UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number: 001-34963

LPL Financial Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3717839
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

75 State Street, Boston, MA 02109

(Address of Principal Executive Offices) (Zip Code)

(617) 423-3644

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes     o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes     o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes     x No

The number of shares of Common Stock, par value $0.001 per share, outstanding as of October 26, 2015 was 94,994,871.

TABLE OF CONTENTS

Item Number	Page
PART I — FINANCIAL INFORMATION
1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income (unaudited)	1
Condensed Consolidated Statements of Comprehensive Income (unaudited)	2
Condensed Consolidated Statements of Financial Condition (unaudited)	3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	4
Condensed Consolidated Statements of Cash Flows (unaudited)	5
Notes to Condensed Consolidated Financial Statements (unaudited)	7
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
3. Quantitative and Qualitative Disclosures About Market Risk	40
4. Controls and Procedures	44
PART II — OTHER INFORMATION	46
1. Legal Proceedings	46
1A. Risk Factors	46
2. Unregistered Sales of Equity Securities and Use of Proceeds	46
3. Defaults Upon Senior Securities	47
4. Mine Safety Disclosures	47
5. Other Information	47
6. Exhibits	48
SIGNATURES	49

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and other information required by the Securities Exchange Act of 1934, as amended (“Exchange Act”), with the Securities and Exchange Commission (“SEC”). You may read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov.

On our internet site, http://www.lpl.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Hard copies of all such filings are available free of charge by request via email (investor.relations@lpl.com), telephone (617) 897-4574, or mail (LPL Financial Investor Relations at 75 State Street, 24th Floor, Boston, MA 02109). The information contained or incorporated on our website is not a part of this Quarterly Report on Form 10-Q.

When we use the terms “LPLFH,” “we,” “us,” “our” and the “Company,” we mean LPLFinancial Holdings Inc., a Delaware corporation, and its consolidated subsidiaries,taken as a whole, unless the context otherwiseindicates.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in Item 2 - “Management's Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report on Form 10-Q regarding the Company's future financial and operating results, growth, business strategies and plans, liquidity, future indebtedness, future share repurchases, and future dividends, including statements regarding future resolution of regulatory matters and related costs, income projections based on changes in interest rates, and projected savings and anticipated improvements to the Company's operating model, services, and technology as a result of its initiatives and programs, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of October 29, 2015. The words “anticipates,” “believes,” “expects,” “may,” “plans,” “predicts,” “will,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees that the future results, plans, intentions, or expectations expressed or implied by the Company will be achieved. Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive, and other factors, which may cause actual financial or operating results, levels of activity, or the timing of events, to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: changes in general economic and financial market conditions, including retail investor sentiment; fluctuations in the value of brokerage and advisory assets; fluctuations in levels of net new advisory assets and the related impact on fee revenue; effects of competition in the financial services industry; changes in the number of the Company's financial advisors and institutions, and their ability to market effectively financial products and services; changes in interest rates and fees payable by banks participating in the Company's cash sweep program, including the Company's success in negotiating agreements with current or additional counterparties; changes in the growth of the Company’s fee-based business; the effect of current, pending, and future legislation, regulation, and regulatory actions, including the fiduciary rule proposed by the U.S. Department of Labor and disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to pending or future regulatory matters; execution of the Company’s capital management plans, including its ability to increase its level of indebtedness, refinance a portion of its existing debt and amend certain restrictive covenants, each of which is subject to conditions in the debt capital markets and the Company’s success in renegotiating certain terms of its existing credit agreement; the price, availability of shares and trading volumes of the Company’s common stock, which will affect the timing and size of future share repurchases by the Company;

execution of the Company's plans and its success in realizing the expense savings and service improvements and efficiencies expected to result from its initiatives and programs, particularly its expense plans and technological initiatives; the Company's success in negotiating and developing commercial arrangements with third-party services providers; the performance of third-party service providers on which the Company relies; the Company's ability to control operating risks, information technology systems risks, cybersecurity risks, and sourcing risks; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2014 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of deve

ii

lopments occurring after the date of this quarterly report, even if its estimates change, and you should not rely on statements contained herein as representing the Company's views as of any date subsequent to the date of this quarterly report.

ii

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
REVENUES:
Commission	$	480,271		$	520,388	$	1,513,359	$	1,590,139
Advisory	341,217			340,369		1,028,213		998,016
Asset-based	123,921			121,283		369,625		354,494
Transaction and fee	105,593			94,674		305,099		276,284
Interest income, net of interest expense	5,221			4,727		14,976		14,279
Other	(1,478		)	7,793		23,436		36,182
Total net revenues	1,054,745			1,089,234		3,254,708		3,269,394
EXPENSES:
Commission and advisory	701,585			746,001		2,179,686		2,242,206
Compensation and benefits	110,494			106,290		335,111		317,459
Promotional	42,040			36,669		104,416		93,581
Depreciation and amortization	26,766			24,519		79,564		70,618
Occupancy and equipment	19,760			19,043		61,957		62,922
Professional services	15,341			38,174		43,914		82,736
Brokerage, clearing and exchange	13,403			12,090		39,680		36,594
Communications and data processing	11,253			11,476		33,974		32,598
Restructuring charges	3,071			9,928		11,487		26,473
Other	28,852			16,694		86,796		51,395
Total operating expenses	972,565			1,020,884		2,976,585		3,016,582
Non-operating interest expense	13,493			12,897		40,671		38,651
Total expenses	986,058			1,033,781		3,017,256		3,055,233
INCOME BEFORE PROVISION FOR INCOME TAXES	68,687			55,453		237,452		214,161
PROVISION FOR INCOME TAXES	27,635			22,181		95,480		84,663
NET INCOME	$	41,052		$	33,272	$	141,972	$	129,498
EARNINGS PER SHARE (NOTE 12)
Earnings per share, basic	$	0.43		$	0.33	$	1.48	$	1.29
Earnings per share, diluted	$	0.43		$	0.33	$	1.46	$	1.26
Weighted-average shares outstanding, basic	94,972			100,052		95,744		100,519
Weighted-average shares outstanding, diluted	96,472			101,834		97,303		102,384

See notes to unaudited condensed consolidated financial statements.

1

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
NET INCOME	$	41,052		$	33,272		$	141,972		$	129,498
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on cash flow hedges, net of tax expense of ($98), ($63), $96, and $863 for the three and nine months ended September 30, 2015 and 2014, respectively	(156		)	(101		)	121			1,361
Reclassification adjustment for realized gain on cash flow hedges included in net income, net of tax expense of $62, $85, $290, and $113 for the three and nine months ended September 30, 2015 and 2014, respectively	(100		)	(135		)	(463		)	(180		)
Total other comprehensive (loss) income, net of tax	(256		)	(236		)	(342		)	1,181
TOTAL COMPREHENSIVE INCOME	$	40,796		$	33,036		$	141,630		$	130,679

See notes to unaudited condensed consolidated financial statements.

