JEF - Jefferies Announces Third Quarter 2022 Financial Results

September, 28 2022 04:15 PM Jefferies Financial Group Inc.

Q3 Financial Highlights

Net income attributable to common shareholders of $195 million, or $0.78 per diluted share; adjusted net income attributable to common shareholders ¹ of $275 million, or $1.10 per diluted share, after removing $80 million of expense related to a regulatory settlement in the quarter
Annualized return on adjusted tangible equity of 10.0% ² ; adjusted annualized return on adjusted tangible equity of 14.0% ³
Total Investment Banking and Capital Markets and Asset Management net revenues of $1.12 billion
- Investment Banking net revenues of $682 million
- Combined Capital Markets net revenues of $452 million
- Asset Management net loss (before allocated net interest ⁴ ) of $3 million
Pre-tax gain on sale of Idaho Timber of $139 million
Repurchased 4.3 million shares of common stock for $134.1 million, or an average price of $31.39 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022; at August 31, 2022, we had 228.8 million shares outstanding and 256.2 million shares outstanding on a fully diluted basis ⁵ ; our book value per share was $44.98 and tangible book value per fully diluted share ⁶ was $33.81
Since January 2018, Jefferies has repurchased 149.6 million shares of common stock ⁷ for $3.5 billion, or an average price of $23.39 per share; Jefferies has returned to shareholders $4.8 billion since January 2018, or 48% of shareholders' equity and 63% of tangible shareholders' equity ⁸ at the beginning of this effort
Our Board of Directors has increased our share buyback authorization back to a total of $250 million

"Our third quarter results reflect the strength and momentum of our Firm, our team, our brand and our market position, despite the challenges of the current market environment. Investment Banking and Equities were very resilient, and we expect we have gained market share in those areas as we continue to support our clients through this volatile time. Moreover, we achieved solid Investment Banking and Capital Markets and Asset Management net revenues of over $1.12 billion despite unrealized markdowns in our mortgage inventory and leveraged finance commitments as the current environment has particularly impacted those asset classes. Our 14.0% adjusted annualized return on adjusted tangible equity ³ is respectable and was achieved despite the significant dislocation in the new issue capital markets for much of this period.

"We are working very closely with our clients, so that we are able to support them further when economic and market conditions improve, and new issue activity opens up. Our backlog ⁹ is consistent with last quarter's levels, but realization remains dependent on market conditions.

"2022 is feeling like a transitional year in our business, but one in which we are making good progress in enhancing our market share. We continue to invest toward further growth, most notably in Investment Banking, guard our balance sheet and capital against the risk of the increased volatility, and prioritize our clients and our Jefferies' team. We believe this will yield a solid result for 2022, and set the stage for continued growth and success in 2023 and beyond."

Richard Handler, CEO, and Brian Friedman, President

Quarterly Cash Dividend

The Jefferies Board of Directors declared a quarterly cash dividend equal to $0.30 per Jefferies common share, payable on November 29, 2022 to record holders of Jefferies common shares on November 14, 2022. We continue to work diligently to effect the spin-off to shareholders of our holdings in Vitesse Energy by the end of our fiscal year, subject to necessary regulatory reviews and rulings.

Financial Summary

(Dollars in thousands, except per share amounts)
Three Months Ended August 31,




Nine Months Ended August 31,



2022

2021 (10)

% Change


2022

2021 (10)

% Change
Net revenues:












Investment Banking and Capital Markets
$
1,134,732


$
1,672,943


(32)%


$
3,714,928


$
5,259,301


(29)%
Asset Management

(13,803
)


13,327


(204)%



77,300



293,204


(74)%
Merchant Banking

397,847



248,690


60%



825,637



812,509


2%
Corporate

6,192



955


548%



8,756



2,269


286%
Consolidation Adjustments

(78
)


3,069


(103)%



(734
)


