XML 41 R23.htm IDEA: XBRL DOCUMENT

Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2020

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 consolidated balance sheet. 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.

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 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 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


	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
Obligations of foreign governments	—		3,992		—		3,992
Certificates of deposit	1,355		—		—		1,355
Asset backed securities	—		35,334		858		36,192
Corporate securities	—		94,941		—		94,941
Total available for sale securities, at fair value	1,355		374,920		858		377,133

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:
Invesque	31,078		—		—		31,078
Fixed income exchange traded fund	63,875		—		—		63,875
Other equity securities	28,850		—		35		28,885
Total equity securities	123,803		—		35		123,838

Other investments, at fair value:
Corporate bonds	—		105,777		—		105,777
Derivative assets	2,090		232		9,207		11,529
CLOs	—		—		802		802
Total other investments, at fair value	2,090		106,009		10,009		118,108

Mortgage servicing rights (1)	—		—		14,758		14,758

Total	$	127,248	$	563,866	$	33,455	$	724,569

Liabilities:
Derivative liabilities (2)	$	—	$	2,090	$	—	$	2,090
Securities sold, not yet purchased (2)	16,479		30,158		—		46,637
Contingent consideration payable (2)	—		—		200		200

Total	$	16,479	$	32,248	$	200	$	48,927

(1) Included in other assets.

(2) Included in other liabilities and accrued expenses.


	As of December 31, 2019
	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	$	—	$	191,590	$	—	$	191,590
Obligations of state and political subdivisions	—		46,338		—		46,338
Obligations of foreign governments	—		1,119		—		1,119
Certificates of deposit	896		—		—		896
Asset backed securities	—		42,833		1,185		44,018
Corporate securities	—		51,231		—		51,231
Total available for sale securities, at fair value	896		333,111		1,185		335,192

Loans, at fair value:
Corporate loans	—		—		9,787		9,787
Mortgage loans held for sale	—		98,720		—		98,720
Non-performing loans	—		—		387		387


	As of December 31, 2019
	Quoted prices in active markets Level 1		Other significant observable inputs Level 2		Significant unobservable inputs Level 3		Fair value
Total loans, at fair value	—		98,720		10,174		108,894

Equity securities:
Invesque	111,938		—		—		111,938
Fixed income exchange traded fund	25,039		—		—		25,039
Other equity securities	18,158		—		243		18,401
Total equity securities	155,135		—		243		155,378

Other investments, at fair value:
Corporate bonds	—		20,705		—		20,705
Derivative assets	—		154		7,336		7,490
CLOs	—		—		4,768		4,768
Total other investments, at fair value	—		20,859		12,104		32,963

Mortgage servicing rights (1)	—		—		8,764		8,764

Total	$	156,031	$	452,690	$	32,470	$	641,191

Liabilities:
Derivative liabilities (2)	$	—	$	3,758	$	—	$	3,758
Total	$	—	$	3,758	$	—	$	3,758
(1) Included in other assets. (2) Included in other liabilities and accrued expenses.

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 Year Ended December 31,
	2020 (1)		2019 (1)
Balance at January 1,	$	32,470	$	152,845
Net realized and unrealized gains or losses included in:
Earnings	2,253		1,901
OCI	(329)		(323)
Origination of IRLCs	120,267		77,082
Purchases	3,862		153
Sales	(6,672)		(123,497)
Issuances	—		111


Conversions to real estate owned	—		(2,596)
Conversions to mortgage loans held for sale	(118,396)		(73,206)
Balance at December 31,	$	33,455	$	32,470

Changes in unrealized gains (losses) included in earnings related to assets still held at period end	$	(7,978)	$	(1,884)
Changes in unrealized gains (losses) included in OCI related to assets still held at period end	$	(329)	$	(323)

(1) 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 the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities.


	As of December 31,						As of December 31,
Assets	2020		2019		Valuation technique	Unobservable input(s) (1)	2020					2019
	Fair Value						Range				WA	Range			WA
IRLCs	$	9,207	$	7,336	Internal model	Pull through rate	50%	to	95%		68%	50%	to	95%	61%
Mortgage servicing rights	14,758		8,764		External model	Discount rate	10%	to	13%		11%	10%	to	13%	11%
						Cost to service	$75	to	$90		$82	$75	to	$90	$86
						Prepayment speed	8%	to	60%		22%	7%	to	50%	18%
Total	$	23,965	$	16,100

Liabilities
Contingent consideration payable - Smart AutoCare	$	200	$	—	Cash Flow Model	Forecast Cash EBITDA	$20,000	to	$	30,000	N/A	N/A
					Actuarial Analysis	Assumed Claim Liabilities	$55,000				$55,000	N/A
Total	$	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 December 31, 2020					As of December 31, 2019
	Level within fair value hierarchy	Fair value		Carrying value		Level within fair value hierarchy	Fair value		Carrying value
Assets:
Debentures (1)	2	$	17,703	$	17,703	2	$	15,423	$	15,423
Notes receivable, net	2	62,075		62,075		2	42,192		42,192
Total assets		$	79,778	$	79,778		$	57,615	$	57,615

Liabilities:
Debt, net	3	$	392,951	$	377,582	3	$	396,699	$	383,261
Total liabilities		$	392,951	$	377,582		$	396,699	$	383,261

(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 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.

- 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 + Details