UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission file number 0-16633
THE JONES FINANCIAL COMPANIES, L.L.L.P.
(Exact name of registrant as specified in its Charter)
MISSOURI | 43-1450818 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
12555 Manchester Road
Des Peres, Missouri 63131
(Address of principal executive office)
(Zip Code)
(314) 515-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☒ | (do not check if a smaller reporting company) | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
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|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2017, 895,953 units of limited partnership interest (“Interests”) are outstanding, each representing $1,000 of limited partner capital. There is no public or private market for such Interests.
THE JONES FINANCIAL COMPANIES, L.L.L.P.
INDEX
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PART I. |
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Item 1. |
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| 3 | |
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| 3 | |
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| 4 | |
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| 5 | |
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| 6 | |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 12 |
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Item 3. |
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| 30 | |
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Item 4. |
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| 31 | |
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PART II. |
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Item 1. |
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| 32 | |
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Item 1A. |
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| 32 | |
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Item 2. |
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| 34 | |
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Item 6. |
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| 35 | |
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| 38 |
2
PART I. FINANCIAL INFORMATION
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
|
| June 30, |
|
| December 31, |
| ||
(Dollars in millions) |
| 2017 |
|
| 2016 |
| ||
ASSETS: |
|
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|
Cash and cash equivalents |
| $ | 903 |
|
| $ | 1,047 |
|
Cash and investments segregated under federal regulations |
|
| 10,622 |
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|
| 12,680 |
|
Securities purchased under agreements to resell |
|
| 400 |
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|
| 892 |
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Receivable from: |
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Clients |
|
| 3,253 |
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|
| 3,129 |
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Mutual funds, insurance companies and other |
|
| 554 |
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|
| 513 |
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Brokers, dealers and clearing organizations |
|
| 218 |
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| 219 |
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Securities owned, at fair value: |
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Investment securities |
|
| 230 |
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|
| 224 |
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Inventory securities |
|
| 76 |
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| 43 |
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Equipment, property and improvements, at cost, net of accumulated depreciation and amortization |
|
| 548 |
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|
| 549 |
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Other assets |
|
| 123 |
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| 128 |
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TOTAL ASSETS |
| $ | 16,927 |
|
| $ | 19,424 |
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LIABILITIES: |
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Payable to: |
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Clients |
| $ | 13,010 |
|
| $ | 15,414 |
|
Brokers, dealers and clearing organizations |
|
| 111 |
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|
| 99 |
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Accrued compensation and employee benefits |
|
| 1,054 |
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|
| 1,116 |
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Accounts payable, accrued expenses and other |
|
| 180 |
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| 161 |
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| 14,355 |
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| 16,790 |
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Contingencies (Note 5) |
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Partnership capital subject to mandatory redemption, net of reserve for anticipated withdrawals and partnership loans: |
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Limited partners |
|
| 898 |
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|
| 902 |
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Subordinated limited partners |
|
| 463 |
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|
| 421 |
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General partners |
|
| 1,088 |
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|
| 1,094 |
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Total |
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| 2,449 |
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|
| 2,417 |
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Reserve for anticipated withdrawals |
|
| 123 |
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|
| 217 |
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Total partnership capital subject to mandatory redemption |
|
| 2,572 |
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|
| 2,634 |
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TOTAL LIABILITIES |
| $ | 16,927 |
|
| $ | 19,424 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
(Dollars in millions, except per unit information and units outstanding) |
| June 30, 2017 |
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| June 24, 2016 |
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| June 30, 2017 |
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| June 24, 2016 |
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Revenue: |
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Fee revenue |
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Asset-based |
| $ | 1,217 |
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| $ | 891 |
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| $ | 2,332 |
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| $ | 1,721 |
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Account and activity |
|
| 173 |
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| 181 |
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|
| 345 |
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|
| 361 |
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Total fee revenue |
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| 1,390 |
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|
| 1,072 |
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| 2,677 |
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|
| 2,082 |
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Trade revenue |
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| 429 |
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|
| 546 |
|
|
| 886 |
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|
| 1,068 |
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Interest and dividends |
|
| 65 |
|
|
| 48 |
|
|
| 123 |
|
|
| 91 |
|
Other revenue |
|
| 19 |
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|
| 13 |
|
|
| 32 |
|
|
| 17 |
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Total revenue |
|
| 1,903 |
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| 1,679 |
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| 3,718 |
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| 3,258 |
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Interest expense |
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| 21 |
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| 19 |
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|
| 39 |
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|
| 37 |
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Net revenue |
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| 1,882 |
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| 1,660 |
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| 3,679 |
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|
| 3,221 |
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Operating expenses: |
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Compensation and benefits |
|
| 1,329 |
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| 1,155 |
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| 2,606 |
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| 2,239 |
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Occupancy and equipment |
|
| 103 |
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| 99 |
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|
| 205 |
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| 196 |
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Communications and data processing |
|
| 81 |
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| 74 |
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|
| 162 |
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| 143 |
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Advertising |
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| 21 |
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| 17 |
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| 44 |
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| 39 |
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Fund sub-adviser fees |
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| 24 |
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| 13 |
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| 44 |
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| 25 |
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Professional and consulting fees |
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| 18 |
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| 15 |
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|
| 35 |
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| 28 |
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Postage and shipping |
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| 18 |
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| 12 |
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| 33 |
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| 25 |
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Other operating expenses |
|
| 63 |
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| 67 |
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|
| 128 |
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|
| 127 |
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Total operating expenses |
|
| 1,657 |
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|
| 1,452 |
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| 3,257 |
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| 2,822 |
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Income before allocations to partners |
|
| 225 |
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|
| 208 |
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|
| 422 |
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|
| 399 |
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Allocations to partners: |
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Limited partners |
|
| 28 |
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|
| 28 |
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|
| 53 |
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|
| 54 |
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Subordinated limited partners |
|
| 28 |
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|
| 25 |
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|
| 53 |
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|
| 48 |
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General partners |
|
| 169 |
|
|
| 155 |
|
|
| 316 |
|
|
| 297 |
|
Net Income |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
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Income allocated to limited partners per weighted average $1,000 equivalent limited partnership unit outstanding |
| $ | 31.27 |
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| $ | 30.80 |
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| $ | 58.60 |
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| $ | 59.10 |
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Weighted average $1,000 equivalent limited partnership units outstanding |
|
| 898,753 |
|
|
| 910,682 |
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| 900,137 |
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|
| 912,437 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
THE JONES FINANCIAL COMPANIES, L.L.L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Six Months Ended |
| |||||
(Dollars in millions) |
| June 30, 2017 |
|
| June 24, 2016 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
| $ | — |
|
| $ | — |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
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Income before allocations to partners |
|
| 422 |
|
|
| 399 |
|
Depreciation and amortization |
|
| 41 |
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|
| 40 |
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Changes in assets and liabilities: |
|
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Cash and investments segregated under federal regulations |
|
| 2,058 |
|
|
| (100 | ) |
Securities purchased under agreements to resell |
|
| 492 |
|
|
| 246 |
|
Net payable to clients |
|
| (2,528 | ) |
|
| 171 |
|
Net receivable from brokers, dealers and clearing organizations |
|
| 13 |
|
|
| (22 | ) |
Receivable from mutual funds, insurance companies and other |
|
| (41 | ) |
|
| (47 | ) |
Securities owned |
|
| (39 | ) |
|
| (33 | ) |
Other assets |
|
| 5 |
|
|
| 8 |
|
Accrued compensation and employee benefits |
|
| (62 | ) |
|
| (209 | ) |
Accounts payable, accrued expenses and other |
|
| 19 |
|
|
| 43 |
|
Net cash provided by operating activities |
|
| 380 |
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|
| 496 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of equipment, property and improvements, net |
|
| (40 | ) |
|
| (34 | ) |
Net cash used in investing activities |
|
| (40 | ) |
|
| (34 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Issuance of partnership interests |
|
| 66 |
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|
| 69 |
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Redemption of partnership interests |
|
| (170 | ) |
|
| (162 | ) |
Distributions from partnership capital |
|
| (380 | ) |
|
| (423 | ) |
Net cash used in financing activities |
|
| (484 | ) |
|
| (516 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (144 | ) |
|
| (54 | ) |
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CASH AND CASH EQUIVALENTS: |
|
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Beginning of period |
|
| 1,047 |
|
|
| 937 |
|
End of period |
| $ | 903 |
|
| $ | 883 |
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Cash paid for interest |
| $ | 38 |
|
| $ | 37 |
|
Cash paid for taxes |
| $ | 4 |
|
| $ | 7 |
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NON-CASH ACTIVITIES: |
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Issuance of general partnership interests through partnership loans in current period |
| $ | 142 |
|
| $ | 146 |
|
|
|
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|
Repayment of partnership loans through distributions from partnership capital in current period |
| $ | 93 |
|
| $ | 79 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
THE JONES FINANCIAL COMPANIES, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of The Jones Financial Companies, L.L.L.P. ("JFC") and all wholly-owned subsidiaries (collectively, the “Partnership”). All material intercompany balances and transactions have been eliminated in consolidation. The results of the Partnership’s subsidiaries in Canada as of May 31, 2017 and November 30, 2016 are included in the Partnership’s Consolidated Statement of Financial Condition and the results for the three and six month periods ended May 31, 2017 and 2016 are included in the Partnership’s Consolidated Statements of Income and Consolidated Statements of Cash Flows because of the timing of the Partnership’s financial reporting process.
The Partnership’s principal operating subsidiary, Edward D. Jones & Co., L.P. (“Edward Jones”), is a registered broker-dealer and investment adviser in the United States (“U.S.”), and one of Edward Jones’ subsidiaries is a registered broker-dealer in Canada. Through these entities, the Partnership primarily serves individual investors in the U.S. and Canada. Edward Jones primarily derives its revenues from the retail brokerage business through the distribution of mutual fund shares to, fees related to assets held by and account services provided to its clients, including investment advisory services, the purchase or sale of securities and insurance products, and principal transactions. The Partnership conducts business throughout the U.S. and Canada with its clients, various brokers, dealers, clearing organizations, depositories and banks. Trust services are offered to Edward Jones’ U.S. clients through Edward Jones Trust Company (“Trust Co.”), a wholly-owned subsidiary of the Partnership.
The Consolidated Financial Statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the U.S. (“GAAP”) which require the use of certain estimates by management in determining the Partnership’s assets, liabilities, revenues and expenses. Actual results could differ from these estimates. The Partnership has evaluated subsequent events through the date these Consolidated Financial Statements were issued and identified no matters requiring disclosure.
The interim financial information included herein is unaudited. However, in the opinion of management, such information includes all adjustments, consisting primarily of normal recurring accruals, which are necessary for a fair statement of the results of interim operations. Certain prior period amounts have been reclassified to conform to the current period presentation.
There have been no material changes to the Partnership’s significant accounting policies or disclosures of adopted and recently issued accounting standards as described in Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 of the Partnership's Annual Report on Form 10-K for the year ended December 31, 2016 ("Annual Report"). The results of operations for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. These unaudited Consolidated Financial Statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto included in the Annual Report.
6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
The Partnership's valuation methodologies for financial assets and financial liabilities measured at fair value and the fair value hierarchy are described in Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 of the Partnership's Annual Report. There have been no material changes to the Partnership's valuation methodologies since December 31, 2016.
The Partnership did not have any assets or liabilities categorized as Level III during the six and twelve month periods ended June 30, 2017 and December 31, 2016, respectively. In addition, there were no transfers into or out of Levels I, II or III during these periods.