9,150


(108)%
Net revenues
$
1,524,890


$
1,938,984


(21)%


$
4,625,887


$
6,376,433


(27)%













Income before income taxes
$
301,850


$
553,616


(45)%


$
860,723


$
1,828,540


(53)%













Net income attributable to common shareholders
$
195,459


$
407,459


(52)%


$
636,920


$
1,342,490


(53)%













Diluted earnings per share
$
0.78


$
1.50


(48)%


$
2.48


$
4.93


(50)%













Weighted average diluted shares

251,239



271,405






258,083



271,746
















Annualized return on adjusted tangible equity ²

10.0
%


21.4
%





11.0
%


26.1
%


Adjusted annualized return on adjusted tangible equity ³

14.0
%


N/A






12.4
%


N/A

Highlights

Three months ended August 31, 2022

Nine months ended August 31, 2022

Net income attributable to common shareholders of $195 million, or $0.78 per diluted share; adjusted net income attributable to common shareholders ¹ of $275 million, or $1.10 per diluted share, after removing $80 million of expense related to a regulatory settlement in the quarter.

Repurchased 4.3 million shares of common stock for $134.1 million, or an average price of $31.39 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022.

We had 228.8 million shares outstanding and 256.2 million shares outstanding on a fully diluted basis ⁵ at August 31, 2022. Our book value per share was $44.98 and tangible book value per fully diluted share ⁶ was $33.81 at August 31, 2022.

Our Board of Directors has increased our share buyback authorization back to a total of $250 million.

Effective tax rate of 35.1%, reflecting non-deductible $80 million regulatory settlement in the current quarter; adjusted effective tax rate ¹¹ of 27.7% without the cost of this settlement.

Net income attributable to common shareholders of $637 million, or $2.48 per diluted share; adjusted net income attributable to common shareholders ¹ of $717 million, or $2.79 per diluted share, after removing $80 million of expense related to a regulatory settlement in the third quarter.

Repurchased 22.3 million shares of common stock for $756.3 million, or an average price of $33.88 per share, including 0.6 million shares repurchased after quarter end through September 27, 2022; repurchases include 18.9 million shares of common stock in the open market for $634.0 million under our Board of Directors authorizations and 3.4 million shares of common stock for $122.2 million in connection with net-share settlements under our equity compensation plan.

Three months ended August 31, 2022

Nine months ended August 31, 2022

Investment Banking and Capital Markets

Investment Banking net revenues were $682 million, as our mergers and acquisitions net revenues remained strong. Our debt and equity underwriting net revenues were lower than the same quarter last year, consistent with a reduction in industry-wide deal activity.

Combined Capital Markets net revenues of $452 million were slightly higher as compared to the prior year quarter. Equities net revenues benefited from higher commissions and trading revenues, as our business continues to expand within the context of a more normalized trading environment. Fixed Income net revenues reflect mark to market losses on certain mortgage inventory positions and a slowdown in securitization activity as a result of continued uncertainty in respect of inflation and interest rates.

Investment Banking net revenues of $2.37 billion were driven by record advisory net revenues, offset by lower net revenues in debt and equity underwriting.

Combined Capital Markets net revenues of $1.35 billion were lower as compared to prior year period. Equities net revenues were impacted by market volatility and global instability, primarily in the first six months of the year. Fixed Income results were impacted by lower trading volumes, mark to market losses on certain mortgage inventory positions and a slowdown in securitization activity in the face of inflation concerns and interest rate uncertainty.

Asset Management

Asset Management net revenues reflect an increase in underlying fee revenue, offset by modest investment losses reflective of the difficult trading environment as compared to the profit realized in the prior year quarter.

Asset Management net revenues reflect higher asset management fees, offset by lower investment returns and lower revenues from strategic affiliates as compared to the prior year period.

Legacy Merchant Banking

Merchant Banking results reflect the $139 million pre-tax gain on the sale of Idaho Timber and strong results at Vitesse, partially offset by a decline in the value of several of our investments in public companies. We continue to work toward the liquidation of our Merchant Banking portfolio.

Merchant Banking results reflect strong results at Idaho Timber and Vitesse, as well as the gain on the sale of Idaho Timber, partially offset by a decline in the value of several of our investments in public companies.

* * * *

Amounts herein pertaining to August 31, 2022 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”). More information on our results of operations for the three and nine months ended August 31, 2022 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC, which we expect to file on or about October 7, 2022.

