Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The following schedule presents the major components of our income tax expense:

(In millions)	2022		2021		2020
Federal:
Current	$	236	$	230	$	153
Deferred	(38)		27		(47)
Total Federal	198		257		106
State:
Current	52		55		38
Deferred	(5)		5		(11)
Total State	47		60		27
Total income tax expense	$	245	$	317	$	133

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

(In millions)	2022		2021		2020
Income tax expense at statutory federal rate	$	242	$	304	$	141
State income taxes including credits, net	38		48		21
Other nondeductible expenses	13		8		8
Nontaxable income	(40)		(36)		(32)
Share-based compensation	(4)		(3)		(1)
Tax credits and other taxes	(4)		(4)		(4)
Total income tax expense	$	245	$	317	$	133

On the consolidated balance sheet, the net DTA is included in “Other assets.” The tax effects of temporary differences that give rise to significant portions of DTAs and DTLs are presented below:

(In millions)	December 31,
	2022		2021
Gross deferred tax assets:
Book loan loss deduction in excess of tax	$	157	$	136
Pension and postretirement	—		1
Deferred compensation	83		77
Security investments and derivative fair value adjustments	1,011		26
Lease liabilities	49		55
Capitalized costs	82		54
Other	29		30
Total deferred tax assets before valuation allowance	1,411		379
Valuation allowance	—		—
Total deferred tax assets	1,411		379
Gross deferred tax liabilities:
Premises and equipment, due to differences in depreciation	(99)		(88)
Federal Home Loan Bank stock dividends	(2)		(2)
Leasing operations	(49)		(44)
Prepaid expenses	(5)		(8)
Prepaid pension reserves	(3)		(6)
Mortgage servicing	(12)		(10)
Deferred loan costs	(34)		(30)
ROU assets	(44)		(49)
Qualified opportunity fund deferred gains	(26)		(26)
Equity investments	(9)		(20)
Total deferred tax liabilities	(283)		(283)
Net deferred tax assets (liabilities)	$	1,128	$	96

We have certain fixed-rate AFS securities whose fair value has declined due to increases in benchmark interest rates, resulting in large unrealized losses in the AFS portfolio and a significant DTA. The sale of these securities could result in significant realized losses, which would require future earnings to utilize the deferred tax assets. We have the ability and intent to hold these securities to recovery.

We evaluate DTAs on a regular basis to determine whether a valuation allowance is required. In conducting this evaluation, we consider 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, the following:

•Future reversals of existing DTLs — These DTLs have a reversal pattern generally consistent with DTAs, and are used to realize the DTAs.

•Tax planning strategies — We have considered prudent and feasible tax planning strategies that we would implement to preserve the value of the DTAs, if necessary.

•Future projected taxable income — We expect future taxable income will offset the reversal of remaining net DTAs.

Based on this evaluation, we concluded that a valuation allowance was not required at December 31, 2022 and 2021.

At December 31, 2022, the tax effect of remaining net operating loss and tax credit carryforwards was less than $1 million, expiring through 2039.

We have a liability for unrecognized tax benefits relating to uncertain tax positions for tax credits on technology initiatives. The following schedule presents a rollforward of gross unrecognized tax benefits:

(In millions)	2022		2021		2020
Balance at beginning of year	$	14	$	11	$	14
Tax positions related to current year:
Additions	2		2		2
Tax positions related to prior years:
Additions	—		1		—
Reductions	(1)		—		(5)
Lapses in statutes of limitations	(2)		—		—
Balance at end of year	$	13	$	14	$	11

At both December 31, 2022 and 2021, the liability for unrecognized tax benefits included approximately $12 million (net of the federal tax benefit on state taxes) 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, 2022 is dependent on the timing and outcome of various ongoing federal and state examinations. For tax years not currently under examination, the gross unrecognized tax benefits on technology initiatives may decrease by approximately $5 million.

Interest and penalties related to unrecognized tax benefits are included in income tax expense in the statement of income. At both December 31, 2022 and 2021, accrued interest and penalties recognized in the balance sheet, net of any federal and state tax benefits, totaled approximately $1 million.

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