LPL Financial(LPLA) - 2025 Q1 - Quarterly Report

Form 10-Q This is a Quarterly Report (Form 10-Q) for the period ended March 31, 2025, filed by LPL Financial Holdings Inc. (LPLA) - This is a Quarterly Report (Form 10-Q) for the period ended March 31, 2025, filed by LPL Financial Holdings Inc. (LPLA)[2] - The registrant is a large accelerated filer and is not a shell company[3][4][5] - As of May 7, 2025, there were 79,975,719 shares of Common Stock outstanding[5] WHERE YOU CAN FIND MORE INFORMATION The company provides public access to its SEC filings and material information through its official website and the SEC's online database - The company files annual, quarterly, and current reports, proxy statements, and other information with the SEC, available on sec.gov and lpl.com[8][9] - LPL Financial Holdings Inc. uses its website (lpl.com, Investor Relations/Press Releases sections) as a means of disclosing material information[9][10] SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report includes forward-looking statements subject to risks and uncertainties, and the company disclaims any obligation to update them - The report contains forward-looking statements regarding future financial results, growth, business strategies, acquisitions (e.g., Commonwealth Financial Network), market trends, and regulatory matters[12][13] - These statements involve risks and uncertainties that may cause actual results to differ materially, including changes in economic conditions, interest rates, competition, and regulatory actions[12][13][15] - The company disclaims any obligation to update forward-looking statements after the report date, except as required by law[14] Glossary of Terms This section defines key financial, operational, and regulatory terms used throughout the report, including non-GAAP measures - Provides definitions for key financial and operational terms used in the report, including non-GAAP measures like Adjusted EBITDA, Adjusted EPS, Core G&A, and Gross Profit[16][17][18][19][22][23][24] - Includes definitions for regulatory bodies (FINRA, NFA, OCC, SEC) and financial metrics (Basis Point, Leverage Ratio, Uniform Net Capital Rule)[18][23][24][25] PART I — FINANCIAL INFORMATION This part presents the company's financial information, including management's discussion and analysis, and unaudited financial statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes LPL Financial Holdings Inc.'s financial condition and operational results for Q1 2025, covering revenue, expenses, liquidity, and risk management Business Overview LPL Financial operates as the largest independent broker-dealer, providing integrated technology and comprehensive services to over 29,000 financial advisors - LPL Financial is the nation's largest independent broker-dealer, a leading investment advisory firm, and a top custodian[27] - The company supports over 29,000 financial advisors and approximately 1,200 financial institutions, servicing and custodying approximately $1.8 trillion in brokerage and advisory assets[27] - LPL offers an integrated technology platform, comprehensive self-clearing services, and access to a wide range of curated non-proprietary products, free from conflicts of product manufacturing[29] Our Sources of Revenue Revenue is primarily generated from advisor fees and commissions, with additional income from technology, custody, and asset-based fees - Revenue is primarily derived from fees and commissions on products and advisory services offered by advisors, with a substantial portion paid out to advisors[30] - Additional revenue comes from fees charged to advisors for technology, custody, clearing, trust, and reporting platforms[30] - Asset-based revenue is generated through insured bank sweep vehicles, money market account balances, and fees from financial product sponsors (e.g., mutual funds, annuities, alternative investments)[30][32] Significant Events Key events include the planned $2.7 billion acquisition of Commonwealth Financial Network and recent debt and equity issuances to fund it - On March 31, 2025, the company announced a definitive agreement to acquire Commonwealth Financial Network for $2.7 billion, expected to close in the second half of 2025[33] - The Commonwealth acquisition will be financed through corporate cash and proceeds from completed debt and equity issuances, including a public offering of approximately 5.4 million shares ($320/share) and $1.5 billion in senior unsecured notes in April 2025[34] - On February 26, 2025, the company completed a $1.25 billion debt offering, issuing $750.0 million in 5.200% senior unsecured notes due 2030 and $500.0 million in 5.650% senior unsecured notes due 2035[35] Executive Summary The executive summary highlights Q1 2025 financial performance with increased net income and significant growth in total advisory and brokerage assets Q1 2025 Financial Highlights (YoY) | Metric | Q1 2025 | Q1 2024 | Change | | :----- | :------ | :------ | :----- | | Net Income | $318.6M | $288.8M | +10.3% | | Diluted EPS | $4.24 | $3.83 | +10.7% | | Gross Profit | $1.3B | $1.1B | +18.2% | Asset Trends (YoY) | Metric | Mar 31, 2025 | Mar 31, 2024 | Change | | :----- | :----------- | :----------- | :----- | | Total Advisory & Brokerage Assets | $1.8T | $1.4T | +28.6% | | Total Net New Assets (3 months) | $78.8B | $16.7B | +372% | | Net New Advisory Assets (3 months) | $37.6B | $16.2B | +132% | | Advisory Assets | $977.4B | $793.0B | +23.2% | | Net New Brokerage