Fair Value of Financial Assets and Liabilities | 9 Months Ended |
Sep. 30, 2014 |
Fair Value Disclosures [Abstract] | ' |
Fair Value of Financial Assets and Liabilities | ' |
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
Fair Value Measurements |
Our marketable investment securities and derivative instruments are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our consolidated financial statements. ASC 825-10 provides an option to report selected financial assets and liabilities at fair value. The Company has not elected to measure any financial assets or liabilities using the fair value option under ASC 825-10. |
ASC 820, Fair Value Measurements and Disclosures defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measurement. |
ASC 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data. |
The three levels for measuring fair value are based on the reliability of inputs and are as follows: |
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Level 1 | | Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to instruments utilizing Level 1 inputs. Since valuations are based on quoted prices that are readily available in an active market, valuation of these products does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include exchange-traded equity securities. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Level 2 | | Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Assets and liabilities utilizing Level 2 inputs include: U.S. treasury and agency securities, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, municipal bonds and notes, Over-the-Counter (“OTC”) derivative instruments (foreign exchange forwards and option contracts, interest rate swaps related to our senior notes, subordinated notes and junior subordinated debentures), and equity warrant assets for shares of public company capital stock. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Level 3 | | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Assets utilizing Level 3 inputs include: limited partnership interests in private equity funds, direct equity investments in private companies, mortgage-backed securities, and equity warrant assets for shares of private company capital stock. | | | | | | | | | | | | | | | | | | | | | | | | | | |
For inactive markets, there is little information, if any, to evaluate if individual transactions are orderly. Accordingly, we are required to estimate, based upon all available facts and circumstances, the degree to which orderly transactions are occurring. Price quotes based upon transactions that are not orderly are not considered to be determinative of fair value and are given little, if any, weight in measuring fair value. Price quotes based upon transactions that are orderly are considered in determining fair value, with the weight given based upon the facts and circumstances. If sufficient information is not available to determine if price quotes are based upon orderly transactions, less weight is given to the price quote relative to other transactions that are known to be orderly. |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment that we use to determine fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement is determined is based on the lowest level input that is significant to the fair value measurement in its entirety. |
Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. |
The types of instruments valued based on quoted market prices in active markets include the Company’s U.S. government and agency securities, mortgage-backed securities and asset-backed securities (“ABS”). Such instruments are generally classified within level 1 or level 2 of the fair value hierarchy. As required by ASC 820, the Company does not adjust the quoted price for such instruments. |
Level 3 valuations are for instruments that are not traded in active markets or are subject to transfer restrictions, and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Such instruments in this category include some investment securities, all impaired loans, warrants and foreclosed assets. |
Transfers between fair value hierarchy levels would represent assets or liabilities that were previously categorized at a higher level for which the inputs to the estimate became less observable or classified at a lower level for which the inputs became more observable during the period. The Company's policy is to recognize transfers between levels at the end of the period. |
Following is a summary of the valuation techniques used for each class of Level 3 assets: |
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(dollars in thousands) | | 30-Sep-14 | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Valuation Technique | | Unobservable Input | | | | | | | | | | | | | | | | | | | | |
Available for sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporates | | $ | — | | | Sensitivity analyses | | Indicative pricing | | | | | | | | | | | | | | | | | | | | |
