0000083246us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMemberhsbcusa:HsbcNorthAmericaMember2020-04-012020-06-300000083246us-gaap:FairValueInputsLevel3Memberus-gaap:GoodwillMemberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-07436

HSBC USA Inc.

(Exact name of registrant as specified in its charter)


Maryland						13-2764867
(State of incorporation)						(I.R.S. Employer Identification No.)
452 Fifth Avenue, New York, New York						10018
(Address of principal executive offices)						(Zip Code)

Registrant's telephone number, including area code (212) 525-5000

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
$100,000,000 Zero Coupon Callable Accreting Notes due January 15, 2043	HBA/43	New York Stock Exchange
$50,000,000 Zero Coupon Callable Accreting Notes due January 29, 2043	HBA/43A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April 23,~~July 30, 2021, there were 714 shares of the registrant's common stock outstanding, all of which are owned by HSBC North America Holdings Inc.


HSBC USA Inc.

TABLE OF CONTENTS


Part/Item No.
Part I		Page
Item 1.	Financial Statements (Unaudited):
	Consolidated Statement of Income (Loss)	3
	Consolidated Statement of Comprehensive ~~Loss~~Income (Loss)	4
	Consolidated Balance Sheet	5
	Consolidated Statement of Changes in Equity	7
	Consolidated Statement of Cash Flows	89
	Notes to the Consolidated Financial Statements	910

















Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations:
	Forward-Looking Statements	7282
	Executive Overview	7484
	Basis of Reporting	7989

	Balance Sheet Review	8090
	Results of Operations	8595
	Segment Results - Group Reporting Basis	90104
	Credit Quality	95112
	Liquidity and Capital Resources	~~103~~120
	Off-Balance Sheet Arrangements, Credit Derivatives and Other Contractual Obligations	~~107~~124
	Fair Value	~~107~~125
	Risk Management	~~109~~126

	Consolidated Average Balances and Interest Rates	~~115~~132
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~116~~134



Item 4.	Controls and Procedures	~~116~~134







Part II
Item 1.	Legal Proceedings	~~116~~134

Item 5.	Other Information	~~116~~134
Item 6.	Exhibits	~~118~~136

Signatures		~~119~~137


HSBC USA Inc.

PART I

Item 1. Financial Statements

CONSOLIDATED STATEMENT OF INCOME (LOSS) (UNAUDITED)


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Interest income:	Interest income:							Interest income:
Loans	Loans	$	451		$	638		Loans	$	441	$	580	$	892	$	1,218
Securities	Securities	177			243			Securities	160		262		337		505
Trading securities	Trading securities	48			80			Trading securities	54		48		102		128
Short-term investments	Short-term investments	16			87			Short-term investments	17		23		33		110
Other	Other	9			19			Other	4		5		13		24
Total interest income	Total interest income	701			1,067			Total interest income	676		918		1,377		1,985
Interest expense:	Interest expense:							Interest expense:
Deposits	Deposits	81			321			Deposits	69		200		150		521
Short-term borrowings	Short-term borrowings	5			40			Short-term borrowings	4		15		9		55
Long-term debt	Long-term debt	82			198			Long-term debt	78		162		160		360
Other	Other	2			4			Other	2		3		4		7
Total interest expense	Total interest expense	170			563			Total interest expense	153		380		323		943
Net interest income	Net interest income	531			504			Net interest income	523		538		1,054		1,042
Provision for credit losses	Provision for credit losses	(227)			726			Provision for credit losses	(229)		219		(456)		945
Net interest income (expense) after provision for credit losses		758			(222)
Net interest income after provision for credit losses								Net interest income after provision for credit losses	752		319		1,510		97
Other revenues:	Other revenues:							Other revenues:
Credit card fees, net	Credit card fees, net	10			11			Credit card fees, net	13		9		23		20
Trust and investment management fees	Trust and investment management fees	29			31			Trust and investment management fees	26		33		55		64
Other fees and commissions	Other fees and commissions	165			151			Other fees and commissions	171		137		336		288
Trading revenue	Trading revenue	41			14			Trading revenue	2		192		43		206

Other securities gains, net	Other securities gains, net	29			28			Other securities gains, net	18		31		47		59
Servicing and other fees from HSBC affiliates	Servicing and other fees from HSBC affiliates	83			88			Servicing and other fees from HSBC affiliates	70		81		153		169
Gain (loss) on instruments designated at fair value and related derivatives		18			(22)
Other income		9			86
Gain on instruments designated at fair value and related derivatives								Gain on instruments designated at fair value and related derivatives	7		22		25		0

Other income (loss)								Other income (loss)	(3)		(41)		6		45
Total other revenues	Total other revenues	384			387			Total other revenues	304		464		688		851
Operating expenses:	Operating expenses:							Operating expenses:
Salaries and employee benefits	Salaries and employee benefits	176			207			Salaries and employee benefits	182		190		358		397
Support services from HSBC affiliates	Support services from HSBC affiliates	367			382			Support services from HSBC affiliates	392		389		759		771
Occupancy expense, net	Occupancy expense, net	30			140			Occupancy expense, net	118		38		148		178
Goodwill impairment (Note 8)		0			784
Goodwill impairment (Note 9)								Goodwill impairment (Note 9)	0		0		0		784
Other expenses	Other expenses	109			92			Other expenses	110		110		219		202
Total operating expenses	Total operating expenses	682			1,605			Total operating expenses	802		727		1,484		2,332
Income (loss) before income tax	Income (loss) before income tax	460			(1,440)			Income (loss) before income tax	254		56		714		(1,384)
Income tax expense (benefit)	Income tax expense (benefit)	121			(157)			Income tax expense (benefit)	61		49		182		(108)

Net income (loss)	Net income (loss)	$	339		$	(1,283)		Net income (loss)	$	193	$	7	$	532	$	(1,276)

The accompanying notes are an integral part of the consolidated financial statements.


HSBC USA Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS) (UNAUDITED)


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Net income (loss)	Net income (loss)	$	339		$	(1,283)		Net income (loss)	$	193	$	7	$	532	$	(1,276)
Net change in unrealized gains (losses), net of tax:	Net change in unrealized gains (losses), net of tax:							Net change in unrealized gains (losses), net of tax:
Investment securities	Investment securities	(631)			758			Investment securities	53		110		(578)		868
Fair value option liabilities attributable to our own credit spread	Fair value option liabilities attributable to our own credit spread	(10)			407			Fair value option liabilities attributable to our own credit spread	10		(261)		0		146
Derivatives designated as cash flow hedges	Derivatives designated as cash flow hedges	(12)			90			Derivatives designated as cash flow hedges	(9)		3		(21)		93

Pension and post-retirement benefit plans								Pension and post-retirement benefit plans	1		0		1		0
Total other comprehensive income (loss)	Total other comprehensive income (loss)	(653)			1,255			Total other comprehensive income (loss)	55		(148)		(598)		1,107
Comprehensive loss		$	(314)		$	(28)
Comprehensive income (loss)								Comprehensive income (loss)	$	248	$	(141)	$	(66)	$	(169)

The accompanying notes are an integral part of the consolidated financial statements.


HSBC USA Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions, except share data)					(in millions, except share data)
Assets(1)	Assets(1)					Assets(1)
Cash and due from banks	Cash and due from banks	$	1,447	$	1,302	Cash and due from banks	$	1,364	$	1,302
Interest bearing deposits with banks	Interest bearing deposits with banks	53,607		14,353		Interest bearing deposits with banks	48,504		14,353
Federal funds sold and securities purchased under agreements to resell	Federal funds sold and securities purchased under agreements to resell	3,760		35,746		Federal funds sold and securities purchased under agreements to resell	10,503		35,746
Trading assets (includes $1.1 billion and $1.3 billion pledged to creditors at March 31, 2021 and December 31, 2020, respectively)		25,822		27,284
Securities available-for-sale (includes amortized cost of $34.5 billion and $39.6 billion at March 31, 2021 and December 31, 2020, respectively, an allowance for credit losses of $1 million at both March 31, 2021 and December 31, 2020, and $2.8 billion and $2.1 billion pledged to creditors at March 31, 2021 and December 31, 2020, respectively)		34,659		40,672
Securities held-to-maturity, net of allowance for credit losses of $2 million at both March 31, 2021 and December 31, 2020 (fair value of $8.2 billion and $9.4 billion at March 31, 2021 and December 31, 2020, respectively)		7,837		8,981
Loans (includes $30 million and $32 million designated under fair value option at March 31, 2021 and December 31, 2020, respectively)		61,526		62,088
Trading assets (includes $2.2 billion and $1.3 billion pledged to creditors at June 30, 2021 and December 31, 2020, respectively)						Trading assets (includes $2.2 billion and $1.3 billion pledged to creditors at June 30, 2021 and December 31, 2020, respectively)	28,343		27,284
Securities available-for-sale (includes amortized cost of $34.5 billion and $39.6 billion at June 30, 2021 and December 31, 2020, respectively, an allowance for credit losses of $1 million at both June 30, 2021 and December 31, 2020, and $0.8 billion and $2.1 billion pledged to creditors at June 30, 2021 and December 31, 2020, respectively)						Securities available-for-sale (includes amortized cost of $34.5 billion and $39.6 billion at June 30, 2021 and December 31, 2020, respectively, an allowance for credit losses of $1 million at both June 30, 2021 and December 31, 2020, and $0.8 billion and $2.1 billion pledged to creditors at June 30, 2021 and December 31, 2020, respectively)	34,717		40,672
Securities held-to-maturity, net of allowance for credit losses of $2 million at both June 30, 2021 and December 31, 2020 (fair value of $7.0 billion and $9.4 billion at June 30, 2021 and December 31, 2020, respectively)						Securities held-to-maturity, net of allowance for credit losses of $2 million at both June 30, 2021 and December 31, 2020 (fair value of $7.0 billion and $9.4 billion at June 30, 2021 and December 31, 2020, respectively)	6,758		8,981
Loans (includes $29 million and $32 million designated under fair value option at June 30, 2021 and December 31, 2020, respectively)						Loans (includes $29 million and $32 million designated under fair value option at June 30, 2021 and December 31, 2020, respectively)	54,398		62,088
Less – allowance for credit losses	Less – allowance for credit losses	853		1,015		Less – allowance for credit losses	547		1,015
Loans, net	Loans, net	60,673		61,073		Loans, net	53,851		61,073
Loans held for sale (includes $83 million and $36 million designated under fair value option at March 31, 2021 and December 31, 2020, respectively)		351		337
Loans held for sale (includes $215 million and $36 million designated under fair value option at June 30, 2021 and December 31, 2020, respectively, and $2,655 million related to branch disposal group held for sale at June 30, 2021)						Loans held for sale (includes $215 million and $36 million designated under fair value option at June 30, 2021 and December 31, 2020, respectively, and $2,655 million related to branch disposal group held for sale at June 30, 2021)	4,106		337
Properties and equipment, net	Properties and equipment, net	133		144		Properties and equipment, net	68		144
Goodwill	Goodwill	458		458		Goodwill	458		458
Other assets, net of allowance for credit losses of $2 million at both March 31, 2021 and December 31, 2020, respectively		6,109		6,084

Other branch related assets held for sale						Other branch related assets held for sale	237		0
Other assets, net of allowance for credit losses of $1 million and $2 million at June 30, 2021 and December 31, 2020, respectively						Other assets, net of allowance for credit losses of $1 million and $2 million at June 30, 2021 and December 31, 2020, respectively	5,979		6,084

Total assets	Total assets	$	194,856	$	196,434	Total assets	$	194,888	$	196,434
Liabilities(1)	Liabilities(1)					Liabilities(1)
Debt:	Debt:					Debt:
Domestic deposits:	Domestic deposits:					Domestic deposits:
Noninterest bearing	Noninterest bearing	$	36,850	$	32,428	Noninterest bearing	$	37,068	$	32,428
Interest bearing (includes $3.8 billion and $4.2 billion designated under fair value option at March 31, 2021 and December 31, 2020, respectively)		104,533		107,427
Interest bearing (includes $3.3 billion and $4.2 billion designated under fair value option at June 30, 2021 and December 31, 2020, respectively)						Interest bearing (includes $3.3 billion and $4.2 billion designated under fair value option at June 30, 2021 and December 31, 2020, respectively)	93,163		107,427

Foreign deposits - interest bearing	Foreign deposits - interest bearing	7,199		5,295		Foreign deposits - interest bearing	7,195		5,295

Deposits held for sale						Deposits held for sale	9,939		0
Total deposits	Total deposits	148,582		145,150		Total deposits	147,365		145,150
Short-term borrowings	Short-term borrowings	5,243		4,952		Short-term borrowings	3,806		4,952
Long-term debt (includes $9.9 billion and $10.7 billion designated under fair value option at March 31, 2021 and December 31, 2020, respectively)		18,179		19,979
Long-term debt (includes $9.8 billion and $10.7 billion designated under fair value option at June 30, 2021 and December 31, 2020, respectively)						Long-term debt (includes $9.8 billion and $10.7 billion designated under fair value option at June 30, 2021 and December 31, 2020, respectively)	19,234		19,979
Total debt	Total debt	172,004		170,081		Total debt	170,405		170,081
Trading liabilities	Trading liabilities	2,319		5,397		Trading liabilities	2,940		5,397
Other branch related liabilities held for sale						Other branch related liabilities held for sale	161		0
Interest, taxes and other liabilities	Interest, taxes and other liabilities	2,559		2,665		Interest, taxes and other liabilities	3,198		2,665

Total liabilities						Total liabilities	176,704		178,143

Total liabilities		176,882		178,143

Equity	Equity					Equity
Preferred stock (0 par value; 40,999,000 shares authorized; 1,265 shares issued and outstanding at both March 31, 2021 and December 31, 2020)		1,265		1,265
Preferred stock (0 par value; 40,999,000 shares authorized; 1,265 shares issued and outstanding at both June 30, 2021 and December 31, 2020)						Preferred stock (0 par value; 40,999,000 shares authorized; 1,265 shares issued and outstanding at both June 30, 2021 and December 31, 2020)	1,265		1,265
Common equity:	Common equity:					Common equity:
Common stock ($5 par; 150,000,000 shares authorized; 714 shares issued and outstanding at both March 31, 2021 and December 31, 2020)		0		0
Common stock ($5 par; 150,000,000 shares authorized; 714 shares issued and outstanding at both June 30, 2021 and December 31, 2020)						Common stock ($5 par; 150,000,000 shares authorized; 714 shares issued and outstanding at both June 30, 2021 and December 31, 2020)	0		0
Additional paid-in capital	Additional paid-in capital	15,743		15,746		Additional paid-in capital	15,743		15,746
Retained earnings	Retained earnings	940		601		Retained earnings	1,095		601
Accumulated other comprehensive income	Accumulated other comprehensive income	26		679		Accumulated other comprehensive income	81		679
Total common equity	Total common equity	16,709		17,026		Total common equity	16,919		17,026
Total equity	Total equity	17,974		18,291		Total equity	18,184		18,291
Total liabilities and equity	Total liabilities and equity	$	194,856	$	196,434	Total liabilities and equity	$	194,888	$	196,434

(1)The following table summarizes assets and liabilities related to our consolidated variable interest entities ("VIEs") at ~~March 31,~~June 30, 2021 and December 31, 2020. Assets and liabilities exclude intercompany balances that eliminate in consolidation. See Note ~~17,~~18, "Variable Interest Entities," for additional information.


HSBC USA Inc.


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Assets	Assets					Assets
Loans	Loans	$	8	$	10	Loans	$	0	$	10
Other assets	Other assets	75		79		Other assets	70		79
Total assets	Total assets	$	83	$	89	Total assets	$	70	$	89
Liabilities	Liabilities					Liabilities

Interest, taxes and other liabilities	Interest, taxes and other liabilities	$	5	$	10	Interest, taxes and other liabilities	$	24	$	10
Total liabilities	Total liabilities	$	5	$	10	Total liabilities	$	24	$	10

The accompanying notes are an integral part of the consolidated financial statements.


HSBC USA Inc.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended March 31, 2021 2020
(in millions)
Preferred stock
Balance at beginning and end of period $ 1,265 $ 1,265
Common stock
Balance at beginning and end of period 0 0
Additional paid-in capital
Balance at beginning of period 15,746 15,736
Employee benefit plans (3) 5
Balance at end of period 15,743 15,741
Retained earnings
Balance at beginning of period 601 1,534
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on financial assets measured at amortized cost, net of tax — 84
Cumulative effect adjustment to initially apply fair value option accounting election, as permitted under new accounting guidance, to certain student loans held for investment, net of tax — 2
Reclassification from accumulated other comprehensive income of cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on securities available-for-sale, net of tax — (2)
Balance at beginning of period, adjusted 601 1,618
Net income (loss) 339 (1,283)
Balance at end of period 940 335
Accumulated other comprehensive income
Balance at beginning of period 679 (279)
Reclassification to retained earnings of cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on securities available-for-sale, net of tax — 2
Balance at beginning of period, adjusted 679 (277)
Other comprehensive income (loss), net of tax (653) 1,255
Balance at end of period 26 978
Total common equity 16,709 17,054
Total equity $ 17,974 $ 18,319

~~The accompanying notes are an integral part of the consolidated financial statements.~~


Three Months Ended June 30,	2021		2020
	(in millions)
Preferred stock



Balance at beginning and end of period	$	1,265	$	1,265
Common stock
Balance at beginning and end of period	0		0
Additional paid-in capital
Balance at beginning of period	15,743		15,741

Employee benefit plans	0		5
Balance at end of period	15,743		15,746
Retained earnings
Balance at beginning of period	940		335





Net income	193		7
Cash dividends declared on preferred stock	(38)		(39)
Balance at end of period	1,095		303
Accumulated other comprehensive income
Balance at beginning of period	26		978




Other comprehensive income (loss), net of tax	55		(148)
Balance at end of period	81		830
Total common equity	16,919		16,879
Total equity	$	18,184	$	18,144


HSBC USA Inc.

~~CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)~~

Three Months Ended March 31, 2021 2020
(in millions)
Cash flows from operating activities
Net income (loss) $ 339 $ (1,283)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 60 77
Goodwill impairment 0 784
Provision for credit losses (227) 726
Net realized gains on securities available-for-sale (29) (28)
Net change in other assets and liabilities 685 (4,613)
Net change in loans held for sale:
Originations and purchases of loans held for sale (569) (1,239)
Sales and collections of loans held for sale 662 1,184
Net change in trading assets and liabilities (1,616) (77)
Lower of amortized cost or fair value adjustments on loans held for sale 0 (1)
Loss (gain) on instruments designated at fair value and related derivatives (18) 22
Net cash used in operating activities (713) (4,448)
Cash flows from investing activities
Net change in federal funds sold and securities purchased under agreements to resell 31,986 13,195
Securities available-for-sale:
Purchases of securities available-for-sale (4,001) (9,918)
Proceeds from sales of securities available-for-sale 3,907 4,630
Proceeds from paydowns and maturities of securities available-for-sale 4,593 2,295
Securities held-to-maturity:
Purchases of securities held-to-maturity 0 (515)
Proceeds from paydowns and maturities of securities held-to-maturity 1,133 817
Change in loans:
Collections, net of originations 61 (13,510)
Loans sold to third parties 392 299
Net cash provided by disposals of properties and equipment 4 7
Other, net 59 (213)
Net cash provided by (used in) investing activities 38,134 (2,913)
Cash flows from financing activities
Net change in deposits 3,473 14,153
Debt:
Net change in short-term borrowings 291 13,920
Issuance of long-term debt 2,288 5,844
Repayment of long-term debt (4,071) (2,864)
Other increases (decreases) in capital surplus (3) 5
Net cash provided by financing activities 1,978 31,058
Net change in cash and due from banks and interest bearing deposits with banks 39,399 23,697
Cash and due from banks and interest bearing deposits with banks at beginning of period 15,655 3,782
Cash and due from banks and interest bearing deposits with banks at end of period $ 55,054 $ 27,479


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued) (UNAUDITED)
Six Months Ended June 30,	2021		2020
	(in millions)
Preferred stock
Balance at beginning and end of period	$	1,265	$	1,265



Common stock
Balance at beginning and end of period	0		0
Additional paid-in capital
Balance at beginning of period	15,746		15,736


Employee benefit plans	(3)		10
Balance at end of period	15,743		15,746
Retained earnings
Balance at beginning of period	601		1,534
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on financial assets measured at amortized cost, net of tax	—		84
Cumulative effect adjustment to initially apply fair value option accounting election, as permitted under new accounting guidance, to certain student loans held for investment, net of tax	—		2
Reclassification from accumulated other comprehensive income of cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on securities available-for-sale, net of tax	—		(2)





Balance at beginning of period, adjusted	601		1,618
Net income (loss)	532		(1,276)
Cash dividends declared on preferred stock	(38)		(39)
Balance at end of period	1,095		303
Accumulated other comprehensive income
Balance at beginning of period	679		(279)
Reclassification to retained earnings of cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on securities available-for-sale, net of tax	—		2



Balance at beginning of period, adjusted	679		(277)
Other comprehensive income (loss), net of tax	(598)		1,107
Balance at end of period	81		830
Total common equity	16,919		16,879
Total equity	$	18,184	$	18,144

The accompanying notes are an integral part of the consolidated financial statements.


