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OFFON

LADENBURG THALMANN FINANCIAL SERVICES

(LTS)
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LADENBURG THALMANN FINANCIAL SERVICES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

03/13/2020 | 04:33pm EDT

(Dollars in thousands, except share and per share amounts)

Overview


We are a diversified financial services company engaged in independent advisory
and brokerage services, asset management services, investment research,
investment banking, institutional sales and trading, wholesale life insurance
and annuity brokerage and trust services through our principal subsidiaries,
Securities America, Triad, SSN, Investacorp, KMS, Ladenburg, LTAM, Highland and
Premier Trust.

Through our acquisitions of Securities America, Triad, SSN, Investacorp and KMS,
we have established a leadership position in the independent advisory and
brokerage services industry. During the past decade, this has been one of the
fastest growing segments of the financial services industry. With approximately
4,400 financial advisors located in 50 states, we have become one of the largest
independent advisory and brokerage services networks.



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We have three operating segments: (i) the independent advisory and brokerage
services segment, (ii) the Ladenburg segment and (iii) the insurance brokerage
segment. The independent advisory and brokerage services segment includes the
investment advisory and brokerage services provided by our independent advisory
and brokerage subsidiaries (Securities America, Triad, SSN, Investacorp and KMS)
to their independent contractor financial advisors and the wealth management
services provided by Premier Trust. The Ladenburg segment includes the
investment banking, sales and trading and asset management services and
investment activities conducted by Ladenburg and LTAM. The insurance brokerage
segment includes the wholesale insurance brokerage activities conducted by
Highland, which delivers life insurance, fixed and equity indexed annuities, as
well as long-term care solutions to investment and insurance providers, and
which provides marketing strategies, product expertise, and back-office
processing for fixed and equity-indexed annuities.

During the three years ended December 31, 2019, we incurred $5,823 of
acquisition indebtedness, related to the acquisitions in 2018 of certain assets
of KFG and FSFG. As of December 31, 2019, $5,454 of this acquisition-related
indebtedness was outstanding.

Recent Developments

Advisor Group Merger

On November 11, 2019, we entered into the Merger Agreement by and among us,
Advisor Group and Merger Sub, a wholly-owned subsidiary of Advisor Group,
pursuant to which Merger Sub would be merged with and into us. On January 30,
2020, our shareholders voted to approve the Merger. On February 14, 2020, we
announced the successful completion of the Merger.

In connection with the closing of the Merger, our common stock was delisted from
the NYSE American and was deregistered from registration with the SEC. On March
5, 2020, our Series A Preferred Stock and Publicly Offered Senior Notes were
delisted from the NYSE American and were deregistered from registration with the
SEC. The Series A Preferred Stock and Publicly Offered Senior Notes currently
trade on the Pink Sheets.

As required by the terms of our Series A Preferred Stock, on February 14, 2020,
we provided notice to the holders of our Series A Preferred Stock of their right
to convert each share of Series A Preferred Stock owned by them into $25.0389
per share in cash. The conversion right arose from the Merger and the resulting
change of control of our company. 12,816,614 shares of Series A Preferred Stock
were converted and 4,584,668 shares of Series A Preferred Stock remained
outstanding as of March 10, 2020.

Critical Accounting Policies


General. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, referred to as
GAAP, requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.

Revenue Recognition.  We have updated our revenue recognition policies in
conjunction with our adoption of Accounting Standards Update ("ASU") ASU
2014-09, Revenue from Contracts with Customers and all related amendments ("ASC
606"). We adopted ASC 606 effective January 1, 2018, using the modified
retrospective method by recognizing the cumulative effect of initially applying
ASC 606 as an adjustment to the opening balance of shareholders' equity and
other affected accounts at January 1, 2018. Therefore, the comparative
information has not been adjusted and continues to be reported under the
accounting standards in effect for prior periods.

The adoption of ASC 606, among other things, impacts the recognition of revenue
in both our independent advisory and brokerage services and insurance brokerage
segments. Certain independent financial advisors conduct their advisory business
through their own registered investment advisory ("RIA") firm, or Hybrid RIA,
rather than using one of our corporate RIA subsidiaries. Historically, we have
generally recognized advisory fee revenue on a gross basis based on the fees
charged by the RIAs to their clients. Commencing in 2018, with the adoption of
ASC 606, we no longer recognize revenue on a gross basis where the clients'
assets are held by these independent entities, or Hybrid RIAs, which has primary
client fiduciary duty under the Investment Advisors Act. In those circumstances,
we now recognize the associated advisory revenues on a net basis (after
deducting the advisor's compensation). We also collect certain administrative
fees for value-added services provided to Hybrid RIAs. Accordingly, our reported
advisory revenue and the independent advisor's compensation in our independent
advisory and brokerage services segment were materially lower in 2018 as
compared to the prior year periods as a result of the adoption of ASC 606, and
that reported advisory revenue growth may lag behind the overall growth rate of
advisory assets.


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At our insurance brokerage segment, the adoption of ASC 606 resulted in a
material increase in reported insurance commission revenues. Historically,
commissions on insurance policies were recognized on a gross or net basis based
on how the commissions were received from the insurance carrier. Where the
carrier paid us the full commission, and we remitted to the independent producer
its portion of the commission, the gross amount of the commission was recognized
by us. However, as was more frequently the case, where the carrier paid the
independent producer directly and remitted to us only our portion of the
commission, we recorded the commission revenue on a net basis (after giving
effect to the payment to the producer). With the adoption of ASC 606, we report
all insurance commission revenue on a gross basis, regardless of the method of
payment by the carrier.

Our net income as reported is greater than the net income amounts without the
adoption of ASC 606 due to the following: 1) the timing of revenue recognized
for commissions on future renewals of insurance policies sold is accelerated, as
these future commissions represent variable consideration and are required to be
estimated, 2) certain costs to obtain a contract with a customer are now
capitalized and have historically been recorded as a period expense, and 3)
forgivable loans to independent financial advisors are now amortized over the
expected useful lives of their relationship period with our subsidiaries;
previously these loans were amortized based on their legal terms.

Clearing Arrangements. Our broker-dealer subsidiaries do not carry accounts for
customers or perform custodial functions related to customers' securities. Each
of our broker-dealer subsidiaries introduces all of its customer transactions,
which are not reflected in these financial statements, to its clearing brokers,
which maintain the customers' accounts and clear such transactions. Also, the
clearing brokers provide the clearing and depository operations for our
broker-dealer subsidiaries' proprietary securities transactions. These
activities may expose us to off-balance-sheet risk in the event that customers
do not fulfill their obligations with the clearing brokers, as we have agreed to
indemnify our clearing brokers for any resulting losses. We continually assess
risk associated with each customer who is on margin credit and record an
estimated loss when we believe collection from the customer is unlikely. We
incurred losses from these arrangements, prior to any recoupment from our
financial advisors, of $14, $8 and $17 for the years ended December 31, 2019,
2018 and 2017, respectively.

Customer Claims, Litigation and Regulatory Matters. In the ordinary course of
business, our operating subsidiaries have been and are the subject of numerous
civil actions and arbitrations arising out of customer complaints relating to
their activities as a broker-dealer or investment adviser, as an employer or
supervisor and as a result of other business activities. In general, the cases
involve various allegations that our employees or independent financial advisors
had mishandled customer accounts. Due to the uncertain nature of litigation in
general, we are unable to estimate a range of possible loss related to lawsuits
filed against us, but based on our historical experience and consultation with
counsel, we typically reserve an amount we believe will be sufficient to cover
any damages assessed against us. We had accruals of $7,817 at December 31, 2019
and $9,869 at December 31, 2018 for potential losses. See Note 15, "Commitments
and Contingencies," to the consolidated financial statements included in Part
II, Item 8 of this annual report on Form 10-K. However, in the past we have been
assessed damages that exceeded our reserves. If we misjudge the amount of
damages that may be assessed against us from pending or threatened claims, or if
we are unable to adequately estimate the amount of damages that will be assessed
against us from claims that arise in the future and reserve accordingly, our
operating income and liquidity would be reduced. Such costs may have a material
adverse effect on our future financial position, results of operations and
liquidity.

Fair Value. "Trading securities owned" and "Securities sold, but not yet
purchased" on our consolidated statements of financial condition are recorded at
fair value, with related unrealized gains and losses recognized in our results
of operations. The determination of fair value is fundamental to our financial
condition and results of operations and, in certain circumstances, it requires
management to make complex judgments.

Fair values are based on listed market prices, where possible. If listed market
prices are not available or if the liquidation of our positions would reasonably
be expected to impact market prices, fair value is determined based on other
relevant factors, including dealer price quotations. Fair values for certain
derivative contracts are derived from pricing models that consider market and
contractual prices for the underlying financial instruments or commodities, as
well as time value and yield curve or volatility factors underlying the
positions.

Pricing models and their underlying assumptions impact the amount and timing of
unrealized gains and losses recognized, and the use of different pricing models
or assumptions could produce different financial results. Changes in the fixed
income and equity markets will impact our estimates of fair value in the future,
potentially affecting principal trading revenues. The illiquid nature of certain
securities or debt instruments also requires a high degree of judgment in
determining fair value due to the lack of listed market prices and the potential
impact of the liquidation of our position on market prices, among other factors.



