Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

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 consolidated financial statements. We disclose our method and approach for fair value measurements of assets and liabilities in Note 2-“Summary of Significant Accounting Policies”.

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, 2015:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2015
Assets
Available-for-sale securities:
U.S. Treasury securities	$	11,678,035	$	—	$	—	$	11,678,035
U.S. agency debentures	—		2,690,029		—		2,690,029
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,399,279		—		1,399,279
Agency-issued collateralized mortgage obligations - variable rate	—		607,936		—		607,936
Equity securities	4,517		952		—		5,469
Total available-for-sale securities	11,682,552		4,698,196		—		16,380,748
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value (1)	—		—		—		152,237
Other venture capital investments (2)	—		—		2,040		2,040
Other securities (2)	548		—		—		548
Total non-marketable and other securities (fair value accounting)	548		—		2,040		154,825
Other assets:
Interest rate swaps	—		2,768		—		2,768
Foreign exchange forward and option contracts	—		31,237		—		31,237
Equity warrant assets	—		1,937		135,168		137,105
Client interest rate derivatives	—		3,973		—		3,973
Total assets	$	11,683,100	$	4,738,111	$	137,208	$	16,710,656
Liabilities
Foreign exchange forward and option contracts	$	—	$	26,353	$	—	$	26,353
Client interest rate derivatives	—		4,384		—		4,384
Total liabilities	$	—	$	30,737	$	—	$	30,737

(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.


(2)	Included in Level 1 and Level 3 assets are $0.4 million and $1.8 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 (2)	—		—		71,204		71,204
Other securities (2)	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	$	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.

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for 2015, 2014 and 2013, respectively:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains, net 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, 2015:
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	3,291	$	1,192	$	—	$	(2,356	)	$	—	$	(87	)	$	—	$	—		$	2,040
Total non-marketable and other securities (fair value accounting) (2)	3,291		1,192		—		(2,356		)	—		(87		)	—		—			2,040
Other assets:
Equity warrant assets (3)	114,698		71,402		—		(61,044		)	12,471		63			—		(2,422		)	135,168
Total assets	$	117,989	$	72,594	$	—	$	(63,400	)	$	12,471	$	(24	)	$	—	$	(2,422	)	$	137,208
Year ended December 31, 2014:
Non-marketable and other securities (fair value accounting):
Other venture capital investments	$	32,839	$	12,793	$	51,407	$	(20,362	)	$	—	$	(5,347	)	$	—	$	(126	)	$	71,204
Other securities (fair value accounting)	319,249		103,864		—		(46,840		)	—		3,863			—		(380,136		)	—
Total non-marketable and other securities (fair value accounting) (2)	352,088		116,657		51,407		(67,202		)	—		(1,484		)	—		(380,262		)	71,204
Other assets:
Equity warrant assets (3)	99,891		71,516		—		(70,875		)	15,541		345			—		(1,720		)	114,698
Total assets	$	451,979	$	188,173	$	51,407	$	(138,077	)	$	15,541	$	(1,139	)	$	—	$	(381,982	)	$	185,902
Year ended December 31, 2013:
Non-marketable and other securities (fair value accounting):
Other venture capital investments	$	127,091	$	5,745	$	2,712	$	(1,224	)	$	—	$	(97,924	)	$	—	$	(3,561	)	$	32,839
Other securities (fair value accounting)	—		222,368		—		—			—		96,881			—		—			319,249
Total non-marketable and other securities (fair value accounting) (2)	127,091		228,113		2,712		(1,224		)	—		(1,043		)	—		(3,561		)	352,088
Other assets:
Equity warrant assets (3)	66,129		22,929		—		(16,680		)	10,540		98			24,217		(7,342		)	99,891
Total assets	$	193,220	$	251,042	$	2,712	$	(17,904	)	$	10,540	$	(945	)	$	24,217	$	(10,903	)	$	451,979


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


(2)	Unrealized gains are recorded on the line item “gains on investment securities, net”, a component of noninterest income.


(3)	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, 2015 and December 31, 2014, respectively:



	Year ended December 31,
(Dollars in thousands)	2015			2014
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	(177	)	$	3,044
Other assets:
Equity warrant assets (2)	32,576			36,516
Total unrealized gains, net	$	32,399		$	39,560
Unrealized (losses) gains attributable to noncontrolling interests	$	(158	)	$	2,914


(1)	Unrealized gains are recorded on the line item “gains on investment securities, net”, a component of noninterest income.


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

The extent to which any unrealized gains will become realized is subject to a variety of factors, including, among other things, the expiration of current sales restrictions to which these securities are subject, the actual sales of securities and the timing of such actual sales.