2

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(Unaudited)

(Dollars in thousands, except par value)

	September 30, 2015			December 31, 2014
ASSETS
Cash and cash equivalents	$	410,036		$	412,332
Cash and securities segregated under federal and other regulations	470,721			568,930
Restricted cash	22,462			1,109
Receivables from:
Clients, net of allowance of $1,337 at September 30, 2015 and $1,245 at December 31, 2014	344,351			365,390
Product sponsors, broker-dealers, and clearing organizations	154,306			177,470
Others, net of allowance of $11,340 at September 30, 2015 and $8,379 at December 31, 2014	323,238			291,449
Securities owned:
Trading — at fair value	16,611			13,466
Held-to-maturity — at amortized cost	10,847			8,594
Securities borrowed	6,488			5,035
Income taxes receivable	17,370			84
Fixed assets, net of accumulated depreciation and amortization of $320,897 at September 30, 2015 and $288,834 at December 31, 2014	256,998			214,154
Debt issuance costs, net of accumulated amortization of $13,922 at September 30, 2015 and $11,724 at December 31, 2014	11,042			13,241
Goodwill	1,365,838			1,365,838
Intangible assets, net of accumulated amortization of $333,207 at September 30, 2015 and $305,154 at December 31, 2014	401,563			430,704
Other assets	167,487			183,197
Total assets	$	3,979,358		$	4,050,993
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Drafts payable	$	144,307		$	180,099
Payables to clients	558,540			652,714
Payables to broker-dealers and clearing organizations	43,531			45,427
Accrued commission and advisory expenses payable	132,682			146,504
Accounts payable and accrued liabilities	308,884			289,426
Unearned revenue	71,847			64,482
Securities sold, but not yet purchased — at fair value	226			302
Senior secured credit facilities	1,666,129			1,634,258
Leasehold financing obligation	43,182			—
Deferred income taxes, net	64,633			66,181
Total liabilities	3,033,961			3,079,393
Commitments and contingencies
STOCKHOLDERS’ EQUITY:
Common stock, $.001 par value; 600,000,000 shares authorized; 119,238,650 shares issued at September 30, 2015 and 118,234,552 shares issued at December 31, 2014	119			118
Additional paid-in capital	1,401,441			1,355,085
Treasury stock, at cost — 24,435,356 shares at September 30, 2015 and 21,089,882 shares at December 31, 2014	(922,817		)	(780,661		)
Accumulated other comprehensive income	595			937
Retained earnings	466,059			396,121
Total stockholders’ equity	945,397			971,600
Total liabilities and stockholders’ equity	$	3,979,358		$	4,050,993

See notes to unaudited condensed consolidated financial statements.

3

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

				Additional Paid-In Capital							Accumulated Other Comprehensive Income			Retained Earnings			Total Stockholders' Equity
	Common Stock					Treasury Stock
	Shares	Amount				Shares		Amount
BALANCE — December 31, 2013	117,112	$	117	$	1,292,374	15,216		$	(506,205	)	$	115		$	313,570		$	1,099,971
Net income and other comprehensive income, net of tax expense											1,181			129,498			130,679
Issuance of common stock to settle restricted stock units, net	40	1				13		(674		)							(673		)
Treasury stock purchases						2,990		(150,021		)							(150,021		)
Cash dividends on common stock														(72,104		)	(72,104		)
Stock option exercises and other	972			24,141		(31	)	1,078						115			25,334
Share-based compensation				22,649													22,649
Excess tax benefits from share-based compensation				7,537													7,537
BALANCE — September 30, 2014	118,124	$	118	$	1,346,701	18,188		$	(655,822	)	$	1,296		$	371,079		$	1,063,372
BALANCE — December 31, 2014	118,235	$	118	$	1,355,085	21,090		$	(780,661	)	$	937		$	396,121		$	971,600
Net income and other comprehensive income (loss), net of tax expense											(342		)	141,972			141,630
Issuance of common stock to settle restricted stock units, net	172	1				64		(2,868		)							(2,867		)
Treasury stock purchases						3,325		(140,835		)							(140,835		)
Cash dividends on common stock														(72,056		)	(72,056		)
Stock option exercises and other	832			22,331		(44	)	1,547						22			23,900
Share-based compensation				22,577													22,577
Excess tax benefits from share-based compensation				1,448													1,448
BALANCE — September 30, 2015	119,239	$	119	$	1,401,441	24,435		$	(922,817	)	$	595		$	466,059		$	945,397

See notes to unaudited condensed consolidated financial statements.

4

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	141,972		$	129,498
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash items:
Depreciation and amortization	79,564			70,618
Amortization of debt issuance costs	2,198			3,241
Share-based compensation	22,577			22,649
Excess tax benefits related to share-based compensation	(2,420		)	(7,666		)
Provision for bad debts	1,632			2,124
Deferred income tax provision	(1,354		)	585
Loan forgiveness	27,469			20,326
Other	13,308			3,339
Changes in operating assets and liabilities:
Cash and securities segregated under federal and other regulations	98,208			93,844
Receivables from clients	20,948			30,723
Receivables from product sponsors, broker-dealers, and clearing organizations	23,164			(4,369		)
Receivables from others	(61,523		)	(31,195		)
Securities owned	(3,763		)	(3,999		)
Securities borrowed	(1,453		)	(1,225		)
Other assets	3,457			(8,534		)
Drafts payable	(35,792		)	(59,876		)
Payables to clients	(94,174		)	17
Payables to broker-dealers and clearing organizations	(1,896		)	(4,842		)
Accrued commission and advisory expenses payable	(13,822		)	7,875
Accounts payable and accrued liabilities	19,706			(11,580		)
Income taxes receivable/payable	(14,866		)	(22,187		)
Unearned revenue	7,365			(4,922		)
Securities sold, but not yet purchased	(76		)	(193		)
Net cash provided by operating activities	$	230,429		$	224,251
Continued on following page

5

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows - Continued

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	$	(51,553	)	$	(69,830	)
Purchase of intangible assets	—			(9,000		)
Proceeds from disposal of fixed assets	—			7,123
Purchase of securities classified as held-to-maturity	(4,602		)	(6,749		)
Proceeds from maturity of securities classified as held-to-maturity	2,350			4,250
Deposits of restricted cash	(22,462		)	(6,049		)
Release of restricted cash	1,109			141
Net cash used in investing activities	(75,158		)	(80,114		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving credit facility	40,000			—
Repayment of senior secured credit facilities	(8,129		)	(8,129		)
Payment of contingent consideration	—			(3,300		)
Tax payments related to settlement of restricted stock units	(2,867		)	(673		)
Repurchase of common stock	(140,835		)	(150,021		)
Dividends on common stock	(72,056		)	(72,104		)
Excess tax benefits related to share-based compensation	2,420			7,666
Proceeds from stock option exercises and other	23,900			25,334
Net cash used in financing activities	(157,567		)	(201,227		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(2,296		)	(57,090		)
CASH AND CASH EQUIVALENTS — Beginning of period	412,332			516,584
CASH AND CASH EQUIVALENTS — End of period	$	410,036		$	459,494
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	38,509		$	38,877
Income taxes paid	$	112,899		$	109,805
NONCASH DISCLOSURES:
Capital expenditures included in accounts payable and accrued liabilities	$	7,843		$	6,462
Fixed assets acquired under build-to-suit lease	$	—		$	8,114
Finance obligation related to real estate projects	$	43,182		$	—

See notes to unaudited condensed consolidated financial statements.

