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Item 8. Financial Statements and Supplementary Data

2024-02-23 compared with 2023-02-24 · 128 added, 110 removed, 1044 unchanged (19% of the section changed)

47 unchanged sentences

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.

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.

The Company evaluated the FHL indefinite-lived intangible asset at December 31, 2023 in light of a decrease in management’s projected cash flows and determined that the fair value exceeded the carrying value.

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.

The significant assumptions used to estimate the fair value included the discount rate and certain assumptions that form the basis of the projected cash flows, 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.

78 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, 99,505,456 and 109,505,456 Shares Issued, respectively

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

474,814 440,953

Additional Paid-in Capital from Treasury Stock Transactions 2 0

Retained Earnings 1,194,561 1,015,589

68 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

9 unchanged sentences

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

8 unchanged sentences

Distributions to Noncontrolling Interests in Subsidiaries 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

Purchase of Treasury Stock 0 ( 5,318,442 ) 5,318,442

47 unchanged sentences

$ 475,003 $ 2 $ 1,194,561 $ ( 521,403 ) $ ( 19,911 ) $ 1,128,252 $ 25,845

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

32 unchanged sentences

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

Cash paid for Business Acquisitions ( 2,065 ) ( 7,105 ) ( 2,007 )

Proceeds from New Borrowings 0 488,300 295,650

66 unchanged sentences

Generally, the less the customer is directly involved with or participates in making decisions regarding the ultimate third-party service provider, the more supportive the facts are that Federated Hermes is acting as the principal in these transactions and should therefore report revenues on a gross basis.

All of Federated Hermes’ revenue is recorded gross of payments made to third parties.

Nearly all of Federated Hermes’ revenue is recorded gross of payments made to third parties.

Management judgments are used when reviewing newly-created contracts and/or materially-modified contracts to determine whether:

13 unchanged sentences

Federated Hermes has a controlling financial interest in a VIE and is, therefore, deemed to be the primary beneficiary of a VIE if it has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Financial information for certain entities, whose primary purpose is to collect and distribute carried interest paid by foreign

private equity and infrastructure funds, is not available timely and is therefore consolidated on a one quarter lag, adjusted for any known material carried interest revenue and compensation transactions occurring through the balance sheet date.

Financial information for certain entities, whose primary purpose is to collect and distribute carried interest paid by foreign private equity and infrastructure funds (carried interest vehicles), is not available timely and is therefore consolidated on a one

quarter lag, adjusted for any known material carried interest revenue and compensation transactions occurring through the balance sheet date.

Consolidation of Voting Rights Entities

11 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 can be utilized in which one or more significant inputs or significant value drivers are unobservable in the market place.

See Note (8) for additional information regarding the fair value of investments held as of December 31, 2023 and 2022.

54 unchanged sentences

Management may use a qualitative or quantitative approach which requires the weighting of positive and negative evidence collected through the consideration of various factors to determine whether it is more likely than not that an indefinite-lived intangible asset or asset group is impaired.

In 2022, management used a quantitative approach for two units of account and a qualitative approach for the remaining unit of account.

Management considers macroeconomic and entity-specific factors, including the asset’s estimated useful life, projected AUM, projected revenue growth rates, projected pre-tax profit margins, tax rates, discount rates and, in the case of a trade name valuation, a royalty rate.

3 unchanged sentences

Indicators of a potential impairment monitored by management include a significant decline in the level of managed assets, changes to contractual provisions underlying certain intangible assets and significant reductions in underlying operating cash flows.

Should there be an indication of a change in the useful life or impairment in value of the finite-lived intangible assets, Federated

Hermes compares the carrying value of the asset to the projected undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether impairment has occurred.

Should there be an indication of a change in the useful life or impairment in value of the finite-lived intangible assets, Federated Hermes compares the carrying value of the asset to the projected undiscounted cash flows expected to be generated from the

underlying asset over its remaining useful life to determine whether impairment has occurred.

If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows.

41 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 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.

In the case of FHL, prior to Federated Hermes acquiring the remaining shares of FHL in 2022, 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.

