United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2016~~March 31, 2017

Commission file number 000-24498

DIAMOND HILL INVESTMENT GROUP, INC.

(Exact name of registrant as specified in its charter)



Ohio		65-0190407
(State of incorporation)		(I.R.S. Employer Identification No.)

325 John H. McConnell Blvd, Suite 200, Columbus, Ohio 43215

(Address of principal executive offices) (Zip Code)

(614) 255-3333

(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, and (2) has been subject to such filing requirements for the past 90 days. Yes: x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated ~~filer"~~filer," "smaller reporting company," and ~~"smaller reporting~~"emerging growth company" in Rule 12b-2 of the Exchange Act.

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Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨(Do not check if a smaller reporting company)	Smaller reporting company	¨

Emerging growth company	¨

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: x

The number of shares outstanding of the issuer’s common stock, as of ~~October~~April 26, ~~2016,~~2017, is ~~3,414,065~~3,441,167 shares.

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DIAMOND HILL INVESTMENT GROUP, INC.



		PAGE

Part I: FINANCIAL INFORMATION		3

Item 1.	Consolidated Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2624

Item 4.	Controls and Procedures	2624

Part II: OTHER INFORMATION		2624

Item 1.	Legal Proceedings	2624

Item 1A.	Risk Factors	2624

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2624

Item 3.	Defaults Upon Senior Securities	2725

Item 4.	Mine Safety Disclosures	2725

Item 5.	Other Information	2725

Item 6.	Exhibits	2826

Signatures		2927

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PART I:	FINANCIAL INFORMATION



ITEM 1:	Consolidated Financial Statements

Diamond Hill Investment Group, Inc.

Consolidated Balance Sheets


	9/30/2016			12/31/2015			3/31/2017			12/31/2016
	(Unaudited)						(Unaudited)
ASSETS
Cash and cash equivalents	$	63,659,780		$	57,474,777		$	59,317,703		$	57,189,876
Investment portfolio	87,047,844			52,490,820			117,424,036			108,015,635
Accounts receivable	17,479,493			18,579,302			18,854,644			18,605,209
Prepaid expenses	1,679,796			1,780,105			2,362,435			2,032,726
Income taxes receivable	1,200,112			1,402,137			—			1,111,890
Property and equipment, net of depreciation	4,127,815			4,253,361			3,689,145			4,025,758
Deferred taxes	9,123,652			9,206,079			9,236,986			8,736,767
Total assets	$	184,318,492		$	145,186,581		$	210,884,949		$	199,717,861
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses	$	6,782,593		$	7,651,324		$	6,535,053		$	9,787,048
Accrued incentive compensation	16,155,000			21,984,500			6,487,000			22,683,500
Deferred compensation	13,369,919			10,236,743			18,683,617			14,182,470
Income taxes payable							5,885,599			—
Total liabilities	36,307,512			39,872,567			37,591,269			46,653,018
Redeemable noncontrolling interest	4,229,220			—			16,218,344			13,840,688
Shareholders’ equity
Common stock, no par value 7,000,000 shares authorized; 3,413,355 issued and outstanding at September 30, 2016 (inclusive of 208,800 unvested shares); 3,414,338 issued and outstanding at December 31, 2015 (inclusive of 310,356 unvested shares)	108,914,518			102,536,527
Common stock, no par value 7,000,000 shares authorized; 3,443,013 issued and outstanding at March 31, 2017 (inclusive of 201,750 unvested shares); 3,411,556 issued and outstanding at December 31, 2016 (inclusive of 201,800 unvested shares)							114,459,766			109,293,803
Preferred stock, undesignated, 1,000,000 shares authorized and unissued	—			—			—			—
Deferred equity compensation	(19,611,808		)	(19,294,784		)	(17,799,783		)	(17,728,106		)
Retained earnings	54,479,050			22,072,271			60,415,353			47,658,458
Total shareholders’ equity	143,781,760			105,314,014			157,075,336			139,224,155
Total liabilities and shareholders’ equity	$	184,318,492		$	145,186,581		$	210,884,949		$	199,717,861

Book value per share	$	42.12		$	30.84		$	45.62		$	40.81

The accompanying notes are an integral part of these consolidated financial statements.

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Diamond Hill Investment Group, Inc.

Consolidated Statements of Income (unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2016			2015			2017			2016
REVENUES:
Investment advisory	$	29,512,076		$	27,475,552		$	84,751,943		$	79,894,964		$	31,833,471		$	26,686,785
Mutual fund administration, net	3,425,165			3,948,373			11,312,222			12,229,555			3,300,658			3,770,705
Total revenue	32,937,241			31,423,925			96,064,165			92,124,519			35,134,129			30,457,490
OPERATING EXPENSES:
Compensation and related costs	12,714,404			12,941,017			38,494,459			38,393,223			13,679,149			12,398,708
General and administrative	2,994,186			2,389,339			8,055,287			6,966,452			3,488,115			2,485,161
Sales and marketing	1,052,101			1,107,989			3,106,269			2,878,141			1,129,719			993,122
Mutual fund administration	1,037,987			844,563			2,865,905			2,429,593			1,000,616			876,066
Total operating expenses	17,798,678			17,282,908			52,521,920			50,667,409			19,297,599			16,753,057
NET OPERATING INCOME	15,138,563			14,141,017			43,542,245			41,457,110			15,836,530			13,704,433
Investment income (loss)	3,555,368			(3,512,134		)	4,995,255			(1,710,111		)
Gain on sale of subsidiary	2,675,766			—			2,675,766			—
Investment income, net													3,786,188			747,222
INCOME BEFORE TAXES	21,369,697			10,628,883			51,213,266			39,746,999			19,622,718			14,451,655
Income tax expense	(7,700,732		)	(3,900,423		)	(18,497,315		)	(14,327,795		)	(6,497,270		)	(5,171,776		)
NET INCOME	13,668,965			6,728,460			32,715,951			25,419,204			13,125,448			9,279,879
Less: Net income attributable to redeemable noncontrolling interest	(242,401		)	—			(309,172		)	—			(368,553		)	(14,216		)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	13,426,564		$	6,728,460		$	32,406,779		$	25,419,204		$	12,756,895		$	9,265,663
Earnings per share attributable to common shareholders
Basic	$	3.93		$	2.04		$	9.52		$	7.78		$	3.72		$	2.73
Diluted	$	3.93		$	1.99		$	9.50		$	7.59		$	3.71		$	2.73
Weighted average shares outstanding
Basic	3,413,164			3,297,337			3,405,460			3,268,037			3,428,888			3,388,743
Diluted	3,420,123			3,379,200			3,410,208			3,348,196			3,435,329			3,393,396

The accompanying notes are an integral part of these consolidated financial statements.

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Diamond Hill Investment Group, Inc.

Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited)


	Shares Outstanding		Common Stock			Deferred Equity Compensation			Retained Earnings		Total			Redeemable Noncontrolling Interest			Shares Outstanding		Common Stock			Deferred Equity Compensation			Retained Earnings		Total			Redeemable Noncontrolling Interest
Balance at December 31, 2015	3,414,338		$	102,536,527		$	(19,294,784	)	$	22,072,271	$	105,314,014		$	—
Cumulative-effect adjustment from the adoption of ASU 2015-02 (Note 2)	—		—			—			—		—			4,031,756
Balance at December 31, 2016																	3,411,556		$	109,293,803		$	(17,728,106	)	$	47,658,458	$	139,224,155		$	13,840,688
Issuance of restricted stock grants	35,900		7,504,564			(7,504,564		)	—		—			—			15,200		1,735,326			(1,735,326		)	—		—			—
Amortization of restricted stock grants	—		—			4,903,095			—		4,903,095			—			—		—			1,578,824			—		1,578,824			—
Issuance of stock grants	21,940		3,879,431			—			—		3,879,431			—			19,219		3,892,424			—			—		3,892,424			—
Issuance of common stock related to 401k plan match	7,482		1,356,205			—			—		1,356,205			—			2,076		419,958			—			—		419,958			—
Tax benefit from dividend payments related to restricted stock grants	—		925,000			—			—		925,000			—
Net excess tax benefit from vested restricted stock grants	—		4,652,983			—			—		4,652,983			—
Shares withheld related to employee tax withholding	(51,235	)	(9,655,747		)	—			—		(9,655,747		)	—			(3,788	)	(796,920		)	—			—		(796,920		)	—
Forfeiture of restricted stock grants	(15,070	)	(2,284,445		)	2,284,445			—		—			—			(1,250	)	(84,825		)	84,825			—		—			—
Net income	—		—			—			32,406,779		32,406,779			309,172			—		—			—			12,756,895		12,756,895			368,553
Net redemptions of consolidated funds	—		—			—			—		—			(111,708		)
Balance at September 30, 2016	3,413,355		$	108,914,518		$	(19,611,808	)	$	54,479,050	$	143,781,760		$	4,229,220
Net subscriptions of consolidated funds																	—		—			—			—		—			2,009,103
Balance at March 31, 2017																	3,443,013		$	114,459,766		$	(17,799,783	)	$	60,415,353	$	157,075,336		$	16,218,344

The accompanying notes are an integral part of these consolidated financial statements.

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Diamond Hill Investment Group, Inc.

Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	32,715,951		$	25,419,204		$	13,125,448		$	9,279,879
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	496,250			453,702			217,748			162,378
Share-based compensation	6,259,300			6,287,899			1,998,782			2,067,099
(Increase)/decrease in accounts receivable	1,612,207			(474,491		)	(249,435		)	1,865,257
Change in current income taxes	5,780,008			(4,523,875		)	6,997,489			937,839
Change in deferred income taxes	82,427			(896,137		)	(500,219		)	(155,206		)
Gain on sale of subsidiary	(2,675,766		)	—
Net (gains)/losses on investments	(4,212,479		)	1,788,286
Net gains on investments							(3,392,620		)	(703,399		)
Net change in trading securities held by Consolidated Funds	(29,436,380		)	—			(1,310,800		)	—
Increase (decrease) in accrued incentive compensation	(1,950,069		)	3,410,208
Decrease in accrued incentive compensation							(12,304,076		)	(13,478,069		)
Increase in deferred compensation	3,133,176			3,835,923			4,501,147			2,283,490
Excess income tax benefit from share-based compensation	(4,652,983		)	(1,950,951		)	—			(4,303,621		)
Income tax benefit from dividends paid on restricted stock	(925,000		)	—			—			(925,000		)
Other changes in assets and liabilities	1,929,846			2,484,335			(1,832,863		)	(1,056,871		)
Net cash provided by operating activities	8,156,488			35,834,103
Net cash provided by (used in) operating activities							7,250,601			(4,026,224		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(339,638		)	(1,249,204		)	(67,315		)	(106,654		)
Purchase of seed capital investments	(17,468,890		)	(17,289,987		)
Proceeds from sale of seed capital investments	18,717,308			6,833,602
Proceeds from sale of subsidiary, net of cash disposed	1,163,769			—
Purchase of Company sponsored investments							(6,060,665		)	(6,133,800		)
Proceeds from sale of Company sponsored investments							1,124,308			6,500,000
Net cash provided by (used in) investing activities	2,072,549			(11,705,589		)	(5,003,672		)	259,546
CASH FLOWS FROM FINANCING ACTIVITIES:
Value of shares withheld related to employee tax withholding	(9,655,747		)	(3,758,265		)	(796,920		)	(8,774,006		)
Excess income tax benefit from share-based compensation	4,652,983			1,950,951			—			4,303,621
Income tax benefit from dividends paid on restricted stock	925,000			—			—			925,000
Net subscriptions received from (redemptions and distributions paid to) redeemable noncontrolling interest holders	33,730			—			677,818			(825,060		)
Net cash used in financing activities	(4,044,034		)	(1,807,314		)	(119,102		)	(4,370,445		)
CASH AND CASH EQUIVALENTS
Net change during the period	6,185,003			22,321,200			2,127,827			(8,137,123		)
At beginning of period	57,474,777			35,777,140			57,189,876			57,474,777
At end of period	$	63,659,780		$	58,098,340		$	59,317,703		$	49,337,654
Supplemental cash flow information:
Income taxes paid	$	12,634,880		$	19,747,806		$	—		$	4,389,143
Supplemental disclosure of non-cash transactions:
Common stock issued as incentive compensation	$	3,879,431		$	3,826,458		$	3,892,424		$	3,879,431
Charitable donation of corporate investments	1,729,735			1,401,202
Charitable donation of corporate investments and property and equipment							1,748,841			1,729,735
Cumulative-effect adjustment from the adoption of ASU 2015-02 (Note 2)	4,031,756			—			—			4,031,756
Net redemption of ETF shares for marketable securities	(244,200		)	—
Net issuance of ETF shares for marketable securities							1,351,436			1,077,565

The accompanying notes are an integral part of these consolidated financial statements.

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Diamond Hill Investment Group, Inc.

Notes to Consolidated Financial Statements (unaudited)

Note 1 Business and Organization

Diamond Hill Investment Group, Inc. (the "Company"), an Ohio corporation, derives its consolidated revenues and net income from investment advisory and fund administration services.

Diamond Hill Capital Management, Inc. ("DHCM"), an Ohio corporation, is a wholly owned subsidiary of the Company and a registered investment adviser. DHCM is the investment adviser to the Diamond Hill Funds (the "Funds"), a series of open-end mutual funds, private investment funds ("Private Funds"), an exchange traded fund (the "ETF"), and other institutional accounts. In addition, DHCM is administrator for the Funds.

Beacon Hill Fund Services, Inc. ~~("BHFS"~~(“BHFS”) and BHIL Distributors, Inc. (“BHIL”), ~~an Ohio corporation, is a wholly owned subsidiary~~collectively operated as "Beacon Hill," were operating subsidiaries of the Company. ~~BHFS~~The Company sold Beacon Hill on July 31, 2016. Prior to the sale, Beacon Hill provided compliance, treasury, underwriting and other fund administration services to investment advisers and mutual funds. BHIL Distributors, Inc. ("BHIL"), an Ohio corporation, was a wholly owned subsidiary of BHFS. BHIL provided underwriting services to mutual funds. BHFS and BHIL collectively operated as "Beacon Hill". On July 31, 2016, the Company sold BHIL and certain assets and liabilities of BHFS to Foreside Financial Group, LLC (“Foreside”). The entirety of Beacon Hill's business was transferred to Foreside in the sale. See Note 10.

Note 2 Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, and for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ for Diamond Hill Investment Group, Inc. and its subsidiaries (referred to in these notes to the condensed consolidated financial statements as "the Company," "management," "we," "us," and "our") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission ("SEC") Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair statement of the financial condition and results of operations at the dates and for the interim periods presented, have been included. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for any full fiscal year. These unaudited condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~2016 ("~~2015~~2016 Annual Report") as filed with the SEC.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Reclassification

Certain prior period amounts and disclosures may have been reclassified to conform to the current period's financial presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the operations of the Company and its controlled subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

The Company holds certain investments in the Funds and the ETF we advise for general corporate investment purposes and to provide seed capital for newly formed strategies or to add capital to existing strategies. The Funds are organized in a series fund structure in which there are multiple mutual funds within one Trust. The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act"). The ETF we advise is an individual series of ETF Series Solutions which is also an open-end investment company registered under the 1940 Act. Each of the individual mutual funds and the ETF represent a separate

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share class of a legal entity organized under the ~~trust.~~Trust. As of January 1, 2016, the Company adopted ASU 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02") and we have performed our analysis at the individual mutual fund and ETF level and have concluded the mutual funds and ETF

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are voting rights entities ("VREs"). The Company has concluded that the mutual funds and the ETF are VREs because the structure of the investment product is such that the shareholders are deemed to have the power through voting rights to direct the activities that most significantly impact the entity's economic performance. To the extent material, these investment products are consolidated if Company ownership, directly or indirectly, represents a majority interest (greater than 50%). The Company records redeemable noncontrolling interests in consolidated investments for which the Company's ownership is less than 100%.

We adopted ASU 2015-02 utilizing the modified retrospective transition method and have recorded a cumulative-effect adjustment to equity of $4.0 million as of January 1, 2016. Prior to the adoption of ASU 2015-02, we performed our analysis at the trust level and concluded we did not need to consolidate the Funds or the ETF as we owned less than 1% of the voting interest in the respective trusts. In 2016, the The Company has consolidated the ETF and one of our individual mutual funds (collectively the "Consolidated Funds") as our ownership was greater than 50% in each.

DHCM is the managing member of Diamond Hill General Partner, LLC (the “General Partner”), the general partner of Diamond Hill Investment Partners, L.P. (“DHIP”) ~~and~~, Diamond Hill Global Fund, L.P. ("DHGF"), and Diamond Hill International Equity Fund, L.P. ("DHIEF"), each a limited partnership (collectively, the "Partnerships" or “LPs”) whose underlying assets consist primarily of marketable ~~securities, or collectively (the "Partnerships" or “LPs”).~~securities.

DHCM is wholly owned by the Company and is consolidated by us. Further, DHCM, through its control of the General Partner, has the power to direct each LP’s economic activities and the right to receive investment advisory fees that may be significant to the LPs.

The Company concluded we did not have a variable interest in DHIP as the fees paid to the General Partner are considered to contain customary terms and conditions as found in the market for similar products and the Company has no equity ownership in DHIP.

The Company concluded DHGF ~~was a~~and DHIEF were variable interest ~~entity~~entities ("~~VIE"~~VIEs") as DHCM has disproportionately less voting interests than economic interests ~~because the Company receives over 95% of the variability of DHGF,~~in each LP, yet the ~~Limited Partners~~limited partners have full power to remove the Company as the General Partner due to the existence of substantive kick-out rights. In addition, substantially all of the LPs' activities are conducted on behalf of the General Partner which has disproportionately few voting rights. The Company concluded we are not the primary beneficiary of DHGF or DHIEF as we lack the power to control the ~~entity~~entities due to the existence of single-party kick-out rights where the limited ~~partner has~~partners have the unilateral ability to remove ~~us as~~ the General Partner without cause. DHCM’s investment in DHGF and DHIEF is reported as a component of the Company’s investment portfolio, valued at DHCM’s proportionate interest in the net asset value ("NAV") of ~~DHGF.~~each LP.

The LPs are not subject to lock-up periods and can be redeemed on demand. Gains and losses attributable to changes in the value of DHCM’s interests in the LPs are included in the Company’s reported investment income. The Company’s exposure to loss as a result of its involvement with the LPs is limited to the amount of its investments. DHCM is not obligated to provide, and has not provided, financial or other support to the LPs, other than its investments to date and its contractually provided investment advisory responsibilities. The Company has not provided liquidity arrangements, guarantees or other commitments to support the LPs’ operations, and the LPs’ creditors and interest holders have no recourse to the general credit of the Company.

Certain board members, officers and employees of the Company invest in ~~DHIP~~the LPs and are not subject to a management fee or an incentive fee. These individuals receive no remuneration as a result of their personal investment in ~~DHIP.~~the LPs. The capital of the General Partner is not subject to a management fee or an incentive fee.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest represents third-party interests in the Consolidated Funds. This interest is redeemable at the option of the investors and therefore is not treated as permanent equity. Redeemable noncontrolling interest is remeasured at redemption value which approximates the fair value each reporting period.

Segment Information

Management has determined that the Company operates in one business segment, providing investment management and administration services to mutual funds, institutional accounts, and private investment funds. Therefore, no disclosures relating to operating segments are presented in the Company's annual or interim financial statements.

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Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market mutual funds.

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Accounts Receivable

Accounts receivable are recorded when they are due and are presented on the balance sheet net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial stability of those individuals or entities that owe the receivable. No allowance for doubtful accounts was deemed necessary at ~~September 30, 2016~~March 31, 2017 or December 31, ~~2015.~~2016. Accounts receivable from the Funds were ~~$9.4~~$10.9 million as of ~~September 30, 2016~~March 31, 2017 and ~~$9.2~~$10.4 million as of December 31, ~~2015.~~2016.

Investments

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates its determination at each reporting period.

Investments classified as trading represent ~~seed capital~~ investments in the Funds we advise where the Company has neither control nor the ability to exercise significant influence as well as securities held in the Consolidated Funds. These investments are measured at fair value based on quoted market prices. Unrealized gains and losses are recorded as investment income (loss) in the Company's consolidated statements of income.

Investments classified as equity method investments represent ~~seed capital~~ investments in which the Company owns between 20-50% of the outstanding voting interests in the entity or when it is determined that the Company is able to exercise significant influence but not control over the investments. When using the equity method, the Company recognizes its respective share of the investee's net income or loss for the period which is recorded as investment income in the Company's consolidated statements of income.

Valuation of Investment Portfolio

Accounting Standards Codification Topic 820, Fair Value ~~Measurment~~Measurement ("ASC 820") specifies a hierarchy of valuation classifications based on whether the inputs to the valuation techniques used in each valuation ~~clasification~~classification are observable or unobservable. These classifications are summarized in the three broad levels listed below:

Level 1 - Unadjusted quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations in which all significant inputs are observable.

Level 3 - Valuations derived from techniques in which significant inputs are unobservable.