6

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.    Organization and Description of the Company

LPL Financial Holdings Inc. (“LPLFH”), a Delaware holding corporation, together with its consolidated subsidiaries (collectively, the “Company”) provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at financial institutions (collectively “advisors”) in the United States of America. Through its custody and clearing platform, using both proprietary and third-party technology, the Company provides access to diversified financial products and services enabling its advisors to offer independent financial advice and brokerage services to retail investors (their “clients”).

2.    Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal recurring nature. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period.

The unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of results of income, comprehensive income, financial position, and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Accordingly, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2014, contained in the Company’s Annual Report on Form 10-K as filed with the SEC.

The Company’s significant accounting policies are included in Note 2. Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. There have been no significant changes to these accounting policies during the first nine months of 2015.

Consolidation

These unaudited condensed consolidated financial statements include the accounts of LPLFH and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not exercise control and is not the primary beneficiary are accounted for using the equity method.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on the information that is currently available and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could vary from these estimates.

Reportable Segment

The Company's internal reporting is organized into two service channels: Independent Advisor Services and Institution Services. These service channels are aggregated and viewed as one operating segment, and therefore, one reportable segment due to their similar economic characteristics, products and services, production and distribution processes, and regulatory environment.

Restricted Cash

Restricted cash primarily represents cash restricted for use by the Company’s captive insurance subsidiary.

7

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are carried at fair value or at amounts that, because of their short-term nature, approximate current fair value, with the exception of its held-to-maturity securities and indebtedness. The Company carries its held-to-maturity securities and indebtedness at amortized cost. The Company measures the implied fair value of its debt instruments using trading levels obtained from a third-party service provider. Accordingly, the debt instruments qualify as Level 2 fair value measurements. See Note 4.Fair Value Measurements, for additional detail regarding the Company’s fair value measurements. As of September 30, 2015, the carrying amount and fair value of the Company’s indebtedness was approximately $1,666.1 million and $1,658.1 million, respectively. As of December 31, 2014, the carrying amount and fair value was approximately $1,634.3 million and $1,620.8 million, respectively.

Leasehold Financing Obligation

The Company is involved with the construction of a building for use as office space in Fort Mill, South Carolina and has determined that it has substantially all of the risks of ownership during construction of the leased property. Accordingly, from an accounting perspective, the Company is deemed to be the owner of the construction project. As such, the Company records an asset for the amount of the total project costs and an amount related to the value attributed to the building under construction in fixed assets and the related financing obligation in leasehold financing obligations on the unaudited condensed consolidated statement of financial condition. Once construction is complete, the Company will determine if the asset qualifies for sale-leaseback accounting treatment.

Recently Issued Accounting Pronouncements

There are no recently issued accounting pronouncements that would materially impact the Company's condensed consolidated statements of income, comprehensive income, financial condition, or cash flows.

3.    Restructuring

In February 2013, the Company committed to an expansion of its Service Value Commitment initiative (the “Program”), an ongoing effort to position the Company's people, processes, and technology for sustainable long-term growth while improving the service experience of its advisors and delivering efficiencies in its operating model. The Program is expected to be completed in 2015.

The following table summarizes the balance of accrued expenses and the changes in the accrued amounts for the Program as of and for the nine months ended September 30, 2015 (in thousands):

	Accrued Balance at December 31, 2014		Costs Incurred		Payments			Accrued Balance at September 30, 2015		Cumulative Costs Incurred to Date		Total Expected Restructuring Costs
Outsourcing and other related costs	$	—	$	1,198	$	(1,198	)	$	—	$	22,686	$	23,500
Technology transformation costs	4,458		377		(4,424		)	411		30,295		30,300
Employee severance obligations and other related costs	1,999		2,265		(3,358		)	906		11,151		13,400
Asset impairments	—		—		—			—		842		842
Total	$	6,457	$	3,840	$	(8,980	)	$	1,317	$	64,974	$	68,042

In February 2015, the Company committed to a course of action to restructure the business of its subsidiary, Fortigent Holdings Company, Inc. (together with its subsidiaries, “Fortigent”). The Company acquired Fortigent, which provides outsourced wealth management solutions, in April 2012. The intention of the restructuring plan is to migrate Fortigent’s operations from Rockville, Maryland to the Company’s office in Charlotte, North Carolina, simplify and improve the efficiency of Fortigent’s existing service offerings, and position Fortigent to capitalize on the Company's future technology investments and service offerings for financial institutions and advisors focused on high-net-worth clients. This restructuring is expected to be completed in 2016.

8

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the balance of accrued expenses and the changes in the accrued amounts for the Fortigent restructuring as of and for the nine months ended September 30, 2015 (in thousands):

	Costs Incurred		Payments			Non-cash			Accrued Balance at September 30, 2015		Cumulative Costs Incurred to Date		Total Expected Restructuring Costs
Employee severance obligations and other related costs	$	2,838	$	(1,816	)	$	—		$	1,022	$	2,838	$	2,900
Relocation and related costs	2,409		(1,816		)	—			593		2,409		3,600
Lease restructuring charges	793		(170		)	—			623		793		1,300
Asset impairments	821		—			(821		)	—		821		1,200
Total	$	6,861	$	(3,802	)	$	(821	)	$	2,238	$	6,861	$	9,000

4.    Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are prioritized within a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

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

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

There have been no transfers of assets or liabilities between these fair value measurement classifications during the nine months ended September 30, 2015.

The Company’s fair value measurements are evaluated within the fair value hierarchy, based on the nature of inputs used to determine the fair value at the measurement date. At September 30, 2015, the Company had the following financial assets and liabilities that are measured at fair value on a recurring basis:

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

Securities Owned and Securities Sold, But Not Yet Purchased — The Company's trading securities consist of house account model portfolios established and managed for the purpose of benchmarking the performance of its fee-based advisory platforms and temporary positions resulting from the processing of client transactions. Examples of these securities include money market funds, U.S. treasury obligations, mutual funds, certificates of deposit, and traded equity and debt securities.

The Company uses prices obtained from independent third-party pricing services to measure the fair value of its trading securities. Prices received from the pricing services are validated using various methods including comparison to prices received from additional pricing services, comparison to available quoted market prices, and review of other relevant market data including implied yields of major categories of securities. In general, these quoted prices are derived from active markets for identical assets or liabilities. When quoted prices in active markets for identical assets and liabilities are not available, the quoted prices are based on similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. For certificates of deposit and treasury securities, the Company utilizes market-based inputs, including observable market interest rates that correspond to the remaining maturities or the next interest reset dates. At September 30, 2015, the Company did not adjust prices received from the independent third-party pricing services.

Other Assets — The Company’s other assets include: (1) deferred compensation plan assets that are invested in money market and other mutual funds, which are actively traded and valued based on quoted market prices; (2) certain non-traded real estate investment trusts and auction rate notes, which are valued

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

using quoted prices for identical or similar securities and other inputs that are observable or can be corroborated by observable market data; and (3) cash flow hedges, which are measured using quoted prices for similar cash flow hedges, taking into account counterparty credit risk and the Company's own non-performance risk.

