##### Table of Contents



U.S. 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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PAGEPart I: FINANCIAL INFORMATION
    
    
    3Item 1. Consolidated Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20Part II: OTHER INFORMATION
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    23EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1: Financial Statements
 Diamond Hill Investment Group, Inc.
Consolidated Balance Sheets
 3/31/2008
    
    
    12/31/2007(Unaudited)ASSETSCash and cash equivalents
    
    $
    12,296,073
    
    
    $
    11,783,278Investment portfolio
    
    
    33,535,286
    
    
    
    34,036,163Accounts receivable
    
    
    6,382,927
    
    
    
    5,694,274Prepaid expenses
    
    
    1,060,029
    
    
    
    1,115,728Fixed assets, net of depreciation
    
    
    810,537
    
    
    
    654,500Total assets
    
    $
    54,084,852
    
    
    $
    53,283,943LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesAccounts payable and accrued expenses
    
    
    1,338,266
    
    
    $
    979,467Accrued incentive compensation
    
    
    3,270,000
    
    
    
    12,450,000Current and deferred taxes
    
    
    685,231
    
    
    
    546,944Total liabilities
    
    
    5,293,497
    
    
    
    13,976,411Commitments and contingencies
    
    
    
    
    
    
    Shareholders EquityCommon stock, no par value
7,000,000 shares authorized;
2,370,810 issued and
outstanding at March 31, 2008
2,243,653 issued and
outstanding at December 31,
2007
    
    
    36,484,073
    
    
    
    27,719,024Preferred stock, undesignated, 1,000,000 shares
authorized and unissued
    
    
    
    
    
    
    Deferred compensation
    
    
    (5,322,930
    )
    
    
    (4,056,015
    )Retained earnings
    
    
    17,630,212
    
    
    
    15,644,523Total shareholders equity
    
    
    48,791,355
    
    
    
    39,307,532Total liabilities and shareholders equity
    
    $
    54,084,852
    
    
    $
    53,283,943
  3




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Diamond Hill Investment Group, Inc.  Consolidated Statements of Income (unaudited)
 Three Months Ended March 31,2008
    
    
    2007REVENUES:Investment advisory
    
    $
    9,231,995
    
    
    $
    7,881,405Performance incentive
    
    
    280,900
    
    
    
    4,297Mutual fund administration, net
    
    
    1,390,329
    
    
    
    1,469,041Total revenue
    
    
    10,903,224
    
    
    
    9,354,743OPERATING EXPENSES:Compensation and related costs
    
    
    5,841,754
    
    
    
    4,667,463General and administrative
    
    
    557,148
    
    
    
    566,412Sales and marketing
    
    
    114,030
    
    
    
    101,494Third party distribution
    
    
    396,105
    
    
    
    379,334Mutual fund administration
    
    
    468,615
    
    
    
    552,974Total operating expenses
    
    
    7,377,652
    
    
    
    6,267,677NET OPERATING INCOME
    
    
    3,525,572
    
    
    
    3,087,066Investment return
    
    
    (374,664
    )
    
    
    (30,460
    )INCOME BEFORE TAXES
    
    
    3,150,908
    
    
    
    3,056,606Income tax provision
    
    
    (1,165,219
    )
    
    
    (1,062,193
    )NET INCOME
    
    $
    1,985,689
    
    
    $
    1,994,413Earnings per shareBasic
    
    $
    0.85
    
    
    $
    0.98Diluted
    
    $
    0.82
    
    
    $
    0.91Weighted average shares outstandingBasic
    
    
    2,337,706
    
    
    
    2,029,958Diluted
    
    
    2,426,400
    
    
    
    2,195,772
  4




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Diamond Hill Investment Group, Inc.  Consolidated Statements of Cash Flow (unaudited)
 Three Months Ended March 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    1,985,689
    
    
    $
    1,994,413Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation on furniture and equipment
    
    
    38,465
    
    
    
    27,140Amortization of deferred compensation
    
    
    559,538
    
    
    
    228,026(Increase) decrease in accounts receivable
    
    
    (688,653
    )
    
    
    1,676,080Increase in deferred taxes
    
    
    1,091,993
    
    
    
    1,062,193Stock option expense
    
    
    1,340
    
    
    
    3,015Change in
unrealized gains/losses
    
    
    834,487
    
    
    
    155,820(Decrease) in accrued liabilities
    
    
    (2,993,296
    )
    
    
    (5,858,722
    )Other changes in assets and liabilities
    
    
    55,699
    
    
    
    (270,480
    )Net cash provided by (used in) operating activities
    
    
    885,262
    
    
    
    (982,515
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (194,502
    )
    
    
    (117,742
    )Investment portfolio activity
    
    
    (333,610
    )
    