HSBC USA Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


Six Months Ended June 30,	2021		2020
	(in millions)
Cash flows from operating activities
Net income (loss)	$	532	$	(1,276)


Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	161		101

Goodwill impairment	0		784


Provision for credit losses	(456)		945


Net realized gains on securities available-for-sale	(47)		(59)

Net change in other assets and liabilities	1,219		(2,029)
Net change in loans held for sale:
Originations and purchases of loans held for sale	(1,407)		(1,854)
Sales and collections of loans held for sale	1,398		1,971
Net change in trading assets and liabilities	(3,516)		(3,974)
Lower of amortized cost or fair value adjustments on loans held for sale	5		8
Loss (gain) on instruments designated at fair value and related derivatives	(25)		0


Net cash used in operating activities	(2,136)		(5,383)
Cash flows from investing activities
Net change in federal funds sold and securities purchased under agreements to resell	25,243		(11,417)
Securities available-for-sale:
Purchases of securities available-for-sale	(9,173)		(15,917)
Proceeds from sales of securities available-for-sale	6,170		7,899
Proceeds from paydowns and maturities of securities available-for-sale	7,865		4,256
Securities held-to-maturity:
Purchases of securities held-to-maturity	0		(515)
Proceeds from sales of securities held-to-maturity	0		340
Proceeds from paydowns and maturities of securities held-to-maturity	2,210		1,810
Change in loans:
Collections, net of originations	2,718		(4,450)
Loans sold to third parties	1,091		397

Net cash provided by disposals of properties and equipment	0		2

Other, net	80		(218)


Net cash provided by (used in) investing activities	36,204		(17,813)

Cash flows from financing activities
Net change in deposits	2,221		33,306
Debt:
Net change in short-term borrowings	(1,146)		2,443
Issuance of long-term debt	5,317		6,350
Repayment of long-term debt	(6,154)		(3,656)




Other increases (decreases) in capital surplus	(3)		10
Dividends paid	(38)		(39)


Net cash provided by financing activities	197		38,414
Net change in cash and due from banks and interest bearing deposits with banks	34,265		15,218
Cash and due from banks and interest bearing deposits with banks at beginning of period	15,655		3,782
Cash and due from banks and interest bearing deposits with banks at end of period(1)	$	49,920	$	19,000

(1)Includes $52 million of cash which is reported in other branch related assets held for sale on the consolidated balance sheet at June 30, 2021.

The accompanying notes are an integral part of the consolidated financial statements.


HSBC USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Note	Note		Page	Note		Page	Note		Page	Note		Page
1	1	Organization and Presentation	9	12	Pension and Other Postretirement Benefits	43	1	Organization and Presentation	10	12	Accumulated Other Comprehensive Income	49
2	2	Strategic Initiatives	10	13	Fee Income from Contracts with Customers	43	2	Strategic Initiatives	11	13	Pension and Other Postretirement Benefits	51
3	3	Trading Assets and Liabilities	12	14	Related Party Transactions	44	3	Branch Assets and Liabilities Held for Sale	13	14	Fee Income from Contracts with Customers	51
4	4	Securities	13	15	Business Segments	46	4	Trading Assets and Liabilities	15	15	Related Party Transactions	52
5	5	Loans	17	16	Retained Earnings and Regulatory Capital Requirements	48	5	Securities	16	16	Business Segments	54
6	6	Allowance for Credit Losses	29	17	Variable Interest Entities	50	6	Loans	20	17	Retained Earnings and Regulatory Capital Requirements	56
7	7	Loans Held for Sale	32	18	Guarantee Arrangements, Pledged Assets and Repurchase Agreements	52	7	Allowance for Credit Losses	34	18	Variable Interest Entities	58
8	8	Goodwill	33	19	Fair Value Measurements	57	8	Loans Held for Sale	38	19	Guarantee Arrangements, Pledged Assets and Repurchase Agreements	60
9	9	Derivative Financial Instruments	33	20	Litigation and Regulatory Matters	71	9	Goodwill	39	20	Fair Value Measurements	65
10	10	Fair Value Option	39	21	New Accounting Pronouncements	71	10	Derivative Financial Instruments	39	21	Litigation and Regulatory Matters	81
11	11	Accumulated Other Comprehensive Income	42				11	Fair Value Option	46	22	New Accounting Pronouncements	81

1. Organization and Presentation

HSBC USA Inc. ("HSBC USA"), incorporated under the laws of Maryland, is a New York State based bank holding company and a wholly-owned subsidiary of HSBC North America Holdings Inc. ("HSBC North America"), which is an indirect wholly-owned subsidiary of HSBC Holdings plc ("HSBC" and, together with its subsidiaries, "HSBC Group"). The accompanying unaudited interim consolidated financial statements of HSBC USA and its subsidiaries (collectively "HUSI") have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair statement of financial position, results of operations and cash flows for the interim periods have been made. HUSI may also be referred to in these notes to the consolidated financial statements as "we," "us" or "our." These unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. Interim results should not be considered indicative of results in future periods.

910


HSBC USA Inc.

2. Strategic Initiatives

As discussed in our 2020 Form 10-K, in February 2020, our Board of Directors approved a strategic plan to restructure our operations ("Restructuring Plan") in alignment with HSBC’s global strategy to refocus our wholesale operations to better serve our international corporate clients and restructure our retail operations to better meet the needs of globally mobile and affluent clients. Our Restructuring Plan also includes streamlining our functional and operations support model by removing duplication and reducing the size of our balance sheet to better align with the scope and scale of the U.S. opportunity. We previously disclosed that we expect to incur pre-tax charges in connection with this Restructuring Plan largely over the two year period of 2020-2021 of approximately $520-$590 million ($390-$450 million after-tax). In May 2021, our Board of Directors approved further actions as part of our Restructuring Plan to reposition our Wealth and Personal Banking business to focus on the banking and wealth management needs of globally-connected affluent and high net worth clients and exit our mass market retail banking business as discussed further below. As a result of this decision, along with the identification of additional restructuring activities primarily relating to further simplifying our wholesale operations and support service functions as well as additional investments in systems infrastructure and new technologies, we determined we would incur additional pre-tax charges of approximately $380-$410 million ($290-$310 million after-tax). We currently expect we will incur our remaining estimated pre-tax charges through 2022. The following table presents a summary of the total pre-tax charges we expect to incur by reportable segment:


		Expected Charges in Connection with Restructuring Plan					Expected Charges in Connection with Restructuring Plan
		Minimum		Maximum			Minimum		Maximum
		(in millions)					(in millions)
Wealth and Personal Banking	Wealth and Personal Banking	$	50	$	56	Wealth and Personal Banking	$	160	$	180
Commercial Banking	Commercial Banking	10		14		Commercial Banking	25		35
Global Banking and Markets	Global Banking and Markets	115		135		Global Banking and Markets	115		130
Corporate Center(1)	Corporate Center(1)	345		385		Corporate Center(1)	600		655
Total	Total	$	520	$	590	Total	$	900	$	1,000

(1)Includes restructuring charges primarily related to lease impairment and other related costs, support service project costs and severance costs associated with certain centralized activities and functions.

Throughout 2020 and into the ~~first~~second quarter of 2021, we continued to progress our Restructuring Plan, including simplification of our support service functions, the exit or transfer of certain derivative contracts and consolidation of our wholesale and retail middle and back office functions, each under a single operations ~~structure, simplification~~structure. The consolidation of our ~~support service~~wholesale middle and back office functions ~~and~~was completed in the second quarter of 2021. As noted above, during the second quarter of 2021, we made the decision to exit our mass market retail banking business, including the sale or ~~transfer~~closure of certain ~~derivative contracts.~~branches, and transferred certain assets and liabilities to held for sale. See Note 3, "Branch Assets and Liabilities Held for Sale," for additional information. During the three and six months ended June 30, 2021, we recorded pre-tax charges in connection with our Restructuring Plan totaling $118 million and $136 million, respectively. In 2020, we also completed the initial consolidation of our retail branch network and the creation of our Wealth and Personal Banking business. During the three and six months ended ~~March 31, 2021,~~June 30, 2020, we recorded pre-tax charges in connection with our Restructuring Plan totaling ~~$18~~$49 million ~~compared with pre-tax charges totaling $109~~and $160 million, ~~during the three months ended March 31, 2020.~~respectively. In total, we have recorded ~~$298~~$416 million of pre-tax charges in connection with our Restructuring Plan. We remain committed to our multi-year strategic plan to re-profile our ~~business, and continue to explore strategic options with respect to our retail operations to focus on our high net worth client base and wealth management products.~~business.


HSBC USA Inc.

The following table summarizes the changes in the liability associated with our Restructuring Plan during the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


		Severance and Other Employee Costs(1)		Lease Termination and Associated Costs(2)		Other(3)		Total			Severance and Other Employee Costs(1)		Lease Termination and Associated Costs(2)		Other(3)		Total
		(in millions)									(in millions)

Three Months Ended March 31, 2021
Three Months Ended June 30, 2021										Three Months Ended June 30, 2021
Restructuring liability at beginning of period	Restructuring liability at beginning of period	$	10	$	23	$	0	$	33	Restructuring liability at beginning of period	$	2	$	22	$	0	$	24
Restructuring costs accrued during the period	Restructuring costs accrued during the period	0		0		2		2		Restructuring costs accrued during the period	5		30		4		39
Restructuring costs paid during the period	Restructuring costs paid during the period	(8)		(1)		(2)		(11)		Restructuring costs paid during the period	(1)		(6)		(4)		(11)
Restructuring liability at end of period	Restructuring liability at end of period	$	2	$	22	$	0	$	24	Restructuring liability at end of period	$	6	$	46	$	0	$	52

Three Months Ended March 31, 2020
Three Months Ended June 30, 2020										Three Months Ended June 30, 2020
Restructuring liability at beginning of period	Restructuring liability at beginning of period	$	0	$	0	$	0	$	0	Restructuring liability at beginning of period	$	9	$	24	$	0	$	33
Restructuring costs recorded during the period		9		24		0		33
Restructuring costs accrued during the period										Restructuring costs accrued during the period	13		0		0		13
Restructuring costs paid during the period	Restructuring costs paid during the period	0		0		0		0		Restructuring costs paid during the period	0		(1)		0		(1)
Restructuring liability at end of period	Restructuring liability at end of period	$	9	$	24	$	0	$	33	Restructuring liability at end of period	$	22	$	23	$	0	$	45

Six Months Ended June 30, 2021										Six Months Ended June 30, 2021
Restructuring liability at beginning of period										Restructuring liability at beginning of period	$	10	$	23	$	0	$	33
Restructuring costs accrued during the period										Restructuring costs accrued during the period	5		30		6		41
Restructuring costs paid during the period										Restructuring costs paid during the period	(9)		(7)		(6)		(22)
Restructuring liability at end of period										Restructuring liability at end of period	$	6	$	46	$	0	$	52

Six Months Ended June 30, 2020										Six Months Ended June 30, 2020
Restructuring liability at beginning of period										Restructuring liability at beginning of period	$	0	$	0	$	0	$	0
Restructuring costs accrued during the period										Restructuring costs accrued during the period	22		24		0		46
Restructuring costs paid during the period										Restructuring costs paid during the period	0		(1)		0		(1)
Restructuring liability at end of period										Restructuring liability at end of period	$	22	$	23	$	0	$	45

(1)Severance and other employee costs are included in salaries and employee benefits in the consolidated statement of income (loss). The majority of these costs were reported in the Wealth and Personal Banking and the Global Banking and Markets business segments. Not included in these costs are allocated severance costs from HSBC Technology & Services ("HTSU") discussed further below.

(2)Primarily includes real estate taxes, service charges and decommissioning costs. Lease termination and associated costs are included in occupancy expense, net in the consolidated statement of income (loss) and were reported in the Wealth and Personal Banking and the Corporate Center business ~~segment.~~segments.

(3)Primarily includes professional fees and other staff costs, which are included in other expenses in the consolidated statement of income (loss).


~~HSBC USA Inc.~~

In connection with the restructuring costs reflected above, during the second quarter of 2021, as part of our decision to exit our mass market retail banking business we determined that we would exit approximately 30 branches. As a result, we recorded impairment charges during the second quarter of 2021 to write-off the assets associated with these branches, including $29 million of lease right-of-use ("ROU") assets, $18 million of leasehold improvement assets and $3 million of equipment assets. During the second quarter of 2021, we also recorded impairment charges of $5 million to write-down the lease ROU assets and leasehold improvement assets associated with branches closed prior to 2021 and certain office space that we determined we would exit. During the first quarter of 2020, we determined that we would exit approximately 60 branches (in addition to the approximately 20 branches for which we disclosed plans to exit in 2019). As a result, we recorded impairment charges during the first quarter of 2020 to write-down the lease ~~right-of-use ("ROU")~~ROU assets, net of estimated sublease income, by $52 million (which was ~~increased~~reduced to ~~$67~~$46 million during the ~~fourth~~second quarter of 2020) and to write-down the leasehold improvement assets associated with these branches by $16 million based on their estimated remaining useful lives. The branches ~~targeted for exit~~ were closed by the end of the second quarter of 2020. ~~These~~Lease impairment charges are reflected in occupancy expense, net in the consolidated statement of income (loss) and were reported in the Wealth and Personal Banking and the Corporate Center business ~~segment.~~segments.

In addition, during the ~~first quarter of~~three and six months ended June 30, 2021, we recorded $4$6 million and $10 million, respectively, of trading losses associated with the continued exit of certain derivative contracts as part of our Restructuring ~~Plan.~~Plan compared with trading losses of $10 million during both the three and six months ended June 30, 2020. These losses are included in trading revenue in the consolidated statement of income (loss) and were reported in the Global Banking and Markets business segment. During the first ~~quarter~~half of 2021, as part of our Restructuring Plan, we also continued to transfer interest rate derivative contracts


HSBC USA Inc.

associated with Fixed Income activities to HSBC Bank plc. These activities are being consolidated in and operated from HSBC Bank plc to better utilize HSBC Group's global scale, which allows us to record revenue as a business introducer and hold fewer assets on our balance sheet. Transfers of interest rate derivative contracts with a notional value of ~~$14.8~~$18.1 billion were completed during the first ~~quarter~~half of 2021 with the remainder of these contracts with a current notional value of up to ~~$59.8~~$46.4 billion expected to be completed during the remainder of 2021. The transferred derivatives were substantially fully collateralized which resulted in an immaterial impact on our consolidated balance sheet.

Our Restructuring Plan also resulted in costs being allocated to us from HTSU, primarily severance costs and support service project costs, which are reflected in support services from HSBC affiliates in the consolidated statement of income (loss). During the ~~first quarter of~~three and six months ended June 30, 2021, we recorded ~~$12~~$18 million and $30 million, respectively, of allocated costs from HTSU related to restructuring activities compared with $8$32 million and $42 million of allocated costs during the ~~first quarter of 2020.~~three and six months ended June 30, 2020, respectively. These costs were reported in the Corporate Center business segment.

HSBC Group Restructuring Separate from the charges related to our Restructuring Plan as detailed above, during the ~~first quarter of~~three and six months ended June 30, 2021, we also recorded $7$11 million and $18 million, respectively, of allocated costs from other HSBC affiliates related to the HSBC Group's restructuring activities, primarily support service project costs and severance costs. These costs are reflected in support services from HSBC affiliates in the consolidated statement of income (loss) and were reported in the Corporate Center business segment.

3. Branch Assets and Liabilities Held for Sale

In May 2021, as part of our Restructuring Plan we announced that we would take further actions to strategically reposition our Wealth and Personal Banking business to focus on the banking and wealth management needs of globally-connected affluent and high net worth clients through our Premier, Jade and Private Banking propositions. We will exit our mass market retail banking business, including our Personal and Advance propositions as well as retail business banking, and will rebrand approximately 20-25 of our retail branches into international wealth centers to serve our Premier and Jade customers. In conjunction with the execution of this strategy, we have entered into definitive sale agreements with third parties to sell approximately 90 of our retail branches along with substantially all residential mortgage, unsecured and retail business banking loans and all deposits in our branch network not associated with our Premier, Jade and Private Banking customers. Certain assets under management associated with our mass market retail banking operations which are managed by an affiliate will also be transferred. The remaining branches not sold or rebranded will be closed. As a result of entering into these sale agreements, assets and liabilities with an aggregate carrying value of approximately $2.9 billion and $10.1 billion, respectively, were transferred to held for sale during the second quarter of 2021. The lower of amortized cost or fair value adjustment upon transferring these assets to held for sale was not material.

Although the disposal group will be sold in multiple transactions that are expected to be completed by the first quarter of 2022, the actual time to complete these sales depends on many factors, including regulatory approval. The sales are expected to result in a gain upon completion. Revenues (net interest income and other revenues) associated with the disposal group represented approximately 7 percent and 6 percent of total consolidated revenues for the three and six months ended June 30, 2021, respectively. Income before tax associated with the disposal group was not material.


HSBC USA Inc.

The following table summarizes the assets and liabilities in the disposal group classified as held for sale at June 30, 2021 in our consolidated balance sheet:


	June 30, 2021
	(in millions)
Loans held for sale(1)	$	2,655
Other branch related assets held for sale:
Lease ROU assets(2)	145
Properties and equipment, net	40
Cash and other assets	52
Total other branch related assets held for sale	237
Total branch assets held for sale(3)	$	2,892

Deposits held for sale	$	9,939
Other branch related liabilities held for sale:
Lease liabilities(2)	155
Other liabilities	6
Total other branch related liabilities held for sale	161
Total branch liabilities held for sale(3)	$	10,100

(1)Includes $134 million of commercial loans, $1,938 million of residential mortgage loans, $246 million of home equity mortgage loans, $182 million of credit card loans and $155 million of other consumer loans.

(2)At June 30, 2021, our lease ROU assets and lease liabilities, excluding the amounts transferred to held for sale, totaled $243 million and $353 million, respectively.

(3)The sale of this disposal group is expected to result in a net cash payment as the liabilities being assumed are greater than the assets being purchased.

In addition, mass market retail banking loans that will not be purchased in the transaction described above, including our remaining retail credit card portfolio, which collectively totaled $1.1 billion, were also transferred to held for sale during the second quarter of 2021 as we currently do not intend to hold these loans for the foreseeable future. There was 0 lower of amortized cost or fair value adjustment recorded upon transferring these loans to held for sale. See Note 8, "Loans Held for Sale," for additional details.

Releases of the allowance for credit losses on the loans transferred to held for sale discussed above during the second quarter of 2021 resulted in a reduction to the provision for credit losses of approximately $101 million ($100 million of which related to consumer loans) during the second quarter of 2021. See Note 7, "Allowance for Credit Losses," for additional details.


HSBC USA Inc.

3.4. Trading Assets and Liabilities

Trading assets and liabilities consisted of the following:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Trading assets:	Trading assets:					Trading assets:
U.S. Treasury	U.S. Treasury	$	2,616	$	5,145	U.S. Treasury	$	2,572	$	5,145
U.S. Government agency issued or guaranteed		18		0

U.S. Government sponsored enterprises	U.S. Government sponsored enterprises	61		192		U.S. Government sponsored enterprises	307		192

Asset-backed securities	Asset-backed securities	153		143		Asset-backed securities	141		143
Foreign bonds	Foreign bonds	8,167		7,971		Foreign bonds	4,021		7,971
Equity securities	Equity securities	7,750		6,043		Equity securities	11,869		6,043
Precious metals	Precious metals	4,497		4,989		Precious metals	7,448		4,989
Derivatives, net	Derivatives, net	2,560		2,801		Derivatives, net	1,985		2,801
Total trading assets	Total trading assets	$	25,822	$	27,284	Total trading assets	$	28,343	$	27,284
Trading liabilities:	Trading liabilities:					Trading liabilities:
Securities sold, not yet purchased	Securities sold, not yet purchased	$	655	$	727	Securities sold, not yet purchased	$	960	$	727
Payables for precious metals	Payables for precious metals	0		2,312		Payables for precious metals	2		2,312
Derivatives, net	Derivatives, net	1,664		2,358		Derivatives, net	1,978		2,358
Total trading liabilities	Total trading liabilities	$	2,319	$	5,397	Total trading liabilities	$	2,940	$	5,397

At ~~March 31,~~June 30, 2021 and December 31, 2020, the fair value of derivatives included in trading assets is net of ~~$2,862~~$2,179 million and $2,763 million, respectively, relating to amounts recognized for the obligation to return cash collateral received under master netting agreements with derivative counterparties.

At ~~March 31,~~June 30, 2021 and December 31, 2020, the fair value of derivatives included in trading liabilities is net of ~~$1,953~~$1,879 million and $3,377 million, respectively, relating to amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.

See Note 9,10, "Derivative Financial Instruments," for further information on our trading derivatives and related collateral.

Dividend income on equity securities held for trading, which is recorded in interest income in the consolidated statement of income (loss), totaled ~~$26~~$38 million and $64 million during ~~both~~ the three and six months ended ~~March 31,~~June 30, 2021, respectively, compared with $3 million and ~~2020.~~$29 million during the three and six months ended June 30, 2020, respectively. Trading security positions are held as economic hedges of derivative products issued to our clients.

1215


HSBC USA Inc.