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

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis at September 30, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	8,858	$	—	$	—	$	8,858
Securities owned — trading:
Money market funds	269		—		—		269
Mutual funds	6,686		—		—		6,686
Equity securities	80		—		—		80
Debt securities	—		5,266		—		5,266
U.S. treasury obligations	4,310		—		—		4,310
Total securities owned — trading	11,345		5,266		—		16,611
Other assets	94,096		3,847		—		97,943
Total assets at fair value	$	114,299	$	9,113	$	—	$	123,412
Liabilities
Securities sold, but not yet purchased:
Equity securities	$	193	$	—	$	—	$	193
Debt securities	—		31		—		31
Certificates of deposit	—		2		—		2
Total securities sold, but not yet purchased	193		33		—		226
Accounts payable and accrued liabilities	—		—		527		527
Total liabilities at fair value	$	193	$	33	$	527	$	753

10

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis at December 31, 2014 (in thousands):

	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	22,592	$	—	$	—	$	22,592
Securities owned — trading:
Money market funds	293		—		—		293
Mutual funds	7,570		—		—		7,570
Equity securities	224		—		—		224
Debt securities	—		1,379		—		1,379
U.S. treasury obligations	4,000		—		—		4,000
Total securities owned — trading	12,087		1,379		—		13,466
Other assets	75,540		5,058		—		80,598
Total assets at fair value	$	110,219	$	6,437	$	—	$	116,656
Liabilities
Securities sold, but not yet purchased:
Mutual funds	$	13	$	—	$	—	$	13
Equity securities	279		—		—		279
Debt securities	—		10		—		10
Total securities sold, but not yet purchased	292		10		—		302
Accounts payable and accrued liabilities	—		—		527		527
Total liabilities at fair value	$	292	$	10	$	527	$	829

Level 3 Recurring Fair Value Measurements

The Company determines the fair value for its contingent consideration obligations using an income approach whereby the Company assesses the probability and timing of the achievement of the applicable milestones, which are based on contractually negotiated financial or operating targets that vary by acquisition transaction, such as revenues. The contingent payments are estimated using a probability weighted, multi-scenario analysis of expected future performance of the acquired businesses. The Company then discounts these expected payment amounts to calculate the fair value as of the valuation date. The Company's management evaluates the underlying projections and other related factors used in determining fair value each period and makes updates when there have been significant changes in management's expectations.

5.    Held-to-Maturity Securities

The Company holds certain investments in securities, primarily U.S. government notes, which are recorded at amortized cost because the Company has both the intent and the ability to hold these investments to maturity. Interest income is accrued as earned. Premiums and discounts are amortized using a method that approximates the effective yield method over the term of the security and are recorded as an adjustment to the investment yield.

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

	September 30, 2015		December 31, 2014
Amortized cost	$	10,847	$	8,594
Gross unrealized gain (loss)	20		(14		)
Fair value	$	10,867	$	8,580

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

At September 30, 2015, the securities held-to-maturity were scheduled to mature as follows (in thousands):

	Within one year		After one but within five years		After five but within ten years		Total
U.S. government notes — at amortized cost	$	5,000	$	5,347	$	500	$	10,847
U.S. government notes — at fair value	$	5,005	$	5,355	$	507	$	10,867

6.    Derivative Financial Instruments

In May 2013, in conjunction with its Service Value Commitment initiative, the Company entered into a long-term contractual obligation (the “Agreement”) with a third-party provider to enhance the quality, speed, and cost of processes by outsourcing certain functions. The Agreement enables the third-party provider to use the services of its affiliates in India to provide services to the Company and provides for the Company to settle the cost of its contractual obligation to the third-party provider in U.S. dollars each month. However, the Agreement provides that on each annual anniversary date of the signing of the Agreement, the price for services (denominated in U.S. dollars) is to be adjusted for the then-current exchange rate between the U.S. dollar (“USD”) and the Indian rupee (“INR”). The Agreement provides that, once an annual adjustment is calculated, there are no further modifications to the amounts paid by the Company to the third-party provider for fluctuations in the exchange rate between the USD and the INR until the reset on the next anniversary date of the signing of the Agreement.

The third-party provider bore the risk of currency movement from the date of signing the Agreement until the reset on the first anniversary of its signing, and bears such risk during each period until the next annual reset date. The Company bears the risk of currency movement at each of the annual reset dates following the first anniversary.

To mitigate foreign currency risk arising from these annual reset events, the Company entered into four non-deliverable foreign currency contracts, all of which have been designated as cash flow hedges. The first cash flow hedge, with a notional amount of 560.4 million INR, or $8.5 million, settled in June 2014. The Company received a settlement of $1.0 million, which was reclassified out of accumulated other comprehensive income and recognized in net income ratably over the 12-month period ending May 31, 2015 to match the timing of the underlying hedged item. The second cash flow hedge, with a notional amount of 560.4 million INR, or $8.1 million, settled in June 2015. The Company received a settlement of $0.7 million, which will be reclassified out of accumulated other comprehensive income and recognized in net income ratably over a 12-month period ending May 31, 2016 to match the timing of the underlying hedged item.

The details related to the remaining non-deliverable foreign currency contracts at September 30, 2015 are as follows (in millions, except foreign exchange rate):

	Settlement Date	Hedged Notional Amount (INR)	Contractual INR/USD Foreign Exchange Rate	Hedged Notional Amount (USD)
Cash flow hedge #3	6/2/2016	560.4	72.21	7.8
Cash flow hedge #4	6/2/2017	560.4	74.20	7.5
Total hedged amount				$	15.3

The fair value of the derivative instruments, included in other assets in the unaudited condensed consolidated statements of financial condition, were as follows (in thousands):

	September 30, 2015		December 31, 2014
Cash flow hedges	$	638	$	1,179

7.    Goodwill and Other Intangible Assets

The balances in goodwill and intangible assets were a result of various acquisitions. See Note 8. Goodwill and Other Intangible Assets, in the Company's 2014 Annual Report on Form 10-K for a discussion of the components of goodwill and additional information regarding intangible assets.

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

8.    Debt

Senior Secured Credit Facilities — In October 2014, the Company entered into the Second Amendment, Extension and Incremental Assumption Agreement (“Credit Agreement”) with its wholly owned subsidiary, LPL Holdings, Inc., and the other parties thereto. The Credit Agreement includes a term loan A (“Term Loan A”), a term loan B (“Term Loan B”), and a revolving credit facility (“Revolving Credit Facility”), which has a borrowing capacity of $400.0 million.

The Company’s outstanding borrowings as of the dates below were as follows (dollars in thousands):

		September 30, 2015				December 31, 2014
Senior Secured Credit Facilities	Maturity	Balance		Interest Rate		Balance		Interest Rate
Revolving Credit Facility	9/30/2019	$	150,000	3.73	%	$	110,000	4.75	%
Senior secured term loans:
Term Loan A	9/30/2019	459,375		2.69	%	459,375		2.67	%
Term Loan B	3/29/2019	1,056,754		3.25	%	1,064,883		3.25	%
Total borrowings		1,666,129				1,634,258
Less current portion		160,839				120,839
Long-term borrowings — net of current portion		$	1,505,290			$	1,513,419

As of September 30, 2015, the Company also had $18.0 million of irrevocable letters of credit, with an applicable interest rate margin of 2.50%, which were supported by the Revolving Credit Facility.