Assets (3 months) | $41.2B | $0.5B | +8140% | | Brokerage Assets | $817.5B | $647.9B | +26.2% | - The company paid $22.4 million in cash dividends and repurchased $100.0 million of outstanding shares during Q1 2025, but share repurchases are currently paused due to the planned Commonwealth acquisition[41][108] Key Performance Metrics This section presents a detailed overview of the company's operational and financial performance metrics, including asset growth and profitability Operating Metrics (Q1 2025 vs. Q1 2024) | Metric | Mar 31, 2025 | Mar 31, 2024 | % Change | | :---------------------------------- | :----------- | :----------- | :------- | | Advisory assets | $977.4B | $793.0B | +23.2% | | Brokerage assets | $817.5B | $647.9B | +26.2% | | Total Advisory and Brokerage Assets | $1,794.9B | $1,440.9B | +24.6% | | Net new advisory assets (3 months) | $37.6B | $16.2B | +132.1% | | Net new brokerage assets (3 months) | $41.2B | $0.5B | +8140.0% | | Total Net New Assets (3 months) | $78.8B | $16.7B | +372.0% | | Organic advisory net new assets annualized growth | 14.9% | 8.8% | +6.1 pp | | Total organic net new assets annualized growth | 16.3% | 4.9% | +11.4 pp | | Advisors | 29,493 | 22,884 | +28.9% | | Average total assets per advisor | $60.9M | $63.0M | -3.3% | Financial Metrics (Q1 2025 vs. Q1 2024) | Metric | Q1 2025 | Q1 2024 | % Change | | :---------------------------------- | :------ | :------ | :------- | | Total revenue | $3,670.0M | $2,832.6M | +29.6% | | Net income | $318.6M | $288.8M | +10.3% | | Diluted EPS | $4.24 | $3.83 | +10.7% | | Adjusted EPS (Non-GAAP) | $5.15 | $4.21 | +22.3% | | Gross profit (Non-GAAP) | $1,272.7M | $1,066.4M | +19.4% | | Adjusted EBITDA (Non-GAAP) | $682.4M | $540.5M | +26.3% | | Core G&A (Non-GAAP) | $413.1M | $363.5M | +13.7% | Client Cash Balances (YoY) | Metric | Mar 31, 2025 | Mar 31, 2024 | % Change | | :---------------------------------- | :----------- | :----------- | :------- | | Total Client Cash Balances | $53.1B | $46.3B | +14.7% | Legal and Regulatory Matters The company operates under extensive regulation, requiring significant compliance investment and facing potential penalties from regulatory inquiries - The financial services industry is subject to extensive regulation, requiring significant investment in compliance functions[56] - Regulatory oversight and inquiries can lead to changes in service offerings, increased operational and compliance costs, and potential penalties or customer restitution[59] - The company accrues for estimated costs of significant regulatory matters or legal proceedings where losses are probable and reasonably estimable, including through its wholly-owned captive insurance subsidiary[61] Economic Overview and Impact of Financial Market Events This section reviews the U.S. economic performance, market volatility, and Federal Reserve policy during Q1 2025 and their impact on the company - The U.S. economy contracted at an annualized pace of 0.3% in Q1 2025, following 2.4% growth in Q4 2024[63] - The S&P 500 fell 4.3% in Q1 2025, while the Bloomberg Barclays U.S. Aggregate Bond Index rose 2.8%, with equity markets experiencing volatility in March due to tariff fears[64] - The Federal Reserve maintained the target federal funds rate at 4.25% to 4.50% during Q1 2025, with future monetary policy dependent on the job market, inflation trajectory, and global financial conditions[65] Results of Operations This section provides a detailed analysis of the company's revenue and expense performance for the reporting period Revenue Analysis Total revenue increased by 30% year-over-year in Q1 2025, driven by strong growth across advisory, commission, and asset-based revenue streams Revenue Breakdown (Q1 2025 vs. Q1 2024, in thousands) | Revenue Category | Q1 2025 | Q1 2024 | % Change | | :--------------- | :------ | :------ | :------- | | Advisory | $1,689,245 | $1,199,811 | +41% | | Total commission | $1,047,757 | $746,446 | +40% | | Total asset-based | $695,241 | $600,721 | +16% | | Service and fee | $145,199 | $132,172 | +10% | | Transaction | $67,864 | $57,258 | +19% | | Interest income, net | $43,851 | $43,525 | +1% | | Other | $(19,150) | $52,660 | -136% | - Advisory revenue increased primarily due to a 23% increase in total advisory assets to $977.4 billion, driven by net new advisory assets and market impacts[72][73] - Sales-based commission revenue increased by 58% due to higher annuity sales, and trailing commission revenue grew by 21% from continued growth in trail-earning assets[76] - Client cash revenue increased due to higher average client cash balances, which rose to $50.4 billion in Q1 2025 from $44.4 billion in Q1 2024[80] Expense Analysis Total expenses increased by 32% in Q1 2025, primarily due to higher advisory and commission expenses, compensation, and technology investments Expense Breakdown (Q1 2025 vs. Q1 2024, in thousands) | Expense Category | Q1 2025 | Q1 2024 | % Change | | :--------------- | :------ | :------ | :------- | | Advisory and commission | $2,353,925 | $1,733,487 | +36% | | Compensation and benefits | $305,546 | $274,369 | +11% | | Promotional | $145,645 | $126,619 | +15% | | Depreciation and amortization | $92,356 | $67,158 | +38% | | Interest expense on borrowings | $85,862 | $60,082 | +43% | | Occupancy and equipment | $77,240 | $66,264 | +17% | | Brokerage, clearing and exchange | $44,138 | $30,532 | +45% | | Amortization of other intangibles | $43,521 | $29,552 | +47% | | Professional