Jefferies Financial Group Inc

Non-interest expenses were as follows (dollars in thousands):

Total Non-interest Expenses

Non-interest expenses were $4.35 billion for 2023, a decrease of $577.1 million, or 11.7%, compared with $4.92 billion for 2022. The decrease is primarily due to lower cost of sales and depreciation expense related to our significantly reduced merchant banking portfolio primarily as a result of divestitures made in 2022 and 2023, including the sale of Idaho Timber in August 2022 and the spin-off of Vitesse Energy in January 2023.

Compensation and Benefits

Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation and share-based awards and the amortization of share-based and cash compensation awards to employees.

Cash and share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for a portion of awards granted at year end as part of annual compensation is recorded during the year of the award. Compensation and benefits expense includes amortization expense associated with these awards to the extent vesting is contingent on future service. In addition, certain awards to our Chief Executive Officer and our President contain market and performance conditions and the awards are amortized over their service periods.

Compensation and benefits expense was $2.54 billion for 2023 compared with $2.59 billion for 2022. A significant portion of our compensation expense is highly variable with net revenues. Compensation and benefits expense as a percentage of Net revenues was 53.9% for 2023 and 43.3% for 2022. The lower ratios for 2022 reflect a much higher proportion of merchant banking revenues within our asset management segment, which have much lower compensation rates.

Compensation expense related to the amortization of share- and cash-based awards amounted to $370.0 million for 2023 compared with $240.5 million for 2022.

At November 30, 2023, we had 7,564 employees globally across all of our consolidated subsidiaries within our Investment Banking and Capital Markets and Asset Management reportable segments,, an increase of 2,183 employees from our headcount of 5,381 at November 30, 2022. Included within our global headcount, in addition to our broker-dealer subsidiaries through which we conduct our Investment Banking advisory and underwriting businesses and Fixed Income and Equities capital markets businesses, are 2,296 employees of our Stratos, OpNet, HomeFed, Foursight Capital LLC and M Science subsidiaries. Of the headcount increase, 1,903 relates to obtaining control of Stratos and OpNet as the employees of those subsidiaries are now included in our overall headcount. Our headcount was also impacted slightly as employees of Vitesse Energy are no longer part of our headcount upon the spin-off of our interests in Vitesse Energy in January 2023. During 2023, we have increased the number of our Investment Banking Managing Directors and related staff along with additional technology and corporate staff to support our growth and strategic priorities.

Refer to Note 15, Compensation Plans included in this Annual Report on Form 10-K, for further details on compensation and benefits.

Non-interest Expenses (Excluding Compensation and Benefits)

Non-interest expenses, excluding Compensation and benefits, as a percentage of Net revenues was 38.5% and 39.0% for 2023 and 2022, respectively, and was impacted by the following:

•Cost of sales and depreciation and amortization expenses were significantly lower reflecting the sale of Idaho Timber in August 2022 and the spin-off of Vitesse Energy in January 2023.

•Technology and communication expenses were higher related to the development of various trading and management systems and increased market data costs.

•Business development expenses were higher as business travel, conferences and other events have returned to normal levels. Also, additions of investment banking professionals during 2023 lead to higher business development activity with a commensurate increase in expenses.

•Professional services expenses were higher primarily on increased transaction related legal fees associated with capital markets transaction and litigation as well as consulting fees related to strategic technology investment initiatives.

•Other expenses were lower as non-compensation expenses for 2022 included an $80.0 million combined regulatory settlement with the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission. This decrease was partially offset by higher bad debt expense and loss reserves.

•The provision for income taxes was $91.9 million for 2023, equating to an effective tax rate of 25.9%, compared with $273.9 million for 2022, equating to an effective tax rate of 25.9%. The rate for the two comparable periods was unchanged.

•In August 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act imposes a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income exceeding $1.0 billion, as well as a 1% excise tax on corporate stock repurchases made after December 31, 2022. CAMT became applicable to us beginning December 1, 2023. We are continuing to evaluate the impact of this new tax, but we do not expect a material impact on our tax provision for the year ended November 30, 2024.

•The Organization for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules (“Pillar Two”) for a global 15% minimum tax are in the process of being adopted in a number of jurisdictions in which we operate. Pillar Two is expected to be applicable to us beginning December 1, 2024. We are continuing to evaluate the impact of proposed and enacted legislative changes as new guidance becomes available.

Refer to Note 23, Income Taxes in our consolidated financial statements included in this Annual Report on Form 10-K, for further details on income taxes.