4.5. Securities

Our securities available-for-sale and securities held-to-maturity portfolios consisted of the following:


March 31, 2021		Amortized Cost		Allowance for Credit Losses		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2021												June 30, 2021	Amortized Cost		Allowance for Credit Losses		Unrealized Gains		Unrealized Losses		Fair Value
		(in millions)											(in millions)
Securities available-for-sale:	Securities available-for-sale:											Securities available-for-sale:
U.S. Treasury	U.S. Treasury	$	13,574	$	0	$	262	$	(146)	$	13,690	U.S. Treasury	$	12,508	$	0	$	234	$	(127)	$	12,615
U.S. Government sponsored enterprises:	U.S. Government sponsored enterprises:											U.S. Government sponsored enterprises:
Mortgage-backed securities	Mortgage-backed securities	6,700		0		153		(103)		6,750		Mortgage-backed securities	6,765		0		188		(64)		6,889
Collateralized mortgage obligations	Collateralized mortgage obligations	1,904		0		8		(48)		1,864		Collateralized mortgage obligations	1,812		0		11		(25)		1,798
Direct agency obligations	Direct agency obligations	1,318		0		19		0		1,337		Direct agency obligations	1,325		0		20		0		1,345
U.S. Government agency issued or guaranteed:	U.S. Government agency issued or guaranteed:											U.S. Government agency issued or guaranteed:
Mortgage-backed securities	Mortgage-backed securities	5,717		0		76		(38)		5,755		Mortgage-backed securities	6,086		0		52		(27)		6,111
Collateralized mortgage obligations	Collateralized mortgage obligations	1,824		0		18		(12)		1,830		Collateralized mortgage obligations	3,127		0		16		(15)		3,128
Direct agency obligations	Direct agency obligations	273		0		9		0		282		Direct agency obligations	283		0		8		0		291

Asset-backed securities collateralized by:	Asset-backed securities collateralized by:											Asset-backed securities collateralized by:

Home equity	Home equity	26		(1)		0		0		25		Home equity	24		(1)		0		0		23

Other	Other	108		0		0		(3)		105		Other	109		0		0		(6)		103

Foreign debt securities(1)	Foreign debt securities(1)	3,017		0		4		0		3,021		Foreign debt securities(1)	2,411		0		3		0		2,414
Total available-for-sale securities	Total available-for-sale securities	$	34,461	$	(1)	$	549	$	(350)	$	34,659	Total available-for-sale securities	$	34,450	$	(1)	$	532	$	(264)	$	34,717
Securities held-to-maturity:	Securities held-to-maturity:											Securities held-to-maturity:
U.S. Government sponsored enterprises:	U.S. Government sponsored enterprises:											U.S. Government sponsored enterprises:
Mortgage-backed securities	Mortgage-backed securities	$	1,001	$	0	$	39	$	0	$	1,040	Mortgage-backed securities	$	853	$	0	$	34	$	0	$	887
Collateralized mortgage obligations	Collateralized mortgage obligations	700		0		46		0		746		Collateralized mortgage obligations	619		0		40		0		659
U.S. Government agency issued or guaranteed:	U.S. Government agency issued or guaranteed:											U.S. Government agency issued or guaranteed:
Mortgage-backed securities	Mortgage-backed securities	1,674		0		58		0		1,732		Mortgage-backed securities	1,437		0		43		0		1,480
Collateralized mortgage obligations	Collateralized mortgage obligations	4,454		0		183		0		4,637		Collateralized mortgage obligations	3,841		0		150		0		3,991
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	8		0		1		0		9		Obligations of U.S. states and political subdivisions	9		0		0		0		9
Asset-backed securities collateralized by residential mortgages	Asset-backed securities collateralized by residential mortgages	2		(2)		2		0		2		Asset-backed securities collateralized by residential mortgages	1		(2)		2		0		1

Total held-to-maturity securities	Total held-to-maturity securities	$	7,839	$	(2)	$	329	$	0	$	8,166	Total held-to-maturity securities	$	6,760	$	(2)	$	269	$	0	$	7,027

1316


HSBC USA Inc.


December 31, 2020	Amortized Cost		Allowance for Credit Losses		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	16,087	$	0	$	608	$	(47)	$	16,648
U.S. Government sponsored enterprises:
Mortgage-backed securities	5,986		0		280		(2)		6,264
Collateralized mortgage obligations	1,676		0		19		(2)		1,693
Direct agency obligations	1,236		0		17		0		1,253
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	6,993		0		152		0		7,145
Collateralized mortgage obligations	2,093		0		22		(11)		2,104
Direct agency obligations	296		0		5		0		301

Asset-backed securities collateralized by:


Home equity	28		(1)		0		0		27

Other	114		0		0		(10)		104

Foreign debt securities(1)	5,127		0		6		0		5,133
Total available-for-sale securities	$	39,636	$	(1)	$	1,109	$	(72)	$	40,672
Securities held-to-maturity:
U.S. Government sponsored enterprises:
Mortgage-backed securities	$	1,137	$	0	$	44	$	0	$	1,181
Collateralized mortgage obligations	780		0		53		0		833
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	1,947		0		76		0		2,023
Collateralized mortgage obligations	5,107		0		212		0		5,319
Obligations of U.S. states and political subdivisions	10		0		1		0		11
Asset-backed securities collateralized by residential mortgages	2		(2)		2		0		2

Total held-to-maturity securities	$	8,983	$	(2)	$	388	$	0	$	9,369

(1)Foreign debt securities represent public sector entity, bank or corporate debt.

Securities Available-for-Sale The following provides additional information about our portfolio of securities available-for-sale:

Allowance for credit losses On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a debt security available-for-sale in an unrealized loss position has suffered impairment due to credit factors. A debt security available-for-sale is considered impaired if its fair value is less than its amortized cost basis at the reporting date. If impaired, we assess whether the impairment is due to credit factors.

If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is recognized and the unrealized loss is recorded as a direct write-down of the security's amortized cost basis with an offsetting entry to earnings. If we do not intend to sell the debt security or believe we will not be required to sell the debt security before the recovery of its amortized cost basis, the impairment is assessed to determine if a credit loss component exists. We use a discounted cash flow method to determine the credit loss component. In the event a credit loss exists, an allowance for credit losses is recorded in earnings for the credit loss component of the impairment while the remaining portion of the impairment attributable to factors other than credit loss is recognized, net of tax, in other comprehensive ~~income.~~income (loss). The amount of impairment recognized due to credit factors is limited to the excess of the amortized cost basis over the fair value of the security available-for-sale.

In determining whether a credit loss component exists, we consider a series of factors which include:

•The extent to which the fair value is less than the amortized cost basis;

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•The credit protection features embedded within the instrument, which includes but is not limited to credit subordination positions, payment structure, over collateralization, protective triggers and financial guarantees provided by third parties;

•Changes in the near term prospects of the issuer or the underlying collateral of a security such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

•The level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

•Any adverse change to the credit conditions of the issuer, the monoline insurer or the security such as credit downgrades by external rating agencies or changes to internal ratings.

At both ~~March 31,~~June 30, 2021 and December 31, 2020, the allowance for credit losses on securities available-for-sale was $1 million.

Securities in an unrealized loss position for which no allowance for credit losses has been recognized The following table summarizes gross unrealized losses and related fair values for securities available-for-sale by major security type at ~~March 31,~~June 30, 2021 and December 31, 2020 classified as to the length of time the losses have existed:


		One Year or Less					Greater Than One Year						One Year or Less					Greater Than One Year
		Number of Securities	Gross Unrealized Losses		Aggregate Fair Value of Investment		Number of Securities	Gross Unrealized Losses		Aggregate Fair Value of Investment			Number of Securities	Gross Unrealized Losses		Aggregate Fair Value of Investment		Number of Securities	Gross Unrealized Losses		Aggregate Fair Value of Investment
		(dollars are in millions)											(dollars are in millions)
At March 31, 2021
At June 30, 2021												At June 30, 2021
U.S. Treasury	U.S. Treasury	18	$	(96)	$	2,882	11	$	(50)	$	755	U.S. Treasury	28	$	(64)	$	4,021	11	$	(63)	$	886
U.S. Government sponsored enterprises	U.S. Government sponsored enterprises	58	(150)		5,120		8	(1)		45		U.S. Government sponsored enterprises	49	(88)		4,462		9	(1)		65
U.S. Government agency issued or guaranteed	U.S. Government agency issued or guaranteed	18	(49)		2,648		4	(1)		50		U.S. Government agency issued or guaranteed	32	(39)		3,761		7	(3)		160

Asset-backed securities	Asset-backed securities	2	(1)		48		3	(2)		57		Asset-backed securities	0	0		0		5	(6)		103

Foreign debt securities	Foreign debt securities	5	0		425		3	0		161		Foreign debt securities	2	0		112		1	0		25
Securities available-for-sale	Securities available-for-sale	101	$	(296)	$	11,123	29	$	(54)	$	1,068	Securities available-for-sale	111	$	(191)	$	12,356	33	$	(73)	$	1,239
At December 31, 2020	At December 31, 2020											At December 31, 2020
U.S. Treasury	U.S. Treasury	5	$	(5)	$	751	13	$	(42)	$	1,271	U.S. Treasury	5	$	(5)	$	751	13	$	(42)	$	1,271
U.S. Government sponsored enterprises	U.S. Government sponsored enterprises	15	(3)		715		8	(1)		46		U.S. Government sponsored enterprises	15	(3)		715		8	(1)		46
U.S. Government agency issued or guaranteed	U.S. Government agency issued or guaranteed	13	(11)		1,482		3	0		8		U.S. Government agency issued or guaranteed	13	(11)		1,482		3	0		8

Asset-backed securities	Asset-backed securities	3	(10)		104		2	0		0		Asset-backed securities	3	(10)		104		2	0		0

Foreign debt securities	Foreign debt securities	6	0		766		5	0		241		Foreign debt securities	6	0		766		5	0		241
Securities available-for-sale	Securities available-for-sale	42	$	(29)	$	3,818	31	$	(43)	$	1,566	Securities available-for-sale	42	$	(29)	$	3,818	31	$	(43)	$	1,566

Gross unrealized losses increased as compared with December 31, 2020 due primarily to increasing yields on U.S. Treasury, U.S. Government sponsored mortgage-backed and U.S. Government agency mortgage-backed securities.

Although the fair value of a particular security may be below its amortized cost, it does not necessarily result in a credit loss and hence an allowance for credit losses. The decline in fair value may be caused by, among other things, the illiquidity of the market. We have reviewed the securities in an unrealized loss position for which no allowance for credit losses has been recognized in accordance with our accounting policies, discussed further above. At ~~March 31,~~June 30, 2021, we do not consider any of these securities to be impaired due to credit factors as we expect to recover their amortized cost basis and we neither intend nor expect to be required to sell these securities prior to recovery, even if that equates to holding them until their individual maturities. However, impairments due to credit factors may occur in future periods if the credit quality of the securities deteriorates.

Securities Held-to-Maturity The following provides additional information about our portfolio of securities held-to-maturity:

Allowance for credit losses We exclude from our calculation of lifetime expected credit losses ("lifetime ECL") securities for which we expect that non-payment of the amortized cost basis will be zero ("Zero Expected Credit Loss Exception"). Due to the composition of our portfolio of securities held-to-maturity, substantially all of our portfolio qualifies for the Zero Expected Credit Loss Exception and has been excluded from our lifetime ECL calculation. At both ~~March 31,~~June 30, 2021 and December 31, 2020, the allowance for credit losses on securities held-to-maturity was $2 million.

At ~~March 31,~~June 30, 2021 and December 31, 2020, NaN of our securities held-to-maturity were past due or in nonaccrual status.


HSBC USA Inc.

Credit risk profile Securities are assigned a credit rating based on the estimated probability of default. The credit ratings are used as a credit quality indicator to monitor our securities held-to-maturity portfolio. We utilize Standard and Poor's ("S&P") as


~~HSBC USA Inc.~~

the primary source of our credit ratings. If S&P ratings are not available, ratings by Moody's and Fitch are used in that order. Investment grade includes securities with credit ratings of at least BBB- or above. At ~~March 31,~~June 30, 2021 and December 31, 2020, all of our securities held-to-maturity were investment grade.

Other securities gains, net The following table summarizes realized gains and losses on investment securities transactions attributable to available-for-sale securities:


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Gross realized gains	Gross realized gains	$	49		$	51		Gross realized gains	$	39	$	36	$	88	$	87
Gross realized losses	Gross realized losses	(20)			(23)			Gross realized losses	(21)		(5)		(41)		(28)
Net realized gains	Net realized gains	$	29		$	28		Net realized gains	$	18	$	31	$	47	$	59

Contractual Maturities and Yields The following table summarizes the amortized cost and fair values of securities available-for-sale and securities held-to-maturity at ~~March 31,~~June 30, 2021 by contractual maturity. Expected maturities differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties in certain cases. The table below also reflects the distribution of maturities of debt securities held at ~~March 31,~~June 30, 2021, together with the approximate yield of the portfolio. The yields shown are calculated by dividing annualized interest income, including the accretion of discounts and the amortization of premiums, by the amortized cost of securities outstanding at ~~March 31,~~June 30, 2021.


		Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years					Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years
		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield			Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
		(dollars are in millions)																	(dollars are in millions)
Available-for-sale:	Available-for-sale:																	Available-for-sale:
U.S. Treasury	U.S. Treasury	$	1,437	2.41	%	$	3,097	1.56	%	$	5,384	1.35	%	$	3,656	2.27	%	U.S. Treasury	$	765	4.06	%	$	2,924	1.59	%	$	4,499	1.37	%	$	4,320	2.12	%
U.S. Government sponsored enterprises	U.S. Government sponsored enterprises	31		2.71		966		1.94		2,771		2.56		6,154		1.74		U.S. Government sponsored enterprises	31		2.73		978		1.99		2,426		2.64		6,467		1.63
U.S. Government agency issued or guaranteed	U.S. Government agency issued or guaranteed	0		0		96		1.79		1		7.87		7,717		2.12		U.S. Government agency issued or guaranteed	0		0		95		1.78		1		7.87		9,400		1.93

Asset-backed securities	Asset-backed securities	0		0		0		0		59		5.06		75		3.36		Asset-backed securities	0		0		0		0		59		5.05		74		3.39

Foreign debt securities	Foreign debt securities	1,840		.51		1,177		.68		0		0		0		0		Foreign debt securities	1,210		.29		1,201		.68		0		0		0		0
Total amortized cost	Total amortized cost	$	3,308	1.36	%	$	5,336	1.44	%	$	8,215	1.79	%	$	17,602	2.02	%	Total amortized cost	$	2,006	1.76	%	$	5,198	1.46	%	$	6,985	1.85	%	$	20,261	1.88	%
Total fair value	Total fair value	$	3,326			$	5,454			$	8,286			$	17,593			Total fair value	$	2,016			$	5,311			$	7,149			$	20,241
Held-to-maturity:	Held-to-maturity:																	Held-to-maturity:
U.S. Government sponsored enterprises	U.S. Government sponsored enterprises	$	74	2.39	%	$	242	2.71	%	$	397	2.24	%	$	988	3.27	%	U.S. Government sponsored enterprises	$	8	2.76	%	$	238	2.70	%	$	359	2.25	%	$	867	3.29	%
U.S. Government agency issued or guaranteed	U.S. Government agency issued or guaranteed	0		0		8		4.02		11		4.76		6,109		2.56		U.S. Government agency issued or guaranteed	3		4.18		0		0		10		4.65		5,265		2.57
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	1		2.72		5		3.47		2		4.21		0		0		Obligations of U.S. states and political subdivisions	1		2.61		6		3.25		2		4.23		0		0
Asset-backed securities	Asset-backed securities	0		0		0		0		0		0		2		5.85		Asset-backed securities	0		0		0		0		0		0		1		7.51

Total amortized cost	Total amortized cost	$	75	2.39	%	$	255	2.78	%	$	410	2.31	%	$	7,099	2.66	%	Total amortized cost	$	12	3.10	%	$	244	2.72	%	$	371	2.32	%	$	6,133	2.67	%
Total fair value	Total fair value	$	75			$	265			$	425			$	7,401			Total fair value	$	12			$	251			$	384			$	6,380

Equity Securities Equity securities that are not classified as trading and are included in other assets consisted of the following:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Equity securities carried at fair value	Equity securities carried at fair value	$	282	$	284	Equity securities carried at fair value	$	284	$	284
Equity securities without readily determinable fair values	Equity securities without readily determinable fair values	14		14		Equity securities without readily determinable fair values	16		14

On a quarterly basis, we perform an assessment to determine whether any equity securities without readily determinable fair values are impaired. In the event an equity security is deemed impaired, the security is written down to fair value with ~~impairment recorded in earnings. During the three months ended March 31, 2021 and 2020, NaN of our equity securities without readily determinable fair values were determined to be impaired.~~

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HSBC USA Inc.

impairment recorded in earnings. During the second quarter of 2021, we recorded an impairment loss of $3 million associated with certain equity securities without readily determinable fair values that we determined were impaired as a component of other income (loss) in the consolidated statement of income (loss) compared with recording an impairment loss of $2 million during the second quarter of 2020.

Also included in other assets were investments in Federal Home Loan Bank ("FHLB") stock and Federal Reserve Bank stock of ~~$192~~$155 million and ~~$559~~$558 million, respectively, at ~~March 31,~~June 30, 2021 and $259 million and $559 million, respectively, at December 31, 2020.

5.6. Loans

Loans consisted of the following:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Commercial loans:	Commercial loans:					Commercial loans:
Real estate, including construction	Real estate, including construction	$	10,087	$	10,464	Real estate, including construction	$	9,692	$	10,464
Business and corporate banking(1)	Business and corporate banking(1)	13,125		13,479		Business and corporate banking(1)	12,139		13,479
Global banking(2)	Global banking(2)	13,157		13,519		Global banking(2)	11,119		13,519
Other commercial:	Other commercial:					Other commercial:
Affiliates(3)	Affiliates(3)	1,652		1,100		Affiliates(3)	1,406		1,100
Other	Other	3,131		3,037		Other	3,445		3,037
Total other commercial	Total other commercial	4,783		4,137		Total other commercial	4,851		4,137
Total commercial	Total commercial	41,152		41,599		Total commercial	37,801		41,599
Consumer loans:	Consumer loans:					Consumer loans:
Residential mortgages	Residential mortgages	18,425		18,377		Residential mortgages	16,066		18,377
Home equity mortgages	Home equity mortgages	698		727		Home equity mortgages	388		727
Credit cards	Credit cards	937		1,066		Credit cards	0		1,066
Other consumer(4)	Other consumer(4)	314		319		Other consumer(4)	143		319
Total consumer(5)	Total consumer(5)	20,374		20,489		Total consumer(5)	16,597		20,489
Total loans	Total loans	$	61,526	$	62,088	Total loans	$	54,398	$	62,088

(1)Includes loans funded under the Paycheck Protection Program ("PPP") which totaled ~~$1,294~~$819 million and $1,043 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. PPP loans are fully guaranteed by the Small Business Administration, if certain conditions are met.

(2)Represents large multinational firms including globally focused U.S. corporate and financial institutions, U.S. dollar lending to multinational banking clients managed by HSBC on a global basis and complex large business clients supported by Global Banking and Markets relationship managers.

(3)See Note ~~14,~~15, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

(4)Includes certain student loans that we have elected to designate under the fair value option and are therefore carried at fair value, which totaled ~~$30~~$29 million and $32 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. See Note ~~10,~~11, "Fair Value Option," for further details.

(5)The decrease in loans at June 30, 2021 includes 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 the transfer of certain loans to held for sale during the second quarter of 2021. See Note 8, "Loans Held for Sale," for additional information.

Net deferred origination costs totaled ~~$51~~$27 million and $57 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. At ~~March 31,~~June 30, 2021 and December 31, 2020, we had a net unamortized premium on our loans of $8$7 million and $9 million, respectively.

Coronavirus ("COVID-19") Loan Forbearance Initiatives We have implemented various loan modification programs to provide borrowers relief from the economic impacts of the COVID-19 pandemic. In 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law, which provided financial institutions with the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings ("TDR Loans") beginning March 1, 2020. This TDR Loan guidance can be applied until the earlier of January 1, 2022 or 60 days following the termination of the presidentially declared national emergency. We elected to adopt the TDR Loan guidance in the CARES Act and are not applying TDR Loan classification to COVID-19 related loan modifications in the form of a long-term payment deferral (for commercial loans all payment modifications, including all payment deferrals) granted to borrowers that were current (less than 30 days past due) as of December 31, 2019 which otherwise may have been reported as TDR Loans.


HSBC USA Inc.

In 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 are not TDR Loans. Borrowers that do not meet the criteria in the CARES Act or the Interagency Statement are assessed for TDR Loan classification in accordance with our accounting policies.


~~HSBC USA Inc.~~

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 will not be affected during the deferral period and, if the loan was accruing at the time the relief was granted, the loan will generally not be placed on nonaccrual status as long as the borrower utilizes a payment deferral of six months or less. For consumer mortgage loans, when a borrower utilizes a payment deferral of more than six months, the loan will generally be placed on nonaccrual status and, if the loan does not meet the criteria in the CARES Act, assessed for TDR Loan classification. Any accrued interest recorded on these loans is generally not reversed against income and will remain recorded as accrued interest receivable. We have not modified our commercial loan nonaccrual policies as a result of this guidance.


HSBC USA Inc.

Aging Analysis of Past Due Loans The following table summarizes the past due status of our loans at ~~March 31,~~June 30, 2021 and December 31, 2020. The aging of past due amounts is determined based on the contractual delinquency status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status is affected by customer account management policies and practices such as re-age, which results in the re-setting of the contractual delinquency status to current. For COVID-19 related loan modifications in the form of a payment deferral, the borrower’s past due status will not be affected during the deferral period.


