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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2017
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE 4 – Fair Value Measurements We measure certain financial assets and liabilities at fair value on a recurring basis, including financial instruments owned, available-for-sale securities, investments, financial instruments sold, but not yet purchased, and derivatives. We generally utilize third-party pricing services to value Level 1 and Level 2 available-for-sale investment securities, as well as certain derivatives designated as cash flow hedges. We review the methodologies and assumptions used by the third-party pricing services and evaluate the values provided, principally by comparison with other available market quotes for similar instruments and/or analysis based on internal models using available third-party market data. We may occasionally adjust certain values provided by the third-party pricing service when we believe, as the result of our review, that the adjusted price most appropriately reflects the fair value of the particular security. Following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Financial Instruments Owned and Available-For-Sale Securities When available, the fair value of financial instruments is based on quoted prices in active markets and reported in Level 1. Level 1 financial instruments include highly liquid instruments with quoted prices, such as equity securities listed in active markets, corporate fixed income securities, U.S. government securities, and U.S. government agency securities. If quoted prices are not available for identical instruments, fair values are obtained from pricing services, broker quotes, or other model-based valuation techniques with observable inputs, such as the present value of estimated cash flows, and reported as Level 2. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 2 financial instruments include U.S. government agency securities, mortgage-backed securities, corporate fixed income securities infrequently traded, state and municipal securities, and asset-backed securities, which primarily include collateralized loan obligations. We have identified Level 3 financial instruments to include certain equity securities with unobservable pricing inputs and certain non-agency mortgage-backed securities. Level 3 financial instruments have little to no pricing observability as of the report date. These financial instruments do not have active two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Investments Investments carried at fair value primarily include corporate equity securities, auction-rate securities (“ARS”), and private company investments. Corporate equity securities are valued based on quoted prices in active markets and reported in Level 1. ARS are valued based upon our expectations of issuer redemptions and using internal discounted cash flow models that utilize unobservable inputs. ARS are reported as Level 3 assets. ARS for which recent market trades were observed that provided transparency into their valuation were classified as Level 2 at June 30, 2017. Direct investments in private companies, reported as Level 3 assets, may be valued using the market approach and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance, and legal restrictions on disposition, among other factors. The fair value derived from the methods used are evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiples. For securities utilizing the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement. Investments in Funds That Are Measured at Net Asset Value Per Share The Company’s investments in funds measured at NAV include private company investments, partnership interests, mutual funds, private equity funds, and money market funds. Private equity funds primarily invest in a broad range of industries worldwide in a variety of situations, including leveraged buyouts, recapitalizations, growth investments and distressed investments. The private equity funds are primarily closed-end funds in which the Company’s investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed. The general and limited partnership interests in investment partnerships were primarily valued based upon NAVs received from third-party fund managers. The various partnerships are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the funds to utilize pricing/valuation information, including independent appraisals, from third-party sources. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments. The tables below present the fair value of our investments in, and unfunded commitments to, funds that are measured at NAV (in thousands):
|  | June 30, 2017 |
|  | Fair value of investments |  |  | Unfunded commitments |
Partnership interests |  | $ | 5,806 |  |  | $ | 1,348 |
Mutual funds |  |  | 12,441 |  |  |  | — |
