Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2015

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, 2015:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2015
Assets
Available-for-sale securities:
U.S. treasury securities	$	10,197,025	$	—	$	—	$	10,197,025
U.S. agency debentures	—		2,942,968		—		2,942,968
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,517,702		—		1,517,702
Agency-issued collateralized mortgage obligations - variable rate	—		645,288		—		645,288
Equity securities	691		3,987		—		4,678
Total available-for-sale securities	10,197,716		5,109,945		—		15,307,661
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value (1)	—		—		—		154,660
Other venture capital investments	—		—		3,390		3,390
Other securities	779		—		—		779
Total non-marketable and other securities (fair value accounting)	779		—		3,390		158,829
Other assets:
Interest rate swaps	—		3,485		—		3,485
Foreign exchange forward and option contracts	—		33,271		—		33,271
Equity warrant assets	—		1,648		128,443		130,091
Client interest rate derivatives	—		5,164		—		5,164
Total assets (2)	$	10,198,495	$	5,153,513	$	131,833	$	15,638,501
Liabilities
Foreign exchange forward and option contracts	$	—	$	28,939	$	—	$	28,939
Client interest rate derivatives	—		5,719		—		5,719
Total liabilities	$	—	$	34,658	$	—	$	34,658

(1)

In accordance with the accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. See Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report.


(2)	Included in Level 1 and Level 3 assets are $0.6 million and $3 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, 2014:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2014
Assets
Available-for-sale securities:
U.S. treasury securities	$	7,302,273	$	—	$	—	$	7,302,273
U.S. agency debentures	—		3,561,556		—		3,561,556
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,884,843		—		1,884,843
Agency-issued collateralized mortgage obligations - variable rate	—		784,475		—		784,475
Equity securities	4,290		3,218		—		7,508
Total available-for-sale securities	7,306,563		6,234,092		—		13,540,655
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value (1)	—		—		—		1,130,882
Other venture capital investments	—		—		71,204		71,204
Other securities	108,251		—		—		108,251
Total non-marketable and other securities (fair value accounting)	108,251		—		71,204		1,310,337
Other assets:
Interest rate swaps	—		4,609		—		4,609
Foreign exchange forward and option contracts	—		34,231		—		34,231
Equity warrant assets	—		1,906		114,698		116,604
Client interest rate derivatives	—		2,546		—		2,546
Total assets (2)	$	7,414,814	$	6,277,384	$	185,902	$	15,008,982
Liabilities
Foreign exchange forward and option contracts	$	—	$	28,363	$	—	$	28,363
Client interest rate derivatives	—		2,748		—		2,748
Total liabilities	$	—	$	31,111	$	—	$	31,111

(1)


(2)	Included in Level 1 and Level 3 assets are $100 million and $69 million, 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, 2015 and 2014, respectively:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains Included in Income		Purchases		Sales			Issuances		Distributions and Other Settlements			Transfers Out of Level 3			Ending Balance
Three months ended September 30, 2015
Non-marketable and other securities (fair value accounting):
Other venture capital investments	$	3,390	$	15	$	—	$	—		$	—	$	(15	)	$	—		$	3,390
Total non-marketable and other securities (fair value accounting) (1)	3,390		15		—		—			—		(15		)	—			3,390
Other assets:
Equity warrant assets (2)	120,037		11,551		—		(6,215		)	3,057		499			(486		)	128,443
Total assets	$	123,427	$	11,566	$	—	$	(6,215	)	$	3,057	$	484		$	(486	)	$	131,833
Three months ended September 30, 2014
Non-marketable and other securities (fair value accounting):
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)	49,555		5,546		6,304		(11,122		)	—		(612		)	(5,808		)	43,863
Other assets:
Equity warrant assets (2)	87,151		13,805		—		(10,564		)	2,932		510			(437		)	93,397
Total assets	$	136,706	$	19,351	$	6,304	$	(21,686	)	$	2,932	$	(102	)	$	(6,245	)	$	137,260
Nine months ended September 30, 2015
Non-marketable and other securities (fair value accounting):
Other venture capital investments (3)	$	3,291	$	146	$	—	$	(32	)	$	—	$	(15	)	$	—		$	3,390
Total non-marketable and other securities (fair value accounting) (1)	3,291		146		—		(32		)	—		(15		)	—			3,390
Other assets:
Equity warrant assets (2)	114,698		54,884		—		(48,374		)	7,607		1,249			(1,621		)	128,443
Total assets	$	117,989	$	55,030	$	—	$	(48,406	)	$	7,607	$	1,234		$	(1,621	)	$	131,833
Nine months ended September 30, 2014
Non-marketable and other securities (fair value accounting):
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)	352,088		112,370		22,800		(62,401		)	—		(732		)	(380,262		)	43,863
Other assets:
Equity warrant assets (2)	99,891		51,325		—		(67,201		)	9,098		1,718			(1,434		)	93,397
Total assets	$	451,979	$	163,695	$	22,800	$	(129,602	)	$	9,098	$	986		$	(381,696	)	$	137,260


(1)	Realized and unrealized gains (losses) are recorded in the line items “gains on investment securities, net” a component 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.


(3)	Beginning balance was adjusted to conform with our adoption of the new accounting standard (ASU 2015-02), Amendments to the Consolidation Analysis (Topic 820).

