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Income Taxes (Tables)
 12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Components of income tax expense (benefit)
Total income taxes was as follows:
Year Ended December 31,
2018
 
2017
 
2016
 
(in millions)
Provision for income taxes
$
266

 
$
1,228

 
$
89

Income tax expense (benefit) included in common equity related to:

 

 

Unrealized gains (losses) on investment securities
(68
)
 
127

 
(135
)
Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread(1)
103

 
(115
)
 
—

Unrealized gains (losses) on derivatives designated as cash flow hedges
12

 
(5
)
 
9

Employer accounting for post-retirement plans
3

 
1

 
2

Cumulative effective adjustment to initially apply new accounting guidance for stranded tax effects resulting from Tax Legislation(2)
91

 
—

 
—

Total income taxes
$
407

 
$
1,236

 
$
(35
)
 
(1) 
As a result of adopting new accounting guidance in 2017, beginning January 1, 2017, the fair value movement on fair value option liabilities attributable to our own credit spread is recorded in common equity as a component of other comprehensive income (loss).
(2) 
See Note 2, "Summary of Significant Accounting Polices and New Accounting Pronouncements," for additional discussion.
The components of the provision for income taxes were as follows:
Year Ended December 31,
2018
 
2017
 
2016
 
(in millions)
Current:
 
 
 
 
 
Federal
$
68

 
$
795

 
$
191

State and local
41

 
109

 
27

Foreign
6

 
21

 
11

Total current
115

 
925

 
229

Deferred
151

 
303

 
(140
)
Provision for income taxes
$
266

 
$
1,228

 
$
89
Effective Tax Rates
The following table provides an analysis of the difference between effective rates based on the provision for income taxes attributable to pretax income and the statutory U.S. Federal income tax rate:
Year Ended December 31,
2018
 
2017
 
2016
 
(dollars are in millions)
Tax expense at the U.S. Federal statutory income tax rate
$
123

 
21.0
 %
 
$
367

 
35.0
 %
 
$
76

 
35.0
 %
Increase (decrease) in rate resulting from:

 

 

 

 

 

State and local taxes, net of Federal benefit
40

 
6.8

 
28

 
2.7

 
10

 
4.6

Adjustment of Federal tax rate used to value deferred taxes(1)
(31
)
 
(5.3
)
 
865

 
82.4

 
—

 
—

Adjustment of State tax rate used to value deferred taxes(2)
2

 
.3

 
(15
)
 
(1.4
)
 
4

 
1.8

Non-deductible FDIC assessment fees
27

 
4.6

 
—

 
—

 
—

 
—

Other non-deductible / non-taxable items(3)
107

 
18.3

 
1

 
.1

 
21

 
9.6

Items affecting prior periods(4)
(1
)
 
(.2
)
 
6

 
.6

 
(2
)
 
(.9
)
Uncertain tax positions
6

 
1.0

 
—

 
—

 
(4
)
 
(1.8
)
Low income housing and other tax credit investments
(5
)
 
(.9
)
 
(17
)
 
(1.6
)
 
(17
)
 
(7.8
)
Stock-based compensation(5)
(2
)
 
(.2
)
 
(8
)
 
(.8
)
 
—

 
—

Other
—

 
—

 
1

 
.1

 
1

 
.5

Provision for income taxes
$
266

 
45.4
 %
 
$
1,228

 
117.1
 %
 
$
89

 
40.8
 %
 
(1) 
For 2018, the amount primarily relates to tax return adjustments on certain deferred tax assets impacted by the Federal tax rate change. For 2017, the amount relates to the effects of revaluing our net deferred tax asset for new Tax Legislation that was enacted in December 2017.
(2) 
For 2017, the amount includes an out of period adjustment to our deferred tax asset balance which decreased tax expense by $9 million.
(3) 
For 2018, the amount primarily relates to non-deductible penalties related to legal matters. For 2016, the amount mainly relates to the accrual of non-deductible penalties.
(4) 
For 2017, the amount relates to the impact of adjustments associated with filing the 2016 State income tax returns and changes in tax credits as a result of filing the 2016 Federal income tax return.
(5) 
As a result of adopting new accounting guidance, beginning January 1, 2017, all excess tax benefits and tax deficiencies for share-based payment awards are recorded within income tax expense in the consolidated statement of income (loss).
Components of net deferred tax position
The components of the net deferred tax asset are presented in the following table:
At December 31,
2018
 
2017
 
(in millions)
Deferred tax assets:
 
 
 
Allowance for credit losses
$
131

 
$
166

Interests in real estate mortgage investment conduits(1)
182

 
175

Unrealized losses on investment securities
164

 
96

Capitalized costs(2)
680

 
724

Fair value adjustments
—

 
26

Other
350

 
385

Total deferred tax assets
1,507

 
1,572

Valuation allowance
(6
)
 
(6
)
Total deferred tax assets, net of valuation allowance
1,501

 
1,566

Deferred tax liabilities:
 
 
 
Fair value adjustments
75

 
—

Amortization of intangible assets
18

 
18

Other
22

 
8

Total deferred tax liabilities
115

 
26

Net deferred tax asset
$
1,386

 
$
1,540

 
(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:
 
2018
 
2017
 
2016
 
(in millions)
Balance at January 1,
$
17

 
$
16

 
$
26

Additions based on tax positions related to the current year
2

 
2

 
2

Additions for tax positions of prior years
6

 
—

 
—

Reductions for tax positions of prior years
—

 
(1
)
 
(8
)
Reductions related to settlements with taxing authorities
(1
)
 
—

 
(4
)
Balance at December 31,
$
24

 
$
17

 
$
16