Private equity funds |  |  | 8,673 |  |  |  | 1,856 |
Money market funds |  |  | 16,365 |  |  |  | — |
Total |  | $ | 43,285 |  |  | $ | 3,204 |
|  | December 31, 2016 |
|  | Fair value of investments |  |  | Unfunded commitments |
Private company investments |  | $ | 18,763 |  |  | $ | 8,526 |
Partnership interests |  |  | 15,798 |  |  |  | 1,822 |
Mutual funds |  |  | 11,301 |  |  |  | — |
Private equity funds |  |  | 9,310 |  |  |  | 2,020 |
Money market funds |  |  | 35,637 |  |  |  | — |
Total |  | $ | 90,809 |  |  | $ | 12,368 |
Financial Instruments Sold, But Not Yet Purchased Financial instruments sold, but not purchased, recorded at fair value based on quoted prices in active markets and other observable market data include highly liquid instruments with quoted prices, such as U.S. government securities, corporate fixed income securities, and equity securities listed in active markets, which are reported as Level 1. If quoted prices are not available, fair values are obtained from pricing services, broker quotes, or other model-based valuation techniques with observable inputs, such as the present value of estimated cash flows, and reported as Level 2. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 2 financial instruments include U.S. government agency securities, mortgage-backed securities not actively traded, corporate fixed income securities, and state and municipal securities. Derivatives Derivatives are valued using quoted market prices for identical instruments when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require market observable inputs, including contractual terms, market prices, yield curves, credit curves, and measures of volatility. We manage credit risk for our derivative positions on a counterparty-by-counterparty basis and calculate credit valuation adjustments, included in the fair value of these instruments, on the basis of our relationships at the counterparty portfolio/master netting agreement level. These credit valuation adjustments are determined by applying a credit spread for the counterparty to the total expected exposure of the derivative after considering collateral and other master netting arrangements. We have classified our interest rate swaps as Level 2. Assets and liabilities measured at fair value on a recurring basis as of June 30, 2017, are presented below (in thousands):
|  | June 30, 2017 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial instruments owned: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities |  | $ | 16,924 |  |  | $ | 16,924 |  |  | $ | — |  |  | $ | — |
U.S. government agency securities |  |  | 119,703 |  |  |  | — |  |  |  | 119,703 |  |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 313,463 |  |  |  | — |  |  |  | 313,463 |  |  |  | — |
Non-agency |  |  | 54,566 |  |  |  | — |  |  |  | 54,041 |  |  |  | 525 |
Corporate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  | 367,866 |  |  |  | 7,443 |  |  |  | 360,167 |  |  |  | 256 |
Equity securities |  |  | 43,671 |  |  |  | 43,304 |  |  |  | — |  |  |  | 367 |
State and municipal securities |  |  | 147,458 |  |  |  | — |  |  |  | 147,458 |  |  |  | — |
Total financial instruments owned |  |  | 1,063,651 |  |  |  | 67,671 |  |  |  | 994,832 |  |  |  | 1,148 |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities |  |  | 4,565 |  |  |  | 199 |  |  |  | 4,366 |  |  |  | — |
State and municipal securities |  |  | 72,382 |  |  |  | — |  |  |  | 72,382 |  |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 319,062 |  |  |  | — |  |  |  | 319,062 |  |  |  | — |
Commercial |  |  | 72,688 |  |  |  | — |  |  |  | 72,688 |  |  |  | — |
Non-agency |  |  | 1,617 |  |  |  | — |  |  |  | 1,617 |  |  |  | — |
Corporate fixed income securities |  |  | 971,131 |  |  |  | — |  |  |  | 971,131 |  |  |  | — |
Asset-backed securities |  |  | 2,013,928 |  |  |  | — |  |  |  | 2,013,928 |  |  |  | — |
Total available-for-sale securities |  |  | 3,455,373 |  |  |  | 199 |  |  |  | 3,455,174 |  |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate equity securities |  |  | 50,384 |  |  |  | 50,144 |  |  |  | — |  |  |  | 240 |
Auction rate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  | 48,577 |  |  |  | — |  |  |  | 13,956 |  |  |  | 34,621 |
Municipal securities |  |  | 841 |  |  |  | — |  |  |  | — |  |  |  | 841 |
Other |  |  | 1,610 |  |  |  | — |  |  |  | 370 |  |  |  | 1,240 |
Investments in funds measured at NAV |  |  | 26,920 |  |  |  |  |  |  |  |  |  |  |  |  |
Total investments |  |  | 128,332 |  |  |  | 50,144 |  |  |  | 14,326 |  |  |  | 36,942 |
Cash equivalents measured at NAV |  |  | 16,365 |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative contracts (1) |  |  | 8,442 |  |  |  |  |  |  | $ | 8,442 |  |  |  |  |
|  | $ | 4,672,163 |  |  | $ | 118,014 |  |  | $ | 4,472,774 |  |  | $ | 38,090 |
(1) | Included in other assets in the consolidated statements of financial condition.
