10-Q 1 fhi-20220331.htm 10-Q fhi-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________________________________________________________
FORM 10-Q
 _______________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-14818
 _______________________________________________________________________________________
Federated Hermes, Inc.
(Exact name of registrant as specified in its charter)
 _______________________________________________________________________________________
Pennsylvania 25-1111467
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1001 Liberty Avenue 15222-3779
Pittsburgh,
Pennsylvania
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 412-288-1900
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class B common stock, no par valueFHINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx  Accelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date: As of April 22, 2022, the Registrant had outstanding 9,000 shares of Class A common stock and 91,665,902 shares of Class B common stock.

Table of Contents


FORWARD-LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that could cause the actual results, levels of activity, performance or achievements of Federated Hermes, Inc. and its consolidated subsidiaries (collectively, Federated Hermes), or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "believe," "expect," "anticipate," "current," "intention," "estimate," "position," "projection," "assume," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "can," "may," and similar expressions. Among other forward-looking statements, such statements include certain statements relating to, or, as applicable, statements concerning management's assessments, beliefs, expectations, assumptions, judgments, projections or estimates regarding: the coronavirus and pandemic, their impact and plans in response; Russia's invasion of Ukraine and its impact; asset flows, levels, values and mix or their impact; business mix; the level, timing, degree and impact of changes in interest rates or gross or net yields; fee rates and recognition; sources and levels of revenues, expenses, gains, losses, income and earnings; the level and impact of reimbursements, rebates or assumptions of fund-related expenses and fee waivers for competitive reasons such as to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers), to maintain certain fund expense ratios, to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers); whether, under what circumstances and the degree to which Fee Waivers will be implemented; the integration of environmental, social and governance factors; the impact of market volatility, liquidity, and other market conditions; whether and when revenue or expense is recognized; whether performance fees or carried interest will be earned or clawed-back; whether and when capital contributions could be made; the components and level of, and prospect for, distribution-related expenses; guarantee and indemnification obligations; the timing and amount of acquisition-related payment obligations; payment obligations pursuant to employment or incentive arrangements; vesting rights and requirements; business and market expansion opportunities, including acceleration of global growth; interest and principal payments or expenses; taxes, tax rates and the impact of tax law changes; borrowing, debt, future cash needs and principal uses of cash, cash flows and liquidity; the ability to raise additional capital; type, classification and consolidation of investments; uses of treasury stock; Federated Hermes' product and market performance and Federated Hermes' performance indicators; investor preferences; product and strategy demand, distribution, development and restructuring initiatives and related planning and timing; the effect, and degree of impact, of changes in customer relationships; legal proceedings; regulatory matters, including the pace, timing, impact, effects and other consequences of the current regulatory environment; the attractiveness and resiliency of money market funds; dedication of resources; accounting-related determinations; compliance, and related legal, compliance and other professional services expenses; interest rate, concentration, market, currency and other risks and their impact; and various other items set forth under Item 1A - Risk Factors in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A - Risk Factors. Among other risks and uncertainties, market conditions can change significantly and impact Federated Hermes' business and results, including by changing Federated Hermes' asset flows, levels, and mix, and business mix, which could cause a decline in revenues and net income, result in impairments and change the amount of Fee



Waivers incurred by Federated Hermes. The obligation to make purchase price payments in connection with acquisitions is subject to certain adjustments and conditions, and the obligation to make contingent payments is based on net revenue levels and will be affected by the achievement of such levels. The obligation to make additional payments pursuant to employment or incentive arrangements can be based on satisfaction of certain conditions set forth in those arrangements. Future cash needs, cash flows and uses of cash will be impacted by a variety of factors, including the number and size of any acquisitions, Federated Hermes' success in developing, structuring and distributing its products and strategies, potential changes in assets under management (AUM) and/or changes in the terms of distribution and shareholder services contracts with intermediaries who offer Federated Hermes' products to intermediary customers, and potential increased legal, compliance and other professional services expenses stemming from additional or modified regulation or the dedication of such resources to other initiatives. Federated Hermes' risks and uncertainties also include liquidity and credit risks in Federated Hermes' money market funds and revenue risk, which will be affected by yield levels in money market fund products, Fee Waivers, changes in fair values of AUM, any additional regulatory reforms, investor preferences and confidence, and the ability of Federated Hermes to collect fees in connection with the management of such products. Many of these factors could be more likely to occur as a result of continued scrutiny of the mutual fund industry by domestic or foreign regulators, and any disruption in global financial markets. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither Federated Hermes nor any other person assumes responsibility for the accuracy and completeness, or updating, of such statements in the future. For more information on these items and additional risks that could impact the forward-looking statements, see Item 1A - Risk Factors included in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A - Risk Factors.


Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
March 31,
2022
December 31,
2021
ASSETS
Current Assets
Cash and Cash Equivalents$262,043 $233,327 
Investments—Consolidated Investment Companies104,370 105,542 
Investments—Affiliates and Other91,067 87,805 
Receivables, net of reserve of $21 and $21, respectively
55,510 65,317 
Receivables—Affiliates29,315 30,956 
Prepaid Expenses32,283 29,322 
Other Current Assets7,257 7,178 
Total Current Assets581,845 559,447 
Long-Term Assets
Goodwill794,788 798,871 
Intangible Assets, net of accumulated amortization of $41,717 and $39,618, respectively
458,663 471,209 
Property and Equipment, net of accumulated depreciation of $116,888 and $113,624, respectively
44,579 46,965 
Right-of-Use Assets, net105,583 108,306 
Other Long-Term Assets33,064 33,389 
Total Long-Term Assets1,436,677 1,458,740 
Total Assets$2,018,522 $2,018,187 
LIABILITIES
Current Liabilities
Accounts Payable and Accrued Expenses$65,135 $64,019 
Accrued Compensation and Benefits73,435 162,203 
Lease Liabilities17,883 17,447 
Income Taxes Payable11,448 501 
Other Current Liabilities13,072 26,537 
Total Current Liabilities180,973 270,707 
Long-Term Liabilities
Long-Term Debt397,383 223,350 
Long-Term Deferred Tax Liability, net204,745 205,206 
Long-Term Lease Liabilities101,439 105,270 
Other Long-Term Liabilities27,492 36,435 
Total Long-Term Liabilities731,059 570,261 
Total Liabilities912,032 840,968 
Commitments and Contingencies (Note (17))
TEMPORARY EQUITY
Redeemable Noncontrolling Interests in Subsidiaries48,569 63,202 
PERMANENT EQUITY
Federated Hermes, Inc. Shareholders' Equity
Common Stock:
Class A, No Par Value, 20,000 Shares Authorized, 9,000 Shares Issued and Outstanding
189 189 
Class B, No Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued
458,217 448,929 
Additional Paid-In Capital from Treasury Stock Transactions3,518 0 
Retained Earnings1,191,575 1,187,001 
Treasury Stock, at Cost, 17,441,863 and 16,094,488 Shares Class B Common Stock, respectively
(594,806)(538,464)
Accumulated Other Comprehensive Income (Loss), net of tax(772)16,362 
Total Permanent Equity1,057,921 1,114,017 
Total Liabilities, Temporary Equity and Permanent Equity$2,018,522 $2,018,187 
(The accompanying notes are an integral part of these Consolidated Financial Statements.)
4


Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
 20222021
Revenue
Investment Advisory Fees, net—Affiliates$170,221 $183,833 
Investment Advisory Fees, net—Other62,773 63,856 
Administrative Service Fees, net—Affiliates73,507 74,302 
Other Service Fees, net—Affiliates13,607 15,869 
Other Service Fees, net—Other4,656 3,313 
Total Revenue324,764 341,173 
Operating Expenses
Compensation and Related133,965 143,620 
Distribution48,562 44,389 
Systems and Communications19,494 18,594 
Professional Service Fees13,468 14,636 
Office and Occupancy11,322 11,240 
Advertising and Promotional2,732 2,824 
Travel and Related1,795 296 
Other9,477 8,096 
Total Operating Expenses240,815 243,695 
Operating Income83,949 97,478 
Nonoperating Income (Expenses)
Investment Income, net1,093 632 
Gain (Loss) on Securities, net(11,695)1,379 
Debt Expense(1,222)(491)
Other, net83 345 
Total Nonoperating Income (Expenses), net(11,741)1,865 
Income Before Income Taxes72,208 99,343 
Income Tax Provision17,611 24,997 
Net Income Including the Noncontrolling Interests in Subsidiaries54,597 74,346 
Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries(1,266)(138)
Net Income$55,863 $74,484 
Amounts Attributable to Federated Hermes, Inc.
Earnings Per Common Share—Basic and Diluted$0.61 $0.75 
Cash Dividends Per Share$0.27 $0.27 
(The accompanying notes are an integral part of these Consolidated Financial Statements.)

