Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Information about Significant Unobservable Inputs used in Fair Value Measurement

The following table summarizes quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's Level III financial instruments as of September 30, 2018:



	Valuation			Weighted
	Technique	Unobservable Input	Range	Average (1)
Assets:
Financial instruments and other inventory positions owned:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve in basis points ("bps") (2)	1 - 11 bps	8.7 bps
Investments at fair value:
Equity securities in private companies	Market approach	Revenue multiple (3)	2 - 6 times	4.8 times
		EBITDA multiple (3)	13 - 16 times	14.4 times

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve in bps (2)	7 - 16 bps	8.9 bps

Uncertainty of fair value measurements:


(1)	Unobservable inputs were weighted by the relative fair value of the financial instruments.

(2) Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly lower/(higher) fair value measurement.

(3) Significant increase/(decrease) in the unobservable input in isolation would have resulted in a significantly higher/(lower) fair value measurement.

Valuation of Financial Instruments by Pricing Observability Levels

The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in FASB Accounting Standards Codification Topic 820, "Fair Value Measurement" ("ASC 820") as of September 30, 2018:



								Counterparty
								and Cash
								Collateral
(Dollars in thousands)	Level I		Level II		Level III			Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	266	$	21,207	$	—		$	—		$	21,473
Convertible securities	—		126,641		—			—			126,641
Fixed income securities	—		42,976		—			—			42,976
Municipal securities:
Taxable securities	—		41,766		—			—			41,766
Tax-exempt securities	—		226,702		—			—			226,702
Short-term securities	—		150,045		45			—			150,090
Mortgage-backed securities	—		—		16			—			16
U.S. government agency securities	—		173,477		—			—			173,477
U.S. government securities	1,561		—		—			—			1,561
Derivative contracts	—		159,685		1,273			(147,540		)	13,418
Total financial instruments and other inventory positions owned	1,827		942,499		1,334			(147,540		)	798,120

Cash equivalents	40,793		—		—			—			40,793

Investments at fair value	39,501		—		104,285		(2)	—			143,786
Total assets	$	82,121	$	942,499	$	105,619		$	(147,540	)	$	982,699

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	112,642	$	4,070	$	—		$	—		$	116,712
Fixed income securities	—		31,187		—			—			31,187
U.S. government agency securities	—		37,245		—			—			37,245
U.S. government securities	65,205		—		—			—			65,205
Derivative contracts	—		147,944		368			(144,076		)	4,236
Total financial instruments and other inventory positions sold, but not yet purchased	$	177,847	$	220,446	$	368		$	(144,076	)	$	254,585


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.


(2)	Noncontrolling interests of $47.2 million are attributable to third party ownership in consolidated merchant banking and senior living funds.

The following table summarizes the valuation of the Company's financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2017:



								Counterparty
								and Cash
								Collateral
(Dollars in thousands)	Level I		Level II		Level III			Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	1,863	$	50,033	$	—		$	—		$	51,896
Convertible securities	—		74,456		—			—			74,456
Fixed income securities	—		30,145		—			—			30,145
Municipal securities:
Taxable securities	—		67,699		—			—			67,699
Tax-exempt securities	—		743,541		700			—			744,241
Short-term securities	—		61,537		714			—			62,251
Mortgage-backed securities	—		—		481			—			481
U.S. government agency securities	—		317,318		—			—			317,318
U.S. government securities	9,317		—		—			—			9,317
Derivative contracts	6		239,224		126			(213,783		)	25,573
Total financial instruments and other inventory positions owned	11,186		1,583,953		2,021			(213,783		)	1,383,377

Cash equivalents	3,782		—		—			—			3,782

Investments at fair value	39,504		—		126,060		(2)	—			165,564
Total assets	$	54,472	$	1,583,953	$	128,081		$	(213,783	)	$	1,552,723

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	91,934	$	9,583	$	—		$	—		$	101,517
Fixed income securities	—		30,292		—			—			30,292
U.S. government agency securities	—		49,077		—			—			49,077
U.S. government securities	213,312		—		—			—			213,312
Derivative contracts	—		225,916		4,433			(225,320		)	5,029
Total financial instruments and other inventory positions sold, but not yet purchased	$	305,246	$	314,868	$	4,433		$	(225,320	)	$	399,227


(1)	Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.


(2)	Noncontrolling interests of $44.4 million are attributable to third party ownership in consolidated merchant banking and senior living funds.

Changes in Fair Value Associated with Level III Financial Instruments

The following tables summarize the changes in fair value associated with Level III financial instruments held at the beginning or end of the periods presented:



																					Unrealized gains/
																					(losses) for assets/
	Balance at													Realized		Unrealized			Balance at		liabilities held at
	June 30,								Transfers		Transfers			gains/		gains/			September 30,		September 30,
(Dollars in thousands)	2018		Purchases			Sales			in		out			(losses) (1)		(losses) (1)			2018		2018 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Short-term securities	$	45	$	—		$	—		$	—	$	—		$	—	$	—		$	45	$	—
Mortgage-backed securities	18		—			—			—		—			—		(2		)	16		(2		)
Derivative contracts	930		—			(90		)	—		—			90		343			1,273		441
Total financial instruments and other inventory positions owned	993		—			(90		)	—		—			90		341			1,334		439