The Credit Agreement subjects the Company to certain financial and non-financial covenants. As of September 30, 2015, the Company was in compliance with such covenants.

Bank Loans Payable — The Company maintains three uncommitted lines of credit. Two of the lines have unspecified limits, which are primarily dependent on the Company’s ability to provide sufficient collateral. The third line has a $200 million limit, and allows for both collateralized and uncollateralized borrowings. One line was utilized for one day during the three months ended September 30, 2015 with an average balance outstanding of $0.6 million at a weighted-average interest rate of 1.50%. The lines were not otherwise utilized in 2015 and were not utilized in 2014. There were no balances outstanding at September 30, 2015 or December 31, 2014.

9.    Commitments and Contingencies

Leases

The Company leases office space and equipment under various operating leases. These leases are generally subject to scheduled base rent and maintenance cost increases, which are recognized on a straight-line basis over the period of the leases. Total rental expense for all operating leases was approximately $6.2 million and $6.5 million for the three months ended September 30, 2015 and 2014, respectively, and $19.4 million and $23.5 million for the nine months ended September 30, 2015 and 2014, respectively.

Service and Development Contracts

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

Guarantees

The Company occasionally enters into certain types of contracts that contingently require it to indemnify certain parties against third-party claims. The terms of these obligations vary and, because a maximum obligation is not explicitly stated, the Company has determined that it is not possible to make an estimate of the amount that it could be obligated to pay under such contracts.

The Company’s subsidiary, LPL Financial, provides guarantees to securities clearing houses and exchanges under their standard membership agreements, which require a member to guarantee the performance of other members. Under these agreements, if a member becomes unable to satisfy its obligations to the clearing houses

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

and exchanges, all other members would be required to meet any shortfall. The Company’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the potential requirement for the Company to make payments under these agreements is remote. Accordingly, no liability has been recognized for these transactions.

Loan Commitments

From time to time, LPL Financial makes loans to its advisors, primarily to newly recruited advisors to assist in the transition process, which may be forgivable. Due to timing differences, LPL Financial may make commitments to issue such loans prior to actually funding them. These unfunded commitments are generally contingent upon certain events occurring, including but not limited to the advisor joining LPL Financial. LPL Financial had no such significant unfunded commitments at September 30, 2015.

Legal & Regulatory Matters

Assessing the probability of a loss occurring and the amount of any loss related to a legal proceeding or regulatory matter is inherently difficult. The Company exercises significant and complex judgments to make certain estimates presented in its consolidated financial statements, and there are particular uncertainties and complexities involved when assessing the potential outcomes of legal proceedings and regulatory matters. The Company's assessment process considers a variety of factors and assumptions, which may include the procedural status of the matter and any recent developments; prior experience and the experience of others in similar matters; the size and nature of potential exposures; available defenses; the progress of fact discovery; the opinions of counsel and experts; potential opportunities for settlement and the status of any settlement discussions; as well as the potential for insurance coverage and indemnification, if available. The Company monitors these factors and assumptions for new developments and re-assesses the likelihood that a loss will occur and the estimated range or amount of loss, if those amounts can be reasonably determined. The Company has established an accrual for those legal proceedings and regulatory matters for which a loss is both probable and the amount can be reasonably estimated. The Company’s accruals at September 30, 2015 include estimated costs for regulatory matters generally relating to the adequacy of the Company’s compliance and supervisory systems and procedures and other controls, for which the Company believes losses are both probable and reasonably estimable. When it is not probable but at least reasonably possible that a loss has been incurred, a disclosure of fact is made when the underlying loss or range of losses can also be reasonably estimated. The Company estimates that, as of September 30, 2015, exposure to those losses could range from $0 to $6 million in excess of the accrued liability, if any, related to those matters. Due to the inherent unpredictability of such matters, the Company may have exposure to losses that are not yet predictable or cannot yet be reasonably estimated in addition to those amounts that have been accrued or disclosed.

Third-Party Insurance

The Company maintains third-party insurance coverage for certain legal proceedings, including those involving client claims. With respect to client claims, the estimated losses on many of the pending matters are less than the applicable deductibles of the insurance policies. The Company is also subject to extensive regulation and supervision by U.S. federal and state agencies and various self-regulatory organizations. The Company and its advisors periodically engage with such agencies and organizations, in the context of examinations or otherwise, to respond to inquiries, informational requests, and investigations. From time to time, such engagements result in regulatory complaints or other matters, the resolution of which can include fines and other remediation.

Self-Insurance Liabilities

The Company has self-insurance for certain potential liabilities, including various errors and omissions liabilities, through a wholly-owned captive insurance subsidiary. Liabilities associated with the risks that are retained by the Company are not discounted and are estimated by considering, in part, historical claims experience, severity factors, and other actuarial assumptions. The estimated accruals for these potential liabilities could be significantly affected if future occurrences and claims differ from such assumptions and historical trends. As of September 30, 2015, these self-insurance liabilities are included in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheet. Self-insurance related charges are included in other expenses in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2015.

14

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Commitments

As of September 30, 2015, the Company had received collateral primarily in connection with client margin loans with a market value of approximately$344.6 million, which it can re-pledge, loan, or sell. Of these securities,approximately$29.4 millionwere client-owned securities pledged to the Options Clearing Corporation as collateral to secure client obligations related to options positions. As of September 30, 2015 there were no restrictions that materially limited the Company's ability to re-pledge, loan, or sell the remaining $315.2 million of client collateral.

Trading securities on the unaudited condensed consolidated statements of financial condition includes$4.3 millionand $4.0 million pledged to clearing organizations at September 30, 2015 and December 31, 2014, respectively.

The Company is involved in a build-to-suit lease arrangement in Fort Mill, South Carolina, under which it serves as the construction agent on behalf of the landlord. Under such arrangement, the Company has obligations to fund cost over-runs in its capacity as the construction agent, and accordingly has determined that under lease accounting standards it bears substantially all of the risks and rewards of ownership as measured under GAAP. The Company is therefore required to report the landlord's costs of construction on its balance sheet as a fixed asset during the construction period as if the Company owned such asset. As of September 30, 2015, the Company has recorded $43.2 million in fixed assets in connection with this arrangement and an equal and off-setting leasehold financing obligation on the unaudited condensed consolidated statement of financial condition.

10.    Stockholders' Equity

Dividends

The payment, timing, and amount of any dividends are subject to approval by the Board of Directors as well as certain limits under the Company's credit facilities. Cash dividends per share of common stock and total cash dividends paid on a quarterly basis were as follows for the periods indicated (in millions, except per share data):

	2015				2014
	Dividend per Share		Total Cash Dividend		Dividend per Share		Total Cash Dividend
First quarter	$	0.25	$	24.2	$	0.24	$	24.1
Second quarter	$	0.25	$	24.1	$	0.24	$	24.0
Third quarter	$	0.25	$	23.8	$	0.24	$	24.0

Share Repurchases

The Board of Directors has approved several share repurchase programs pursuant to which the Company may repurchase its issued and outstanding shares of common stock from time to time. Repurchased shares are included in treasury stock on the unaudited condensed consolidated statements of financial condition. Purchases 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's management within the constraints of the Credit Agreement and general liquidity needs.