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The FASB has issued authoritative accounting guidance that defines fair value,
establishes a framework for measuring fair value and establishes a fair value
hierarchy which prioritizes the inputs to valuation techniques. The guidance
clarifies that fair value should be based on assumptions that market
participants would use when pricing an asset or liability.

Valuation of Deferred Tax Assets: We account for income taxes under the asset
and liability method, which requires the recognition of tax benefits or expense
on the temporary differences between the tax basis and book basis of our assets
and liabilities as well as tax loss carryforwards. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Net deferred tax liability as of December 31, 2019,
which consists principally of the tax benefit of net operating loss
carryforwards, compensation charges related to equity instruments and deferred
compensation liabilities, offset by deferred revenue, intangible assets and
goodwill, amounted to $12,269. Each reporting period, we assess the
realizability of our deferred tax assets to determine if the deductible
temporary differences will be utilized on a more-likely-than-not basis.  In
making this determination, we assess all available positive and negative
evidence to determine if our existing deferred tax assets are realizable on a
more-likely-than-not basis.  Significant weight is given to positive and
negative evidence that is objectively verifiable. We considered the reversal of
existing taxable temporary differences, projected future taxable income, tax
planning strategies and recent financial operating results. The ultimate
realization of a deferred tax asset is ultimately dependent on our generation of
sufficient taxable income within the available net operating loss carryforward
periods to utilize the deductible temporary differences. Based on the reversal
pattern of existing taxable temporary difference coupled with objective evidence
of cumulative earnings in recent years, the Company concluded that its deferred
tax assets are realizable on a more-likely-than-not basis with the exception of
certain separate state net operating loss carryforwards. See Note 13, "Income
Taxes," to the consolidated financial statements included in Part II, Item 8 of
this annual report on Form 10-K.

Stock-Based Compensation. Our stock based compensation uses a fair value-based
method to recognize non-cash compensation expense for share-based transactions.
The accounting guidance requires an entity to measure the cost of employee,
officer and director services received in exchange for an award of equity
instruments, including stock options and restricted stock, based on the
grant-date fair value of the award. The cost is recognized as compensation
expense over the service period, which would normally be the vesting period of
the options. Compensation expense for share-based awards granted to independent
contractors is measured at their vesting date fair value. The compensation
expense recognized each period is based on the awards' estimated value at the
most recent reporting date.

Intangible Assets. We amortize intangible assets over their estimated useful
lives generally on a straight-line basis. Intangible assets subject to
amortization are tested for recoverability whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. We
assess the recoverability of our intangible assets by determining whether the
unamortized balance can be recovered over the assets' remaining life through
undiscounted forecasted cash flows. If undiscounted forecasted cash flows
indicate that the unamortized amounts will not be recovered, an adjustment will
be made to reduce such amounts to an amount consistent with forecasted future
cash flows discounted at a rate commensurate with the risk associated with
achieving future discounted cash flows. Future cash flows are based on trends of
historical performance and our estimate of future performances, giving
consideration to existing and anticipated competitive and economic conditions.

Goodwill. Goodwill is not subject to amortization and is tested for impairment
annually or more frequently if events or changes in circumstances indicate that
the asset may be impaired. The impairment test consists of a comparison of the
fair value of the reporting unit with its carrying amount. Fair value is
typically based upon future cash flows discounted at a rate commensurate with
the risk involved or market based comparables. If the carrying amount of the
reporting unit exceeds its fair value then an analysis will be performed to
compare the implied fair value of goodwill with the carrying amount of goodwill.
An impairment loss will be recognized in an amount equal to excess of the
carrying amount over the implied fair value. After an impairment loss is
recognized, the adjusted carrying amount of goodwill is its new accounting
basis. Accounting guidance on the testing of goodwill for impairment allows
entities the option of performing a qualitative assessment to determine the
likelihood of goodwill impairment and whether it is necessary to perform such
two-step quantitative impairment test.


Results of Operations


The following discussion provides an assessment of our consolidated results of
operations, capital resources and liquidity and should be read in conjunction
with our audited consolidated financial statements and related notes included
elsewhere in this report. The consolidated financial statements include our
accounts and the accounts of our subsidiaries. The presentation of revenue and
certain related accounts for 2019 and 2018 reflect the adoption of ASC 606,
which may affect the comparability of such information and the related analysis.



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The following table includes a reconciliation of net income attributable to the Company as reported to EBITDA, as adjusted:

                                                     Year Ended December 31,
                                            2019               2018              2017
Total revenues                         $  1,469,302       $  1,391,136       $ 1,268,152
Total expenses                            1,438,631          1,343,733         1,266,991
Income before income taxes                   30,007             47,165             1,180
Net income attributable to the
Company                                      22,767             33,758      

7,697

Reconciliation of net income
attributable to the Company to
EBITDA, as adjusted:
Net income attributable to the
Company                                      22,767             33,758             7,697
Less:
Interest income                              (2,906 )           (2,504 )            (506 )
Change in fair value of contingent
consideration                                   664                238               (19 )
Add:
Interest expense                             23,119             10,796             2,710
Income tax (benefit) expense                  7,282             13,379            (6,502 )
Depreciation and amortization                22,294             24,039            28,835
Non-cash compensation expense                 6,106              5,882             5,539
Amortization of retention and
forgivable loans                                549                417             7,396
Amortization of contract acquisition
costs (4)                                    11,759              9,671                 -
Financial advisor recruiting expense             55                370      

5,721

Acquisition-related expense                   5,887              1,010             3,469
Other                                         3,655   (1)        3,392   (2)       1,661   (3)
EBITDA, as adjusted                    $    101,231       $    100,448       $    56,001



(1) Includes loss on severance costs of $1,697, excise and franchise tax expense
of $548, compensation expense that may be paid in stock of $1,470, other legal
matters of $215 and reversal of a write-off for a sublease commitment of $(275).

(2) Includes loss on severance costs of $481, excise and franchise tax expense
of $629, compensation expense that may be paid in stock of $535 and
non-recurring expenses related to a block repurchase of our common stock and
other legal matters of $1,747.

(3) Includes loss on severance costs of $525, excise and franchise tax expense of $594 and compensation expense that may be paid in stock of $559.

(4) See Note 4 to the consolidated financial statements for further information.



Earnings before interest, taxes, depreciation and amortization, or EBITDA, as
adjusted for acquisition-related expense, amortization of retention and
forgivable loans, amortization of contract acquisition costs, change in fair
value of contingent consideration related to acquisitions, non-cash compensation
expense, financial advisor recruiting expense and other expense, which includes
excise and franchise tax expense, severance cost and compensation expense that
may be paid in stock, is a key metric we use in evaluating our financial
performance. EBITDA, as adjusted, is considered a non-GAAP financial measure as
defined by Regulation G promulgated by the SEC under the Securities Act of 1933,
as amended. We consider EBITDA, as adjusted, important in evaluating our
financial performance on a consistent basis across various periods. Due to the
significance of non-cash and non-recurring items, EBITDA, as adjusted, enables
our Board of Directors and management to monitor and evaluate the business on a
consistent basis. We use EBITDA, as adjusted, as a primary measure, among
others, to analyze and evaluate financial and strategic planning decisions
regarding future operating investments and potential acquisitions.



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We believe that EBITDA, as adjusted, eliminates items that are not indicative of
our core operating performance, such as acquisition-related expense,
amortization of retention and forgivable loans, amortization of contract
acquisition costs, and financial advisor recruiting expenses, or do not involve
a cash outlay, such as stock-related compensation. EBITDA, as adjusted, should
be considered in addition to, rather than as a substitute for, income (loss)
before income taxes, net income (loss) and cash flows provided by (used in)
operating activities.

EBITDA, as adjusted, for the fiscal year ended December 31, 2019 was $101,231,
an increase of $783 (1%), from EBITDA, as adjusted, of $100,448 for the fiscal
year ended December 31, 2018. This increase was primarily due to an increase in
EBITDA, as adjusted, in our insurance brokerage segment. Our independent
advisory and brokerage services segment experienced an increase in EBITDA, as
adjusted, of $997 (1%) on increased revenue of $43,283 (4%). EBITDA, as
adjusted, in our insurance brokerage segment increased by $3,479 (84%) on
increased revenue of $39,084 (27%). EBITDA, as adjusted, in our Ladenburg
segment decreased by $1,468 (11%) on decreased revenue of $2,571 (3%). EBITDA,
as adjusted, in our Corporate segment decreased by $2,225 (15%) on decreased
revenues of $1,630 (33%).

Segment Description

We have three operating segments. The independent advisory and brokerage
services segment includes the investment advisory and brokerage services
provided by our independent advisory and brokerage subsidiaries to their
independent contractor financial advisors and the wealth management services
provided by Premier Trust. The Ladenburg segment includes the investment
banking, sales and trading and asset management services and investment
activities conducted by Ladenburg and LTAM. The insurance brokerage segment
includes the wholesale insurance brokerage activities provided by Highland,
which delivers life insurance, fixed and equity indexed annuities and long-term
care solutions to investment and insurance providers, and which provides
marketing strategies, product expertise, and back-office processing for fixed
and equity-indexed annuities.

