What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-25 · 210 added, 204 removed, 944 unchanged (30% of the section changed)

43 unchanged sentences

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation of Indefinite-Lived Intangible Assets

Valuation of Indefinite-Lived Intangible Asset

Description of the Matter

At December 31, 2021, the Company had $203.4 million of indefinite-lived intangible assets related to the rights to manage fund assets acquired in connection with the 2018 Hermes Fund Managers Limited (HFML) acquisition (HFML indefinite-lived intangible asset).

At December 31, 2022, the Company had $150.4 million of an indefinite-lived intangible asset related to the right to manage public fund assets acquired in connection with the 2018 Federated Hermes Limited (FHL) acquisition (FHL indefinite-lived intangible asset).

As described in Note 1(j) to the consolidated financial statements, indefinite-lived intangible assets are tested for impairment at the accounting unit level annually, or when indicators of potential impairment exist, to determine whether it is more likely than not that the accounting unit is impaired.

If the Company's carrying value of its accounting unit exceeds its fair value, an impairment loss would be recognized in an amount equal to the excess of the carrying value over the fair value.

Auditing the Company's annual impairment test of the HFML indefinite-lived intangible asset was complex and judgmental due to the significant estimation uncertainty in determining the fair value of this accounting unit.

The significant assumptions used to estimate the fair value of the HFML indefinite-lived intangible asset included the discount rate and certain assumptions that form the basis of the forecasted results, such as projected revenue growth rates and projected pre-tax profit margins.

The Company evaluated the FHL indefinite-lived intangible asset at December 31, 2022 in light of increases in market interest rates and a decrease in management’s near term projected cash flows and determined that the carrying value exceeded fair value, and recorded an impairment loss of $31.5 million.

Auditing the Company’s impairment test of the FHL indefinite-lived intangible asset was complex and judgmental due to the significant estimation uncertainty in determining the fair value of this accounting unit.

The significant assumptions used to estimate the fair value included the discount rate and certain assumptions that form the basis of the forecasted results, such as projected revenue growth rates and projected pre-tax profit margins.

These significant assumptions are forward-looking and could be materially affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s impairment testing process for indefinite-lived intangible assets, including controls over management’s review of the significant assumptions described above.

Our audit procedures to test the estimated fair value of the Company's HFML indefinite-lived intangible asset included, among others evaluating management's significant assumptions described above and testing the completeness and accuracy of the underlying data.

Our audit procedures to test the estimated fair value of the Company’s FHL indefinite-lived intangible asset included, among others, evaluating management’s significant assumptions described above and testing the completeness and accuracy of the underlying data.

With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions.

2 unchanged sentences

We evaluated management’s ability to accurately project revenues and pre-tax profit margins by comparing actual results to management’s historical forecasts.

Additionally, we performed sensitivity analyses of certain significant assumptions described above to evaluate the changes in the fair value of the HFML indefinite-lived intangible asset that would result from reasonably expected changes in the significant assumptions.

Additionally, we performed sensitivity analyses of certain significant assumptions described above to evaluate the changes in the fair value of the FHL indefinite-lived intangible asset that would result from reasonably expected changes in the significant assumptions.

/s/ Ernst & Young LLP

70 unchanged sentences

Class A, No Par Value, 20,000 Shares Authorized, 9,000 Shares Issued and Outstanding

Class B, No Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued

Class B, No Par Value, 900,000,000 Shares Authorized, 99,505,456 and 109,505,456 Shares Issued, respectively

440,953 448,929

23 unchanged sentences

Travel and Related 12,456 5,337 4,566

Intangible Asset Related 44,066 13,823 13,817

Other 25,407 19,706 15,361

43 unchanged sentences

Distributions to Noncontrolling Interests in Subsidiaries 0 0 0

Business Acquisition 0 0 0

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 0 0

8 unchanged sentences

Distributions to Noncontrolling Interests in Subsidiaries 0 0 0

Acquisition of Additional Equity of FHL 0 0 0

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 0 0

8 unchanged sentences

Distributions to Noncontrolling Interests in Subsidiaries 0 0 0

Acquisition of Additional Equity of HFML 0 0 0

Acquisition of Additional Equity of FHL 0 0 0

Retirement of Treasury Stock 0 0 ( 10,000,000 )

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 0 0

4 unchanged sentences

Shareholders’ Equity

Common Stock Retained

Common Stock Additional

Paid-in Capital

from Treasury

Transactions Retained

Earnings Treasury Stock Accumulated

38 unchanged sentences

0 0 0 ( 207,436 ) 0 ( 207,436 ) 0

$ 441,142 $ 0 $ 1,015,589 $ ( 365,363 ) $ ( 45,676 ) $ 1,045,692 $ 61,821

CONSOLIDATED STATEMENTS OF CASH FLOWS

9 unchanged sentences

Provision (Benefit) for Deferred Income Taxes ( 18,718 ) 19,033 18,169

Impairment of Intangible Asset 31,520 0 0

Net Unrealized (Gain) Loss on Investments 24,383 ( 1,965 ) ( 19,403 )

19 unchanged sentences

Contributions from Noncontrolling Interests in Subsidiaries 55,171 107,635 20,985

Payments to Acquire Additional Equity in HFML ( 165,886 ) 0 0

Payments to Acquire Additional Equity in FHL 0 ( 165,886 ) 0

Proceeds from New Borrowings 488,300 295,650 100,000

31 unchanged sentences

In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.

Actual results may differ from those estimates, and such differences may be material to the Consolidated Financial Statements.

Actual results could differ from those estimates, and such differences could be material to the Consolidated Financial Statements.

3 unchanged sentences

Revenue is measured as the consideration to which Federated Hermes expects to be entitled in exchange for providing its services.

This amount may be reduced by Fee Waivers.

This amount could be reduced by Fee Waivers.

See Note (5) for information about current period Fee Waivers.

32 unchanged sentences

A change in the conclusion of whether Federated Hermes is the principal or agent would result in a change in the revenue being recorded gross or net of payments made to third parties.

Different conclusions for the remaining two judgments may change the line items to which revenue is being recorded.

Different conclusions for the remaining two judgments could change the line items to which revenue is being recorded.

(e) Principles of Consolidation

3 unchanged sentences

Entities that are determined to be VREs are generally consolidated if Federated Hermes holds the majority voting interest.

Federated Hermes' conclusion to consolidate a Federated Hermes Fund may vary from period to period, most commonly as a result of changes in its percentage interest in the entity.

Federated Hermes’ conclusion to consolidate a Federated Hermes Fund could vary from period to period, most commonly as a result of changes in its percentage of ownership interest in the entity.

All intercompany accounts and transactions have been eliminated.

16 unchanged sentences

If quoted market prices are not available, fair value is generally based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

In the absence of observable market data inputs and/or value drivers, internally generated valuation techniques may be utilized in which one or more significant inputs or significant value drivers are unobservable in the market place.

In the absence of observable market data inputs and/or value drivers, internally generated valuation techniques can be utilized in which one or more significant inputs or significant value drivers are unobservable in the market place.

See Note (7) for additional information regarding the fair value of investments held as of December 31, 2022 and 2021.

5 unchanged sentences

Federated Hermes has not designated any derivative financial instrument as a hedging instrument for accounting purposes.

In 2021, the gain or loss on these derivative instruments is recognized in Operating Expenses – Other on the Consolidated Statements of Income.

The gain or loss on these derivative instruments is recognized in Operating Expenses – Other on the Consolidated Statements of Income.

(i) Asset Acquisitions and Business Combinations

42 unchanged sentences

The determination to group indefinite-lived intangible assets into three units of accounting is not a one-time evaluation.

Rather, it is subject to reconsideration and may change depending on the facts and circumstances.

Rather, it is subject to reconsideration and can change depending on the facts and circumstances.

On a quarterly basis, indefinite-lived intangible assets are reviewed for potential changes in useful life.

14 unchanged sentences

Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or their respective lease terms.

Depreciation and amortization expense is recorded in Office and Occupancy on the Consolidated Statements of Income.

Depreciation and amortization expense is recorded in Operating Expenses - Office and Occupancy on the Consolidated Statements of Income.

As property and equipment are taken out of service, the cost and related accumulated depreciation and amortization are removed.

35 unchanged sentences

In the case of consolidated investment companies, the noncontrolling interests represent equity which is redeemable or convertible for cash at the option of the equity holder.

In the case of HFML, the noncontrolling interests primarily represent equity which is subject to put and call rights under a long-term incentive plan and award agreements with current and former employees, redeemable at the option of either the noncontrolling party or Federated Hermes at future predetermined dates, and therefore, not entirely within Federated Hermes' control.

The subsidiary's net income or loss and related dividends are allocated to Federated Hermes and the noncontrolling interest holder based on their relative ownership percentages.