services | $36,326 | $13,279 | +174% | | Communications and data processing | $19,506 | $19,744 | -1% | | Other | $48,689 | $37,315 | +30% | - Advisory and commission expense increased due to higher revenue and the effect of prior year acquisitions, with the payout rate increasing by 11 basis points to 86.75%[86] - Compensation and benefits expense increased by $31.2 million, primarily due to a 10% increase in employee headcount to 9,118[87] - Professional services expense surged by $23.0 million, mainly driven by technology enhancement projects and acquisition-related support[95] Liquidity and Capital Resources This section details the company's liquidity management, capital resources, and compliance with debt covenants to support operations and strategic growth Liquidity The company prioritizes liquidity to support strategic initiatives, meet regulatory capital requirements, and maintain operations under various market conditions - Liquidity is critical for supporting strategic initiatives, meeting regulatory capital requirements, and maintaining operations under normal and stressed market conditions[99][100] - The company believes it has adequate liquidity from cash flows, available cash balances, and external sources to satisfy short-term and long-term working capital needs, obligations, and anticipated acquisitions[100] Parent Company Liquidity The Parent company's liquidity is primarily derived from LPL Financial's dividends and excess capital, supplemented by its revolving credit facility - Parent company liquidity primarily comes from dividends and excess capital generated by LPL Financial, and capacity under its $2.25 billion unsecured revolving credit facility[101] Corporate Cash Components (in thousands) | Metric | Mar 31, 2025 | Dec 31, 2024 | Change | | :---------------------------------- | :----------- | :----------- | :----- | | Corporate Cash | $620,630 | $479,438 | +$141,192 | | Cash at the Parent | $104,080 | $39,782 | +$64,298 | | Excess cash at regulated subsidiaries per Credit Agreement | $476,908 | $397,138 | +$79,770 | | Cash at non-regulated subsidiaries | $39,642 | $42,518 | -$2,876 | - Corporate Cash increased by $141.2 million during Q1 2025, primarily from proceeds of the $1.25 billion debt issuance in February 2025, targeting approximately $200 million for near-term corporate debt obligations[104] LPL Financial Liquidity LPL Financial primarily uses client payables to fund margin lending and maintains additional liquidity through external lines of credit - LPL Financial relies primarily on client payables to fund margin lending[110] - Maintains additional liquidity through external lines of credit totaling $1.2 billion at March 31, 2025, and a line of credit with the Parent[110] External Liquidity Sources The company's external liquidity includes a $2.25 billion senior unsecured revolving credit facility and a $1.0 billion broker-dealer facility, both undrawn External Lines of Credit (Mar 31, 2025, in millions) | Description | Borrower | Maturity Date | Outstanding | Available | | :---------------------------------- | :--------------- | :------------ | :---------- | :-------- | | Senior unsecured, revolving credit facility | LPL Holdings, Inc. | May 2029 | $0 | $2,250 | | Broker-dealer revolving credit facility | LPL Financial LLC | May 2025 | $0 | $1,000 | | Unsecured, uncommitted lines of credit | LPL Financial LLC | None | $0 | $75 | | Unsecured, uncommitted lines of credit | LPL Financial LLC | September 2025 | $0 | $50 | | Secured, uncommitted lines of credit | LPL Financial LLC | March 2028 | $0 | $75 | Capital Resources The company manages capital to support its business strategy, with LPL Financial LLC maintaining significant excess net capital above regulatory requirements - Primary working capital requirements relate to funds loaned to advisors' clients for margin trading and regulatory capital/reserve requirements[113] - LPL Financial LLC computes net capital requirements under the alternative method, requiring minimum net capital equal to the greater of $250,000 or 2% of aggregate debit balances[116] LPL Financial LLC Net Capital Position (Mar 31, 2025, in thousands) | Metric | Amount | | :----- | :----- | | Net capital | $494,111 | | Less: required net capital | $17,926 | | Excess net capital | $476,185 | - All other regulated subsidiaries (LPL Enterprise, Atria's broker-dealer subsidiaries, and PTC) met their respective minimum capital adequacy requirements as of March 31, 2025[119] Supplemental Guarantor Financial Information Unaudited summarized financial information is presented for the Obligor Group, excluding non-guarantor subsidiaries, showing a net loss primarily from unrealized gains and losses - Unaudited summarized financial information is presented for the Obligor Group (LPL Holdings, Inc. and LPL Financial Holdings Inc.) on a combined basis, excluding non-guarantor subsidiaries[120][121] Obligor Group Combined Summarized Statements of Income (Q1 2025, in thousands) | Metric | Q1 2025 | | :----- | :------ | | Revenues | $(21,115) | | Revenues from non-guarantor subsidiaries | $4,062 | | Advisory and commission expense | $(17,237) | | Interest expense on borrowings | $84,871 | | Expenses from non-guarantor subsidiaries | $5,700 | | Loss before provision for income taxes | $(107,914) | | Net loss | $(82,851) | - The net loss for the Obligor Group was primarily due to unrealized gains and losses on assets held in the non-qualified deferred compensation