                                                Year Ended December 31,
                                     2019                2018                 2017
Revenues:
  Independent advisory and
brokerage services             $     1,204,326     $     1,161,043      $     1,140,380
  Ladenburg                             75,523              78,094               66,680
  Insurance Brokerage                  186,211             147,127               57,132
  Corporate                              3,242               4,872                3,960
   Total revenues              $     1,469,302     $     1,391,136      $     1,268,152

Income (loss) before income
taxes:
  Independent advisory and
brokerage services             $        65,517     $        62,748      $        19,858
  Ladenburg                             10,501              11,464                6,346
  Insurance Brokerage                    4,745               1,983               (5,338 )
  Corporate (1)                        (50,756 )           (29,030 )            (19,686 )
   Total income (loss) before
income taxes                   $        30,007     $        47,165      $         1,180

EBITDA, as adjusted (2)
  Independent advisory and
brokerage services             $        99,408     $        98,411      $        59,756
  Ladenburg                             11,498              12,966                8,115
  Insurance Brokerage                    7,645               4,166                2,698
  Corporate                            (17,320 )           (15,095 )            (14,568 )
   Total EBITDA, as adjusted   $       101,231     $       100,448      $        56,001



(1)    Includes interest expense, compensation, professional fees and other
       general administrative expenses related to the Corporate segment.




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(2)    See Note 20, "Segment Information," to the consolidated financial
       statements included in Part II, Item 8 of this annual report on Form 10-K
       for a reconciliation of income (loss) before income taxes to EBITDA, as
       adjusted.


Year ended December 31, 2019 compared to year ended December 31, 2018


For the fiscal year ended December 31, 2019, we had net income attributable to
the Company of $22,767 as compared to net income attributable to the Company of
$33,758 for the fiscal year ended December 31, 2018. The decrease in net income
attributable to the Company was primarily due to an overall increase in total
expenses, including approximately $5,863 attributable to the Merger.

Our total revenues for 2019 increased by $78,166 (6%) from 2018, resulting
primarily from increases in commissions of $28,274, advisory fees of $36,186,
service fees of $12,599, principal transactions of $1,780 and other income of
$1,222, partially offset by a decrease in investment banking revenue of $2,213.
Our independent advisory and brokerage services segment revenues increased by
$43,283 (4%) from 2018 mainly driven by increases in advisory fees, service fees
and other income, partially offset by decreases in commissions. Our Ladenburg
segment revenues decreased by $2,571 (3%) from 2018 as a result of lower
investment banking revenue primarily due to a decrease in equity capital raising
as compared to 2018 and a decrease in commissions, partially offset by an
increase in principal transactions. Our insurance brokerage segment revenues
increased by $39,084 (27%) in 2019 as compared to the prior year primarily due
to the acquisition of certain assets of KFG by Highland in August 2018. Our
Corporate segment revenues decreased by $1,630 (33%) from 2018 primarily due to
the forgiveness of the forgivable loan by National Financial Services ("NFS") in
2018.

Our total expenses for 2019 increased by $94,898 (7%) from 2018, primarily
driven by increases of $35,890 (25%) in our insurance brokerage segment, $40,520
(4%) in our independent advisory and brokerage services segment and $20,096
(59%) in our corporate segment, partially offset by a decrease of $1,608 (2%) in
our Ladenburg segment. Expenses for 2019 included increases in commissions and
fees expense of $48,960, compensation and benefits expense of $16,766, interest
expense of $12,323, other expense of $15,202, acquisition-related expense of
$4,877, and amortization of contract acquisition costs of $2,088, partially
offset by decreases in professional services expense of $2,524 (which excludes
Merger related professional services expense), brokerage, communication and
clearance fee expense of $2,031 and depreciation and amortization expense of
$1,745.

The $28,274 (4%) increase in commissions revenue for 2019 as compared to 2018
was primarily attributable to an increase in revenue in our insurance brokerage
segment of $39,355 (27%) due to the acquisition of certain assets of KFG. This
was partially offset by a decrease in commissions revenue in our independent
advisory and brokerage services segment of $9,020 (2%) due to the decrease in
mutual fund trailing commissions, fewer equity trades and lower alternative
investment sales. Also commissions revenue in our Ladenburg segment decreased by
$2,061 (18%) due to a decrease in retail and institutional sales.

The $36,186 (8%) increase in advisory fees revenue in 2019 as compared to 2018
was primarily attributable to a $35,655 increase in our independent advisory and
brokerage services segment, due to higher advisory asset balances as a result of
improved market conditions. Beginning in 2018, we stopped recognizing advisory
revenue on a gross basis when the client's assets are held at a Hybrid RIA. We
now recognize these revenues on a net basis (after deducting the advisor's
compensation), but also record administrative services provided to Hybrid RIAs.
Advisory fee revenue for a particular period is primarily affected by the level
of average advisory assets during the period and market conditions. Advisory
fees generally are billed to clients in advance on a quarterly or a monthly
basis, and are recognized as revenue ratably during the quarter. Total advisory
assets under management at December 31, 2019 were approximately $96,700,000 as
compared to $72,800,000 at December 31, 2018.

The $2,213 (4%) decrease in investment banking revenue for 2019 as compared to
2018 was primarily driven by a $4,258 decrease in capital raising revenue offset
by a $2,044 increase in strategic advisory services revenue. We derive
investment banking revenue from Ladenburg's capital raising activities,
including underwritten public offerings and private placements, and strategic
advisory services. Revenue from capital raising activities was $45,778 for the
fiscal year ended December 31, 2019 as compared to $50,036 for the prior year.
Strategic advisory services revenue was $8,265 for 2019 as compared to $6,220
for 2018.

The $1,780 (543%) increase in principal transactions revenue in 2019 as compared to 2018 was primarily attributable to our Ladenburg segment, which had an increase of $1,781 (340%) due to an increase in the market value of firm's investments.


The $318 (6%) increase in interest and dividends revenue for 2019 as compared to
2018 was primarily attributable to the Ladenburg and corporate segments and was
driven by higher cash balances in the 2019 period.


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The $12,599 (11%) increase in service fees in 2019 as compared to 2018 was
primarily driven by an increase of $12,499 in our independent advisory and
brokerage services segment. The total increase was primarily due to increases in
cash sweep revenue of $11,566 and advisor affiliation fees of $1,640, partially
offset by a $1,011 decrease in trading services and fees. In March 2020, the
Federal Reserve reduced the federal funds target rate to 1.0 - 1.25%. Levels of
service fees revenue from our cash sweep programs are dependent upon prevailing
interest rates and cash asset levels. At December 31, 2019, client assets
included cash balances of approximately $4,452,000, including approximately
$4,085,000 participating in our cash sweep programs.

The $1,222 (3%) increase in other income in 2019 as compared to 2018 was
primarily driven by an increase of $4,146 in our independent advisory and
brokerage services segment, partially offset by a decrease of $2,686 in our
corporate segment. The increase in other income in 2019 was primarily due to
increases in deferred compensation revenue of $4,421, marketing services and
product incentives of $1,153 and conference revenue of $861, partially offset by
a decrease in growth incentive credits from one of our clearing firms of $3,210
and forgiveness of debt of $2,222.

The $48,960 (5%) increase in commissions and fees expense for 2019 as compared
to 2018 was primarily due to the increase in commissions expense of $26,098 in
our insurance brokerage segment due to the acquisition of certain assets of KFG
by Highland and the increase in our independent advisory and brokerage services
segment of $22,772. Commissions and fees expense is comprised of compensation
earned by the registered representatives who serve as independent contractors in
our independent advisory and brokerage services segment and insurance agents who
serve as independent contractors in our insurance brokerage segment. These
payments to the independent contractor registered representatives and insurance
agents are calculated based on a percentage of revenues generated by such
persons and vary by product. Accordingly, when our independent contractor
registered representatives and insurance agents increase their business, both
our revenues and expenses increase because our representatives and agents earn
higher compensation based on the higher revenues produced.

The $16,766 (9%) increase in compensation and benefits expense for 2019 as
compared to 2018 was attributable to an increase of $7,725 in our insurance
brokerage segment due to an increase in revenue, an increase of $6,373 in our
independent advisory and brokerage services segment and an increase of $3,451 in
our corporate segment due to increases in incentive compensation, partially
offset by a decrease of $783 in our Ladenburg segment. We recorded severance
expense of $1,697 during the year ended 2019.

The $2,031 (13%) decrease in brokerage, communication and clearance fees expense
for 2019 as compared to 2018 was driven by a decrease of $1,494 in our
independent advisory and brokerage services segment. The decrease in expense
resulted from increased clearing credits during the 2019 period, which arose in
connection with the May 2018 extension of the term of our clearing agreements
with one of our clearing firms.

The $626 (6%) increase in rent and occupancy expense, net of sublease revenue, for 2019 as compared to 2018 was attributable to an increase of $558 in our insurance brokerage segment due to the acquisition of KFG and FSFG.

The $2,524 (12%) decrease in professional services expense for 2019 as compared to 2018 was primarily attributable to a decrease of $1,541 in our corporate segment and a decrease of $873 in our independent advisory and brokerage services segment due to lower legal and consulting expenses.


The $12,323 (114%) increase in interest expense for 2019 as compared to 2018
resulted from a increased average debt balance and higher interest rates. Our
average outstanding debt balance was approximately $304,909 for 2019, as
compared to $145,107 for 2018. The average interest rate was 7% for 2019 as
compared to 6.6% for 2018. Our outstanding debt balance as of December 31, 2019
primarily included $242,828 of indebtedness due to the issuance of our senior
notes (excluding the December 2018 Notes), $76,350 of 7.25% Senior Notes due
2028 (the "December 2018 Notes") issued in connection with the repurchase of
50,900,000 shares of our common stock directly from our former principal
shareholder, Phillip Frost, M.D., and an entity affiliated with Dr. Frost, Frost
Nevada Investments Trust (the "Share Repurchase"), and $5,454 of indebtedness
incurred in connection with asset acquisitions in our insurance brokerage
segment and $5,172 of indebtedness incurred by Securities America.