For the three months ended September 30, 2015 and 2014, the Company had the following activity under its approved share repurchase programs (in millions, except share and per share data):

					Three Months Ended September 30,
					2015					2014
Approval Date	Authorized Repurchase Amount		Amount Remaining at September 30, 2015		Shares Purchased	Weighted-Average Price Paid Per Share		Total Cost(1)		Shares Purchased	Weighted-Average Price Paid Per Share		Total Cost(1)
February 10, 2014	$	150.0	$	—	—	$	—	$	—	531,426	$	47.06	$	25.0
April 28, 2015	$	200.0	$	152.2	593,868	$	42.12	$	25.0	—	$	—	$	—
			$	152.2	593,868	$	42.12	$	25.0	531,426	$	47.06	$	25.0

_________________________

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

15

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the nine months ended September 30, 2015 and 2014, the Company had the following activity under its approved share repurchase programs (in millions, except share and per share data):

					Nine Months Ended September 30,
					2015					2014
Approval Date	Authorized Repurchase Amount		Amount Remaining at September 30, 2015		Shares Purchased	Weighted Average Price Paid Per Share		Total Cost(1)		Shares Purchased	Weighted Average Price Paid Per Share		Total Cost(1)
May 28, 2013	$	200.0	$	—	—	$	—	$	—	1,306,288	$	52.00	$	67.9
February 10, 2014	$	150.0	$	—	—	$	—	$	—	1,683,424	$	48.77	$	82.1
October 1, 2014	$	150.0	$	—	2,193,262	$	42.39	$	93.0	—	$	—	$	—
April 28, 2015	$	200.0	$	152.2	1,131,790	$	42.29	$	47.8	—	$	—	$	—
			$	152.2	3,325,052	$	42.36	$	140.8	2,989,712	$	50.18	$	150.0

_________________________

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

See Note 14. Related Party Transactions, for details regarding the repurchase of shares from related parties in 2014.

11.    Share-Based Compensation

Certain employees, advisors, institutions, officers, and directors of the Company participate in various long-term incentive plans, which provide for granting stock options, warrants, restricted stock awards, and restricted stock units. Stock options and warrants generally vest in equal increments over a three- to five-year period and expire on the tenth anniversary following the date of grant. Restricted stock awards and restricted stock units generally vest over a two- to four-year period.

In November 2010, the Company adopted a 2010 Omnibus Equity Incentive Plan (as amended and restated in May 2015, the “2010 Plan”), which provides for the granting of stock options, warrants, restricted stock awards, restricted stock units, and other equity-based compensation. The 2010 Plan serves as the successor to the 2005 Stock Option Plan for Incentive Stock Options, the 2005 Stock Option Plan for Non-qualified Stock Options, the 2008 Advisor and Institution Incentive Plan, the 2008 Stock Option Plan, and the Director Restricted Stock Plan (collectively, the “Predecessor Plans”). Upon adoption of the 2010 Plan, awards were no longer made under the Predecessor Plans; however, awards previously granted under the Predecessor Plans remain outstanding until exercised or forfeited.

There were 20,055,945 shares authorized for grant under the 2010 Plan after the amendment and restatement of the plan in May 2015. There were 5,214,409 shares reserved for issuance upon exercise or conversion of outstanding awards granted, and 12,995,726 shares remaining available for future issuance, under the 2010 Plan as of September 30, 2015.

Stock Options and Warrants

The following table presents the weighted-average assumptions used in the Black-Scholes valuation model by the Company in calculating the fair value of its employee and officer stock options that have been granted during the nine months ended September 30, 2015:

Expected life (in years)	5.30
Expected stock price volatility	25.78		%
Expected dividend yield	2.30		%
Risk-free interest rate	1.58		%
Fair value of options	$	8.83

16

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The fair value of each stock option or warrant awarded to advisors and financial institutions is estimated on the date of the grant and revalued at each reporting period using the Black-Scholes valuation model with the following weighted-average assumptions used during the nine months ended September 30, 2015:

Expected life (in years)	5.99
Expected stock price volatility	25.92		%
Expected dividend yield	2.33		%
Risk-free interest rate	1.51		%
Fair value of options	$	11.11

The following table summarizes the Company’s stock option and warrant activity for the nine months ended September 30, 2015:

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding — December 31, 2014	6,287,410		$	31.59
Granted	1,141,309		$	45.51
Exercised	(799,783	)	$	27.92
Forfeited	(523,680	)	$	39.26
Outstanding — September 30, 2015	6,105,256		$	34.02	6.29	$	35,117
Exercisable — September 30, 2015	3,523,282		$	29.55	5.03	$	36,018

The following table summarizes information about outstanding stock options and warrants at September 30, 2015:

	Outstanding				Exercisable
Range of Exercise Prices	Total Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Life (Years)	Number of Shares	Weighted- Average Exercise Price
$18.04 - $23.02	1,082,705	$	21.39	3.69	1,082,705	$	21.39
$23.41 - $30.00	1,316,612	$	28.21	5.12	875,567	$	27.94
$31.60 - $32.33	1,133,954	$	31.88	6.91	610,283	$	31.91
$34.01 - $39.60	972,627	$	34.59	5.43	744,954	$	34.53
$43.74 - $54.81	1,599,358	$	48.50	9.11	209,773	$	53.73
	6,105,256	$	34.02	6.29	3,523,282	$	29.55

The Company recognizes share-based compensation for stock options awarded to employees, officers, and directors based on the grant date fair value over the requisite service period of the award, which generally equals the vesting period. The Company recognized share-based compensation related to the vesting of these awards of $4.1 million and $3.8 million during the three months ended September 30, 2015 and 2014, respectively, and $12.4 million and $11.4 million during the nine months ended September 30, 2015 and 2014, respectively, which is included in compensation and benefits expense on the unaudited condensed consolidated statements of income. As of September 30, 2015, total unrecognized compensation cost related to non-vested stock options granted to employees, officers, and directors was $13.0 million, which is expected to be recognized over a weighted-average period of 1.76 years.

The Company recognizes share-based compensation for stock options and warrants awarded to its advisors and to financial institutions based on the fair value of the awards at each reporting period. The Company recognized share-based compensation of $0.1 million and $1.1 million during the three months ended September 30, 2015 and

17

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

2014, respectively, and $1.8 million and $5.9 million for during the nine months ended September 30, 2015 and 2014, respectively, related to the vesting of stock options and warrants awarded to its advisors and financial institutions, which is classified within commission and advisory expense on the unaudited condensed consolidated statements of income. As of September 30, 2015, total unrecognized compensation cost related to non-vested stock options and warrants granted to advisors and financial institutions was $3.7 million, which is expected to be recognized over a weighted-average period of 1.76 years.