The following tables show the Partnership’s financial assets measured at fair value:
|
| Financial Assets at Fair Value as of |
| |||||||||||||
|
| June 30, 2017 |
| |||||||||||||
|
| Level I |
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| Level II |
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| Level III |
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| Total |
| ||||
Cash equivalents: |
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Certificates of deposit |
| $ | — |
|
| $ | 250 |
|
| $ | — |
|
| $ | 250 |
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|
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Investments segregated under federal regulations: |
|
|
|
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|
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|
|
|
|
|
|
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U.S. treasuries |
| $ | 3,195 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,195 |
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Securities owned: |
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Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds(1) |
| $ | 224 |
|
| $ | — |
|
| $ | — |
|
| $ | 224 |
|
Government and agency obligations |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
Equities |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Corporate bonds and notes |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total investment securities |
| $ | 229 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations |
| $ | — |
|
| $ | 41 |
|
| $ | — |
|
| $ | 41 |
|
Equities |
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Mutual funds |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Corporate bonds and notes |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Certificates of deposit |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Total inventory securities |
| $ | 31 |
|
| $ | 45 |
|
| $ | — |
|
| $ | 76 |
|
(1) | The mutual funds balance consists primarily of securities held to economically hedge future liabilities related to the non-qualified deferred compensation plan. |
7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
|
| Financial Assets at Fair Value as of |
| |||||||||||||
|
| December 31, 2016 |
| |||||||||||||
|
| Level I |
|
| Level II |
|
| Level III |
|
| Total |
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
| $ | — |
|
| $ | 150 |
|
| $ | — |
|
| $ | 150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments segregated under federal regulations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries |
| $ | 3,999 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,999 |
|
Certificates of deposit |
|
| — |
|
|
| 150 |
|
|
| — |
|
|
| 150 |
|
Total investments segregated under federal regulations |
| $ | 3,999 |
|
| $ | 150 |
|
| $ | — |
|
| $ | 4,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds(1) |
| $ | 209 |
|
| $ | — |
|
| $ | — |
|
| $ | 209 |
|
Government and agency obligations |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Equities |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Corporate bonds and notes |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total investment securities |
| $ | 223 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| $ | 17 |
|
| $ | — |
|
| $ | — |
|
| $ | 17 |
|
State and municipal obligations |
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| 16 |
|
Mutual funds |
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
Corporate bonds and notes |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Other |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total inventory securities |
| $ | 24 |
|
| $ | 19 |
|
| $ | — |
|
| $ | 43 |
|
NOTE 3 – PARTNERSHIP CAPITAL
The Partnership makes loans available to those general partners and, in limited circumstances, subordinated limited partners (in each case, other than members of the Executive Committee, as defined in the Partnership’s Nineteenth Amended and Restated Agreement of Registered Limited Liability Limited Partnership, dated June 6, 2014 (the “Partnership Agreement”)), who require financing for some or all of their Partnership capital contributions. In limited circumstances a general partner may withdraw from the Partnership and become a subordinated limited partner while he or she still has an outstanding Partnership loan. It is anticipated that, of the future general and subordinated limited partnership capital contributions (in each case, other than for Executive Committee members) requiring financing, the majority will be financed through Partnership loans. Loans made by the Partnership to such partners are generally for a period of one year but are expected to be renewed and bear interest at the interest rate defined in the loan documents. The Partnership recognizes interest income for the interest earned related to these loans. The outstanding amount of Partnership loans is reflected as a reduction to total Partnership capital. As of June 30, 2017 and December 31, 2016, the outstanding amount of Partnership loans was $315 and $266, respectively. Interest income earned from these loans, which is included in interest and dividends in the Consolidated Statements of Income, was $3 and $6 for the three and six month periods ended June 30, 2017, respectively, and $3 and $5 for the three and six month periods ended June 24, 2016, respectively.
8
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
The following table shows the roll forward of outstanding Partnership loans for:
|
| Six Months Ended |
| |||||
|
| June 30, |
|
| June 24, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Partnership loans outstanding at beginning of period |
| $ | 266 |
|
| $ | 218 |
|
Partnership loans issued during the period |
|
| 142 |
|
|
| 146 |
|
Repayment of Partnership loans during the period |
|
| (93 | ) |
|
| (79 | ) |
Total Partnership loans outstanding |
| $ | 315 |
|
| $ | 285 |
|
The minimum 7.5% annual payment on the face amount of limited partnership capital was $17 and $34 for both the three and six month periods ended June 30, 2017 and June 24, 2016, respectively. These amounts are included as a component of interest expense in the Consolidated Statements of Income.
The Partnership filed a Registration Statement on Form S-8 with the U.S. Securities and Exchange Commission ("SEC") on January 17, 2014, to register $350 of Interests to be issued pursuant to the Partnership's 2014 Employee Limited Partnership Interest Purchase Plan ("Plan"). The Partnership previously issued approximately $293 of Interests under the Plan. The remaining $57 of Interests may be issued under the Plan at the discretion of the Partnership in the future.
NOTE 4 – NET CAPITAL REQUIREMENTS
As a result of its activities as a U.S. broker-dealer, Edward Jones is subject to the net capital provisions of Rule 15c3-1 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and capital compliance rules of the Financial Industry Regulatory Authority (“FINRA”) Rule 4110. Under the alternative method permitted by the rules, Edward Jones must maintain minimum net capital equal to the greater of $0.25 or 2% of aggregate debit items arising from client transactions. The net capital rules also provide that Edward Jones’ partnership capital may not be withdrawn if resulting net capital would be less than minimum requirements. Additionally, certain withdrawals require the approval of the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than minimum requirements.
The Partnership’s Canada broker-dealer subsidiary is a registered broker-dealer regulated by the Investment Industry Regulatory Organization of Canada (“IIROC”). Under the regulations prescribed by IIROC, the Partnership’s Canada broker-dealer subsidiary is required to maintain minimum levels of risk-adjusted capital, which are dependent on the nature of the Partnership’s Canada broker-dealer subsidiary’s assets and operations.
The following table shows the Partnership’s net capital figures for its U.S. and Canada broker-dealer subsidiaries as of:
|
| June 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
U.S.: |
|
|
|
|
|
|
|
|
Net capital |
| $ | 991 |
|
| $ | 998 |
|
Net capital in excess of the minimum required |
| $ | 846 |
|
| $ | 941 |
|
Net capital as a percentage of aggregate debit items |
|
| 34.2 | % |
|
| 35.0 | % |
Net capital after anticipated capital withdrawals, as a percentage of aggregate debit items |
|
| 22.4 | % |
|
| 23.1 | % |
|
|
|
|
|
|
|
|
|
Canada: |
|
|
|
|
|
|
|
|
Regulatory risk adjusted capital |
| $ | 29 |
|
| $ | 37 |
|
Regulatory risk adjusted capital in excess of the minimum required to be held by IIROC |
| $ | 20 |
|
| $ | 33 |
|
Net capital and the related capital percentages may fluctuate on a daily basis. In addition, Trust Co. was in compliance with its regulatory capital requirements as of June 30, 2017 and December 31, 2016.
9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
In the normal course of its business, the Partnership is involved, from time to time, in various legal and regulatory matters, including arbitrations, class actions, other litigation, and examinations, investigations and proceedings by governmental authorities, self-regulatory organizations and other regulators, which may result in losses. In addition, the Partnership provides for potential losses that may arise related to other contingencies.
The Partnership assesses its liabilities and contingencies utilizing available information. The Partnership accrues for potential losses for those matters where it is probable that the Partnership will incur a potential loss to the extent that the amount of such potential loss can be reasonably estimated, in accordance with Financial Accounting Standards Board Accounting Standards Codification No. 450, Contingencies. This liability represents the Partnership’s estimate of the probable loss at June 30, 2017, after considering, among other factors, the progress of each case, the Partnership's experience with other legal and regulatory matters and discussion with legal counsel, and is believed to be sufficient. The aggregate accrued liability may be adjusted from time to time to reflect any relevant developments.
For such matters where an accrued liability has not been established and the Partnership believes a loss is both reasonably possible and estimable, as well as for matters where an accrued liability has been recorded but for which an exposure to loss in excess of the amount accrued is both reasonably possible and estimable, the current estimated aggregated range of additional possible loss is $0 to $9 as of June 30, 2017. This range of reasonably possible loss does not necessarily represent the Partnership's maximum loss exposure as the Partnership was not able to estimate a range of reasonably possible loss for all matters.
Further, the matters underlying any disclosed estimated range will change from time to time, and actual results may vary significantly. While the outcome of these matters is inherently uncertain, based on information currently available, the Partnership believes that its established liabilities at June 30, 2017 are adequate and the liabilities arising from such matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Partnership. However, based on future developments and the potential unfavorable resolution of these matters, the outcome could be material to the Partnership’s future consolidated operating results for a particular period or periods.
NOTE 6 – SEGMENT INFORMATION
The Partnership has determined it has two operating and reportable segments based upon geographic location, the U.S. and Canada. Canada segment information, as reported in the following table, is based upon the Consolidated Financial Statements of the Partnership's Canada operations, which primarily occur through a non-guaranteed subsidiary of the Partnership. The U.S. segment information is derived from the Consolidated Financial Statements less the Canada segment information as presented. Pre-variable income represents income before variable compensation expense and before allocations to partners. This is consistent with how management views the segments in order to assess performance.
10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
The following table shows financial information for the Partnership’s reportable segments:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2017 |
|
| June 24, 2016 |
|
| June 30, 2017 |
|
| June 24, 2016 |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 1,833 |
|
| $ | 1,617 |
|
| $ | 3,582 |
|
| $ | 3,137 |
|
Canada |
|
| 49 |
|
|
| 43 |
|
|
| 97 |
|
|
| 84 |
|
Total net revenue |
| $ | 1,882 |
|
| $ | 1,660 |
|
| $ | 3,679 |
|
| $ | 3,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-variable income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 436 |
|
| $ | 399 |
|
| $ | 798 |
|
| $ | 757 |
|
Canada |
|
| 2 |
|
|
| (3 | ) |
|
| 1 |
|
|
| (3 | ) |
Total pre-variable income |
|
| 438 |
|
|
| 396 |
|
|
| 799 |
|
|
| 754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 209 |
|
|
| 185 |
|
|
| 369 |
|
|
| 348 |
|
Canada |
|
| 4 |
|
|
| 3 |
|
|
| 8 |
|
|
| 7 |
|
Total variable compensation |
|
| 213 |
|
|
| 188 |
|
|
| 377 |
|
|
| 355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before allocations to partners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 227 |
|
|
| 214 |
|
|
| 429 |
|
|
| 409 |
|
Canada |
|
| (2 | ) |
|
| (6 | ) |
|
| (7 | ) |
|
| (10 | ) |
Total income before allocations to partners |
| $ | 225 |
|
| $ | 208 |
|
| $ | 422 |
|
| $ | 399 |
|
The Partnership derived 17% of its total revenue for both the three and six month periods ended June 30, 2017 and 20% of its total revenue for both the three and six month periods ended June 24, 2016, from one mutual fund company, which includes the funds that mutual fund company advised. The revenue generated from this company relates to business conducted with the Partnership’s U.S. segment. Significant reductions in this revenue due to regulatory reform or other changes to the Partnership’s relationship with this mutual fund company could have a material impact on the Partnership’s results of operations.
NOTE 7 – OFFSETTING ASSETS AND LIABILITIES
The Partnership does not offset financial instruments in the Consolidated Statements of Financial Condition. However, the Partnership enters into master netting arrangements with counterparties for securities purchased under agreements to resell that are subject to net settlement in the event of default. These agreements create a right of offset for the amounts due to and due from the same counterparty in the event of default or bankruptcy.
The following table shows the Partnership's securities purchased under agreements to resell as of:
|
| Gross amounts of |
|
| Gross amounts offset in the Consolidated Statements of |
|
| Net amounts presented in the Consolidated Statements of |
|
| Gross amounts not offset in the Consolidated Statements of Financial Condition |
|
|
|
|
| ||||||||
|
| recognized assets |
|
| Financial Condition |
|
| Financial Condition |
|
| Financial instruments |
|
| Securities collateral(1) |
|
| Net amount |
| ||||||
Jun 30, 2017 |
| $ | 400 |
|
|
| — |
|
|
| 400 |
|
|
| — |
|
|
| (400 | ) |
| $ | — |
|
Dec 31, 2016 |
| $ | 892 |
|
|
| — |
|
|
| 892 |
|
|
| — |
|
|
| (892 | ) |
| $ | — |
|
(1) | Actual collateral was greater than 102% of the related assets in U.S. agreements and greater than 100% in Canada agreements for all periods presented. |
11
PART I. FINANCIAL INFORMATION
The following Management’s Discussion and Analysis is intended to help the reader understand the results of operations and the financial condition of the Partnership. Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in Part I, Item 1 – Financial Statements of this Quarterly Report on Form 10-Q and Part II, Item 8 – Financial Statements and Supplementary Data of the Partnership’s Annual Report. All amounts are presented in millions, except as otherwise noted.
