##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 Commission file number 000-24498
 DIAMOND HILL INVESTMENT GROUP, INC.
  Ohio
    
    65-0190407(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 325 John H. McConnell Blvd, Suite 200, Columbus, Ohio 43215
 (Registrants
telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




---



##### 



PAGEPart I: FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20Part II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




---



##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1:
Consolidated Financial Statements
 Diamond Hill Investment Group, Inc.
Consolidated Balance Sheets
 3/31/2010
    
    
    12/31/2009(Unaudited)ASSETSCash and cash equivalents
    
    $
    10,964,947
    
    
    $
    11,513,194Investment portfolio
    
    
    16,661,830
    
    
    
    16,429,967Accounts receivable
    
    
    8,004,020
    
    
    
    10,144,004Prepaid expenses
    
    
    708,335
    
    
    
    724,825Fixed assets, net of depreciation, and other assets
    
    
    1,104,432
    
    
    
    1,171,670Deferred taxes
    
    
    615,598
    
    
    
    520,965Total assets
    
    $
    38,059,162
    
    
    $
    40,504,625LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable and accrued expenses
    
    $
    2,136,254
    
    
    $
    4,465,011Accrued incentive compensation
    
    
    3,875,000
    
    
    
    12,300,650Income tax payable
    
    
    366,632
    
    
    
    758,257Total liabilities
    
    
    6,377,886
    
    
    
    17,523,918Commitments and contingencies
    
    
    
    
    
    
    Shareholders EquityCommon stock, no par value
7,000,000 shares authorized;
2,767,892 issued and outstanding at March 31, 2010;
2,677,577 issued and outstanding at December 31, 2009
    
    
    32,461,689
    
    
    
    26,922,484Preferred stock, undesignated, 1,000,000 shares
authorized and unissued
    
    
    
    
    
    
    Deferred compensation
    
    
    (7,579,653
    )
    
    
    (8,070,697
    )Retained earnings
    
    
    6,799,240
    
    
    
    4,128,920Total shareholders equity
    
    
    31,681,276
    
    
    
    22,980,707Total liabilities and shareholders equity
    
    $
    38,059,162
    
    
    $
    40,504,625Book value per share
    
    $
    11.45
    
    
    $
    8.58
   3




---



##### Table of Contents



Diamond Hill Investment Group, Inc.
Consolidated Statements of Income (unaudited)
 Three Months Ended March 31,2010
    
    
    2009REVENUES:Investment advisory
    
    $
    11,480,525
    
    
    $
    7,788,943Mutual fund administration, net
    
    
    1,910,383
    
    
    
    1,094,531Total revenue
    
    
    13,390,908
    
    
    
    8,883,474OPERATING EXPENSES:Compensation and related costs
    
    
    7,781,678
    
    
    
    5,138,095General and administrative
    
    
    811,309
    
    
    
    646,180Sales and marketing
    
    
    138,388
    
    
    
    145,588Third party distribution
    
    
    258,775
    
    
    
    248,670Mutual fund administration
    
    
    472,154
    
    
    
    577,185Total operating expenses
    
    
    9,462,304
    
    
    
    6,755,718NET OPERATING INCOME
    
    
    3,928,604
    
    
    
    2,127,756Investment return
    
    
    244,917
    
    
    
    (1,578,852
    )INCOME BEFORE TAXES
    
    
    4,173,521
    
    
    
    548,904Income tax provision
    
    
    (1,503,201
    )
    
    
    (197,533
    )NET INCOME
    
    $
    2,670,320
    
    
    $
    351,371Earnings per shareBasic
    
    $
    0.98
    
    
    $
    0.14Diluted
    
    $
    0.98
    
    
    $
    0.14Weighted average shares outstandingBasic
    
    
    2,719,075
    
    
    
    2,508,451Diluted
    
    
    2,720,804
    
    
    
    2,515,633
   4




---



##### Table of Contents



Diamond Hill Investment Group, Inc.
Consolidated Statements of Cash Flow (unaudited)
 Three Months Ended March 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    2,670,320
    
    
    $
    351,371Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation on furniture and equipment
    
    
    79,557
    
    
    
    51,258Amortization of deferred compensation
    
    
    583,744
    
    
    
    452,499(Increase) decrease in accounts receivable
    
    
    2,139,984
    
    
    
    683,476Change in deferred taxes
    
    
    (94,633
    )
    
    
    (1,232,325
    )Noncash director fee expense
    
    
    164,827
    
    
    
    150,062Investment (gain) loss, net
    
    
    (231,863
    )
    
    
    4,580,382Decrease in accrued liabilities
    
    
    (5,751,261
    )
    
    
    (6,647,708
    )Other changes in assets and liabilities
    
    
    (337,376
    )
    
    
    1,792,594Net cash provided by (used in) operating activities
    
    
    (776,701
    )
    
    
    181,609CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (12,319
    )
    
    
    (188,761
    )Cost of investments purchased and other portfolio activity
    
    
    
    
    
    
    (10,881,666
    )Proceeds from sale of investments
    
    
    
    
    
    
    5,460,937Net cash used in investing activities
    
    
    (12,319
    )
    
    
    (5,609,490
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment of taxes withheld on employee stock transactions
    
    
    
    
    
    
    (23,471
    )Proceeds from common stock issuance
    
    
    240,773
    
    
    
    186,375Net cash provided by financing activities
    
    
    240,773
    
    
    
    162,904CASH AND CASH EQUIVALENTSNet change during the period
    
    
    (548,247
    )
    
    
    (5,264,977
    )At beginning of period
    
    
    11,513,194
    
    
    
    15,788,560At end of period
    
    $
    10,964,947
    
    
    $
    10,523,583Cash paid during the period for:Interest
    
    $
    
    
    
    $
    Income taxes
    
    
    1,951,700
    
    
    
    Noncash transactions during the period for:Common stock issued as incentive compensation
    
    
    5,003,146
    
    
    
    4,852,216
   5




---



##### Table of Contents



Diamond Hill Investment Group, Inc.
Notes to Consolidated Financial Statements (unaudited)
 Organization
     Significant Accounting Policies
  Principles of Consolidation
  Segment Information
  Cash and Cash Equivalents
   6




---



##### Table of Contents



Significant Accounting Policies (Continued)
 Accounts Receivable
  Valuation of Investment Portfolio
   Limited Partnership Interests
     Furniture and Equipment
  Revenue Recognition  General
   7




---



##### Table of Contents



Significant Accounting Policies (Continued)
 Revenue Recognition  Performance Incentive Revenue
  As Of March 31,2010
    
    
    2009AUM  Contractual Period Ends Quarterly
    
    $
    108,323,321
    
    
    $
    84,077,397AUM  Contractual Period Ends Annually
    
    
    184,966,484
    
    
    
    143,724,736Total AUM Subject to Performance Incentive
    
    $
    293,289,805
    
    
    $
    227,802,133
 For The Three Months EndingMarch 31,2010
    
    
    2009Performance Incentive Fees  Method 1
    
    $
    
    
    
    $
    4,645Performance Incentive Fees  Method 2
    
    $
    105,039
    
    
    $
    4,645
 Revenue Recognition  Mutual Fund Administration
   8




---



##### Table of Contents



Significant Accounting Policies (Continued)
 Revenue Recognition  Mutual Fund Administration (Continued)
   Three Months Ended March 31,2010
    
    
    2009Mutual fund administration:Administration revenue, gross
    
    $
    2,806,111
    
    
    $
    1,846,22312b-1/service fees and commission revenue received from fund
clients
    
    
    2,226,988
    
    
    
    12b-1/service fees and commission expense payments to third
parties
    
    
    (2,226,988
    )
    
    
    Fund related expense
    
    
    (927,205
    )
    
    
    (715,552
    )Revenue, net of fund related expenses
    
    
    1,878,906
    
    
    
    1,130,671C-Share financing:Broker commission advance repayments
    
    
    158,941
    
    
    