Restricted Stock

The following summarizes the Company’s activity in its restricted stock awards and restricted stock units for the nine months ended September 30, 2015:

	Restricted Stock Awards				Restricted Stock Units
	Number of Shares		Weighted-Average Grant-Date Fair Value		Number of Shares		Weighted-Average Grant-Date Fair Value
Nonvested at December 31, 2014	33,634		$	42.78	546,725		$	43.34
Granted	31,847		$	41.42	352,643		$	41.82
Vested	(18,832	)	$	37.66	(172,468	)	$	39.53
Forfeited	—		$	—	(82,371	)	$	44.44
Nonvested at September 30, 2015	46,649		$	43.92	644,529		$	43.39

The Company recognizes share-based compensation for restricted stock awards and restricted stock units granted to its employees, officers, and directors based on the grant date fair value over the requisite service period of the award, which generally equals the vesting period. The Company recognized $2.0 million and $1.7 million of share-based compensation related to the vesting of these restricted stock awards and restricted stock units during the three months ended September 30, 2015 and 2014, respectively, and $6.4 million and $4.4 million during the nine months ended September 30, 2015 and 2014, respectively, which is included in compensation and benefits expense on the unaudited condensed consolidated statements of income. As of September 30, 2015, total unrecognized compensation cost for restricted stock awards and restricted stock units granted to employees, officers, and directors was $12.6 million, which is expected to be recognized over a weighted-average remaining period of 1.99 years.

The Company recognizes share-based compensation for restricted stock units granted to its advisors and to financial institutions based on the fair value of the awards at each reporting period. The Company recognized share-based compensation of $0.4 million and $0.4 million related to the vesting of these restricted stock units during the three months ended September 30, 2015 and 2014, respectively, and $1.5 million and $0.6 million during the nine months ended September 30, 2015 and 2014, respectively, which is classified within commission and advisory expense on the unaudited condensed consolidated statements of income. As of September 30, 2015, total unrecognized compensation cost for restricted stock units granted to advisors and financial institutions was $6.2 million, which is expected to be recognized over a weighted-average remaining period of 2.25 years.

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

12.    Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if dilutive potential shares of common stock had been issued. The calculation of basic and diluted earnings per share is as follows (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net income	$	41,052	$	33,272	$	141,972	$	129,498
Basic weighted-average number of shares outstanding	94,972		100,052		95,744		100,519
Dilutive common share equivalents	1,500		1,782		1,559		1,865
Diluted weighted-average number of shares outstanding	96,472		101,834		97,303		102,384
Basic earnings per share	$	0.43	$	0.33	$	1.48	$	1.29
Diluted earnings per share	$	0.43	$	0.33	$	1.46	$	1.26

The computation of diluted earnings per share excludes stock options, warrants, and restricted stock units that are anti-dilutive. For the three months ended September 30, 2015 and 2014, stock options, warrants, and restricted stock units representing common share equivalents of 2,068,568 shares and 1,478,016 shares, respectively, were anti-dilutive. For the nine months ended September 30, 2015 and 2014, stock options, warrants, and restricted stock units representing common share equivalents of 1,975,454 shares and 1,344,782 shares, respectively, were anti-dilutive.

13.    Income Taxes

The Company’s effective income tax rate differs from the federal corporate tax rate of 35.0%, primarily as a result of state taxes, settlement contingencies, and expenses that are not deductible for tax purposes. These items resulted in effective tax rates of 40.2% and 40.0% for the three months ended September 30, 2015 and 2014. The change between periods is due to various factors including the release of accruals for uncertain tax positions in 2014 due to completion of state tax audits.

The effective tax rates for the nine months ended September 30, 2015 and 2014 were 40.2% and 39.5%, respectively. The change between periods is due to the release of accruals for uncertain tax positions in 2014 due to completion of state tax audits and a decrease in the number of incentive stock options exercised in 2015 compared to the same period in 2014.

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.

14.    Related Party Transactions

The Company has related party transactions with certain portfolio companies of TPG, one of the Company's significant stockholders, and the LPL Financial Foundation. During the nine months ended September 30, 2015 and 2014, the Company recognized revenue for services provided to these related parties of $0.6 million and $0.7 million, respectively. The Company incurred expenses for services provided by certain of the TPG portfolio companies and the LPL Financial Foundation of $4.2 million and $0.9 million, during the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and 2014, receivables from related parties were $0 and $0.1 million, respectively, and payables to related parties were $0.2 million and less than $0.1 million, respectively.

In February 2014, the Company entered into a share repurchase agreement with an investment fund associated with TPG, pursuant to which the Company repurchased 1.9 million shares of its common stock at a price of $52.00 per share, for total consideration of $100.0 million.

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

15.    Net Capital and Regulatory Requirements

The Company operates in a highly regulated industry. Applicable laws and regulations restrict permissible activities and investments and require compliance with various financial and customer-related regulations. The consequences of noncompliance can include substantial monetary and non-monetary sanctions. In addition, the Company is also subject to comprehensive examinations and supervision by various governmental and self-regulatory agencies. These regulatory agencies generally have broad discretion to prescribe greater limitations on the operations of a regulated entity for the protection of investors or public interest. Furthermore, where the agencies determine that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with the laws and regulations or with the supervisory policies, greater restrictions may be imposed.

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, as defined. Net capital and the related net capital requirement may fluctuate on a daily basis. LPL Financial is a clearing broker-dealer and had net capital of $153.1 million with a minimum net capital requirement of $6.5 million as of September 30, 2015.

The Company's subsidiary, The Private Trust Company N.A. (“PTC”), operates in a highly regulated industry and is subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts to PTC's operations.

As of September 30, 2015 and December 31, 2014, LPL Financial and PTC met all capital adequacy requirements to which they were subject.

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

LPL Financial’s client securities activities are transacted on either a cash or margin basis. In margin transactions, LPL Financial extends credit to the advisor's client, subject to various regulatory and internal margin requirements, collateralized by cash or securities in the client’s account. As clients write options contracts or sell securities short, LPL Financial may incur losses if the clients do not fulfill their obligations and the collateral in the clients’ accounts is not sufficient to fully cover losses that clients may incur from these strategies. To control this risk, LPL Financial monitors margin levels daily and clients are required to deposit additional collateral, or reduce positions, when necessary.

LPL Financial is obligated to settle transactions with brokers and other financial institutions even if its advisors' clients fail to meet their obligation to LPL Financial. Clients are required to complete their transactions on the settlement date, generally three business days after the trade date. If clients do not fulfill their contractual obligations, LPL Financial may incur losses. In addition, the Company occasionally enters into certain types of contracts to fulfill its sale of when, as, and if issued securities. When, as, and if issued securities have been authorized but are contingent upon the actual issuance of the security. LPL Financial has established procedures to reduce this risk by generally requiring that clients deposit cash or securities into their account prior to placing an order.

LPL Financial may at times hold equity securities that are recorded on the unaudited condensed consolidated statements of financial condition at market value. While long inventory positions represent LPL Financial’s ownership of securities, short inventory positions represent obligations of LPL Financial to deliver specified securities at a contracted price, which may differ from market prices prevailing at the time of completion of the transaction. Accordingly, both long and short inventory positions may result in losses or gains to LPL Financial as market values of securities fluctuate. To mitigate the risk of losses, long and short positions are marked-to-market daily and are continuously monitored by LPL Financial.