2 unchanged sentences

(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.

(2) the guideline public company methodology under the market approach;

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

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

3 unchanged sentences

(3) projected pre-tax profit margins;

(4) tax rates and (5) discount rates.

(4) tax rates;

and (5) discount rates.

(p) Treasury Stock

5 unchanged sentences

(q) Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss), net of tax is reported on the Consolidated Balance Sheets and the Consolidated Statements of Changes in Equity and includes unrealized gains and losses on foreign currency translation adjustments.

Accumulated Other Comprehensive Income (Loss), net of tax is reported on the Consolidated Balance Sheets and includes unrealized gains and losses on foreign currency translation adjustments.

(r) Foreign Currency Translation

15 unchanged sentences

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.

On March 14, 2022, Federated Hermes acquired the remaining shares of FHL.

See Note (14) for additional information.

(t) Advertising Costs

15 unchanged sentences

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.

In addition to the amounts excluded from the basic earnings per share calculation, prior to Federated Hermes acquiring the remaining shares of FHL in 2022, net income available to unvested shareholders of a nonpublic consolidated subsidiary was excluded from the computation of diluted earnings per share.

(w) Business Segments

2 unchanged sentences

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

(2) Business Combination and Equity Acquisition

(2) Recent Accounting Pronouncements

Recently Issued Accounting Guidance Not Yet Adopted

(a) Segment Reporting

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This ASU updates reportable segment disclosures by expanding the frequency and extent of segment disclosures.

The update is effective for Federated Hermes for the December 31, 2024 Form 10-K, and for interim periods starting in fiscal year 2025.

Early adoption is permitted and requires the retrospective adoption method.

Management is currently evaluating this ASU to determine its impact on Federated Hermes’ disclosures.

(b) Income Taxes

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU updates income tax disclosures by requiring annual disclosures of disaggregated information, based on meeting a quantitative threshold, about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The update is effective for Federated Hermes for the December 31, 2025 Form 10-K, with early adoption permitted, and allows for either the prospective or retrospective adoption method.

Management is currently evaluating this ASU to determine its impact on Federated Hermes’ disclosures.

(3) Business Combination

CWH Acquisition

2 unchanged sentences

(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.

This acquisition enhanced 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:

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 is payable annually over the first five years if certain levels of net revenue growth are achieved.

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

The accounting for this acquisition was finalized in the third quarter 2023.

There were no changes to the provisional amounts for the acquired assets and assumed liabilities.

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

(in millions)

5 unchanged sentences

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.

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

(4) Revenue from Contracts with Customers

33 unchanged sentences

(in thousands)

2024 $ 10,891

2027 and Thereafter 46

9 unchanged sentences

Fixed-Income Assets 12 % 14 % 18 %

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.

The change in the relative proportion of Federated Hermes’ revenue attributable to money market assets in 2023, as compared to the same period in 2022, was primarily the result of an increase in money market revenue due to the elimination of Voluntary Yield-related Fee Waivers and higher average money market assets.

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.

The change in the relative proportion of Federated Hermes’ revenue attributable to equity and fixed-income assets in 2023, as compared to 2022, was primarily the result of increased money market revenue described above, as well as decreased equity revenue from lower average equity assets and decreased fixed-income revenue from lower average fixed-income assets and asset mix in 2023.

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

Low Short-Term Interest Rates

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%.

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

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

1 unchanged sentence

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 waivers had 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.

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

The range is currently 5.25% - 5.50% as of the January 31, 2024 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.

For the year ended December 31, 2023, there were no Voluntary Yield-related Fee Waivers.

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

6 unchanged sentences

Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II 5 % 7 % 11 %

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 Strategy includes Federated Hermes Funds and Separate Accounts.

A significant and prolonged decline in the AUM in these funds/strategy 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/strategy.

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.

Approximately 11 % of Federated Hermes’ total revenue for both 2023 and 2022, and 3 % for 2021, was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary.

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.

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.

(6) 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 could be deemed to be VREs or VIEs.

The Consolidated Financial Statements include the accounts of Federated Hermes, certain Federated Hermes Funds, carried interest vehicles 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.