    
    (38,100
    )Net cash used in investing activities
    
    
    (528,112
    )
    
    
    (155,842
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment for repurchase of common shares
    
    
    (116,896
    )
    
    
    Payment of taxes withheld on option/warrant exercises
    
    
    (131,800
    )
    
    
    (7,675,676
    )Proceeds from common stock issuance
    
    
    404,341
    
    
    
    3,228,064Purchase of treasury stock
    
    
    
    
    
    
    (1,342,148
    )Sale of treasury stock
    
    
    
    
    
    
    1,321,862Net cash provided by (used in) financing activities
    
    
    155,645
    
    
    
    (4,467,898
    )CASH AND CASH EQUIVALENTSNet change during the period
    
    
    512,795
    
    
    
    (5,606,255
    )At beginning of period
    
    
    11,783,278
    
    
    
    9,836,989At end of period
    
    $
    12,296,073
    
    
    $
    4,230,734Cash paid during the period for:Interest
    
    
    
    
    
    
    Income taxes
    
    
    
    
    
    
    Noncash Transactions during the period for:Common Stock Issued as Incentive Compensation
    
    
    5,754,140
    
    
    
    5,478,718
  5




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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




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




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Significant Accounting Policies (Continued)
 Revenue Recognition  Performance Incentive Revenue
  As Of March 31,2008
    
    
    2007AUM  Contractual Period Ends Quarterly
    
    $
    284,542,311
    
    
    $
    270,989,720AUM  Contractual Period Ends Annually
    
    
    376,395,460
    
    
    
    249,440,743Total AUM Subject to Performance Incentive
    
    $
    660,937,771
    
    
    $
    520,430,463
 For The Period Ending March 31,2008
    
    2007Performance Incentive Fees  Method 1
    
    $
    280,900
    
    
    $
    4,297Performance Incentive Fees  Method 2
    
    $
    280,900
    
    
    
    39,530
  Revenue Recognition  Mutual Fund Administration
  8




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Significant Accounting Policies (Continued)
 Revenue Recognition  Mutual Fund Administration (Continued)
 Three Months Ended March 31,2008
    
    
    2007Mutual fund admin revenue, gross
    
    $
    2,044,549
    
    
    $
    2,036,346Mutual fund admin, fund related expense
    
    
    661,038
    
    
    
    576,821Mutual fund admin revenue, net of fund related expenses
    
    
    1,383,511
    
    
    
    1,459,525C-Share broker commission advance repayments
    
    
    398,947
    
    
    
    412,200C-Share broker commission amortization
    
    
    392,129
    
    
    
    402,684C-Share financing activity, net
    
    
    6,818
    
    
    
    9,516Mutual fund administration revenue, net
    
    $
    1,390,329
    
    
    $
    1,469,041
 Third Party Distribution Expense
  Income Taxes
   Earnings Per Share
  Reclassifications
  9




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Investment Portfolio
  March 31,
    
    
    December 31,2008
    
    
    2007Diamond Hill Small Cap Fund
    
    $
    1,021,094
    
    
    $
    1,039,517Diamond Hill Small-Mid Cap Fund
    
    
    986,239
    
    
    
    1,016,243Diamond Hill Large Cap Fund
    
    
    951,765
    
    
    
    1,017,340Diamond Hill Select Fund
    
    
    939,066
    
    
    
    1,015,803Diamond Hill Long-Short Fund
    
    
    1,023,162
    
    
    
    1,027,615Diamond Hill Financial Long-Short Fund
    
    
    937,270
    
    
    
    1,025,356Diamond Hill Strategic Income Fund
    
    
    3,760,053
    
    
    
    3,765,566Diamond Hill Investment Partners, L.P.
    
    
    10,104,219
    
    
    
    10,070,021Diamond Hill Investment Partners II, L.P.
    
    
    5,079,496
    
    
    
    5,058,702Other marketable equity securities
    
    
    8,732,922
    
    
    
    9,000,000Total Investment Portfolio
    
    $
    33,535,286
    
    
    $
    34,036,163
  March 31,
    
    December 31,2008
    
    2007Total partnership assets
    
    $
    340,939,106
    
    
    $
    360,372,685Total partnership liabilities
    
    
    58,903,561
    
    
    
    80,007,267Net partnership assets
    
    
    282,035,545
    
    
    
    280,365,418Net partnership income (loss)
    
    
    (278,237
    )
    
    
    6,581,829DHCMs portion of net assets
    
    
    15,183,714
    
    
    
    15,128,723DHCMs portion of net income
    
    
    54,992
    
    
    