|  | June 30, 2017 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments sold, but not yet purchased: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities |  | $ | 298,832 |  |  | $ | 298,832 |  |  | $ | — |  |  | $ | — |
U.S. government agency securities |  |  | 1,995 |  |  |  | — |  |  |  | 1,995 |  |  |  | — |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 118,458 |  |  |  | — |  |  |  | 118,458 |  |  |  | — |
Non-agency |  |  | 16 |  |  |  | — |  |  |  | 16 |  |  |  | — |
Corporate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  | 245,148 |  |  |  | 317 |  |  |  | 244,831 |  |  |  | — |
Equity securities |  |  | 41,091 |  |  |  | 41,091 |  |  |  | — |  |  |  | — |
State and municipal securities |  |  | 37 |  |  |  | — |  |  |  | 37 |  |  |  | — |
Total financial instruments sold, but not yet purchased |  |  | 705,577 |  |  |  | 340,240 |  |  |  | 365,337 |  |  |  | — |
Derivative contracts (2) |  |  | 939 |  |  |  |  |  |  |  | 939 |  |  |  |  |
|  | $ | 706,516 |  |  | $ | 340,240 |  |  | $ | 366,276 |  |  | $ | — |
(2) | Included in accounts payable and accrued expenses in the consolidated statements of financial condition.
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, are presented below (in thousands):
|  | December 31, 2016 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial instruments owned: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities |  | $ | 9,951 |  |  | $ | 9,951 |  |  | $ | — |  |  | $ | — |
U.S. government agency securities |  |  | 89,833 |  |  |  | — |  |  |  | 89,833 |  |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 305,774 |  |  |  | — |  |  |  | 305,774 |  |  |  | — |
Non-agency |  |  | 28,402 |  |  |  | — |  |  |  | 27,320 |  |  |  | 1,082 |
Corporate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  | 299,946 |  |  |  | 1,944 |  |  |  | 297,729 |  |  |  | 273 |
Equity securities |  |  | 32,044 |  |  |  | 31,444 |  |  |  | — |  |  |  | 600 |
State and municipal securities |  |  | 159,095 |  |  |  | — |  |  |  | 159,095 |  |  |  | — |
Total financial instruments owned |  |  | 925,045 |  |  |  | 43,339 |  |  |  | 879,751 |  |  |  | 1,955 |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities |  |  | 4,197 |  |  |  | 300 |  |  |  | 3,897 |  |  |  | — |
State and municipal securities |  |  | 72,490 |  |  |  | — |  |  |  | 72,490 |  |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 338,732 |  |  |  | — |  |  |  | 338,732 |  |  |  | — |
Commercial |  |  | 72,773 |  |  |  | — |  |  |  | 72,773 |  |  |  | — |
Non-agency |  |  | 1,892 |  |  |  | — |  |  |  | 1,892 |  |  |  | — |
Corporate fixed income securities |  |  | 823,511 |  |  |  | — |  |  |  | 823,511 |  |  |  | — |
Asset-backed securities |  |  | 1,867,718 |  |  |  | — |  |  |  | 1,867,718 |  |  |  | — |
Total available-for-sale securities |  |  | 3,181,313 |  |  |  | 300 |  |  |  | 3,181,013 |  |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate equity securities |  |  | 27,247 |  |  |  | 23,414 |  |  |  | — |  |  |  | 3,833 |
Auction rate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  | 48,689 |  |  |  | — |  |  |  | — |  |  |  | 48,689 |
Municipal securities |  |  | 832 |  |  |  | — |  |  |  | — |  |  |  | 832 |
Other |  |  | 1,623 |  |  |  | — |  |  |  | 383 |  |  |  | 1,240 |
Investments measured at NAV |  |  | 55,172 |  |  |  |  |  |  |  |  |  |  |  |  |
Total investments |  |  | 133,563 |  |  |  | 23,414 |  |  |  | 383 |  |  |  | 54,594 |
Cash equivalents measured at NAV |  |  | 35,637 |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative contracts (1) |  |  | 10,390 |  |  |  | — |  |  |  | 10,390 |  |  |  | — |
|  | $ | 4,285,948 |  |  | $ | 67,053 |  |  | $ | 4,071,537 |  |  | $ | 56,549 |
(1) | Included in other assets in the consolidated statements of financial condition.