The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at December 31, 2015 and 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
December 31, 2015:
Other venture capital investments (fair value accounting)	$	2,040	Private company equity pricing	(1)	(1)
Equity warrant assets (public portfolio)	1,786		Modified Black-Scholes option pricing model	Volatility	38.1	%
				Risk-Free interest rate	2.1
				Sales restrictions discount (2)	18.0
Equity warrant assets (private portfolio)	133,382		Modified Black-Scholes option pricing model	Volatility	36.0
				Risk-Free interest rate	1.1
				Marketability discount (3)	16.6
				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 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 best estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At December 31, 2015, the weighted average contractual remaining term was 5.7 years, compared to our estimated remaining life of 2.6 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.

During 2015, 2014 and 2013 there were no transfers between Level 2 and Level 1. During 2015, there were no transfers in our other venture capital investments from Level 3 to Level 2. Transfers of our non-marketable and other securities from Level 3 to Level 2 for 2014 and 2013 included $380.1 million and $3.6 million, respectively, as a result of the expiration of lock-up, and other sales restrictions on certain of our other securities and venture capital investments. During 2013, a new sales restriction discount was applied to the valuation of public equity warrant assets, which were subject to certain sales restrictions. The application of this discount resulted in a transfer of $24.2 million of public equity warrant assets from Level 2 to Level 3.

All other transfers from Level 3 to Level 2 during 2015, 2014 and 2013 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.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

Net long-lived assets held-for-sale

The fair value of assets held-for-sale is estimated by their net realizable value, which represents the potential sales price less costs to sell. Valuation techniques utilized are significant assumptions not observable in the market, accordingly, we classify these assets as Level 3. At December 31, 2014, the carrying value and fair value of our net long-lived assets held-for-sale was $44.3 million and $45.4 million, respectively. The sale of our assets held-for-sale was completed on April 13, 2015 and no held-for-sale operations remain at December 31, 2015.

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 for which carrying value approximates fair value and assets and liabilities measured at fair value on a nonrecurring basis and excludes financial instruments already recorded at fair value as described above.

Financial Instruments for which Carrying Value Approximates Fair Value

Certain financial instruments that are not carried at fair value on the Consolidated Balance Sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents; FHLB and FRB stock; accrued interest receivable; short-term borrowings; short-term time deposits; and accrued interest payable. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Held-to-Maturity Securities

Held-to-maturity securities include similar investments held in our available-for-sale securities portfolio and are valued using the same methodologies. All securities included in our held-to-maturity securities portfolio are valued using Level 2 inputs. See Level 2 fair value measurements in Note 2- “Summary of Significant Accounting Policies” for significant inputs used in the valuation of our held-to-maturity investment securities.

Non-Marketable (Cost and Equity Method Accounting)

Non-marketable securities includes other investments (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, 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 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.

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.

Long-Term Deposits

The fair value of long-term 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.

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 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, 2015 and 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 December 31, 2015 and 2014:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
December 31, 2015:
Financial assets:
Cash and cash equivalents	$	1,503,257	$	1,503,257	$	1,503,257	$	—	$	—
Held-to-maturity securities	8,790,963		8,758,622		—		8,758,622		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	114,795		117,172		—		—		117,172
Non-marketable securities (cost and equity method) accounting measured at net asset value (1)	250,970		364,799		—		—		—
Net commercial loans	14,763,302		14,811,588		—		—		14,811,588
Net consumer loans	1,761,155		1,737,960		—		—		1,737,960
FHLB and FRB stock	56,991		56,991		—		—		56,991
Accrued interest receivable	107,604		107,604		—		107,604		—
Financial liabilities:
Short-term FHLB advances	638,000		638,000		638,000		—		—
Federal funds purchased	135,000		135,000		135,000		—		—
Other short-term borrowings	1,900		1,900		1,900		—		—
Non-maturity deposits (2)	39,072,297		39,072,297		39,072,297		—		—
Time deposits	70,479		70,347		—		70,347		—
3.50% Senior Notes	346,667		333,648		—		333,648		—
5.375% Senior Notes	347,016		384,216		—		384,216		—
6.05% Subordinated Notes (3)	48,350		49,820		—		49,820		—
7.0% Junior Subordinated Debentures	54,669		52,905		—		52,905		—
Accrued interest payable	12,058		12,058		—		12,058		—
Off-balance sheet financial assets:
Commitments to extend credit	—		26,483		—		—		26,483
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 FRB 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)	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.


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


(3)	At December 31, 2015 and 2014, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was $2.8 million and $4.6 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 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 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, 2015:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	152,237	$	152,237	$	7,049
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	85,705		85,705		4,954
Debt funds (2)	21,970		23,080		—
Other investments (2)	22,619		22,619		886
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (2)	120,676		233,395		10,636
Total	$	403,207	$	517,036	$	23,525

(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 $108 million and $5 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. 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.

- 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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