		Past Due				Total Past Due 30 Days or More														Past Due								Total Past Due 30 Days or More
		30 - 89 Days		90+ Days				Current(1)				Total Loans							30 - 89 Days			90+ Days								Current(1)				Total Loans
		(in millions)																		(in millions)
At March 31, 2021
At June 30, 2021																At June 30, 2021
Commercial loans:	Commercial loans:															Commercial loans:
Real estate, including construction	Real estate, including construction	$	79	$	32			$	111			$	9,976			$	10,087	Real estate, including construction				$	50			$	5			$	55			$	9,637			$	9,692
Business and corporate banking	Business and corporate banking	42		22		64				13,061				13,125		Business and corporate banking				33				14				47				12,092				12,139
Global banking	Global banking	3		138		141				13,016				13,157		Global banking				0				8				8				11,111				11,119
Other commercial	Other commercial	32		0		32				4,751				4,783		Other commercial				1				1				2				4,849				4,851
Total commercial	Total commercial	156		192		348				40,804				41,152		Total commercial				84				28				112				37,689				37,801
Consumer loans:	Consumer loans:															Consumer loans:
Residential mortgages	Residential mortgages	280		333		613				17,812				18,425		Residential mortgages				255				306				561				15,505				16,066
Home equity mortgages	Home equity mortgages	8		22		30				668				698		Home equity mortgages				5				20				25				363				388
Credit cards	Credit cards	17		28		45				892				937		Credit cards				0				0				0				0				0
Other consumer	Other consumer	5		7		12				302				314		Other consumer				3				3				6				137				143
Total consumer		310		390		700				19,674				20,374
Total consumer(2)																Total consumer(2)				263				329				592				16,005				16,597
Total loans	Total loans	$	466	$	582	$	1,048			$	60,478			$	61,526	Total loans				$	347			$	357			$	704			$	53,694			$	54,398
At December 31, 2020	At December 31, 2020															At December 31, 2020
Commercial loans:	Commercial loans:															Commercial loans:
Real estate, including construction	Real estate, including construction	$	78	$	0	$	78			$	10,386			$	10,464	Real estate, including construction				$	78			$	0			$	78			$	10,386			$	10,464
Business and corporate banking	Business and corporate banking	126		19		145				13,334				13,479		Business and corporate banking				126				19				145				13,334				13,479
Global banking	Global banking	0		60		60				13,459				13,519		Global banking				0				60				60				13,459				13,519
Other commercial	Other commercial	24		0		24				4,113				4,137		Other commercial				24				0				24				4,113				4,137
Total commercial	Total commercial	228		79		307				41,292				41,599		Total commercial				228				79				307				41,292				41,599
Consumer loans:	Consumer loans:															Consumer loans:
Residential mortgages	Residential mortgages	435		311		746				17,631				18,377		Residential mortgages				435				311				746				17,631				18,377
Home equity mortgages	Home equity mortgages	11		22		33				694				727		Home equity mortgages				11				22				33				694				727
Credit cards	Credit cards	23		19		42				1,024				1,066		Credit cards				23				19				42				1,024				1,066
Other consumer	Other consumer	7		6		13				306				319		Other consumer				7				6				13				306				319
Total consumer	Total consumer	476		358		834				19,655				20,489		Total consumer				476				358				834				19,655				20,489
Total loans	Total loans	$	704	$	437	$	1,141			$	60,947			$	62,088	Total loans				$	704			$	437			$	1,141			$	60,947			$	62,088

(1)Loans less than 30 days past due are presented as current.

(2)The decrease in past due loans at June 30, 2021 includes 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 the transfer of certain loans to held for sale during the second quarter of 2021, including $115 million of consumer loans which were past due 30 days or more.


HSBC USA Inc.

Nonperforming Loans Nonperforming loans, including nonaccrual loans and accruing loans contractually 90 days or more past due, consisted of the following:


		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 Days or More		Nonaccrual Loans With No Allowance For Credit Losses			Nonaccrual Loans		Accruing Loans Contractually Past Due 90 Days or More		Nonaccrual Loans With No Allowance For Credit Losses
		(in millions)							(in millions)
At March 31, 2021
At June 30, 2021								At June 30, 2021
Commercial:	Commercial:							Commercial:
Real estate, including construction	Real estate, including construction	$	54	$	0	$	39	Real estate, including construction	$	105	$	0	$	9
Business and corporate banking	Business and corporate banking	172		0		19		Business and corporate banking	159		1		76
Global banking	Global banking	252		0		47		Global banking	137		0		95

Total commercial	Total commercial	478		0		105		Total commercial	401		1		180
Consumer:	Consumer:							Consumer:
Residential mortgages(1)(2)(3)	Residential mortgages(1)(2)(3)	1,101		0		231		Residential mortgages(1)(2)(3)	844		0		229
Home equity mortgages(1)(2)	Home equity mortgages(1)(2)	64		0		33		Home equity mortgages(1)(2)	50		0		27
Credit cards	Credit cards	0		28		0		Credit cards	0		0		0
Other consumer	Other consumer	0		3		0		Other consumer	0		0		0
Total consumer(4)	Total consumer(4)	1,165		31		264		Total consumer(4)	894		0		256
Total nonperforming loans	Total nonperforming loans	$	1,643	$	31	$	369	Total nonperforming loans	$	1,295	$	1	$	436
At December 31, 2020	At December 31, 2020							At December 31, 2020
Commercial:	Commercial:							Commercial:
Real estate, including construction	Real estate, including construction	$	44	$	0	$	31	Real estate, including construction	$	44	$	0	$	31
Business and corporate banking	Business and corporate banking	163		0		1		Business and corporate banking	163		0		1
Global banking	Global banking	337		0		93		Global banking	337		0		93

Total commercial	Total commercial	544		0		125		Total commercial	544		0		125
Consumer:	Consumer:							Consumer:
Residential mortgages(1)(2)(3)	Residential mortgages(1)(2)(3)	1,079		0		241		Residential mortgages(1)(2)(3)	1,079		0		241
Home equity mortgages(1)(2)	Home equity mortgages(1)(2)	63		0		34		Home equity mortgages(1)(2)	63		0		34
Credit cards	Credit cards	0		19		0		Credit cards	0		19		0
Other consumer	Other consumer	0		2		0		Other consumer	0		2		0
Total consumer	Total consumer	1,142		21		275		Total consumer	1,142		21		275
Total nonperforming loans	Total nonperforming loans	$	1,686	$	21	$	400	Total nonperforming loans	$	1,686	$	21	$	400

(1)At ~~March 31,~~June 30, 2021 and December 31, 2020, nonaccrual consumer mortgage loans include ~~$371~~$343 million and $375 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

(2)Nonaccrual consumer mortgage loans include all loans which are 90 or more days contractually delinquent as well as loans discharged under Chapter 7 bankruptcy and not re-affirmed and second lien loans where the first lien loan that we own or service is 90 or more days contractually delinquent. At ~~March 31,~~June 30, 2021 and December 31, 2020, nonaccrual consumer mortgage loans also included ~~$535~~$384 million and $590 million, respectively, of loans under COVID-19 related payment deferral programs where the borrowers utilized a payment deferral of more than six months and, as a result, have been placed on nonaccrual status.

(3)Nonaccrual consumer mortgage loans for all periods does not include guaranteed loans purchased from the Government National Mortgage Association. Repayment of these loans is predominantly insured by the Federal Housing Administration and as such, these loans have different risk characteristics from the rest of our consumer loan portfolio.

(4)The ~~following table provides additional information on~~decrease in nonperforming loans at June 30, 2021 includes the impact of our ~~nonaccrual loans:~~

Three Months Ended March 31, 2021 2020
(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period $ 18 $ 8
Interest income that was recorded on nonaccrual loans and included in interest income during the period 15 7
decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio which resulted in the transfer of certain loans to held for sale during the second quarter of 2021, including $206 million of nonperforming consumer loans, of which $21 million were accruing loans contractually 90 days or more past due.

1923


HSBC USA Inc.

The following table provides additional information on our nonaccrual loans:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	15	$	11	$	33	$	19
Interest income that was recorded on nonaccrual loans and included in interest income during the period	10		(1)		25		6

Collateral-Dependent Loans Loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty are considered to be collateral-dependent loans. Collateral can have a significant financial effect in mitigating our exposure to credit risk.

Collateral-dependent residential mortgage loans are carried at the lower of amortized cost or fair value of the collateral less costs to sell, with any excess in the carrying amount of the loan generally charged off at the time foreclosure is initiated or when settlement is reached with the borrower, but not to exceed the end of the month in which the account becomes six months contractually delinquent. Collateral values are based on broker price opinions or appraisals which are updated at least every 180 days less estimated costs to sell. During the quarterly period between updates, real estate price trends are reviewed on a geographic basis and incorporated as necessary. At ~~March 31,~~June 30, 2021 and December 31, 2020, we had collateral-dependent residential mortgage loans totaling ~~$805~~$650 million and $817 million, respectively.

For collateral-dependent commercial loans, the allowance for expected credit losses is individually assessed based on the fair value of the collateral. Various types of collateral are used, including real estate, inventory, equipment, accounts receivable, securities and cash, among others. For commercial real estate loans, collateral values are generally based on appraisals which are updated based on management judgment under the specific circumstances on a case-by-case basis. In situations where an appraisal is not used, borrower-specific factors such as operating results, cash flows and debt service ratios are reviewed along with relevant market data of comparable properties in order to create a 10-year cash flow model to be discounted at appropriate rates to present value. The collateral value for securities is based on their quoted market prices or broker quotes. The collateral value for other financial assets is generally based on appraisals or is estimated using a discounted cash flow analysis. Commercial loan balances are charged off at the time all or a portion of the balance is deemed uncollectible. At ~~March 31,~~June 30, 2021 and December 31, 2020, we had collateral-dependent commercial loans totaling ~~$431~~$357 million and $456 million, respectively.

Troubled debt restructurings TDR Loans represent loans for which the original contractual terms have been modified to provide for terms that are less than what we would be willing to accept for new loans with comparable risk because of deterioration in the borrower's financial condition.

Modifications for consumer or commercial loans may include changes to one or more terms of the loan, including, but not limited to, a change in interest rate, extension of the amortization period, reduction in payment amount and partial forgiveness or deferment of principal, accrued interest or other loan covenants. A substantial amount of our modifications involve interest rate reductions on consumer loans, which lower the amount of interest income we are contractually entitled to receive in future periods. Through lowering the interest rate and other loan term changes, we believe we are able to increase the amount of cash flow that will ultimately be collected from the loan, given the borrower's financial condition. Once a consumer loan is classified as a TDR Loan, it continues to be reported as such until it is paid off or charged-off. For commercial loans, if subsequent performance is in accordance with the new terms and the loan is upgraded, it is possible the loan will no longer be reported as a TDR Loan at the earliest one year after the restructuring. During the three and six months ended ~~March 31,~~June 30, 2021 and 2020, there were 0 commercial loans that met this criteria and were removed from TDR Loan classification.

As previously discussed, we have implemented various loan modification payment deferral programs to provide borrowers relief from the economic impacts of COVID-19. Substantially all of the loans under these programs are not classified as TDR Loans due to our election to suspend TDR Loan classification under the CARES Act or their short-term nature as discussed under the Interagency Statement.

2024


HSBC USA Inc.

The following table summarizes our TDR Loans at ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021			December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)		(in millions)
Commercial loans:	Commercial loans:						Commercial loans:

Business and corporate banking	Business and corporate banking	$	118		$	94	Business and corporate banking	$	121	$	94
Global banking	Global banking	44			74		Global banking	23		74

Total commercial(1)(2)	Total commercial(1)(2)	162			168		Total commercial(1)(2)	144		168
Consumer loans:	Consumer loans:						Consumer loans:
Residential mortgages(3)(4)	Residential mortgages(3)(4)	585			582		Residential mortgages(3)(4)	428		582
Home equity mortgages(3)(4)	Home equity mortgages(3)(4)	31			31		Home equity mortgages(3)(4)	18		31
Credit cards	Credit cards	5			5		Credit cards	0		5

Total consumer(5)	Total consumer(5)	621			618		Total consumer(5)	446		618
Total TDR Loans~~(5)~~(6)	Total TDR Loans~~(5)~~(6)	$	783		$	786	Total TDR Loans~~(5)~~(6)	$	590	$	786

(1)Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled ~~$35~~$32 million and $107 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(2)Not included in the table at ~~March 31,~~June 30, 2021 and December 31, 2020 are ~~$781~~$551 million and $924 million, respectively, of commercial loans that were exempted from TDR assessment due to our CARES Act election.

(3)At ~~March 31,~~June 30, 2021 and December 31, 2020, the carrying value of consumer mortgage TDR Loans includes ~~$478~~$343 million and $487 million, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.

(4)Not included in the table at ~~March 31,~~June 30, 2021 and December 31, 2020 are ~~$646~~$424 million and $736 million, respectively, of consumer mortgage loans under COVID-19 related payment deferral programs where the borrowers were provided with extended payment deferral relief of more than six months that were exempted from TDR assessment due to our CARES Act election.

(5)The decrease in TDR Loans at June 30, 2021 includes 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 the transfer of certain loans to held for sale during the second quarter of 2021, including $159 million of consumer TDR Loans.

(6)At ~~March 31,~~June 30, 2021 and December 31, 2020, the carrying value of TDR Loans includes ~~$458~~$388 million and $463 million, respectively, of loans which are classified as nonaccrual.

The following table presents information about loans which were modified during the three and six months ended ~~March 31,~~June 30, 2021 and 2020 and as a result of this action became classified as TDR Loans:


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Commercial loans:	Commercial loans:							Commercial loans:

Business and corporate banking	Business and corporate banking	$	26		$	0		Business and corporate banking	$	0	$	4	$	26	$	4
Global banking	Global banking	15			12			Global banking	0		32		15		44

Total commercial	Total commercial	41			12			Total commercial	0		36		41		48
Consumer loans:	Consumer loans:							Consumer loans:
Residential mortgages	Residential mortgages	16			4			Residential mortgages	16		3		32		7
Home equity mortgages	Home equity mortgages	0			1			Home equity mortgages	1		1		1		2
Credit cards	Credit cards	1			1			Credit cards	0		1		1		2
Total consumer	Total consumer	17			6			Total consumer	17		5		34		11
Total	Total	$	58		$	18		Total	$	17	$	41	$	75	$	59

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and six months ended ~~March 31,~~June 30, 2021 ~~and 2020~~ was ~~1.97~~2.09 percent and ~~3.04~~2.07 percent, respectively, compared with 1.07 percent and 2.65 percent during the three and six months ended June 30, 2020, respectively. The weighted-average contractual rate reduction for commercial loans was not significant in either the number of loans or rate.


HSBC USA Inc.

The following table presents consumer loans which were classified as TDR Loans during the previous 12 months which subsequently became 60 days or greater contractually delinquent during the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)

Consumer loans:	Consumer loans:							Consumer loans:
Residential mortgages	Residential mortgages	$	3		$	1		Residential mortgages	$	0	$	0	$	3	$	1

Total consumer	Total consumer	$	3		$	1		Total consumer	$	0	$	0	$	3	$	1

During the three and six months ended ~~March 31,~~June 30, 2021 and 2020, there were 0 commercial TDR Loans which were classified as TDR Loans during the previous 12 months which subsequently became 90 days or greater contractually delinquent.


~~HSBC USA Inc.~~

Commercial Loan Credit Quality Indicators The following credit quality indicators are utilized to monitor our commercial loan portfolio:

Criticized loans Criticized loan classifications presented in the table below are determined by the assignment of various criticized facility grades based on the risk rating standards of our regulator. The following facility grades are deemed to be criticized:

Special Mention - generally includes loans that are protected by collateral and/or the credit worthiness of the customer, but are potentially weak based upon economic or market circumstances which, if not checked or corrected, could weaken our credit position at some future date.

Substandard - includes loans that are inadequately protected by the underlying collateral and/or general credit worthiness of the customer. These loans present a distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful - includes loans that have all the weaknesses exhibited by substandard loans, with the added characteristic that the weaknesses make collection or liquidation in full of the recorded loan highly improbable. However, although the possibility of loss is extremely high, certain factors exist which may strengthen the credit at some future date, and therefore the decision to charge-off the loan is deferred. Loans graded as doubtful are required to be placed in nonaccrual status.


HSBC USA Inc.

The following table summarizes our criticized commercial loans, including a disaggregation of the loans by year of origination as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Mar. 31, 2021				2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Jun. 30, 2021
		(in millions)																		(in millions)
Real estate, including construction:	Real estate, including construction:																				Real estate, including construction:
Special mention	Special mention	$	0	$	0	$	162	$	205	$	210	$	376	$	0	$	0	$	953		Special mention	$	0	$	0	$	482	$	330	$	271	$	335	$	0	$	0	$	1,418
Substandard	Substandard	0		0		415		0		168		184		0		0		767			Substandard	0		0		208		18		223		290		21		11		771
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0			Doubtful	0		0		81		3		0		12		0		0		96
Total real estate, including construction	Total real estate, including construction	0		0		577		205		378		560		0		0		1,720			Total real estate, including construction	0		0		771		351		494		637		21		11		2,285
Business and corporate banking:	Business and corporate banking:																				Business and corporate banking:
Special mention	Special mention	0		18		21		63		29		463		575		36		1,205			Special mention	0		2		21		43		2		276		409		9		762
Substandard	Substandard	0		5		33		32		31		224		389		5		719			Substandard	0		0		25		22		1		361		338		8		755
Doubtful	Doubtful	0		0		0		0		0		47		55		0		102			Doubtful	0		0		0		4		0		35		44		0		83
Total business and corporate banking	Total business and corporate banking	0		23		54		95		60		734		1,019		41		2,026			Total business and corporate banking	0		2		46		69		3		672		791		17		1,600
Global banking:	Global banking:																				Global banking:
Special mention	Special mention	0		0		0		0		0		105		70		0		175			Special mention	8		0		0		0		0		68		62		0		138
Substandard	Substandard	0		0		0		0		0		91		332		0		423			Substandard	0		0		0		0		0		151		276		0		427
Doubtful	Doubtful	0		0		0		0		0		138		56		0		194			Doubtful	0		0		0		0		0		0		31		0		31
Total global banking	Total global banking	0		0		0		0		0		334		458		0		792			Total global banking	8		0		0		0		0		219		369		0		596
Other commercial:	Other commercial:																				Other commercial:
Special mention	Special mention	0		0		0		0		8		50		40		0		98			Special mention	0		0		0		0		0		8		40		0		48
Substandard	Substandard	0		0		0		0		0		70		0		0		70			Substandard	0		0		0		0		0		70		0		0		70
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0			Doubtful	0		0		0		0		0		0		0		0		0
Total other commercial	Total other commercial	0		0		0		0		8		120		40		0		168			Total other commercial	0		0		0		0		0		78		40		0		118
Total commercial:	Total commercial:																				Total commercial:
Special mention	Special mention	0		18		183		268		247		994		685		36		2,431			Special mention	8		2		503		373		273		687		511		9		2,366
Substandard	Substandard	0		5		448		32		199		569		721		5		1,979			Substandard	0		0		233		40		224		872		635		19		2,023
Doubtful	Doubtful	0		0		0		0		0		185		111		0		296			Doubtful	0		0		81		7		0		47		75		0		210
Total commercial	Total commercial	$	0	$	23	$	631	$	300	$	446	$	1,748	$	1,517	$	41	$	4,706		Total commercial	$	8	$	2	$	817	$	420	$	497	$	1,606	$	1,221	$	28	$	4,599

2227


HSBC USA Inc.


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Dec. 31, 2020
	(in millions)
Real estate, including construction:
Special mention	$	0	$	306	$	115	$	171	$	85	$	437	$	0	$	0	$	1,114
Substandard	0		186		0		169		0		86		0		0		441
Doubtful	0		0		0		0		0		0		0		0		0
Total real estate, including construction	0		492		115		340		85		523		0		0		1,555
Business and corporate banking:
Special mention	17		71		43		32		10		390		600		48		1,211
Substandard	1		44		25		23		31		181		435		1		741
Doubtful	0		0		0		0		0		41		57		0		98
Total business and corporate banking	18		115		68		55		41		612		1,092		49		2,050
Global banking:
Special mention	0		0		0		0		0		142		98		0		240
Substandard	0		0		48		0		0		131		477		0		656
Doubtful	0		0		0		0		0		82		160		0		242
Total global banking	0		0		48		0		0		355		735		0		1,138
Other commercial:
Special mention	0		0		0		0		0		44		40		0		84
Substandard	0		0		0		0		0		70		0		0		70
Doubtful	0		0		0		0		0		0		0		0		0
Total other commercial	0		0		0		0		0		114		40		0		154
Total commercial:
Special mention	17		377		158		203		95		1,013		738		48		2,649
Substandard	1		230		73		192		31		468		912		1		1,908
Doubtful	0		0		0		0		0		123		217		0		340
Total commercial	$	18	$	607	$	231	$	395	$	126	$	1,604	$	1,867	$	49	$	4,897

2328


HSBC USA Inc.