Inputs used to measure fair value might fall in different levels of the fair value hierarchy, in which case the Company defaults to the lowest level input that is significant to the fair value measurement in its entirety. These levels are not necessarily an indication of the risk or liquidity associated with investments. The following table summarizes our investments that are recognized in our consolidated balance sheet using fair value measurements determined based upon the ~~values~~differing levels of ~~the Company's investments~~inputs as of ~~September 30, 2016:~~March 31, 2017:

Level 1 Level 2 Level 3
Investments measured at NAV^(a)
Total
Cash equivalents $ 56,074,210
$ —
$ —
$ —
$ 56,074,210
Trading Investments
Securities held in Consolidated Funds^(b)
17,517,463
28,187,450
—
—
$ 45,704,913
Seed capital investments 20,224
—
—
—
$ 20,224
Seed capital equity method investments 26,454,627
—
—
1,498,161
$ 27,952,788
Deferred compensation investments 13,369,919
—
—
—
$ 13,369,919

(a) Comprised of certain investments in limited partnerships measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

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	Level 1		Level 2		Level 3		Total
Cash equivalents	$	58,101,003	$	—	$	—	$	58,101,003
Trading Investments
Securities held in Consolidated Funds^(a)	19,273,313		42,179,502		—		61,452,815
Company sponsored investments	6,459,664		—		—		6,459,664
Deferred compensation investments	18,683,617		—		—		18,683,617

~~(b)~~(a) Of the equity interests in the Consolidated Funds as of ~~September 30, 2016, $41.6~~March 31, 2017, $43.9 million were held directly by the Company and ~~$4.1~~$17.6 million were held by noncontrolling shareholders.

Level 1 investments are all registered investment companies (mutual funds) or equity securities held in the Consolidated Funds and include, as of ~~September 30, 2016, $56.1~~March 31, 2017, $58.1 million of investments in ~~third party~~ money market mutual funds that the Company classifies as cash equivalents.

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Level 2 investments are comprised of investments in debt securities, which are valued by an independent pricing service ~~which uses~~using pricing techniques which take into account factors such as trading activity, readily available market quotations, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit rates and other observable inputs.

The Company determines transfers between fair value hierarchy levels at the end of the reporting period. There were no transfers in or out of the levels during the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

Changes in fair values of the investments are recorded in the ~~Consolidated Statements~~Company's consolidated statements of ~~Income~~income as investment ~~income.~~income (loss).

Property and Equipment

Property and equipment, consisting of leasehold improvements, computer equipment, furniture, and fixtures, are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated lives of the assets.

Revenue Recognition – General

The Company earns substantially all of its revenue from investment advisory and fund administration services. Investment advisory and administration fees, generally calculated as a percentage of assets under management ("AUM"), are recorded as revenue as services are performed. In addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic variable ~~incentive~~ fees. Investment advisory revenue from the Funds was ~~$22.9~~$24.9 million and ~~$20.7~~$20.3 million for the three months ended ~~September 30,~~March 31, 2017 and March 31, 2016, ~~and September 30, 2015, respectively. Investment advisory revenue from the Funds was $65.2 million and $59.2 million for the nine months ended September 30, 2016 and September 30, 2015,~~ respectively.

Revenue Recognition – Variable ~~Incentive~~ Fees

The Company manages certain client accounts that provide for variable ~~incentive~~ fees. These fees are calculated based on client investment results over rolling five-year periods. The Company records variable ~~incentive~~ fees at the end of the contract measurement period. No variable ~~incentive~~ fees were earned during the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 or ~~2015.~~2016. The table below shows AUM subject to variable ~~incentive~~ fees and the amount of variable ~~incentive~~ fees that would be recognized ~~if the contracts were terminated~~based upon current investment results as of ~~September 30, 2016:~~March 31, 2017:

As of
September 30, 2016
AUM subject to variable incentive fees $ 590,718,723


	As of		As of March 31, 2017
	September 30, 2016		AUM subject to variable fees		Unearned variable fees
Contractual Period Ends:
Quarter Ended June 30, 2017	$	2,756,586
Quarter Ended December 31, 2018	71,108		$	100,372,212	$	650,510
Quarter Ended September 30, 2019	346,295		33,309,551		481,397
Quarter Ended March 31, 2020	—		10,957,815		—
Total variable incentive fees that would be recognized if contract terminated	$	3,173,989
Quarter Ended September 30, 2021			246,450,605		860,314
Total			$	391,090,183	$	1,992,221

The contractual end dates highlight the time remaining until the variable ~~incentive~~ fees are scheduled to be earned. The amount of variable ~~incentive~~ fees that would be recognized ~~if the contracts were terminated~~based upon investment results as of ~~September 30, 2016~~March 31, 2017 will increase or

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decrease based on future client investment results through the contractual period end. There can be no assurance that the ~~above~~unearned amounts will ultimately be earned.

Revenue Recognition – Mutual Fund Administration

DHCM has an administrative and transfer agency services agreement with the Funds under which DHCM performs certain services for each Fund. These services include mutual fund administration, fund accounting, transfer agency and other related functions. For performing these services each Fund pays DHCM a fee, which is calculated using an annual rate times the average daily net assets of each respective share class.

The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal and state registrations, and legal and audit services. DHCM, in fulfilling a portion of its role under the administration agreement with the Funds, acts as agent to pay these obligations of the Funds. Each vendor is independently responsible for fulfillment of

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the services it has been engaged to provide and negotiates fees and terms with the management and board of trustees of the Funds. The fee that each Fund pays to DHCM is reviewed annually by the Funds’ board of trustees and specifically takes into account the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in the delivery or pricing of these services and bears no risk related to these services. Revenue has been recorded net of these Fund related expenses, in accordance with FASB ASC 605-45, Revenue Recognition – Principal Agent Considerations. In addition, DHCM advances the upfront commissions that are paid to brokers who sell Class C shares of the Funds. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup this commission advancement.

Prior to the sale of Beacon Hill, ~~previously~~the Company, through Beacon Hill, had underwriting and administrative service agreements with certain clients, including registered mutual funds. The fee arrangements varied from client to client based upon services provided and have been recorded as revenue under mutual fund administration on the ~~Consolidated Statements~~Company's consolidated statements of ~~Income.~~income. Part of Beacon Hill’s role as underwriter was to act as an agent on behalf of its mutual fund clients to receive 12b-1/service fees and commission revenue and facilitate the payment of those fees and commissions to third parties who provide services to the funds and their shareholders. The majority of 12b-1/service fees were paid to independent third parties and the remainder were retained by the Company as reimbursement for expenses the Company had incurred. The ~~amount~~amounts of 12b-1/service fees and commissions were determined by each mutual fund client, and Beacon Hill bore no financial risk related to these services. As a result, 12b-1/service fees and commission revenue was recorded net of the expense payments to third parties, in accordance with the appropriate accounting treatment for this agency relationship. ~~The entirety of Beacon Hill's business was sold to Foreside on July 31, 2016. as further described in Note 10.~~

Mutual fund administration gross and net revenue are summarized below:

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015
Mutual fund administration:
Administration revenue, gross $ 6,445,936
$ 6,768,161
$ 20,557,388
$ 20,031,572
12b-1/service fees and commission revenue received from fund clients 933,752
2,753,785
6,360,400
8,297,126
12b-1/service fees and commission expense payments to third parties (831,198 ) (2,372,516 ) (5,660,429 ) (7,164,887 )
Fund related expense (3,136,319 ) (3,224,405 ) (9,958,315 ) (8,971,327 )
Revenue, net of related expenses 3,412,171
3,925,025
11,299,044
12,192,484
DHCM C-Share financing:
Broker commission advance repayments 157,732
269,602
558,641
768,884
Broker commission amortization (144,738 ) (246,254 ) (545,463 ) (731,813 )
Financing activity, net 12,994
23,348
13,178
37,071
Mutual fund administration revenue, net $ 3,425,165
$ 3,948,373
$ 11,312,222
$ 12,229,555

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	Three Months Ended March 31,
	2017			2016
Mutual fund administration:
Administration revenue, gross	$	6,436,359		$	6,760,870
12b-1/service fees and commission revenue received from fund clients	—			2,625,391
12b-1/service fees and commission expense payments to third parties	—			(2,328,490		)
Fund related expense	(3,148,951		)	(3,268,063		)
Revenue, net of related expenses	3,287,408			3,789,708
DHCM C-Share financing:
Broker commission advance repayments	113,470			193,310
Broker commission amortization	(100,220		)	(212,313		)
Financing activity, net	13,250			(19,003		)
Mutual fund administration revenue, net	$	3,300,658		$	3,770,705

Mutual fund administrative net revenue from the Funds was ~~$3.0~~$3.3 million and $2.7 million for ~~both~~ the three months ended ~~September 30,~~March 31, 2017 and March 31, 2016, ~~and September 30, 2015. Mutual fund administrative net revenue from the Funds was $8.8 million and $9.6 million for the nine months ended September 30, 2016 and September 30, 2015,~~ respectively.

Income Taxes

The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company is subject to examination by ~~various~~ federal and applicable state and local jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws ~~between~~among those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or

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assessments. The Company regularly assesses its position with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, according to the principles of FASB ASC 740, Income Taxes. As of ~~September 30, 2016,~~March 31, 2017, the Company had not recorded any liability for uncertain tax positions. The Company records interest and penalties, if any, within income tax expense on the income statement.

Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of Common Shares outstanding for the period, which includes participating securities. Diluted EPS reflects the potential dilution of EPS due to unvested restricted stock grants with forfeitable rights to dividends and restricted stock units. For the periods presented, the Company has unvested stock-based payment awards that contain both forfeitable and nonforfeitable rights to dividends and restricted stock units. See Note 8.

Recently Issued Accounting Standards

In May 2014, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers", which supersedes existing accounting standards for revenue recognition and creates a single framework. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This standard also specifies the accounting for certain costs to obtain or fulfill a contract with a customer. This ASU will supersede much of the existing revenue recognition guidance in GAAP and is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and requires either a retrospective or a modified retrospective approach to adoption. Early application is permitted for the first interim period within annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures, as well as the transition methods. ~~Early application is permitted for the first interim period within annual reporting periods beginning after December 15, 2016.~~

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", which is intended to improve the accounting for share-based payment transactions as part of the FASB's simplification initiative. The ASU changes seven aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds share for tax-withholding purposes; (6) practical expedient - expected term (nonpublic only); and (7) intrinsic value (nonpublic only). The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted in any interim or annual period provided that the entire ASU is adopted. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, "Leases", which, among other things, requires lessees to recognize most leases on-balance sheet. This will increase their reported assets and liabilities - in some cases significantly. Lessor accounting remains substantially similar to current GAAP. ASU 2016-02 supersedes Topic 840, Leases. ASU ~~2016~~2016-02 is effective for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective

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transition method for all entities. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures.

Note 3 Investment Portfolio

As of ~~September 30, 2016,~~March 31, 2017, the Company held investments (excluding ~~third party~~ money market funds, which are included with cash and cash equivalents) worth ~~$87.0~~$117.4 million. The following table summarizes the ~~fair~~carrying value of these investments as of ~~September 30,~~March 31, 2017 and December 31, 2016:


	As of		As of
	September 30, 2016		March 31, 2017		December 31, 2016
Trading investments:
Securities held in Consolidated Funds^(a)	$	45,704,913	$	61,452,815	$	57,355,471
Seed capital investments	20,224
Seed capital equity method investments	27,952,788
Company sponsored investments			6,459,664		20,245
Company sponsored equity method investments			30,827,940		36,457,449
Deferred compensation investments	13,369,919		18,683,617		14,182,470
Total Investment portfolio	$	87,047,844	$	117,424,036	$	108,015,635

(a) Of the securities held in the Consolidated Funds as of ~~September 30, 2016, $41.6~~March 31, 2017, $43.9 million were held directly by the Company and ~~$4.1~~$17.6 million were held by noncontrolling ~~shareholders.~~shareholders. Of the securities held in the Consolidated Funds as of December 31, 2016, $42.6 million were held directly by the Company and $14.7 million were held by noncontrolling shareholders.

The deferred compensation investments above consist of Diamond Hill Funds and relate to deferred compensation liabilities from both deferred compensation plans (refer to Note 5). As of ~~September 30, 2016,~~March 31, 2017, trading investments and equity method investments held in deferred compensation investments were ~~$8.9~~$12.8 million and ~~$4.5~~$5.9 million, respectively. As of December 31, 2016, trading investments and equity method investments held in the deferred compensation investments were $9.3 million and $4.9 million, respectively.

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As of March 31, 2017, our equity method investees consisted of the Diamond Hill Mid Cap Fund, the Diamond Hill Research Opportunities Fund, DHGF, and DHIEF and our ownership percentages in these funds were 23%, 22%, 95%, and 30%, respectively. The Company's equity method investments consist of cash, marketable equity securities and fixed income securities. The following table includes the condensed summary financial information from the Company's equity method investments as of and for the period ended ~~September 30, 2016:~~March 31, 2017:


	As of		As of
	September 30, 2016		March 31, 2017		December 31, 2016
Total assets	$	134,675,293	$	200,584,608	$	189,819,824
Total liabilities	15,914,316		45,863,330		45,931,979
Net assets	118,760,977		154,721,278		143,887,845
DHCM's portion of net assets	32,444,008		36,711,852		41,338,406

	For the Nine Months Ended		For the Three Months Ended
	September 30, 2016		March 31, 2017		March 31, 2016
Investment income			$	458,399	$	355,853
Expenses			370,393		62,226
Net realized gains (losses)			1,299,286		(95,785		)
Net change in unrealized appreciation/depreciation			2,921,247		1,104,266
Net income	$	7,920,249	$	4,308,539	$	1,302,108
DHCM's portion of net income	2,715,921		1,416,849		646,565

Note 4 Line of Credit

The Company has an uncommitted Line of Credit Agreement (the "Credit Agreement") with a commercial bank that matures in November of ~~2016~~2017 and permits the Company to borrow up to ~~$10.0~~$25.0 million. Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 1.50%. The Company has not borrowed under the Credit Agreement as of and for the ~~periods~~period ended ~~September 30, 2016 and December~~March 31, ~~2015.~~2017. No interest is payable on the unused portion of the Credit Agreement.

The proceeds of the Credit Agreement may be used by the Company and its subsidiaries for ongoing working capital needs, to seed new investment strategies and other general corporate purposes. The Credit Agreement contains representations, warranties and covenants that are customary for agreements of this type.

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Note 5 Compensation Plans

Share-Based Payment Transactions

The Company issues restricted stock units and restricted stock awards (collectively, "Restricted Stock") under the 2014 Equity and Cash Incentive Plan ("2014 Plan"). Restricted stock units represent shares ~~that~~which may be issued in the future, whereas restricted stock awards represent common shares issued and outstanding upon grant ~~with~~subject to vesting restrictions. The following table represents a roll-forward of outstanding Restricted Stock and related activity during the ~~nine~~three months ended ~~September 30, 2016:~~March 31, 2017:

Shares
Weighted-Average
Grant Date Price
per Share
Outstanding Restricted Stock as of December 31, 2015 329,356
$ 108.46
Grants issued 38,900
183.14
Grants vested (122,386 ) 83.71
Grants forfeited (15,070 ) 141.52
Total Outstanding Restricted Stock as of September 30, 2016 230,800
$ 132.01

In conjunction with the sale of Beacon Hill, the Company modified the outstanding Beacon Hill employee share-based payment award agreements to partially vest based on their service performed before the date of the transaction. The one-time incremental expense recorded as a result of these modifications was approximately $0.2 million.



	Shares		Weighted-Average Grant Date Price per Share
Outstanding Restricted Stock as of December 31, 2016	223,800		$	132.96
Grants issued	8,700		199.46
Grants vested	(14,000	)	126.38
Grants forfeited	(1,250	)	67.86
Total Outstanding Restricted Stock as of March 31, 2017	217,250		$	136.42

As of ~~September 30, 2016,~~March 31, 2017, there were ~~405,853~~383,177 Common Shares available for awards under the 2014 Plan.

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Total deferred compensation related to unvested Restricted Stock grants was ~~$19.6~~$17.8 million as of ~~September 30, 2016.~~March 31, 2017. Compensation expense related to ~~the~~ Restricted Stock grants is calculated based upon the fair market value of the ~~Common Shares~~common shares on grant ~~date, adjusted~~date. The Company's policy is to adjust compensation expense for ~~estimated forfeitures.~~forfeitures as they occur. The recognition of compensation expense related to deferred compensation over the remaining vesting periods ~~adjusted for estimated forfeitures,~~ is as follows:

Three Months
Remaining In
2016 2017 2018 2019 2020 Thereafter Total
$ 1,675,702
$ 6,216,255
$ 4,417,599
$ 3,681,145
$ 2,103,404
$ 1,517,703
$ 19,611,808



Nine Months Remaining In
2017		2018		2019		2020		2021		Thereafter		Total
$	4,845,782	$	4,773,030	$	4,036,576	$	2,364,048	$	872,849	$	907,498	$	17,799,783

Stock Grant Transactions

The following table represents stock issued as part of our incentive compensation program during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

Shares Issued Grant Date Value
September 30, 2016 21,940
$ 3,879,431
September 30, 2015 27,192
3,826,458

Deferred Compensation Plans

The Company offers two deferred compensation plans, the Diamond Hill Fixed Term Deferred Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan (collectively the “Plans”), to its named executive officers and certain other employees. Under the Plans, participants may elect to voluntarily defer, for a minimum of five years, certain incentive compensation, ~~that~~which the Company then contributes into the Plans. Each participant is responsible for designating investment options for assets they contribute, and the distribution paid to each participant reflects any gains or losses on the assets realized while in the Plans. Assets held in the Plans are included in the Company’s investment portfolio, and the associated obligation to participants is included in deferred compensation liability. Assets held in the Plans are recorded at fair value. Deferred compensation liability was ~~$13.4~~$18.7 million and ~~$10.2~~$14.2 million as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

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Note 6 Operating Leases

The Company currently leases office space of approximately ~~42,400~~37,829 square feet at ~~two locations.~~one location. The following table summarizes the total lease and operating expenses for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

September 30,
2016 September 30,
2015
Three Months Ended $ 218,640
$ 234,475
Nine Months Ended $ 679,195
$ 697,272



	March 31, 2017		March 31, 2016
Three Months Ended	$	231,463	$	227,349

The approximate future minimum lease payments under the operating ~~leases~~lease are as follows:

																											Future Minimum Lease Payments
Three Months Remaining In
2016		2017		2018		2019		2020		Thereafter		Total
Nine Months Remaining In														Nine Months Remaining In
2017														2017	2018		2019		2020		2021		Thereafter		Total
$	174,049	$	696,198	$	632,120	$	595,807	$	624,179	$	2,341,000	$	5,063,353	439,762	$	586,350	$	595,807	$	624,179	$	624,179	$	1,716,000	$	4,586,277

In addition to the above lease payments, the Company is also responsible for normal operating expenses of the ~~properties.~~property. Such operating expenses were approximately $0.4 million in ~~2015, on a combined basis,~~2016, and are expected to be the same in ~~2016.~~2017.

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Note 7 Income Taxes

The Company has determined its interim tax provision projecting an estimated annual effective tax rate. For the three months ended ~~September 30, 2016,~~March 31, 2017, the Company recorded income tax expense of ~~$7.7~~$6.5 million, yielding an effective tax rate of ~~36.0%~~33.1%. The effective tax rate of ~~36.0%~~33.1% differed from the federal statutory tax rate of 35% due primarily to $0.4 million of excess tax benefits from the vesting of stock awards as well as a $0.1 million tax benefit related to a charitable donation of appreciated securities previously held in our investment portfolio. The tax benefits were partially offset by the additional income tax expense recorded in the state and city jurisdictions in which we do business.

The Company implemented ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" on January 1, 2017. As of January 1, 2017, any excess tax benefits or deficiences from the vesting of stock awards are recognized through the income tax provision as opposed to common stock. For Restricted Stock, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and vesting. The Company also records tax benefits on dividends paid on Restricted Stock. This change is required to be applied prospectively to all excess tax benefits and tax deficiencies after the date of adoption of the ASU. No adjustment is recorded for any windfall benefits previously recorded in common stock. In addition, all tax-related cash flows resulting from share-based payments will be reported as operating activities in the statement of cash flows under the new guidance, rather than the prior requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. The Company has elected to adopt this change in cash flow presentation prospectively after the date of adoption of the ASU.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2016, the Company recorded income tax expense of ~~$18.5~~$5.2 million, yielding an effective tax rate of ~~36.1%~~35.8%. The effective tax rate of ~~36.1%~~35.8% differed from the federal statutory tax rate of 35% due primarily to the additional income tax expense recorded in the state and city jurisdictions in which we do business, which was partially offset by a $0.1 million tax benefit related to a charitable donation of appreciated securities previously held in our investment portfolio.

~~For~~ The Company had net tax benefits from equity awards of $5.2 million for the three months ended September 30, 2015, the Company recorded income tax expense of $3.9 million, yielding an effective tax rate of 36.7%. The effective tax rate of 36.7% differed from the expected effective tax rate of 35% due to additional income tax expense recorded in the state and city jurisdictions in which we do business. For the nine months ended September 30, 2015, the Company recorded income tax expense of $14.3 million, yielding an effective tax rate of 36.0%. The effective tax rate of 36.0% differed from the federal statutory tax rate of 35% due primarily to the additional income tax expense recorded in the state and city jurisdictions in which we do business,March 31, 2016, which was ~~partially offset by a $0.2 million tax benefit related to a charitable donation of appreciated securities previously held~~reflected as an increase in ~~our investment portfolio.~~equity.

The net temporary differences incurred to date will reverse in future periods as the Company generates taxable earnings. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets recorded. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, no valuation allowance was deemed necessary.

The Company's income taxes payable have been reduced by excess tax benefits from equity incentive plan awards. These tax benefits are considered windfall tax benefits under ASC 718 and are recognized as an increase to common stock. For Restricted Stock, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and vesting. The Company also records a tax benefit on dividends paid on Restricted Stock. The Company had net tax benefits from equity awards of $5.6 million and $2.0 million for the nine months ended September 30, 2016 and 2015, respectively, which were reflected as increases in equity.

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FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not record an accrual for tax related uncertainties or unrecognized tax positions as of ~~September 30, 2016~~March 31, 2017 or December 31, ~~2015.~~2016.

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Note 8 Earnings Per Share

The Company’s Common Shares outstanding consist of all shares issued and outstanding, including unvested restricted shares. Basic and diluted EPS are calculated under the two-class method. ~~Pursuant to the two-class method, the Company’s unvested~~ Restricted Stock grants with nonforfeitable rights to dividends are considered participating securities. Dividends are paid on all Common Shares outstanding at the same rate. Accordingly, the Company has evaluated the impact of earnings per share of all participating securities under the two-class method, noting no impact on earnings per share. Restricted stock awards with forfeitable rights to dividends and restricted stock units are considered dilutive. The following table sets forth the computation for basic and diluted EPS and reconciliation between basic and diluted shares outstanding:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2016			2015		2016			2015		2017			2016
Net Income	$	13,668,965		$	6,728,460	$	32,715,951		$	25,419,204	$	13,125,448		$	9,279,879
Less: Net income attributable to redeemable noncontrolling interest	(242,401		)	—		(309,172		)	—		(368,553		)	(14,216		)
Net income attributable to common shareholders	$	13,426,564		$	6,728,460	$	32,406,779		$	25,419,204	$	12,756,895		$	9,265,663

Weighted average number of outstanding shares - Basic	3,413,164			3,297,337		3,405,460			3,268,037		3,428,888			3,388,743
Dilutive impact of restricted stock awards with forfeitable rights to dividends	—			74,154		—			74,267
Dilutive impact of restricted stock units	6,959			7,709		4,748			5,892		6,441			4,653
Weighted average number of outstanding shares - Diluted	3,420,123			3,379,200		3,410,208			3,348,196		3,435,329			3,393,396

Earnings per share attributable to common shareholders
Basic	$	3.93		$	2.04	$	9.52		$	7.78	$	3.72		$	2.73
Diluted	$	3.93		$	1.99	$	9.50		$	7.59	$	3.71		$	2.73

Note 9 Commitments and Contingencies

The Company indemnifies its directors, officers and certain of its employees for certain liabilities that might arise from their performance of their duties to the Company. From time to time, the Company is involved in legal matters relating to claims arising in the ordinary course of business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.

Additionally, in the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and which provide general indemnifications. Certain agreements do not contain any limits on the Company’s liability and ~~would~~could involve future claims that may be made against the Company that have not yet occurred. Therefore, it is not possible to estimate the Company’s potential liability under these indemnities. Further, the Company maintains insurance policies that may provide coverage against certain claims under these indemnities.

~~Note 10~~ ~~Sale of Beacon Hill~~

On June, 15, 2016, the Company entered into a definitive agreement with Foreside to sell BHIL and certain assets and liabilities of BHFS to Foreside, which closed on July 31, 2016. This transaction resulted in the entirety of Beacon Hill’s business being transferred to Foreside. The Company received $1.2 million in cash consideration, net of cash disposed, as well as contingent consideration with a fair value of $1.5 million in the form of a promissory note. The promissory note is included in accounts receivable on the consolidated balance sheets. The Company recorded a gain on sale of approximately $2.7 million during the third quarter of 2016. After transaction related costs, the overall impact of the sale, net of tax, was approximately $1.3 million to net income.

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~~Note 11~~ ~~Subsequent Event~~

On October 25, 2016, the Company’s board of directors approved a special cash dividend of $6.00 per share payable December 12, 2016 to shareholders of record on December 2, 2016. This dividend will reduce shareholders' equity by approximately $20.5 million.

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ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

Throughout this Quarterly Report on Form 10-Q, the Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to such matters as anticipated operating results, prospects and levels of assets under management, technological developments, economic trends (including interest rates and market volatility), expected transactions and similar matters. The words “believe,” “expect,” “anticipate,” “estimate,” “should,” “hope,” “seek,” “plan,” “intend” and similar expressions identify forward-looking statements that speak only as of the date thereof. While we believe that the assumptions underlying our forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, our actual results and experiences could differ materially from the anticipated results or other expectations expressed in our forward-looking statements. Factors that could cause such actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to: the adverse effect from a decline in the securities markets; a decline in the performance of our products; changes in interest rates; changes in national and local economic and political conditions; the continuing economic uncertainty in various parts of the world; changes in government policy and regulation, including monetary policy; changes in our ability to attract or retain key employees; unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations; and other risks identified from time-to-time in other public documents on file with the SEC.

General

The Company derives its consolidated revenue and net income from investment advisory and fund administration services provided by its subsidiaries, DHCM and, until July 31, 2016, Beacon Hill. DHCM is a registered investment adviser under the Investment Advisers Act of 1940. DHCM sponsors, distributes, and provides investment advisory and related services to various U.S. and foreign clients through the Funds, institutional accounts, the ETF, and the Partnerships. ~~Until the sale of Beacon Hill to Foreside,~~ Beacon Hill provided fund administration and statutory underwriting services to U.S. and foreign clients.

The Company’s primary objective is to fulfill our fiduciary duty to our clients. Our secondary objective is to grow the intrinsic value of the Company in order to achieve an adequate long-term return for shareholders.

Assets Under Management

Our revenue is derived primarily from investment advisory and administration fees. Investment advisory and administration fees paid to the Company are generally based on the value of the investment portfolios we manage and fluctuate with changes in the total value of our AUM. Substantially all of our AUM (96%) is valued based on readily available market quotations. AUM in the fixed income strategies (4%) is valued using evaluated prices from independent third-party providers. Fees are recognized in the period that the Company manages these assets.

Our revenues are highly dependent on both the value and composition of AUM. The following is a summary of our AUM by product and investment objective, and a roll-forward of the change in AUM for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:


	Assets Under Management by Product						Assets Under Management by Product
	As of September 30,						As of March 31,
(in millions, except percentages)	2016		2015		% Change		2017		2016		% Change
Proprietary funds	$	12,843	$	10,819	19	%	$	14,425	$	11,991	20	%
Sub-advised funds	568		701		(19	)%	1,441		624		131	%
Institutional accounts	4,657		4,394		6	%	4,467		4,776		(6	)%
Total AUM	$	18,068	$	15,914	14	%	$	20,333	$	17,391	17	%

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	Assets Under Management by Investment Objective							Assets Under Management by Investment Objective
	As of September 30,							As of March 31,
(in millions, except percentages)	2016			2015		% Change		2017			2016		% Change
Small Cap	$	1,818		$	1,677	8	%	$	1,771		$	1,753	1	%
Small-Mid Cap	3,075			1,837		67	%	3,418			2,481		38	%
Mid Cap								91			25		264	%
Large Cap	7,807			7,056		11	%	9,015			7,682		17	%
Select (All Cap)	407			601		(32	)%
All Cap Select								420			521		(19	)%
Long-Short	4,391			4,444		(1	)%	4,891			4,507		9	%
Corporate bonds	538			299		80	%	638			422		51	%
Core fixed income	183			—		—	%	287			—		—	%
(Less: Investments in affiliated funds)	(151		)	—		—	%	(198		)	—		—	%
Total AUM	$	18,068		$	15,914	14	%	$	20,333		$	17,391	17	%

Change in Assets
Under Management
For the Three Months Ended
September 30,
(in millions) 2016 2015
AUM at beginning of the period $ 17,584
$ 16,734
Net cash inflows (outflows)
proprietary funds (69 ) 701
sub-advised funds (88 ) 16
institutional accounts (371 ) (357 )
(528 ) 360
Net market appreciation/(depreciation) and income 1,012
(1,180 )
Increase during the period 484
(820 )
AUM at end of the period $ 18,068
$ 15,914


	Change in Assets Under Management						Change in Assets Under Management
	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
(in millions)	2016			2015			2017			2016
AUM at beginning of the period	$	16,841		$	15,656		$	19,381		$	16,841
Net cash inflows (outflows)
proprietary funds	482			1,529			310			357
sub-advised funds	(143		)	41			(78		)	(40		)
institutional accounts	(437		)	(487		)	(65		)	40
	(98		)	1,083			167			357
Net market appreciation/(depreciation) and income	1,325			(825		)
Net market appreciation and income							785			193
Increase during the period	1,227			258			952			550
AUM at end of the period	$	18,068		$	15,914		$	20,333		$	17,391

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Consolidated Results of Operations

The following is a discussion of our consolidated results of operations.


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
(in thousands, except per share amounts and percentages)	2016			2015			% Change		2016			2015			% Change		2017			2016			% Change
Total revenue																	$	35,134		$	30,457		15	%
Net operating income	$	15,139		$	14,141		7	%	$	43,542		$	41,457		5	%	$	15,837		$	13,704		16	%
Net operating income after tax^(a)	$	9,684		$	8,952		8	%	$	27,815		$	26,513		5	%
Net income attributable to common shareholders	$	13,427		$	6,728		100	%	$	32,407		$	25,419		27	%	$	12,757		$	9,266		38	%
Net operating income after tax per diluted share^(a)	$	2.83		$	2.65		7	%	$	8.16		$	7.92		3	%
Earnings per share attributable to common shareholders (Diluted)	$	3.93		$	1.99		97	%	$	9.50		$	7.59		25	%	$	3.71		$	2.73		36	%
Operating profit margin	46		%	45		%			45		%	45		%			45		%	45		%
Operating profit margin, as adjusted^(a)																	47		%	46		%

(a) Operating profit margin, as adjusted is a non-GAAP performance measure. See the Use of Supplemental Data as Non-GAAP Performance Measure section within this report.


~~(a)~~	~~Net operating income after tax is a non-GAAP performance measure. See the Use of Supplemental Data as Non-GAAP Performance Measure section within this report.~~

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Three Months Ended ~~September 30, 2016~~March 31, 2017 compared with Three Months Ended ~~September 30, 2015~~March 31, 2016

The Company generated net income attributable to common shareholders of ~~$13.4~~$12.8 million ($~~3.93~~3.71 per diluted share) for the three months ended ~~September 30, 2016,~~March 31, 2017, compared with net income attributable to common shareholders of ~~$6.7~~$9.3 million ($~~1.99~~2.73 per diluted share) for the three months ended ~~September 30, 2015.~~March 31, 2016. Revenue increased ~~$1.5~~$4.7 million period over period primarily due to an increase in average AUM. The revenue increase was partially offset by an increase in operating expenses of ~~$0.5~~$2.5 million primarily related to increases in compensation and related costs and general and administrative expenses. The Company had ~~$3.6~~$3.8 million in investment income due to market appreciation for the three months ended ~~September 30, 2016~~March 31, 2017 compared to investment ~~loss~~income of ~~$3.5~~$0.7 million for the three months ended ~~September 30, 2015. In addition, the Company recognized a $2.7 million gain on the sale of Beacon Hill during the three months ended September 30,~~March 31, 2016. Income tax expense increased ~~$3.8~~$1.3 million from the three months ended ~~September 30, 2015~~March 31, 2016 to the three months ended ~~September 30, 2016~~March 31, 2017 due to the overall increase in income before taxes.

Net operating income after tax, which excludes the impact of investment gains or losses, increased $0.7 million, or 8%, from the three months ended September 30, 2015 to the three months ended September 30, 2016 consistent with the increase in net operating income.

Operating profit margin was approximately 45% for both the quarter ended March 31, 2017 and the quarter ended March 31, 2016. Operating profit margin, as adjusted, increased to 47% for the quarter ended March 31, 2017 from 46% for the quarter ended ~~September 30, 2016 and 45% for the quarter ended September 30, 2015.~~March 31, 2016. See Use of Supplemental Data as Non-GAAP Performance Measure section within this report. We expect that our operating margin may fluctuate from period to period based on various factors, including revenues; investment results; employee performance; staffing levels; development of investment strategies, products, or channels; and industry comparisons.

Revenue


	Three Months Ended September 30,						Three Months Ended March 31,
(in thousands, except percentages)	2016		2015		% Change		2017		2016		% Change
Investment advisory	$	29,512	$	27,476	7	%	$	31,833	$	26,687	19	%
Mutual fund administration, net	3,425		3,948		(13	)%	3,301		3,771		(12	)%
Total	$	32,937	$	31,424	5	%	$	35,134	$	30,458	15	%

As a percent of total revenues for the ~~third quarter of~~three months ended March 31, 2017 and 2016, ~~and 2015,~~ investment advisory fees accounted for ~~90%~~91% and ~~87%~~88%, respectively, and mutual fund administration fees made up the remaining ~~10%~~9% and ~~13%~~12%, respectively.

Investment Advisory Fees. Investment advisory fees increased ~~$2.0~~$5.1 million, or 7%19%, from the three months ended ~~September 30, 2015~~March 31, 2016 to the three months ended September 30, 2016. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates that vary by investment product. The increase in investment advisory fees was driven by an increase of 9% in average AUM quarter over quarter offset by a decrease of one basis point in the average advisory fee rate from 0.66% for the three months ended September 30, 2015 to 0.65% for the three months ended

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September 30, 2016. The decrease in the average advisory fee rate is primarily due to a 0.05% reduction in the Large Cap Fund advisory fee effective January 1, 2016 and the closing of certain strategies with higher average fees to new investors. Effective April 30, 2016, the Diamond Hill Small-Mid Cap strategy was closed to new investors. The Diamond Hill Small Cap strategy was closed to new investors as of DecemberMarch 31, 2015 and the Diamond Hill Long-Short strategy was closed to new investors as of June 12, 2015. As a result, the Company expects the growth in AUM in these Funds to decline, which could negatively impact the average advisory fee rate.

~~Mutual Fund Administration Fees.~~ Mutual fund administration fees decreased $0.5 million, or 13%, from the three months ended September 30, 2015 to the three months ended September 30, 2016. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of average Funds' AUM, and all Beacon Hill fee revenue. The decrease in mutual fund administration fees is primarily due the sale of Beacon Hill effective July 31, 2016 resulting in only one month of revenue recognized during the three months ended September 30, 2016 compared to a full quarter of revenue recognized during the three months ended September 30, 2015.

In addition, while the net mutual fund administration fee rate decreased one basis point from 0.11% for the three months ended September 30, 2015 to 0.10% for the three months ended September 30, 2016, the impact of this fee rate decrease was offset by a 16% increase in average Funds' AUM from $10.9 billion for the three months ended September 30, 2015 to $12.5 billion for the three months ended September 30, 2016. The decrease in the net administration fee rate was due to the following fee reductions that occurred during the periods indicated:

Class A & C Class I Class Y
1/1/2015 - 6/30/2015 0.24% 0.24% 0.10%
7/1/2015 - 12/31/2015 0.24% 0.21% 0.10%
1/1/2016 - 7/31/2016 0.24% 0.20% 0.10%
8/1/2016 - 9/30/2016 0.24% 0.19% 0.09%

~~As of September 30, 2016, assets held in Class I shares and Class Y shares for the Diamond Hill Funds totaled $7.9 billion and $2.2 billion, respectively.~~

~~Expenses~~

Three Months Ended September 30,
(in thousands, except percentages) 2016 2015 % Change
Compensation and related costs $ 12,715
$ 12,941
(2 )%
General and administrative 2,994
2,389
25 %
Sales and marketing 1,052
1,108
(5 )%
Mutual fund administration 1,038
845
23 %
Total $ 17,799
$ 17,283
3 %

~~Compensation and Related Costs.~~ Employee compensation and benefits decreased by $0.2 million, or 2%, from the three months ended September 30, 2015 compared to the three months ended September 30, 2016 primarily due to a decrease in restricted stock expense of $0.1 million. Incentive compensation expense, which is a significant component of compensation and related costs, can fluctuate significantly period over period as we evaluate incentive compensation by reviewing investment results in client portfolios, individual performance, Company performance, and other factors.

~~General and Administrative.~~ General and administrative expenses increased by $0.6 million, or 25%, from the three months ended September 30, 2015 to the three months ended September 30, 2016. This increase is due to an increase in corporate legal expense of $0.3 million primarily related to the sale of Beacon Hill and an increase in charitable donation expense of $0.3 million.

~~Sales and Marketing.~~ ~~Sales and marketing expenses decreased by $0.1 million, or 5%, from the three months ended September 30, 2015 to the three months ended September 30, 2016.~~

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~~Mutual Fund Administration.~~ Mutual fund administration expenses increased by $0.2 million, or 23%, from the three months ended September 30, 2015 to the three months ended September 30, 2016. Mutual fund administration expenses consist of both variable and fixed expenses. The variable expenses are based on Fund AUM, which increased 16%, and the number of shareholder accounts.

~~Nine Months Ended September 30, 2016 compared with Nine Months Ended September 30, 2015~~

The Company generated net income attributable to common shareholders of $32.4 million ($9.50 per diluted share) for the nine months ended September 30, 2016, compared with net income attributable to common shareholders of $25.4 million ($7.59 per diluted share) for the nine months ended September 30, 2015. Revenue increased $3.9 million period over period due to an increase in average AUM. The revenue increase was partially offset by an increase in operating expenses of $1.9 million primarily related to increases in general and administrative expenses and mutual fund administration expenses. The Company had $5.0 million in investment income due to market appreciation for the nine months ended September 30, 2016 compared to an investment loss of $1.7 million for the nine months ended September 30, 2015. In addition, the Company recognized a $2.7 million gain on the sale of Beacon Hill during the nine months ended September 30, 2016. Income tax expense increased $4.2 million from the nine months ended September 30, 2015 to the nine months ended September 30, 2016 due to the overall increase in income before taxes.

Net operating income after tax, which excludes the impact of investment gains or losses, increased $1.3 million, or 5%, from the nine months ended September 30, 2015 to the nine months ended September 30, 2016 consistent with the increase in net operating income.

Operating profit margin was approximately 45% for both the nine months ended September 30, 2016 and the nine months ended September 30, 2015. We expect that our operating margin may fluctuate from period to period based on various factors, including revenues; investment results; employee performance; staffing levels; development of investment strategies, products, or channels; and industry comparisons.

~~Revenue~~

Nine Months Ended
September 30,
(in thousands, except percentages) 2016 2015 % Change
Investment advisory $ 84,752
$ 79,895
6 %
Mutual fund administration, net 11,312
12,230
(8 )%
Total $ 96,064
$ 92,125
4 %

As a percent of total revenues for the nine months ended September 30, 2016 and 2015, investment advisory fees accounted for 88% and 87%, respectively, and mutual fund administration fees made up the remaining 12% and 13%, respectively.

~~Investment Advisory Fees.~~ ~~Investment advisory fees increased $4.9 million, or 6%, from the nine months ended September 30, 2015 to the nine months ended September 30, 2016.~~2017. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates which vary by investment product. The increase in investment advisory fees was driven by an increase of 7%22% in average AUM period over period and was partially offset by a decrease of one basis point in the average advisory fee rate from ~~0.66% for the nine months ended September 30, 2015 compared to~~ 0.65% for the ~~nine~~three months ended ~~September 30, 2016. The decrease in~~March 31, 2016 compared to 0.64% for the average advisory fee rate is primarily due to a 0.05% reduction in the Large Cap Fund advisory fee effective January 1, 2016 and the closing of certain strategies with higher average fees to new investors. Effective April 30, 2016, the Diamond Hill Small-Mid Cap strategy was closed to new investors. The Diamond Hill Small Cap strategy was closed to new investors as of Decemberthree months ended March 31, 2015 and the Diamond Hill Long-Short strategy was closed to new investors as of June 12, 2015. As a result of these strategies closing to new investors, the Company expects the growth in AUM in these Funds to decline, which could negatively impact the average advisory fee rate.2017.

Mutual Fund Administration Fees. Mutual fund administration fees decreased ~~$0.9~~$0.5 million, or 8%12%, from the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of average Funds' ~~AUM, and all~~AUM. Mutual fund administration fees for the three months ended March 31, 2016 included Beacon Hill ~~fee revenue.~~administration fees. The decrease in mutual fund administration fees is primarily due to a decrease of ~~two~~one basis ~~points~~point in the net administration fee rate from ~~0.12% for the nine months ended September 30, 2015 to~~ 0.10% for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2016 to 0.09% for the three months ended March 31, 2017. This was partially offset by a ~~15%~~27% increase in average Funds' AUM from ~~$10.4~~$11.1 billion for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to ~~$12.0~~$14.1 billion for the ~~nine~~three months ended ~~September 30, 2016. The decrease in the net administration fee rate was due to the following fee reductions that occurred during the periods indicated:~~March 31, 2017.

Expenses



	Three Months Ended March 31,
(in thousands, except percentages)	2017		2016		% Change
Compensation and related costs	$	13,679	$	12,399	10	%
General and administrative	3,488		2,485		40	%
Sales and marketing	1,130		993		14	%
Mutual fund administration	1,001		876		14	%
Total	$	19,298	$	16,753	15	%

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Class A & C Class I Class Y
1/1/2015 - 6/30/2015 0.24% 0.24% 0.10%
7/1/2015 - 12/31/2015 0.24% 0.21% 0.10%
1/1/2016 - 7/31/2016 0.24% 0.20% 0.10%
8/1/2016 - 9/30/2016 0.24% 0.19% 0.09%

~~As of September 30, 2016, assets held in Class I shares and Class Y shares for the Diamond Hill Funds totaled $7.9 billion and $2.2 billion, respectively.~~

~~Expenses~~

Nine Months Ended
September 30,
(in thousands, except percentages) 2016 2015 % Change
Compensation and related costs $ 38,495
$ 38,393
— %
General and administrative 8,055
6,966
16 %
Sales and marketing 3,106
2,878
8 %
Mutual fund administration 2,866
2,430
18 %
Total $ 52,522
$ 50,667
4 %

Compensation and Related Costs. Employee compensation and benefits ~~remained consistent~~increased by $1.3 million, or 10%, from the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to the ~~nine~~three months ended ~~September 30,~~March 31, 2017. This increase is primarily due to an increase in incentive compensation of $1.8 million and an increase in deferred compensation expense of $0.4 million. These increases were offset by a decrease in salary and benefits of $0.9 million due to the inclusion of Beacon Hill employees in 2016. Incentive compensation expense can fluctuate significantly period over period as we evaluate incentive compensation by reviewing investment performance, individual performance, Company performance and other factors.

General and Administrative. General and administrative expenses increased by ~~$1.1~~$1.0 million, or ~~16%~~40%, from the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. This increase is primarily due to an increase in corporate legal ~~expenses~~and administrative expense of ~~$0.3~~$0.5 million, ~~related to the sale of Beacon Hill,~~ an increase in ~~depreciation~~information technology consulting expense of ~~$0.3~~$0.2 million, additional research expenses to support our investment team of ~~$0.3~~$0.1 million, and an increase in charitable donations of ~~$0.2~~$0.1 million.

Sales and Marketing. Sales and marketing expenses increased by ~~$0.2~~$0.1 million, or 8%14%, from the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The increase was primarily due to additional payments made to third party intermediaries related to the sale of our proprietary funds.

Mutual Fund Administration. Mutual fund administration expenses increased by ~~$0.4~~$0.1 million, or ~~18%~~14%, from the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. Mutual fund administration expenses consist of both variable and fixed expenses. The variable expenses are based on Fund AUM and the number of shareholder accounts. The ~~expense~~increase was ~~consistent with~~primarily due to the ~~15%~~ increase in average Funds' AUM from the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

Liquidity and Capital Resources

Sources of Liquidity

Our current financial condition is highly liquid, with a significant amount of our assets comprised of cash and cash equivalents, ~~seed~~ capital investments, and accounts receivable. Our main source of liquidity is cash ~~flow~~flows from operating activities, which is generated from investment advisory and fund administration fees. Cash and cash equivalents, accounts receivable, and investments represented approximately ~~91%~~93% and ~~89%~~92% of total assets as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. We believe these sources of liquidity, as well as our continuing cash flows from operating activities, will be sufficient to meet our current and future operating needs for at least the next 12 months.

Uses of Liquidity

In line with the Company’s primary objective to fulfill our fiduciary duty to clients and secondary objective to achieve an adequate long-term return for shareholders, we anticipate our main uses of cash will be for operating expenses and seed capital to fund new and existing investment strategies.

~~Table of Contents~~

The Board of Directors and management regularly review various factors to determine whether we have capital in excess of that required for the business and the appropriate use of any excess capital. The factors considered include our investment opportunities, capital needed for investment strategies, risks, and future dividend and capital gain tax rates. Evaluating management’s stewardship of capital for shareholders is a central part of our investment discipline that we practice for our clients. We hold ourselves to the same standard.

In July of 2016, the Company started two new funds, the Diamond Hill Core Bond Fund and the Diamond Hill Short Duration Total Return Fund. As of September 30, 2016, the Company had seeded the Diamond Hill Core Bond Fund with approximately $29 million. We expect approximately $1.0 million in additional seed capital investments into the Diamond Hill Core Bond Fund during the fourth quarter of 2016. Seed capital requirements for Diamond Hill Short Duration Total Return Fund were minimal as we received sufficient flows from other investors.

Working Capital

As of ~~September 30, 2016,~~March 31, 2017, the Company had working capital of approximately ~~$130~~$144 million, compared to ~~$92~~$126 million at December 31, ~~2015.~~2016. Working capital includes cash, securities owned by common shareholders, prepaid expenses and current receivables, net of all liabilities. The Company has no debt, and we believe our available working capital is sufficient to cover current expenses and anticipated capital expenditures.

Below is a summary of securities owned by the Company as of March 31, 2017 and December 31, 2016.

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	As of
	March 31, 2017		December 31, 2016
Corporate Investments:
Diamond Hill Core Bond Fund	$	29,634,285	$	29,293,308
Diamond Hill Mid Cap Fund	18,273,945		17,754,640
Diamond Hill Valuation-Weighted 500 ETF	14,244,717		13,329,549
Diamond Hill Research Opportunities Fund	9,857,128		10,921,540
Diamond Hill High Yield Fund	6,439,199		6,210,304
Diamond Hill Global Fund, L.P.	1,711,818		1,570,965
Diamond Hill International Equity Fund, L.P.	985,049		—
Diamond Hill Short Duration Total Return Fund	20,465		20,245
Total Corporate Investments	81,166,606		79,100,551
Deferred Compensation Plan Investments in the Funds	18,683,617		14,182,470
Total investments held by DHCM	99,850,223		93,283,021
Redeemable noncontrolling interest in consolidated funds	17,573,813		14,732,614
Total Investment Portfolio	$	117,424,036	$	108,015,635

Cash Flow Analysis

Cash Flows from Operating Activities

The Company’s cash flows from operating activities are calculated by adjusting net income to reflect other significant operating sources and uses of cash, certain significant non-cash items such as share-based compensation, and timing differences in the cash settlement of operating assets and liabilities.

For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, net cash provided by operating activities totaled ~~$8.2~~$7.3 million. ~~The changes in net cash~~Cash inflows provided by operating activities were primarily driven by net income of ~~$32.7~~$13.1 million, ~~and~~ the add back of stock-based compensation of ~~$6.3~~$2.0 million and depreciation of ~~$0.5~~$0.2 million. These cash inflows were partially offset by the net change in trading securities held in our consolidated funds underlying investment portfolio of ~~$29.4~~$1.3 million, the payment of accrued incentive compensation of $12.3 million, and the effect of non-cash items and timing differences in the cash settlement of assets and liabilities of ~~$1.9~~$5.5 million. Absent the cash used by the Consolidated Funds to purchase securities into their investment ~~portfolio,~~portfolios, cash flow from operations would have been approximately ~~$37.8~~$8.2 million. We expect that cash flows provided by operating activities will continue to serve as our primary source of working capital in the near future.

For the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, net cash used in operating activities totaled $4.0 million. Net cash provided by operating activities ~~totaled $35.8 million. The changes in net cash provided by operating activities generally~~ reflects net income ~~plus~~less the payment of accrued incentive compensation of $13.5 million, the effect of non-cash items and the timing differences in the cash settlement of assets and liabilities.

Cash Flows from Investing Activities

The Company’s cash flows from investing activities consist primarily of ~~proceeds from the sale of Beacon Hill,~~ capital expenditures and purchases and redemptions in our investment portfolio.

Cash flows used in investing activities totaled $5.0 million for the three months ended March 31, 2017. The Company purchased corporate investments of $6.1 million, inclusive of $5.0 million of investments into our deferred compensation plans. This cash outflow was partially offset by redemptions of investments in our deferred compensation plans of $1.1 million.

Cash flows provided by investing activities totaled ~~$2.1~~$0.3 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2016. The Company sold seed capital investments of $18.7 million and received net proceeds of $1.2 million from the sale of Beacon Hill, which were offset by purchases of seed capital investments of $17.5 million, inclusive of $4.9 million of purchases into our deferred compensation plans, and the purchase of $0.3 million of property and equipment during the period.

~~Cash flows used in investing activities totaled $11.7 million for the nine months ended September 30, 2015. The Company~~ purchased ~~$17.3~~$6.1 million of corporate investments, inclusive of $4.3 million into our deferred compensation plans, and ~~$1.2~~$0.1 million of property and equipment related to our office space expansion. These cash outflows were ~~partially~~ offset by redemptions of corporate investments of ~~$6.8~~$6.5 million.

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Cash Flows from Financing Activities

The Company’s cash flows from financing activities may consist of the payment of special dividends, shares withheld related to employee tax withholding, ~~excess income tax benefit from stock-based compensation, the income tax benefit from dividends paid on restricted stock,~~ and distributions to or contributions from redeemable noncontrolling interest holders.

~~Table of Contents~~

For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, net cash used in financing activities totaled ~~$4.0~~$0.1 million, consisting of the value of shares withheld related to employee tax withholding of ~~$9.7~~$0.8 million, ~~partially~~primarily offset by ~~excess income tax benefit~~net contributions from ~~stock-based compensation~~redeemable noncontrolling interest holders of ~~$4.7 million, and income tax benefit from dividends paid on restricted stock of $0.9~~$0.7 million.

For the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, net cash used in financing activities totaled ~~$1.8~~$4.4 million, consisting of the value of shares withheld related to employee tax withholding of ~~$3.8~~$8.8 million, partially offset by excess income tax benefit from stock-based compensation of ~~$2.0~~$4.3 million.

Supplemental Consolidated Cash Flow Statement

On January 1, 2016, the Company implemented the new consolidation accounting guidance that resulted in the consolidation of the ETF and one of our individual mutual funds (collectively the "Consolidated Funds") in which we have controlling interests. Our consolidated balance sheet now reflects the investments and other assets and liabilities of the Consolidated Funds, as well as redeemable noncontrolling interests for the portion of the Consolidated Funds that are held by third party investors. Although we can redeem our net interest in the Consolidated Funds at any time, we cannot directly access or sell the assets held by the Consolidated Funds to obtain cash for general operations. Additionally, the assets of the Consolidated Funds are not available to general creditors.

The following table summarizes the condensed cash flows for the year ended March 31, 2017, that are attributable to Diamond Hill Investment Group, Inc. and to the Consolidated Funds, and the related eliminations required in preparing the consolidated statements.