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Non-Agency MBS | | 132,887 | | | Volatility-driven, multi-dimensional spread tables, optional adjusted spread model and prepayment model | | Indicative pricing, collateral performance | | | | | | | | | | | | | | | | | | | | |
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Other ABS | | 49,008 | | | Multi-dimensional, collateral specific spread tables | | Indicative pricing, collateral performance | | | | | | | | | | | | | | | | | | | | |
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Warrants | | 4,089 | | | Black-Scholes option pricing model | | Estimated market price, stated strike prices, option expiration prices, risk-free interest rates, option volatility assumptions | | | | | | | | | | | | | | | | | | | | |
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Servicing asset | | 1,275 | | | Discounted cash flow | | Discount rates, default rates, prepayment rates, servicing costs | | | | | | | | | | | | | | | | | | | | |
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Venture capital fund investments | | 4,244 | | | Private company equity pricing | | Actual and forecasted results, cash position, market comparable companies | | | | | | | | | | | | | | | | | | | | |
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(dollars in thousands) | | 31-Dec-13 | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Valuation Technique | | Unobservable Input | | | | | | | | | | | | | | | | | | | | |
Available for sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporates | | $ | 26,301 | | | Sensitivity analyses | | Indicative pricing | | | | | | | | | | | | | | | | | | | | |
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Non-Agency MBS | | 52,170 | | | Volatility-driven, multi-dimensional spread tables, optional adjusted spread model and prepayment model | | Indicative pricing, collateral performance | | | | | | | | | | | | | | | | | | | | |
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Other ABS | | 22,091 | | | Multi-dimensional, collateral specific spread tables | | Indicative pricing, collateral performance | | | | | | | | | | | | | | | | | | | | |
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Warrants | | 5,105 | | | Black-Scholes option pricing model | | Estimated market price, stated strike prices, option expiration prices, risk-free interest rates, option volatility assumptions | | | | | | | | | | | | | | | | | | | | |
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Servicing asset | | 1,265 | | | Discounted cash flow | | Discount rates, default rates, prepayment rates, servicing costs | | | | | | | | | | | | | | | | | | | | |
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Venture capital fund investments | | 4,066 | | | Private company equity pricing | | Actual and forecasted results, cash position, market comparable companies | | | | | | | | | | | | | | | | | | | | |
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Following are tables that present information about our investment securities, warrants, servicing asset, and venture capital fund investments, measured at fair value on a recurring basis: |
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(in thousands) | | At September 30, 2014 | | | | | | | | | | | | |
| | Quoted Prices in | | Significant Other | | Significant | | Ending | | | | | | | | | | | | |
Active Markets for | Observable | Unobservable | Balance | | | | | | | | | | | | |
Identical Assets | Inputs | Inputs | | | | | | | | | | | | | |
| | (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | |
Available for sale securities: | | | | | | | | | | | | | | | | | | | | |
US Treasuries | | $ | 19,662 | | | $ | — | | | $ | — | | | $ | 19,662 | | | | | | | | | | | | | |
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Agency Direct Obligations | | 34,647 | | | — | | | — | | | 34,647 | | | | | | | | | | | | | |
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SBA Pools | | — | | | 145,041 | | | — | | | 145,041 | | | | | | | | | | | | | |
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Agency MBS | | — | | | 584,038 | | | — | | | 584,038 | | | | | | | | | | | | | |
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Corporates | | — | | | 121,025 | | | — | | | 121,025 | | | | | | | | | | | | | |
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Municipal Bonds | | — | | | 98,126 | | | — | | | 98,126 | | | | | | | | | | | | | |
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Non-Agency MBS | | — | | | — | | | 132,887 | | | 132,887 | | | | | | | | | | | | | |
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Other ABS | | — | | | — | | | 49,008 | | | 49,008 | | | | | | | | | | | | | |
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Equity securities | | 2,453 | | | — | | | — | | | 2,453 | | | | | | | | | | | | | |
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Total available for sale securities | | $ | 56,762 | | | $ | 948,230 | | | $ | 181,895 | | | $ | 1,186,887 | | | | | | | | | | | | | |
