Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2018:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2018
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	5,501,874	$	—	$	—	$	5,501,874
U.S. agency debentures	—		1,346,672		—		1,346,672
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		1,920,541		—		1,920,541
Agency-issued collateralized mortgage obligations—variable rate	—		318,522		—		318,522
Total available-for-sale securities	5,501,874		3,585,735		—		9,087,609
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		334,419
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		1,001		1,001
Other equity securities in public companies	2,184		28,276		—		30,460
Total non-marketable and other equity securities (fair value accounting)	2,184		28,276		1,001		365,880
Other assets:
Foreign exchange forward and option contracts	—		81,903		—		81,903
Equity warrant assets	—		6,478		140,489		146,967
Client interest rate derivatives	—		6,262		—		6,262
Total assets	$	5,504,058	$	3,708,654	$	141,490	$	9,688,621
Liabilities:
Foreign exchange forward and option contracts	$	—	$	76,165	$	—	$	76,165
Client interest rate derivatives	—		15,156		—		15,156
Total liabilities	$	—	$	91,321	$	—	$	91,321


(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 equity 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 equity 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 and nine months ended September 30, 2018 and 2017:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income			Sales/Exits			Issuances		Distributions and Other Settlements		Transfers Out of Level 3			Ending Balance
Three months ended September 30, 2018
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	1,001	$	—		$	—		$	—	$	—	$	—		$	1,001
Other assets:
Equity warrant assets (2)	137,753		32,237			(34,101		)	4,809		—		(209		)	140,489
Total assets	$	138,754	$	32,237		$	(34,101	)	$	4,809	$	—	$	(209	)	$	141,490
Three months ended September 30, 2017
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	1,897	$	—		$	—		$	—	$	—	$	—		$	1,897
Other assets:
Equity warrant assets (2)	128,952		24,354			(17,412		)	3,622		—		(441		)	139,075
Total assets	$	130,849	$	24,354		$	(17,412	)	$	3,622	$	—	$	(441	)	$	140,972
Nine months ended September 30, 2018
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	919	$	82		$	—		$	—	$	—	$	—		$	1,001
Other assets:
Equity warrant assets (2)	121,331		69,097			(61,464		)	14,007		—		(2,482		)	140,489
Total assets	$	122,250	$	69,179		$	(61,464	)	$	14,007	$	—	$	(2,482	)	$	141,490
Nine months ended September 30, 2017
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	2,040	$	(143	)	$	—		$	—	$	—	$	—		$	1,897
Other assets:
Equity warrant assets (2)	128,813		41,549			(40,998		)	11,071		—		(1,360		)	139,075
Total assets	$	130,853	$	41,406		$	(40,998	)	$	11,071	$	—	$	(1,360	)	$	140,972


(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 September 30, 2018 and 2017:



	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2018		2017		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	$	(143	)
Other assets:
Equity warrant assets (2)	15,841		17,827		30,954		23,734
Total unrealized gains, net	$	15,841	$	17,827	$	31,036	$	23,591
Unrealized gains (losses) attributable to noncontrolling interests (1)	$	—	$	—	$	73	$	(127	)


(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 September 30, 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
September 30, 2018:
Venture capital and private equity fund investments (fair value accounting)	$	1,001	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,805		Black-Scholes option pricing model	Volatility	53.1	%
				Risk-Free interest rate	3.0
				Sales restrictions discount (2)	14.1
Equity warrant assets (private portfolio)	138,684		Black-Scholes option pricing model	Volatility	38.2
				Risk-Free interest rate	2.8
				Marketability discount (3)	17.2
				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 September 30, 2018, the weighted average contractual remaining term was 6.2 years, compared to our estimated remaining life of 2.8 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, 2018 and December 31, 2017:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
September 30, 2018:
Financial assets:
Cash and cash equivalents	$	3,819,141	$	3,819,141	$	3,819,141	$	—	$	—
Held-to-maturity securities	15,899,726		15,372,238		—		15,372,238		—
Non-marketable securities not measured at net asset value	134,646		134,646		—		—		134,646
Non-marketable securities measured at net asset value	134,017		134,017		—		—		—
Net commercial loans	24,253,625		23,285,628		—		—		23,285,628
Net consumer loans	2,955,577		2,809,916		—		—		2,809,916
FHLB and Federal Reserve Bank stock	102,378		102,378		—		—		102,378
Financial liabilities:
Short-term borrowings	2,631,252		2,631,252		—		2,631,252		—
Non-maturity deposits (1)	48,518,701		48,518,701		48,518,701		—		—
Time deposits	77,410		77,047		—		77,047		—
3.50% Senior Notes	347,554		338,370		—		338,370		—
5.375% Senior Notes	348,663		363,447		—		363,447		—
Off-balance sheet financial assets:
Commitments to extend credit	—		22,857		—		—		22,857
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 borrowings	1,033,730		1,033,730		1,033,730		—		—
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 September 30, 2018:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	334,419	$	334,419	$	13,255
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	112,537		112,537		4,943
Debt funds (2)	5,241		5,241		—
Other investments (2)	16,239		16,239		886
Total	$	468,436	$	468,436	$	19,084

(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 $93.0 million and $4.3 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.