Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The following schedule presents the major components of our income tax expense:

(In millions)	2021		2020		2019
Federal:
Current	$	230	$	153	$	195
Deferred	27		(47)		(1)
Total Federal	257		106		194
State:
Current	55		38		44
Deferred	5		(11)		(1)
Total State	60		27		43
Total income tax expense	$	317	$	133	$	237

Income tax expense computed at the statutory federal income tax rate of 21% reconciles to actual income tax expense as follows:

(In millions)	2021		2020		2019
Income tax expense at statutory federal rate	$	304	$	141	$	221
State income taxes including credits, net	48		21		34
Other nondeductible expenses	8		8		13
Nontaxable income	(36)		(32)		(28)
Share-based compensation	(3)		(1)		(4)
Tax credits and other taxes	(4)		(4)		1
Total income tax expense	$	317	$	133	$	237

On the consolidated balance sheet, the net DTA is included in “Other assets,” and the net DTL is included in “Other liabilities.” The tax effects of temporary differences that give rise to significant portions of DTAs and DTLs are presented below:

(In millions)	December 31,
	2021		2020
Gross deferred tax assets:
Book loan loss deduction in excess of tax	$	136	$	205
Pension and postretirement	1		1
Deferred compensation	77		71
Security investments and derivative fair value adjustments	26		—
Lease liabilities	55		59
Capitalization of intangible assets	40		—
Other	44		35
Total deferred tax assets before valuation allowance	379		371
Valuation allowance	—		—
Total deferred tax assets	379		371
Gross deferred tax liabilities:
Premises and equipment, due to differences in depreciation	(88)		(81)
Federal Home Loan Bank stock dividends	(2)		(2)
Leasing operations	(44)		(55)
Prepaid expenses	(8)		(6)
Prepaid pension reserves	(6)		(6)
Mortgage servicing	(10)		(8)
Security investments and derivative fair value adjustments	—		(102)
Deferred loan costs	(30)		(32)
ROU assets	(49)		(53)
Qualified opportunity fund deferred gains	(26)		(11)
Equity investments	(20)		(18)
Total deferred tax liabilities	(283)		(374)
Net deferred tax assets (liabilities)	$	96	$	(3)

There was no valuation allowance at December 31, 2021 or December 31, 2020. We evaluate DTAs on a regular basis to determine whether a valuation allowance is required. In conducting this evaluation, we consider all available evidence, both positive and negative, based on the more likely than not criteria that such assets will be realized. This evaluation includes, but is not limited to: (1) available carryback potential to prior tax years; (2) potential future reversals of existing deferred tax liabilities, which historically have a reversal pattern generally consistent with DTAs; (3) potential tax planning strategies; and (4) future projected taxable income. Based on this evaluation, we concluded that a valuation allowance was not required at December 31, 2021. At December 31, 2021, the tax effect of remaining net operating loss and tax credit carryforward was less than $1 million, expiring through 2039.

We have a liability for unrecognized tax benefits relating to uncertain tax positions for tax credits on technology initiatives. The following schedule presents a rollforward of gross unrecognized tax benefits:

(In millions)	2021		2020		2019
Balance at beginning of year	$	11	$	14	$	8
Tax positions related to current year:
Additions	2		2		2
Tax positions related to prior years:
Additions	1		—		4
Reductions	—		(5)		—
Balance at end of year	$	14	$	11	$	14

At both December 31, 2021 and 2020, the liability for unrecognized tax benefits included approximately $12 million and $10 million, respectively (net of the federal tax benefit on state issues) that, if recognized, would affect the effective tax rate. The amount of gross unrecognized tax benefits related to tax credits on technology initiatives that may increase or decrease during the 12 months subsequent to December 31, 2021 is dependent on the timing and outcome of various ongoing federal and state examinations. For tax years not currently under examination, the gross unrecognized tax benefits on technology initiatives may decrease by approximately $2 million.

Interest and penalties related to unrecognized tax benefits are included in income tax expense in the statement of income. At both December 31, 2021 and 2020, accrued interest and penalties recognized in the balance sheet, net of any federal and state tax benefits, totaled approximately $1 million.

We file income tax returns in U.S. federal and various state jurisdictions, and we are no longer subject to income tax examinations for years prior to 2013 for federal and certain state returns.