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Income Taxes
12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The components of income tax expense are as follows:
Table 101: Components of Income Tax Expense                         
Year ended December 31
In millions
202320222021
Current
Federal$1,021 $782 $894 
State320 227 191 
Total current1,341 1,009 1,085 
Deferred
Federal(149)307 123 
State(103)44 55 
Total deferred(252)351 178 
Total $1,089 $1,360 $1,263 
Significant components of deferred tax assets and liabilities are as follows:

Table 102: Deferred Tax Assets and Liabilities                    
December 31 – in millions20232022
Deferred tax assets
Net unrealized losses on securities and financial instruments$2,417 $3,107 
Allowance for loan and lease losses1,147 1,152 
Lease obligations508 548 
Compensation and benefits261 369 
Allowance for unfunded lending related commitments161 170 
Accrued expenses209 78 
Other384 350 
Total gross deferred tax assets5,087 5,774 
Valuation allowance(26)(27)
Total deferred tax assets5,061 5,747 
Deferred tax liabilities
Leasing938 1,034 
Fixed assets477 589 
Right of Use Assets445 472 
Mortgage servicing rights359 325 
Goodwill and intangibles252 270 
Other461 405 
Total deferred tax liabilities2,932 3,095 
Net deferred tax asset$2,129 $2,652 
A reconciliation between the statutory and effective tax rates follows:
Table 103: Reconciliation of Statutory and Effective Tax Rates
Year ended December 31202320222021
Statutory tax rate21.0 %21.0 %21.0 %
Increases (decreases) resulting from:
State taxes net of federal benefit2.9 2.7 2.6 
Tax-exempt interest(1.7)(1.2)(0.9)
Life insurance(0.9)(0.8)(0.8)
Tax credits(5.2)(3.2)(4.4)
Other0.1 (0.3)0.6 
Effective tax rate16.2 %18.2 %18.1 %
The net operating loss carryforwards at December 31, 2023 and 2022 follow:
Table 104: Net Operating Loss Carryforwards
Dollars in millionsDecember 31, 2023December 31, 2022Expiration
Net Operating Loss Carryforwards:
Federal $45 N/A
State$624 $698 2024-2042

The majority of the tax credit carryforwards expire in 2027-2043 and were insignificant at both December 31, 2023 and 2022. Some federal and state net operating loss and credit carryforwards are from acquired entities and utilization is subject to various statutory limitations. We anticipate that we will be able to fully utilize our carryforwards for federal tax purposes. However, we have recorded an insignificant valuation allowance against our carryforwards for state tax purposes as of December 31, 2023.

Retained earnings included $0.1 billion at both December 31, 2023 and 2022 in allocations for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current law, if certain subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to Federal income tax at the current corporate tax rate.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:
Table 105: Change in Unrecognized Tax Benefits
In millions202320222021
Balance of gross unrecognized tax benefits at January 1$318 $275 $265 
Increases:
Positions taken during a current period20  
Acquired unrecognized tax benefits 
Positions taken during a prior period3546 
Decreases:
Positions taken during a prior period (2)
Settlements with taxing authorities(4)(3)(3)
Reductions resulting from lapse of statute of limitations(1)
Balance of gross unrecognized tax benefits at December 31$368 $318 $275 
Favorable impact if recognized$306 $258 $217 

We do not expect that the balance of unrecognized tax benefits will significantly increase or decrease in the next twelve months.

We are subject to U.S. federal income tax as well as income tax in most states and some foreign jurisdictions. Table 106 summarizes the status of significant IRS examinations.
Table 106: IRS Tax Examination Status
  
Year(s) Status at December 31, 2023 
PNC Financial Services Group, Inc.BBVA USA Bancshares, Inc.
Federal2020-20212018 Under Exam 

In addition, we are under continuous examinations by various state taxing authorities. With few exceptions, we are no longer subject to state and local and foreign income tax examinations by taxing authorities for periods before 2015. For all open audits, any potential adjustments have been considered in establishing our unrecognized tax benefits as of December 31, 2023.

Our policy is to classify interest and penalties associated with income taxes as income tax expense. For 2023 and 2022, the amount of gross interest and penalties was insignificant. At December 31, 2023 and 2022, the related amounts of accrued interest and penalties were also insignificant.