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Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2021
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note (2) Summary of Significant Accounting Policies which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

The Company’s fair value measurements are based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources.

The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.

Available for Sale Securities, at fair value

The fair values of available for sale securities are based on prices provided by an independent pricing service and a third-party investment manager. The Company obtains an understanding of the methods, models and inputs used by the independent pricing service and the third-party investment manager by analyzing the investment manager-provided pricing report.

The following details the methods and assumptions used to estimate the fair value of each class of AFS securities and the applicable level each security falls within the fair value hierarchy:

U.S Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political Subdivisions, Corporate Securities, Asset Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third-party investment manager. The prices provided by the independent pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 or Level 3 in the fair value hierarchy.

Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.

Equity Securities

The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks are based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 in the fair value hierarchy.
Loans, at fair value

Corporate Loans: These loans are comprised of a diversified portfolio of middle market and broadly syndicated leveraged loans and are generally classified under either Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices which include those provided from pricing vendors, where available. We perform internal price verification procedures to ensure that the prices and quotes provided from the independent pricing vendors are reasonable. Such verification procedures include comparison of pricing sources and analysis of variances among pricing sources. The Company has evaluated each loan’s respective liquidity and has additionally performed valuation benchmarking. The key characteristics which were evaluated as part of this determination were liquidity ratings, price changes to index benchmarks, depth of quotes, credit ratings and industry trends.

Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs.

Derivative Assets and Liabilities

Derivatives are primarily comprised of IRLCs, forward delivery contracts and TBA mortgage backed securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. Our mortgage origination subsidiaries issue IRLCs to their customers, which are carried at estimated fair value on the Company’s condensed consolidated balance sheets. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected pull through assumption. The fair values of these commitments generally fall under Level 3 in the fair value hierarchy. Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage backed securities and forward delivery contracts generally fall under Level 2 in the fair value hierarchy.

Corporate Bonds

Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.

Securities Sold, Not Yet Purchased

Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.

Mortgage Servicing Rights

Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party valuation service. Various observable and unobservable inputs are used to determine fair value, including discount rate, cost to service and weighted average prepayment speed.

The following tables present the Company’s fair value hierarchies for financial assets and liabilities, measured on a recurring basis:
As of March 31, 2021
Quoted prices in active markets
Level 1		 Other significant
 observable inputs
 Level 2 		 Significant unobservable inputs
Level 3		Fair value
Assets:
As of March 31, 2021
Quoted prices in active markets
Level 1		 Other significant
 observable inputs
 Level 2 		 Significant unobservable inputs
Level 3		Fair value
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$— $209,735 $— $209,735 
Obligations of state and political subdivisions— 47,294 — 47,294 
Obligations of foreign governments— 4,508 — 4,508 
Certificates of deposit1,356 — — 1,356 
Asset backed securities— 37,643 878 38,521 
Corporate securities— 108,533 — 108,533 
Total available for sale securities, at fair value1,356 407,713 878 409,947 
Loans, at fair value:
Corporate loans— 3,147 7,685 10,832 
Mortgage loans held for sale— 99,626 — 99,626 
Total loans, at fair value— 102,773 7,685 110,458 
Equity securities:
Invesque47,719 — — 47,719 
Fixed income exchange traded fund64,293 — — 64,293 
Other equity securities32,975 — 35 33,010 
Total equity securities144,987 — 35 145,022 
Other investments, at fair value:
Corporate bonds— 101,296 — 101,296 
Derivative assets667 3,737 8,284 12,688 
CLOs— — 616 616 
Total other investments, at fair value667 105,033 8,900 114,600 
Mortgage servicing rights (1)
— — 20,894 20,894 
Total$147,010 $615,519 $38,392 $800,921 
Liabilities: (2)
Derivative liabilities$— $1,095 $— $1,095 
Securities sold, not yet purchased27,052 12,573 — 39,625 
Contingent consideration payable— — 200 200 
Total$27,052 $13,668 $200 $40,920 
(1)    Included in other assets.
(2)    Included in other liabilities and accrued expenses.
As of December 31, 2020
Quoted
prices in
 active
markets
Level 1		 Other significant
 observable inputs
 Level 2 		 Significant unobservable inputs
Level 3		Fair value
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$— $196,303 $— $196,303 
Obligations of state and political subdivisions— 44,350 — 44,350 
Obligations of foreign governments— 3,992 — 3,992 
Certificates of deposit1,355 — — 1,355 
Asset backed securities— 35,334 858 36,192 
Corporate securities— 94,941 — 94,941 
Total available for sale securities, at fair value1,355 374,920 858 377,133 
As of December 31, 2020
Quoted
prices in
 active
markets
Level 1		 Other significant
 observable inputs
 Level 2 		 Significant unobservable inputs
Level 3		Fair value
Loans, at fair value:
Corporate loans— — 7,795 7,795 
Mortgage loans held for sale— 82,937 — 82,937 
Total loans, at fair value— 82,937 7,795 90,732 
Equity securities:
Invesque31,078 — — 31,078 
Fixed income exchange traded fund63,875 — — 63,875 
Other equity securities28,850 — 35 28,885 
Total equity securities123,803 — 35 123,838 
Other investments, at fair value:
Corporate bonds— 105,777 — 105,777 
Derivative assets2,090 232 9,207 11,529 
CLOs— — 802 802 
Total other investments, at fair value2,090 106,009 10,009 118,108 
Mortgage servicing rights (1)
— — 14,758 14,758 
Total$127,248 $563,866 $33,455 $724,569 
Liabilities: (2)
Derivative liabilities $— $2,090 $— $2,090 
Securities sold, not yet purchased16,479 30,158 — 46,637 
Contingent consideration payable— — 200 200 
Total$16,479 $32,248 $200 $48,927 
(1) Included in other assets.
(2) Included in other liabilities and accrued expenses.


Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.

The following table presents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:    
For the Three Months Ended
March 31,
20212020
Balance at January 1,$33,455 $32,470 
 Net realized and unrealized gains or losses included in:
Earnings7,015 (4,332)
OCI20 (649)
Origination of IRLCs26,347 27,880 
Purchases568 — 
Sales(1,743)(1,753)
Conversions to mortgage loans held for sale(27,270)(24,116)
Balance at March 31,$38,392 $29,500 
Changes in unrealized gains (losses) included in earnings related to assets still held at period end$2,390 $(6,519)
Changes in unrealized gains (losses) included in OCI related to assets still held at period end$20 $(649)
The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities.

As ofAs of
March 31, 2021December 31, 2020March 31,
2021		December 31,
2020
Valuation technique
Unobservable input(s) (1)
AssetsFair ValueRangeWARangeWA
IRLCs$8,284 $9,207 Internal modelPull through rate50%to95%62%50%to95%68%
Mortgage servicing rights20,894 14,758 External modelDiscount rate10%to13%11%10%to13%11%
Cost to service$75to$90$82$75to$90$82
Prepayment speed7%to56%16%8%to60%22%
Total$29,178 $23,965 
Liabilities
Contingent consideration payable - Smart AutoCare$200 $200 Cash Flow ModelForecast Cash EBITDA$20,000to$30,000N/A$20,000to$30,000N/A
Actuarial AnalysisAssumed Claim Liabilities$55,000$55,000
Total$200 $200 
(1)    Unobservable inputs were weighted by the relative fair value of the instruments.

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:
As of March 31, 2021As of December 31, 2020
Level within
fair value
hierarchy		Fair valueCarrying valueLevel within
fair value
hierarchy		Fair valueCarrying value
Assets:
Debentures (1)
2$20,377 $20,377 2$17,703 $17,703 
Notes receivable, net262,807 62,807 262,075 62,075 
Total assets$83,184 $83,184 $79,778 $79,778 
Liabilities:
Debt, net3$421,938 $404,900 3$392,951 $377,582 
Total liabilities$421,938 $404,900 $392,951 $377,582 
(1)    Included in other investments.

Debentures: Since interest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts.

Notes Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.

Debt: The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes is determined based on dealer quotes. Categorized under Level 3 in the fair value hierarchy.

Additionally, the following financial assets and liabilities on the condensed consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value:

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized under Level 1 in the fair value hierarchy.
Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.

Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short term nature. Categorized under Level 2 in the fair value hierarchy.