Basis of Presentation
The Partnership broadly categorizes its net revenues into four categories: fee revenue, trade revenue (revenue from client buy or sell transactions of securities), net interest and dividends revenue (net of interest expense) and other revenue. In the Partnership’s Consolidated Statements of Income, fee revenue is composed of asset-based fees and account and activity fees. Asset-based fees are generally a percentage of the total value of specific assets in client accounts. These fees are impacted by client dollars invested in and divested from the accounts which generate asset-based fees and changes in market values of the assets. Account and activity fees and other revenue are impacted by the number of client accounts and the variety of services provided to those accounts, among other factors. Trade revenue is composed of commissions earned from the purchase or sale of mutual fund shares, equities and insurance products, and principal transactions. Trade revenue is impacted by the number of financial advisors, trading volume (client dollars invested), mix of the products in which clients invest, size of trades, margins earned on the transactions and market volatility. Net interest and dividends revenue is impacted by the amount of cash and investments, receivables from and payables to clients, the variability of interest rates earned and paid on such balances, the number of Interests outstanding, and the balances of Partnership loans.
12
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
The following table sets forth the changes in major categories of the Consolidated Statements of Income as well as several related key metrics for the three and six month periods ended June 30, 2017 and June 24, 2016. Management of the Partnership relies on this financial information and the related metrics to evaluate the Partnership’s operating performance and financial condition.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based |
| $ | 1,217 |
|
| $ | 891 |
|
|
| 37 | % |
| $ | 2,332 |
|
| $ | 1,721 |
|
|
| 36 | % |
Account and activity |
|
| 173 |
|
|
| 181 |
|
|
| -4 | % |
|
| 345 |
|
|
| 361 |
|
|
| -4 | % |
Total fee revenue |
|
| 1,390 |
|
|
| 1,072 |
|
|
| 30 | % |
|
| 2,677 |
|
|
| 2,082 |
|
|
| 29 | % |
% of net revenue |
|
| 74 | % |
|
| 65 | % |
|
|
|
|
|
| 73 | % |
|
| 65 | % |
|
|
|
|
Trade revenue |
|
| 429 |
|
|
| 546 |
|
|
| -21 | % |
|
| 886 |
|
|
| 1,068 |
|
|
| -17 | % |
% of net revenue |
|
| 23 | % |
|
| 33 | % |
|
|
|
|
|
| 24 | % |
|
| 33 | % |
|
|
|
|
Net interest and dividends |
|
| 44 |
|
|
| 29 |
|
|
| 52 | % |
|
| 84 |
|
|
| 54 |
|
|
| 56 | % |
Other revenue |
|
| 19 |
|
|
| 13 |
|
|
| 46 | % |
|
| 32 |
|
|
| 17 |
|
|
| 88 | % |
Net revenue |
|
| 1,882 |
|
|
| 1,660 |
|
|
| 13 | % |
|
| 3,679 |
|
|
| 3,221 |
|
|
| 14 | % |
Operating expenses |
|
| 1,657 |
|
|
| 1,452 |
|
|
| 14 | % |
|
| 3,257 |
|
|
| 2,822 |
|
|
| 15 | % |
Income before allocations to partners |
| $ | 225 |
|
| $ | 208 |
|
|
| 8 | % |
| $ | 422 |
|
| $ | 399 |
|
|
| 6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related metrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client dollars invested: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade ($ billions)(1) |
| $ | 24 |
|
| $ | 26 |
|
|
| -8 | % |
| $ | 48 |
|
| $ | 52 |
|
|
| -8 | % |
Advisory programs ($ billions)(2) |
| $ | 21 |
|
| $ | 4 |
|
|
| 425 | % |
| $ | 43 |
|
| $ | 5 |
|
|
| 760 | % |
Client households at period end |
|
| 5.2 |
|
|
| 5.1 |
|
|
| 2 | % |
|
| 5.2 |
|
|
| 5.1 |
|
|
| 2 | % |
Net new assets for the period ($ billions)(3) |
| $ | 13 |
|
| $ | 9 |
|
|
| 44 | % |
| $ | 26 |
|
| $ | 19 |
|
|
| 37 | % |
Client assets under care: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end ($ billions) |
| $ | 1,037 |
|
| $ | 907 |
|
|
| 14 | % |
| $ | 1,037 |
|
| $ | 907 |
|
|
| 14 | % |
Average ($ billions) |
| $ | 1,023 |
|
| $ | 904 |
|
|
| 13 | % |
| $ | 1,006 |
|
| $ | 886 |
|
|
| 14 | % |
Advisory programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end ($ billions) |
| $ | 267 |
|
| $ | 148 |
|
|
| 80 | % |
| $ | 267 |
|
| $ | 148 |
|
|
| 80 | % |
Average ($ billions) |
| $ | 253 |
|
| $ | 147 |
|
|
| 72 | % |
| $ | 239 |
|
| $ | 143 |
|
|
| 67 | % |
Financial advisors (actual): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 15,426 |
|
|
| 14,610 |
|
|
| 6 | % |
|
| 15,426 |
|
|
| 14,610 |
|
|
| 6 | % |
Average |
|
| 15,226 |
|
|
| 14,593 |
|
|
| 4 | % |
|
| 15,113 |
|
|
| 14,554 |
|
|
| 4 | % |
Attrition % (annualized) |
|
| 7.0 | % |
|
| 9.3 | % |
| n/a |
|
|
| 7.5 | % |
|
| 9.7 | % |
| n/a |
| ||
Dow Jones Industrial Average (actual): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 21,350 |
|
|
| 17,401 |
|
|
| 23 | % |
|
| 21,350 |
|
|
| 17,401 |
|
|
| 23 | % |
Average for period |
|
| 20,989 |
|
|
| 17,766 |
|
|
| 18 | % |
|
| 20,695 |
|
|
| 17,218 |
|
|
| 20 | % |
S&P 500 Index (actual): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 2,423 |
|
|
| 2,037 |
|
|
| 19 | % |
|
| 2,423 |
|
|
| 2,037 |
|
|
| 19 | % |
Average for period |
|
| 2,397 |
|
|
| 2,075 |
|
|
| 16 | % |
|
| 2,361 |
|
|
| 2,014 |
|
|
| 17 | % |
(1) | Client dollars invested related to trade revenue represents the principal amount of clients’ buy and sell transactions resulting in revenues. |
(2) | Client dollars invested related to advisory programs represents the net of the inflows and outflows of client dollars into the programs. |
(3) | Net new assets represents cash and securities inflows and outflows from new and existing clients and excludes mutual fund capital gain distributions received by U.S. clients. |
13
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
Second Quarter 2017 versus Second Quarter 2016 Overview
The Partnership ended the second quarter of 2017 with a record 15,426 financial advisors and $1,037 billion in assets under care.
Financial advisors gathered $13 billion in net new assets during the second quarter of 2017 compared to $9 billion in the second quarter of 2016. Average client assets under care increased 13% for the second quarter of 2017 compared to the same period in 2016, due to net new assets gathered during the year and increases in the market value of client assets. Higher market values of the underlying client assets held reflected a 16% increase in the average Standard & Poor's 500 Index ("S&P 500 Index") during the second quarter of 2017, compared to the same period in 2016, and an 18% increase in the average Dow Jones Industrial Average during the second quarter of 2017, compared to the same period in 2016.
Advisory programs' average assets under care increased 72% to $253 billion in the second quarter of 2017 compared to $147 billion in the second quarter of 2016 due to the increased investment of client assets into advisory programs driven by the Partnership's expanded advisory offerings with the launch of an additional advisory program, Edward Jones Guided Solutions® ("Guided Solutions"), in the second quarter of 2016, increased client adoption of advisory programs, and changes in available transaction-based retirement account solutions as a result of the implementation of the Department of Labor's ("DOL") fiduciary rule. The majority of the increase in assets came from existing client assets.
Net revenue increased 13% to a record $1,882 for the second quarter of 2017 compared to the same period in 2016. Results reflected a 37% increase in asset-based fee revenue due to the increased investment of client assets into advisory programs driven by the factors discussed in the previous paragraph and increases in the market value of the underlying client assets held. This increase was partially offset by a 21% decrease in trade revenue, primarily reflecting a reduction in client dollars invested in transaction-based solutions due to the increased investment of client assets into advisory programs driven by the factors discussed in the previous paragraph.
Operating expenses increased 14% to $1,657 in the second quarter of 2017 compared to 2016, primarily due to an increase in financial advisor compensation reflecting an increase in revenues on which commissions are earned and certain temporary enhancements to financial advisor compensation, which were implemented in September 2016 and which ended in April 2017, an increase in variable compensation due to the increase in the Partnership's profitability, and higher home office and branch compensation and benefits expense, primarily due to an increase in the number of home office and branch personnel.
Overall, the increase in net revenue, offset by the increase in operating expenses, generated record quarterly income before allocations to partners of $225, an 8% increase from the second quarter of 2016.
Six Months Ended June 30, 2017 versus Six Months Ended June 24, 2016 Overview
The Partnership surpassed two significant milestones during the first half of 2017: 15,000 financial advisors and $1 trillion in assets under care. The Partnership ended the first half of 2017 with a record 15,426 financial advisors and $1,037 billion in assets under care.
Financial advisors gathered $26 billion in net new assets during the first half of 2017 compared to $19 billion in the first half of 2016. Average client assets under care increased 14% for the first half of 2017 compared to the same period in 2016, due to net new assets gathered during the year and increases in the market value of client assets. Higher market values of the underlying client assets held reflected a 17% increase in the average S&P 500 Index during the first half of 2017, compared to the same period in 2016, and a 20% increase in the average Dow Jones Industrial Average during the first half of 2017, compared to the same period in 2016.
Advisory programs' average assets under care increased 67% to $239 billion in the first half of 2017 compared to $143 billion in the first half of 2016 due to the increased investment of client assets into advisory programs driven by the Partnership's expanded advisory offerings with the launch of an additional advisory program, Guided Solutions, in the second quarter of 2016, increased client adoption of advisory programs, and changes in available transaction-based retirement account solutions as a result of the implementation of the DOL fiduciary rule. The majority of the increase in assets came from existing client assets.
14
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
Net revenue increased 14% to $3,679 for the first half of 2017 compared to the same period in 2016. Results reflected a 36% increase in asset-based fee revenue due to the increased investment of client assets into advisory programs driven by the factors discussed in the previous paragraph and increases in the market value of the underlying client assets held. This increase was partially offset by a 17% decrease in trade revenue, primarily reflecting a reduction in client dollars invested in transaction-based solutions due to the increased investment of client assets into advisory programs driven by the factors discussed in the previous paragraph.
Operating expenses increased 15% to $3,257 in the first half of 2017 compared to 2016, primarily due to an increase in financial advisor compensation, reflecting an increase in revenues on which commissions are earned and certain temporary enhancements to financial advisor compensation, which were implemented in September 2016 and which ended in April 2017, and higher home office and branch compensation and benefits expense, primarily due to an increase in the number of home office and branch personnel. Operating expenses also increased due to the impact of one additional week in the first six months of 2017 compared to the same period in 2016.
Overall, the increase in net revenue, offset by the increase in operating expenses, generated income before allocations to partners of $422, a 6% increase from the first half of 2016.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2017 AND JUNE 24, 2016
The discussion below details the significant fluctuations and drivers for the major categories of the Partnership’s Consolidated Statements of Income.
Fee Revenue
Fee revenue, which consists of asset-based fees and account and activity fees, increased 30% to $1,390 and 29% to $2,677 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. A discussion of fee revenue components follows.
