HSBC Bank USA, HSBC USA's principal U.S. banking subsidiary, is a national banking association. Through HSBC Bank USA, we offer our customers a fullwide range of commercial and consumer banking products and related financial services. HSBC Bank USA is also an international dealer in derivative instruments denominated in U.S. dollars and other currencies, focusing on structuring transactions to meet clients' needs.

HSBC USA also owns a nationally chartered limited purpose bank subsidiary, HSBC Trust Company (Delaware), National Association ("HTCD"), the primary activities of which are providing personal trust services. The impact of HTCD's operations on HSBC USA's consolidated balance sheets and results of operations for the years ended December 31, 2021, 2020 2019 and 20182019 was not material.

At December 31, 2020,2021, we had approximately 1.661.49 million customers, including customers associated with the 90 branches that we decided to sell as discussed further below, and some of whichwhom are customers of more than one of our businesses. Customers in the States of California and New York accounted for 3835 percent and 2932 percent, respectively, of our total outstanding commercial real estate loans and residential mortgage loans.loans, excluding loans held for sale.

We report financial information to our ultimate parent, HSBC, in accordance with HSBC Group accounting and reporting policies, which apply International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB"). As a result, our segment results are prepared and presented using financial information prepared on the basis of HSBC Group's accounting and reporting policies ("Group Reporting Basis"). We continue, however, to monitor capital adequacy and report to regulatory agencies in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). For additional financial information relating to our business and operating segments, as well as a summary of the significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results, see Note 24,25, "Business Segments," in the accompanying consolidated financial statements. For a discussion of our current strategy, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - 2020 Events."

Following completion of these transactions, WPB also serveswill focus on serving high net worth and ultra-high net worth individuals and their familiesentities with a focus on multi-generational families, business executives and entrepreneurs who require sophisticated solutions to help meet their most complex needs domestically and abroad, with many clientscustomers sourced in collaboration with our other business lines. WPB works with these clients to provide tailored, coordinated and innovative ways

business lines. WPB works with these customers to provide tailored, coordinated and innovative ways to manage and preserve wealth while optimizingseeking to optimize returns by offering a wide range of products and services, including banking, liquidity management, investment services, custody, tailored lending, trust and fiduciary services, insurance, family wealth and philanthropy advisory services.

Within client-focusedOur GBM business lines, GBM offers a full rangeis comprised of capabilities, including:three distinct operating segments:

During the fourth quarter of 2020, our BSM function was renamedOur Markets Treasury though the scope of the function remains the same. Markets Treasury is responsible for managing liquidity and funding under the supervision of our Asset and Liability Management Committee. Markets Treasury also manages our structural interest rate position within a limit structure. The majority of the liquidity is invested in interest bearing deposits with Federal Reserve banks and U.S. Government and other high quality securities. Markets Treasury is permitted to use derivatives as part of its mandate to manage interest rate risk. Derivative activity comprises predominantly the use of interest rate swaps which are part of cash flow hedging relationships. Credit risk in Markets Treasury is predominantly limited to short-term exposure created by exposure to banks as well as high quality sovereigns or agencies which constitute the majority of their liquidity portfolio. Markets Treasury manages interest rate

risk and liquidity and funding risk. Markets Treasury income statement and balance sheet results are allocated to each of the global businesses based upon tangible equity levels and levels of any surplus liabilities.

Numerous factors, both internal and external, may impact our access to, and the costs associated with, both retail and wholesale sources of funding. These factors may include our debt ratings, overall economic conditions, overall capital markets volatility, the counterparty credit limits of investors to the HSBC Group, and our management of the credit risks inherent in our business and customer base.

A detailed description of our sources and availability of funding are set forth in the "Liquidity and Capital Resources" and "Off-Balance Sheet Arrangements, Credit Derivatives and Other Contractual Obligations" sectionssection of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

The cash generated by these funding sources is primarily used to service our debt obligations, originate new loans, purchase investment securities, pay preferred dividends and, as available and appropriate, common dividends to our parent.

By focusing on employee well-being, diversity, inclusion and engagement, as well as building our peoples' skills and capabilities for now and for the future, we aim to create an environment where our people can fulfill their potential. We use confidential surveys to assess progress and make changes.changes in response to issues raised in the surveys. We want to have an open culture where our people feel connected, supported to speak up and where our leaders encourage feedback. Where we make organizational changes, we support our people throughout the change and in particular, where there are job losses.

We continue to closely monitor the outbreak of the coronavirus ("COVID-19") pandemic. The well-being of our customers and our employees is important to us, and we will continue to take efforts to ensure their safety and support them through this difficult time.

Whistleblowing concerns are investigated thoroughly and independently. Remedial action, taken where appropriate, includes disciplinary action, dismissal, and adjustments to variable pay and performance ratings.

We rely on our employees to deliver fair outcomes for our customers and make sure we act with integrity in the financial markets. A high standard of personal conduct is critical to our ability to live up to this commitment and ensure a healthy working environment. We manage misconduct by taking action, as appropriate, up to and including dismissal. We report cases on a regular basis to management committees. Bullying and harassment of any type are not tolerated and we have strict processes to manage this behavior.

The quality and commitment of our employees is fundamental to our success and, accordingly, we aim to attract, retain and motivate them. As trust and relationships are vital in our business, our goal is to recruit those who are committed to a long-term career with us.

In July 2020, we announced plans to improve diversity and inclusion. The leadership team agreed to a set of six pillars wherethrough which we believe we can make meaningful progress toward advancing inclusion for all under-represented and diverse groups. These six pillars comprise the following objectives:

A key component of this plan included the creation ofis the US Head of Inclusion and Culture, a new role which reports directly to the HSBC North AmericaChief Human Resources Officer and the Chief Executive Officer ("CEO") and the Chief Human Resources Officer and is focused on expanding our diversity and inclusion efforts. This role will help us make quicker progress in advancing opportunities for our employees, expanding our customer demographic and investing in the communities that need our help the most.

We provide training through HSBC University, our online learning portal and global network of training centers, which we launched in 2017. HSBC University assists our employees in developing technical and role-based skills, as well as personal skills. We put a strong emphasis on leadership skills to foster a culture of curiosity, innovation, collaboration and performance. Our training has a strong foundation in good conduct, with topics including managing non-financial risk, data privacy, cybersecurity, anti-money laundering, sanctions, anti-bribery and corruption, insider risk, competition law, raising concerns, workplace harassment and well-being. We also introduced a range of self-directed resources and workshops to improve team cohesion and performance.

We target a 98 percent completion rate for mandatory training on our values, strategy and approach to risk management. This helps keep our people aware of the risks we face so they can make better decisions to grow our business in a safe way.

Risk management remains central to development at HSBC and is part of our mandatory training for all colleagues. For colleagues in roles at higher risk of exposure to financial wrongdoing, we provide more in depth training on financial risks such as money laundering, sanctions, bribery and corruption. We also have programs and resources to address specific areas of risk, such as those relating to the management of third party suppliers.

Our cyber hub brings together training, insights, events and campaigns to provide a one-stop shop on how to combat cyber-crime. We are also supporting leaders and model developers with training that helps them understand and apply our principles on the ethical use of big data and artificial intelligence.

We converted or re-built hundreds of our technical, professional and personal classroom programs to be delivered by instructors online. This included supporting new joiners to HSBC with an immersive virtual induction program and virtual internships.