The noncontrolling interests carrying value is adjusted on a quarterly basis to the higher of the carrying value or current redemption value (fair value), as of the balance sheet date, through a corresponding adjustment to retained earnings.

Management may use an independent valuation expert to assist in estimating the current redemption value (fair value) using three methodologies:

In the case of FHL, prior to the 2022 Acquisition of FHL Noncontrolling Interests (see Note (2) for additional information), the noncontrolling interests primarily represented equity which was subject to put and call rights under a long-term incentive plan and award agreements with current and former employees, redeemable at the option of either the noncontrolling party or Federated Hermes at future predetermined dates, and therefore, not entirely within Federated Hermes’ control.

The subsidiary’s net income or loss and related dividends were allocated to Federated Hermes and the noncontrolling interest holder based on their relative ownership percentages.

The noncontrolling interests carrying value was adjusted on a quarterly basis to the higher of the carrying value or redemption value (fair value), as of the balance sheet date, through a corresponding adjustment to retained earnings.

Management previously used an independent valuation expert to assist in estimating the redemption value (fair value) using three methodologies:

(1) the discounted cash flow methodology under the income approach;

(2) the guideline public company methodology under the market approach and (3) the guideline public transaction methodology under the market approach.

The estimated current redemption value is derived from equally weighting the result of each of the three methodologies.

The estimation of the current redemption value includes significant assumptions concerning:

The estimated redemption value was derived from equally weighting the result of each of the three methodologies.

The estimation of the redemption value included significant assumptions concerning:

(1) projected AUM;

7 unchanged sentences

Additional Paid-in Capital from Treasury Stock Transactions is increased as Federated Hermes reissues treasury stock for more than the cost of the shares.

If Federated Hermes issues treasury stock for less than its cost, Additional Paid-in Capital from Treasury Stock Transactions is reduced to no less than zero and any further required reductions are recorded to Retained Earnings on the Consolidated Balance Sheets.

Conversely, if Federated Hermes issues treasury stock for less than its cost, first Additional Paid-in Capital from Treasury Stock Transactions is reduced to zero with any further required reductions recorded to Retained Earnings on the Consolidated Balance Sheets.

(q) Accumulated Other Comprehensive Income (Loss)

14 unchanged sentences

Excess tax benefits and deficiencies (including tax benefits from dividends paid on unvested restricted stock awards) are recognized in the Income Tax Provision in the Consolidated Statements of Income.

Effective July 2, 2018, Federated Hermes established a non-public subsidiary share-based compensation plan for certain employees of one of its subsidiaries.

The subsidiary grants equity awards in the form of restricte d nonpublic subsidiary stock to certain members of the subsidiary's management and other key employees.

The grant date fair value of the awards is recognized as Compensation and Related expense in the Consolidated Statements of Income on a straight-line basis over the requisite service period of the awards and is adjusted for actual forfeitures as they occur, with a corresponding adjustment to Redeemable Noncontrolling Interests in Subsidiaries in the Consolidated Balance Sheets.

Effective July 2, 2018, Federated Hermes established a non-public subsidiary share-based compensation plan for certain employees of FHL.

The subsidiary granted equity awards in the form of restricte d nonpublic subsidiary stock to certain members of the subsidiary’s management and other key employees.

The grant date fair value of the awards was recognized as Compensation and Related expense in the Consolidated Statements of Income on a straight-line basis over the requisite service period of the awards and was adjusted for actual forfeitures as they occurred, with a corresponding adjustment to Redeemable Noncontrolling Interests in Subsidiaries in the Consolidated Balance Sheets.

On March 14, 2022, Federated Hermes completed the 2022 Acquisition of FHL Noncontrolling Interests resulting in the acquisition of the remaining shares of FHL.

See Note (2) and Note (13) for additional information.

(t) Advertising Costs

11 unchanged sentences

Additionally, Federated Hermes has elected to account for taxes related to temporary basis differences expected to reverse as Global Intangible Low-Taxed Income (GILTI) as tax expense in the period incurred, rather than factoring it into the measurement of deferred taxes.

As of December 31, 2021, the unrecognized deferred tax liability associated with these subsidiaries is $ 9.1 million.

(v) Earnings Per Share

1 unchanged sentence

Pursuant to the two-class method, unvested restricted shares of Federated Hermes’ Class B common stock with nonforfeitable rights to dividends are considered participating securities and are required to be considered in the computation of earnings per share.

These unvested restricted shares, as well as the related dividends paid and their proportionate share of undistributed earnings, if any, are excluded from the computation of basic earnings per share.

In addition to the amounts excluded from the basic earnings per share calculation, net income available to unvested shareholders of a nonpublic consolidated subsidiary is excluded from the computation of diluted earnings per share.

These unvested restricted shares, as well as the related dividends paid and their proportionate share of undistributed earnings, if any, are excluded from the computation of basic earnings per share, except for circumstances where shares vest upon retirement and the employee has reached retirement age.

In addition to the amounts excluded from the basic earnings per share calculation, prior to the 2022 Acquisition of FHL Noncontrolling Interests (see Note (2) for additional information), net income available to unvested shareholders of a nonpublic consolidated subsidiary was excluded from the computation of diluted earnings per share.

(w) Business Segments

Business or operating segments are defined as a component of an enterprise that engages in activities from which it may earn revenue and incur expenses for which discrete financial information is available and is regularly evaluated by Federated Hermes' Chief Executive Officer (CEO), who is the chief operating decision maker, in deciding how to allocate resources and assess performance.

Business or operating segments are defined as a component of an enterprise that engages in activities from which it could earn revenue and incur expenses for which discrete financial information is available and is regularly evaluated by Federated Hermes’ CEO, who is the chief operating decision maker, in deciding how to allocate resources and assess performance.

Federated Hermes operates in one operating segment, the investment management business, which is primarily conducted within the U.S.

Federated Hermes’ CEO utilizes a consolidated approach to assess performance and allocate resources.

(2) Equity Acquisition and Business Combination

2021 Acquisition of HFML Noncontrolling Interests

On August 31, 2021, Federated Hermes completed the 2021 Acquisition of HFML Noncontrolling Interests to acquire 29.5 % noncontrolling interests in HFML from BTPS for £ 116.5 million ($ 160.2 million) pursuant to the terms of a certain Put and Call Option Deed, dated July 2, 2018 (the Option Deed), between BTPS and Federated Hermes (2021 Acquisition of HFML Noncontrolling Interests).

Because Federated Hermes had previously acquired a 60 % controlling interest in HFML from BTPS as of July 1, 2018 with the 2018 HFML Acquisition, the 2021 Acquisition of HFML Noncontrolling Interests was accounted for as an acquisition of additional equity.

The difference between the carrying value of the BTPS noncontrolling interests and the purchase price was reclassified from temporary equity to permanent equity.

The remaining approximate 10 % of the equity interests of HFML is held in an employee benefit trust for the benefit of certain members of HFML's management and other key employees under a long-term incentive plan established in connection with the 2018 HFML Acquisition.

Pursuant to the Option Deed, Federated Hermes and BTPS agreed upon a third-party valuation company, which determined the fair value of HFML for purposes of the Option Deed.

The Option Deed provided that the consideration to be paid for BTPS' remaining interest in HFML would be based on BTPS' equity proportion of the fair value of HFML as determined in accordance with the terms of the Option Deed.

Federated Hermes paid the purchase price by using a combination of cash on hand and borrowings under its corporate credit facility.

Upon completion of the 2021 Acquisition of HFML Noncontrolling Interests, BTPS no longer has any ownership interest in HFML nor any representation on HFML's board of directors.

HCL Acquisition

On March 5, 2020, Federated Hermes acquired, effective as of March 1, 2020, 100 percent ownership of HGPE Capital Limited (HCL Acquisition) for £ 15.9 million ($ 20.4 million).

The principal activity of HGPE Capital Limited is that of a holding company for an infrastructure and private equity investment management business.

As a result of the HCL Acquisition, Federated Hermes gained control of Hermes GPE LLP (HGPE) (collectively with HGPE Capital Limited, HCL).

The addition of London-based HCL provides the opportunity to further accelerate and broaden Federated Hermes' global growth.

The HCL Acquisition included upfront cash payments that totaled £ 11.2 million ($ 14.3 million).

The transaction also includes contingent purchase price payments payable through December 2024 that were deposited into escrow.

The maximum contingent purchase price payments, recorded in Other Long-Term Liabilities, totaled £ 3.5 million ($ 4.5 million as of March 1, 2020), which represents the payment of certain future carried interest.

Prior to March 1, 2020, Federated Hermes accounted for its partial ownership interest in HGPE (through its ownership of HFML) as an equity-method investment recorded in Other Long-Term Assets on the Consolidated Balance Sheets.

Management used an independent valuation expert to assist in estimating the fair value of this equity interest in HGPE using primarily the discounted cash flow methodology under the income approach.

