Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

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, 2013:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at September 30, 2013
Assets
Available-for-sale securities:
U.S. treasury securities	$	—	$	—	$	—	$	—
U.S. agency debentures	—		3,624,820		—		3,624,820
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		1,518,698		—		1,518,698
Agency-issued collateralized mortgage obligations - fixed rate	—		3,247,477		—		3,247,477
Agency-issued collateralized mortgage obligations - variable rate	—		1,289,850		—		1,289,850
Agency-issued commercial mortgage-backed securities	—		435,932		—		435,932
Municipal bonds and notes	—		86,579		—		86,579
Equity securities	4,021		2,540		—		6,561
Total available-for-sale securities	4,021		10,205,896		—		10,209,917
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments	—		—		773,499		773,499
Other venture capital investments	—		—		55,359		55,359
Other securities	2,546		—		217,054		219,600
Total non-marketable and other securities (fair value accounting)	2,546		—		1,045,912		1,048,458
Other assets:
Interest rate swaps	—		7,027		—		7,027
Foreign exchange forward and option contracts	—		18,463		—		18,463
Equity warrant assets	—		4,126		88,126		92,252
Loan conversion options	—		1,774		—		1,774
Client interest rate derivatives	—		1,237		—		1,237
Total assets (1)	$	6,567	$	10,238,523	$	1,134,038	$	11,379,128
Liabilities
Foreign exchange forward and option contracts	$	—	$	17,009	$	—	$	17,009
Client interest rate derivatives	—		1,427		—		1,427
Total liabilities	$	—	$	18,436	$	—	$	18,436


(1)	Included in Level 1 and Level 3 assets are $2.4 million and $953 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, 2012:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2012
Assets
Available-for-sale securities:
U.S. treasury securities	$	—	$	25,247	$	—	$	25,247
U.S. agency debentures	—		3,447,628		—		3,447,628
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	—		1,473,433		—		1,473,433
Agency-issued collateralized mortgage obligations - fixed rate	—		4,103,974		—		4,103,974
Agency-issued collateralized mortgage obligations - variable rate	—		1,772,748		—		1,772,748
Agency-issued commercial mortgage-backed securities	—		422,098		—		422,098
Municipal bonds and notes	—		93,529		—		93,529
Equity securities	4,520		—		—		4,520
Total available-for-sale securities	4,520		11,338,657		—		11,343,177
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	—		—		665,921		665,921
Other venture capital investments	—		—		127,091		127,091
Total non-marketable and other securities (fair value accounting)	—		—		793,012		793,012
Other assets:
Marketable securities	1,144		9,184		—		10,328
Interest rate swaps	—		9,005		—		9,005
Foreign exchange forward and option contracts	—		13,541		—		13,541
Equity warrant assets	—		8,143		66,129		74,272
Loan conversion options	—		890		—		890
Client interest rate derivatives	—		558		—		558
Total assets (1)	$	5,664	$	11,379,978	$	859,141	$	12,244,783
Liabilities
Foreign exchange forward and option contracts	$	—	$	12,847	$	—	$	12,847
Client interest rate derivatives	—		590		—		590
Total liabilities	$	—	$	13,437	$	—	$	13,437