plan and associated advisory and commission expense[123] Debt and Related Covenants The company's Credit Agreement contains restrictive covenants, with the company confirming compliance with all financial covenants as of March 31, 2025 - The Credit Agreement contains covenants that restrict the company's ability to incur additional indebtedness, declare dividends, repurchase equity, make investments or acquisitions, and engage in certain transactions[125][126] - As of March 31, 2025, the company was in compliance with its Credit Agreement financial covenants[128] Financial Covenant Compliance (Mar 31, 2025) | Financial Ratio | Covenant Requirement | Actual Ratio | | :-------------- | :------------------- | :----------- | | Leverage Ratio (Maximum) | 4.0 | 1.82 | | Interest Coverage (Minimum) | 3.0 | 9.84 | Contractual Obligations No material changes to contractual obligations occurred during Q1 2025, beyond the ordinary course of business, from those in the 2024 Annual Report - There were no material changes in contractual obligations during Q1 2025, other than in the ordinary course of business, from those disclosed in the 2024 Annual Report on Form 10-K[130] Risk Management This section outlines the company's approach to managing operational and regulatory risks inherent in its financial services activities Operational Risk Operational risk, inherent in all company activities, is defined as the potential for loss from inadequate or failed internal processes, systems, or external events - Operational risk is the risk of loss resulting from inadequate or failed processes and/or systems as a result of external events, inherent in all company activities[134] Regulatory and Compliance Risk The company operates in a highly regulated environment, facing increasing scrutiny regarding the quality and oversight of its compliance systems and programs - The company operates in a highly regulated environment, with regulators broadening the scope, frequency, and depth of examinations and inquiries[135] - There is increased emphasis on the quality, consistency, and oversight of the company's compliance systems and programs[135] Critical Accounting Policies and Estimates No material changes occurred in the company's critical accounting policies and estimates since the 2024 Annual Report, with financial statements conforming to GAAP - There have been no material changes to the company's critical accounting policies and estimates since the filing of its 2024 Annual Report on Form 10-K[136] - The condensed consolidated financial statements conform in all material respects to GAAP[136] Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including income, condition, equity, and cash flows, along with detailed explanatory notes Condensed Consolidated Statements of Income (unaudited) Net income increased by 10% to $318.6 million in Q1 2025, driven by a 30% rise in total revenue, partially offset by a 32% increase in total expenses Condensed Consolidated Statements of Income (Q1 2025 vs. Q1 2024, in thousands) | Metric | Q1 2025 | Q1 2024 | | :---------------------------------- | :------ | :------ | | Total revenue | $3,670,007 | $2,832,593 | | Total expense | $3,252,754 | $2,458,401 | | Income before provision for income taxes | $417,253 | $374,192 | | Provision for income taxes | $98,680 | $85,428 | | Net income | $318,573 | $288,764 | | Earnings per share, diluted | $4.24 | $3.83 | - Net income increased by 10% to $318.6 million in Q1 2025, driven by a 30% rise in total revenue, partially offset by a 32% increase in total expenses[138] Condensed Consolidated Statements of Financial Condition (unaudited) Total assets increased to $13.96 billion at March 31, 2025, driven by cash, advisor loans, goodwill, and other intangibles, while liabilities also rose Condensed Consolidated Statements of Financial Condition (Mar 31, 2025 vs. Dec 31, 2024, in thousands) | Metric | Mar 31, 2025 | Dec 31, 2024 | | :---------------------------------- | :----------- | :----------- | | Total assets | $13,963,222 | $13,317,404 | | Cash and equivalents | $1,229,181 | $967,079 | | Advisor loans, net | $2,468,033 | $2,281,088 | | Goodwill | $2,213,100 | $2,172,873 | | Other intangibles, net | $1,570,558 | $1,482,988 | | Total liabilities | $10,839,439 | $10,386,802 | | Client payables | $2,045,285 | $1,898,665 | | Corporate debt and other borrowings, net | $5,686,678 | $5,494,724 | | Total stockholders' equity | $3,123,783 | $2,930,602 | - Total assets increased to $13.96 billion at March 31, 2025, from $13.32 billion at December 31, 2024, driven by increases in cash, advisor loans, goodwill, and other intangibles[141] - Total liabilities increased to $10.84 billion, primarily due to higher client payables and corporate debt[141] Condensed Consolidated Statements of Stockholders' Equity (unaudited) Total stockholders' equity increased to $3.12 billion at March 31, 2025, primarily due to net income and share-based compensation, partially offset by repurchases and dividends Condensed Consolidated Statements of Stockholders' Equity (Q1 2025, in thousands) | Metric | Dec 31, 2024 | Net Income | Treasury Stock Purchases | Cash Dividends | Share-based Compensation | Mar 31, 2025 | | :---------------------------------- | :----------- | :--------- | :--------------------- | :------------- | :----------------------- | :----------- | | Total Stockholders' Equity | $2,930,602 | $318,573 | $(100,244) | $(22,392) | $19,248 | $3,123,783 | - Total