Asset-based
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Asset-based fee revenue: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory programs fees |
| $ | 796 |
|
| $ | 495 |
|
|
| 61 | % |
| $ | 1,490 |
|
| $ | 959 |
|
|
| 55 | % |
Service fees |
|
| 309 |
|
|
| 312 |
|
|
| -1 | % |
|
| 625 |
|
|
| 601 |
|
|
| 4 | % |
Revenue sharing |
|
| 46 |
|
|
| 46 |
|
|
| — |
|
|
| 91 |
|
|
| 91 |
|
|
| — |
|
Fund adviser fees |
|
| 32 |
|
|
| 13 |
|
|
| 146 | % |
|
| 58 |
|
|
| 25 |
|
|
| 132 | % |
Cash solutions |
|
| 23 |
|
|
| 15 |
|
|
| 53 | % |
|
| 47 |
|
|
| 25 |
|
|
| 88 | % |
Trust Co. fees |
|
| 11 |
|
|
| 10 |
|
|
| 10 | % |
|
| 21 |
|
|
| 20 |
|
|
| 5 | % |
Total asset-based fee revenue |
| $ | 1,217 |
|
| $ | 891 |
|
|
| 37 | % |
| $ | 2,332 |
|
| $ | 1,721 |
|
|
| 36 | % |
|
|
|
|
|
|
|
|
|
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|
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Related metrics ($ billions): |
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Average U.S. client asset values(1): |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets held outside of advisory programs |
| $ | 403.6 |
|
| $ | 400.0 |
|
|
| 1 | % |
| $ | 401.3 |
|
| $ | 392.1 |
|
|
| 2 | % |
Advisory programs |
| $ | 249.7 |
|
| $ | 145.0 |
|
|
| 72 | % |
| $ | 235.9 |
|
| $ | 141.2 |
|
|
| 67 | % |
Insurance |
| $ | 79.9 |
|
| $ | 73.0 |
|
|
| 9 | % |
| $ | 78.9 |
|
| $ | 71.8 |
|
|
| 10 | % |
Cash solutions |
| $ | 24.1 |
|
| $ | 20.5 |
|
|
| 18 | % |
| $ | 24.3 |
|
| $ | 20.6 |
|
|
| 18 | % |
(1) | Assets on which the Partnership earns asset-based fee revenue. The U.S. portion of consolidated asset-based fee revenue was 98% for the periods presented. |
15
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
Asset-based fee revenue increased 37% to $1,217 and 36% to $2,332 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. These increases were led by an increase in advisory programs fees due to the increased investment of client assets into advisory programs and increases in the market value of the underlying client assets held. Growth in advisory programs fees reflected the cumulative impact of strong levels of net inflows over the last year into advisory programs, which was driven by the Partnership's expanded advisory offerings with the launch of an additional advisory program, Guided Solutions, in the second quarter of 2016, increased client adoption of advisory programs, and changes in available transaction-based retirement account solutions as a result of the implementation of the DOL fiduciary rule. In addition, higher market values of the underlying client assets held reflected strong market performance during the second quarter and first six months of 2017 compared to the same periods in 2016, as discussed under "Overview" above.
Account and Activity
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Account and activity fee revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder accounting services fees |
| $ | 105 |
|
| $ | 112 |
|
|
| -6 | % |
| $ | 210 |
|
| $ | 222 |
|
|
| -5 | % |
Retirement account fees |
|
| 31 |
|
|
| 35 |
|
|
| -11 | % |
|
| 62 |
|
|
| 69 |
|
|
| -10 | % |
Insurance contract service fees |
|
| 16 |
|
|
| 15 |
|
|
| 7 | % |
|
| 32 |
|
|
| 29 |
|
|
| 10 | % |
Other account and activity fees |
|
| 21 |
|
|
| 19 |
|
|
| 11 | % |
|
| 41 |
|
|
| 41 |
|
|
| — |
|
Total account and activity fee revenue |
| $ | 173 |
|
| $ | 181 |
|
|
| -4 | % |
| $ | 345 |
|
| $ | 361 |
|
|
| -4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Related metrics: |
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|
Average client: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder accounting holdings serviced |
|
| 26.6 |
|
|
| 25.7 |
|
|
| 4 | % |
|
| 26.3 |
|
|
| 25.5 |
|
|
| 3 | % |
Retirement accounts |
|
| 6.0 |
|
|
| 5.4 |
|
|
| 11 | % |
|
| 5.9 |
|
|
| 5.4 |
|
|
| 9 | % |
Account and activity fee revenue decreased 4% in both the second quarter and first six months of 2017 to $173 and $345, respectively, compared to the same periods in 2016. The decreases were primarily due to lower shareholder accounting services fees and lower retirement account fees as new and existing clients adopted advisory programs.
16
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
Trade revenue, which consists of commissions and principal transactions, decreased 21% to $429 and 17% to $886 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. Results reflected a reduction in client dollars invested in transaction-based solutions due to the increased investment of client assets into advisory programs driven by the Partnership's expanded advisory offerings with the launch of an additional advisory program, Guided Solutions, in the second quarter of 2016, increased client adoption of advisory programs, and changes in available transaction-based retirement account solutions as a result of the implementation of the DOL fiduciary rule. The Partnership expects this trend may continue. However, the Partnership continues to evaluate transaction-based retirement account solutions available, with additional changes possible. Results were also impacted by a decrease in the margin earned, with year-to-date revenues aided by more business days in the first six months of 2017 compared to the same period in 2016. A discussion of trade revenue components follows.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Trade revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
| $ | 209 |
|
| $ | 265 |
|
|
| -21 | % |
| $ | 424 |
|
| $ | 514 |
|
|
| -18 | % |
Equities |
|
| 121 |
|
|
| 150 |
|
|
| -19 | % |
|
| 257 |
|
|
| 292 |
|
|
| -12 | % |
Insurance products |
|
| 61 |
|
|
| 72 |
|
|
| -15 | % |
|
| 125 |
|
|
| 143 |
|
|
| -13 | % |
Total commissions revenue |
| $ | 391 |
|
| $ | 487 |
|
|
| -20 | % |
| $ | 806 |
|
| $ | 949 |
|
|
| -15 | % |
Principal transactions |
|
| 38 |
|
|
| 59 |
|
|
| -36 | % |
|
| 80 |
|
|
| 119 |
|
|
| -33 | % |
Total trade revenue |
| $ | 429 |
|
| $ | 546 |
|
|
| -21 | % |
| $ | 886 |
|
| $ | 1,068 |
|
|
| -17 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Commissions related metrics: |
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|
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|
|
|
|
Client dollars invested ($ billions) |
| $ | 18.3 |
|
| $ | 21.4 |
|
|
| -14 | % |
| $ | 37.7 |
|
| $ | 41.5 |
|
|
| -9 | % |
Margin per $1,000 invested |
| $ | 21.3 |
|
| $ | 22.8 |
|
|
| -7 | % |
| $ | 21.4 |
|
| $ | 22.9 |
|
|
| -7 | % |
U.S. business days |
|
| 63 |
|
|
| 64 |
|
|
| -2 | % |
|
| 125 |
|
|
| 121 |
|
|
| 3 | % |
Commissions – Mutual funds
Mutual funds revenue decreased 21% to $209 and 18% to $424 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. The decreases were primarily attributable to fewer client dollars invested due to the factors discussed under "Trade Revenue" above. In addition, results reflected decreases in the margin earned as additional breakpoints were earned by clients, which resulted in lower commissions earned.
Commissions – Equities
Equities revenue decreased 19% to $121 and 12% to $257 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. The decreases were primarily attributable to fewer client dollars invested due to the factors discussed under "Trade Revenue" above and decreases in the margin earned due to slightly larger trade sizes resulting in lower commissions.
Commissions – Insurance Products
Insurance products revenue decreased 15% to $61 and 13% to $125 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. The decreases were primarily due to a decrease in client dollars invested in annuities due to the factors discussed under "Trade Revenue" above. The decreases were partially offset by an increase in the margin earned as clients shifted their investments to life insurance products, which earn higher margins.
17
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
Principal transactions revenue decreased 36% to $38 and 33% to $80 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. Results primarily reflected decreases in client dollars invested in equity unit investment trusts due to a reduction in the number of products offered by the Partnership in 2017.
Net Interest and Dividends
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Net interest and dividends revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client loan interest |
| $ | 33 |
|
| $ | 33 |
|
|
| — |
|
| $ | 65 |
|
| $ | 63 |
|
|
| 3 | % |
Short-term investing interest |
|
| 28 |
|
|
| 11 |
|
|
| 155 | % |
|
| 49 |
|
|
| 20 |
|
|
| 145 | % |
Other interest and dividends |
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| 9 |
|
|
| 8 |
|
|
| 13 | % |
Limited partnership interest expense |
|
| (17 | ) |
|
| (17 | ) |
|
| — |
|
|
| (34 | ) |
|
| (34 | ) |
|
| — |
|
Other interest expense |
|
| (4 | ) |
|
| (2 | ) |
|
| 100 | % |
|
| (5 | ) |
|
| (3 | ) |
|
| 67 | % |
Total net interest and dividends revenue |
| $ | 44 |
|
| $ | 29 |
|
|
| 52 | % |
| $ | 84 |
|
| $ | 54 |
|
|
| 56 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related metrics: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average aggregate client loan balance |
| $ | 2,889 |
|
| $ | 2,902 |
|
|
| — |
|
| $ | 2,881 |
|
| $ | 2,887 |
|
|
| — |
|
Average rate earned |
|
| 4.58 | % |
|
| 4.62 | % |
|
| -1 | % |
|
| 4.55 | % |
|
| 4.56 | % |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average short-term funds invested(1) |
| $ | 13,409 |
|
| $ | 11,250 |
|
|
| 19 | % |
| $ | 13,752 |
|
| $ | 11,146 |
|
|
| 23 | % |
Weighted average rate earned |
|
| 0.82 | % |
|
| 0.37 | % |
|
| 122 | % |
|
| 0.71 | % |
|
| 0.36 | % |
|
| 97 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average $1,000 equivalent limited partnership units outstanding |
|
| 898,753 |
|
|
| 910,682 |
|
|
| -1 | % |
|
| 900,137 |
|
|
| 912,437 |
|
|
| -1 | % |
(1) | Includes short-term investments in cash and cash equivalents, cash and investments segregated under federal regulations, and securities purchased under agreements to resell. As discussed in the Partnership's Annual Report, in the fourth quarter of 2016 the definition of average funds invested was revised to weight the investments based on the number of days the investment was invested during the period. Prior period figures were revised to conform to the current period definition. |
Net interest and dividends revenue increased 52% to $44 and 56% to $84 in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. Results reflected increases in short-term investing interest due to increases in the weighted average funds invested resulting from higher cash balances in client accounts and the weighted average rate earned due to increases in the federal funds rate.