    562,469
  10




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Capital Stock
 Common Shares
  Authorization of Preferred Shares
  Stock-Based Compensation
 Equity Incentive Plans
 2005 Employee and Director Equity Incentive Plan
 1993 Non-qualified and Incentive Stock Option Plan
 Equity Compensation Grants
   401(k) Plan
  11




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Stock-Based Compensation (Continued)
   Options
    
    WarrantsWeighted Average
    
    
    
    
    
    Weighted AverageShares
    
    Exercise Price
    
    Shares
    
    Exercise PriceOutstanding December 31, 2006
    
    
    283,102
    
    
    $
    14.60
    
    
    
    249,400
    
    
    $
    12.57Exercisable December 31, 2006
    
    
    243,102
    
    
    $
    16.26
    
    
    
    249,400
    
    
    $
    12.57Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Forfeited
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    10.63Exercised
    
    
    114,002
    
    
    
    20.29
    
    
    
    222,000
    
    
    
    8.65Outstanding March 31, 2007
    
    
    169,100
    
    
    $
    10.76
    
    
    
    25,400
    
    
    $
    47.00Exercisable March 31, 2007
    
    
    129,100
    
    
    $
    12.70
    
    
    
    25,400
    
    
    $
    47.00Outstanding December 31, 2007
    
    
    92,500
    
    
    $
    10.40
    
    
    
    25,400
    
    
    $
    47.00Exercisable December 31, 2007
    
    
    72,500
    
    
    $
    12.03
    
    
    
    25,400
    
    
    $
    47.00Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired / Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    17,500
    
    
    
    11.81
    
    
    
    1,000
    
    
    
    22.50Outstanding March 31, 2008
    
    
    75,000
    
    
    $
    10.08
    
    
    
    24,400
    
    
    $
    48.07Exercisable March 31, 2008
    
    
    55,000
    
    
    $
    12.10
    
    
    
    24,400
    
    
    $
    48.07
   Options
    
    WarrantsRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    RemainingNumber
    
    Life
    
    Number
    
    
    
    
    
    Number
    
    Life
    
    NumberOutstanding
    
    In Years
    
    Exercisable
    
    Exercise Price
    
    Outstanding
    
    In Years
    
    Exercisable
    
    Exercise Price10,000
    
    
    2.36
    
    
    
    10,000
    
    
    $
    7.95
    
    
    
    14,000
    
    
    
    0.12
    
    
    
    14,000
    
    
    $
    73.755,500
    
    
    2.72
    
    
    
    5,500
    
    
    
    8.44
    
    
    
    400
    
    
    
    0.75
    
    
    
    400
    
    
    
    22.2014,500
    
    
    2.72
    
    
    
    14,500
    
    
    
    28.10
    
    
    
    2,000
    
    
    
    1.12
    
    
    
    2,000
    
    
    
    22.505,000
    
    
    3.01
    
    
    
    5,000
    
    
    
    8.45
    
    
    
    6,000
    
    
    
    1.92
    
    
    
    6,000
    
    
    
    11.2540,000
    
    
    5.18
    
    
    
    20,000
    
    
    
    4.50
    
    
    
    2,000
    
    
    
    2.11
    
    
    
    2,000
    
    
    
    8.7575,000
    
    
    4.01
    
    
    
    55,000
    
    
    
    
    
    
    
    24,400
    
    
    
    0.81
    
    
    
    24,400
  Outstanding
    
    $
    5,678,108Exercisable
    
    $
    4,237,908
 12




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Operating Leases
  2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013$187,000
    
    $
    259,000
    
    
    $
    267,000
    
    
    $
    249,000
    
    
    $
    254,000
    
    
    $
    130,000
  Income Taxes
  Tax Impact of Stock Option and Warrant Exercises
  Earnings Per Share
  Three Months Ended March 31,2008
    
    
    2007Basic and Diluted net income
    
    $
    1,985,689
    
    
    $
    1,994,413Weighted average number of outstanding sharesBasic
    
    
    2,337,706
    
    
    
    2,029,958Diluted
    
    
    2,426,400
    
    
    
    2,195,772Earnings per shareBasic
    
    $
    0.85
    
    
    $
    0.98Diluted
    
    $
    0.82
    
    
    $
    0.91
  13




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Commitments and Contingencies
  14




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ITEM 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
  General
    15




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##### Table of Contents



Assets Under Management
  Assets Under Management by ProductAs of March 31,(in millions)
    
    2008
    
    2007
    
    % ChangeMutual funds
    
    $
    3,152
    
    
    $
    2,829
    
    
    
    11
    %Separate accounts
    
    
    1,032
    
    
    
    923
    
    
    
    12
    %Private investment funds
    
    
    481
    
    
    
    417
    
    
    
    15
    %Total
    
    $
    4,665
    
    
    $
    4,169
    
    
    
    12
    %
 Assets Under Management by ObjectiveAs of March 31,(in millions)
    
