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 and California tax returns as major tax filings. Our U.S. federal tax returns for 2013 and subsequent years remain open to full examination. Our California tax returns for 2012 and subsequent tax years remain open to full examination.

The components of our provision for income taxes for 2016, 2015 and 2014 were as follows:



	Year ended December 31,
(Dollars in thousands)	2016			2015			2014
Current provision:
Federal	$	195,249		$	191,194		$	181,011
State	59,319			50,815			45,488
Deferred benefit:
Federal	(3,560		)	(11,270		)	(36,067		)
State	(675		)	(1,985		)	(6,924		)
Income tax expense	$	250,333		$	228,754		$	183,508

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 2016, 2015 and 2014, is as follows:



	December 31,
(Dollars in thousands)	2016		2015		2014
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of the federal tax effect	5.9		5.7		5.6
Meals and entertainment	0.4		0.3		0.3
Disallowed officer's compensation	0.1		0.3		0.3
Share-based compensation expense on incentive stock options and ESPP	—		—		0.2
Tax-exempt interest income	(0.2	)	(0.2	)	(0.3	)
Valuation allowance benefit	(0.3	)	(0.4	)	—
Qualified affordable housing project tax credits	(0.5	)	(0.5	)	(0.5	)
Other, net	(0.9	)	(0.3	)	0.4
Effective income tax rate	39.5	%	39.9	%	41.0	%

Deferred tax assets and liabilities at December 31, 2016 and 2015, consisted of the following:



	December 31,
(Dollars in thousands)	2016			2015
Deferred tax assets:
Allowance for loan losses	$	110,248		$	102,410
Other accruals	20,502			6,670
Share-based compensation expense	15,498			11,979
State income taxes	12,682			11,933
Deferred rent	10,050			—
Loan fee income and costs	8,266			13,770
Accrued compensation	6,799			8,720
Net operating loss	4,116			4,406
Other	2,168			2,645
Deferred tax assets	190,329			162,533
Valuation allowance	(4,440		)	(4,730		)
Net deferred tax assets after valuation allowance	185,889			157,803

Deferred tax liabilities:
Change in accounting method (section 481(a))	(35,262		)	—
Derivative equity warrant assets	(36,406		)	(31,955		)
Net unrealized gains on available-for-sale securities	(17,970		)	(10,199		)
Premises and equipment and other intangibles	(11,956		)	—
Non-marketable and other securities	(6,075		)	(35,721		)
Deferred rent	—			(1,843		)
Other	(6,380		)	(4,144		)
Deferred tax liabilities	(114,049		)	(83,862		)
Net deferred tax assets	$	71,840		$	73,941

At December 31, 2016 and 2015, federal net operating loss carryforwards totaled $4 million and $10 million, respectively. State net operating loss carryforwards were $2 million as of December 31, 2015. There were no remaining state operating loss carryforwards as of December 31, 2016. Our foreign net operating loss carryforwards totaled $16 million and $4 million at December 31, 2016 and 2015, respectively. These net operating loss carryforwards expire at various dates beginning in 2027.

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 $4 million on the deferred tax assets related to these net operating loss carryforwards and research and development credits at December 31, 2016. 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, 2016, our unrecognized tax benefit was $5.3 million, the recognition of which would reduce our income tax expense by $3.4 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.

We recognize interest and penalties related to income tax matters as part of income before income taxes. Interest and penalties were not material for year ended December 31, 2016.

A summary of changes in our unrecognized tax benefit (including interest and penalties) for December 31, 2016, 2015 and 2014 is as follows:



(Dollars in thousands)	Reconciliation of Unrecognized Tax Benefit			Interest & Penalties			Total
Balance at December 31, 2013	$	252		$	91		$	343
Additions for tax positions for current year	2,879			—			2,879
Additions for tax positions for prior years	349			47			396
Lapse of the applicable statute of limitations	(83		)	(38		)	(121		)
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
Additions for tax positions for current year	793			—			793
Additions for tax positions for prior years	1,427			166			1,593
Reduction for tax positions for prior years	(271		)	(16		)	(287		)
Lapse of the applicable statute of limitations	(37		)	(9		)	(46		)
Balance at December 31, 2016	$	5,269		$	442		$	5,711