Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2017

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, 2017:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2017
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	7,801,682	$	—	$	—	$	7,801,682
U.S. agency debentures	—		1,927,253		—		1,927,253
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		1,915,281		—		1,915,281
Agency-issued collateralized mortgage obligations—variable rate	—		419,387		—		419,387
Equity securities	146		7,303		—		7,449
Total available-for-sale securities	7,801,828		4,269,224		—		12,071,052
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		135,438
Other venture capital investments (1)	—		—		1,897		1,897
Other securities (1)	788		—		—		788
Total non-marketable and other securities (fair value accounting)	788		—		1,897		138,123
Other assets:
Foreign exchange forward and option contracts	—		81,843		—		81,843
Equity warrant assets	—		2,798		128,952		131,750
Client interest rate derivatives	—		11,655		—		11,655
Total assets	$	7,802,616	$	4,365,520	$	130,849	$	12,434,423
Liabilities:
Foreign exchange forward and option contracts	$	—	$	76,170	$	—	$	76,170
Client interest rate derivatives	—		11,765		—		11,765
Total liabilities	$	—	$	87,935	$	—	$	87,935


(1)	Included in Level 1 and Level 3 assets are $0.7 million and $1.7 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, 2016:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2016
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	8,909,491	$	—	$	—	$	8,909,491
U.S. agency debentures	—		2,078,375		—		2,078,375
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		1,152,665		—		1,152,665
Agency-issued collateralized mortgage obligations—variable rate	—		474,283		—		474,283
Equity securities	175		5,422		—		5,597
Total available-for-sale securities	8,909,666		3,710,745		—		12,620,411
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		141,649
Other venture capital investments (1)	—		—		2,040		2,040
Other securities (1)	753		—		—		753
Total non-marketable and other securities (fair value accounting)	753		—		2,040		144,442
Other assets:
Interest rate swaps	—		810		—		810
Foreign exchange forward and option contracts	—		68,027		—		68,027
Equity warrant assets	—		2,310		128,813		131,123
Client interest rate derivatives	—		10,110		—		10,110
Total assets	$	8,910,419	$	3,792,002	$	130,853	$	12,974,923
Liabilities:
Foreign exchange forward and option contracts	$	—	$	54,668	$	—	$	54,668
Client interest rate derivatives	—		9,770		—		9,770
Total liabilities	$	—	$	64,438	$	—	$	64,438


(1)	Included in Level 1 and Level 3 assets are $0.6 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, 2017 and 2016:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains (Losses) Included in Income			Sales			Issuances		Distributions and Other Settlements			Transfers Out of Level 3			Ending Balance
Three months ended June 30, 2017
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	2,040	$	(143	)	$	—		$	—	$	—		$	—		$	1,897
Other assets:
Equity warrant assets (2)	122,199		10,586			(6,500		)	3,419		—			(752		)	128,952
Total assets	$	124,239	$	10,443		$	(6,500	)	$	3,419	$	—		$	(752	)	$	130,849
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
Six months ended June 30, 2017
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	2,040	$	(143	)	$	—		$	—	$	—		$	—		$	1,897
Other assets:
Equity warrant assets (2)	128,813		17,195			(23,586		)	7,449		—			(919		)	128,952
Total assets	$	130,853	$	17,052		$	(23,586	)	$	7,449	$	—		$	(919	)	$	130,849
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


(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, 2017 and 2016:



	Three months ended June 30,					Six months ended June 30,
(Dollars in thousands)	2017			2016		2017			2016
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)	$	(143	)	$	—	$	(143	)	$	—
Other assets:
Equity warrant assets (2)	7,984			7,624		7,440			8,856
Total unrealized gains, net	$	7,841		$	7,624	$	7,297		$	8,856
Unrealized losses attributable to noncontrolling interests	$	(127	)	$	—	$	(127	)	$	—


