PNC Bank 2008 Annual Report Download - page 143

Significant components of deferred tax assets and liabilities
are as follows:
December 31 - in millions 2008 2007
Deferred tax assets
Allowance for loan and lease losses $1,564 $ 370
Net unrealized securities losses 2,121 90
Compensation and benefits 813 322
Unrealized losses on loans 1,825
Other 1,918 370
Total deferred tax assets 8,241 1,152
Deferred tax liabilities
Leasing 1,292 1,011
Goodwill and Intangibles 636 255
Mortgage servicing rights 332
BlackRock basis difference 1,265 1,234
Other 968 184
Total deferred tax liabilities 4,493 2,684
Net deferred asset (liability) $3,748 $(1,532)
A reconciliation between the statutory and effective tax rates
follows:
Year ended December 31 2008 2007 2006
Statutory tax rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes 2.4 2.3 .8
Tax-exempt interest (1.7) (.8) (.3)
Life insurance (2.3) (1.7) (.6)
Dividend received deduction (3.1) (1.6) (.2)
Tax credits (4.2) (2.9) (.9)
Tax gain on sale of Hilliard Lyons 4.1
Other (1.1) (.4) .2
Effective tax rate 29.1% 29.9% 34.0%
At December 31, 2008 we had available $124 million of
federal and $1.7 billion of state income tax net operating loss
carryforward originating from acquired companies and $33
million in other state net operating loss carryforwards. A $23
million valuation allowance is recorded against the deferred
tax asset associated with the $1.7 billion of state income tax
net operating losses. The net operating loss carryforwards will
expire from 2009 through 2028.
At December 31, 2008 we had available $119 million of
federal and $4 million of state tax credit carryforwards
originating from acquired companies. The tax credit
carryforwards will expire from 2026 through 2028.
No deferred US income taxes have been provided on certain
undistributed earnings of non-US subsidiaries, which
amounted to $59 million at December 31, 2008. As of
December 31, 2008, these earnings are considered to be
reinvested for an indefinite period of time. It is not practicable
to determine the deferred tax liability on these earnings.
Retained earnings at December 31, 2008 included $117
million in allocations for bad debt deductions of former thrift
subsidiaries for which no income tax has been provided.
Under current law, if certain subsidiaries use these bad debt
reserves for purposes other than to absorb bad debt losses,
they will be subject to Federal income tax at the current
corporate tax rate.
As of December 31, 2008 and 2007, we had a liability for
uncertain tax positions, excluding interest and penalties of
$257 million and $57 million, respectively. A reconciliation of
the beginning and ending balance of unrecognized tax benefits
is as follows:
Changes in Unrecognized Tax Benefits
(in millions): 2008 2007
Balance of gross unrecognized tax benefits
at January 1 $57 $49
Increases:
Positions taken during a prior period 203(a) 52(b)
Positions taken during the current period 1
Decreases:
Positions taken during a prior period (3) (2)
Settlements with taxing authorities (39)
Reductions resulting from lapse of statute
of limitations (4)
Balance of gross unrecognized tax benefits at
December 31 $257 $ 57
(a) Includes $202 million acquired from National City.
(b) Includes $42 million acquired from Mercantile.
December 31, 2008 - in millions
Unrecognized tax benefits related to:
Acquired companies within measurement period:
Temporary differences $39
Permanent differences 163
Other:
Temporary differences 12
Permanent differences 43
Total $257
Under SFAS 141(R) which became effective January 1, 2009,
any changes after the measurement period (a maximum of
twelve months from date of acquisition) to unrecognized tax
benefits of acquired companies associated with permanent
differences would result in an adjustment to income tax
expense. If all the unrecognized tax benefits were recognized
after the measurement period, $133 million would affect the
effective tax rate. Certain changes within the measurement
period would result in a purchase accounting adjustment
associated with the particular acquisition.
Any changes in the amounts of unrecognized tax benefits
related to temporary differences would result in a
reclassification to deferred tax liability; any changes in the
amounts of unrecognized tax benefits related to other
permanent differences (per above table) would result in an
adjustment to income tax expense and therefore our effective
tax rate. The unrecognized tax benefits related to other
permanent items above that if recognized would affect the
effective tax rate is $30 million. This is less than the total
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