18
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial advisor |
| $ | 784 |
|
| $ | 661 |
|
|
| 19 | % |
| $ | 1,569 |
|
| $ | 1,291 |
|
|
| 22 | % |
Home office and branch |
|
| 332 |
|
|
| 306 |
|
|
| 8 | % |
|
| 660 |
|
|
| 593 |
|
|
| 11 | % |
Variable compensation |
|
| 213 |
|
|
| 188 |
|
|
| 13 | % |
|
| 377 |
|
|
| 355 |
|
|
| 6 | % |
Total compensation and benefits |
|
| 1,329 |
|
|
| 1,155 |
|
|
| 15 | % |
|
| 2,606 |
|
|
| 2,239 |
|
|
| 16 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy and equipment |
|
| 103 |
|
|
| 99 |
|
|
| 4 | % |
|
| 205 |
|
|
| 196 |
|
|
| 5 | % |
Communications and data processing |
|
| 81 |
|
|
| 74 |
|
|
| 9 | % |
|
| 162 |
|
|
| 143 |
|
|
| 13 | % |
Advertising |
|
| 21 |
|
|
| 17 |
|
|
| 24 | % |
|
| 44 |
|
|
| 39 |
|
|
| 13 | % |
Fund sub-adviser fees |
|
| 24 |
|
|
| 13 |
|
|
| 85 | % |
|
| 44 |
|
|
| 25 |
|
|
| 76 | % |
Professional and consulting fees |
|
| 18 |
|
|
| 15 |
|
|
| 20 | % |
|
| 35 |
|
|
| 28 |
|
|
| 25 | % |
Postage and shipping |
|
| 18 |
|
|
| 12 |
|
|
| 50 | % |
|
| 33 |
|
|
| 25 |
|
|
| 32 | % |
Other operating expenses |
|
| 63 |
|
|
| 67 |
|
|
| -6 | % |
|
| 128 |
|
|
| 127 |
|
|
| 1 | % |
Total operating expenses |
| $ | 1,657 |
|
| $ | 1,452 |
|
|
| 14 | % |
| $ | 3,257 |
|
| $ | 2,822 |
|
|
| 15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related metrics (actual): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of branches: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 13,149 |
|
|
| 12,679 |
|
|
| 4 | % |
|
| 13,149 |
|
|
| 12,679 |
|
|
| 4 | % |
Average |
|
| 13,098 |
|
|
| 12,636 |
|
|
| 4 | % |
|
| 13,042 |
|
|
| 12,587 |
|
|
| 4 | % |
Financial advisors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 15,426 |
|
|
| 14,610 |
|
|
| 6 | % |
|
| 15,426 |
|
|
| 14,610 |
|
|
| 6 | % |
Average |
|
| 15,226 |
|
|
| 14,593 |
|
|
| 4 | % |
|
| 15,113 |
|
|
| 14,554 |
|
|
| 4 | % |
Branch office administrators(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 15,310 |
|
|
| 14,668 |
|
|
| 4 | % |
|
| 15,310 |
|
|
| 14,668 |
|
|
| 4 | % |
Average |
|
| 15,223 |
|
|
| 14,632 |
|
|
| 4 | % |
|
| 15,093 |
|
|
| 14,520 |
|
|
| 4 | % |
Home office associates(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 6,517 |
|
|
| 6,092 |
|
|
| 7 | % |
|
| 6,517 |
|
|
| 6,092 |
|
|
| 7 | % |
Average |
|
| 6,517 |
|
|
| 5,981 |
|
|
| 9 | % |
|
| 6,455 |
|
|
| 5,955 |
|
|
| 8 | % |
Home office associates(1) per 100 financial advisors (average) |
|
| 42.8 |
|
|
| 41.0 |
|
|
| 4 | % |
|
| 42.7 |
|
|
| 40.9 |
|
|
| 4 | % |
Branch office administrators(1) per 100 financial advisors (average) |
|
| 100.0 |
|
|
| 100.3 |
|
|
| — |
|
|
| 99.9 |
|
|
| 99.8 |
|
|
| — |
|
Average operating expenses per financial advisor(2) |
| $ | 41,771 |
|
| $ | 40,430 |
|
|
| 3 | % |
| $ | 83,835 |
|
| $ | 79,085 |
|
|
| 6 | % |
(1) | Counted on a full-time equivalent basis. |
(2) | Operating expenses used in calculation represent total operating expenses less financial advisor compensation, variable compensation and fund sub-adviser fees. Metric was revised in 2017 to start excluding fund sub-adviser fees. Prior period figure was revised to conform to the current period definition. |
19
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
For the three month period ended June 30, 2017, operating expenses increased 14% to $1,657 compared to the three month period ended June 24, 2016, primarily due to a $174 increase in compensation and benefits (described below).
Financial advisor compensation and benefits expense increased 19% in the second quarter of 2017 primarily due to an increase in revenues on which commissions are earned, as well as growth in the number of financial advisors and the Partnership's compensation initiatives. To support financial advisors' efforts through the recent implementation of the DOL fiduciary rule, the Partnership implemented certain temporary enhancements to financial advisor compensation in September 2016. These enhancements, which ended in April 2017, resulted in higher financial advisor compensation in the second quarter of 2017.
Home office and branch compensation and benefits expense increased 8% in the second quarter of 2017 primarily due to an increase in the number of personnel to support increased client activity and the growth of the Partnership’s financial advisor network, as well as higher wages and healthcare costs. The average number of the Partnership’s home office associates and branch office administrators ("BOAs") increased 9% and 4%, respectively.
Variable compensation expands and contracts in relation to the Partnership’s related profitability and margin earned. A significant portion of the Partnership’s profits is allocated to variable compensation and paid to associates in the form of bonuses and profit sharing. Variable compensation increased 13% in the second quarter of 2017 to $213 due to an increase in the Partnership's profitability.
The Partnership uses the ratios of both the number of home office associates and the number of BOAs per 100 financial advisors, as well as the average operating expense per financial advisor, as key metrics in managing its costs. In the second quarter of 2017, the average number of home office associates and BOAs per 100 financial advisors increased 4% and was flat, respectively. The average operating expense per financial advisor increased 3% primarily due to an increase in home office and branch compensation and benefits expense, partially offset by the impact of spreading those costs over more financial advisors. The Partnership’s longer term strategy is to grow its financial advisor network at a faster pace than its home office and branch support staff.
For the six month period ended June 30, 2017, operating expenses increased 15% to $3,257 compared to the six month period ended June 24, 2016, primarily due to a $367 increase in compensation and benefits (described below) and the impact of one additional week in the first six months of 2017 compared to the same period in 2016.
Financial advisor compensation and benefits expense increased 22% in the first half of 2017 primarily due to an increase in revenues on which commissions are earned, as well as growth in the number of financial advisors and the Partnership's compensation initiatives. To support financial advisors' efforts through the recent implementation of the DOL fiduciary rule, the Partnership implemented certain temporary enhancements to financial advisor compensation in September 2016. These enhancements, which ended in April 2017, resulted in higher financial advisor compensation in the first half of 2017.
Home office and branch compensation and benefits expense increased 11% in the first half of 2017 primarily due to an increase in the number of personnel to support increased client activity and the growth of the Partnership’s financial advisor network, as well as higher wages and healthcare costs. The average number of the Partnership’s home office associates and BOAs increased 8% and 4%, respectively. Variable compensation increased 6% in the first half of 2017 to $377 due to an increase in the Partnership's profitability.
In the first half of 2017, the average number of home office associates and BOAs per 100 financial advisors increased 4% and was flat, respectively. The average operating expense per financial advisor increased 6% in the first half of 2017 primarily due to an increase in home office and branch compensation and benefits expense, partially offset by the impact of spreading those costs over more financial advisors.
20
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
The Partnership has two operating and reportable segments based upon geographic location, the U.S. and Canada. Canada segment information, as reported in the following table, is based upon the Consolidated Financial Statements of the Partnership’s Canada operations. The U.S. segment information is derived from the Consolidated Financial Statements less the Canada segment information as presented. Pre-variable income represents income before variable compensation expense and before allocations to partners. This is consistent with how management views the segments in order to assess performance.
21
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
The following table shows financial information for the Partnership’s reportable segments.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 24, |
|
| % |
|
| June 30, |
|
| June 24, |
|
| % |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| ||||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 1,833 |
|
| $ | 1,617 |
|
|
| 13 | % |
| $ | 3,582 |
|
| $ | 3,137 |
|
|
| 14 | % |
Canada |
|
| 49 |
|
|
| 43 |
|
|
| 14 | % |
|
| 97 |
|
|
| 84 |
|
|
| 15 | % |
Total net revenue |
|
| 1,882 |
|
|
| 1,660 |
|
|
| 13 | % |
|
| 3,679 |
|
|
| 3,221 |
|
|
| 14 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excluding variable compensation): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 1,397 |
|
|
| 1,218 |
|
|
| 15 | % |
|
| 2,784 |
|
|
| 2,380 |
|
|
| 17 | % |
Canada |
|
| 47 |
|
|
| 46 |
|
|
| 2 | % |
|
| 96 |
|
|
| 87 |
|
|
| 10 | % |
Total operating expenses |
|
| 1,444 |
|
|
| 1,264 |
|
|
| 14 | % |
|
| 2,880 |
|
|
| 2,467 |
|
|
| 17 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-variable income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 436 |
|
|
| 399 |
|
|
| 9 | % |
|
| 798 |
|
|
| 757 |
|
|
| 5 | % |
Canada |
|
| 2 |
|
|
| (3 | ) |
|
| 167 | % |
|
| 1 |
|
|
| (3 | ) |
|
| 133 | % |
Total pre-variable income |
|
| 438 |
|
|
| 396 |
|
|
| 11 | % |
|
| 799 |
|
|
| 754 |
|
|
| 6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 209 |
|
|
| 185 |
|
|
| 13 | % |
|
| 369 |
|
|
| 348 |
|
|
| 6 | % |
Canada |
|
| 4 |
|
|
| 3 |
|
|
| 33 | % |
|
| 8 |
|
|
| 7 |
|
|
| 14 | % |
Total variable compensation |
|
| 213 |
|
|
| 188 |
|
|
| 13 | % |
|
| 377 |
|
|
| 355 |
|
|
| 6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before allocations to partners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 227 |
|
|
| 214 |
|
|
| 6 | % |
|
| 429 |
|
|
| 409 |
|
|
| 5 | % |
Canada |
|
| (2 | ) |
|
| (6 | ) |
|
| 67 | % |
|
| (7 | ) |
|
| (10 | ) |
|
| 30 | % |
Total income before allocations to partners |
| $ | 225 |
|
| $ | 208 |
|
|
| 8 | % |
| $ | 422 |
|
| $ | 399 |
|
|
| 6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client assets under care ($ billions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
| $ | 1,014.7 |
|
| $ | 887.3 |
|
|
| 14 | % |
| $ | 1,014.7 |
|
| $ | 887.3 |
|
|
| 14 | % |
Average |
| $ | 1,001.7 |
|
| $ | 884.6 |
|
|
| 13 | % |
| $ | 984.5 |
|
| $ | 867.2 |
|
|
| 14 | % |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
| $ | 22.1 |
|
| $ | 19.3 |
|
|
| 15 | % |
| $ | 22.1 |
|
| $ | 19.3 |
|
|
| 15 | % |
Average |
| $ | 21.4 |
|
| $ | 19.1 |
|
|
| 12 | % |
| $ | 21.1 |
|
| $ | 18.3 |
|
|
| 15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new assets for the period ($ billions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 12.5 |
|
| $ | 8.8 |
|
|
| 42 | % |
| $ | 25.3 |
|
| $ | 18.1 |
|
|
| 40 | % |
Canada |
| $ | 0.4 |
|
| $ | 0.3 |
|
|
| 33 | % |
| $ | 0.9 |
|
| $ | 0.7 |
|
|
| 29 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial advisors (actual): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 14,732 |
|
|
| 13,949 |
|
|
| 6 | % |
|
| 14,732 |
|
|
| 13,949 |
|
|
| 6 | % |
Average |
|
| 14,550 |
|
|
| 13,935 |
|
|
| 4 | % |
|
| 14,443 |
|
|
| 13,892 |
|
|
| 4 | % |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period end |
|
| 694 |
|
|
| 661 |
|
|
| 5 | % |
|
| 694 |
|
|
| 661 |
|
|
| 5 | % |
Average |
|
| 676 |
|
|
| 658 |
|
|
| 3 | % |
|
| 670 |
|
|
| 662 |
|
|
| 1 | % |
22
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
For the three month period ended June 30, 2017, net revenue increased 13% ($216) compared to the three month period ended June 24, 2016. The increase in net revenue was primarily due to an increase in asset-based fee revenue, partially offset by a decrease in trade revenue. Asset-based fee revenue increased 37% ($320), led by an increase in advisory programs fees due to the increased investment of client assets into advisory programs and increases in the market value of the underlying client assets held. Growth in advisory programs fees reflected the cumulative impact of strong levels of net inflows over the last year into advisory programs, which was driven by the Partnership's expanded advisory offerings with the launch of an additional advisory program, Guided Solutions, in the second quarter of 2016, increased client adoption of advisory programs, and changes in available transaction-based retirement account solutions as a result of the implementation of the DOL fiduciary rule. Trade revenue decreased 22% ($116) primarily reflecting a reduction in client dollars invested in transaction-based solutions due to the increased investment of client assets into advisory programs and lower margins earned.
Operating expenses (excluding variable compensation) increased 15% ($179) in the second quarter of 2017 primarily due to increases in compensation and benefits for financial advisors and home office and branch personnel. Financial advisor compensation and benefits expense increased primarily due to an increase in revenues on which commissions are earned. Home office and branch compensation and benefits expense increased primarily due to an increase in the number of personnel to support the growth of the Partnership’s financial advisor network, as well as higher wages and healthcare costs.