|  | December 31, 2016 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments sold, but not yet purchased: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities |  | $ | 362,536 |  |  | $ | 362,536 |  |  | $ | — |  |  | $ | — |
U.S. government agency securities |  |  | 20,549 |  |  |  | — |  |  |  | 20,549 |  |  |  | — |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 94,552 |  |  |  | — |  |  |  | 94,552 |  |  |  | — |
Non-agency |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Corporate securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  | 202,968 |  |  |  | 980 |  |  |  | 201,988 |  |  |  | — |
Equity securities |  |  | 18,395 |  |  |  | 18,395 |  |  |  | — |  |  |  | — |
State and municipal securities |  |  | 31 |  |  |  | — |  |  |  | 31 |  |  |  | — |
Total financial instruments sold, but not yet purchased |  |  | 699,032 |  |  |  | 381,911 |  |  |  | 317,121 |  |  |  | — |
Derivative contracts (2) |  |  | 1,823 |  |  |  | — |  |  |  | 1,823 |  |  |  | — |
|  | $ | 700,855 |  |  | $ | 381,911 |  |  | $ | 318,944 |  |  | $ | — |
(2) | Included in accounts payable and accrued expenses in the consolidated statements of financial condition.
The following table summarizes the changes in fair value associated with Level 3 financial instruments during the three months ended June 30, 2017 (in thousands):
|  | Three Months Ended June 30, 2017 |
|  | Financial instruments owned |  |  | Investments |
|  | Mortgage- Backed Securities – Non-Agency |  |  | Fixed Income Securities |  |  | Equity Securities |  |  | Corporate Equity Securities |  |  | Auction Rate Securities – Equity |  |  | Auction Rate Securities – Municipal |  |  | Other |
Balance at March 31, 2017 |  | $ | 1,019 |  |  | $ | 267 |  |  | $ | 583 |  |  | $ | 3,833 |  |  | $ | 49,055 |  |  | $ | 837 |  |  | $ | 1,240 |
Unrealized gains/(losses): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in changes in net assets (1) |  |  | (100 | ) |  |  | — |  |  |  | (216 | ) |  |  | — |  |  |  | 251 |  |  |  | 4 |  |  |  | — |
Included in OCI (2) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Realized gains/(losses) (1) |  |  | 96 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Purchases |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Sales |  |  | (324 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Redemptions |  |  | (166 | ) |  |  | (11 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Transfers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Into Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,593 | ) |  |  | (14,685 | ) |  |  | — |  |  |  | — |
Net change |  |  | (494 | ) |  |  | (11 | ) |  |  | (216 | ) |  |  | (3,593 | ) |  |  | (14,434 | ) |  |  | 4 |  |  |  | — |
Balance at June 30, 2017 |  | $ | 525 |  |  | $ | 256 |  |  | $ | 367 |  |  | $ | 240 |  |  | $ | 34,621 |  |  | $ | 841 |  |  | $ | 1,240 |
(1) | Realized and unrealized gains/(losses) related to financial instruments owned and investments are reported in other income in the consolidated statements of operations.
(2) | Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive loss in the consolidated statements of financial condition.
The following table summarizes the change in fair value associated with Level 3 financial instruments during the six months ended June 30, 2017 (in thousands):
|  | Six Months Ended June 30, 2017 |
|  | Financial instruments owned |  |  | Investments |
|  | Mortgage- Backed Securities – Non-Agency |  |  | Fixed Income Securities |  |  | Equity Securities |  |  | Corporate Equity Securities |  |  | Auction Rate Securities – Equity |  |  | Auction Rate Securities – Municipal |  |  | Other |
Balance at December 31, 2016 |  | $ | 1,082 |  |  | $ | 273 |  |  | $ | 600 |  |  | $ | 3,833 |  |  | $ | 48,689 |  |  | $ | 832 |  |  | $ | 1,240 |
Unrealized gains/(losses): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in changes in net assets (1) |  |  | (100 | ) |  |  | — |  |  |  | (233 | ) |  |  | — |  |  |  | 617 |  |  |  | 9 |  |  |  | — |
Included in OCI (2) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Realized gains/(losses) (1) |  |  | 97 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Purchases |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Sales |  |  | (324 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Redemptions |  |  | (230 | ) |  |  | (17 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Transfers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Into Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,593 | ) |  |  | (14,685 | ) |  |  | — |  |  |  | — |
Net change |  |  | (557 | ) |  |  | (17 | ) |  |  | (233 | ) |  |  | (3,593 | ) |  |  | (14,068 | ) |  |  | 9 |  |  |  | — |
Balance at June 30, 2017 |  | $ | 525 |  |  | $ | 256 |  |  | $ | 367 |  |  | $ | 240 |  |  | $ | 34,621 |  |  | $ | 841 |  |  | $ | 1,240 |
(1) | Realized and unrealized gains/(losses) related to financial instruments owned and investments are reported in other income in the consolidated statements of operations.