(1)	Included in Level 1, Level 2, and Level 3 assets are $1.1 million, $8.7 million, and $708 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, 2013 and 2012, respectively:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income			Purchases		Sales			Issuances		Distributions and Other Settlements			Transfers Into Level 3		Transfers Out of Level 3			Ending Balance
Three months ended September 30, 2013
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	741,522	$	34,288		$	41,704	$	—		$	—	$	(44,015	)	$	—	$	—		$	773,499
Other venture capital investments	123,493		4,530			1,016		4			—		(73,684		)	—		—			55,359
Other securities (fair value accounting)	—		143,301			—		—			—		73,753			—		—			217,054
Total non-marketable and other securities (fair value accounting)(1)	865,015		182,119			42,720		4			—		(43,946		)	—		—			1,045,912
Other assets:
Equity warrant assets (2)	73,229		18,215			—		(6,366		)	2,995		365			—		(312		)	88,126
Total assets	$	938,244	$	200,334		$	42,720	$	(6,362	)	$	2,995	$	(43,581	)	$	—	$	(312	)	$	1,134,038
Three months ended September 30, 2012
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	639,596	$	12,104		$	35,092	$	—		$	—	$	(28,383	)	$	—	$	—		$	658,409
Other venture capital investments	120,111		3,259			953		(5,202		)	—		479			—		(978		)	118,622
Other investments	—		—			—		—			—		—			—		—			—
Total non-marketable and other securities (fair value accounting) (1)	759,707		15,363			36,045		(5,202		)	—		(27,904		)	—		(978		)	777,031
Other assets:
Equity warrant assets (2)	68,619		(800		)	—		(5,954		)	2,994		—			—		(168		)	64,691
Total assets	$	828,326	$	14,563		$	36,045	$	(11,156	)	$	2,994	$	(27,904	)	$	—	$	(1,146	)	$	841,722
Nine months ended September 30, 2013
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	665,921	$	90,526		$	107,022	$	—		$	—	$	(89,970	)	$	—	$	—		$	773,499
Other venture capital investments	127,091		5,779			1,210		(381		)	—		(74,779		)	—		(3,561		)	55,359
Other securities (fair value accounting)	—		143,301			—		—			—		73,753			—		—			217,054
Total non-marketable and other securities (fair value accounting) (1)	793,012		239,606			108,232		(381		)	—		(90,996		)	—		(3,561		)	1,045,912
Other assets:
Equity warrant assets (2)	66,129		26,142			—		(10,805		)	7,309		1,743			—		(2,392		)	88,126
Total assets	$	859,141	$	265,748		$	108,232	$	(11,186	)	$	7,309	$	(89,253	)	$	—	$	(5,953	)	$	1,134,038
Nine months ended September 30, 2012
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	611,824	$	38,765		$	90,173	$	—		$	—	$	(82,353	)	$	—	$	—		$	658,409
Other venture capital investments	124,121		(3,868		)	8,888		(9,441		)	—		495			—		(1,573		)	118,622
Other investments	987		21			—		—			—		(1,008		)	—		—			—
Total non-marketable and other securities (fair value accounting) (1)	736,932		34,918			99,061		(9,441		)	—		(82,866		)	—		(1,573		)	777,031
Other assets:
Equity warrant assets (2)	63,030		8,848			—		(15,672		)	9,167		1			—		(683		)	64,691
Total assets	$	799,962	$	43,766		$	99,061	$	(25,113	)	$	9,167	$	(82,865	)	$	—	$	(2,256	)	$	841,722


(1)	Realized and unrealized gains (losses) are recorded on the line items “gains on investment securities, net”, and “other noninterest income”, components of noninterest income.


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

Unrealized Gains Included in Earnings Attributable to Level 3 Assets Held

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 September 30, 2013:



	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	2013		2012			2013		2012
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	32,694	$	12,724		$	89,705	$	38,916
Other venture capital investments	4,603		(963		)	5,720		4,177
Other securities	143,301		—			143,301		—
Total non-marketable and other securities (fair value accounting) (1)	180,598		11,761			238,726		43,093
Other assets:
Equity warrant assets (2)	14,205		(2,480		)	19,788		(2,505		)
Total unrealized gains	$	194,803	$	9,281		$	258,514	$	40,588
Unrealized gains attributable to noncontrolling interests	$	164,871	$	9,543		$	215,340	$	37,445


(1)	Unrealized gains (losses) are recorded on the line items “gains on investment securities, net”, and “other noninterest income”, components of noninterest income.


(2)	Unrealized gains (losses) are recorded on the line item “gains on derivative instruments, 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, 2013. 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, 2013:
Other venture capital investments (fair value accounting)	$	55,359	Private company equity pricing	(1)	(1	)
Other securities	217,054		Modified stock price	Marketability discount	20.0	%
Equity warrant assets (public portfolio)	12,618		Modified Black-Scholes option pricing model	Marketability discount	20.0	%
Equity warrant assets (private portfolio)	75,508		Modified Black-Scholes option pricing model	Volatility	39.7	%
				Risk-Free interest rate	0.8	%
				Marketability discount (2)	22.5	%
				Remaining life assumption (3)	45.0	%
December 31, 2012:
Other venture capital investments (fair value accounting)	127,091		Private company equity pricing	(1)	(1	)
Equity warrant assets (private portfolio)	66,129		Modified Black-Scholes option pricing model	Volatility	45.2	%
				Risk-Free interest rate	0.4	%
				Marketability discount (2)	22.5	%
				Remaining life assumption (3)	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)

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.

