Income Taxes (Tables)

12 Months Ended

Dec. 31, 2022

Components of Income Before Income Taxes by U.S and Foreign

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)	2022		2021		2020
U.S	$	1,996	$	2,624	$	1,673
Foreign	176		100		69
Income before income tax expense	$	2,172	$	2,724	$	1,742

Components of Provision for Income Taxes

The components of our provision for income taxes for 2022, 2021 and 2020 were as follows:


	Year ended December 31,
(Dollars in millions)	2022		2021		2020
Current provision:
Federal	$	34	$	409	$	282
State	(100)		224		141
Foreign	38		26		18
Deferred expense (benefit):
Federal	330		5		6
State	254		(11)		2
Foreign	7		(2)		(1)
Income tax expense	$	563	$	651	$	448

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 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)	2022		2021		2020
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of the federal tax effect	6.8		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, net	0.2		0.5		0.8
Effective income tax rate	25.2	%	26.2	%	27.0	%

Deferred Tax Assets (Liabilities)

Deferred tax assets and liabilities at December 31, 2022, and December 31, 2021, consisted of the following:


	December 31,
(Dollars in millions)	2022		2021
Deferred tax assets:
Allowance for credit losses	$	260	$	170


Share-based compensation expense	36		26

Accrued compensation	82		77

Loans and debt securities	—		113
Lease liability	112		105

Net operating loss carryforwards	1,650		7




Other	205		56
Deferred tax assets	2,345		554
Valuation allowance	(6)		(7)
Net deferred tax assets after valuation allowance	2,339		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

Changes in Unrecognized Tax Benefit (Including Interest and Penalties)

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 Benefit		Interest and Penalties		Total
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
Additions for tax positions for current year	7		—		7
Additions for tax positions for prior years	1		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