(2) | Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive loss in the consolidated statements of financial.
The results included in the tables above are only a component of the overall investment strategies of our company. The tables above do not present Level 1 or Level 2 valued assets or liabilities. The changes to our company’s Level 3 classified instruments during the six months ended June 30, 2017 were principally a result of transfers out of Level 3 due to market activity that provided transparency into the valuation of these assets. The changes in unrealized gains/(losses) recorded in earnings for the three and six months ended June 30, 2017, relating to Level 3 assets still held at June 30, 2017, were immaterial. The following table summarizes quantitative information related to the significant unobservable inputs utilized in our company’s Level 3 recurring fair value measurements as of June 30, 2017.
|  | Valuation technique |  | Unobservable input |  | Range |  | Weighted average |
Investments: |  |  |  |  |  |  |  |  |  |
Auction rate securities: |  |  |  |  |  |  |  |  |  |
Equity securities |  | Discounted cash flow |  | Discount rate |  | 1.2% - 10.5% |  |  | 5.2% |
|  |  |  | Workout period |  | 1 - 3 years |  | 2.2 years |
Municipal securities |  | Discounted cash flow |  | Discount rate |  | 1.6% - 9.4% |  |  | 3.9% |
|  |  |  | Workout period |  | 1 - 4 years |  | 1.9 years |
The fair value of certain Level 3 assets was determined using various methodologies, as appropriate, including third-party pricing vendors and broker quotes. These inputs are evaluated for reasonableness through various procedures, including due diligence reviews of third-party pricing vendors, variance analyses, consideration of current market environment, and other analytical procedures. The fair value for our auction rate securities was determined using an income approach based on an internally developed discounted cash flow model. The discounted cash flow model utilizes two significant unobservable inputs: discount rate and workout period. The discount rate was calculated using credit spreads of the underlying collateral or similar securities. The workout period was based on an assessment of publicly available information on efforts to re-establish functioning markets for these securities and our company’s own redemption experience. Significant increases in any of these inputs in isolation would result in a significantly lower fair value. On an ongoing basis, management verifies the fair value by reviewing the appropriateness of the discounted cash flow model and its significant inputs. Transfers Within the Fair Value Hierarchy We assess our financial instruments on a quarterly basis to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial instruments among the levels are deemed to occur at the beginning of the reporting period. There were $1.0 million and $1.1 million of transfers of financial assets from Level 2 to Level 1 during the three and six months ended June 30, 2017, respectively, primarily related to corporate fixed income securities for which market trades were observed that provided transparency into the valuation of these assets. There were $4.0 million and $4.4 million of transfers of financial assets from Level 1 to Level 2 during the three and six months ended June 30, 2017, respectively, primarily related to corporate fixed income securities for which there were low volumes of recent trade activity observed. There were no transfers into Level 3 during the six months ended June 30, 2017. There were $18.3 million of transfers of financial assets out of Level 3 during the three and six months ended June 30, 2017, primarily related to ARS and corporate equity securities for which market trades were observed that provided transparency into the valuation of these assets. Fair Value of Financial Instruments The following reflects the fair value of financial instruments as of June 30, 2017 and December 31, 2016, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).
