Jefferies Financial Group Inc.: Form 10-Q for the period ended May 31, 2025

Condition and Results of Operations

This report may contain or incorporate by reference certain

“forward-looking statements” within the meaning of Section 27A

of the Securities Act of 1933, Section 21E of the Securities

Exchange Act of 1934 and/or the Private Securities Litigation

Reform Act of 1995. Forward-looking statements include

statements about our future and statements that are not

historical or current facts. These forward-looking statements are

often preceded by the words “should,” “expect,” “believe,”

“intend,” “may,” “will,” “would,” “could” 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 also include statements pertaining to our

strategies for future development of our business 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 that could cause actual results to differ, perhaps

materially, from those in our forward-looking statements is

contained in this report and other documents we file. You should

read and interpret any forward-looking statement together with

these documents, including the following:

• the description of our business and risk factors contained in

our Annual Report on Form 10-K for the year ended

November 30, 2024 and filed with the Securities and Exchange

Commission (“SEC”) on January 28, 2025;

• the discussion of our analysis of financial condition and results

of operations contained in this report under the caption

“Management’s Discussion and Analysis of Financial Condition

and Results of Operations” herein;

• the discussion of our risk management policies, procedures

and methodologies contained in this report under the caption

“Management’s Discussion and Analysis of Financial Condition

and Results of Operations—Risk Management” herein;

• the consolidated financial statements and notes to the

consolidated financial statements contained in this report; and

• cautionary statements we make in our public documents,

reports and announcements.

Any forward-looking statement speaks only as of the date on

which that statement is made. We undertake no obligation to

update any forward-looking statement to reflect events or

circumstances that occur after the date on which the statement

is made, except as required by applicable law.

Our business, by its nature, does not produce predictable or

necessarily recurring earnings. Our results in any given period

can be materially affected by conditions in global financial

markets, economic conditions generally and our own activities

and positions.

Consolidated Results of Operations

Overview

$ in thousands

46 Jefferies Financial Group Inc.

Executive Summary

Three Months Ended May 31, 2025 Versus May 31, 2024

Consolidated Results

• Net revenues were $1.63 billion, down 1.3% compared to $1.66

billion for the prior year quarter, as market uncertainty related

to U.S. policy and geopolitical events reduced activity levels for

certain of our businesses during the current quarter.

• Earnings from continuing operations before income taxes were

$134.9 million, down 40.8% compared to $227.8 million for the

prior year quarter, primarily driven by higher non-compensation

expenses associated with certain business activity, particularly

in Equities. The prior year period includes the results of

Foursight through its sale in April 2024.

Business Results

• Investment banking net revenues from Advisory, Equity

underwriting and Debt underwriting totaling $785.6 million

were up 6.4% compared to $738.6 million for the prior year

quarter. Advisory net revenues were up 61.3%, primarily

attributable to market share gains and an increase in mergers

and acquisitions activity levels across most sectors. Total

underwriting net revenues were down 28% as debt underwriting

remained flat and equity underwriting declined, consistent with

an overall industry slowdown attributable to significant

uncertainty related to U.S. policy and geopolitical events which

meaningfully slowed activity levels. Other investment banking

net revenues were $(19.3) million, compared to net revenues of

$48.8 million for the prior year quarter. Other investment

banking net revenues include the net returns on our

investments in our Jefferies Finance and Berkadia joint

ventures and net gains or losses on investments, and the prior

year quarter includes Foursight operating revenues as well as

the gain on the sale of Foursight in April 2024.

• Equities net revenues were $526.2 million, up 24.4% compared

to $422.9 million for the prior year quarter, primarily

attributable to market share gains and increased global trading

volumes driving stronger results across several of our equities

business lines.

• Fixed income net revenues were $177.9 million, down 37.4%

compared to $284.2 million for the prior year quarter due to

lower global activity levels and volatility in credit spreads

impacting the overall trading environment in the current

quarter.

• Asset management net revenues were $154.6 million

compared to $156.5 million for the prior year quarter. Asset

management fees and revenues were modestly higher and

Investment return increased due to improved returns generated

across a number of fund strategies, partially offset by net

losses on certain investment positions.

Non-interest Expenses

• Compensation and benefits expenses were $854.8 million, a

decrease of 1%, compared to $862.0 million for the prior year

quarter. Compensation and benefits expense as a percentage

of Net revenues was 52.3%, compared to 52.0% for the prior

year quarter.

• Non-compensation expenses were $644.7 million, higher

compared to $566.7 million for the prior year quarter. Non-

compensation expenses were higher primarily due to increased

brokerage and clearing fees other transactional costs (included

in other expenses) associated with increased global equities

trading volumes. Additionally, non-compensation expenses

increased due to higher business development, technology and

communication expenses and a write-down on certain assets

held for sale. In addition, Non-compensation expenses for the

prior year quarter include Foursight activity up through the sale

in April 2024. Non-compensation expenses as a percentage of

Net revenues was 39.4% compared to 34.2% for the prior year

quarter.

Six Months Ended May 31, 2025 Versus May 31, 2024

Consolidated Results

• Net revenues were $3.23 billion, down 4.9% compared to $3.39

billion for the prior year period, as market uncertainty related to

U.S. policy and geopolitical events reduced activity levels for

certain of our businesses during the current year.

• Earnings from continuing operations before income taxes were

$286.0 million, down 36.2% compared to $448.0 million for the

prior year period. Our results reflect solid performance in our

Investment Banking advisory business as well as our Equities

business offset by a meaningful decline in investment return

generated by our Asset Management business and a decline in

the performance of our Fixed Income business. Additionally,

non-compensation expenses were higher compared to the

prior year period associated with certain business activity,

particularly in Equities.

Business Results

• Investment banking net revenues from Advisory, Equity

underwriting and Debt underwriting totaling $1.51 billion were

up 6.8% compared to $1.42 billion for the prior year period.

Advisory net revenues were up 37.5% primarily attributable to

market share gains and an increase in mergers and

acquisitions activity levels across all sectors. Total

underwriting net revenues were down 17.3% as strong results

in debt underwriting were offset by a slowdown in equity

underwriting activity, consistent with the overall industry

slowdown attributable to significant uncertainty related to U.S.

policy and geopolitical events. Other investment banking net

revenues were $(44.3) million, compared to net revenues of

$98.7 million for the prior year period. Other investment

banking net revenues include the net returns on our

investments in our Jefferies Finance and Berkadia joint

ventures and net gains or losses on investments, and the prior

year period includes Foursight operating revenues as well as

the gain on the sale of Foursight in April 2024.

• Equities net revenues were $935.3 million, up 17.7% compared

to $794.7 million for the prior year period, attributable to

market share gains and stronger global results across several

of our equities business lines.

• Fixed income net revenues were $467.1 million, down 26.6%

compared to $636.7 million for the prior year period due to

lower global activity levels and volatility in credit spreads

impacting the overall trading environment in the current year.

• Asset management net revenues were $346.3 million

compared to $429.9 million for the prior year period. Asset

management fees and revenues increased driven by higher

performance fees realized during the period offset by a

decrease in Investment return attributable to a challenging

investment environment for several strategies particularly with

a long equity bias.

May 2025 Form 10-Q 47

Non-interest Expenses

• Compensation and benefits expenses were $1.70 billion, a

decrease of 5.2%, compared to $1.79 billion for the prior year

period. Compensation and benefits expense as a percentage of

Net revenues was 52.5%, compared to 52.7% for the prior year

period.

• Non-compensation expenses were $1.25 billion, higher

compared to $1.16 billion for the prior year period. The

increase in non-compensation expenses was primarily due to

increased business development, brokerage and clearing fees

and other transactional costs (included in other expenses)

associated with increased global equities trading volumes and

higher technology and communication expenses. The current

year also includes $16.3 million in charitable donations,

including $9.6 million to support Los Angeles wildfire relief

efforts, as well as a $5.7 million land donation by HomeFed,

and a write-down on certain assets held for sale. Other

expenses for the prior year period include bad debt expenses

of $26.2 million largely related to our losses associated with

the shutdown of Weiss Multi-Strategy Advisers (“Weiss”). In

addition, non-compensation expenses for the prior year period

include Foursight activity up through the sale in April 2024.

Non-compensation expenses as a percentage of Net revenues

was 38.6% compared to 34.1% for the prior year period.

Headcount

• At May 31, 2025, we had 7,671 employees globally across all of

our consolidated subsidiaries within our Investment Banking

and Capital Markets and Asset Management reportable

segments, a decrease of 151 employees from our headcount

of 7,822 at November 30, 2024. Included within our global

headcount are 1,922 employees at May 31, 2025 and 2,063

employees at November 30, 2024 of our Stratos, Tessellis,

HomeFed and M Science subsidiaries.

Revenues by Source

We present our results as two reportable business segments:

Investment Banking and Capital Markets and Asset Management.

Additionally, corporate activities are fully allocated to each of

these reportable business segments.

Net revenues presented for our Investment Banking and Capital

Markets reportable segment include allocations of interest

income and interest expense as we assess the profitability of

these businesses inclusive of the net interest revenue or expense

associated with the respective activities, including the net

interest cost of allocated short- and long-term debt, which is a

function of the mix of each business’s associated assets and

liabilities and the related funding costs.

The remainder of our “Consolidated Results of Operations” is

presented on a detailed product and expense basis. Our

“Revenues by Source” is reported along the following business

lines: Investment Banking, Equities, Fixed Income and Asset

Management.

Debt valuation adjustments on derivative contracts, gains and

losses on investments held in deferred compensation plans,

foreign currency transaction gains or losses or certain other

corporate income items are not considered by management in

assessing the financial performance of our operating businesses

and are, therefore, not reported as part of our business segment

results.

$ in thousands

$ in thousands

N/M — Not Meaningful

(1) 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.

(2) Allocated net interest represents an allocation to Asset Management 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.

48 Jefferies Financial Group Inc.

Beginning in the fourth quarter of 2024, revenues from corporate

equity derivative transactions historically included within Other

investment banking net revenues were reclassified to Equities net

revenues as the underlying business has matured and has

started to generate meaningful revenues. Prior year amounts

have been revised to conform to this reclassification change to

the current year reporting.

Investment Banking Revenues

Investment banking is composed of revenues from:

• advisory services with respect to mergers and acquisitions,

debt financing, restructurings and private capital transactions;

• underwriting services, which include debt underwriting and

placement services related to investment grade debt, high yield

bonds, leveraged loans, emerging market debt, global

structured notes, municipal debt, mortgage-backed and asset-

backed securities; equity underwriting and placement services

related to equity offerings, preferred stock, and equity-linked

securities; and loan syndication;

• our 50% share of net earnings from our corporate lending joint

venture, Jefferies Finance;

• our 45% share of net earnings from our commercial real estate

joint venture, Berkadia (which includes commercial mortgage

origination and servicing);

• Foursight, our wholly-owned subsidiary engaged in the lending

and servicing of automobile loans (until the sale in April 2024);

• securities and loans received or acquired in connection with

our investment banking activities; and

• certain revenue-sharing agreements with SMBC primarily

associated with investment banking transactions.