The $1,745 (7%) decrease in depreciation and amortization expense for 2019 as
compared to 2018 was mainly due to a decrease of $2,502 in our independent
advisory and brokerage services segment, partially offset by an increase of $740
in our insurance brokerage segment.



                                       36
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The $4,877 (483%) increase in acquisition-related expense for 2019 as compared
to 2018 was primarily due to an increase of $5,881 in our corporate segment
primarily due to expenses related to the Merger with Advisor Group, partially
offset by a decrease of $913 in our independent advisory and brokerage services
segment.

The $2,088 (22%) increase in amortization of contract acquisition costs for 2019
as compared to the 2018 period was due to an increase in our independent
advisory and brokerage services segment as a result of the issuance of loans to
newly recruited financial advisors during 2019.

The $15,202 (21%) increase in other expense in 2019 as compared to 2018 was
primarily driven by increases at our independent advisory and brokerage services
segment of $15,371, our insurance brokerage segment of $1,034 and our Ladenburg
segment of $71, partially offset by a decrease at our corporate segment of
$1,274. The total increase in other expense in 2019 was attributable to
increases in deferred compensation expense of $5,519, settlements expense of
$4,830, software and equipment expense of $3,781 and firm insurance of $1,174,
partially offset by decreases in travel and entertainment of $838 and dues,
licenses and registrations of $371.

We had an income tax expense of $7,282 in 2019 as compared to an income tax
expense of $13,379 in 2018. See Note 13, "Income Taxes," to the consolidated
financial statements included in Part II, Item 8 of this annual report on Form
10-K.

Year ended December 31, 2018 compared to year ended December 31, 2017


For the fiscal year ended December 31, 2018, we had net income attributable to
the Company of $33,758 as compared to net income attributable to the Company of
$7,697 for the fiscal year ended December 31, 2017. The increase in net income
attributable to the Company was primarily due to an increase in revenue of
$122,984 (10%), partially offset by a $76,742 (6%) increase in total expenses.

Our total revenues for 2018 increased by $122,984 (10%) from 2017, resulting
primarily from increases in commissions of $160,303, investment banking revenue
of $9,803, interest and dividends of $2,421, service fees of $34,100 and other
income of $4,049, partially offset by a decrease in advisory fees of $86,507 due
to the change in accounting for revenues under ASC 606, and a decrease in
principal transactions of $1,185. Our independent advisory and brokerage
services segment revenues increased by $20,663 (2%) from 2017 mainly driven by
increases in commissions, service fees and other income. This was partially
offset by decreases in advisory fees due to the change in accounting for
revenues under ASC 606. Our Ladenburg segment revenues increased by $11,414
(17%) from 2017 as a result of higher investment banking revenue primarily due
to an increase in equity capital raising as compared to 2017. Our insurance
brokerage segment revenues increased by $89,995 (158%) in 2018 as compared to
the prior year primarily due to the change in accounting for insurance
commissions revenue under ASC 606.

Our total expenses for 2018 increased by $76,742 (6%) from 2017, primarily
driven by increases of $82,653 (133%) in our insurance brokerage segment,
$10,256 (43%) in our corporate segment and $6,296 (10%) in our Ladenburg
segment, partially offset by a decrease of $22,463 (2%) in our independent
advisory and brokerage services segment. Expenses for 2018 included increases in
commissions and fees expense of $48,166, compensation and benefits expense of
$22,701, amortization of contract acquisition costs of $9,671, interest expense
of $8,086, professional services expense of $2,339 and other expense of $1,085,
partially offset by decreases in amortization of retention and forgivable loans
of $6,979, depreciation and amortization expense of $4,796, acquisition-related
expense of $2,459 and brokerage, communication and clearance fee expense of
$2,036.

The $160,303 (30%) increase in commissions revenue for 2018 as compared to 2017
was primarily attributable to an increase in sales of variable annuity, mutual
fund, fixed annuity, insurance, fixed income and equity products, and the impact
of the adoption of ASC 606. Our independent advisory and brokerage services
segment commissions revenue increased by $69,987 (15%) resulting from increased
sales of variable annuity, mutual fund, fixed annuity, insurance, fixed income
and equity products during 2018. Our insurance brokerage segment commissions
revenue increased by $89,936 (165%) in 2018 as compared to the prior year
primarily due to the change in accounting for revenues under ASC 606. See Note
4, "Revenue from Contracts with Customers," to the consolidated financial
statements included in Part II, Item 8 of this annual report on Form 10-K.

The $86,507 (15%) decrease in advisory fees revenue in 2018 as compared to 2017
was primarily attributable to a $86,837 decrease in our independent advisory and
brokerage services segment, due to the change in accounting for revenues under
ASC 606. Beginning in 2018, we stopped recognizing advisory revenue on a gross
basis when the client's assets are held at a Hybrid RIA. We now recognize these
revenues on a net basis (after deducting the advisor's compensation), but also
record administrative services provided to Hybrid RIAs.


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Advisory fee revenue for a particular period is primarily affected by the level
of average advisory assets during the period and market conditions. Advisory
fees generally are billed to clients in advance on a quarterly or a monthly
basis, and are recognized as revenue ratably during the quarter. Total advisory
assets under management at December 31, 2018 were approximately $72,800,000 as
compared to $72,600,000 at December 31, 2017. Total advisory assets under
management at January 31, 2019 increased to approximately $76,700,000, primarily
due to the increase in the equity markets during January 2019. We expect that
future advisory revenue growth may lag behind the growth rate of advisory assets
due to the adoption of ASC 606.

The $9,803 (21%) increase in investment banking revenue for 2018 as compared to
2017 was primarily driven by a $11,600 increase in capital raising revenue
offset by a $1,797 decrease in strategic advisory services revenue. We derive
investment banking revenue from Ladenburg's capital raising activities,
including underwritten public offerings and private placements, and strategic
advisory services. Revenue from capital raising activities was $50,603 for the
fiscal year ended December 31, 2018 as compared to $39,003 for the prior year,
resulting from a significant increase in equity capital raising for small and
mid-cap public companies. Strategic advisory services revenue was $5,653 for
2018 as compared to $7,450 for 2017.

The $1,185 (138%) decrease in principal transactions revenue in 2018 as compared to 2017 was primarily attributable to our Ladenburg segment, which had a decrease of $1,361 (163%) due to a decline in the market value of firm's investments.


The $2,421 (95%) increase in interest and dividends revenue for 2018 as compared
to 2017 was primarily attributable to the corporate segment driven by higher
cash balances and interest rates in the 2018 period.

The $34,100 (40%) increase in service fees in 2018 as compared to 2017 was
primarily driven by an increase of $33,510 in our independent advisory and
brokerage services segment. The total increase was primarily due to increases in
cash sweep revenue of $32,690, other advisor and client fees of $1,920, and
advisor affiliation fees of $1,665, partially offset by a $2,156 decrease in
trading services and fees. Service fees revenue from our cash sweep programs was
$54,819 for 2018 as compared to $22,129 in the comparable 2017 period,
reflecting the impact of increases in the target rate for the federal funds
effective rate and the implementation of new cash sweep programs during 2018.
Future levels of service fees revenue are dependent upon changes in prevailing
interest rates and cash assets levels. At December 31, 2018, client assets
included cash balances of approximately $5,204,000, including approximately
$4,838,000 participating in our cash sweep programs. We implemented a new cash
sweep program in the first quarter of 2018 for eligible advised IRA accounts.
See Item 1A. "Risk Factors - Risk Factors Relating to Our Business - Significant
interest rate changes or the termination of our cash sweep agreements could
affect our profitability and financial condition" above in this annual report on
Form 10-K.

The $4,049 (11%) increase in other income in 2018 as compared to 2017 was
primarily driven by an increase of $4,024 in our independent advisory and
brokerage services segment. The increase in other income in 2018 was primarily
due to increases in growth incentive credits from one of our clearing firms of
$3,056, marketing services and product incentives of $2,967 and conference
revenue of $1,779, partially offset by a decrease in deferred compensation
investment revenue of $3,252, miscellaneous revenue of $444 and forgiveness of
debt of $215.

The $48,166 (5%) increase in commissions and fees expense for 2018 as compared
to 2017 was primarily due to the increase in commissions expense of $83,821 in
our insurance brokerage segment, primarily due to the adoption of ASC 606,
partially offset by a decrease in our independent advisory and brokerage
services segment of $35,468, primarily due to the adoption of ASC 606.
Commissions and fees expense is comprised of compensation earned by the
registered representatives who serve as independent contractors in our
independent advisory and brokerage services segment and insurance agents who
serve as independent contractors in our insurance brokerage segment. These
payments to the independent contractor registered representatives and insurance
agents are calculated based on a percentage of revenues generated by such
persons and vary by product. Accordingly, when our independent contractor
registered representatives and insurance agents increase their business, both
our revenues and expenses increase because our representatives and agents earn
higher compensation based on the higher revenues produced.