The acquisition-date fair value of this previous equity interest was $ 34.5 million.

In the first quarter 2020, Federated Hermes recognized a gain of $ 7.5 million as a result of remeasuring the prior equity interest in HGPE held before the business combination and the consolidation of HGPE.

This gain is included in Nonoperating Income (Expenses) - Other, net on the Consolidated Statements of Income.

Federated Hermes performed a valuation of the fair market value of acquired assets and assumed liabilities of the HCL Acquisition.

The accounting for this acquisition was finalized in the first quarter 2021.

During the first quarter 2021, Federated Hermes recorded adjustments that primarily resulted from the consolidation of certain foreign subsidiaries not previously consolidated.

The provisional amounts recognized for certain acquired assets and incurred liabilities were adjusted by $ 25.8 million and $ 17.2 million, respectively, with the net offset of $ 8.6 million recorded to the related redeemable noncontrolling interests in subsidiaries.

This adjustment reflected facts and circumstances that existed as of the acquisition date.

As a result of the consolidation of these subsidiaries, Federated Hermes recorded revenue of $ 6.9 million offset by $ 6.9 million of Compensation and Related expense, which represented the income and expense that would have been recorded had these

entities been consolidated on March 1, 2020.

There was no change to net income or earnings per share for the three-month period ended March 31, 2021 as a result of these adjustments.

The following table summarizes the final purchase price allocation determined as of the purchase date:

(2) Business Combination and Equity Acquisition

CWH Acquisition

Effective October 1, 2022, Federated Hermes completed the acquisition of substantially all of the assets of C.W.

Henderson and Associates, Inc.

(CWH), a Chicago-based registered investment advisor specializing in the management of tax-exempt municipal securities (CWH Acquisition).

This acquisition will enhance Federated Hermes’ existing separately managed accounts business.

The CWH Acquisition included an upfront cash payment of $ 28.1 million.

The purchase agreement also provides for a series of contingent purchase price payments, which can total as much as $ 17.6 million in the aggregate and can become payable annually over the next five years based on certain levels of net revenue growth.

Federated Hermes has performed a valuation of the fair value of the CWH Acquisition.

Due to the timing of the acquisition and status of the valuation work, the purchase price allocation for assets acquired (excluding the Right-of-Use Asset) and liabilities assumed (excluding the Lease Liability) is preliminary.

Provisional amounts will be finalized as new information is obtained about facts and circumstances that existed as of October 1, 2022.

Although preliminary results of the valuation are reflected in the Consolidated Financial Statements as of December 31, 2022, the final purchase price allocation may reflect adjustments to this preliminary valuation and such adjustments may be material.

The following table summarizes the preliminary purchase price allocation determined as of the purchase date:

(in millions)

Cash and Cash Equivalents $ 32.7

Other Current Assets 1

Right-of-Use Asset $ 0.8

Intangible Assets 1

Other Long-Term Assets 16.4

Liabilities Acquired ( 44.1 )

Fair Value of Redeemable Noncontrolling Interests in Subsidiaries 4

Total Purchase Price Consideration $ 20.4

1 Includes $ 5.0 million of accounts receivable.

2 The goodwill recognized is attributable to enhanced revenue and AUM growth opportunities from future investors and the assembled workforce of HGPE.

In this instance, goodwill is not deductible for tax purposes.

3 Includes $ 20.3 million for rights to manage fund assets for private equity funds with a weighted-average useful life of 9.0 years and $ 6.9 million for rights to manage fund assets for infrastructure funds with a weighted-average useful life of 11.0 years, all of which are recorded in Intangible Assets, net on the Consolidated Balance Sheets.

4 The fair value of the noncontrolling interests was determined utilizing primarily the discounted cash flow methodology under the income approach.

Lease Liability Assumed 0.8

Fair Value of Contingent Consideration 3.7

Total Upfront Purchase Price Consideration $ 28.1

1 Includes $ 14.8 million for customer relationships with an estimated useful life of 12 years and $ 0.6 million for a trade name with an estimated useful life of five years , all of which are recorded in Intangibles Assets, net on the Consolidated Balance Sheets.

2 The goodwill recognized is attributable to enhanced revenue and AUM growth opportunities from future investors and the assembled workforce of CWH and is deductible for tax purposes.

2022 Acquisition of FHL Noncontrolling Interests

On March 14, 2022, Federated Hermes completed the 2022 Acquisition of FHL Noncontrolling Interests resulting in the acquisition of the remaining approximately 10 % noncontrolling interests in FHL from a trustee of a non-U.S.

domiciled employee benefit trust established for the benefit of certain members of FHL’s management, a non-U.S.

resident former FHL employee and other non-U.S.

resident key FHL employees under a long-term incentive plan established in connection with the 2018 acquisition of FHL.

As a result of the 2022 Acquisition of FHL Noncontrolling Interests, FHL became an indirect, wholly-owned subsidiary of Federated Hermes.

The 2022 Acquisition of FHL Noncontrolling Interests was transacted in shares whereby Federated Hermes issued awards of restricted Class B common stock under Federated Hermes Stock Incentive Plan and Federated Hermes UK Sub-Plan, as amended, and treasury Class B common stock, in exchange for the beneficial interests in shares of FHL.

The FHL shares were exchanged at fair value for Federated Hermes shares valued at £ 36.4 million or $ 47.5 million, which was based on a third-party valuation of FHL.

See Note (13) for additional information regarding the share exchange.

(3) Revenue from Contracts with Customers

1 unchanged sentence

(in thousands) 2022 2021 2020

Equity $ 677,917 $ 551,028 $ 533,749

Money market 575,261 239,318 570,815

Equity 526,957 677,917 551,028

Fixed-income 206,794 237,702 193,649

11 unchanged sentences

Total Revenue $ 1,445,814 $ 1,300,447 $ 1,448,268

1 The performance obligation may include administrative, distribution and other services recorded as a single asset management fee under Topic 606, as it is part of a unitary fee arrangement with a single performance obligation.

1 The performance obligation can include administrative, distribution and other services recorded as a single asset management fee under Topic 606, as it is part of a unitary fee arrangement with a single performance obligation.

2 The performance obligation is satisfied at a point in time.

12 unchanged sentences

Generally, contracts are billed in arrears on a quarterly basis and have a three-year duration, after which the customer can terminate the agreement with notice, generally from three to twelve months .

Based on existing contracts and the exchange rates as of December 31, 2021, Federated Hermes may recognize future fixed revenue from these services as presented in the following table:

Based on existing contracts and the applicable foreign exchange rates as of December 31, 2022, Federated Hermes may recognize future fixed revenue from these services as presented in the following table:

(in thousands)

2022 $ 11,404

2026 and Thereafter 307

6 unchanged sentences

2022 2021 2020

Equity Assets 52 % 38 % 40 %

Money Market Assets 40 % 19 % 40 %

Equity Assets 36 % 52 % 38 %

Fixed-Income Assets 14 % 18 % 13 %

The change in the relative proportion of Federated Hermes' revenue attributable to equity and fixed-income assets in 2021, as compared to the same period in 2020, was primarily the result of decreased money market revenue and higher average equity and fixed-income assets in 2021.

The change in the relative proportion of Federated Hermes' revenue attributable to money market assets in 2021, as compared to the same period in 2020, was primarily the result of an increase in Voluntary Yield-related Fee Waivers.

The change in the relative proportion of Federated Hermes’ revenue attributable to equity and fixed-income assets in 2022, as compared to 2021, was primarily the result of an increase in money market revenue due to a decrease in Voluntary Yield-related Fee Waivers.

See section below entitled Low Short-Term Interest Rates.

The change in the relative proportion of Federated Hermes’ revenue attributable to money market assets in 2021, as compared to the same period in 2020, was primarily the result of decreased money market revenue primarily due to an increase in Voluntary Yield-related Fee Waivers and higher average equity and fixed-income assets in 2021.

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a result of the Pandemic, FOMC decreased the federal funds target rate range to 0% - 0.25%.

In March 2020, in response to disrupted economic activity as a result of the Pandemic, the FOMC decreased the federal funds target rate range to 0% - 0.25%.

The federal funds target rate drives short-term interest rates.

As a result of the near-zero interest-rate environment, the gross yield earned by certain money market funds is not sufficient to cover all of the fund's operating expenses.

Beginning in the first quarter 2020, Federated Hermes began to implement Voluntary Yield-related Fee Waivers in order for certain money market funds to maintain positive or zero net yields.

These Voluntary Yield-related Fee

Waivers have been partially offset by related reductions in distribution expense as a result of Federated Hermes' mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers.

As a result of the near-zero interest-rate environment, the gross yield earned by certain money market funds was not sufficient to cover all of the fund’s operating expenses.

Beginning in the first quarter 2020, Federated Hermes had implemented Voluntary Yield-related Fee Waivers.

