Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  

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 2009. In the first quarter of 2013, the IRS began an examination of our 2010 and 2011 consolidated federal income tax returns. The Company has appealed certain proposed adjustments resulting from the IRS examination of the 2006, 2007, 2008, 2009, and 2010 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. 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. Various state and other jurisdictions remain open to examination, including Kentucky, Indiana, Michigan, Pennsylvania, West Virginia and Illinois.


Huntington accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes. At December 31, 2013, Huntington had gross unrecognized tax benefits of $0.7 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. 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)         2013     2012
Unrecognized tax benefits at beginning of year       $ 6,246   $ 11,896
  Gross decreases for tax positions taken during prior years         (5,048)     (5,650)
  Settlements with taxing authorities         (494)     ---
Unrecognized tax benefits at end of year       $ 704   $ 6,246

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, $0.2 million of interest benefit, $0.1 million of interest benefit, and $0.1 million of interest expense for the years ended December 31, 2013, 2012 and 2011, respectively. Total interest accrued was $0.1 million and $2.2 million at December 31, 2013 and 2012, respectively. 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)   2013     2012     2011
Current tax provision (benefit)                
  Federal $ 114,096   $ 24,006   $ 10,468
  State   4,278     6,966     (5,040)
Total current tax provision (benefit)   118,374     30,972     5,428
Deferred tax provision (benefit)                
  Federal   104,099     186,396     158,709
  State   (6,659)     (33,273)     484
Total deferred tax provision (benefit)   97,440     153,123     159,193
Provision for income taxes $ 215,814   $ 184,095   $ 164,621

The following is a reconcilement of provision for income taxes:

      Year Ended December 31,
(dollar amounts in thousands)   2013     2012     2011
Provision for income taxes computed at the statutory rate $ 299,094   $ 288,791   $ 247,532
Increases (decreases):                
  Tax-exempt income   (34,378)     (15,752)     (9,695)
  Tax-exempt bank owned life insurance income   (19,747)     (19,151)     (21,169)
  Dividends   ---     ---     (17,744)
  General business credits   (39,868)     (49,654)     (31,269)
  State deferred tax asset valuation allowance adjustment, net   (6,020)     (21,251)     ---
  Capital loss   (961)     (18,659)     (7,000)
  Affordable housing investment amortization   10,162     13,621     5,983
  State income taxes, net   4,472     4,152     (2,962)
  Other   3,060     1,998     945
Provision for income taxes $ 215,814   $ 184,095   $ 164,621

  The significant components of deferred tax assets and liabilities at December 31, were as follows:      
      At December 31,
(dollar amounts in thousands)   2013     2012
Deferred tax assets:          
  Allowances for credit losses $ 244,684   $ 282,175
  Net operating and other loss carryforward   153,826     117,435
  Fair value adjustments   115,874     84,740
  Tax credit carryforward   50,137     97,797
  Accrued expense/prepaid   39,636     39,813
  Market discount   20,671     ---
  Partnership investments   20,550     7,148
  Purchase accounting adjustments   14,096     8,383
  Other   10,437     17,883
Total deferred tax assets   669,911     655,374
Deferred tax liabilities:          
  Lease financing   146,814     122,395
  Loan origination costs   82,345     61,189
  Mortgage servicing rights   48,007     30,686
  Operating assets   46,524     35,655
  Purchase accounting adjustments   39,578     50,704
  Securities adjustments   33,719     30,713
  Pension and other employee benefits   12,608     33,898
  Other   11,313     21,447
Total deferred tax liabilities   420,908     386,687
Net deferred tax asset before valuation allowance   249,003     268,687
Valuation allowance   (111,435)     (64,812)
Net deferred tax asset $ 137,568   $ 203,875

At December 31, 2013, Huntington's net deferred tax asset related to loss and other carryforwards was $203.9 million. This was comprised of federal net operating loss carryforwards of $5.4 million, which will begin expiring in 2023, $52.1 million of state net operating loss carryforward, which will begin expiring in 2015, an alternative minimum tax credit carryforward of $50.1 million, which may be carried forward indefinitely, and a capital loss carryforward of $96.3 million, which will expire in 2015. A valuation allowance of $96.3 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.


In prior periods, Huntington established a full valuation allowance against state deferred tax assets and state net operating loss carryforwards based on the uncertainty of forecasted state taxable income expected in applicable jurisdictions in order to utilize the state deferred tax asset and net operating loss carryforwards. Based on current analysis of both positive and negative evidence and projected forecasted state taxable income, the Company believes that it is more likely than not that a portion of the state deferred tax asset and state net operating loss carryforwards will be realized. As a result of this analysis, the valuation allowance was reduced to $15.1 million at December 31, 2013, compared to $64.8 million at December 31, 2012, for the portion of the deferred tax asset and state net operating loss carryforwards the Company expects to realize.