FEDERATED HERMES INC

Previous wording

Federated Hermes is a global leader in active, responsible investing with $782.7 billion in managed assets as of June 30, 2024. The majority of Federated Hermes’ revenue is derived from advising Federated Hermes Funds and Separate Accounts in domestic and international public and private markets. Federated Hermes also derives revenue from providing administrative and other fund-related services (including distribution and shareholder servicing) as well as stewardship and real estate development services.

Current wording

Federated Hermes is a global leader in active, responsible investing with $800.5 billion in managed assets as of September 30, 2024. The majority of Federated Hermes’ revenue is derived from advising Federated Hermes Funds and Separate Accounts in domestic and international public and private markets. Federated Hermes also derives revenue from providing administrative and other fund-related services (including distribution and shareholder servicing) as well as stewardship and real estate development services.

Previous wording

A $66.3 million non-cash impairment of an indefinite-lived intangible asset associated with the 2018 FHL acquisition was recorded in Intangible Asset Related expense on the Consolidated Statements of Income as of June 30, 2024. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, as well as Note (8) to the Consolidated Financial Statements for additional information related to the fair value measurement of this indefinite-lived intangible asset and Note (10) to the Consolidated Financial Statements for additional information related to this impairment of this indefinite-lived intangible asset.

Current wording

During the second quarter of 2024, a $66.3 million non-cash impairment of an indefinite-lived intangible asset associated with the 2018 FHL acquisition was recorded in Intangible Asset Related expense on the Consolidated Statements of Income. See Note (10) to the Consolidated Financial Statements for additional information related to the impairment of this indefinite-lived intangible asset.

Previous wording

The business and regulatory environments in which Federated Hermes operates globally remain complex, uncertain, and subject to change. Federated Hermes and its investment management business are subject to extensive regulation, both within and outside of the U.S., including various laws, rules, and regulations globally that impose restrictions, limitations, registration, reporting and disclosure requirements on its business, and add complexity to its global compliance operations. For example, Federated Hermes and its offerings are subject to various: (1) federal securities laws, such as the Securities Act of 1933 (1933 Act), the Securities Act of 1934 (Exchange Act), Investment Company Act of 1940 (1940 Act), and Investment Advisers Act of 1940 (Advisers Act); (2) state laws regarding securities fraud and registration; and (3) regulations or other rules promulgated by various regulatory authorities, or other authorities. These regulatory requirements, and other regulatory developments, continue to impact the investment management industry generally, and will continue to impact, to various degrees, Federated Hermes’ business, results of operations, financial condition, cash flows, and stock price (collectively, Financial Condition). Please see Federated Hermes’ prior public filings, including, the discussions under Part 1, Item 1 – Business – Regulatory Matters, in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report), for an overview of Federated Hermes’ regulatory environment and related regulatory developments for periods prior to December 31, 2023, and under Part 1, Item 2 – Management’s Discussion and Analysis – Business Developments – Current Regulatory Developments, in Federated Hermes’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (First Quarter 2024 Form 10-Q), for Federated Hermes’ key regulatory developments and requirements for periods prior to March 31, 2024.

Current wording

The business and regulatory environments in which Federated Hermes operates globally remain complex, uncertain, and subject to change. Federated Hermes and its investment management business are subject to extensive regulation, both within and outside of the U.S., including various laws, rules, and regulations globally that impose restrictions, limitations, registration, reporting and disclosure requirements on its business, and add complexity to its global compliance operations. For example, Federated Hermes and its offerings are subject to various: (1) federal securities laws, such as the Securities Act of 1933 (1933 Act), the Securities Exchange Act of 1934 (Exchange Act), Investment Company Act of 1940 (1940 Act), and Investment Advisers Act of 1940 (Advisers Act); (2) state laws regarding securities fraud and registration; and (3) regulations or other rules promulgated by various regulatory authorities, or other authorities. These regulatory requirements, and other regulatory developments, continue to impact the investment management industry generally, and will continue to impact, to various degrees, Federated Hermes’ business, results of operations, financial condition, cash flows, and stock price (collectively, Financial Condition).

Previous wording

Federated Hermes’ primary regulator in the U.S. is the SEC. U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report and First Quarter 2024 Form 10-Q included, among others, money market fund reform, environmental, social, governance (ESG) and sustainability, amendments to Rule 35d-1 under the 1940 Act, systematically important financial institutions designation by the Financial Stability Oversight Council, tailored shareholder reports, amendments to Form PF, and the share repurchase disclosure modernization rule, which was vacated by the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit). Key regulatory developments and requirements in the U.S. since March 31, 2024, that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:

Current wording

Federated Hermes’ primary regulator in the U.S. is the SEC. U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report, First Quarter 2024 Form 10-Q and Second Quarter 2024 Form 10-Q included, among others, money market fund reform, environmental, social, governance (ESG) and sustainability, amendments to Rule 35d-1 under the 1940 Act, systematically important financial institutions designation by the Financial Stability Oversight Council, tailored shareholder reports, amendments to Form PF, the share repurchase disclosure modernization rule, which was vacated by the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit), amendments to Regulation S-P, and discussion of the impact of several recent court decisions that impact the regulation of the investment management industry, including, among other things, the potential ability to challenge regulation, the SEC’s willingness to bring enforcement actions seeking civil penalties, and the validity of certain final rules adopted by the SEC. Key regulatory developments and requirements in the U.S. since June 30, 2024, that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:

Previous wording

SEC Spring 2024 Reg Flex Agenda. The SEC published its Spring 2024 Unified Agenda of Regulatory and Declaratory Actions (SEC Spring 2024 Reg Flex Agenda) on July 8, 2024. The SEC Spring 2024 Reg Flex Agenda identified 34 rulemaking initiatives on the SEC’s calendar for 2024 and 2025, including 19 final rules and 15 additional proposed rules. Among other developments, the SEC Spring 2024 Reg Flex Agenda signals that the SEC Staff is considering recommending that the SEC re-issue proposed rules on open-end fund liquidity risk management programs and swing pricing by April 2025, safeguarding advisory client assets (i.e., amendments to the Custody Rule under the Advisers Act) by October 2024, andconflicts of interest associated with the use of predictive data analytics (or artificial intelligence) by broker-dealers and investment advisors by October 2024. The original proposed rules on these topics were subject to significant public comments that were opposed to many aspects of the proposed rules. For example, Federated Hermes strongly opposed the previously proposed rule on open-end fund liquidity risk management and swing pricing because Federated Hermes believes the implementation of swing pricing is unnecessary to achieve the SEC’s desired objective, would be extremely costly, would be very difficult for the industry to implement, would be difficult for investors to understand, and would represent an unwarranted change in the character of open-end mutual funds which provide investors with the benefits of professional management, diversification, and access to the capital markets to help them meet their financial goals.

