Income Taxes (Tables)

12 Months Ended

Dec. 31, 2021

Components of Provision for Income Taxes

The components of our provision for income taxes for 2021, 2020 and 2019 were as follows:


	Year ended December 31,
(Dollars in millions)	2021		2020		2019
Current provision:
Federal	$	435	$	300	$	297
State	224		141		132
Deferred expense (benefit):
Federal	3		5		(2)
State	(11)		2		(2)
Income tax expense	$	651	$	448	$	425

Reconciliation between Federal Statutory Income Tax Rate and Effective Income Tax Rate

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 2021, 2020 and 2019, is as follows:


	December 31,
(Dollars in millions)	2021		2020		2019
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of the federal tax effect	7.5		6.8		7.0
Meals and entertainment	0.1		0.1		0.4
Disallowed officers' compensation	0.3		0.2		0.2
FDIC premiums	0.4		0.3		0.2
Share-based compensation expense on incentive stock options and ESPP	(1.6)		(0.3)		(0.6)
Qualified affordable housing project tax credits	(0.2)		(0.5)		(0.3)
Tax-exempt interest income	(1.0)		(0.8)		(0.6)

Other, net	(0.3)		0.2		(0.1)
Effective income tax rate	26.2	%	27.0	%	27.2	%

Deferred Tax Assets (Liabilities)

Deferred tax assets and liabilities at December 31, 2021 and December 31, 2020, consisted of the following:


	December 31,
(Dollars in millions)	2021		2020
Deferred tax assets:
Allowance for credit losses	$	170	$	158


Share-based compensation expense	26		16
State income taxes	24		17
Accrued compensation	77		44

Loans and debt securities	113		—
Lease liability	105		70
Other accruals	19		10
Net operating loss	7		7

Goodwill and intangibles	—		3
Foreign tax credit carryforward	—		9
SBA loan fees	3		6
Other	10		8
Deferred tax assets	554		348
Valuation allowance	(7)		(7)
Net deferred tax assets after valuation allowance	547		341

Deferred tax liabilities:
Derivative equity warrant assets	(82)		(71)


Net unrealized gains on cash flow hedge derivatives	(33)		(50)
Net unrealized gains on AFS debt securities	—		(186)
Non-marketable and other equity securities	(219)		(119)
Premises and equipment	(41)		(24)
Right-of-use asset and deferred rent assets	(81)		(52)
Goodwill and intangibles	(24)		—
Contingent payments	(9)		—
Merger-related fair value adjustments	(28)		—
Other	(6)		(11)
Deferred tax liabilities	(523)		(513)
Net deferred tax assets (liabilities)	$	24	$	(172)

Changes in Unrecognized Tax Benefit (Including Interest and Penalties)

A summary of changes in our unrecognized tax benefit (including interest and penalties) for December 31, 2021, 2020 and 2019 is as follows:


(Dollars in millions)	Reconciliation of Unrecognized Tax Benefit		Interest and Penalties		Total
Balance at December 31, 2018	$	13	$	1	$	14
Additions for tax positions for current year	4		—		4
Additions for tax positions for prior years	—		1		1
Reduction for tax positions for prior years	(1)		—		(1)
Lapse of the applicable statute of limitations	(2)		(1)		(3)
Reduction as a result of settlement	(1)		—		(1)
Balance at December 31, 2019	$	13	$	1	$	14
Additions for tax positions for current year	5		—		5
Additions for tax positions for prior years	1		1		2
Reduction for tax positions for prior years	(1)		—		(1)
Lapse of the applicable statute of limitations	(1)		—		(1)
Reduction as a result of settlement	(1)		—		(1)
Balance at December 31, 2020	$	16	$	2	$	18
Additions for tax positions for current year	21		—		21
Additions for tax positions for prior years	—		1		1
Reduction for tax positions for prior years	—		—		—
Lapse of the applicable statute of limitations	—		—		—
Reduction as a result of settlement	—		—		—
Balance at December 31, 2021	$	37	$	3	$	40