    2008
    
    2007
    
    % ChangeSmall and Small-Mid Cap
    
    $
    566
    
    
    $
    762
    
    
    
    -26
    %Large Cap and Select
    
    
    1,036
    
    
    
    980
    
    
    
    6
    %Long-Short
    
    
    2,799
    
    
    
    2,137
    
    
    
    31
    %Strategic and fixed income
    
    
    264
    
    
    
    290
    
    
    
    -9
    %Total
    
    $
    4,665
    
    
    $
    4,169
    
    
    
    12
    %
 Growth in Assets Under ManagementFor the Three Months Ended March 31,(in millions)
    
    2008
    
    2007AUM at beginning of the period
    
    $
    4,403
    
    
    $
    3,708Net cash inflows (outflows)mutual funds
    
    
    309
    
    
    
    356separate accounts
    
    
    74
    
    
    
    21private investment funds
    
    
    (13
    )
    
    
    110370
    
    
    
    487Net market appreciation and income
    
    
    (108
    )
    
    
    (26
    )Increase during the period
    
    
    262
    
    
    
    461AUM at end of the period
    
    $
    4,665
    
    
    $
    4,169
 Consolidated Results of Operations
  Three Months Ended March 31,2008
    
    2007
    
    % ChangeNet income (in thousands)
    
    $
    1,986
    
    
    $
    1,994
    
    
    
    0
    %Net income per shareBasic
    
    $
    0.85
    
    
    $
    0.98
    
    
    
    -13
    %Diluted
    
    $
    0.82
    
    
    $
    0.91
    
    
    
    -10
    %Weighted average shares
outstanding (in thousands)Basic
    
    
    2,338
    
    
    
    2,030Diluted
    
    
    2,426
    
    
    
    2,196
 16




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Three Months Ended March 31, 2008 compared with Three Months Ended March 31, 2007
  Revenue
 Three Months EndedMarch 31,(in Thousands)
    
    2008
    
    2007
    
    % ChangeInvestment advisory
    
    $
    9,232
    
    
    $
    7,882
    
    
    
    17
    %Performance incentive
    
    
    281
    
    
    
    4
    
    
    
    n.m.Mutual fund administration, net
    
    
    1,390
    
    
    
    1,469
    
    
    
    -5
    %Total
    
    $
    10,903
    
    
    $
    9,355
    
    
    
    17
    %
  Investment Advisory Fees.
 Performance Incentive Fees.
 Mutual Fund Administration Fees.
 17




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Expenses
 Three Months EndedMarch 31,(in Thousands)
    
    2008
    
    2007
    
    % ChangeCompensation and related costs
    
    $
    5,842
    
    
    $
    4,668
    
    
    
    25
    %General and administrative
    
    
    557
    
    
    
    566
    
    
    
    -2
    %Sales and marketing
    
    
    114
    
    
    
    102
    
    
    
    12
    %Third party distribution
    
    
    396
    
    
    
    379
    
    
    
    4
    %Mutual fund administration
    
    
    469
    
    
    
    553
    
    
    
    -15
    %Total
    
    $
    7,378
    
    
    $
    6,268
    
    
    
    18
    %
 Compensation and Related Costs.
 General and Administrative.
 Sales and Marketing.
 Third Party Distribution.
 Mutual Fund Administration.
 Liquidity and Capital Resources
    18




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Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  19




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##### 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
  Total Number
    
    Maximum Numberof Shares Purchased
    
    of Shares That Mayas part of a Publicly
    
    Yet Be PurchasedTotal Number
    
    Average Price
    
    Announced Plans
    
    Under the Plans orPeriod
    
    of Shares Purchased
    
    Paid Per Share
    
    or Programs
    
    Programs (1)January 1, 2008 through
January 31, 2008
    
    
    1,586
    
    
    
    73.71
    
    
    
    6,528
    
    
    
    343,472February 1, 2008 through
February 29, 2008
    
    
    
    
    
    
    
    
    
    
    6,528
    
    
    
    343,472March 1, 2008 through
March 31, 2008
    
    
    
    
    
    
    
    
    
    
    6,528
    
    
    
    343,472
 
  20




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ITEM 3: Defaults Upon Senior Securities
 
 ITEM 4: Submission of Matters to a Vote of Security Holders
 
 ITEM 5: Other Information
 21




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##### 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.
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##### Table of Contents



SIGNATURES
   Date
    
    Title
    
    SignatureMay 9, 2008
    
    President, Chief Executive Officer,
    
    /s/R. H. Dillonand a Director
    
    R. H. DillonMay 9, 2008
    
    Chief Financial Officer, Treasurer,
    
    /s/James F. Lairdand Secretary
    
    James F. Laird
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