Current wording

SEC Spring 2024 Reg Flex Agenda. The SEC published its Spring 2024 Unified Agenda of Regulatory and Declaratory Actions (SEC Spring 2024 Reg Flex Agenda) on July 8, 2024. The SEC Spring 2024 Reg Flex Agenda identified 34 rulemaking initiatives on the SEC’s calendar for 2024 and 2025, including 19 final rules and 15 additional proposed rules. Among other developments, the SEC Spring 2024 Reg Flex Agenda signals that the SEC Staff is considering recommending that the SEC re-issue proposed rules on open-end fund liquidity risk management programs and swing pricing by April 2025, safeguarding advisory client assets (i.e., amendments to the Custody Rule under the Advisers Act) by October 2024, andconflicts of interest associated with the use of predictive data analytics (or artificial intelligence) by broker-dealers and investment advisors by October 2024. The original proposed rules on these topics were subject to significant public comments that were opposed to many aspects of the proposed rules.

Previous wording

Examples of other proposed rules currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, human capital management disclosure, board diversity disclosure, amendments to the Rule 144 holding period, amendments to Regulation D, including updates to the accredited investor definition and Form D,

Current wording

Examples of other proposed rules currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, human capital management disclosure, board diversity disclosure, amendments to the Rule 144 holding period, amendments to Regulation D, including updates to the accredited investor definition and Form D, fund fee disclosure, and broker-dealer and investment advisor conflicts in the use of predictive data analytics, artificial

Previous wording

fund fee disclosure and reform and broker-dealer and investment advisor conflicts in the use of predictive data analytics, artificial intelligence, machine learning and similar technologies. Examples of final rules that are currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, enhanced disclosure by certain investment advisors and investment companies about ESG investment practices, cybersecurity risk management for investment advisors and investment companies, and outsourcing by investor advisors. These final and proposed rules are expected to impose significant new requirements on the investment management industry, including Federated Hermes.

Current wording

intelligence, machine learning and similar technologies. Examples of final rules that are currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, enhanced disclosure by certain investment advisors and investment companies about ESG investment practices, cybersecurity risk management for investment advisors and investment companies, and outsourcing by investment advisors. These final and proposed rules are expected to impose significant new requirements on the investment management industry, including Federated Hermes.

Previous wording

New Department of Labor (DOL) Fiduciary Rule. On April 23, 2024, the DOL issued its final “Fiduciary Rule” in which it made changes to the definition of “investment advice” fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA), as well as amendments to several prohibited transaction class exemptions (DOL New Fiduciary Rule). The changes, among other things, broaden the circumstances in which ERISA fiduciary status will apply to investment advisors, broker dealers and other entities with direct or indirect discretionary authority or control, that represent or acknowledge acting as a fiduciary, or that make investment recommendations to investors on a regular basis as part of their business, including recommendations relating to ERISA plan rollover transactions, any other securities transaction, or any investment strategy involving securities or other investment property. The final rule amends or eliminates several prohibited transaction exemptions (PTE), including, among others, PTE 77-4 (Purchase of Shares of Open-End Investment Companies), and requires all investment advice fiduciaries to comply with the “best interest” standard of care and disclosure requirements under PTE 2020-02 in order to receive compensation that would otherwise be prohibited under ERISA in the absence of an exemption, including commissions, 12b-1 fees, revenue sharing, and mark-ups and mark-downs in certain principal transactions. On July 10, 2024, the U.S. House of Representatives’ (House) Education and Workforce Committee passed by a 23-18 vote a Congressional Review Act resolution to disapprove (and therefore prevent from taking effect) the DOL New Fiduciary Rule as a “reckless overreach” by the current administration. The House Appropriations Committee also approved by a 31-25 vote on July 10, 2024, the Fiscal Year 2025 Labor, Health and Human Services, Education, and Related Agencies bill, which, if passed by Congress and signed by the President, would prevent the DOL from using any funds to administer, implement or enforce the DOL New Fiduciary Rule. Both the resolution and legislation must be passed by Congress and signed by the President (or Congress must override the President’s veto). The DOL New Fiduciary Rule, which currently is scheduled to become effective on September 23, 2024, is currently being challenged by a group of 26 state attorneys general in the U.S. District Court for the Northern District of Texas (within the Fifth Circuit).The U.S. District Court for the Northern District of Texas had relied on the Chevron Doctrine in originally ruling that the DOL acted within its authority under the APA in issuing the DOL New Fiduciary Rule. However, as a result of the Supreme Court overturning the Chevron Doctrine, on July 18, 2024, the Fifth Circuit directed the U.S. District Court for the Northern District of Texas to reconsider the plaintiffs’ argument that the DOL exceeded its authority in issuing the rule.