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.

22 unchanged sentences

Investments—Consolidated Investment Companies 12.4 50.1

Other Assets 0.7 0.1

Receivables - Affiliates and Other 4.7 0.3

Other Current Assets 0.3 0.4

Other Long-Term Assets 13.8 13.4

4 unchanged sentences

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.

During the year ended December 31, 2023, Federated Hermes consolidated and/or deconsolidated various VIEs due to changes in its ownership in these VIEs.

There was no material impact to the Consolidated Statements of Income as a result of these consolidations and deconsolidations on a net basis.

4 unchanged sentences

AUM for these non-consolidated Federated Hermes Funds totaled $ 9.3 billion and $ 5.4 billion at December 31, 2023 and 2022, respectively.

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.

Of the Receivables—Affiliates at December 31, 2023 and 2022, $ 1.1 million and $ 0.7 million, respectively, related to non-consolidated VIEs and represented Federated Hermes’ maximum risk of loss from non-consolidated VIE receivables.

(7) Investments

At December 31, 2023 and 2022, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of $ 99.5 million and $ 67.0 million, respectively, primarily in mutual funds which represent equity investments for Federated Hermes, and held investments in Separate Accounts of $ 7.5 million and $ 9.5 million at December 31, 2023 and 2022, 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’ investments held in Separate Accounts as of December 31, 2023 and 2022, were primarily composed of stocks of large domestic and foreign companies ($ 3.4 million for both periods) and domestic debt securities ($ 2.4 million and $ 4.6 million, respectively).

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 (6)).

All investments held by these consolidated Federated Hermes Funds were included in Investments—Consolidated Investment Companies on Federated Hermes’ Consolidated Balance Sheets.

The investments held by consolidated Federated Hermes Funds as of December 31, 2022 and 2021, were primarily composed of domestic and foreign debt securities ($ 57.8 million and $ 65.2 million, respectively), stocks of large domestic and foreign companies ($ 45.3 million and $ 28.5 million, respectively) and stocks of small and mid-sized domestic and foreign companies ($ 3.3 million and $ 7.4 million, respectively).

The investments held by consolidated Federated Hermes Funds as of December 31, 2023 and 2022, were primarily composed of domestic and foreign debt securities ($ 59.1 million and $ 57.8 million, respectively), stocks of large foreign and domestic companies ($ 4.9 million and $ 45.3 million, respectively) and stocks of small and mid-sized domestic and foreign companies ($ 4.2 million and $ 3.3 million, respectively).

The following table presents gains and losses recognized in Gain (Loss) on Securities, net on the Consolidated Statements of Income in connection with Federated Hermes’ investments:

21 unchanged sentences

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

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

20 unchanged sentences

$ 27 $ 4 $ 8,439 $ 8,470

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.

1 Amounts primarily consist of restricted cash, security deposits and derivative assets.

2 Amounts primarily consist of acquisition-related future contingent consideration liabilities.

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

17 unchanged sentences

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, 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.

As of December 31, 2023, acquisition-related future consideration liabilities of $ 7.6 million were primarily related to the CWH Acquisition and a business combination made in 2020 and were recorded in Other Current Liabilities ($ 4.0 million) and Other Long-Term Liabilities ($ 3.6 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).

The following table presents a reconciliation of the beginning and ending balances for Federated Hermes’ liability for future consideration payments related to these business combinations/asset acquisitions:

The following table presents a reconciliation of the beginning and ending balances for Federated Hermes’ liability for future consideration payments related to these business combinations:

(in thousands)

Balance at December 31, 2022

Acquisitions 3,743

Changes in Fair Value 1,252

10 unchanged sentences

(9) Derivatives

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.

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

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.

As of December 31, 2023, Federated Hermes held foreign currency forwards with a combined notional amount of £ 84.3 million with expiration dates ranging from March 2024 through September 2024.

Federated Hermes recorded $ 1.3 million in Other Current Assets on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, 2023.

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.

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.

As of December 31, 2022, Federated Hermes held foreign currency forward derivative instruments with a combined notional amount of £ 67.3 million with 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.