These waivers were partially offset by related reductions in distribution expense as a result of Federated Hermes’ mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers.

In response to global economic activity and elevated inflation levels, the FOMC raised the federal funds target rate multiple times in 2022 and in February 2023.

The range is currently 4.50% - 4.75% as of the February 1, 2023 FOMC meeting.

These rate increases eliminated the net negative pre-tax impact of the Voluntary Yield-related Fee Waivers in the second half of 2022.

For the year ended December 31, 2022, Voluntary Yield-related Fee Waivers totaled $ 85.3 million.

These fee waivers were partially offset by related reductions in distribution expenses of $ 66.5 million, such that the net negative pre-tax impact to Federated Hermes was $ 18.8 million.

See Management's Discussion and Analysis - Business Developments - Low Short-Term Interest Rates for additional information on management's expectations regarding Voluntary Yield-related Fee Waivers (unaudited).

For the year ended December 31, 2021, Voluntary Yield-related Fee Waivers totaled $ 420.3 million.

These fee waivers were partially offset by related reductions in distribution expenses of $ 277.1 million, such that the net negative pre-tax impact to Federated Hermes was $ 143.2 million.

(b) Revenue Concentration by Investment Fund Strategy

1 unchanged sentence

2022 2021 2020

Federated Government Obligations Fund 12 % 5 % 13 %

Federated Strategic Value Dividend strategy 10 % 9 % 8 %

Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II 7 % 11 % 9 %

Federated Hermes Strategic Value Dividend strategy 1

Federated Hermes Government Obligations Fund

5 % 13 % 10 %

1 Strategy includes Federated Hermes Funds and Separate Accounts.

A significant and prolonged decline in the AUM in these funds could have a material adverse effect on Federated Hermes’ future revenues and, to a lesser extent, net income, due to a related reduction in distribution expenses associated with these funds.

1 unchanged sentence

Approximately 11 %, 3 % and 7 % of Federated Hermes’ total revenue for 2022, 2021 and 2020, respectively, was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary.

The decrease in 2021 was primarily due to an increase in Voluntary Yield-related Fee Waivers.

Continued Voluntary Yield-related Fee Waivers or a negative change in Federated Hermes' relationship with this intermediary may have a material adverse effect on Federated Hermes' future revenues and, to a lesser extent, net income due to a related reduction in distribution expenses associated with this intermediary.

The increase in 2022 was primarily due to a decrease in Voluntary Yield-related Fee Waivers.

Significant negative changes in

Federated Hermes’ relationship with this intermediary could have a material adverse effect on Federated Hermes’ future revenues and, to a lesser extent, net income due to a related reduction in distribution expenses associated with this intermediary.

(5) Consolidation

The Consolidated Financial Statements include the accounts of Federated Hermes, certain Federated Hermes Funds and other entities in which Federated Hermes holds a controlling financial interest.

Federated Hermes is involved with various entities in the normal course of business that may be deemed to be VREs or VIEs.

Federated Hermes is involved with various entities in the normal course of business that could be deemed to be VREs or VIEs.

From time to time, Federated Hermes invests in Federated Hermes Funds for general corporate investment purposes or, in the case of newly launched products, in order to provide investable cash to establish a performance history.

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Given that the entities consolidated by Federated Hermes generally follow investment company accounting, which prescribes fair-value accounting, a deconsolidation generally does not result in the recognition of gains or losses for Federated Hermes.

In the ordinary course of business, Federated Hermes may implement fee waivers for various Federated Hermes Funds for competitive reasons (such as Voluntary Yield-related Fee Waivers or to maintain certain fund ratios/yields), to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers).

In the ordinary course of business, Federated Hermes could implement fee waivers, rebates or expense reimbursements for various Federated Hermes Funds for competitive reasons (such as Voluntary Yield-related Fee Waivers or to maintain certain fund expense ratios/yields), to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers).

For the years ended December 31, 2022, 2021 and 2020, Fee Waivers totaled $ 563.2 million, $ 917.9 million and $ 675.3 million, respectively, of which $ 440.7 million, $ 775.6 million and $ 537.8 million, respectively, related to money market funds which meet the scope exception of the consolidation guidance.

Like other sponsors of investment companies, Federated Hermes in the ordinary course of business may make capital contributions to certain affiliated money market Federated Hermes Funds in connection with the reorganization of such funds into certain other affiliated money market Federated Hermes Funds or in connection with the liquidation of a money market Federated Hermes Fund.

In these instances, such capital contributions typically are intended to either offset realized losses or other permanent impairments to a fund's NAV, increase the market-based NAV per share of the fund's portfolio that is being reorganized to equal the market-based NAV per share of the acquiring fund or to bear a portion of expenses relating to a fund

Like other sponsors of investment companies, Federated Hermes in the ordinary course of business could make capital contributions to certain affiliated money market Federated Hermes Funds in connection with the reorganization of such funds into certain other affiliated money market Federated Hermes Funds or in connection with the liquidation of money market Federated Hermes Funds.

In these instances, such capital contributions typically are intended to either offset realized losses or other permanent impairments to a fund’s NAV, increase the market-based NAV per share of the fund’s portfolio that is being reorganized to equal the market-based NAV per share of the acquiring fund or to bear a portion of expenses relating to a fund liquidation.

Under current money market fund regulations and SEC guidance, Federated Hermes is required to report these types of capital contributions to U.S.

money market mutual funds to the SEC as financial support to the investment company that is being reorganized or liquidated.

There were no material contributions for the year ended December 31, 2021.

There were no contributions for the years ended December 31, 2020 and 2019.

There were no contributions for the years ended December 31, 2022 or 2020 and no material contributions for the year ended December 31, 2021.

In accordance with Federated Hermes’ consolidation accounting policy, Federated Hermes first determines whether the entity being evaluated is a VRE or a VIE.

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Other Assets 0.7 0.1

Long-Term Investments 13.8 0.0

Other Long-Term Assets 13.4 13.8

Liabilities 5.7 1.4

Accumulated Other Comprehensive Income (Loss), net of tax 1.2 0.0

Redeemable Noncontrolling Interests in Subsidiaries 49.5 33.3

Federated Hermes’ Net Interest in VIEs $ 15.8 $ 18.1

Federated Hermes' net interest in the consolidated VIEs represents the value of Federated Hermes' economic ownership interest in that VIE.

During the year ended December 31, 2021, as a result of the HCL Acquisition, Federated Hermes consolidated certain VIEs not previously consolidated.

See Note (2) for additional information.

In addition, Federated Hermes consolidated a Federated Hermes Fund VIE in which it was the primary beneficiary.

There was no material impact to the Consolidated Statements of Income as a result of these consolidations.

During the quarter ended December 31, 2021, Federated Hermes liquidated its investment in one consolidated VIE in which it was the only remaining shareholder.

Accordingly, Federated Hermes redeemed $ 5.0 million from Investments-Consolidated Investment Companies on the Consolidated Balance Sheets as of the date of the liquidation.

There was no impact to the Consolidated Statements of Income as a result of this liquidation.

There were no other consolidations or deconsolidations of VIEs during the year ended December 31, 2021.

Federated Hermes’ net interest in the consolidated VIEs represents the value of Federated Hermes’ economic ownership interest in those VIEs.

During the year ended December 31, 2022, there was one new consolidation of a VIE when Federated Hermes’ ownership increased due to redemptions from third-party investors.

There was no material impact to the Consolidated Statements of Income as a result of this consolidation.

There were no new deconsolidations of VIEs during the year ended December 31, 2022.

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AUM for these non-consolidated Federated Hermes Funds totaled $ 5.4 billion and $ 8.0 billion at December 31, 2022 and 2021, respectively.

Of the Receivables—Affiliates at December 31, 2021 and 2020, $ 0.7 million and $ 0.4 million, respectively, related to non-consolidated VIEs and represented Federated Hermes' maximum risk of loss from non-consolidated VIE receivables.

Of the Receivables—Affiliates at December 31, 2022 and 2021, $ 0.7 million for each period related to non-consolidated VIEs and represented Federated Hermes’ maximum risk of loss from non-consolidated VIE receivables.

(6) Investments

At December 31, 2021 and 2020, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of $ 77.6 million and $ 36.0 million, respectively, primarily in mutual funds which invest in equity securities and held investments in Separate Accounts of $ 10.2 million and $ 9.6 million at December 31, 2021 and 2020, respectively, that were included in Investments—Affiliates and Other on the Consolidated Balance Sheets.

Federated Hermes' investments held in Separate Accounts as of December 31, 2021 and 2020, were primarily composed of domestic debt securities ($ 5.2 million for both periods) and stocks of large domestic and foreign companies ($ 3.4 million and $ 3.1 million, respectively).

