v3.25.4
Note 9 - Fair Value Disclosures
 12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

9. FAIR VALUE DISCLOSURES

 

Fair Value Option

 

The Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions of ASC 825. The primary reason for electing the fair value option was to reduce the burden of monitoring the differences between the cost and the fair value of the Company’s investments, that would otherwise be classified as available for sale securities, including the assessment as to whether the declines are temporary in nature and to further remove an element of management judgment.

 

Such financial assets accounted for at fair value include:

 

 

•

securities that would otherwise qualify for available for sale treatment; and

 

•

investments in equity method affiliates that have the attributes in ASC 946-10-15-2 (commonly referred to as investment companies) or that have fair values that are readily determinable.

 

The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the fair value option are recorded in principal transactions and other income in the consolidated statements of operations if acquired as part of the Company's principal investing activities or investment banking and new issue if they were acquired as part of CCM's activities.  All of the investments for which the Company has elected the fair value option are included as a component of other investments, at fair value in the consolidated balance sheets.

 

The Company recognized net gains (losses) of ($156,783), ($62,560), and ($92,931) related to changes in fair value of investments that were included as a component of other investments, at fair value during the years ended December 31, 2025, 2024, and 2023, respectively. The Company recognized net gains (losses) of $1,118, $29,658, and $107,816 related to changes in fair value of investments that are included as a component of other investments, sold not yet purchased during the years ended December 31, 2025, 2024, and 2023, respectively.

   

Fair Value Measurements

 

In accordance with ASC 820, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level valuation hierarchy. The valuation hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the valuation hierarchy under ASC 820 are described below.

 

Level 1

Financial assets and liabilities with values that are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2

Financial assets and liabilities with values that are based on one or more of the following:

 

 

1.

Quoted prices for similar assets or liabilities in active markets;

 

2.

Quoted prices for identical or similar assets or liabilities in non-active markets;

 

 

3.

Pricing models with inputs that are derived, other than quoted prices, and are observable for substantially the full term of the asset or liability; or

 

4.

Pricing models with inputs that are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

 

Level 3

Financial assets and liabilities with values that are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the valuation hierarchy. In such cases, the level in the valuation hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category that may be presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

 

The following tables present information about the Company’s assets and liabilities measured at fair value as of  December 31, 2025 and 2024, and indicate the valuation hierarchy of the valuation techniques utilized by the Company to determine such fair value.

 

 

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

As of December 31, 2025

(Dollars in Thousands)

 

          

Significant

  

Significant

 
      

Quoted Prices in

  

Other Observable

  

Unobservable

 
      

Active Markets

  

Inputs

  

Inputs

 

Assets

 

Fair Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

Investments-trading:

                

Corporate bonds and redeemable preferred stock

 $18,449  $-  $18,449  $- 

Derivatives

  4,651   -   4,651   - 

Equity securities

  10,424   10,369   55   - 

Municipal bonds

  3,813   -   3,813   - 

RMBS

  3   -   3   - 

SBA loans

  43,090   -   43,090   - 

U.S. government agency MBS and CMOs

  42,471   -   42,471   - 

U.S. government agency debt securities

  17,675   -   17,675   - 

Total investments - trading

 $140,576  $10,369  $130,207  $- 
                 

Other investments, at fair value:

                

Equity securities

 $21,457   19,831  $1,626  $- 

Placement units and warrants

  19,997   -   19,997   - 

Corporate bonds and redeemable preferred stock

  535   -   535   - 

Notes receivable

  2,783   -   2,783   - 
   44,772  $19,831  $24,941  $- 

Investments measured at NAV (1)

  12,486             

Total other investments, at fair value

 $57,258             
                 

Liabilities

                

Trading securities sold, not yet purchased:

                

Corporate bonds and redeemable preferred stock

 $8,107  $-  $8,107  $- 

Derivatives

  4,245   -   4,245   - 

Equity securities

  463   463   -   - 

U.S. Treasury securities

  23,802   23,802   -   - 

Total trading securities sold, not yet purchased

 $36,617  $24,265  $12,352  $- 
                 

 

(1)

As a practical expedient, the Company uses NAV (or its equivalent) to measure the fair value of its investments in the U.S. Insurance JV, CREO JV, and CK Capital Value Fund.  The U.S. Insurance JV invests in U.S. Dollar ("USD") denominated debt issued by small insurance and reinsurance companies.  The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans.  The CK Capital Value Fund invests primarily in office buildings in the Netherlands. According to ASC 820, these investments are not categorized within the valuation hierarchy.  



