Income Taxes

We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax return and tax returns in California and Massachusetts as “major” tax filings. U.S. federal tax examinations through 2009 have been concluded. Our U.S. federal tax returns for 2010 and subsequent years remain open to examination. Our California tax returns for 2008 and subsequent tax years remain open to examination. Massachusetts tax returns for 2008, 2010 and subsequent years remain open to examination.

During the third quarter of 2013 we recorded a one-time prior period tax expense adjustment of $2.9 million. Prior period amounts have not been revised as the income tax amounts were not considered material, individually, or in the aggregate, to any of the prior reporting periods affected.

Current taxes receivable were $16 million at December 31, 2013, compared to current taxes payable of $9 million at December 31, 2012.

The components of our provision for income taxes for 2013, 2012 and 2011 were as follows:



	Year ended December 31,
(Dollars in thousands)	2013		2012			2011
Current provision:
Federal	$	99,480	$	87,635		$	86,220
State	25,498		23,752			25,505
Deferred expense (benefit):
Federal	11,244		2,385			5,756
State	2,836		(503		)	1,606
Income tax expense	$	139,058	$	113,269		$	119,087

Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests. The reconciliation between the federal statutory income tax rate and our effective income tax rate for 2013, 2012 and 2011, is as follows:



	December 31,
(Dollars in thousands)	2013		2012		2011
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of the federal tax effect	5.1		5.8		6.0
Meals and entertainment	0.5		0.5		0.5
Disallowed officer's compensation	0.1		0.1		0.1
Share-based compensation expense on incentive stock options and ESPP	(0.3	)	0.4		0.3
Tax-exempt interest income	(0.3	)	(0.4	)	(0.4	)
Low-income housing tax credits	(1.6	)	(1.2	)	(1.1	)
Other, net	0.7		(0.9	)	0.5
Effective income tax rate	39.2	%	39.3	%	40.9	%

Deferred tax assets and liabilities at December 31, 2013 and 2012, consisted of the following:



	December 31,
(Dollars in thousands)	2013			2012
Deferred tax assets:
Allowance for loan losses	$	69,616		$	53,953
Net unrealized losses on available-for-sale securities	27,686			—
Share-based compensation expense	14,535			11,478
Net operating loss	9,682			8,175
Loan fee income	7,804			10,356
State income taxes	6,194			7,042
Net unrealized losses on foreign currency translation	5,228			—
Other accruals not currently deductible	4,869			2,205
Premises and equipment and other intangibles	734			—
Research and development credit	324			364
Other	36			16
Deferred tax assets	146,708			93,589
Valuation allowance	(10,006		)	(8,539		)
Net deferred tax assets after valuation allowance	136,702			85,050

Deferred tax liabilities:
Non-marketable and other securities	(55,921		)	(23,363		)
Derivative equity warrant assets	(10,344		)	(5,566		)
FHLB stock dividend	(1,236		)	(1,252		)
Net unrealized gains on available-for-sale securities	—			(74,983		)
Premises and equipment and other intangibles	—			(5,466		)
Other	(964		)	—
Deferred tax liabilities	(68,465		)	(110,630		)
Net deferred tax assets (liabilities)	$	68,237		$	(25,580	)

At both December 31, 2013 and 2012, federal net operating loss carryforwards totaled $16 million, and state net operating loss carryforwards totaled $8 million. Our foreign net operating loss carryforwards totaled $19 million and $11 million at December 31, 2013 and 2012, respectively. These net operating loss carryforwards expire at various dates beginning in 2019. A portion of our net operating loss carryforwards will be subject to provisions of the tax law that limits the use of losses that existed at the time there is a change in control of an enterprise. At December 31, 2013, the amount of our federal and state net operating loss carryforwards that would be subject to these limitations was $7 million and $2 million, respectively.

Currently, we believe that it is more likely than not that the benefit from these net operating loss carryforwards, which are associated with our former eProsper business unit, part of SVB Analytics, and our UK operations, will not be realized in the near term due to uncertainties in the timing of future profitability in those businesses. In recognition of this, we have provided a valuation allowance of $10 million and $9 million on the deferred tax assets related to these net operating loss carryforward and research and development credits at December 31, 2013 and 2012, respectively. We believe it is more likely than not that the remaining deferred tax assets will be realized through recovery of taxes previously paid and/or future taxable income. Therefore, no valuation allowance was provided for the remaining deferred tax assets.

At December 31, 2013, our unrecognized tax benefit was $0.3 million, the recognition of which would reduce our income tax expense by $0.3 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.

A summary of changes in our unrecognized tax benefit (including interest and penalties) in 2013 is as follows:



(Dollars in thousands)	Reconciliation of Unrecognized Tax Benefit			Interest & Penalties			Total
Balance at December 31, 2012	$	284		$	160		$	444
Additions for tax positions for prior years	123			47			170
Reduction for tax positions for prior years	(10		)	(40		)	(50		)
Lapse of the applicable statute of limitations	(145		)	(76		)	(221		)
Balance at December 31, 2013	$	252		$	91		$	343