The $22,701 (13%) increase in compensation and benefits expense for 2018 as
compared to 2017 was attributable to an increase of $14,121 in our independent
advisory and brokerage services segment, as headcount grew 13% from the prior
year, an increase of $3,368 in our insurance brokerage segment due to an
increase in revenue, an increase of $2,967 in our Ladenburg segment due to
increases in incentive compensation and an increase of $2,245 in our corporate
segment due to increases in headcount and incentive compensation.

The $343 (6%) increase in non-cash compensation expense for 2018 as compared to
2017 was primarily attributable to an increase in our independent advisory and
brokerage services segment of $185 and our corporate segment of $152.


                                       38
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The $2,036 (11%) decrease in brokerage, communication and clearance fees expense
for 2018 as compared to 2017 was driven by a decrease of $2,175 in our
independent advisory and brokerage services segment. This decrease in expense
resulted from increased levels of clearing credits during 2018 and included new
annual business credits received during the extension of the term of our
clearing agreements with one of or clearing firms entered into in May 2018.

The $621 (7%) increase in rent and occupancy expense, net of sublease revenue,
for 2018 as compared to 2017 was attributable to an increase of $872 in our
independent advisory and brokerage services segment and an increase of $111 in
our insurance brokerage segment due to rent increases, partially offset by a
decrease of $379 in our Ladenburg segment.

The $2,339 (12%) increase in professional services expense for 2018 as compared
to 2017 was primarily attributable to an increase of $3,778 in our Ladenburg
segment due to the change in accounting for underwriting expenses under ASC 606
and an increase in our corporate segment of $2,234, partially offset by a
decrease in professional services expense at our independent advisory and
brokerage services segment of $3,488.

The $8,086 (298%) increase in interest expense for 2018 as compared to 2017
resulted from a increased average debt balance and higher interest rates. Our
average outstanding debt balance was approximately $145,107 for 2018, as
compared to $35,416 for 2017. The average interest rate was 6.6% for 2018 as
compared to 6% for 2017. Our outstanding debt balance as of December 31, 2018
primarily included $185,328 of indebtedness due to the issuance of our senior
notes (excluding the December 2018 Notes), $76,350 of December 2018 Notes issued
in connection with the Share Repurchase, and $5,763 of indebtedness incurred in
connection with asset acquisitions in our insurance brokerage segment.

The $4,796 (17%) decrease in depreciation and amortization expense for 2018 as
compared to 2017 was mainly due to a decrease of $5,695 in our insurance
brokerage segment due to the reclassification of the renewal intangible for
insurance commissions to other receivables based on the adoption of ASC 606. The
decrease was partially offset by an increase of $948 in our independent advisory
and brokerage services segment.

The $2,459 (71%) decrease in acquisition-related expense for 2018 as compared to 2017 was due to a $2,556 decrease in acquisition-related expense in our independent advisory and brokerage services segment in 2018, which occurred because the 2017 period included the recruitment of large groups of advisors.


The $6,979 (94%) decrease in amortization of retention and forgivable loans for
2018 as compared to 2017 was driven by the reclassification of notes receivable
to contract acquisition costs due to the adoption of ASC 606. See Note 4,
"Revenue from Contracts with Customers," to the consolidated financial
statements included in Part II, Item 8 of this annual report on Form 10-K.

The $9,671 increase in amortization of contract acquisition costs for 2018 as
compared to the 2017 period was due to the change in accounting for revenues
under ASC 606 related to costs to obtain a contract with a customer.

The $1,085 (2%) increase in other expense in 2018 as compared to 2017 was
primarily driven by increases at our independent advisory and brokerage services
segment of $2,658 and our insurance brokerage segment of $1,610. Our corporate
and Ladenburg segment experienced decreases in other expense of $2,730 and $453,
respectively, in 2018. The total increase in other expense in 2018 was
attributable to increases in software and equipment expense of $2,184,
conference expense of $2,023, travel and entertainment expense of $1,322, dues,
licenses and registrations of $824, advertising of $506, office expense of $502
and education and seminars expense of $307, partially offset by decreases in
deferred compensation plan expense of $3,260, legal settlement expense of $2,895
and bad debt expenses of $946.

We had an income tax expense of $13,379 in 2018 as compared to an income tax
benefit of $6,502 in 2017. See Note 13, "Income Taxes," to the consolidated
financial statements included in Part II, Item 8 of this annual report on Form
10-K.


Liquidity and Capital Resources


Approximately 34% and 30% of our total assets at December 31, 2019 and December
31, 2018, respectively, consisted of cash and cash equivalents, securities owned
and receivables from clearing brokers and other broker-dealers, all of which
fluctuate, depending upon the levels of customer business and trading activity.



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Receivables from broker-dealers, which are primarily from clearing brokers, turn
over rapidly. A relatively small percentage of our total assets are fixed. The
total assets or the individual components of total assets may vary significantly
from period to period because of changes relating to economic and market
conditions.

Below is a summary of changes in our cash flow (in thousands):


                                                         Year Ended 

December 31,

                                                    2019          2018      

2017

Net cash provided by (used in):
Operating activities                             $  54,017     $  63,372     $  16,215
Investing activities                               (13,048 )     (17,808 )     (10,075 )
Financing activities                                19,292       (29,146 )      66,782

Net increase in cash and cash equivalents $ 60,261 $ 16,418

  $  72,922
Cash and cash equivalents, beginning of period     189,281       172,863    

99,941

Cash and cash equivalents, end of period $ 249,542 $ 189,281

$ 172,863




Cash provided by operating activities for 2019 was $54,017, which primarily
consisted of our net income of $22,725 adjusted for non-cash expenses, increases
in deferred compensation plan, as well as decreases in securities owned and
receivables from clearing brokers, partially offset by increases in contract
acquisition costs, insurance trailing commissions receivable, notes receivable
and cash surrender value. Cash provided by operating activities for 2018 was
$63,372, which primarily consisted of our net income of $33,786 adjusted for
non-cash expenses, increases in commissions and fees payable, accounts payable
and accrued liabilities, accrued compensation and decreases in receivables from
clearing brokers, partially offset by increases in contract acquisition costs,
other receivables, securities owned and other assets.

Investing activities used $13,048 in 2019, primarily due to the purchase of
furniture, equipment and leasehold improvements of $13,044. Investing activities
used $17,808 in 2018, primarily due to the purchase of furniture, equipment and
leasehold improvements of $14,502 and the cash paid in the KFG and FSFG
acquisitions of $3,300.

Cash provided by financing activities for 2019 was $19,292 in 2019, primarily
due to the issuance of senior notes of $55,062, issuance of Series A Preferred
Stock of $9,426, borrowings on a term note of $7,000 and the issuance of common
stock upon option exercises and under our employee stock purchase plan of
$2,778, partially offset by the payment of $34,689 in dividends on our Series A
Preferred Stock, repurchases of common stock of $10,880, the payment of $7,179
in dividends on our common stock and $2,226 in repayments of outstanding
indebtedness. The debt repayments of $2,226 include $1,917 in bank loans and
revolver payments. Financing activities used $29,146 in 2018, primarily due to
repurchases of common stock of $69,746, the payment of $34,031 in dividends on
our Series A Preferred Stock, $21,943 in repayments of outstanding indebtedness,
and the payment of $8,794 in dividends on our common stock, partially offset by
the issuance of senior notes of $104,375 and the issuance of common stock upon
option exercises and under our employee stock purchase plan of $4,266. The debt
repayments of $21,943 included a $6,400 repayment of outstanding notes related
to the SSN acquisition, a $2,055 repayment of outstanding notes related to the
KMS acquisition, and $6,690 in bank loans and revolver payments.

Operating Capital Requirements


Each of Securities America, Triad, Investacorp, KMS, SSN and Ladenburg is
subject to a minimum net capital requirement.  Therefore, they are subject to
certain restrictions on the use of capital and their related liquidity. At
December 31, 2019, the regulatory net capital of each of our broker-dealer
subsidiaries was as follows: Securities America $12,467, Triad $9,916,
Investacorp $10,079, KMS $7,240, SSN $8,149 and Ladenburg $24,883. Failure to
maintain the required net capital may subject our broker-dealer subsidiaries to
suspension or expulsion by FINRA, the SEC and other regulatory bodies and
ultimately may require their liquidation. The Net Capital Rule also prohibits
the payment of dividends, redemption of stock and prepayment or payment of
principal of subordinated indebtedness if net capital, after giving effect to
the payment, redemption or prepayment, would be less than specified percentages
of the minimum net capital requirement.

Compliance with the Net Capital Rule could limit Ladenburg's operations that
require the intensive use of capital, such as underwriting and trading
activities, and also could restrict our ability to withdraw capital from our
subsidiaries, which in turn, could limit our ability to pay dividends and repay
debt. See Item 1A. "Risk Factors - Risk Factors Relating to the Regulatory
Environment - Failure to comply with capital requirements could subject us to
suspension, revocation or fines by the SEC, FINRA or other regulators" above.


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Premier Trust, chartered by the state of Nevada, is subject to regulation by the
Nevada Department of Business and Industry Financial Institutions Division.
Under Nevada law, Premier Trust must maintain stockholders' equity of at least
$1,000, including cash of at least $250. At December 31, 2019, Premier Trust had
stockholders' equity of $4,072, including at least $250 in cash.

Sources of Liquidity


Our primary sources of liquidity include cash flows from operations and sales of
securities. We believe that our existing assets and cash flows from operations
will provide adequate cash and regulatory capital to fund our current level of
operating activities through at least March 2021.