Current wording

New Department of Labor (DOL) Fiduciary Rule. On April 23, 2024, the DOL issued its final “Fiduciary Rule” in which it made changes to the definition of “investment advice” fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA), as well as amendments to several prohibited transaction class exemptions (DOL New Fiduciary Rule). The changes, among other things, broaden the circumstances in which ERISA fiduciary status will apply to investment advisors, broker dealers and other entities with direct or indirect discretionary authority or control, that represent or acknowledge acting as a fiduciary, or that make investment recommendations to investors on a regular basis as part of their business, including recommendations relating to ERISA plan rollover transactions, any other securities transaction, or any investment strategy involving securities or other investment property. The final rule amends or eliminates several prohibited transaction exemptions (PTE), including, among others, PTE 77-4 (Purchase of Shares of Open-End Investment Companies), and requires all investment advice fiduciaries to comply with the “best interest” standard of care and disclosure requirements under PTE 2020-02 in order to receive compensation that would otherwise be prohibited under ERISA in the absence of an exemption, including commissions, 12b-1 fees, revenue sharing, and mark-ups and mark-downs in certain principal transactions. On July 10, 2024, the U.S. House of Representatives’ (House) Education and Workforce Committee passed by a 23-18 vote a Congressional Review Act resolution to disapprove (and therefore prevent from taking effect) the DOL New Fiduciary Rule as a “reckless overreach” by the current administration. The House Appropriations Committee also approved by a 31-25 vote on July 10, 2024, the Fiscal Year 2025 Labor, Health and Human Services, Education, and Related Agencies bill, which, if passed by Congress and signed by the President, would prevent the DOL from using any funds to administer, implement or enforce the DOL New Fiduciary Rule. Both the resolution and legislation must be passed by Congress and signed by the President (or Congress must override the President’s veto). The DOL New Fiduciary Rule, which was scheduled to become effective on September 23, 2024, is being challenged by plaintiffs in a number of federal courts. In September 2023, the U.S. District Court for the Northern District of Texas had relied on the U.S. Supreme Court’s Chevron Doctrine, which required federal courts to defer to regulatory agency regulations if the language of a statute at issue was ambiguous and the agency’s interpretation was “reasonable,” in ruling that the DOL acted within its authority under the Administrative Procedure Act (APA) in issuing the DOL New Fiduciary Rule. However, as a result of the Supreme Court overturning the Chevron Doctrine in June 2024, on July 18, 2024, the Fifth Circuit directed the U.S. District Court for the North…

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Previous wording

Federal Trade Commission (FTC) Ban on Non-Compete Agreements. On April 23, 2024, the FTC issued its final rule banning all new post-employment non-compete agreements between an employer and its employee after its effective date, which is scheduled for September 4, 2024. The final rule applies to for-profit companies, regardless of industry or level of worker (e.g., senior executive versus other levels of employee). Lawsuits have been filed challenging the FTC’s final rule, including by the U.S. Chamber of Commerce. On July 3, 2024, the U.S. District Court for the Northern District of Texas, where one of the challenges was filed, issued an order preliminarily enjoining the FTC from enforcing the rule against the plaintiffs in the case until the court decides whether the FTC violated the APA by exceeding its statutory authority. While the ruling is preliminary, the federal judge assigned to the case stated that the FTC lacked “substantive rule-making authority” and that the plaintiffs were “likely to succeed on the merits.” It is uncertain whether the FTC’s final rule will survive legal challenge.

Current wording

Federal Trade Commission (FTC) Ban on Non-Compete Agreements. On April 23, 2024, the FTC issued its final rule purporting to ban all new post-employment non-compete agreements between an employer and its employee after its effective date, which was scheduled for September 4, 2024. The final rule would have applied to for-profit companies, regardless of industry or level of worker (e.g., senior executive versus other levels of employee). Lawsuits were filed challenging the FTC’s final rule, including by the U.S. Chamber of Commerce. On July 3, 2024, the U.S. District Court for the Northern District of Texas, where one of the challenges was filed, issued an order preliminarily enjoining the FTC from enforcing the rule against the plaintiffs in the case until the court decided whether the FTC violated the APA by exceeding its statutory authority. On August 20, 2024, the U.S. District Court for the Northern District of Texas granted summary judgment in favor of the plaintiffs who had sued to prevent the FTC from enforcing the rule. The ruling, which blocks the FTC’s final rule from going into effect, found that the FTC “lack[ed] statutory authority to promulgate the Non-Compete Rule” and noted that the FTC’s rule was “arbitrary and capricious” as the FTC failed to provide a reasonable explanation to justify the breadth of the rule. The FTC filed an appeal to the court’s decision on October 18, 2024.

Previous wording

Proposal to Eliminate Annual Shareholder Meetings for Exchange Listed Closed-End Funds. On June 6, 2024, the New York Stock Exchange (NYSE) filed an application with the SEC proposing amendments to Section 302 of the NYSE Listed Company Manual that would eliminate the requirements for closed-end management investment companies with shares listed for trading on the NYSE to hold an annual shareholder meeting each fiscal year. If approved by the SEC, the proposed amendments would exempt such exchange-listed closed-end funds from the requirement to hold an annual meeting. The SEC published the proposed amendments on July 9, 2024, and the public comment period on the proposed amendments closes on July 30, 2024. Federated Hermes fully supports the proposed amendments. Exchange-listed closed end funds are more akin to registered mutual funds, which are not required to have annual meetings, than listed operating companies. The listed shares of such closed-end funds often trade on the NYSE at a discount to their NAV. This subjects them to attack by activist shareholders who buy discounted shares and then take action to force the closed-end funds to incur liquidity events (such as tender offers, reorganizations, or open-ending of the closed-end funds) to realize or arbitrage the difference between the discounted purchase prices and the closed-end funds’ NAV. This can reduce the number of such closed end funds that are offered and have detrimental effects on the closed end funds and their long-term shareholders, which in many cases are retirement investors.

Current wording

Proposal to Eliminate Annual Shareholder Meetings for Exchange Listed Closed-End Funds. On June 6, 2024, the New York Stock Exchange (NYSE) filed an application with the SEC proposing amendments to Section 302 of the NYSE Listed Company Manual that would eliminate the requirements for closed-end management investment companies with shares listed for trading on the NYSE to hold an annual shareholder meeting each fiscal year. If approved by the SEC, the proposed amendments would exempt such exchange-listed closed-end funds from the requirement to hold an annual meeting. The SEC published the proposed amendments on July 9, 2024, and the public comment period on the proposed amendments closed on July 30, 2024. On October 4, 2024, the SEC issued an order instituting proceedings to determine whether to approve or disapprove the proposed rule change. The SEC has invited interested persons to submit written data, views and arguments regarding whether the proposed rule change should be approved or disapproved and interested persons may request an opportunity to make an oral presentation. Federated Hermes fully supports the proposed amendments. Exchange-listed closed end funds are more akin to registered mutual funds, which are not required to have annual meetings, than listed operating companies. The listed shares of such closed-end funds often trade on the NYSE at a discount to their NAV. This subjects them to attack by activist shareholders who buy discounted shares and then take action to force the closed-end funds to incur liquidity events (such as tender offers, reorganizations, or open-ending of the closed-end funds) to realize or arbitrage the difference between the discounted purchase prices and the closed-end funds’ NAV. This can reduce the number of such closed-end funds that are offered and have detrimental effects on the closed-end funds and their long-term shareholders, which in many cases are retirement investors.

