T. Rowe Price 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2021

OR

For the transition period from to

Commission File Number: 000-32191

T. ROWE PRICE GROUP, INC.

(Exact name of registrant as specified in its charter)

100 East Pratt Street, Baltimore, Maryland 21202

(Address, including Zip Code, of principal executive offices)

(410) 345-2000

(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 of the Securities Exchange Act of 1934 during the preceding 12 months, 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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.¨

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

The number of shares outstanding of the issuer’s common stock ($.20 par value), as of the latest practicable date,

October 25, 2021, is 224,751,344.

The exhibit index is at Item 6 on page 40.

PART I – FINANCIAL INFORMATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

The accompanying notes are an integral part of these statements.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per-share amounts)

The accompanying notes are an integral part of these statements.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

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OVERVIEW.

Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other T. Rowe Price products. The other T. Rowe Price products include open-ended investment products offered to investors outside the U.S., and products offered through variable annuity life insurance plans in the U.S. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and non-discretionary advisory services through model delivery.

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and collective investment trusts and other investment products, which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations. Additionally, approximately 30% of our operating expenses are impacted by fluctuations in our assets under management.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients. These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management.

The general trend to passive investing has been persistent and accelerated in recent years, which has negatively impacted our new client inflows. However, over the long term we expect well-executed active management to play an important role for investors. In this regard, we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings in order to provide our clients with strong investment management expertise and service.

MARKET TRENDS.

Major U.S. stock market indexes were mixed in the third quarter. Large-cap shares outperformed. Stocks generally rose through early September, supported by favorable second-quarter corporate earnings reports. However, the spread of the delta variant of the coronavirus weighed on the economic recovery. Toward the end of the quarter, investors turned cautious as longer-term U.S. Treasury yields climbed amid growing expectations that the Federal Reserve could soon begin to taper its monthly asset purchases. Investors were also concerned that Congress had not yet passed legislation that raises or eliminates the debt ceiling, which is the statutory limit on the federal government’s borrowing ability.

European stock markets were widely mixed in U.S. dollar terms; UK shares fell marginally. Developed Asian and Far East markets were also mixed. Japanese shares rose close to 5%, whereas Hong Kong stocks slumped more than 9% due in part to Chinese regulatory developments.

Emerging markets equities generally declined. In Latin America, Brazilian shares tumbled more than 20% in U.S. dollar terms; in Asia, South Korean shares slumped 13%. Emerging European markets rose broadly, though Turkish stocks trailed the region with a 2% gain.

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Returns of several major equity market indexes were as follows:

(1) Returns exclude dividends

Global bond returns produced mostly flat or negative returns in U.S. dollar terms. In the U.S., long-term Treasury yields initially declined, but they rose in late September after the Federal Reserve signaled that it could soon moderate the pace of its monthly asset purchases. The 10-year U.S. Treasury yield increased from 1.45% to 1.52% during the quarter.

In the taxable investment-grade bond universe, all major segments—including Treasuries, corporate bonds, and mortgage- and asset-backed securities—were essentially flat. Tax-free municipal securities fell slightly and trailed the taxable investment-grade bond market. High yield bonds produced slight positive returns and outperformed high-quality issues.

Bonds in developed non-U.S. markets declined as longer-term interest rates in various countries rose and a stronger U.S. dollar reduced local returns to U.S investors. The Japanese yen fell about .5% versus the greenback, while the euro and British pound dropped more than 2%.

Emerging markets bonds also declined. Local currency issues fared worse than dollar-denominated debt, as the South African rand, the South Korean won, and several Latin American currencies fell materially against the U.S. dollar.

Returns for several major bond market indexes were as follows:

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ASSETS UNDER MANAGEMENT.

Assets under management ended the third quarter of 2021 at $1,612.3 billion, a decrease of $10.8 billion from June 30, 2021, and an increase of $141.8 billion from the end of 2020. For the three months ended September 30, 2021, the decrease in assets under management was driven by net cash outflows of $6.4 billion and market depreciation, including distributions not reinvested, of $4.4 billion. Clients transferred $3.6 billion in net assets from the U.S. mutual funds primarily to collective investment trusts and other investment products, of which $1.9 billion transferred into the retirement date trusts.

For the nine months ended September 30, 2021, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $147.6 billion, partially offset by net cash outflows of $5.8 billion. Clients transferred $18.4 billion in net assets from the U.S. mutual funds primarily to collective investment trusts and other investment products, of which $12.7 billion transferred into the retirement date trusts.

The following tables detail changes in our assets under management, by vehicle and asset class, during the three- and nine-month periods ended September 30, 2021:

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There has been no material change in the total potential loss information provided in Item 7A of the Form 10-K Annual Report for 2020.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of September 30, 2021, are effective at the reasonable assurance level to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, including this Form 10-Q quarterly report, is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive and principal financial officers, has evaluated any change in our internal control over financial reporting that occurred during the third quarter of 2021, and has concluded that there was no change during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For information about our legal proceedings, please see our Commitments and Contingencies footnote to our unaudited condensed consolidated financial statements in Part 1. of this Form 10-Q.

There have been no material changes in the information provided in Item 1A of our Form 10-K Annual Report for 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Repurchase activity during the third quarter of 2021 is as follows:

Shares repurchased by us in a quarter may include repurchases conducted pursuant to publicly announced board authorization, outstanding shares surrendered to the company to pay the exercise price in connection with swap exercises of employee stock options, and shares withheld to cover the minimum tax withholding obligation associated with the vesting of restricted stock awards. Of the total number of shares purchased during the third

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quarter of 2021, 48,006 were related to shares surrendered in connection with employee stock option exercises and no shares were withheld to cover tax withholdings associated with the vesting of restricted stock awards.

The following table details the changes in and status of the Board of Directors’ outstanding publicly announced board authorizations.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

On October 28, 2021, we issued an earnings release reporting our results of operations for the third quarter of 2021. A copy of that earnings release is furnished herewith as Exhibit 99.1. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

The following exhibits required by Item 601 of Regulation S-K are furnished herewith.

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SIGNATURES

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 on October 28, 2021.

T. Rowe Price Group, Inc.

By: /s/ Jennifer B. Dardis

Vice President, Chief Financial Officer and Treasurer

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