FINANCIAL INSTRUMENTS

At June 30, 2015 and December 31, 2014 financial instrument liabilities and related restricted cash consists of $21,385 and $21,311, respectively, of short sales of corporate securities.

Activity is summarized below for financial instrument liabilities and related restricted cash:



	June 30,
	2015			2014
Balance, beginning of period	$	21,311		$	25,090
Settlement of short sales of corporate securities	(419		)	—
Short sales of corporate securities	209			19,341
Net investment losses	284			1,492
Receipt of dividends, net of interest expense	—			88
Balance of financial instrument liabilities and related restricted cash, end of period	$	21,385		$	46,011

Short Sales of Corporate Securities

From time to time, Steel Excel enters into short sale transactions on certain corporate securities in which Steel Excel received proceeds from the sale of such securities and incurred obligations to deliver such securities at a later date. Upon initially entering into such short sale transactions Steel Excel recognizes a liability equal to the fair value of the obligation, with a comparable amount of cash and cash equivalents reclassified as restricted cash. Subsequent changes in the fair value of such obligations, determined based on the closing market price of the securities, are recognized currently as gains or losses, with a comparable adjustment made between unrestricted and restricted cash.

Foreign Currency Exchange Rate Risk

Financial instrument activity in 2014 includes activity for amounts that were payable in foreign currencies which were subject to the risk of exchange rate changes. The liabilities were accounted for at fair value on the balance sheet date with changes in fair value reported in the Company's Consolidated Statements of Operations included in Net investment gains(losses). The liabilities were not designated as hedging instruments and were settled in the fourth quarter of 2014.

Precious Metal and Commodity Inventories

H&H's precious metal and commodity inventories are subject to market price fluctuations. H&H enters into commodity futures and forward contracts to migrate the impact of price fluctuations on its precious and certain non-precious metal inventories that are not subject to fixed-price contracts. HNH's hedging strategy is designed to protect it against normal volatility; therefore, abnormal price changes in these commodities or markets could negatively impact HNH's earnings. HNH does not enter into derivatives or other financial instruments for trading or speculative purposes.

As of June 30, 2015, HNH had the following outstanding forward contracts with settlement dates through September 2015. There were no futures contracts outstanding as of June 30, 2015.



Commodity	Amount	Notional Value
Silver	885,000 ounces	$	14,000
Gold	1,100 ounces	$	1,300
Copper	350,000 pounds	$	900
Tin	40 metric tons	$	600

H&H accounts for these contracts as either fair value hedges or economic hedges under the guidance in ASC 815, Derivatives and Hedging.

Fair Value Hedges. Of the total forward contracts outstanding, 650,000 ounces of silver and substantially all of the copper contracts are designated and accounted for as fair value hedges under ASC 815. The fair values of these derivatives are recognized as derivative assets and liabilities in the Company's Consolidated Balance Sheets. The net change in fair value of the derivative assets and liabilities, and the change in the fair value of the underlying hedged inventory, are recognized in the consolidated statement of operations, and such amounts principally offset each other due to the effectiveness of the hedges. The fair value hedges are associated primarily with HNH's precious metal inventory carried at fair value.

Economic Hedges. The remaining outstanding forward contracts for silver, and all of the contracts for gold and tin, are accounted for as economic hedges. As these derivatives are not designated as accounting hedges under ASC 815, they are accounted for as derivatives with no hedge designation. The derivatives are marked to market, and both realized and unrealized gains and losses are recorded in current period earnings in the Consolidated Statement of Operations. The economic hedges are associated primarily with HNH's precious metal inventory valued using the LIFO method.

The forward contracts were made with a counter party rated A+ by Standard & Poors. Accordingly, HNH has determined that there is minimal credit risk of default. HNH estimates the fair value of its derivative contracts through the use of market quotes or broker valuations when market information is not available. HNH maintains collateral on account with the third-party broker. Such collateral consists of both cash that varies in amount depending on the value of open contracts, as well as ounces of precious metal held on account by the broker.

Foreign Currency Forward Contracts

CoSine, through its subsidiary API, enters into foreign currency forward contracts to hedge its receivables and payables denominated in other currencies. In addition, API enters into foreign currency forward contracts to hedge the value of its future sales denominated Euros and the value of its future purchases denominated in USD. These hedges have settlement dates ranging through June 2016.

The forward contracts that are used to hedge the risk of foreign exchange movement on its receivables and payables are accounted for as fair value hedges under ASC 815. At June 30, 2015 there were contracts in place to buy Sterling and sell Euros in the amount of €3,550 and a contract to sell Sterling and buy USD in the amount of $700. The fair values of these derivatives are recognized as derivative assets and liabilities in the Company's Consolidated Balance Sheets. The net change in fair value of the derivative assets and liabilities are recognized in the consolidated statement of operations.

