Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair Value Measurements

Our available-for-sale securities, derivative instruments and certain non-marketable and marketable securities are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our consolidated financial statements.

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2012:

(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2012
Assets
Available-for-sale securities:
U.S. treasury securities	$	—	$	25,247	$	—	$	25,247
U.S. agency debentures	—		3,447,628		—		3,447,628
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		1,473,433		—		1,473,433
Agency-issued collateralized mortgage obligations - fixed rate	—		4,103,974		—		4,103,974
Agency-issued collateralized mortgage obligations - variable rate	—		1,772,748		—		1,772,748
Agency-issued commercial mortgage-backed securities	—		422,098		—		422,098
Municipal bonds and notes	—		93,529		—		93,529
Equity securities	4,520		—		—		4,520
Total available-for-sale securities	4,520		11,338,657		—		11,343,177
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments	—		—		665,921		665,921
Other venture capital investments	—		—		127,091		127,091
Total non-marketable securities (fair value accounting)	—		—		793,012		793,012
Other assets:
Marketable securities	1,144		9,184		—		10,328
Interest rate swaps	—		9,005		—		9,005
Foreign exchange forward and option contracts	—		13,541		—		13,541
Equity warrant assets	—		8,143		66,129		74,272
Loan conversion options	—		890		—		890
Client interest rate derivatives	—		558		—		558
Total assets (1)	$	5,664	$	11,379,978	$	859,141	$	12,244,783
Liabilities
Foreign exchange forward and option contracts	$	—	$	12,847	$	—	$	12,847
Client interest rate derivatives	—		590		—		590
Total liabilities	$	—	$	13,437	$	—	$	13,437

(1) Included in Level 1, Level 2, and Level 3 assets are $1.1 million, $8.7 million, and $708 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011:

(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
Assets
Available-for-sale securities:
U.S. treasury securities	$	—	$	25,964	$	—	$	25,964
U.S. agency debentures	—		2,874,932		—		2,874,932
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		1,564,286		—		1,564,286
Agency-issued collateralized mortgage obligations - fixed rate	—		3,373,760		—		3,373,760
Agency-issued collateralized mortgage obligations - variable rate	—		2,413,378		—		2,413,378
Agency-issued commercial mortgage-backed securities	—		178,693		—		178,693
Municipal bonds and notes	—		100,498		—		100,498
Equity securities	4,535		—		—		4,535
Total available-for-sale securities	4,535		10,531,511		—		10,536,046
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments	—		—		611,824		611,824
Other venture capital investments	—		—		124,121		124,121
Other investments	—		—		987		987
Total non-marketable securities (fair value accounting)	—		—		736,932		736,932
Other assets:
Marketable securities	1,410		—		—		1,410
Interest rate swaps	—		11,441		—		11,441
Foreign exchange forward and option contracts	—		18,326		—		18,326
Equity warrant assets	—		3,923		63,030		66,953
Loan conversion options	—		923		—		923
Client interest rate derivatives	—		50		—		50
Total assets (1)	$	5,945	$	10,566,174	$	799,962	$	11,372,081
Liabilities
Foreign exchange forward and option contracts	$	—	$	16,816	$	—	$	16,816
Client interest rate derivatives	—		52		—		52
Total liabilities	$	—	$	16,868	$	—	$	16,868

(1) Included in Level 1 and Level 3 assets are $1.2 million and $648 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for 2012, 2011 and 2010, respectively:

(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income			Purchases		Sales			Issuances		Distributions and Other Settlements			Transfers Into Level 3		Transfers Out of Level 3			Ending Balance
Year ended December 31, 2012:
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments	$	611,824	$	44,283		$	122,238	$	—		$	—	$	(112,424	)	$	—	$	—		$	665,921
Other venture capital investments	124,121		46,711			13,123		(9,716		)	—		(39,558		)	—		(7,590		)	127,091
Other investments	987		21			—		—			—		(1,008		)	—		—			—
Total non-marketable securities (fair value accounting) (1)	736,932		91,015			135,361		(9,716		)	—		(152,990		)	—		(7,590		)	793,012
Other assets:
Equity warrant assets (2)	63,030		13,697			—		(21,077		)	11,978		(78		)	—		(1,421		)	66,129
Total assets	$	799,962	$	104,712		$	135,361	$	(30,793	)	$	11,978	$	(153,068	)	$	—	$	(9,011	)	$	859,141
Year ended December 31, 2011:
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments	$	391,247	$	119,164		$	156,498	$	—		$	—	$	(55,085	)	$	—	$	—		$	611,824
Other venture capital investments	111,843		25,794			13,981		(27,513		)	—		16			—		—			124,121
Other investments	981		24			—		—			—		(18		)	—		—			987
Total non-marketable securities (fair value accounting) (1)	504,071		144,982			170,479		(27,513		)	—		(55,087		)	—		—			736,932
Other assets:
Equity warrant assets (2)	43,537		31,958			—		(25,534		)	13,849		(63		)	—		(717		)	63,030
Total assets	$	547,608	$	176,940		$	170,479	$	(53,047	)	$	13,849	$	(55,150	)	$	—	$	(717	)	$	799,962
Year ended December 31, 2010:
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments	$	271,316	$	43,645		$	105,899	$	—		$	—	$	(29,613	)	$	—	$	—		$	391,247
Other venture capital investments	96,577		18,696			14,134		(6,773		)	—		—			—		(10,791		)	111,843
Other investments	1,143		(18		)	—		—			—		(144		)	—		—			981
Total non-marketable securities (fair value accounting) (1)	369,036		62,323			120,033		(6,773		)	—		(29,757		)	—		(10,791		)	504,071
Other assets:
Equity warrant assets (2)	40,119		4,922			—		(8,538		)	7,781		(60		)	—		(687		)	43,537
Total assets	$	409,155	$	67,245		$	120,033	$	(15,311	)	$	7,781	$	(29,817	)	$	—	$	(11,478	)	$	547,608

(1) Realized and unrealized gains (losses) are recorded on the line items “gains on investment securities, net”, and “other noninterest income”, components of noninterest income.

(2) Realized and unrealized gains are recorded on the line item “gains on derivative instruments, net”, a component of noninterest income.

The following table presents the amount of unrealized gains (losses) included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at December 31, 2012:

	Year ended December 31,
(Dollars in thousands)	2012		2011
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	46,859	$	118,672
Other venture capital investments	56,233		17,406
Other investments	—		24
Total non-marketable securities (fair value accounting) (2)	103,092		136,102
Other assets:
Equity warrant assets (3)	21		16,345
Total unrealized gains	$	103,113	$	152,447
Unrealized gains attributable to noncontrolling interests (1)	$	91,703	$	124,397

(1) Beginning in the third quarter of 2012, for purposes of this disclosure we revised our methodology to exclude reclassifications of previously recorded unrealized gains (losses) as a result of distributions.

(2) Unrealized gains (losses) are recorded on the line items “gains on investment securities, net”, and “other noninterest income”, components of noninterest income.

(3) Unrealized (losses) gains are recorded on the line item “gains on derivative instruments, net”, a component of noninterest income.

The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at December 31, 2012. We have not included in this table our venture capital and private equity fund investments (fair value accounting) as we use net asset value per share (as obtained from the general partners of the investments) as a practical expedient to determine fair value.

(Dollars in thousands)	Fair value at December 31, 2012		Valuation Technique	Significant Unobservable Inputs	Weighted  Average
Other venture capital investments (fair value accounting)	$	127,091	Private company equity pricing	(1)	(1)
Equity warrant assets (private portfolio)	66,129		Modifed Black-Scholes option pricing model	Volatility	45.2	%
				Risk-Free interest rate	0.4	%
				Marketability discount (2)	22.5	%
				Remaining life assumption (3)	45.0	%

(1) In determining the fair value of our other venture capital investment portfolio, we evaluate a variety of factors related to each underlying private portfolio company including, but not limited to, actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Additionally, we have ongoing communication with the portfolio companies and venture capital fund managers, to determine whether there is a material change in fair value. These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful.

(2) Our marketability discount is applied to all private company warrants to account for a general lack of liquidity due to the private nature of the associated underlying company. The quantitative measure used is based on long-run averages and is influenced over time by various factors, including market conditions. On a quarterly basis, a sensitivity analysis is performed on our marketability discount. In the third quarter of 2012, we increased the marketability discount from 15.0 percent to 22.5 percent to reflect market conditions and trends.