|  | June 30, 2017 |  |  | December 31, 2016 |
|  | Carrying Value |  |  | Estimated Fair Value |  |  | Carrying Value |  |  | Estimated Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 678,054 |  |  | $ | 678,054 |  |  | $ | 912,932 |  |  | $ | 912,932 |
Cash segregated for regulatory purposes |  |  | 150 |  |  |  | 150 |  |  |  | 73,235 |  |  |  | 73,235 |
Securities purchased under agreements to resell |  |  | 478,091 |  |  |  | 478,091 |  |  |  | 248,588 |  |  |  | 248,588 |
Financial instruments owned |  |  | 1,063,651 |  |  |  | 1,063,651 |  |  |  | 925,045 |  |  |  | 925,045 |
Available-for-sale securities |  |  | 3,455,373 |  |  |  | 3,455,373 |  |  |  | 3,181,313 |  |  |  | 3,181,313 |
Held-to-maturity securities |  |  | 3,307,970 |  |  |  | 3,321,880 |  |  |  | 3,038,405 |  |  |  | 3,040,554 |
Loans held for sale |  |  | 139,676 |  |  |  | 139,676 |  |  |  | 228,588 |  |  |  | 228,588 |
Bank loans |  |  | 6,160,093 |  |  |  | 5,994,527 |  |  |  | 5,591,190 |  |  |  | 5,633,804 |
Investments |  |  | 128,332 |  |  |  | 128,332 |  |  |  | 133,563 |  |  |  | 133,563 |
Derivative contracts (1) |  |  | 8,442 |  |  |  | 8,442 |  |  |  | 10,390 |  |  |  | 10,390 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities sold under agreements to repurchase |  | $ | 243,999 |  |  | $ | 243,999 |  |  | $ | 268,546 |  |  | $ | 268,546 |
Bank deposits |  |  | 12,050,474 |  |  |  | 11,366,970 |  |  |  | 11,527,483 |  |  |  | 11,092,185 |
Financial instruments sold, but not yet purchased |  |  | 705,577 |  |  |  | 705,577 |  |  |  | 699,032 |  |  |  | 699,032 |
Derivative contracts (2) |  |  | 939 |  |  |  | 939 |  |  |  | 1,823 |  |  |  | 1,823 |
Federal Home Loan Bank advances |  |  | 790,000 |  |  |  | 790,000 |  |  |  | 500,000 |  |  |  | 500,000 |
Borrowings |  |  | 105,000 |  |  |  | 105,000 |  |  |  | 377,000 |  |  |  | 377,000 |
Senior notes |  |  | 796,296 |  |  |  | 811,318 |  |  |  | 795,891 |  |  |  | 799,632 |
Debentures to Stifel Financial Capital Trusts |  |  | 67,500 |  |  |  | 50,413 |  |  |  | 67,500 |  |  |  | 52,525 |
(1) | Included in other assets in the consolidated statements of financial condition.
(2) | Included in accounts payable and accrued expenses in the consolidated statements of financial condition.
The following table presents the estimated fair values of financial instruments not measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 (in thousands):
|  | June 30, 2017 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 661,689 |  |  | $ | 661,689 |  |  | $ | — |  |  | $ | — |
Cash segregated for regulatory purposes |  |  | 150 |  |  |  | 150 |  |  |  | — |  |  |  | — |
Securities purchased under agreements to resell |  |  | 478,091 |  |  |  | 478,091 |  |  |  | — |  |  |  | — |
Held-to-maturity securities |  |  | 3,321,880 |  |  |  | — |  |  |  | 3,119,542 |  |  |  | 202,338 |
Loans held for sale |  |  | 139,676 |  |  |  | — |  |  |  | 139,676 |  |  |  | — |
Bank loans |  |  | 5,994,527 |  |  |  | — |  |  |  | 5,994,527 |  |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities sold under agreements to repurchase |  | $ | 243,999 |  |  | $ | — |  |  | $ | 243,999 |  |  | $ | — |
Bank deposits |  |  | 11,366,970 |  |  |  | — |  |  |  | 11,366,970 |  |  |  | — |
Federal Home Loan Bank advances |  |  | 790,000 |  |  |  | 790,000 |  |  |  | — |  |  |  | — |
Borrowings |  |  | 105,000 |  |  |  | 105,000 |  |  |  | — |  |  |  | — |
Senior notes |  |  | 811,318 |  |  |  | 811,318 |  |  |  | — |  |  |  | — |
Debentures to Stifel Financial Capital Trusts |  |  | 50,413 |  |  |  | — |  |  |  | — |  |  |  | 50,413 |
|  | December 31, 2016 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 877,295 |  |  | $ | 877,295 |  |  | $ | — |  |  | $ | — |
Cash segregated for regulatory purposes |  |  | 73,235 |  |  |  | 73,235 |  |  |  | — |  |  |  | — |
Securities purchased under agreements to resell |  |  | 248,588 |  |  |  | 227,983 |  |  |  | 20,605 |  |  |  | — |
Held-to-maturity securities |  |  | 3,040,554 |  |  |  | — |  |  |  | 2,830,869 |  |  |  | 209,685 |