5


Consolidated Statements of Comprehensive Income
(dollars in thousands)
(unaudited)
Three Months Ended
March 31,
 20222021
Net Income Including the Noncontrolling Interests in Subsidiaries$54,597 $74,346 
Other Comprehensive Income (Loss), net of tax
Permanent Equity
Foreign Currency Translation Gain (Loss)(17,134)3,558 
Temporary Equity
Foreign Currency Translation Gain (Loss)(457)1,430 
Other Comprehensive Income (Loss), net of tax(17,591)4,988 
Comprehensive Income Including the Noncontrolling Interests in Subsidiaries37,006 79,334 
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests in Subsidiaries(1,723)1,292 
Comprehensive Income Attributable to Federated Hermes, Inc.$38,729 $78,042 
(The accompanying notes are an integral part of these Consolidated Financial Statements.)


6


Consolidated Statements of Changes in Equity
(dollars in thousands)
(unaudited)
 Federated Hermes, Inc. Shareholders' Equity  
 Common
Stock
Additional
Paid-in
Capital from
Treasury
Stock
Transactions
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive Income (Loss), net of
tax
Total
Permanent
Equity
Redeemable
Noncontrolling
Interest in
Subsidiaries/
Temporary
Equity
Balance at December 31, 2021$449,118 $0 $1,187,001 $(538,464)$16,362 $1,114,017 $63,202 
Net Income (Loss)55,863 55,863 (1,266)
Other Comprehensive Income (Loss), net of tax(17,134)(17,134)(457)
Subscriptions—Redeemable Noncontrolling Interest Holders30,340 
Consolidation (Deconsolidation)(16,034)
Stock Award Activity9,288 (12,116)12,147 9,319 707 
Dividends Declared(24,952)(24,952)
Distributions to Noncontrolling Interests in Subsidiaries(4,339)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests(14,221)(14,221)14,221 
Acquisition of Additional Equity of HFML3,518 34,048 37,566 (37,805)
Purchase of Treasury Stock(102,537)(102,537)
Balance at March 31, 2022$458,406 $3,518 $1,191,575 $(594,806)$(772)$1,057,921 $48,569 
Balance at December 31, 2020$418,858 $0 $1,027,699 $(324,731)$15,171 $1,136,997 $236,987 
Net Income (Loss)74,484 74,484 (138)
Other Comprehensive Income (Loss), net of tax3,558 3,558 1,430 
Subscriptions—Redeemable Noncontrolling Interest Holders25,762 
Consolidation (Deconsolidation)(16,237)
Stock Award Activity9,216 (15,234)15,249 9,231 2,481 
Dividends Declared(26,788)(26,788)
Distributions to Noncontrolling Interests in Subsidiaries(1,898)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests2,670 2,670 (2,670)
Purchase of Treasury Stock(45,030)(45,030)
Balance at March 31, 2021$428,074 $0 $1,062,831 $(354,512)$18,729 $1,155,122 $245,717 
(The accompanying notes are an integral part of these Consolidated Financial Statements.)
7


Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Three Months Ended
March 31,
20222021
Operating Activities
Net Income Including the Noncontrolling Interests in Subsidiaries$54,597 $74,346 
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities
Depreciation and Amortization7,462 7,473 
Share-Based Compensation Expense9,288 9,216 
Subsidiary Share-Based Compensation Expense707 2,482 
(Gain) Loss on Disposal of Assets(150)(1,684)
Provision (Benefit) for Deferred Income Taxes2,342 3,597 
Consolidation/(Deconsolidation) of Other Entities(20)11,789 
Net Unrealized (Gain) Loss on Investments11,847 322 
Net Sales (Purchases) of Investments—Consolidated Investment Companies(30,937)(51,127)
Other Changes in Assets and Liabilities:
(Increase) Decrease in Receivables, net9,843 6,742 
(Increase) Decrease in Prepaid Expenses and Other Assets(2,892)(3,342)
Increase (Decrease) in Accounts Payable and Accrued Expenses(88,206)(101,616)
Increase (Decrease) in Other Liabilities6,872 11,789 
Net Cash Provided (Used) by Operating Activities(19,247)(30,013)
Investing Activities
Purchases of Investments—Affiliates and Other(2,008)(1,811)
Proceeds from Redemptions of Investments—Affiliates and Other1,321 2,466 
Cash Paid for Property and Equipment(1,853)(2,159)
Net Cash Provided (Used) by Investing Activities(2,540)(1,504)
Financing Activities
Dividends Paid(24,953)(26,788)
Purchases of Treasury Stock(113,338)(39,073)
Distributions to Noncontrolling Interests in Subsidiaries(4,339)(1,898)
Contributions from Noncontrolling Interests in Subsidiaries30,340 25,762 
Proceeds from New Borrowings488,300 0 
Payments on Debt(311,650)(5,000)
Other Financing Activities(9,499)(1,993)
Net Cash Provided (Used) by Financing Activities54,861 (48,990)
Effect of Exchange Rates on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents(4,505)1,270 
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents28,569 (79,237)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period238,052 308,635 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period266,621 229,398 
Less: Restricted Cash Recorded in Other Current Assets4,289 6,507 
Less: Restricted Cash and Restricted Cash Equivalents Recorded in Other Long-Term Assets289 286 
Cash and Cash Equivalents$262,043 $222,605 
(The accompanying notes are an integral part of these Consolidated Financial Statements.)
8

