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Investment Securities
 3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investment Securities
Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities, and (ii) a non-marketable and other equity securities portfolio, which primarily represents investments managed as part of our funds management business, investments in qualified affordable housing projects, as well as public equity securities held as a result of equity warrant assets exercised.
Available-for-Sale Securities
The major components of our available-for-sale investment securities portfolio at March 31, 2020 and December 31, 2019 are as follows:
 
 
March 31, 2020
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
3,745,238

 
$
298,602

 
$
—

 
$
4,043,840

U.S. agency debentures
 
100,000

 
1,687

 
—

 
101,687

Foreign government debt securities
 
22,169

 
1

 
(18
)
 
22,152

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
4,758,167

 
185,347

 
(2
)
 
4,943,512

Agency-issued collateralized mortgage obligations—fixed rate
 
1,409,673

 
56,002

 
—

 
1,465,675

Agency-issued commercial mortgage-backed securities
 
2,009,470

 
61,728

 
—

 
2,071,198

Total available-for-sale securities
 
$
12,044,717

 
$
603,367

 
$
(20
)
 
$
12,648,064


 
 
December 31, 2019
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
6,815,874

 
$
82,267

 
$
(4,131
)
 
$
6,894,010

U.S. agency debentures
 
100,000

 
—

 
(453
)
 
99,547

Foreign government debt securities
 
9,037

 
1

 
—

 
9,038

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
4,109,372

 
39,438

 
(19
)
 
4,148,791

Agency-issued collateralized mortgage obligations—fixed rate
 
1,520,414

 
17,929

 
—

 
1,538,343

Agency-issued commercial mortgage-backed securities
 
1,339,651

 
1,078

 
(15,539
)
 
1,325,190

Total available-for-sale securities
 
$
13,894,348

 
$
140,713

 
$
(20,142
)
 
$
14,014,919


The following table summarizes sale activity of available-for-sale securities during the three months ended March 31, 2020 and 2019 as recorded in the line item “Gains on investment securities, net," a component of noninterest income:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2020

2019
Sales proceeds
 
$
2,654,212

 
$
1,171,564

Net realized gains and losses:
 
 
 
 
Gross realized gains
 
61,165

 
—

Gross realized losses
 
—

 
(3,630
)
Net realized gains (losses)
 
$
61,165

 
$
(3,630
)

The following tables summarize our available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded and summarized into categories of less than 12 months, or 12 months or longer, as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
 
Less than 12 months
 
12 months or longer (1)
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign government debt securities
 
13,292

 
(18
)
 
—

 
—

 
13,292

 
(18
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
626

 
(2
)
 
—

 
—

 
626

 
(2
)
Total available-for-sale securities (1)
 
$
13,918

 
$
(20
)
 
$
—

 
$
—

 
$
13,918

 
$
(20
)
 
 
(1)
As of March 31, 2020, we identified a total of 2 investments that were in unrealized loss positions, and neither position was in an unrealized loss position for a period of time greater than 12 months. Based on our analysis of the securities in an unrealized loss position as of March 31, 2020, the decline in value is unrelated to credit loss and is related to changes in market interest rates since purchase and therefore changes in value for securities are included in other comprehensive income. Market valuations and credit loss analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis. As of March 31, 2020, we do not intend to sell any of our securities in an unrealized loss position prior to recovery of our amortized cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our amortized cost basis. None of the investments in our available-for-sale securities portfolio were past due as of March 31, 2020.
 
 
December 31, 2019
 
 
Less than 12 months
 
12 months or longer (1)
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
971,572

 
$
(3,996
)
 
$
449,850

 
$
(135
)
 
$
1,421,422

 
$
(4,131
)
U.S. agency debentures
 
99,547

 
(453
)
 
—

 
—

 
99,547

 
(453
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
4,014

 
(19
)
 
—

 
—

 
4,014

 
(19
)
Agency-issued commercial mortgage-backed securities
 
1,027,232

 
(15,539
)
 
—

 
—

 
1,027,232

 
(15,539
)
Total available-for-sale securities (1)
 
$
2,102,365

 
$
(20,007
)
 
$
449,850

 
$
(135
)
 
$
2,552,215

 
$
(20,142
)
 
 
(1)
As of December 31, 2019, we identified a total of 58 investments that were in unrealized loss positions, of which 12 investments totaling $0.4 billion with unrealized losses of $0.1 million have been in an unrealized loss position for a period of time greater than 12 months.
The following table summarizes the fixed income securities, carried at fair value, classified as available-for-sale as of March 31, 2020 by the remaining contractual principal maturities. For U.S. Treasury securities, U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments.
 