At December 31, 2022 and 2021, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of $ 67.0 million and $ 77.6 million, respectively, primarily in mutual funds which represent equity investments for Federated Hermes, and held investments in Separate Accounts of $ 9.5 million and $ 10.2 million at December 31, 2022 and 2021, respectively, that were included in Investments—Affiliates and Other on the Consolidated Balance Sheets.

Federated Hermes’ investments held in Separate Accounts as of December 31, 2022 and 2021, were primarily composed of domestic debt securities ($ 4.6 million and $ 5.2 million, respectively) and stocks of large domestic and foreign companies ($ 3.4 million for both periods).

Federated Hermes consolidates certain Federated Hermes Funds into its Consolidated Financial Statements as a result of its controlling financial interest in these Federated Hermes Funds (see Note (5)).

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Level 1 – Quoted prices for identical instruments in active markets.

Level 1 assets may include equity and debt securities that are traded in an active exchange market, including shares of mutual funds.

Level 1 assets can include equity and debt securities that are traded in an active exchange market, including shares of mutual funds.

Level 2 – Quoted prices for similar instruments in active markets;

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and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 2 assets and liabilities may include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.

Level 2 assets and liabilities can include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active markets.

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$ 0 $ 1,644 $ 11,652 $ 13,296

1 Amounts primarily consist of restricted cash and security deposits as of December 31, 2021 and restricted cash, security deposits and a derivative asset as of December 31, 2020.

2 Amounts primarily consist of acquisition-related future contingent consideration liabilities and a derivative liability as of December 31, 2021 and acquisition-related future contingent consideration liabilities as of December 31, 2020.

1 Amounts primarily consist of restricted cash and security deposits.

2 Amounts primarily consist of acquisition-related future contingent consideration liabilities as of December 31, 2022 and acquisition-related future contingent consideration liabilities and a derivative liability as of December 31, 2021.

The following is a description of the valuation methodologies used for financial assets and liabilities measured at fair value on a recurring basis.

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For publicly traded securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices.

The fair value of certain securities held by consolidated Federated Hermes Funds are determined by third-party pricing services which utilize observable market inputs of comparable investments (Level 2).

The fair values of certain securities held by consolidated Federated Hermes Funds, which are determined by third-party pricing services and utilize observable market inputs of comparable investments, are classified within Level 2 of the valuation hierarchy.

Investments—Affiliates and Other

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For publicly traded securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices.

The fair value of certain securities are determined by third-party pricing services which utilize observable market inputs of comparable investments (Level 2).

The fair values of certain securities, which are determined by third-party pricing services and utilize observable market inputs of comparable investments, are classified within Level 2 of the valuation hierarchy.

Acquisition-related future contingent consideration liabilities

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes may be required to make future consideration payments if certain contingencies are met.

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes could be required to make future consideration payments if certain contingencies are met.

In connection with certain business combinations, Federated Hermes records a liability representing the estimated fair value of future consideration payments as of the acquisition date.

The liability is subsequently re-measured at fair value on a recurring basis with changes in fair value recorded in earnings.

As of December 31, 2021, acquisition-related future consideration liabilities of $ 11.7 million were primarily related to business combinations made in the first quarter of 2020 and were recorded in Other Current Liabilities ($ 7.2 million) and Other Long-Term Liabilities ($ 4.5 million) on the Consolidated Balance Sheets.

As of December 31, 2022, acquisition-related future consideration liabilities of $ 8.4 million were primarily related to the CWH Acquisition and business combinations made in 2020 and were recorded in Other Current Liabilities ($ 1.7 million) and Other Long-Term Liabilities ($ 6.7 million) on the Consolidated Balance Sheets.

Management estimated the fair value of future consideration payments based primarily upon expected future cash flows using an income approach valuation methodology with unobservable market data inputs (Level 3).

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Balance at December 31, 2021

Acquisitions 3,743

Changes in Fair Value 142

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The fair value of Federated Hermes’ debt is estimated by management using observable market data (Level 2).

Based on this fair value estimate, the carrying value of debt appearing on the Consolidated Balance Sheets approximates fair value.

Based on this fair value estimate, the carrying value of debt appearing on the Consolidated Balance Sheets approximates fair value, net of unamortized issuance costs in the amount of $ 2.4 million.

(8) Derivatives

During the third quarter of 2021, Federated Hermes entered into a foreign currency forward transaction in order to hedge against foreign exchange rate fluctuations associated with the payment for the 2021 Acquisition of HFML Noncontrolling Interests.

The forward was not designated as a hedging instrument for accounting purposes.

The forward transaction settled in the third quarter of 2021 and Federated Hermes recorded $ 1.3 million of expense in Nonoperating Income (Expenses) - Other, net on the Consolidated Statements of Income as a result of the change in fair value of this derivative.

HFML, a British Pound Sterling-denominated, majority-owned subsidiary of Federated Hermes, enters into foreign currency forward transactions in order to hedge against foreign exchange rate fluctuations in the U.S.

None of the forwards have been designated as hedging instruments for accounting purposes.

As of December 31, 2021, this subsidiary held foreign currency forward derivative instruments with a combined notional amount of £ 69.6 million and expiration dates ranging from March 2022 through September 2022.

FHL, a British Pound Sterling-denominated subsidiary of Federated Hermes, enters into foreign currency forward transactions in order to hedge against foreign exchange rate fluctuations in the USD.

None of these forwards have been designated as hedging instruments for accounting purposes.

As of December 31, 2022, FHL held foreign currency forwards with a combined notional amount of £ 67.3 million and expiration dates ranging from March 2023 through September 2023.

Federated Hermes recorded $ 0.5 million in Other Current Assets on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, 2022.

As of December 31, 2021, FHL held foreign currency forward derivative instruments with a combined notional amount of £ 69.6 million and expiration dates ranging from March 2022 through September 2022.

Federated Hermes recorded $ 1.6 million in Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, 2021.

As of December 31, 2020, HFML held foreign currency forward derivative instruments with a combined notional amount of £ 47.3 million and expiration dates ranging from March 2021 through September 2021.

Federated Hermes recorded $ 5.1 million in Receivables on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, 2020.

For the years ended December 31, 2022 and 2021 Federated Hermes recorded a $ 15.4 million realized loss and $ 4.5 million realized gain, respectively, to Operating Expenses - Other on the Consolidated Statements of Income for foreign currency forward transactions.

(9) Intangible Assets

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Indefinite-lived intangible assets are recorded in Intangible Assets, net on the Consolidated Balance Sheets and include rights to manage fund assets ($ 295.6 million and $ 347.8 million at December 31, 2022 and 2021, respectively) and trade names ($ 47.6 million and $ 53.1 million at December 31, 2022 and 2021, respectively).

The increase in indefinite-lived intangible assets at December 31, 2021 as compared to December 31, 2020 is primarily due to $ 5.3 million of intangible assets recorded in connection with an asset purchase during 2021, partially offset by a $ 2.6 million decrease in the value of intangible assets denominated in a foreign currency as a result of foreign exchange rate fluctuations.

The decrease in indefinite-lived intangible assets at December 31, 2022 as compared to December 31, 2021 is primarily due to a $ 31.5 million non-cash impairment of an intangible asset and a $ 27.2 million decrease in the value of intangible assets denominated in a foreign currency as a result of foreign exchange rate fluctuations.

The uncertainty caused by the Pandemic resulted in management determining that an indicator of potential impairment existed beginning in the first quarter 2020 for the FHL right to manage public fund assets acquired in connection with the 2018 FHL acquisition.

Management used an income-based approach to valuation, the discounted cash flow method, in valuing the asset.

As a result of continued increases in market interest rates and a decrease in near-term projected cash flows, a discounted cash flow analysis was prepared as of December 31, 2022 and resulted in a non-cash impairment charge of $ 31.5 million driven by changes in projected cash flows and a higher discount rate as compared to the prior quarter.

The non-cash impairment was recorded in Operating Expenses - Intangible Asset Related on the Consolidated Statements of Income.

After impairment, as of December 31, 2022, the FHL right to manage public fund assets totaled $ 150.4 million.

(b) Finite-lived intangible assets

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Carrying Value $ 65,921 $ 70,286

The decrease in finite-lived intangible assets at December 31, 2021 as compared to December 31, 2020 primarily relates to amortization expense.

Amortization expense for finite-lived intangible assets was $ 13.8 million, $ 13.8 million and $ 7.5 million in 2021, 2020 and 2019, respectively, and was recorded as operating expense in Other expense on the Consolidated Statements of Income.

The decrease in finite-lived intangible assets at December 31, 2022 as compared to December 31, 2021 primarily relates to amortization expense ($ 12.5 million) and foreign exchange translation ($ 7.2 million) which was partially offset by intangible assets recorded in connection with the CWH Acquisition ($ 15.4 million).