Notes to the Consolidated Financial Statements
(unaudited)

(1) Basis of Presentation
Federated Hermes, Inc. and its consolidated subsidiaries (collectively, Federated Hermes) provide investment advisory, administrative, distribution and other services to various investment products, including sponsored investment companies, collective funds and other funds (Federated Hermes Funds) and Separate Accounts (which include separately managed accounts, institutional accounts, certain sub-advised funds and other managed products) in both domestic and international markets. In addition, Federated Hermes markets and provides stewardship and real estate development services to various domestic and international companies. The interim Consolidated Financial Statements of Federated Hermes included herein have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP). In the opinion of management, the financial statements reflect all adjustments that are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods presented.
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.
These financial statements should be read in conjunction with Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2021. Certain items reported in previous periods have been reclassified to conform to the current period's presentation.
(2) Significant Accounting Policies
For a listing of Federated Hermes' significant accounting policies, please refer to Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2021.
(3) Equity Acquisition
On March 14, 2022, Federated Hermes completed a tender offer resulting in the acquisition of the remaining approximate 10% noncontrolling interests in Federated Hermes Limited (formerly known as Hermes Fund Managers Limited, HFML) from a non-U.S. domiciled trustee of an employee benefit trust established for the benefit of certain members of HFML's management, a non-U.S. resident former HFML employee and other non-U.S. resident key employees under a long-term incentive plan established in connection with the 2018 acquisition of HFML (2022 Acquisition of HFML Noncontrolling Interests). Pursuant to the 2022 Acquisition of HFML Noncontrolling Interests, HFML became a 100% indirect, wholly-owned subsidiary of Federated Hermes.
The 2022 Acquisition of HFML Noncontrolling Interests was transacted in shares exchanged 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 HFML. The HFML 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 HFML. See Note (12) for additional information regarding the share exchange.
(4) Revenue from Contracts with Customers
The following table presents Federated Hermes' revenue disaggregated by asset class:
Three Months Ended
March 31,
(in thousands)20222021
Equity$146,856 $166,357 
Money market86,290 80,692 
Fixed-income57,874 56,777 
Other1
33,744 37,347 
Total Revenue$324,764 $341,173 
1    Primarily includes Alternative / Private Markets (including but not limited to private equity, real estate and infrastructure), multi-asset and stewardship services revenue.
9

Notes to the Consolidated Financial Statements
(unaudited)
The following table presents Federated Hermes' revenue disaggregated by performance obligation:
Three Months Ended
March 31,
(in thousands)20222021
Asset Management1
$232,994 $247,689 
Administrative Services73,507 74,302 
Distribution2
11,077 13,028 
Other3
7,186 6,154 
Total Revenue$324,764 $341,173 
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.
2    The performance obligation is satisfied at a point in time. A portion of this revenue relates to a performance obligation that has been satisfied in a prior period.
3    Primarily includes shareholder service fees and stewardship services revenue.
The following table presents Federated Hermes' revenue disaggregated by geographical market:
Three Months Ended
March 31,
(in thousands)20222021
Domestic$246,809 $256,491 
Foreign1
77,955 84,682 
Total Revenue$324,764 $341,173 
1    This represents revenue earned by non-U.S. domiciled subsidiaries.
The following table presents Federated Hermes' revenue disaggregated by product type:
Three Months Ended
March 31,
(in thousands)20222021
Federated Hermes Funds$257,335 $274,005 
Separate Accounts62,773 63,855 
Other1
4,656 3,313 
Total Revenue$324,764 $341,173 
1    Primarily includes stewardship services revenue.
For nearly all revenue, Federated Hermes is not required to disclose certain estimates of revenue expected to be recorded in future periods as a result of applying the following exemptions: (1) contract terms are short-term in nature (i.e., expected duration of one year or less due to termination provisions) and (2) the expected variable consideration would be allocated entirely to future service periods.
Federated Hermes expects to recognize revenue in the future related to the unsatisfied portion of the stewardship services and real estate development performance obligations at March 31, 2022. 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 12 months. Based on existing contracts and the applicable foreign exchange rates as of March 31, 2022, Federated Hermes may recognize future fixed revenue from these services as presented in the following table:
(in thousands)
Remainder of 2022$9,544 
20235,714 
20243,092 
2025 and Thereafter969 
Total Remaining Unsatisfied Performance Obligations$19,319 
10