Previous wording

Federated Hermes’ primary regulators outside the U.S. are the United Kingdom (UK) Financial Conduct Authority (FCA), the Central Bank of Ireland (CBI), the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) and the Cayman Island Monetary Authority (CIMA). Non-U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report and First Quarter 2024 Form 10-Q included, among others, the Retained EU Law (Revocation and Reform) Act 2023, the Financial Services and Markets Act 2023, the UK Overseas Fund Regime (OFR), the “Edinburg Reforms,” and remaining impacts of Brexit, UK regulatory priorities and areas of focus for the financial services sector, money market fund reform, liquidity risk management in open-end funds, the UK Digital Securities Sandbox joint Bank of England and FCA consultation paper, and the possibility of a financial transaction tax. Key regulatory developments outside the U.S. since March 31, 2024, that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:

Current wording

Federated Hermes’ primary regulators outside the U.S. are the United Kingdom (UK) Financial Conduct Authority (FCA), the Central Bank of Ireland, and the Luxembourg Commission de Surveillance du Secteur Financier. Federated Hermes’ is also regulated outside the U.S. by, among other regulators, the Monetary Authority of Singapore, Australian Securities and Investments Commission, Financial Services Agency of Japan and the Cayman Island Monetary Authority. Non-U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report and First and Second Quarter 2024 Form 10-Qs included, among others: money market fund reform initiatives in the European Union (EU), UK and internationally; EU and UK sustainability disclosure requirements; EU regulatory developments such as the EU Retail Investment Package and review of the EU Undertakings for the Collective Investment in Transferable Securities (UCITS) Eligible Assets Directive and the Digital Operational Resilience Act (DORA); as well as UK regulatory developments including the UK Overseas Funds Regime (OFR), the re-introduction of the possibility of bundling investment research costs and sustainability requirements for asset

Previous wording

EU and UK sustainability reporting requirements for corporations. In the EU, the relevant requirements for sustainability reporting are set out in the EU Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). The CSRD expands the scope of companies that are required to disclose sustainability information, and significantly increases the extent and level of detail required to be disclosed regarding sustainability matters. It also mandates the creation of European Sustainability Reporting Standards (ESRS), which will apply to entities that are required to make non-financial sustainability disclosures under the CSRD. On April 10, 2024, the European Parliament adopted a directive to postpone by two years the deadline for adopting the ESRS for certain sectors and for certain third-country undertakings. CSDDD will impose due diligence obligations requiring companies exceeding specified turnover and employee

Current wording

EU and UK sustainability reporting requirements for corporations. Federated Hermes’ 2023 Annual Report described developments relating to sustainability disclosure requirements in the EU and UK applicable to corporations. These include: in the EU, the EU Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive; and in the UK a proposal to put in place UK sustainability reporting standards for UK corporations based on the Sustainability Disclosure Standards within the International Financial Reporting Standards issued by the International Sustainability Standards Board. In relation to CSRD, on August 7, 2024, the European Commission published frequently asked questions primarily regarding the interpretation of certain legal provisions in the CSRD. The CSRD expands the scope of companies that are required to disclose sustainability information, and increases the extent and level of detail required to be disclosed regarding sustainability matters.

Previous wording

UK proposed re-introduction of bundling for investment research consumed by asset managers. On April 10, 2024, the FCA published a consultation paper (CP24/7) proposing new rules that would introduce a “new” option for asset managers to pay for the investment research they receive (i.e., in addition to payment by the asset manager out of its own resources or by the fund using a dedicated research payment account). The proposed rules would allow UK buy-side firms (including asset managers) that receive investment research from sell-side firms (including investment banks and broker dealers) to pay for research using bundled payments covering both the trade execution and research services they receive (like “soft-dollars” in the U.S.). Use of this option would be subject to proposed “guardrails”. These guardrails would include requiring that firms: (1) adopt a formal policy on the use of bundled payments for research; (2) establish a budget for the amount of third-party research to be purchased; (3) undertake ongoing assessments of the value and price of the research received; (4) determine an approach to the allocation of costs across the firm’s clients and a structure for the allocation of payments across research providers; (5) put in place operational procedures for the administration of accounts to purchase research; and (6) disclose to clients the firm's approach to bundled payments, their most significant research providers and the costs incurred. The consultation period ended on June 5, 2024.

Current wording

UK proposed re-introduction of bundling for investment research received by asset managers. On July 26, 2024, the FCA published its final rules and policy statement (PS24/9) regarding the “new” payment optionality for asset managers to pay for the investment research they receive. Effective August 1, 2024, asset managers in the UK will have the option of bundling payments for third party research together with execution services. This is in addition to the options of paying for research out of the asset manager’s own resources, or from a dedicated research payment account established by the manager. The ability to bundle investment research costs is subject to certain guardrails, including requiring that firms: (1) adopt a formal policy on the use of bundled payments for research; (2) establish a budget for the amount of third-party research to be purchased; (3) undertake ongoing assessments of the value and price of the research received; (4) determine an approach to the allocation of costs across the firm’s clients and a structure for the allocation of payments across research providers; (5) put in place operational procedures for the administration of accounts to purchase research; and (6) disclose to clients the firm's approach to bundled payments and the costs incurred.

Previous wording

Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new regulatory developments and regulatory requirements ultimately

Current wording

Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new regulatory developments and regulatory requirements ultimately will be successful. The degree of impact of regulatory developments and regulatory requirements on Federated Hermes' Financial Condition can vary, including in a material way, and is uncertain.

