Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

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 March 31, 2018:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2018
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	6,016,877	$	—	$	—	$	6,016,877
U.S. agency debentures	—		1,561,834		—		1,561,834
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		2,146,173		—		2,146,173
Agency-issued collateralized mortgage obligations—variable rate	—		355,500		—		355,500
Total available-for-sale securities	6,016,877		4,063,507		—		10,080,384
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		334,665
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		1,001		1,001
Other equity securities in public companies	31		4,663		—		4,694
Total non-marketable and other securities (fair value accounting)	31		4,663		1,001		340,360
Other assets:
Foreign exchange forward and option contracts	—		108,504		—		108,504
Equity warrant assets	—		4,163		131,506		135,669
Client interest rate derivatives	—		5,070		—		5,070
Total assets	$	6,016,908	$	4,185,907	$	132,507	$	10,669,987
Liabilities:
Foreign exchange forward and option contracts	$	—	$	104,325	$	—	$	104,325
Client interest rate derivatives	—		13,369		—		13,369
Total liabilities	$	—	$	117,694	$	—	$	117,694


(1)	Included in Level 3 assets is $0.9 million 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, 2017:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2017
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	6,840,502	$	—	$	—	$	6,840,502
U.S. agency debentures	—		1,567,128		—		1,567,128
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		2,267,035		—		2,267,035
Agency-issued collateralized mortgage obligations—variable rate	—		373,730		—		373,730
Equity securities	158		72,111		—		72,269
Total available-for-sale securities	6,840,660		4,280,004		—		11,120,664
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		127,192
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		919		919
Other equity securities in public companies (1)	310		—		—		310
Total non-marketable and other securities (fair value accounting)	310		—		919		128,421
Other assets:
Foreign exchange forward and option contracts	—		96,636		—		96,636
Equity warrant assets	—		2,432		121,331		123,763
Client interest rate derivatives	—		11,753		—		11,753
Total assets	$	6,840,970	$	4,390,825	$	122,250	$	11,481,237
Liabilities:
Foreign exchange forward and option contracts	$	—	$	96,641	$	—	$	96,641
Client interest rate derivatives	—		11,940		—		11,940
Total liabilities	$	—	$	108,581	$	—	$	108,581


(1)	Included in Level 1 and Level 3 assets are $0.2 million and $0.8 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 months ended March 31, 2018 and 2017:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains Included in Income		Sales			Issuances		Distributions and Other Settlements		Transfers Out of Level 3			Ending Balance
Three months ended March 31, 2018
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value(1)	$	919	$	82	$	—		$	—	$	—	$	—		$	1,001
Other assets:
Equity warrant assets (2)	121,331		18,611		(12,128		)	4,899		—		(1,207		)	131,506
Total assets	$	122,250	$	18,693	$	(12,128	)	$	4,899	$	—	$	(1,207	)	$	132,507
Three months ended March 31, 2017
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value(1)	$	2,040	$	—	$	—		$	—	$	—	$	—		$	2,040
Other assets:
Equity warrant assets (2)	128,813		6,609		(17,086		)	4,030		—		(167		)	122,199
Total assets	$	130,853	$	6,609	$	(17,086	)	$	4,030	$	—	$	(167	)	$	124,239


(1)	Realized and unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”, a component of noninterest income.


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

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 March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	82	$	—
Other assets:
Equity warrant assets (2)	9,573		(347		)
Total unrealized gains (losses), net	$	9,655	$	(347	)
Unrealized gains attributable to noncontrolling interests (1)	$	73	$	—