 

 

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

As of December 31, 2024

(Dollars in Thousands)

  

          

Significant

  

Significant

 
      

Quoted Prices in

  

Other Observable

  

Unobservable

 
      Active Markets  Inputs  Inputs 

Assets

 

Fair Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

Investments-trading:

                

Corporate bonds and redeemable preferred stock

 $27,043  $-  $27,043  $- 

Derivatives

  4,836   -   4,836   - 

Equity securities

  965   352   613   - 

Foreign government bond

  88   -   88   - 

Municipal bonds

  19,914   -   19,914   - 

RMBS

  5   -   5   - 

SBA loans

  28,328   -   28,328   - 

U.S. government agency MBS and CMOs

  45,911   -   45,911   - 

U.S. government agency debt securities

  21,242   -   21,242   - 

Total investments - trading

 $148,332  $352  $147,980  $- 
                 

Other investments, at fair value:

                

Equity securities

 $11,072  $8,231  $2,841  $- 

Placement units and warrants

  1,587   -   1,587     

Corporate bonds and redeemable preferred stock

  531   -   531   - 

Notes receivable

  11,250       11,250     

Interests in SPVs

  1,565       1,565     
   26,005  $8,231  $17,774  $- 

Investments measured at NAV (1)

  9,257             

Total other investments, at fair value

 $35,262             
                 

Liabilities

                

Trading securities sold, not yet purchased:

                

Corporate bonds and redeemable preferred stock

 $7,342  $-  $7,342  $- 

Derivatives

  4,050   -   4,050   - 

Equity securities

  83   83   -   - 

U.S. government agency debt securities

  40   -   40   - 

U.S. Treasury securities

  24,917   24,917   -   - 

Total trading securities sold, not yet purchased

 $36,432  $25,000  $11,432  $- 
                 

Other investments, sold not yet purchased:

                

Equity securities

 $1,181  $1,181  $-  $- 

Share forward liabilities

  470   -   470   - 

Total other investments, sold not yet purchased

 $1,651  $1,181  $470  $- 

 

  

(1)

 As a practical expedient, the Company uses NAV (or its equivalent) to measure the fair value of its investments in the U.S. Insurance JV and CREO JV. The U.S. Insurance JV invests in USD denominated debt issued by small insurance and reinsurance companies.  The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans. According to ASC 820, these investments are not categorized within the valuation hierarchy.  

 

 

The following provides a brief description of the types of financial instruments the Company holds, the methodology for estimating fair value, and the level within the valuation hierarchy of the estimate. The discussion that follows applies regardless of whether the instrument is included in investments-trading; other investments sold, not yet purchased; other investments, at fair value; or trading securities sold, not yet purchased.

  

Corporate Bonds and Redeemable Preferred Stock: The Company uses recently executed transactions or third-party quotations from independent pricing services to arrive at the fair value of its investments in corporate bonds and redeemable preferred stock. These valuations are based on a market approach. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. In instances where the fair values of securities are based on quoted prices in active markets (for example with redeemable preferred stock), the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

 

Equity Securities: The fair value of equity securities that represent equity investments in publicly traded companies (common or preferred shares, options, warrants, and other equity investments) is determined using the closing price of the security as of the reporting date. These are securities that are traded on a recognized liquid exchange and classified within level 1 of the valuation hierarchy.

 

The fair value of equity securities that represent restricted investments in publicly traded companies is generally valued using a model.  The valuation will be considered level 2 if the inputs to the model are observable.  Otherwise, it will be considered a level 3 valuation. 

