Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

Income taxes included in the income statement are summarized below. We file a consolidated federal income tax return.

Year ended December 31, in millions	2015		2014		2013
Currently payable:
Federal	$	337	$	288	$	216
State		42		33		26
Total currently payable		379		321		242
Deferred:
Federal		(69)		16		39
State		(7)		(11)		(10)
Total deferred		(76)		5		29
Total income tax (benefit) expense (a)	$	303	$	326	$	271

(a) There was no income tax (benefit) expense on securities transactions in 2015 and 2014. The income tax (benefit) expense on securities transactions totaled $1 million in 2013. Income tax expense excludes equity- and gross receipts-based taxes, which are assessed in lieu of an income tax in certain states in which we operate. These taxes, which are recorded in “noninterest expense” on the income statement, totaled $16 million in 2015, $17 million in 2014, and $23 million in 2013.

Significant components of our deferred tax assets and liabilities included in “accrued income and other assets” and “accrued expense and other liabilities,” respectively, on the balance sheet, are as follows:

December 31, in millions	2015		2014
Allowance for loan and lease losses	$	327	$	316
Employee benefits		268		251
Net unrealized securities losses		48		17
Federal credit carryforwards		88		96
State net operating losses and credits		5		9
Other		341		312
Gross deferred tax assets		1,077		1,001
Total deferred tax assets		1,077		1,001
Leasing transactions		651		682
Other		127		125
Total deferred tax liabilities		778		807
Net deferred tax assets (liabilities) (a)	$	299	$	194

(a) From continuing operations

We conduct quarterly assessments of all available evidence to determine the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded. The available evidence used in connection with these assessments includes taxable income in prior periods, projected future taxable income, potential tax-planning strategies, and projected future reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo significant change. Based on these criteria, we have recorded a valuation allowance of less than $1 million dollars against the gross deferred tax assets associated with certain state net operating loss carryforwards and state credit carryforwards.

At December 31, 2015, we had a gross federal credit carryforward of $91 million. Additionally, we had state net operating loss carryforwards of $37 million and state credit carryforwards of $3 million, resulting in a net state deferred tax asset of $4.3 million. These carryforwards are subject to limitations imposed by tax laws and, if not utilized, will gradually expire through 2031.

The following table shows how our total income tax expense (benefit) and the resulting effective tax rate were derived:

Year ended December 31, dollars in millions	2015					2014					2013
	Amount		Rate			Amount		Rate			Amount		Rate
Income (loss) before income taxes times 35% statutory federal tax rate	$	428		35.0	%	$	445		35.0	%	$	399		35.0	%
Amortization of tax-advantaged investments		81		6.7			69		5.4			63		5.5
Foreign tax adjustments		(1)		(.1)			10		.8			(4)		(.3)
Reduced tax rate on lease financing income		5		.4			(3)		(.2)			(13)		(1.2)
Tax-exempt interest income		(18)		(1.5)			(16)		(1.3)			(15)		(1.3)
Corporate-owned life insurance income		(45)		(3.6)			(41)		(3.2)			(42)		(3.7)
Interest refund (net of federal tax benefit)		—		—			(1)		(.1)			(1)		(.1)
State income tax, net of federal tax benefit		22		1.8			15		1.1			10		.9
Tax credits		(155)		(12.7)			(134)		(10.5)			(130)		(11.4)
Other		(14)		(1.2)			(18)		(1.4)			4		.3
Total income tax expense (benefit)	$	303		24.8	%	$	326		25.6	%	$	271		23.7	%

Liability for Unrecognized Tax Benefits

The change in our liability for unrecognized tax benefits is as follows:

Year ended December 31, in millions	2015		2014
Balance at beginning of year	$	6	$	6
Increase for other tax positions of prior years		7		—
Decrease related to other settlements with taxing authorities		(1)		—
Balance at end of year	$	12	$	6

Each quarter, we review the amount of unrecognized tax benefits recorded in accordance with the applicable accounting guidance. Any adjustment to unrecognized tax benefits is recorded in income tax expense. The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $12 million at December 31, 2015, and $6 million at December 31, 2014. We do not currently anticipate that the amount of unrecognized tax benefits will significantly change over the next 12 months.

As permitted under the applicable accounting guidance, it is our policy to record interest and penalties related to unrecognized tax benefits in income tax expense. We recorded net interest expense of $.6 million in 2015, net interest credits of $10.6 million in 2014, and $1.4 million in 2013. We recovered state tax penalties of $.3 million in 2015 and $.2 million in 2013. We did not recover any state tax penalties in 2014. At December 31, 2015, we had an accrued interest payable of $.9 million, compared to $1.2 million at December 31, 2014. Our liability for accrued state tax penalties was $1 million at December 31, 2015, and $.3 million at December 31, 2014.

The amount of unrecognized tax benefits to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if certain criteria are met at December 31, 2015, and December 31, 2014, are $2.7 million and $1 million, respectively.

We file federal income tax returns, as well as returns in various state and foreign jurisdictions. We are subject to income tax examination by the IRS for the tax years 2013 and forward. Currently, we are not under audit for the tax years 2013 and forward. We are not subject to income tax examinations by other tax authorities for years prior to 2006.