17.    Subsequent Events

On October 25, 2015, the Board of Directors declared a cash dividend of $0.25 per share on the Company's outstanding common stock to be paid on November 24, 2015 to stockholders of record on November 12, 2015.

On October 25, 2015, the Company's Board of Directors approved an increase in the Company's share repurchase plan by $347.8 million to a total of $500.0 million.

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Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations

Business Overview

We are the nation's largest independent broker-dealer, a top custodian for registered investment advisors (“RIAs”), and a leading independent consultant to retirement plans. We provide an integrated platform of brokerage and investment advisory services to more than 14,000 independent financial advisors, including financial advisors at more than 700 financial institutions (our “advisors”) across the country, enabling them to provide their retail investors (“clients”) with objective financial advice through a lower conflict model. We also support approximately 4,300 financial advisors who are affiliated and licensed with insurance companies that use our customized clearing, advisory platforms, and technology solutions.

Through our advisors, we are one of the largest distributors of financial products and services in the United States, and we believe we have the fifth-largest overall advisor base in the United States.

We believe that objective financial guidance is a fundamental need for everyone. We enable our advisors to focus on what they do best—create the personal, long-term relationships that are the foundation for turning life’s aspirations into financial realities. We do that through a singular focus on providing our advisors with the front-, middle-, and back-office support they need to serve the large and growing market for independent investment advice. We believe that LPL Financial is the only company that offers advisors the unique combination of an integrated technology platform, comprehensive self-clearing services, and open architecture access to leading financial products, all delivered in an environment unencumbered by conflicts from product manufacturing, underwriting, or market-making.

Executive Summary

Asset Growth Trends

We experienced strong asset growth as net new advisory assets were $4.2 billion and $13.7 billion for the three and nine months ended September 30, 2015, compared to $4.8 billion and $13.5 billion in the same periods in 2014. However, reductions in market-sensitive asset valuations offset these strong asset flows, and brokerage and advisory assets served as of September 30, 2015 declined to $461.8 billion from the September 30, 2014 balance of $464.8 billion.

As of September 30, 2015, our advisory assets had grown to $179.7 billion from $169.5 billion as of September 30, 2014 and represented 39% of advisory and brokerage assets served. Assets on our platform that serves independent RIAs that conduct their advisory business through separate entities (“Hybrid RIAs”) operating pursuant to the Investment Advisers Act of 1940 or through their respective states' investment advisory licensing rules, rather than through LPL Financial, had grown to $110.0 billion as of September 30, 2015 compared to $87.4 billion as of September 30, 2014, and represented 24% of total advisory and brokerage assets served.

Gross Profit Growth

Third quarter gross profit grew to $339.8 million, up from $331.1 million in the comparable period in 2014. Key contributors to third quarter gross profit growth included:

•$17.8 billion increase in net new advisory assets since September 30, 2014.

•163 net new advisors added since September 30, 2014.

•$3.7 billion increase in client cash sweep assets since September 30, 2014.

Progress on a number of regulatory matters

Regulatory-related charges decreased $14.4 million and $5.4 million for the three and nine months ended September 30, 2015 compared to the comparable periods in 2014, as we reached agreements to resolve several significant regulatory matters on which we had been working.

Capital Management Activity

We returned $49.0 million of capital to shareholders in the third quarter, including $24.0 million of dividends and $25.0 million of share buy backs. We purchased approximately 600,000 shares during the period at a weighted average price of $42.12 per share.

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The Company's Board of Directors ("Board") declared a cash dividend of $0.25 per share on our outstanding common stock to be paid on November 24, 2015 to stockholders of record on November 12, 2015.

Our Sources of Revenue

Our revenues are derived primarily from fees and commissions from products and advisory services offered by our advisors to their clients, a substantial portion of which we pay out to our advisors, as well as fees we receive from our advisors for the use of our technology, custody, clearing, trust, and reporting platforms. We also generate asset-based revenues through our platform of over 26,000 financial products from a broad range of product manufacturers. Under our self-clearing platform, we custody the majority of client assets invested in these financial products, for which we provide statements, transaction processing, and ongoing account management. In return for these services, mutual funds, insurance companies, banks, and other financial product manufacturers pay us fees based on asset levels or number of accounts managed. We also earn interest from margin loans made to our advisors’ clients.

We track recurring revenue, a characterization of net revenue and a statistical measure, which we define to include our revenues from asset-based fees, advisory fees, trailing commissions, cash sweep programs, and certain other fees that are based upon accounts and advisors. Because certain recurring revenues are associated with asset balances, they will fluctuate depending on the market values and current interest rates. These asset balances, specifically related to advisory and asset-based revenues, have a correlation of approximately 60% to the fluctuations of the overall market, as measured by the S&P 500 index. Accordingly, our recurring revenue can be negatively impacted by adverse external market conditions. However, recurring revenue is meaningful to us despite these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues, which are more difficult to predict, particularly in declining or volatile markets.

The table below summarizes the sources of our revenue, the primary drivers of each revenue source, and the percentage of each revenue source that represents recurring revenue:

			Nine Months Ended September 30, 2015
	Sources of Revenue	Primary Drivers	Total (millions)	% of Total Net Revenue	% Recurring
Advisor-driven revenue with ~85%-90% payout ratio	Commission	- Transactions - Brokerage asset levels	$1,513	47%	48%
	Advisory	- Advisory asset levels	$1,028	32%	99%
Attachment revenue  retained by us	Asset-Based - Cash Sweep Fees - Sponsorship Fees - Record Keeping	- Cash balances - Interest rates - Client asset levels - Number of accounts	$370	11%	98%
	Transaction and Fee - Transactions - Client (Investor) Accounts - Advisor Seat and Technology	- Client activity - Number of clients - Number of advisors - Number of accounts - Number of premium technology subscribers	$305	9%	62%
	Other	- Margin account balances - Alternative investment transactions	$39	1%	46%
	Total Net Revenue		$3,255	100%
	Total Recurring Revenue		$2,313	71%

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How We Evaluate Our Business

We focus on several business and key financial metrics in evaluating the success of our business relationships and our resulting financial position and operating performance. Our business and key financial metrics are as follows:

	September 30,
	2015		2014		% Change
Business Metrics
Advisors(1)	14,073		13,910		1.2	%
Advisory and brokerage assets (in billions)(2)	$	461.8	$	464.8	(0.6	)%
Advisory assets under custody (in billions)(2)(3)	$	179.7	$	169.5	6.0	%
Net new advisory assets (in billions)(4)	$	13.7	$	13.5	1.5	%
Insured cash account balances (in billions)(2)	$	19.5	$	16.9	15.4	%
Money market account balances (in billions)(2)	$	8.2	$	7.1	15.5	%

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Financial Metrics
Revenue (decrease) increase from prior period	(3.2		)%	3.4		%	(0.4		)%	7.3		%
Recurring revenue as a % of net revenue	72.4		%	70.2		%	71.1		%	68.1		%
Net income (in millions)	$	41.1		$	33.3		$	142.0		$	129.5
Earnings per share (diluted)	$	0.43		$