Investment banking net revenues were $766.3 million, down 2.7%

compared to $787.4 million for the prior year quarter.

Investment banking net revenues were $1.47 billion, down 3.1%

compared to $1.51 billion for the prior year period.

$ in billions

Three Months Ended May 31, 2025 Versus May 31, 2024

Advisory net revenues were $457.9 million, up 61% compared to

$283.9 million for the prior year quarter, driven by market share

gains attributable to an increase in mergers and acquisition

activity levels across most sectors.

Total underwriting net revenues were $327.7 million, down 27.9%

from $454.7 million for the prior year quarter, driven by lower

equity underwriting activity across most sectors, consistent with

the overall industry slowdown attributable to significant

uncertainty related to U.S. policy and geopolitical events. Debt

underwriting net revenues remained relatively flat compared to

the prior year quarter.

Other investment banking net revenues were $(19.3) million,

compared to net revenues of $48.8 million for the prior year

quarter and include mark-to-market net losses on certain

investment positions. Performance from our strategic Berkadia

joint venture modestly decreased while performance from our

strategic Jefferies Finance joint venture was lower than the prior

year quarter. Other investment banking net revenues for the prior

year quarter include Foursight operating revenues as well as the

gain on the sale of Foursight in April 2024.

While our investment banking backlog remains strong, the extent

and timing of its realization may be impacted by an environment

that remains challenging due to ongoing uncertainties around

U.S. policy and geopolitical events. Backlog snapshots are

subject to limitations as 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.

Six Months Ended May 31, 2025 Versus May 31, 2024

Advisory net revenues were $855.6 million, up 37.5% compared

to $622.5 million for the prior year period, primarily attributable to

market share gains and an increase in mergers and acquisition

activity levels across all sectors.

Total underwriting net revenues were $655.6 million, down 17.3%

compared to $793.2 million for the prior year period. Solid net

revenues in Debt were driven by an increase in mergers and

acquisition activity across most sectors and collateralized loan

origination activity. A decline in Equity underwriting net revenues

was attributable to a decrease in transaction activity across most

sectors, consistent with the overall industry slowdown

attributable to significant uncertainty related to U.S. policy and

geopolitical events which meaningfully slowed activity levels.

Other investment banking net revenues were $(44.3) million,

compared to net revenues of $98.7 million for the prior year

period and include mark-to-market net losses compared to mark-

to-market net gains in the prior year period. Performance from

our strategic Berkadia joint venture modestly increased while

performance from our strategic Jefferies Finance joint venture

was lower than the prior year period. Other investment banking

net revenues for the prior year period include Foursight operating

revenues as well as the gain on the sale of Foursight in April

Equities Net Revenues

Equities is composed of net revenues from:

• services provided to our clients from which we earn

commissions or spread revenue by executing, settling and

clearing transactions for clients;

• advisory services offered to clients;

May 2025 Form 10-Q 49

• financing, securities lending and other prime brokerage

services offered to clients, including capital introductions and

outsourced trading;

• corporate equity derivative transactions; and
• wealth management services.

Three Months Ended May 31, 2025 Versus May 31, 2024

Equities net revenues were $526.2 million, up 24% from

$422.9 million for the prior year quarter, as increased volumes

drove stronger results, particularly within our global electronic

trading, equity options and Europe and Asia equity cash

businesses, and our corporate derivatives business produced

strong results globally. These increases were partially offset by

lower revenues from our U.S. equity cash business.

Six Months Ended May 31, 2025 Versus May 31, 2024

Equities net revenues were $935.3 million, up 17.7% compared to

$794.7 million for the prior year period, as stronger results in our

global electronic trading and Europe and Asia equity cash

businesses significantly increased over the prior year period.

Additionally, revenues from our prime services and equity options

businesses were also strong. These increases were partially

offset by lower revenues from our U.S. equity cash business.

Fixed Income Net Revenues

Fixed income is composed of net revenues from:

• executing transactions for clients and making markets in

securitized products, investment grade, high-yield, distressed,

emerging markets, municipal, sovereign and emerging markets

securities and loans;

• customized products and corporate hedging and foreign

currency solutions through derivative products; and

• financing and other structuring services.

Three Months Ended May 31, 2025 Versus May 31, 2024

Fixed income net revenues were $177.9 million, down 37.4%

compared to $284.2 million for the prior year quarter as a result

of a challenging market in the current quarter due to lower global

activity levels and volatility in credit spreads impacting the overall

trading environment and several businesses, including

distressed, securitized products, emerging markets and

municipals.

Six Months Ended May 31, 2025 Versus May 31, 2024

Fixed income net revenues were $467.1 million, down 26.6%

compared to $636.7 million for the prior year period as a result of

a challenging market in the current year due to lower global

activity levels and volatility in credit spreads impacting the overall

trading environment and several businesses, including

distressed, municipals, emerging markets, securitized products

and corporates.

Asset Management

We operate a diversified alternative asset management platform

offering institutional clients a range of investment strategies

directly and through our affiliated asset managers. We provide

certain of our affiliated asset managers access to our global

marketing and distribution platform, as well as operational

infrastructure and support. We often invest our own capital in the

strategies offered by us and associated third-party asset

managers in which we have an interest.

Asset management revenues include the following:

• management and performance fees from funds and accounts

managed by us;

• revenue from affiliated asset managers where we are entitled

to portions of their revenues and/or profits, as well as earnings

on our ownership interests in our affiliated asset managers;

• investment income from our capital invested in and managed

by us and our affiliated asset managers;

• investment and fund placement fees; and
• revenues from investments held in our other investments

portfolio, including consolidated operations from real estate

development activities, foreign exchange trading and

telecommunications activities.

Asset management fees and revenues are impacted by the level

of assets under management and the performance return of

those assets, for the most part on an absolute basis, and, in

certain cases, relative to a benchmark or hurdle. These

components can be affected by financial markets, profits and

losses in the applicable investment portfolios and client capital

activity. Further, asset management fees vary with the nature of

investment management services. The terms under which clients

may terminate our investment management agreements, and the

requisite notice period for such termination, vary depending on

the nature of the investment vehicle and the liquidity of the

portfolio assets. In some instances, performance fees and

similar revenues are recognized once a year, when they become

fixed and determinable and are not probable of being

significantly reversed, typically in December. As a result, a

significant portion of our performance fees and similar revenues

generated from investment returns in a calendar year are

recognized in our following fiscal year.

$ in thousands

$ in thousands

(1) These amounts include 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.

50 Jefferies Financial Group Inc.

Three Months Ended May 31, 2025 Versus May 31, 2024

Asset management fees and revenues were $20.8 million, up

23% compared to $16.8 million for the prior year quarter,

primarily driven by higher placement fees earned during the

current quarter compared to the prior year quarter.

Investment return was $50.4 million, up 53% compared to

$32.9 million for the prior year quarter due to improved returns

generated across a number of fund strategies.

Other investments net revenues were $102.6 million, down 16%

compared to $122.8 million in the prior year quarter, primarily

driven by unrealized losses on certain investment positions.

Six Months Ended May 31, 2025 Versus May 31, 2024

Asset management fees and revenues were $109.4 million, up

43% compared to $76.5 million for the prior year period, reflecting

higher performance fees on funds managed by us and through

our strategic affiliates.

Investment return was $44.8 million, compared to $150.6 million

for the prior year period, with the decrease attributable to a

challenging investment environment, primarily in the first quarter

of 2025 for a variety of strategies, particularly those with a long

equity bias.

Other investments net revenues were $228.5 million, down 2%

compared to $233.9 million for the prior year period, attributable

to net losses recognized on certain investments in the current

period compared to net gains in the prior year period, partially

offset by realized gains on property sales at HomeFed during the

current year period.

Assets Under Management

Aggregate net asset values or net asset value equivalent assets

under management:

$ in millions

(1) Revenues related to the investments made by us are presented in Investment

return within the results of our asset management businesses.

(2) Revenues from our share of fees received by affiliated asset managers are

presented in Revenue from strategic affiliates within the results of our asset

management business. November 30, 2024 includes an adjustment of

$3.0 billion.

(3) We earn asset management fees as a result of the third-party investments,

which are presented in Asset management fees and revenues within the

results of our asset management business.

Assets under management are based on the net asset value or

net asset value equivalent of a fund plus unfunded capital

commitments to the fund, the net asset value equivalents of

separately managed accounts and the fair value of any invested

capital in our consolidated funds and separately managed

accounts. Assets under management is generally based on how

fee and revenues are calculated and the measure also includes

funds and separately managed accounts for which we do not

charge fees.

Our definition of assets under management is not based on any

definition contained in any of our investment management

agreements and differs from the manner in which “Regulatory

Assets Under Management” is reported to the SEC on Form ADV.

Asset Management Investments

Our asset management business makes seed and additional

strategic investments directly in alternative asset management

separately managed accounts and co-mingled funds where we

act as the asset manager or in affiliated asset managers where

we have strategic relationships and participate in the revenues or

profits of the affiliated manager.

Investments by type of asset manager:

$ in thousands

(1) Due to the level or nature of an investment in a fund, we may consolidate that

fund; and accordingly, the assets and liabilities of the fund are included in the

representative line items in our consolidated financial statements. At May 31,

2025 and November 30, 2024 $13.0 million and $11.3 million, respectively,

represent net investments in funds that have been consolidated in our

financial statements.

(2) Where we have investments in a separately managed account, the assets and

liabilities of such account are presented in our consolidated financial

statements within each respective line item.

Other

Other revenues include foreign currency transaction gains or

losses, debt valuation adjustments on derivative contracts, gains

and losses on investments held in deferred compensation plans

or certain other corporate income items that are not attributed to

business segments as management does not consider such

amounts in assessing the financial performance of our operating

businesses.

May 2025 Form 10-Q 51

Non-interest Expenses

$ in thousands

$ in thousands

Total Non-interest Expenses

Three Months Ended May 31, 2025 Versus May 31, 2024

Non-interest expenses were $1.50 billion, an increase of 5.0%,

compared with $1.43 billion for the prior year quarter, primarily

due to an increase in certain business activity, particularly in

Equities.

Six Months Ended May 31, 2025 Versus May 31, 2024

Non-interest expenses were $2.94 billion and remained relatively

flat compared to $2.95 billion for the prior year period.

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 performance

conditions and the awards are amortized over their service

periods.

Compensation and benefits expense for the current quarter and

current year was $854.8 million and $1.70 billion, respectively,

compared to $862.0 million and $1.79 billion for the prior quarter

and prior year period, respectively. A significant portion of our

compensation expense is highly variable with net revenues.

Compensation and benefits expense as a percentage of Net

revenues was 52.3% and 52.5% for the current quarter and

current year, respectively, compared to 52.0% and 52.7% for the

prior quarter and prior year period, respectively.

Compensation expense related to the amortization of share- and

cash-based awards amounted to $149.7 million and $300.4

million for the current quarter and current year, respectively,

compared to $118.6 million and $246.7 million for the prior

quarter and prior year period, respectively.