stockholders' equity increased to $3.12 billion at March 31, 2025, from $2.93 billion at December 31, 2024, primarily due to net income and share-based compensation, partially offset by share repurchases and cash dividends[144] Condensed Consolidated Statements of Cash Flows (unaudited) Net cash from operating activities decreased in Q1 2025, while financing activities shifted to a positive flow due to significant debt issuance Condensed Consolidated Statements of Cash Flows (Q1 2025 vs. Q1 2024, in thousands) | Metric | Q1 2025 | Q1 2024 | | :---------------------------------- | :------ | :------ | | Net cash provided by operating activities | $339,810 | $425,901 | | Net cash used in investing activities | $(199,159) | $(129,945) | | Net cash provided by (used in) financing activities | $29,973 | $(49,847) | | Net increase in cash and equivalents, segregated cash, and restricted cash | $170,624 | $246,109 | - Net cash provided by operating activities decreased to $339.8 million in Q1 2025 from $425.9 million in Q1 2024[147] - Net cash provided by financing activities significantly shifted to a positive $29.9 million in Q1 2025, primarily due to $1.25 billion in proceeds from senior unsecured notes, offsetting repayments of revolving credit facilities and share repurchases[147][150] Notes to Condensed Consolidated Financial Statements (unaudited) These notes provide essential details on the company's organization, accounting policies, revenue, acquisitions, fair value, debt, and other financial disclosures Note 1 - Organization and Description of the Company LPLFH provides integrated brokerage and investment advisory services through its consolidated subsidiaries, including LPL Financial LLC and Atria Wealth Solutions, Inc - LPLFH provides an integrated platform of brokerage and investment advisory services to independent financial advisors and institutions in the United States[152] - Significant wholly-owned subsidiaries include LPL Financial LLC (clearing broker-dealer), LPL Enterprise, Atria Wealth Solutions, Inc. (acquired), and The Private Trust Company, N.A. (trust, investment management, and custodial services)[154] Note 2 - Summary of Significant Accounting Policies The unaudited condensed consolidated financial statements are prepared in accordance with GAAP, with no material impact from new accounting pronouncements in Q1 2025 - The condensed consolidated financial statements are prepared in accordance with GAAP, requiring estimates and assumptions regarding financial instrument valuation, acquisitions, and accruals[153][156] - No new accounting pronouncements adopted during the three months ended March 31, 2025, materially impacted the company's condensed consolidated financial statements[158] Note 3 - Revenue This note disaggregates commission and asset-based revenue by category and details the increase in unearned revenue due to advance payments for services Total Commission Revenue by Product (Q1 2025 vs. Q1 2024, in thousands) | Product Category | Q1 2025 | Q1 2024 | | :--------------- | :------ | :------ | | Annuities | $615,594 | $436,473 | | Mutual funds | $233,895 | $186,540 | | Fixed income | $61,553 | $48,641 | | Equities | $49,074 | $35,451 | | Other | $87,641 | $39,341 | | Total commission revenue | $1,047,757 | $746,446 | Asset-Based Revenue by Category (Q1 2025 vs. Q1 2024, in thousands) | Category | Q1 2025 | Q1 2024 | | :------- | :------ | :------ | | Client cash | $392,031 | $352,382 | | Sponsorship programs | $170,538 | $134,101 | | Recordkeeping | $132,672 | $114,238 | | Total asset-based revenue | $695,241 | $600,721 | - Unearned revenue increased from $207.6 million at December 31, 2024, to $270.0 million at March 31, 2025, primarily due to cash payments received in advance for advisory services and conferences[168] Note 4 - Acquisitions The company announced the $2.7 billion acquisition of Commonwealth Financial Network, financed by recent debt and equity issuances, and completed eleven smaller acquisitions in Q1 2025 - On March 31, 2025, the company announced an agreement to acquire Commonwealth Financial Network for $2.7 billion, with the transaction expected to close in the second half of 2025[170] - The acquisition of Commonwealth will be financed through corporate cash and proceeds from debt and equity issuances completed in April 2025[171] - During Q1 2025, the company completed eleven acquisitions, including The Investment Center for $76.7 million, and recorded purchase accounting adjustments for the Atria acquisition, resulting in a $6.7 million increase to goodwill[172][173][179] Note 5 - Fair Value Measurements The company measures financial assets and liabilities at fair value using a three-level hierarchy, with Level 3 contingent consideration liabilities decreasing to $161.4 million - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[191][192][193] - Contingent consideration liabilities are measured at fair value on a recurring basis using Level 3 unobservable inputs, including forecasted growth rates, discount rates, and conversion/retention rates[202][203] Changes in Level 3 Liabilities (Q1 2025 vs. Q1 2024, in thousands) | Metric | Q1 2025 | Q1 2024 | | :----- | :------ | :------ | | Balance - Beginning of period | $196,898 | $118,844 | | Additions and purchase accounting adjustments | $129 | $19,918 | | Payments | $(42,249) | $(51,500) | | Fair value adjustments | $6,594 | $0 | | Balance - End of period | $161,372 | $87,262 | Note 6 - Investment Securities