Previous wording

Total average managed assets increased 11% and 12% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. As of June 30, 2024, total managed assets increased 11% from June 30, 2023. Average money market assets increased 14% and 17% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. Period-end money market assets increased 15% at June 30, 2024, as compared to June 30, 2023. In the second quarter 2024, money market funds continued to benefit from favorable market conditions as the Federal Reserve indicated a reluctance to cut interest rates. The extension of elevated rates translated into an extension of elevated yields on liquidity products. The Federal Reserve also announced a decision to reduce the monthly tapering of its balance sheet, while the U.S. Treasury Department announced a program to purchase U.S. Treasuries in the coming months. Those moves also helped to preserve liquidity in the financial system. Average equity assets decreased 6% for both the three and six months ended June 30, 2024, as compared to the same periods in 2023. Period-end equity assets decreased 6% at June 30, 2024, as compared to June 30, 2023, primarily due to net redemptions, partially offset by market appreciation. Stocks trended higher, gaining 4.28% in the second quarter 2024, sending the S&P 500 up nearly 15% in the first half of 2024. Average fixed-income assets increased 9% for both the three and six months ended June 30, 2024, as compared to the same periods in 2023. Period-end fixed-income assets increased 9% at June 30, 2024, as compared to June 30, 2023, primarily due to market appreciation and net sales. The 10-year Treasury fluctuated during the second quarter 2024, starting the quarter at 4.20%, rising to 4.70% in April, and eventually falling to 4.40% at the end of June on an improved outlook for inflation and rate cuts. Average alternative/private markets

Current wording

Total average managed assets increased 12% for both the three and nine months ended September 30, 2024 as compared to the same periods in 2023. As of September 30, 2024, total managed assets increased 12% from September 30, 2023. Average money market assets increased 15% and 16% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. Period-end money market assets increased 13% at September 30, 2024, as compared to September 30, 2023. Money market funds across the industry continued to experience inflows, including $150 billion in the final two weeks of the quarter after the Federal Reserve cut rates by 50 basis points to a range of 4.75%-5.00% in mid-September. Money market funds have historically offered a yield advantage in a falling-rate environment, when compared to some securities in the direct market, especially overnight securities and those with floating rates, which trace the Federal Reserve moves immediately. Average equity assets decreased 2% and 5% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. Period-end equity assets increased 8% at September 30, 2024, as compared to September 30, 2023, primarily due to market appreciation, partially offset by net redemptions. Stocks continued in an upward trajectory in the third quarter 2024 with the S&P 500 gaining 5.5% and bringing the index’s year-to-date gains to more than 20% through September 2024. Average fixed-income assets increased 10% and 9% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. Period-end fixed-income assets increased 12% at September 30, 2024, as compared to September 30, 2023, primarily due to market appreciation and net sales. Yields on the 10 Year Treasury note fell from 4.48% at the start of the quarter to 3.75% at the end of the third quarter 2024. The falling

Previous wording

assets decreased 5% and 4% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. Period-end alternative/private markets assets decreased 7% at June 30, 2024, as compared to June 30, 2023, primarily due to market depreciation and net redemptions.

Current wording

yields brought some price appreciation. Average alternative/private markets assets decreased 4% for both the three and nine months ended September 30, 2024 as compared to the same periods in 2023. Period-end alternative/private markets assets increased 2% at September 30, 2024, as compared to September 30, 2023, primarily due to fluctuations in the foreign exchange rate, partially offset by net redemptions and market depreciation.

Previous wording

Revenue. Revenue decreased $30.6 million for the three-month period ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in carried interest of $36.1 million (partially offset in Compensation and Related expense) and a decrease of $7.1 million in equity revenue due to lower average assets. These decreases were partially offset by an increase in money market revenue of $11.8 million due to an increase in average money market assets.

Current wording

Revenue. Revenue increased $5.8 million for the three-month period ended September 30, 2024, as compared to the same period in 2023, primarily due to an increase in money market revenue of $26.3 million due to an increase in average money market assets. This increase was partially offset by a decrease in carried interest of $10.7 million (partially offset in Compensation and Related expense) and a decrease of $4.5 million in equity revenue due to lower average assets.

Previous wording

Revenue decreased $16.5 million for the six-month period ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in carried interest of $36.2 million (partially offset in Compensation and Related expense) and a decrease of $15.8 million in equity revenue due to lower average assets. These decreases were partially offset by an increase in money market revenue of $34.0 million due to an increase in average money market assets.

Current wording

Revenue decreased $10.7 million for the nine-month period ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in carried interest of $47.0 million (partially offset in Compensation and Related expense) and a decrease of $20.3 million in equity revenue due to lower average assets. These decreases were partially offset by an increase in money market revenue of $60.3 million due to an increase in average money market assets.

Previous wording

For the six-month periods ended June 30, 2024 and 2023, Federated Hermes’ ratio of revenue to average managed assets was 0.20% and 0.24%, respectively. The decrease in the rate was primarily due to a decrease in carried interest and a decrease in revenue from lower average equity assets during the first half of 2024 compared to the same period in 2023.

Current wording

For the nine-month periods ended September 30, 2024 and 2023, Federated Hermes’ ratio of revenue to average managed assets was 0.20% and 0.23%, respectively. The decrease in the rate was primarily due to a decrease in carried interest and a decrease in revenue from lower average equity assets during the first nine months of 2024 compared to the same period in 2023.

Previous wording

Total Operating Expenses for the six-month period ended June 30, 2024 increased $27.8 million, as compared to the same period in 2023. Intangible Asset Related expense increased $65.9 million primarily due to an impairment of a foreign intangible asset (see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Note (10) to the Consolidated Financial Statements for additional information). This increase was partially offset by (1) a decrease of $29.5 million in Compensation and Related expense primarily due to a decrease in carried interest paid as compensation and (2) a decrease of $9.4 million in Other expense primarily due to the costs associated with a fund restructuring in 2023.

Current wording

Total Operating Expenses for the nine-month period ended September 30, 2024 increased $23.3 million, as compared to the same period in 2023. Intangible Asset Related expense increased $65.9 million primarily due to an impairment of a foreign intangible asset (see Note (10) to the Consolidated Financial Statements for additional information). Systems and Communications expense increased $5.4 million due to planned technology-driven initiatives. Professional Service Fees increased $5.2 million due primarily to technology initiatives. These increases were partially offset by (1) a decrease of $32.6 million in Compensation and Related expense primarily due to carried interest paid as compensation and (2) a decrease of $22.6 million in Other expense primarily due to the costs associated with a fund restructuring in 2023 ($10.9 million) and fluctuations in foreign currency exchange rates ($8.4 million).