At May 31, 2025, we had 7,671 employees globally across all of

our consolidated subsidiaries within our Investment Banking and

Capital Markets and Asset Management reportable segments, a

decrease of 151 employees from our headcount of 7,822 at

November 30, 2024. Included within our global headcount are

1,922 employees at May 31, 2025 and 2,063 employees at

November 30, 2024 of our Stratos, Tessellis, HomeFed, and M

Science subsidiaries.

Non-interest Expenses (Excluding Compensation and Benefits)

Three Months Ended May 31, 2025 Versus May 31, 2024

Non-compensation expenses as a percentage of Net revenues

was 39.4% compared to 34.2% for the current quarter and prior

year quarter, respectively, and was impacted by the following:

• Brokerage and clearing fees were higher by $19.2 million

primarily due to increased global equities trading volumes.

• Business development was higher by $11.4 million reflecting

fees paid in connection with increased investment banking

deal activity.

• Technology and communication were higher by $11.0 million

related to the continued development of various trading and

management systems.

• Other expenses were higher by $29.0 million related to bad

debt expenses and a write-down on certain assets held for

sale. Additionally, other expenses for the prior year period

includes activity from Foursight, which was sold in April 2024.

Six Months Ended May 31, 2025 Versus May 31, 2024

Non-compensation expenses as a percentage of Net revenues

was 38.6% compared to 34.1% for the current year and the prior

year period, respectively and was impacted by the following:

• Business development was higher by $26.1 million reflecting

increased investment banking and capital markets deal

activity.

• Brokerage and clearing fees were higher by $19.0 million

primarily due to increased global equities trading volumes.

• Technology and communication were higher by $12.9 million

related to the continued development of various trading and

management systems.

52 Jefferies Financial Group Inc.

• Other expenses were higher by $31.6 million and the current

year period includes $16.3 million in charitable donations,

including $9.6 million to support Los Angeles wildfire relief

efforts, as well as a $5.7 million land donation from HomeFed.

Other expenses also include a write-down on certain assets

held for sale. Other expenses for the prior year period include

bad debt expenses of $26.2 million largely related to our losses

associated with the shutdown of Weiss. In addition, the prior

year period includes activity from Foursight, which was sold in

April 2024.

Income Taxes

Three Months Ended May 31, 2025 Versus May 31, 2024

The provision for income taxes on continuing operations was

$43.5 million and $73.1 million for the three months ended

May 31, 2025 and 2024, respectively, representing an effective

tax rate of 32.3% and 32.1%, respectively.

Six Months Ended May 31, 2025 Versus May 31, 2024

The provision for income taxes on continuing operations was

$57.7 million and $129.1 million for the six months ended May

31, 2025 and 2024, respectively, representing an effective tax rate

of 20.2%, and 28.8%, respectively. The lower rate was primarily

driven by the partial resolution of certain state and local tax

matters during the first quarter of 2025.

Accounting Developments

There are no accounting standard updates, except as discussed

in Note 3, Accounting Developments in our consolidated financial

statements included in this Quarterly Report on Form 10-Q which

we have either determined are applicable or expected to have a

material impact on our consolidated financial statements.

Critical Accounting Estimates

Our consolidated financial statements are prepared in conformity

with U.S. generally accepted accounting principles (“U.S. GAAP”),

which requires management to make estimates and

assumptions that affect the amounts reported in our

consolidated financial statements and related notes. Actual

results can and may differ from estimates. These differences

could be material to our consolidated financial statements.

We believe our application of U.S. GAAP and the associated

estimates are reasonable. Our accounting estimates are

reevaluated, and adjustments are made when facts and

circumstances dictate a change. Historically, we have found our

application of accounting policies to be appropriate, and actual

results have not differed materially from those determined using

necessary estimates.

For further discussions of the following significant accounting

policies and other significant accounting policies, refer to Note 2,

Summary of Significant Accounting Policies, in our consolidated

financial statements included in Part II, Item 8 of our Annual

Report on Form 10-K for the year ended November 30, 2024.

Valuation of Financial Instruments

Financial instruments owned and Financial instruments sold, not

yet purchased are recorded at fair value. The fair value of a

financial instrument is the amount that would be received to sell

an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date (the exit

price). Unrealized gains or losses are generally recognized in

Principal transactions revenues.

Fair Value Hierarchy – In determining fair value, we maximize the

use of observable inputs and minimize the use of unobservable

inputs by requiring that observable inputs be used when

available. Observable inputs are inputs that market participants

would use in pricing the asset or liability based on market data

obtained from independent sources. Unobservable inputs reflect

our assumptions that market participants would use in pricing

the asset or liability developed based on the best information

available in the circumstances. We apply a hierarchy to

categorize our fair value measurements broken down into three

levels based on the transparency of inputs, where Level 1 uses

observable prices in active markets and Level 3 uses valuation

techniques that incorporate significant unobservable inputs.

Greater use of management judgment is required in determining

fair value when inputs are less observable or unobservable in the

marketplace, such as when the volume or level of trading activity

for a financial instrument has decreased and when certain

factors suggest that observed transactions may not be reflective

of orderly market transactions. Judgment must be applied in

determining the appropriateness of available prices, particularly

in assessing whether available data reflects current prices and/or

reflects the results of recent market transactions. Prices or

quotes are weighed when estimating fair value with greater

reliability placed on information from transactions that are

considered to be representative of orderly market transactions.

Fair value is a market-based measure; therefore, when market

observable inputs are not available, our judgment is applied to

reflect those judgments that a market participant would use in

valuing the same asset or liability. The availability of observable

inputs can vary for different products. We use prices and inputs

that are current as of the measurement date even in periods of

market disruption or illiquidity. The valuation of financial

instruments categorized within Level 3 of the fair value hierarchy

involves the greatest extent of management judgment. (Refer to

Note 2, Summary of Significant Accounting Policies, in our

consolidated financial statements included in Part II, Item 8 of

our Annual Report on Form 10-K for the year ended November 30,

2024 and Note 6, Fair Value Disclosures in our consolidated

financial statements included in this Quarterly Report on Form

10-Q for further information on the definitions of fair value, Level

1, Level 2 and Level 3 and related valuation techniques.)

For information on the composition of our Financial instruments

owned and Financial instruments sold, not yet purchased

recorded at fair value and the composition of activity of our Level

3 assets and Level 3 liabilities, refer to Note 6, Fair Value

Disclosures in our consolidated financial statements included in

this Quarterly Report on Form 10-Q.

Controls Over the Valuation Process for Financial Instruments –

Our Independent Price Verification Group, independent of the

trading function, plays an important role in determining that our

financial instruments are appropriately valued and that fair value

measurements are reliable. This is particularly important where

prices or valuations that require inputs are less observable. In the

event that observable inputs are not available, the control

processes are designed to assure that the valuation approach

utilized is appropriate and consistently applied and that the

assumptions are reasonable. Where a pricing model is used to

determine fair value, these control processes include reviews of

the pricing model’s theoretical soundness and appropriateness

by risk management personnel with relevant expertise who are

independent from the trading desks. In addition, recently

executed comparable transactions and other observable market

data are considered for purposes of validating assumptions

underlying the model.

May 2025 Form 10-Q 53

Income Taxes

Significant judgment is required in estimating our provision for

income taxes. In determining the provision for income taxes, we

must make judgments and interpretations about how to apply

inherently complex tax laws to numerous transactions and

business events. In addition, we must make estimates about the

amount, timing and geographic mix of future taxable income,

which includes various tax planning strategies to utilize tax

attributes and deferred tax assets before they expire.

We record a valuation allowance to reduce our net deferred tax

asset to the amount that is more likely than not to be realized. We

are required to consider all available evidence, both positive and

negative, and to weigh the evidence when determining whether a

valuation allowance is required and the amount of such valuation

allowance. Generally, greater weight is required to be placed on

objectively verifiable evidence when making this assessment, in

particular on recent historical operating results.

We also record reserves for unrecognized tax benefits based on

our assessment of the probability of successfully sustaining tax

filing positions. Management exercises significant judgment

when assessing the probability of successfully sustaining tax

filing positions, and in determining whether a contingent tax

liability should be recorded and if so, estimating the amount. If

our tax filing positions are successfully challenged, payments

could be required that are in excess of reserved amounts or we

may be required to reduce the carrying amount of our net

deferred tax asset, either of which could be significant to our

financial condition or results of operations.

Impairment of Equity Method Investments

We evaluate equity method investments for impairment when

operating losses or other factors may indicate a decrease in

value which is other than temporary. We consider a variety of

factors including economic conditions nationally and in an

investment’s geographic area of operation, adverse changes in

the industry in which an investment operates, declines in

business prospects, deterioration in earnings, increasing costs of

operations and other relevant factors specific to the

investee. Whenever we believe conditions or events indicate that

one of these investments might be significantly impaired, we

generally obtain from such investee updated cash flow

projections and obtain other relevant information related to

assessing the overall valuation of the investee. Utilizing this

information, we assess whether the investment is considered to

be other-than-temporarily impaired. To the extent an investment

is deemed to be other-than-temporarily impaired, an impairment

charge is recognized for the amount, if any, by which the

investment’s book value exceeds our estimate of the

investment’s fair value.

Goodwill

At May 31, 2025, goodwill of $1.84 billion represents 2.7% of total

assets. The nature and accounting for goodwill is discussed in

Note 2, Summary of Significant Accounting Policies in our

consolidated financial statements included in Part II, Item 8 of

our Annual Report on Form 10-K for the year ended November 30,

2024 and Note 13, Goodwill and Intangible Assets in our

consolidated financial statements included in this Quarterly

Report on Form 10-Q. Goodwill must be allocated to reporting

units and tested for impairment at least annually, or when

circumstances or events make it more likely than not that an

impairment occurred. Goodwill is tested by comparing the

estimated fair value of each reporting unit with its carrying value.

Our annual goodwill impairment testing date for a substantial

portion of our reporting units is August 1 and November 30 for

other identified reporting units. The results of our annual tests

did not indicate any goodwill impairment.

We use allocated tangible equity plus allocated goodwill and

intangible assets for the carrying amount of each reporting unit.

The amount of tangible equity allocated to a reporting unit is

based on our cash capital model deployed in managing our

businesses, which seeks to approximate the capital a business

would require if it were operating independently. For further

information on our Cash Capital Policy, refer to the Liquidity,

Financial Condition and Capital Resources section herein.

Intangible assets are allocated to a reporting unit based on either

specifically identifying a particular intangible asset as pertaining

to a reporting unit or, if shared among reporting units, based on

an assessment of the reporting unit’s benefit from the intangible

asset in order to generate results.