Putting our commitment into practice, we deliveredcontinue to deliver a range of programs in 2020 to help us understand and manage effectively the risks we face and improve the buildings in which we operate:

which will include those who will be affected by our business update. Our focus is to prioritize retention of our permanent employees through mechanisms such as redeployment. Redundancies were necessary in 2020,2021, and we sought to treat people fairly and responsibly. Where appropriate, we provided suitable notice periods. We use objective and appropriate selection criteria for redundancies. We prohibit selection on grounds linked to personal characteristics, for example gender, race, age or having raised past concerns. Additionally, we provided employees access to counselling via employee assistance programs and career transition.

In addition, the FRB requires certain large non-U.S. banks with significant operations in the United States, such as HSBC, to establish a single intermediate holding company ("IHC") to hold all of their U.S. bank and non-bank subsidiaries. The HSBC Group operates in the United States through such an IHC structure (i.e., HSBC North America).

Under the FRB supervisory rating system, IHCs and large BHCs with $100 billion or more in total consolidated assets, including HSBC North America and HSBC USA, receive separate ratings from the FRB for (i) capital planning and positions, (ii) liquidity risk management and positions, and (iii) governance and controls. A covered BHC that receives a deficient rating for any of the three components is not considered to be "well managed."

We are generally prohibited under the BHC Act from acquiring, directly or indirectly, ownership or control of more than five percent of any class of voting shares of, or substantially all the assets of, or exercising control over, any U.S. bank, BHC or many other types of depository institutions and/or their holding companies without the prior approval of the FRB and, potentially, other U.S. banking regulatory agencies.

The GLB Act and the regulations issued thereunder contain a number of other provisions that affect our operations and those of our subsidiary banks, including regulations and restrictions on the activities we may conduct and the types of businesses and entities we may acquire. Furthermore, other provisions contain detailed requirements relating to the financial privacy of consumers. In addition, the so-called 'push-out' provisions of the GLB Act removed the blanket exemption from registration for securities and brokerage activities conducted in banks (including HSBC Bank USA) under the Exchange Act. Applicable regulations allow banks to continue to avoid registration as a broker or dealer only if they conduct securities activities that fall within a set of defined exemptions.

of any consumer financial products or services are fully, accurately and effectively disclosed to consumers. The CFPB also has authority to examine large banks, including HSBC Bank USA, and their affiliates for compliance with those regulations. Our consumer lending businesses are also subject to additional laws relating to consumer protection including, without limitation, fair lending, fair debt collection practices, mortgage loan origination and servicing obligations, bankruptcy, military service member protections, use of credit reports, privacy matters, and disclosure of credit terms and correction of billing errors. Local, state and national regulatory and enforcement agencies continue efforts to address perceived problems within the mortgage

HSBC Bank USA is subject to the CRA, which imposes affirmative, ongoing obligations on depository institutions to meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. In May 2020, the OCC finalizedadopted significant amendments to its CRA regulations which require assessment of a bank's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods. The amendments significantly revise for national banks, like HSBC Bank USA, howthat would have required compliance on January 1, 2023. However, on December 14, 2021, the OCC defines what qualifies forissued a final rule to rescind the 2020 CRA credit, where such activity must be conducted to receive credit, how CRA performance is measured,rule and how CRA performance is documented and reported. The amendments took effect October 1, 2020,replace it with a compliance date ofrule based on the rules adopted jointly by the federal banking agencies in 1995. The final rule became effective on January 1, 2023, for HSBC Bank USA. The OCC has also indicated it will conduct a future rulemaking to set the quantitative levels of CRA activity that a national bank would have to achieve to receive a Satisfactory or Outstanding CRA rating, either within a particular assessment area or overall. We will continue to evaluate the impact of any changes to the regulations implementing the CRA.2022.

Federal law imposes limitations on the payment of dividends by national banks. Dividends payable by HSBC Bank USA and HTCD are limited to the lesser of the amounts calculated under a "recent earnings" test and an "undivided profits" test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year's net income combined with the retained net income of the two preceding years, unless the national bank obtains the approval of the OCC. Under the undivided profits test, a dividend may not be paid in excess of a bank's undivided profits account. HSBC Bank USA is also required to maintain appropriate amounts of capital against its assets as discussed further in this Annual Report on Form 10-K.

The types of activities in which the non-U.S. branches of HSBC Bank USA may engage are subject to various restrictions imposed by the FRB in addition to those generally applicable to HSBC Bank USA under OCC rules. These branches are also subject to the laws and regulatory authorities of the countries in which they operate.

Under longstanding FRB policy, which Dodd-Frank codified as a statutory requirement, HSBC USA is expected to act as a source of strength to its subsidiary banks and, under appropriate circumstances, to commit resources to support each such subsidiary bank in circumstances where it might not do so absent such policy.

Unless an exemption applies, or a specific waiver is granted by the FRB, covered transactions by a bank with a single affiliate are limited to 10 percent of the bank's capital and surplus, and all covered transactions with affiliates in the aggregate are

As of January 1, 2022, HSBC North America met the Tailoring Rules,criteria to be re-classified as a Category IV firm and the enhanced prudential standards applicable to HSBC North America and HSBC Bank USA are subjectexpected to change commensurate with their risk profile. The following table provides a comparison of the enhanced prudential standards for Category III and Category IV firms to illustrate the expected impact on HSBC North America's change in category:

In response to the COVID-19 pandemic, the federal banking agencies issued a final rule that provides the option to transition in the regulatory capital impacts of the new current expected credit loss accounting standard over a five-year period. In 2020, HSBC North America and HSBC Bank USA have elected the five-year transition option and, as a result, beginning in 2020, our capital ratios

Until HSBC North America's re-classification as a Category IV firm takes effect, HSBC Bank USA is also subject to the 3 percent SLR and the countercyclical buffer (when in effect) in addition to the capital conservation buffer. Currently, HSBC USA and HSBC Bank USA hold capital in excess of these regulatory minimums plus a fixed 2.5 percent capital conservation buffer. If our risk-based capital ratios were to fall to levels within the capital conservation buffer, we would become subject to increasing restrictions on our capital distributions and discretionary bonus payments.

As part of the CCAR process, the FRB undertakes a supervisory assessment of the capital adequacy of CCAR firms, including HSBC North America, based on a review of a comprehensive capital plan submitted by each participating BHC to the FRB that describes the company's planned capital actions during the nine quarter review period, as well as the results of stress tests conducted by both the company and the FRB under different hypothetical macroeconomic scenarios, including a supervisory baseline scenario and severely adverse scenarios provided by the FRB.

In March 2020, the FRB issued a final rule that eliminated the quantitative and qualitative "pass/fail" assessments from CCAR and modified the static capital conservation buffer to incorporate an institution-specific stress capital buffer ("SCB"),SCB which is floored at 2.5 percent.percent and took effect on October 1, 2020. The stress capital bufferSCB equals (i) a CCAR firm's projected decline in common equity tier 1 under the annual CCAR supervisory severely adverse stress testing scenario plus (ii) one year of planned common stock dividends. The SCB is reset each year.

America already utilizes an internal capital assessment approach that is analogous todividends. In August 2021, the FRB announced a new SCB andfor participating CCAR firms based on 2021 CCAR stress tests, which took effect October 1, 2021.

HSBC North America continues to review the composition of its capital structures and capital buffers in light of the final rule. The SCB applies only to HSBC North America; HSBC USA and HSBC Bank USA remain subject to a static 2.5 percent capital conservation buffer.

HSBC North America submitted its 20202021 CCAR capital plan and its 20202021 annual company-run DFAST results in April 2020.2021. In July 2020,2021, HSBC North America publicly disclosed its 20202021 annual DFAST results.