Notes to the Consolidated Financial Statements
(unaudited)
(5) Concentration Risk
(a) Revenue Concentration by Asset Class
The following table presents Federated Hermes' significant revenue concentration by asset class:
Three Months Ended
March 31,
20222021
Equity Assets45 %49 %
Money Market Assets27 %24 %
Fixed-Income Assets18 %16 %
The change in the relative proportion of Federated Hermes' revenue attributable to money market assets for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily the result of 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 equity and fixed-income assets for the three months ended March 31, 2022 as compared to the same period in 2021, was primarily the result of lower average equity assets, higher average fixed-income assets and increased money market revenue in 2022.
Low Short-Term Interest Rates
In March 2020, in response to disrupted economic activity as a result of the outbreak of a novel coronavirus (the Pandemic), the Federal Open Market Committee of the Federal Reserve Board (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 (Voluntary Yield-related Fee Waivers). 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. In response to the recovering U.S. economy and elevated inflation levels, during its March 2022 meeting, the FMOC raised the federal funds target rate range 25 bps to 0.25% - 0.50%.
During the three months ended March 31, 2022, Voluntary Yield-related Fee Waivers totaled $75.8 million. These fee waivers were partially offset by related reductions in distribution expenses of $57.5 million such that the net negative pre-tax impact to Federated Hermes was $18.3 million for the three months ended March 31, 2022. During the three months ended March 31, 2021, Voluntary Yield-related Fee Waivers totaled $83.1 million. These fee waivers were partially offset by related reductions in distribution expenses of $61.4 million such that the net negative pre-tax impact to Federated Hermes was $21.7 million for the three months ended March 31, 2021. 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.
(b) Revenue Concentration by Investment Fund Strategy
The following table presents Federated Hermes' revenue concentration by investment fund strategy:
Three Months Ended
March 31,
20222021
Federated Hermes Strategic Value Dividend strategy1
10 %8 %
Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II9 %11 %
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.
11

Notes to the Consolidated Financial Statements
(unaudited)
(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 may be deemed to be voting rights entities (VREs) or variable interest entities (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. Federated Hermes' investment in, and/or receivables from, these Federated Hermes Funds represents its maximum exposure to loss. The assets of each consolidated Federated Hermes Fund are restricted for use by that Federated Hermes Fund. Generally, neither creditors of, nor equity investors in, the Federated Hermes Funds have any recourse to Federated Hermes' general credit. 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, 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 three months ended March 31, 2022 and 2021, Fee Waivers totaled $198.5 million and $201.1 million, respectively, of which $164.8 million and $168.0 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 net asset value (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 Securities and Exchange Commission (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 contributions for the three months ended March 31, 2022 and no material contributions for the three months ended March 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. Once this determination is made, Federated Hermes proceeds with its evaluation of whether to consolidate the entity. The disclosures below represent the results of such evaluations as of March 31, 2022 and December 31, 2021.
(a) Consolidated Voting Rights Entities
Although most of the Federated Hermes Funds meet the definition of a VRE, Federated Hermes consolidates VREs only when it is deemed to have control. Consolidated VREs are reported on Federated Hermes' Consolidated Balance Sheets primarily in Investments—Consolidated Investment Companies and Redeemable Noncontrolling Interests in Subsidiaries.
(b) Consolidated Variable Interest Entities
As of the periods ended March 31, 2022 and December 31, 2021, Federated Hermes was deemed to be the primary beneficiary of, and therefore consolidated, certain entities as a result of its controlling financial interest. The following table presents the balances related to the consolidated VIEs that were included on the Consolidated Balance Sheets as well as Federated Hermes' net interest in the consolidated VIEs for each period presented.
(in millions)March 31, 2022December 31, 2021
Cash and Cash Equivalents$3.7 $3.0 
Investments—Consolidated Investment Companies43.2 35.9 
Other Assets0.2 0.1 
Long-Term Investments14.4 13.8 
Less: Liabilities1.4 1.4 
Less: Redeemable Noncontrolling Interests in Subsidiaries42.4 33.3 
Federated Hermes' Net Interest in VIEs$17.7 $18.1 
12