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


(2)	Unrealized gains (losses) are recorded in the line item “Gains on equity warrant assets, 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 March 31, 2018 and December 31, 2017. 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
March 31, 2018:
Venture capital and private equity fund investments (fair value accounting)	$	1,001	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,641		Black-Scholes option pricing model	Volatility	46.3	%
				Risk-Free interest rate	2.7
				Sales restrictions discount (2)	13.7
Equity warrant assets (private portfolio)	129,865		Black-Scholes option pricing model	Volatility	37.0
				Risk-Free interest rate	2.2
				Marketability discount (3)	16.4
				Remaining life assumption (4)	45.0
December 31, 2017:
Venture capital and private equity fund investments (fair value accounting)	$	919	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,936		Black-Scholes option pricing model	Volatility	47.9	%
				Risk-Free interest rate	2.1
				Sales restrictions discount (2)	15.5
Equity warrant assets (private portfolio)	119,395		Black-Scholes option pricing model	Volatility	36.7
				Risk-Free interest rate	1.8
				Marketability discount (3)	16.4
				Remaining life assumption (4)	45.0

(1)

In determining the fair value of our venture capital and private equity fund investment portfolio (not measured at net asset value), 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. We use company provided valuation reports, if available, to support our valuation assumptions. 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 three to six 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 March 31, 2018, the weighted average contractual remaining term was 6.0 years, compared to our estimated remaining life of 2.7 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 March 31, 2018 and December 31, 2017:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
March 31, 2018:
Financial assets:
Cash and cash equivalents	$	2,619,384	$	2,619,384	$	2,619,384	$	—	$	—
Held-to-maturity securities	14,548,856		14,229,439		—		14,229,439		—
Non-marketable securities not measured at net asset value	123,811		123,811		—		—		123,811
Non-marketable securities measured at net asset value	134,942		134,942		—		—		—
Net commercial loans	21,618,619		21,810,467		—		—		21,810,467
Net consumer loans	2,695,031		2,695,873		—		—		2,695,873
FHLB and Federal Reserve Bank stock	60,514		60,514		—		—		60,514
Financial liabilities:
Other short-term borrowings	1,102,140		1,102,140		1,102,140		—		—
Non-maturity deposits (1)	45,895,018		45,895,018		45,895,018		—		—
Time deposits	41,514		41,239		—		41,239		—
3.50% Senior Notes	347,386		343,676		—		343,676		—
5.375% Senior Notes	348,345		369,005		—		369,005		—
Off-balance sheet financial assets:
Commitments to extend credit	—		21,507		—		—		21,507
December 31, 2017:
Financial assets:
Cash and cash equivalents	$	2,923,075	$	2,923,075	$	2,923,075	$	—	$	—
Held-to-maturity securities	12,663,455		12,548,280		—		12,548,280		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	120,019		126,345		—		—		126,345
Non-marketable securities (cost and equity method accounting) measured at net asset value	228,399		331,496		—		—		—
Net commercial loans	20,238,247		20,520,623		—		—		20,520,623
Net consumer loans	2,613,045		2,593,538		—		—		2,593,538
FHLB and Federal Reserve Bank stock	60,020		60,020		—		—		60,020
Financial liabilities:
Short-term FHLB advances	700,000		700,000		700,000		—		—
Federal funds purchased	330,000		330,000		330,000		—		—
Other short-term borrowings	3,730		3,730		3,730		—		—
Non-maturity deposits (1)	44,206,929		44,206,929		44,206,929		—		—
Time deposits	47,146		46,885		—		46,885		—
3.50% Senior Notes	347,303		352,058		—		352,058		—
5.375% Senior Notes	348,189		374,483		—		374,483		—
Off-balance sheet financial assets:
Commitments to extend credit	—		22,208		—		—		22,208


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

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 March 31, 2018:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	334,665	$	334,665	$	13,817
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	97,929		97,929		4,943
Debt funds (2)	18,884		18,884		—
Other investments (2)	18,129		18,129		886
Total	$	469,607	$	469,607	$	19,646

(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 (consolidated VIEs) and investments in venture capital and private equity fund investments (unconsolidated VIEs). Collectively, these investments in venture capital and private equity funds are 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 $95.8 million and $4.5 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 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 5 to 8 years, depending on the age of the funds and any potential extensions of the terms of the funds.