Outstanding — December 31, 2023 546,820 $ 54.81 3.61 $ 94,494

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546,820 3.61 $ 54.81 546,820 $ 54.81

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.

The Company recognized no share-based compensation expense related to the vesting of stock options awarded to employees and officers during the year ended December 31, 2023.

The Company recognized $ 0.2 million and $ 2.6 million of expense during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2023, 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.

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Employee Incentives and Benefit Plan s

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

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

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

The Company sponsors a 401(k) defined contribution plan sponsored for all employees meeting eligibility requirements.

The Company matches eligible employee contributions after completing six months of service.

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

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

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

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

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

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

The liability for benefits accrued under the non-qualified deferred compensation plan totaled $ 477.0 million and $ 482.1

The liability for benefits accrued under the non-qualified deferred compensation plan totaled $ 652.3 million and $ 477.0 million at December 31, 2023 and 2022, respectively, which is included in other liabilities in the consolidated statements of financial condition.

The cash value of the related trust assets was $ 651.1 million and $ 475.6 million at

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Notes to Consolidated Financial Statements

million at December 31, 2022 and 2021, respectively, which is included in other liabilities in the consolidated statements of financial condition.

The cash value of the related trust assets was $ 475.6 million and $ 482.5 million at December 31, 2022 and 2021, respectively, which is measured at fair value and included in other assets in the consolidated statements of financial condition.

December 31, 2023 and 2022, respectively, which is measured at fair value and included in other assets in the consolidated statements of financial condition.

Certain employees of the Company participate in a non-qualified deferred compensation plan that permits participants to defer portions of their compensation and may receive a return based on the allocation of notional investments offered under the plan.

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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 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.

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

The Company’s broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Exchange Act of 1934), which requires the maintenance of minimum net capital.

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

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

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

LPL Financial is a clearing broker-dealer and, as of December 31, 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.

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.

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Notes to Consolidated Financial Statements

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

The following table presents the net capital position of the Company’s primary broker-dealer subsidiary (in thousands):

December 31, 2023

LPL Financial LLC

Net capital $ 205,314

required net capital 16,678

Excess net capital $ 188,636

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

As of December 31, 2023 and 2022, LPL Financial a nd 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 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 offer loans to new and existing advisors and enterprises to facilitate their relationship 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.

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

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NOTE 20 - SUBSEQUENT EVENTS

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 26, 2024 to all stockholders of record on March 12, 2024 .

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

On February 13, 2024, the Company announced that it had entered into a definitive purchase agreement to acquire Atria Wealth Solutions, Inc.

(“Atria”), a wealth management solutions holding company headquartered in New York.

As part of the agreement, Atria will transition its brokerage and advisory assets, currently custodied with its network of broker-dealers, to the Company’s platform.

The Company expects to close the transaction in the second half of 2024 with the conversion expected in mid-2025, subject to receipt of regulatory approval and other closing conditions.

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