In June 2018, we entered into an equity distribution agreement under which we
could sell up to 6,832,841 shares of our Series A Preferred Stock in an "at the
market" offering under Rule 415 under the Securities Act. This equity
distribution agreement replaced our previous equity distribution agreement
pursuant to which we could sell up to 8,000,000 shares of our Series A Preferred
Stock. During 2019, we sold 389,207 shares of Series A Preferred Stock for gross
proceeds of $9,430 pursuant to the "at the market" offering. As of December 31,
2019, we had 6,443,634 shares of Series A Preferred Stock remaining available
for sale under such equity distribution agreement. The equity distribution
agreement was terminated in connection with the Merger.

On November 21, 2017, we sold $72,500 principal amount of our 6.5% Senior Notes
due November 2027. Interest on the 6.5% Senior Notes accrues from November 21,
2017 and is paid quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year. We may redeem the 6.5% Senior Notes in whole or in
part on or after November 30, 2020, at our option, at a redemption price equal
to 100% of their principal amount, plus accrued and unpaid interest. During the
fourth quarter of 2017, the underwriters exercised their option to purchase an
additional $4,069 principal amount of 6.5% Senior Notes. The offering resulted
in total gross proceeds of $76,569, before deducting the underwriting discount
paid to unaffiliated underwriters and offering expenses aggregating $3,313. In
February 2018, we entered into a note distribution agreement under which we
could sell up to $25,000 of our 6.5% Senior Notes from time to time in an "at
the market" offering. During 2018, we sold $6,240 principal amount of 6.5%
Senior Notes pursuant to the "at the market" offering and received net proceeds
of $6,058. No compensation was paid to the agents with respect to such sales. We
did not sell any 6.5% Senior Notes pursuant to the "at the market" offering
during 2019. The note distribution agreement was terminated in connection with
the Merger.

On May 22, 2018, we sold $40,000 principal amount of our 7% Senior Notes in an
underwritten offering. Interest on the 7% Senior Notes accrues from May 30, 2018
and is paid quarterly in arrears on March 31, June 30, September 30 and December
31 of each year. We may redeem the 7% Senior Notes in whole or in part on or
after May 31, 2021, at our option, at a redemption price equal to 100% of their
principal amount, plus accrued and unpaid interest. During the second quarter of
2018, the underwriters exercised their option to purchase an additional $1,412
principal amount of 7% Senior Notes. The offering resulted in total gross
proceeds of $41,412, before deducting (i) the underwriting discount paid to
unaffiliated underwriters and offering expenses aggregating $2,020 and (ii)
$1,622 of 7% Senior Notes repurchased by Ladenburg. In June 2018, we entered
into a note distribution agreement under which we could sell up to $25,000 of
additional 7% Senior Notes from time to time in an "at the market" offering. In
2018, we sold $2,729 principal amount of 7% Senior Notes pursuant to the "at the
market" offering for net proceeds of $2,682. No compensation was paid to the
agents with respect to such sales. We did not sell any 7% Senior Notes pursuant
to the "at the market" offering during 2019. The note distribution agreement was
terminated in connection with the Merger.

On August 9, 2018, we sold $60,000 principal amount of our 7.25% Senior Notes in
an underwritten offering. Interest on the 7.25% Senior Notes accrues from August
16, 2018 and is paid quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year. We may redeem the 7.25% Senior Notes in whole or in
part on or after September 30, 2021 at our option, at a redemption price equal
to 100% of their principal amount, plus accrued and unpaid interest. The
offering resulted in total gross proceeds of $60,000, before deducting the
underwriting discount paid to unaffiliated underwriters and offering expenses
aggregating $2,135.

On May 29, 2019, we sold $57,500 principal amount of our 7.75% Senior Notes due
June 2029 in an underwritten offering. Interest on the 7.75% Senior Notes
accrues from May 29, 2019 and it is paid quarterly in arrears on March 31, June
30, September 30 and December 31 of each year. We may redeem the 7.75% Senior
Notes in whole or in part on or after June 30, 2022 at our option, at a
redemption price equal to 100% of their principal amount, plus accrued and
unpaid interest. The offering resulted in total gross proceeds of $57,500,
before deducting the underwriting discounts paid to unaffiliated underwriters
and offering expenses aggregating $2,068.



                                       41
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Debt


On November 6, 2013, Securities America entered into a loan agreement (the "SA
Loan Agreement") with a third party financial institution for a $1,000 revolving
credit facility. Revolving loans bore interest at 5.5% per annum over a 5-year
term. On April 21, 2017, the SA Loan Agreement was amended to modify the
interest rate for the revolving loans to prime plus 2.25%. The $1,000 revolving
credit facility was terminated in February 2019.

On February 6, 2019, the SA Loan Agreement was amended to provide for a new term
loan in the aggregate principal amount of $7,000, with interest at the rate of
5.52% per annum. Securities America began monthly payments of principal and
interest under the new term loan in the amount of $212, on March 6, 2019. The
term loan maturity date was February 6, 2022. The loans were collateralized by
Securities America's assets. On February 14, 2020, the term loan was repaid in
full and the SA Loan Agreement was terminated.

On August 31, 2018, as part of the consideration paid for the acquisition of
KFG, an affiliate of Highland issued a promissory note (the "KFG Note") to the
former shareholders of KFG in the aggregate principal amount of $5,450, bearing
interest at 4.00% per annum and payable in equal monthly installments beginning
on September 15, 2018, with the final installment being due on November 15,
2036. The KFG Note may be prepaid in full or in part at any time without premium
or penalty. The KFG Note contains customary events of default, which if uncured,
entitle the holder to accelerate the due date of the unpaid principal amount of,
and all accrued and unpaid interest on, the KFG Note. Total interest expense on
the KFG Note was $212 for the period ended December 31, 2019.

In November 2018, as part of the consideration paid for the acquisition of FSFG,
Highland issued two promissory notes in the amounts of $169 and $203, bearing
interest at 3.99% and 4.75%, per annum, respectively. and payable in equal
monthly installments. The notes maturity dates were October 1, 2021 and January
15, 2024, respectively. The notes were prepaid in full without penalty on
February 14, 2020.

In December 2018, we issued $76.35 million aggregate principal amount of 7.25%
Senior Notes due 2028 (the "December 2018 Notes") to Phillip Frost, M.D., and an
entity affiliated with Dr. Frost, Frost Nevada Investments Trust. The December
2018 Notes bear interest from December 24, 2018 at the rate of 7.25% per annum,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on March 31, 2019, and at maturity. The December 2018
Notes mature on September 30, 2028. In February 2020, the December 2018 Notes
were purchased by Advisor Group, our affiliate, and became an intercompany
balance.

On February 13, 2020, AG Issuer, LLC ("AG Escrow Issuer") issued $500,000 in
aggregate principal amount of 6.25% Senior Secured Notes due 2028 (the "2028
Senior Secured Notes"). The 2028 Senior Secured Notes were issued under an
indenture, dated February 13, 2020 (the "Initial Indenture"), by and between AG
Escrow Issuer and Wilmington Trust, National Association, as trustee (the
"Trustee") and as notes collateral agent (the "Notes Collateral Agent").

AG Escrow Issuer was merged with and into Advisor Group on February 14, 2020. In
connection therewith, we and Securities America Financial Corporation (together,
the "Guarantors") entered into a supplemental indenture, dated February 14, 2020
(the "2028 Senior Secured Notes Supplemental Indenture," and together with the
Initial Indenture, the "2028 Senior Secured Notes Indenture"), pursuant to which
the Guarantors have agreed to guarantee all of Advisor Group's obligations under
the 2028 Senior Secured Notes Indenture and the 2028 Senior Secured Notes.

The 2028 Senior Secured Notes bear interest at 6.25% and mature on March 1, 2028. Interest on the 2028 Senior Secured Notes is payable semi-annually on March 1 and September 1 of each year, beginning on September 1, 2020.


Prior to March 1, 2023, the 2028 Senior Secured Notes may be redeemed at any
time and from time to time, in whole or in part, at a redemption price equal to
100% of the principal amount of the 2028 Senior Secured Notes, plus accrued and
unpaid interest, if any, to, but not including, the redemption date, plus a
"make-whole." In addition, at any time prior to March 1, 2023, up to 40% of the
aggregate principal amount of the 2028 Senior Secured Notes may be redeemed with
an amount not to exceed the net cash proceeds from certain equity offerings at a
redemption price of 106.25% of the principal amount of the 2028 Senior Secured
Notes to be redeemed plus accrued and unpaid interest, if any, to, but
excluding, the redemption date. In addition, until March 1, 2023, up to 10% of
the original aggregate principal amount of the 2028 Senior Secured Notes may be
redeemed during the period beginning on the issue date and ending on February
28, 2021, and on each subsequent twelve month period beginning March 1, 2021 and
March 1, 2022, at a redemption price of 103% of the principal amount thereof,
plus accrued and unpaid interest, if any, to, but excluding, the redemption
date.



                                       42
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On and after March 1, 2023, the 2028 Senior Secured Notes may be redeemed at any
time and from time to time at the applicable redemption prices set forth in the
2028 Senior Secured Notes Indenture plus accrued and unpaid interest, if any,
to, but excluding, the redemption date.

