~~Table of Contents~~

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

DHIL

The NASDAQ Stock Market LLC

The number of shares outstanding of the issuer’s common stock as of ~~October 27, 2020,~~April 26, 2021 is ~~3,163,266~~3,193,930 shares.

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

Large accelerated filer

☐

Accelerated filer

Non-accelerated filer

☐

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

~~Table of Contents~~

DIAMOND HILL INVESTMENT GROUP, INC.

Table of Contents


PART I:			FINANCIAL INFORMATION


ITEM 1:			Consolidated Financial Statements

Diamond Hill Investment Group, Inc.

Consolidated Balance Sheets


		9/30/2020		12/31/2019			3/31/2021		12/31/2020
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	117,753,672	$	93,176,253	Cash and cash equivalents	$	80,187,685	$	98,478,202
Investments	Investments	116,433,476		139,437,178		Investments	142,695,192		128,401,136
Accounts receivable	Accounts receivable	14,870,956		17,223,362		Accounts receivable	19,717,837		17,805,864
Prepaid expenses	Prepaid expenses	3,171,198		2,857,468		Prepaid expenses	2,810,871		2,977,759
Income taxes receivable	Income taxes receivable	833,084		3,849,099		Income taxes receivable	0		256,538
Property and equipment, net of depreciation		6,379,824		5,733,737
Property and equipment, net of accumulated depreciation						Property and equipment, net of accumulated depreciation	6,820,446		6,740,396
Deferred taxes	Deferred taxes	9,673,576		10,386,853		Deferred taxes	7,433,362		8,437,446
Total assets	Total assets	$	269,115,786	$	272,663,950	Total assets	$	259,665,393	$	263,097,341
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities	Liabilities					Liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	7,134,193	$	8,671,731	Accounts payable and accrued expenses	$	9,306,239	$	8,002,303
Accrued incentive compensation	Accrued incentive compensation	19,235,903		26,615,510		Accrued incentive compensation	8,236,156		28,400,000

Income taxes payable						Income taxes payable	3,647,687		0
Deferred compensation	Deferred compensation	28,654,074		30,342,204		Deferred compensation	33,369,087		33,241,952
Total liabilities	Total liabilities	55,024,170		65,629,445		Total liabilities	54,559,169		69,644,255
Redeemable noncontrolling interest	Redeemable noncontrolling interest	8,036,117		14,178,824		Redeemable noncontrolling interest	10,665,146		9,372,333
Permanent Shareholders’ equity	Permanent Shareholders’ equity					Permanent Shareholders’ equity
Common stock, no par value: 7,000,000 shares authorized; 3,164,793 issued and outstanding at September 30, 2020 (inclusive of 189,568 unvested shares); 3,294,672 issued and outstanding at December 31, 2019 (inclusive of 227,844 unvested shares)		80,160,678		95,853,477
Common stock, no par value: 7,000,000 shares authorized; 3,197,634 issued and outstanding at March 31, 2021 (inclusive of 215,352 unvested shares); 3,168,823 issued and outstanding at December 31, 2020 (inclusive of 183,718 unvested shares)						Common stock, no par value: 7,000,000 shares authorized; 3,197,634 issued and outstanding at March 31, 2021 (inclusive of 215,352 unvested shares); 3,168,823 issued and outstanding at December 31, 2020 (inclusive of 183,718 unvested shares)	85,303,452		80,810,946
Preferred stock, undesignated, 1,000,000 shares authorized and unissued	Preferred stock, undesignated, 1,000,000 shares authorized and unissued	0		0		Preferred stock, undesignated, 1,000,000 shares authorized and unissued	0		0
Deferred equity compensation	Deferred equity compensation	(15,735,586)		(20,331,890)		Deferred equity compensation	(19,440,920)		(14,748,118)
Retained earnings	Retained earnings	141,630,407		117,334,094		Retained earnings	128,578,546		118,017,925
Total permanent shareholders’ equity	Total permanent shareholders’ equity	206,055,499		192,855,681		Total permanent shareholders’ equity	194,441,078		184,080,753
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	269,115,786	$	272,663,950	Total liabilities and shareholders’ equity	$	259,665,393	$	263,097,341

Book value per share	Book value per share	$	65.11	$	58.54	Book value per share	$	60.81	$	58.09

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

Table of Contents

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,
		2020		2019		2020		2019			2021		2020
REVENUES:	REVENUES:									REVENUES:
Investment advisory	Investment advisory	$	29,362,652	$	32,498,101	$	86,219,325	$	94,521,491	Investment advisory	$	36,569,103	$	30,157,680
Mutual fund administration, net	Mutual fund administration, net	1,813,103		2,094,271		5,131,104		6,195,272		Mutual fund administration, net	2,445,330		1,768,065
Total revenue	Total revenue	31,175,755		34,592,372		91,350,429		100,716,763		Total revenue	39,014,433		31,925,745
OPERATING EXPENSES:	OPERATING EXPENSES:									OPERATING EXPENSES:
Compensation and related costs, excluding deferred compensation expense (benefit)	Compensation and related costs, excluding deferred compensation expense (benefit)	13,704,075		15,714,531		41,679,020		43,613,578		Compensation and related costs, excluding deferred compensation expense (benefit)	16,814,941		15,417,176
Deferred compensation expense (benefit)	Deferred compensation expense (benefit)	1,961,361		356,645		(2,368,980)		4,051,531		Deferred compensation expense (benefit)	3,102,946		(8,155,881)
General and administrative	General and administrative	3,096,115		3,543,236		7,924,624		10,331,295		General and administrative	2,815,678		1,928,656
Sales and marketing	Sales and marketing	1,581,142		1,443,328		4,185,606		4,261,311		Sales and marketing	1,868,026		1,455,682
Mutual fund administration	Mutual fund administration	863,463		778,093		2,467,732		2,488,809		Mutual fund administration	880,721		814,953
Total operating expenses	Total operating expenses	21,206,156		21,835,833		53,888,002		64,746,524		Total operating expenses	25,482,312		11,460,586
NET OPERATING INCOME	NET OPERATING INCOME	9,969,599		12,756,539		37,462,427		35,970,239		NET OPERATING INCOME	13,532,121		20,465,159
Investment income (loss), net	Investment income (loss), net	5,052,794		2,822,947		(5,782,674)		23,627,419		Investment income (loss), net	5,663,454		(22,398,092)
NET INCOME BEFORE TAXES		15,022,393		15,579,486		31,679,753		59,597,658
NET INCOME (LOSS) BEFORE TAXES										NET INCOME (LOSS) BEFORE TAXES	19,195,575		(1,932,933)
Income tax expense	Income tax expense	(3,881,810)		(4,062,849)		(9,429,059)		(14,367,605)		Income tax expense	(4,932,962)		(595,435)
NET INCOME		11,140,583		11,516,637		22,250,694		45,230,053
NET INCOME (LOSS)										NET INCOME (LOSS)	14,262,613		(2,528,368)
Net loss (income) attributable to redeemable noncontrolling interest	Net loss (income) attributable to redeemable noncontrolling interest	(575,068)		(99,177)		2,045,619		(3,684,799)		Net loss (income) attributable to redeemable noncontrolling interest	(554,102)		4,058,476
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	10,565,515	$	11,417,460	$	24,296,313	$	41,545,254	NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	13,708,511	$	1,530,108
Earnings per share attributable to common shareholders	Earnings per share attributable to common shareholders									Earnings per share attributable to common shareholders
Basic	Basic	$	3.30	$	3.35	$	7.52	$	12.00	Basic	$	4.34	$	0.47
Diluted	Diluted	$	3.30	$	3.35	$	7.52	$	12.00	Diluted	$	4.34	$	0.47
Weighted average shares outstanding	Weighted average shares outstanding									Weighted average shares outstanding
Basic	Basic	3,200,957		3,411,632		3,231,452		3,460,959		Basic	3,156,768		3,272,761
Diluted	Diluted	3,200,957		3,411,632		3,231,452		3,461,159		Diluted	3,156,768		3,272,761

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

Table of Contents

Diamond Hill Investment Group, Inc.

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

Three Months Ended September 30, 2020
Shares
Outstanding Common
Stock Deferred Equity
Compensation Retained
Earnings Total Redeemable Noncontrolling Interest
Balance at June 30, 2020 3,212,924 $ 86,189,846 $ (17,103,472) $ 131,064,892 $ 200,151,266 $ 9,571,722
Issuance of restricted stock grants 1,884 237,987 (237,987) — — —
Amortization of restricted stock grants — — 1,447,155 — 1,447,155 —
Issuance of common stock related to 401(k) plan match 5,323 645,349 — — 645,349 —
Shares withheld related to employee tax withholding (803) (91,277) — — (91,277) —
Forfeiture of restricted stock grants (800) (158,718) 158,718 — — —
Repurchase of common stock (53,735) (6,662,509) — — (6,662,509) —
Net income — — — 10,565,515 10,565,515 575,068
Net redemptions of consolidated funds — — — — — (2,110,673)
Balance at September 30, 2020 3,164,793 $ 80,160,678 $ (15,735,586) $ 141,630,407 $ 206,055,499 $ 8,036,117
Three Months Ended September 30, 2019
Shares
Outstanding Common
Stock Deferred Equity
Compensation Retained
Earnings Total Redeemable Noncontrolling Interest
Balance at June 30, 2019 3,443,464 $ 116,835,709 $ (21,919,702) $ 122,778,731 $ 217,694,738 $ 34,076,350
Issuance of restricted stock grants 23,219 3,207,195 (3,207,195) — — —
Amortization of restricted stock grants — — 1,498,405 — 1,498,405 —
Issuance of common stock related to 401(k) plan match 4,551 628,465 — — 628,465 —
Shares withheld related to employee tax withholding (3,088) (437,631) — — (437,631) —
Forfeiture of restricted stock grants (7,200) (1,389,010) 1,389,010 — — —
Repurchase of common stock (57,207) (7,579,435) (7,579,435)
Net income — — — 11,417,460 11,417,460 99,177
Net subscriptions of consolidated funds — — — — — 538,128
Net deconsolidations of Company sponsored investments — — — — — (24,051,310)
Balance at September 30, 2019 3,403,739 $ 111,265,293 $ (22,239,482) $ 134,196,191 $ 223,222,002 $ 10,662,345

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

~~Table of Contents~~

~~Diamond Hill Investment Group, Inc.~~

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


														Three Months Ended March 31, 2021
														Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at December 31, 2020													Balance at December 31, 2020	3,168,823	$	80,810,946	$	(14,748,118)	$	118,017,925	$	184,080,753	$	9,372,333
Issuance of restricted stock grants													Issuance of restricted stock grants	52,434	8,160,714		(8,160,714)		—		—		—
Amortization of restricted stock grants													Amortization of restricted stock grants	—	—		1,397,132		—		1,397,132		—
Common stock issued as incentive compensation													Common stock issued as incentive compensation	3,681	529,806		—		—		529,806		—
Issuance of common stock related to 401k plan match													Issuance of common stock related to 401k plan match	154	24,000		—		—		24,000		—
Shares withheld related to employee tax withholding													Shares withheld related to employee tax withholding	(1,729)	(258,088)		—		—		(258,088)		—
Forfeiture of restricted stock grants													Forfeiture of restricted stock grants	(13,200)	(2,070,780)		2,070,780		—		—		—
Repurchase of common stock													Repurchase of common stock	(12,529)	(1,893,146)		—		—		(1,893,146)		—
Cash dividend paid of $1.00 per share													Cash dividend paid of $1.00 per share	—	—		—		(3,147,890)		(3,147,890)		—
Net income													Net income	—	—		—		13,708,511		13,708,511		554,102
Net subscriptions of consolidated Funds													Net subscriptions of consolidated Funds	—	—		—		—		—		738,711
Balance at March 31, 2021													Balance at March 31, 2021	3,197,634	$	85,303,452	$	(19,440,920)	$	128,578,546	$	194,441,078	$	10,665,146

		Nine Months Ended September 30, 2020																					Three Months Ended March 31, 2020
		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, 2019	Balance at December 31, 2019	3,294,672	$	95,853,477	$	(20,331,890)	$	117,334,094	$	192,855,681	$	14,178,824	Balance at December 31, 2019	3,294,672	$	95,853,477	$	(20,331,890)	$	117,334,094	$	192,855,681	$	14,178,824
Issuance of restricted stock grants	Issuance of restricted stock grants	18,749	2,048,386		(2,048,386)		—		—		—		Issuance of restricted stock grants	3,850	347,424		(347,424)		—		—		—
Amortization of restricted stock grants	Amortization of restricted stock grants	—	—		3,793,978		—		3,793,978		—		Amortization of restricted stock grants	—	—		1,786,217		—		1,786,217		—
Common stock issued as incentive compensation	Common stock issued as incentive compensation	23,640	3,396,359						3,396,359				Common stock issued as incentive compensation	23,640	3,396,359		—		—		3,396,359		—
Issuance of common stock related to 401k plan match	Issuance of common stock related to 401k plan match	17,042	1,934,457		—		—		1,934,457		—		Issuance of common stock related to 401k plan match	5,316	647,100		—		—		647,100		—
Shares withheld related to employee tax withholding	Shares withheld related to employee tax withholding	(16,235)	(1,574,307)		—		—		(1,574,307)		—		Shares withheld related to employee tax withholding	(1,801)	(252,968)		—		—		(252,968)		—
Forfeiture of restricted stock grants	Forfeiture of restricted stock grants	(15,325)	(2,850,712)		2,850,712		—		—		—		Forfeiture of restricted stock grants	(1,225)	(206,347)		206,347		—		—		—
Repurchase of common stock	Repurchase of common stock	(157,750)	(18,646,982)		—		—		(18,646,982)		—		Repurchase of common stock	(76,937)	(9,182,577)		—		—		(9,182,577)
Net income (loss)	Net income (loss)	—	—		—		24,296,313		24,296,313		(2,045,619)		Net income (loss)	—	—		—		1,530,108		1,530,108		(4,058,476)
Net redemptions of Consolidated Funds		—	—		—		—		—		(4,097,088)
Balance at September 30, 2020		3,164,793	$	80,160,678	$	(15,735,586)	$	141,630,407	$	206,055,499	$	8,036,117
Net redemptions of consolidated Funds													Net redemptions of consolidated Funds	—	—		—		—		—		(565,998)

