Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Our available-for-sale securities, derivative instruments and certain non-marketable and other 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 interim consolidated financial statements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable and the significance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data and views of market participants. The three levels for measuring fair value are based on the reliability of inputs and are as follows:

Level 1

Fair value measurements based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to instruments utilizing Level 1 inputs. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include exchange-traded equity securities and certain marketable securities accounted for under fair value accounting.

Level 2

Fair value measurements based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Valuations for the available-for-sale securities are provided by third party external pricing service providers. We review the methodologies used to determine the fair value, including understanding the nature and observability of the inputs used to determine the price. Additional corroboration, such as obtaining a non-binding price from a broker, may be obtained depending on the frequency of trades of the security and the level of liquidity or depth of the market. The valuation methodology that is generally used for the Level 2 assets is the income approach. Below is a summary of the significant inputs used for each class of Level 2 assets and liabilities:

U.S. treasury securities: U.S. treasury securities are considered by most investors to be the most liquid fixed income investments available. These securities are priced relative to market prices on similar U.S. treasury securities.

U.S. agency debentures: Fair value measurements of U.S. agency debentures are based on the characteristics specific to bonds held, such as issuer name, coupon rate, maturity date and any applicable issuer call option features. Valuations are based on market spreads relative to similar term benchmark market interest rates, generally U.S. treasury securities.

Agency-issued mortgage-backed securities: Agency-issued mortgage-backed securities are pools of individual conventional mortgage loans underwritten to U.S. agency standards with similar coupon rates, tenor, and other attributes such as geographic location, loan size and origination vintage. Fair value measurements of these securities are based on observable price adjustments relative to benchmark market interest rates taking into consideration estimated loan prepayment speeds.

Agency-issued collateralized mortgage obligations: Agency-issued collateralized mortgage obligations are structured into classes or tranches with defined cash flow characteristics and are collateralized by U.S. agency-issued mortgage pass-through securities. Fair value measurements of these securities incorporate similar characteristics of mortgage pass-through securities such as coupon rate, tenor, geographic location, loan size and origination vintage, in addition to incorporating the effect of estimated prepayment speeds on the cash flow structure of the class or tranche. These measurements incorporate observable market spreads over an estimated average life after considering the inputs listed above.

Agency-issued commercial mortgage-backed securities: Fair value measurements of these securities are based on spreads to benchmark market interest rates (usually U.S. treasury rates or rates observable in the swaps market), prepayment speeds, loan default rate assumptions and loan loss severity assumptions on underlying loans.

Municipal bonds and notes: Bonds issued by municipal governments generally have stated coupon rates, final maturity dates and are subject to being called ahead of the final maturity date at the option of the issuer. Fair value measurements of these securities are priced based on spreads to other municipal benchmark bonds with similar characteristics; or, relative to market rates on U.S. treasury bonds of similar maturity.

Interest rate swap assets: Fair value measurements of interest rate swaps are priced considering the coupon rate of the fixed leg of the contract and the variable coupon on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve and the credit worthiness of the contract counterparty.

Foreign exchange forward and option contract assets and liabilities: Fair value measurements of these assets and liabilities are priced based on spot and forward foreign currency rates and option volatility assumptions and the credit worthiness of the contract counterparty.

Level 3

The fair value measurement is derived from valuation techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions we believe market participants would use in pricing the asset. Below is a summary of the valuation techniques used for each class of Level 3 assets:

Venture capital and private equity fund investments: Fair value measurements are based on the net asset value per share as obtained from the investee funds' management, as the funds do not have a readily determinable fair value and the funds prepare their financial statements using guidance consistent with the fair value accounting. We account for differences between our measurement date and the date of the fund investment’s net asset value by using the most recent available financial information from the investee general partner, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

Other venture capital investments: Fair value measurements are 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, and as it relates to the private company, the current and projected operating performance, exit strategies and financing transactions subsequent to the acquisition of the investment. The significant unobservable inputs used in the fair value measurement include the information about each portfolio company, including actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Significant changes to any one of these inputs in isolation could result in a significant change in the fair value measurement, however, we generally consider all factors available through ongoing communication with the portfolio companies and venture capital fund managers to determine whether there are changes to the portfolio company or the environment that indicate a change in the fair value measurement.

