T. Rowe Price 10-Q 2022-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2022

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 (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 every Interactive Data File required to be submitted 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 such files). ☒ 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,

July 26, 2022, is 225,691,631.

The exhibit index is at Item 6 on page 43.

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)

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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 affiliated products. The other affiliated products include: open-ended investment products offered to investors outside the U.S., products offered through variable annuity life insurance plans in the U.S., affiliated private investment funds or private accounts, and collateralized loan obligations. 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. Additionally, we also derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements also known as carried interest.

We manage a broad range of U.S., international and global stock, bond, money market mutual funds, collective investment trusts and other investment products as well as affiliated private investment funds or private accounts, and collateralized loan obligations, 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.

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 have 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.

On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that had common ownership (collectively, “OHA”). We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities"). As of June 30, 2022, OHA had $57 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).

MARKET TRENDS.

Major U.S. stock indexes declined considerably in the second quarter of 2022, adding to first-quarter losses and capping the S&P 500 Index’s worst first half of a calendar year in decades. As measured by various Russell indexes, growth stocks fared worse than value stocks across all market capitalizations. Investors continued to shun riskier assets in response to Russia’s invasion of Ukraine, elevated inflation exacerbated by rising commodity prices, and a more aggressive pace of Federal Reserve interest rate increases following its raising of the fed funds target rate in mid-March. Investors were also concerned about inflation’s impact on consumer spending and corporate profits, particularly as some high-profile companies and major retailers disappointed with their financial results or projections.

Developed European markets fell broadly in U.S. dollar terms, as the European Central Bank prepared to begin raising short-term interest rates in July. Stocks in Sweden fared worst, dropping 21%, while shares in the Netherlands and Ireland fell about 19%. Shares in the UK held up relatively well, falling about 10%, as currency weakness helped support multinational companies with overseas earnings. Most developed markets in Asia fell sharply, but shares in Hong Kong held up very well, falling only about 1%.

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In emerging Asia, several markets fell sharply in dollar terms. Chinese shares rose, however, helped by an easing of coronavirus lockdown measures in parts of the country. In emerging Europe, shares in Poland and Hungary plunged 27% and 26%, respectively, hurt by their close proximity to the Russian-Ukrainian conflict. In Latin America, markets in Chile and Mexico fell about 15%, while stocks in Peru plunged 30%.

Returns of several major equity market indexes were as follows:

(1) Returns exclude dividends

Global bond prices declined in the second quarter of 2022, extending first-quarter losses, as interest rates rose in many countries due to elevated inflation. In the U.S., Treasury yields rose and the Federal Reserve increased official short-term interest rates twice. The fed funds target rate range at the end of June was 1.50% to 1.75%. The 10-year U.S. Treasury note yield increased from 2.32% to 2.98% during the quarter.

In the taxable investment-grade universe, corporate bonds fared worst as interest rates rose and credit spreads widened amid concerns about the economy and corporate earnings. Treasury and mortgage-backed securities also declined materially. Tax-free municipal bonds declined but outperformed the taxable bond market. High yield bonds performed poorly as credit spreads widened and investors were concerned about weaker corporate earnings and a possible recession.

Bonds in developed non-U.S. markets tumbled, as interest rates in many developed countries increased, and losses to U.S. investors were exacerbated by a stronger U.S. dollar. The British pound and the euro declined approximately 8% and 6%, respectively, versus the dollar. The Japanese yen fell more than 10%—to levels not seen in more than two decades—as Japanese monetary policy remained stimulative and diverged from the tightening stances adopted by many other central banks.

Emerging markets bonds declined as investors were risk averse and as central banks in emerging countries raised interest rates to fight inflation and defend weakening currencies. Most emerging markets currencies depreciated versus the dollar.

Returns for several major bond market indexes were as follows:

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There has been no material change in our market risks from those provided in Item 7A of the Form 10-K Annual Report for 2021.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of June 30, 2022, 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 second quarter of 2022, and has concluded that there was no change during the second quarter of 2022 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 2021.

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

(c) Repurchase activity during the second quarter of 2022 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 second quarter of 2022, 10,117 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.

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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 July 28, 2022, we issued an earnings release reporting our results of operations for the second quarter of 2022. 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 July 28, 2022.

T. Rowe Price Group, Inc.

By: /s/ Jennifer B. Dardis

Vice President, Chief Financial Officer and Treasurer

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