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Warrants | | $ | — | | | $ | — | | | $ | 4,089 | | | $ | 4,089 | | | | | | | | | | | | | |
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Servicing asset | | $ | — | | | $ | — | | | $ | 1,275 | | | $ | 1,275 | | | | | | | | | | | | | |
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Venture capital fund investments | | $ | — | | | $ | — | | | $ | 4,244 | | | $ | 4,244 | | | | | | | | | | | | | |
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(in thousands) | | At December 31, 2013 | | | | | | | | | | | | |
| | Quoted Prices in | | Significant Other | | Significant | | Ending | | | | | | | | | | | | |
Active Markets for | Observable | Unobservable | Balance | | | | | | | | | | | | |
Identical Assets | Inputs | Inputs | | | | | | | | | | | | | |
| | (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | |
Available for sale securities: | | | | | | | | | | | | | | | | | | | | |
Agency Direct Obligations | | $ | 35,061 | | | $ | — | | | $ | — | | | $ | 35,061 | | | | | | | | | | | | | |
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SBA Pools | | — | | | 129,211 | | | — | | | 129,211 | | | | | | | | | | | | | |
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Agency MBS | | — | | | 447,850 | | | — | | | 447,850 | | | | | | | | | | | | | |
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Corporates | | — | | | 119,516 | | | 26,301 | | | 145,817 | | | | | | | | | | | | | |
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Municipal Bonds | | — | | | 92,029 | | | — | | | 92,029 | | | | | | | | | | | | | |
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Non-Agency MBS | | — | | | — | | | 52,170 | | | 52,170 | | | | | | | | | | | | | |
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Other ABS | | — | | | — | | | 22,091 | | | 22,091 | | | | | | | | | | | | | |
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Total available for sale securities | | $ | 35,061 | | | $ | 788,606 | | | $ | 100,562 | | | $ | 924,229 | | | | | | | | | | | | | |
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Warrants | | $ | — | | | $ | — | | | $ | 5,105 | | | $ | 5,105 | | | | | | | | | | | | | |
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Servicing asset | | $ | — | | | $ | — | | | $ | 1,265 | | | $ | 1,265 | | | | | | | | | | | | | |
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Venture capital fund investments | | $ | — | | | $ | — | | | $ | 4,066 | | | $ | 4,066 | | | | | | | | | | | | | |
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The following tables present additional information about Level 3 securities, venture capital fund investments, servicing assets and warrants, measured at fair value on a recurring basis: |
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(dollars in thousands) | | Three Months Ended September 30, 2014 |
| | Available for sale securities | | | | | | | | |
| | Corporates | | Non-Agency MBS | | Other ABS | | Venture Capital Fund Investments | | Servicing Asset | | Warrants | | Total |
Balance at June 30, 2014 | | $ | 6,085 | | | $ | 85,434 | | | $ | 34,047 | | | $ | 4,333 | | | $ | 1,325 | | | $ | 4,747 | | | $ | 135,971 | |
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Transfers into Level 3 | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
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Transfers out of Level 3 | | (6,085 | ) | | — | | | — | | | — | | | — | | | (129 | ) | | (6,214 | ) |
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Total gains (losses): | | | | | | | | | | | | | | |
included in net income | | — | | | — | | | — | | | (261 | ) | | — | | | 721 | | | 460 | |
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included in other comprehensive income | | — | | | (3,706 | ) | | — | | | — | | | — | | | — | | | (3,706 | ) |
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Purchases, sales, issuances and settlements: | | | | | | | | | | | | | | |
Purchases | | — | | | 51,159 | | | 24,222 | | | 232 | | | — | | | — | | | 75,613 | |
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Sales | | — | | | — | | | — | | | — | | | — | | | (1,782 | ) | | (1,782 | ) |
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Issuances | | — | | | — | | | — | | | — | | | 56 | | | 532 | | | 588 | |
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Settlements | | — | | | — | | | (9,261 | ) | | (60 | ) | | (106 | ) | | — | | | (9,427 | ) |
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Balance at September 30, 2014 | | $ | — | | | $ | 132,887 | | | $ | 49,008 | | | $ | 4,244 | | | $ | 1,275 | | | $ | 4,089 | | | $ | 191,503 | |
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(dollars in thousands) | | Three Months Ended September 30, 2013 |
| | Available for sale securities | | | | | | | | |
| | Corporates | | Non-Agency MBS | | Other ABS | | Venture Capital Fund Investments | | Servicing Asset | | Warrants | | Total |
