Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of our provision for income taxes for 2020, 2019 and 2018 were as follows:

	Year ended December 31,
(Dollars in thousands)	2020		2019		2018
Current provision:
Federal	$	299,882	$	296,400	$	249,358
State	140,794		132,357		123,264
Deferred expense (benefit):
Federal	5,296		(1,530)		(11,777)
State	1,615		(1,542)		(9,284)
Income tax expense	$	447,587	$	425,685	$	351,561

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 2020, 2019 and 2018, is as follows:

	December 31,
(Dollars in thousands)	2020		2019		2018
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of the federal tax effect	6.8		7.0		7.2
Meals and entertainment	0.1		0.4		0.3
Disallowed officers' compensation	0.2		0.2		0.2
FDIC premiums	0.3		0.2		0.5
Share-based compensation expense on incentive stock options and ESPP	(0.3)		(0.6)		(1.4)
Qualified affordable housing project tax credits	(0.5)		(0.3)		(0.3)
Tax-exempt interest income	(0.8)		(0.6)		(0.6)
Other, net	0.2		(0.1)		(0.4)
Effective income tax rate	27.0	%	27.2	%	26.5	%

Deferred tax assets and liabilities at December 31, 2020 and 2019, consisted of the following:

	December 31,
(Dollars in thousands)	2020		2019
Deferred tax assets:
Allowance for credit losses	$	158,161	$	103,267
Share-based compensation expense	15,531		14,233
State income taxes	16,640		16,097
Accrued compensation	44,112		22,578
Lease liability	69,714		60,635
Other accruals	10,018		12,383
Net operating loss	7,501		6,386
Goodwill and intangibles	3,165		3,141
Foreign tax credit carryforward	9,028		—
SBA loan fees	6,115		—
Other	8,110		7,923
Deferred tax assets	348,095		246,643
Valuation allowance	(7,094)		(5,919)
Net deferred tax assets after valuation allowance	341,001		240,724
Deferred tax liabilities:
Derivative equity warrant assets	(71,019)		(45,533)
Net unrealized gains on cash flow hedge derivatives	(49,772)		—
Net unrealized gains on AFS debt securities	(185,634)		(33,480)
Non-marketable and other equity securities	(118,712)		(54,239)
Premises and equipment and other intangibles	(23,721)		(16,459)
Right-of-use asset and deferred rent assets	(52,057)		(50,493)
Other	(12,340)		(12,087)
Deferred tax liabilities	(513,255)		(212,291)
Net deferred tax (liabilities) assets	$	(172,254)	$	28,433

Net Deferred Tax Assets

U.S. federal net operating loss carryforwards totaled $1.9 million and $2.2 million for December 31, 2020 and 2019. Our foreign net operating loss carryforwards totaled $25.3 million and $20.8 million at December 31, 2020 and 2019, respectively. These net operating loss carryforwards expire at various dates beginning in 2022.

Currently, we believe that it is more likely than not that the benefit from the foreign net operating loss carryforwards, which are associated with our Germany and Canada operations, will not be realized in the near term due to uncertainties in the timing of future profitability in the course of business. In recognition of this, our valuation allowance is $7.1 million on the deferred tax assets related to our German and Canadian net operating loss carryforwards as of December 31, 2020. 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.

We are subject to income tax and non-income based taxes by the U.S. federal tax authorities as well as various state and foreign tax authorities. We have identified the U.S. federal and California state jurisdictions as major tax filings. Our U.S. federal tax returns remain open to full examination for 2017 and subsequent tax years. Our California tax returns remain open to full examination for 2016 and subsequent tax years.

At December 31, 2020, our unrecognized tax benefit was $16.5 million, the recognition of which would reduce our income tax expense by $13.1 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 the years ended December 31, 2020, 2019 and 2018.

A summary of changes in our unrecognized tax benefit (including interest and penalties) for December 31, 2020, 2019 and 2018 is as follows:

(Dollars in thousands)	Reconciliation of Unrecognized Tax Benefit		Interest and Penalties		Total
Balance at December 31, 2017	$	11,505	$	1,178	$	12,683
Additions for tax positions for current year	4,171		—		4,171
Additions for tax positions for prior years	631		823		1,454
Reduction for tax positions for prior years	(1,865)		(243)		(2,108)
Lapse of the applicable statute of limitations	(435)		(86)		(521)
Reduction as a result of settlement	(1,318)		(222)		(1,540)
Balance at December 31, 2018	$	12,689	$	1,450	$	14,139
Additions for tax positions for current year	3,712		—		3,712
Additions for tax positions for prior years	63		826		889
Reduction for tax positions for prior years	(884)		(524)		(1,408)
Lapse of the applicable statute of limitations	(1,826)		(569)		(2,395)
Reduction as a result of settlement	(1,142)		(17)		(1,159)
Balance at December 31, 2019	$	12,612	$	1,166	$	13,778
Additions for tax positions for current year	5,051		—		5,051
Additions for tax positions for prior years	1,765		1,224		2,989
Reduction for tax positions for prior years	(730)		(69)		(799)
Lapse of the applicable statute of limitations	(1,100)		(323)		(1,423)
Reduction as a result of settlement	(1,108)		(219)		(1,327)
Balance at December 31, 2020	$	16,490	$	1,779	$	18,269