Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

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 June 30, 2019:

(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2019
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	4,821,074	$	—	$	—	$	4,821,074
Foreign government debt securities	9,211		—		—		9,211
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		1,321,857		—		1,321,857
Agency-issued collateralized mortgage obligations—fixed rate	—		1,788,180		—		1,788,180
Total available-for-sale securities	4,830,285		3,110,037		—		7,940,322
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		302,852
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		441		441
Other equity securities in public companies	5,068		34,740		—		39,808
Total non-marketable and other equity securities (fair value accounting)	5,068		34,740		441		343,101
Other assets:
Foreign exchange forward and option contracts	—		94,462		—		94,462
Equity warrant assets	—		10,278		147,770		158,048
Interest rate swaps	—		19,558		—		19,558
Client interest rate derivatives	—		19,440		—		19,440
Total assets	$	4,835,353	$	3,288,515	$	148,211	$	8,574,931
Liabilities:
Foreign exchange forward and option contracts	$	—	$	86,457	$	—	$	86,457
Interest rate swaps	—		391		—		391
Client interest rate derivatives	—		25,803		—		25,803
Total liabilities	$	—	$	112,651	$	—	$	112,651

(1) Included in Level 3 assets is $394 thousand 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, 2018:

(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2018
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	4,738,258	$	—	$	—	$	4,738,258
U.S. agency debentures	—		1,084,117		—		1,084,117
Foreign government debt securities	5,812		—		—		5,812
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		1,880,218		—		1,880,218
Agency-issued collateralized mortgage obligations—variable rate	—		81,638		—		81,638
Total available-for-sale securities	4,744,070		3,045,973		—		7,790,043
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		318,352
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		1,079		1,079
Other equity securities in public companies	1,181		19,217		—		20,398
Total non-marketable and other equity securities (fair value accounting)	1,181		19,217		1,079		339,829
Other assets:
Foreign exchange forward and option contracts	—		100,402		—		100,402
Equity warrant assets	—		4,039		145,199		149,238
Client interest rate derivatives	—		8,499		—		8,499
Total assets	$	4,745,251	$	3,178,130	$	146,278	$	8,388,011
Liabilities:
Foreign exchange forward and option contracts	$	—	$	88,559	$	—	$	88,559
Client interest rate derivatives	—		9,491		—		9,491
Total liabilities	$	—	$	98,050	$	—	$	98,050

(1)

Included in Level 3 assets is $964 thousand 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 six months ended June 30, 2019 and 2018:

(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income			Purchases		Sales/Exits			Issuances		Distributions and Other Settlements		Transfers Out of Level 3			Ending Balance
Three months ended June 30, 2019
Non-marketable and other equity securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	1,035	$	2		$	—	$	(596	)	$	—	$	—	$	—		$	441
Other assets:
Equity warrant assets (2)	156,749		46,645			—		(55,568		)	3,041		—		(3,097		)	147,770
Total assets	$	157,784	$	46,647		$	—	$	(56,164	)	$	3,041	$	—	$	(3,097	)	$	148,211
Three months ended June 30, 2018
Non-marketable and other equity 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)	131,506		18,249			—		(15,235		)	4,299		—		(1,066		)	137,753
Total assets	$	132,507	$	18,249		$	—	$	(15,235	)	$	4,299	$	—	$	(1,066	)	$	138,754
Six months ended June 30, 2019
Non-marketable and other equity securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	1,079	$	(45	)	$	—	$	(596	)	$	—	$	3	$	—		$	441
Other assets:
Equity warrant assets (2)	145,199		65,811			575		(67,873		)	7,584		—		(3,526		)	147,770
Total assets	$	146,278	$	65,766		$	575	$	(68,469	)	$	7,584	$	3	$	(3,526	)	$	148,211
Six months ended June 30, 2018
Non-marketable and other equity 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		36,860			—		(27,363		)	9,198		—		(2,273		)	137,753
Total assets	$	122,250	$	36,942		$	—	$	(27,363	)	$	9,198	$	—	$	(2,273	)	$	138,754

(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 June 30, 2019 and 2018:

	Three months ended June 30,					Six months ended June 30,
(Dollars in thousands)	2019			2018		2019			2018
Non-marketable and other equity securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	2		$	—	$	(45	)	$	82
Other assets:
Equity warrant assets (2)	4,416			10,236		19,188			18,147
Total unrealized gains, net	$	4,418		$	10,236	$	19,143		$	18,229
Unrealized (losses) gains attributable to noncontrolling interests (1)	$	(1	)	$	—	$	(40	)	$	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 June 30, 2019 and December 31, 2018. 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
June 30, 2019:
Venture capital and private equity fund investments (fair value accounting)	$	441	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	3,775		Black-Scholes option pricing model	Volatility	42.3	%
				Risk-Free interest rate	1.9
				Sales restrictions discount (2)	16.2
Equity warrant assets (private portfolio)	143,995		Black-Scholes option pricing model	Volatility	38.9
				Risk-Free interest rate	1.7
				Marketability discount (3)	18.6
				Remaining life assumption (4)	45.0
December 31, 2018:
Venture capital and private equity fund investments (fair value accounting)	$	1,079	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	2,757		Black-Scholes option pricing model	Volatility	54.7	%
				Risk-Free interest rate	2.6
				Sales restrictions discount (2)	18.5
Equity warrant assets (private portfolio)	142,442		Black-Scholes option pricing model	Volatility	38.5
				Risk-Free interest rate	2.5
				Marketability discount (3)	17.7
				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 terminations and exercises. At June 30, 2019, the weighted average contractual remaining term was 6.1 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 June 30, 2019 and December 31, 2018:

			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
June 30, 2019:
Financial assets:
Cash and cash equivalents	$	9,020,925	$	9,020,925	$	9,020,925	$	—	$	—
Held-to-maturity securities	14,868,761		15,064,962		—		15,064,962		—
Non-marketable securities not measured at net asset value	151,431		151,431		—		—		151,431
Non-marketable securities measured at net asset value	191,172		191,172		—		—		—
Net commercial loans	25,654,063		26,263,514		—		—		26,263,514
Net consumer loans	3,253,622		3,330,518		—		—		3,330,518
FHLB and Federal Reserve Bank stock	59,508		59,508		—		—		59,508
Financial liabilities:
Short-term borrowings	24,252		24,252		—		24,252		—
Non-maturity deposits (1)	55,452,274		55,452,274		55,452,274		—		—
Time deposits	158,266		157,958		—		157,958		—
3.50% Senior Notes	347,812		357,368		—		357,368		—
5.375% Senior Notes	349,158		362,114		—		362,114		—
Off-balance sheet financial assets:
Commitments to extend credit	—		24,349		—		—		24,349
December 31, 2018:
Financial assets:
Cash and cash equivalents	$	3,571,539	$	3,571,539	$	3,571,539	$	—	$	—
Held-to-maturity securities	15,487,442		15,188,236		—		15,188,236		—
Non-marketable securities not measured at net asset value	131,453		131,453		—		—		131,453
Non-marketable securities measured at net asset value	151,247		151,247		—		—		—
Net commercial loans	25,043,671		25,463,968		—		—		25,463,968
Net consumer loans	3,013,706		3,064,093		—		—		3,064,093
FHLB and Federal Reserve Bank stock	58,878		58,878		—		—		58,878
Financial liabilities:
Short-term borrowings	631,412		631,412		—		631,412		—
Non-maturity deposits (1)	49,278,174		49,278,174		49,278,174		—		—
Time deposits	50,726		50,337		—		50,337		—
3.50% Senior Notes	347,639		336,088		—		336,088		—
5.375% Senior Notes	348,826		361,281		—		361,281		—
Off-balance sheet financial assets:
Commitments to extend credit	—		22,930		—		—		22,930

(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 June 30, 2019:

(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	302,852	$	302,852	$	12,259
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	169,219		169,219		10,857
Debt funds (2)	7,168		7,168		—
Other investments (2)	14,785		14,785		886
Total	$	494,024	$	494,024	$	24,002

(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 $81.1 million and $4.1 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.