 
March 31, 2020
(Dollars in thousands)
 
Total
 
One Year
or Less
 
After One
Year to
Five Years
 
After Five
Years to
Ten Years
 
After
Ten Years
U.S. Treasury securities
 
$
4,043,840

 
$
110,935

 
$
1,626,096

 
$
2,306,809

 
$
—

U.S. agency debentures
 
101,687

 
—

 
—

 
101,687

 
—

Foreign government debt securities
 
22,152

 
22,152

 
—

 
—

 
—

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
4,943,512

 
—

 
—

 
—

 
4,943,512

Agency-issued collateralized mortgage obligations—fixed rate
 
1,465,675

 
—

 
1,094

 
—

 
1,464,581

Agency-issued commercial mortgage-backed securities
 
2,071,198

 
—

 
—

 
803,536

 
1,267,662

Total
 
$
12,648,064

 
$
133,087

 
$
1,627,190

 
$
3,212,032

 
$
7,675,755


Held-to-Maturity Securities

The components of our held-to-maturity investment securities portfolio at March 31, 2020 and December 31, 2019 are as follows:
 
 
March 31, 2020
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
Allowance for Credit Losses (2)
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
453,353

 
$
14,799

 
$
—

 
$
468,152

 
$
—

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
6,662,878

 
310,896

 
(90
)
 
6,973,684

 
—

Agency-issued collateralized mortgage obligations —fixed rate
 
1,482,205

 
30,323

 
(4
)
 
1,512,524

 
—

Agency-issued collateralized mortgage obligations—variable rate
 
170,774

 
—

 
(1,652
)
 
169,122

 
—

Agency-issued commercial mortgage-backed securities
 
2,644,968

 
98,806

 
(512
)
 
2,743,262

 
—

Municipal bonds and notes
 
2,160,341

 
105,860

 
(1,791
)
 
2,264,410

 
230

Total held-to-maturity securities
 
$
13,574,519

 
$
560,684

 
$
(4,049
)
 
$
14,131,154

 
$
230

 
 
(1)
Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.
(2) Refer to Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part i, Item 1 of this report for more information on our credit loss methodology.
 
 
December 31, 2019
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at amortized cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
518,728

 
$
6,640

 
$
(668
)
 
$
524,700

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
6,992,009

 
142,209

 
(2,066
)
 
7,132,152

Agency-issued collateralized mortgage obligations—fixed rate
 
1,608,032

 
592

 
(8,502
)
 
1,600,122

Agency-issued collateralized mortgage obligations—variable rate
 
178,611

 
94

 
(259
)
 
178,446

Agency-issued commercial mortgage-backed securities
 
2,759,615

 
56,914

 
(4,508
)
 
2,812,021

Municipal bonds and notes
 
1,785,951

 
83,314

 
(1,434
)
 
1,867,831

Total held-to-maturity securities
 
$
13,842,946

 
$
289,763

 
$
(17,437
)
 
$
14,115,272

 
 
(1)
Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.
Allowance for Credit Losses for HTM Securities
The following table summarizes the activity relating to our allowance for credit losses for HTM securities for the three months ended March 31, 2020:
Three months ended March 31, 2020
 
Beginning Balance December 31, 2019
 
Day One Impact of adopting ASC 326
 
Provision for Credit Losses
 
Ending Balance March 31, 2020
(Dollars in thousands)
 
 
 
 
Municipal bonds and notes
 
$
—

 
$
174

 
$
56

 
$
230

Total allowance for credit losses
 
$
—

 
$
174

 
$
56

 
$
230


Credit Quality Indicators
On a quarterly basis, management monitors the credit quality for HTM securities through the use of standard credit ratings. The following table summarizes our amortized cost of HTM securities aggregated by credit quality indicator at March 31, 2020:
(Dollars in thousands)
 
March 31, 2020
Municipal bonds and notes:
 
 
Aaa
 
$
1,458,546

Aa1
 
477,068

Aa2
 
223,357

Aa3
 
1,370

Total
 
$
2,160,341


The following table summarizes the remaining contractual principal maturities on fixed income investment securities classified as held-to-maturity as of March 31, 2020. For U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as held-to-maturity typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments.
 