		Nine Months Ended September 30, 2019
		Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at December 31, 2018		3,499,285	$	124,933,060	$	(22,008,054)	$	92,650,937	$	195,575,943	$	62,679,687
Issuance of restricted stock grants		52,269	7,233,016		(7,233,016)		—		—		—
Amortization of restricted stock grants		—	—		4,874,121		—		4,874,121		—
Common stock issued as incentive compensation		24,048	3,655,296		—		—		3,655,296		—
Issuance of common stock related to 401k plan match		13,027	1,850,080		—		—		1,850,080		—
Shares withheld related to employee tax withholding		(7,388)	(1,039,631)		—		—		(1,039,631)		—
Forfeiture of restricted stock grants		(11,700)	(2,127,467)		2,127,467		—		—		—
Repurchase of common stock		(165,802)	(23,239,061)		—		—		(23,239,061)
Net income		—	—		—		41,545,254		41,545,254		3,684,799
Net subscriptions of Consolidated Funds		—	—		—		—		—		5,689,957
Net deconsolidations of Company sponsored investments		—	—		—		—		—		(61,392,098)
Balance at September 30, 2019		3,403,739	$	111,265,293	$	(22,239,482)	$	134,196,191	$	223,222,002	$	10,662,345
Balance at March 31, 2020													Balance at March 31, 2020	3,247,515	$	90,602,468	$	(18,686,750)	$	118,864,202	$	190,779,920	$	9,554,350

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

Table of Contents

Diamond Hill Investment Group, Inc.

Consolidated Statements of Cash Flows (unaudited)


		Nine Months Ended September 30,							Three Months Ended March 31,
		2020		2019			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	22,250,694	$	45,230,053
Net Income (Loss)						Net Income (Loss)	$	14,262,613	$	(2,528,368)
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	750,524		892,463		Depreciation	218,731		265,084
Share-based compensation	Share-based compensation	5,728,435		6,724,201		Share-based compensation	1,481,578		2,433,317
Decrease (increase) in accounts receivable	Decrease (increase) in accounts receivable	2,352,406		(4,067,885)		Decrease (increase) in accounts receivable	(1,911,973)		3,873,142
Change in current income taxes	Change in current income taxes	3,016,015		(1,352,069)		Change in current income taxes	3,904,225		3,297,343
Change in deferred income taxes	Change in deferred income taxes	713,277		(922,277)		Change in deferred income taxes	1,004,084		(2,691,713)
Net losses (gains) on investments		7,542,988		(17,465,565)
Net (gains) losses on investments						Net (gains) losses on investments	(5,205,321)		23,246,116
Net change in securities held by Consolidated Funds	Net change in securities held by Consolidated Funds	3,033,304		10,149,201		Net change in securities held by Consolidated Funds	(11,456,604)		(589,071)
Decrease in accrued incentive compensation	Decrease in accrued incentive compensation	(3,983,248)		(4,756,871)		Decrease in accrued incentive compensation	(19,634,038)		(15,799,928)
Increase (decrease) in deferred compensation	Increase (decrease) in deferred compensation	(1,688,130)		6,028,924		Increase (decrease) in deferred compensation	127,135		(7,475,032)
Other changes in assets and liabilities	Other changes in assets and liabilities	(1,514,223)		(388,751)		Other changes in assets and liabilities	1,549,065		(2,039,894)
Net cash provided by operating activities		38,202,042		40,071,424
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(15,660,505)		1,990,996
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	Purchase of property and equipment	(1,733,656)		(609,836)		Purchase of property and equipment	(413,441)		(115,218)
Purchase of Company sponsored investments	Purchase of Company sponsored investments	(12,353,841)		(10,955,556)		Purchase of Company sponsored investments	(1,890,082)		(10,948,903)
Proceeds from sale of Company-sponsored investments		24,781,251		43,245,298
Net cash on deconsolidation of Company sponsored investments		0		(22,723,853)
Proceeds from sale of Company sponsored investments						Proceeds from sale of Company sponsored investments	3,891,396		23,209,972

Net cash provided by investing activities	Net cash provided by investing activities	10,693,754		8,956,053		Net cash provided by investing activities	1,587,873		12,145,851
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Value of shares withheld related to employee tax withholding	Value of shares withheld related to employee tax withholding	(1,574,307)		(1,039,631)		Value of shares withheld related to employee tax withholding	(258,088)		(252,968)
Payment of dividends						Payment of dividends	(3,147,890)		0
Net subscriptions (redemptions) received from redeemable noncontrolling interest holders	Net subscriptions (redemptions) received from redeemable noncontrolling interest holders	(4,097,088)		8,934,897		Net subscriptions (redemptions) received from redeemable noncontrolling interest holders	738,711		(565,998)
Repurchase of common stock	Repurchase of common stock	(18,646,982)		(23,239,061)		Repurchase of common stock	(1,893,146)		(9,182,577)
Proceeds received under employee stock purchase plan						Proceeds received under employee stock purchase plan	342,528		0
Net cash used in financing activities	Net cash used in financing activities	(24,318,377)		(15,343,795)		Net cash used in financing activities	(4,217,885)		(10,001,543)
CASH AND CASH EQUIVALENTS	CASH AND CASH EQUIVALENTS					CASH AND CASH EQUIVALENTS
Net change during the period	Net change during the period	24,577,419		33,683,682		Net change during the period	(18,290,517)		4,135,304
At beginning of period	At beginning of period	93,176,253		84,430,059		At beginning of period	98,478,202		93,176,253
At end of period	At end of period	$	117,753,672	$	118,113,741	At end of period	$	80,187,685	$	97,311,557
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:

Income taxes paid	Income taxes paid	$	5,699,767	$	16,641,951	Income taxes paid	$	24,653	$	0
Supplemental disclosure of non-cash transactions:	Supplemental disclosure of non-cash transactions:					Supplemental disclosure of non-cash transactions:
Common stock issued as incentive compensation	Common stock issued as incentive compensation	$	3,396,359	$	3,655,296	Common stock issued as incentive compensation	529,806		3,396,359
Charitable donation of corporate investments						Charitable donation of corporate investments	$	366,555	$	0

Net redemptions of ETF shares for marketable securities		0		(3,244,940)

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 consolidated revenue 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 toand administrator for the Diamond Hill Funds (the "Funds"), a series of open-end mutual funds. ~~DHCM is also administrator for the Funds.~~ The Company also provides investment advisory services to separately managed accounts and provides sub-advisory services to other mutual funds.

Note 2 Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed, consolidated financial statements as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, and for the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~and 2019,~~ 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 with Article 10 of Securities and Exchange Commission (the "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 atas of the dates, and for the interim periods, presented have been included. These unaudited, condensed, consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 (the ~~"2019~~"2020 Form 10-K"), as filed with the SEC.

Operating results for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results the Company may expect for the full fiscal year ending December 31, ~~2020~~2021 (“fiscal ~~2020”~~2021”)~~, particularly in light of the novel coronavirus pandemic (“COVID-19”) and its effects on the U.S. and global economies.~~

To limit the spread of COVID-19, governments have continued to take various actions including extending travel bans and social distancing guidelines, which has caused some businesses to have prolonged suspensions of their operations, disrupted the global supply chain, and created a reduction in demand for many products. This has affected global financial markets and has caused significant financial market volatility, which could impact our assets under management ("AUM"), the revenue derived from our AUM, and the returns on corporate investments, our liquidity, our capital resources, and our results of operations.

The pandemic and the related responses to COVID-19 could continue to affect our results of operations, cash flows and financial position. However, at this time we cannot reasonably estimate the full impact, given the uncertainty surrounding the duration and severity of the pandemic and its related economic impacts..

For further information regarding the risks to ~~our~~the Company's business, refer to the consolidated financial statements and notes thereto included in the ~~2019~~2020 Form 10-K and in “Part II – Item 1A. – Risk Factors” of this Quarterly Report on Form 10-Q.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atas of the date of the consolidated financial statements and the reported amounts of revenue and expense 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.

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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 for general corporate investment purposes, 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"). The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act").

The Company performs its consolidation analysis at the individual ~~mutual fund~~Fund level and has concluded that the ~~mutual funds~~Funds are voting rights entities ("VREs") because the structure of the ~~investment product~~Funds 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~~each Fund's economic performance. To the extent material,

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these ~~investment products~~Funds 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%. The Company has consolidated the Diamond Hill Large Cap Concentrated Fund, the Diamond Hill International Fund, and the Diamond Hill Global Fund (collectively, the "Consolidated Funds") as of ~~September 30, 2020.~~March 31, 2021.

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 recorded at redemption value, which approximates the fair value each reporting period.

Segment Information

Management has determined that the Company operates in 1 business segment, which is providing investment management and administration services to mutual funds and separately managed ~~accounts, and a private investment fund.~~accounts. Therefore, the Company does not present disclosures relating to operating segments in annual or interim financial statements.

Cash and Cash Equivalents

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

Accounts Receivable

The Company records accounts receivable when they are due and presents them 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 the individual or entity that owes the receivable. No allowance for doubtful accounts was deemed necessary at ~~September 30, 2020,~~either March 31, 2021, or December 31, ~~2019.~~2020. Accounts receivable from the Funds were ~~$8.9~~$12.3 million as of ~~September 30, 2020,~~March 31, 2021, and ~~$10.7~~$10.5 million as of December 31, ~~2019.~~2020.

Investments

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

Investments in the Funds that DHCM advises, where the Company has neither control nor the ability to exercise significant influence, as well as securities held in the Consolidated Funds 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 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.

~~Table~~As of ~~Contents~~

March 31, 2021, the Company did not have any investments classified as equity method investments.

Property and Equipment

Property and equipment, consisting of leasehold improvements, right-of use lease assets, computer equipment, capitalized software, 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 recognizes revenue when it satisfies performance obligations under the terms of a contract with a client. The Company earns substantially all of its revenue from investment advisory and fund administration contracts. Investment advisory and administration fees, generally calculated as a percentage of ~~AUM,~~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 rate~~performance-based fees.

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Revenue earned during the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019,~~ under contracts with clients include:


		Three Months Ended September 30, 2020											Three Months Ended March 31, 2021
		Investment advisory		Mutual fund administration, net		Total revenue			Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	Proprietary funds	$	21,435,758	$	1,813,103	$	23,248,861	Proprietary funds	$	26,510,701	$	2,445,330	$	28,956,031
Sub-advised funds and separately managed accounts	Sub-advised funds and separately managed accounts	7,926,894		0		7,926,894		Sub-advised funds and separately managed accounts	10,058,402		0		10,058,402
		$	29,362,652	$	1,813,103	$	31,175,755		$	36,569,103	$	2,445,330	$	39,014,433

Three Months Ended September 30, 2019
Investment advisory Mutual fund
administration, net Total revenue
Proprietary funds $ 24,178,440 $ 2,094,271 $ 26,272,711
Sub-advised funds and separately managed accounts 8,319,661 0 8,319,661
$ 32,498,101 $ 2,094,271 $ 34,592,372

~~Revenue earned during the nine months ended September 30, 2020, and 2019, under contracts with clients include:~~

Nine Months Ended September 30, 2020
Investment advisory Mutual fund
administration, net Total revenue
Proprietary funds $ 64,613,063 $ 5,131,104 $ 69,744,167
Sub-advised funds and separately managed accounts 21,606,262 0 21,606,262
$ 86,219,325 $ 5,131,104 $ 91,350,429


		Nine Months Ended September 30, 2019											Three Months Ended March 31, 2020
		Investment advisory		Mutual fund administration, net		Total revenue			Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	Proprietary funds	$	72,093,686	$	6,195,272	$	78,288,958	Proprietary funds	$	23,454,563	$	1,768,065	$	25,222,628
Sub-advised funds and separately managed accounts	Sub-advised funds and separately managed accounts	22,427,805		0		22,427,805		Sub-advised funds and separately managed accounts	6,703,117		0		6,703,117
		$	94,521,491	$	6,195,272	$	100,716,763		$	30,157,680	$	1,768,065	$	31,925,745

Revenue Recognition – Investment Advisory Fees

The Company's investment advisory contracts with clients have a single performance obligation ~~(the investment advisory services provided to~~because the ~~client) as the promised~~contracted services are not separately identifiable from other ~~promises~~obligations in the contracts and, therefore, are not distinct. All performance obligations to provide advisory services are satisfied over time and the Company recognizes revenue as time passes.