Amortization expense for finite-lived intangible assets was $ 12.5 million, $ 13.8 million and $ 13.8 million in 2022, 2021 and 2020, respectively, and was recorded in Operating Expenses - Other on the Consolidated Statements of Income.

Expected aggregate annual amortization expense for finite-lived intangible assets in each of the five succeeding years assuming no new acquisitions or impairments is shown in the table below:

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2023 $ 13,246

Goodwill at December 31, 2021 decreased $ 1.4 million from December 31, 2020 primarily as a result of foreign exchange rate fluctuations on goodwill denominated in a foreign currency.

Goodwill at December 31, 2022 increased $ 1.5 million from December 31, 2021 primarily as a result of the CWH Acquisition, partially offset by a $ 14.8 million decrease related to foreign exchange rate fluctuations on goodwill denominated in a foreign currency.

(10) Property and Equipment

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Property and Equipment, net $ 35,743 $ 46,965

Depreciation expense was $ 15.4 million, $ 16.0 million and $ 16.5 million for the years ended December 31, 2021, 2020 and 2019, respectively, and was recorded in Office and Occupancy expense on the Consolidated Statements of Income.

Depreciation expense was $ 15.1 million, $ 15.4 million and $ 16.0 million for the years ended December 31, 2022, 2021 and 2020, respectively, and was recorded in Operating Expenses - Office and Occupancy on the Consolidated Statements of Income.

Unsecured Senior Notes

On March 17, 2022, Federated Hermes entered into a Note Purchase Agreement (Note Purchase Agreement) by and among Federated Hermes and the purchasers of certain unsecured senior notes in the aggregate amount of $ 350 million ($ 350 million Notes), at a fixed interest rate of 3.29 % per annum, payable semiannually in arrears in March and September in each year of the agreement.

Citigroup Global Markets Inc.

and PNC Capital Markets LLC acted as lead placement agents in relation to the Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note Purchase Agreement.

As of December 31, 2022, $ 347.6 million, net of unamortized issuance costs in the amount of $ 2.4 million, was recorded in Long-Term Debt on the Consolidated Balance Sheets.

T he entire principal amount of the $ 350 million Notes will become due March 17, 2032, subject to certain prepayment requirements under limited conditions.

Federated Hermes can elect to prepay the $ 350 million Notes under certain limited circumstances including with a make-whole amount if mandatorily prepaid without the consent of the holders of the $ 350 million Notes.

The Note Purchase Agreement does not feature a facility for the further i ssuance of additional notes or borrowing of any other amounts and there is no commitment fee payable in connection with the $ 350 million Notes.

The Note Purchase Agreement includes an interest coverage ratio covenant and a leverage ratio covenant as well as other customary terms and conditions.

Federated Hermes was in compliance with all of its covenants at and during the period ended December 31, 2022.

See the Liquidity and Capital Resources section of Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations (unaudited) for additional information.

The Note Purchase Agreement includes certain stated events of default and cross default provisions which would permit the lenders/counterparties to accelerate the repayment of the $ 350 million Notes if not cured within the applicable grace periods.

The events of default generally include breaches of contract, failure to make required payments, insolvency, certain material misrepresentations and other proceedings, whether voluntary or involuntary, that would require the repayment of the $ 350 million Notes prior to their stated date of maturity.

Any such accelerated amounts would accrue interest at a default rate and could include an additional make-whole amount upon repayment.

The $ 350 million Notes rank without preference or priority, with other unsecured and senior indebtedness of Federated Hermes.

Revolving Credit Facility

On July 30, 2021, Federated Hermes entered into an unsecured Fourth Amended and Restated Credit Agreement by and among Federated Hermes, certain of its subsidiaries as guarantors party thereto, a syndicate of eleven banks as Lenders party thereto, PNC Bank, National Association as administrative agent, PNC Capital Markets LLC, as sole bookrunner and joint lead arranger, Citigroup Global Markets, Inc., as joint lead arranger, Citibank, N.A.

as syndication agent, and Toronto-Dominion Bank, New York Branch as documentation agent (Credit Agreement).

The Credit Agreement amended and restated Federated Hermes' Third Amended and Restated Credit Agreement, which was dated June 5, 2017 and scheduled to mature on June 5, 2022 (Prior Credit Agreement).

The Credit Agreement consists of a $ 350 million revolving credit facility with an additional $ 200 million available via an optional increase (or accordion) feature.

The interest on the borrowings from the revolving credit facility is calculated at the monthly London Interbank Offering Rate (LIBOR) plus a spread unless a base rate option is elected.

The interest on the borrowings from the revolving credit facility is calculated at the

London Interbank Offering Rate (LIBOR) based on the tenor selection plus a spread unless a base rate option is elected.

The borrowings under the revolving credit facility may include up to $ 50 million for which interest is calculated at the daily LIBOR plus a spread unless a base rate option is elected (Swing Line).

The Credit Agreement provides for a replacement reference interest rate index upon the eventual discontinuation of LIBOR, which can be either the term Secured Overnight Financing Rate (SOFR) plus a spread or daily simple SOFR plus a spread, each having a benchmark adjustment applied based on its historical relationship to LIBOR, or another alternative interest rate index (selected by the administrative agent and Federated Hermes) plus a spread.

The Credit Agreement provides for a replacement reference interest rate index upon the eventual discontinuation of LIBOR, which can be either the term Secured Overnight Financing Rate (SOFR) plus a spread, daily simple SOFR plus a spread, each having a benchmark adjustment applied based on its historical relationship to LIBOR, or another alternative interest rate index (selected by the administrative agent and Federated Hermes) plus a spread.

The Credit Agreement, which expires on July 30, 2026, has no principal payment schedule, but instead requires that any outstanding principal be repaid by the expiration date.

Federated Hermes, however, may elect to make discretionary principal payments.

During 2021, Federated Hermes borrowed $ 295.7 million and repaid $ 147.3 million from the revolving credit facility under the Credit Agreement and Prior Credit Agreement.

As of December 31, 2021 and 2020, the amounts outstanding under the revolving credit facility were $ 223.4 million and $ 75.0 million, respectively, and were recorded as Long-Term Debt on the Consolidated Balance Sheets.

The interest rate was 1.161 % and 1.277 % as of December 31, 2021 and 2020, respectively, which was calculated at LIBOR plus a spread.

Federated Hermes, however, can elect to make discretionary principal payments.

During 2022, Federated Hermes borrowed $ 138.3 million and repaid $ 361.7 million from the revolving credit facility under the Credit Agreement.

As of December 31, 2022, there were no outstanding borrowings under the revolving credit facility.

As of December 31, 2021, the amount outstanding under the revolving credit facility was $ 223.4 million and was recorded as Long-Term Debt on the Consolidated Balance Sheets.

The interest rate was 1.161 % as of December 31, 2021, which was calculated at LIBOR plus a spread.

The commitment fee under the Credit Agreement is 0.10 % per annum on the daily unused portion of each Lender’s commitment.

As of December 31, 2022, Federated Hermes has $ 350 million available for borrowings under the revolving credit facility and an additional $ 200 million available via its optional accordion feature.

The Credit Agreement, similar to the Prior Credit Agreement, includes representations and warranties, affirmative and negative financial covenants, including an interest coverage ratio covenant and a leverage ratio covenant, reporting requirements and other non-financial covenants.

The Credit Agreement includes representations and warranties, affirmative and negative financial covenants, including an interest coverage ratio covenant and a leverage ratio covenant, reporting requirements and other non-financial covenants.

Federated Hermes was in compliance with all covenants at and during the year ended December 31, 2022.

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Federated Hermes offers defined contribution plans to its employees.

The total expense for these plans recognized in Compensation and Related expense amounted to $ 14.4 million, $ 13.4 million and $ 12.3 million for 2021, 2020 and 2019, respectively.

The total expense for these plans recognized in Operating Expenses - Compensation and Related amounted to $ 13.9 million, $ 14.4 million and $ 13.4 million for 2022, 2021 and 2020, respectively.

(13) Share-Based Compensation

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Share-based awards are granted to reward Federated Hermes’ employees and non-management directors who have contributed to the success of Federated Hermes and to provide incentive to increase their efforts on behalf of Federated Hermes.

Since the Plan's inception, a total of 30.6 million shares of Class B

common stock have been authorized for granting share-based awards in the form of restricted stock, stock options or other share-based awards.

Since the Plan’s inception, a total of 36.1 million shares of Class B common stock have been authorized for granting share-based awards in the form of restricted stock, stock options or other share-based awards.

As of December 31, 2022, 4.6 million shares are available under the Plan.

On December 15, 2021, the compensation committee and board of directors of Federated Hermes approved, subject to the consent of the holder of its Class A common stock (Class A Shareholder), amendments to the Plan, including to increase the number of shares of Federated Hermes' Class B common stock authorized under the Plan by 5.5 million shares from 30.6 million shares to 36.1 million shares.