Nonperforming The following table summarizes the nonperforming status of our commercial loan portfolio, including a disaggregation of the loans by year of origination as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Mar. 31, 2021				2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Jun. 30, 2021
		(in millions)																		(in millions)
Real estate, including construction:	Real estate, including construction:																				Real estate, including construction:
Performing loans	Performing loans	$	0	$	563	$	3,663	$	2,753	$	1,300	$	1,681	$	56	$	17	$	10,033		Performing loans	$	6	$	596	$	3,526	$	2,752	$	1,104	$	1,536	$	50	$	17	$	9,587
Nonaccrual loans	Nonaccrual loans	0		0		0		32		0		22		0		0		54			Nonaccrual loans	0		0		81		3		0		21		0		0		105
Accruing loans contractually past due 90 days or more	Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0			Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total real estate, including construction	Total real estate, including construction	0		563		3,663		2,785		1,300		1,703		56		17		10,087			Total real estate, including construction	6		596		3,607		2,755		1,104		1,557		50		17		9,692
Business and corporate banking:	Business and corporate banking:																				Business and corporate banking:
Performing loans	Performing loans	46		1,202		622		230		261		4,074		6,213		305		12,953			Performing loans	323		1,016		537		233		215		3,884		5,479		292		11,979
Nonaccrual loans	Nonaccrual loans	0		2		15		17		57		2		77		2		172			Nonaccrual loans	0		5		14		16		56		2		66		0		159
Accruing loans contractually past due 90 days or more	Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0			Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		1		0		1
Total business and corporate banking	Total business and corporate banking	46		1,204		637		247		318		4,076		6,290		307		13,125			Total business and corporate banking	323		1,021		551		249		271		3,886		5,546		292		12,139
Global banking:	Global banking:																				Global banking:
Performing loans	Performing loans	117		605		358		199		238		6,193		5,195		0		12,905			Performing loans	357		677		346		198		235		4,651		4,518		0		10,982
Nonaccrual loans	Nonaccrual loans	0		0		0		0		0		125		127		0		252			Nonaccrual loans	0		0		0		0		0		45		92		0		137
Accruing loans contractually past due 90 days or more	Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0			Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total global banking	Total global banking	117		605		358		199		238		6,318		5,322		0		13,157			Total global banking	357		677		346		198		235		4,696		4,610		0		11,119
Other commercial:	Other commercial:																				Other commercial:
Performing loans	Performing loans	44		436		402		215		113		780		2,793		0		4,783			Performing loans	253		455		419		203		127		927		2,467		0		4,851
Nonaccrual loans	Nonaccrual loans	0		0		0		0		0		0		0		0		0			Nonaccrual loans	0		0		0		0		0		0		0		0		0
Accruing loans contractually past due 90 days or more	Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0			Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total other commercial	Total other commercial	44		436		402		215		113		780		2,793		0		4,783			Total other commercial	253		455		419		203		127		927		2,467		0		4,851
Total commercial:	Total commercial:																				Total commercial:
Performing loans	Performing loans	207		2,806		5,045		3,397		1,912		12,728		14,257		322		40,674			Performing loans	939		2,744		4,828		3,386		1,681		10,998		12,514		309		37,399
Nonaccrual loans	Nonaccrual loans	0		2		15		49		57		149		204		2		478			Nonaccrual loans	0		5		95		19		56		68		158		0		401
Accruing loans contractually past due 90 days or more	Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0			Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		1		0		1
Total commercial	Total commercial	$	207	$	2,808	$	5,060	$	3,446	$	1,969	$	12,877	$	14,461	$	324	$	41,152		Total commercial	$	939	$	2,749	$	4,923	$	3,405	$	1,737	$	11,066	$	12,673	$	309	$	37,801

2429


HSBC USA Inc.


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Dec. 31, 2020
	(in millions)
Real estate, including construction:
Performing loans	$	545	$	3,775	$	2,775	$	1,368	$	264	$	1,594	$	79	$	20	$	10,420
Nonaccrual loans	0		0		24		0		0		20		0		0		44
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total real estate, including construction	545		3,775		2,799		1,368		264		1,614		79		20		10,464
Business and corporate banking:
Performing loans	1,079		606		253		275		151		3,485		7,145		322		13,316
Nonaccrual loans	1		15		12		60		1		3		71		0		163
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total business and corporate banking	1,080		621		265		335		152		3,488		7,216		322		13,479
Global banking:
Performing loans	507		495		190		231		104		6,023		5,632		0		13,182
Nonaccrual loans	0		0		0		0		0		127		210		0		337
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total global banking	507		495		190		231		104		6,150		5,842		0		13,519
Other commercial:
Performing loans	378		431		215		105		119		630		2,259		0		4,137
Nonaccrual loans	0		0		0		0		0		0		0		0		0
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total other commercial	378		431		215		105		119		630		2,259		0		4,137
Total commercial:
Performing loans	2,509		5,307		3,433		1,979		638		11,732		15,115		342		41,055
Nonaccrual loans	1		15		36		60		1		150		281		0		544
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0		0
Total commercial	$	2,510	$	5,322	$	3,469	$	2,039	$	639	$	11,882	$	15,396	$	342	$	41,599

2530


HSBC USA Inc.

Credit risk profile Commercial loans are assigned a credit rating based on the estimated probability of default. Investment grade includes loans with credit ratings of at least BBB- or above or the equivalent based on our internal credit rating system. The following table summarizes the credit risk profile of our commercial loan portfolio, including a disaggregation of the loans by year of origination as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Mar. 31, 2021				2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Jun. 30, 2021
		(in millions)																		(in millions)
Real estate, including construction:	Real estate, including construction:																				Real estate, including construction:
Investment grade	Investment grade	$	0	$	339	$	917	$	979	$	342	$	542	$	5	$	0	$	3,124		Investment grade	$	6	$	340	$	672	$	793	$	251	$	378	$	15	$	0	$	2,455
Non-investment grade	Non-investment grade	0		224		2,746		1,806		958		1,161		51		17		6,963			Non-investment grade	0		256		2,935		1,962		853		1,179		35		17		7,237
Total real estate, including construction	Total real estate, including construction	0		563		3,663		2,785		1,300		1,703		56		17		10,087			Total real estate, including construction	6		596		3,607		2,755		1,104		1,557		50		17		9,692
Business and corporate banking:	Business and corporate banking:																				Business and corporate banking:
Investment grade	Investment grade	16		340		176		40		30		1,820		2,145		36		4,603			Investment grade	16		383		140		46		14		1,651		2,192		78		4,520
Non-investment grade	Non-investment grade	30		864		461		207		288		2,256		4,145		271		8,522			Non-investment grade	307		638		411		203		257		2,235		3,354		214		7,619
Total business and corporate banking	Total business and corporate banking	46		1,204		637		247		318		4,076		6,290		307		13,125			Total business and corporate banking	323		1,021		551		249		271		3,886		5,546		292		12,139
Global banking:	Global banking:																				Global banking:
Investment grade	Investment grade	117		567		331		52		234		4,146		4,044		0		9,491			Investment grade	313		644		316		53		234		3,637		3,868		0		9,065
Non-investment grade	Non-investment grade	0		38		27		147		4		2,172		1,278		0		3,666			Non-investment grade	44		33		30		145		1		1,059		742		0		2,054
Total global banking	Total global banking	117		605		358		199		238		6,318		5,322		0		13,157			Total global banking	357		677		346		198		235		4,696		4,610		0		11,119
Other commercial:	Other commercial:																				Other commercial:
Investment grade	Investment grade	5		423		145		214		113		659		2,601		0		4,160			Investment grade	34		449		171		202		107		764		2,287		0		4,014
Non-investment grade	Non-investment grade	39		13		257		1		0		121		192		0		623			Non-investment grade	219		6		248		1		20		163		180		0		837
Total other commercial	Total other commercial	44		436		402		215		113		780		2,793		0		4,783			Total other commercial	253		455		419		203		127		927		2,467		0		4,851
Total commercial:	Total commercial:																				Total commercial:
Investment grade	Investment grade	138		1,669		1,569		1,285		719		7,167		8,795		36		21,378			Investment grade	369		1,816		1,299		1,094		606		6,430		8,362		78		20,054
Non-investment grade	Non-investment grade	69		1,139		3,491		2,161		1,250		5,710		5,666		288		19,774			Non-investment grade	570		933		3,624		2,311		1,131		4,636		4,311		231		17,747
Total commercial	Total commercial	$	207	$	2,808	$	5,060	$	3,446	$	1,969	$	12,877	$	14,461	$	324	$	41,152		Total commercial	$	939	$	2,749	$	4,923	$	3,405	$	1,737	$	11,066	$	12,673	$	309	$	37,801


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Dec. 31, 2020
	(in millions)
Real estate, including construction:
Investment grade	$	339	$	1,123	$	817	$	318	$	179	$	640	$	6	$	0	$	3,422
Non-investment grade	206		2,652		1,982		1,050		85		974		73		20		7,042
Total real estate, including construction	545		3,775		2,799		1,368		264		1,614		79		20		10,464
Business and corporate banking:
Investment grade	342		147		37		34		23		1,486		2,499		47		4,615
Non-investment grade	738		474		228		301		129		2,002		4,717		275		8,864
Total business and corporate banking	1,080		621		265		335		152		3,488		7,216		322		13,479
Global banking:
Investment grade	464		477		46		231		30		4,618		4,281		0		10,147
Non-investment grade	43		18		144		0		74		1,532		1,561		0		3,372
Total global banking	507		495		190		231		104		6,150		5,842		0		13,519
Other commercial:
Investment grade	372		163		117		105		116		525		1,932		0		3,330
Non-investment grade	6		268		98		0		3		105		327		0		807
Total other commercial	378		431		215		105		119		630		2,259		0		4,137
Total commercial:
Investment grade	1,517		1,910		1,017		688		348		7,269		8,718		47		21,514
Non-investment grade	993		3,412		2,452		1,351		291		4,613		6,678		295		20,085
Total commercial	$	2,510	$	5,322	$	3,469	$	2,039	$	639	$	11,882	$	15,396	$	342	$	41,599

2631


HSBC USA Inc.

2020 2019 2018 2017 2016 Prior Revolving
Loans Revolving Loans Converted to Term Loans Total at Dec. 31, 2020
(in millions)
Real estate, including construction:
Investment grade $ 339 $ 1,123 $ 817 $ 318 $ 179 $ 640 $ 6 $ 0 $ 3,422
Non-investment grade 206 2,652 1,982 1,050 85 974 73 20 7,042
Total real estate, including construction 545 3,775 2,799 1,368 264 1,614 79 20 10,464
Business and corporate banking:
Investment grade 342 147 37 34 23 1,486 2,499 47 4,615
Non-investment grade 738 474 228 301 129 2,002 4,717 275 8,864
Total business and corporate banking 1,080 621 265 335 152 3,488 7,216 322 13,479
Global banking:
Investment grade 464 477 46 231 30 4,618 4,281 0 10,147
Non-investment grade 43 18 144 0 74 1,532 1,561 0 3,372
Total global banking 507 495 190 231 104 6,150 5,842 0 13,519
Other commercial:
Investment grade 372 163 117 105 116 525 1,932 0 3,330
Non-investment grade 6 268 98 0 3 105 327 0 807
Total other commercial 378 431 215 105 119 630 2,259 0 4,137
Total commercial:
Investment grade 1,517 1,910 1,017 688 348 7,269 8,718 47 21,514
Non-investment grade 993 3,412 2,452 1,351 291 4,613 6,678 295 20,085
Total commercial $ 2,510 $ 5,322 $ 3,469 $ 2,039 $ 639 $ 11,882 $ 15,396 $ 342 $ 41,599

Consumer Loan Credit Quality Indicators The following credit quality indicators are utilized to monitor our consumer loan portfolio:

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency for our consumer loan portfolio, including a disaggregation of the loans by year of origination as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		2021		2020		2019		2018		2017		Prior		Revolving Loans			Total at Mar. 31, 2021			2021		2020		2019		2018		2017		Prior		Revolving Loans		Total at Jun. 30, 2021
		(in millions)														(in millions)
Residential mortgages(1)(2)	Residential mortgages(1)(2)	$	0	$	7	$	19	$	21	$	28	$	325	$	0		$	400	Residential mortgages(1)(2)	$	8	$	4	$	12	$	24	$	22	$	302	$	0	$	372
Home equity mortgages(1)(2)	Home equity mortgages(1)(2)	0		0		0		0		0		25		0			25		Home equity mortgages(1)(2)	0		0		0		0		0		22		0		22
Credit cards	Credit cards	0		0		0		0		0		0		36			36		Credit cards	0		0		0		0		0		0		0		0
Other consumer	Other consumer	0		1		1		0		0		5		2			9		Other consumer	0		0		0		0		0		4		0		4
Total consumer	Total consumer	$	0	$	8	$	20	$	21	$	28	$	355	$	38		$	470	Total consumer	$	8	$	4	$	12	$	24	$	22	$	328	$	0	$	398


		2020		2019		2018		2017		2016		Prior		Revolving Loans			Total at Dec. 31, 2020			2020		2019		2018		2017		2016		Prior		Revolving Loans		Total at Dec. 31, 2020
		(in millions)														(in millions)
Residential mortgages(1)(2)	Residential mortgages(1)(2)	$	3	$	15	$	13	$	25	$	19	$	329	$	0		$	404	Residential mortgages(1)(2)	$	3	$	15	$	13	$	25	$	19	$	329	$	0	$	404
Home equity mortgages(1)(2)	Home equity mortgages(1)(2)	0		0		0		0		0		25		0			25		Home equity mortgages(1)(2)	0		0		0		0		0		25		0		25
Credit cards	Credit cards	0		0		0		0		0		0		28			28		Credit cards	0		0		0		0		0		0		28		28
Other consumer	Other consumer	1		1		0		0		0		0		2			8		Other consumer	1		1		0		0		0		4		2		8
Total consumer	Total consumer	$	4	$	16	$	13	$	25	$	19	$	354	$	30		$	465	Total consumer	$	4	$	16	$	13	$	25	$	19	$	358	$	30	$	465

(1)At ~~March 31,~~June 30, 2021 and December 31, 2020, consumer mortgage loan delinquency includes ~~$273~~$289 million and $281 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

(2)At ~~March 31,~~June 30, 2021 and December 31, 2020, consumer mortgage loans include ~~$102~~$97 million and $109 million, respectively, of loans that were in the process of foreclosure.


~~HSBC USA Inc.~~

Nonperforming The following table summarizes the nonperforming status of our consumer loan portfolio, including a disaggregation of the loans by year of origination as of ~~March 31,~~June 30, 2021 and December 31, 2020:

2021 2020 2019 2018 2017 Prior Revolving
Loans Total at Mar. 31, 2021
(in millions)
Residential mortgages:
Performing loans $ 1,365 $ 4,243 $ 2,145 $ 1,198 $ 1,417 $ 6,956 $ 0 $ 17,324
Nonaccrual loans 0 46 115 110 94 736 0 1,101
Total residential mortgages 1,365 4,289 2,260 1,308 1,511 7,692 0 18,425
Home equity mortgages:
Performing loans 3 51 49 32 33 466 0 634
Nonaccrual loans 0 0 1 1 1 61 0 64
Total home equity mortgages 3 51 50 33 34 527 0 698
Credit cards:
Performing loans 0 0 0 0 0 0 909 909
Accruing loans contractually past due 90 days or more 0 0 0 0 0 0 28 28
Total credit cards 0 0 0 0 0 0 937 937
Other consumer:
Performing loans 25 79 32 1 1 124 49 311
Accruing loans contractually past due 90 days or more 0 1 1 0 0 0 1 3
Total other consumer 25 80 33 1 1 124 50 314
Total consumer:
Performing loans 1,393 4,373 2,226 1,231 1,451 7,546 958 19,178
Nonaccrual loans 0 46 116 111 95 797 0 1,165
Accruing loans contractually past due 90 days or more 0 1 1 0 0 0 29 31
Total consumer $ 1,393 $ 4,420 $ 2,343 $ 1,342 $ 1,546 $ 8,343 $ 987 $ 20,374

2020 2019 2018 2017 2016 Prior Revolving
Loans Total at Dec. 31, 2020
(in millions)
Residential mortgages:
Performing loans $ 4,491 $ 2,369 $ 1,338 $ 1,572 $ 1,852 $ 5,676 $ 0 $ 17,298
Nonaccrual loans 38 107 93 86 78 677 0 1,079
Total residential mortgages 4,529 2,476 1,431 1,658 1,930 6,353 0 18,377
Home equity mortgages:
Performing loans 50 51 33 34 45 451 0 664
Nonaccrual loans 0 0 1 1 2 59 0 63
Total home equity mortgages 50 51 34 35 47 510 0 727
Credit cards:
Performing loans 0 — 0 0 0 0 1,047 1,047
Accruing loans contractually past due 90 days or more 0 0 0 0 0 0 19 19
Total credit cards 0 0 0 0 0 0 1,066 1,066
Other consumer:
Performing loans 87 39 0 1 8 128 54 317
Accruing loans contractually past due 90 days or more 0 0 0 0 0 0 2 2
Total other consumer 87 39 0 1 8 128 56 319
Total consumer:
Performing loans 4,628 2,459 1,371 1,607 1,905 6,255 1,101 19,326
Nonaccrual loans 38 107 94 87 80 736 0 1,142
Accruing loans contractually past due 90 days or more 0 0 0 0 0 0 21 21
Total consumer $ 4,666 $ 2,566 $ 1,465 $ 1,694 $ 1,985 $ 6,991 $ 1,122 $ 20,489


	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total at Jun. 30, 2021
	(in millions)
Residential mortgages:
Performing loans	$	2,524	$	3,789	$	1,821	$	957	$	1,098	$	5,033	$	0	$	15,222
Nonaccrual loans	1		37		84		78		67		577		0		844

Total residential mortgages	2,525		3,826		1,905		1,035		1,165		5,610		0		16,066
Home equity mortgages:
Performing loans	6		40		30		22		19		221		0		338
Nonaccrual loans	0		0		1		0		1		48		0		50

Total home equity mortgages	6		40		31		22		20		269		0		388
Credit cards:
Performing loans	0		0		0		0		0		0		0		0

Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0
Total credit cards	0		0		0		0		0		0		0		0
Other consumer:
Performing loans	6		10		5		1		0		118		3		143

Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0
Total other consumer	6		10		5		1		0		118		3		143
Total consumer:
Performing loans	2,536		3,839		1,856		980		1,117		5,372		3		15,703
Nonaccrual loans	1		37		85		78		68		625		0		894
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		0		0
Total consumer	$	2,537	$	3,876	$	1,941	$	1,058	$	1,185	$	5,997	$	3	$	16,597

2832


HSBC USA Inc.


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total at Dec. 31, 2020
	(in millions)
Residential mortgages:
Performing loans	$	4,491	$	2,369	$	1,338	$	1,572	$	1,852	$	5,676	$	0	$	17,298
Nonaccrual loans	38		107		93		86		78		677		0		1,079

Total residential mortgages	4,529		2,476		1,431		1,658		1,930		6,353		0		18,377
Home equity mortgages:
Performing loans	50		51		33		34		45		451		0		664
Nonaccrual loans	0		0		1		1		2		59		0		63

Total home equity mortgages	50		51		34		35		47		510		0		727
Credit cards:
Performing loans	0		0		0		0		0		0		1,047		1,047

Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		19		19
Total credit cards	0		0		0		0		0		0		1,066		1,066
Other consumer:
Performing loans	87		39		0		1		8		128		54		317

Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		2		2
Total other consumer	87		39		0		1		8		128		56		319
Total consumer:
Performing loans	4,628		2,459		1,371		1,607		1,905		6,255		1,101		19,326
Nonaccrual loans	38		107		94		87		80		736		0		1,142
Accruing loans contractually past due 90 days or more	0		0		0		0		0		0		21		21
Total consumer	$	4,666	$	2,566	$	1,465	$	1,694	$	1,985	$	6,991	$	1,122	$	20,489

Troubled debt restructurings The following table summarizes TDR Loans in our consumer loan portfolio, including a disaggregation of the loans by year of origination as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		2021		2020		2019		2018		2017		Prior		Revolving Loans			Total at Mar. 31, 2021			2021		2020		2019		2018		2017		Prior		Revolving Loans		Total at Jun. 30, 2021
		(in millions)														(in millions)
Residential mortgages	Residential mortgages	$	0	$	3	$	6	$	11	$	3	$	562	$	0		$	585	Residential mortgages	$	0	$	2	$	9	$	10	$	4	$	403	$	0	$	428
Home equity mortgages	Home equity mortgages	0		0		0		0		0		31		0			31		Home equity mortgages	0		0		0		0		0		18		0		18
Credit cards	Credit cards	0		0		0		0		0		0		5			5		Credit cards	0		0		0		0		0		0		0		0

Total consumer	Total consumer	$	0	$	3	$	6	$	11	$	3	$	593	$	5		$	621	Total consumer	$	0	$	2	$	9	$	10	$	4	$	421	$	0	$	446


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total at Dec. 31, 2020
	(in millions)
Residential mortgages	$	3	$	5	$	6	$	3	$	2	$	563	$	0	$	582
Home equity mortgages	0		0		0		0		0		31		0		31
Credit cards	0		0		0		0		0		0		5		5

Total consumer	$	3	$	5	$	6	$	3	$	2	$	594	$	5	$	618

Concentration of Credit Risk At ~~March 31,~~June 30, 2021 and December 31, 2020, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling ~~$3,703~~$3,627 million and $3,597 million, respectively. An interest-only residential mortgage loan allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer's financial position could affect the ability of customers to repay the loan in the future when the principal payments are required which increases the credit risk of this loan type.


HSBC USA Inc.

7. Allowance for Credit Losses

We utilize a minimum of 3 forward-looking economic scenarios to calculate lifetime ECL when estimating the allowance for credit losses for in scope financial assets and the liability for off-balance sheet credit exposures. The three scenarios are termed the "Consensus Economic Scenarios" and represent a 'most likely outcome' (the "Central scenario") and two less likely 'outer' scenarios, referred to as the "Upside scenario" and the "Downside scenario". Each scenario is assigned a weighting deemed appropriate for the estimation of lifetime ECL, with the majority of the weighting typically placed on the Central Scenario. At management's discretion, changes may be made to the weighting assigned to the three scenarios or additional scenarios may be included in order to consider current economic conditions. As a result of the deterioration of economic conditions and significant economic uncertainty caused by the COVID-19 pandemic, beginning in the second quarter of 2020, we developed and utilized a fourth scenario for estimating lifetime ECL, referred to as the "Alternative Downside scenario", to reflect the possibility that the adverse impact associated with the deterioration in economic conditions could manifest itself over a far longer period of time.

