NOTE 6 – Fair Value Measurements

We measure certain assets and liabilities at fair value on a recurring basis, including cash equivalents, trading securities owned, available-for-sale securities, investments, trading securities sold, but not yet purchased, securities sold, but not yet purchased, and derivatives.

The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.

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.

Cash and Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of three months or less. Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value. Actively traded money market funds are measured at their reported net asset value, which approximates fair value. As such, we classify the estimated fair value of these instruments as Level 1.

Financial Instruments (Trading securities and available-for-sale securities)

When available, the fair value of financial instruments are based on quoted prices in active markets for identical instruments and reported in Level 1. Level 1 financial instruments include highly liquid instruments with quoted prices, such as equity securities listed in active markets, certain fixed income securities, and U.S. government 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 have 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 generally include U.S. government agency securities, mortgage-backed securities, corporate fixed income securities infrequently traded, certain state and municipal obligations, asset-backed securities, and certain equity securities not actively traded.

Securities classified as Level 3, of which the substantial majority is auction rate securities (“ARS”), represent securities in less liquid markets requiring significant management assumptions when determining fair value. Due to the lack of a robust secondary auction-rate securities market with active fair value indicators, fair value for all periods presented was determined using an income approach based on an internally developed discounted cash flow model. In addition to ARS, we have classified certain fixed income securities and state and municipal securities with unobservable pricing inputs as Level 3. The methods used to value these securities are the same as the methods used to value ARS, discussed above.

Investments

Investments carried at fair value primarily include corporate equity securities, ARS, investments in mutual funds, U.S. government securities, and investments in public companies, private equity securities, and partnerships, which are classified as other in the following tables.

Corporate equity securities, mutual funds and U.S. government securities are valued based on quoted prices in active markets for identical instruments and reported in Level 1.

ARS for which the market has been dislocated and largely ceased to function are reported as Level 3 assets. The methods used to value ARS are discussed above.

Private equity securities and partnership interests with unobservable inputs are reported as Level 3 assets. Investments in partnerships and other investments include our general and limited partnership interests in investment partnerships and direct investments in non-public companies. The net assets of investment partnerships consist primarily of investments in non-marketable securities. The value of these investments is at risk to changes in equity markets, general economic conditions and a variety of other factors. We estimate fair value for private equity investments based on our percentage ownership in the net asset value of the entire fund, as reported by the fund or on behalf of the fund, after indication that the fund adheres to applicable fair value measurement guidance. For those funds where the net asset value is not reported by the fund, we derive the fair value of the fund by estimating the fair value of each underlying investment in the fund. In addition to using qualitative information about each underlying investment, as provided by the fund, we give consideration to information pertinent to the specific nature of the debt or equity investment, such as relevant market conditions, offering prices, operating results, financial conditions, exit strategy and other qualitative information, as available. The lack of an independent source to validate fair value estimates, including the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. Commitments to fund additional investments in nonmarketable equity securities recorded at fair value were $12.6 million and $3.0 million at September 30, 2013 and December 31, 2012, respectively.

Securities Sold, But Not Yet Purchased

Equity securities that are valued based on quoted prices in active markets for identical instruments and reported in Level 1.

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 September 30, 2013 and December 31, 2012 are presented below:


	September 30, 2013
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	138,833	$	138,833	$	-	$	-
Trading securities owned:
U.S. government agency securities		121,136		-		121,136		-
U.S. government securities		13,627		13,627		-		-
Corporate securities:
Fixed income securities		519,180		46,644		471,739		797
Equity securities		85,183		84,138		1,045		-
State and municipal securities		108,526		-		108,526		-
Total trading securities owned		847,652		144,409		702,446		797
Available-for-sale securities:
U.S. government agency securities		1,226		-		1,226		-
State and municipal securities ⁽¹⁾		163,414		-		84,979		78,435
Mortgage-backed securities:
Agency		176,933		-		176,933		-
Commercial		231,709		-		231,709		-
Non-agency		4,838		-		4,838		-
Corporate fixed income securities		499,966		62,743		437,223		-
Asset-backed securities		153,485		-		153,485		-
Total available-for-sale securities		1,231,571		62,743		1,090,393		78,435
Investments:
Corporate equity securities		39,212		39,212		-		-
Corporate preferred securities		-		-		-		-
Mutual funds		15,805		15,805		-		-
U.S. government securities		-		-		-		-
Auction rate securities:
Equity securities		59,728		-		-		59,728
Municipal securities		12,409		-		-		12,409
Other		106,624		881		4,837		100,906
Total investments		233,778		55,898		4,837		173,043
	$	2,451,834	$	401,883	$	1,797,676	$	252,275