	Three Months Ended March 31, 2017
	Cash flow attributable to Diamond Hill Investment Group, Inc.			Cash flow attributable to Consolidated Funds			Eliminations			As reported on the Consolidated Statement of Cash Flows
Cash flows from Operating Activities:
Net Income	$	12,756,895		$	1,639,873		$	(1,271,320	)	$	13,125,448
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	217,748			—			—			217,748
Share-based compensation	1,998,782			—			—			1,998,782
Net (gains)/losses on investments	(3,024,067		)	(1,639,873		)	1,271,320			(3,392,620		)
Net change in trading securities held by Consolidated Funds	—			(1,310,800		)	—			(1,310,800		)
Other changes in assets and liabilities	(3,738,823		)	350,866			—			(3,387,957		)
Net cash provided by (used in) operating activities	8,210,535			(959,934		)	—			7,250,601
Net cash provided by (used in) investing activities	(5,173,109		)	—			169,437			(5,003,672		)
Net cash provided by (used in) financing activities	(796,921		)	847,256			(169,437		)	(119,102		)
Net change during the period	2,240,505			(112,678		)	—			2,127,827
Cash and cash equivalents at beginning of period	57,077,198			112,678			—			57,189,876
Cash and cash equivalents at end of period	$	59,317,703		$	—		$	—		$	59,317,703

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Use of Supplemental Data as Non-GAAP Performance Measure

~~Net Operating Income After Tax~~

As supplemental information, we are providing performance measures that are based on methodologies other than GAAP ~~("non-GAAP"~~(“non-GAAP”) ~~for "Net Operating Income After Tax" that management uses as a benchmark in evaluating and comparing~~. We believe the ~~period-to-period operating performance~~non-GAAP measures below are useful measures of ~~the Company and its subsidiaries.~~

The Company defines "net operating income after tax" as the Company’s net operating income less its income tax provision, excluding the after-tax impact of investment related activity and the after-tax impact of the sale of subsidiary. The Company believes that “net operating income after tax” provides a good representation of the Company’s operating performance, as it excludes the impact of investment related activity on financial results. The amount of the investment portfolio and market fluctuations on the investments can change significantly from one period to another, which can distort the underlying earnings potential of a company. We also believe "net operating income after tax" is anour core business activities, are important ~~metric~~metrics in estimating the value of an asset management ~~business.~~ business and may enable more appropriate comparison to our peers. These non-GAAP measures should not be a substitute for financial measures calculated in accordance with GAAP and may be calculated differently by other companies. The following schedule reconciles GAAP measures to non-GAAP measures for the three months ended March 31, 2017 and 2016, respectively.



	Three Months Ended March 31,
(in thousands, except percentages and per share data)	2017			2016
Total revenue	$	35,134		$	30,457

Net operating income, GAAP basis	$	15,837		$	13,704
Non-GAAP adjustment:
Gains (losses) on deferred compensation plan investments, net⁽¹⁾	584			175
Net operating income, as adjusted, non-GAAP basis⁽²⁾	16,421			13,879
Non-GAAP Adjustment:
Tax provision on net operating income, as adjusted, non-GAAP basis⁽³⁾	(5,437		)	(4,967		)
Net operating income, as adjusted, after tax, non-GAAP basis⁽⁴⁾	$	10,984		$	8,912

Net operating income, as adjusted after tax per diluted share, non-GAAP basis⁽⁵⁾	$	3.20		$	2.63
Diluted weighted average shares outstanding, GAAP basis	3,435			3,393

Operating profit margin, GAAP basis	45		%	45		%
Operating profit margin, as adjusted, non-GAAP basis⁽⁶⁾	47		%	46		%

⁽¹⁾Gains (losses) on deferred compensation plan investments, net: The gain (loss) on deferred compensation plan investments, which increases (decreases) deferred compensation expense included in operating income, is removed from operating income in the calculation because it is offset by an equal amount in investment income (loss) below net operating income on the income statement, and thus has no impact on net income attributable to the Company.

⁽²⁾Net operating income, as adjusted: This non-GAAP measure ~~is provided in addition to net income and~~was calculated by taking the Company’s net operating income adjusted to exclude the impact on compensation expense of gains and ~~is not a substitute for net income or~~losses on investments in the deferred compensation plan.

⁽³⁾Tax provision on net operating income, ~~and may not be comparable to~~as adjusted: This non-GAAP ~~performance measures of other companies.~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data and percentages) 2016 2015 % Change 2016 2015 % Change
Net operating income, GAAP basis $ 15,139
$ 14,141
7 % $ 43,542
$ 41,457
5 %
Non-GAAP adjustments:
Tax provision excluding impact of investment income (loss) and gain on sale of subsidiary (5,455 ) (5,189 ) 5 % (15,727 ) (14,944 ) 5 %
Net operating income after tax, non-GAAP basis $ 9,684
$ 8,952
8 % $ 27,815
$ 26,513
5 %
Net operating income after tax per diluted share, non-GAAP basis $ 2.83
$ 2.65
7 % $ 8.16
$ 7.92
3 %
Diluted weighted average shares outstanding, GAAP basis 3,420
3,379
3,410
3,348

~~The~~measure represents the tax provision excluding the impact of investment related activity and ~~the sale of subsidiary~~ is calculated by applying the tax rate from the actual tax provision to net operating ~~income.~~income, as adjusted.

⁽⁴⁾Net operating income, as adjusted, after tax: Thisnon-GAAP measure was calculated by taking the net operating income, as adjusted, less the tax provision on net operating income, as adjusted.

⁽⁵⁾Net operating income, as adjusted after tax per diluted share: This non-GAAP measure was calculated by dividing the net operating income, as adjusted after tax, by diluted weighted average shares outstanding.

⁽⁶⁾ Operating profit margin, as adjusted: This non-GAAP measure was calculated by dividing the net operating income, as adjusted, by total revenue.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements. We do not have any obligation under a guarantee contract, or a retained or contingent interest in assets or similar arrangement that serves as credit, liquidity or market risk support for such assets, or any other obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument or arising out of a variable interest.

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Critical Accounting Policies and Estimates

For a summary of the critical accounting policies important to understanding the condensed consolidated financial statements see Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this filing and Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2015~~2016 Annual Report and Note 2, Significant Accounting Policies, in the ~~2015~~2016 Annual Report for further information.

~~Table of Contents~~



ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the information provided in Item 7A of the Company’s ~~2015~~2016 Annual Report.



ITEM 4:	Controls and Procedures

Management, including the Chief Executive Officer and the Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2016~~March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



PART II:	OTHER INFORMATION



ITEM 1:	Legal Proceedings

From time to time, the Company is party to ordinary routine litigation that is incidental to its business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.



ITEM 1A:	Risk Factors

There has been no material change to the information provided in Item 1A of the Company’s ~~2015~~2016 Annual Report.



ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended ~~September 30, 2016,~~March 31, 2017, the Company did not purchase any of its Common Shares and did not sell any Common Shares that were not registered under the Securities Act of 1933. The following table sets forth information regarding the Company’s repurchase program of its Common Shares and shares withheld for tax payments due upon vesting of employee Restricted Stock which vested during the ~~third~~first quarter of fiscal year ~~2016:~~2017:

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Period
Total Number
of Shares Purchased^(a)

Average Price
Paid Per Share

Total Number
of Shares Purchased
as part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares That May
Yet Be Purchased
Under the Plans or
Programs^(b)
July 1, 2016 through July 31, 2016 1,402
$ 190.99
—
318,433
August 1, 2016 through August 31, 2016 667
$ 191.24
—
318,433
September 1, 2016 through September 30, 2016 1,001
$ 184.79
—
318,433
Total 3,070
$ 189.02

—
318,433



Period	Total Number of Shares Purchased^(a)	Average Price Paid Per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs^(b)
January 1, 2017 through January 31, 2017	3,788	$	210.38	—	318,433
February 1, 2017 through February 28, 2017	—	$	—	—	318,433
March 1, 2017 through March 31, 2017	—	$	—	—	318,433
Total	3,788	$	210.38	—	318,433


(a)	All of the ~~3,070~~3,788 shares of the Company's common shares purchased during the quarter ended ~~September 30, 2016~~March 31, 2017 represented shares withheld for tax payments due upon the vesting of employee Restricted Stock which vested during the quarter.

~~Table of Contents~~


(b)	The Company’s current share repurchase program was announced on August 9, 2007. The Board of Directors authorized management to repurchase up to 350,000 shares of the Company’s Common Shares in the open market and in private transactions in accordance with applicable securities laws. The Company’s share repurchase program is not subject to an expiration date.



ITEM 3:	Defaults Upon Senior Securities

None



ITEM 4:	Mine Safety Disclosures

None



ITEM 5:	Other Information

None

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ITEM 6:	Exhibits



3.1		Amended and Restated Articles of Incorporation of the Company (Incorporated by reference from Form 8-K Current Report for the event on May 2, 2002 filed with the SEC on May 7, 2002; File No. 000-24498.)

3.2		Amended and Restated Code of Regulations of the Company (Incorporated by reference from Form 8-K Current Report, Exhibit 3.1, filed with the SEC on August 7, 2014; File No. 000-24498.)

31.1		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).

32.1		Section 1350 Certifications.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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DIAMOND HILL INVESTMENT GROUP, INC.

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.

DIAMOND HILL INVESTMENT GROUP, INC.



Date	Title	Signature

~~October~~April 26, ~~2016~~2017	Chief Executive Officer and President	/s/ Christopher M. Bingaman
		Christopher M. Bingaman

~~October~~April 26, ~~2016~~2017	Chief Financial Officer and Treasurer	/s/ Thomas E. Line
		Thomas E. Line

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	As of
	September 30, 2016
AUM subject to variable incentive fees	$	590,718,723



	September 30, 2016		September 30, 2015
Three Months Ended	$	218,640	$	234,475
Nine Months Ended	$	679,195	$	697,272



	Change in Assets Under Management
	For the Three Months Ended September 30,
(in millions)	2016			2015
AUM at beginning of the period	$	17,584		$	16,734
Net cash inflows (outflows)
proprietary funds	(69		)	701
sub-advised funds	(88		)	16
institutional accounts	(371		)	(357		)
	(528		)	360
Net market appreciation/(depreciation) and income	1,012			(1,180		)
Increase during the period	484			(820		)
AUM at end of the period	$	18,068		$	15,914



	Class A & C	Class I	Class Y
1/1/2015 - 6/30/2015	0.24%	0.24%	0.10%
7/1/2015 - 12/31/2015	0.24%	0.21%	0.10%
1/1/2016 - 7/31/2016	0.24%	0.20%	0.10%
8/1/2016 - 9/30/2016	0.24%	0.19%	0.09%



	Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share data and percentages)	2016			2015			% Change		2016			2015			% Change
Net operating income, GAAP basis	$	15,139		$	14,141		7	%	$	43,542		$	41,457		5	%
Non-GAAP adjustments:
Tax provision excluding impact of investment income (loss) and gain on sale of subsidiary	(5,455		)	(5,189		)	5	%	(15,727		)	(14,944		)	5	%
Net operating income after tax, non-GAAP basis	$	9,684		$	8,952		8	%	$	27,815		$	26,513		5	%
Net operating income after tax per diluted share, non-GAAP basis	$	2.83		$	2.65		7	%	$	8.16		$	7.92		3	%
Diluted weighted average shares outstanding, GAAP basis	3,420			3,379					3,410			3,348

Shares Issued

Grant Date Value

March 31, 2017

March 31, 2016