Income Taxes

We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions. The components of our provision for income taxes for 2018, 2017 and 2016 were as follows:



	Year ended December 31,
(Dollars in thousands)	2018			2017		2016
Current provision:
Federal	$	249,358		$	263,231	$	195,249
State	123,264			67,046		59,319
Deferred (benefit) expense:
Federal	(11,777		)	24,654		(3,560		)
State	(9,284		)	532		(675		)
Income tax expense	$	351,561		$	355,463	$	250,333

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 2018, 2017 and 2016, is as follows:



	December 31,
(Dollars in thousands)	2018		2017		2016
Federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of the federal tax effect	7.2		5.8		5.9
Net deferred tax assets revaluation (TCJ Act)	—		4.3		—
Meals and entertainment	0.3		0.3		0.4
Disallowed officers' compensation	0.2		0.1		0.1
FDIC premiums	0.5		—		—
Share-based compensation expense on incentive stock options and ESPP	(1.4	)	(2.1	)	—
Qualified affordable housing project tax credits	(0.3	)	(0.4	)	(0.5	)
Tax-exempt interest income	(0.6	)	(0.3	)	(0.2	)
Valuation allowance benefit	—		—		(0.3	)
Other, net	(0.4	)	(0.7	)	(0.9	)
Effective income tax rate	26.5	%	42.0	%	39.5	%

Deferred tax assets and liabilities at December 31, 2018 and 2017, consisted of the following:



	December 31,
(Dollars in thousands)	2018			2017
Deferred tax assets:
Allowance for loan losses	$	93,580		$	84,812
Net unrealized losses on AFS debt securities	19,704			12,404
Share-based compensation expense	10,642			9,418
State income taxes	13,854			9,186
Accrued compensation	8,291			8,336
Deferred rent	7,940			8,169
Other accruals	7,061			7,165
Net operating loss	2,447			2,300
Loan fee income and costs	—			1,189
Other	11,339			3,639
Deferred tax assets	174,858			146,618
Valuation allowance	(2,107		)	(2,624		)
Net deferred tax assets after valuation allowance	172,751			143,994

Deferred tax liabilities:
Derivative equity warrant assets	(32,861		)	(29,127		)
Change in accounting method (section 481(a))	(8,034		)	(15,953		)
Net unrealized gains on AFS equity securities	—			(11,145		)
Non-marketable and other equity securities	(45,759		)	(10,724		)
Premises and equipment and other intangibles	(10,284		)	(9,223		)
Other	(10,380		)	(3,977		)
Deferred tax liabilities	(107,318		)	(80,149		)
Net deferred tax assets	$	65,433		$	63,845

At December 31, 2018 and 2017, U.S. federal net operating loss carryforwards totaled $2.2 million and $2.5 million, respectively. Our foreign net operating loss carryforwards totaled $7.6 million and $10.6 million at December 31, 2018 and 2017, 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 these net operating loss carryforwards, which are associated with our former eProsper business unit, part of SVB Analytics, and our Germany 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 $2.1 million on the deferred tax assets related to these net operating loss carryforwards and research and development credits at December 31, 2018. 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 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 2015 and subsequent years remain open to full examination. Our California tax returns for 2013 and subsequent tax years remain open to full examination.

At December 31, 2018, our unrecognized tax benefit was $12.7 million, the recognition of which would reduce our income tax expense by $10.1 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, 2018, 2017 and 2016.

A summary of changes in our unrecognized tax benefit (including interest and penalties) for December 31, 2018, 2017 and 2016 is as follows:



(Dollars in thousands)	Reconciliation of Unrecognized Tax Benefit			Interest and Penalties			Total
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
Additions for tax positions for current year	3,141			—			3,141
Additions for tax positions for prior years	3,378			754			4,132
Reduction for tax positions for prior years	(223		)	(1		)	(224		)
Lapse of the applicable statute of limitations	(60		)	(17		)	(77		)
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