Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax expense is summarized as follows:

(In millions)	2020		2019		2018
Federal:
Current	$	153	$	195	$	210
Deferred	(47)		(1)		(1)
Total Federal	106		194		209
State:
Current	38		44		49
Deferred	(11)		(1)		1
Total State	27		43		50
Total	$	133	$	237	$	259

Income tax expense computed at the statutory federal income tax rate of 21% reconciles to actual income tax expense as follows:

(In millions)	2020		2019		2018
Income tax expense at statutory federal rate	$	141	$	221	$	240
State income taxes including credits, net	21		34		40
Other nondeductible expenses	8		13		15
Nontaxable income	(32)		(28)		(24)
Share-based compensation	(1)		(4)		(7)
Tax credits and other taxes	(4)		1		(5)
Total	$	133	$	237	$	259

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (“DTA”) and deferred tax liabilities (“DTL”) are presented below:

(In millions)	December 31,
	2020		2019
Gross deferred tax assets:
Book loan loss deduction in excess of tax	$	205	$	137
Pension and postretirement	1		5
Deferred compensation	71		72
Lease liabilities	59		61
Other	24		35
Total deferred tax assets before valuation allowance	360		310
Valuation allowance	—		—
Total deferred tax assets	360		310
Gross deferred tax liabilities:
Premises and equipment, due to differences in depreciation	(81)		(66)
Federal Home Loan Bank stock dividends	(2)		(2)
Leasing operations	(55)		(52)
Prepaid expenses	(6)		(6)
Prepaid pension reserves	(6)		(12)
Mortgage servicing	(8)		(7)
Security investments and derivative fair value adjustments	(102)		(17)
Deferred loan fees	(32)		(30)
ROU assets	(53)		(55)
Equity investments	(18)		(26)
Total deferred tax liabilities	(363)		(273)
Net deferred tax assets (liabilities)	$	(3)	$	37

The amount of the net DTL is included with other liabilities, and the amount of the net DTA is included with other assets in the balance sheet. There is no valuation allowance at December 31, 2020 or December 31, 2019. At December 31, 2020, the tax effect of remaining net operating loss and tax credit carryforward was less than $1 million, expiring through 2030.

We evaluate DTAs on a regular basis to determine whether a valuation allowance is required. In conducting this evaluation, we have considered all available evidence, both positive and negative, based on the more likely than not criteria that such assets will be realized. This evaluation includes, but is not limited to: (1) available carryback potential to prior tax years; (2) potential future reversals of existing deferred tax liabilities, which historically have a reversal pattern generally consistent with DTAs; (3) potential tax planning strategies; and (4) future projected taxable income. Based on this evaluation, and considering the weight of the positive evidence compared to the negative evidence, we have concluded that a valuation allowance is not required as of December 31, 2020.

We have a liability for unrecognized tax benefits relating to uncertain tax positions for tax credits on technology initiatives. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

(In millions)	2020		2019		2018
Balance at beginning of year	$	14	$	8	$	6
Tax positions related to current year:
Additions	2		2		1
Reductions	—		—		—
Tax positions related to prior years:
Additions	—		4		1
Reductions	(5)		—		—
Settlements with taxing authorities	—		—		—
Lapses in statutes of limitations	—		—		—
Balance at end of year	$	11	$	14	$	8

At both December 31, 2020 and 2019, the liability for unrecognized tax benefits included approximately $10 million (net of the federal tax benefit on state issues) that, if recognized, would affect the effective tax rate. The amount of gross unrecognized tax benefits related to tax credits on technology initiatives that may increase or decrease during the 12 months subsequent to December 31, 2020, is dependent on the timing and outcome of various federal and state examinations that are ongoing.

Interest and penalties related to unrecognized tax benefits are included in income tax expense in the statement of income. At both December 31, 2020 and 2019, accrued interest and penalties recognized in the balance sheet, net of any federal and state tax benefits, were $1 million.

We file income tax returns in U.S. federal and various state jurisdictions. We are no longer subject to income tax examinations for years prior to 2013 for federal and for certain state returns.