The fees ~~we receive~~the Company receives for ~~our~~its services under ~~our~~its investment advisory contracts are based on AUM, which changes based on the value of securities held under each advisory contract. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which ~~our~~the Company's client is billed is no longer subject to market fluctuations.

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The Company also provides services to ~~Unified Managed Account ("UMA")~~model delivery programs in which the Company provides its strategy model portfolio to

the sponsor of the ~~UMA.~~model delivery. The Company is paid a portion of the ~~UMA~~model delivery fee for its services by the program

sponsor at a pre-determined rate based on assets in the program. ~~UMA~~Model delivery program ~~revenue was $0.7~~revenues were $0.9 million and ~~$0.5~~$0.7 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $1.9 million and $1.3 million, for the nine months ended September 30, 2020 and 2019,~~ respectively. ~~UMA~~Model delivery program revenue is included in investment advisory fees in the consolidated statements of income.

Revenue Recognition – ~~Variable Rate~~Performance-Based Fees

The Company manages certain client accounts that provide for ~~variable rate~~performance-based fees. These fees are calculated based on client investment results over rolling five-year periods. The Company records ~~variable rate~~performance-based fees ~~at the end~~when it is probable that a significant reversal of the ~~contract measurement period because the variable fees earned are constrained based on movements in the financial markets.~~revenue will not occur. The Company did not record any ~~variable rate~~performance-based fees during ~~any~~either of the ~~three- or nine-month~~three-month periods ended ~~September 30, 2020 or September 30, 2019.~~March 31, 2021 and 2020. The table below shows AUM subject to ~~variable rate~~performance-based fees and the amount of ~~variable rate~~performance-based fees that would be recognized based upon investment results as of ~~September 30, 2020:~~March 31, 2021:


		As of September 30, 2020							As of March 31, 2021
		AUM subject to variable rate fees		Unearned variable rate fees			AUM subject to performance-based fees		Unearned performance-based fees
Contractual Period Ending:	Contractual Period Ending:					Contractual Period Ending:
Quarter Ending December 31, 2020		$	61,439,470	$	470,319
Quarter Ending September 30, 2021		294,745,586		8,583,508
Quarter Ended September 30, 2021						Quarter Ended September 30, 2021	$	375,886,495	$	9,928,373
Quarter Ended December 31, 2021						Quarter Ended December 31, 2021	67,514,790		125,672
Total	Total	$	356,185,056	$	9,053,827	Total	$	443,401,285	$	10,054,045

The contractual end dates highlight the time remaining until the ~~variable rate~~performance-based fees are scheduled to be earned. The amount of ~~variable rate~~performance-based fees that would be recognized based upon ~~investment~~investments results as of ~~September 30, 2020,~~March 31, 2021, will increase or decrease based on future client investment results through the end of the contractual period. The Company cannot assure that it will earn the unearned amounts set forth above.

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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 performance obligations such as mutual fund administration, fund accounting, transfer agency, and other related functions. These services are performed concurrently under DHCM's agreement with the Funds, all performance obligations to provide these administrative services are satisfied over time, and the Company recognizes the related revenue as time progresses. Each Fund pays DHCM a fee for performing these services, , which is calculated using an annual rate ~~times~~multiplied by the average daily net assets of each respective Fund share class. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which DHCM bills the Funds is no longer subject to market fluctuations.

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~~In fulfilling a portion of its role under the administration agreement with the Funds, DHCM acts as agent and pays for these services on behalf of the Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates its fees and terms directly with the management and board of trustees of the Funds. Each year, the Funds' board of trustees reviews the fee that each Fund pays to DHCM, and specifically ~~takes into account~~considers 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 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.

~~Table~~ During the first quarter of ~~Contents~~

2021, Class C shares were eliminated and converted to Investor Class shares. As a result, no material financing activity will be recognized in future periods.

Mutual fund administration gross and net revenue are summarized below:


		Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Mutual fund administration:	Mutual fund administration:									Mutual fund administration:
Administration revenue, gross	Administration revenue, gross	$	5,571,022	$	5,677,414	$	16,144,295	$	16,599,581	Administration revenue, gross	$	6,926,414	$	5,592,658
Fund related expense	Fund related expense	(3,766,667)		(3,589,273)		(11,028,882)		(10,430,419)		Fund related expense	(4,466,157)		(3,827,249)
Revenue, net of related expenses	Revenue, net of related expenses	1,804,355		2,088,141		5,115,413		6,169,162		Revenue, net of related expenses	2,460,257		1,765,409
C-Share financing:	C-Share financing:									C-Share financing:
Broker commission advance repayments	Broker commission advance repayments	60,634		57,908		190,993		176,901		Broker commission advance repayments	33,594		63,542
Broker commission amortization	Broker commission amortization	(51,886)		(51,778)		(175,302)		(150,791)		Broker commission amortization	(48,521)		(60,886)
Financing activity, net	Financing activity, net	8,748		6,130		15,691		26,110		Financing activity, net	(14,927)		2,656
Mutual fund administration revenue, net	Mutual fund administration revenue, net	$	1,813,103	$	2,094,271	$	5,131,104	$	6,195,272	Mutual fund administration revenue, net	$	2,445,330	$	1,768,065

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 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 among those jurisdictions, and 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 assessments. The Company regularly assesses its positions 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 Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. The Company records interest and penalties within income tax expense on the income statement. See Note 8.

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On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act”) was signed into legislation, which includes various tax provisions. The CARES Act did not have an impact on the Company's consolidated financial statements.

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 unvested restricted shares. ~~Diluted EPS reflects the dilutive effect of outstanding and unvested restricted stock units, if any.~~ See Note 9.

~~Recently Adopted Accounting Guidance~~

In August 2018, FASB issued Accounting Standards Update ("ASU") No. 2018-13, “Fair Value Measurements.” This update makes certain revisions to existing disclosure requirements for fair value measurement. ASU No. 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU No. 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2020 without any impact on the Company’s consolidated financial statements.

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Note 3 Investments

The following table summarizes the carrying value of the Company's investments as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		As of							As of
		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Fair value investments:	Fair value investments:					Fair value investments:
Securities held in Consolidated Funds^(a)	Securities held in Consolidated Funds^(a)	$	28,035,352	$	36,248,360	Securities held in Consolidated Funds(a)	$	47,164,927	$	33,233,307
Company sponsored investments	Company sponsored investments	25,997,804		42,039,044		Company sponsored investments	95,530,265		95,167,829
Company sponsored equity method investments		62,400,320		61,149,774

Total Investments	Total Investments	$	116,433,476	$	139,437,178	Total Investments	$	142,695,192	$	128,401,136

(a) Of the securities held in the Consolidated Funds as of ~~September 30, 2020,~~March 31, 2021, the Company directly held ~~$19.9~~$35.0 million and noncontrolling shareholders held ~~$8.2~~$12.2 million. Of the securities held in the Consolidated Funds as of December 31, ~~2019,~~2020, the Company directly held ~~$21.1~~$23.6 million and noncontrolling shareholders held ~~$15.1~~$9.6 million.

The components of net investment income (loss) are as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Realized gains (losses)	Realized gains (losses)	$	512,265	$	194,373	$	(1,231,163)	$	5,280,172	Realized gains (losses)	$	2,523,505	$	(817,539)
Unrealized gains (losses)	Unrealized gains (losses)	4,040,917		1,089,398		(6,478,411)		11,489,980		Unrealized gains (losses)	2,505,344		(22,467,598)
Dividends	Dividends	518,472		1,559,836		1,983,423		5,808,218		Dividends	665,009		894,413
Interest		0		0		0		987,418
Other investment income (loss)		(18,860)		(20,660)		(56,523)		61,631

Other										Other	(30,404)		(7,368)
Investment income (loss), net	Investment income (loss), net	$	5,052,794	$	2,822,947	$	(5,782,674)	$	23,627,419	Investment income (loss), net	$	5,663,454	$	(22,398,092)

~~Company Sponsored Equity Method Investments~~

As of September 30, 2020, the Company's equity method investments consisted of the Diamond Hill Research Opportunities Fund and the Diamond Hill Core Bond Fund, and the Company's ownership percentages in these investments were 45% and 20%, respectively.

~~The following table includes the condensed summary financial information from the Company's equity method investments as of and for the three- and nine-month periods ended September 30, 2020:~~

As of
September 30, 2020
Total assets $ 298,978,334
Total liabilities 30,049,442
Net assets 268,928,892
DHCM's portion of net assets $ 62,400,320
For the Three Months Ended For the Nine Months Ended
September 30, 2020 September 30, 2020
Investment income $ 1,576,219 $ 4,246,021
Expenses 393,499 1,114,278
Net realized gains (losses) 1,789,682 (1,577,639)
Net unrealized appreciation 2,294,163 2,289,667
Net income 5,266,565 3,843,771
DHCM's portion of net income $ 1,523,452 $ 1,807,279

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Note 4 Fair Value Measurements

The Company determines the fair value of its cash equivalents and certain investments using the following 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. We do not value any investments using Level 3 inputs.

These levels are not necessarily indicative of the risk or liquidity associated with investments.

The following table summarizes investments that are recognized in ~~our~~the Company's consolidated balance sheet using fair value measurements ~~(excluding investments classified as equity method investments)~~ determined based upon the differing levels as of ~~September 30, 2020:~~March 31, 2021:


		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Cash equivalents (money market mutual funds)		$	115,294,424	$	0	$	0	$	115,294,424
Cash equivalents										Cash equivalents	$	77,122,682	$	0	$	0	$	77,122,682
Fair value investments:	Fair value investments:									Fair value investments:
Securities held in Consolidated Funds^(a)	Securities held in Consolidated Funds^(a)	13,487,667		14,547,685		0		$	28,035,352	Securities held in Consolidated Funds(a)	29,702,152		17,462,775		0		$	47,164,927
Company sponsored investments		25,997,804		0		0		$	25,997,804
Company-sponsored investments										Company-sponsored investments	$	95,530,265	$	0	$	0	$	95,530,265

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, 2020.~~March 31, 2021.

Changes to fair values of the investments are recorded in the Company’s consolidated statements of income as investment income (loss), net.

Note 5 Line of Credit

The Company has a committed ~~Line~~line of ~~Credit Agreement~~credit agreement (the "Credit Agreement") with a commercial bank that matures on December ~~25, 2020,~~24, 2021, which permits the Company to borrow up to $25.0 million. Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 1.00%. The Company pays a commitment fee on the unused portion of the facility, accruing at a rate per annum of 0.10%.

The ~~Company has never borrowed funds under 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 and existing investment strategies, and for other general corporate purposes. The Credit Agreement contains customary representations, warranties and covenants.

The Company did not borrow under the Credit Agreement for the period ended March 31, 2021, and no borrowings are outstanding as of March 31, 2021.

Note 6 Compensation Plans

Share-Based Payment Transactions

The Company issues restricted stock ~~awards~~grants under the 2014 Equity and Cash Incentive Plan (the "2014 Plan"). Restricted stock ~~awards~~grants represent common shares issued and outstanding upon grant subject to vesting restrictions. The ~~following table represents~~Company has historically issued stock grants that cliff vest after five years to all new employees upon hire and as additional grants to key employees on a ~~roll-forward~~periodic basis. While the Company currently plans to continue to issue five-year cliff vest grants to new employees, beginning in 2021, new long-term incentive awards to existing employees were made in the form of ~~outstanding restricted~~three-year graded vesting stock ~~and related activity during the nine months ended September 30, 2020:~~grants.

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Shares Weighted-Average
Grant Date Price
per Share
Outstanding restricted stock as of December 31, 2019 227,844 $ 175.49
Grants issued 18,749 109.25
Grants vested (41,700) 155.40
Grants forfeited (15,325) 186.02
Total outstanding restricted stock as of September 30, 2020 189,568 $ 174.82

~~As of September 30, 2020, 222,753 common shares remained available for awards~~Restricted stock grants issued under the 2014 ~~Plan.~~

~~Total deferred equity compensation related to unvested restricted stock was $15.7 million as of September 30, 2020. Compensation expense related to restricted stock is calculated~~Plan are valued based upon the fair market value of the common shares on the applicable grant date. The restricted stock grants are recorded as deferred compensation in the equity section of the balance sheet on the grant date and then recognized as compensation expense on a straight-line basis over the vesting period of the respective grant. The Company's policy is to adjust compensation expense for forfeitures as they occur.

The following table represents a roll-forward of outstanding restricted stock and related activity for the three months ended March 31, 2021:


	Shares	Weighted-Average Grant Date Price per Share
Outstanding restricted stock as of December 31, 2020	183,718	$	173.80
Grants issued	52,434	155.64
Grants vested	(7,600)	174.98
Grants forfeited	(13,200)	156.88
Total outstanding restricted stock as of March 31, 2021	215,352	$	168.34

As of March 31, 2021, 181,471 common shares remained available for grants under the 2014 Plan.