    347,453Broker commission amortization
    
    
    (127,464
    )
    
    
    (383,593
    )Financing activity, net
    
    
    31,477
    
    
    
    (36,140
    )Mutual fund administration revenue, net
    
    $
    1,910,383
    
    
    $
    1,094,531
 Third Party Distribution Expense
  Income Taxes
    9




---



##### Table of Contents



Significant Accounting Policies (Continued)
 Earnings Per Share
  Reclassifications
  Investment Portfolio
  March 31,
    
    
    December 31,2010
    
    
    2009Diamond Hill Small Cap Fund
    
    $
    764,257
    
    
    $
    709,881Diamond Hill Small-Mid Cap Fund
    
    
    838,710
    
    
    
    785,714Diamond Hill Large Cap Fund
    
    
    715,145
    
    
    
    684,554Diamond Hill Select Fund
    
    
    733,177
    
    
    
    705,790Diamond Hill Long-Short Fund
    
    
    600,517
    
    
    
    606,800Diamond Hill Strategic Income Fund
    
    
    640,948
    
    
    
    615,431Diamond Hill Investment Partners, L.P.
    
    
    2,609,268
    
    
    
    2,653,856Diamond Hill Investment Partners II, L.P.
    
    
    2,602,636
    
    
    
    2,649,665Diamond Hill Research Partners, L.P.
    
    
    7,157,172
    
    
    
    7,018,276Total Investment Portfolio
    
    $
    16,661,830
    
    
    $
    16,429,967
  March 31,
    
    
    December 31,2010
    
    
    2009Total partnership assets
    
    $
    198,523,650
    
    
    $
    188,716,374Total partnership liabilities
    
    
    51,598,327
    
    
    
    40,583,059Net partnership assets
    
    
    146,925,323
    
    
    
    148,133,315Net partnership income (loss)
    
    
    (2,652,991
    )
    
    
    35,193,357DHCMs portion of net assets
    
    
    12,369,075
    
    
    
    12,321,797DHCMs portion of net income
    
    
    47,277
    
    
    
    4,634,391
   10




---



##### Table of Contents



Capital Stock
 Common Shares
  Authorization of Preferred Shares
  Stock-Based Compensation
 Equity Incentive Plans
 2005 Employee and Director Equity Incentive Plan
  401(k) Plan
   11




---



##### Table of Contents



Stock-Based Compensation (Continued)
 Stock Options and Warrants
  WarrantsWeighted AverageShares
    
    
    Exercise PriceOutstanding December 31, 2008
    
    
    10,000
    
    
    $
    13.00Exercisable December 31, 2008
    
    
    10,000
    
    
    $
    13.00Granted
    
    
    
    
    
    
    Expired / Forfeited
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Outstanding March 31, 2009
    
    
    10,000
    
    
    $
    13.00Exercisable March 31, 2009
    
    
    10,000
    
    
    $
    13.00Outstanding December 31, 2009
    
    
    6,000
    
    
    $
    10.42Exercisable December 31, 2009
    
    
    6,000
    
    
    $
    10.42Granted
    
    
    
    
    
    
    Expired / Forfeited
    
    
    2,000
    
    
    
    11.25Exercised
    
    
    2,000
    
    
    
    11.25Outstanding March 31, 2010
    
    
    2,000
    
    
    $
    8.75Exercisable March 31, 2010
    
    
    2,000
    
    
    $
    8.75
  WarrantsRemainingNumber
    
    
    
    
    Life
    
    
    NumberOutstanding
    
    
    
    
    In Years
    
    
    Exercisable
    
    
    Exercise Price2,000
    
    
    
    
    
    0.11
    
    
    
    2,000
    
    
    $
    8.752,000
    
    
    
    
    
    0.11
    
    
    
    2,000
  Operating Leases
  2010
    

    2011
    

    2012
    

    2013
    

    2014
    

    Thereafter$
    270,000
    
    $
    340,000
    
    $
    348,000
    
    $
    356,000
    
    $
    358,000
    
    $
    571,000
  12




---



##### Table of Contents



Operating Leases (Continued)
  Income Taxes
  Earnings Per Share
  Three Months Ended March 31,2010
    
