Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes included in the Consolidated Statements of Income for the years ended December 31:

($ in millions)	2024		2023	2022
Current income tax expense:
U.S. Federal income taxes	$	452	647	570
State and local income taxes	75		96	126
Foreign income taxes	3		2	11
Total current income tax expense	530		745	707
Deferred income tax expense (benefit):
U.S. Federal income taxes	84		(81)	(31)
State and local income taxes	(13)		(23)	(29)
Foreign income taxes	1		(2)	—
Total deferred income tax expense (benefit)	72		(106)	(60)
Applicable income tax expense	$	602	639	647

The current U.S. Federal income taxes above include proportional amortization for qualifying CDC investments of $200 million, $200 million and $189 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The following is a reconciliation between the statutory U.S. Federal income tax rate and the Bancorp’s effective tax rate for the years ended December 31:

	2024		2023	2022
Statutory tax rate	21.0	%	21.0	21.0
Increase (decrease) resulting from:
State taxes, net of federal benefit	1.7		1.9	2.5
Tax-exempt income	(0.9)		(0.8)	(0.8)
Tax credits and other tax benefits from CDC investments	(8.5)		(7.7)	(7.1)
Proportional amortization of qualifying CDC investments	6.8		6.7	6.1
Other tax credits	(0.1)		(0.7)	(0.4)
Other, net	0.6		1.0	(0.3)
Effective tax rate	20.6	%	21.4	21.0

As discussed in Note 1, the Bancorp adopted ASU 2023-02 on January 1, 2024 which expanded the permitted usage of the proportional amortization method to include additional tax credit programs beyond qualifying LIHTC structures if certain conditions are met. As a result, tax credits and other tax benefits from CDC investments in the rate reconciliation table for the year ended December 31, 2024 include Low-Income Housing, New Markets and Rehabilitation Investment tax credits and other related tax benefits from those investments. For the years ended December 31, 2023 and 2022, prior to the adoption of ASU 2023-02, tax credits and other tax benefits from CDC investments only include the tax credits and other related tax benefits pertaining to investments in the Low-Income Housing tax credit program, with the credits arising from the Bancorp’s investments in the New Markets and Rehabilitation Investment tax credit programs presented as a component of other tax credits. Other tax credits in the rate reconciliation table also include the Increasing Research Activities and Qualified Zone Academy Bond tax credits. Tax-exempt income in the rate reconciliation table includes interest on municipal bonds, interest on tax-exempt lending, and income on life insurance policies held by the Bancorp.

The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:

($ in millions)	2024		2023	2022
Unrecognized tax benefits at January 1	$	97	94	102
Gross increases for tax positions taken during prior period	12		14	3
Gross decreases for tax positions taken during prior period	(7)		(5)	(5)
Gross increases for tax positions taken during current period	21		15	11
Settlements with taxing authorities	(1)		(1)	—
Lapse of applicable statute of limitations	(21)		(20)	(17)
Unrecognized tax benefits at December 31(a)	$	101	97	94

(a)All amounts represent unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

The Bancorp’s unrecognized tax benefits as of December 31, 2024, 2023 and 2022 primarily related to state income tax exposures from taking tax positions where the Bancorp believes it is likely that, upon examination, a state would take a position contrary to the position taken by the Bancorp.

While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorp’s uncertain tax positions could increase or decrease during the next twelve months, the Bancorp believes it is unlikely that its unrecognized tax benefits will change by a material amount during the next twelve months.

Deferred income taxes are comprised of the following items at December 31:

($ in millions)	2024		2023
Deferred tax assets:
Other comprehensive income	$	1,459	1,395
Allowance for loan and lease losses	494		488
Loan origination fees and costs	199		195
Deferred compensation	115		114
Reserves	38		33
State deferred taxes	35		43
Reserves for unfunded commitments	28		35
Federal net operating loss carryforwards	7		19
State net operating loss carryforwards	6		11
Other	138		135
Total deferred tax assets	$	2,519	2,468
Deferred tax liabilities:
Lease financing	$	583	551
MSRs and related economic hedges	153		141
Bank premises and equipment	76		68
Goodwill and intangible assets	64		70
Investments in joint ventures and partnership interests	48		58
Other	168		143
Total deferred tax liabilities	$	1,092	1,031
Total net deferred tax asset	$	1,427	1,437

At December 31, 2024 and 2023, the Bancorp recorded deferred tax assets of $6 million and $11 million, respectively, related to state net operating loss carryforwards. The deferred tax assets relating to state net operating losses are presented net of specific valuation allowances of $7 million and $5 million at December 31, 2024 and 2023, respectively. If these carryforwards are not utilized, they will expire in varying amounts through 2044.

The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2024 or 2023. The Bancorp considered all of the positive and negative evidence available to determine whether it is more likely than not that the deferred tax assets will ultimately be realized and, based upon that evidence, the Bancorp believes it is more likely than not that the deferred tax assets recorded at December 31, 2024 and 2023 will ultimately be realized. The Bancorp reached this conclusion as it is expected that the Bancorp’s remaining deferred tax assets will be realized through the reversal of its existing taxable temporary differences, its projected future taxable income and tax-planning strategies.

The statute of limitations for the Bancorp’s federal income tax returns remains open for tax years 2020 through 2024. On occasion, as various state and local taxing jurisdictions examine the returns of the Bancorp and its subsidiaries, the Bancorp may agree to extend the statute of limitations for a reasonable period of time. Otherwise, the statutes of limitations for state income tax returns remain open only for tax years in accordance with each state’s statutes.

Any interest and penalties incurred in connection with income taxes are recorded as a component of applicable income tax expense in the Consolidated Financial Statements. During the years ended December 31, 2024, 2023 and 2022, the Bancorp recognized $1 million, $2 million and $1 million, respectively, of interest expense in connection with income taxes. At December 31, 2024 and 2023, the Bancorp had accrued interest liabilities, net of the related tax benefits, of $11 million and $10 million, respectively. No material liabilities were recorded for penalties related to income taxes.

Retained earnings at both December 31, 2024 and 2023 included $157 million in allocations of earnings for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp’s subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate.