XML 39 R26.htm IDEA: XBRL DOCUMENT v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of our income before income taxes by U.S and foreign for 2022, 2021 and 2020 were as follows:
Year ended December 31,
(Dollars in millions)202220212020
U.S$1,996 $2,624 $1,673 
Foreign176 100 69 
Income before income tax expense$2,172 $2,724 $1,742 
The components of our provision for income taxes for 2022, 2021 and 2020 were as follows:
Year ended December 31,
(Dollars in millions)202220212020
Current provision:
Federal$34 $409 $282 
State(100)224 141 
   Foreign382618
Deferred expense (benefit):
Federal330 5 6 
State254 (11)2 
   Foreign7 (2)(1)
Income tax expense$563 $651 $448 
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 NCI. The reconciliation between the federal statutory income tax rate and our effective income tax rate for 2022, 2021 and 2020 is as follows:
December 31,
(Dollars in millions)202220212020
Federal statutory income tax rate21.0 %21.0 %21.0 %
State income taxes, net of the federal tax effect6.8 7.5 6.8 
Share-based compensation expense on incentive stock options and ESPP(0.8)(1.6)(0.3)
Qualified affordable housing project tax credits(0.4)(0.2)(0.5)
Tax-exempt interest income(1.6)(1.0)(0.8)
Other, net0.2 0.5 0.8 
Effective income tax rate 25.2 %26.2 %27.0 %
Deferred tax assets and liabilities at December 31, 2022, and December 31, 2021, consisted of the following:
December 31,
(Dollars in millions)20222021
Deferred tax assets:
Allowance for credit losses$260 $170 
Share-based compensation expense36 26 
Accrued compensation82 77 
Loans and debt securities
— 113 
Lease liability112 105 
Net operating loss carryforwards1,650 7 
Other205 56 
Deferred tax assets2,345 554 
Valuation allowance(6)(7)
Net deferred tax assets after valuation allowance2,339 547 
Deferred tax liabilities:
Derivative equity warrant assets(80)(82)
Net unrealized gains on cash flow hedge derivatives(17)(33)
Loans and debt securities(1,773)— 
Non-marketable and other equity securities(128)(219)
Premises and equipment(54)(41)
Right-of-use asset and deferred rent assets(89)(81)
Goodwill and intangibles(24)(24)
Merger-related fair value adjustments(15)(28)
Other(6)(15)
Deferred tax liabilities (2,186)(523)
Net deferred tax assets (liabilities)$153 $24 
Net Deferred Tax Assets
At December 31, 2022, total U.S. federal net operating loss carryforwards were $6.4 billion, state net operating loss carryforwards were $4.5 billion, foreign net operating loss carryforwards were $22 million, foreign tax credit carryforwards were $43 million and state general business tax credit carryforwards were $16 million. The U.S. federal net operating loss carryforwards have an unlimited carryforward, the state net operating loss carryforwards expire at various dates beginning 2027, foreign net operating loss carryforwards expire at various dates beginning 2028, foreign tax credit carryforwards expire at various dates beginning 2029 and the state general business tax credit carryforwards expire at various dates beginning 2028.
Currently, we believe that it is more likely than not that the benefit from the foreign net operating loss carryforwards, which are associated with our Canada operations, will not be realized in the near term due to uncertainties in the timing of future profitability in the course of business. In recognition of this, we have a valuation allowance of $6 million on the deferred tax assets related to our Canadian net operating loss carryforwards as of December 31, 2022. We believe it is more likely than not that the remaining deferred tax assets will be realized against future taxable income. Therefore, no valuation allowance was provided for the remaining deferred tax assets.
We are subject to income tax and non-income based taxes by the U.S. federal tax authorities as well as various state and foreign tax authorities. The U.S. and the state of California are major tax filing jurisdictions. We are subject to examination by the IRS and tax authorities in various state, local and foreign tax jurisdictions. For California, tax years 2013-2014 are under appeals with the Office of Tax Appeals, and tax years 2015-2016 are under examination. Our U.S. federal tax returns remain open to examination for 2019 and subsequent tax years. California tax returns remain open to examination for 2018 and subsequent tax years.
At December 31, 2022, our unrecognized tax benefit was $37 million, the recognition of which would reduce our income tax expense by $29 million. We are unable to estimate the unrecognized tax benefit that 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, 2022, December 31, 2021 and December 31, 2020.
A summary of changes in our unrecognized tax benefit (including interest and penalties) for 2022, 2021 and 2020 is as follows:
(Dollars in millions)Reconciliation of Unrecognized Tax BenefitInterest and PenaltiesTotal
Balance at December 31, 2019$13 $1 $14 
Additions for tax positions for current year5 — 5 
Additions for tax positions for prior years1 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 year21 — 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 
Additions for tax positions for current year7 — 7 
Additions for tax positions for prior years1 2 3 
Reduction for tax positions for prior years(4)— (4)
Lapse of the applicable statute of limitations(2)(1)(3)
Reduction as a result of settlement(2)— (2)
Balance at December 31, 2022
$37 $4 $41