Liabilities:
Trading securities sold, but not yet purchased
U.S. government securities	$	174,688	$	174,688	$	-	$	-
U.S. government agency securities		23,248		-		23,248		-
Corporate securities:
Fixed income securities		213,757		6,150		207,607		-
Equity securities		83,881		83,424		457		-
State and municipal securities		84		-		84		-
Total trading securities sold, but not yet purchased		495,658		264,262		231,396		-
Securities sold, but not yet purchased		28,598		28,598		-		-
Derivative contracts⁽²⁾		11,101		-		11,101		-
	$	535,357	$	292,860	$	242,497	$	-

⁽¹⁾ Includes $72.3 million of municipal ARS at September 30, 2013.
⁽²⁾ Included in accounts payable and accrued expenses in the consolidated statements of financial condition.


	December 31, 2012
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	72,596	$	72,596	$	-	$	-
Trading securities owned:
U.S. government agency securities		123,758		-		123,758		-
U.S. government securities		3,573		3,573		-		-
Corporate securities:
Fixed income securities		396,878		66,795		329,500		583
Equity securities		35,472		33,650		1,822		-
State and municipal securities		203,927		-		203,927		-
Total trading securities owned		763,608		104,018		659,007		583
Available-for-sale securities:
U.S. government agency securities		1,113		-		1,113		-
State and municipal securities ⁽¹⁾		157,420		-		66,933		90,487
Mortgage-backed securities:
Agency		684,848		-		684,848		-
Commercial		260,974		-		260,974		-
Non-agency		13,878		-		13,878		-
Corporate fixed income securities		480,182		263,017		217,165		-
Asset-backed securities		26,753		-		26,753		-
Total available-for-sale securities		1,625,168		263,017		1,271,664		90,487
Investments:
Corporate equity securities		32,162		32,162		-		-
Corporate preferred securities		56,970		-		56,970
Mutual funds		18,021		18,021		-		-
U.S. government securities		7,069		7,069		-		-
Auction rate securities:
Equity securities		64,397		-		-		64,397
Municipal securities		14,067		-		-		14,067
Other		43,748		1,620		4,831		37,297
Total investments		236,434		58,872		61,801		115,761
	$	2,697,806	$	498,503	$	1,992,472	$	206,831

Liabilities:
Trading securities sold, but not yet purchased
U.S. government securities	$	162,661	$	162,661	$	-	$	-
U.S. government agency securities		15		-		15		-
Corporate securities:
Fixed income securities		150,698		46,274		104,424		-
Equity securities		6,281		5,936		345		-
State and municipal securities		87		-		87		-
Total trading securities sold, but not yet purchased		319,742		214,871		104,871		-
Securities sold, but not yet purchased		22,966		22,966		-		-
Derivative contracts⁽²⁾		19,934		-		19,934		-
	$	362,642	$	237,837	$	124,805	$	-

⁽¹⁾ Includes $84.6 million of municipal ARS at December 31, 2012.
⁽²⁾ Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

The following table summarizes the changes in fair value carrying values associated with Level 3 financial instruments during the three and nine months ended September 30, 2013 (in thousands):


	Three Months Ended September 30, 2013
	Trading Securities Owned						Investments
	Corporate Fixed Income Securities		Equity Securities		State & Municipal Securities ⁽¹⁾		Auction Rate Securities - Equity		Auction Rate Securities - Municipal		Other

Balance at June 30, 2013	$	5,057	$	12,601	$	81,930	$	62,109	$	13,330	$	86,994
Unrealized gains/(losses):
Included in changes in net assets⁽²⁾		(29)		-		-		519		31		3,514
Included in OCI⁽³⁾		-		-		329		-		-		-
Realized gains/(losses) ⁽²⁾		101		-		383		-		-		(632)
Purchases		398		-		-		-		-		2,127
Sales		(2,707)		-		-		-		-		(2,602)
Redemptions		(259)		-		(5,000)		(2,900)		(952)		(1,096)
Transfers:
Into Level 3		2		-		6,201		-		-		12,601
Out of Level 3		(1,766)		(12,601)		(5,408)		-		-		-
Net change		(4,260)		(12,601)		(3,495)		(2,381)		(921)		13,912
Balance at September 30, 2013	$	797	$	-	$	78,435	$	59,728	$	12,409	$	100,906