Balance at June 30, 2013 | | $ | 16,584 | | | $ | 27,592 | | | $ | 12,211 | | | $ | 3,156 | | | $ | 1,142 | | | $ | 6,330 | | | $ | 67,015 | |
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Transfers into Level 3 | | 5,138 | | | — | | | — | | | — | | | — | | | — | | | 5,138 | |
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Transfers out of Level 3 | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
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Total gains (losses): | | | | | | | | | | | | | | |
included in net income | | — | | | — | | | — | | | 988 | | | (73 | ) | | 899 | | | 1,814 | |
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included in other comprehensive income | | — | | | 690 | | | 1,130 | | | — | | | — | | | — | | | 1,820 | |
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Purchases, sales, issuances and settlements: | | | | | | | | | | | | | | |
Purchases | | — | | | 17,657 | | | 8,979 | | | 34 | | | — | | | — | | | 26,670 | |
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Sales | | — | | | — | | | — | | | — | | | — | | | (2,490 | ) | | (2,490 | ) |
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Issuances | | — | | | — | | | — | | | — | | | 127 | | | 479 | | | 606 | |
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Settlements | | — | | | — | | | — | | | (102 | ) | | — | | | — | | | (102 | ) |
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Balance at September 30, 2013 | | $ | 21,722 | | | $ | 45,939 | | | $ | 22,320 | | | $ | 4,076 | | | $ | 1,196 | | | $ | 5,218 | | | $ | 100,471 | |
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(dollars in thousands) | | Nine Months Ended September 30, 2014 |
| | Available for sale securities | | | | | | | | |
| | Corporates | | Non-Agency MBS | | Other ABS | | Venture Capital Fund Investments | | Servicing Asset | | Warrants | | Total |
Balance at December 31, 2013 | | $ | 26,301 | | | $ | 52,170 | | | $ | 22,091 | | | $ | 4,066 | | | $ | 1,265 | | | $ | 5,105 | | | $ | 110,998 | |
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Transfers into Level 3 | | 2,994 | | | — | | | 2,762 | | | — | | | — | | | — | | | 5,756 | |
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Transfers out of Level 3 | | (29,474 | ) | | — | | | — | | | (953 | ) | | — | | | (1,498 | ) | | (31,925 | ) |
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Total gains (losses): | | | | | | | | | | | | | | |
included in net income | | — | | | — | | | — | | | 1,154 | | | 18 | | | 2,937 | | | 4,109 | |
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included in other comprehensive income | | 179 | | | (8,111 | ) | | (7,058 | ) | | — | | | — | | | — | | | (14,990 | ) |
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Purchases, sales, issuances and settlements: | | | | | | | | | | | | | | |
Purchases | | — | | | 91,031 | | | 40,474 | | | 402 | | | — | | | — | | | 131,907 | |
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Sales | | — | | | (2,203 | ) | | — | | | — | | | — | | | (3,582 | ) | | (5,785 | ) |
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Issuances | | — | | | — | | | — | | | — | | | 166 | | | 1,127 | | | 1,293 | |
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Settlements | | | | — | | | (9,261 | ) | | (425 | ) | | (174 | ) | | — | | | (9,860 | ) |
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Balance at September 30, 2014 | | $ | — | | | $ | 132,887 | | | $ | 49,008 | | | $ | 4,244 | | | $ | 1,275 | | | $ | 4,089 | | | $ | 191,503 | |
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(dollars in thousands) | | Nine Months Ended September 30, 2013 |
| | Available for sale securities | | | | | | | | |
| | Corporates | | Non-Agency MBS | | Other ABS | | Venture Capital Fund Investments | | Servicing Asset | | Warrants | | Total |
Balance at December 31, 2012 | | $ | 11,715 | | | $ | 19,016 | | | $ | 2,643 | | | $ | 3,303 | | | $ | 987 | | | $ | 4,780 | | | $ | 42,444 | |
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Transfers into Level 3 | | 5,501 | | | — | | | — | | | — | | | — | | | — | | | 5,501 | |
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Transfers out of Level 3 | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
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Total gains (losses): | | | | | | | | | | | | | | |
included in net income | | — | | | — | | | — | | | 986 | | | (77 | ) | | 3,263 | | | 4,172 | |
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included in other comprehensive income | | 485 | | | 2,185 | | | — | | | — | | | — | | | — | | | 2,670 | |
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Purchases, sales, issuances and settlements: | | | | | | | | | | | | | | |
Purchases | | 4,021 | | | 24,738 | | | 19,677 | | | 328 | | | — | | | — | | | 48,764 | |
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Sales | | — | | | — | | | — | | | — | | | — | | | (4,224 | ) | | (4,224 | ) |
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Issuances | | — | | | — | | | — | | | — | | | 286 | | | 1,399 | | | 1,685 | |
