Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2015

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, 2015:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2015
Assets
Available-for-sale securities:
U.S. treasury securities	$	7,914,125	$	—	$	—	$	7,914,125
U.S. agency debentures	—		3,313,664		—		3,313,664
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,778,155		—		1,778,155
Agency-issued collateralized mortgage obligations - variable rate	—		739,203		—		739,203
Equity securities	1,382		394		—		1,776
Total available-for-sale securities	7,915,507		5,831,416		—		13,746,923
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments	—		—		1,195,303		1,195,303
Other venture capital investments	—		—		78,850		78,850
Other securities	11,936		—		—		11,936
Total non-marketable and other securities (fair value accounting)	11,936		—		1,274,153		1,286,089
Other assets:
Interest rate swaps	—		4,340		—		4,340
Foreign exchange forward and option contracts	—		54,495		—		54,495
Equity warrant assets	—		2,195		122,261		124,456
Client interest rate derivatives	—		2,907		—		2,907
Total assets (1)	$	7,927,443	$	5,895,353	$	1,396,414	$	15,219,210
Liabilities
Foreign exchange forward and option contracts	$	—	$	45,727	$	—	$	45,727
Client interest rate derivatives	—		3,166		—		3,166
Total liabilities	$	—	$	48,893	$	—	$	48,893


(1)	Included in Level 1 and Level 3 assets are $9 million and $1.2 billion, 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, 2014:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2014
Assets
Available-for-sale securities:
U.S. treasury securities	$	7,302,273	$	—	$	—	$	7,302,273
U.S. agency debentures	—		3,561,556		—		3,561,556
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,884,843		—		1,884,843
Agency-issued collateralized mortgage obligations - variable rate	—		784,475		—		784,475
Equity securities	4,290		3,218		—		7,508
Total available-for-sale securities	7,306,563		6,234,092		—		13,540,655
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments	—		—		1,130,882		1,130,882
Other venture capital investments	—		—		71,204		71,204
Other securities	108,251		—		—		108,251
Total non-marketable and other securities (fair value accounting)	108,251		—		1,202,086		1,310,337
Other assets:
Interest rate swaps	—		4,609		—		4,609
Foreign exchange forward and option contracts	—		34,231		—		34,231
Equity warrant assets	—		1,906		114,698		116,604
Client interest rate derivatives	—		2,546		—		2,546
Total assets (1)	$	7,414,814	$	6,277,384	$	1,316,784	$	15,008,982
Liabilities
Foreign exchange forward and option contracts	$	—	$	28,363	$	—	$	28,363
Client interest rate derivatives	—		2,748		—		2,748
Total liabilities	$	—	$	31,111	$	—	$	31,111


(1)	Included in Level 1 and Level 3 assets are $100 million and $1.1 billion, 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, 2015 and 2014, respectively:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains Included in Income		Purchases		Sales			Issuances		Distributions and Other Settlements			Transfers Out of Level 3			Ending Balance
Three months ended March 31, 2015
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	1,130,882	$	46,854	$	58,670	$	—		$	—	$	(41,103	)	$	—		$	1,195,303
Other venture capital investments	71,204		6,450		1,370		(39		)	—		(135		)	—			78,850
Total non-marketable and other securities (fair value accounting)(1)	1,202,086		53,304		60,040		(39		)	—		(41,238		)	—			1,274,153
Other assets:
Equity warrant assets (2)	114,698		20,084		—		(14,765		)	2,083		404			(243		)	122,261
Total assets	$	1,316,784	$	73,388	$	60,040	$	(14,804	)	$	2,083	$	(40,834	)	$	(243	)	$	1,396,414
Three months ended March 31, 2014
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	862,972	$	111,335	$	44,455	$	—		$	—	$	(41,840	)	$	—		$	976,922
Other venture capital investments	32,839		1,838		670		(3,514		)	—		(3,527		)	—			28,306
Other securities (fair value accounting)	319,249		102,694		—		(46,840		)	—		3,417			(16,033		)	362,487
Total non-marketable and other securities (fair value accounting) (1)	1,215,060		215,867		45,125		(50,354		)	—		(41,950		)	(16,033		)	1,367,715
Other assets:
Equity warrant assets (2)	99,891		24,378		—		(39,993		)	3,417		626			(677		)	87,642
Total assets	$	1,314,951	$	240,245	$	45,125	$	(90,347	)	$	3,417	$	(41,324	)	$	(16,710	)	$	1,455,357


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


(2)	Realized and unrealized gains (losses) are recorded in 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 March 31, 2015 and 2014:



	Three months ended March 31,
(Dollars in thousands)	2015		2014
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments	$	45,935	$	111,856
Other venture capital investments	6,379		(15		)
Other securities (fair value accounting)	—		78,968
Total non-marketable and other securities (fair value accounting) (1)	52,314		190,809
Other assets:
Equity warrant assets (2)	16,261		3,782
Total unrealized gains, net	$	68,575	$	194,591
Unrealized gains attributable to noncontrolling interests	$	49,617	$	176,085


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


(2)	Unrealized gains (losses) are recorded in 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 March 31, 2015 and December 31, 2014. 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, 2015:
Other venture capital investments (fair value accounting)	$	78,850	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,472		Modified Black-Scholes option pricing model	Volatility	46.6	%
				Risk-Free interest rate	1.8	%
				Sales restrictions discount (2)	15.2	%
Equity warrant assets (private portfolio)	120,789		Modified Black-Scholes option pricing model	Volatility	38.1	%
				Risk-Free interest rate	0.7	%
				Marketability discount (3)	18.1	%
				Remaining life assumption (4)	45.0	%
December 31, 2014:
Other venture capital investments (fair value accounting)	$	71,204	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,681		Modified Black-Scholes option pricing model	Volatility	42.6	%
				Risk-Free interest rate	1.7	%
				Sales restrictions discount (2)	17.8	%
Equity warrant assets (private portfolio)	113,017		Modified Black-Scholes option pricing model	Volatility	38.3	%
				Risk-Free interest rate	0.9	%
				Marketability discount (3)	20.0	%
				Remaining life assumption (4)	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)	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 3 to 6 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, 2015, the weighted average contractual remaining term was 2.61 years, compared to our estimated remaining life of 5.80 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

Letters of credit are carried at their fair value, which was equivalent to the residual premium or fee at March 31, 2015 and December 31, 2014. Commitments to extend credit and letters of credit typically result in loans with a market interest rate if funded.

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, 2015 and December 31, 2014:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3
March 31, 2015:
Financial assets:
Cash and cash equivalents	$	1,308,003	$	1,308,003	$	—	$	—
Held-to-maturity securities	7,816,797		—		7,869,653		—
Non-marketable securities (cost and equity method accounting)	295,427		—		—		402,301
Net commercial loans	12,900,215		—		—		13,034,516
Net consumer loans	1,371,484		—		—		1,347,284
FHLB and Federal Reserve Bank stock	53,496		—		—		53,496
Accrued interest receivable	91,415		—		91,415		—
Financial liabilities:
Short-term FHLB advances	60,000		60,000		—		—
Other short-term borrowings	17,766		17,766		—		—
Non-maturity deposits (1)	33,752,797		33,752,797		—		—
Time deposits	98,778		—		98,740		—
3.50% Senior Notes	349,710		—		348,639		—
5.375% Senior Notes	348,495		—		396,799		—
6.05% Subordinated Notes (2)	49,910		—		52,963		—
7.0% Junior Subordinated Debentures	54,802		—		53,109		—
Accrued interest payable	5,038		—		5,038		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		30,135
December 31, 2014:
Financial assets:
Cash and cash equivalents	$	1,796,062	$	1,796,062	$	—	$	—
Held-to-maturity securities	7,421,042		—		7,415,656		—
Non-marketable securities (cost and equity method accounting)	296,648		—		—		390,570
Net commercial loans	12,947,869		—		—		13,082,487
Net consumer loans	1,271,048		—		—		1,247,336
FHLB and Federal Reserve Bank stock	53,496		—		—		53,496
Accrued interest receivable	94,180		—		94,180		—
Financial liabilities:
Other short-term borrowings	7,781		7,781		—		—
Non-maturity deposits (1)	34,215,372		34,215,372		—		—
Time deposits	128,127		—		128,107		—
5.375% Senior Notes	348,436		—		392,616		—
6.05% Subordinated Notes (2)	50,162		—		53,537		—
7.0% Junior Subordinated Debentures	54,845		—		52,990		—
Accrued interest payable	6,998		—		6,998		—
Off-balance sheet financial assets:
Commitments to extend credit	—		—		—		29,097


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


(2)	At March 31, 2015 and December 31, 2014, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $4.3 million and $4.6 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 March 31, 2015:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	1,195,303	$	1,195,303	$	557,992
Non-marketable securities (equity method accounting):
Other investments (2)	50,132		51,323		5,836
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (3)	134,575		238,293		15,985
Total	$	1,380,010	$	1,484,919	$	579,813

(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 science & healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $1.1 billion and $555 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 science & healthcare 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 science & healthcare 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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