Income Taxes (Tables)

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Components of income tax expense (benefit)

Total income taxes was as follows:

Year Ended December 31,	2021		2020		2019
	(in millions)
Provision (benefit) for income taxes	$	224	$	(42)	$	157
Income tax expense (benefit) included in common equity related to:
Unrealized gains (losses) on investment securities	(258)		274		128
Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread	4		8		(98)
Unrealized gains (losses) on derivatives designated as cash flow hedges	(19)		23		3
Employer accounting for post-retirement plans	1		(1)		(5)
Total income taxes	$	(48)	$	262	$	185

The components of the provision for income taxes were as follows:

Year Ended December 31,	2021		2020		2019
	(in millions)
Current:
Federal	$	(111)	$	(45)	$	(3)
State and local	(7)		(9)		35
Foreign	2		(13)		16
Total current	(116)		(67)		48
Deferred	340		25		109
Provision (benefit) for income taxes	$	224	$	(42)	$	157

Effective Tax Rates

The following table provides an analysis of the difference between effective rates based on the provision (benefit) for income taxes attributable to pretax income (loss) and the statutory U.S. Federal income tax rate:

Year Ended December 31,	2021				2020				2019
	(dollars are in millions)
Tax expense (benefit) at the U.S. Federal statutory income tax rate	$	192	21.0	%	$	(206)	(21.0)	%	$	57	21.0	%
Increase (decrease) in rate resulting from:
State and local taxes, net of Federal benefit	31		3.4		(2)		(.2)		23		8.5
Non-deductible FDIC assessment fees	13		1.4		15		1.5		5		1.9
Non-deductible goodwill impairment(1)	—		—		165		16.8		77		28.5
Items affecting prior periods(2)	—		—		3		.3		7		2.6
Uncertain tax positions	6		.7		(8)		(.8)		5		1.9
Low income housing and other tax credit investments	(15)		(1.7)		(14)		(1.4)		(13)		(4.8)
Other	(3)		(.2)		5		.5		(4)		(1.5)
Provision (benefit) for income taxes	$	224	24.6	%	$	(42)	(4.3)	%	$	157	58.1	%

(1)For 2020, the amount represents non-deductible goodwill impairment related to our previously separate Retail Banking and Wealth Management and Private Banking businesses. For 2019, the amount represents non-deductible goodwill impairment related to our previously separate Retail Banking and Wealth Management business.

(2)For 2020, the amount primarily relates to prior year State audit settlements, partially offset by changes in estimates as a result of filing the 2019 Federal and State income tax returns. For 2019, the amount primarily relates to changes in estimates as a result of filing the 2018 Federal income tax return and a reduction in a State and local capital loss carryback claim, partially offset by prior year State audit adjustments.

Components of net deferred tax position

The components of the net deferred tax asset are presented in the following table:

At December 31,	2021		2020
	(in millions)
Deferred tax assets:
Allowance for credit losses	$	150	$	245
Accrued expenses	64		108
Interests in real estate mortgage investment conduits(1)	127		158
Unrealized losses on investment securities	21		—
Capitalized costs(2)	495		501
Lease liabilities	111		152
Other	219		268
Total deferred tax assets	1,187		1,432
Deferred tax liabilities:
Lease ROU assets	80		127
Unrealized gains on investment securities	—		237
Amortization of intangible assets	21		19
Fair value adjustments	43		1
Other	14		37
Total deferred tax liabilities	158		421
Net deferred tax asset	$	1,029	$	1,011

(1)Real estate mortgage investment conduits ("REMICs") are investment vehicles that hold commercial and residential mortgages in trust and issue securities representing an undivided interest in these mortgages. HSBC Bank USA holds portfolios of noneconomic residual interests in a number of REMICs. This item represents tax basis in such interests which has accumulated as a result of tax rules requiring the recognition of income related to such noneconomic residuals.

(2)Reflects our tax return election to capitalize certain service costs.

Reconciliation of unrecognized tax benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax positions is as follows:

	2021		2020		2019
	(in millions)
Balance at January 1,	$	20	$	30	$	24
Additions for tax positions of prior years	9		—		7
Reductions for tax positions of prior years	(3)		(1)		(1)
Reductions related to settlements with taxing authorities	—		(9)		—
Balance at December 31,	$	26	$	20	$	30