Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2016

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, 2016:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2016
Assets
Available-for-sale securities:
U.S. Treasury securities	$	8,977,098	$	—	$	—	$	8,977,098
U.S. agency debentures	—		2,336,602		—		2,336,602
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,206,294		—		1,206,294
Agency-issued collateralized mortgage obligations - variable rate	—		537,697		—		537,697
Equity securities	316		610		—		926
Total available-for-sale securities	8,977,414		4,081,203		—		13,058,617
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value (1)	—		—		—		144,227
Other venture capital investments (2)	—		—		2,040		2,040
Other securities (2)	280		—		—		280
Total non-marketable and other securities (fair value accounting)	280		—		2,040		146,547
Other assets:
Interest rate swaps	—		1,918		—		1,918
Foreign exchange forward and option contracts	—		52,845		—		52,845
Equity warrant assets	—		1,989		127,811		129,800
Client interest rate derivatives	—		8,554		—		8,554
Total assets	$	8,977,694	$	4,146,509	$	129,851	$	13,398,281
Liabilities
Foreign exchange forward and option contracts	$	—	$	45,540	$	—	$	45,540
Client interest rate derivatives	—		9,655		—		9,655
Total liabilities	$	—	$	55,195	$	—	$	55,195

(1)

In accordance with the accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.


(2)	Included in Level 1 and Level 3 assets are $0.2 million and $1.8 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, 2015:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2015
Assets
Available-for-sale securities:
U.S. Treasury securities	$	11,678,035	$	—	$	—	$	11,678,035
U.S. agency debentures	—		2,690,029		—		2,690,029
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations - fixed rate	—		1,399,279		—		1,399,279
Agency-issued collateralized mortgage obligations - variable rate	—		607,936		—		607,936
Equity securities	4,517		952		—		5,469
Total available-for-sale securities	11,682,552		4,698,196		—		16,380,748
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value (1)	—		—		—		152,237
Other venture capital investments (2)	—		—		2,040		2,040
Other securities (2)	548		—		—		548
Total non-marketable and other securities (fair value accounting)	548		—		2,040		154,825
Other assets:
Interest rate swaps	—		2,768		—		2,768
Foreign exchange forward and option contracts	—		31,237		—		31,237
Equity warrant assets	—		1,937		135,168		137,105
Client interest rate derivatives	—		3,973		—		3,973
Total assets (2)	$	11,683,100	$	4,738,111	$	137,208	$	16,710,656
Liabilities
Foreign exchange forward and option contracts	$	—	$	26,353	$	—	$	26,353
Client interest rate derivatives	—		4,384		—		4,384
Total liabilities	$	—	$	30,737	$	—	$	30,737

(1)


(2)	Included in Level 1 and Level 3 assets are $0.4 million and $1.8 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 six months ended June 30, 2016 and 2015, respectively:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income			Purchases		Sales			Issuances		Distributions and Other Settlements			Transfers Out of Level 3			Ending Balance
Three months ended June 30, 2016
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	2,040	$	5		$	—	$	—		$	—	$	(5	)	$	—		$	2,040
Other assets:
Equity warrant assets (2)	128,982		4,843			—		(8,178		)	2,218		—			(54		)	127,811
Total assets	$	131,022	$	4,848		$	—	$	(8,178	)	$	2,218	$	(5	)	$	(54	)	$	129,851
Three months ended June 30, 2015
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	3,390	$	—		$	—	$	—		$	—	$	—		$	—		$	3,390
Other assets:
Equity warrant assets (2)	122,261		23,249			—		(27,393		)	2,811		—			(891		)	120,037
Total assets	$	125,651	$	23,249		$	—	$	(27,393	)	$	2,811	$	—		$	(891	)	$	123,427
Six months ended June 30, 2016
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	2,040	$	(25	)	$	—	$	—		$	—	$	25		$	—		$	2,040
Other assets:
Equity warrant assets (2)	135,168		12,022			—		(23,594		)	4,592		—			(377		)	127,811
Total assets	$	137,208	$	11,997		$	—	$	(23,594	)	$	4,592	$	25		$	(377	)	$	129,851
Six months ended June 30, 2015
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	3,291	$	131		$	—	$	(32	)	$	—	$	—		$	—		$	3,390
Other assets:
Equity warrant assets (2)	114,698		43,333			—		(42,158		)	5,298		—			(1,134		)	120,037
Total assets	$	117,989	$	43,464		$	—	$	(42,190	)	$	5,298	$	—		$	(1,134	)	$	123,427


(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 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 net unrealized gains and losses included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at June 30, 2016 and 2015, respectively:



	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands)	2016		2015		2016		2015
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	—	$	59	$	—	$	158
Other assets:
Equity warrant assets (2)	7,624		6,437		8,856		14,809
Total unrealized gains, net	$	7,624	$	6,496	$	8,856	$	14,967
Unrealized gains attributable to noncontrolling interests	$	—	$	53	$	—	$	141