Total investment securities increased to $138.0 million at March 31, 2025, primarily due to an increase in trading securities, with held-to-maturity notes satisfying capital requirements Investment Securities (Mar 31, 2025 vs. Dec 31, 2024, in thousands) | Category | Mar 31, 2025 | Dec 31, 2024 | | :------- | :----------- | :----------- | | Total trading securities (at fair value) | $122,729 | $42,267 | | Total held-to-maturity securities (at amortized cost) | $15,278 | $15,214 | | Total investment securities | $138,007 | $57,481 | - Held-to-maturity securities, consisting of U.S. government notes, are held by The Private Trust Company, N.A. to satisfy minimum capital requirements[221] Note 7 - Goodwill and Other Intangibles, Net Goodwill increased to $2.21 billion due to acquisitions and adjustments, while other intangibles, primarily advisor and client relationships, totaled $1.57 billion Goodwill Activity (in thousands) | Metric | Amount | | :----- | :----- | | Balance at December 31, 2024 | $2,172,873 | | Purchase accounting adjustments | $6,663 | | Goodwill acquired | $33,564 | | Balance at March 31, 2025 | $2,213,100 | Components of Other Intangibles, Net (Mar 31, 2025, in thousands) | Category | Net Carrying Value | Weighted-Average Life Remaining (years) | | :---------------------------------- | :----------------- | :------------------------------------ | | Advisor and institution relationships | $925,703 | 13.4 | | Client relationships | $587,506 | 12.7 | | Product sponsor relationships | $10,308 | 1.1 | | Technology | $7,222 | 7.1 | | Trademark and trade name (indefinite-lived) | $39,819 | N/A | | Total other intangibles, net | $1,570,558 | | - Total amortization of other intangibles was $43.5 million for Q1 2025, an increase from $29.6 million in Q1 2024[227] Note 8 - Other Assets and Other Liabilities Other assets remained stable at $1.82 billion, while other liabilities increased to $2.07 billion, driven by higher unearned revenue and taxes payable Other Assets (Mar 31, 2025 vs. Dec 31, 2024, in thousands) | Category | Mar 31, 2025 | Dec 31, 2024 | | :------- | :----------- | :----------- | | Deferred compensation | $862,073 | $865,585 | | Prepaid assets | $232,335 | $194,690 | | Fractional shares — investment | $281,086 | $278,683 | | Deferred tax assets, net | $134,873 | $129,902 | | Operating lease assets | $136,825 | $119,144 | | Referral fee | $91,643 | $85,780 | | Debt issuance costs, net | $12,900 | $14,154 | | Other | $63,994 | $127,801 | | Total other assets | $1,815,729 | $1,815,739 | Other Liabilities (Mar 31, 2025 vs. Dec 31, 2024, in thousands) | Category | Mar 31, 2025 | Dec 31, 2024 | | :------- | :----------- | :----------- | | Deferred compensation | $859,217 | $862,698 | | Unearned revenue | $270,024 | $207,563 | | Fractional shares — repurchase obligation | $281,086 | $278,683 | | Operating lease liabilities | $166,370 | $147,718 | | Finance lease liabilities | $104,966 | $105,123 | | Taxes payable | $224,367 | $134,815 | | Contingent consideration | $161,372 | $196,898 | | Other | $4,399 | $18,241 | | Total other liabilities | $2,071,801 | $1,951,739 | Note 9 - Corporate Debt and Other Borrowings, Net Corporate debt increased to $5.69 billion due to a $1.25 billion senior unsecured note issuance in Q1 2025, with an additional $1.5 billion issued in April for the Commonwealth acquisition Corporate Debt and Other Borrowings, Net (Mar 31, 2025 vs. Dec 31, 2024, in thousands) | Category | Mar 31, 2025 | Dec 31, 2024 | | :------- | :----------- | :----------- | | Total Corporate Debt | $5,720,000 | $4,470,000 | | Less: Unamortized Debt Issuance Cost | $(33,322) | $(22,276) | | Corporate debt, net | $5,686,678 | $4,447,724 | | Total other borrowings (Revolving Credit Facility) | $0 | $1,047,000 | | Corporate Debt and Other Borrowings, Net | $5,686,678 | $5,494,724 | - Issued $1.25 billion in 5.200% senior notes due 2030 and 5.650% senior notes due 2035 in February 2025, using proceeds to repay revolving credit facility borrowings and for general corporate purposes[237] - On April 3, 2025, the company issued an additional $1.5 billion in senior unsecured notes to fund the acquisition of Commonwealth Financial Network[247] Note 10 - Commitments and Contingencies The company is subject to various legal and regulatory proceedings, for which it establishes accruals, and maintains self-insurance liabilities that increased to $83.7 million - The company is subject to extensive regulation and supervision, leading to inquiries, investigations, and potential regulatory complaints or legal proceedings[252] - Accruals are established for legal proceedings and regulatory matters where a loss is both probable and reasonably estimable[255] Self-Insurance Liabilities Reconciliation (in thousands) | Metric | Q1 2025 | Q1 2024 | | :---------------------------------- | :------ | :------ | | Beginning balance — January 1 | $79,637 | $82,883 | | Losses incurred | $9,637 | $9,306 | | Losses paid | $(5,531) | $(12,205) | | Ending balance — March 31 | $83,743 | $79,984 | Note 11 - Stockholders' Equity The Board declared a $0.30 per share cash dividend, and the company repurchased $100.0 million of common stock in Q1 2025, with repurchases now paused due to the Commonwealth acquisition Cash Dividends on Common Stock | Period | Dividend per Share | Total Cash Dividend (millions) | | :----- | :----------------- | :----------------------------- | | First quarter 2025 | $0.30 | $22.4 | | First quarter 