 

Equity Securities Without Readily Determinable Fair Value: From time to time, the Company invests in equity securities that do not have a readily determinable fair value that also do not qualify for equity method accounting or the practical expedient for investments in investment companies that are measured at NAV.  In those cases, the Company utilizes the measurement alternative of ASC 321-10-35-2.  This alternative allows the Company to carry the investment at cost minus impairment.  If the Company observes a market transaction for an identical or similar instrument, it will adjust the carrying value of the equity security.  These securities are included as a component of other investments, at fair value.   When measured at fair value using an orderly observable market transaction, it will generally be classified as level 1 in the valuation hierarchy.  Otherwise, it will be classified as level 2 of the valuation hierarchy. 

  

Notes Receivable: Notes receivable include convertible and non-convertible notes. The Company values these instruments using a model.  The main input is the risk-based cash flow discount rate.  When the receivable is convertible into counterparty equity, additional inputs include the counterparty’s share price, volatility, and the risk free rate of return. The inputs to this model are observable so the Company classifies these securities within level 2 of the valuation hierarchy.

 

Foreign Government Bond: The fair value of foreign government bond is estimated using valuations provided by third-party pricing services and classifies the fair value within level 2 of the valuation hierarchy.

 

Interests in SPVs: The Company values these instruments using a model.  The model first determines the fair value of the financial instruments in the SPV and then determines what portion of that fair value is allocable to the Company’s interest in the SPV.  If appropriate, the Company determines the fair value of the financial instruments held by the SPV using a model, which may include a Monte Carlo simulation.  The main inputs are the counterparty’s share price, volatility, risk-free rate of return, and risk-based cash flow discount rates.  The inputs to this model are observable so the Company classifies these securities within level 2 of the hierarchy. 

 

Municipal Bonds: Municipal bonds, which include obligations of U.S. states, municipalities, and political subdivisions, primarily include bonds or notes issued by U.S. municipalities. The Company generally values these securities using third-party quotations such as market price quotations from third-party pricing services. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. The valuations are based on a market approach. In instances where the Company is unable to obtain reliable market price quotations from third-party pricing services, the Company will use its own internal valuation models. In these cases, the Company will classify such securities as level 3 within the valuation hierarchy until it is able to obtain third-party pricing.

 

Placement Units and Warrants: Placement units and warrants represent equity interests in a SPAC that do not have redemption rights in the SPAC trust; so, they will generally become worthless if the SPAC does not complete a business combination within its allotted timeframe.  They are not publicly traded.  Upon completion of a business combination, these become publicly traded and the Company records them as a component of equity securities until liquidated.  Placement units are all valued by a financial model and considered a level 2 valuation.  Placement warrants sometimes match the exact terms of the publicly traded warrants of the SPAC (which also do not have redemption rights).  In those cases, the Company uses the public warrant price to determine fair value.  However, because the warrants the Company holds are not publicly traded, the Company considers it a level 2 valuation.  If the terms are different from the public warrant, the Company will determine fair value using a model and consider it a level 2 or level 3 valuation depending on the observability of the model inputs.  

 

RMBS: The Company generally values these securities using third-party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third-party pricing services. These valuations are based on a market approach. The Company generally classifies the fair value of these securities based on third-party quotations within level 2 of the valuation hierarchy.

 

SBA Loans:  The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices, internal valuation models using observable inputs, or market price quotations from third party pricing services. The Company generally classifies these investments within level 2 of the valuation hierarchy.

 

U.S. Government Agency MBS and CMOs: These are securities that are generally traded over the counter. The Company generally values these securities using third-party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third-party pricing services. These valuations are based on a market approach. The Company classifies the fair value of these securities within level 2 of the valuation hierarchy.  

 

U.S. Government Agency Debt Securities: Callable and non-callable U.S. government agency debt securities are measured primarily based on quoted market prices obtained from third-party pricing services. Non-callable U.S. government agency debt securities are generally classified within level 1 and callable U.S. government agency debt securities are classified within level 2 of the valuation hierarchy.