(3) We adjust the contractual remaining term of private company warrants based on our best estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At December 31, 2012, the weighted average contractual remaining term was 6.4 years, compared to our estimated remaining life of 2.9 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption. In the third quarter of 2012, we increased the remaining life assumption from 40.0 percent to 45.0 percent of the contractual term to reflect market conditions and trends.

As a result of the changes made to our marketability discount and remaining life assumption in the third quarter of 2012 (discussed above), our private warrant portfolio valuation decreased by $3.4 million.

During 2012, we had transfers of $3.1 million from Level 2 to Level 1, compared to transfers of $3.9 million from Level 2 to Level 1 in 2011. There were no transfers between Level 2 and Level 1 during 2010. Transfers from Level 3 to Level 2 during 2012 and 2010 included $7.6 million and $11 million, respectively, due to IPOs of certain of our portfolio companies, which were included in our non-marketable securities portfolio. All other transfers from Level 3 to Level 2 during 2012, 2011 and 2010 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (See our Level 3 reconciliation above). All amounts reported as transfers represent the fair value as of the date of the change in circumstances that caused the transfer.

Financial Instruments not Carried at Fair Value

FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. Fair value estimates, methods and assumptions, set forth below for our financial instruments, are made solely to comply with these requirements.

Fair values are based on estimates or calculations at the transaction level using present value techniques in instances where quoted market prices are not available. Because broadly traded markets do not exist for many of our financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. The aggregation of the fair value calculations presented herein does not represent, and should not be construed to represent, the underlying value of the Company.

The following describes the methods and assumptions used in estimating the fair values of financial instruments, excluding financial instruments already recorded at fair value as described above.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash balances due from banks, interest-earning deposits, securities purchased under agreement to resell and other short-term investment securities. The carrying amount is a reasonable estimate of fair value because of the insignificant risk of changes in fair value due to changes in market interest rates, and the instruments are purchased in conjunction with our cash management activities.

Non-Marketable Securities (Cost and Equity Method Accounting)

Non-marketable securities includes other investments (equity method accounting), low income housing tax credit funds (equity method accounting), venture capital and private equity fund investments (cost method accounting), and other venture capital investments (cost method accounting). Other investments (equity method accounting) includes our investment in SPD-SVB, our joint venture bank in China. At this time, the carrying value of our investment in SPD-SVB is a reasonable estimate of fair value. The fair value of the remaining other investments (equity method accounting) and the fair value of venture capital and private equity fund investments (cost method accounting) and other venture capital investments (cost method accounting) is based on financial information obtained from the investee or obtained from the fund investments’ or debt fund investments’ respective general partners. For private company investments, fair value is based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, and financing transactions subsequent to the acquisition of the investment. For our fund investments, we utilize the net asset value per share as obtained from the general partners of the investments. We adjust the net asset value per share for differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example September 30^th, for our December 31^st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. The carrying value of our low income housing tax credit funds (equity method accounting) is a reasonable estimate of fair value.

Loans

The fair value of fixed and variable rate loans is estimated by discounting contractual cash flows using rates that reflect current pricing for similar loans and the projected forward yield curve. This method is not based on the exit price concept of fair value required under ASC 820, Fair Value Measurements and Disclosures.

FHLB and FRB stock

Investments in FHLB and FRB stock are recorded at cost. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest receivable and payable are reasonable estimates of fair value due to the short-term nature of these balances.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits is equal to the amount payable on demand at the measurement date. The fair value of time deposits is estimated by discounting the cash flows using our cost of borrowings and the projected forward yield curve over their remaining contractual term.

Short-Term Borrowings

Short-term borrowings at December 31, 2012 included federal funds purchased and cash collateral received from our counterparty for our interest rate swap agreement related to our 6.05% Subordinated Notes. The carrying amounts of federal funds purchased are reasonable estimates of fair value because of the relatively short time between the origination of the instrument and its contractual maturity. The carrying amount of the cash collateral is a reasonable estimate of fair value.

Long-Term Debt

Long-term debt at December 31, 2012 included our 5.375% Senior Notes, 7.0% Junior Subordinated Debentures and 6.05% Subordinated Notes. At December 31, 2011, long-term debt also included our 5.70% Senior Notes and other long-term debt. The fair value of long-term debt is generally based on quoted market prices, when available, or is estimated based on calculations utilizing third-party pricing services and current market spread, price indications from reputable dealers or observable market prices of the underlying instrument(s), whichever is deemed more reliable. Also included in the estimated fair value of our 5.70% Senior Notes and 6.05% Subordinated Notes are amounts related to hedge accounting associated with the notes.

