Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Hierarchy Tables Present Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis

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, 2014:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2014
Assets
Available-for-sale securities:
U.S. treasury securities	$	6,876,299	$	—	$	—	$	6,876,299
U.S. agency debentures	—		3,605,833		—		3,605,833
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		2,005,933		—		2,005,933
Agency-issued collateralized mortgage obligations - variable rate	—		835,957		—		835,957
Equity securities	4,211		5,203		—		9,414
Total available-for-sale securities	6,880,510		6,452,926		—		13,333,436
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments	—		—		1,078,911		1,078,911
Other venture capital investments	—		—		43,863		43,863
Other securities	181,265		—		—		181,265
Total non-marketable and other securities (fair value accounting)	181,265		—		1,122,774		1,304,039
Other assets:
Interest rate swaps	—		4,965		—		4,965
Foreign exchange forward and option contracts	—		17,234		—		17,234
Equity warrant assets	—		1,563		93,397		94,960
Client interest rate derivatives	—		2,173		—		2,173
Total assets (1)	$	7,061,775	$	6,478,861	$	1,216,171	$	14,756,807
Liabilities
Foreign exchange forward and option contracts	$	—	$	15,833	$	—	$	15,833
Client interest rate derivatives	—		2,317		—		2,317
Total liabilities	$	—	$	18,150	$	—	$	18,150


(1)	Included in Level 1 and Level 3 assets are $163.6 million and $1.0 billion, 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, 2013:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2013
Assets
Available-for-sale securities:
U.S. agency debentures	$	—	$	4,345,232	$	—	$	4,345,232
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		2,473,576		—		2,473,576
Agency-issued collateralized mortgage obligations - fixed rate	—		3,325,758		—		3,325,758
Agency-issued collateralized mortgage obligations - variable rate	—		1,186,573		—		1,186,573
Agency-issued commercial mortgage-backed securities	—		564,604		—		564,604
Municipal bonds and notes	—		86,027		—		86,027
Equity securities	3,732		1,319		—		5,051
Total available-for-sale securities	3,732		11,983,089		—		11,986,821
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments	—		—		862,972		862,972
Other venture capital investments	—		—		32,839		32,839
Other Securities	2,125		—		319,249		321,374
Total non-marketable and other securities (fair value accounting)	2,125		—		1,215,060		1,217,185
Other assets:
Interest rate swaps	—		6,492		—		6,492
Foreign exchange forward and option contracts	—		15,530		—		15,530
Equity warrant assets	—		3,622		99,891		103,513
Loan conversion options	—		314		—		314
Client interest rate derivatives	—		1,265		—		1,265
Total assets (1)	$	5,857	$	12,010,312	$	1,314,951	$	13,331,120
Liabilities
Foreign exchange forward and option contracts	$	—	$	12,617	$	—	$	12,617
Client interest rate derivatives	—		1,396		—		1,396
Total liabilities	$	—	$	14,013	$	—	$	14,013


(1)	Included in Level 1 and Level 3 assets are $2.0 million and $1.1 billion, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

Additional Information about Level 3 Assets Measured at Fair Value on a Recurring Basis

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, 2014 and 2013, respectively:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income		Purchases		Sales			Issuances		Distributions and Other Settlements			Transfers Out of Level 3			Ending Balance
Three months ended September 30, 2014
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	1,040,522	$	43,460	$	49,037	$	—		$	—	$	(54,108	)	$	—		$	1,078,911
Other venture capital investments	43,747		5,546		6,304		(11,122		)	—		(612		)	—			43,863
Other securities (fair value accounting)	5,808		—		—		—			—		—			(5,808		)	—
Total non-marketable and other securities (fair value accounting)(1)	1,090,077		49,006		55,341		(11,122		)	—		(54,720		)	(5,808		)	1,122,774
Other assets:
Equity warrant assets (2)	87,151		13,805		—		(10,564		)	2,932		510			(437		)	93,397
Total assets	$	1,177,228	$	62,811	$	55,341	$	(21,686	)	$	2,932	$	(54,210	)	$	(6,245	)	$	1,216,171
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
Nine months ended September 30, 2014
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	862,972	$	192,240	$	159,448	$	—		$	—	$	(135,749	)	$	—		$	1,078,911
Other venture capital investments	32,839		8,060		22,800		(15,561		)	—		(4,149		)	(126		)	43,863
Other securities (fair value accounting)	319,249		104,310		—		(46,840		)	—		3,417			(380,136		)	—
Total non-marketable and other securities (fair value accounting) (1)	1,215,060		304,610		182,248		(62,401		)	—		(136,481		)	(380,262		)	1,122,774
Other assets:
Equity warrant assets (2)	99,891		51,325		—		(67,201		)	9,098		1,718			(1,434		)	93,397
Total assets	$	1,314,951	$	355,935	$	182,248	$	(129,602	)	$	9,098	$	(134,763	)	$	(381,696	)	$	1,216,171
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


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


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

Unrealized Gains Included in Earnings Attributable to Level 3 Assets Held

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, 2014 and 2013:



	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	2014			2013		2014		2013
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	57,967		$	32,694	$	207,885	$	89,705
Other venture capital investments	(1,231		)	4,603		78		5,720
Other securities (fair value accounting)	—			143,301		78,967		143,301
Total non-marketable and other securities (fair value accounting) (1)	56,736			180,598		286,930		238,726
Other assets:
Equity warrant assets (2)	6,911			14,205		17,777		19,788
Total unrealized gains, net	$	63,647		$	194,803	$	304,707	$	258,514
Unrealized gains attributable to noncontrolling interests	$	47,165		$	164,871	$	193,841	$	215,340


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


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

Quantitative Information About Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at September 30, 2014 and December 31, 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, 2014:
Other venture capital investments (fair value accounting)	$	43,863	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	529		Modified Black-Scholes option pricing model	Volatility	43.9	%
				Risk-Free interest rate	2.1	%
				Sales restrictions discount (2)	15.7	%
Equity warrant assets (private portfolio)	92,868		Modified Black-Scholes option pricing model	Volatility	38.2	%
				Risk-Free interest rate	1.0	%
				Marketability discount (3)	20.0	%
				Remaining life assumption (4)	45.0	%
December 31, 2013:
Other venture capital investments (fair value accounting)	$	32,839	Private company equity pricing	(1)	(1	)
Other securities	319,249		Modified stock price	Sales restrictions discount (2)	12.0	%
Equity warrant assets (public portfolio)	24,217		Modified Black-Scholes option pricing model	Volatility	41.3	%
				Risk-Free interest rate	1.7	%
				Sales restrictions discount (2)	13.7	%
Equity warrant assets (private portfolio)	75,674		Modified Black-Scholes option pricing model	Volatility	40.1	%
				Risk-Free interest rate	0.8	%
				Marketability discount (3)	22.5	%
				Remaining life assumption (4)	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)	We adjust quoted market prices of public companies, which are subject to certain sales restrictions. Sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sales restrictions, which typically range from 3 to 6 months.

(3)

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.

(4)

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, 2014, the weighted average contractual remaining term was 6.25 years, compared to our estimated remaining life of 2.81 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.

Summary of Estimated Fair Values of Financial Instruments Not Carried at Fair Value

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, 2014 and December 31, 2013:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3
September 30, 2014:
Financial assets:
Cash and cash equivalents	$	1,872,537	$	1,872,537	$	—	$	—
Held-to-maturity securities	6,662,025		—		6,613,893		—
Non-marketable and other securities (cost and equity method accounting)	399,511		—		—		497,855
Net commercial loans	10,721,645		—		—		10,884,474
Net consumer loans	1,166,475		—		—		1,121,639
FHLB and Federal Reserve Bank stock	41,026		—		—		41,026
Accrued interest receivable	81,334		—		81,334		—
Financial liabilities:
Other short-term borrowings	6,630		6,630		—		—
Non-maturity deposits (1)	30,963,491		30,963,491		—		—
Time deposits	159,644		—		159,644		—
5.375% Senior Notes	348,378		—		390,740		—
6.05% Subordinated Notes (2)	50,497		—		54,423		—
7.0% Junior Subordinated Debentures	54,889		—		52,722		—
Accrued interest payable	2,932		—		2,932		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		29,731
December 31, 2013:
Financial assets:
Cash and cash equivalents	$	1,538,779	$	1,538,779	$	—	$	—
Non-marketable and other securities (cost and equity method accounting)	378,309		—		—		447,783
Net commercial loans	9,796,878		—		—		9,935,917
Net consumer loans	966,622		—		—		1,005,080
FHLB and Federal Reserve Bank stock	40,632		—		—		40,632
Accrued interest receivable	67,772		—		67,772		—
Financial liabilities:
Other short-term borrowings	5,080		5,080		—		—
Non-maturity deposits (1)	22,259,119		22,259,119		—		—
Time deposits	213,860		—		213,874		—
5.375% Senior Notes	348,209		—		383,782		—
6.05% Subordinated Notes (2)	51,987		—		56,297		—
7.0% Junior Subordinated Debentures	55,020		—		51,915		—
Accrued interest payable	6,858		—		6,858		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		24,285


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


(2)	At September 30, 2014 and December 31, 2013, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $5.0 million and $6.5 million, respectively, related to hedge accounting associated with the notes.

Summary of Estimated Fair Values of Investments and Remaining Unfunded Commitments for Each Major Category of Investments

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, 2014:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	1,078,911	$	1,078,911	$	478,461
Non-marketable securities (equity method accounting):
Other investments (2)	47,662		49,064		5,836
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (3)	142,710		239,857		22,022
Total	$	1,269,283	$	1,367,832	$	506,319

(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 $995 million and $474 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 5 to 7 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 5 to 7 years, depending on the age of the funds and any potential extensions of the terms of the funds.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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- Definition

Tabular disclosure of the fair value of investees that calculate net asset value per share (including by unit, membership interest, or other equity (ownership interest) unit measure) (alternative investments), whether measured at fair value on a recurring or nonrecurring basis, by major category of assets and liabilities (as defined), including, for example, (i) fair value measurements at the reporting date, (ii) the level within the fair value hierarchy in which the fair value measurements fall, (iii) a reconciliation of beginning and ending balances for those alternative investments that are measured at fair value using unobservable inputs (Level 3 - fair value hierarchy fair value measurement inputs), (iv) the inputs and valuation techniques used to measure fair value, (v) a discussion of changes to valuation techniques and inputs, if any, during the period, (vi) a description of the nature and risk associated with the alternative investments, and (vii) a discussion of the probability that any of the alternative investments are to be sold.

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