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

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.

When available, the fair value of financial instruments is based on quoted prices in active markets and reported in Level 1. Level 1 financial instruments include highly liquid instruments with quoted prices, such as equity securities listed in active markets, corporate fixed income securities, U.S. government securities, and U.S. government agency 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 has 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 include U.S. government agency securities, mortgage-backed securities, corporate fixed income and equity securities infrequently traded, state and municipal securities, sovereign debt, and asset-backed securities, which primarily include collateralized loan obligations.

We have identified Level 3 financial instruments to include certain asset-backed securities and loans with unobservable pricing inputs. Level 3 financial instruments have little to no pricing observability as of the report date. These financial instruments do not have active two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Investments carried at fair value primarily include corporate equity securities, auction-rate securities (“ARS”), and private company investments.

Corporate equity securities are primarily valued based on quoted prices in active markets and reported in Level 1.

ARS are primarily valued based upon our expectations of issuer redemptions and using internal discounted cash flow models that utilize unobservable inputs. ARS are primarily reported as Level 3 assets.

Direct investments in private companies may be valued using the market approach 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. 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.

The Company’s investments in funds measured at NAV include partnership interests, mutual funds, private equity funds, and money market funds. Private equity funds primarily invest in a broad range of industries worldwide in a variety of situations, including leveraged buyouts, recapitalizations, growth investments and distressed investments. The private equity funds are primarily closed-end

funds in which the Company’s investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed.

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.

The tables below present the fair value of our investments in, and unfunded commitments to, funds that are measured at NAV (in thousands):

	September 30, 2019
	Fair value of investments		Unfunded commitments
Money market funds	$	28,047	$	—
Mutual funds		7,315		—
Private equity funds		2,508		1,477
Partnership interests		3,458		952
Total	$	41,328	$	2,429

	December 31, 2018
	Fair value of investments		Unfunded commitments
Money market funds	$	19,719	$	—
Mutual funds		9,122		—
Private equity funds		3,461		1,480
Partnership interests		3,976		1,024
Total	$	36,278	$	2,504

Financial instruments sold, but not purchased, recorded at fair value based on quoted prices in active markets and other observable market data include highly liquid instruments with quoted prices, such as U.S. government securities, equity and fixed income securities listed in active markets, which are reported as Level 1.

If quoted prices are not available, 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 has 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 include U.S. government agency securities, agency mortgage-backed securities not actively traded, corporate fixed income, and sovereign debt securities.

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, 2019, are presented below (in thousands):

	September 30, 2019
	Total		Level 1		Level 2		Level 3
Financial instruments owned:
U.S. government securities	$	24,034	$	24,034	$	—	$	—
U.S. government agency securities		112,481		—		112,481		—
Mortgage-backed securities:
Agency		457,110		—		457,110		—
Non-agency		10,205		—		10,205		—
Asset-backed securities		36,157		—		35,982		175
Corporate securities:
Fixed income securities		333,808		4,364		329,444		—
Equity securities		77,649		77,186		463		—
Sovereign debt		1,977		—		1,977		—
State and municipal securities		118,671		—		118,671		—
Loans		17,800		—		—		17,800
Total financial instruments owned		1,189,892		105,584		1,066,333		17,975
Available-for-sale securities:
U.S. government agency securities		4,610		100		4,510		—
State and municipal securities		31,510		—		31,510		—
Mortgage-backed securities:
Agency		887,760		—		887,760		—
Commercial		114,498		—		114,498		—
Non-agency		10,511		—		10,511		—
Corporate fixed income securities		674,878		—		674,878		—
Asset-backed securities		1,725,034		—		1,725,034		—
Total available-for-sale securities		3,448,801		100		3,448,701		—
Investments:
Corporate equity securities		36,603		35,543		—		1,060
Auction rate securities:
Equity securities		13,664		—		—		13,664
Municipal securities		654		—		470		184
Other		9,965		8,847		265		853
Investments in funds and partnerships measured at NAV		13,281
Total investments		74,167		44,390		735		15,761
Cash equivalents measured at NAV		28,047
Derivative contracts ⁽¹⁾		1,416		—		1,416		—
	$	4,742,323	$	150,074	$	4,517,185	$	33,736

	September 30, 2019
	Total		Level 1		Level 2		Level 3
Liabilities:
Financial instruments sold, but not yet purchased:
U.S. government securities	$	421,418	$	421,418	$	—	$	—
Agency mortgage-backed securities		157,903		—		157,903		—
Corporate securities:
Fixed income securities		238,245		119		238,126		—
Equity securities		78,764		78,764		—		—
Sovereign debt		9,467		—		9,467		—
Total financial instruments sold, but not yet purchased	$	905,797	$	500,301	$	405,496	$	—

