Income Taxes

12 Months Ended

Dec. 31, 2019

The components of the income tax provision are as follows:


Year Ended December 31, (Dollars in millions)	2019		2018		2017
Current expense:
Federal	$	357	$	629	$	539
State	97		151		80
Total current expense	454		780		619
Deferred expense:
Federal	290		26		253
State	38		(3)		39
Total deferred expense	328		23		292
Provision for income taxes	$	782	$	803	$	911

A reconciliation of the provision for income taxes at the statutory federal income tax rate to the Company’s actual provision for income taxes and actual effective tax rate is presented in the following table:


	2019						2018						2017
Year Ended December 31, (Dollars in millions)	Amount		% of Income Before Taxes		Amount		% of Income Before Taxes		Amount		% of Income Before Taxes
Federal income taxes at statutory rate	$	844	21.0	%	$	853	21.0	%	$	1,164	35.0	%
Increase (decrease) in provision for income taxes as a result of:
State income taxes, net of federal tax benefit	107		2.7		117		2.9		77		2.3
Income tax credits, net of amortization	(86)		(2.1)		(57)		(1.4)		(83)		(2.5)
Tax-exempt interest	(69)		(1.8)		(90)		(2.2)		(139)		(4.2)
Federal tax reform impact	—		—		(27)		(0.7)		(43)		(1.3)


Other, net	(14)		(0.3)		7		0.2		(65)		(1.9)
Provision for income taxes	$	782	19.5		$	803	19.8		$	911	27.4

Deferred income tax assets and liabilities result from differences between the timing of the recognition of assets and liabilities for financial reporting purposes and for income tax purposes. These assets and liabilities are measured using the enacted federal and state tax rates expected to apply in the periods in which the DTAs or DTLs are expected to be realized. The net deferred income tax liability is recorded in Other liabilities in the Consolidated Balance Sheets. The significant DTAs and DTLs, net of the federal impact for state taxes, are presented in the following table. Prior period amounts have been reclassified to conform to the current presentation.


December 31, (Dollars in millions)	2019		2018
DTAs:

Loans	$	753	$	—
Employee compensation and benefits	721		439


ALLL	366		369
Accruals and reserves	322		106
Net unrealized losses in AOCI	257		530
Operating lease liability	225		—
Federal and state NOLs and other carryforwards	156		16
Partnerships	—		77
Other	77		31
Total gross DTAs	2,877		1,568
Valuation allowance	(130)		—
Total DTAs net of valuation allowance	2,747		1,568
DTLs:
Pension	1,167		660
Equipment and auto leasing	932		375
Goodwill and other intangible assets	694		183
MSRs	491		248
Loans	—		104
ROU assets	146		—
Premises and equipment	162		56
Partnerships	23		—
Other	144		43
Total DTLs	3,759		1,669
Net DTL	$	(1,012)	$	(101)

The DTAs include Federal and state NOLs and other state carryforwards that will expire, if not utilized, in varying amounts from 2020 to 2039. At December 31, 2019, the Company had a valuation allowance recorded against its state carryforwards and certain state DTAs of $130 million. The increase in the valuation allowance is primarily due to the heritage SunTrust valuation allowance for certain state carryforwards.

The following table provides a rollforward of the Company's gross federal and state UTBs, excluding interest and penalties:


December 31, (Dollars in millions)	2019		2018
Balance, January 1	$	2	$	1
Increases in UTBs related to prior years	120		1

Increases in UTBs related to the current year	6		—

Decreases in UTBs related to settlements	(1)		—
Balance, December 31	$	127	$	2

The increase in UTBs related to prior years is primarily due to the Merger. The amount of UTBs that would favorably affect the Company's effective tax rate, if recognized, was $99 million at December 31, 2019.

Interest and penalties related to UTBs are recorded in the Provision for income taxes in the Consolidated Statement of Income. The Company had a gross liability of $11 million for interest and penalties related to its unrecognized tax benefits at December 31, 2019. The increase in the liability was primarily due to the Merger. During the year ended December 31, 2019, the Company recognized a gross expense of $1 million related to interest and penalties on the UTBs.

The Company files U.S. federal, state and local income tax returns. The Company's federal income tax returns are no longer subject to examination by the IRS for taxable years prior to 2016. With limited exceptions, the Company is no longer subject to examination by state and local taxing authorities for taxable years prior to 2013. It is reasonably possible that the liability for unrecognized tax benefits could decrease by as much as $25 million during the next 12 months due to completion of tax authority examinations and the expiration of statutes of limitations. It is uncertain how much, if any, of this potential decrease will impact the Company’s effective tax rate.