Certain U.S. banking organizations including HSBC North America and HSBC Bank USA, are subject to the U.S. LCR rule and are required to report their LCRs to U.S. regulators on a daily basis. TheUnder the Tailoring Rules, reduced the U.S.an 85 percent LCR requirement forapplies to Category III firms such as HSBC North America, with weighted short-term wholesale funding under $75 billion and their depository institution subsidiaries, such as HSBC Bank USA, from 100 to 85 percent beginning January 1, 2020.subsidiaries. As a result, under the U.S. LCR rule, a LCR of 100 percent or higher reflects an unencumbered HQLA balance that is equal to or exceeds 85 percent of a Category III firm's liquidity needs for a 30 calendar day liquidity stress scenario.

In October 2020, U.S. regulators issued a final rule to implement the NSFR in the United States, applicable to certain large banking organizations, including HSBC North America and HSBC Bank USA, that will takewhich took effect on July 1, 2021. Consistent with the Tailoring Rules, an 85 percent NSFR requirement will applyapplies to Category III firms such as HSBC North America, with weighted short-term wholesale funding under $75 billion and their depository institution subsidiaries, such as HSBC Bank USA, when the final rule becomes effective July 1, 2021.subsidiaries. As a result, under the U.S. NSFR rule, a NSFR of 100 percent or more reflects an available stable funding balance from liabilities and capital over the next 12 months that is equal to or exceeds 85 percent of a Category III firm's required amount of funding for assets and off-balance sheet exposures. As a result of HSBC North America's re-classification as a Category IV firm, HSBC North America and HSBC Bank USA expect to be subject to a further reduced U.S. LCR and NSFR requirement of 70 percent so long as HSBC North America's weighted short-term wholesale funding equals or exceeds $50 billion.

As a Category III firm, HSBC North America remainswas subject to liquidity stress testing on a monthly basis and related liquidity buffer and liquidity risk management requirements.

On December 15, 2020,In November 2021, these agencies issued a notice of proposed rulemakingfinal rule mandating that would require a banking organization to notify its primary federal regulators within 36 hours of identifying a computer-security incident"computer-security incident" that meets certain criteria.has or is reasonably likely to disrupt or degrade its (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base; (ii) business lines, including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or (iii) operations, including associated services, functions, and support, the failure or discontinuance of which would pose a threat to the financial stability of the United States. The rule takes effect April 1, 2022, with banking organizations required to comply with the notice requirements beginning May 1, 2022. We are evaluatingcontinue to evaluate the potential impacteffects of these proposalsthis rule on our operations.

Cybersecurity remains an area of significant regulatory focus, and state regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of state-level activity to continue, and are continually monitoring developments in the states.

from having net credit exposure to a single unaffiliated counterparty in excess of 25 percent of HSBC North America's Tier 1 capital. In addition,As a result of its re-classification as a Category IV firm, HSBC North America expects to no longer be directly subject to these single counterparty credit limits. Independent of HSBC North America's reclassification to a Category IV firm, HSBC North America, together with its subsidiaries, could become subject to a separate limit on its exposures to certain unaffiliated systemically important counterparties if its parent, HSBC, cannot certify its compliance with a large exposure regime in the U.K. that is consistent with the Basel large exposure framework by July 1, 2021. We continue to evaluate the potential effects of this rule on our operations.framework.

The Margin Rules also limit the types of assets that are eligible to satisfy initial and variation margin requirements, require initial margin to be segregated at a third-party custodian, impose requirements on internal models used to calculate initial margin requirements and contain specific provisions for cross-border and inter-affiliate transactions. The Margin Rules follow a phased implementation schedule, with additional counterparties becoming subject to initial margin requirements in September 2021 and 2022 depending on the transactional volume of the parties and their affiliates. The Margin Rules, as well as parallel margin rules from the CFTC, the SEC, and certain non-U.S. regulators, have increased the costs and liquidity burden associated with trading swaps.

services in our markets, noting that we compete with different banks and financial services companies in different markets, given our strategy.

Integrity is the foundation of all our business endeavors and is the result of continued dedication and commitment to high ethical standards in our relationships with each other, with other organizations and with those individuals who are our customers. To that end, we have adopted a Statement of Business Principles and Code of Ethics (our "Statement of Business Principles") that expresses the principles upon which we operate our business. The Statement of Business Principles is applicable to all employees, including our Chief Executive Officer,CEO, Chief Financial Officer ("CFO") and Chief Accounting Officer (collectively, the "Senior Financial Officers"). In addition to the Statement of Business Principles, the Senior Financial Officers are subject to the additional policies set forth in the Code of Ethics for Senior Financial Officers, which is intended to supplement the Statement of Business Principles.

Our Statement of Business Principles and Code of Ethics for Senior Financial Officers can be found on our corporate website, www.about.us.hsbc.com, under "Investor Relations." Printed copies of this information can be requested at no charge. Requests should be made to HSBC USA Inc., 452 Fifth Avenue, New York, NY 10018, Attention: Corporate Secretary. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, certain provisions of the Code of Ethics for Senior Financial Officers and Statement of Business Principles by posting such information on our website, at the address and location specified above.

The COVID-19 pandemic has resulted in disruption to business and economic activity as well as to the capital markets. See "The COVID-19 pandemic has had, and continues to have, a material impact on us" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - 20202021 Economic Environment." Unemployment continuesAlthough the U.S. economy continued to remain high, and if current unemployment levels worsen or do not improve or additional government support in 2021, does not materialize,if businesses were again to become cautious to hire, lay-off employees or reduce hours for employees, losses could be significant in all types of our consumer loans due to decreased consumer income, which will impact demand for products and services offered by many of our commercial loan clients. In addition, on-going domestic and global policy issues, such as trade disputes the U.K. exiting the European Union ("EU")and economic sanctions, and the implications of those events will continue to impact the capital markets and trade as well as corporate earnings which also impacts our commercial loan performance. The sustainability of anythe economic recovery in economic conditions will be determined by numerous variables including consumer sentiment, energy prices, credit market volatility, employment levels and housing market conditions which will impact corporate earnings and the capital markets. In the event a rebound in economic conditions stallsstop improving or the economy deteriorates furtherbecome depressed and leadslead to a sustainedanother recession, there would be a significant negative impact on delinquencies, charge-offs and losses in all loan portfolios with a corresponding impact on our results of operations.

A deterioration in business and economic conditions may erode consumer and investor confidence, increase volatility of financial markets, and could also adversely affect our fee-based businesses, including financial planning products and services.

The COVID-19 pandemic has caused disruption to our customers, suppliers and staff. COVID-19's effects in the U.S. and globally have been extreme, and the duration of the pandemic and its ultimate repercussions continue to remain unclear. A number of states in which we operate havepreviously implemented restrictions on the movement of their populations, significantly impacting economic activity in those states. The pandemicstates and resulted in sheltering in place requirements in many states and municipalities and the temporary closure of many businesses. While governments began to ease and in many cases remove these restrictions in the late spring and summer of 2021, they began to reinstate manysome of these restrictions during the fourth quarter in response to a significant surge in infections.infections driven by the Delta variant and the emergence of the Omicron variant, which could further impact economic activity. As a result, the demand for our products and services has been and may continue to be significantly impacted and could vary by region or industry sector. Furthermore, it is unclear how the macroeconomic business environment or societal norms may be impacted after the pandemic. The post-COVID-19 environment may undergo unexpected developments or changes in the financial markets, fiscal, tax and regulatory environments as well as customer and corporate client behavior which could have an adverse impact on our business.