 
March 31, 2020
 
 
Total
 
One Year
or Less
 
After One Year to
Five Years
 
After Five Years to
Ten Years
 
After
Ten Years
(Dollars in thousands)
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
U.S. agency debentures
 
$
453,353

 
$
468,152

 
$
2,622

 
$
2,673

 
$
142,990

 
$
146,270

 
$
307,741

 
$
319,209

 
$
—

 
$
—

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
6,662,878

 
6,973,684

 
11,853

 
11,983

 
50,777

 
51,678

 
685,374

 
702,253

 
5,914,874

 
6,207,770

Agency-issued collateralized mortgage obligations—fixed rate
 
1,482,205

 
1,512,524

 
—

 
—

 
—

 
—

 
661,217

 
674,788

 
820,988

 
837,736

Agency-issued collateralized mortgage obligations—variable rate
 
170,774

 
169,122

 
—

 
—

 
—

 
—

 
—

 
—

 
170,774

 
169,122

Agency-issued commercial mortgage-backed securities
 
2,644,968

 
2,743,262

 
—

 
—

 
—

 
—

 
102,565

 
118,381

 
2,542,403

 
2,624,881

Municipal bonds and notes
 
2,160,341

 
2,264,410

 
30,719

 
30,757

 
134,007

 
136,572

 
441,995

 
462,836

 
1,553,620

 
1,634,245

Total
 
$
13,574,519

 
$
14,131,154

 
$
45,194

 
$
45,413

 
$
327,774

 
$
334,520

 
$
2,198,892

 
$
2,277,467

 
$
11,002,659

 
$
11,473,754


Non-marketable and Other Equity Securities
The major components of our non-marketable and other equity securities portfolio at March 31, 2020 and December 31, 2019 are as follows:
(Dollars in thousands)
 
March 31, 2020
 
December 31, 2019
Non-marketable and other equity securities:
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
Consolidated venture capital and private equity fund investments (1)
 
$
85,336

 
$
87,180

Unconsolidated venture capital and private equity fund investments (2)
 
171,930

 
178,217

Other investments without a readily determinable fair value (3)
 
52,666

 
55,255

Other equity securities in public companies (fair value accounting) (4)
 
26,899

 
59,200

Non-marketable securities (equity method accounting) (5):
 
 
 
 
Venture capital and private equity fund investments
 
206,495

 
215,367

Debt funds
 
6,910

 
7,271

Other investments
 
149,557

 
152,863

Investments in qualified affordable housing projects, net (6)
 
500,802

 
458,476

Total non-marketable and other equity securities
 
$
1,200,595

 
$
1,213,829

 
(1)
The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and our ownership percentage of each fund at March 31, 2020 and December 31, 2019 (fair value accounting):
 
 
March 31, 2020
 
December 31, 2019
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Strategic Investors Fund, LP
 
$
5,337

 
12.6
%
 
$
5,729

 
12.6
%
Capital Preferred Return Fund, LP
 
44,696

 
20.0

 
45,341

 
20.0

Growth Partners, LP
 
35,169

 
33.0

 
35,976

 
33.0

CP I, LP
 
134

 
10.7

 
134

 
10.7

Total consolidated venture capital and private equity fund investments
 
$
85,336

 
 
 
$
87,180

 
 


(2)
The carrying value represents investments in 196 and 205 funds (primarily venture capital funds) at March 31, 2020 and December 31, 2019, respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating activities and financial policies. We carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the investments. For each fund investment, 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 December 31st for our March 31st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
(3)
These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted.
The following table shows the changes to the carrying amount of other investments without a readily determinable fair value for the three months ended March 31, 2020:
(Dollars in thousands)
 
