

	2019		2018		2017
	(In millions)
Current income tax expense:
Federal	$	279	$	175	$	373
State	62		29		30
Total current expense	$	341	$	204	$	403
Deferred income tax expense:
Federal	$	29	$	130	$	180
State	33		53		36
Total deferred expense	$	62	$	183	$	216
Total income tax expense	$	403	$	387	$	619

Note: The table above does not include total income tax expense (benefit) from discontinued operations of zero, $80 million, and $(3) million in 2019, 2018 and 2017, respectively. The deferred income tax expense (benefit) reflected in discontinued operations was zero, $43 million and $(7) million in 2019, 2018 and 2017, respectively.

On December 22, 2017, Tax Reform was enacted. Effective January 1, 2018, Tax Reform reduced the maximum corporate statutory federal income tax rate from 35 percent to 21 percent. With the enactment of Tax Reform, the Company recognized additional income tax expense of approximately $61 million at December 31, 2017. This amount represented an estimate based on information available at December 31, 2017. During 2018, the Company made the determination to and completed administrative filings with the Internal Revenue Service that allowed it to accelerate various deductions into 2017. As a result, the Company recognized during the 2018 measurement period approximately $37 million in tax benefits due to Tax Reform. The measurement period ended in December 2018.

Except for the revaluation adjustment recorded in 2017 due to Tax Reform related to unrealized gains and losses included in stockholders' equity, income tax expense does not reflect the tax effects of unrealized losses on securities transferred to held to maturity, unrealized gains and losses on securities available for sale, unrealized gains and losses on derivative instruments and the net change from defined benefit pension plans and other postretirement benefits. Refer to Note 15 for additional information on stockholders' equity and accumulated other comprehensive income (loss).

The Company accounts for investment tax credits using the deferral method. Investment tax credits generated totaled $59 million, $90 million and $102 million for 2019, 2018 and 2017, respectively.

Income taxes from continuing operations for financial reporting purposes differs from the amount computed by applying the statutory federal income tax rate of 21 percent for the years ended December 31, 2019 and 2018, and 35 percent for the year ended December 31, 2017, as shown in the following table:



	2019			2018			2017
	(Dollars in millions)
Tax on income from continuing operations computed at statutory federal income tax rate	$	417		$	410		$	651
Increase (decrease) in taxes resulting from:
State income tax, net of federal tax effect	75			65			43
Tax-exempt interest	(39		)	(37		)	(54		)
Affordable housing investment amortization, net of tax benefits (excluding Tax Reform)	(34		)	(37		)	(52		)
Deferred tax revaluation and other impacts of Tax Reform	—			(37		)	61
Non-deductible expenses	19			28			3
Bank-owned life insurance	(19		)	(16		)	(32		)
Lease financing	5			11			16
Other, net	(21		)	—			(17		)
Income tax expense	$	403		$	387		$	619
Effective tax rate	20.3		%	19.8		%	33.3		%

__________

Note: Income tax expense includes amortization of affordable housing investments of $131 million, $137 million, and $160 million (including $23 million due to impact of Tax Reform in 2017) for 2019, 2018 and 2017, respectively. The additional income tax expense due to Tax Reform of $61 million in 2017 included $133 million of income tax expense related to the revaluation of unrealized gains and losses included in stockholders' equity.



	2019			2018
	(In millions)
Deferred tax assets:
Allowance for loan losses	$	231		$	226
Right of use liability	124			—
State net operating losses, net of federal tax effect	50			73
Unrealized losses included in stockholder's equity	30			325
Accrued expenses	30			48
Federal tax credit carryforwards	12			14
Other	16			21
Total deferred tax assets	493			707
Less: valuation allowance	(32		)	(30		)
Total deferred tax assets less valuation allowance	461			677
Deferred tax liabilities:
Lease financing	354			330
Right of use asset	115			—
Goodwill and intangibles	92			94
Employee benefits and deferred compensation	90			82
Mortgage servicing rights	61			73
Fixed assets	42			41
Other	35			37
Total deferred tax liabilities	789			657
Net deferred tax asset (liability)	$	(328	)	$	20