Total deferred equity compensation related to unvested restricted stock was $19.4 million as of March 31, 2021. The recognition of compensation expense related to deferred compensation over the remaining vesting periods is as follows:

Three Months
Remaining In
2020 2021 2022 2023 2024 Thereafter Total
$ 1,464,321 $ 5,242,920 $ 4,282,359 $ 2,309,526 $ 1,211,071 $ 1,225,389 $ 15,735,586


Nine Months Remaining In
2021		2022		2023		2024		2025		Thereafter		Total
$	5,926,670	$	6,730,500	$	4,765,545	$	1,719,462	$	297,487	$	1,256	$	19,440,920

Employee Stock Purchase Plan

The Company adopted the Diamond Hill Investment Group, Inc. Employee Stock Purchase Plan (the "ESPP") effective October 27, 2020. Under the ESPP, eligible employees may purchase shares of the Company's common stock at 85% of the fair market value on the last day of each offering period. Each offering period is approximately three months coinciding with the Company's fiscal quarters. During the three-month period ended March 31, 2021, ESPP participants purchased 2,583 shares of common stock for $0.3 million and the Company recorded $0.1 million of share based payment expense related to these purchases.

Stock Grant Transactions

The following table represents common shares issued as part of the Company's incentive compensation program during the ~~nine-month~~three-month period ended ~~September 30, 2020,~~March 31, 2021, and ~~2019:~~2020:

Shares Issued Grant Date Value
September 30, 2020 23,640 $ 3,396,359
September 30, 2019 24,048 $ 3,655,296


	Shares Issued	Grant Date Value
March 31, 2021	3,681	$	529,806
March 31, 2020	23,640	$	3,396,359

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401(k) Plan

The Company sponsors a 401(k) plan in which all employees are eligible to participate. Employees may contribute a portion of their compensation subject to certain limits based on federal tax laws. The Company matches employee contributions equal to 250 percent of the first six percent of an employee’s compensation contributed to the plan. As of January 1, 2021, the Company settles the 401(k) plan matching contributions in cash or common shares of the Company based on the election of the employees. Prior to January 1, 2021, the Company made all matching contributions in common shares of the Company.

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,~~(together, the “Plans”). Under the Plans, participants may elect to voluntarily defer, for a minimum of five years, certain incentive compensationthat the Company then contributes into the Plans. Participants are responsible for designating investment options for the assets they contribute, and the distribution paid to each participant reflects any gains or losses on the assets realized in connection with 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. Deferred compensation liability was ~~$28.7~~$33.4 million and ~~$30.3~~$33.2 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Note 7 Operating Lease

The Company currently leases office space of approximately 37,829 square feet at 1 location.

As of ~~September 30, 2020,~~March 31, 2021, the carrying value of this ~~right-of use~~right-of-use asset, which is included in property and equipment, was approximately $1.9 million net of deferred rent on the consolidated balance ~~sheets, was approximately $2.2 million.~~sheets. As of ~~September 30, 2020,~~March 31, 2021, the carrying value of the lease liability was approximately $2.4 million, which is included in accounts payable and accrued expenses on the consolidated balance ~~sheets, was approximately $2.7 million.~~

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sheets.

The following table summarizes the total lease and operating expenses for the ~~three- and nine-month~~three-month periods ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

September 30,
2020 September 30,
2019
Three Months Ended $ 241,050 $ 239,838
Nine Months Ended $ 706,538 $ 731,366


	March 31, 2021		March 31, 2020
Three Months Ended	$	209,042	$	225,858

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


Future Minimum Lease Payments	Future Minimum Lease Payments																							Future Minimum Lease Payments
Three Months Remaining In
2020		2021		2022		2023		2024		Thereafter		Total
Nine Months Remaining In														Nine Months Remaining In
2021														2021	2022		2023		2024		2025		Total
$	156,045	$	624,179	$	624,179	$	624,179	$	624,179	$	156,045	$	2,808,806	468,134	$	624,179	$	624,179	$	624,179	$	156,045	$	2,496,716

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Note 8 Income Taxes

The Company has determined its interim tax provision projecting an estimated annual effective tax rate.

A reconciliation of the statutory federal tax rate to the Company’s effective income tax rate is as follows:


		Nine Months Ended September 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Statutory U.S. federal income tax rate	Statutory U.S. federal income tax rate	21.0	%	21.0	%	Statutory U.S. federal income tax rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	State and local income taxes, net of federal benefit	4.3	%	4.0	%	State and local income taxes, net of federal benefit	4.4	%	4.5	%
Internal revenue code section 162 limitations	Internal revenue code section 162 limitations	1.3	%	0.6	%	Internal revenue code section 162 limitations	1.1	%	2.3	%
Other	Other	1.4	%	0.1	%	Other	0	%	0.2	%
Unconsolidated effective income tax rate	Unconsolidated effective income tax rate	28.0	%	25.7	%	Unconsolidated effective income tax rate	26.5	%	28.0	%
Impact attributable to redeemable noncontrolling interests^(a)	Impact attributable to redeemable noncontrolling interests^(a)	1.8	%	(1.6)	%	Impact attributable to redeemable noncontrolling interests(a)	(0.8)	%	(58.8)	%
Effective income tax rate	Effective income tax rate	29.8	%	24.1	%	Effective income tax rate	25.7	%	(30.8)	%

(a) The provision for income taxes includes the impact of the operations of the Consolidated Funds, which are not subject to federal income taxes. Accordingly, a portion of the Company’s earnings are not subject to corporate tax levels.

Absent the impact attributable to redeemable noncontrolling interests, the estimated unconsolidated effective income tax rate would have been ~~28.0%~~26.5%. The Company's actual effective tax rate for fiscal ~~2020~~year ended December 31, 2021 could be materially different from the projected rate as of ~~September 30, 2020.~~March 31, 2021.

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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, no valuation allowance was deemed necessary.

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 recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are ~~"more-likely-than-not"~~more likely than not sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company did not record an accrual for tax related uncertainties or unrecognized tax positions as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

The Company did not recognize any interest and penalties during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

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Note 9 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. ~~Restricted stock units are considered dilutive, although there were no restricted stock units outstanding at any time during the nine months ended September 30, 2020.~~ The following table sets forth the computation for basic and diluted ~~EPS and reconciliation between basic and diluted shares outstanding:~~EPS:


		Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net Income		$	11,140,583	$	11,516,637	$	22,250,694	$	45,230,053
Net Income (Loss)										Net Income (Loss)	$	14,262,613	$	(2,528,368)
Less: Net loss (income) attributable to redeemable noncontrolling interest	Less: Net loss (income) attributable to redeemable noncontrolling interest	(575,068)		(99,177)		2,045,619		(3,684,799)		Less: Net loss (income) attributable to redeemable noncontrolling interest	(554,102)		4,058,476
Net income attributable to common shareholders	Net income attributable to common shareholders	$	10,565,515	$	11,417,460	$	24,296,313	$	41,545,254	Net income attributable to common shareholders	$	13,708,511	$	1,530,108

Weighted average number of outstanding shares - Basic	Weighted average number of outstanding shares - Basic	3,200,957		3,411,632		3,231,452		3,460,959		Weighted average number of outstanding shares - Basic	3,156,768		3,272,761
Dilutive impact of restricted stock units		0		0		0		200
Weighted average number of outstanding shares - Diluted	Weighted average number of outstanding shares - Diluted	3,200,957		3,411,632		3,231,452		3,461,159		Weighted average number of outstanding shares - Diluted	3,156,768		3,272,761

Earnings per share attributable to common shareholders	Earnings per share attributable to common shareholders									Earnings per share attributable to common shareholders
Basic	Basic	$	3.30	$	3.35	$	7.52	$	12.00	Basic	$	4.34	$	0.47
Diluted	Diluted	$	3.30	$	3.35	$	7.52	$	12.00	Diluted	$	4.34	$	0.47

Note 10 Commitments and Contingencies

The Company indemnifies its directors, officers, and certain employees for certain liabilities that may arise from 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 that provide general indemnification obligations. Certain agreements do not contain any limits on the Company’s liability and 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 of these liabilities.

Note 11 Sale of Assets of Diamond Hill's High Yield-Focused Funds

DHCM entered into an asset purchase agreement dated February 2, 2021 (the “Purchase Agreement”) with Brandywine Global Investment Management, LLC (“Brandywine Global”), a specialist investment manager of Franklin Resources, Inc. Pursuant to the Purchase Agreement, Brandywine Global will acquire the businesses of DHCM’s two high yield-focused mutual funds - the Corporate Credit Fund and the High Yield Fund (the “Acquired Funds”).

In connection with the transaction, two of the Company’s portfolio managers and a research analyst will join Brandywine Global’s fixed income team.

Pursuant to the Purchase Agreement, DHCM will receive an initial cash payment at closing of up to $9.0 million based upon the closing date net revenue of the Acquired Funds, and may receive 2 additional payments of up to $13.0 million in the aggregate based on the net revenue of the Acquired Funds on the one-year anniversary of the closing date. There can be no assurance that all or any of these additional payment amounts will be received by DHCM.

The Purchase Agreement contains customary representations, warranties, and covenants and is subject to customary closing conditions, including a minimum net revenue requirement as of the closing date and approval by the shareholders of the Acquired Funds. The sale is expected to close on July 30, 2021, subject to approval of each Acquired Fund’s shareholders.

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Note 1112 Subsequent ~~Event~~Events

On ~~October 27, 2020,~~April 26, 2021, the Company’s board of directors approved a ~~special~~ cash dividend of ~~$12.00~~$1.00 per share payable ~~December 4, 2020,~~June 18, 2021, to shareholders of record as of ~~November 25, 2020.~~June 3, 2021. This dividend will reduce shareholders' equity by approximately ~~$38.0~~$3.2 million.

On October 27, 2020, the Company's board of directors also approved the initiation of a regular quarterly dividend beginning the first of quarter 2021. Subject to approval each quarter by the Company's board of directors and compliance with applicable law, the Company expects to pay a regular quarterly dividend of $1.00 per share. Going forward, at the end of each year, the Company's board of directors will decide whether to pay an additional special dividend. Although the Company currently expects to pay the aforementioned dividends, depending on the circumstances and the board of director's judgment, the Company may not pay such dividends as described, or at all.

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

~~Forward-looking~~Forward-Looking Statements

Throughout this Quarterly Report on Form 10-Q and other publicly available documents, including the documents incorporated herein by reference, the Company may make forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to such matters as anticipated operating results, AUM 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,” "may," "will," "likely," "project," “should,” “hope,” “seek,” “plan,” “intend” and similar expressions identify forward-looking statements that speak only as of the date thereof. While ~~we believe~~the Company believes that the assumptions underlying ~~our~~its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, actual results and experiences could differ materially from the anticipated results or other expectations expressed in ~~our~~the 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: (i) any reduction in the Company's AUM; (ii) withdrawal, renegotiation, or termination of investment advisory agreements; (iii) damage to the Company's reputation; (iv) failure to comply with investment guidelines or other contractual requirements; (v) challenges from the competition the Company faces in its business; (vi) adverse ~~effect from~~regulatory and legal developments; (vii) unfavorable changes in tax laws or limitations; (viii) interruptions in or failure to provide critical technological service by the Company or third parties; (ix) adverse civil litigation and government investigations or proceedings; (x) risk of loss on the Company's investments; (xi) lack of sufficient capital on satisfactory terms; (xii) losses or costs not covered by insurance; (xiii) impairment of goodwill or intangible assets; (xiv) a decline in the ~~securities markets;~~performance of our products; (xv) changes in interest rates; (xvi) changes in national and local economic and political conditions; (xvii) the ~~effect~~continuing economic uncertainty in various parts of ~~national, regional and global economic conditions generally, including~~the world; (xviii) the effects of the COVID-19 pandemic and the actions taken in connection therewith; (xix) political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the current socioeconomic landscape, and the 2020 U.S. Presidential election; 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; our inability 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 consolidated revenue and net income from investment advisory and fund administration services provided by DHCM. DHCM is a registered ~~with the SEC as an~~ investment adviser under the Investment Advisers Act of 1940, as amended. DHCM sponsors, distributes, and provides investment advisory and related services to ~~various~~ clients through the ~~Funds. The Company also provides investment advisory services to~~Funds, sub-advised mutual funds, and separately managed ~~accounts~~accounts.

DHCM is a client-centric organization committed to a set of shared investment principles and ~~provides sub-advisory services~~core values intended to ~~other mutual funds.~~enable excellent investment outcomes for clients. By committing to valuation disciplined active portfolio management, fundamental bottom-up research, and a long-term business owner mindset, DHCM has created a suite of investment strategies designed for long-term strategic allocations from institutionally-oriented investors. DHCM’s core values of curiosity, ownership, trust, and respect create an environment where investment professionals can focus on results and all teammates focus on the overall client experience. The combination of these investment principles and core values create an aligned boutique model ensuring associates succeed when clients succeed. This alignment with clients is emphasized through: (i) personal investment by Company employees in the strategies managed, (ii) a fee philosophy focused on a fair sharing of the economics among clients, employees, and shareholders, (iii) a strict adherence to capacity discipline ensuring the ability to add value for existing clients, and (iv) compensation driven by the value created.

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

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughout the United States and the world. To limit the spread of COVID-19, governments have continued to take various actions, including extending travel bans and social distancing guidelines, which has caused some businesses to have prolonged suspensions of their operations, disrupted the global supply chain, and created a reduction in demand for many products. This has affected the global financial markets and has caused significant financial market volatility, which could impact our AUM, the revenue derived from AUM, the returns on corporate investments, our liquidity, our capital resources, and our results of operations.

The pandemic and the related responses to COVID-19 could continue to affect our results of operations, cash flows and financial position. However, at this time, we cannot reasonably estimate the full impact, given the uncertainty surrounding the duration and severity of the pandemic and its related economic impact.