The forward contracts that are used to hedge the value of API's future sales and purchases are accounted for as cash flow hedges in accordance with ASC 815. At June 30, 2015 there were contracts in place to hedge the value of future sales denominated in Euros in the amount of €18,350 and the value of future purchases denominated in USD in the amount of $3,600. These hedges are fully effective and accordingly, the changes in fair value are recorded in Accumulated Other Comprehensive Income ("AOCI") and, at maturity, the gain or loss on the forward contract is reclassified from AOCI into the consolidated statement of operations.

Debt Agreements

As discussed in Note 13 - "Debt and Capital Lease Obligations," Handy & Harman Group Ltd. ("H&H Group") has entered into two interest rate swap agreements to reduce its exposure to interest rate fluctuations. These derivatives are not designated as accounting hedges under U.S. GAAP; they are accounted for as derivatives with no hedge designation. HNH records the gains or losses both from the mark-to-market adjustments and net settlements in interest expense in the consolidated statement of operations as the hedges are intended to offset interest rate movements.

Fair Value and carrying amount of Derivative Instruments in the Company's Consolidated Balance Sheets is as follows.



Derivative	Balance Sheet Location	June 30, 2015			December 31, 2014
Commodity contracts (a), (b)	Prepaid and other current assets	$	603		$	667
Commodity contracts (c)	Prepaid and other current assets	$	243		$	97
Interest rate swap agreements	Other current liabilities	$	(103	)	$	(138	)
Foreign exchange forward contracts (a), (d)	Accrued liabilities	$	2,266		$	—
Foreign exchange forward contracts (a), (d)	Accrued liabilities	$	(42	)	$	—
Foreign exchange forward contracts (a), (b)	Trade and other receivables/Prepaid and other current assets	$	107		$	—

(a) Designated as hedging instruments as of June 30, 2015.

(b) Fair value hedge

(d) Cash flow hedge

Effect of derivative instruments on the Company's Consolidated Statements of Operations:



		Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
Derivative	Statement of Operations Location	Gain (loss)			Gain (loss)			Gain (loss)			Gain (loss)
Commodity contracts (a), (b)	Cost of goods sold	$	893		$	(783	)	$	(21	)	$	(909	)
Commodity contracts (c)	Realized and unrealized (gain) loss on derivatives	312			(606		)	105			(466		)
Interest rate swap agreements	Interest expense, net	(18		)	(80		)	(63		)	(125		)
Foreign exchange forward contracts (a), (d)	Revenues/Costs of sales	610			—			610			—
Foreign exchange forward contracts (a), (b)	Other income, net	111			—			111			—
Total derivatives		$	1,908		$	(1,469	)	$	742		$	(1,500	)

(a) Designated as hedging instruments as of June 30, 2015.

(b) Fair value hedge

(d) Cash flow hedge

Financial Instruments with Off-Balance Sheet Risk

WebBank is a party to financial instruments with off-balance sheet risk. In the normal course of business, these financial instruments include commitments to extend credit in the form of loans as part of WebBank’s lending arrangements. Those instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contract amounts of those instruments reflect the extent of involvement WebBank has in particular classes of financial instruments.

At June 30, 2015 and December 31, 2014, WebBank’s undisbursed loan commitments totaled $96,193 and $82,788, respectively. Commitments to extend credit are agreements to lend to a borrower who meets the lending criteria through one of the Bank’s lending agreements, provided there is no violation of any condition established in the contract with the counterparty to the lending arrangement.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without the credit being extended, the total commitment amounts do not necessarily represent future cash requirements. WebBank evaluates each prospective borrower’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by WebBank upon extension of credit is based on management's credit evaluation of the borrower and WebBank’s counterparty.

WebBank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. WebBank uses the same credit policy in making commitments and conditional obligations as it does for on-balance sheet instruments.

WebBank estimates an allowance for potential losses on off-balance sheet contingent credit exposures related to the guaranteed amount of its SBA and USDA loans and whether or not the SBA/USDA honors the guarantee. WebBank determines the allowance for these contingent credit exposures based on historical experience and portfolio analysis. The allowance is included with other liabilities in the consolidated balance sheet, with any related increases or decreases in the reserve included in the statement of income. The allowance was $188 at June 30, 2015 and December 31, 2014, respectively, and is included within Other current liabilities in the Company's Consolidated Balance Sheets.