In the United States, unprecedented government economic intervention, including additional government support enacted during the first quarter of 2021, has likely dampened some of the pandemic's effects, but at uncertain long-term costs. How the federal government has taken action, and may take further action, to provide financial support to partsgovernment's actions, including rolling back any of the economy most impacted by the COVID-19 pandemic. The details of how these actionstheir interventions, will ultimately impact our customers and therefore the impact on HUSI remains uncertain. Furthermore, it is unclear how these actions will impact the future economic environment, including rising inflation, interest rates and foreign exchange and our business. The actions taken by the U.S.federal government and the FRB may indicate a view on the potential severity of a downturn and post recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. An immediate financial impact in 2020 has been higher lifetime expected credit losses driven by a worsening in the economic scenarios used to calculate expected credit losses, downgrades reflecting weakness in the financial condition of certain clients and provisions for risks associated with higher-risk client and industry exposures and large loan exposures. See Note 6, "Allowance for Credit Losses," in the accompanying consolidated financial statements for further discussion. In addition, if customers to whom we have provided temporary payment relief due to COVID-19 related financial hardship face long-term financial difficulties, our risk of credit losses will increase.

Federal and state legislative and regulatory developments in relation to COVID-19 have also impacted and may continue to impact our business and operations by, for example, requiring forbearance on loans, suspensions of foreclosure sales and imposing restrictions on our ability to charge certain fees. Our participation in these and other measures taken by governments and regulatory authorities could result in potential increased fraud risk as well as reputational harm, and may result in litigation, including class actions, or regulatory and government actions and proceedings. Such actions may result in judgments, settlements, penalties and fines adverse to HUSI.

While we believe that our allowance for credit losses was appropriate at December 31, 2020,2021, there is no assurance that it will be sufficient to cover future credit losses. In the event of a deterioration in economic conditions, we may be required to increase reserves in future periods, which would reduce our earnings.

Attempts by local, state and federal regulatory agencies to address perceived problems with the mortgage lending and credit card industries could affect us in substantial and unpredictable ways, including limiting the types of products we can offer, how these products may be originated, the fees and charges that may be applied to accounts and how accounts may be collected or security interests enforced. Any one or more of these effects could negatively impact our results. There is also significant focus on loss mitigation and foreclosure activity for real estate loans. We cannot fully anticipate the response by national regulatory agencies, state Attorneys General, or certain legislators, nor can we anticipate whether significant changes to our operations and practices will be required as a result.

The Dodd-Frank Act established the CFPB which has broad authority to regulate providers of credit, payment and other consumer financial products and services. In addition, provisions of the Dodd-Frank Act may narrow the scope of federal preemption of state consumer laws and expand the authority of state Attorneys General to bring actions to enforce federal consumer protection legislation. As a result of the Dodd-Frank Act's potential expansion of the authority of state Attorneys General to bring actions to enforce federal consumer protection legislation, we could potentially be subject to additional state lawsuits and enforcement actions, thereby further increasing our legal and compliance costs.

Under the Dodd-Frank Act, certain of our affiliates and subsidiaries, including HSBC Bank USA, have provisionally registered as swap dealers and are subject to extensive oversight by the CFTC. Regulation of swap dealers by the CFTC imposes numerous corporate governance, business conduct, capital, margin, reporting, clearing, execution and other regulatory requirements on HSBC Bank USA. Additionally, certain of our affiliates and subsidiaries, including HSBC Bank USA, may be required to registerhave conditionally registered as security-based swap dealers beginning November 2021, and becomebecame subject to extensive oversight by the SEC, including the imposition of parallel corporate governance, business conduct, reporting and other regulatory requirements for security-based swaps. Imposition of these requirements may adversely affect our derivatives business and make us less competitive or make certain derivative products less profitable to undertake.

The Volcker Rule limits the ability of banking entities such as HUSI to sponsor or invest in certain private equity or hedge funds or engage in certain types of proprietary trading. See "Regulation and Competition - The "Volcker Rule".

The total impact of the Dodd-Frank Act and related legislative and regulatory initiatives cannot be fully assessed without taking into consideration how non-U.S. policymakers and regulators may respond through the promulgation of new regulations and revisions to existing regulations and how the cumulative effects of both U.S. and non-U.S. laws and regulations will affect our businesses and operations. Additional legislative or regulatory actions in the United States, the U.K., the EUEuropean Union ("EU") and in other countries could result in a significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our products, impose additional costs on us, or otherwise adversely affect our businesses. Accordingly, any such new or additional legislation or regulations could have an adverse effect on our businesses, results of operations or financial condition. Furthermore, certain large G-SIBs, including HSBC, have in recent years become subject to capital surcharges and other enhanced prudential requirements. In 2020,2021, the Financial Stability Board ("FSB") identified HSBC as one of three G-SIBs subject to a 2 percent surcharge. The FRB's rules implementing the G-SIB surcharge in the United States woulddo not impose additional capital requirements on us because the U.S. G-SIB surcharge will only applyapplies to the eight largest U.S. banking organizations.

Our ultimate parent HSBC is subject to the FSB's TLAC requirements for G-SIBs in the U.K. The TLAC standard also permits authorities in host jurisdictions to require "internal" TLAC to be issued by local entities to either parent entities or third parties. The purpose of the TLAC standard is to ensure that G-SIBs have sufficient loss-absorbing and recapitalization capacity available to implement an orderly resolution with continuity of critical functions and minimal impact on financial stability, and to ensure cooperation between home and host authorities during resolution. The FRB's rules implementing the FSB's TLAC

Regulatory requests, legal matters and business initiatives all require a significant amount of time and resources to implement. The magnitude, complexity and, at times, concurrent demands of projects has resulted in heightened execution risk. Organizational change and external factors, including the challenging macroeconomic environment and the extent and pace of regulatory change also contribute to execution risk. These factors could adversely affect the successful delivery of our priorities.

We establish reserves for legal claims when payments associated with the claims are probable and the costs can be reasonably estimated. However, we may incur legal costs for a matter even if we have not established a reserve for it and the cost of resolving a matter may be substantially higher than amounts reserved for it. It is inherently difficult to predict the outcome of our legal, regulatory and other adversarial proceedings, particularly cases in which matters are brought on behalf of various classes of claimants, those which seek unspecified damages or those which involve novel legal claims. The resolution of a pending legal proceeding could materially adversely affect our business, reputation, results of operations and financial condition.

If the FRB and the FDIC both determine that a SIFI Plan is not "credible" (which, although not defined, is generally believed to mean the regulators do not believe the plans are feasible or would otherwise allow resolution of a financial institution's U.S. businesses in a way that protects systemically important functions without severe systemic disruption and without exposing taxpayers to loss), and the deficiencies are not remedied within the required time period, an institution, including HSBC, could be required to restructure or reorganize businesses, legal entities, or operational systems and intra-company transactions in ways that could negatively impact operations, or be subject to restrictions on growth. HSBC could also eventually be subjected to more stringent capital, leverage or liquidity requirements, or be required to divest certain assets or operations.