For the years ended December 31, 2023 and 2022 Federated Hermes recorded a $ 3.4 million realized gain and $ 15.4 million realized loss, respectively, to Operating Expenses - Other on the Consolidated Statements of Income for foreign currency forward transactions.

(10) Intangible Assets

1 unchanged sentence

Indefinite-lived intangible assets are recorded in Intangible Assets, net on the Consolidated Balance Sheets and include rights to manage fund assets ($ 304.6 million and $ 295.6 million at December 31, 2023 and 2022, respectively) and trade names ($ 50.1 million and $ 47.6 million at December 31, 2023 and 2022, respectively).

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 increase in indefinite-lived intangible assets at December 31, 2023 as compared to December 31, 2022 is primarily a result of foreign exchange rate fluctuations on intangible assets denominated in a foreign currency.

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.

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 recorded in Operating Expenses - Intangible Asset Related on the Consolidated Statements of Income.

A discounted cash flow analysis prepared as of December 31, 2023 did no t result in an impairment.

The FHL right to manage public fund assets totaled $ 158.6 million as of December 31, 2023.

(b) Finite-lived intangible assets

4 unchanged sentences

Carrying Value $ 54,793 $ 65,921

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).

The decrease in finite-lived intangible assets at December 31, 2023 as compared to December 31, 2022 primarily relates to amortization expense ($ 13.9 million), which was partially offset by foreign exchange translation ($ 2.5 million).

Amortization expense for finite-lived intangible assets was $ 13.9 million, $ 12.5 million and $ 13.8 million in 2023, 2022 and 2021, respectively, and was recorded in Operating Expenses - Other on the Consolidated Statements of Income.

2 unchanged sentences

2024 $ 13,000

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.

Goodwill at December 31, 2023 increased $ 6.7 million from December 31, 2022 primarily as a result of foreign exchange rate fluctuations on goodwill denominated in a foreign currency.

(11) Property and Equipment

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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.

On March 17, 2022, pursuant to the Note Purchase Agreement, Federated Hermes issued unsecured senior notes in the aggregate amount of $ 350 million, 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.

and PNC Capital Markets LLC acted as lead placement agents in relation to the $ 350 million Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note Purchase Agreement.

As of December 31, 2023, $ 347.8 million, net of unamortized issuance costs in the amount of $ 2.2 million, was recorded in Long-Term Debt on the Consolidated Balance Sheets.

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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.

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

Federated Hermes was in compliance with all of its covenants at and during the period ended December 31, 2023.

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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.

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 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.

The $ 350 million Notes rank without preference or priority in relation to 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 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

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, 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.

Borrowings under the Credit Agreement may be used for general corporate purposes, including, without limitation, stock repurchases, dividend payments (including any special dividend payments), and acquisitions.

As of December 31, 2023, the interest on borrowings from the revolving credit facility is calculated at the term SOFR which includes a benchmark adjustment based on its historical relationship to LIBOR.

The borrowings under the revolving credit facility may include up to $ 50 million for which interest is calculated at the daily SOFR plus a spread unless a base rate option

is elected (Swing Line).

Effective July 1, 2023, Federated Hermes began using SOFR as a replacement to LIBOR in order to calculate interest on borrowings, if any, as permitted by the Credit Agreement.

This is only a change to the rate index used for future borrowings under the Credit Agreement due to the discontinuance of LIBOR in the market and is not an amendment to the Credit Agreement.

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, 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.

There was no activity on the Credit Agreement during 2023.

As of December 31, 2023 and 2022, there were no outstanding borrowings under the revolving credit facility.

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, 2023, 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 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, 2023.

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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.

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

No compensation expense for this plan was recognized for the year ended December 31, 2023.

On March 14, 2022, Federated Hermes acquired 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.

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Cash dividends of $ 98.1 million, $ 97.9 million and $ 105.8 million were paid in 2023, 2022 and 2021, 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.

All dividends were considered ordinary dividends for tax purposes.

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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.

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

This program was fulfilled in December 2023.

In October 2023, 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, 2023.