Three months ended March 31, 2020
 
Cumulative Adjustments
Measurement alternative:
 
 
 
 
Carrying value at March 31, 2020
 
$
52,666

 
 
Carrying value adjustments:
 
 
 
 
Impairment
 
$
—

 
$
(460
)
Upward changes for observable prices
 
12

 
1,948

Downward changes for observable prices
 
(3,012
)
 
(7,629
)
(4)
Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Changes in equity securities measured at fair value are recognized through net income.
(5)
The following table shows the carrying value and our ownership percentage of each investment at March 31, 2020 and December 31, 2019 (equity method accounting):
 
 
March 31, 2020
 
December 31, 2019
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Venture capital and private equity fund investments:
 
 
 
 
 
 
 
 
Strategic Investors Fund II, LP
 
$
3,277

 
8.6
%
 
$
3,612

 
8.6
%
Strategic Investors Fund III, LP
 
14,487

 
5.9

 
15,668

 
5.9

Strategic Investors Fund IV, LP
 
25,037

 
5.0

 
27,064

 
5.0

Strategic Investors Fund V funds
 
44,815

 
Various

 
46,830

 
Various

CP II, LP (i)
 
5,103

 
5.1

 
5,907

 
5.1

Other venture capital and private equity fund investments
 
113,776

 
Various

 
116,286

 
Various

 Total venture capital and private equity fund investments
 
$
206,495

 
 
 
$
215,367

 
 
Debt funds:
 
 
 
 
 
 
 
 
Gold Hill Capital 2008, LP (ii)
 
$
5,255

 
15.5
%
 
$
5,525

 
15.5
%
Other debt funds
 
1,655

 
Various

 
1,746

 
Various

Total debt funds
 
$
6,910

 
 
 
$
7,271

 
 
Other investments:
 
 
 
 
 
 
 
 
SPD Silicon Valley Bank Co., Ltd.
 
$
73,453

 
50.0
%
 
$
74,190

 
50.0
%
Other investments
 
76,104

 
Various

 
78,673

 
Various

Total other investments
 
$
149,557

 
 
 
$
152,863

 
 

 
(i)
Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP.
(ii)
Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent.

(6)
The following table presents the balances of our investments in qualified affordable housing projects and related unfunded commitments included as a component of “Other liabilities” on our consolidated balance sheets at March 31, 2020 and December 31, 2019:
(Dollars in thousands)
 
March 31, 2020
 
December 31, 2019
Investments in qualified affordable housing projects, net
 
$
500,802

 
$
458,476

Other liabilities
 
348,272

 
302,031


The following table presents other information relating to our investments in qualified affordable housing projects for the three months ended March 31, 2020 and 2019:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2020

2019
Tax credits and other tax benefits recognized
 
$
11,759

 
$
9,257

Amortization expense included in provision for income taxes (i)
 
11,471

 
7,636

 
 
(i)
All investments are amortized using the proportional amortization method and amortization expense is included in the provision for income taxes.
The following table presents the net gains and losses on non-marketable and other equity securities for the three months ended March 31, 2020 and 2019 as recorded in the line item “Gains on investment securities, net," a component of noninterest income:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2020
 
2019
Net gains (losses) on non-marketable and other equity securities:
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
Consolidated venture capital and private equity fund investments
 
$
3,113

 
$
3,289

Unconsolidated venture capital and private equity fund investments
 
1,252

 
8,006

Other investments without a readily determinable fair value
 
(2,943
)
 
5,005

Other equity securities in public companies (fair value accounting)
 
(7,504
)
 
11,803

Non-marketable securities (equity method accounting):
 
 
 
 
Venture capital and private equity fund investments
 
(8,046
)
 
2,789

Debt funds
 
(362
)
 
—

Other investments
 
(620
)
 
1,766

Total net (losses) gains on non-marketable and other equity securities
 
$
(15,110
)
 
$
32,658

Less: realized net (losses) gains on sales of non-marketable and other equity securities
 
(49
)
 
9,835

Net (losses) gains on non-marketable and other equity securities still held
 
$
(15,061
)
 
$
22,823