Estimating the fair value of a reporting unit requires management

judgment and often involves the use of estimates and

assumptions that could have a significant effect on whether or

not an impairment charge is recorded and the magnitude of such

a charge. Estimated fair values for our reporting units utilize

market valuation methods that incorporate price-to-earnings and

price-to-book multiples of comparable public companies and/or

projected cash flows. Under the market valuation approach, the

key assumptions are the selected multiples and our internally

developed projections of future profitability, growth and return on

equity for each reporting unit. The weight assigned to the

multiples requires judgment in qualitatively and quantitatively

evaluating the size, profitability and the nature of the business

activities of the reporting units as compared to the comparable

publicly-traded companies. The valuation methodology for our

reporting units is sensitive to management’s forecasts of future

profitability, which are a significant component of the valuation

and come with a level of uncertainty regarding trading volumes

and capital market transaction levels. In addition, as the fair

values determined under the market valuation approach

represent a noncontrolling interest, we apply a control premium

to arrive at the estimate fair value of each reporting unit on a

controlling basis.

Carrying values of goodwill by reporting unit:

$ in millions

54 Jefferies Financial Group Inc.

Liquidity, Financial Condition and Capital Resources

Our CFO and Global Treasurer are responsible for developing and

implementing our liquidity, funding and capital management

strategies. These policies are determined by the nature and

needs of our day-to-day business operations, business

opportunities, regulatory obligations, and liquidity requirements.

Our actual levels of capital, total assets and financial leverage are

a function of a number of factors, including asset composition,

business initiatives and opportunities, regulatory requirements

and cost and availability of both long term and short-term

funding. We have historically maintained a balance sheet

consisting of a large portion of our total assets in cash and liquid

marketable securities. The liquid nature of these assets provides

us with flexibility in financing and managing our business.

We also own a legacy portfolio of businesses and investments

that are reflected as consolidated subsidiaries, equity

investments or securities. Over the most recent years, we

completed several critical steps to substantially liquidate our

legacy Other investments portfolio of businesses, including the

sales of Foursight in April 2024 and the wholesale operations of

OpNet in August 2024.

In keeping with our strategy of returning excess liquidity to

shareholders, during the six months ended May 31, 2025, we

returned an aggregate of $244.7 million to shareholders primarily

in the form of $187.1 million in cash dividends and the

repurchases of 718,602 common shares for a total of $57.6

million at a weighted average price of $80.11 per share in

connection with the net share settlement for tax purposes of

stock awards under our equity compensation plans.

We maintain modest leverage to support our investment grade

ratings. The growth of our balance sheet is supported by our

equity and we have quantitative metrics in place to monitor

leverage and double leverage. Our capital plan is robust, in order

to sustain our operating model through stressed conditions. We

maintain adequate financial resources to support business

activities in both normal and stressed market conditions,

including a buffer in excess of our regulatory, or other internal or

external, requirements. Our access to funding and liquidity is

stable and efficient to ensure that there is sufficient liquidity to

meet our financial obligations in normal and stressed market

conditions.

Our Balance Sheet

A business unit level balance sheet and cash capital analysis are

prepared and reviewed with senior management on a weekly

basis. As a part of this balance sheet review process, capital is

allocated to all assets and gross balance sheet limits are

adjusted, as necessary. This process ensures that the allocation

of capital and costs of capital are incorporated into business

decisions. The goals of this process are to protect the firm’s

platform, enable our businesses to remain competitive, maintain

the ability to manage capital proactively and hold businesses

accountable for both balance sheet and capital usage.

We actively monitor and evaluate our financial condition and the

composition of our assets and liabilities. We continually monitor

our overall securities inventory, including the inventory turnover

rate, which confirms the liquidity of our overall assets. A

significant portion of our financial instruments are valued on a

daily basis and we monitor and employ balance sheet limits for

our various businesses.

$ in millions

Total assets at May 31, 2025 and November 30, 2024 were

$67.29 billion and $64.36 billion, respectively, an increase of

4.5%. During the three and six months ended May 31, 2025,

average total assets were higher by 16.7% and 16.3%,

respectively, than total assets at May 31, 2025.

Our total Financial instruments owned inventory was $25.57

billion and $24.14 billion at May 31, 2025 and November 30,

2024, respectively. During the six months ended May 31, 2025,

our total Financial instruments owned increased primarily due to

increases in municipal securities, loans at fair value and

derivative contracts, partially offset by a decrease in U.S.

government and agency securities. Financial instruments sold,

not yet purchased inventory was $11.78 billion at May 31, 2025,

an increase of 7.0% from $11.01 billion at November 30, 2024,

with the increase primarily driven by increases in sovereign

obligations and corporate debt and equity securities, partially

offset by a decrease in government and agency securities. Our

overall net inventory position was $13.80 billion and $13.13

billion at May 31, 2025 and November 30, 2024, respectively, with

the increase primarily due to increases in loans at fair value and

derivative contracts, partially offset by reductions in corporate

debt and equity securities.

Level 3 assets:

$ in millions

(1) At May 31, 2025 and November 30, 2024, $192.7 million and $218.3 million,

respectively, are attributed to Other investments within our Asset Management

reportable segment.

Securities financing assets and liabilities include financing for

our financial instruments trading activity, matched book

transactions and mortgage finance transactions. Matched book

transactions accommodate customers, as well as obtain

securities for the settlement and financing of inventory positions.

Our average month end balance of total reverse repos and stock

borrows during three and six months ended May 31, 2025 was

May 2025 Form 10-Q 55

43.8% and 31.4% higher, respectively, than the balance at May 31,

2025. Our average month end balance of total repos and stock

loans during three and six months ended May 31, 2025 was

33.8% and 40.6% higher, respectively, than the balance at May 31,

Select information related to repurchase agreements:

$ in millions

Fluctuations in the balance of our repurchase agreements from

period to period and intraperiod are dependent on business

activity in those periods. Additionally, the fluctuations in the

balances of our securities purchased under agreements to resell

are influenced in any given period by our clients’ balances and

our clients’ desires to execute collateralized financing

arrangements via the repurchase market or via other financing

products. Average balances and period end balances will

fluctuate based on market and liquidity conditions and we

consider the fluctuations intraperiod to be typical for the

repurchase market.

Leverage Ratios:

$ in millions

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

(2) Tangible gross leverage ratio (a non-GAAP financial measure) equals total

assets less goodwill and identifiable intangible assets, net divided by tangible

shareholders’ equity. The tangible gross leverage ratio is used by rating

agencies in assessing our leverage ratio.

Liquidity Management

The key objectives of the liquidity management framework are to

support the successful execution of our business strategies

while ensuring sufficient liquidity through the business cycle and

during periods of financial and idiosyncratic distress. Our liquidity

management policies are designed to mitigate the potential risk

that we may be unable to access adequate financing to service

our financial obligations without material franchise or business

impact.

The principal elements of our liquidity management framework

are our Cash Capital Policy, our assessment of Modeled Liquidity

Outflow (“MLO”) and our Contingency Funding Plan (“CFP”).

Liquidity Management Framework. Our Liquidity Management

Framework is based on a model of a potential liquidity

contraction over a one-year time period. This incorporates

potential cash outflows during a market or our idiosyncratic

liquidity stress event, including, but not limited to, the following:

• Repayment of all unsecured debt maturing within one year and

no incremental unsecured debt issuance;

• Maturity rolloff of outstanding letters of credit with no further

issuance and replacement with cash collateral;

• Higher margin requirements than currently exist on assets on

securities financing activity, including repurchase agreements

and other secured funding including central counterparty

clearinghouses;

• Liquidity outflows related to possible credit downgrade;
• Lower availability of secured funding;
• Client cash withdrawals;
• The anticipated funding of outstanding investment and loan

commitments; and

• Certain accrued expenses and other liabilities and fixed costs.

Cash Capital Policy. We maintain a cash capital model that

measures long-term funding sources against requirements.

Sources of cash capital include our equity, mezzanine equity and

the noncurrent portion of long-term borrowings. Uses of cash

capital include the following:

• Illiquid assets such as equipment, goodwill, net intangible

assets, exchange memberships, deferred tax assets and

certain investments;

• A portion of securities inventory and other assets not expected

to be financed on a secured basis in a credit stressed

environment (i.e., margin requirements); and

• Drawdowns of unfunded commitments.

To ensure that we do not need to liquidate inventory in the event

of a funding stress, we seek to maintain surplus cash capital. Our

total long-term capital of $21.76 billion at May 31, 2025 exceeded

our cash capital requirements.

MLO. Our businesses are diverse, and our liquidity needs are

determined by many factors, including market movements,

collateral requirements and client commitments, all of which can

change dramatically in a difficult funding environment. During a

liquidity stress, credit-sensitive funding, including unsecured debt

and some types of secured financing agreements, may be

unavailable, and the terms (e.g., interest rates, collateral

provisions and tenor) or availability of other types of secured

financing may change. As a result of our policy to ensure we have

sufficient funds to cover what we estimate may be needed in a

liquidity stress, we hold more cash and unencumbered securities

and have greater long-term debt balances than our businesses

would otherwise require. As part of this estimation process, we

calculate an MLO that could be experienced in a liquidity stress.

MLO is based on a scenario that includes both a market-wide

stress and firm-specific stress, characterized by some or all of

the following elements:

• Global recession, default by a medium-sized sovereign, low

consumer and corporate confidence, and general financial

instability.

• Severely challenged market environment with material declines

in equity markets and widening of credit spreads.

• Damaging follow-on impacts to financial institutions leading to

the failure of a large bank.

• A firm-specific crisis potentially triggered by material losses,

reputational damage, litigation, executive departure, and/or a

ratings downgrade.

56 Jefferies Financial Group Inc.

The following are the critical modeling parameters of the MLO:

• Liquidity needs over a 30-day scenario.
• A two-notch downgrade of our long-term senior unsecured

credit ratings.

• No support from government funding facilities.
• A combination of contractual outflows, such as upcoming

maturities of unsecured debt, and contingent outflows (e.g.,

actions though not contractually required, we may deem

necessary in a crisis). We assume that most contingent

outflows will occur within the initial days and weeks of a

stress.

• No diversification benefit across liquidity risks. We assume

that liquidity risks are additive.

The calculation of our MLO under the above stresses and

modeling parameters considers the following potential

contractual and contingent cash and collateral outflows:

• All upcoming maturities of unsecured long-term debt,

promissory notes and other unsecured funding products

assuming we will be unable to issue new unsecured debt or

rollover any maturing debt.

• Repurchases of our outstanding long-term debt in the ordinary

course of business as a market maker.

• A portion of upcoming contractual maturities of secured

funding activity due to either the inability to refinance or the

ability to refinance only at wider haircuts (i.e., on terms which

require us to post additional collateral). Our assumptions

reflect, among other factors, the quality of the underlying

collateral and counterparty concentration.

• Collateral postings to counterparties due to adverse changes in

the value of our over-the-counter (“OTC”) derivatives and other

outflows due to trade terminations, collateral substitutions,

collateral disputes, collateral calls or termination payments

required by a two-notch downgrade in our credit ratings.

• Variation margin postings required due to adverse changes in

the value of our outstanding exchange-traded derivatives and

any increase in initial margin and guarantee fund requirements

by derivative clearing houses.