Assets Under Management

~~We derive~~The Company derives revenue 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~~it manages and fluctuate with changes in the total value of ~~our~~its AUM. ~~Fees are recognized in~~The Company recognizes revenue when it satisfies its performance obligations under the ~~period that the Company manages these assets.~~terms of a contract with a client.

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~~Our revenue is~~The Company's revenues are highly dependent on both the value and composition of AUM. The following is a summary of ~~our~~the Company's AUM by product and investment objective, as well as a roll-forward of the change in AUM, for the ~~three-~~three-months ended March 31, 2021 and ~~nine-months ended September 30, 2020 and 2019:~~2020:


		Assets Under Management											Assets Under Management
		As of September 30,											As of March 31,
(in millions, except percentages)	(in millions, except percentages)	2020		2019		% Change		(in millions, except percentages)	2021		2020		% Change
Proprietary funds	Proprietary funds	$	14,761	$	15,320	(4)	%	Proprietary funds	$	20,954	$	11,942	75	%
Sub-advised funds	Sub-advised funds	2,750		1,850		49	%	Sub-advised funds	3,575		1,928		85	%
Separately managed accounts	Separately managed accounts	4,772		5,033		(5)	%	Separately managed accounts	6,053		3,626		67	%
Total AUM	Total AUM	$	22,283	$	22,203	—	%	Total AUM	$	30,582	$	17,496	75	%


		Assets Under Management by Investment Strategy											Assets Under Management by Investment Strategy
		As of September 30,											As of March 31,
(in millions, except percentages)	(in millions, except percentages)	2020		2019		% Change		(in millions, except percentages)	2021		2020		% Change
Small Cap	Small Cap	$	478	$	793	(40)	%	Small Cap	$	616	$	443	39	%
Small-Mid Cap	Small-Mid Cap	2,366		3,081		(23)	%	Small-Mid Cap	3,128		2,047		53	%
Mid Cap	Mid Cap	858		480		79	%	Mid Cap	1,097		604		82	%
Large Cap	Large Cap	12,650		11,609		9	%	Large Cap	18,317		9,372		95	%
Large Cap Concentrated								Large Cap Concentrated	43		19		126	%
All Cap Select	All Cap Select	365		505		(28)	%	All Cap Select	427		284		50	%
Long-Short	Long-Short	1,960		3,582		(45)	%	Long-Short	2,028		2,520		(20)	%
Global/International	Global/International	28		29		(3)	%	Global/International	35		26		35	%
Total Equity	Total Equity	18,705		20,079		(7)	%	Total Equity	25,691		15,315		68	%
Short Duration Securitized	Short Duration Securitized	1,023		738		39	%	Short Duration Securitized	1,253		726		73	%
Core Fixed Income	Core Fixed Income	434		294		48	%	Core Fixed Income	550		328		68	%
Long Duration Treasury	Long Duration Treasury	70		54		30	%	Long Duration Treasury	47		62		(24)	%
Corporate Credit	Corporate Credit	1,571		1,074		46	%	Corporate Credit	2,140		983		118	%
High Yield	High Yield	546		123		344	%	High Yield	965		201		380	%
Total Fixed Income	Total Fixed Income	3,644		2,283		60	%	Total Fixed Income	4,955		2,300		115	%
Total Equity and Fixed Income	Total Equity and Fixed Income	22,349		22,362		—	%	Total Equity and Fixed Income	30,646		17,615		74	%
(Less: Investments in affiliated funds)^(a)	(Less: Investments in affiliated funds)^(a)	(66)		(159)		(58)	%	(Less: Investments in affiliated funds)(a)	(64)		(119)		(46)	%
Total AUM	Total AUM	$	22,283	$	22,203	—	%	Total AUM	$	30,582	$	17,496	75	%

(a) Certain of the Funds own shares of the Diamond Hill Short Duration Securitized Bond Fund. The Company reduces the total AUM by these investments held in this affiliated fund.

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		Change in Assets Under Management
		For the For the Three Months Ended September 30,
(in millions)		2020		2019
AUM at beginning of the period		$	20,645	$	21,612
Net cash inflows (outflows)
proprietary funds		56		327
sub-advised funds		71		50
separately managed accounts		(29)		(45)
		98		332
Net market appreciation and income		1,540		259
Increase during the period		1,638		591
AUM at end of the period		$	22,283	$	22,203

Average AUM during the period		$	22,038	$	21,822

		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)	(in millions)	2020		2019		(in millions)	2021		2020
AUM at beginning of the period	AUM at beginning of the period	$	23,399	$	19,108	AUM at beginning of the period	$	26,411	$	23,399
Net cash inflows (outflows)	Net cash inflows (outflows)					Net cash inflows (outflows)
proprietary funds	proprietary funds	9		(488)		proprietary funds	1,877		12
sub-advised funds	sub-advised funds	762		185		sub-advised funds	42		544
separately managed accounts	separately managed accounts	(191)		(216)		separately managed accounts	(175)		(305)
		580		(519)			1,744		251
Net market appreciation (depreciation) and income	Net market appreciation (depreciation) and income	(1,696)		3,614		Net market appreciation (depreciation) and income	2,427		(6,154)
Increase (decrease) during the period	Increase (decrease) during the period	(1,116)		3,095		Increase (decrease) during the period	4,171		(5,903)
AUM at end of the period	AUM at end of the period	$	22,283	$	22,203	AUM at end of the period	$	30,582	$	17,496

Average AUM during the period	Average AUM during the period	$	21,056	$	21,182	Average AUM during the period	$	28,163	$	20,836

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		Net Cash Inflows (Outflows) Further Breakdown For the Three Months Ended September 30,
(in millions)		2020		2019
Net cash inflows (outflows)
Equity		$	(348)	$	72
Fixed Income		446		260

		$	98	$	332

		Net Cash Inflows (Outflows) Further Breakdown For the Nine Months Ended September 30,							Net Cash Inflows Further Breakdown For the Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Net cash inflows (outflows)	Net cash inflows (outflows)					Net cash inflows (outflows)
Equity	Equity	(540)		(1,158)		Equity	$	1,256	$	156
Fixed Income	Fixed Income	1,120		639		Fixed Income	488		95
		580		(519)			$	1,744	$	251

AUM increased ~~$1.6~~$4.2 billion during the three months ended ~~September 30, 2020,~~March 31, 2021, due ~~primarily~~ to the continued rebound in the financial markets ~~during the period. Our equity~~and net cash inflows into our strategies ~~experienced net outflows and our fixed income strategy experienced net inflows~~ during the period. In ~~our~~ equity strategies, net inflows of ~~$125 million~~$1.6 billion in ~~our~~the Large Cap strategy were ~~more than~~slightly offset by net outflows of ~~$474 million~~$0.4 billion in ~~our~~ other equity strategies. Each of ~~our~~the Company's fixed income strategies, except Long Duration Treasury, had net inflows during the three months ended ~~September 30, 2020,~~March 31, 2021, totaling ~~$446 million.~~$0.5 billion.

~~AUM decreased $1.1 billion during~~Effective March 31, 2021, the ~~nine months ended September 30, 2020, due primarily~~Company closed its Large Cap strategy to most new investors. In February 2021, the ~~decline~~Company made its Large Cap Concentrated strategy available as a new fund in the financial markets in the first quarter of 2020, which was partially offset by the market rebound during the second and third quarters and by net cash inflows during the period. Our equity strategies experienced net outflows during the nine months ended September 30, 2020, and our fixed income strategies experienced net inflows during the period. Flows in our equity strategies were largely driven by our Mid Cap and Large Cap strategies, which experienced combined net inflows of $1.1 billion. These net inflows were more than offset by net outflows from our Long-Short, All Cap Select, Small-Mid, and Small Cap strategies totaling approximately $1.7 billion. Each of our fixed income strategies had net positive flows during the nine months ended September 30, 2020, totaling $1.1 billion.Fund lineup.

~~UMA~~Model Delivery Programs

The Company provides ~~a strategy~~strategy-specific model ~~portfolio~~portfolios to sponsors of ~~UMA~~model delivery programs. ~~We do~~The Company does not have discretionary investment authority over individual client accounts in ~~UMA~~model delivery programs, and therefore, these assets are not included in ~~our~~its AUM. The Company provides an updated ~~strategy~~ model ~~portfolio~~portfolios to the ~~UMA~~ program sponsors on a periodic ~~basis and~~basis. The Company is paid for its services by the program sponsor at a pre-determined rate based on ~~the amount of~~ assets in the program. ~~Assets in the UMA programs for which we provide strategy model portfolios~~Model delivery program assets were ~~$1.0~~$1.4 billion as of ~~September 30, 2020,~~March 31, 2021, and ~~$0.9~~$1.1 billion as of December 31, ~~2019.~~2020.

2221

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Consolidated Results of Operations

The following is a table and discussion of ~~our~~the Company's 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)	(in thousands, except per share amounts and percentages)	2020			2019			% Change	2020			2019			% Change	(in thousands, except per share amounts and percentages)	2021			2020			% Change
Total revenue	Total revenue	$	31,176		$	34,592		(10)%	$	91,350		$	100,717		(9)%	Total revenue	$	39,014		$	31,926		22%
Net operating income	Net operating income	$	9,970		$	12,757		(22)%	$	37,462		$	35,970		4%	Net operating income	13,532			20,465			(34)%
Net operating income, as adjusted^(a)	Net operating income, as adjusted^(a)	$	11,931		$	13,114		(9)%	$	35,093		$	40,022		(12)%	Net operating income, as adjusted(a)	16,635			12,309			35%
Investment income (loss), net	Investment income (loss), net	$	5,053		$	2,823		79%	$	(5,783)		$	23,627		(124)%	Investment income (loss), net	5,663			(22,398)			NM
Net income attributable to common shareholders	Net income attributable to common shareholders	$	10,566		$	11,417		(7)%	$	24,296		$	41,545		(42)%	Net income attributable to common shareholders	13,709			1,530			796%
Earnings per share attributable to common shareholders (diluted)	Earnings per share attributable to common shareholders (diluted)	$	3.30		$	3.35		(1)%	$	7.52		$	12.00		(37)%	Earnings per share attributable to common shareholders (diluted)	$	4.34		$	0.47		823%
Operating profit margin	Operating profit margin	32		%	37		%		41		%	36		%		Operating profit margin	35		%	64		%
Operating profit margin, as adjusted^(a)	Operating profit margin, as adjusted^(a)	38		%	38		%		38		%	40		%		Operating profit margin, as adjusted(a)	43		%	39		%

(a) Net operating income, as adjusted, and operating profit margin, as adjusted, are non-GAAP performance measurements. See the "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

Summary Discussion of Consolidated Results of Operations - Three Months Ended ~~September 30, 2020,~~March 31, 2021, compared with Three Months Ended ~~September 30, 2019~~

~~Operating results for the three months ended September 30,~~March 31, 2020 are not necessarily indicative of the results that may be expected for fiscal 2020, particularly in light of the COVID-19 pandemic and its continuing effect on the U.S. and global economies. The pandemic and the related responses to COVID-19 could continue to affect our results of operations, cash flows and financial position. However, at this time, we cannot reasonably estimate the full impact, given the uncertainty surrounding the duration and severity of the pandemic and its related economic impacts.

Revenue for the three months ended ~~September 30, 2020, decreased $3.4~~March 31, 2021, increased $7.1 million, compared to revenue for the ~~three months ended September 30, 2019,~~same period in 2020, primarily due to an increase in average AUM of 35% period-over-period, partially offset by a decrease in the average advisory fee rate from ~~0.59%~~0.58% to 0.53% ~~quarter-over-quarter partially offset by a 1% increase in average AUM.~~. The decrease in average advisory fee rate was primarily driven by an increase in the mix of assets held in lower fee rate ~~strategies.~~strategies during the three months ended March 31, 2021, compared to the same period in 2020.

Operating profit margin was ~~32%~~35% for the three months ended ~~September 30, 2020,~~March 31, 2021, and ~~37%~~64% for the three months ended ~~September 30, 2019.~~March 31, 2020. Operating profit margin, as adjusted, was ~~38%~~43% for ~~both~~ the three months ended ~~September 30, 2020,~~March 31, 2021, and 39% for the ~~same period in 2019.~~three months ended March 31, 2020. Operating profit margin, as adjusted, excludes deferred compensation expense (benefit) from operating income because it is offset by an equal amount in investment income below net operating income on the income statement and thus has no effect on net income attributable to the Company. ~~We believe~~The Company believes this non-GAAP measure helps the reader to understand ~~our core operating results and increases comparability period-to-period. See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this Quarterly Report on Form 10-Q.~~

We expect that our operating margin will fluctuate from period-to-period based on various factors, including revenues, investment results, employee performance, staffing levels, gains and losses on investments held in deferred compensation plans, the impact of the COVID-19 pandemic, and development of investment strategies, products, or channels. We compensate portfolio managers based on long-term performance, so when revenue and long-term performance are misaligned, operating margins can fluctuate materially.

The Company recognized $5.1 million in investment income due to market appreciation for the three months ended September 30, 2020, compared with investment income of $2.8 million for the three months ended September 30, 2019.

Income tax expense decreased $0.2 million for the three months ended September 30, 2020, compared to the same period in 2019. The decrease in income tax expense was primarily due to a decrease in DHCM's income before taxes and a decrease in the Company's effective tax rate from 26.1% to 25.8% period-over-period.