For the six month period ended June 30, 2017, net revenue increased 14% ($445) compared to the six month period ended June 24, 2016. The increase in net revenue was primarily due to an increase in asset-based fee revenue, partially offset by a decrease in trade revenue. Asset-based fee revenue increased 36% ($598), led by an increase in advisory programs fees due to the factors discussed above. Trade revenue decreased 17% ($180) primarily reflecting a reduction in client dollars invested in transaction-based solutions due to the increased investment of client assets into advisory programs and lower margins earned.
Operating expenses (excluding variable compensation) increased 17% ($404) in the first half of 2017 primarily due to increases in compensation and benefits for financial advisors and home office and branch personnel. Financial advisor compensation and benefits expense increased primarily due to an increase in revenues on which commissions are earned and the temporary enhancements to compensation to support financial advisors' efforts through the recent implementation of the DOL fiduciary rule. Home office and branch compensation and benefits expense increased primarily due to an increase in the number of personnel to support the growth of the Partnership’s financial advisor network, higher wages and healthcare costs, as well as the impact of one additional week in the first six months of 2017 compared to the same period in 2016.
Canada
Net revenue increased 14% ($6) and 15% ($13) in the second quarter and first six months of 2017, respectively, compared to the same periods in 2016. The increases in net revenue for both periods were primarily due to increases in asset-based fee revenue, largely attributable to increased investment of client assets into advisory programs.
Operating expenses (excluding variable compensation) increased 2% ($1) and 10% ($9) in the second quarter and first six months of 2017, respectively, due to increases in financial advisor compensation and benefits attributable to the increase in revenue on which financial advisor commissions are earned.
The Partnership remains focused on achieving profitability in Canada. This includes several long-term initiatives to increase revenue and control expenses. Revenue initiatives include a plan to grow the number of financial advisors, client assets under care and the depth of financial solutions provided to clients.
23
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
LEGISLATIVE AND REGULATORY REFORM
As discussed more fully in Part I, Item 1A – Risk Factors – Risk Related to the Partnership's Business – Legislative and Regulatory Initiatives of the Partnership’s Annual Report, which is supplemented by Part II, Item 1A – Risk Factors – Legislative and Regulatory Initiatives in this Quarterly Report on Form 10-Q and the Quarterly Report on Form 10-Q for the period ended March 31, 2017, the Partnership continues to monitor several regulatory initiatives and proposed, potential and enacted federal and state legislation, rules and regulations ("Legislative and Regulatory Initiatives"), including the possibility of a universal fiduciary standard of care applicable to both broker-dealers and investment advisers under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), the DOL fiduciary rule and the potential for new legislation, including tax legislation.
There is a high degree of uncertainty surrounding Legislative and Regulatory Initiatives. As such, the Partnership cannot reliably predict when or if any of the proposed or potential Legislative and Regulatory Initiatives will be enacted, when or if any enacted Legislative and Regulatory Initiatives will be implemented, whether there will be any changes to enacted or proposed Legislative and Regulatory Initiatives or the impact that any Legislative and Regulatory Initiatives will have on the Partnership.
Second Quarter 2017 Update
DOL Fiduciary Rule. The DOL issued its final rule defining the term "fiduciary" and exemptions related thereto in the context of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and retirement accounts in April 2016. Certain provisions of the rule, including the impartial conduct standards, became applicable on June 9, 2017, with the remaining provisions scheduled to become applicable on January 1, 2018. On February 3, 2017, a Presidential Memorandum was issued that directed the DOL (i) to examine the rule to determine, among other things, whether it may adversely affect the ability of Americans to gain access to retirement information and retirement advice, (ii) as part of this examination, to prepare an updated economic and legal analysis concerning the likely impact of the rule, and (iii) to rescind or revise the rule, if the DOL makes certain affirmative determinations regarding the rule's impact. In light of this directive, the DOL is currently reviewing the rule.
The Partnership has dedicated significant resources to interpret and implement the rule, including its personnel, information systems resources and financial resources. Implementation of the rule required changes in the manner in which the Partnership serves clients with retirement accounts, which is a substantial portion of the Partnership's business. As a result, the Partnership's solutions available to retirement accounts include fee-based solutions, such as its advisory programs, and certain transaction-based solutions using the Best Interest Contract Exemption. The Partnership continues to evaluate the solutions available to retirement accounts, with additional changes possible.
Historically, the Partnership has served a majority of retirement accounts using transaction-based solutions. After the applicability date of the rule, clients may choose a higher percentage of fee-based solutions than historical practices, and not all solutions traditionally provided will be available for all transaction-based retirement accounts. Accordingly, the Partnership likely will experience a decrease in transaction-based revenue and an increase in fee-based revenue. The Partnership cannot predict at this time the overall impact of the rule on its financial condition, results of operations and liquidity.
MUTUAL FUNDS AND INSURANCE PRODUCTS
The Partnership estimates approximately 75% of its total revenue was derived from sales and services related to mutual fund and insurance products for both the three and six month periods ended June 30, 2017, and the three and six month periods ended June 24, 2016, respectively. In addition, the Partnership derived 17% of its total revenue for the three and six month periods ended June 30, 2017 and 20% of its total revenue for both the three and six month periods ended June 24, 2016, from one mutual fund company, which includes the funds that mutual fund company advised. The revenue generated from this company relates to business conducted with the Partnership’s U.S. segment.
Significant reductions in these revenues due to regulatory reform or other changes to the Partnership’s relationship with mutual fund companies could have a material adverse effect on the Partnership’s results of operations, financial condition, and liquidity.
24
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
LIQUIDITY AND CAPITAL RESOURCES
The Partnership requires liquidity to cover its operating expenses, net capital requirements, capital expenditures, distributions to partners and redemptions of Partnership interests. The principal sources for meeting the Partnership’s liquidity requirements include existing liquidity and capital resources of the Partnership, discussed further below, and funds generated from operations. The Partnership believes that the liquidity provided by these sources will be sufficient to meet its capital and liquidity requirements for the next twelve months. Depending on conditions in the capital markets and other factors, the Partnership will, from time to time, consider the issuance of debt and additional Partnership capital, the proceeds of which could be used to meet growth needs or for other purposes.
Partnership Capital
The Partnership’s growth in capital has historically been the result of the sale of Interests to its associates and existing limited partners, the sale of subordinated limited partnership interests to its current or retiring general partners, and retention of general partner earnings.
The Partnership filed a Registration Statement on Form S-8 with the SEC on January 17, 2014, to register $350 of Interests to be issued pursuant to the Plan. The Partnership previously issued approximately $293 of Interests under the Plan. The remaining $57 of Interests may be issued under the Plan at the discretion of the Partnership in the future. The issuance of Interests reduces the Partnership’s net interest income and profitability.
The Partnership’s capital subject to mandatory redemption at June 30, 2017, net of reserve for anticipated withdrawals, was $2,449, an increase of $32 from December 31, 2016. This increase in Partnership capital subject to mandatory redemption was primarily due to the retention of general partner earnings ($43) and additional capital contributions related to limited partner, subordinated limited partner and general partner interests ($1, $53 and $154, respectively), partially offset by the net increase in Partnership loans outstanding ($49) and redemption of limited partner, subordinated limited partner and general partner interests ($5, $13 and $152, respectively). During both the three and six month periods ended June 30, 2017 and June 24, 2016, the Partnership retained 13.8% of income allocated to general partners.
Under the terms of the Partnership Agreement, a partner’s capital is required to be redeemed by the Partnership in the event of the partner’s death or withdrawal from the Partnership, subject to compliance with ongoing regulatory capital requirements. In the event of a partner’s death, the Partnership generally redeems the partner’s capital within six months. The Partnership has restrictions in place which govern the withdrawal of capital. Under the terms of the Partnership Agreement, limited partners requesting withdrawal from the Partnership are to be repaid their capital in three equal annual installments beginning no earlier than 90 days after their withdrawal notice is received by the Managing Partner (as defined in the Partnership Agreement). The capital of general partners requesting withdrawal from the Partnership is converted to subordinated limited partnership capital or, at the discretion of the Managing Partner, redeemed by the Partnership. Subordinated limited partners requesting withdrawal are repaid their capital in six equal annual installments beginning no earlier than 90 days after their request for withdrawal of contributed capital is received by the Managing Partner. The Partnership’s Managing Partner has discretion to waive or modify these withdrawal restrictions and to accelerate the return of capital.
The Partnership makes loans available to those general partners and, in limited circumstances, subordinated limited partners (in each case, other than members of the Executive Committee) who require financing for some or all of their Partnership capital contributions. In limited circumstances a general partner may withdraw from the Partnership and become a subordinated limited partner while he or she still has an outstanding Partnership loan. It is anticipated that, of the future general and subordinated limited partnership capital contributions (in each case, other than for Executive Committee members) requiring financing, the majority will be financed through Partnership loans. Loans made by the Partnership to such partners are generally for a period of one year but are expected to be renewed and bear interest at the interest rate defined in the loan documents. The Partnership recognizes interest income for the interest earned related to these loans. Partners borrowing from the Partnership will be required to repay such loans by applying the earnings received from the Partnership to such loans, net of amounts retained by the Partnership, amounts distributed for income taxes and 5% of earnings distributed to the partner. The Partnership has full recourse against any partner that defaults on loan obligations to the Partnership. The Partnership does not anticipate that Partnership loans will have an adverse impact on the Partnership’s short-term liquidity or capital resources.
25
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
Any partner may also choose to have individual banking arrangements for their Partnership capital contributions. Any bank financing of capital contributions is in the form of unsecured bank loan agreements and is between the individual and the bank. The Partnership does not guarantee these bank loans, nor can the partner pledge his or her Partnership interest as collateral for the bank loan. The Partnership performs certain administrative functions in connection with its limited partners who have elected to finance a portion of their Partnership capital contributions through individual unsecured bank loan agreements from banks with whom the Partnership has other banking relationships. For all limited partner capital contributions financed through such bank loan agreements, each agreement instructs the Partnership to apply the proceeds from the redemption of that individual’s capital account to the repayment of the limited partner’s bank loan prior to any funds being released to the partner. In addition, the partner is required to apply Partnership earnings, net of any distributions to pay taxes, to service the interest and principal on the bank loan. Should a partner’s individual bank loan not be renewed upon maturity for any reason, the Partnership could experience increased requests for capital liquidations, which could adversely impact the Partnership’s liquidity. In addition, partners who finance all or a portion of their capital contributions with bank financing may be more likely to request the withdrawal of capital to meet bank financing requirements should the partners experience a period of reduced earnings. As a partnership, any withdrawals by general partners, subordinated limited partners or limited partners would reduce the Partnership’s available liquidity and capital.
Many of the same banks that provide financing to limited partners also provide financing to the Partnership. To the extent any of these banks increase credit available to the partners, financing available to the Partnership itself may be reduced.
The Partnership, while not a party to any partner unsecured bank loan agreements, does facilitate making payments of allocated income to certain banks on behalf of the limited partner. The following table represents amounts related to Partnership loans as well as limited partner bank loans (for which the Partnership facilitates certain administrative functions). Partners may have arranged their own bank loans to finance their Partnership capital for which the Partnership does not facilitate certain administrative functions and therefore any such loans are not included in the table.
|
| As of June 30, 2017 |
| |||||||||||||
|
| Limited Partnership Interests |
|
| Subordinated Limited Partnership Interests |
|
| General Partnership Interests |
|
| Total Partnership Interests |
| ||||
Total Partnership capital(1) |
| $ | 898 |
|
| $ | 466 |
|
| $ | 1,400 |
|
| $ | 2,764 |
|
Partnership capital owned by partners with individual loans |
| $ | 151 |
|
| $ | 5 |
|
| $ | 840 |
|
| $ | 996 |
|
Partnership capital owned by partners with individual loans as a percent of total Partnership capital |
|
| 17 | % |
|
| 1 | % |
|
| 60 | % |
|
| 36 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual bank loans |
| $ | 37 |
|
| $ | — |
|
| $ | — |
|
| $ | 37 |
|
Individual Partnership loans |
|
| — |
|
|
| 3 |
|
|
| 312 |
|
|
| 315 |
|
Total individual loans |
| $ | 37 |
|
| $ | 3 |
|
| $ | 312 |
|
| $ | 352 |
|
Individual loans as a percent of total Partnership capital |
|
| 4 | % |
|
| 1 | % |
|
| 22 | % |
|
| 13 | % |
Individual loans as a percent of respective Partnership capital owned by partners with loans |
|
| 25 | % |
|
| 60 | % |
|
| 37 | % |
|
| 35 | % |
(1) | Total Partnership capital, as defined for this table, is before the reduction of Partnership loans and is net of reserve for anticipated withdrawals. |
Historically, neither the amount of Partnership capital financed with individual loans as indicated in the table above, nor the amount of partner withdrawal requests, has had a significant impact on the Partnership’s liquidity or capital resources.