• Liquidity outflows associated with our prime services business,

including withdrawals of customer credit balances, and a

reduction in customer short positions.

• Liquidity outflows to clearing banks to ensure timely

settlements of cash and securities transactions.

• Draws on our unfunded commitments considering, among

other things, the type of commitment and counterparty.

• Other upcoming large cash outflows, such as employee

compensation, tax and dividend payments, with no expectation

of future dividends from any subsidiaries.

Based on the sources and uses of liquidity calculated under the

MLO scenarios, we determine, based on a calculated surplus or

deficit, additional long-term funding that may be needed versus

funding through the repurchase financing market and consider

any adjustments that may be necessary to our inventory balances

and cash holdings. At May 31, 2025, we had sufficient excess

liquidity to meet all contingent cash outflows detailed in the MLO

for at least 30 days without balance sheet reduction. We regularly

refine our model to reflect changes in market or economic

conditions and our business mix.

CFP. Our CFP ensures the ability to access adequate liquid

financial resources to meet liquidity shortfalls that may arise in

emergency situations. The CFP triggers the following actions:

• Sets out the governance for managing liquidity during a

liquidity crisis;

• Identifies key liquidity and capital early warning indicators that

will help guide the response to the liquidity crisis;

• Identifies the actions and escalation procedures should we

experience a liquidity crisis including coordination amongst

senior management and the Board of Directors;

• Sets out the sources of funding available during a liquidity

crisis;

• Sets out the communication plan during a liquidity crisis for

key external stakeholders including regulators, relationship

banks, rating agencies and funding counterparties; and

• Sets out an action plan to source additional funding.

Sources of Liquidity

Financial instruments that are cash and cash equivalents or are

deemed by management to be generally readily convertible into

cash, marginable or accessible for liquidity purposes within a

relatively short period of time:

$ in thousands

(1) Average balances are calculated based on weekly balances.

(2) At May 31, 2025 and November 30, 2024, $6.76 billion and $8.21 billion,

respectively, was invested in U.S. government money funds that invest

primarily in cash, securities issued by the U.S. government and U.S.

government-sponsored entities, and repurchase agreements that are fully

collateralized by cash or government securities. The remaining balances at

May 31, 2025 and November 30, 2024 are primarily invested in AAA-rated

prime money funds. The average balance of U.S. government money funds for

the quarter ended May 31, 2025 was $4.32 billion.

(3) Consists of high-quality sovereign government securities and reverse

repurchase agreements collateralized by U.S. government securities and other

high quality sovereign government securities; deposits with a central bank

within the European Economic Area, United Kingdom, Canada, Australia,

Japan, Switzerland or the U.S.; and securities issued by a designated

multilateral development bank and reverse repurchase agreements with

underlying collateral composed of these securities.

(4) Other includes unencumbered inventory representing an estimate of the

amount of additional secured financing that could be reasonably expected to

be obtained from our Financial instruments owned that are currently not

pledged after considering reasonable financing haircuts.

May 2025 Form 10-Q 57

In addition to the cash balances and liquidity pool presented

above, the majority of financial instruments (both long and short)

in our trading accounts are actively traded and readily

marketable. At May 31, 2025, we had the ability to readily obtain

repurchase financing for 72.0% of our inventory at haircuts of

10% or less, which reflects the liquidity of our inventory. In

addition, as a matter of our policy, all of these assets have

internal capital assessed, which is in addition to the funding

haircuts provided in the securities finance markets. Additionally,

certain of our Financial instruments owned primarily consisting

of loans and investments are predominantly funded by long term

capital. Under our cash capital policy, we model capital allocation

levels that are more stringent than the haircuts used in the

market for secured funding; and we maintain surplus capital at

these more stringent levels. We continually assess the liquidity of

our inventory based on the level at which we could obtain

financing in the marketplace for a given asset. Assets are

considered to be liquid if financing can be obtained in the

repurchase market or the securities lending market at collateral

haircut levels of 10% or less.

Financial instruments by asset class that we consider to be of a

liquid nature and the amount of such assets that have not been

pledged as collateral:

$ in thousands

(1) Consists solely of agency mortgage-backed securities issued by the Federal

Home Loan Mortgage Corporation (“Freddie Mac”), the Federal National

Mortgage Association (“Fannie Mae”) and the Government National Mortgage

Association (“Ginnie Mae”).

(2) Unencumbered liquid balances represent assets that can be sold or used as

collateral for a loan but have not been.

In addition to being able to be readily financed at reasonable

haircut levels, we estimate that each of the individual securities

within each asset class above could be sold into the market and

converted into cash within three business days under normal

market conditions, assuming that the entire portfolio of a given

asset class was not simultaneously liquidated. There are no

restrictions on the unencumbered liquid securities, nor have they

been pledged as collateral.

Sources of Funding and Capital Resources

Our assets are funded by equity capital, senior debt, securities

loaned, securities sold under agreements to repurchase,

customer free credit balances, bank loans and other payables.

Secured Financing

We rely principally on readily available secured funding to finance

our inventory of financial instruments owned and financial

instruments sold. Our ability to support increases in total assets

is largely a function of our ability to obtain short- and

intermediate-term secured funding, primarily through securities

financing transactions. We finance a portion of our long inventory

and cover some of our short inventory by pledging and borrowing

securities in the form of repurchase or reverse repurchase

agreements (collectively “repos”), respectively. During the six

months ended May 31, 2025, an average of approximately 53.9%

of our cash and noncash repurchase financing activities used

collateral that was considered eligible collateral by central

clearing corporations. Central clearing corporations are situated

between participating members who borrow cash and lend

securities (or vice versa); accordingly, repo participants contract

with the central clearing corporation and not one another

individually. Therefore, counterparty credit risk is borne by the

central clearing corporation which mitigates the risk through

initial margin demands and variation margin calls from repo

participants. The comparatively large proportion of our total repo

activity that is eligible for central clearing reflects the high quality

and liquid composition of the inventory we carry in our trading

books. For those asset classes not eligible for central clearing

house financing, we seek to execute our bi-lateral financings on

an extended term basis and the tenor of our repurchase and

reverse repurchase agreements generally exceeds the expected

holding period of the assets we are financing. The weighted

average maturity of cash and noncash repurchase agreements

for non-clearing corporation eligible funded inventory is

approximately six months at May 31, 2025.

Our ability to finance our inventory via central clearinghouses and

bi-lateral arrangements is augmented by our ability to draw bank

loans on an uncommitted basis under our various banking

arrangements. At May 31, 2025, short-term borrowings, which

must be repaid within one year or less include bank loans,

overdrafts and borrowings under revolving credit facilities.

Letters of credit are used in the normal course of business

mostly to satisfy various collateral requirements in favor of

exchanges in lieu of depositing cash or securities. Average daily

short-term borrowings outstanding were $1.33 billion and

$1.04 billion for the three and six months ended May 31, 2025,

respectively.

At May 31, 2025 and November 30, 2024, our borrowings under

bank loans in Short-term borrowings were $610.1 million and

$414.5 million, respectively. Our borrowings include credit

facilities that contain certain covenants that, among other things,

require us to maintain a specified level of tangible net worth,

require a minimum regulatory net capital requirement for our U.S.

broker-dealer, Jefferies LLC, and impose certain restrictions on

the future indebtedness of certain of our subsidiaries that are

borrowers. Interest is based on rates at spreads over the federal

funds rate or other adjusted rates, as defined in the various credit

agreements, or at a rate as agreed between the bank and us in

reference to the bank’s cost of funding. At May 31, 2025, we were

in compliance with all covenants under these credit facilities.

In addition to the above financing arrangements, we issue notes

backed by eligible collateral under master repurchase

agreements, which provides an additional financing source for

our inventory (our “repurchase agreement financing program”).

The notes issued under the program are presented within Other

secured financings. At May 31, 2025, the outstanding notes

totaled $2.61 billion, bear interest at a spread over the Secured

Overnight Funding Rate (“SOFR”) or the Euro Short-Term Rate

(“ESTER”) and mature from June 2025 to October 2028.

Total Long-Term Capital

At May 31, 2025 and November 30, 2024, we had total long-term

capital of $21.76 billion and $21.66 billion, respectively, resulting

in a long-term debt to equity capital ratio of 1.10:1 and 1.12:1,

respectively.

58 Jefferies Financial Group Inc.

$ in thousands

(1) The amounts at May 31, 2025 and November 30, 2024 exclude our secured

long-term debt. The amount at November 30, 2024 excludes $8.5 million of

our 5.500% Callable Note as the note matured on February 22, 2025,

$5.4 million of our 6.000% Callable Note as the note matures on June 16,

2025, $6.2 million of our 4.500% Callable Note as the note matures on July 22,

2025, and $500.0 million of our 5.100% Callable Note as the note matures on

September 15, 2025. The amount at May 31, 2025 excludes $6.2 million,

$449.5 million, and 850.3 million of our Callable Notes as the notes mature on

July 22, 2025, March 16, 2026, and April 16, 2026, respectively, and

$350 million of our SMBC Revolver as the revolver matures on November 17,

2025. The amounts at May 31, 2025 and November 30, 2024 also exclude

$162.8 million and $157.6 million, respectively, of structured notes as the

notes mature within one year.

Long-Term Debt

During the six months ended May 31, 2025, long-term debt

increased by $1.82 billion to $15.35 billion at May 31, 2025, as

presented in our Consolidated Statements of Financial Condition.

This increase is primarily due to proceeds of $350.0 million from

the drawdown of an unsecured credit facility, $874.5 million from

the issuances of unsecured senior notes, $438.1 million from net

issuances of structured notes, $690.0 million from increased

subsidiaries’ borrowings, and $237.2 million from currency

losses on foreign currency borrowings. These increases were

partially offset by repayments of $666.9 million on our unsecured

senior notes and $116.9 million of valuation gains on our

structured notes.

At May 31, 2025, our unsecured long-term debt has a weighted

average maturity of approximately 7.3 years.

At May 31, 2025 and November 30, 2024, our borrowings under

several credit facilities classified within Long-term debt in our

Consolidated Statements of Financial Condition amounted to

$1.20 billion and $775.3 million, respectively. Interest on these

credit facilities is based on an adjusted SOFR plus a spread or

other adjusted rates, as defined in the various credit agreements.

The credit facility agreements contain certain covenants that,

among other things, require us to maintain specified levels of

tangible net worth and liquidity amounts, certain credit and rating

levels and impose certain restrictions on future indebtedness of

and require specified levels of regulated capital and cash

reserves for certain of our subsidiaries. At May 31, 2025, we were

in compliance with all covenants under theses credit facilities.

Long-term debt ratings:

Access to external financing to finance our day-to-day operations,

as well as the cost of that financing, is dependent upon various

factors, including our debt ratings. Our current debt ratings are

dependent upon many factors, including industry dynamics,

operating and economic environment, operating results,

operating margins, earnings trend and volatility, balance sheet

composition, liquidity and liquidity management, our capital

structure, our overall risk management, business diversification

and our market share and competitive position in the markets in

which we operate. Deterioration in any of these factors could

impact our credit ratings. While certain aspects of a credit rating

downgrade are quantifiable pursuant to contractual provisions,

the impact on our business and trading results in future periods

is inherently uncertain and depends on a number of factors,

including the magnitude of the downgrade, the behavior of

individual clients and future mitigating action taken by us.