(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, 2017 and December 31, 2016. 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, 2017:
Other venture capital investments (fair value accounting)	$	1,897	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	683		Black-Scholes option pricing model	Volatility	40.2	%
				Risk-Free interest rate	2.1
				Sales restrictions discount (2)	15.8
Equity warrant assets (private portfolio)	128,269		Black-Scholes option pricing model	Volatility	36.7
				Risk-Free interest rate	1.4
				Marketability discount (3)	16.7
				Remaining life assumption (4)	45.0
December 31, 2016:
Other venture capital investments (fair value accounting)	$	2,040	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	764		Black-Scholes option pricing model	Volatility	46.6	%
				Risk-Free interest rate	2.1
				Sales restrictions discount (2)	17.7
Equity warrant assets (private portfolio)	128,049		Black-Scholes option pricing model	Volatility	36.9
				Risk-Free interest rate	1.3
				Marketability discount (3)	17.1
				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. 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 cancellations and exercises. At June 30, 2017, 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, 2017 and December 31, 2016:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
June 30, 2017:
Financial assets:
Cash and cash equivalents	$	3,854,244	$	3,854,244	$	3,854,244	$	—	$	—
Held-to-maturity securities	9,938,371		9,910,504		—		9,910,504		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	121,137		125,649		—		—		125,649
Non-marketable securities (cost and equity method accounting) measured at net asset value	231,029		344,498		—		—		—
Net commercial loans	18,350,194		18,659,199		—		—		18,659,199
Net consumer loans	2,389,776		2,413,582		—		—		2,413,582
FHLB and Federal Reserve Bank stock	58,012		58,012		—		—		58,012
Accrued interest receivable	119,945		119,945		—		119,945		—
Financial liabilities:
Other short-term borrowings	470		470		470		—		—
Non-maturity deposits (1)	42,406,314		42,406,314		42,406,314		—		—
Time deposits	58,977		58,794		—		58,794		—
3.50% Senior Notes	347,140		346,304		—		346,304		—
5.375% Senior Notes	347,883		381,609		—		381,609		—
7.0% Junior Subordinated Debentures	54,406		54,744		—		54,744		—
Accrued interest payable	11,884		11,884		—		11,884		—
Off-balance sheet financial assets:
Commitments to extend credit	—		21,848		—		—		21,848
December 31, 2016:
Financial assets:
Cash and cash equivalents	$	2,545,750	$	2,545,750	$	2,545,750	$	—	$	—
Held-to-maturity securities	8,426,998		8,376,138		—		8,376,138		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	120,037		127,343		—		—		127,343
Non-marketable securities (cost and equity method accounting) measured at net asset value	245,626		353,870		—		—		—
Net commercial loans	17,518,430		17,811,356		—		—		17,811,356
Net consumer loans	2,156,148		2,199,501		—		—		2,199,501
FHLB and Federal Reserve Bank stock	57,592		57,592		—		—		57,592
Accrued interest receivable	111,222		111,222		—		111,222		—
Financial liabilities:
Short-term FHLB advances	500,000		500,000		500,000		—		—
Other short-term borrowings	12,668		12,668		12,668		—		—
Non-maturity deposits (1)	38,923,750		38,923,750		38,923,750		—		—
Time deposits	56,118		55,949		—		55,949		—
3.50% Senior Notes	346,979		337,600		—		337,600		—
5.375% Senior Notes	347,586		378,777		—		378,777		—
6.05% Subordinated Notes (2)	46,646		47,489		—		47,489		—
7.0% Junior Subordinated Debentures	54,493		53,140		—		53,140		—
Accrued interest payable	12,013		12,013		—		12,013		—
Off-balance sheet financial assets:
Commitments to extend credit	—		22,074		—		—		22,074


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


(2)	At December 31, 2016, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $0.8 million 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, 2017:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	135,438	$	135,438	$	6,609
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	85,609		85,609		4,943
Debt funds (2)	16,476		16,476		—
Other investments (2)	18,943		18,943		—
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (2)	110,001		223,470		8,374
Total	$	366,467	$	479,936	$	19,926

(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 $100.6 million and $5.0 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 5 to 8 years, depending on the age of the funds and any potential extensions of the terms of the funds.