The following table provides details of the Company’s tax carryforwards at December 31, 2019, including the expiration dates, any related valuation allowance and the amount of pre-tax earnings necessary to fully realize each net deferred tax asset balance:



	Expiration Dates	Deferred Tax Asset Balance		Valuation Allowance		Net Deferred Tax Asset Balance		Pre-Tax Earnings Necessary to Realize ⁽¹⁾
	(In millions)
General business credits	2039	$	12	$	—	$	12	$ N/A
Net operating losses-states	2020-2024	23		11		12		253
Net operating losses-states	2025-2031	20		16		4		65
Net operating losses-states	2032-2039	5		5		—		—
Net operating losses-states	None	2		—		2		N/A

As detailed in the table above, the Company had a deferred tax asset of $30 million net of valuation allowance related to net operating losses and tax credit carryforwards at December 31, 2019, of which $16 million will expire before 2032 (as detailed in the table above).

The Company’s determination of the realization of the net deferred tax asset is based on its assessment of all available positive and negative evidence. At December 31, 2019, positive evidence supporting the realization of the deferred tax assets includes a history of positive earnings with no history of significant tax credit carryforwards expiring unused. In addition, the reversal of taxable temporary differences, excluding goodwill and the inclusion of the accretion of taxable temporary differences related to leveraged leases acquired in a previous business combination, will offset approximately $718 million of the gross deferred tax assets, which is significantly larger than the $461 million deferred tax asset balance net of valuation allowance at December 31, 2019.

The Company believes that a portion of the state net operating loss carryforwards and state tax credit carryforwards will not be realized due to the length of certain state carryforward periods. Accordingly, a valuation allowance has been established in the amount of $32 million against such benefits at December 31, 2019 compared to $30 million at December 31, 2018.



	2019			2018			2017
	(In millions)
Balance at beginning of year	$	13		$	27		$	31
Additions based on tax positions taken in a prior period	25			—			—
Additions based on tax positions taken in the current period	—			11			—
Reductions based on tax positions taken in a prior period	—			(13		)	—
Settlements	—			(11		)	—
Expiration of statute of limitations	(1		)	(1		)	(4		)
Balance at end of year	$	37		$	13		$	27

The Company files U.S. federal, state, and local income tax returns. In 2015, the Company entered the IRS’s Compliance Assurance Process program and tax years 2018 and 2019 remain open. Other than potential adjustments related to credits claimed through amended returns, tax years prior to 2018 are no longer subject to examination by the IRS. Also, with few exceptions, the Company is no longer subject to state and local income tax examinations for tax years before 2015. Currently, there are no material disputed tax positions with federal or state taxing authorities. Accordingly, the Company does not anticipate that any adjustments relating to federal or state tax examinations will result in material changes to its business, financial position, results of operations or cash flows.

As a result of the potential resolution of certain federal and state income tax positions, it is reasonably possible that the UTBs could decrease as much as $28 million during the next twelve months, since resolved items will be removed from the balance whether their resolution results in payment or recognition in earnings.

As of December 31, 2019, 2018 and 2017, the balances of the Company’s UTBs that would reduce the effective tax rates, if recognized, were $34 million, $10 million and $21 million, respectively. The remainder of the UTB balance has indirect tax benefits in other jurisdictions or is the tax effect of temporary differences.

Income tax expense for 2019, 2018 and 2017, includes a total expense (benefit) of $1 million, $(2) million and $(2) million, respectively, for interest expense, interest income and penalties before the impact of any applicable federal and state deductions. As of December 31, 2019 and 2018, the Company had a liability of $1 million and zero, respectively, for interest and penalties related to income taxes, before the impact of any applicable federal and state deductions.