Notes to the Consolidated Financial Statements
(unaudited)
Federated Hermes' net interest in the consolidated VIEs represents the value of Federated Hermes' economic ownership interest in that VIE. There were no new material consolidations or deconsolidations of VIEs during the three months ended March 31, 2022.
(c) Non-Consolidated Variable Interest Entities
Federated Hermes' involvement with certain Federated Hermes Funds that are deemed to be VIEs includes serving as investment manager, or at times, holding a minority interest or both. Federated Hermes' variable interest is not deemed to absorb losses or receive benefits that could potentially be significant to the VIE. Therefore, Federated Hermes is not the primary beneficiary of these VIEs and has not consolidated these entities.
At March 31, 2022 and December 31, 2021, Federated Hermes' maximum risk of loss related to investments in variable interests in non-consolidated VIEs was $94.1 million and $170.6 million, respectively, (primarily recorded in Cash and Cash Equivalents on the Consolidated Balance Sheets) and was entirely related to Federated Hermes Funds. AUM for these non-consolidated Federated Hermes Funds totaled $6.0 billion and $8.0 billion at March 31, 2022 and December 31, 2021, respectively. Of the Receivables—Affiliates at March 31, 2022 and December 31, 2021, $1.0 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 March 31, 2022 and December 31, 2021, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of $80.9 million and $77.6 million, respectively, primarily in mutual funds which predominantly invest in equity securities, and held investments in Separate Accounts of $10.2 million at both March 31, 2022 and December 31, 2021, that were included in Investments—Affiliates and Other on the Consolidated Balance Sheets. Federated Hermes' investments held in Separate Accounts as of March 31, 2022 and December 31, 2021, were primarily composed of domestic debt securities ($4.8 million and $5.2 million, respectively) and stocks of large domestic and foreign companies ($3.8 million and $3.4 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 March 31, 2022 and December 31, 2021 were primarily composed of domestic and foreign debt securities ($56.9 million and $65.2 million, respectively), stocks of large domestic and foreign companies ($36.1 million and $28.5 million, respectively) and stocks of small and mid-sized domestic and foreign companies ($6.8 million and $7.4 million, respectively).
The following table presents gains and losses recognized in Gain (Loss) on Securities, net on the Consolidated Statements of Income in connection with Federated Hermes' investments:
 Three Months Ended
March 31,
(in thousands)20222021
Investments—Consolidated Investment Companies
Net Unrealized Gains (Losses)$(5,188)$(1,903)
Net Realized Gains (Losses)1
(462)1,261 
Net Gains (Losses) on Investments—Consolidated Investment Companies(5,650)(642)
Investments—Affiliates and Other
Net Unrealized Gains (Losses)(6,659)1,581 
Net Realized Gains (Losses)1
614 440 
Net Gains (Losses) on Investments—Affiliates and Other(6,045)2,021 
Gain (Loss) on Securities, net$(11,695)$1,379 
1    Realized gains and losses are computed on a specific-identification basis.
13

Notes to the Consolidated Financial Statements
(unaudited)
(8) Fair Value Measurements
Fair value is the price that would be received to sell an asset or the price that would be paid to transfer a liability as of the measurement date. A fair-value reporting hierarchy exists for disclosure of fair value measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The levels are:
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 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; 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 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active markets.
NAV Practical Expedient – Investments that calculate NAV per share (or its equivalent) as a practical expedient. These investments have been excluded from the fair value hierarchy.
(a) Fair Value Measurements on a Recurring Basis
The following table presents fair value measurements for classes of Federated Hermes' financial assets and liabilities measured at fair value on a recurring basis:
(in thousands)Level 1Level 2Level 3Total
March 31, 2022
Financial Assets
Cash and Cash Equivalents$262,043 $0 $0 $262,043 
Investments—Consolidated Investment Companies46,190 58,180 0 104,370 
Investments—Affiliates and Other85,713 5,306 48 91,067 
Other1
7,007 0 0 7,007 
Total Financial Assets$400,953 $63,486 $48 $464,487 
Total Financial Liabilities2
$0 $4,082 $4,708 $8,790 
December 31, 2021
Financial Assets
Cash and Cash Equivalents$233,327 $0 $0 $233,327 
Investments—Consolidated Investment Companies38,799 66,743 0 105,542 
Investments—Affiliates and Other82,594 5,165 46 87,805 
Other1
7,105 0 0 7,105 
Total Financial Assets$361,825 $71,908 $46 $433,779 
Total Financial Liabilities2
$0 $1,644 $11,652 $13,296 
1    Amounts primarily consist of restricted cash and security deposits as of March 31, 2022 and December 31, 2021.
2    Amounts primarily consist of acquisition-related future contingent consideration liabilities and a derivative liability as of March 31, 2022 and 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. Federated Hermes did not hold any nonfinancial assets or liabilities measured at fair value on a recurring basis at March 31, 2022 or December 31, 2021.
Cash and Cash Equivalents
Cash and Cash Equivalents include deposits with banks and investments in money market funds. Investments in money market funds totaled $221.3 million and $183.4 million at March 31, 2022 and December 31, 2021, respectively. Cash investments in publicly available money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy.
14