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2018, are presented below (in thousands):

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Financial instruments owned:
U.S. government securities	$	42,121	$	42,121	$	—	$	—
U.S. government agency securities		72,532		—		72,532		—
Mortgage-backed securities:
Agency		564,111		—		564,111		—
Non-agency		25,727		—		25,726		1
Asset-backed securities		25,905		—		25,730		175
Corporate securities:
Fixed income securities		310,457		1,100		309,357		—
Equity securities		57,911		57,125		786		—
Sovereign debt		14,063		—		14,063		—
State and municipal securities		154,622		—		154,622		—
Total financial instruments owned		1,267,449		100,346		1,166,927		176
Available-for-sale securities:
U.S. government agency securities		5,215		417		4,798		—
State and municipal securities		68,226		—		68,226		—
Mortgage-backed securities:
Agency		230,408		—		230,408		—
Commercial		69,715		—		69,715		—
Non-agency		1,219		—		1,219		—
Corporate fixed income securities		931,604		—		931,604		—
Asset-backed securities		1,764,060		—		1,764,060		—
Total available-for-sale securities		3,070,447		417		3,070,030		—
Investments:
Corporate equity securities		33,046		31,670		1,376		—
Auction rate securities:
Equity securities		16,632		—		—		16,632
Municipal securities		704		—		—		704
Other		1,041		—		184		857
Investments in funds and partnerships measured at NAV		16,559
Total investments		67,982		31,670		1,560		18,193
Cash equivalents measured at NAV		19,719
Derivative contracts ⁽¹⁾		7,683		—		7,683		—
	$	4,433,280	$	132,433	$	4,246,200	$	18,369

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Liabilities:
Financial instruments sold, but not yet purchased:
U.S. government securities	$	534,817	$	534,817	$	—	$	—
U.S. government agency securities		32,755		—		32,755		—
Agency mortgage-backed securities		123,456		—		123,456		—
Corporate securities:
Fixed income securities		208,725		1,289		207,436		—
Equity securities		36,117		35,398		719		—
Sovereign debt		11,429		—		11,429		—
State and municipal securities		7		—		7		—
Total financial instruments sold, but not yet purchased	$	947,306	$	571,504	$	375,802	$	—

The following table summarizes the changes in fair value associated with Level 3 financial instruments during the three months ended September 30, 2019 (in thousands):

	Three Months Ended September 30, 2019
	Financial instruments owned				Investments
	Asset-Backed Securities		Loans		Corporate Equity Securities		Auction Rate Securities – Equity			Auction Rate Securities – Municipal		Other
Balance at June 30, 2019	$	175	$	—	$	—	$	16,732		$	184	$	853
Unrealized gains/(losses):
Included in changes in net assets ⁽¹⁾		—		—		—		(418	)		—		—
Realized gains/(losses) ⁽¹⁾		—		—		—		—			—		—
Purchases		—		17,335		—		—			—		—
Sales		—		—		—		—			—		—
Redemptions		—		—		—		(2,650	)		—		—
Transfers:
Into Level 3		—		465		1,060		—			—		—
Out of Level 3		—		—		—		—			—		—
Net change		—		17,800		1,060		(3,068	)		—		—
Balance at September 30, 2019	$	175	$	17,800	$	1,060	$	13,664		$	184	$	853

The following table summarizes the change in fair value associated with Level 3 financial instruments during the nine months ended September 30, 2019 (in thousands):

	Nine Months Ended September 30, 2019
	Financial instruments owned										Investments
	Mortgage- Backed Securities – Non-Agency			Asset-Backed Securities			Loans		Corporate Equity Securities		Auction Rate Securities – Equity			Auction Rate Securities – Municipal			Other
Balance at December 31, 2018	$	1		$	175		$	—	$	—	$	16,632		$	704		$	857
Unrealized gains/(losses):
Included in changes in net assets ⁽¹⁾		—			2			—		—		(318	)		—			—
Realized gains/(losses) ⁽¹⁾		(1	)		—			—		—		—			—			—
Purchases		—			—			17,335		—		—			—			—
Sales		—			—			—		—		—			—			—
Redemptions		—			(2	)		—		—		(2,650	)		(50	)		(4	)
Transfers:
Into Level 3		—			—			465		1,060		—			—			—
Out of Level 3		—			—			—		—		—			(470	)		—
Net change		(1	)		—			17,800		1,060		(2,968	)		(520	)		(4	)
Balance at September 30, 2019	$	—		$	175		$	17,800	$	1,060	$	13,664		$	184		$	853

The results included in the tables above are only a component of the overall investment strategies of our company. The tables above do not present Level 1 or Level 2 valued assets or liabilities. The changes in unrealized gains/(losses) recorded in earnings for the three and nine months ended September 30, 2019, relating to Level 3 assets still held at September 30, 2019, were immaterial.