Updates to Economic Scenarios and Other Changes During the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2021 Although economic conditions improved during the first quarter of 2021, the impact of the COVID-19 pandemic ~~continues~~continued to create uncertainty about the future economic environment. As a result, we updated our three Consensus Economic Scenarios and our Alternative Downside scenario to reflect management's ~~current~~ view of forecasted economic conditions and utilized the 4 updated scenarios for estimating lifetime ECL at March 31, 2021. Each of the four scenarios were assigned weightings with the majority of the weighting placed on the Central scenario, the second most weighting placed on the Downside scenario and lower equal weights placed on the Upside and Alternative Downside scenarios. This weighting was deemed appropriate for the estimation of lifetime ECL at that time.

During the second quarter of 2021, economic conditions continued to improve, however, the impact of the COVID-19 pandemic continues to create uncertainty about the future economic environment. As a result, we updated our three Consensus Economic Scenarios and our Alternative Downside scenario to reflect management's current view of forecasted economic conditions and utilized the 4 updated scenarios for estimating lifetime ECL at June 30, 2021. Each of the four scenarios were assigned weightings with the majority of the weighting placed on the Central scenario, the second most weighting placed on the Downside scenario and lower equal weights placed on the Upside and Alternative Downside scenarios. This weighting was deemed appropriate for the estimation of lifetime ECL under current conditions. The following discussion summarizes the Central, Upside, Downside and Alternative Downside scenarios at ~~March 31,~~June 30, 2021. The economic assumptions described in this section have been formed specifically for the purpose of calculating ECL.

In the Central scenario, Gross Domestic Product ("GDP") ~~restarts the~~maintains its strong recovery path in 2021 and carries its expansion ~~in 2021~~into 2022, under the assumption that the economy continues re-opening while new COVID-19 infections slow down as more people are vaccinated, and ~~the latest stimulus bill~~high fiscal support boosts near-term economic growth. With a strong economic recovery, the unemployment rate continues on its downward trend, while demand for housing, combined with limited supply, continues to drive the residential housing market to carry its growth momentum in 2021. Commercial real estate prices, however, continue to remain depressed, driven by adjustments induced by the pandemic. In the financial markets, growth in financial asset prices remains moderate, the federal funds rate remains at the current near-zero level ~~for~~until the ~~next two years,~~beginning of 2023, and the 10-year U.S. Treasury yield, which has ~~recently~~ experienced some increase since the start of 2021, continues to ~~climb~~rise modestly.

In the Upside scenario, the economy is ~~expected~~assumed to grow at a faster pace than in the Central scenario. As a result, the unemployment rate falls faster than in the Central scenario and, with increasing mobility, the commercial real estate price index starts


~~HSBC USA Inc.~~

to recover in the second half of 2021. In this scenario, the equity price index climbs with strong momentum, and overall optimism drives the 10-year U.S. Treasury yield to a level that is significantly higher than in the Central Scenario.

In the Downside scenario, the ~~re-opening of the economy is delayed due to a slow vaccine rollout and the~~ economic recovery is ~~quite anemic,~~assumed to stagnate, with the unemployment rate reversing its downward trend and remaining at a ~~high~~higher level. In this scenario, the residential housing market slowly loses its momentum in 2022 due to weakness in the labor market, and the commercial real estate market suffers a heavier blow than the residential housing market. The equity price index in this scenario loses about half of its value by the ~~end~~middle of ~~2022,~~2023, driven by an overall erosion of consumer and business sentiments, which also results in a lower 10-year U.S. Treasury yield than in the Central Scenario, and the ~~Federal Reserve Board ("FRB") keeps its policy~~federal funds rate remains at the lowest level for the next two years.

In the Alternative Downside scenario, the U.S. economy re-enters into a recession in the second half of 2021 and stays in for most of ~~2022.~~2022, followed by a very anemic recovery thereafter. An extended period of economic contraction ~~and stagnation~~ keeps the unemployment rate at a very high level, which pressures residential housing prices to fall further, while at the same time, contracting corporate activities and rising unemployment pushes the commercial real estate market into a severe downturn. In this scenario, financial markets experience a major sell-off and volatility in the financial markets remains extremely high ~~in 2021,~~over the next year, widening corporate credit spreads substantially, and flight to safe haven assets pushes the 10-year U.S. Treasury yield to ~~near-zero~~significantly lower levels in 2022.


HSBC USA Inc.

The following table presents the forecasted key macroeconomic variables in our Central scenarios used for estimating lifetime ECL at June 30, 2021, March 31, 2021 and December 31, 2020:

For the Quarter Ended
June 30, 2021 December 31, 2021 June 30, 2022 December 31, 2022
Unemployment rate (quarterly average):
Forecast at March 31, 2021 6.0 % 5.5 % 4.9 % 4.4 %
Forecast at December 31, 2020 6.8 6.2 5.9 5.4
GDP growth rate (year-over-year):
Forecast at March 31, 2021 11.0 (1) 4.3 3.7 3.0
Forecast at December 31, 2020 9.2 (1) 5.3 3.1 1.8

~~(1)~~Represents the change in forecasted GDP for the quarter ended June 30, 2021 relative to the GDP for the quarter ended June 30, 2020. The GDP year-over-year growth rate for the quarter ended June 30, 2020 was a decline of 9.0 percent.


	For the Quarter Ended
	December 31, 2021		June 30, 2022		December 31, 2022
Unemployment rate (quarterly average):
Forecast at June 30, 2021	4.8	%	4.4	%	4.1	%

Forecast at March 31, 2021	5.5		4.9		4.4
Forecast at December 31, 2020	6.2		5.9		5.4
GDP growth rate (year-over-year):
Forecast at June 30, 2021	6.3		4.7		2.3

Forecast at March 31, 2021	4.3		3.7		3.0
Forecast at December 31, 2020	5.3		3.1		1.8

In addition to the updates to the economic scenarios, during the three and six months ended June 30, 2021, we decreased the management judgment allowance on our commercial loan portfolio for risk factors associated with higher risk client exposures and, in the year-to-date period, economic uncertainty relating to the impact of COVID-19 that are not fully captured in the models. WeDuring the three and six months ended June 30, 2021, we also decreased the management judgment allowance on our consumer loan portfolio to reflect the transfer of certain loans to held for sale, including for risk factors primarily associated with economic uncertainty and forbearance accounts that are not fully captured in the models. As previously disclosed, during the second quarter of 2021, we made the decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio which resulted in the transfer of certain loans to held for sale and the reversal or charge-off of the existing allowances for credit losses on these loans which collectively totaled $157 million.

While we believe that the assumptions used in our credit loss models are reasonable within the parameters for which the models have been built and calibrated to operate, the severe projections of macro-economic variables during the current COVID-19 pandemic represent events outside the parameters for which the models have been built. As a result, adjustments to model outputs to reflect consideration of management judgment are used with stringent governance in place to ensure an appropriate lifetime ECL estimate.

The circumstances around the COVID-19 pandemic are evolving and will continue to impact our business and our allowance for credit losses in future periods. The details of how various U.S. Government actions will impact our customers and therefore the impact on our allowance for credit losses remains uncertain. We will continue to monitor the COVID-19 situation closely and will continue to adapt our Consensus Economic Scenarios approach as necessary to reflect management's current view of forecasted economic conditions.


~~HSBC USA Inc.~~

Allowance for Credit Losses / Liability for Off-Balance Sheet Credit Exposures The following table summarizes our allowance for credit losses and the liability for off-balance sheet credit exposures:


		March 31, 2021			December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)		(in millions)
Allowance for credit losses:	Allowance for credit losses:						Allowance for credit losses:
Loans	Loans	$	853		$	1,015	Loans	$	547	$	1,015
Securities held-to-maturity(1)	Securities held-to-maturity(1)	2			2		Securities held-to-maturity(1)	2		2
Other financial assets measured at amortized cost(2)	Other financial assets measured at amortized cost(2)	2			2		Other financial assets measured at amortized cost(2)	1		2
Securities available-for-sale(1)	Securities available-for-sale(1)	1			1		Securities available-for-sale(1)	1		1
Total allowance for credit losses	Total allowance for credit losses	$	858		$	1,020	Total allowance for credit losses	$	551	$	1,020

Liability for off-balance sheet credit exposures	Liability for off-balance sheet credit exposures	$	155		$	237	Liability for off-balance sheet credit exposures	$	128	$	237

(1)See Note 4,5, "Securities," for additional information regarding the allowance for credit losses associated with our security portfolios.

(2)Primarily includes accrued interest receivables and customer acceptances.


HSBC USA Inc.

The following table summarizes the changes in the allowance for credit losses on loans by product or line of business during the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


		Commercial Loans								Consumer Loans											Commercial Loans								Consumer Loans
		Real Estate, including Construction		Business and Corporate Banking		Global Banking		Other Comm'l		Residential Mortgages		Home Equity Mortgages		Credit Cards		Other Consumer		Total Loans			Real Estate, including Construction		Business and Corporate Banking		Global Banking		Other Comm'l		Residential Mortgages		Home Equity Mortgages		Credit Cards		Other Consumer		Total Loans
		(in millions)																			(in millions)
Three Months Ended June 30, 2021																				Three Months Ended June 30, 2021
Allowance for credit losses – beginning of period																				Allowance for credit losses – beginning of period	$	120	$	321	$	222	$	7	$	(9)	$	21	$	144	$	27	$	853
Provision charged (credited) to income(1)																				Provision charged (credited) to income(1)	(3)		(24)		(79)		(1)		8		(5)		(76)		(21)		(201)
Charge-offs(1)																				Charge-offs(1)	0		(14)		(12)		0		(9)		(2)		(70)		(7)		(114)
Recoveries																				Recoveries	0		1		0		0		4		1		2		1		9
Net (charge-offs) recoveries																				Net (charge-offs) recoveries	0		(13)		(12)		0		(5)		(1)		(68)		(6)		(105)

Allowance for credit losses – end of period																				Allowance for credit losses – end of period	$	117	$	284	$	131	$	6	$	(6)	$	15	$	0	$	0	$	547

Three Months Ended March 31, 2021
Three Months Ended June 30, 2020																				Three Months Ended June 30, 2020
Allowance for credit losses – beginning of period	Allowance for credit losses – beginning of period	$	145	$	375	$	287	$	7	$	(9)	$	22	$	161	$	27	$	1,015	Allowance for credit losses – beginning of period	$	92	$	382	$	248	$	5	$	(41)	$	16	$	212	$	17	$	931

Provision charged (credited) to income	Provision charged (credited) to income	(25)		(53)		(65)		0		(2)		(3)		(1)		4		(145)		Provision charged (credited) to income	28		106		176		(1)		20		(1)		3		6		337
Charge-offs	Charge-offs	0		(2)		0		0		(1)		0		(18)		(4)		(25)		Charge-offs	0		(55)		0		0		(1)		0		(26)		(2)		(84)
Recoveries	Recoveries	0		1		0		0		3		2		2		0		8		Recoveries	0		1		0		1		3		1		1		1		8
Net (charge-offs) recoveries	Net (charge-offs) recoveries	0		(1)		0		0		2		2		(16)		(4)		(17)		Net (charge-offs) recoveries	0		(54)		0		1		2		1		(25)		(1)		(76)

Allowance for credit losses – end of period	Allowance for credit losses – end of period	$	120	$	321	$	222	$	7	$	(9)	$	21	$	144	$	27	$	853	Allowance for credit losses – end of period	$	120	$	434	$	424	$	5	$	(19)	$	16	$	190	$	22	$	1,192

Three Months Ended March 31, 2020
Six Months Ended June 30, 2021																				Six Months Ended June 30, 2021
Allowance for credit losses – beginning of period																				Allowance for credit losses – beginning of period	$	145	$	375	$	287	$	7	$	(9)	$	22	$	161	$	27	$	1,015

Provision charged (credited) to income(1)																				Provision charged (credited) to income(1)	(28)		(77)		(144)		(1)		6		(8)		(77)		(17)		(346)
Charge-offs(1)																				Charge-offs(1)	0		(16)		(12)		0		(10)		(2)		(88)		(11)		(139)
Recoveries																				Recoveries	0		2		0		0		7		3		4		1		17
Net (charge-offs) recoveries																				Net (charge-offs) recoveries	0		(14)		(12)		0		(3)		1		(84)		(10)		(122)

Allowance for credit losses – end of period																				Allowance for credit losses – end of period	$	117	$	284	$	131	$	6	$	(6)	$	15	$	0	$	0	$	547

Six Months Ended June 30, 2020																				Six Months Ended June 30, 2020
Allowance for credit losses – beginning of period	Allowance for credit losses – beginning of period	$	153	$	239	$	106	$	9	$	12	$	6	$	105	$	7	$	637	Allowance for credit losses – beginning of period	$	153	$	239	$	106	$	9	$	12	$	6	$	105	$	7	$	637
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses~~(1)~~(2)	Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses~~(1)~~(2)	(112)		(60)		51		(5)		(86)		7		32		3		(170)		Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses~~(1)~~(2)	(112)		(60)		51		(5)		(86)		7		32		3		(170)
Allowance for credit losses – beginning of period, adjusted	Allowance for credit losses – beginning of period, adjusted	41		179		157		4		(74)		13		137		10		467		Allowance for credit losses – beginning of period, adjusted	41		179		157		4		(74)		13		137		10		467
Provision charged (credited) to income	Provision charged (credited) to income	51		213		110		1		30		3		95		9		512		Provision charged (credited) to income	79		319		286		—		50		2		98		15		849
Charge-offs	Charge-offs	0		(12)		(19)		0		1		(2)		(22)		(2)		(56)		Charge-offs	0		(67)		(19)		0		0		(2)		(48)		(4)		(140)
Recoveries	Recoveries	0		2		0		0		2		2		2		0		8		Recoveries	0		3		0		1		5		3		3		1		16
Net (charge-offs) recoveries	Net (charge-offs) recoveries	0		(10)		(19)		0		3		0		(20)		(2)		(48)		Net (charge-offs) recoveries	0		(64)		(19)		1		5		1		(45)		(3)		(124)

Allowance for credit losses – end of period	Allowance for credit losses – end of period	$	92	$	382	$	248	$	5	$	(41)	$	16	$	212	$	17	$	931	Allowance for credit losses – end of period	$	120	$	434	$	424	$	5	$	(19)	$	16	$	190	$	22	$	1,192

(1)During the second quarter of 2021, we made the decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio which resulted in the transfer of certain loans to held for sale. For loans that are transferred to held for sale, the existing allowance for credit losses at the time of transfer are recognized as a charge-off to the extent fair value is less than amortized cost and attributable to credit. Any remaining allowance for credit losses is released as a reduction to the provision for credit losses. As a result of transferring these loans to held for sale, during both the three and six months ended June 30, 2021, we recognized $56 million of the existing allowance for credit losses on consumer loans as charge-offs, primarily related to non-performing credit cards, and released $100 million of the existing allowance for credit losses on consumer loans as reductions to the provision for credit losses, primarily related to credit cards. The existing commercial allowance for credit losses on the retail business banking loan portfolio transferred to held for sale was not material. See Note 3, "Branch Assets and Liabilities Held for Sale."

(2)See Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," in our 2020 Form 10-K for additional discussion.

3136


HSBC USA Inc.

The following table summarizes the changes in the liability for off-balance sheet credit exposures during the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


						Three Months Ended June 30,		Six Months Ended June 30,
Three Months Ended March 31,		2021		2020
								2021		2020		2021		2020
		(in millions)				(in millions)
Balance at beginning of period	Balance at beginning of period	$	237	$	104		Balance at beginning of period	$	155	$	371	$	237	$	104
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses(1)	Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses(1)	0		54			Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses(1)	0		0		0		54
Balance at beginning of period, adjusted	Balance at beginning of period, adjusted	237		158			Balance at beginning of period, adjusted	155		371		237		158
Provision charged (credited) to income	Provision charged (credited) to income	(82)		213			Provision charged (credited) to income	(27)		(118)		(109)		95
Balance at end of period	Balance at end of period	$	155	$	371		Balance at end of period	$	128	$	253	$	128	$	253

(1)See Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," in our 2020 Form 10-K for additional discussion

Accrued Interest Receivables The following table summarizes accrued interest receivables associated with financial assets carried at amortized cost and securities available-for-sale along with the related allowance for credit losses, which are reported net in other assets on the consolidated balance sheet. These accrued interest receivables are excluded from the amortized cost basis disclosures presented elsewhere in these financial statements, including Note 4,5, "Securities," and Note 5,6, "Loans."


		March 31, 2021		December 31, 2020				June 30, 2021		December 31, 2020
		(in millions)				(in millions)
Accrued interest receivables:	Accrued interest receivables:						Accrued interest receivables:
Loans	Loans	$	137	$	140		Loans	$	126	$	140
Securities held-to-maturity	Securities held-to-maturity	20		23			Securities held-to-maturity	17		23
Other financial assets measured at amortized cost	Other financial assets measured at amortized cost	1		1			Other financial assets measured at amortized cost	3		1
Securities available-for-sale	Securities available-for-sale	90		100			Securities available-for-sale	86		100
Total accrued interest receivables	Total accrued interest receivables	248		264			Total accrued interest receivables	232		264
Allowance for credit losses	Allowance for credit losses	2		2			Allowance for credit losses	1		2
Accrued interest receivables, net	Accrued interest receivables, net	$	246	$	262		Accrued interest receivables, net	$	231	$	262

During both the three and six months ended ~~March 31,~~June 30, 2021, ~~and 2020,~~ we charged-off accrued interest receivables by reversing interest income for loans of ~~NaN~~$2 million compared with $3 million and $1$4 million during the three and six months ended June 30, 2020, respectively.


HSBC USA Inc.

8. Loans Held for Sale

Loans held for sale consisted of the following:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Commercial loans:	Commercial loans:					Commercial loans:
Real estate, including construction	Real estate, including construction	$	0	$	10	Real estate, including construction	$	0	$	10

Business and corporate banking						Business and corporate banking	149		0
Global banking	Global banking	256		119		Global banking	276		119
Total commercial	Total commercial	256		129		Total commercial	425		129
Consumer loans:	Consumer loans:					Consumer loans:
Residential mortgages	Residential mortgages	95		208		Residential mortgages	2,429		208

Home equity mortgages						Home equity mortgages	265		0
Credit cards						Credit cards	829		0
Other consumer						Other consumer	158		0
Total consumer	Total consumer	95		208		Total consumer	3,681		208
Total loans held for sale	Total loans held for sale	$	351	$	337	Total loans held for sale	$	4,106	$	337

Commercial LoansDuring the second quarter of 2021, as part of our Restructuring Plan ~~Included~~we made the decision to exit our mass market retail banking business. See Note 3, "Branch Assets and Liabilities Held for Sale," in the accompanying consolidated financial statements for additional information. As a result, we transferred our retail business banking loan portfolio to held for sale with a carrying value of $149 million. The lower of amortized cost or fair value adjustment upon transferring these loans to held for sale was not material.

Also included in commercial loans held for sale are certain loans that we have elected to designate under the fair value option which consists of loans that we originate in connection with our participation in a number of syndicated credit facilities with the intent of selling them to unaffiliated third parties as well as loans that we purchase from the secondary market and hold as hedges against our exposure to certain total return swaps. The fair value of these loans totaled ~~$83~~$215 million and $36 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. See Note ~~10,~~11, "Fair Value Option," for additional information.

~~Commercial~~In addition, commercial loans held for sale ~~also~~ includes certain other loans that we no longer intend to hold for investment and were transferred to held for sale which totaled ~~$173~~$61 million and $93 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. During


~~HSBC USA Inc.~~

both the three and six months ended ~~March 31,~~June 30, 2021, ~~and 2020,~~ we recorded $5 million of lower of amortized cost or fair value adjustments associated with the write-down of commercial loans held for sale as a component of other income (loss) in the consolidated statement of income (loss) compared with recording $9 million of lower of amortized cost or fair value adjustments during both the three and six months ended June 30, 2020.

Consumer Loans As discussed above, during the second quarter of 2021, as part of our Restructuring Plan we made the decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio. As a result, we transferred certain consumer loans to held for sale, including loans related to the branch disposal group, which collectively totaled $3,616 million, including $2,364 million of residential mortgages, $265 million of home equity mortgages, $829 million of credit cards and $158 million of other consumer loans. There was 0 lower of amortized cost or fair value ~~adjustments on commercial~~adjustment recorded upon transferring these loans to held for sale.

~~Consumer Loans~~ ~~Included~~Also included in residential mortgage loans held for sale are agency-eligible residential mortgage loans which are originated and held for sale to third parties, currently on a servicing retained basis. Gains and losses from the sale of these residential mortgage loans are reflected as a component of other income (loss) in the consolidated statement of income (loss).

Loans held for sale are subject to market risk, liquidity risk and interest rate risk, in that their value will fluctuate as a result of changes in market conditions, as well as the credit environment. Interest rate risk for agency-eligible residential mortgage loans held for sale is partially mitigated through an economic hedging program to offset changes in the fair value of these mortgage loans held for sale, from the time of commitment to sale, attributable to changes in market interest rates. Revenue associated with this economic hedging program, which is reflected as a component of other income (loss) in the consolidated statement of income (loss), was losses of $3 million and $1 million during the three and six months ended June 30, 2021, respectively, compared with a gain of $2 million ~~during the three months ended March 31, 2021 compared with~~and a loss of $3$1 million during the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively.


HSBC USA Inc.

Valuation Allowances Excluding the commercial loans designated under the fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value, with adjustments to fair value being recorded as a valuation allowance through other revenues. The valuation allowance on consumer loans held for sale was NaN at both ~~March 31,~~June 30, 2021 and December 31, 2020. The valuation allowance on commercial loans held for sale was $5 million and $1 million at ~~both March 31,~~June 30, 2021 and December 31, ~~2020.~~2020, respectively.