The Company generated net income attributable to common shareholders of $10.6 million ($3.30 per diluted share) for the three months ended September 30, 2020, compared with net income attributable to common shareholders of $11.4 million ($3.35 per diluted share) for the three months ended September 30, 2019, primarily due to decreased revenues, which was partially offset by an increase in investment income.

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~~Revenue~~

Three Months Ended September 30,
(in thousands, except percentages) 2020 2019 % Change
Investment advisory $ 29,363 $ 32,498 (10) %
Mutual fund administration, net 1,813 2,094 (13) %
Total $ 31,176 $ 34,592 (10) %

~~Investment Advisory Fees.~~ Investment advisory fees decreased $3.1 million, or 10%, from the three months ended September 30, 2019 to the three months ended September 30, 2020. 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 decrease in investment advisory fees was primarily due to a decrease in the average advisory fee rate from 0.59% to 0.53% quarter-over-quarter, partially offset by an increase of 1% in average AUM. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies during the three months ended September 30, 2020, compared to the three months ended September 30, 2019.

~~Mutual Fund Administration Fees.~~ Mutual fund administration fees decreased $0.3 million, or 13%, from the three months ended September 30, 2019 to the three months ended September 30, 2020. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds' average AUM. This decrease was primarily due to a $0.2 million increase in sub-transfer agent and servicing fees paid by the Company on behalf of the Funds as well as a 2% decrease in the Funds' average AUM from the three months ended September 30, 2019 to the three months ended September 30, 2020.

~~Expenses~~

Three Months Ended September 30,
(in thousands, except percentages) 2020 2019 % Change
Compensation and related costs, excluding deferred compensation expense $ 13,704 $ 15,714 (13) %
Deferred compensation expense 1,961 357 449 %
General and administrative 3,096 3,543 (13) %
Sales and marketing 1,581 1,443 10 %
Mutual fund administration 864 779 11 %
Total $ 21,206 $ 21,836 (3) %

~~Compensation and Related Costs, Excluding Deferred Compensation Expense.~~ Employee compensation and benefits decreased by $2.0 million, or 13%, from the three months ended September 30, 2019, compared to the three months ended September 30, 2020. This decrease was primarily due to a decrease in accrued incentive compensation of $2.0 million. Incentive compensation expense can fluctuate significantly period-over-period as we evaluate investment performance, individual performance, Company performance and other factors.

~~Deferred Compensation Expense.~~ Deferred compensation expense was $2.0 million for the three months ended September 30, 2020 compared to an expense of $0.4 million for the three months ended September 30, 2019, due to market appreciation on our deferred compensation plan investments.

The gain on deferred compensation plan investments increases deferred compensation expense and is included in operating income. Deferred compensation expense is offset by an equal amount in investment income below net operating income on the consolidated statements of income, and thus has no impact on net income attributable to the Company.

~~General and Administrative.~~ General and administrative expenses decreased by $0.4 million, or 13%, from the three months ended September 30, 2019 to the three months ended September 30, 2020. This decrease was due primarily to a decrease in corporate recruiting fees of $0.3 million and reduced travel expense of $0.1 million.

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~~Sales and Marketing.~~ Sales and marketing expenses increased by $0.1 million from the three months ended September 30, 2019, to the three months ended September 30, 2020. The increase was primarily due to $0.2 million in increased spending related to distribution technology, which was partially offset by a reduction in sales and marketing travel and related expense of $0.1 million.

~~Mutual Fund Administration.~~ Mutual fund administration expenses increased by $0.1 million, or 11%, from the three months ended September 30, 2019, compared to the three months ended September 30, 2020. 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.

~~Summary Discussion of Consolidated Results of Operations - Nine Months Ended September 30, 2020, compared with Nine Months Ended September 30, 2019~~

~~Operating results for the nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for fiscal 2020, particularly in light of the COVID-19 pandemic and~~ its continuing effect on the U.S. and global economies. The pandemic and the related responses to COVID-19 could continue to affect our results of operations, cash flows and financial position. However, at this time we cannot reasonably estimate the full impact, given the uncertainty surrounding the duration and severity of the pandemic and its related economic impacts.

Revenue for the nine months ended September 30, 2020, decreased $9.4 million, compared to revenue for the same period in 2019, primarily due to a decrease in the average advisory fee rate from 0.60% to 0.55% and a decrease in average AUM of 1% period-over-period. The decrease in average advisory fee rate was primarily driven by an increase in the mix of assets held in lower fee rate strategies during the nine months ended September 30, 2020, compared to the same period in 2019.

Operating profit margin was 41% for the nine months ended September 30, 2020, and 36% for the nine months ended September 30, 2019. Operating profit margin, as adjusted, was 38% for the nine months ended September 30, 2020, and 40% for the nine months ended September 30, 2019. Operating profit margin, as adjusted, excludes deferred compensation expense (benefit) from operating income because it is offset by an equal amount in investment income below net operating income on the income statement and thus has no effect on net income attributable to the Company. We believe this non-GAAP measure helps the reader to understand our core operating results and increases comparability period-to-period. See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

~~We expect~~The Company expects that ~~our~~its operating margin will fluctuate from period to period based on various factors, including revenues, investment results, employee performance, staffing levels, gains and losses on investments held in deferred compensation plans, the ~~continuing~~ongoing impact of the COVID-19 pandemic, and development of investment strategies, products, or channels. ~~We compensate~~The Company compensates portfolio managers based on long-term performance, so when revenue and long-term performance are misaligned, operating margins can fluctuate materially.

The Company ~~had $5.8~~recognized $5.7 million in ~~losses on investments because of market depreciation~~investment income for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with investment ~~income~~losses of ~~$23.6~~$22.4 million for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The change year over year was primarily due to the negative impact that COVID-19 ~~pandemic negatively affected~~had on the financial markets in March of 2020, and the subsequent market ~~valuations during the nine months ended September 30, 2020.~~rebound.

Income tax expense ~~decreased $4.9~~increased $4.3 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase in income tax expense was primarily due to the ~~decrease~~increase in ~~DHCM's~~the Company's income before ~~taxes, which was largely attributable to the investment losses incurred during the nine months ended September 30, 2020.~~ taxes.

The provision for income taxes includes the effect of the operations of the Consolidated Funds that are not subject to federal income taxes. Accordingly, a portion of the Company's earnings are not subject to corporate ~~tax levels.~~tax. The effective tax rate of ~~29.8%~~25.7% differed from the federal statutory tax rate of 21% due primarily to state and local taxes ~~a tax deficit of $0.6 million recorded upon vesting of restricted stock and~~in the ~~impact of redeemable noncontrolling interests. Absent~~jurisdictions in which the effect of redeemable noncontrolling interests, the estimated unconsolidated effective tax rate would have been 28.0%. The actual effective tax rate for fiscal year 2020 could be materially different from the projected rate as of September 30, 2020.Company does business.

The Company generated net income attributable to common shareholders of ~~$24.3~~$13.7 million ($~~7.52~~4.34 per diluted share) for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with net income attributable to common shareholders of ~~$41.5~~$1.5 million ($~~12.00~~0.47 per diluted share) for the same period in ~~2019.~~2020. The ~~decrease~~increase in net income and earnings per diluted share was primarily driven by the increase in revenue in the three months ended March 31, 2021, combined with the significant losses on investments during the ~~nine~~three months ended ~~September 30, 2020, as compared to the significant gains on investments in 2019.~~March 31, 2020.

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Revenue


		Nine Months Ended September 30,									Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2020		2019		% Change		(in thousands, except percentages)	2021		2020		% Change
Investment advisory	Investment advisory	$	86,219	$	94,521	(9)	%	Investment advisory	$	36,569	$	30,158	21	%
Mutual fund administration, net	Mutual fund administration, net	5,131		6,196		(17)	%	Mutual fund administration, net	2,445		1,768		38	%
Total	Total	$	91,350	$	100,717	(9)	%	Total	$	39,014	$	31,926	22	%

Investment Advisory Fees. Investment advisory fees ~~decreased $8.3~~for the three months ended March 31, 2021 increased $6.4 million, or 9%21%, ~~from~~compared to the ~~nine~~three months ended ~~September 30, 2019 to the nine months ended September 30,~~March 31, 2020. 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 ~~decrease~~increase in investment advisory fees was primarily due to an increase in average AUM of 35%, partially offset by a decrease in the average advisory fee rate from ~~0.60%~~0.58% to ~~0.55% and a decrease~~0.53% period-over-period. The increase in ~~average~~ AUM ~~of 1% period-over-period.~~period-over-period was due primarily to the rebound in the financial markets since the three months ended March 31, 2020. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to the same period in ~~2019.~~2020.

Mutual Fund Administration Fees. Mutual fund administration fees ~~decreased $1.1~~for the three months ended March 31, 2021 increased $0.7 million, or ~~17%~~38%, ~~from~~compared to the ~~nine~~three months ended ~~September 30, 2019 to the nine months ended September 30,~~March 31, 2020. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds' average AUM. The ~~decrease~~increase was primarily due to ~~a 2% decrease~~the increase in the Funds' average AUM ~~from~~for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2021, compared to the ~~nine~~three months ended ~~September 30, 2020, and an increase in sub-transfer agent and servicing fees paid by the Company on behalf of the Funds.~~March 31, 2020.

Expenses


		Nine Months Ended September 30,									Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2020		2019		% Change		(in thousands, except percentages)	2021		2020		% Change
Compensation and related costs, excluding deferred compensation expense		$	41,679	$	43,614	(4)	%
Compensation and related costs, excluding deferred compensation expense (benefit)								Compensation and related costs, excluding deferred compensation expense (benefit)	$	16,815	$	15,417	9	%
Deferred compensation expense (benefit)	Deferred compensation expense (benefit)	(2,369)		4,052		NM		Deferred compensation expense (benefit)	3,103		(8,156)		NM
General and administrative	General and administrative	7,925		10,331		(23)	%	General and administrative	2,816		1,929		46	%
Sales and marketing	Sales and marketing	4,186		4,261		(2)	%	Sales and marketing	1,868		1,456		28	%
Mutual fund administration	Mutual fund administration	2,467		2,489		(1)	%	Mutual fund administration	880		815		8	%
Total	Total	$	53,888	$	64,747	(17)	%	Total	$	25,482	$	11,461	122	%

Compensation and Related Costs, Excluding Deferred Compensation Expense (Benefit). Employee compensation and benefits ~~decreased by $1.9 million from~~for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2021 increased by $1.4 million compared to the ~~nine~~three months ended ~~September 30,~~March 31, 2020. This ~~decrease~~increase was primarily due to ~~a decrease~~an increase in salary and related benefits ~~including severance,~~ of ~~$0.9~~$1.0 million, and an increase in incentive compensation of $0.8 million. These increases were partially offset by a decrease in restricted stock expense of ~~$0.7 million and a decrease in incentive compensation of $0.3~~$0.4 million.

Deferred Compensation Expense (Benefit). Deferred compensation ~~benefit~~expense was ~~$2.4~~$3.1 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~expense~~a benefit of ~~$4.1~~$(8.2) million for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The ~~benefit~~expense in the current period was primarily due to market ~~depreciation~~appreciation on deferred compensation plan ~~investments.~~investments, while the benefit in the prior period was primarily due to the negative impact COVID-19 had on the financial markets in March of 2020.

The gain (loss) on deferred compensation plan investments increases (decreases) deferred compensation expense (benefit) and is included in operating income. Deferred compensation expense (benefit) is offset by an equal amount in investment income below net operating income on the consolidated statements of income, and thus, has no impact on net income attributable to the Company.

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General and Administrative. General and administrative expense ~~decreased~~for the three months ended March 31, 2021 increased by ~~$2.4~~$0.9 million, or ~~23%~~46%, ~~from~~compared to the ~~nine~~three months ended ~~September 30, 2019 to the nine months ended September 30,~~March 31, 2020. This ~~decrease~~increase was primarily due to a non-recurring $1.1 million refund ~~received in 2020~~ related to ~~our~~ Ohio commercial activity tax, which was received in the first quarter of 2020 and reduced general and administrative expense for that quarter. The Ohio commercial activity tax is a gross receipts tax, and therefore, is not included in income taxes. ~~The decrease~~This increase was ~~also due to~~partially offset by a ~~decrease~~reduction in ~~corporate recruiting fees of $0.8 million and a reduction~~ in travel and related expenses period-over-period.

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Sales and Marketing. Sales and marketing expense ~~decreased~~for the three months ended March 31, 2021 increased by ~~$0.1~~$0.4 million, or 2%28%, ~~from~~compared to the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020. The increase was primarily due to additional payments of $0.3 million made to third party intermediaries related to the ~~nine months ended September 30, 2020. The decrease was primarily due~~sale of the Company's proprietary funds and increased spending of $0.2 million related to the Company's customer relationship management system and related external data costs. These increases were partially offset by a reduction in sales and marketing travel and related expense of ~~$0.6 million. This reduction was partially offset by increased spending related to our customer relationship management system and related external data costs of $0.5~~$0.1 million.

Mutual Fund Administration. Mutual fund administration expenses ~~declined 1% from~~for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2021 increased 8% compared to the ~~nine~~three months ended ~~September 30,~~March 31, 2020, primarily due to ~~the 2% decrease~~an increase in ~~average~~ mutual ~~fund AUM. Mutual~~ fund administration expense ~~consists of both variable and fixed expenses. The variable expenses are based on~~from an increase in the average Fund AUM ~~levels and the number of shareholder accounts.~~period-over-period.

