Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Abstract]  
INCOME TAXES

17. Income Taxes

 

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 through 2007. The Company has appealed certain proposed adjustments resulting from the IRS examination of the 2006 and 2007 tax returns. Management believes the tax positions taken related to such proposed adjustments were correct and supported by applicable statutes, regulations, and judicial authority, and intend to vigorously defend them. During 2011, Management entered into discussions with the Appeals Division of the IRS. It is possible the ultimate resolution of the proposed adjustments, if unfavorable, may be material to the results of operations in the period it occurs. However, although no assurance can be given, Management believes the resolution of these examinations will not, individually or in the aggregate, have a material adverse impact on our consolidated financial position. In the 2011 third quarter, the IRS began its examination of our 2008 and 2009 consolidated federal income tax returns. Various state and other jurisdictions remain open to examination for tax years 2005 and forward.

 

Huntington accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes. At December 31, 2011, Huntington had gross unrecognized tax benefits of $11.9 million in income tax liability related to tax positions. Due to the complexities of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. However, any ultimate settlement is not expected to be material to the Consolidated Financial Statements as a whole. Huntington recognizes interest and penalties on income tax assessments or income tax refunds in the financial statements as a component of its provision for income taxes. Huntington does not anticipate the total amount of gross unrecognized tax benefits to significantly change within the next 12 months.

 

       The following table provides a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits:

 

           
(dollar amounts in thousands)   2011   2010   2009
             
Unrecognized tax benefits at beginning of year $ 49,506 $ 17,214 $ ---
  Gross increases for tax positions taken during current year   ---   ---   6,464
  Gross increases for tax positions taken during prior years   ---   32,292   10,750
  Gross decreases for tax positions taken during prior years   (37,610)   ---   ---
Unrecognized tax benefits at end of year $ 11,896 $ 49,506 $ 17,214

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. Huntington recognized $0.1 million of interest for the year ended December 31, 2011 compared to $2.2 million of interest for the year ended December 31, 2010. Total interest accrued at December 31, 2011 amounted to $2.3 million. All of the gross unrecognized tax benefits would impact the Company's effective tax rate if recognized.

 

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

      Year Ended December 31,
(dollar amounts in thousands)   2011     2010     2009
Current tax provision (benefit)                
  Federal $ 10,468   $ 40,675   $ (326,659)
  State   (5,040)     29,539     9,860
Total current tax provision (benefit)   5,428     70,214     (316,799)
Deferred tax provision (benefit)                
  Federal   158,709     (30,243)     (267,872)
  State   484     (7)     667
Total deferred tax provision (benefit)   159,193     (30,250)     (267,205)
Provision (benefit) for income taxes $ 164,621   $ 39,964   $ (584,004)

Tax benefits associated with securities transactions included in the above amounts were $1.3 million in 2011, $0.1 million in 2010, and $3.6 million in 2009.

 

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

      Year Ended December 31,
(dollar amounts in thousands)   2011     2010     2009
Provision (benefit) for income taxes computed at the statutory rate $ 247,532   $ 123,310   $ (1,287,364)
Increases (decreases):                
  Tax-exempt interest income   (9,695)     (6,680)     (5,561)
  Tax-exempt bank owned life insurance income   (21,169)     (20,595)     (19,205)
  Dividends   (17,744)     ---     ---
  Asset securitization activities   ---     46,160     (3,179)
  Federal tax loss carryforward /carryback   ---     ---     (12,847)
  General business credits   (31,269)     (23,360)     (17,602)
  Reversals of valuation allowance   ---     (899)     ---
  Capital loss   (7,000)     (62,681)     ---
  Loan acquisitions   ---     (43,650)     (159,895)
  Goodwill impairment   ---     ---     908,263
  State income taxes, net   (2,962)     19,196     6,842
  Other, net   6,928     9,163     6,544
Provision (benefit) for income taxes $ 164,621   $ 39,964   $ (584,004)

  The significant components of deferred tax assets and liabilities at December 31, were as follows:      
      At December 31,
(dollar amounts in thousands)   2011     2010
Deferred tax assets:          
  Allowances for credit losses $ 348,269   $ 457,692
  Loss and other carryforwards   217,877     262,504
  Fair value adjustments   92,569     106,855
  Accrued expense/prepaid   32,736     39,685
  Purchase accounting adjustments   10,556     11,773
  Pension and other employee benefits   ---     5,671
  Other   15,661     20,309
Total deferred tax assets   717,668     904,489
             
Deferred tax liabilities:          
  Lease financing   65,029     87,735
  Purchase accounting adjustments   51,754     65,787
  Loan origination costs   51,124     43,182
  Mortgage servicing rights   45,948     43,541
  Securities adjustments   40,273     66,090
  Operating assets   33,511     15,161
  Pension and other employee benefits   19,290     ---
  Partnership investments   6,761     8,429
  Other   15,558     4,441
Total deferred tax liabilities   329,248     334,366
Net deferred tax asset before valuation allowance   388,420     570,123
Valuation allowance   (23,594)     (31,817)
Net deferred tax asset $ 364,826   $ 538,306

At December 31, 2011, Huntington's deferred tax asset related to loss and other carryforwards was $217.9 million. This was comprised of net operating loss carryforward of $111.0 million, which will begin expiring in 2023, an alternative minimum tax credit carryforward of $37.2 million, which may be carried forward indefinitely, a general business credit carryover of $46.1 million which will expire in 2029, and a capital loss carryforward of $23.6 million, which will expire in 2015. A valuation allowance of $23.6 million has been established for the capital loss carryforward because Management believes that it is more likely than not that the realization of this asset will not occur. The valuation allowance on this asset decreased $8.2 million from 2010. In Management's opinion, the results of future operations will generate sufficient taxable income to realize the net operating loss, alternative minimum tax credit carryforward, and general business credit carryforward. Consequently, Huntington determined that a valuation allowance for these deferred tax assets was not required as of December 31, 2011.