The fair value of certain Level 3 assets was determined using various methodologies, as appropriate, including third-party pricing vendors and broker quotes. 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. Significant increases in any of these inputs in isolation would result in a significantly lower fair value. On an ongoing basis, management verifies the fair value by reviewing the appropriateness of the discounted cash flow model and its significant inputs.

The following reflects the fair value of financial instruments as of September 30, 2019 and December 31, 2018, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).

	September 30, 2019				December 31, 2018
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	868,866	$	868,866	$	1,936,560	$	1,936,560
Cash segregated for regulatory purposes		62,654		62,654		132,814		132,814
Securities purchased under agreements to resell		624,049		624,049		699,900		699,900
Financial instruments owned		1,189,892		1,189,892		1,267,449		1,267,449
Available-for-sale securities		3,448,801		3,448,801		3,070,447		3,070,447
Held-to-maturity securities		2,881,484		2,855,791		4,218,854		4,122,907
Bank loans		9,101,903		9,223,031		8,517,615		8,565,347
Loans held for sale		265,330		265,330		205,557		205,557
Investments		74,167		74,167		67,982		67,982
Derivative contracts ⁽¹⁾		1,416		1,416		7,683		7,683
Financial liabilities:
Securities sold under agreements to repurchase	$	564,892	$	564,892	$	535,394	$	535,394
Bank deposits		14,836,646		13,849,447		15,863,613		14,661,996
Financial instruments sold, but not yet purchased		905,797		905,797		947,306		947,306
Federal Home Loan Bank advances		250,000		250,000		540,000		540,000
Borrowings		150		150		180,655		180,655
Senior notes		1,016,751		1,068,923		1,015,973		989,790
Debentures to Stifel Financial Capital Trusts		60,000		43,570		60,000		49,747

The following tables present the estimated fair values of financial instruments not measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	840,819	$	840,819	$	—	$	—
Cash segregated for regulatory purposes		62,654		62,654		—		—
Securities purchased under agreements to resell		624,049		541,495		82,554		—
Held-to-maturity securities		2,855,791		—		2,690,211		165,580
Bank loans		9,223,031		—		9,223,031		—
Loans held for sale		265,330		—		265,330		—
Financial liabilities:
Securities sold under agreements to repurchase	$	564,892	$	19,175	$	545,717	$	—
Bank deposits		13,849,447		—		13,849,447		—
Federal Home Loan Bank advances		250,000		250,000		—		—
Borrowings		150		150		—		—
Senior notes		1,068,923		1,068,923		—		—
Debentures to Stifel Financial Capital Trusts		43,570		—		—		43,570

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	1,916,841	$	1,916,841	$	—	$	—
Cash segregated for regulatory purposes		132,814		132,814		—		—
Securities purchased under agreements to resell		699,900		645,632		54,268		—
Held-to-maturity securities		4,122,907		—		3,960,099		162,808
Bank loans		8,565,347		—		8,565,347		—
Loans held for sale		205,557		—		205,557		—
Financial liabilities:
Securities sold under agreements to repurchase	$	535,394	$	87,273	$	448,121	$	—
Bank deposits		14,661,996		—		14,661,996		—
Federal Home Loan Bank advances		540,000		540,000		—		—
Borrowings		180,655		180,655		—		—
Senior notes		989,790		989,790		—		—
Debentures to Stifel Financial Capital Trusts		49,747		—		—		49,747

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, 2019 and December 31, 2018.

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, 2019 and December 31, 2018 approximate fair value due to their short-term nature.

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 agency mortgage-backed securities, asset-backed securities, consisting of collateralized loan obligation securities and corporate fixed income securities. 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 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 market value. Market value is determined based on prevailing market prices for loans with similar characteristics or on sale contract prices.

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, with similar remaining maturities, would be made and considering liquidity spreads applicable to each loan portfolio based on the secondary market.

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, 2019 and December 31, 2018 approximate fair value due to the short-term nature.

The fair value of interest-bearing deposits, including certificates of deposits, demand deposits, savings, and checking accounts, was calculated by discounting the future cash flows using discount rates based on the replacement cost of funding of similar structures and terms.

The carrying amount of borrowings approximates fair value due to the relative short-term nature of such borrowings. In addition, Stifel Bancorp’s FHLB advances reflect terms that approximate current market rates for similar borrowings.

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

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 similar type debt instruments.

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.