2024 | $0.30 | $22.4 | - During Q1 2025, LPLFH repurchased 289,371 shares of common stock for $100.0 million, with $630.0 million remaining under the existing repurchase program as of March 31, 2025[266] - Share repurchases have been paused due to the planned acquisition of Commonwealth Financial Network[266] - On April 2, 2025, the company completed a public offering of approximately 5.4 million shares, generating approximately $1.7 billion to fund the Commonwealth acquisition[267] Note 12 - Share-based Compensation The company grants equity awards under its 2021 Omnibus Equity Incentive Plan, with total unrecognized compensation costs of $149.6 million for employees and $6.1 million for advisors - Equity awards are granted under the 2021 Omnibus Equity Incentive Plan to employees, non-employee directors, and other service providers[268] - Total unrecognized compensation cost for restricted stock awards and stock units for employees and officers was $149.6 million, expected to be recognized over a weighted-average remaining period of 2.4 years[275] - Total unrecognized compensation cost for restricted stock units granted to advisors and institutions was $6.1 million, expected to be recognized over a weighted-average remaining period of 2.1 years[276] Note 13 - Earnings per Share Diluted earnings per share for Q1 2025 was $4.24, based on net income of $318.6 million and 75.1 million diluted weighted-average shares outstanding Earnings Per Share (Q1 2025 vs. Q1 2024, in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :----- | :------ | :------ | | Net income | $318,573 | $288,764 | | Basic weighted-average number of shares outstanding | 74,600 | 74,562 | | Dilutive common share equivalents | 512 | 901 | | Diluted weighted-average number of shares outstanding | 75,112 | 75,463 | | Basic earnings per share | $4.27 | $3.87 | | Diluted earnings per share | $4.24 | $3.83 | Note 14 - Net Capital and Regulatory Requirements LPL Financial LLC maintained $494.1 million in net capital at March 31, 2025, resulting in $476.2 million of excess net capital, well above regulatory minimums - LPL Financial LLC is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which specifies minimum capital requirements[278] LPL Financial LLC Net Capital Position (Mar 31, 2025, in thousands) | Metric | Amount | | :----- | :----- | | Net capital | $494,111 | | Less: required net capital | $17,926 | | Excess net capital | $476,185 | - All other regulated subsidiaries, including LPL Enterprise, Atria's introducing broker-dealer subsidiaries, and PTC, met their respective minimum capital adequacy requirements as of March 31, 2025[280] Note 15 - Financial Instruments with Off-Balance Sheet Credit Risk and Concentrations of Credit Risk The company manages off-balance sheet credit risk from advisor loans and client margin transactions through creditworthiness evaluations, daily monitoring, and collateral requirements - LPL Financial incurs credit risk from loans to advisors/institutions, client securities activities on margin, and settlement obligations with brokers and other financial institutions[281][282][283] - Risk mitigation strategies include evaluating advisor/institution creditworthiness, daily monitoring of margin levels, and requiring clients to deposit additional collateral or reduce positions[281][282] - Concentration risk is managed through review of underlying business and the use of limits established by senior management[306] Note 16 - Segment Information The company operates as a single reportable segment, as determined by its Chief Operating Decision Maker, given the common nature of its operations and services - The company has one reportable segment, as determined by its Chief Operating Decision Maker (CODM), due to the common nature of its operations, products, and services[288] - The CODM regularly reviews pre-tax net income and key expense line items for performance assessment and resource allocation[289] Note 17 - Subsequent Events The Board of Directors declared a cash dividend of $0.30 per share on LPLFH's common stock, payable on June 12, 2025 - The Board declared a cash dividend of $0.30 per share on LPLFH's common stock, payable on June 12, 2025, to stockholders of record on May 30, 2025[290] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market, interest rate, and credit risks, and the strategies employed for their monitoring and mitigation Market Risk The company faces market risk from trading securities, client facilitation, and asset-based fees, with positions held to support client transactions and research models - Market risk arises from trading securities, securities sold but not yet purchased, and other market-sensitive instruments (e.g., deferred compensation plan assets, non-traded real estate investment trusts)[291] - Trading securities are maintained to facilitate client transactions, meet clearing deposit requirements, and track the performance of research models[291][292][293][294] - As of March 31, 2025, the fair value of trading securities was $122.7 million, and market risk sensitive instruments within other assets totaled $1.1 billion[296] Interest Rate Risk The company is exposed to interest rate risk from its $1.0 billion floating-rate Term Loan A and client cash programs, with offsetting revenue effects - Approximately $1.0 billion of the company's outstanding debt (Term Loan A) is subject to floating interest rate risk[297] - Revenue generated by client cash balances (Insured