Previous wording

Nonoperating Income (Expenses), net decreased $2.1 million for the six-month period ended June 30, 2024, as compared to the same period in 2023. The decrease is primarily due to a $4.6 million decrease in Gain (Loss) on Securities, net from a smaller increase in the market value of investments in the first half of 2024 as compared to the increase in the market value of investments during the same period in 2023. This decrease was partially offset by a $2.7 million increase in Investment Income, net primarily due to an increase in investment yields in 2024 as compared to investment yields during the same period in 2023.

Current wording

Nonoperating Income (Expenses), net increased $9.2 million for the nine-month period ended September 30, 2024, as compared to the same period in 2023. The increase is primarily due to (1) a $6.7 million increase in Gain (Loss) on Securities, net from a larger increase in the market value of investments in the first nine months of 2024 as compared to the increase in the market value of investments during the same period in 2023 and (2) a $2.6 million increase in Investment Income, net primarily due to an increase in investment yields in 2024 as compared to the investment yields during the same period in 2023.

Previous wording

The income tax provision was $52.4 million for the six-month period ended June 30, 2024, as compared to $48.6 million for the same period in 2023. The increase in the income tax provision was primarily due to an increase in U.S. income tax due to increased U.S. income ($11.0 million), partially offset by a net tax benefit associated with the impairment on a foreign indefinite-lived intangible asset in 2024 ($6.0 million) and a decrease in 2024 for discrete charges for non-deductible costs for a fund restructuring ($2.5 million). The effective tax rate was 35.8% for the six-month period ended June 30, 2024, as compared

Current wording

Income Taxes. The income tax provision was $32.3 million for the three-month period ended September 30, 2024, as compared to $26.7 million for the same period in 2023. The increase in the income tax provision was primarily due to an increase in U.S. income tax resulting from increased U.S. income. The effective tax rate was 26.3% for the three-month period ended September 30, 2024, as compared to 26.5% for the same period in 2023.

Previous wording

Income Taxes. The income tax provision was $23.4 million for the three-month period ended June 30, 2024, as compared to $27.5 million for the same period in 2023. The decrease in the income tax provision was primarily due to a net tax benefit associated with the impairment on a foreign indefinite-lived intangible asset in 2024 ($6.0 million) and a decrease in 2024 for discrete charges for non-deductible costs for a fund restructuring ($2.5 million), partially offset by an increase in U.S. income tax due to increased U.S. income ($5.2 million). The effective tax rate was 54.9% for the three-month period ended June 30, 2024, as compared to 27.4% for the same period in 2023. The increase in the effective tax rate was primarily the result of a valuation allowance on foreign deferred tax assets and the impairment of a foreign indefinite-lived intangible asset.

Current wording

The income tax provision was $84.7 million for the nine-month period ended September 30, 2024, as compared to $75.3 million for the same period in 2023. The increase in the income tax provision was primarily due to an increase in U.S. income tax resulting from increased U.S. income. The effective tax rate was 31.5% for the nine-month period ended September 30, 2024, as compared to 25.6% for the same period in 2023. The increase in the effective tax rate was primarily the result of a valuation allowance on foreign deferred tax assets and the impairment of a foreign indefinite-lived intangible asset.

Previous wording

Pillar Two legislation has been enacted in certain jurisdictions in which Federated Hermes operates. The legislation is effective for the financial year beginning January 1, 2024. Federated Hermes is in scope of the enacted legislation and has performed an assessment of its potential exposure to Pillar Two income taxes based on the most recent tax filings, country-by-country report and financial statements for the constituent entities of Federated Hermes. Based on the assessment, for fiscal year 2024 Federated Hermes expects to be able to rely on the transitional safe harbor for each of the jurisdictions in which it operates. As a result, Federated Hermes does not expect a material exposure to Pillar Two income taxes in those jurisdictions. This assessment will continue to be monitored and updated as additional guidance and/or legislation is released.

Current wording

assessment of its potential exposure to Pillar Two income taxes based on the most recent tax filings, country-by-country report and financial statements for the constituent entities of Federated Hermes. Based on the assessment, for fiscal year 2024 Federated Hermes expects to be able to rely on the transitional safe harbor for each of the jurisdictions in which it operates. As a result, Federated Hermes does not expect a material exposure to Pillar Two income taxes in those jurisdictions. This assessment will continue to be monitored and updated as additional guidance and/or legislation is released.

Previous wording

Net Income Attributable to Federated Hermes, Inc. Net income decreased $51.1 million for the three-month period ended June 30, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the three-month period ended June 30, 2024 decreased $0.61, as compared to the same period in 2023, primarily due to decreased net income ($0.62), partially offset by a decrease in shares outstanding resulting from share repurchases ($0.01).

Current wording

Net Income Attributable to Federated Hermes, Inc. Net income increased $12.5 million for the three-month period ended September 30, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the three-month period ended September 30, 2024 increased $0.20, as compared to the same period in 2023, primarily due to increased net income ($0.15) and by a decrease in shares outstanding resulting from share repurchases ($0.05).

Previous wording

Net income decreased $45.7 million for the six-month period ended June 30, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the six-month period ended June 30, 2024 decreased $0.47, as compared to the same period in 2023, primarily due to decreased net income ($0.53), partially offset by a decrease in shares outstanding resulting from share repurchases ($0.06).

Current wording

Net income decreased $33.2 million for the nine-month period ended September 30, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the nine-month period ended September 30, 2024 decreased $0.24, as compared to the same period in 2023, primarily due to decreased net income ($0.39), partially offset by a decrease in shares outstanding resulting from share repurchases ($0.15).

Previous wording

Liquid Assets. At June 30, 2024, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled $540.4 million, as compared to $656.4 million at December 31, 2023. The change in liquid assets is discussed below.

Current wording

Liquid Assets. At September 30, 2024, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled $631.1 million, as compared to $656.4 million at December 31, 2023. The change in liquid assets is discussed below.