This press release contains certain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current views and include statements about our future and statements that are not historical facts. These forward-looking statements are usually preceded by the words “should,” “expect,” “intend,” “may,” “will,” "would," or similar expressions. Forward-looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward-looking statements may also include statements pertaining to our strategies for future development of our businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC. We undertake no obligation to update or revise any such forward-looking statement to reflect subsequent circumstances.

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal the corresponding indicated performance level(s).

Notes

Adjusted net income attributable to common shareholders (a non-GAAP financial measure) excludes the $80 million expense ($80 million, net of tax) related to a regulatory settlement in the current quarter. Refer to schedule on page 12 for reconciliation to U.S. GAAP amounts.
Return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies' annualized adjusted net income (a non-GAAP financial measure) divided by our beginning of period adjusted tangible shareholders' equity (a non-GAAP financial measure). Refer to schedule on page 12 for reconciliation to U.S. GAAP amounts.
Adjusted return on adjusted tangible equity (a non-GAAP financial measure) is defined as Jefferies' annualized adjusted net income excluding the net income impact of the $80 million of expense ($80 million, net of tax) related to a regulatory settlement in the current quarter (a non-GAAP financial measure) divided by our beginning of period adjusted tangible shareholders' equity (a non-GAAP financial measure). Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.
Allocated net interest represents an allocation to Asset Management of certain of our long-term debt interest expense, net of interest income on our Cash and cash equivalents and other sources of liquidity. Allocated net interest has been disaggregated to increase transparency and to make clearer actual Investment return. Refer to Selected Financial and Statistical Information on pages 8 to 10.
Shares outstanding on a fully diluted basis (a non-GAAP financial measure) is defined as Jefferies common shares outstanding plus restricted stock units, stock options, conversion of redeemable convertible preferred shares and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
Tangible book value per fully diluted share (a non-GAAP financial measure) is defined as adjusted tangible book value (a non-GAAP financial measure) divided by shares outstanding on a fully diluted basis (a non-GAAP financial measure). Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
The 149.6 million common shares repurchased since January 2018 includes 145.5 million shares of common stock repurchased in the open market for $3.4 billion under our Board of Director authorizations and 4.1 million shares of common stock for $136.6 million repurchased in connection with net-share settlements under our equity compensation plan.
Tangible shareholders' equity (a non-GAAP financial measure), is defined as Jefferies Financial Group shareholders' equity less Intangible assets, net and goodwill. Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.
Backlog represents an estimate of our net revenues from expected future transactions. As an indicator of net revenues in a given period, it is subject to limitations. The time frame for the realization of revenues from these expected transactions varies and is influenced by factors we do not control. Transactions not included in the estimate may occur, and expected transactions may also be modified or cancelled.
In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Prior year amounts have been reclassified to conform to current segment disclosure.
Adjusted effective tax rate (a non-GAAP financial measure) excludes the $80 million expense related to a regulatory settlement in the current quarter. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.

Summary

(In thousands, except per share amounts) (Unaudited)








Three Months Ended August 31,

Nine Months Ended August 31,


2022



2021



2022



2021

Net revenues
$
1,524,890


$
1,938,984


$
4,625,887


$
6,376,433

Income before income taxes and loss related to associated companies
$
306,677


$
580,792


$
917,235


$
1,889,810

Loss related to associated companies

(4,827
)


(27,176
)


(56,512
)


(61,270
)
Income before income taxes

301,850



553,616



860,723



1,828,540

Income tax provision

105,909



145,700



219,949



484,756

Net income

195,941



407,916



640,774



1,343,784

Net loss attributable to the noncontrolling interests

1,243



1,324



1,116



2,736

Net loss attributable to the redeemable noncontrolling interests

345



68



1,241



1,071

Preferred stock dividends

(2,070
)


(1,849
)


(6,211
)


(5,101
)
Net income attributable to common shareholders
$
195,459


$
407,459


$
636,920


$
1,342,490









Basic earnings per common share attributable to Jefferies common shareholders:







Net income
$
0.80


$
1.54


$
2.54


$
5.05









Basic: weighted average shares

243,853



263,087



250,168



264,248









Diluted earnings per common share attributable to Jefferies common shareholders:







Net income
$
0.78


$
1.50


$
2.48


$
4.93









Diluted: weighted average shares

251,239



271,405



258,083



271,746

A summary of results for the three months ended August 31, 2022 is as follows (in thousands):


Investment Banking and Capital Markets

Asset Management

Merchant Banking

Corporate

Parent Company Interest

Consolidation Adjustments

Total
Net revenues
$
1,134,732

$
(13,803
)

$
397,847


$
6,192


$
—


$
(78
)

$
1,524,890

Expenses:













Cost of sales

—


—



123,436



—



—



—



123,436

Compensation and benefits

521,214


12,808



10,584



13,856



—



—



558,462

Non-compensation expenses:













Floor brokerage and clearing fees

79,727


4,959



—



—



—



—



84,686

Selling, general and other expenses

343,648


11,662



37,651



5,339



—



(78
)


398,222

Interest expense

—


—



1,223



—



8,997



—



10,220

Depreciation and amortization

23,366


401



18,997



423



—



—



43,187

Total non-compensation expenses

446,741


17,022



57,871



5,762



8,997



(78
)


536,315

Total expenses

967,955


29,830



191,891



19,618



8,997



(78
)


1,218,213

Income (loss) before income taxes and loss related to associated companies

166,777


(43,633
)


205,956



(13,426
)


(8,997
)


—



306,677

Loss related to associated companies

—


—



(4,827
)


—



—



—



(4,827
)
Income (loss) before income taxes
$
166,777

$
(43,633
)

$
201,129


$
(13,426
)

$
(8,997
)

$
—



301,850

Income tax provision













105,909

Net income












$
195,941

A summary of results for the three months ended August 31, 2021 is as follows (in thousands):


Investment Banking and Capital Markets (1)

Asset Management (1)

Merchant Banking (1)

Corporate

Parent Company Interest

Consolidation Adjustments (1)

Total
Net revenues
$
1,672,943

$
13,327


$
248,690


$
955


$
—


$
3,069


$
1,938,984

Expenses:













Cost of sales

—


—



151,510



—



—



—



151,510

Compensation and benefits

762,725


15,468



17,584



6,466



—



—



802,243

Non-compensation expenses:













Floor brokerage and clearing fees

64,441


4,541



—



—



—



—



68,982

Selling, general and other expenses

222,357


10,719



39,849



4,375



—



(38
)


277,262

Interest expense

4,982


—



762



—



13,774



—



19,518

Depreciation and amortization

21,065


494



16,554



564



—



—



38,677

Total non-compensation expenses

312,845


15,754



57,165



4,939



13,774



(38
)


404,439

Total expenses

1,075,570


31,222



226,259



11,405



13,774



(38
)


1,358,192

Income (loss) before income taxes and loss related to associated companies

597,373


(17,895
)


22,431



(10,450
)


(13,774
)


3,107



580,792

Loss related to associated companies

—


—



(27,176
)


—



—



—



(27,176
)
Income (loss) before income taxes
$
597,373

$
(17,895
)

$
(4,745
)

$
(10,450
)

$
(13,774
)

$
3,107



553,616

Income tax provision













145,700

Net income












$
407,916

(1) In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Prior year amounts have been reclassified to conform to current segment disclosure.

A summary of results for the nine months ended August 31, 2022 is as follows (in thousands):


Investment Banking and Capital Markets

Asset Management

Merchant Banking

Corporate

Parent Company Interest

Consolidation Adjustments

Total
Net revenues
$
3,714,928

$
77,300


$
825,637


$
8,756


$
—


$
(734
)

$
4,625,887

Expenses:













Cost of sales

—


—



349,556



—



—



—



349,556

Compensation and benefits

1,768,350


43,560



89,226



25,487



—



—



1,926,623

Non-compensation expenses:













Floor brokerage and clearing fees

237,140


25,523



—



—



—



—



262,663

Selling, general and other expenses

864,026


33,638



97,155



17,319



—



(378
)


1,011,760

Interest expense

—


—



2,846



—



25,773



—



28,619

Depreciation and amortization

69,687


1,230



57,248



1,266



—



—



129,431

Total non-compensation expenses

1,170,853


60,391



157,249



18,585



25,773



(378
)