    
    2009Basic and Diluted net income
    
    $
    2,670,320
    
    
    $
    351,371Weighted average number of
outstanding sharesBasic
    
    
    2,719,075
    
    
    
    2,508,451Diluted
    
    
    2,720,804
    
    
    
    2,515,633Earnings per shareBasic
    
    $
    0.98
    
    
    $
    0.14Diluted
    
    $
    0.98
    
    
    $
    0.14
 Regulatory Requirements
  Commitments and Contingencies
   13




---



##### Table of Contents



ITEM
2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
  General
     14




---



##### Table of Contents



Assets Under Management
  Assets Under Management by ProductAs of March 31,(in millions)
    
    2010
    
    
    2009
    
    
    % ChangeMutual funds
    
    $
    3,969
    
    
    $
    2,643
    
    
    
    50
    %Separate accounts
    
    
    2,691
    
    
    
    1,063
    
    
    
    153
    %Private investment funds
    
    
    216
    
    
    
    203
    
    
    
    6
    %Total
    
    $
    6,876
    
    
    $
    3,909
    
    
    
    76
    %
 Assets Under Management by ObjectiveAs of March 31,(in millions)
    
    2010
    
    
    2009
    
    
%
ChangeSmall
    
    $
    701
    
    
    $
    360
    
    
    
    95
    %Small-Mid Cap
    
    
    162
    
    
    
    85
    
    
    
    91
    %Large Cap
    
    
    3,038
    
    
    
    1,184
    
    
    
    157
    %Select
    
    
    423
    
    
    
    234
    
    
    
    81
    %Long-Short
    
    
    2,382
    
    
    
    1,930
    
    
    
    23
    %Strategic and fixed income
    
    
    170
    
    
    
    116
    
    
    
    47
    %Total
    
    $
    6,876
    
    
    $
    3,909
    
    
    
    76
    %
 Change in Assets Under ManagementFor the Three Months Ended March 31,(in millions)
    
    2010
    
    
    2009AUM at beginning of the period
    
    $
    6,283
    
    
    $
    4,510Net cash inflows (outflows)mutual funds
    
    
    254
    
    
    
    (138
    )separate accounts
    
    
    153
    
    
    
    39private investment funds
    
    
    (0
    )
    
    
    3407
    
    
    
    (96
    )Net market appreciation (depreciation) and income
    
    
    186
    
    
    
    (505
    )Increase (decrease) during the period
    
    
    593
    
    
    
    (601
    )AUM at end of the period
    
    $
    6,876
    
    
    $
    3,909
  15




---



##### Table of Contents



Consolidated Results of Operations
  Three Months Ended March 31,(in thousands, except per share amounts)
    
    2010
    
    
    2009
    
    

% ChangeNet operating income after tax (a)
    
    $
    2,509
    
    
    $
    1,388
    
    
    
    81
    %Net income
    
    $
    2,670
    
    
    $
    351
    
    
    nmNet operating income after tax per share(a)Basic
    
    $
    0.92
    
    
    $
    0.55
    
    
    
    67
    %Diluted
    
    $
    0.92
    
    
    $
    0.55
    
    
    
    67
    %Net income per shareBasic
    
    $
    0.98
    
    
    $
    0.14
    
    
    nmDiluted
    
    $
    0.98
    
    
    $
    0.14
    
    
    nmWeighted average shares outstandingBasic
    
    
    2,719
    
    
    
    2,508Diluted
    
    
    2,721
    
    
    
    2,516
 (a)
    
     Net operating income after tax is a non-GAAP performance measure. See Use of
Supplemental Data as Non-GAAP Performance Measure on page 18 of this report. Three Months Ended March 31, 2010 compared with Three Months Ended March 31, 2009
  Revenue
 Three Months EndedMarch 31,(in thousands)
    
    2010
    
    
    2009
    
    

% ChangeInvestment advisory
    
    $
    11,481
    
    
    $
    7,789
    
    
    