 

U.S. Treasury Securities: U.S. Treasury securities include U.S. Treasury bonds and notes, and the fair values of the U.S. Treasury securities are based on quoted prices or market activity in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

 

Derivatives:

 

TBAs and Other Forward Agency MBS Contracts  

 

The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. TBAs and other forward agency MBS contracts are generally classified within level 2 of the valuation hierarchy. If there is limited transaction activity or less transparency to observe market-based inputs to valuation models, TBAs and other forward agency MBS contracts are classified within level 3 of the valuation hierarchy.  U.S. government agency MBS and CMOs include TBAs and other forward agency MBS contracts.  Unrealized gains on TBAs and other forward agency MBS contracts are included in investments trading on the Company’s consolidated balance sheets and unrealized losses on TBAs and other forward agency MBS contracts are included in trading securities sold, not yet purchased on the Company’s consolidated balance sheets. See note 10.

 

Other Extended Settlement Trades 

 

When the Company buys or sells a financial instrument that will not be settled in the regular time period, the Company will account for that purchase or sale on the settlement date rather than the trade date.  In those cases, the Company accounts for the transaction between trade date and settlement date as a derivative (as either a purchase commitment or sale commitment). The Company will record an unrealized gain or unrealized loss on the derivative for the difference between the fair value of the underlying financial instrument as of the reporting date and the agreed upon transaction price.  The Company will determine the fair value of the financial instrument using the methodologies described above.

 

Equity Derivatives

 

The Company may enter into equity derivatives, which include listed options as well as other derivative transactions with an underlying equity instrument.  Listed options are traded on a recognized liquid exchange and the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.  Other equity derivatives (where the underlying equity instrument is publicly traded but the derivative itself is not) are classified within level 2 of the valuation hierarchy.  See note 10.

 

Foreign Currency Forward Contracts 

 

Foreign currency forward contracts are exchange-traded derivatives, which transact on an exchange that is deemed to be active.  The fair value of the foreign currency forward contracts is based on current quoted market prices.  Valuation adjustments are not applied.  These are classified within level 1 of the valuation hierarchy. See note 10.

 

Share Forward Liabilities

 

Share forward liabilities are included as a component of other investments sold, not yet purchased in the Company's balance sheets.  The Company utilizes a model to value these instruments with observable inputs and considers these derivatives as level 2 within the fair value hierarchy.  See note 10.

 

Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)

 

The following table presents additional information about investments in certain entities that calculate NAV per share (regardless of whether the “practical expedient” provisions of ASC 820 have been applied), which are measured at fair value on a recurring basis as of December 31, 2025 and 2024.

  

FAIR VALUE MEASUREMENTS OF INVESTMENTS IN CERTAIN ENTITIES

THAT CALCULATE NET ASSET VALUE PER SHARE (OR ITS EQUIVALENT)

(Dollars in Thousands)

 

  

December 31, 2025

  

Unfunded Commitments

  

Redemption Frequency

  

Redemption Notice Period

 

Other investments, at fair value

                

CK Capital Value Fund (a)

 $1,171   N/A   

N/A

   

N/A

 

CREO JV (b)

  8,940  $7,268   

N/A

   

N/A

 

U.S. Insurance JV (c)

  2,375   N/A   

N/A

   

N/A

 
  $12,486             

 

  

December 31, 2024

  

Unfunded Commitments

  

Redemption Frequency

  

Redemption Notice Period

 

Other investments, at fair value

                

CREO JV (b)

 $6,432  $10,118   N/A   N/A 

U.S. Insurance JV (c)

  2,825   N/A   N/A   N/A 
  $9,257             

 

N/A – Not applicable.

 

(a)CK Capital Value Fund invests primarily in office buildings in the Netherlands.
(b)The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans.

(c)

The U.S. Insurance JV invests in USD denominated debt issued by small and medium sized insurance and reinsurance companies.