Loans held for sale |  |  | 228,588 |  |  |  | — |  |  |  | 228,588 |  |  |  | — |
Bank loans |  |  | 5,633,804 |  |  |  | — |  |  |  | 5,633,804 |  |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities sold under agreements to repurchase |  | $ | 268,546 |  |  | $ | 149,881 |  |  | $ | 118,665 |  |  | $ | — |
Bank deposits |  |  | 11,092,185 |  |  |  | — |  |  |  | 11,092,185 |  |  |  | — |
Federal Home Loan Bank advances |  |  | 500,000 |  |  |  | 500,000 |  |  |  | — |  |  |  | — |
Borrowings |  |  | 377,000 |  |  |  | 377,000 |  |  |  | — |  |  |  | — |
Senior notes |  |  | 799,632 |  |  |  | 799,632 |  |  |  | — |  |  |  | — |
Debentures to Stifel Financial Capital Trusts |  |  | 52,525 |  |  |  | — |  |  |  | — |  |  |  | 52,525 |
The following, as supplemented by the discussion above, describes the valuation techniques used in estimating the fair value of our financial instruments as of June 30, 2017 and December 31, 2016. Financial Assets Securities Purchased Under Agreements to Resell Securities purchased under agreements to resell are collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The carrying values at June 30, 2017 and December 31, 2016 approximate fair value due to their short-term nature. Held-to-Maturity Securities Securities held to maturity are recorded at amortized cost based on our company’s positive intent and ability to hold these securities to maturity. Securities held to maturity include agency mortgage-backed securities, asset-backed securities, consisting of collateralized loan obligation securities and corporate fixed income securities. The estimated fair value, included in the above table, is determined using several factors; however, primary weight is given to discounted cash flow modeling techniques that incorporated an estimated discount rate based upon recent observable debt security issuances with similar characteristics. Loans Held for Sale Loans held for sale consist of fixed-rate and adjustable-rate residential real estate mortgage loans intended for sale. Loans held for sale are stated at lower of cost or market value. Market value is determined based on prevailing market prices for loans with similar characteristics or on sale contract prices. Bank Loans The fair values of mortgage loans and commercial loans were estimated using a discounted cash flow method, a form of the income approach. Discount rates were determined considering rates at which similar portfolios of loans, with similar remaining maturities, would be made and considering liquidity spreads applicable to each loan portfolio based on the secondary market. Financial Liabilities Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase are collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The carrying values at June 30, 2017 and December 31, 2016 approximate fair value due to the short-term nature. Bank Deposits The fair value of interest-bearing deposits, including certificates of deposits, demand deposits, savings, and checking accounts, was calculated by discounting the future cash flows using discount rates based on the replacement cost of funding of similar structures and terms. Borrowings The carrying amount of borrowings approximates fair value due to the relative short-term nature of such borrowings. In addition, Stifel Bank’s FHLB advances reflect terms that approximate current market rates for similar borrowings. Senior Notes The fair value of our senior notes is estimated based upon quoted market prices. Debentures to Stifel Financial Capital Trusts The fair value of our trust preferred securities is based on the discounted value of contractual cash flows. We have assumed a discount rate based on the coupon achieved in our 4.250% senior notes due 2024. These fair value disclosures represent our best estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected losses, current economic conditions, risk characteristics of the various instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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