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Settlements | | — | | | — | | | — | | | (541 | ) | | — | | | — | | | (541 | ) |
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Balance at September 30, 2013 | | $ | 21,722 | | | $ | 45,939 | | | $ | 22,320 | | | $ | 4,076 | | | $ | 1,196 | | | $ | 5,218 | | | $ | 100,471 | |
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For the three and nine months ended September 30, 2014, no available for sale securities and two available for sale securities, respectively, were transferred from Level 2 due to lack of observable inputs to substantiate a Level 2 valuation. For the three and nine months ended September 30, 2013, two available for sale securities and eight available for sale securities, respectively, were transferred from Level 2 due to lack of observable inputs to substantiate a Level 2 valuation. |
Investments in Entities that Calculate Net Asset Value Per Share |
FASB guidance (ASC 825-10-50-6A) requires disclosures about the fair value measurements of investments in certain entities that calculate net asset value per share or its equivalents. These disclosures include the fair value of funds; significant investment strategies of the investees; for investments that cannot be redeemed, estimates of the time periods over which underlying assets are expected to be liquidated; the amounts of the Company's unfunded commitments; redemption features of the investments; restrictions on the ability to sell the investments; and information about sales in certain circumstances. |
The Company has investments in venture capital funds that calculate net asset value per share. The Company's investments in venture capital funds generally cannot be redeemed. Alternatively, the Company expects distributions, if any, to be received primarily through M&A activity and IPOs of the underlying assets of the fund. The Company currently does not have any plans to sell any of these fund investments. If the Company decides to sell these investments in the future, generally the investee fund’s management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investment’s net asset value based on the most recently available financial information from the investee general partner. The most recently available financial information is generally as of the end of the previous quarter. For example, the September 30, 2014 financial statements reflect the June 30, 2014 financial information from the investee general partner, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. |
The following tables summarize the estimated fair values of these investments and remaining unfunded commitments for these investments: |
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(in thousands) | | September 30, 2014 | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value | | Unfunded Commitments | | | | | | | | | | | | | | | | |
Venture capital fund investments | | $ | 4,244 | | | $ | 4,244 | | | $ | 2,025 | | | | | | | | | | | | | | | | | |
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Total | | $ | 4,244 | | | $ | 4,244 | | | $ | 2,025 | | | | | | | | | | | | | | | | | |
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(in thousands) | | December 31, 2013 | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value | | Unfunded Commitments | | | | | | | | | | | | | | | | |
Venture capital fund investments | | $ | 4,066 | | | $ | 4,066 | | | $ | 1,006 | | | | | | | | | | | | | | | | | |
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Total | | $ | 4,066 | | | $ | 4,066 | | | $ | 1,006 | | | | | | | | | | | | | | | | | |
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Venture capital fund investments include investments made by Square 1 Financial, Inc. and Square 1 Bank. These investments represent commitments to venture capital funds that invest in or lend money to primarily U.S. and global technology and life sciences companies and invest in U.S. based venture capital funds themselves. It is estimated that the Company 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. |
At September 30, 2014, the $4.2 million venture capital fund investments valuation consisted of $1.3 million of Bank investments primarily for CRA purposes, $1.8 million from Square 1 Ventures, and $0.9 million of holding company investments. |
Fair Value of Assets Measured on a Non-recurring Basis |
Foreclosed Assets — Upon acquisition, foreclosed assets are initially recorded at the fair value of the asset less cost to sell. Any excess of the recorded investment over the fair value of the property received is charged to the allowance for loan losses. Subsequently, foreclosed assets are carried at the lower of carrying value or net realizable value. Reviews will be performed by management and any subsequent write-downs due to the excess of carrying value of a property over its estimated fair value (less estimated costs to sell) are charged against other expenses. Foreclosed assets are included in other assets in the accompanying consolidated balance sheets. |
