T. Rowe Price 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 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,

October 25, 2022, is 223,464,812.

The exhibit index is at Item 6 on page 44.

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, 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 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 September 30, 2022, OHA had $56 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).

MARKET TRENDS.

Major U.S. stock indexes declined in the third quarter of 2022. Shares advanced through mid-August, helped by second-quarter corporate earnings reports that were better than expected. Investors were also hopeful that the Federal Reserve, which raised short-term interest rates in late July, would slow the pace of its rate increases in response to tentative signs that inflation was retreating from recent peaks. However, equities plunged and U.S. Treasury yields rose in the second half of the third quarter of 2022, as comments from Federal Reserve officials indicated that they would be willing to risk causing a recession by raising rates and keeping them at a higher level in order to bring inflation down. Toward the end of September 2022, investor sentiment deteriorated further as the Federal Reserve raised rates again, Treasury yields reached multi-year highs, and UK government bond yields surged in reaction to the UK government’s plan to cut taxes, increase energy subsidies, and boost borrowing.

Stocks in developed non-U.S. markets underperformed U.S. shares, as a stronger U.S. dollar reduced overseas returns to U.S. investors. Developed markets in Asia were broadly negative. Shares in Singapore fell only about 1.5%, while Hong Kong stocks plunged about 17%. In Europe, UK shares dropped almost 11% in dollar terms. Two of the worst-performing European markets were Austria and Norway, where stocks fell about 15%.

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Stocks in emerging markets generally performed worse than their counterparts in developed markets. In Asia, Chinese stocks plunged amid concerns about slower growth in the world’s second-largest economy. In emerging Europe, most major markets declined, but Turkish stocks surged 16% in dollar terms as the central bank reduced interest rates twice despite year-over-year inflation of about 80%. Markets in Latin America were mixed. Mexican stocks slipped 5%, while Brazilian stocks advanced more than 8%.

Returns of several major equity market indexes were as follows:

(1) Returns exclude dividends

Global bond prices declined in the third quarter of 2022, as bond yields rose and central banks increased short-term interest rates in many countries due to elevated inflation. In the U.S., Treasury yields reached levels unseen since 2007-2008 and the Federal Reserve increased official short-term interest rates twice. The fed funds target rate range at the end of September was 3.00% to 3.25%. The 10-year U.S. Treasury note yield increased from 2.98% to 3.83% during the quarter.

In the investment-grade universe, corporate and mortgage-backed securities were among the worst-performing issues. Treasury and commercial mortgage-backed securities also declined considerably. Asset-backed securities lost value but held up better than other investment-grade segments. Tax-free municipal bonds declined but outperformed the taxable bond market. High yield bonds, which have less sensitivity to rising interest rates than higher-quality issues, held up well.

Bonds in developed non-U.S. markets fell sharply; losses to U.S. investors were exacerbated by a stronger dollar. The euro fell more than 6%, even though the European Central Bank raised short-term interest rates in July and September. The British pound plunged 8%, and UK government bond yields surged in September, resulting in the Bank of England purchasing long-term UK government debt in an effort to stabilize the market. The Japanese yen slumped more than 6%—to levels not seen in more than two decades—which prompted the Bank of Japan to intervene in the currency market in late September in an attempt to support the yen.

Emerging markets bonds declined as central banks in many

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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 September 30, 2022. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of September 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 third quarter of 2022, and has concluded that there was no change during the third 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 third 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 third

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quarter of 2022, 13,480 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 27, 2022, we issued an earnings release reporting our results of operations for the third 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 October 27, 2022.

T. Rowe Price Group, Inc.

By: /s/ Jennifer B. Dardis

Vice President, Chief Financial Officer and Treasurer

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