In July 2019, the Bank of England ("BoE") and the U.K. Prudential Regulation Authority ("PRA") published final policies on the Resolvability Assessment Framework ("RAF"), which places the onus on firms to demonstrate their own resolvability and is designed to increase transparency and accountability for resolution planning. In order to be considered resolvable, HSBC must meet three outcomes: (i) have adequate resources in resolution; (ii) be able to continue business through resolution and restructuring; and (iii) be able to co-ordinate its resolution and communicate effectively with stakeholders. The RAF requires HSBC to performprepare a self-assessmentreport on the HSBC Group's assessment of its preparedness for resolution, submitresolvability, which must be submitted to the PRA on a biennial basis. HSBC submitted its first such report of the outcome of this self-assessment to the PRA in October 2021 and will publish a public summary of the HSBC Group's resolvabilityreport in June 2022. The BoE will similarly publish a statement concerning the resolvability of HSBC at the same time. Under the RAF, HSBC has assessed resolvability both from a UK-focused and a Group-wide perspective, and has implemented common resolvability capabilities across the Group's significant entities, including material entities in its US group. HSBC continues to engage with the BoE, PRA, FRB, FDIC and its global regulators in other jurisdictions to ensure that it meets current and future recovery and resolution requirements.requirements and could face regulatory penalties if these requirements are not met.

In the current regulatory environment, capital and liquidity requirements are frequently introduced and amended. Our regulators may increase regulatory minimum or buffer requirements, change how regulatory capital is calculated or increase liquidity requirements. A significant component of regulatory capital ratios is calculating our risk-weighted assets and our leverage exposure which may increase. The Basel Committee has also revised several key methodologies for measuring risk-weighted assets. These revisions include changes to the standardized approach for credit risk and operational risk, new constraints on the use of internal models, introduction of a capital floor based on the revised standardized approaches, and a new final standard on the minimum capital requirements for market risk. The federal banking agencies mayhave indicated they intend to issue a notice of proposed rulemaking

in 2022 to update the U.S. Basel III rule to incorporate the Basel Committee revisions.

Increases in regulatory capital may also be required in response to other U.S. supervisory requirements. Participation by HSBC North America in the FRB's CCAR stress test process also requires that HSBC North America maintain sufficient capital to meet minimum regulatory ratios under multiple forward-looking stress scenarios across a nine-quarter planning horizon. The FRB has also adopted a final rule on the SCB which, among other things, replaced the current fixed capital conservation buffer with a dynamic, institution-specific risk-based SCB for CCAR firms such as HSBC North America. See "Regulation and Competition - Capital Planning and Stress Testing." These stress testing requirements will influence our regulatory capital and liquidity planning process, and may impose additional operational and compliance costs on us.

Preparation for the U.S. implementation of the Basel Committee's revisions to Basel III has influenced and is likely to continue to influence our regulatory capital and liquidity planning process, and is expected to impose additional operational and compliance costs on us. We are unable at this time to determine the extent of changes we will need to make to our liquidity or capital position, if any, and what effect, if any, such changes will have on our results of operations or financial condition. New regulatory capital and liquidity requirements may limit or otherwise restrict how we utilize our capital and may require us to increase our capital or liquidity. Any requirement that we increase our regulatory capital, regulatory capital ratios or liquidity could require us to liquidate assets or otherwise change our business and/or investment plans, which may negatively affect our financial results. Changes to and compliance with the regulatory capital and liquidity requirements may impact our operations by requiring us to liquidate assets, increase borrowings, issue additional equity or other securities, cease or alter certain operations, sell company assets, or hold highly liquid assets, which may adversely affect our results of operations.

Our failure to address, or to appear to fail to address, various issues that could give rise to reputational risk could cause harm to us and our business prospects. Reputational issues include, but are not limited to:

The proliferation of social media websites as well as the personal use of social media by our employees and others, including personal blogs and social network profiles, facilitates communication with large audiences in short time frames. These social media websites also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation or have other negative consequences, including as a result of our employees interacting with our customers in an unauthorized manner in various social media outlets.

The failure to address, or the perception that we have failed to address any of these issues appropriately could make our customers unwilling to do business with us or give rise to increased regulatory action, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our risk management measures may face particularly significant challenges in the following three broad areas:

(a) Macroeconomic and geo-politicalgeopolitical risks: Unfavorable economic and market conditions may adversely affect our results.

(b) Risks related to our businesses, business operations, governance, and internal systems: The delivery of our strategic priorities is subject to execution risk and we may not achieve all the expected benefits of our strategic initiatives. Our operations are subject to the threat of fraudulent activity and disruption from the external environment. We are highly dependent on our information technology systems. We could incur losses or be required to hold additional capital as a result of model limitations or failure. Issues with the quality of data or effectiveness of our data aggregation and validation procedures could result in ineffective risk management practices or inaccurate risk reporting.

(c) Regulatory and legal risks to our businesses: We are subject to a number of legal and regulatory actions and investigations, the outcomes of which are inherently difficult to predict. Unfavorable outcomes could have a material adverse effect on our operating results and brand. Unfavorable legislative or regulatory developments, or changes in the policy of regulators or governments, could also have a material adverse effect on our operations, financial condition and prospects.

Our strategies for business growth include focusing our sales efforts on international connectivity strategies with high quality international corporate clients and internationally mindedglobally-connected affluent and high net worth wealth and personal clients, as well as augmenting our returns through increased cross-selling and cost optimization. We may fail to attract international clients or cross-sell our services to them. Competition within the industry can limit our ability to sell more products to our customers or influence us to sell our products at lower prices, reducing our net interest income and revenue from our fee-based products. Our cross-sell strategy is also dependent on earning more business from our customers, and increasing our cross-sell ratio - or the average number of products sold to existing customers, - which may become more challenging. Our international corporate

strategies are dependent on a stable geopolitical environment. Increased tensions or instability between trading nations and the adoption of protectionist trade policies could adversely affect our ability to obtain new business from existing clients.

Substantial work is required to execute on our growth strategies. Alongside the strategic actions, we continue to implement a number of externally driven regulatory remediation programs. The magnitude and complexity of the projects required to meet these demands has resulted in heightened execution risk. Additionally, we may be unable to fully realize the cost optimization efforts and the other anticipated benefits from those efforts and we may not be able to realize them in the currently anticipated timeframes.

The cumulative impact of the collective change initiatives underway is significant and has direct implications on resourcing and our people. Failure to successfully implement our business strategies may have a material adverse effect on our businesses, prospects, financial condition and results of operations.

We also access wholesale markets in order to provide funding for entities that do not accept deposits, to align asset and liability maturities and currencies and to maintain a market presence. We issued a total of $8,487$7,711 million of long-term debt at various points in 2020.2021. An inability to obtain financing in the unsecured long-term or short-term debt capital markets because of market factors or factors in our businesses could have a substantial adverse effect on our liquidity. Unfavorable macroeconomic developments, market disruptions or regulatory developments may increase our funding costs or challenge our ability to raise

Future conditions that could negatively affect our liquidity include:

These conditions could be caused by a number of factors, including internal and external factors, such as, among others:

Our approach is to meet our capital needs locally through activities which reduce risk. To the extent, however, that local alternatives are insufficient, as a wholly-owned subsidiary of HSBC, we would seek their support. HSBC has provided us with capital support in the past. Notwithstanding, if we are unable to maintain stable deposit balances and/or raise funds in the capital markets, our liquidity position could be adversely affected and we might be unable to meet deposit withdrawals on demand or at their contractual maturity, to repay borrowings as they mature, or to fund new loans, investments and businesses. We may need to liquidate unencumbered assets to meet our liabilities. In a time of reduced liquidity, we may be unable to sell some of our assets, or we may need to sell assets at depressed prices, which in either case could materially adversely affect our businesses, prospects, results of operations and/or financial condition.

negatively affect our market share and results of operations and/or cause us to increase our capital investment in our businesses in order to remain competitive. Additionally, our products and services may not be accepted by our targeted clients.

