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. Our U.S. federal tax returns for 2012 and subsequent years remain open to full examination. Our California and Massachusetts tax returns for 2011 and subsequent tax years remain open to full examination.

The components of our provision for income taxes for 2015, 2014 and 2013 were as follows:



	Year ended December 31,
(Dollars in thousands)	2015			2014			2013
Current provision:
Federal	$	191,194		$	181,011		$	105,616
State	50,815			45,488			26,204
Deferred (benefit) expense:
Federal	(11,270		)	(36,067		)	11,960
State	(1,985		)	(6,924		)	3,050
Income tax expense (1)	$	228,754		$	183,508		$	146,830

(1)

Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2— "Summary of Significant Accounting Policies” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additional details.

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 2015, 2014 and 2013, is as follows:



	December 31,
(Dollars in thousands)	2015		2014		2013
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of the federal tax effect	5.7		5.6		5.2
Meals and entertainment	0.3		0.3		0.4
Disallowed officer's compensation	0.3		0.3		0.1
Share-based compensation expense on incentive stock options and ESPP	—		0.2		(0.3	)
Tax-exempt interest income	(0.2	)	(0.3	)	(0.3	)
Low-income housing tax credits	(0.5	)	(0.5	)	(0.4	)
Valuation allowance benefit	(0.4	)	—		—
Other, net	(0.3	)	0.4		0.9
Effective income tax rate (1)	39.9	%	41.0	%	40.6	%

(1)

Deferred tax assets and liabilities at December 31, 2015 and 2014, consisted of the following:



	December 31,
(Dollars in thousands)	2015			2014
Deferred tax assets:
Allowance for loan losses	$	102,410		$	80,554
Loan fee income	13,770			9,738
Other accruals not currently deductible	12,163			7,601
Share-based compensation expense	11,979			15,249
State income taxes	11,933			9,428
Net operating loss	4,406			8,641
Premises and equipment and other intangibles	1,748			1,344
Net unrealized losses on foreign currency translation	664			802
Research and development credit	324			324
Other	1,957			2,983
Deferred tax assets	161,354			136,664
Valuation allowance	(4,730		)	(8,965		)
Net deferred tax assets after valuation allowance	156,624			127,699

Deferred tax liabilities:
Non-marketable and other securities (1)	(35,721		)	(31,800		)
Derivative equity warrant assets	(31,955		)	(19,090		)
Net unrealized gains on available-for-sale securities	(10,199		)	(29,600		)
FHLB stock dividend	(1,247		)	(1,230		)
Other	(3,561		)	—
Deferred tax liabilities (1)	(82,683		)	(81,720		)
Net deferred tax assets (1)	$	73,941		$	45,979

(1)

At December 31, 2015 and 2014, federal net operating loss carryforwards totaled $10 million and $16 million, respectively. State net operating loss carryforwards totaled $2 million and $6 million as of December 31, 2015 and 2014, respectively. Our foreign net operating loss carryforwards totaled $4 million and $13 million at December 31, 2015 and 2014, 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, 2015, the amount of our federal net operating loss carryforwards subject to these limitations was $5 million. At December 31, 2015, none of our state net operating loss carryforwards are subject to these limitations.

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, our valuation allowance is $5 million on the deferred tax assets related to these net operating loss carryforwards and research and development credits at December 31, 2015. 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, 2015, our unrecognized tax benefit was $3 million, the recognition of which would reduce our income tax expense by $2 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 2015 is as follows:



(Dollars in thousands)	Reconciliation of Unrecognized Tax Benefit			Interest & Penalties			Total
Balance at December 31, 2014	$	3,397		$	100		$	3,497
Additions for tax positions for current year	1,208			—			1,208
Additions for tax positions for prior years	—			228			228
Reduction for tax positions for prior years	(1,228		)	(22		)	(1,250		)
Lapse of the applicable statute of limitations	(20		)	(5		)	(25		)
Balance at December 31, 2015	$	3,357		$	301		$	3,658