    47
    %Mutual fund administration, net
    
    
    1,910
    
    
    
    1,094
    
    
    
    75
    %Total
    
    $
    13,391
    
    
    $
    8,883
    
    
    
    51
    %
  Investment Advisory Fees.
  16




---



##### Table of Contents



Mutual Fund Administration Fees.
 Expenses
 Three Months EndedMarch 31,(in thousands)
    
    2010
    
    
    2009
    
    
    % ChangeCompensation and related costs
    
    $
    7,782
    
    
    $
    5,138
    
    
    
    51
    %General and administrative
    
    
    811
    
    
    
    646
    
    
    
    26
    %Sales and marketing
    
    
    138
    
    
    
    146
    
    
    
    -5
    %Third party distribution
    
    
    259
    
    
    
    249
    
    
    
    4
    %Mutual fund administration
    
    
    472
    
    
    
    577
    
    
    
    -18
    %Total
    
    $
    9,462
    
    
    $
    6,756
    
    
    
    40
    %
 Compensation and Related Costs.
 General and Administrative.
 Sales and Marketing.
 Third Party Distribution.
 Mutual Fund Administration.
  17




---



##### Table of Contents



Beacon Hill Fund Services
  Three Months EndedMarch 31,(in thousands)
    
    2010
    
    
    2009Revenue1
    
    $
    382
    
    
    $
    103Expenses
    
    
    610
    
    
    
    484Net loss
    
    $
    (228
    )
    
    $
    (381
    )
 1
    
    Beacon Hills revenue for the three months ended March 31, 2010 and 2009
includes $111 thousand and $16 thousand, respectively, of inter-company revenue earned from
services provided to DHCM. This amount has been eliminated from the Consolidated Statements
of Income. Liquidity and Capital Resources
    Use of Supplemental Data as Non-GAAP Performance Measure
Net Operating Income After Tax
    18




---



##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009Net Operating Income, GAAP basis
    
    $
    3,928,604
    
    
    $
    2,127,756Non-GAAP Adjustments:Tax Provision excluding impact of Investment Return
    
    
    1,419,603
    
    
    
    739,342Net operating income after tax, non-GAAP basis
    
    
    2,509,001
    
    
    
    1,388,414Net operating income after tax per basic share, non-GAAP basis
    
    $
    0.92
    
    
    $
    0.55Net operating income after tax per diluted share, non-GAAP basis
    
    $
    0.92
    
    
    $
    0.55Basic weighted average shares outstanding, GAAP basis
    
    
    2,719,075
    
    
    
    2,508,451Diluted weighted average shares outstanding, GAAP basis
    
    
    2,720,804
    
    
    
    2,515,633
 Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   19




---



##### Table of Contents



ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
  
 ITEM 4: Controls and Procedures
  
 PART II: OTHER INFORMATION
 
 ITEM 1: Legal Proceedings
  
 ITEM 1A: Risk Factors
  
 ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3: Defaults Upon Senior Securities
   20




---



##### Table of Contents



ITEM 4: Submission of Matters to a Vote of Security Holders
  
 ITEM 5: Other Information
   21




---



##### Table of Contents



ITEM 6: Exhibits
 3.1
    
    
    Amended and Restated Articles of Incorporation of the Company. (Incorporated by
reference from Form 8-K Current Report for the event on May 2, 2002 filed with the SEC
on May 7, 2002; File No. 000-24498.)3.2
    
    
    Code of Regulations of the Company. (Incorporated by reference from Form 8-K Current
Report for the event on May 2, 2002 filed with the SEC on May 7, 2002; File No.
000-24498.)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.
  22




---



##### Table of Contents



DIAMOND HILL INVESTMENT GROUP, INC.
 
 SIGNATURES
   Date
    
    Title
    
    SignatureMay 7, 2010
    
    President, Chief Executive Officer,and a Director
    
    /s/ R. H. DillonR. H. DillonMay 7, 2010
    
    Chief Financial Officer, Treasurer, and Secretary
    
    /s/ James F. LairdJames F. Laird
  23