In connection with certain over-the-counter derivative contract

arrangements and certain other trading arrangements, we may be

required to provide additional collateral to counterparties,

exchanges and clearing organizations in the event of a credit

rating downgrade. At May 31, 2025, the amount of additional

collateral that could be called by counterparties, exchanges and

clearing organizations under the terms of such agreements in the

event of a downgrade of our long-term credit rating below

investment grade was $208.9 million. For certain foreign clearing

organizations, credit rating is only one of several factors

employed in determining collateral that could be called. The

above represents management’s best estimate for additional

collateral to be called in the event of a credit rating downgrade.

The impact of additional collateral requirements is considered in

our CFP and calculation of MLO, as described above.

Equity Capital

Common Stock

At May 31, 2025 and November 30, 2024, we had 565,000,000

authorized shares of voting common stock with a par value of

$1.00 per share and had 206,271,769 and 205,504,272 common

shares outstanding, respectively. At May 31, 2025, we had

14,099,321 share-based awards that do not require the holder to

pay any exercise price and 5,064,740 stock options that require

the holder to pay a weighted average exercise price of $22.69 per

share.

The Board of Directors has authorized the repurchase of

common stock up to $250.0 million under a share repurchase

program. We did not purchase any shares under our share

repurchase program during the six months ended May 31, 2025.

Treasury stock repurchases during the six months ended May 31,

2025 represent repurchases of common stock for net-share tax

withholding under our equity compensation plan.

Dividends

Six Months Ended May 31, 2025

On January 8, 2025, the Board of Directors increased our

quarterly dividend from $0.35 to $0.40 per common share. On

June 25, 2025, the Board of Directors declared a dividend of

$0.40 per common share to be paid on August 29, 2025 to

common shareholders of record at August 18, 2025

May 2025 Form 10-Q 59

The payment of dividends is subject to the discretion of our

Board of Directors and depends upon general business

conditions and other factors that our Board of Directors may

deem to be relevant.

Non-Voting Common Stock

On June 28, 2023, shareholders approved an Amended and

Restated Certificate of Incorporation, which authorized the

issuance of 35,000,000 shares of non-voting common stock with

a par value of $1.00 per share (the “Non-Voting Common

Shares”). The Non-Voting Common Shares are entitled to share

equally, on a per share basis, with the voting common stock, in

dividends and distributions. Upon the effectiveness of the

Amended and Restated Certificate of Corporation on June 30,

2023, the number of authorized shares of common stock

remains at 600,000,000 shares, composed of 565,000,000 shares

of voting common stock and 35,000,000 shares of Non-Voting

Common Shares.

Series B Preferred Stock

On April 27, 2023, we established Series B Non-Voting

Convertible Preferred Shares with a par value of $1.00 per share

(“Series B Preferred Stock”) and designated 70,000 shares as

Series B Preferred Stock. The Series B Preferred Stock has a

liquidation preference of $17,500 per share and rank senior to our

voting common stock upon dissolution, liquidation or winding up

of Jefferies Financial Group Inc. Each share of Series B Preferred

Stock is automatically convertible into 500 shares of non-voting

common stock, subject to certain anti-dilution adjustments, three

years after issuance. The Series B Preferred Stock participates in

cash dividends and distributions alongside our voting common

stock on an as-converted basis.

Additionally, on April 27, 2023, we entered into an Exchange

Agreement with Sumitomo Mitsui Banking Corporation (“SMBC”),

which entitles SMBC to exchange shares of our voting common

stock for shares of the Series B Preferred Stock at a rate of 500

shares of voting common stock for one share of Series B

Preferred Stock. The Exchange Agreement is limited to 55,125

shares of Preferred Stock and SMBC is required to pay $1.50 per

share of voting common stock so exchanged. As of November

30, 2024, SMBC had cumulatively exchanged approximately 27.6

million shares of voting common stock for 55,125 shares of

Series B Preferred Stock. Following this exchange, SMBC

increased its ownership of our common stock on an as-converted

basis and fully-diluted, as-converted basis. As a result, the CEO of

Sumitomo Mitsui Financial Group, Inc. was elected and now

serves on our Board of Directors. On September 19, 2024, SMBC

purchased 9.2 million shares of our common stock. At May 31,

2025, SMBC owns approximately 15.7% of our common stock on

an as-converted basis and 14.5% on a fully-diluted, as-converted

basis. Refer to Note 22, Related Party Transactions for further

information regarding transactions with SMBC.

During the three and six months ended May 31, 2025, we paid

cash dividends of $11.0 million and $22.1 million, respectively,

compared to $6.3 million and $12.6 million for the three and six

months ended May 31, 2024, respectively, to the Series B

Preferred stockholder.

Net Capital

Jefferies LLC is a broker-dealer registered with the SEC and a

member firm of the Financial Industry Regulatory Authority

(“FINRA”) and is subject to the SEC Uniform Net Capital Rule

(“Rule 15c3-1”), which requires the maintenance of minimum net

capital, and has elected to calculate minimum capital

requirements using the alternative method permitted by Rule

15c3-1 in calculating net capital. Jefferies LLC, as a dually-

registered U.S. broker-dealer and futures commission merchant

(“FCM”), is also subject to Regulation 1.17 of the Commodity

Futures Trading Commission (“CFTC”) under the Commodity

Exchange Act (“CEA”), which sets forth minimum financial

requirements. The minimum net capital requirement in

determining excess net capital for a dually registered U.S. broker-

dealer and FCM is equal to the greater of the requirement under

SEA Rule 15c3-1 or CFTC Regulation 1.17. Accordingly, FINRA is

the designated examining authority for Jefferies LLC and the

National Futures Association (“NFA”) is the designated self-

regulatory organization (“DSRO”) for Jefferies LLC as an FCM

Jefferies Financial Services, Inc. (“JFSI”) is registered with the

SEC as a Security-Based Swap Dealer (“SBS Dealer”) and an OTC

Derivatives Dealer (“OTCDD”) subject to the SEC’s SBS dealer

regulatory rules and the SEC’s net capital requirements pursuant

to Rule 18a-1. JFSI is also registered as a swap dealer with the

CFTC and is subject to the CFTC’s regulatory capital

requirements pursuant to the minimum financial requirements for

swap dealers under CFTC Regulation 23.101. Additionally, as a

registered member firm, JFSI is subject to the net capital

requirements of the NFA. Accordingly, the SEC is the designated

examining authority for JFSI in its capacity as an SBS Dealer and

OTCDD, while the NFA is the DSRO for JFSI, as a CFTC registered

swap dealer.

Certain non-U.S. subsidiaries are subject to capital adequacy

requirements as prescribed by the regulatory authorities in their

respective jurisdictions. This includes Jefferies International

Limited which is subject to the regulatory supervision and

requirements of the Financial Conduct Authority (“FCA”) in the

U.K. Jefferies International Limited’s’ own funds requirement

represents the highest of the permanent minimum capital

requirement, fixed overheads requirement and k-factor

requirements set out in the Investment Firms Prudential Regime

(“IFPR”) under the FCA’s MIFIDPRU sourcebook.

At May 31, 2025, Jefferies LLC’s and JFSI’s net capital and

excess net capital were as follows (in thousands):

$ in thousands

In addition, the equivalent capital requirements for Jefferies

International Limited, on a consolidated basis, is a total capital of

$1.94 billion and an excess capital of $1.11 billion at May 31,

At May 31, 2025, Jefferies LLC, JFSI and JIL are in compliance

with their applicable requirements.

The regulatory capital requirements referred to above may

restrict our ability to withdraw capital from our regulated

subsidiaries.

Customer Protection and Segregation Requirement

As a registered broker dealer that clears and carries customer

accounts, Jefferies LLC is subject to the customer protection

provisions under SEC Rule 15c3-3 and is required to compute a

reserve formula requirement for customer accounts and deposit

cash or qualified securities into a special reserve bank account

for the exclusive benefit of customers. At May 31, 2025, Jefferies

LLC had $164.3 million in cash and qualified U.S. Government

securities on deposit in special reserve bank accounts for the

exclusive benefit of customers.

60 Jefferies Financial Group Inc.

As a registered broker dealer that clears and carries proprietary

accounts of brokers or dealers (commonly referred to as “PAB”),

Jefferies LLC is also required to compute a reserve requirement

for PABs pursuant to SEC Rule 15c3-3. At May 31, 2025, Jefferies

LLC had $317.1 million in cash and qualified U.S. Government

securities in special reserve bank accounts for the exclusive

benefit of PABs.

Other Developments

In February 2022, Russia invaded Ukraine. Following Russia’s

invasion, the U.S., the U.K., and the European Union governments,

among others, developed coordinated financial and economic

sanctions targeting Russia that, in various ways, constrain

transactions with numerous Russian entities, including major

Russian banks and individuals; transactions in Russian sovereign

debt; and investment, trade and financing to, from, or in Ukraine.

We do not have any operations in Russia or any clients with

significant Russian operations and we have minimal market risk

related to securities of companies either domiciled or operating

in Russia. We continue to closely monitor the status of global

sanctions and restrictions, trading conditions related to Russian

securities and the credit risk and nature of our counterparties.

In October 2023, Hamas attacked Israel, leading to a multifront

military conflict in the Middle East that has most recently

involved actions by Iran, Israel and the United States. Our

investments and assets in our growing Israeli business, as well

as the global macroeconomic climate, could be negatively

affected by consequences from this geopolitical and military

conflict in the region. We continue to closely monitor the status

of global sanctions, restrictions and other impacts arising from

the conflict.

In the second quarter of 2025, the United States introduced

actions to increase import tariffs at various rates, including on

certain products imported from almost all countries. Other

countries have responded with retaliatory actions or plans for

retaliatory actions. Some of these tariff announcements have

since been followed by announcements of limited exemptions

and temporary pauses. These actions have led to heightened

market volatility and increased economic uncertainty, and could

negatively impact global supply chains and trade flow. The

potential impact of tariffs on corporate earnings remains

uncertain, and will depend on the duration and outcome of

ongoing related trade negotiations. We continue to closely

monitor the impact on our business.

Off-Balance Sheet Arrangements

We have contractual commitments arising in the ordinary course

of business for securities loaned or purchased under agreements

to resell, repurchase agreements, future purchases and sales of

foreign currencies, securities transactions on a when-issued

basis, purchases and sales of corporate loans in the secondary

market and underwriting. Each of these financial instruments and

activities contains varying degrees of off-balance sheet risk

whereby the fair values of the securities underlying the financial

instruments may be in excess of, or less than, the contract

amount. The settlement of these transactions is not expected to

have a material effect upon our consolidated financial

statements.