Off-Balance Sheet Financial Instruments

The fair value of net available commitments to extend credit is estimated based on the average amount we would receive or pay to execute a new agreement with identical terms and pricing, while taking into account the counterparties’ credit standing.

Letters of credit are carried at their fair value, which is equivalent to the residual premium or fee at December 31, 2012 and 2011. Commitments to extend credit and letters of credit typically result in loans with a market interest rate if funded.

The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at December 31, 2012 and 2011:

			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2012:
Financial assets:
Cash and cash equivalents	$	1,008,983	$	1,008,983	$	—	$	—
Non-marketable securities (cost and equity method accounting)	391,253		—		—		425,741
Net commercial loans	8,013,563		—		—		8,180,597
Net consumer loans	822,719		—		—		860,772
FHLB and FRB stock	39,806		—		—		39,806
Accrued interest receivable	64,167		—		64,167		—
Financial liabilities:
Federal funds purchased	160,000		160,000		—		—
Other short-term borrowings	6,110		6,110		—		—
Non-maturity deposits (1)	19,021,264		19,021,264		—		—
Time deposits	155,188		—		155,027		—
5.375% Senior Notes	347,995		—		393,701		—
6.05% Subordinated Notes (2)	54,571		—		61,639		—
7.0% Junior Subordinated Debentures	55,196		—		51,959		—
Accrued interest payable	6,494		—		6,494		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		20,562
December 31, 2011:
Financial assets:
Cash and cash equivalents	$	1,114,948	$	1,114,948	$	—	$	—
Non-marketable securities (cost and equity method accounting)	267,508		—		—		290,393
Net commercial loans	6,192,578		—		—		6,336,705
Net consumer loans	687,557		—		—		627,733
FHLB and FRB stock	39,189		—		—		39,189
Accrued interest receivable	58,108		—		58,108		—
Financial liabilities:
Non-maturity deposits (1)	16,553,787		16,553,787		—		—
Time deposits	155,749		—		155,346		—
5.375% Senior Notes	347,793		—		362,786		—
6.05% Subordinated Notes (2)	55,075		—		57,746		—
5.70% Senior Notes (3)	143,969		—		145,184		—
7.0% Junior Subordinated Debentures	55,372		—		51,526		—
Other long-term debt	1,439		—		—		1,439
Accrued interest payable	6,689		—		6,689		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		21,232

(1) Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits.

(2) At December 31, 2012 and 2011, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was $9.0 million and $8.8 million, respectively, related to hedge accounting associated with the notes.

(3) At December 31, 2011, included in the carrying value and estimated fair value of our 5.70% Senior Notes was $2.6 million related to hedge accounting associated with the notes.

Investments in Entities that Calculate Net Asset Value Per Share

FASB guidance over certain fund investments requires that we disclose the fair value of funds, significant investment strategies of the investees, redemption features of the investees, restrictions on the ability to sell investments, estimate of the period of time over which the underlying assets are expected to be liquidated by the investee, and unfunded commitments related to the investments.

Our investments in debt funds and venture capital and private equity fund investments generally cannot be redeemed. Alternatively, we expect distributions, if any, to be received primarily through IPOs and M&A activity of the underlying assets of the fund. We currently do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee fund’s management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example September 30^st, for our December 31^th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of December 31, 2012:

(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	665,921	$	665,921	$	431,837
Non-marketable securities (equity method accounting):
Other investments (2)	51,705		53,169		7,700
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (3)	161,884		192,844		65,311
Total	$	879,510	$	911,934	$	504,848

(1) Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds and one of our direct venture funds. These investments represent investments in venture capital and private equity funds that invest primarily in U.S. and global technology and life sciences companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $590 million and $422 million, respectively, attributable to noncontrolling interests. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of terms of the funds.

(2) Other investments within non-marketable securities (equity method accounting) include investments in debt funds and venture capital and private equity fund investments that invest in or lend money to primarily U.S. and global technology and life sciences companies. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds.

(3) Venture capital and private equity fund investments within non-marketable securities (cost method accounting) include investments in venture capital and private equity fund investments that invest primarily in U.S. and global technology and life sciences companies. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of the terms of the funds.