Investments at fair value	108,121		10,000			(14,199		)	—		(357		)	4,949		(4,229		)	104,285		(4,229		)
Total assets	$	109,114	$	10,000		$	(14,289	)	$	—	$	(357	)	$	5,039	$	(3,888	)	$	105,619	$	(3,790	)

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	1,005	$	(210	)	$	40		$	—	$	—		$	169	$	(636	)	$	368	$	(464	)
Total financial instruments and other inventory positions sold, but not yet purchased	$	1,005	$	(210	)	$	40		$	—	$	—		$	169	$	(636	)	$	368	$	(464	)

(1)

Realized and unrealized gains/(losses) related to financial instruments, with the exception of customer matched-book derivatives, are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to customer matched-book derivatives are reported in investment banking. Realized and unrealized gains/(losses) related to investments are reported in investment banking revenues or investment income/(loss) on the consolidated statements of operations.



																				Unrealized gains/
																				(losses) for assets/
	Balance at											Realized			Unrealized			Balance at		liabilities held at
	June 30,							Transfers		Transfers		gains/			gains/			September 30,		September 30,
(Dollars in thousands)	2017		Purchases		Sales			in		out		(losses) (1)			(losses) (1)			2017		2017 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securities	$	1,117	$	—	$	(267	)	$	—	$	—	$	—		$	(100	)	$	750	$	(100	)
Short-term securities	721		—		—			—		—		—			(16		)	705		(16		)
Mortgage-backed securities	4,251		—		—			—		—		—			70			4,321		70
Derivative contracts	383		105		—			—		—		(105		)	303			686		686
Total financial instruments and other inventory positions owned	6,472		105		(267		)	—		—		(105		)	257			6,462		640

Investments at fair value	113,885		18,250		—			—		—		—			(1,975		)	130,160		(1,975		)
Total assets	$	120,357	$	18,355	$	(267	)	$	—	$	—	$	(105	)	$	(1,718	)	$	136,622	$	(1,335	)

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	5,573	$	—	$	3,461		$	—	$	—	$	(3,461	)	$	(1,323	)	$	4,250	$	1,430
Total financial instruments and other inventory positions sold, but not yet purchased	$	5,573	$	—	$	3,461		$	—	$	—	$	(3,461	)	$	(1,323	)	$	4,250	$	1,430

(1)



																						Unrealized gains/
																						(losses) for assets/
	Balance at													Realized			Unrealized			Balance at		liabilities held at
	December 31,								Transfers		Transfers			gains/			gains/			September 30,		September 30,
(Dollars in thousands)	2017		Purchases			Sales			in		out			(losses) (1)			(losses) (1)			2018		2018 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securities	$	700	$	—		$	—		$	—	$	(700	)	$	—		$	—		$	—	$	—
Short-term securities	714		—			(725		)	—		—			51			5			45		—
Mortgage-backed securities	481		—			(5		)	—		—			—			(460		)	16		(93		)
Derivative contracts	126		4			(2,965		)	—		—			2,961			1,147			1,273		1,273
Total financial instruments and other inventory positions owned	2,021		4			(3,695		)	—		(700		)	3,012			692			1,334		1,180

Investments at fair value	126,060		11,708			(29,139		)	—		(502		)	14,015			(17,857		)	104,285		(8,307		)
Total assets	$	128,081	$	11,712		$	(32,834	)	$	—	$	(1,202	)	$	17,027		$	(17,165	)	$	105,619	$	(7,127	)

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	4,433	$	(1,600	)	$	3,266		$	—	$	—		$	(1,666	)	$	(4,065	)	$	368	$	368
Total financial instruments and other inventory positions sold, but not yet purchased	$	4,433	$	(1,600	)	$	3,266		$	—	$	—		$	(1,666	)	$	(4,065	)	$	368	$	368

(1)



																						Unrealized gains/
																						(losses) for assets/
	Balance at													Realized			Unrealized			Balance at		liabilities held at
	December 31,								Transfers		Transfers			gains/			gains/			September 30,		September 30,
(Dollars in thousands)	2016		Purchases			Sales			in		out			(losses) (1)			(losses) (1)			2017		2017 (1)
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Taxable securities	$	2,686	$	—		$	(2,703	)	$	—	$	—		$	716		$	(699	)	$	—	$	—
Tax-exempt securities	1,077		—			(267		)	—		—			—			(60		)	750		(60		)
Short-term securities	744		—			(25		)	—		—			2			(16		)	705		(16		)
Mortgage-backed securities	5,365		997			(1,854		)	—		—			296			(483		)	4,321		(90		)
Derivative contracts	13,952		350			(11,978		)	—		—			11,628			(13,266		)	686		686
Total financial instruments and other inventory positions owned	23,824		1,347			(16,827		)	—		—			12,642			(14,524		)	6,462		520

Investments at fair value	123,319		25,444			(25,211		)	—		(601		)	9,399			(2,190		)	130,160		7,704
Total assets	$	147,143	$	26,791		$	(42,038	)	$	—	$	(601	)	$	22,041		$	(16,714	)	$	136,622	$	8,224

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	1,487	$	(719	)	$	11,219		$	—	$	—		$	(10,500	)	$	2,763		$	4,250	$	4,125
Total financial instruments and other inventory positions sold, but not yet purchased	$	1,487	$	(719	)	$	11,219		$	—	$	—		$	(10,500	)	$	2,763		$	4,250	$	4,125

(1)