T. Rowe Price 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2023

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 24, 2023, is 223,470,324.

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 sponsored products. The other sponsored 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 mix of equity, fixed income, multi-asset, alternative and money market asset classes and solutions that 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 April 20, 2023, we completed our acquisition of Retiree, Inc., a fintech firm that offers innovative retirement income planning software. The terms of the transaction are not material.

MARKET TRENDS.

U.S. stocks declined in the third quarter of 2023. Although the U.S. economy remained resilient and second-quarter corporate earnings reports were mostly favorable, the equity market was affected by higher energy costs and U.S. Treasury yields rising to multi-year highs amid concerns that elevated inflation could force the Federal Reserve to maintain a restrictive monetary policy for some time. The central bank raised the Fed Funds target rate in late July, but not at its September policy meeting. However, investors reacted negatively to policymakers’ projections in September that one more interest rate increase is likely before the end of the year, and that there could be fewer rate cuts in 2024 than previously expected.

Developed non-U.S. equity markets fell in U.S. dollar terms, as the U.S dollar strengthened versus major non-U.S. currencies. In Europe, equity markets were largely negative in dollar terms. Developed Asian markets declined but generally held up better. Japanese shares fell slightly in dollar terms but rose slightly in local currency terms, as the yen weakened and central bank officials kept interest rates very low.

Emerging equity markets generally declined, but outperformed equities in developed non-U.S. markets in dollar terms. In the emerging Europe, Middle East, and Africa (EMEA) region, market performance was widely mixed. Turkish stocks led the region, surging as the central bank raised interest rates to fight elevated inflation and took other steps to gradually return to more orthodox policymaking. Markets in emerging Asia and Latin America were largely negative.

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Returns of several major equity market indexes were as follows:

(1) Returns exclude dividends

Global bond returns were mostly negative in U.S. dollar terms in the third quarter. In the U.S., Treasury bill yields increased as the Federal Reserve lifted the Fed Funds target rate to the 5.25% to 5.50% range in late July and as investors prepared for possibly one more Fed interest rate increase by the end of the year. Intermediate- and long-term U.S. Treasury yields rose more significantly due in part to a U.S. sovereign credit rating downgrade from Fitch Ratings in August, increased Treasury Department borrowing in the third quarter, and concerns about a possible October 1 federal government shutdown, which was narrowly averted. The 10-year U.S. Treasury note yield increased from 3.81% to 4.59% during the quarter, reaching its highest levels in about 16 years.

In the U.S. investment-grade bond universe, sector performance was mostly negative. Mortgage-backed securities performed worst. Corporate bonds and U.S. Treasury securities also fared poorly. Asset-backed securities outperformed with a slight positive total return. Tax-free municipal bonds fared worse than the broad taxable bond market, as municipal yields generally increased more than U.S. Treasury yields. High yield corporate bonds produced slight positive total returns and strongly outperformed the investment-grade market.

Bonds in developed non-U.S. markets declined in U.S. dollar terms; returns to U.S. investors were hurt by rising interest rates in various countries as well as weaker non-U.S. currencies versus the greenback. In Europe, government bond yields rose in parallel with U.S. Treasury yields and were also pressured higher by signs that the rate of inflation, while decreasing, remains elevated. In Japan, government bond yields remained very low, as the Bank of Japan continued its highly stimulative monetary policy. However, long-term yields rose to levels unseen in about 10 years as policymakers expressed a willingness to conduct “with greater flexibility” their yield curve control policy. Emerging markets bonds also depreciated in U.S. dollar terms. Bonds denominated in local currencies generally fared worse than dollar-denominated issues, as most emerging markets currencies declined versus the greenback.

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 2022.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of September 30, 2023, 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 2023, and has concluded that there was no change during the third quarter of 2023 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 2022.

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

(c) Repurchase activity during the third quarter of 2023 is as follows:

Shares repurchased by us in a quarter may include repurchases conducted pursuant to publicly announced board authorization, outstanding shares surrendered to us 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 quarter of 2023, 49,593 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.

Not applicable.

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, 2023.

T. Rowe Price Group, Inc.

By: /s/ Jennifer B. Dardis

Vice President, Chief Financial Officer and Treasurer

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