	Nine Months Ended September 30, 2013
	Trading Securities Owned						Investments
	Corporate Fixed Income Securities		Equity Securities		State & Municipal Securities ⁽¹⁾		Auction Rate Securities - Equity		Auction Rate Securities - Municipal		Other

Balance at December 31, 2012	$	583	$	-	$	90,487	$	64,397	$	14,067	$	37,297
Unrealized gains/(losses):
Included in changes in net assets⁽²⁾		434		1,333		-		206		(6)		9,245
Included in OCI⁽³⁾		-		-		(1,840)		-		-		-
Realized gains/(losses) ⁽²⁾		281		-		895		-		-		(129)
Purchases		9,362		11,476		5,000		75		-		50,804
Sales		(6,888)		(208)		-		-		-		(6,801)
Redemptions		(1,347)		-		(16,900)		(4,950)		(1,652)		(2,111)
Transfers:
Into Level 3		139		-		6,201		-		-		12,601
Out of Level 3		(1,767)		(12,601)		(5,408)		-		-		-
Net change		214		-		(12,052)		(4,669)		(1,658)		63,609
Balance at September 30, 2013	$	797	$	-	$	78,435	$	59,728	$	12,409	$	100,906

⁽¹⁾ Included in available-for-sale securities owned in the consolidated statements of financial condition.

(2) Realized and unrealized gains/(losses) related to trading securities and investments are reported in other income in the consolidated statements of operations.

(3) Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive loss in the consolidated statements of financial condition.

The results included in the table above are only a component of the overall investment strategies of our company. The table above does not present Level 1 or Level 2 valued assets or liabilities. The changes to our company’s Level 3 classified instruments were principally a result of: our acquisition of KBW, Inc, unrealized gains and losses, and redemptions of ARS at par during the three and nine months ended September 30, 2013. During the nine months ended September 30, 2013, trading securities owned and investments purchased as part of the KBW, Inc. acquisition that are classified as Level 3 totaled $54.1 million, of which $6.3 million were sold during the nine months ended September 30, 2013. The changes in unrealized gains/(losses) recorded in earnings for the three and nine months ended September 30, 2013 relating to Level 3 assets still held at September 30, 2013 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 September 30, 2013.



	Valuation technique	Unobservable input	Range	Weighted average
Available-for-sale securities:
State and municipal securities	Discounted cash flow	Discount rate	5.6% - 11.0%	7.5%
		Workout period	1 - 4 years	3.4 years

Investments:
Auction rate securities
Equity securities	Discounted cash flow	Discount rate	2.3% - 12.7%	7.4%
		Workout period	1 - 3 years	2.6 years

Municipal securities	Discounted cash flow	Discount rate	0.1% - 11.0%	6.5%
		Workout period	1 -4 years	2.6 years

Other
Investments in partnerships	Market approach	Revenue multiple	1.7-4.0	2.6
		EBITDA multiple	4.5-9.9	7.7

Private equity investments	Market approach	Revenue multiple	0.5-3.0	1.8
		EBITDA multiple	4.3-11.3	7.8

The fair value of certain Level 3 assets was determined using various methodologies as appropriate, including net asset values (“NAVs”) of underlying investments, third-party pricing vendors, broker quotes and market and income approaches. 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 on-going basis, management verifies the fair value by reviewing the appropriateness of the discounted cash flow model and its significant inputs with other available market data for similar instruments.

General and limited partnership interests in investment partnerships totaled $56.2 million and $21.5 million at September 30, 2013 and December 31, 2012, respectively. 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.

Direct investments in private equity companies totaled $10.8 million and $13.5 million at September 30, 2013 and December 31, 2012, respectively. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, 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. Under the income approach, fair value may be determined by discounting the cash flows to a single present amount using current market expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For securities utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. 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.

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 $10.6 million and $72.0 million of transfers of financial assets from Level 2 to Level 1 during the three and nine months ended September 30, 2013, respectively, primarily related to corporate preferred securities that were converted to common stock, which is actively traded and fixed income and equity securities for which market trades were observed that provided transparency into the valuation of these assets. There were $27.2 million and $32.6 million of transfers of financial assets from Level 1 to Level 2 during the three and nine months ended September 30, 2013, respectively, primarily related to corporate fixed income securities for which there were low volumes of recent trade activity observed. There were an immaterial amount of transfers into Level 3 during the three and nine months ended September 30, 2013.

Fair Value of Financial Instruments

The following reflects the fair value of financial instruments, as of September 30, 2013 and December 31, 2012, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).