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Effective Tax Rate 25.9 % 23.4 % 27.6 %

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 effective tax rate for 2023 increased to 25.9 % as compared to the effective tax rate for 2022 of 23.4 % prim arily due to a valuation allowance on foreign deferred tax assets ( 1.0 %), nondeductible expenses associated with the restructuring of an infrastructure fund ( 0.9 %) and establishing a deferred tax asset in 2022 related to a write-off of a foreign subsidiary ( 0.8 %).

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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Right-of-Use Asset 24,589 23,201

Property and Equipment 5,790 3,783

Other 11,094 12,587

1 unchanged sentence

Net Deferred Tax Liability $ 186,292 $ 180,410

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, 2023, Federated Hermes had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $ 72.9 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 has relied on future reversals of temporary taxable differences to support the realizable portion of the deferred tax asset.

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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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.

Federated Hermes’ remaining deferred tax assets as of December 31, 2023 and 2022 primarily related to lease liabilities reported pursuant to ASC 842 and U.S.

compensation-related expenses that have been recognized for book purposes but are not yet deductible for tax purposes.

Management believes that it is more likely than not that Federated Hermes will receive the full benefit of these deferred tax assets due to the expectation that Federated Hermes will generate taxable income well in excess of these amounts in the years they become deductible.

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These leases include provisions for leasehold improvement incentives, rent escalation and certain penalties for early termination.

In addition, Federated Hermes has various other operating lease agreements primarily for additional facilities.

In addition, Federated Hermes has various other operating lease agreements primarily for facilities.

These leases are noncancelable and expire on various dates through the year 2036.

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

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 )

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Consolidation/(Deconsolidation) ( 75,225 ) 0 ( 75,225 )

Stock Award Activity 0 707 707

Distributions to Noncontrolling Interests in Subsidiaries ( 38,517 ) ( 1,443 ) ( 39,960 )

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, 2023 $ 14,341 $ 11,504 $ 25,845

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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.

During 2022 and 2021, the FHL Redeemable Noncontrolling Interests in Subsidiaries carrying value was adjusted by $ 14.2 million and $ 19.3 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.

On March 14, 2022, Federated Hermes acquired the remaining shares of FHL.

(21) Commitments and Contingencies

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(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.

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.

guarantees certain financial and performance-related obligations of various wholly-owned subsidiaries.

8 unchanged sentences

As of December 31, 2023, Federated Hermes does not believe that a material loss related to any of these claims is reasonably possible.

In addition, during the first quarter 2023, an administrative error was identified related to a failure to register certain shares of a Federated Hermes closed-end tender fund.

Federated Hermes estimated a probable cost of $ 19.6 million as of December 31, 2023 related to correcting this issue, of which $ 17.9 million represents a settlement with affected shareholders that was paid during the second quarter 2023.

During the first quarter 2023, Federated Hermes recorded $ 2.5 million to Operating Expenses - Other representing Federated Hermes' retention under the insurance policy.

Management believes an insurance reimbursement of $ 15.9 million is probable based on the contractual terms of the insurance policies.

Accordingly, $ 15.9 million has been recorded to Receivables, net at December 31, 2023.

However, the insurance claim is now the subject of litigation with two of Federated Hermes’ insurance carriers.

Changes to these estimates, which are contingent upon resolution of the insurance claim with the applicable insurers, could be materially different from the amount Federated Hermes has recorded.

In connection with the restructuring of an infrastructure fund, Federated Hermes purchased certain limited partners’ rights to receive future carried interest at fair value, which was calculated by a third-party, for $ 9.8 million and was included in Operating Expenses - Other in the second quarter 2023.

Due to the restructuring, an existing clawback risk on previously earned carried interest was removed.

The purchase of these carried interest rights and related legal and professional fees and other costs are not deductible for tax purposes.

Negotiations for additional consideration continue with a subset of limited partners, with an additional $ 5.1 million in consideration being recorded in Operating Expenses - Other in the second half of 2023.

The final consideration may be different from the amounts recorded and the difference could be material.

(22) Segment and Geographic Information

22 unchanged sentences

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