Previous wording

At June 30, 2024, Federated Hermes’ liquid assets included investments in certain money market and fluctuating-value Federated Hermes Funds that may have direct and/or indirect exposures to international sovereign debt and currency risks. Federated Hermes continues to actively monitor its investment portfolios to manage sovereign debt and currency risks with respect to certain European countries (such as the UK in light of Brexit), China and certain other countries subject to economic sanctions. Federated Hermes’ experienced portfolio managers and analysts work to evaluate credit risk through quantitative and fundamental analysis. Further, regarding international exposure, certain money market funds (representing approximately $257.5 million in AUM) that meet the requirements of Rule 2a-7 under the 1940 Act (Rule 2a-7) or operate in accordance with requirements similar to those in Rule 2a-7, include holdings with indirect short-term exposures invested primarily in high-quality international bank names that are subject to Federated Hermes’ credit analysis process.

Current wording

At September 30, 2024, Federated Hermes’ liquid assets included investments in certain money market and fluctuating-value Federated Hermes Funds that may have direct and/or indirect exposures to international sovereign debt and currency risks. Federated Hermes continues to actively monitor its investment portfolios to manage sovereign debt and currency risks with respect to certain European countries, China and certain other countries subject to economic sanctions. Federated Hermes’ experienced portfolio managers and analysts work to evaluate credit risk through quantitative and fundamental analysis. Further, regarding international exposure, certain money market funds (representing approximately $332.5 million in AUM) that meet the requirements of Rule 2a-7 under the 1940 Act (Rule 2a-7) or operate in accordance with requirements similar to those in Rule 2a-7, include holdings with indirect short-term exposures invested primarily in high-quality international bank names that are subject to Federated Hermes’ credit analysis process.

Previous wording

Cash Provided by Operating Activities. Net cash provided by operating activities totaled $102.7 million for the six months ended June 30, 2024, as compared to $76.6 million for the same period in 2023. The increase in cash provided was primarily due to (1) a $17.9 million payment made in 2023 representing a settlement with affected shareholders related to an administrative error (see Note (17) to the Consolidated Financial Statements for additional information) and (2) a decrease of $8.9 million in cash paid for the net purchases of trading securities for the six months ended June 30, 2024 as compared to the same period in 2023.

Current wording

Cash Provided by Operating Activities. Net cash provided by operating activities totaled $219.9 million for the nine months ended September 30, 2024, as compared to $182.2 million for the same period in 2023. The increase in cash provided was primarily due to (1) a $17.9 million payment made in 2023 representing a settlement with affected shareholders related to an administrative error (see Note (17) to the Consolidated Financial Statements for additional information) and (2) a decrease of $14.0 million in cash paid for the net purchases of trading securities for the nine months ended September 30, 2024 as compared to the same period in 2023. These increases were partially offset by an increase of cash paid for taxes of $13.9 million.

Previous wording

Cash Provided by Investing Activities. During the six-month period ended June 30, 2024, net cash provided by investing activities was $31.2 million, which primarily represented $66.3 million in cash received from redemptions of Investments—Affiliates and Other, partially offset by $28.6 million paid for purchases of Investments—Affiliates and Other.

Current wording

Cash Provided by Investing Activities. During the nine-month period ended September 30, 2024, net cash provided by investing activities was $22.9 million, which primarily represented $75.5 million in cash received from redemptions of Investments—Affiliates and Other, partially offset by $45.1 million paid for purchases of Investments—Affiliates and Other.

Previous wording

Cash Used by Financing Activities. During the six-month period ended June 30, 2024, net cash used by financing activities was $208.6 million due primarily to $134.0 million or $1.59 per share of dividends paid to holders of Federated Hermes common shares and $85.3 million of treasury stock purchases.

Current wording

Cash Used by Financing Activities. During the nine-month period ended September 30, 2024, net cash used by financing activities was $260.1 million due primarily to $159.6 million or $1.90 per share of dividends paid to holders of Federated Hermes common shares and $114.2 million of treasury stock purchases.

Previous wording

Long-Term Debt. 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. The entire principal amount of the $350 million Notes will become due March 17, 2032. Citigroup Global Markets Inc. 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

Current wording

Long-Term Debt. 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. The entire principal amount of the $350 million Notes will become due March 17, 2032. Citigroup Global Markets Inc. 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 September 30, 2024, the outstanding balance of the $350 million Notes, net of unamortized issuance costs in the amount of $2.0 million, was $348.0 million and was recorded in Long-Term Debt on the Consolidated Balance Sheets. The proceeds were, or will be, used to supplement cash flow from operations, to fund share repurchases and

Previous wording

Purchase Agreement. As of June 30, 2024, the outstanding balance of the $350 million Notes, net of unamortized issuance costs in the amount of $2.0 million, was $348.0 million and was recorded in Long-Term Debt on the Consolidated Balance Sheets. The proceeds were, or will be, used to supplement cash flow from operations, to fund share repurchases and potential acquisitions, to pay down debt outstanding under the Credit Agreement and for other general corporate purposes. See Note (11) to the Consolidated Financial Statements for additional information on the Note Purchase Agreement.

Current wording

potential acquisitions, to pay down debt outstanding under the Credit Agreement and for other general corporate purposes. See Note (11) to the Consolidated Financial Statements for additional information on the Note Purchase Agreement.

Previous wording

Both the Note Purchase Agreement and Credit Agreement include an interest coverage ratio covenant (consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest expense) and a leverage ratio covenant (consolidated debt to consolidated EBITDA) as well as other customary terms and conditions. Federated Hermes was in compliance with all of its covenants, including its interest coverage and leverage ratios at and during the six months ended June 30, 2024. An interest coverage ratio of at least 4 to 1 is required and, as of June 30, 2024, Federated Hermes’ interest coverage ratio was 41 to 1. A leverage ratio of no more than 3 to 1 is required and, as of June 30, 2024, Federated Hermes’ leverage ratio was 0.71 to 1.