(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 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 June 30, 2016 and December 31, 2015. 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, 2016:
Other venture capital investments (fair value accounting)	$	2,040	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	5,446		Modified Black-Scholes option pricing model	Volatility	37.7	%
				Risk-Free interest rate	1.1	%
				Sales restrictions discount (2)	19.6	%
Equity warrant assets (private portfolio)	122,365		Modified Black-Scholes option pricing model	Volatility	36.7	%
				Risk-Free interest rate	0.6	%
				Marketability discount (3)	17.6	%
				Remaining life assumption (4)	45.0	%
December 31, 2015:
Other venture capital investments (fair value accounting)	$	2,040	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,786		Modified Black-Scholes option pricing model	Volatility	38.1	%
				Risk-Free interest rate	2.1	%
				Sales restrictions discount (2)	18.0	%
Equity warrant assets (private portfolio)	133,382		Modified Black-Scholes option pricing model	Volatility	36.0	%
				Risk-Free interest rate	1.1	%
				Marketability discount (3)	16.6	%
				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% to 20% 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 June 30, 2016, the weighted average contractual remaining term was 5.8 years, compared to our estimated remaining life of 2.6 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, 2016 and December 31, 2015:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
June 30, 2016:
Financial assets:
Cash and cash equivalents	$	1,854,457	$	1,854,457	$	1,854,457	$	—	$	—
Held-to-maturity securities	8,200,443		8,322,048		—		8,322,048		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	121,864		124,662		—		—		124,662
Non-marketable securities (cost and equity method accounting) measured at net asset value (1)	241,845		352,348		—		—		—
Net commercial loans	16,611,533		16,701,555		—		—		16,701,555
Net consumer loans	1,977,522		1,960,486		—		—		1,960,486
FHLB and Federal Reserve Bank stock	63,166		63,166		—		—		63,166
Accrued interest receivable	107,323		107,323		—		107,323		—
Financial liabilities:
Short-term FHLB advances	500,000		500,000		500,000		—		—
Other short-term borrowings	3,219		3,219		3,219		—		—
Non-maturity deposits (2)	37,544,257		37,544,257		37,544,257		—		—
Time deposits	52,310		52,223		—		52,223		—
3.50% Senior Notes	346,822		357,172		—		357,172		—
5.375% Senior Notes	347,297		390,667		—		390,667		—
6.05% Subordinated Notes (3)	47,628		49,639		—		49,639		—
7.0% Junior Subordinated Debentures	54,582		54,804		—		54,804		—
Accrued interest payable	12,009		12,009		—		12,009		—



Off-balance sheet financial assets:
Commitments to extend credit	—		22,131		—		—		22,131
December 31, 2015:
Financial assets:
Cash and cash equivalents	$	1,503,257	$	1,503,257	$	1,503,257	$	—	$	—
Held-to-maturity securities	8,790,963		8,758,622		—		8,758,622		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	114,795		117,172		—		—		117,172
Non-marketable securities (cost and equity method accounting) measured at net asset value (1)	250,970		364,799		—		—		—
Net commercial loans	14,763,302		14,811,588		—		—		14,811,588
Net consumer loans	1,761,155		1,737,960		—		—		1,737,960
FHLB and Federal Reserve Bank stock	56,991		56,991		—		—		56,991
Accrued interest receivable	107,604		107,604		—		107,604		—
Financial liabilities:
Short-term FHLB advances	638,000		638,000		638,000		—		—
Federal funds purchased	135,000		135,000		135,000		—		—
Other short-term borrowings	1,900		1,900		1,900		—		—
Non-maturity deposits (2)	39,072,297		39,072,297		39,072,297		—		—
Time deposits	70,479		70,347		—		70,347		—
3.50% Senior Notes	346,667		333,648		—		333,648		—
5.375% Senior Notes	347,016		384,216		—		384,216		—
6.05% Subordinated Notes (3)	48,350		49,820		—		49,820		—
7.0% Junior Subordinated Debentures	54,669		52,905		—		52,905		—
Accrued interest payable	12,058		12,058		—		12,058		—
Off-balance sheet financial assets:
Commitments to extend credit	—		26,483		—		—		26,483


(1)	In accordance with the accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.


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


(3)	At June 30, 2016 and December 31, 2015, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $1.9 million and $2.8 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 June 30, 2016:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	144,227	$	144,227	$	6,302
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	82,214		82,214		4,954
Debt funds (2)	19,239		20,473		—
Other investments (2)	23,013		23,013		886
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (2)	117,379		226,648		12,364
Total	$	386,072	$	496,575	$	24,506

(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 $102 million and $5 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 and cost 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 10 to 13 years, depending on the age of the funds and any potential extensions of the terms of the funds.