1,432,473

Total expenses

2,939,203


103,951



596,031



44,072



25,773



(378
)


3,708,652

Income (loss) before income taxes and loss related to associated companies

775,725


(26,651
)


229,606



(35,316
)


(25,773
)


(356
)


917,235

Loss related to associated companies

—


—



(56,512
)


—



—



—



(56,512
)
Income (loss) before income taxes
$
775,725

$
(26,651
)

$
173,094


$
(35,316
)

$
(25,773
)

$
(356
)


860,723

Income tax provision













219,949

Net income












$
640,774

A summary of results for the nine months ended August 31, 2021 is as follows (in thousands):


Investment Banking and Capital Markets (1)

Asset Management (1)

Merchant Banking (1)

Corporate

Parent Company Interest

Consolidation Adjustments (1)

Total
Net revenues
$
5,259,301

$
293,204

$
812,509


$
2,269


$
—


$
9,150


$
6,376,433

Expenses:













Cost of sales

—


—


390,916



—



—



—



390,916

Compensation and benefits

2,650,704


59,924


66,365



29,035



—



—



2,806,028

Non-compensation expenses:













Floor brokerage and clearing fees

197,226


24,982


—



—



—



—



222,208

Selling, general and other expenses

744,366


33,651


99,000



13,954



—



(212
)


890,759

Interest expense

15,806


—


2,517



—



41,505



—



59,828

Depreciation and amortization

62,580


1,462


50,536



2,306



—



—



116,884

Total non-compensation expenses

1,019,978


60,095


152,053



16,260



41,505



(212
)


1,289,679

Total expenses

3,670,682


120,019


609,334



45,295



41,505



(212
)


4,486,623

Income (loss) before income taxes and loss related to associated companies

1,588,619


173,185


203,175



(43,026
)


(41,505
)


9,362



1,889,810

Loss related to associated companies

—


—


(61,270
)


—



—



—



(61,270
)
Income (loss) before income taxes
$
1,588,619

$
173,185

$
141,905


$
(43,026
)

$
(41,505
)

$
9,362



1,828,540

Income tax provision













484,756

Net income












$
1,343,784

Selected Financial and Statistical Information

(Amounts in Thousands, Except Other Data) (Unaudited)

Quarter Ended

August 31, 2022

May 31, 2022

August 31 2021 (1)
Investment Banking, Capital Markets and Asset Management Net Revenues:











Advisory
$
486,762


$
371,760


$
583,887







Equity underwriting

150,972



122,435



367,460

Debt underwriting

76,943



107,020



229,273

Total underwriting

227,915



229,455



596,733







Other investment banking (2)

(32,877
)


85,746



42,997







Total investment banking

681,800



686,961



1,223,617







Equities

277,448



254,807



236,532

Fixed income

174,618



161,478



205,795

Total capital markets

452,066



416,285



442,327







Other (2)

866



(4,868
)


6,999







Total Investment Banking and Capital Markets Net Revenues (3)

1,134,732



1,098,378



1,672,943







Asset management fees and revenues (4)

17,069



14,116



18,869

Investment return (5)

(19,671
)


30,637



5,613

Allocated net interest (5)

(11,201
)


(13,606
)


(11,155
)
Total Asset Management Net Revenues

(13,803
)


31,147



13,327







Total Investment Banking, Capital Markets and Asset Management Net Revenues
$
1,120,929


$
1,129,525


$
1,686,270







Investment Banking, Capital Markets and Asset Management Non-compensation Expenses:











Floor brokerage and clearing fees
$
84,686


$
94,016


$
68,982

Underwriting costs

11,672



13,191



21,474

Technology and communications

108,256



108,630



93,808

Occupancy and equipment rental

24,944



24,561



24,961

Business development

36,658



47,880



24,380

Professional services

55,231



52,192



49,543

Depreciation and amortization

23,767



23,233



21,559

Other

118,549



43,110



23,892







Total Investment Banking, Capital Markets and Asset Management Non-compensation Expenses
$
463,763


$
406,813


$
328,599







Investment Banking, Capital Markets and Asset Management Compensation and Benefits Expenses:





Compensation and benefits
$
534,022


$
533,676


$
778,193

Compensation and benefits expenses as a percentage of net revenues

47.6
%


47.2
%


46.1
%

(Amounts in Thousands, Except Other Data) (Unaudited)


Nine Months Ended May 31,


2022

2021 (1)
Investment Banking, Capital Markets and Asset Management Net Revenues:









Advisory

$
1,402,291


$
1,285,834






Equity underwriting


429,507



1,186,728

Debt underwriting


429,142



712,370

Total underwriting


858,649



1,899,098






Other investment banking (2)


111,003



208,480






Total investment banking


2,371,943



3,393,412






Equities


809,302



1,010,497

Fixed income


538,896



826,351

Total capital markets


1,348,198



1,836,848






Other (2)


(5,213
)


29,041






Total Investment Banking and Capital Markets Net Revenues (3)


3,714,928



5,259,301






Asset management fees and revenues (4)


75,687



107,668

Investment return (5)


40,496



218,529

Allocated net interest (5)


(38,883
)


(32,993
)
Total Asset Management Net Revenues


77,300



293,204






Total Investment Banking, Capital Markets and Asset Management Net Revenues

$
3,792,228


$
5,552,505






Investment Banking, Capital Markets and Asset Management Non-compensation Expenses:









Floor brokerage and clearing fees

$
262,663


$
222,208

Underwriting costs


32,991



90,641

Technology and communications


321,441



281,032

Occupancy and equipment rental


74,755



77,515

Business development


108,914



69,410

Professional services


158,541



142,419

Depreciation and amortization


70,917



64,042

Other


201,022



132,806






Total Investment Banking, Capital Markets and Asset Management Non-compensation Expenses

$
1,231,244


$
1,080,073






Investment Banking, Capital Markets and Asset Management Compensation and Benefits Expenses:




Compensation and benefits

$
1,811,910


$
2,710,628

Compensation and benefits expenses as a percentage of net revenues


47.8
%


48.8
%

(Amounts in Thousands, Except Other Data) (Unaudited)







Quarter Ended

August 31, 2022

May 31, 2022

August 31 2021 (1)
Other Data:





Number of trading days

64


64


65

Number of trading loss days (6)

9


10


20

Average VaR (in millions) (7)
$
9.6

$
11.84

$
12.69










Nine Months Ended August 31,



2022

2021 (1)
Other Data:





Number of trading days



189


189

Number of trading loss days (6)



27


49

Average VaR (in millions) (7)


$
11.18

$
14.79

(1)
In the first quarter of 2022, we transferred certain Merchant Banking net assets to our Investment Banking and Capital Markets and Asset Management segments. Previously reported results are presented on a comparable basis.
(2)
In the first quarter of 2022, we also made a change to present our share of the net earnings of Berkadia Commercial Mortgage Holding LLC within Investment banking net revenues, which was previously presented within our Other business category. Previously reported results are presented on a comparable basis.
(3)
Allocated net interest is not separately disaggregated for Investment Banking and Capital Markets. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.
(4)
Includes management and performance fees from funds and accounts managed by us as well as our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, as well as earnings on our ownership interest in affiliated asset managers.
(5)
Allocated net interest represents an allocation to Asset Management of certain of our long-term debt interest expense, net of interest income on our Cash and cash equivalents and other sources of liquidity. Allocated net interest has been disaggregated to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods.
(6)
Number of trading loss days is calculated based on trading activities in our Investment Banking and Capital Markets and Asset Management business segments.
(7)
VaR estimates the potential loss in value of trading positions in our Investment Banking and Capital Markets and Asset Management business segments due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended November 30, 2021.