8.9. Goodwill

Goodwill was $458 million at both ~~March 31,~~June 30, 2021 and December 31, 2020. Goodwill for these periods reflects accumulated impairment losses of $1,819 million, which were recognized in prior periods. During the ~~first~~second quarter of 2021, there were no events or changes in circumstances to indicate that it is more likely than not the fair value of our Commercial Banking reporting unit has reduced below its carrying amount.

During the first quarter of 2020, as a result of the deterioration in economic conditions caused by the spread of the COVID-19 pandemic and its impact on our businesses including changes to the interest rate environment as a result of ~~FRB~~Federal Reserve Board ("FRB") actions to combat the economic effects of the virus, we performed an interim impairment test of goodwill and determined that the fair value of our Commercial Banking reporting unit exceeded its carrying value, including goodwill. However, the cash flow projections for our Retail Banking and Wealth Management and our Private Banking reporting units were significantly lower than previous estimates which, in conjunction with valuation estimates under a market approach and in consideration of a challenging macroeconomic outlook, resulted in a fair value that was significantly lower than their book values, including goodwill. As a result, we recorded a non-cash impairment charge of $784 million in the first quarter of 2020, representing the entire amount of goodwill previously allocated to these reporting units. Beginning in the second quarter of 2020, our Retail Banking and Wealth Management and our Private Banking reporting units are being reported together within a newly created Wealth and Personal Banking segment for segment reporting purposes.

9.10. Derivative Financial Instruments

In the normal course of business, the derivative instruments we enter into are for trading, market making and risk management purposes. For financial reporting purposes, derivative instruments are designated in one of the following categories: (a) hedging instruments designated as qualifying hedges under derivative and hedge accounting principles, (b) financial instruments held for trading or (c) non-qualifying economic hedges. The derivative instruments held are predominantly swaps, futures, options and forward contracts. All derivatives are stated at fair value. Where we enter into enforceable master netting agreements with counterparties, the master netting agreements permit us to net those derivative asset and liability positions and to offset cash collateral held and posted with the same counterparty.

The following table presents the fair value of derivative contracts by major product type on a gross basis. Gross fair values exclude the effects of both counterparty netting as well as collateral, and therefore are not representative of our exposure. The table below also presents the amounts of counterparty netting and cash collateral that have been offset in the consolidated balance sheet, as well as cash and securities collateral posted and received under enforceable master netting agreements that do not meet the criteria for netting. Derivative assets and liabilities which are not subject to an enforceable master netting agreement, or are subject to a netting agreement where an appropriate legal opinion to determine such agreements are enforceable has not been either sought or obtained, have not been netted in the following table. Where we have received or posted collateral under netting agreements where an appropriate legal opinion to determine such agreements are enforceable has not been either sought or obtained, the related collateral also has not been netted in the following table.

3339


HSBC USA Inc.


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
		(in millions)									(in millions)
Derivatives accounted for as fair value hedges(1)	Derivatives accounted for as fair value hedges(1)									Derivatives accounted for as fair value hedges(1)

OTC-cleared(2)		$	0	$	39	$	0	$	0
Bilateral OTC(2)		5		5		0		2
Interest rate contracts		5		44		0		2

Interest rate contracts - bilateral OTC(2)										Interest rate contracts - bilateral OTC(2)	$	0	$	9	$	0	$	2

Derivatives accounted for as cash flow hedges(1)	Derivatives accounted for as cash flow hedges(1)									Derivatives accounted for as cash flow hedges(1)

Foreign exchange contracts - bilateral OTC(2)	Foreign exchange contracts - bilateral OTC(2)	51		0		0		53		Foreign exchange contracts - bilateral OTC(2)	15		0		0		53

Total derivatives accounted for as hedges	Total derivatives accounted for as hedges	56		44		0		55		Total derivatives accounted for as hedges	15		9		0		55
Trading derivatives not accounted for as hedges(3)	Trading derivatives not accounted for as hedges(3)									Trading derivatives not accounted for as hedges(3)
Exchange-traded(2)	Exchange-traded(2)	7		4		14		9		Exchange-traded(2)	3		3		14		9
OTC-cleared(2)	OTC-cleared(2)	89		0		0		58		OTC-cleared(2)	13		0		0		58
Bilateral OTC(2)	Bilateral OTC(2)	3,524		3,258		6,584		6,555		Bilateral OTC(2)	2,809		2,642		6,584		6,555
Interest rate contracts(4)	Interest rate contracts(4)	3,620		3,262		6,598		6,622		Interest rate contracts(4)	2,825		2,645		6,598		6,622

OTC-cleared (2)	OTC-cleared (2)	45		0		168		0		OTC-cleared (2)	15		0		168		0
Bilateral OTC(2)	Bilateral OTC(2)	15,671		14,694		18,299		18,549		Bilateral OTC(2)	12,230		11,740		18,299		18,549
Foreign exchange contracts	Foreign exchange contracts	15,716		14,694		18,467		18,549		Foreign exchange contracts	12,245		11,740		18,467		18,549

Equity contracts - bilateral OTC(2)	Equity contracts - bilateral OTC(2)	2,685		2,843		4,009		4,200		Equity contracts - bilateral OTC(2)	1,791		2,154		4,009		4,200

Exchange-traded(2)	Exchange-traded(2)	14		0		0		28		Exchange-traded(2)	4		0		0		28

Bilateral OTC(2)	Bilateral OTC(2)	1,363		1,228		1,323		1,550		Bilateral OTC(2)	1,206		1,091		1,323		1,550
Precious metals contracts	Precious metals contracts	1,377		1,228		1,323		1,578		Precious metals contracts	1,210		1,091		1,323		1,578

Credit contracts - bilateral OTC(2)	Credit contracts - bilateral OTC(2)	339		178		367		233		Credit contracts - bilateral OTC(2)	82		83		367		233

Other non-qualifying derivatives not accounted for as hedges(1)	Other non-qualifying derivatives not accounted for as hedges(1)									Other non-qualifying derivatives not accounted for as hedges(1)

Interest rate contracts - bilateral OTC(2)	Interest rate contracts - bilateral OTC(2)	55		3		89		1		Interest rate contracts - bilateral OTC(2)	58		3		89		1

Foreign exchange contracts - bilateral OTC(2)	Foreign exchange contracts - bilateral OTC(2)	0		1		0		1		Foreign exchange contracts - bilateral OTC(2)	0		1		0		1

Equity contracts - bilateral OTC(2)	Equity contracts - bilateral OTC(2)	1,772		51		1,607		91		Equity contracts - bilateral OTC(2)	1,799		47		1,607		91

OTC-cleared(2)	OTC-cleared(2)	0		0		0		14		OTC-cleared(2)	0		14		0		14
Bilateral OTC(2)	Bilateral OTC(2)	0		49		0		50		Bilateral OTC(2)	0		45		0		50
Credit contracts	Credit contracts	0		49		0		64		Credit contracts	0		59		0		64

Other contracts - bilateral OTC(2)(5)	Other contracts - bilateral OTC(2)(5)	7		57		8		67		Other contracts - bilateral OTC(2)(5)	6		54		8		67
Total derivatives	Total derivatives	25,627		22,410		32,468		31,461		Total derivatives	20,031		17,886		32,468		31,461
Less: Gross amounts of receivable / payable subject to enforceable master netting agreements(6)(8)	Less: Gross amounts of receivable / payable subject to enforceable master netting agreements(6)(8)	18,641		18,641		25,537		25,537		Less: Gross amounts of receivable / payable subject to enforceable master netting agreements(6)(8)	13,904		13,904		25,537		25,537
Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements(7)(8)	Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements(7)(8)	4,360		1,953		4,079		3,377		Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements(7)(8)	4,122		1,878		4,079		3,377
Net amounts of derivative assets / liabilities presented in the balance sheet	Net amounts of derivative assets / liabilities presented in the balance sheet	2,626		1,816		2,852		2,547		Net amounts of derivative assets / liabilities presented in the balance sheet	2,005		2,104		2,852		2,547

Less: Gross amounts of financial instrument collateral received / posted subject to enforceable master netting agreements but not offset in the consolidated balance sheet	Less: Gross amounts of financial instrument collateral received / posted subject to enforceable master netting agreements but not offset in the consolidated balance sheet	561		88		817		691		Less: Gross amounts of financial instrument collateral received / posted subject to enforceable master netting agreements but not offset in the consolidated balance sheet	238		66		817		691

Net amounts of derivative assets / liabilities	Net amounts of derivative assets / liabilities	$	2,065	$	1,728	$	2,035	$	1,856	Net amounts of derivative assets / liabilities	$	1,767	$	2,038	$	2,035	$	1,856

(1)Derivative assets / liabilities related to cash flow hedges, fair value hedges and derivative instruments held for purposes other than for trading are recorded in other assets / interest, taxes and other liabilities on the consolidated balance sheet.

(2)Over-the-counter ("OTC") derivatives include derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements. OTC-cleared derivatives are executed bilaterally in the OTC market but then novated to a central clearing counterparty, whereby the central clearing counterparty becomes the counterparty to each of the original counterparties. Exchange traded derivatives are executed directly on an organized exchange. Credit risk is minimized for OTC-cleared derivatives and exchange traded derivatives through daily margining requirements. In addition, OTC-cleared interest rate and credit derivatives with certain central clearing counterparties are settled daily.

(3)Trading related derivative assets / liabilities are recorded in trading assets / trading liabilities on the consolidated balance sheet.

(4)The decreases in interest rate derivative assets and liabilities at ~~March 31,~~June 30, 2021 primarily reflects reduced positions driven by the exit or transfer of certain contracts as part of our Restructuring Plan. See Note 2, "Strategic Initiatives," for additional information.

(5)Consists of swap agreements entered into in conjunction with the sales of Visa Inc. ("Visa") Class B common shares ("Class B Shares").

(6)Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.

(7)Represents the netting of cash collateral posted and received by counterparty under enforceable netting agreements.

(8)Netting is performed at a counterparty level in cases where enforceable master netting agreements are in place, regardless of the type of derivative instrument. Therefore, we have not allocated netting to the different types of derivative instruments shown in the table above.

3440


HSBC USA Inc.

See Note ~~18,~~19, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," for further information on offsetting related to resale and repurchase agreements.

Derivatives Held for Risk Management Purposes Our risk management policy requires us to identify, analyze and manage risks arising from the activities conducted during the normal course of business. We use derivative instruments as an asset and liability management tool to manage our exposures in interest rate, foreign currency and credit risks in existing assets and liabilities, commitments and forecasted transactions. The accounting for changes in fair value of a derivative instrument will depend on whether the derivative has been designated and qualifies for hedge accounting.

We designate derivative instruments to offset the fair value risk and cash flow risk arising from fixed-rate and floating-rate assets and liabilities as well as forecasted transactions. We assess the hedging relationships, both at the inception of the hedge and on an ongoing basis, using a regression approach to determine whether the designated hedging instrument is highly effective in offsetting changes in the fair value or the cash flows attributable to the hedged risk. Accounting principles for qualifying hedges require us to prepare detailed documentation describing the relationship between the hedging instrument and the hedged item, including, but not limited to, the risk management objective, the hedging strategy and the methods to assess and measure the ineffectiveness of the hedging relationship. We discontinue hedge accounting when we determine that the hedge is no longer highly effective, the hedging instrument is terminated, sold or expired, the designated forecasted transaction is not probable of occurring, or when the designation is removed by us.

Fair Value Hedges In the normal course of business, we hold fixed-rate loans and securities, and issue fixed-rate deposits and senior and subordinated debt obligations. The fair value of fixed-rate assets and liabilities fluctuates in response to changes in interest rates. We utilize interest rate swaps, forward and futures contracts to minimize our exposure to changes in fair value caused by interest rate volatility. The changes in the fair value of the hedged item designated in a qualifying hedge are captured as an adjustment to the carrying amount of the hedged item (basis adjustment). If the hedging relationship is discontinued and the hedged item continues to exist, the basis adjustment is amortized over the remaining life of the hedged item.

The following table presents the carrying amount of hedged items in fair value hedges recognized in the consolidated balance sheet at ~~March 31,~~June 30, 2021 and December 31, 2020, along with the cumulative amount of fair value hedging adjustments included in the carrying amount of those hedged items:


		Carrying Amount of Hedged Items(1)		Cumulative Amount of Fair Value Hedging Adjustments Increasing (Decreasing) the Carrying Amount of Hedged Items							Carrying Amount of Hedged Items(1)		Cumulative Amount of Fair Value Hedging Adjustments Increasing (Decreasing) the Carrying Amount of Hedged Items
				Active		Discontinued		Total					Active		Discontinued		Total
		(in millions)									(in millions)
At March 31, 2021
At June 30, 2021										At June 30, 2021
Securities available-for-sale ("AFS")	Securities available-for-sale ("AFS")	$	7,952	$	53	$	703	$	756	Securities available-for-sale ("AFS")	$	8,785	$	384	$	696	$	1,080
Deposits	Deposits	3,640		140		0		140		Deposits	1,632		(7)		139		132
Long-term debt	Long-term debt	3,636		(40)		176		136		Long-term debt	5,673		6		167		173
At December 31, 2020	At December 31, 2020									At December 31, 2020
Securities AFS	Securities AFS	7,966		681		738		1,419		Securities AFS	7,966		681		738		1,419
Deposits	Deposits	5,214		214		0		214		Deposits	5,214		214		0		214
Long-term debt	Long-term debt	2,227		242		(15)		227		Long-term debt	2,227		242		(15)		227

(1)The carrying amount of securities AFS represents the amortized cost basis.

3541


HSBC USA Inc.

The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments and the hedged items in fair value hedges and their locations on the consolidated statement of income (loss):


		Location of Gain (Loss) Recognized in Income	Gain (Loss) on Derivatives		Gain (Loss) on Hedged Items			Location of Gain (Loss) Recognized in Income	Gain (Loss) on Derivatives		Gain (Loss) on Hedged Items

			(in millions)					(in millions)

Three Months Ended March 31, 2021
Three Months Ended June 30, 2021										Three Months Ended June 30, 2021
Interest rate contracts / Securities AFS	Interest rate contracts / Securities AFS	Net interest income	$	574		$	(547)			Interest rate contracts / Securities AFS	Net interest income	$	(382)	$	407
Interest rate contracts / Deposits	Interest rate contracts / Deposits	Net interest income	(43)			29				Interest rate contracts / Deposits	Net interest income	11		(21)
Interest rate contracts / Long-term debt	Interest rate contracts / Long-term debt	Net interest income	(77)			67				Interest rate contracts / Long-term debt	Net interest income	63		(78)
Total	Total		$	454		$	(451)			Total		$	(308)	$	308

Three Months Ended March 31, 2020
Three Months Ended June 30, 2020										Three Months Ended June 30, 2020
Interest rate contracts / Securities AFS										Interest rate contracts / Securities AFS	Net interest income	$	12	$	52
Interest rate contracts / Deposits										Interest rate contracts / Deposits	Net interest income	0		(35)
Interest rate contracts / Long-term debt										Interest rate contracts / Long-term debt	Net interest income	50		(61)
Total										Total		$	62	$	(44)

Six Months Ended June 30, 2021										Six Months Ended June 30, 2021
Interest rate contracts / Securities AFS										Interest rate contracts / Securities AFS	Net interest income	$	192	$	(140)
Interest rate contracts / Deposits										Interest rate contracts / Deposits	Net interest income	(32)		8
Interest rate contracts / Long-term debt										Interest rate contracts / Long-term debt	Net interest income	(14)		(11)
Total										Total		$	146	$	(143)

Six Months Ended June 30, 2020										Six Months Ended June 30, 2020
Interest rate contracts / Securities AFS	Interest rate contracts / Securities AFS	Net interest income	$	(1,156)		$	1,178			Interest rate contracts / Securities AFS	Net interest income	$	(1,144)	$	1,230
Interest rate contracts / Deposits	Interest rate contracts / Deposits	Net interest income	120			(146)				Interest rate contracts / Deposits	Net interest income	120		(181)
Interest rate contracts / Long-term debt	Interest rate contracts / Long-term debt	Net interest income	177			(229)				Interest rate contracts / Long-term debt	Net interest income	227		(290)
Total	Total		$	(859)		$	803			Total		$	(797)	$	759

Cash Flow Hedges We own or issue floating rate financial instruments and enter into forecasted transactions that give rise to variability in future cash flows. As a part of our risk management strategy, we use interest rate swaps, currency swaps and futures contracts to mitigate risk associated with variability in the cash flows. Changes in fair value of a derivative instrument associated with a qualifying cash flow hedge are recognized in other comprehensive ~~income.~~income (loss). When the cash flows being hedged materialize and are recorded in income or expense, the associated gain or loss from the hedging derivative previously recorded in accumulated other comprehensive income ("AOCI") is reclassified into earnings in the same accounting period in which the designated forecasted transaction or hedged item affects earnings. If a cash flow hedge of a forecasted transaction is discontinued because it is no longer highly effective, or if the hedge relationship is terminated, the cumulative gain or loss on the hedging derivative to that date will continue to be reported in AOCI unless it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period as documented at the inception of the hedge, at which time the cumulative gain or loss is released into earnings.

At ~~March 31,~~June 30, 2021, active cash flow hedge relationships extend or mature through ~~March~~June 2024. During the three and six months ended ~~March 31,~~June 30, 2021, $1respectively, $4 million and $3 million of ~~losses~~gains related to discontinued cash flow hedge relationships were amortized to earnings from AOCI compared with losses of $6$4 million and $10 million during the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. During the next twelve months, we expect to amortize $4$8 million of remaining ~~losses~~gains to earnings resulting from these discontinued cash flow hedges. The interest accrual related to the hedging instruments is recognized in net interest income.


HSBC USA Inc.

The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments in cash flow hedges (including amounts recognized in AOCI from discontinued cash flow hedges) and their locations on the consolidated statement of income (loss):

Gain (Loss) Recognized in
AOCI on Derivatives Location of Gain (Loss)
Reclassified from AOCI into Income Gain (Loss) Reclassified From
AOCI into Income
2021 2020 2021 2020
(in millions)
Three Months Ended March 31,
Foreign exchange contracts $ (1) $ 0 Net interest income $ 0 $ 0
Interest rate contracts (16) 113 Net interest income (1) (6)
Total $ (17) $ 113 $ (1) $ (6)


~~HSBC USA Inc.~~


	Gain (Loss) Recognized in AOCI on Derivatives				Location of Gain (Loss) Reclassified from AOCI into Income	Gain (Loss) Reclassified From AOCI into Income
	2021		2020				2021		2020
	(in millions)
Three Months Ended June 30,
Foreign exchange contracts	$	0	$	0		Net interest income	$	0	$	0
Interest rate contracts	(8)		0			Net interest income	4		(4)
Total	$	(8)	$	0			$	4	$	(4)

Six Months Ended June 30,
Foreign exchange contracts	$	(1)	$	0		Net interest income	$	0	$	0
Interest rate contracts	(24)		113			Net interest income	3		(10)
Total	$	(25)	$	113			$	3	$	(10)

Trading Derivatives and Non-Qualifying Hedging Activities In addition to risk management, we also enter into derivative contracts, including buy- and sell-protection credit derivatives, for the purposes of trading and market making, or repackaging risks to form structured trades to meet clients' risk taking objectives. Additionally, we buy or sell securities and use derivatives to mitigate the market risks arising from our trading activities with our clients that exceed our risk appetite. We also use buy-protection credit derivatives to manage our counterparty credit risk exposure. Where we enter into derivatives for trading purposes, realized and unrealized gains and losses are recognized in trading revenue. Counterparty credit risk associated with OTC derivatives, including risk-mitigating buy-protection credit derivatives, are recognized as an adjustment to the fair value of the derivatives and are recorded in trading revenue.

Our non-qualifying hedging and other activities include:

•Derivative contracts related to the fixed-rate long-term debt issuances and hybrid instruments, including all structured notes and deposits, for which we have elected fair value option accounting. These derivative contracts are non-qualifying hedges but are considered economic hedges.

•Credit default swaps which are designated as economic hedges against the credit risks within our loan portfolio. In the event of an impairment loss occurring in a loan that is economically hedged, the impairment loss is recognized as provision for credit losses while the gain on the credit default swap is recorded as other ~~income.~~income (loss).

•Swap agreements entered into in conjunction with the sales of Visa Class B Shares to a third party to retain the litigation risk associated with the Class B Shares sold until the related litigation is settled and the Class B Shares can be converted into Class A common shares ("Class A Shares"). See Note ~~18,~~19, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," for additional information.

•Forward purchases or sales of to-be-announced ("TBA") securities used to economically hedge changes in the fair value of agency-eligible residential mortgage loans held for sale attributable to changes in market interest rates. Changes in the fair value of TBA positions, which are considered derivatives, are recorded in other ~~income.~~income (loss). See Note 7,8, "Loans Held for Sale," for additional information.

Derivative instruments designated as economic hedges that do not qualify for hedge accounting are recorded at fair value through profit and loss. Realized and unrealized gains and losses on economic hedges are recognized in gain ~~(loss)~~ on instruments designated at fair value and related derivatives or other income (loss) while the derivative asset or liability positions are reflected as other assets or other liabilities.

~~The following table presents information on gains and losses on derivative instruments held for trading purposes and their locations on the consolidated statement of income (loss):~~

Location of Gain (Loss)
Recognized in Income on Derivatives Gain (Loss) Recognized in Income on Derivatives
Three Months Ended March 31,
2021 2020
(in millions)
Interest rate contracts Trading revenue $ 429 $ 17
Foreign exchange contracts Trading revenue 116 (665)
Equity contracts Trading revenue (279) 1,257
Precious metals contracts Trading revenue (80) 160
Credit contracts Trading revenue 215 (657)
Total $ 401 $ 112

The significant gains and losses recognized in trading revenue on derivatives during the three months ended March 31, 2020 primarily reflects the impact of market volatility driven by the COVID-19 pandemic.