(3)

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, 2013, the weighted average contractual remaining term was 6.5 years, compared to our estimated remaining life of 2.9 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, 2013 and December 31, 2012:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3
September 30, 2013:
Financial assets:
Cash and cash equivalents	$	1,942,744	$	1,942,744	$	—	$	—
Non-marketable and other securities (cost and equity method accounting)	379,601		—		—		442,620
Net commercial loans	8,780,870		—		—		8,906,145
Net consumer loans	919,378		—		—		989,546
FHLB and Federal Reserve Bank stock	40,532		—		—		40,532
Accrued interest receivable	64,902		—		64,902		—
Financial liabilities:
Other short-term borrowings	5,580		5,580		—		—
Non-maturity deposits (1)	19,822,370		19,822,370		—		—
Time deposits	174,620		—		174,658		—
5.375% Senior Notes	348,155		—		384,139		—
6.05% Subordinated Notes (2)	52,524		—		57,646		—
7.0% Junior Subordinated Debentures	55,065		—		53,761		—
Accrued interest payable	2,046		—		2,046		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		23,568
December 31, 2012:
Financial assets:
Cash and cash equivalents	$	1,008,983	$	1,008,983	$	—	$	—
Non-marketable and other securities (cost and equity method accounting)	391,253		—		—		425,741
Net commercial loans	8,013,563		—		—		8,180,597
Net consumer loans	822,719		—		—		860,772
FHLB and Federal Reserve Bank stock	39,806		—		—		39,806
Accrued interest receivable	64,167		—		64,167		—
Financial liabilities:
Federal funds purchased	160,000		160,000		—		—
Other short-term borrowings	6,110		6,110		—		—
Non-maturity deposits (1)	19,021,264		19,021,264		—		—
Time deposits	155,188		—		155,027		—
5.375% Senior Notes	347,995		—		393,701		—
6.05% Subordinated Notes (2)	54,571		—		61,639		—
7.0% Junior Subordinated Debentures	55,196		—		51,959		—
Accrued interest payable	6,494		—		6,494		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		20,562


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


(2)	At September 30, 2013 and December 31, 2012, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was $7.0 million and $9.0 million, respectively, related to hedge accounting associated with the notes.

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, 2013:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	773,499	$	773,499	$	434,754
Non-marketable and other securities (equity method accounting):
Other investments (2)	52,265		53,766		15,436
Non-marketable and other securities (cost method accounting):
Venture capital and private equity fund investments (3)	149,602		206,254		39,765
Total	$	975,366	$	1,033,519	$	489,955

(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 sciences companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $700 million and $428 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)

Other investments within non-marketable securities (equity method accounting) include investments in debt funds and venture capital and private equity fund investments that invest in or lend money to primarily U.S. and global technology and life sciences companies. 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.

(3)

Venture capital and private equity fund investments within non-marketable securities (cost method accounting) include investments in venture capital and private equity fund investments that invest primarily in U.S. and global technology and life sciences companies. 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 the terms of the funds.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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- Definition

Tabular disclosure of the fair value of investees that calculate net asset value per share (including by unit, membership interest, or other equity (ownership interest) unit measure) (alternative investments), whether measured at fair value on a recurring or nonrecurring basis, by major category of assets and liabilities (as defined), including, for example, (i) fair value measurements at the reporting date, (ii) the level within the fair value hierarchy in which the fair value measurements fall, (iii) a reconciliation of beginning and ending balances for those alternative investments that are measured at fair value using unobservable inputs (Level 3 - fair value hierarchy fair value measurement inputs), (iv) the inputs and valuation techniques used to measure fair value, (v) a discussion of changes to valuation techniques and inputs, if any, during the period, (vi) a description of the nature and risk associated with the alternative investments, and (vii) a discussion of the probability that any of the alternative investments are to be sold.

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