Liquidity and Capital Resources

Sources of Liquidity

~~Our~~The Company's current financial condition is liquid, with a significant amount of ~~our~~its assets comprised of cash and cash equivalents, investments, accounts receivable, and other current assets. ~~Our~~The Company's main source of liquidity is cash flows from operating activities, which are generated from investment advisory and mutual fund administration fees. Cash and cash equivalents, investments held directly by DHCM, accounts receivable, and other current assets represented ~~$216.2~~$199.8 million and ~~$211.0~~$205.1 million of total assets as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. ~~We believe~~The Company believes that these sources of liquidity, as well as ~~our~~its continuing cash flows from operating activities, will be sufficient to meet ~~our~~its current and future operating needs for the next 12 months.

The COVID-19 pandemic could continue to create uncertainty and volatility in the financial markets, which may impact ~~our~~the Company's ability to access capital and liquidity, and the terms under which weit can do so. WeThe Company will continue to assess ~~our~~its liquidity needs as the impact of the COVID-19 pandemic on the economy, the financial markets, and ~~our~~its operations continues to evolve.

Uses of Liquidity

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

~~Our~~The Company's board of directors and management regularly review various factors to determine whether ~~we have~~it has capital in excess of that required for ~~our~~its business and the appropriate use of any such excess capital. The factors considered include ~~our~~the Company's investment opportunities, capital needed for investment strategies, ~~and~~ share repurchase ~~opportunities.~~

In September 2018, our board of directors approved a share repurchase program (the "2018 Repurchase Program") authorizing the purchase of up to $50.0 million of the Company's common shares. Under the 2018 Repurchase Program, the Company repurchased $4.0 million of its common shares during the first two months of 2020 which amounted to the $50.0 million authorized.opportunities, and dividends.

On February 27, 2020, the Company's board of directors approved a ~~new~~ share repurchase program (the "2020 Repurchase Program") authorizing management to repurchase up to $50.0 million of the Company's common shares. Under the 2020 Repurchase Program, the Company repurchased ~~$14.6~~$1.9 million of its common shares during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. As of ~~September 30, 2020, $35.4~~March 31, 2021, $33.5 million remains available for repurchase under the 2020 Repurchase Program. The authority to repurchase shares may be exercised from time to time as market conditions warrant, is subject to regulatory constraints, and will expire two years from the date of board approval, or upon the earlier repurchase in full of the authorized amount of shares. The timing, amount, and other terms and conditions of any repurchases will be determined by ~~the Company's~~ management in its discretion based on a variety of factors, including the market price of such shares, corporate considerations, general market and economic conditions, legal requirements, and the expected and continued impact of COVID-19.

The Company's board of directors has approved the ~~COVID-19 pandemic.~~institution of a regular quarterly dividend beginning the first of quarter 2021. Subject to approval each quarter by the board of directors and compliance with applicable law, the Company expects to pay a regular quarterly dividend of $1.00 per share. On February 25, 2021, the board of directors approved the first quarter dividend of $1.00 per share paid on March 19, 2021, to shareholders of record as of March 11, 2021. This dividend reduced shareholders' equity by approximately $3.1 million. On April 26, 2021, the board of directors approved the second quarter dividend of $1.00 per share to be paid on June 18, 2021, to shareholders of record as of June 3, 2021. This dividend is expected to reduce shareholders' equity by approximately $3.2 million.

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Going forward, at the end of each year, the board of directors will decide whether to pay an additional special dividend. Although the Company currently expects to pay the ongoing quarterly dividends, depending on the circumstances and the board of directors’ judgment, the Company may not pay such dividends as described.

Working Capital

As of ~~September 30, 2020,~~March 31, 2021, the Company had working capital of approximately ~~$190.0~~$180.2 million, compared to ~~$176.7~~$168.9 million as of December 31, ~~2019.~~2020. Working capital includes cash and cash equivalents, accounts receivable, investments, and other current assets of DHCM, net of accounts payable and accrued expenses, accrued incentive compensation, deferred compensation and other current liabilities of DHCM.

Below is a summary of securities owned by the Company as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

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		As of							As of
		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Corporate Investments:	Corporate Investments:					Corporate Investments:
Diamond Hill Core Bond Fund	Diamond Hill Core Bond Fund	$	47,086,064	$	43,691,925	Diamond Hill Core Bond Fund	$	45,857,423	$	47,204,636
Diamond Hill Research Opportunities Fund		14,736,929		16,223,519
Diamond Hill High Yield Fund		—		14,984,548
Diamond Hill Long-Short Fund						Diamond Hill Long-Short Fund	18,078,336		16,945,863
Diamond Hill Large Cap Concentrated Fund						Diamond Hill Large Cap Concentrated Fund	10,580,000		—
Diamond Hill Global Fund	Diamond Hill Global Fund	9,496,795		11,073,515		Diamond Hill Global Fund	11,765,492		11,269,719
Diamond Hill International Fund	Diamond Hill International Fund	8,278,703		8,039,570		Diamond Hill International Fund	10,870,057		10,156,320
Total Corporate Investments	Total Corporate Investments	79,598,491		94,013,077		Total Corporate Investments	97,151,308		85,576,538
Deferred Compensation Plan Investments in the Funds	Deferred Compensation Plan Investments in the Funds	28,654,074		30,342,204		Deferred Compensation Plan Investments in the Funds	33,369,087		33,241,952
Total investments held by DHCM	Total investments held by DHCM	108,252,565		124,355,281��		Total investments held by DHCM	130,520,395		118,818,490
Investments in Consolidated Funds held by noncontrolling interests	Investments in Consolidated Funds held by noncontrolling interests	8,180,911		15,081,897		Investments in Consolidated Funds held by noncontrolling interests	12,174,797		9,582,646
Total Investment Portfolio	Total Investment Portfolio	$	116,433,476	$	139,437,178	Total Investment Portfolio	$	142,695,192	$	128,401,136

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. ~~We expect~~The Company expects that cash flows provided by operating activities will continue to serve as ~~our~~its primary source of working capital in the near future.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash ~~provided by~~used in operating activities totaled ~~$38.2~~$15.7 million. Cash ~~inflows provided by~~outflows from operating activities were primarily driven by ~~net income~~a $19.6 million payment of ~~$22.3 million,~~incentive compensation in the ~~add back~~first quarter of ~~share-based compensation~~2021, securities purchased by the Consolidated Funds of ~~$5.7 million, depreciation of $0.8~~$11.5 million, and the cash impact of timing differences in the settlement of assets and liabilities of ~~$13.4~~$0.6 million. These ~~increases~~outflows were partially offset by a decrease in accrued incentive compensation of $4.0 million due to the payment of incentive compensation in the first quarter of 2020. Absent the cash used by the Consolidated Funds to purchase securities into their investment portfolios, cash flows provided by operations were $35.9 million.

~~For the nine months ended September 30, 2019, net cash provided by operating activities totaled $40.1 million. Cash inflows provided by operating activities were primarily driven by~~ net income of ~~$45.2~~$14.3 million, the add back of share-based compensation of ~~$6.7~~$1.5 million and depreciation of ~~$0.9 million, and net redemptions of securities held~~$0.2 million. Absent the cash used in ~~the underlying investment portfolios of~~operations by the Consolidated Funds, cash flows used by operations were $5.5 million.

For the three months ended March 31, 2020, net cash provided by operating activities totaled $2.0 million. Cash inflows provided by operating activities was primarily due to adding back the net losses on investments of ~~$10.1~~$23.2 million and non-cash expenses of $2.7 million to the Company's net loss of $2.5 million. ~~These cash inflows were~~This was partially offset by athe decrease in accrued incentive compensation of ~~$4.8~~$15.8 million due to the payment of bonuses in the first quarter of 2020 and the cash impact of ~~other~~ timing differences in the settlement of assets and liabilities of ~~$18.2~~$5.6 million. Absent the cash used in operations by the Consolidated Funds, ~~to purchase securities into their investment portfolios,~~ cash ~~flows~~flow provided by operations ~~were $33.5~~was $3.3 million.

Cash Flows from Investing Activities

The Company’s cash flows from investing activities consist primarily of capital expenditures and purchases and redemptions in our investment portfolio.

Cash flows provided by investing activities totaled ~~$10.7~~$1.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. Cash flows provided by investing activites were primarily driven by proceeds from the redemption of investments totaling $3.9 million,

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partially offset by corporate investments purchases of $1.9 million and property and equipment purchases (primarily capitalized software) of $0.4 million.

Cash flows provided by investing activities totaled $12.1 million for the three months ended March 31, 2020. Cash flows provided by investing activity were primarily driven by proceeds from the ~~sale~~redemption of investments ~~of $24.8~~totaling $23.2 million, partially offset by ~~investments purchased~~corporate investment purchases of ~~$12.4~~$10.9 million and property and equipment ~~(capitalized software) purchased~~purchases of ~~$1.7~~$0.2 million.

Cash flows provided by investing activities totaled $9.0 million for the nine months ended September 30, 2019. Cash flows provided by investing activity were primarily driven by proceeds from the sale of investments of $43.2 million. The cash inflows were partially offset by investments purchased of $11.0 million and property and equipment purchased of $0.6 million. The remaining change in reported cash flows from investing activities was attributable to $22.7 million in net cash that was removed from our balance sheet because we deconsolidated investment products during the period.

Cash Flows from Financing Activities

The Company’s cash flows from financing activities consist primarily of the repurchase of its common shares, shares withheld related to employee tax withholding, dividends paid on its common stock, and distributions to, or contributions from, redeemable noncontrolling interest holders.

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For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash used in financing activities totaled ~~$24.3~~$4.2 million, consisting of the payment of quarterly dividends totaling $3.1 million, repurchases of the Company’s common shares of ~~$18.6 million, net redemptions received in the Consolidated Funds from redeemable noncontrolling interest holders of $4.1~~$1.9 million, and the value of shares withheld related to employee tax withholding of ~~$1.6~~$0.3 million.

~~For the nine months ended September 30, 2019, net~~ These cash used in financing activities totaled $15.3 million, consisting of repurchases of the Company’s common shares of $23.2 million and the value of shares withheld related to employee tax withholding of $1.0 million, whichoutflows were partially offset by net subscriptions received in the Consolidated Funds from redeemable noncontrolling interest holders of ~~$8.9~~$0.7 million, and proceeds received under our ESPP of $0.3 million.

For the three months ended March 31, 2020, net cash used in financing activities totaled $10.0 million, consisting of repurchases of the Company’s common shares of $9.2 million, net redemptions received in the Consolidated Funds from redeemable noncontrolling interest holders of $0.6 million, and the value of shares withheld related to employee tax withholding of $0.2 million.

Supplemental Consolidated Cash Flow Statement

~~Our~~The Company's consolidated balance sheets reflect 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 wethe Company can redeem ~~our~~its net interest in the Consolidated Funds at any time, wethe Company 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 our general creditors.

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The following table summarizes the condensed cash flows for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 that are attributable to the Company and to the Consolidated Funds, and the related eliminations required in preparing the consolidated statements.


		Nine Months Ended September 30, 2020															Three Months Ended March 31, 2021
		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 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:	Cash flows from Operating Activities:									Cash flows from Operating Activities:
Net Income (Loss)		$	24,296,313	$	(5,179,704)	$	3,134,085	$	22,250,694
Net Income										Net Income	$	13,708,511	$	2,475,016	$	(1,920,914)	$	14,262,613
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:									Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	750,524		—		—		750,524		Depreciation	218,731		—		—		218,731
Share-based compensation	Share-based compensation	5,728,435		—		—		5,728,435		Share-based compensation	1,481,578		—		—		1,481,578
Net (gains)/losses on investments	Net (gains)/losses on investments	5,497,369		5,179,704		(3,134,085)		7,542,988		Net (gains)/losses on investments	(4,651,219)		(2,475,016)		1,920,914		(5,205,321)
Net change in securities held by Consolidated Funds	Net change in securities held by Consolidated Funds	—		3,033,304		—		3,033,304		Net change in securities held by Consolidated Funds	—		(11,456,604)		—		(11,456,604)
Other changes in assets and liabilities	Other changes in assets and liabilities	(345,626)		(758,277)		—		(1,103,903)		Other changes in assets and liabilities	(16,260,840)		1,299,338		—		(14,961,502)
Net cash provided by operating activities		35,927,015		2,275,027		—		38,202,042
Net cash provided by investing activities		8,871,693		—		1,822,061		10,693,754
Net cash used in financing activities		(20,221,289)		(2,275,027)		(1,822,061)		(24,318,377)
Net cash used in operating activities										Net cash used in operating activities	(5,503,239)		(10,157,266)		—		(15,660,505)
Net cash (used in) provided by investing activities										Net cash (used in) provided by investing activities	(7,830,682)		—		9,418,555		1,587,873
Net cash (used in) provided by financing activities										Net cash (used in) provided by financing activities	(4,956,596)		10,157,266		(9,418,555)		(4,217,885)
Net change during the period	Net change during the period	24,577,419		—		—		24,577,419		Net change during the period	(18,290,517)		—		—		(18,290,517)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	93,176,253		—		—		93,176,253		Cash and cash equivalents at beginning of period	98,478,202		—		—		98,478,202
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	117,753,672	$	—	$	—	$	117,753,672	Cash and cash equivalents at end of period	$	80,187,685	$	—	$	—	$	80,187,685

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Use of Supplemental Data as Non-GAAP Performance Measure

As supplemental information, ~~we are~~the Company is providing performance measures that are based on methodologies other than GAAP (“non-GAAP”). ~~We believe~~The Company believes the non-GAAP measures below are useful measures of ~~our~~its core business activities, are important metrics in estimating the value of an asset management business, and may enable more appropriate comparisons to ~~our~~its peers. These non-GAAP measures should not be used as 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-~~three-months ended March 31, 2021 and ~~nine-months ended September 30,~~ 2020, ~~and 2019,~~ respectively.