In the normal course of business, we engage in other off balance-

sheet arrangements, including derivative contracts. Neither

derivatives’ notional amounts nor underlying instrument values

are reflected as assets or liabilities in our Consolidated

Statements of Financial Condition. Rather, the fair values of

derivative contracts are reported in our Consolidated Statements

of Financial Condition as Financial instruments owned or

Financial instruments sold, not yet purchased as applicable.

Derivative contracts are reflected net of cash paid or received

pursuant to credit support agreements and are reported on a net

by counterparty basis when a legal right of offset exists under an

enforceable master netting agreement. For additional information

about our accounting policies and our derivative activities, refer

to Note 2, Summary of Significant Accounting Policies, in our

consolidated financial statements included in Part II, Item 8 of

our Annual Report on Form 10-K for the year ended November 30,

2024 and Note 6, Fair Value Disclosures and Note 7, Derivative

Financial Instruments in our consolidated financial statements

included in this Quarterly Report on Form 10-Q.

May 2025 Form 10-Q 61

Risk Management

Overview

Risk is an inherent part of our business and activities. The extent

to which we properly and effectively identify, assess, monitor and

manage each of the various types of risk involved in our activities

is critical to our financial soundness, viability and profitability.

Accordingly, we have a comprehensive risk management

approach, with a formal governance structure and policies and

procedures outlining frameworks and processes to identify,

assess, monitor and manage risk. Principal risks involved in our

business activities include market, credit, liquidity and capital,

operational, model and strategic risk. Legal and compliance, new

business and reputational risk are also included within our

principal risks.

Risk management is a multifaceted process that requires

communication, judgment and knowledge of financial products

and markets. Our risk management process encompasses the

active involvement of executive and senior management, and

also many departments independent of the revenue-producing

business units, including Risk Management, Operations,

Information Technology, Compliance, Legal and Finance. Our risk

management policies, procedures and methodologies are flexible

in nature and are subject to ongoing review and modification.

In achieving our strategic business objectives, our risk appetite

incorporates keeping our clients’ interests as top priority and

ensuring we are in compliance with applicable laws, rules and

regulations, as well as adhering to the highest ethical standards.

We undertake prudent risk-taking that protects the capital base

and franchise, utilizing risk limits and tolerances that avoid

outsized risk-taking. We maintain a diversified business mix and

avoid significant concentrations to any sector, product,

geography or activity and set quantitative concentration limits to

manage this risk. We consider contagion, second order effects

and correlation in our risk assessment process and actively seek

out value opportunities of all sizes. We manage the risk of

opportunities larger than our approved risk levels through risk

sharing and risk distribution, sell-down and hedging as

appropriate. We have a limited appetite for illiquid assets and

complex derivative financial instruments. We maintain the asset

quality of our balance sheet through conducting trading activity in

liquid markets and generally ensure high turnover of our

inventory. We subject less liquid positions and derivative financial

instruments to particular scrutiny and use a wide variety of

specific metrics, limits and constraints to manage these risks.

We protect our reputation and franchise, as well as our standing

within the market. We operate a federated approach to risk

management and assign risk oversight responsibilities to a

number of functions with specific areas of focus.

For discussion of liquidity and capital risk management, refer to

the “Liquidity, Financial Condition and Capital Resources” section

herein.

Governance and Risk Management Structure

For a discussion of our governance and risk management

structure and our risk management framework, see

“Management’s Discussion and Analysis of Financial Condition

and Results of Operations—Risk Management” in Part II, Item 7 of

our Annual Report on Form 10-K for the year ended November 30,

Risk Considerations

We apply a comprehensive framework of limits on a variety of

key metrics to constrain the risk profile of our business activities.

The size of the limits reflects our risk appetite for a certain

activity under normal business conditions. Key metrics included

in our risk management framework include inventory position

and exposure limits on a gross and net basis, scenario analysis

and stress tests, Value-at-Risk (“VaR”), sensitivities, exposure

concentrations, aged inventory, Level 3 assets, counterparty

exposure, leverage and cash capital.

Market Risk

Market risk is defined as the risk of loss due to fluctuations in the

market value of financial assets and liabilities attributable to

changes in market variables.

Our market risk principally arises from interest rate risk, from

exposure to changes in the yield curve, the volatility of interest

rates, and credit spreads, and from equity price risks from

exposure to changes in prices and volatilities of individual

equities, equity baskets and equity indices. In addition,

commodity price risk results from exposure to the changes in

prices and volatilities of individual commodities, commodity

baskets and commodity indices, and foreign exchange risk

results from changes in foreign currency rates.

Market risk is present in our capital markets business through

market making, proprietary trading, underwriting and investing

activities and is present in our asset management business

through investments in separately managed accounts and direct

investments in funds. Given our involvement in a broad set of

financial products and markets, market risk exposures are

diversified and economic hedges are established as appropriate.

Market risk is monitored and managed through a set of key risk

metrics such as VaR, stress scenarios, risk sensitivities and

position exposures. Limits are set on the key risk metrics to

monitor and control the risk exposure ensuring that it is in line

with our risk appetite. Our risk appetite, including the market risk

limits, is periodically reviewed to reflect business strategy and

market environment. Material risk changes, top/emerging risks

and limit utilizations/breaches are highlighted through risk

reporting and escalated as necessary.

Trading is principally managed through front office trader

mandates, where each trader is provided a specific mandate in

line with our product registry. Mandates set out the activities,

currencies, countries and products that a desk is permitted to

trade in and set the limits applicable to a desk. Traders are

responsible for knowing their trading limits and trading in a

manner consistent with their mandate.

VaR

VaR is a statistical estimate of the potential loss from adverse

market movements over a specified time horizon within a

specified probability (confidence level). It provides a common

risk measure across financial instruments, markets and asset

classes. We estimate VaR using a model that simulates revenue

and loss distributions by applying historical market changes to

the current portfolio. We calculate a one-day VaR using a one-

year look-back period measured at a 95% confidence level.

62 Jefferies Financial Group Inc.

$ in millions

$ in millions

(1) The diversification effect is not applicable for the maximum and minimum

VaR values as the firmwide VaR and the VaR values for the four risk categories

might have occurred on different days during the period.

(2) The aggregated VaR presented here is less than the sum of the individual

components (i.e., interest rate risk, foreign exchange rate risk, equity risk and

commodity price risk) due to the benefit of diversification among the four risk

categories. Diversification benefit equals the difference between aggregated

VaR and the sum of VaRs for the four risk categories and arises because the

market risk categories are not perfectly correlated.

VaR for our capital markets trading activities, which excludes the

impact on VaR for each component of market risk from our asset

management activities, by interest rate and credit spreads, equity,

currency and commodity products:

$ in millions

$ in millions

(1) The diversification effect is not applicable for the maximum and minimum

VaR values as the capital markets VaR and the VaR values for the four risk

categories might have occurred on different days during the period.

(2) The aggregated VaR presented here is less than the sum of the individual

components (i.e., interest rate risk, foreign exchange rate risk, equity risk and

commodity price risk) due to the benefit of diversification among the four risk

categories. Diversification benefit equals the difference between aggregated

VaR and the sum of VaRs for the four risk categories and arises because the

market risk categories are not perfectly correlated.

May 2025 Form 10-Q 63

Our average daily firmwide VaR decreased to $11.89 million for the three months ended May 31, 2025 from $13.13 million for the three

months ended February 28, 2025, primarily driven by a higher diversification effect, partially offset by increases in exposure to

movements in interest rates, credit spreads and currency rates. The average daily capital markets VaR decreased to $8.32 million for

the three months ended May 31, 2025, from $8.82 million for the three months ended February 28, 2025, primarily driven by a higher

diversification effect, partially offset by increases in exposure to movements in interest rates, credit spreads and currency rates.

The efficacy of the VaR model is tested by comparing our actual daily net revenues for those positions included in the calculation of

VaR with the daily VaR estimate. This evaluation is performed at various levels, from the overall level down to specific business lines.

For the VaR model, revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization

activities and net interest income. VaR backtesting methodologies differ for regulated entities with approved capital models.

For a 95% confidence one day VaR model (i.e., no intra-day trading), assuming current changes in market value are consistent with the

historical changes used in the calculation, losses would not be expected to exceed the VaR estimates more than twelve times on an

annual basis (i.e., once in every 20 days). During the three months ended May 31, 2025, there were two days when the aggregate net

trading loss exceeded the 95% one day VaR.

The chart below presents our daily firmwide and capital markets VaR over the last four quarters. The fluctuations in VaR during the first

and second quarters of 2025 were primarily driven by volatility in the equity markets.

Daily Net Trading Revenue

There were 13 days with firmwide trading losses out of a total of 63 trading days during the three months ended May 31, 2025. The

histogram below presents the distribution of our actual daily net trading revenue for substantially all of our trading activities:

64 Jefferies Financial Group Inc.

Other Risk Measures

The VaR model does not include certain positions that are best measured and monitored using sensitivity analysis. Risk Management

has additional procedures in place to assure that the level of potential loss driven by those positions not in the VaR model arising from

market movements are within acceptable levels. Such procedures include performing stress tests and profit and loss analysis. The

table below presents the potential reduction in earnings associated with a 10% stress of the fair value of the positions that are not

included in the VaR model at May 31, 2025:

$ in thousands

(1) Includes investments in hedge funds, fund of funds and private equity funds classified within Level 3 of the fair value hierarchy and excluded from

the fair value hierarchy based on net asset value.

The impact of changes in our own credit spreads on our structured notes for which the fair value option was elected is not included in

VaR. The estimated credit spread risk sensitivity for each one basis point widening in our own credit spreads on financial liabilities for

which the fair value option was elected was an increase in value of approximately $1.6 million at May 31, 2025, which is included in

other comprehensive income.

Other Risk

We are also subject to interest rate risk on our long-term fixed interest rate debt. Generally, the fair market value of debt securities with

a fixed interest rate will increase as interest rates fall, and the fair market value will decrease as interest rates rise. The following table

represents principal cash flows by expected maturity dates and the related weighted-average interest rate on those maturities for our

consolidated long-term debt obligations, inclusive of any related interest rate hedges. For the variable rate borrowings, the weighted-

average interest rates are based on the rates in effect at the reporting date. Our market risk with respect to foreign currency exposure

on our long-term debt is also presented in the table below.

$ in thousands

Stress Tests and Scenario Analysis

Stress tests are used to analyze the potential impact of specific

events or extreme market moves on the current portfolio both

firm-wide and within business segments. Stress testing is an

important part of our risk management approach because it

allows us to quantify our exposure to tail risks, highlight potential

loss concentrations, undertake risk/reward analysis, set risk

controls and overall assess and mitigate our risk.

We employ a range of stress scenarios, which comprise both

historical market price and rate changes and hypothetical market

environments, and generally involve simultaneous changes of

many risk factors. Indicative market changes in the scenarios

include, but are not limited to, a large widening of credit spreads,

a substantial decline in equities markets, significant moves in

selected emerging markets, large moves in interest rates and

changes in the shape of the yield curve.

