11. INCOME TAXES

Income tax expense consists of the following:


	For the Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Current provision:
Federal	$	38,881		$	35,089		$	9,111
State		13,996			15,910			3,948

		52,877			50,999			13,059

Deferred provision(benefit):
Federal		(3,260	)		(10,102	)		17,732
State		(950	)		(3,484	)		8,280

		(4,210	)		(13,586	)		26,012

Total	$	48,667		$	37,413		$	39,071

Income tax asset (liability) consists of the following:


	As of December 31,
	2013		2012
	(Dollars in thousands)
Current:
Federal	$	2,838	$	(1,074	)
State		1,337		4,795

		4,175		3,721

Deferred:
Federal		42,545		10,968
State		13,066		2,289

		55,611		13,257

Total	$	59,786	$	16,978

The components of the net deferred tax asset (liability) are as follows:


	As of December 31,
	2013		2012
	(Dollars in thousands)
Federal
Deferred tax assets:
Bad debt and credit loss deduction	$	29,700	$	37,970
Net operating loss carryforward		781		890
Deferred compensation		3,024		2,780
Other intangibles		8		8
Covered loans		26,360		22,348
California franchise tax		1,629		1,420
Unrealized loss on investment securities, net		5,012		—
Other, net		4,907		4,459

Gross deferred tax asset		71,421		69,875

Deferred tax liabilities:
Depreciation		5,489		6,647
Intangibles — acquisitions		2,024		1,230
FDIC indemnification asset		14,269		18,079
FHLB stock		4,388		6,967
Deferred income		2,706		2,748
Unrealized gain on investment securities, net		—		23,236

Gross deferred tax liability		28,876		58,907

Net deferred tax asset — federal	$	42,545	$	10,968

State
Deferred tax assets:
Bad debt and credit loss deduction	$	8,226	$	11,710
Net operating loss carryforward		34		398
Deferred compensation		942		872
Other intangibles		620		3
FDIC indemnification asset		6,363		2,766
Capital loss carryforward		—		133
Unrealized loss on investment securities, net		1,744		—
Other, net		1,554		1,381

Gross deferred tax asset		19,483		17,263

Deferred tax liabilities:
Depreciation		1,058		1,393
Intangibles — acquisitions		—		559
Covered loans		3,935		2,729
FHLB stock		945		1,744
Deferred income		479		466
Unrealized gain on investment securities, net		—		8,083

Gross deferred tax liability		6,417		14,974

Net deferred tax asset — state	$	13,066	$	2,289

A reconciliation of the statutory income tax rate to the consolidated effective income tax rate follows:


	For the Year Ended December 31,
	2013						2012						2011
	Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Federal income tax at statutory rate	$	50,496			35.0	%	$	40,143			35.0	%	$	42,281			35.0	%
State franchise taxes, net of federal benefit		8,734			6.1	%		8,081			7.0	%		8,512			7.0	%
Tax-exempt income		(10,189	)		(7.1	%)		(10,654	)		(9.3	%)		(11,234	)		(9.3	%)
Tax credits		(940	)		(0.7	%)		(1,279	)		(1.1	%)		(1,487	)		(1.2	%)
Other, net		566			0.4	%		1,122			1.0	%		999			0.8	%

Provision for income taxes	$	48,667			33.7	%	$	37,413			32.6	%	$	39,071			32.3	%

The change in unrecognized tax benefits in 2013 and 2012 follows:


	For the Year Ended December 31,
	2013		2012
	(Dollars in thousands)
Balance, beginning of period	$	889	$	1,279
Additions for tax positions related to prior years		1,603		—
Additions for tax positions related to current year		524		—
Reductions due to lapse of statue of limitations		—		—
Settlement with tax authorities		—		(390	)

Balance, end of period	$	3,016	$	889

The total amount of unrecognized tax benefits at December 31, 2013, of $3.0 million would, if recognized, affect the effective tax rate. The amount accrued for payment of interest as of December 31, 2013 and 2012 was $196,000 and $241,000, respectively. The Company records interest and penalties related to uncertain tax positions as part of other operating expense. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.

The Company is subject to federal income tax and franchise tax of the state of California. Our federal income tax returns for the years ended December 31, 2008 through 2013 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2006 through 2013 are open to audit by state authorities.