Huntington Bancshares Incorporated Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2019

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. Certain proposed adjustments resulting from the IRS examination of our 2010 through 2011 tax returns have been settled, subject to final approval by the Joint Committee on Taxation of the U.S. Congress. While the statute of limitations remains open for tax years 2012 through 2018, the IRS has advised that tax years 2012 through 2014 will not be audited, and is currently examining the 2015 and 2016 federal income tax returns. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, and Illinois.

Huntington accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes. Any interest and penalties on income tax assessments or income tax refunds are recognized in the Consolidated Statements of Income as a component of provision for income taxes. The amounts of unrecognized tax benefits and accrued tax-related interest and penalties were immaterial at December 31, 2019 and 2018. Further, the amount of net interest and penalties related to unrecognized tax benefits was immaterial for all periods presented.

The following is a summary of the provision (benefit) for income taxes:



	Year Ended December 31,
(dollar amounts in millions)	2019			2018			2017
Current tax provision (benefit)
Federal	$	209		$	152		$	41
State	16			20			(1		)
Total current tax provision	225			172			40
Deferred tax provision (benefit)
Federal	24			71			151
State	(1		)	(8		)	17
Total deferred tax provision	23			63			168
Provision for income taxes	$	248		$	235		$	208

The following is a reconciliation for provision for income taxes:



	Year Ended December 31,
(dollar amounts in millions)	2019			2018			2017
Provision for income taxes computed at the statutory rate	$	348		$	342		$	488
Increases (decreases):
General business credits	(88		)	(80		)	(71		)
Capital loss	(62		)	(60		)	(67		)
Tax-exempt income	(21		)	(23		)	(31		)
Tax-exempt bank owned life insurance income	(14		)	(14		)	(23		)
Stock based compensation	(5		)	(14		)	(13		)
Affordable housing investment amortization, net of tax benefits	70			64			46
State income taxes, net	11			10			11
Impact from TCJA	—			(3		)	(123		)
Other	9			13			(9		)
Provision for income taxes	$	248		$	235		$	208

The significant components of deferred tax assets and liabilities at December 31, 2019 and 2018 were as follows:



	At December 31,
(dollar amounts in millions)	2019			2018
Deferred tax assets:
Allowances for credit losses	$	184		$	184
Net operating and other loss carryforward	99			95
Fair value adjustments	77			173
Lease liability	47			—
Purchase accounting and other intangibles	33			—
Pension and other employee benefits	12			14
Accrued expense/prepaid	3			16
Partnership investments	3			5
Market discount	2			6
Other assets	3			6
Total deferred tax assets	463			499
Deferred tax liabilities:
Lease financing	359			262
Loan origination costs	119			148
Operating assets	74			69
Right-of-use asset	41			—
Mortgage servicing rights	36			45
Securities adjustments	11			6
Purchase accounting and other intangibles	—			25
Other liabilities	—			2
Total deferred tax liabilities	640			557
Net deferred tax (liability) asset before valuation allowance	(177		)	(58		)
Valuation allowance	(6		)	(6		)
Net deferred tax (liability) asset	$	(183	)	$	(64	)

At December 31, 2019, Huntington’s net deferred tax asset related to loss and other carryforwards was $99 million. This was comprised of federal net operating loss carryforwards of $44 million, which will begin expiring in 2029, $40 million of state net operating loss carryforwards, which will begin expiring in 2020, an alternative minimum tax credit carryforward of less than $1 million, which will be fully utilized or refunded by 2022, and a capital loss carryforward of $15 million, which expires in 2022.

The state valuation allowance was $6 million at both December 31, 2019 and December 31, 2018, as the Company believes that it is more likely than not, portions of the state deferred tax assets and state net operating loss carryforwards will not be realized.

At December 31, 2019, retained earnings included approximately $12 million of base year reserves of acquired thrift institutions, for which no deferred federal income tax liability has been recognized. Under current law, if these bad debt reserves are used for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the corporate tax rate enacted at the time. The amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $3 million at December 31, 2019.