Given the current economic, regulatory, and political environment for large financial institutions such as us, and possible public backlash to bank fees and the emergence of new products and fintech companies, there is increased competitive pressure to provide products and services at current or lower prices. Consequently, our ability to reposition or reprice our products and services from time to time may be limited and could be influenced significantly by the actions of our competitors.competitors who may or may not charge similar fees for their products and services. Any changes in the types of products and services that we offer our customers and/or the pricing for those products and services could result in a loss of customers and market share and could materially adversely affect our results of operations. Further, new entrants to the market or new technologies could require us to spend more to modify or adapt our products to attract and retain customers. Continued technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions as well as other companies to provide electronic and Internet-based financial solutions, including electronic payment solutions. We may not respond effectively to these competitive threats from existing and new competitors and may be forced to increase our investment in our businesses to modify or adapt our existing products and services or develop new products and services to respond to our customers' needs. Any of these factors may have a material adverse effect on our businesses, prospects, financial condition and results of operations.

Rating agencies continue to evaluate economic and geopolitical trends, regulatory developments, future profitability, risk management practices and litigation matters, all of which may lead to adverse ratings actions. Although we closely monitor and strive to manage factors influencing our credit ratings, there is no assurance that our credit ratings will not change in the future. At December 31, 2020, there were no pending actions in terms2021, none of changes tothe ratings on the debt of HSBC USA or HSBC Bank USA from any of the rating agencies.agencies were under review for potential downgrade.

While cessation timelines remain subject to final agreementhave been agreed by the industry and regulatory authorities, we continue to assess how the discontinuation of existing benchmark rates could materially affect our business, financial condition, results of operations, prospects and customers.

A program consisting of policies and procedures that are reasonably designed to achieve compliance with financial crime laws may not always prevent third parties from using us (and our relevant counterparties) as a conduit for money laundering,

Such disruptions may give rise to losses in service or disruption to customers, an inability to collect our receivables in affected areas, physical damage or loss of life and other loss or liability to us, which could have a material adverse effect on our businesses, prospects, financial condition and results of operations.

Upgrading our computer systems, software and networks may also subject us to disruptions, failures or delays due to the complexity and interconnectedness of our systems, software and networks. The failure to upgrade or maintain these computer systems, software and networks could result in greater susceptibility to attacks, unauthorized access and misuse, and could also prevent us from achieving our business continuity and resiliency objectives. There can be no assurance that any such disruptions, failures or delays will not occur or, if they do occur, that they will be adequately addressed.

Third parties with which we do business or that facilitate our business activities could also be sources of technology risk to us, including from breakdowns, failures or delays of their own systems or capacity constraints or other services that impair our ability to process transactions and communicate with customers and counterparties. In addition, we are exposed to the risk that a technology disruption or other information security event at a vendor used by our third-party service providers could impede their ability to provide products or services to us. We may not be able to effectively monitor or mitigate operational risks relating to the use of vendors by third-party service providers.

As a result of financial entities, central agents, clearing agents and houses, exchanges and technology systems across the globe becoming more interdependent and complex, a technology failure that significantly degrades, deletes or compromises the

Cyber vulnerabilities continue to be leveraged by criminals to perpetrate crimes at an increasing rate, and pose a significant threat to economic, social and geopolitical stability. HSBC Group and third party vendors we rely on face sophisticated cyber threats from state-sponsored attackers, hackers for hire, organized syndicates, and other threat actors seeking our critical corporate and customer information.

In recent years, distributed denial of service attacks, spearphishing campaigns, advanced malware, ransomware attacks, social engineering and insider threats with the intent to obtain personal customer financial information or proprietary corporate information, disrupt availability of services and to commit fraud have grown in volume and level of sophistication. Such acts can affect our business by:

Internet crime or cyberattacks affecting HSBC Group or vendors on which we rely may result in financial loss and loss of customer data or other sensitive information which could undermine our reputation and our ability to attract and keep customers. We face various cyber risks in line with other multinational financial organizations. We and other multinational financial organizations have been, and will continue to be subject to an increasing risk of cyber incidents from these activities due to the proliferation of new technologies and the increasing use of the Internet and customers' use of personal smartphones, PCs, tablets and other mobile devices to access products and services to conduct financial transactions and the increased sophistication and activities of organized crime for seeking financial gain, hacktivists (geopolitical designated groups), cyber terrorists (attacks against critical infrastructure) and state sponsored advanced persistent threats for corporate espionage. Our risk and exposure to these matters remains heightened because of, among other things, HSBC Group's prominent size and scale, geographical span and role in the financial services industry, and our offering of Internet banking and mobile banking platforms. In addition, the consolidation of clearing agents, exchanges and clearing houses and increased interconnectivity of financial institutions with such central agents, exchanges and clearing houses increases the exposure of cyberattacks on critical parties that may affect us. Evaluating and monitoring the cyber threat landscape in comparison to our existing capabilities, and adjusting our programs in order to respond to these threats, may require additional capital expenses for human resources and technology.

Our businesses are increasingly subject to laws and regulations relating to surveillance, encryption and data on-shoring in the jurisdictions in which we operate. Compliance with these laws and regulations may require us to change our policies, procedures and technology for information security (including cybersecurity) from time to time.

because of remote and home working. Employee misconduct could have a material adverse effect on our business, prospects, financial condition and results of operations.

Further, in order to react quickly to or meet newly-implemented regulatory requirements, and to effectively implement our strategy, we may need to change or enhance systems within very tight time frames, which would increase operational risk. See "Failure to effectively implement our business strategies may adversely affect our financial performance" and "The delivery of our priorities is subject to execution risk." Failure to implement appropriate changes to our operational practices successfully and efficiently may diminish our ability to operate one or more of our businesses and could result in reputational damage and regulatory intervention, all of which could materially adversely affect us.

Moreover, financial institutions that fail to comply with regulatory reporting requirements or with principles for effective risk data aggregation and risk reporting as set out by the Basel Committee may face supervisory measures. Any of these failures could have a material adverse effect on our business, prospects, financial condition and results of operations.

Mandatory central clearing of over the counter derivatives, including under the Dodd-Frank Act, brings with it risk. As a clearing member, we have financial exposure for losses incurred at a Central Counterparty ("CCP") by the default of other clearing members. Hence increased moves toward central clearing brings with it a further element of interconnectedness

We also have credit exposure arising from risk defeasance products such as credit default swaps ("CDSs"), and other credit derivatives, each of which is carried at fair value. The risk of default by counterparties to CDSs and other credit derivatives used as mitigants affects the fair value of these instruments depending on the valuation and the perceived credit risk of the underlying instrument against which protection has been purchased. Any such adjustments or fair value changes may have a material adverse effect on our financial condition and results of operations.

A failure or perceived failure to appropriately address conflicts of interest or fiduciary obligations could result in customer dissatisfaction, litigation and regulatory fines, penalties or other sanctions, and heightened regulatory scrutiny and enforcement actions, all of which could adversely affect our businesses and reputation.

Regulatory scrutiny and supervisory concerns over the use by banks of models is considerable, particularly the internal models and assumptions used by banks in the application of the stress testing exercise and in the calculation of regulatory capital.

for some colleagues regarding their future. Providing support to our employees in the current environment is a significant priority and is critical to managing our workforce and achieving our strategic objectives.

