BB&T CORP

Income Taxes

The components of the income tax provision are as follows:



	Year Ended December 31,
(Dollars in millions)	2017		2016			2015
Current expense:
Federal	$	539	$	959		$	585
State	80		97			99
Total current expense	619		1,056			684
Deferred expense:
Federal	253		(14		)	99
State	39		16			11
Total deferred expense	292		2			110
Provision for income taxes	$	911	$	1,058		$	794

The reasons for the difference between the provision for income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes were as follows:



	Year Ended December 31,
(Dollars in millions)	2017			2016			2015
Federal income taxes at statutory rate of 35%	$	1,164		$	1,225		$	1,021
Increase (decrease) in provision for income taxes as a result of:
State income taxes, net of federal tax benefit	77			73			72
Affordable housing projects proportional amortization	236			205			181
Affordable housing projects tax credits and other tax benefits	(319		)	(279		)	(249		)
Tax exempt income	(139		)	(151		)	(129		)
Federal tax reform impact	(43		)	—			—
Excess tax benefits for equity-based compensation	(52		)	—			—
Adjustments for uncertain tax positions	—			(6		)	(107		)
Other, net	(13		)	(9		)	5
Provision for income taxes	$	911		$	1,058		$	794
Effective income tax rate	27.4		%	30.2		%	27.2		%

The Tax Cuts and Jobs Act was signed into law December 22, 2017. The net tax benefit recognized as a result of the revaluation of deferred taxes and investment in affordable housing projects is presented as Federal tax reform impact in the above table.

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities are reflected in the table below:



	December 31,
(Dollars in millions)	2017			2016
Deferred tax assets:
ALLL	$	359		$	564
Postretirement plans	311			451
Net unrealized loss on AFS securities	112			155
Equity-based compensation	66			124
Reserves and expense accruals	114			238
Partnerships	70			116
Other	160			317
Total deferred tax assets	1,192			1,965
Deferred tax liabilities:
Prepaid pension plan expense	436			558
MSRs	234			358
Lease financing	366			587
Loan fees and expenses	114			103
Identifiable intangible assets	163			224
Other	31			45
Total deferred tax liabilities	1,344			1,875
Net deferred tax asset (liability)	$	(152	)	$	90

On a periodic basis, BB&T evaluates its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current taxing authorities’ examinations of BB&T’s tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment in relation to tax-advantaged transactions. The following table presents changes in unrecognized tax benefits:



	As of/ For the Year Ended December 31,
(Dollars in millions)	2017		2016			2015
Beginning balance of unrecognized tax benefits	$	1	$	426		$	503
Additions based on tax positions related to current year	—		—			—
Additions (reductions) for tax positions of prior years	—		(5		)	(76		)
Settlements	—		(420		)	(1		)
Lapse of statute of limitations	—		—			(1		)
Unrecognized deferred tax benefits from acquisitions	—		—			1
Ending balance of unrecognized tax benefits	$	1	$	1		$	426

Unrecognized tax benefits that would have impacted effective rate if recognized
Federal	$	—	$	—		$	422
State	1		1			3

During 2015, the U.S. Court of Appeals for the Federal Circuit overturned a portion of an earlier ruling pertaining to the disallowance of foreign tax credits and other deductions claimed by a subsidiary in connection with a financing transaction, which resulted in the recognition of a $107 million income tax benefit. During 2016, the U.S. Supreme Court declined to hear the case, which preserved the earlier ruling and effectively concluded this matter.

The Company had immaterial amounts accrued for tax-related interest and penalties at December 31, 2017 and 2016. The amount of net interest and penalties related to unrecognized tax benefits recognized in the Consolidated Statements of Income was immaterial for all periods presented. The IRS has completed its Federal income tax examinations of BB&T through 2013. Various years remain subject to examination by state taxing authorities.