The 2028 Senior Secured Notes and related guarantees are secured on a first lien
basis by substantially all assets of Advisor Group, certain of its subsidiaries
and the Guarantors (other than certain excluded assets), which assets secure the
Guarantors' obligations under the Senior Secured Credit Facilities (as defined
below) on a pari passu basis, subject to permitted liens. The 2028 Senior
Secured Notes Indenture contains restrictive covenants that limit, among other
things, the ability of the Guarantors to incur or guarantee additional
indebtedness or issue disqualified stock or certain preferred stock; pay
dividends and make other distributions or repurchase stock; make certain
investments; create or incur liens; sell assets; enter into certain transactions
with the Guarantors; merge, consolidate or transfer or sell all or substantially
all of the Guarantors' assets; and designate restricted subsidiaries as
unrestricted subsidiaries. These covenants are subject to a number of important
limitations and exceptions. The 2028 Senior Secured Notes Indenture also
contains customary events of default which would permit the holders of the 2028
Senior Secured Notes to declare the 2028 Senior Secured Notes to be immediately
due and payable if not cured within applicable grace periods.

On February 14, 2020, the Guarantors entered into a supplemental indenture (the
"2027 Senior Notes Supplemental Indenture"), pursuant to which the Guarantors
agreed to guarantee all of Advisor Group's obligations under the indenture,
dated as of August 1, 2019, among Advisor Group, the guarantor parties thereto
from time to time, and the Trustee (as supplemented, the "2027 Senior Notes
Indenture"), and Advisor Group's 10.75% senior unsecured notes due 2027 (the
"2027 Senior Notes"), which, as of February 14, 2020, had an outstanding
aggregate principal amount of approximately $350,000. On February 20, 2020, the
Guarantors entered into a third supplemental indenture, pursuant to which the
Guarantors agreed to guarantee an additional $63,000 in 2027 Senior Notes issued
by Advisor Group.

The 2027 Senior Notes mature on August 1, 2027. Interest on the 2027 Senior
Notes accrues at a rate of 10.75% per annum and is payable semi-annually in
arrears on February 1 and August 1 of each year. At any time prior to August 1,
2022, the 2027 Senior Notes may be redeemed, in whole or in part, at a
redemption price equal to 100% of the principal amount of such notes plus a
make-whole premium, together with accrued but unpaid interest to, but excluding,
the redemption date. At any time on or after August 1, 2022, some or all of the
2027 Senior Notes may be redeemed at any time and from time to time at the
applicable redemption prices set forth in the 2027 Senior Notes Indenture plus
accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time prior to August 1, 2022, the 2027 Senior Notes may be redeemed with
the net cash proceeds received from certain equity offerings at a redemption
price equal to 110.750% of the principal amount of such notes, plus accrued but
unpaid interest to, but excluding, the redemption date.

The 2027 Senior Notes contain restrictive covenants and other terms that are substantially similar to the 2028 Senior Secured Notes.


On February 14, 2020, the Guarantors, as guarantors, entered into a joinder
agreement to Advisor Group's credit agreement with, inter alios, the several
lending institutions from time to time party thereto and UBS AG, Stamford
Branch, as administrative agent, governing the senior secured credit facilities
(the "Senior Secured Credit Facilities"). On February 14, 2020, the Senior
Secured Credit Facilities consisted of (i) a seven year $1.5 billion senior
secured Term Loan B facility (the "Term Loan Facility") and (ii) a $325 million
senior secured revolving credit facility (the "Revolving Credit Facility").

Advisor Group is the borrower under the Senior Secured Credit Facilities. The
Revolving Credit Facility includes sub-facilities for letters of credit and
short-term borrowings referred to as swing line borrowings. In addition, the
credit agreement governing the Senior Secured Credit Facilities provides that
Advisor Group has the right at any time, subject to customary conditions, to
solicit existing or prospective lenders to provide incremental term loans or
incremental revolving credit commitments. The lenders under the Senior Secured
Credit Facilities are not obligated to provide any such incremental loans or
commitments, and any such addition of or increase in loans will be subject to
certain customary conditions precedent and other provisions.

Borrowings under the Senior Secured Credit Facilities bear interest, at the
option of Advisor Group, at a rate per annum equal to certain margins over
either (a) a base rate determined by reference to the highest of (i) the U.S.
prime rate published in The Wall Street Journal from time to time, (ii) the
federal funds effective rate, plus 1/2 of 1% and (iii) one month LIBOR rate plus
1.00% or (b) a LIBOR rate determined by reference to the London interbank
offered rate, adjusted for statutory reserve requirements, subject to a zero
percent floor.



                                       43
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During the continuation of any payment event of default, the interest rate will
be, with respect to overdue principal, the applicable interest rate, plus 2.00%
per annum and, with respect to any other overdue amount, the interest rate
applicable to base rate loans, plus 2.00% per annum (other than to defaulting
lenders).

A per annum fee equal to the applicable spread over the LIBOR rate under the
Revolving Credit Facility in effect from time to time will accrue on the
aggregate face amount of outstanding letters of credit under the Revolving
Credit Facility, payable in arrears at the end of each quarter after the closing
of the Senior Secured Credit Facilities and upon termination of the Revolving
Credit Facility. In addition, Advisor Group will pay (a) a fronting fee of
0.125% on the aggregate face amount of outstanding letters of credit under the
Revolving Credit Facility, payable in arrears at the end of each quarter after
the closing of the Senior Secured Credit Facilities and upon termination of the
Revolving Credit Facility and (b) such issuing bank's customary and reasonable
issuance and administration fees.

Advisor Group will pay to the lenders under the Revolving Credit Facility (other
than defaulting lenders) a commitment fee of 0.50% per annum on the undrawn
portion (for this purpose, disregarding swingline loans as a utilization of the
Revolving Credit Facility) of the commitments in respect of the Revolving Credit
Facility, subject to two step-downs of 12.5 basis points based on meeting
specified first lien net leverage ratios. All commitment fees are payable
quarterly in arrears upon the termination of the commitments.

The Senior Secured Credit Facilities contain customary mandatory prepayments,
including with respect to excess cash flow (solely with respect to the Term Loan
Facility), asset sale and casualty proceeds and proceeds from certain
incurrences of indebtedness.

Advisor Group may voluntarily repay outstanding loans under the Senior Secured
Credit Facilities at any time without premium or penalty, other than
reimbursement of redeployment costs with respect to LIBOR loans. Any voluntary
prepayment, refinancing or repricing of the term loans under the Term Loan
Facility in connection with certain repricing transactions that occur prior to
the six-month anniversary of the closing of the Senior Secured Credit Facilities
shall be subject to a prepayment premium of 1.00% of the principal amount of the
term loans so prepaid, refinanced or repriced (subject to customary exceptions).

The Term Loan Facility matures on August 1, 2026 and will amortize in equal
quarterly installments in an aggregate annual amount equal to 1.00% of its
original principal amount (subject to reduction in connection with debt
prepayments and debt buybacks), with the balance payable on the final maturity
date. The Revolving Credit Facility will terminate on the day that is five years
after the closing of the Senior Secured Credit Facilities.

All obligations of Advisor Group under the Senior Secured Credit Facilities and,
at the option of Advisor Group, the obligations of Advisor Group or any of its
restricted subsidiaries under certain hedge agreements and cash management
arrangements provided by any lender party to the Senior Secured Credit
Facilities or any of its affiliates and certain other persons, are
unconditionally guaranteed by AG Parent Corp. ("Holdings") and certain of
Advisor Group's existing and subsequently acquired or organized direct or
indirect material wholly owned U.S. restricted subsidiaries with customary
exceptions including, among other things, for broker dealer subsidiaries and
where providing such guarantees is not permitted by law, regulation or contract
or would result in adverse tax consequences (other than de minimis) to Holdings,
Advisor Group or any of their subsidiaries or any direct or indirect parent
thereof.

All obligations of Advisor Group under the Senior Secured Credit Facilities and,
at the option of Advisor Group, certain hedge agreements and cash management
arrangements provided by any lender party to the Senior Secured Credit
Facilities or any of its affiliates and certain other persons, and the
guarantees of such obligations, are secured, subject to permitted liens and
other exceptions, by (i) a perfected pledge of all the capital stock of each
direct, wholly owned material restricted subsidiary held by Advisor Group,
Holdings and each subsidiary guarantor (limited to 65% of the capital stock of
certain subsidiaries and subject to customary exceptions) and (ii) a perfected
security interest in substantially all other tangible and intangible assets of
Advisor Group, Holdings and the subsidiary guarantors (subject to customary
exceptions).

The Senior Secured Credit Facilities contain a number of covenants that, among
other things, restrict, subject to certain exceptions, Advisor Group's ability
and the ability of the restricted subsidiaries of Advisor Group to: incur
additional indebtedness and guarantee certain indebtedness; create or incur
liens; engage in mergers or consolidations; sell, transfer or otherwise dispose
of assets; pay dividends and distributions or repurchase capital stock; prepay,
redeem or repurchase certain indebtedness; make investments, loans and advances;
and enter into certain transactions with affiliates. The Revolving Credit
Facility contains a springing financial covenant requiring compliance with a
certain ratio of first lien net indebtedness to consolidated EBITDA. Breaches of
this financial covenant are subject to customary "equity cure" rights.



                                       44
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The Senior Secured Credit Facilities limit Holdings' activities to being a
passive holding company and contain certain customary affirmative covenants and
events of default for facilities of this type, including relating to a change of
control.