Cash Account, Deposit Cash Account, Client Cash Account) is generally subject to the same, but offsetting, interest rate risk[297][300][301] Annual Impact of Interest Rate Increase on Variable Rate Debt (in thousands) | Corporate Debt and Other Borrowings | Outstanding Balance at Mar 31, 2025 | 10 Basis Points | 25 Basis Points | 50 Basis Points | 100 Basis Points | | :---------------------------------- | :---------------------------------- | :-------------- | :-------------- | :-------------- | :--------------- | | Term Loan A | $1,020,000 | $1,020 | $2,550 | $5,100 | $10,200 | | Revolving Credit Facility | $0 | $0 | $0 | $0 | $0 | | Variable Rate Debt Outstanding | $1,020,000 | $1,020 | $2,550 | $5,100 | $10,200 | Credit Risk The company manages credit risk from advisor loans and client margin activities through creditworthiness evaluations, daily monitoring, and concentration limits - Credit risk arises from loans to advisors/institutions (especially forgivable loans that convert to repayable) and from client margin lending where collateral may be insufficient[302][303] - Risk mitigation includes evaluating advisor/institution creditworthiness, daily monitoring of margin levels, and adjusting margin requirements based on market conditions[302][304] - Concentration risk is managed by reviewing the underlying business and establishing limits based on factors like counterparty financial strength and market conditions[306] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the first quarter of 2025 Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[307] Change in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the first quarter ended March 31, 2025 - No material changes in internal control over financial reporting occurred during the first quarter ended March 31, 2025[308] PART II — OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings The company is subject to ongoing legal and regulatory proceedings, including lawsuits, arbitration claims, and inquiries from regulatory bodies - The company is subject to various legal and regulatory proceedings arising out of its business operations, including lawsuits, arbitration claims, and investigations by the SEC, FINRA, and state securities regulators[310] - Additional information regarding these matters is provided in Note 10 - Commitments and Contingencies[310] Item 1A. Risk Factors No material changes in the company's risk factors have occurred since those disclosed in its 2024 Annual Report on Form 10-K - No material changes in the company's risk factors have occurred since the 2024 Annual Report on Form 10-K[311] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $100.0 million of common stock in Q1 2025, with $630.0 million remaining under the existing share repurchase program Share Repurchases (Q1 2025) | Period | Total Number of Shares Purchased | Weighted-Average Price Paid per Share | Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (millions) | | :---------------------------------- | :------------------------------- | :---------------------------------- | :----------------------------------------------- | :----------------------------------------------------------------------------------- | | January 1, 2025 through January 31, 2025 | 107,838 | $344.29 | 107,838 | $692.9 | | February 1, 2025 through February 28, 2025 | 87,107 | $369.03 | 87,107 | $660.7 | | March 1, 2025 through March 31, 2025 | 94,426 | $325.46 | 94,426 | $630.0 | | Total | 289,371 | | 289,371 | | - As of March 31, 2025, $630.0 million remained available under the existing share repurchase program[312] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[313] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable to the company[314] Item 5. Other Information Certain officers of the company entered into, modified, or terminated Rule 10b5-1 trading plans for common stock during Q1 2025 - Certain officers entered into, modified, or terminated Rule 10b5-1 trading plans for the purchase or sale of common stock during the three months ended March 31, 2025[315] Officer Trading Plan Example | Officer | Date of Plan Adoption | Commencement of Trading Period | Termination of Trading Period | Maximum Number of Securities to be Purchased or Sold | Purchase or Sale | | :------------------------------------------------- | :-------------------- | :----------------------------- | :---------------------------- | :------------------------------------------------- | :--------------- | | Gregory Gates, Group Managing Director, Chief Technology & Information Officer | March 7, 2025 | June 5, 2025 | June 4, 2026 | 9,000 | Sale | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the Equity Purchase Agreement for Commonwealth, corporate governance documents, and certifications - The exhibits include the Equity Purchase Agreement for Commonwealth Financial Network, Amended and Restated Certificate of Incorporation, Bylaws, Supplemental Indentures for senior notes, and various certifications[318] - Also includes Inline XBRL Taxonomy Extension Schema, Calculation, Label, Presentation, and Definition files, and the Cover Page Interactive Data File[318] SIGNATURES The report is signed by the Chief Executive Officer, President and Chief Financial Officer, and Chief Accounting Officer on May 9, 2025 - The report is signed by Richard Steinmeier (Chief Executive Officer), Matthew Audette (President and Chief Financial Officer), and Katharine Reeping (Chief Accounting Officer) on May 9, 2025[322]