Current wording

Both the Note Purchase Agreement and Credit Agreement include an interest coverage ratio covenant (consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest expense) and a leverage ratio covenant (consolidated debt to consolidated EBITDA) as well as other customary terms and conditions. Federated Hermes was in compliance with all of its covenants, including its interest coverage and leverage ratios at and during the nine months ended September 30, 2024. An interest coverage ratio of at least 4 to 1 is required and, as of September 30, 2024, Federated Hermes’ interest coverage ratio was 40 to 1. A leverage ratio of no more than 3 to 1 is required and, as of September 30, 2024, Federated Hermes’ leverage ratio was 0.72 to 1.

Previous wording

Future Cash Needs. Management expects that principal uses of cash will include funding business acquisitions and global expansion, funding distribution expenditures, paying incentive and base compensation, paying shareholder dividends, paying debt obligations, paying taxes, repurchasing company stock, developing and seeding new offerings, modifying existing offerings and relationships, maintaining regulatory liquidity and capital requirements and funding property and equipment expenditures. In addition, Federated Hermes expects to invest approximately $310 million (including the allocation of approximately $190 million in existing technology-related overhead, primarily the compensation expense of existing employees, and an external spend of approximately $120 million) through 2026 to support a number of planned technology-driven initiatives. Any number of factors may cause Federated Hermes’ future cash needs to increase. As a result of the highly regulated nature of the investment management business, management anticipates that aggregate expenditures for compliance and investment management personnel, compliance systems and technology and related professional and consulting fees could continue to increase.

Current wording

Future Cash Needs. Management expects that principal uses of cash will include funding business acquisitions and global expansion, funding distribution expenditures, paying incentive and base compensation, paying shareholder dividends, paying debt obligations, paying taxes, repurchasing company stock, developing and seeding new offerings, modifying existing offerings and relationships, maintaining regulatory liquidity and capital requirements and funding property and equipment expenditures. In addition, Federated Hermes expects to invest approximately $295 million (including the allocation of approximately $195 million in existing technology-related overhead, primarily the compensation expense of existing employees, and an external spend of approximately $100 million) over the next three years to support a number of planned technology-driven initiatives. Any number of factors may cause Federated Hermes’ future cash needs to increase. As a result of the highly regulated nature of the investment management business, management anticipates that aggregate expenditures for compliance and investment management personnel, compliance systems and technology and related professional and consulting fees could continue to increase.

Previous wording

On July 25, 2024, the board of directors declared a $0.31 per share dividend to Federated Hermes’ Class A and Class B common stock shareholders of record as of August 8, 2024 to be paid on August 15, 2024.

Current wording

On October 24, 2024, the Board declared a $0.31 per share dividend to Federated Hermes’ Class A and Class B common stock shareholders of record as of November 8, 2024 to be paid on November 15, 2024.

Previous wording

Investments—Affiliates and Other at June 30, 2024 decreased $34.4 million from December 31, 2023 primarily due to net redemptions.

Current wording

Investments—Affiliates and Other at September 30, 2024 decreased $33.3 million from December 31, 2023 primarily due to net redemptions.

Previous wording

Accrued Compensation and Benefits at June 30, 2024 decreased $65.2 million from December 31, 2023 primarily due to the 2023 accrued annual incentive compensation being paid in the first half of 2024 ($129.4 million), partially offset by 2024 incentive compensation accruals recorded at June 30, 2024 ($67.2 million).

Current wording

Accrued Compensation and Benefits at September 30, 2024 decreased $31.2 million from December 31, 2023 primarily due to the 2023 accrued annual incentive compensation being paid in the first half of 2024 ($129.4 million), partially offset by 2024 incentive compensation accruals recorded at September 30, 2024 ($97.8 million).

Previous wording

Due to actual results trailing projected results, driven by a combination of lower gross sales and higher redemptions for the quarter ended June 30, 2024, management concluded that an indicator of potential impairment existed as of June 30, 2024 for the indefinite-lived intangible asset related to the FHL right to manage public fund assets which totaled £124.4 million at March 31, 2024 and was acquired in connection with the 2018 FHL acquisition. Management used an income-based approach, the discounted cash flow method, in valuing the asset, which resulted in a non-cash impairment charge of £52.2 million ($66.3 million). After the impairment, the indefinite-lived intangible asset related to the FHL right to manage public fund assets totaled £72.2 million ($91.3 million). The key assumptions in the discounted cash flow analysis include projected revenue growth rates, projected pre-tax profit margins and the discount rate applied to the projected cash flows. The risk of future impairment increases with a decrease in projected cash flows and/or an increase in the discount rate.

Current wording

Due to actual results trailing projected results, driven by a combination of lower gross sales and higher redemptions for the quarter ended June 30, 2024, management concluded that an indicator of potential impairment existed as of June 30, 2024 for the indefinite-lived intangible asset related to the FHL right to manage public fund assets which totaled £124.4 million at March 31, 2024 and was acquired in connection with the 2018 FHL acquisition. Management used an income-based approach, the discounted cash flow method, in valuing the asset, which resulted in a non-cash impairment charge of £52.2 million ($66.3 million). During the quarter ended September 30, 2024, management did not identify any indicators for potential impairment of the indefinite-lived intangible asset related to the FHL right to manage public fund assets.

Previous wording

As of June 30, 2024, assuming all other assumptions remain static, an increase or decrease of 10% in projected revenue growth rates would result in a corresponding change to estimated fair value of approximately 9%. An increase or decrease of 10% in pre-tax profit margins would result in a corresponding change to estimated fair value of approximately 13%. An increase or decrease in the discount rate of 25 basis points would result in an inverse change to estimated fair value of approximately 3%. Any market volatility and other events related to geopolitical or other unexpected events could further reduce the AUM, revenues and earnings associated with this intangible asset and can result in subsequent impairment tests being based upon updated assumptions and future cash flow projections, which can result in an impairment. For additional information on risks related to geopolitical or other unexpected events, see Item 1A - Risk Factors included in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Any market volatility and other events related to geopolitical or other unexpected events in the future could further reduce the AUM, revenues and earnings associated with this intangible asset and could result in subsequent impairment tests being based upon updated assumptions and future cash flow projections, which could result in an impairment. For additional information on risks related to geopolitical or other unexpected events, see Item 1A - Risk Factors included in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023.