Financial Data and Metrics

(Amounts in Millions, Except Other Data) (Unaudited)


Quarter Ended

August 31, 2022

May 31, 2022

August 31 2021 (1)
Financial position (1):





Total assets
$
55,230

$
57,214

$
58,037
Total assets less goodwill and intangible assets for the period
$
53,355

$
55,329

$
56,132
Cash and cash equivalents
$
9,478

$
8,523

$
9,481
Financial instruments owned
$
20,249

$
20,248

$
19,735
Level 3 financial instruments owned (2)
$
764

$
740

$
671
Goodwill and intangible assets
$
1,874

$
1,885

$
1,905
Total equity
$
10,360

$
10,368

$
10,401
Total shareholders' equity
$
10,293

$
10,300

$
10,382
Tangible equity (3)
$
8,418

$
8,415

$
8,477






Other data and financial ratios:





Leverage ratio (1) (4)

5.3


5.5


5.6
Tangible gross leverage ratio (1) (5)

6.3


6.6


6.6






Number of employees, at period end

5,347


5,619


5,493

(1)

Amounts pertaining to August 31, 2022 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the three and nine months ended August 31, 2022.
(2)

Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned.
(3)

Tangible equity (a non-GAAP financial measure) represents total Jefferies shareholders' equity less goodwill and identifiable intangible assets. We believe that tangible equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible equity, making these ratios meaningful for investors.
(4)

Leverage ratio equals total assets divided by total equity.
(5)

Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.

Components of Denominator for Earnings Per Share

The denominators used to calculate basic and diluted earnings per share are as follows (in thousands):



Three Months Ended August 31, 2022

Nine Months Ended August 31, 2022





Weighted average common shares outstanding

230,988


236,546

Weighted average shares of restricted stock with future service

(710
)

(1,075
)
Weighted average restricted stock units outstanding with no future service

13,575


14,697

Denominator for basic earnings per share

243,853


250,168

Stock options and other share based awards

1,171


1,485

Senior executive compensation plan restricted stock unit awards

1,774


1,989

Mandatorily redeemable convertible preferred shares

4,441


4,441

Denominator for diluted earnings per share

251,239


258,083

Non-GAAP Reconciliations

The following tables reconcile our non-GAAP measures to their respective U.S. GAAP measures. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. These measures should not be considered a substitute for, or superior to, measures prepared in accordance with U.S. GAAP.

Net Income Attributable to Common Shareholders and Earnings Per Share GAAP Reconciliation

Reconciliation of Jefferies net income attributable to common shareholders to adjusted net income attributable to common shareholders and diluted earnings per share to adjusted diluted earnings per share (in thousands, except per share amounts):



Three Months Ended August 31, 2022

Nine Months Ended August 31, 2022





Net income attributable to common shareholders (GAAP)

$
195,459

$
636,920
Net income impact for regulatory settlement


80,000


80,000
Adjusted net income attributable to common shareholders (non-GAAP)

$
275,459

$
716,920





Jefferies Financial Group diluted earnings per share (GAAP)

$
0.78

$
2.48
Diluted earnings per share impact for regulatory settlement


0.32


0.31
Adjusted Jefferies Financial Group diluted earnings per share (non-GAAP)

$
1.10

$
2.79

Return on Adjusted Tangible Equity Reconciliation

The table below reconciles our Net income attributable to common shareholders to adjusted net income and our Shareholders' equity to adjusted tangible shareholders' equity (in thousands):



Three Months Ended August 31,

Nine Months Ended August 31,



2022



2021



2022



2021










Net income attributable to common shareholders (GAAP)

$
195,459


$
407,459


$
636,920


$
1,342,490

Intangible amortization and impairment expense, net of tax


1,638



2,618



6,350



7,869

Adjusted net income (non-GAAP)

$
197,097


$
410,077


$
643,270


$
1,350,359

Annualized adjusted net income (non-GAAP)

$
788,388


$
1,640,308


$
857,693


$
1,800,479

















May 31,

November 30,



2022



2021



2021



2020










Shareholders' equity (GAAP)

$
10,300,177


$
10,072,634


$
10,553,755


$
9,403,893

Less: Intangible assets, net and goodwill


(1,885,043
)


(1,912,480
)


(1,897,500
)


(1,913,467
)
Less: Deferred tax asset


(401,268
)


(452,467
)


(327,547
)


(393,687
)
Less: Weighted average quarter-to-date or year-to-date impact of cash dividends and share repurchases


(93,106
)


(56,862
)


(539,674
)


(189,771
)
Adjusted tangible shareholders' equity (non-GAAP)