The following table presents information about our assets measured at fair value on a non-recurring basis: |
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(in thousands) | | Quoted Prices in | | Significant Other | | Significant | | Ending | | | | | | | | | | | | |
Active Markets for | Observable | Unobservable | Balance | | | | | | | | | | | | |
Identical Assets | Inputs | Inputs | | | | | | | | | | | | | |
| | (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | |
30-Sep-14 | | | | | | | | | | | | | | | | | | | | |
Impaired loans | | $ | — | | | $ | — | | | $ | 3,425 | | | $ | 3,425 | | | | | | | | | | | | | |
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31-Dec-13 | | | | | | | | | | | | | | | | | | | | |
Foreclosed assets | | $ | — | | | $ | — | | | $ | 119 | | | $ | 119 | | | | | | | | | | | | | |
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Impaired loans | | $ | — | | | $ | — | | | $ | 9,022 | | | $ | 9,022 | | | | | | | | | | | | | |
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Financial Instruments Not Carried at Fair Value |
FASB issued guidance over financial instruments (ASC 825-10-65) requires that we disclose estimated fair values for our financial instruments not carried at fair value. Fair value estimates, methods and assumptions, set forth below for our financial instruments, are made solely to comply with the requirements of ASC 825. |
Fair values are based on estimates or calculations at the transaction level using present value techniques in instances where quoted market prices are not available. Because broadly traded markets do not exist for many of our financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. Fair valuations are management’s estimates of the values, and they are calculated based on indicator prices corroborated by observable market quotes or pricing models, the economic and competitive environment, the characteristics of the financial instruments, expected losses, and other such factors. |
These calculations are subjective in nature, involve uncertainties and matters of significant judgment, and do not include tax ramifications; therefore, the results cannot be determined with precision or substantiated by comparison to independent markets, and they may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein does not represent, and should not be construed to represent, the underlying value of the Company. |
The following describes the methods and assumptions used in estimating the fair values of financial instruments, excluding financial instruments already recorded at fair value as described above. |
Cash and due from banks, federal funds sold and short-term investments |
The carrying amounts for cash and due from banks, federal funds sold and short-term investments approximate fair value because of the short maturities of those instruments. |
Loans |
The fair value of the net loan portfolio has been estimated based on management’s assumptions with respect to present value of expected cash flows, discounted at an interest rate giving consideration to estimated prepayment risk and credit loss factors. There is no material difference between carrying value and fair value of loans as outstanding loans are predominately at variable rates. |
Investment securities—held to maturity |
The fair value of investment securities held to maturity are based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. |
FHLB stock |
The carrying amount of FHLB stock approximates fair value as it is not practicable to determine the fair value due to restrictions placed on its transferability. |
Accrued Interest Receivable |
The carrying amount of accrued interest receivable approximates fair value due to the short-term nature of the balance. |
Deposits |
The fair value of deposits with no stated maturities are predominately at variable rates and, accordingly, the fair values have been estimated to equal the carrying amounts (the amount payable on demand). The fair values of certificates of deposits are estimated by discounting the future cash flows using the current rates offered for similar deposits with the same remaining maturities. |
Short-term borrowings |
The Company’s short-term borrowings include securities sold under repurchase agreements, federal funds purchased and short-term lines of credit. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the borrowing and its contractual maturity. |
Long-term debt |
The Company’s long-term debt includes the Company’s convertible subordinated debentures. Fair value of long-term debt is estimated by discounting the future cash flows using current rates offered with the same maturities, price indications from reputable dealers or utilizing observable market prices of the underlying instrument, whichever is deemed more reliable. |
Financial instruments with off-balance sheet risk |