Unlike our VaR, which measures potential losses within a given

confidence interval, stress scenarios do not have an associated

implied probability. Rather, stress testing is used to estimate the

potential loss from market moves that tend to be larger than

those embedded in the VaR calculation. Stress testing

complements VaR to cover for potential limitations of VaR such

as the breakdown in correlations, non-linear risks, tail risk and

extreme events and capturing market moves beyond the

confidence levels assumed in the VaR calculations.

Stress testing is performed and reported at least weekly as part

of our risk management process and on an ad hoc basis in

response to market events or concerns. Current stress tests

provide estimated revenue and loss of the current portfolio

through a range of both historical and hypothetical events. The

stress scenarios are reviewed and assessed at least annually so

that they remain relevant and up to date with market

developments. Additional hypothetical scenarios are also

conducted on a sub-portfolio basis to assess the impact of any

relevant idiosyncratic stress events as needed.

May 2025 Form 10-Q 65

Counterparty Credit Risk

Credit risk is the risk of loss due to adverse changes in a

counterparty’s credit worthiness or its ability or willingness to

meet its financial obligations in accordance with the terms and

conditions of a financial contract.

We are exposed to credit risk as a trading counterparty to other

broker-dealers and customers, as a counterparty to derivative

contracts, as a direct lender and through extending loan

commitments and providing securities-based lending and as a

member of exchanges and clearing organizations. Credit

exposure exists across a wide range of products, including cash

and cash equivalents, loans, securities finance transactions and

over-the-counter derivative contracts. The main sources of credit

risk are:

• Loans and lending arising in connection with our investment

banking and capital markets activities, which reflects our

exposure at risk on a default event with no recovery of loans.

Current exposure represents loans that have been drawn by the

borrower and lending commitments that are outstanding. In

addition, credit exposures on forward settling traded loans are

included within our loans and lending exposures for

consistency with the balance sheet categorization of these

items. Loans and lending also arise in connection with our

portion of a Secured Revolving Credit Facility that is with us

and Massachusetts Mutual Life Insurance Company, to be

funded equally, to support loan underwritings by Jefferies

Finance. For further information on this facility, refer to Note

11, Investments in our consolidated financial statements

included in this Quarterly Report on Form 10-Q. In addition, we

have loans outstanding to certain of our officers and

employees (none of whom are executive officers or directors).

For further information on these employee loans, refer to Note

22, Related Party Transactions in our consolidated financial

statements included in this Quarterly Report on Form 10-Q.

• Securities and margin financing transactions, which reflect our

credit exposure arising from reverse repurchase agreements,

repurchase agreements and securities lending agreements to

the extent the fair value of the underlying collateral differs from

the contractual agreement amount and from margin provided

to customers.

• OTC derivatives, which are reported net by counterparty when a

legal right of setoff exists under an enforceable master netting

agreement. OTC derivative exposure is based on a contract at

fair value, net of cash collateral received or posted under credit

support agreements. In addition, credit exposures on forward

settling trades are included within our derivative credit

exposures.

• Cash and cash equivalents, which includes both interest-

bearing and non-interest-bearing deposits at banks.

Credit is extended to counterparties in a controlled manner and in

order to generate acceptable returns, whether such credit is

granted directly or is incidental to a transaction. All extensions of

credit are monitored and managed as a whole to limit exposure

to loss related to credit risk. Credit risk is managed according to

the Credit Risk Management Policy, which sets out the process

for identifying counterparty credit risk, establishing counterparty

limits, and managing and monitoring credit limits. The policy

includes our approach for:

• Client on-boarding and approving counterparty credit limits;
• Negotiating, approving and monitoring credit terms in legal and

master documentation;

• Determining the analytical standards and risk parameters for

ongoing management and monitoring credit risk books;

• Actively managing daily exposure, exceptions and breaches;

and

• Monitoring daily margin call activity and counterparty

performance.

Counterparty credit exposure limits are granted within our credit

ratings framework, as detailed in the Credit Risk Management

Policy. The Credit Risk Department assesses counterparty credit

risk and sets credit limits at the counterparty master agreement

level. Limits must be approved by appropriate credit officers and

initiated in our credit and trading systems before trading

commences. All credit exposures are reviewed against approved

limits on a daily basis.

Our Secured Revolving Credit Facility, which supports loan

underwritings by Jefferies Finance, is governed under separate

policies other than the Credit Risk Management Policy and is

approved by our Board. The loans outstanding to certain of our

officers and employees are extended pursuant to a review by our

most senior management.

Current counterparty credit exposures at May 31, 2025 and

November 30, 2024 are summarized in the tables below and

provided by credit quality, region and industry. Credit exposures

presented take netting and collateral into consideration by

counterparty and master agreement. Collateral taken into

consideration includes both collateral received as cash as well as

collateral received in the form of securities or other

arrangements. Current exposure is the loss that would be

incurred on a particular set of positions in the event of default by

the counterparty, assuming no recovery. Current exposure equals

the fair value of the positions less collateral. Issuer risk is the

credit risk arising from inventory positions (for example,

corporate debt securities and secondary bank loans). Issuer risk

is included in our country risk exposure within the following

tables.

66 Jefferies Financial Group Inc.

Counterparty Credit Exposure by Credit Rating

$ in millions

May 2025 Form 10-Q 67

Country Risk Exposure

Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic,

political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define the

country of risk as the country of jurisdiction or domicile of the obligor and monitor country risk resulting from both trading positions and

counterparty exposure, which may not include the offsetting benefit of any financial instruments utilized to manage market risk. The

following tables reflect our top exposures at May 31, 2025 and November 30, 2024 to the sovereign governments, corporations and

financial institutions in those non- U.S. countries in which we have net long issuer and counterparty exposure:

$ in millions

$ in millions

Operational Risk

Operational risk is the risk of financial or non-financial impact,

resulting from inadequate or failed internal processes, people

and systems or from external events. We interpret this definition

as including not only financial loss or gain but also other negative

impacts to our objectives such as reputational impact, legal/

regulatory impact and impact on our clients. Third-party risk is

also included as a subset of operational risk and is defined as the

potential threat presented to us, our employees or clients from

our supply chain and other third parties used to perform a

process, service or activity on our behalf.

Our Operational Risk framework includes governance as well as

operational risk processes, comprises operational risk event

capture and analysis, risk and control self-assessments,

operational risk key indicators, action tracking, risk monitoring

and reporting, deep dive risk assessments, new business

approvals and vendor risk management. Each revenue producing

and support department is responsible for the management and

reporting of operational risks and the implementation of the

Operational Risk Management Policy and processes within the

department with regular operational risk training provided to our

employees.

Operational risk events are mapped to risk categories used for

the consistent classification of risk data to support root cause

and trend analysis, which includes:

• Fraud and Theft
• Clients and Business Practices
• Market Conduct / Regulatory Compliance
• Business Disruption
• Technology
• Data Protection and Privacy
• Trading
• Transaction and Process Management
• People
• Cybersecurity
• Vendor Risk

Our Operational Risk Management Policy and operational risk

management framework, infrastructure, methodology, processes,

guidance and oversight of the operational risk processes are

centralized and consistent firmwide and, additionally, subject to

regional and legal entity operational risk governance, as required.

68 Jefferies Financial Group Inc.

We also maintain a Third-Party (“Vendor”) Risk Management

Policy and Framework to ensure adequate control and monitoring

over our critical third parties, which includes processes for

conducting periodic reviews covering areas of risk including

financial health, information security, privacy, business continuity

management, disaster recovery and operational risk of our

vendors.

Model Risk

Model risk refers to the risk of loss resulting from decisions that

are based on the output of models, due to errors or weaknesses

in the design and development, implementation or improper use

of models. We use quantitative models primarily to value certain

financial assets and liabilities and to monitor and manage our

risk. Model risk is a function of the model materiality, frequency

of use, complexity and uncertainty around inputs and

assumptions used in a given model. Robust model risk

management is a core part of our risk management approach

and is overseen through our risk governance structure and risk

management controls.

Legal and Compliance Risk

Legal and compliance risk includes the risk of noncompliance

with applicable legal and regulatory requirements. We are subject

to extensive regulation in the different jurisdictions in which we

conduct our business. We have various procedures addressing

issues such as regulatory capital requirements, sales and trading

practices, use of and safekeeping of customer funds, credit

granting, collection activities, anti-money laundering and record

keeping. These risks also reflect the potential impact that

changes in local and international laws and tax statutes have on

the economics and viability of current or future transactions. In

an effort to mitigate these risks, we continuously review new and

pending regulations and legislation and participate in various

industry interest groups. We also maintain an anonymous hotline

for employees or others to report suspected inappropriate

actions by us or by our employees or agents.

New Business Risk

New business risk refers to the risks of entering into a new line of

business or offering a new product. By entering a new line of

business or offering a new product, we may face risks that we are

unaccustomed to dealing with and may increase the magnitude

of the risks we currently face. The New Business Committee

reviews proposals for new businesses and new products to

determine if we are prepared to handle the additional or

increased risks associated with entering into such activities.

Reputational Risk

We recognize that maintaining our reputation among clients,

investors, regulators and the general public is an important

aspect of minimizing legal and operational risks. Maintaining our

reputation depends on a large number of factors, including the

selection of our clients and the conduct of our business

activities. We seek to maintain our reputation by screening

potential clients and by conducting our business activities in

accordance with high ethical standards. Our reputation and

business activity can be affected by statements and actions of

third parties, even false or misleading statements by them. We

actively monitor public comment concerning us and are vigilant

in seeking to assure accurate information and perception

prevails.

Risk

Quantitative and qualitative disclosures about market risk are set

forth under “Management’s Discussion and Analysis of Financial

Condition and Results of Operations —Risk Management” in

Our Management, under the direction of our Chief Executive

Officer and Chief Financial Officer, evaluated the effectiveness of

our disclosure controls and procedures as of May 31, 2025.

Based on that evaluation, our Chief Executive Officer and Chief

Financial Officer concluded that our disclosure controls and

procedures as of May 31, 2025 are functioning effectively to

provide reasonable assurance that the information required to be

disclosed by us in reports filed under the Securities Exchange Act

of 1934 is (i) recorded, processed, summarized and reported

within the time periods specified in the SEC’s rules and forms and

(ii) accumulated and communicated to our management,

including our Chief Executive Officer and Chief Financial Officer,

as appropriate, to allow timely decisions regarding disclosure. A

controls system cannot provide absolute assurance that the

objectives of the controls system are met, and no evaluation of

controls can provide absolute assurance that all control issues

and instances of fraud, if any, within a company have been

detected.

No change in our internal control over financial reporting

occurred during the quarter ended May 31, 2025 that has

materially affected, or is reasonably likely to materially affect, our

internal control over financial reporting.

May 2025 Form 10-Q 69

Information regarding our risk factors appears in Item 1A. of our

Annual Report on Form 10-K for the year ended November 30,

2024. These risk factors describe some of the assumptions,

risks, uncertainties and other factors that could adversely affect

our business or that could otherwise result in changes that differ

materially from our expectations.