		Three Months Ended September 30,									Nine Months Ended September 30,							Three Months Ended March 31,
(in thousands, except percentages and per share data)	(in thousands, except percentages and per share data)	2020			2019			2020			2019			(in thousands, except percentages and per share data)	2021			2020
Total revenue	Total revenue	$	31,176		$	34,592		$	91,350		$	100,717		Total revenue	$	39,014		$	31,926

Net operating income, GAAP basis	Net operating income, GAAP basis	$	9,970		$	12,757		$	37,462		$	35,970		Net operating income, GAAP basis	$	13,532		$	20,465
Non-GAAP adjustment:	Non-GAAP adjustment:													Non-GAAP adjustment:
Gains (losses) on deferred compensation plan investments, net⁽¹⁾	Gains (losses) on deferred compensation plan investments, net⁽¹⁾	1,961			357			(2,369)			4,052			Gains (losses) on deferred compensation plan investments, net(1)	3,103			(8,156)
Net operating income, as adjusted, non-GAAP basis⁽²⁾	Net operating income, as adjusted, non-GAAP basis⁽²⁾	11,931			13,114			35,093			40,022			Net operating income, as adjusted, non-GAAP basis(2)	16,635			12,309
Non-GAAP adjustment:	Non-GAAP adjustment:													Non-GAAP adjustment:
Tax provision on net operating income, as adjusted, non-GAAP basis⁽³⁾	Tax provision on net operating income, as adjusted, non-GAAP basis⁽³⁾	(3,206)			(3,442)			(9,811)			(10,284)			Tax provision on net operating income, as adjusted, non-GAAP basis(3)	(4,402)			(3,448)
Net operating income, as adjusted, after tax, non-GAAP basis⁽⁴⁾	Net operating income, as adjusted, after tax, non-GAAP basis⁽⁴⁾	$	8,725		$	9,672		$	25,282		$	29,738		Net operating income, as adjusted, after tax, non-GAAP basis(4)	$	12,233		$	8,861

Net operating income, as adjusted after tax per diluted share, non-GAAP basis⁽⁵⁾	Net operating income, as adjusted after tax per diluted share, non-GAAP basis⁽⁵⁾	$	2.73		$	2.83		$	7.82		$	8.59		Net operating income, as adjusted after tax per diluted share, non-GAAP basis(5)	$	3.87		$	2.71
Diluted weighted average shares outstanding, GAAP basis	Diluted weighted average shares outstanding, GAAP basis	3,201			3,412			3,231			3,461			Diluted weighted average shares outstanding, GAAP basis	3,157			3,273

Operating profit margin, GAAP basis	Operating profit margin, GAAP basis	32		%	37		%	41		%	36		%	Operating profit margin, GAAP basis	35		%	64		%
Operating profit margin, as adjusted, non-GAAP basis⁽⁶⁾	Operating profit margin, as adjusted, non-GAAP basis⁽⁶⁾	38		%	38		%	38		%	40		%	Operating profit margin, as adjusted, non-GAAP basis(6)	43		%	39		%

⁽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 represents the Company’s net operating income adjusted to exclude the impact on compensation expense of gains and losses on investments in the deferred compensation plan.

⁽³⁾ Tax provision on net operating income, as adjusted: This non-GAAP measure represents the tax provision, excluding the impact of investment related activity, and is calculated by applying the unconsolidated effective tax rate to net operating income, as adjusted.

⁽⁴⁾ Net operating income, as adjusted, after tax: This non-GAAP measure deducts from the net operating income, as adjusted, 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~~The Company does not have any obligation under a guarantee contract, a retained or contingent interest in assets, or any 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, please see Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as Note 2, Significant Accounting Policies, in the ~~2019~~2020 Form 10-K.


ITEM 3:			Quantitative and Qualitative Disclosures About Market Risk

~~There has~~For information regarding the Company’s exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2020. Except as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, there have been no ~~material change~~significant changes in the ~~information provided in Item 7A of the 2019 Form 10-K.~~Company’s market risk exposures since our December 31, 2020 year end.


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, 2020,~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We continue to monitor and assess the impact, if any, that the COVID-19 pandemic and the related economic impacts could have on the design and operating effectiveness of our internal controls.


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 ~~are certain risks and uncertainties in our business that could cause actual results~~has been no material changes to ~~differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of our 2019 Form 10-K, as filed with~~ the ~~SEC on February 27, 2020, and available at www.sec.gov or at www.diamond-hill.com, we included a detailed discussion of our risk factors. Other than as noted below, our~~Company's risk factors ~~have not changed materially~~ from ~~those~~the information disclosed in Item 1A of the 2019 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this QuarterlyCompany’s Annual Report on ~~Form 10-Q. Any of~~form 10-K for the risks described in the 2019 Form 10-K as well as any of the risks described below could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in the 2019 Form 10-K and the risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.

~~The COVID-19 pandemic and other possible pandemics and similar outbreaks could result in material adverse effects on our business, financial position, results of operations and cash flows.~~

The COVID-19 pandemic has resulted in temporary, and sometimes prolonged, closures of many corporate offices, retail stores, manufacturing facilities, and factories around the world. In addition, as COVID-19 continues to spread across the globe, supply chains worldwide have been interrupted, slowed, or rendered inoperable, and an increasing number of individuals have and may continue to become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governmental mandates to control the outbreak may require additional forced shutdowns and limit the re-openings

year ended December 31,

~~Table of Contents~~

of various business facilities for extended or indefinite periods. COVID-19, and the various governmental, industry and consumer actions related to the containment thereof, are having and could continue to have negative effects on our business and risk exposure. These effects include, without limitation, potential significant financial market volatility, decreases in the demand for our investment products, changes in consumer behavior and preferences, limitations on our employees’ ability to work and travel, potential financial and operational difficulties of vendors and suppliers, significant changes in economic or political conditions, and financial market declines or recessions that could generally negatively affect the level of our AUM and consequently our revenue and net income (loss).

The global effect of the COVID-19 pandemic continues to evolve, and it is uncertain what the effect of various legislative and other responses that have been taken and that may be taken in the future in the United States and other countries will have on the economy, financial markets, international trade, our industries, our businesses and the businesses of our clients and vendors. Many countries have reacted to the outbreak by instituting quarantines and restrictions on travel to and from, actual and potentially affected areas, and the outbreak could have a continued adverse effect on economic and market conditions and trigger a period of global economic slowdown. The potential effect on global markets of the COVID-19 pandemic is difficult to predict, and the extent that the COVID-19 pandemic may negatively affect our operating results or the duration of any potential business disruption, is uncertain. Any potential effect on our business and results of operations will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread of the virus, all of which are beyond our control.

In addition, the COVID-19 pandemic has significantly affected the manner in which we operate. While we have in place business continuity plans that address the potential impact of the COVID-19 pandemic on our personnel, facilities, and technologies that enable our personnel to work effectively from home, no assurance can be given that the steps we have taken will continue to be effective or appropriate. While our employees have been able to continue conducting business while working remotely for an extended period, operational challenges may arise in the future, which may reduce our organizational efficiency or effectiveness, and increase operational, compliance, and cybersecurity risks. In addition, because most of our employees have not previously worked remotely for such an extended period of time, we are unsure of the impact that the remote work environment and lack of in-person meetings with colleagues, clients, and business partners will have on the growth of our business and the results of our operations. Many of our key service providers also have transitioned to working remotely for an extended period of time. If we or they were to experience material disruptions in the ability of our or their employees to work remotely (~~e.g.,~~ from illness due to the COVID-19 pandemic or disruption in internet-based communication systems and networks), our ability to operate our business could be materially adversely disrupted. Any such material adverse disruptions to our business operations could have a material adverse impact on our results of operations, cash flows, financial condition, and/or reputation.

2020.


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

During the quarter ended ~~September 30, 2020,~~March 31, 2021, the Company did not sell any common shares that were not registered under the Securities Act. The following table sets forth information regarding the Company’s repurchases of its common shares during the quarter ended ~~September 30, 2020:~~March 31, 2021:

Period
Total Number of Shares Purchased for Employee Tax Withholdings^(a)
Total Number
of Shares
Purchased
as part of Publicly
Announced Programs^(b)
Average Price
Paid Per Share Purchased Under the Programs Aggregate Purchase Price of Shares
Purchased
Under the Programs Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Program
July 1, 2020 through
July 31, 2020 803 — — — $ 42,038,185
August 1, 2020 through
August 31, 2020 — 18,319 $ 123.66 $ 2,265,417 $ 39,772,768
September 1, 2020 through
September 30, 2020 — 35,416 $ 124.16 $ 4,397,092 $ 35,375,676
Total 803 53,735 $ 123.99 $ 6,662,509

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Period	Total Number of Shares Purchased for Employee Tax Withholdings(a)	Total Number of Shares Purchased as part of Publicly Announced Programs(b)	Average Price Paid Per Share Purchased Under the Programs		Aggregate Purchase Price of Shares Purchased Under the Programs		Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Program
January 1, 2021 through January 31, 2021	1,729	—	—		—		$	35,375,676
February 1, 2021 through February 28, 2021	—	—	—		—		35,375,676
March 1, 2021 through March 31, 2021	—	12,529	$	151.10	$	1,893,146	$	33,482,530
Total	1,729	12,529	$	151.10	$	1,893,146

(a)The Company regularly withholds common shares for tax payments due upon the vesting of employee restricted stock. During the quarter ended ~~September 30, 2020,~~March 31, 2021, the Company purchased ~~803~~1,729 common shares for employee tax withholdings at an average price paid per share of ~~$113.67.~~$149.27.

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(b)On February 27, 2020, the Company announced the 2020 Repurchase Program, pursuant to which our board of directors authorized management to repurchase up to $50.0 million of the Company’s common shares in the open market and in private transactions in accordance with applicable securities laws. The 2020 Repurchase Program will expire in February 2022, or upon the earlier completion of all authorized purchases under such program.

The Company has entered into a Rule 10b5-1 repurchase plan. This plan is intended to qualify for the safe harbor under Rule 10b5-1 of the Exchange Act. A Rule 10b5-1 plan allows a company to purchase its shares at times when it would not ordinarily be in the market because of its trading policies or the possession of material nonpublic information. ~~Purchases may be made in the open market or through privately negotiated transactions. Purchases in the open market will be made in compliance with Rule 10b-18 under the Exchange Act.~~ Because the repurchases under the 10b5-1 plan are subject to specified parameters and certain price, timing, and volume restraints specified in the plan, there is no guarantee as to the exact number of shares that will be repurchased or that there will be any repurchases at all pursuant to the plan. Purchases may be made in the open market or through privately negotiated transactions. Purchases in the open market will be made in compliance with Rule 10b-18 under the Exchange Act.

Through ~~September 30, 2020,~~March 31, 2021, the Company has repurchased ~~129,389~~141,918 of the Company's common shares under the 2020 Repurchase Program at a total cost of ~~$14.6~~$16.5 million.


ITEM 3:			Defaults Upon Senior Securities

None.


ITEM 4:			Mine Safety Disclosures

~~None.~~Not applicable.


ITEM 5:			Other Information

Historically, the Company has issued common shares to employees as incentive compensation under the 2014 Plan. These shares are fully vested, non-forfeitable, and are subject to a five-year sale restriction (the “Sale Restriction”). On October 27, 2020, the Company's board of directors voluntarily removed the Sale Restriction on approximately 130,000 shares.None.

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ITEM 6:			Exhibits


3.1						Amended and Restated Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3(i) to the Current Report on Form 8-K filed with the SEC on May 7, 2002) (File No. 000-24498).

3.2						Certificate of Amendment by Shareholders to the Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on April 28, 2017) (File No. 000-24498).

3.3						Amended and Restated Code of Regulations of the Company (Incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on April 28, 2017) (File No. 000-24498).

~~10.3~~10.1						Asset Purchase Agreement By and Between Brandywine Global Investment Management, LLC and Diamond Hill ~~Investment Group,~~Capital Management, Inc. ~~Employee Stock Purchase Plan (Filed herewith)~~

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. (Furnished herewith)

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 27, 2020~~April 26, 2021

Chief Executive Officer and President

/s/ Heather E. Brilliant

Heather E. Brilliant

~~October 27, 2020~~April 26, 2021

Chief Financial Officer and Treasurer

/s/ Thomas E. Line

Thomas E. Line

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	Three Months Ended September 30, 2019
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	24,178,440	$	2,094,271	$	26,272,711
Sub-advised funds and separately managed accounts	8,319,661		0		8,319,661
	$	32,498,101	$	2,094,271	$	34,592,372


	September 30, 2020		September 30, 2019
Three Months Ended	$	241,050	$	239,838
Nine Months Ended	$	706,538	$	731,366