26
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
The following table shows the composition of the Partnership’s aggregate bank lines of credit in place as of:
|
| June 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
2013 Credit Facility |
| $ | 400 |
|
| $ | 400 |
|
Uncommitted secured credit facilities |
|
| 290 |
|
|
| 290 |
|
Total bank lines of credit |
| $ | 690 |
|
| $ | 690 |
|
In November 2013, the Partnership entered into a $400 committed unsecured revolving line of credit ("2013 Credit Facility"), which expires in November 2018. The 2013 Credit Facility is intended to provide short-term liquidity to the Partnership should the need arise. In accordance with the terms of the 2013 Credit Facility, the Partnership is required to maintain a leverage ratio of no more than 35% and minimum Partnership capital, net of reserve for anticipated withdrawals, of at least $1,382 plus 50% of subsequent issuances of Partnership capital. As of June 30, 2017, the Partnership was in compliance with all covenants related to the 2013 Credit Facility. In addition, the Partnership has uncommitted lines of credit that are subject to change at the discretion of the banks. Based on credit market conditions and the uncommitted nature of these credit facilities, it is possible that these lines of credit could decrease or not be available in the future. Actual borrowing availability on the uncommitted secured lines is based on client margin securities and firm-owned securities, which would serve as collateral on loans in the event the Partnership borrowed against these lines.
There were no amounts outstanding on the 2013 Credit Facility or the uncommitted lines of credit as of June 30, 2017 and December 31, 2016. In addition, the Partnership did not have any draws against these lines of credit during the six month period ended June 30, 2017, other than an overnight draw on the uncommitted facility in April 2017, for the purpose of testing draw procedures.
Cash Activity
As of June 30, 2017, the Partnership had $903 in cash and cash equivalents and $400 in securities purchased under agreements to resell, which generally have maturities of less than one week. This totaled to $1,303 of Partnership liquidity as of June 30, 2017, a 33% ($636) decrease from $1,939 at December 31, 2016. This decrease was primarily due to timing of daily client cash activity in relation to the weekly segregation requirement. The Partnership had $10,622 and $12,680 in cash and investments segregated under federal regulations as of June 30, 2017 and December 31, 2016, respectively, which was not available for general use. The decline in cash and investments segregated under federal regulations was primarily attributed to the purchase of securities in client retirement accounts before the implementation of the DOL fiduciary rule on June 9, 2017, as well as increased client adoption of advisory programs.
Regulatory Requirements
As a result of its activities as a U.S. broker-dealer, Edward Jones is subject to the net capital provisions of Rule 15c3-1 of the Exchange Act and capital compliance rules of the FINRA Rule 4110. Under the alternative method permitted by the rules, Edward Jones must maintain minimum net capital equal to the greater of $0.25 or 2% of aggregate debit items arising from client transactions. The net capital rules also provide that Edward Jones’ partnership capital may not be withdrawn if the resulting net capital would be less than minimum requirements. Additionally, certain withdrawals require the approval of the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than minimum requirements.
The Partnership’s Canada broker-dealer subsidiary is a registered broker-dealer regulated by IIROC. Under the regulations prescribed by IIROC, the Partnership's Canada broker-dealer subsidiary is required to maintain minimum levels of risk-adjusted capital, which are dependent on the nature of the Partnership’s Canada broker-dealer subsidiary's assets and operations.
27
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
The following table shows the Partnership’s net capital figures for its U.S. and Canada broker-dealer subsidiaries as of:
|
| June 30, |
|
| December 31, |
|
|
|
|
| ||
|
| 2017 |
|
| 2016 |
|
| % Change |
| |||
U.S.: |
|
|
|
|
|
|
|
|
|
|
|
|
Net capital |
| $ | 991 |
|
| $ | 998 |
|
|
| -1 | % |
Net capital in excess of the minimum required |
| $ | 846 |
|
| $ | 941 |
|
|
| -10 | % |
Net capital as a percentage of aggregate debit items |
|
| 34.2 | % |
|
| 35.0 | % |
|
| -2 | % |
Net capital after anticipated capital withdrawals, as a percentage of aggregate debit items |
|
| 22.4 | % |
|
| 23.1 | % |
|
| -3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada: |
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory risk adjusted capital |
| $ | 29 |
|
| $ | 37 |
|
|
| -22 | % |
Regulatory risk adjusted capital in excess of the minimum required to be held by IIROC |
| $ | 20 |
|
| $ | 33 |
|
|
| -39 | % |
Net capital and the related capital percentages may fluctuate on a daily basis. In addition, Trust Co. was in compliance with its regulatory capital requirements as of June 30, 2017 and December 31, 2016.
OFF BALANCE SHEET ARRANGEMENTS
The Partnership does not have any significant off balance sheet arrangements.
THE EFFECTS OF INFLATION
The Partnership’s net assets are primarily monetary, consisting of cash and cash equivalents, cash and investments segregated under federal regulations, firm-owned securities, and receivables, less liabilities. Monetary net assets are primarily liquid in nature and would not be significantly affected by inflation. Inflation and future expectations of inflation influence securities prices, as well as activity levels in the securities markets. As a result, profitability and capital may be impacted by inflation and inflationary expectations. Additionally, inflation’s impact on the Partnership’s operating expenses may affect profitability to the extent that additional costs are not recoverable through increased prices of services offered by the Partnership.
ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
There have been no material changes to the Partnership’s disclosures of recently issued accounting standards as described in Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 of the Partnership's Annual Report.
EXECUTIVE COMMITTEE CHANGES
After over eleven years of service to Edward Jones and its clients, and pursuant to the terms of the Partnership Agreement, on July 10, 2017, James A. Tricarico, Jr., general partner of the Partnership, member of the Partnership’s Executive and Management Committees, Chairman of the Partnership's Audit Committee, and the Partnership’s Chief Legal Officer, announced his intention to retire effective December 31, 2017.
28
PART I. FINANCIAL INFORMATION
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations, continued |
This Quarterly Report on Form 10-Q, and in particular Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the federal securities laws. You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “should,” and other expressions which predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Partnership. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Partnership to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.
Some of the factors that might cause differences between forward-looking statements and actual events include, but are not limited to, the following: (1) general economic conditions, including an economic downturn or volatility in the U.S. and/or global securities markets; (2) regulatory actions; (3) changes in legislation or regulation, including new regulations under the Dodd-Frank Act and rules promulgated by the DOL, including, without limitation, rules promulgated under ERISA; (4) actions of competitors; (5) litigation; (6) the ability of clients, other broker-dealers, banks, depositories and clearing organizations to fulfill contractual obligations; (7) changes in interest rates; (8) changes in technology and other technology-related risks; (9) a fluctuation or decline in the fair value of securities; (10) our ability to attract and retain qualified financial advisors and other employees; and (11) the risks discussed under Part I, Item 1A – Risk Factors in the Partnership’s Annual Report and Part II, Item 1A – Risk Factors in the Partnership's Quarterly Reports on Form 10-Q for the periods ended March 31, 2017 and June 30, 2017. These forward-looking statements were based on information, plans, and estimates at the date of this report, and the Partnership does not undertake to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
29
PART I. FINANCIAL INFORMATION
Various levels of management within the Partnership manage the Partnership’s risk exposure. Position limits in inventory accounts are established and monitored on an ongoing basis. Credit risk related to various financing activities is reduced by the industry practice of obtaining and maintaining collateral. The Partnership monitors its exposure to counterparty risk through the use of credit exposure information, the monitoring of collateral values and the establishment of credit limits. For further discussion of monitoring, see the Risk Management discussion in Part III, Item 10 – Directors, Executive Officers and Corporate Governance of the Partnership’s Annual Report. All amounts are presented in millions, except as otherwise noted.
The Partnership is exposed to market risk from changes in interest rates. Such changes in interest rates impact the income from interest earning assets, primarily receivables from clients on margin balances and short-term investments, which averaged $2.9 billion and $13.8 billion, respectively, for the six month period ended June 30, 2017. The changes in interest rates may also have an impact on the expense related to liabilities that finance these assets, such as amounts payable to clients and other interest and non-interest bearing liabilities.
The Partnership performed an analysis of its financial instruments and assessed the related interest rate risk and materiality in accordance with the SEC rules. Under current market conditions and based on current levels of interest earning assets and the liabilities that finance these assets, the Partnership estimates that a 100 basis point (1.00%) increase in short-term interest rates could increase its annual net interest income by approximately $26. Conversely, the Partnership estimates that a 100 basis point (1.00%) decrease in short-term interest rates could decrease the Partnership’s annual net interest income by approximately $82. A decrease in short-term interest rates currently has a more significant impact on net interest income due to a minimal reduction in interest expense because of the low interest rate environment. The Partnership has two distinct types of interest earning assets: client receivables from margin accounts and short-term, primarily overnight, investments, which are primarily comprised of cash and cash equivalents, investments segregated under federal regulations, and securities purchased under agreements to resell. These investments earned interest at an average rate of approximately 71 basis points (0.71%) in the first six months of 2017, and therefore the financial dollar impact of further decline in rates is minimal. The Partnership has put in place an interest rate floor for the interest charged related to its client margin loans, which helps to limit the negative impact of declining interest rates.
30
PART I. FINANCIAL INFORMATION
The Partnership maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Partnership in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is accumulated and communicated to management, including the Partnership’s certifying officers, as appropriate to allow timely decisions regarding required disclosure.
Based upon an evaluation performed as of the end of the period covered by this report, the Partnership’s certifying officers, the Chief Executive Officer and the Chief Financial Officer, have concluded that the Partnership’s disclosure controls and procedures were effective as of June 30, 2017.
There have been no changes in the Partnership’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
31
The following information supplements the discussion in Part I, Item 3 – Legal Proceedings in the Partnership's Annual Report and the discussion in Part II, Item 1 – Legal Proceedings in the Partnership's Quarterly Report on Form 10-Q for the period ended March 31, 2017.
Municipal Securities Transactions Below Minimum Denominations. On June 2, 2017, Edward Jones, without admitting or denying the findings, entered into a settlement agreement with FINRA's Department of Market Regulation in connection with its investigation of possible violations of Municipal Securities Rulemaking Board rules regarding transactions in certain municipal securities in amounts lower than the applicable minimum denominations. As part of the settlement, Edward Jones agreed to pay a monetary fine of $210,000.
Retirement Plan Litigation. On August 19, 2016, JFC, Edward Jones and certain other defendants were named in a putative class action lawsuit (McDonald v. Edward D. Jones & Co., L.P., et al.) filed in the U.S. District Court for the Eastern District of Missouri brought under ERISA, by a participant in the Edward D. Jones & Co. Profit Sharing and 401(k) Plan (the "Retirement Plan"). The lawsuit alleges that the defendants breached their fiduciary duties to Retirement Plan participants and seeks declaratory and equitable relief and monetary damages on behalf of the Retirement Plan. The defendants filed a motion to dismiss the lawsuit on October 12, 2016, which was denied in part and granted in part on January 26, 2017. The claim against JFC was dismissed. All other claims remained in the case.