Unrealized Gains Included in Earnings Attributable to Level 3 Assets Held

The following table presents the amount of net unrealized gains and losses included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at September 30, 2015 and 2014:



	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	2015		2014			2015		2014
Non-marketable and other securities (fair value accounting):
Other venture capital investments	—		(1,231		)	158		78
Other securities	—		—			—		78,967
Total non-marketable and other securities (fair value accounting) (1)	—		(1,231		)	158		79,045
Other assets:
Equity warrant assets (2)	9,115		6,911			21,597		17,777
Total unrealized gains, net	$	9,115	$	5,680		$	21,755	$	96,822
Unrealized gains (losses) attributable to noncontrolling interests	$	—	$	(1,137	)	$	141	$	72,574


(1)	Unrealized gains (losses) are recorded in the line items “gains on investment securities, net”, a component 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, 2015 and December 31, 2014. 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, 2015:
Other venture capital investments (fair value accounting)		$	3,390	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	—	4,795		Modified Black-Scholes option pricing model	Volatility	39.4	%
	—				Risk-Free interest rate	1.5	%
					Sales restrictions discount (2)	14.2	%
Equity warrant assets (private portfolio)		123,648		Modified Black-Scholes option pricing model	Volatility	37.1	%
					Risk-Free interest rate	0.7	%
					Marketability discount (3)	17.3	%
					Remaining life assumption (4)	45.0	%
December 31, 2014:
Other venture capital investments (fair value accounting)		$	71,204	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)		1,681		Modified Black-Scholes option pricing model	Volatility	42.6	%
					Risk-Free interest rate	1.7	%
					Sales restrictions discount (2)	17.8	%
Equity warrant assets (private portfolio)		113,017		Modified Black-Scholes option pricing model	Volatility	38.3	%
					Risk-Free interest rate	0.9	%
					Marketability discount (3)	20.0	%
					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% to 20% 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 upon various option-pricing models. 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, 2015, the weighted average contractual remaining term was 5.67 years, compared to our estimated remaining life of 2.55 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

Letters of credit are carried at their fair value, which was equivalent to the residual premium or fee at September 30, 2015 and December 31, 2014. 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, 2015 and December 31, 2014:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
September 30, 2015:
Financial assets:
Cash and cash equivalents	$	1,674,145	$	1,674,145	$	1,674,145	$	—	$	—
Held-to-maturity securities	8,306,526		8,367,003		—		8,367,003		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	112,984		115,359		—		—		115,359
Non-marketable securities (cost and equity method) accounting measured at net asset value (1)	253,210		374,353		—		—		—
Net commercial loans	13,470,144		13,547,022		—		—		13,547,022
Net consumer loans	1,646,929		1,618,492		—		—		1,618,492
FHLB and Federal Reserve Bank stock	46,116		46,116		—		—		46,116
Accrued interest receivable	98,453		98,453		—		98,453		—
Financial liabilities:
Other short-term borrowings	3,756		3,756		3,756		—		—
Non-maturity deposits (2)	36,977,199		36,977,199		36,977,199		—		—
Time deposits	72,218		72,218		—		72,218		—
3.50% Senior Notes	346,591		342,125		—		342,125		—
5.375% Senior Notes	346,878		391,286		—		391,286		—
6.05% Subordinated Notes (3)	49,028		51,000		—		51,000		—
7.0% Junior Subordinated Debentures	54,714		52,557		—		52,557		—
Accrued interest payable	4,992		4,992		—		4,992		—
Off-balance sheet financial assets:
Commitments to extend credit	—		28,805		—		—		28,805
December 31, 2014:
Financial assets:
Cash and cash equivalents	$	1,796,062	$	1,796,062	$	1,796,062	$	—	$	—
Held-to-maturity securities	7,421,042		7,415,656		—		7,415,656		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	108,221		107,451		—		—		107,451
Non-marketable securities (cost and equity method) accounting measured at net asset value (1)	188,427		283,119		—		—		—
Net commercial loans	12,947,869		13,082,487		—		—		13,082,487
Net consumer loans	1,271,048		1,247,336		—		—		1,247,336
FHLB and Federal Reserve Bank stock	53,496		53,496		—		—		53,496
Accrued interest receivable	94,180		94,180		—		94,180		—
Financial liabilities:
Other short-term borrowings	7,781		7,781		7,781		—		—
Non-maturity deposits (2)	34,215,372		34,215,372		34,215,372		—		—
Time deposits	128,127		128,107		—		128,107		—
5.375% Senior Notes	346,477		392,616		—		392,616		—
6.05% Subordinated Notes (3)	50,040		53,537		—		53,537		—
7.0% Junior Subordinated Debentures	54,845		52,990		—		52,990		—
Accrued interest payable	6,998		6,998		—		6,998		—
Off-balance sheet financial assets:
Commitments to extend credit	—		29,097		—		—		29,097

(1)


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


(3)	At September 30, 2015 and December 31, 2014, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $3.5 million and $4.6 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, 2015:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	154,660	$	154,660	$	10,878
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	84,197		84,197		4,989
Debt funds (2)	21,217		22,326		—
Other investments (2)	24,246		24,246		886
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (2)	123,550		243,584		9,381
Total	$	407,870	$	529,013	$	26,134

(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 science & healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $111 million and $8 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)

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