	September 30, 2013				December 31, 2012
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Financial assets:
Cash and cash equivalents	$	649,244	$	649,244	$	403,941		403,941
Restricted cash		4,419		4,419		4,414		4,414
Cash segregated for regulatory purposes		33		33		128,031		128,031
Securities purchased under agreements to resell		168,182		168,182		158,695		158,695
Trading securities owned		847,652		847,652		763,608		763,608
Available-for-sale securities		1,231,571		1,231,571		1,625,168		1,625,168
Held-to-maturity securities		1,723,482		1,732,534		708,008		715,274
Loans held for sale		75,440		75,440		214,531		214,531
Bank loans		1,061,150		1,076,079		815,937		834,188
Investments		233,778		233,778		236,434		236,434
Financial liabilities:
Securities sold under agreements to repurchase	$	255,451	$	255,451	$	140,346	$	140,346
Bank deposits		4,228,405		3,659,589		3,346,133		3,368,643
Trading securities sold, but not yet purchased		495,658		495,658		319,742		319,742
Securities sold, but not yet purchased		28,598		28,598		22,966		22,966
Derivative contracts⁽¹⁾		11,101		11,101		19,934		19,934
Senior notes ⁽²⁾		325,000		335,986		325,000		338,475
Non-recourse debt ⁽²⁾		32,111		32,541		58,992		58,992
Debentures to Stifel Financial Capital Trusts		82,500		74,313		82,500		66,545
Liabilities subordinated to claims of general creditors		3,131		3,097		5,318		5,204

⁽¹⁾ Included in accounts payable and accrued expenses in the consolidated statements of financial condition.
⁽²⁾ Included in corporate debt 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 September 30, 2013 and December 31, 2012 (in thousands):


	September 30, 2013
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	510,411	$	510,411	$	-	$	-
Restricted cash		4,419		4,419		-		-
Cash segregated for regulatory purposes		33		33		-		-
Securities purchased under agreements to resell		168,182		144,171		24,011		-
Held-to-maturity securities		1,732,534		-		1,500,738		231,796
Loans held for sale		75,440		-		75,440		-
Bank loans		1,076,079		-		1,076,079		-
Financial liabilities:
Securities sold under agreements to repurchase	$	255,451	$	4,131	$	251,320	$	-
Bank deposits		3,659,589		-		3,659,589		-
Senior notes		335,986		335,986		-		-
Non-recourse debt		32,541		-		32,541		-
Debentures to Stifel Financial Capital Trusts		74,313		-		-		74,313
Liabilities subordinated to claims of general creditors		3,097		-		-		3,097


	December 31, 2012
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	331,345	$	331,345	$	-	$	-
Restricted cash		4,414		4,414		-		-
Cash segregated for regulatory purposes		128,031		128,031		-		-
Securities purchased under agreements to resell		158,695		154,688		4,007		-
Held-to-maturity securities		715,274		-		487,775		227,499
Loans held for sale		214,531		-		214,531		-
Bank loans		834,188		-		834,188		-
Financial liabilities:
Securities sold under agreements to repurchase	$	140,346	$	140,346	$	-	$	-
Bank deposits		3,368,643		-		3,368,643		-
Senior notes		338,475		338,475		-		-
Non-recourse debt		58,992		-		58,992		-
Debentures to Stifel Financial Capital Trusts		66,545		-		-		66,545
Liabilities subordinated to claims of general creditors		5,204		-		-		5,204

The following, as supplemented by the discussion above, describes the valuation techniques used in estimating the fair value of our financial instruments as of September 30, 2013 and December 31, 2012.

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 September 30, 2013 and December 31, 2012 approximate fair value due to the 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 asset-backed securities, consisting of corporate obligations, collateralized debt obligation securities and ARS. 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 fair value. Fair 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 would be made under current conditions 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 September 30, 2013 and December 31, 2012 approximate fair value due to the short-term nature.

Bank Deposits

The fair value for demand deposits is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money-market and savings accounts approximate their fair values at the reporting date as these are short-term in nature. The fair value of other interest-bearing deposits, including certificates of deposit, was calculated by discounting the future cash flows using discount rates based on the expected current market rates for similar products with similar remaining terms.

Senior Notes

The fair value of our senior notes is estimated based upon quoted market prices.

Non-recourse debt

The fair value of our non-recourse debt is based on the discounted value of contractual cash flows. We have assumed a discount rate based on the coupon achieved in our 6.7% senior notes due 2022.

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 6.7% senior notes due 2022.

Liabilities Subordinated to Claims of General Creditors

The fair value of subordinated debt was measured using the interest rates commensurate with borrowings of similar terms.

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.