The Class A Shareholder was the only shareholder of Federated Hermes entitled to approve the amendments to the Plan.

See Note (22) for additional information on the approval of the Plan.

Share-based compensation expense was $ 34.8 million, $ 30.3 million and $ 26.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The associated tax benefits recorded in connection with share-based compensation expense were $ 8.2 million, $ 7.1 million and $ 6.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

At December 31, 2021, the maximum remaining unrecognized compensation expense related to share-based awards approximated $ 81.5 million which is expected to be recognized over a weighted-average period of approximately 6 years.

At December 31, 2022, the maximum remaining unrecognized compensation expense related to share-based awards approximated $ 95.2 million which is expected to be recognized over a weighted-average period of approximately six years .

Federated Hermes’ restricted stock awards represent shares of Federated Hermes Class B common stock that may be sold by the awardee only once restrictions lapse, as dictated by the terms of the award.

The awards are generally subject to graded vesting schedules that vary in length from three to ten years with a portion of the award vesting each year, as dictated by the terms of the award.

The awards are generally subject to graded vesting schedules that vary in length from three to ten years with a portion of the award vesting each year, as dictated by the

terms of the award.

For an award with a ten-year vesting period, the restrictions on the vested portion of the award typically lapse on the award’s fifth- and tenth-year anniversaries.

For an award with a five-year vesting period, the restrictions on the vested portion of the award typically lapse on the award’s six-, seventh- and eighth-year anniversaries.

Certain restricted stock awards granted pursuant to a key employee bonus program have a three-year graded vesting schedule with restrictions lapsing at each vesting date.

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4,536,758 $ 29.54

1 During 2021, Federated Hermes awarded 726,613 shares of restricted Class B common stock in connection with a bonus program in which certain key employees received a portion of their bonus in the form of restricted stock under the Plan.

This bonus restricted stock, which was granted on the bonus payment dates and issued out of treasury, generally vests over a three-year period.

In addition, Federated Hermes awarded 492,000 shares of restricted Class B common stock under this same Plan that generally vests over a ten-year period.

1 During 2022, Federated Hermes awarded 1,345,999 shares of restricted Class B common stock under the UK Sub-Plan that generally vest over a five-year period.

Federated Hermes awarded 494,043 shares of restricted Class B common stock in connection with a bonus program in which certain key employees received a portion of their bonus in the form of restricted stock under the Plan.

This bonus restricted stock, which was granted on the bonus payment date and issued out of treasury, generally vests over a three-year period.

In addition, Federated Hermes awarded 474,500 shares of restricted Class B common stock under this same Plan that generally vest over a ten-year period.

Federated Hermes awarded 2,314,542 shares of restricted Class B common stock with a weighted-average grant-date fair value of $ 32.89 to employees during 2022;

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(b) Subsidiary Stock Plan

Effective July 2, 2018, Federated Hermes established a non-public subsidiary share-based compensation plan for certain employees of one of its subsidiaries.

These awards, which are subject to continued-service vesting requirements, vest over a period of three to five years .

At various predetermined dates, but no earlier than 9 months after vesting, award holders have a right to exercise a put option to sell shares to Federated Hermes at fair value and Federated Hermes has a right to exercise a call option to acquire shares at fair value.

Federated Hermes recognized compensation expense for this plan of $ 9.4 million, $ 8.8 million and $ 7.9 million in Compensation and Related expense on the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021, the remaining unrecognized compensation expense related to these plan awards approximated $ 16 million which is expected to be recognized over a weighted-average period of approximately 2 years.

See Note (22) for information on a tender offer.

Effective July 2, 2018, Federated Hermes established a non-public subsidiary share-based compensation plan for certain employees of FHL.

These awards, which were subject to continued-service vesting requirements, vested over a period of three to five years .

The award holders had a right to exercise a put option to sell shares to Federated Hermes at fair value and Federated Hermes had a right to exercise a call option to acquire shares at fair value.

Federated Hermes recognized compensation expense for this plan of $ 0.7 million, $ 9.4 million and $ 8.8 million in Operating Expenses - Compensation and Related on the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020, respectively.

On March 14, 2022, Federated Hermes completed the 2022 Acquisition of FHL Noncontrolling Interests resulting in the acquisition of the remaining shares of FHL.

Federated Hermes granted 1,183,066 shares of restricted Federated Hermes Class B common stock pursuant to award agreements to certain FHL employees in exchange for their beneficial interests in awards of restricted FHL shares held on March 14, 2022.

These shares of Federated Hermes Class B common stock were reserved for issuance under the Plan.

Federated Hermes also issued a combined 318,807 shares of treasury Federated Hermes Class B common stock to the trustee of a non-U.S.

domiciled employee benefit trust, and a non-U.S.

resident former FHL employee, in exchange for beneficial interests in the FHL shares held by them on March 14, 2022.

The Federated Hermes shares now held by the employee benefit trust are to be used for future restricted stock awards for FHL management and key employees.

As of December 31, 2022, 155,874 shares remain available in the employee benefit trust.

(14) Common Stock

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Cash dividends of $ 97.9 million, $ 105.8 million and $ 207.8 million were paid in 2022, 2021 and 2020, respectively, to holders of Federated Hermes common stock.

Of the amount paid in 2020, $ 99.3 million represented a $ 1.00 per share special dividend paid in the fourth quarter.

Of the amount paid in 2020, $ 99.3 million represented a $ 1.00 per share special dividend.

All dividends were considered ordinary dividends for tax purposes.

(b) Treasury Stock

In October 2016, the board of directors authorized a share repurchase program with no stated expiration date that allows the buy back of up to 4 million shares of Class B common stock.

This program was fulfilled in March 2020.

In March 2020, the board of directors authorized a share repurchase program with no stated expiration date that allows the buy back of up to 500 thousand shares of Class B common stock.

This program was fulfilled in May 2020.

In April 2020, the board of directors authorized a share repurchase program with no stated expiration date that allows the buy back of up to 3.5 million shares of Class B common stock.

This program was fulfilled in May 2021.

In April and December 2021, the board of directors authorized share repurchase programs with no stated expiration dates that allow the repurchase of up to 4 million and 7.5 million shares, respectively, of Class B common stock.

The April 2021 program was fulfilled in December 2021.

In December 2021, the board of directors authorized a share repurchase program with no stated expiration date that allowed the repurchase of up to 7.5 million shares of Class B common stock.

This program was fulfilled in September 2022.

In June 2022, the board of directors authorized a share repurchase program with no stated expiration date that allows the repurchase of up to 5.0 million shares of Class B common stock.

No other program existed as of December 31, 2022.

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At December 31, 2022, 4.7 million shares remained available to be repurchased under this share repurchase program.

In July 2022, Federated Hermes’ board of directors authorized the retirement of 10.0 million treasury shares which restored these shares to authorized but unissued status.

Federated Hermes recorded a $ 313.8 million reduction to Treasury Stock, at cost using the specific-identification method and a $ 42.7 million reduction to Class B common stock, at cost using the average cost method.

The difference was recorded as a reduction to Retained Earnings and Additional Paid-In Capital from Treasury Stock Transactions.

There was no impact to total equity as a result of this non-cash transaction.

(15) Income Taxes

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Effective Tax Rate 23.4 % 27.6 % 24.7 %

The effective tax rate for 2021 increased to 27.6 % as compared to the effective tax rate for 2020 of 24.7 % prim arily due to an increase in foreign deferred tax expense in connection with the revaluation of net foreign deferred tax liabilities resulting from recent UK legislation that increases the UK corporate income tax rate from 19% to 25% effective April 1, 2023.

The effective tax rate for 2022 decreased to 23.4 % as compared to the effective tax rate for 2021 of 27.6 % prim arily due to an increase in foreign deferred tax expense in 2021 in connection with the revaluation of net foreign deferred tax liabilities resulting from UK legislation that increases the UK corporate income tax rate from 19% to 25% effective April 1, 2023.

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following at December 31:

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Lease Liability 25,630 30,289

Compensation related 21,457 18,033

Compensation and Related 18,267 21,457

Other 5,619 1,125

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Net Deferred Tax Liability $ 180,410 $ 205,206

Long-Term Deferred Tax Liability, net at December 31, 2021 increased $ 17.3 million from December 31, 2020 primarily due to recent UK legislation that increases the UK corporate income tax rate from 19% to 25% effective April 1, 2023.

Long-Term Deferred Tax Liability, net at December 31, 2022 decreased $ 24.8 million from December 31, 2021 primarily due to a $ 7.9 million reduction in the foreign deferred tax liability associated with the impairment of an intangible asset, an increase in foreign deferred tax assets of $ 6.4 million and a $ 6.0 million decrease related to foreign exchange rate fluctuations on deferred tax assets and liabilities denominated in a foreign currency.