Other securities: Fair value measurements of equity securities of public companies are priced based quoted market prices less a discount if the securities are subject to marketability restrictions. Marketability discounts generally range from 10% to 20% depending on the duration of the sale restrictions which typically range from 3 to 6 months.

Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions. Modeled asset values are further adjusted by applying a discount of up to 20 percent for certain warrants that have lockup restrictions or other features that indicate a discount to fair value is warranted. As lockup term nears, and other sale restrictions are lifted, discounts are adjusted downward to 0 percent once all restrictions expire or are removed.

Equity warrant assets (private portfolio): Fair value measurements of equity warrant assets of private portfolio companies are priced based on a modified Black-Scholes option pricing model to estimate the asset value by using stated strike prices, option expiration dates, risk-free interest rates and option volatility assumptions. Option volatility assumptions used in the modified Black-Scholes model are based on public market indices whose members operate in similar industries as companies in our private company portfolio. Option expiration dates are modified to account for estimates to actual life relative to stated expiration. Overall model asset values are further adjusted for a general lack of liquidity due to the private nature of the associated underlying company. There is a direct correlation between changes in the volatility and remaining life assumptions in isolation and the fair value measurement while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement.

It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon valuation techniques that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. Substantially all of our financial instruments use the foregoing methodologies, and are categorized as a Level 1 or Level 2 measurement in the fair value hierarchy. However, in certain cases, when market observable inputs for our valuation techniques may not be readily available, we are required to make judgments about assumptions we believe market participants would use in estimating the fair value of the financial instrument, and based on the significance of those judgments, the measurement may be determined to be a Level 3 fair value measurement.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. For inactive markets, there is little information, if any, to evaluate if individual transactions are orderly. Accordingly, we are required to estimate, based upon all available facts and circumstances, the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Accordingly, the degree of judgment exercised by management in determining fair value is greater for financial assets and liabilities categorized as Level 3.

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 September 30, 2013:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2013
Assets
Available-for-sale securities:
U.S. treasury securities	$	—	$	—	$	—	$	—
U.S. agency debentures	—		3,624,820		—		3,624,820
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		1,518,698		—		1,518,698
Agency-issued collateralized mortgage obligations - fixed rate	—		3,247,477		—		3,247,477
Agency-issued collateralized mortgage obligations - variable rate	—		1,289,850		—		1,289,850
Agency-issued commercial mortgage-backed securities	—		435,932		—		435,932
Municipal bonds and notes	—		86,579		—		86,579
Equity securities	4,021		2,540		—		6,561
Total available-for-sale securities	4,021		10,205,896		—		10,209,917
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments	—		—		773,499		773,499
Other venture capital investments	—		—		55,359		55,359
Other securities	2,546		—		217,054		219,600
Total non-marketable and other securities (fair value accounting)	2,546		—		1,045,912		1,048,458
Other assets:
Interest rate swaps	—		7,027		—		7,027
Foreign exchange forward and option contracts	—		18,463		—		18,463
Equity warrant assets	—		4,126		88,126		92,252
Loan conversion options	—		1,774		—		1,774
Client interest rate derivatives	—		1,237		—		1,237
Total assets (1)	$	6,567	$	10,238,523	$	1,134,038	$	11,379,128
Liabilities
Foreign exchange forward and option contracts	$	—	$	17,009	$	—	$	17,009
Client interest rate derivatives	—		1,427		—		1,427
Total liabilities	$	—	$	18,436	$	—	$	18,436


(1)	Included in Level 1 and Level 3 assets are $2.4 million and $953 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, 2012:



(Dollars in thousands)	Level 1		Level 2		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 and other 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 and other 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 table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2013 and 2012, 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
Three months ended September 30, 2013
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	741,522	$	34,288		$	41,704	$	—		$	—	$	(44,015	)	$	—	$	—		$	773,499
Other venture capital investments	123,493		4,530			1,016		4			—		(73,684		)	—		—			55,359
Other securities (fair value accounting)	—		143,301			—		—			—		73,753			—		—			217,054
Total non-marketable and other securities (fair value accounting)(1)	865,015		182,119			42,720		4			—		(43,946		)	—		—			1,045,912
Other assets:
Equity warrant assets (2)	73,229		18,215			—		(6,366		)	2,995		365			—		(312		)	88,126
Total assets	$	938,244	$	200,334		$	42,720	$	(6,362	)	$	2,995	$	(43,581	)	$	—	$	(312	)	$	1,134,038
Three months ended September 30, 2012
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	639,596	$	12,104		$	35,092	$	—		$	—	$	(28,383	)	$	—	$	—		$	658,409
Other venture capital investments	120,111		3,259			953		(5,202		)	—		479			—		(978		)	118,622
Other investments	—		—			—		—			—		—			—		—			—
Total non-marketable and other securities (fair value accounting) (1)	759,707		15,363			36,045		(5,202		)	—		(27,904		)	—		(978		)	777,031
Other assets:
Equity warrant assets (2)	68,619		(800		)	—		(5,954		)	2,994		—			—		(168		)	64,691
Total assets	$	828,326	$	14,563		$	36,045	$	(11,156	)	$	2,994	$	(27,904	)	$	—	$	(1,146	)	$	841,722
Nine months ended September 30, 2013
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	665,921	$	90,526		$	107,022	$	—		$	—	$	(89,970	)	$	—	$	—		$	773,499
Other venture capital investments	127,091		5,779			1,210		(381		)	—		(74,779		)	—		(3,561		)	55,359
Other securities (fair value accounting)	—		143,301			—		—			—		73,753			—		—			217,054
Total non-marketable and other securities (fair value accounting) (1)	793,012		239,606			108,232		(381		)	—		(90,996		)	—		(3,561		)	1,045,912
Other assets:
Equity warrant assets (2)	66,129		26,142			—		(10,805		)	7,309		1,743			—		(2,392		)	88,126
Total assets	$	859,141	$	265,748		$	108,232	$	(11,186	)	$	7,309	$	(89,253	)	$	—	$	(5,953	)	$	1,134,038
Nine months ended September 30, 2012
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	611,824	$	38,765		$	90,173	$	—		$	—	$	(82,353	)	$	—	$	—		$	658,409
Other venture capital investments	124,121		(3,868		)	8,888		(9,441		)	—		495			—		(1,573		)	118,622
Other investments	987		21			—		—			—		(1,008		)	—		—			—
Total non-marketable and other securities (fair value accounting) (1)	736,932		34,918			99,061		(9,441		)	—		(82,866		)	—		(1,573		)	777,031
Other assets:
Equity warrant assets (2)	63,030		8,848			—		(15,672		)	9,167		1			—		(683		)	64,691
Total assets	$	799,962	$	43,766		$	99,061	$	(25,113	)	$	9,167	$	(82,865	)	$	—	$	(2,256	)	$	841,722


(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 (losses) 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 September 30, 2013:



	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	2013		2012			2013		2012
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	32,694	$	12,724		$	89,705	$	38,916
Other venture capital investments	4,603		(963		)	5,720		4,177
Other securities	143,301		—			143,301		—
Total non-marketable and other securities (fair value accounting) (1)	180,598		11,761			238,726		43,093
Other assets:
Equity warrant assets (2)	14,205		(2,480		)	19,788		(2,505		)
Total unrealized gains	$	194,803	$	9,281		$	258,514	$	40,588
Unrealized gains attributable to noncontrolling interests	$	164,871	$	9,543		$	215,340	$	37,445