With regard to financial instruments with off-balance sheet risk discussed in Note 16, carrying amounts are reasonable estimates of the fair values for such financial instruments. Commitments to extend credit generally result in loans with a market interest rate if funded. |
The following tables present the estimated fair values of our financial instruments that are not carried at fair value: |
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(in thousands) | | 30-Sep-14 | | | | | | | | |
| | Carrying | | Quoted Prices in | | Significant Other | | Significant | | Ending | | | | | | | | |
Value | Active Markets for | Observable | Unobservable | Balance | | | | | | | | |
| Identical Assets | Inputs | Inputs | | | | | | | | | |
| (Level 1) | (Level 2) | (Level 3) | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 185,606 | | | $ | 185,606 | | | $ | — | | | $ | — | | | $ | 185,606 | | | | | | | | | |
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Investment in time deposits | | 1,250 | | | 1,250 | | | — | | | — | | | 1,250 | | | | | | | | | |
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Investment securities—held to maturity | | 278,121 | | | — | | | 276,407 | | | 6,750 | | | 283,157 | | | | | | | | | |
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Loans, net of unearned income | | 1,271,457 | | | — | | | — | | | 1,277,550 | | | 1,277,550 | | | | | | | | | |
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FHLB stock | | 2,091 | | | — | | | — | | | 2,091 | | | 2,091 | | | | | | | | | |
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Accrued interest receivable | | 10,835 | | | — | | | — | | | 10,835 | | | 10,835 | | | | | | | | | |
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Financial liabilities: | | | | | | | | | | | | | | | | | | |
Non-maturity deposits(1) | | 2,651,938 | | | 2,651,938 | | | — | | | — | | | 2,651,938 | | | | | | | | | |
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Time deposits | | 16,507 | | | — | | | 16,466 | | | — | | | 16,466 | | | | | | | | | |
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Short-term borrowings | | — | | | — | | | — | | | — | | | — | | | | | | | | | |
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Long-term debt | | — | | | — | | | — | | | — | | | — | | | | | | | | | |
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Off-balance sheet financial assets: | | | | | | | | | | | | | | | | | | | |
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Future financing commitments | | — | | | — | | | — | | | 1,167,115 | | | 1,167,115 | | | | | | | | | |
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(1)Includes noninterest demand deposits, interest-bearing demand deposits and money market deposits. |
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(in thousands) | | 31-Dec-13 | | | | | | | | |
| | Carrying | | Quoted Prices in | | Significant Other | | Significant | | Ending | | | | | | | | |
Value | Active Markets for | Observable | Unobservable | Balance | | | | | | | | |
| Identical Assets | Inputs | Inputs | | | | | | | | | |
| (Level 1) | (Level 2) | (Level 3) | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 105,730 | | | $ | 105,730 | | | $ | — | | | $ | — | | | $ | 105,730 | | | | | | | | | |
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Investment in time deposits | | 1,250 | | | 1,250 | | | — | | | — | | | 1,250 | | | | | | | | | |
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Investment securities—held to maturity | | 154,255 | | | — | | | 140,254 | | | 6,300 | | | 146,554 | | | | | | | | | |
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Loans, net of unearned income | | 1,082,536 | | | — | | | — | | | 1,088,062 | | | 1,088,062 | | | | | | | | | |
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FHLB stock | | 2,162 | | | — | | | — | | | 2,162 | | | 2,162 | | | | | | | | | |
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Accrued interest receivable | | 9,023 | | | — | | | 9,023 | | | — | | | 9,023 | | | | | | | | | |
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Financial liabilities: | | | | | | | | | | | | | | | | | | |
Non-maturity deposits(1) | | 2,079,909 | | | 2,046,398 | | | — | | | — | | | 2,046,398 | | | | | | | | | |
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Time deposits | | 26,818 | | | — | | | 26,851 | | | — | | | 26,851 | | | | | | | | | |
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Short-term borrowings | | — | | | — | | | — | | | — | | | — | | | | | | | | | |
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Long-term debt | | 6,207 | | | — | | | 5,753 | | | — | | | 5,753 | | | | | | | | | |
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Off-balance sheet financial assets: | | | | | | | | | | | | | | | | | | | |
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Future financing commitments | | — | | | — | | | — | | | 977,262 | | | 977,262 | | | | | | | | | |
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(1)Includes noninterest demand deposits, interest-bearing demand deposits and money market deposits. |