At December 31, 2022, Federated Hermes had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $ 69.6 million.

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The valuation allowances were recorded due to management’s belief that it is more likely than not that Federated Hermes will not realize the full benefit of these net operating losses.

For the deferred tax asset, net of

valuation allowance related to foreign net operating losses, management believes that it is more likely than not that it will realize the benefit of these net operating losses based on projections of future taxable income for the entities to which these relate.

For the deferred tax asset, net of valuation allowance related to foreign net operating losses, management believes that it is more likely than not that it will realize the benefit of these net operating losses based on projections of future taxable income for the entities to which these relate.

Federated Hermes’ remaining deferred tax assets as of December 31, 2022 and 2021 primarily related to lease liabilities reported pursuant to ASC 842 and compensation-related expenses that have been recognized for book purposes but are not yet deductible for tax purposes.

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$ 227,668 $ 257,855 $ 311,410

Basic and Diluted Weighted-Average Federated Hermes Common Stock 2

Basic Weighted-Average Federated Hermes Common Stock 2

85,762 93,754 96,503

Dilutive Impact from Non-forfeitable Restricted Stock 4 17 0

Diluted Weighted-Average Federated Hermes Common Stock 2

85,766 93,771 96,503

Earnings Per Share

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1 Includes dividends paid on unvested restricted Federated Hermes Class B common stock and their proportionate share of undistributed earnings attributable to Federated Hermes shareholders.

2 Federated Hermes common stock excludes unvested restricted stock which are deemed participating securities in accordance with the two-class method of computing earnings per share.

2 Federated Hermes common stock excludes unvested restricted stock which are deemed participating securities in accordance with the two-class method of computing earnings per share, except for circumstances where shares vest upon retirement and the employee has reached retirement age.

Federated Hermes has material operating leases related to its corporate headquarters in Pittsburgh, Pennsylvania.

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The value of the ROU assets and lease liabilities recognized do not include the consideration of any renewal options, as they are not yet reasonably certain to be exercised.

During the years ended December 31, 2021, 2020, and 2019, Federated Hermes recorded $ 19.0 million, $ 13.0 million and $ 17.7 million, respectively, in operating lease costs to Office and Occupancy expense on the Consolidated Statements of Income.

The following table reconciles future minimum undiscounted payments to the operating lease liabilities recorded on the Consolidated Balance Sheets as of December 31, 2021:

During the years ended December 31, 2022, 2021, and 2020, Federated Hermes recorded $ 19.0 million, $ 19.0 million and $ 13.0 million, respectively, in operating lease costs to Operating Expenses - Office and Occupancy on the Consolidated Statements of Income.

The following table reconciles future minimum undiscounted payments of the operating lease liabilities recorded on the Consolidated Balance Sheets as of December 31, 2022:

(in millions)

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Weighted-average discount rate (IBR) 3.1 %

Year-to-date cash paid for the amounts included in the measurement of lease liabilities (in millions) $ 19.9

Cash paid in 2022 for the amounts included in the measurement of lease liabilities (in millions) $ 20.1

(18) Accumulated Other Comprehensive Income (Loss) Attributable to Federated Hermes, Inc.

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The following table presents the changes in Redeemable Noncontrolling Interests in Subsidiaries:

(in thousands) Consolidated Investment Companies HFML and other entities

(in thousands) Consolidated Investment Companies FHL and other entities

Balance at January 1, 2020 $ 19,872 $ 192,214 $ 212,086

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Distributions to Noncontrolling Interests in Subsidiaries ( 16,218 ) 0 ( 16,218 )

Business Acquisition 0 ( 386 ) ( 386 )

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 4,148 4,148

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests in FHL 0 ( 1,479 ) ( 1,479 )

Balance at December 31, 2020 $ 24,246 $ 212,741 $ 236,987

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Distributions to Noncontrolling Interests in Subsidiaries ( 3,017 ) ( 1,909 ) ( 4,926 )

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 ( 1,479 ) ( 1,479 )

Acquisition of Additional Equity of FHL 0 ( 167,302 ) ( 167,302 )

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests in FHL 0 ( 19,256 ) ( 19,256 )

Balance at December 31, 2021 $ 24,659 $ 38,543 $ 63,202

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Distributions to Noncontrolling Interests in Subsidiaries ( 20,627 ) ( 5,352 ) ( 25,979 )

Acquisition of Additional Equity of HFML 0 ( 167,302 ) ( 167,302 )

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 ( 19,256 ) ( 19,256 )

Acquisition of Additional Equity of FHL 0 ( 37,805 ) ( 37,805 )

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests in FHL 0 14,221 14,221

Balance at December 31, 2022 $ 50,317 $ 11,504 $ 61,821

The activity in 2021 includes $ 892.1 million of contributions from noncontrolling interests in subsidiaries as a result of a purchase-in-kind investment into a previously consolidated VRE.

This was a noncash transaction and was therefore excluded from the Consolidated Statements of Cash Flows.

During 2021, 2020 and 2019, the HFML Redeemable Noncontrolling Interests in Subsidiaries carrying value was adjusted by $ 19.3 million, $ 1.5 million and $ 4.1 million, respectively, to the curre nt redemption value, assuming the HFML noncontrolling interests was redeemable at the balance sheet date.

The noncontrolling interests was adjusted through a corresponding adjustment to retained earnings.

This was a non-cash transaction and was therefore excluded from the Consolidated Statements of Cash Flows.

During 2022, 2021 and 2020, the FHL Redeemable Noncontrolling Interests in Subsidiaries carrying value was adjusted by $ 14.2 million, $ 19.3 million and $ 1.5 million, respectively, to the curre nt redemption value, assuming the FHL noncontrolling interests was redeemable at the balance sheet date.

The noncontrolling interests were adjusted through a corresponding adjustment to retained earnings.

(20) Commitments and Contingencies

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See Note (7) for additional information regarding these payments.

(b) Contingencies

Federated Hermes previously recorded as revenue certain carried interest, subject to clawback provisions, from certain funds (Carried Interest).

As of December 31, 2021, approximately $ 11 million of Carried Interest is subject to clawback.

As a result of the impact of the Pandemic on certain markets during 2021, management concluded it was reasonably possible that the market value of the assets held by these funds could be reduced at future valuation dates, which could result in a portion or all of this Carried Interest being repaid.

As of December 31, 2021, management estimates that clawbacks will not occur based on the current valuation of the assets held by these funds.

Future reductions in the valuation of the assets held by these funds may result in a clawback of a portion or all of this Carried Interest.

(b) Guarantees and Indemnifications

On an intercompany basis, various subsidiaries of Federated Hermes guarantee certain financial obligations of Federated Hermes, Inc., and of other consolidated subsidiaries, and Federated Hermes, Inc.

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In each of these circumstances, payment by Federated Hermes is contingent on the other party making a claim for indemnity, subject to Federated Hermes’ right to challenge the claim.

Further, Federated Hermes' obligations under these agreements may be limited in terms of time and/or amount.

Further, Federated Hermes’ obligations under these agreements can be limited in terms of time and/or amount.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of Federated Hermes’ obligations and the unique facts and circumstances involved in each particular agreement.

As of December 31, 2022, management does not believe that a material loss related to any of these matters is reasonably possible.

(d) Legal Proceedings

Like other companies, Federated Hermes has claims asserted and threatened against it in the ordinary course of business.

As of December 31, 2021, Federated Hermes does not believe that a material loss related to these claims is reasonably possible.

As of December 31, 2022, Federated Hermes does not believe that a material loss related to any of these claims is reasonably possible.

(21) Segment and Geographic Information

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(22) Subsequent Events

On January 7, 2022, the Class A Shareholder signed and delivered a unanimous written consent in lieu of a special meeting of shareholders to approve the amendments to the Plan described in Note (13).

On January 26, 2023, the board of directors declared a $ 0.27 per share dividend.

The dividend was payable to shareholders of record as of February 8, 2023, resulting in $ 24.1 million being paid on February 15, 2023.

On February 7, 2022, Federated Hermes commenced a tender offer to acquire the remaining approximately 10 % interest in HFML not owned by Federated Hermes by issuing awards of restricted Class B common stock under the Plan in exchange for the beneficial interests in shares of HFML held by certain HFML employees pursuant to the Subsidiary Stock Plan, and treasury shares (outside the Plan) in exchange for the beneficial interests in shares of HFML held by a former employee of HFML and the trustee of an employee benefit trust created in connection with the Subsidiary Stock Plan at the time of the 2018 HFML Acquisition.

The tender offer is scheduled to expire on March 11, 2022 and be consummated on March 14, 2022 unless extended by Federated Hermes in its sole discretion.

Federated Hermes estimates that approximately 1.5 million shares of Federated Hermes Class B common stock will be exchanged for the beneficial interests in shares of HFML.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data