$
7,920,760


$
7,650,825


$
7,789,034


$
6,906,968










Return on adjusted tangible equity


10.0
%


21.4
%


11.0
%


26.1
%

Adjusted Return on Adjusted Tangible Equity Reconciliation

The table below reconciles our Net income attributable to common shareholders to adjusted net income excluding regulatory settlement expense and our Shareholders' equity to adjusted tangible shareholders' equity (in thousands):



Three Months Ended August 31, 2022

Nine Months Ended August 31, 2022





Net income attributable to common shareholders (GAAP)

$
195,459


$
636,920

Intangible amortization and impairment expense, net of tax


1,638



6,350

Net income impact for regulatory settlement


80,000



80,000

Adjusted net income excluding regulatory settlement (non-GAAP)

$
277,097


$
723,270

Annualized adjusted net income excluding regulatory settlement (non-GAAP)

$
1,108,388


$
964,360








May 31, 2022

November 30, 2021





Shareholders' equity (GAAP)

$
10,300,177


$
10,553,755

Less: Intangible assets, net and goodwill


(1,885,043
)


(1,897,500
)
Less: Deferred tax asset


(401,268
)


(327,547
)
Less: Weighted average quarter-to-date or year-to-date impact of cash dividends and share repurchases


(93,106
)


(539,674
)
Adjusted tangible shareholders' equity (non-GAAP)

$
7,920,760


$
7,789,034






Adjusted return on adjusted tangible equity


14.0
%


12.4
%

Jefferies Shareholders' Equity GAAP Reconciliation

At the beginning of the press release, we disclose how much we have returned to shareholders through buybacks and dividends since the beginning of 2018 and what percentage that is of shareholders' equity and tangible shareholders' equity at the beginning of 2018. The table below reconciles our shareholders' equity to tangible shareholders' equity at the beginning of 2018 (in thousands):



December 31, 2017



Shareholders' equity (GAAP)

$
10,105,957

Intangible assets, net and goodwill


(2,463,180
)
Tangible shareholders' equity (non-GAAP)

$
7,642,777

Jefferies Book Value and Shares Outstanding GAAP Reconciliation

The table below reconciles our book value (shareholders' equity) to adjusted tangible book value and our common shares outstanding to fully diluted shares outstanding (in thousands, except per share amounts):



August 31, 2022



Book value (GAAP)

$
10,292,531

Redeemable convertible preferred shares convertible to common shares (1)


125,000

Stock options (2)


119,384

Intangible assets, net and goodwill


(1,874,435
)
Adjusted tangible book value (non-GAAP)

$
8,662,480




Common shares outstanding (GAAP)


228,807

Restricted stock units ("RSUs")


16,792

Redeemable convertible preferred shares converted to common shares (1)


4,441

Stock options (2)


5,027

Other


1,155

Fully diluted shares outstanding (non-GAAP) (3)


256,222




Book value per share outstanding

$
44.98

Tangible book value per fully diluted share outstanding

$
33.81


(1)

Redeemable convertible preferred shares added to book value and fully diluted shares assume that the redeemable convertible preferred shares are converted to common shares.

(2)

Stock options added to book value are equal to the total number of stock options outstanding as of August 31, 2022 of 5,026,532 multiplied by the weighted average exercise price of $23.75 on August 31, 2022. Stock options added to fully diluted shares are equal to the total stock options outstanding on August 31, 2022.

(3)

Fully diluted shares outstanding include vested and unvested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans. Fully diluted shares outstanding also include all stock options and the additional common shares if our redeemable convertible preferred shares were converted to common shares.

Effective Tax Rate GAAP Reconciliation

The table below reconciles our effective tax rate to adjusted effective tax rate:



Three Months Ended August 31, 2022



Effective tax rate (GAAP)

35.1%
Effective tax rate impact for regulatory settlement

(7.4) %
Adjusted effective tax rate (non-GAAP)

27.7%

View source version on businesswire.com: https://www.businesswire.com/news/home/20220928005883/en/

Jonathan Freedman 212.778.8913

Company Name:	Jefferies Financial Group Inc.
Stock Symbol:	JEF
Market:	NYSE
Website:	jefferies.com

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