The regulatory environment and competitive market in which HUSI operates can make it difficult to hire or retain highly qualified employees. Additionally, the US market has experienced a significant number of workers voluntarily resigning from their jobs. HUSI often competes in the market for talent with industries that are not subject to regulatory restrictions on incentive compensation structure. Compensation implicationsMarket positioning in terms of the variablefixed pay pool and any future limitations to senior staff or Material Risk Takers could affect retention of top performerstotal compensation is an important factor in attracting and critical skilled staff. This may adversely affect our ability to deliver on the strategic plan.retaining people. The accelerated pace of change in employment in our industry and any disruptions to our workplace and workforce require a focused effort on future skill development. To enable growth, there is a need to facilitate talent mobility, broaden career growth, allow for formal development, and establish a high impact learning culture.

We are required to establish a valuation allowance for deferred tax assets and record a charge to earnings if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of our deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period. The recognition of deferred tax assets requires management to make significant judgments about future earnings, the periods in which items will impact taxable income, future corporate tax rates and the application of inherently complex tax laws. The use of different estimates can result in changes in the amounts of deferred tax items recognized, which can result in equity and earnings volatility because such changes are reported in current period earnings. See Note 17,18, "Income Taxes," in the accompanying consolidated financial statements for additional discussion of our deferred tax assets.

All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those set forth in our forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those in the forward-looking statements:

Forward-looking statements are based on our current views and assumptions and speak only as of the date they are made. We undertake no obligation to update any forward-looking statement to reflect subsequent circumstances or events. For more information about factors that could cause actual results to differ materially from those in the forward-looking statements, see Item 1A, "Risk Factors," in this Annual Report on Form 10-K.

TheAlthough the U.S. economy continued to improve during 2021, the impact of the COVID-19 pandemic, including the emergence of new variants, and higher inflation on economic conditions both in the United States and abroad during 2020 has createdcontinues to create global uncertainty about the future economic environment, including the lengthpace and depthextent of a global recession.the economic recovery. The circumstances around this pandemic will continue to impact our business in future periods, the extent of which will depend on the outcome of certain developments, including but not limited to, the duration of the pandemic as well as its continuing impact on our customers, vendors and employees, all of which are uncertain. See Part I, Item 1A, "Risk Factors," for further discussion. Concerns over interest rate levels, energy prices, domestic and global policy issues, including civil unrest in the U.S., trade policy in the U.S. and geopolitical events as well as the implications of those events on the markets in general further add to thisthe global uncertainty. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the level of regulatory and government scrutiny of financial institutions will continue to impact our results in 20212022 and beyond.

Net income (loss) was income of $688 million during 2021 compared with a loss of $940 million during 2020 compared withand income of $113 million during 2020 and $320 million during 2019, and 2018, respectively. Income (loss) before income tax was income of $912 million during 2021 compared with a loss of $982 million during 2020 compared withand income of $270 million during 2020 and $5862019, respectively. The increase in income (loss) before income tax during 2021 compared to 2020 was due primarily to a lower provision for credit losses driven by improved economic conditions and, to a lesser extent, the impact of our decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio which resulted in a release of credit loss reserves and a reduction to the provision for credit losses of approximately $101 million during 2019 and 2018, respectively. the second quarter of 2021. Also contributing to the increase were lower operating expenses driven by the non-recurrence of a $784 million goodwill impairment charge recorded in 2020. These increases were partially offset by lower other revenues driven by lower trading revenue as well as lower net interest income.

The decrease in income (loss) before income tax during 2020 compared with 2019 was due primarily to a higher provision for credit losses driven by the deterioration of economic conditions caused by the COVID-19 pandemic and higher operating expenses driven by higher goodwill impairment charges as discussed above and lower other revenues driven by lower trading revenue. These decreases werethe impact of the charge recorded in 2020 was partially offset by higher net interest income. The decrease in income (loss) before income tax during 2019 compared with 2018 was due to a higher provision for credit losses, lower net interest income due primarily to higher rates paid on deposits and lower other revenues, partially offset by lower operating expenses as the impact of a $365 million goodwill impairment charge recorded in 2019 was more than2019. Also contributing to the decrease were lower other revenues driven by lower trading revenue, partially offset by expense of $492 million recorded in 2018 related to the settlement of a mortgage securitization legal matter.higher net interest income.

Our reported results in all periods were impacted by certain items management believes to be significant, which affect comparability between periods. Significant items are excluded to arrive at adjusted performance because management would ordinarily identify and consider them separately to better understand underlying business trends. The following table summarizes the impact of these significant items for all periods presented:

Excluding the impact of the items in the table above, our adjusted performance during 2021 increased $1,179 million compared with 2020 due primarily to a lower provision for credit losses as discussed above. Also contributing to the increase were lower operating expenses, partially offset by lower other revenues driven by lower trading revenue as well as lower net interest income. Excluding the impact of the items in the table above, our adjusted performance during 2020 decreased $611 million compared with 2019 due primarily to a higher provision for credit losses driven by the deterioration of economic conditions caused by the COVID-19 pandemic and lower other revenues driven by lower trading revenue which were partially offset by lower operating expenses and higher net interest income. Excluding the impact of the items in the table above, our adjusted performance during 2019 decreased $421 million compared with 2018 due to a higher provision for credit losses, lower net interest income due primarily to higher rates paid on deposits and lower other revenues, partially offset by lower operating expenses.

See "Results of Operations" for a more detailed discussion of our operating trends. In addition, see "Balance Sheet Review" for further discussion on our asset and liability trends, "Liquidity and Capital Resources" for further discussion on funding and capital and "Credit Quality" for additional discussion on our credit trends.

In March 2021, when the United Kingdom ("U.K.") Financial Conduct Authority ("FCA") originally announced itthat all LIBOR tenors will either cease to be provided by any administrator or no longer require banks to submit rates for LIBOR. In November 2020,be representative immediately after December 31, 2021, in the Intercontinental Exchange Benchmark Administration ("IBA"), the FCA-regulated and authorized administrator of LIBOR, announced a proposal to cease publicationcase of the one-week and two-month USD LIBOR term rates bytenors and all non-USD LIBOR tenors, and immediately after June 30, 2023, in the end of 2021 and extend publicationcase of the remaining overnight, one-month, three-month, six-month and twelve-month USD LIBOR term rates, which are more heavily used, to the endtenors. The extension of certain USD LIBOR tenors until June 2023 subject to consultation. Concurrently, U.S. banking regulators issued a statement that acknowledged extending the publication of certain LIBOR term rates wouldwill allow mostmany legacy LIBOR-based contracts to mature beforenaturally and significantly aids in reducing the risks associated with transitioning legacy contracts onto replacement rates. Additionally, in September 2021, the FCA confirmed that to avoid a disruption to legacy contracts that reference the one-month, three-month and six-month sterling and Japanese yen LIBOR experiences disruption, but also encouraged bankssettings, it will require the administrator to cease entering intopublish these settings for the duration of 2022. These six settings will be available only for use in some legacy contracts, and are not for use in new LIBOR-basedbusiness.

Separately, the International Swaps and Derivatives Association ("ISDA") has confirmed that the fallback spread adjustments to be used in its ISDA fallbacks have been fixed as of the date of the March 2021 FCA announcement. As a result, the ISDA fallbacks (i.e., to the adjusted risk-free rate plus the fixed spread adjustment) will automatically occur for outstanding derivative contracts as soon as practicable and in any event bythat incorporate the endISDA fallback language or adhere to the ISDA fallback protocol generally when each LIBOR tenor ceases or becomes non-representative. For all outstanding derivatives referenced to USD LIBOR tenors, the ISDA fallback will occur at the first reset subsequent to June 30, 2023. These announcements provide clarity on the future terms of 2021.the many derivative contracts which now incorporate the ISDA fallbacks.