Notes to the Consolidated Financial Statements
(unaudited)
Investments—Consolidated Investment Companies
Investments—Consolidated Investment Companies represent securities held by consolidated Federated Hermes Funds. 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).
Investments—Affiliates and Other
Investments—Affiliates and Other primarily represent investments in fluctuating-value Federated Hermes Funds, as well as investments held in Separate Accounts. For investments in fluctuating-value Federated Hermes Funds that are publicly available, the securities are valued under the market approach through the use of quoted market prices available in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy. 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).
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. 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 March 31, 2022, acquisition-related future consideration liabilities of $4.7 million were primarily related to business combinations made in the first quarter 2020 and were recorded in Other Current Liabilities ($0.4 million) and Other Long-Term Liabilities ($4.3 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:
(in thousands)
Balance at December 31, 2021$11,652 
Changes in Fair Value(31)
Contingent Consideration Payments(6,913)
Balance at March 31, 2022$4,708 
Investments using Practical Expedients
For investments in mutual funds that are not publicly available but for which the NAV is calculated monthly and for which there are redemption restrictions, the investments are valued using NAV as a practical expedient and are excluded from the fair value hierarchy. As of March 31, 2022 and December 31, 2021, these investments totaled $18.4 million and $17.5 million, respectively, and were recorded in Other Long-Term Assets.
(b) Fair Value Measurements on a Nonrecurring Basis
Federated Hermes did not hold any assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2022.
(c) Fair Value Measurements of Other Financial Instruments
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.
(9) Derivatives
HFML, 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 U.S. Dollar. None of the forwards have been designated as hedging instruments for accounting purposes. As of March 31, 2022, this subsidiary held foreign currency
15

Notes to the Consolidated Financial Statements
(unaudited)
forward derivative instruments with a combined notional amount of £70.7 million and expiration dates ranging from June 2022 through December 2022. Federated Hermes recorded $4.1 million in Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of March 31, 2022.
As of December 31, 2021, HFML 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.
(10) Intangible Assets, including Goodwill
Intangible Assets, net at March 31, 2022 decreased $12.5 million from December 31, 2021 primarily due to a $9.5 million decrease in the value of intangible assets denominated in a foreign currency as a result of foreign exchange rate fluctuations and $3.3 million of amortization expense.
Goodwill at March 31, 2022 decreased $4.1 million from December 31, 2021 primarily as a result of foreign exchange rate fluctuations on goodwill denominated in a foreign currency.
(11) Debt
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 $350.0 million (Notes), at a fixed interest rate of 3.29% per annum, payable semiannually in arrears on the 17th day of 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 March 31, 2022, $347.4 million, net of issuance cost in the amount of $2.6 million, was recorded in Long-Term Debt on the Consolidated Balance Sheets.
The entire principal amount of the Notes will become due March 17, 2032, subject to certain prepayment requirements under certain limited conditions. Federated Hermes may elect to prepay the Notes under certain limited circumstances including with a make-whole amount if mandatorily prepaid without the consent of the holders of the Notes. The Note Purchase Agreement does not feature a facility for the further issuance of additional Notes or borrowing of any other amounts and there is no commitment fee payable in connection with the 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 March 31, 2022. See the Liquidity and Capital Resources section of Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 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 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 consists of a $350.0 million revolving credit facility with an additional $200.0 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 borrowings under the revolving credit facility may include up to $50 million
16