If an event of default occurs, the lenders under the Senior Secured Credit
Facilities (or, in the case of the springing financial covenant under the
Revolving Credit Facility, the lenders under the Revolving Credit Facility) are
entitled to take various actions, including the acceleration of amounts due
under the Senior Secured Credit Facilities (or the Revolving Credit Facility in
the case of such springing financial covenant) and all actions permitted to be
taken by secured creditors.

We were in compliance with all covenants in our debt agreements as of December 31, 2019.


Stock Repurchases

In March 2007, October 2011, November 2014, November 2016 and April 2019, our
board of directors authorized in the aggregate the repurchase of up to
37,500,000 shares of our common stock from time to time on the open market or in
privately negotiated transactions depending on market conditions. Since
inception through December 31, 2019, 27,226,063 shares of common stock have been
repurchased for $73,194 under the program, including 2,041,958 shares
repurchased for $7,078 in 2019. The board authorized stock repurchase program
expired at the effective time of the Merger as there is no established trading
market for shares of our common stock as of the closing date of the Merger.

Lease Agreements


At December 31, 2019, we were obligated under several non-cancellable lease
agreements for office space, which provide for future minimum lease payments
aggregating approximately $39,453 through January 2030. We have subleased vacant
space under subleases to unrelated subtenants, which entitle us to receive rents
aggregating approximately $28 through February 2020.

In connection with a new office lease dated March, 2016, Securities America has
exercised an option to lease additional office space, for 12 years and would
require the payment of an annual rent of $1,707 plus operating expenses of $537,
subject to certain adjustments.The annual rent plus operating expenses for the
first year of the initial term of the lease is $2,244, payable in monthly
installments of $187. The Company currently expects that this lease would
commence in 2020 upon completion of the construction. Such estimated rent
amounts are not included in the total minimum lease payments above.


Off-Balance Sheet Arrangements


Each of our broker-dealer subsidiaries, as guarantor of its customer accounts to
its clearing broker, is exposed to off-balance-sheet risks in the event that its
customers do not fulfill their obligations with the clearing broker. Also, if
any of our broker-dealer subsidiaries maintains a short position in certain
securities, it is exposed to future off-balance-sheet market risk, since its
ultimate obligation may exceed the amount recognized in the financial
statements.

See Note 16, "Off-Balance-Sheet Risk and Concentration of Credit Risk," to the
consolidated financial statements included in Part II, Item 8 of this annual
report on Form 10-K.

Contractual Obligations

The table below summarizes information about our contractual obligations as of
December 31, 2019 and the effect these obligations are expected to have on our
liquidity and cash flow in the future years.



                                       45
--------------------------------------------------------------------------------
                                                                     Payments Due By Period
                                                      Less than
                                          Total         1 year        1 - 3 years       4 - 5 years       After 5 years
Operating leases(1)                    $  39,453     $    8,341     $      11,408     $       7,529     $        12,175
Financing leases (2)                         424            209               206                 9                   -
Deferred compensation plan(3)             27,385          6,177             1,307             1,640              18,261
Note payable under subsidiary's term
loan with bank (4)                         5,005          5,005                 -                 -                   -
Notes payable to Kestler Financial
Group's former shareholders (5)            7,681            689             1,111               845               5,036
Notes payable to Four Seasons
Financial Group's former
shareholders (6)                             258            258                 -                 -                   -
6.5% Senior Notes (7)                    125,421          5,383            10,765            10,765              98,508
7% Senior Notes (8)                       67,571          2,976             5,953             5,953              52,689
7.25% Senior Notes (9)                    98,063          4,350             8,700             8,700              76,313
7.75% Senior Notes (10)                   99,834          4,456             8,913             8,913              77,552
7.25% Phillip Frost Note (11)              4,439          4,439                 -                 -                   -
7.25% Frost Nevada Trust Note (12)        63,345         63,345                 -                 -                   -
Total                                  $ 538,879     $  105,628     $      48,363     $      44,354     $       340,534




(1)    It does not include lease obligation plus operating expenses of

approximately $27,100 related to a twelve-year lease for a new office

       building being built for Securities America. This lease obligation
       commences in 2020. See Note 6 "Leases" and Note 15, "Commitments and
       Contingencies," to the consolidated financial statements included in Part
       II, Item 8 of this annual report on Form 10-K.


(2) See Note 6, "Leases" to the consolidated financial statements included in

       Part II, Item 8 of this annual report on Form 10-K.


(3) See Note 12, "Deferred Compensation Plan," to the consolidated financial

       statements included in Part II, Item 8 of this annual report on Form 10-K.


(4) On February 6, 2019, Securities America Financial Corporation entered into

an amendment to its loan agreement with a third-party financial

institution to provide for a term loan in the aggregate principal amount

of $7,000. The note bore interest at 5.52% per annum and was payable in 36

monthly installments. The term loan was prepaid in full, without penalty,

on February 14, 2020. See Note 14, "Notes Payable," to the consolidated

financial statements included in Part II, Item 8 of this annual report on

       Form 10-K.



(5)    Notes bear interest at 4% per annum and mature on November 15, 2036.

Includes annual cash payments to be made on the anniversary of the closing

       date for the next two years. See Note 14, "Notes Payable," to the
       consolidated financial statements included in Part II, Item 8 of this
       annual report on Form 10-K.



(6)    Notes bore interest at 3.99% and 4.75% per annum and were scheduled to
       mature on October 1, 2021 and January 15, 2024, respectively. The notes

were prepaid in full, without penalty, on February 14, 2020. Includes

annual cash payment to be made on the anniversary of the closing date for

the next year. See Note 14, "Notes Payable," to the consolidated financial

statements included in Part II, Item 8 of this annual report on Form 10-K.



(7)    Senior notes bear interest at 6.5% per annum and mature on November 30,

2027. Interest will be paid quarterly in arrears. See Note 14, "Notes

       Payable," to the consolidated financial statements included in Part II,
       Item 8 of this annual report on Form 10-K.


(8) Senior notes bear interest at 7% per annum and mature on May 31, 2028.

Interest will be paid quarterly in arrears. See Note 14, "Notes Payable,"

       to the consolidated financial statements included in Part II, Item 8 of
       this annual report on Form 10-K.





                                       46
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(9) Senior notes bear interest at 7.25% per annum and mature on September 30,

2028. Interest will be paid quarterly in arrears. See Note 14, "Notes

Payable," to the consolidated financial statements included in Part II,

Item 8 of this annual report on Form 10-K.

(10) Senior notes bear interest at 7.75% per annum and mature on June 30, 2029.

Interest will be paid quarterly in arrears. See Note 14, "Notes Payable,"

       to the consolidated financial statements included in Part II, Item 8 of
       this annual report on Form 10-K.



(11)   Note bears interest at 7.25% per annum and matures on September 30, 2028.

In February 2020, the Note was purchased by Advisor Group, our affiliate,

       and became an intercompany balance. See Note 14, "Notes Payable," to the
       consolidated financial statements included in Part II, Item 8 of this
       annual report on Form 10-K.



(12)   Note bears interest at 7.25% per annum and matures on September 30, 2028.

In February 2020, the Note was purchased by Advisor Group, our affiliate,

       and became an intercompany balance. See Note 14, "Notes Payable," to the
       consolidated financial statements included in Part II, Item 8 of this
       annual report on Form 10-K.


Market Risk


Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates, equity and commodity
prices, changes in the implied volatility of interest rates, foreign exchange
rates, equity and commodity prices and also changes in the credit ratings of
either the issuer or its related country of origin. Market risk is inherent to
both derivative and non-derivative financial instruments, and accordingly, the
scope of our market risk management procedures extends beyond derivatives to
include all market risk sensitive financial instruments.

Current and proposed underwriting, corporate finance, merchant banking and other
commitments are subject to due diligence reviews by our senior management, as
well as professionals in the appropriate business and support units involved.
Credit risk related to various financing activities is reduced by the industry
practice of obtaining and maintaining collateral. We monitor our exposure to
counter-party risk through the use of credit exposure information, the
monitoring of collateral values and the establishment of credit limits.

Interest Rate Risk


We offer our advisors and their clients cash sweep vehicles that are interest
rate sensitive. Clients earn interest on balances in cash sweep accounts, and we
earn service fee revenue. Our fees from our cash sweep programs are sensitive to
prevailing interest rates. We attempt to mitigate interest rate risk and strive
to create a net interest margin that is relatively stable and predictable over a
wide range of interest rates by structuring the mix of funds indexed to the
effective federal funds rate and term swap rates. Changes in interest rates and
fees and our hedge profile for our cash sweep programs are monitored by our FDIC
Sweep Steering Committee.

Special Note Regarding Forward-Looking Statements


We and our representatives may from time to time make oral or written
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including any statements that may be contained in
the foregoing discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in this report and in other filings with
the Securities and Exchange Commission and in our reports to shareholders, which
reflect our expectations or beliefs with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties and, in connection with the "safe-harbor" provisions of the
Private Securities Litigation Reform Act, we have identified under "Risk
Factors" in Item 1A above, important factors that could cause actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of us.

Results actually achieved may differ materially from expected results included
in these forward-looking statements as a result of these or other factors. Due
to such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date on
which such statements are made. We do not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
us, except as may be required by law.





                                       47
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information in Item 7 under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk" is incorporated herein by reference.

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