Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Components of income tax expense (benefit)

Total income taxes for continuing operations were as follows.



Year Ended December 31,	2013			2012		2011
	(in millions)
Provision for income taxes	$	71		$	338	$	227
Income taxes related to adjustments included in common shareholder’s equity:
Unrealized gains (losses) on securities available-for-sale, net	(697		)	76		552
Unrealized gains (losses) on derivatives classified as cash flow hedges	82			17		(110		)
Employer accounting for post-retirement plans	6			5		(3		)
Other-than-temporary impairment on debt securities	(43		)	—		1
Total	$	(581	)	$	436	$	667

The components of income tax expense were as follows.



Year Ended December 31,	2013		2012			2011
	(in millions)
Current:
Federal	$	17	$	153		$	316
State and local	35		173			143
Foreign	17		(28		)	57
Total current	69		298			516
Deferred	2		40			(289		)
Total income tax expense	$	71	$	338		$	227

Effective Tax Rates

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



Year Ended December 31,	2013					2012					2011
	(dollars are in millions)
Tax expense (benefit) at the U.S. federal statutory income tax rate	$	(93	)	(35.0	)%	$	(318	)	(35.0	)%	$	239		35.0	%
Increase (decrease) in rate resulting from:
State and local taxes, net of federal benefit	22			8.2		46			5.1		92			13.5
Adjustment of tax rate used to value deferred taxes	—			—		(13		)	(1.4	)	—			—
Non-deductible expense accrual related to certain regulatory matters⁽¹⁾	—			—		483			53.1		—			—
Non-deductible goodwill related to branch sale⁽¹⁾	—			—		139			15.3		—			—
Non-deductible goodwill impairment⁽²⁾	215			80.5		—			—		—			—
Valuation allowance⁽³⁾	—			—		—			—		(217		)	(31.8	)
Other non-deductible / non-taxable items⁽⁴⁾	(11		)	(4.1	)	(14		)	(1.5	)	3			0.4
Items affecting prior periods⁽⁵⁾	(13		)	(4.9	)	—			—		1			0.1
Uncertain tax positions⁽⁶⁾	20			7.5		45			4.9		161			23.6
Impact of foreign operations⁽⁷⁾	13			4.9		51			5.6		63			9.2
Low income housing tax credits	(84		)	(31.2	)	(85		)	(9.4	)	(115		)	(16.7	)
Other	2			0.7		4			0.4		—			—
Total income tax expense	$	71		26.6	%	$	338		37.1	%	$	227		33.3	%


⁽¹⁾	Represents non-deductible expense relating to certain regulatory matters and non-deductible goodwill related to the branches sold to First Niagara in 2012.


⁽²⁾	Represents non-deductible goodwill impairment related to our Global Banking and Markets reporting unit in the fourth quarter of 2013.


⁽³⁾	For 2011, relates to release of valuation allowance previously established on foreign tax credits.


⁽⁴⁾	For 2013 and 2012, mainly relates to tax exempt interest income. For 2011, relates to tax exempt income and tax credits.


⁽⁵⁾	For 2013 and 2011, relates to corrections to current and deferred tax balance sheet accounts and changes in estimates as a result of filing the federal and state income tax returns.


⁽⁶⁾	Reflects changes in state uncertain tax positions which no longer meet the more likely than not requirement for recognition. Specifically, the increase in 2011 relates to a state court decision that required us to increase our reserves.


⁽⁷⁾	For 2013 and 2012, relates to foreign (U.K.) tax expense for which no foreign tax credits are allowed, and for 2011, primarily relates to the reversal of an accrued foreign tax expense related to Brazilian withholding taxes.

Components of net deferred tax position

The components of the net deferred tax position are presented in the following table.



At December 31,	2013			2012
	(in millions)
Deferred tax assets:
Allowance for credit losses	$	250		$	267
Employee benefit accruals	142			120
Accrued expenses	110			334
Unused tax benefit carry-forwards	30			—
Bond premium amortization	226			143
Future federal tax benefit of state uncertain tax reserves	171			161
Interests in real estate mortgage investment conduits⁽¹⁾	309			188
Other	429			463
Total deferred tax assets	1,667			1,676
Less deferred tax liabilities:
Fair value adjustments	22			10
Unrealized (loss) gain on available-for-sale securities	(8		)	692
Mortgage servicing rights	96			69
Total deferred tax liabilities	110			771
Net deferred tax asset	$	1,557		$	905

⁽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.

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.



	2013			2012			2011
	(in millions)
Balance at January 1,	$	478		$	416		$	210
Additions based on tax positions related to the current year	16			86			105
Reductions based on tax positions related to the current year	(5		)	(31		)	—
Additions for tax positions of prior years	66			32			145
Reductions for tax positions of prior years	(15		)	(15		)	(44		)
Reductions related to settlements with taxing authorities	—			(10		)	—
Balance at December 31,	$	540		$	478		$	416