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


(2)	Unrealized gains (losses) 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 September 30, 2013. 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		Valuation Technique	Significant Unobservable Inputs	Weighted Average
September 30, 2013:
Other venture capital investments (fair value accounting)	$	55,359	Private company equity pricing	(1)	(1	)
Other securities	217,054		Modified stock price	Marketability discount	20.0	%
Equity warrant assets (public portfolio)	12,618		Modified Black-Scholes option pricing model	Marketability discount	20.0	%
Equity warrant assets (private portfolio)	75,508		Modified Black-Scholes option pricing model	Volatility	39.7	%
				Risk-Free interest rate	0.8	%
				Marketability discount (2)	22.5	%
				Remaining life assumption (3)	45.0	%
December 31, 2012:
Other venture capital investments (fair value accounting)	127,091		Private company equity pricing	(1)	(1	)
Equity warrant assets (private portfolio)	66,129		Modified 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.

(3)

We adjust the contractual remaining term of private company warrants based on our estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At September 30, 2013, the weighted average contractual remaining term was 6.5 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.

For the three and nine months ended September 30, 2013 and 2012, we did not have any material transfers between Level 2 and Level 1. Transfers from Level 3 to Level 2 for the three and nine months ended September 30, 2013 included $0.3 million and $2.4 million, respectively, as a result of the expiration of lockup and other restrictions on certain of our equity warrant assets. Transfers from Level 3 to Level 1 for the nine months ended September 30, 2012 include $3.6 million as a result of the expiration of lockup and other restrictions on certain of our other venture capital investments. All transfers from Level 3 to Level 2 for the three and nine months ended September 30, 2013 and 2012 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 agreements 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) include our investment in SPD Silicon Valley Bank ("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, estimated 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 June 30^th for our September 30^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 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 Federal Reserve Bank Stock

Investments in FHLB and Federal Reserve Bank 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 both September 30, 2013 and December 31, 2012 included cash collateral received from our counterparty for our interest rate swap agreement related to our 6.05% Subordinated Notes. Short term-borrowings at December 31, 2012 also included federal funds purchased. The carrying amount of our federal funds purchased is a reasonable estimate 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 September 30, 2013 and December 31, 2012 included our 5.375% Senior Notes, 7.0% Junior Subordinated Debentures and 6.05% Subordinated Notes. 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 6.05% Subordinated Notes are amounts related to hedge accounting associated with the note.

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 was equivalent to the residual premium or fee at September 30, 2013 and December 31, 2012. 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 September 30, 2013 and December 31, 2012:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3
September 30, 2013:
Financial assets:
Cash and cash equivalents	$	1,942,744	$	1,942,744	$	—	$	—
Non-marketable and other securities (cost and equity method accounting)	379,601		—		—		442,620
Net commercial loans	8,780,870		—		—		8,906,145
Net consumer loans	919,378		—		—		989,546
FHLB and Federal Reserve Bank stock	40,532		—		—		40,532
Accrued interest receivable	64,902		—		64,902		—
Financial liabilities:
Other short-term borrowings	5,580		5,580		—		—
Non-maturity deposits (1)	19,822,370		19,822,370		—		—
Time deposits	174,620		—		174,658		—
5.375% Senior Notes	348,155		—		384,139		—
6.05% Subordinated Notes (2)	52,524		—		57,646		—
7.0% Junior Subordinated Debentures	55,065		—		53,761		—
Accrued interest payable	2,046		—		2,046		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		23,568
December 31, 2012:
Financial assets:
Cash and cash equivalents	$	1,008,983	$	1,008,983	$	—	$	—
Non-marketable and other 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 Federal Reserve Bank 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


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


(2)	At September 30, 2013 and December 31, 2012, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was $7.0 million and $9.0 million, respectively, 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 June 30^th, for our September 30^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 September 30, 2013:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	773,499	$	773,499	$	434,754
Non-marketable and other securities (equity method accounting):
Other investments (2)	52,265		53,766		15,436
Non-marketable and other securities (cost method accounting):
Venture capital and private equity fund investments (3)	149,602		206,254		39,765
Total	$	975,366	$	1,033,519	$	489,955

(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 $700 million and $428 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.

- 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.

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