Notes to the Consolidated Financial Statements
(unaudited)
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.
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 the first quarter 2022, Federated Hermes borrowed $138.3 million and repaid $311.7 million of the revolving credit facility under the Credit Agreement.
As of March 31, 2022 and December 31, 2021, the amounts outstanding under the revolving credit facility were $50.0 million and $223.4 million, respectively, and were recorded as Long-Term Debt on the Consolidated Balance Sheets. The interest rate was 1.354% and 1.161% as of March 31, 2022 and December 31, 2021, respectively, 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 March 31, 2022, Federated Hermes has $300.0 million available for borrowings under the revolving credit facility and an additional $200.0 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 three months ended March 31, 2022. See the Liquidity and Capital Resources section of Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.
The Credit Agreement also has certain stated events of default and cross default provisions which would permit the lenders/counterparties to accelerate the repayment of debt outstanding if not cured within the applicable grace periods. The events of default generally include breaches of contract, failure to make required loan payments, insolvency, cessation of business, notice of lien or assessment, and other proceedings, whether voluntary or involuntary, that would require the repayment of amounts borrowed. The Credit Agreement also requires certain subsidiaries to enter into a Third Amended and Restated Continuing Agreement of Guaranty and Suretyship to guarantee payment of all obligations incurred through the Credit Agreement.
(12) Share-Based Compensation Plans
In connection with the 2022 Acquisition of HFML Noncontrolling Interests, Federated Hermes granted 1,183,066 shares of restricted Federated Hermes Class B common stock pursuant to award agreements to certain HFML employees in exchange for their beneficial interests in awards of restricted HFML shares held on March 14, 2022. These shares of Federated Hermes Class B common stock were reserved for issuance under the Federated Hermes Stock Incentive Plan. Federated Hermes also issued a combined 318,807 shares of treasury Federated Hermes Class B common stock to a non-U.S. resident former HFML employee, and to the trustee of a non-U.S. domiciled employee benefit trust, in exchange for beneficial interests in the HFML shares held by them on March 14, 2022. The shares being held by the employee benefit trust are to be used for future restricted stock awards for HFML management and key employees. See Note (3) for additional information.
During the three months ended March 31, 2022, Federated Hermes awarded 504,043 shares of restricted Federated Hermes Class B common stock, nearly all of which was granted in connection with a bonus program in which certain key employees received a portion of their bonus in the form of restricted stock under Federated Hermes' Stock Incentive Plan. This restricted stock, which was granted on the bonus payment date and issued out of treasury, generally vests over a three-year period.
During 2021, Federated Hermes awarded 1,218,613 shares of restricted Federated Hermes Class B common stock under its Stock Incentive Plan. Of this amount, 726,613 shares were awarded in connection with the aforementioned bonus program. The remaining shares were awarded to certain key employees and generally vest over a 10-year period.
17

Notes to the Consolidated Financial Statements
(unaudited)
(13) Equity
In December 2021, the board of directors authorized a share repurchase program with no stated expiration date that allows the repurchase of up to 7.5 million shares of Class B common stock. No other program existed as of March 31, 2022. The program authorizes executive management to determine the timing and the amount of shares for each purchase. The repurchased stock is to be held in treasury for employee share-based compensation plans, potential acquisitions and other corporate activities, unless Federated Hermes' board of directors subsequently determines to retire the repurchased stock and restore the shares to authorized but unissued status (rather than holding the shares in treasury). During the first quarter 2022, Federated Hermes repurchased approximately 3.0 million shares of its Class B common stock for $102.5 million ($1.7 million of which was accrued in Other Current Liabilities as of March 31, 2022), nearly all of which were repurchased in the open market. At March 31, 2022, approximately 3.0 million shares remained available to be repurchased under this share repurchase program.
The following table presents the activity for the Class B common stock and Treasury stock for the three months ended March 31, 2022 and 2021. Class A shares have been excluded as there was no activity during these same periods.
 Three Months Ended
March 31,
20222021
Class B Shares
Beginning Balance93,410,968 99,331,443 
Stock Award Activity 1,692,542 712,924 
Purchase of Treasury Stock(3,039,917)(1,505,000)
Ending Balance92,063,593 98,539,367 
Treasury Shares
Beginning Balance16,094,488 10,174,013 
Stock Award Activity (1,692,542)(712,924)
Purchase of Treasury Stock3,039,917 1,505,000 
Ending Balance17,441,863 10,966,089 
(14) Earnings Per Share Attributable to Federated Hermes, Inc. Shareholders