HSBC has established a global transition program in which we actively participate with the objective of facilitating an orderly transition of all products, processes, models and curves, as well as all legacy LIBOR-based contracts, onto replacement rates. This program is aimed to minimize the risks arising from the transition by developing alternative rate product capabilities and transitioning legacy contracts. The program is significant in terms of scale and complexity and will impact all global businesses as well as multiple products, currencies, systems and processes. Transition results in a number of risks, mainly conduct risk, execution risk, financial risk and non-financial risk. We have developed a risk inventory, including mitigating actions, and the identified risks are being monitored. Furthermore, the transition could have a range of adverse impacts on our business, including legal proceedings or other actions regarding the interpretation and enforceability of provisions in LIBOR contracts and regulatory investigations or reviews regarding our preparation and readiness for the replacement of LIBOR with alternative reference rates.

WhileThrough 2021, we continuehave implemented the capabilities to transactoffer alternative rate products and the supporting processes and systems, including SOFR-based adjustable rate mortgage ("ARM") loans and bilateral loans in LIBOR, our framework for limitingWealth and Personal Banking business, SOFR-based syndicated loans and bilateral loans in our Commercial Banking business, SOFR-based syndicated loans, bilateral loans and derivatives in our Global Banking and Markets business and SOFR-based derivatives in our Markets Treasury function. We also met the sale of LIBOR-based products has been established and our businesses continueindustry milestone to inform their clients that there are risks associated with engaging incease entering into new LIBOR-based products. We have implementedcontracts by the end of 2021, with the exception of derivative contracts allowed for risk disclosures for new sales of LIBOR-based contracts across all of our business lines and havemanagement purposes only. Previously, we had incorporated the appropriate ARRC recommended fallback language into new LIBOR-based contracts for syndicated loans, bilateral loans, floating rate notes and adjustable rate mortgage ("ARM")ARM loans. During 2020, we updated the existing ARRC recommended fallback language for syndicated loans and bilateral loans with the revised hardwired fallback language published by the ARRC, under which the trigger events that would cause transition to a new benchmark rate and a waterfall of identified successor rates are specified. In addition, the International Swaps and Derivatives AssociationISDA had updated its benchmark fallback language for new LIBOR-based derivative contracts and established its industry protocol to facilitate the incorporation of the new fallback language into legacy non-cleared derivative contracts. We are adhering to the protocol, which became effective in January 2021. Separately, centralCentral clearing counterparties are expected to amendalso amended their rules no later than the first half ofin 2021 to incorporate the new ISDA fallback language and adhere to the ISDA fallback protocol for cleared derivative contracts.

The ability of HUSI and its clients to transition legacy contracts onto replacement rates is dependent on the availability of products that reference replacement rates, including SOFR, and on our customers being ready and able to adapt their own processes and systems to accommodate the replacement products. We have finalized pricing and data/workflow requirements related to transitioning legacy contracts onto replacement rates and, during the first quarter of 2021, will begin to engageengaged with our clients to increase awareness, provideon the alternative rate products we developed and to determine their ability and readiness to transition. During 2021, our client transition efforts focused on those contracts that would have been impacted by tenors ceasing or becoming non-representative immediately after December 31, 2021, primarily consisting of contracts for certain non-USD LIBOR-based commercial loans and certain non-USD LIBOR-based derivatives. The substantial majority of these contracts were successfully transitioned onto replacement rates or included appropriate fallback provisions upon cessation.

In 2022, there will be an increasing focus on transitioning our USD LIBOR-based contracts. Market readiness in support of USD LIBOR transition could slow the transition and we remain prepared that the transition of outstanding contracts could be concentrated in late 2022 and the first half of 2023. The substantial majority of our outstanding USD LIBOR-based derivative contracts adhere to and are covered by the ISDA fallback protocol, which allows us to focus discussions with clients on transitioning those contracts that do not adhere. For USD-LIBOR based loans, the transition of legacy contracts in our consumer mortgage loan portfolios will occur once an industry spread adjustment is available, and we will start to engage our commercial loan clients with upcoming contract maturities with a view to refinancing onto an appropriate replacement rate. We also continue to formulate plans to enable us to transition our LIBOR-based debt and other LIBOR-based debt where we are the payment agent, though execution of these transition plans will, to a certain extent, also depend on the engagement of third party market participants in the transition process.

The IBA proposal to extendAs discussed above, the publicationextension of certain USD LIBOR term rates totenors until June 2023 discussed above will significantly aidaids in reducing the risks associated with transitioning legacy contracts onto replacement rates. The anticipated longer timeframe for transition may, however, increase potential timing differences between USD LIBOR-based assets and liabilities moving to SOFR prior to June 2023. In addition, the exit or transfer of certain derivative contracts as part of our Restructuring Plan andalong with the salesuccessful transition of substantially all of our LIBOR-linked variable rate debt securities maturing beyond 2021certain non-USD LIBOR-based contracts as discussed above have led to a reductionfurther reductions in our LIBOR exposures during 2020.2021. We continue to engage with industry participants, the official sector and our clients to support an orderly transition and the mitigation of the risks resulting from the transition.

The COVID-19 pandemic has significantly disrupted economic activity in many countries, including the United States, and the U.S. Government has taken multiple actions to mitigate the magnitude and persistence of the effects of the COVID-19 pandemic. The United States has been operating under a presidentially declared national emergency since March 2020. In March 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), was signed into law, which providesprovided financial assistance for businesses and individuals and targeted regulatory relief for financial institutions,institutions. In December 2020, the Consolidated Appropriations Act was signed into law. In December 2020, additional COVID-19 relief legislation was enacted that extendslaw, which extended many of the CARES Act programs and providesprovided additional financial assistance for businesses and individuals.

forbearance with respect to certain loans and fees. We are continuing to monitor federal, state and international regulatory developments in relation to COVID-19 and their potential impact on our operations.

In April 2020, federal banking regulators issued a revised interagency statement on loan modifications and the reporting for financial institutions working with customers affected by the COVID-19 pandemic ("Interagency Statement"). The Interagency Statement confirmed that COVID-19 related short-term loan modifications (e.g., payment deferrals of six months or less) provided to borrowers that were current (less than 30 days past due) at the time the relief was granted arewere not TDR Loans. Borrowers that dodid not meet the criteria in the CARES Act or the Interagency Statement arewere assessed for TDR Loan classification in accordance with our accounting policies. Through December 31, 2020, these loans were not significant.

In addition, under the Interagency Statement, for COVID-19 related loan modifications in the form of a payment deferral, the borrower’s past due status willwas not be affected during the deferral period and, if the loan was accruing at the time the relief was granted, the loan willwas generally not be placed on nonaccrual status as long as the borrower utilizesutilized a payment deferral of six months or less. For consumer mortgage loans, when a borrower utilizesutilized a payment deferral of more than six months, the loan willwas generally be placed on nonaccrual status and, if the loan doesdid not meet the criteria in the CARES Act, assessed for TDR Loan classification. Any accrued interest recorded on these loans iswas generally not reversed against income and will remainremained recorded as accrued interest receivable. We havedid not modifiedmodify our commercial loan nonaccrual policies as a result of this guidance.

We have implemented various loan modification payment deferral programs to provide borrowers relief from the economic impacts of the COVID-19 pandemic. The following table summarizes information about loans under these programs as of December 31, 2020.2021. Not included in the following table are loans that have exited the programs or have been transferred to held for sale as well as other forms of relief that we have provided to commercial clients affected by the impact of COVID-19, such as covenant waivers and amendments, and deferrals of financial statement and covenant compliance reporting requirements.