On November 11, 2016, JFC, Edward Jones and certain other defendants were named in another putative class action lawsuit (Schultz, et al. v. Edward D. Jones & Co., L.P., et al.) filed in the U.S. District Court for the Eastern District of Missouri brought under ERISA, by two participants in the Retirement Plan. The lawsuit alleged that the defendants breached their fiduciary duties to Retirement Plan participants and sought declaratory and equitable relief and monetary damages on behalf of the Retirement Plan.
The plaintiffs consolidated the two lawsuits by adding the Schultz plaintiffs to the McDonald case, and the Schultz action was dismissed. The plaintiffs filed their first amended consolidated complaint on April 28, 2017. On May 26, 2017, the defendants filed a motion to dismiss the lawsuit, which has been fully briefed by both parties and is pending.
Supervision of Tools-Generated Reports. On July 13, 2017, Edward Jones, without admitting or denying the findings, entered into a settlement agreement with FINRA in connection with its investigation of the supervision of the use and dissemination of reports generated through Edward Jones' systems by financial advisors. FINRA expressly stated that its review of 65,000 reports did not reveal any instances of reports that were misleading. FINRA also stated that Edward Jones has made changes to enhance its supervisory processes. As part of the settlement, Edward Jones agreed to pay a monetary fine of $725,000.
For information regarding risk factors affecting the Partnership, please see the language in Part I, Item 2 – Forward-looking Statements of this Quarterly Report on Form 10-Q and the discussion in Part I, Item 1A – Risk Factors of the Partnership's Annual Report and Part II, Item 1A – Risk Factors of the Quarterly Report on Form 10-Q for the period ended March 31, 2017. The following risk factors supplement the risk factors in Part I, Item 1A – Risk Factors – in the Partnership's Annual Report.
Legislative and Regulatory Initiatives — Legislative and Regulatory Initiatives could significantly impact the regulation and operation of the Partnership. In addition, Legislative and Regulatory Initiatives may significantly alter or restrict the Partnership’s historic business practices, which could negatively affect its operating results.
The Partnership is subject to extensive regulation by federal and state regulatory agencies and by self-regulatory organizations ("SROs") and other regulators. The Partnership operates in a regulatory environment that is subject to ongoing change and has seen significantly increased regulation in recent years. The Partnership may be adversely affected as a result of new or revised legislation or regulations, by changes in federal, state or foreign tax laws and regulations, or by changes in the interpretation or enforcement of existing laws and regulations.
Legislative and Regulatory Initiatives may impact the manner in which the Partnership markets its products and services, manages its business and operations, and interacts with clients and regulators, any or all of which could materially impact
32
PART II. OTHER INFORMATION
Item 1A. Risk Factors, continued
the Partnership’s results of operations, financial condition, and liquidity. Regulatory changes or changes in the law could increase compliance costs which would adversely impact profitability.
There is a high degree of uncertainty surrounding Legislative and Regulatory Initiatives. As such, the Partnership cannot reliably predict when or if any of the proposed or potential Legislative and Regulatory Initiatives will be enacted, when or if any enacted Legislative and Regulatory Initiatives will be implemented, whether there will be any changes to enacted or proposed Legislative and Regulatory Initiatives or the impact that any Legislative and Regulatory Initiatives will have on the Partnership.
The Partnership continues to monitor several Legislative and Regulatory Initiatives, including, but not limited to:
The Dodd-Frank Act. The Dodd-Frank Act, signed into law in July 2010, includes provisions that could potentially impact the Partnership’s operations. Since the passage of the Dodd-Frank Act, the Partnership has not been required to enact material changes to its operations. However, the Partnership continues to review and evaluate the provisions of the Dodd-Frank Act and the impending rules to determine what impact or potential impact they may have on the financial services industry, the Partnership and its operations. Among the numerous potentially impactful provisions in the Dodd-Frank Act are: (i) pursuant to Section 913 of the Dodd-Frank Act, the SEC staff issued a study recommending a universal fiduciary standard of care applicable to both broker-dealers and investment advisers when providing personalized investment advice about securities to retail clients, and such other clients as the SEC provides by rule; and (ii) pursuant to Section 914 of the Dodd-Frank Act, a new SRO to regulate investment advisers could be proposed. In addition, the Dodd-Frank Act contains new or enhanced regulations that could impact specific securities products offered by the Partnership to investors and specific securities transactions. Proposed rules related to all of these provisions have not yet been adopted by regulators. The Partnership cannot predict what impact any such rules, if adopted, would have on the Partnership.
DOL Fiduciary Rule. The DOL issued its final rule defining the term "fiduciary" and exemptions related thereto in the context of ERISA, and retirement accounts in April 2016. Certain provisions of the rule, including the impartial conduct standards, became applicable on June 9, 2017, with the remaining provisions scheduled to become applicable on January 1, 2018. On February 3, 2017, a Presidential Memorandum was issued that directed the DOL (i) to examine the rule to determine, among other things, whether it may adversely affect the ability of Americans to gain access to retirement information and retirement advice, (ii) as part of this examination, to prepare an updated economic and legal analysis concerning the likely impact of the rule, and (iii) to rescind or revise the rule, if the DOL makes certain affirmative determinations regarding the rule's impact. In light of this directive, the DOL is currently reviewing the rule.
The Partnership has dedicated significant resources to interpret and implement the rule, including its personnel, information systems resources and financial resources. Implementation of the rule required changes in the manner in which the Partnership serves clients with retirement accounts, which is a substantial portion of the Partnership's business. As a result, the Partnership's solutions available to retirement accounts include fee-based solutions, such as its advisory programs, and certain transaction-based solutions using the Best Interest Contract Exemption. The Partnership continues to evaluate the solutions available to retirement accounts, with additional changes possible.
Historically, the Partnership has served a majority of retirement accounts using transaction-based solutions. After the applicability date of the rule, clients may choose a higher percentage of fee-based solutions than historical practices, and not all solutions traditionally provided will be available for all transaction-based retirement accounts. Accordingly, the Partnership likely will experience a decrease in transaction-based revenue and an increase in fee-based revenue. The Partnership cannot predict at this time the overall impact of the rule on its financial condition, results of operations and liquidity.
INTEREST RATE ENVIRONMENT – The Partnership's profitability could be impacted by interest rate changes.
The Partnership is exposed to market risk from changes in interest rates. Such changes in interest rates impact the income from interest earning assets, primarily receivables from clients on margin balances and short-term investments, as well as the fees earned by the Partnership through its ownership of Passport Research, Ltd. (see Part II—Item 8—Financial Statements and Supplementary Data–Note 17 in the Partnership's Annual Report for a discussion of the Partnership's ownership of Passport Research, Ltd.), which is the investment adviser to the Edward Jones Money Market Fund. The changes in interest rates may also have an impact on the expense related to liabilities that finance these
33
PART II. OTHER INFORMATION
Item 1A. Risk Factors, continued
assets, such as amounts payable to clients and other interest and non-interest bearing liabilities. The Partnership’s interest bearing liabilities are less sensitive to changes in short-term interest rates compared to its interest earning assets, resulting in interest income being more sensitive to interest rate changes than interest expense.
During the quarter ended June 30, 2017, the Partnership issued subordinated limited partnership interests (the “SLP Interests”), which are fully described in the Partnership Agreement. The Partnership issued the SLP Interests pursuant to Regulation D under the Securities Act of 1933, as amended, on June 8, 2017, to retiring general partners of the Partnership for an aggregate price of $1,644,939.
34
PART II. OTHER INFORMATION
Exhibit Number |
| Description | ||
3.1 | * | Nineteenth Amended and Restated Agreement of Registered Limited Liability Limited Partnership, dated June 6, 2014, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 8-K dated June 6, 2014. | ||
3.2 | * | Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated January 30, 2015, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the year ended December 31, 2014. | ||
3.3 | * | First Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated March 9, 2015, incorporated by reference from Exhibit 3.3 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the year ended December 31, 2014. | ||
3.4 | * | Second Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated April 7, 2015, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended March 27, 2015. | ||
3.5 | * | Third Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated May 12, 2015, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended June 26, 2015. | ||
3.6 | * | Fourth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated June 24, 2015, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended June 26, 2015. | ||
3.7 | * | Fifth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated July 27, 2015, incorporated by reference from Exhibit 3.3 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended June 26, 2015. | ||
3.8 | * | Sixth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated August 24, 2015, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended September 25, 2015. | ||
3.9 | * | Seventh Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated September 21, 2015, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended September 25, 2015. | ||
3.10 | * | Eighth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated October 26, 2015, incorporated by reference from Exhibit 3.3 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended September 25, 2015. | ||
3.11 | * | Ninth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated November 20, 2015, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2015. | ||
3.12 | * | Tenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated January 22, 2016, incorporated by reference from Exhibit 3.3 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2015. |
35
PART II. OTHER INFORMATION
Item 6. Exhibit Index, continued
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Exhibit Number |
| Description |
3.13 | * | Eleventh Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated February 16, 2016, incorporated by reference from Exhibit 3.4 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2015. |
3.14 | * | Twelfth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated March 21, 2016, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended March 25, 2016. |
3.15 | * | Thirteenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated April 26, 2016, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended March 25, 2016. |
3.16 | * | Fourteenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated May 23, 2016, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended June 24, 2016. |
3.17 | * | Fifteenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated June 22, 2016, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended June 24, 2016. |
3.18 | * | Sixteenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated July 20, 2016, incorporated by reference from Exhibit 3.3 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended June 24, 2016. |
3.19 | * | Seventeenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated August 25, 2016, incorporated by reference from Exhibit 3.1 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended September 30, 2016. |
3.20 | * | Eighteenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated September 21, 2016, incorporated by reference from Exhibit 3.2 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended September 30, 2016. |
3.21 | * | Nineteenth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated October 19, 2016, incorporated by reference from Exhibit 3.3 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended September 30, 2016. |
3.22 | * | Twentieth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated November 17, 2016, incorporated by reference from Exhibit 3.22 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2016. |
3.23 | * | Twenty-First Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated December 21, 2016, incorporated by reference from Exhibit 3.23 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2016. |
3.24 | * | Twenty-Second Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated January 25, 2017, incorporated by reference from Exhibit 3.24 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2016. |
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PART II. OTHER INFORMATION
Item 6. Exhibit Index, continued
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Exhibit Number |
| Description | ||
3.25 | * | Twenty-Third Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated February 22, 2017, incorporated by reference from Exhibit 3.25 to The Jones Financial Companies, L.L.L.P. Annual Report on Form 10-K for the fiscal year ended December 31, 2016. | ||
3.26 | * | Twenty-Fourth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated April 25, 2017, incorporated by reference from Exhibit 3.26 to The Jones Financial Companies, L.L.L.P. Form 10-Q for the quarterly period ended March 31, 2017. | ||
3.27 | ** | Twenty-Fifth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated May 25, 2017. | ||
3.28 | ** | Twenty-Sixth Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated June 21, 2017. | ||
3.29 | ** | Twenty-Seventh Amendment of Twentieth Restated Certificate of Limited Partnership of The Jones Financial Companies, L.L.L.P., dated July 12, 2017. | ||
31.1 | ** | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | ** | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | ** | Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | ** | Certification of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | ||
101.INS | ** | XBRL Instance Document | ||
101.SCH | ** | XBRL Taxonomy Extension Schema | ||
101.CAL | ** | XBRL Taxonomy Extension Calculation | ||
101.DEF | ** | XBRL Extension Definition | ||
101.LAB | ** | XBRL Taxonomy Extension Label | ||
101.PRE | ** | XBRL Taxonomy Extension Presentation | ||
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* | Incorporated by reference to previously filed exhibits. |
** | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE JONES FINANCIAL COMPANIES, L.L.L.P. | ||
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By: |
| /s/ James D. Weddle |
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| James D. Weddle |
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| Managing Partner (Principal Executive Officer) |
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| August 8, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
Signatures |
| Title |
| Date |
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/s/ James D. Weddle |
| Managing Partner (Principal Executive Officer) |
| August 8, 2017 |
James D. Weddle | ||||
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/s/ Kevin D. Bastien |
| Chief Financial Officer (Principal Financial and Accounting Officer) |
| August 8, 2017 |
Kevin D. Bastien |
38