3743


HSBC USA Inc.

The following table presents information on gains and losses on derivative instruments held for trading purposes and their locations on the consolidated statement of income (loss):


	Location of Gain (Loss) Recognized in Income on Derivatives	Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020
		(in millions)
Interest rate contracts	Trading revenue	$	(277)	$	(135)	$	152	$	(118)

Foreign exchange contracts	Trading revenue	52		(144)		168		(809)
Equity contracts	Trading revenue	(701)		(189)		(980)		1,068
Precious metals contracts	Trading revenue	121		223		41		383
Credit contracts	Trading revenue	(44)		35		171		(622)
Total		$	(849)	$	(210)	$	(448)	$	(98)

The significant gains and losses recognized in trading revenue on derivatives during the six months ended June 30, 2020 primarily reflects the impact of market volatility driven by the COVID-19 pandemic.

The following table presents information on gains and losses on derivative instruments held for non-qualifying hedging and other activities and their locations on the consolidated statement of income (loss):


		Location of Gain (Loss) Recognized in Income on Derivatives		Gain (Loss) Recognized in Income on Derivatives						Location of Gain (Loss) Recognized in Income on Derivatives	Gain (Loss) Recognized in Income on Derivatives
			Three Months Ended March 31,			Location of Gain (Loss) Recognized in Income on Derivatives			Three Months Ended June 30,						Six Months Ended June 30,
				2021					2020				Location of Gain (Loss) Recognized in Income on Derivatives		2021			2020			2021			2020
				(in millions)											(in millions)
Interest rate contracts	Interest rate contracts	Gain (loss) on instruments designated at fair value and related derivatives		$	(117)			$	250						$	63		$	19		$	(54)		$	269
Interest rate contracts	Interest rate contracts	Other income		2			(3)						Interest rate contracts	Other income (loss)			(3)			2			(1)			(1)
Foreign exchange contracts	Foreign exchange contracts	Gain (loss) on instruments designated at fair value and related derivatives		0			(2)					Foreign exchange contracts	Gain on instruments designated at fair value and related derivatives		0			0			0			(2)
Equity contracts	Equity contracts	Gain (loss) on instruments designated at fair value and related derivatives		486			(1,698)					Equity contracts	Gain on instruments designated at fair value and related derivatives		386			1,085			872			(613)

Credit contracts	Credit contracts	Gain (loss) on instruments designated at fair value and related derivatives		0			37					Credit contracts	Gain on instruments designated at fair value and related derivatives		0			0			0			37
Credit contracts	Credit contracts	Other income		(6)			51					Credit contracts	Other income (loss)		(6)			(38)			(12)			13
Other contracts(1)	Other contracts(1)	Other income		2			11					Other contracts(1)	Other income (loss)		(5)			(12)			(3)			(1)
Total	Total			$	367		$	(1,354)				Total			$	435		$	1,056		$	802		$	(298)

(1)Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.


HSBC USA Inc.

Credit-Risk Related Contingent Features The majority of our derivative contracts contain provisions that require us to maintain a specific credit rating from each of the major credit rating agencies. Sometimes the derivative instrument transactions are a part of broader structured product transactions. If our credit ratings were to fall below the current ratings, the counterparties to our derivative instruments could demand us to post additional collateral. The amount of additional collateral required to be posted will depend on whether we are downgraded by one or more notches. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position at ~~March 31,~~June 30, 2021 was ~~$198~~$173 million, for which we had posted collateral of ~~$113~~$25 million. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position at December 31, 2020 was $221 million, for which we had posted collateral of $67 million. Substantially all of the collateral posted is in the form of cash or securities available-for-sale. See Note ~~18,~~19, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," for further details.

The following table presents the amount of additional collateral that we would be required to post (from the current collateral level) related to derivative instruments with credit-risk related contingent features if our long-term ratings were downgraded by one or two notches. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another rating agency will generally not result in additional collateral.

One-notch downgrade Two-notch downgrade
(in millions)
Amount of additional collateral to be posted upon downgrade $ 17 $ 35


~~HSBC USA Inc.~~


	One-notch downgrade		Two-notch downgrade
	(in millions)
Amount of additional collateral to be posted upon downgrade	$	17	$	65

Notional Value of Derivative Contracts The following table summarizes the notional values of derivative contracts:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Interest rate:	Interest rate:					Interest rate:
Futures and forwards	Futures and forwards	$	24,317	$	37,098	Futures and forwards	$	35,097	$	37,098
Swaps	Swaps	299,206		406,609		Swaps	299,603		406,609
Options written	Options written	20,766		33,269		Options written	11,927		33,269
Options purchased	Options purchased	22,579		32,427		Options purchased	12,293		32,427
Total interest rate	Total interest rate	366,868		509,403		Total interest rate	358,920		509,403
Foreign exchange:	Foreign exchange:					Foreign exchange:
Swaps, futures and forwards	Swaps, futures and forwards	1,132,775		1,195,449		Swaps, futures and forwards	1,062,933		1,195,449
Options written	Options written	36,859		53,200		Options written	32,200		53,200
Options purchased	Options purchased	37,250		53,595		Options purchased	32,256		53,595
Spot	Spot	40,632		57,040		Spot	50,688		57,040
Total foreign exchange	Total foreign exchange	1,247,516		1,359,284		Total foreign exchange	1,178,077		1,359,284
Commodities, equities and precious metals:	Commodities, equities and precious metals:					Commodities, equities and precious metals:
Swaps, futures and forwards	Swaps, futures and forwards	62,759		54,458		Swaps, futures and forwards	66,758		54,458
Options written	Options written	10,340		17,078		Options written	7,129		17,078
Options purchased	Options purchased	19,783		27,083		Options purchased	16,244		27,083
Total commodities, equities and precious metals	Total commodities, equities and precious metals	92,882		98,619		Total commodities, equities and precious metals	90,131		98,619
Credit derivatives	Credit derivatives	43,387		52,611		Credit derivatives	11,742		52,611
Other contracts(1)	Other contracts(1)	1,177		1,216		Other contracts(1)	1,300		1,216
Total	Total	$	1,751,830	$	2,021,133	Total	$	1,640,170	$	2,021,133

(1)Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.

~~10.~~


HSBC USA Inc.

11. Fair Value Option

We report our results to HSBC in accordance with HSBC Group accounting and reporting policies ("Group Reporting Basis"), which apply International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB"). We typically have elected to apply fair value option ("FVO") accounting to selected financial instruments to align the measurement attributes of those instruments under U.S. GAAP and the Group Reporting Basis and to simplify the accounting model applied to those financial instruments. We elected to apply FVO accounting to certain commercial loans held for sale, certain student loans held for investment, certain fixed-rate long-term debt issuances and all of our hybrid instruments, including structured notes and deposits. Excluding the fair value movement on fair value option liabilities attributable to our own credit spread, which is recorded in other comprehensive income (loss), changes in the fair value of fair value option assets and liabilities as well as the mark-to-market adjustment on the related derivatives and the net realized gains or losses on these derivatives are reported in gain ~~(loss)~~ on instruments designated at fair value and related derivatives in the consolidated statement of income (loss).

Loans and Loans Held For Sale We elected to apply FVO accounting to certain commercial syndicated loans which are originated with the intent to sell and certain commercial loans that we purchased from the secondary market and hold as hedges against our exposure to certain total return swaps and include these loans as loans held for sale in the consolidated balance sheet. We also elected to apply FVO accounting to certain student loans held for investment. These elections allow us to account for these loans at fair value which is consistent with the manner in which the instruments are managed. Where available, fair value is based on observable market pricing obtained from independent sources, relevant broker quotes or observed market prices of instruments with similar characteristics. Where observable market parameters are not available, fair value is determined based on contractual cash flows adjusted for estimates of prepayment rates, expected default rates and loss severity discounted at management's estimate of the expected rate of return required by market participants. We also consider loan-specific risk mitigating factors such as collateral arrangements in determining the fair value estimate. Interest from these loans is recorded as interest income in the consolidated statement of income (loss). Because a substantial majority of the loans elected for the fair value option are floating-rate commercial loans, changes in their fair value are primarily attributable to changes in loan-specific credit risk factors. The components of gain (loss) related to loans designated at fair value are


~~HSBC USA Inc.~~

summarized in the table below. At ~~March 31,~~June 30, 2021 and December 31, 2020, 0 loans for which the fair value option has been elected were 90 days or more past due or in nonaccrual status.

Long-Term Debt (Own Debt Issuances) We elected to apply FVO accounting for certain fixed-rate long-term debt for which we had applied or otherwise would elect to apply fair value hedge accounting. The election allows us to achieve a similar accounting effect without having to meet the hedge accounting requirements. The own debt issuances elected under FVO are traded in secondary markets and, as such, the fair value is determined based on observed prices for the specific instruments. The observed market price of these instruments reflects the effect of changes to our own credit spreads and interest rates. Interest on the fixed-rate debt accounted for under FVO is recorded as interest expense in the consolidated statement of income (loss). Excluding the fair value movement attributable to our own credit spread, the components of gain (loss) in the consolidated statement of income (loss) related to long-term debt designated at fair value are summarized in the table below.

Hybrid Instruments We elected to apply FVO accounting to all of our hybrid instruments issued, including structured notes and deposits. The valuation of the hybrid instruments is predominantly driven by the derivative features embedded within the instruments and our own credit risk. Cash flows of the hybrid instruments in their entirety, including the embedded derivatives, are discounted at an appropriate rate for the applicable duration of the instrument adjusted for our own credit spreads. The credit spreads applied to structured notes are determined with reference to our own debt issuance rates observed in the primary and secondary markets, internal funding rates, and structured note rates in recent executions while the credit spreads applied to structured deposits are determined using market rates currently offered on comparable deposits with similar characteristics and maturities. Interest on this debt is recorded as interest expense in the consolidated statement of income (loss). Excluding the fair value movement attributable to our own credit spread, the components of gain (loss) in the consolidated statement of income (loss) related to hybrid instruments designated at fair value are summarized in the table below.


HSBC USA Inc.

The following table summarizes the fair value and unpaid principal balance for items we account for under FVO:


		Fair Value		Unpaid Principal Balance		Fair Value Over (Under) Unpaid Principal Balance			Fair Value		Unpaid Principal Balance		Fair Value Over (Under) Unpaid Principal Balance
		(in millions)							(in millions)
At March 31, 2021
At June 30, 2021								At June 30, 2021
Student loans held for investment	Student loans held for investment	$	30	$	32	$	(2)	Student loans held for investment	$	29	$	31	$	(2)
Commercial loans held for sale	Commercial loans held for sale	83		83		0		Commercial loans held for sale	215		215		0

Fixed rate long-term debt	Fixed rate long-term debt	933		741		192		Fixed rate long-term debt	962		741		221
Hybrid instruments:	Hybrid instruments:							Hybrid instruments:
Structured deposits	Structured deposits	3,765		3,448		317		Structured deposits	3,322		3,009		313
Structured notes	Structured notes	8,937		7,413		1,524		Structured notes	8,875		7,312		1,563
At December 31, 2020	At December 31, 2020							At December 31, 2020
Student loans held for investment	Student loans held for investment	$	32	$	34	$	(2)	Student loans held for investment	$	32	$	34	$	(2)
Commercial loans held for sale	Commercial loans held for sale	36		36		0		Commercial loans held for sale	36		36		0

Fixed rate long-term debt	Fixed rate long-term debt	1,030		741		289		Fixed rate long-term debt	1,030		741		289
Hybrid instruments:	Hybrid instruments:							Hybrid instruments:
Structured deposits	Structured deposits	4,155		3,844		311		Structured deposits	4,155		3,844		311
Structured notes	Structured notes	9,695		8,332		1,363		Structured notes	9,695		8,332		1,363

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HSBC USA Inc.

Components of Gain ~~(Loss)~~ on Instruments Designated at Fair Value and Related Derivatives The following table summarizes the components of gain ~~(loss)~~ on instruments designated at fair value and related derivatives reflected in the consolidated statement of income (loss) for the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


		Loans and Loans Held for Sale		Long-Term Debt			Hybrid Instruments		Total			Loans and Loans Held for Sale		Long-Term Debt		Hybrid Instruments		Total
		(in millions)				(in millions)

Three Months Ended March 31, 2021
Three Months Ended June 30, 2021											Three Months Ended June 30, 2021
Interest rate and other components(1)	Interest rate and other components(1)	$	0	$	100		$	(452)	$	(352)	Interest rate and other components(1)	$	0	$	(41)	$	(401)	$	(442)
Credit risk component(2)	Credit risk component(2)	1		0			0		1		Credit risk component(2)	0		0		0		0
Total mark-to-market on financial instruments designated at fair value	Total mark-to-market on financial instruments designated at fair value	1		100			(452)		(351)		Total mark-to-market on financial instruments designated at fair value	0		(41)		(401)		(442)
Mark-to-market on related derivatives	Mark-to-market on related derivatives	0		(108)			468		360		Mark-to-market on related derivatives	0		42		397		439
Net realized gain on related long-term debt derivatives	Net realized gain on related long-term debt derivatives	0		9			0		9		Net realized gain on related long-term debt derivatives	0		10		0		10
Gain (loss) on instruments designated at fair value and related derivatives	Gain (loss) on instruments designated at fair value and related derivatives	$	1	$	1		$	16	$	18	Gain (loss) on instruments designated at fair value and related derivatives	$	0	$	11	$	(4)	$	7

Three Months Ended March 31, 2020
Three Months Ended June 30, 2020											Three Months Ended June 30, 2020
Interest rate and other components(1)											Interest rate and other components(1)	$	0	$	2	$	(1,089)	$	(1,087)
Credit risk component(2)											Credit risk component(2)	5		0		0		5
Total mark-to-market on financial instruments designated at fair value											Total mark-to-market on financial instruments designated at fair value	5		2		(1,089)		(1,082)
Mark-to-market on related derivatives											Mark-to-market on related derivatives	0		0		1,096		1,096
Net realized gain on related long-term debt derivatives											Net realized gain on related long-term debt derivatives	0		8		0		8
Gain (loss) on instruments designated at fair value and related derivatives											Gain (loss) on instruments designated at fair value and related derivatives	$	5	$	10	$	7	$	22

Six Months Ended June 30, 2021											Six Months Ended June 30, 2021
Interest rate and other components(1)											Interest rate and other components(1)	$	0	$	59	$	(853)	$	(794)
Credit risk component(2)											Credit risk component(2)	1		0		0		1
Total mark-to-market on financial instruments designated at fair value											Total mark-to-market on financial instruments designated at fair value	1		59		(853)		(793)
Mark-to-market on related derivatives											Mark-to-market on related derivatives	0		(66)		865		799
Net realized gain on related long-term debt derivatives											Net realized gain on related long-term debt derivatives	0		19		0		19
Gain (loss) on instruments designated at fair value and related derivatives											Gain (loss) on instruments designated at fair value and related derivatives	$	1	$	12	$	12	$	25

Six Months Ended June 30, 2020											Six Months Ended June 30, 2020
Interest rate and other components(1)	Interest rate and other components(1)	$	0	$	(134)		$	1,579	$	1,445	Interest rate and other components(1)	$	0	$	(132)	$	490	$	358
Credit risk component(2)(3)	Credit risk component(2)(3)	(54)		0			0		(54)		Credit risk component(2)(3)	(49)		0		0		(49)
Total mark-to-market on financial instruments designated at fair value	Total mark-to-market on financial instruments designated at fair value	(54)		(134)			1,579		1,391		Total mark-to-market on financial instruments designated at fair value	(49)		(132)		490		309
Mark-to-market on related derivatives	Mark-to-market on related derivatives	37		150			(1,606)		(1,419)		Mark-to-market on related derivatives	37		150		(510)		(323)
Net realized gain on related long-term debt derivatives	Net realized gain on related long-term debt derivatives	0		6			0		6		Net realized gain on related long-term debt derivatives	0		14		0		14
Gain (loss) on instruments designated at fair value and related derivatives	Gain (loss) on instruments designated at fair value and related derivatives	$	(17)	$	22		$	(27)	$	(22)	Gain (loss) on instruments designated at fair value and related derivatives	$	(12)	$	32	$	(20)	$	0

(1)As it relates to hybrid instruments, interest rate and other components primarily includes interest rate, foreign exchange and equity contract risks.

(2)The fair value movement on fair value option liabilities attributable to our own credit spread is recorded in other comprehensive ~~income.~~income (loss).

(3)During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the loss in the credit risk component for loans and loans held for sale was attributable to the widening of credit spreads associated with certain commercial loans held for sale which were impacted by the COVID-19 pandemic.

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HSBC USA Inc.

~~11.~~12. Accumulated Other Comprehensive Income

Accumulated other comprehensive income includes certain items that are reported directly within a separate component of equity. The following table presents changes in accumulated other comprehensive income balances:


Three Months Ended March 31,		2021		2020
Three Months Ended June 30,							Three Months Ended June 30,	2021		2020
		(in millions)				(in millions)
Unrealized gains (losses) on investment securities:	Unrealized gains (losses) on investment securities:						Unrealized gains (losses) on investment securities:
Balance at beginning of period	Balance at beginning of period	$	750	$	(116)		Balance at beginning of period	$	119	$	644
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on securities available-for-sale, net of tax of $1 million(1)		—		2

Balance at beginning of period, adjusted		750		(114)
Other comprehensive income (loss) for period:	Other comprehensive income (loss) for period:						Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of $(195) million and $245 million, respectively		(613)		775
Reclassification adjustment for gains realized in net income (loss), net of tax of $(7) million and $(7) million, respectively(2)		(22)		(21)
Provision for credit losses realized in net income (loss), net of tax of NaN and less than $1 million, respectively(3)		0		1
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity realized in net income (loss), net of tax of $1 million and $1 million, respectively(4)		4		3
Total other comprehensive income (loss) for period		(631)		758
Net unrealized gains arising during period, net of tax of $21 million and $41 million, respectively							Net unrealized gains arising during period, net of tax of $21 million and $41 million, respectively	63		129
Reclassification adjustment for gains realized in net income (loss), net of tax of $(4) million and $(7) million, respectively(1)							Reclassification adjustment for gains realized in net income (loss), net of tax of $(4) million and $(7) million, respectively(1)	(14)		(24)
Provision for credit losses realized in net income (loss), net of tax of NaN and less than $1 million, respectively(2)							Provision for credit losses realized in net income (loss), net of tax of NaN and less than $1 million, respectively(2)	0		1
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity realized in net income (loss), net of tax of $1 million and $1 million, respectively(3)							Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity realized in net income (loss), net of tax of $1 million and $1 million, respectively(3)	4		4
Total other comprehensive income for period							Total other comprehensive income for period	53		110
Balance at end of period	Balance at end of period	119		644			Balance at end of period	172		754
Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread:	Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread:						Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread:
Balance at beginning of period	Balance at beginning of period	15		(9)			Balance at beginning of period	5		398

Other comprehensive income (loss) for period:	Other comprehensive income (loss) for period:						Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of $(3) million and $128 million, respectively		(10)		407
Net unrealized gains (losses) arising during period, net of tax of $3 million and $(82) million, respectively							Net unrealized gains (losses) arising during period, net of tax of $3 million and $(82) million, respectively	10		(261)

Total other comprehensive income (loss) for period	Total other comprehensive income (loss) for period	(10)		407			Total other comprehensive income (loss) for period	10		(261)
Balance at end of period	Balance at end of period	5		398			Balance at end of period	15		137
Unrealized gains (losses) on derivatives designated as cash flow hedges:	Unrealized gains (losses) on derivatives designated as cash flow hedges:						Unrealized gains (losses) on derivatives designated as cash flow hedges:
Balance at beginning of period	Balance at beginning of period	(79)		(151)			Balance at beginning of period	(91)		(61)

Other comprehensive income (loss) for period:	Other comprehensive income (loss) for period:						Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of $(4) million and $28 million, respectively		(13)		85
Reclassification adjustment for losses realized in net income (loss), net of tax of less than $1 million and $1 million, respectively(5)		1		5
Net unrealized losses arising during period, net of tax of $(2) million and NaN, respectively							Net unrealized losses arising during period, net of tax of $(2) million and NaN, respectively	(6)		0
Reclassification adjustment for (gains) losses realized in net income (loss), net of tax of $(1) million and $1 million, respectively(4)							Reclassification adjustment for (gains) losses realized in net income (loss), net of tax of $(1) million and $1 million, respectively(4)	(3)		3
Total other comprehensive income (loss) for period	Total other comprehensive income (loss) for period	(12)		90			Total other comprehensive income (loss) for period	(9)		3
Balance at end of period	Balance at end of period	(91)		(61)			Balance at end of period	(100)		(58)
Pension and postretirement benefit liability:	Pension and postretirement benefit liability:						Pension and postretirement benefit liability:
Balance at beginning of period							Balance at beginning of period	(7)		(3)
Other comprehensive income (loss) for period:							Other comprehensive income (loss) for period:
Change in unfunded pension and postretirement liability, net of tax of less than $1 million and NaN, respectively							Change in unfunded pension and postretirement liability, net of tax of less than $1 million and NaN, respectively	1		0

Total other comprehensive income for period							Total other comprehensive income for period	1		0
Balance at end of period							Balance at end of period	(6)		(3)
Total accumulated other comprehensive income at end of period							Total accumulated other comprehensive income at end of period	$	81	$	830

Balance at beginning and end of period		(7)		(3)
Total accumulated other comprehensive income at end of period		$	26	$	978


HSBC USA Inc.


Six Months Ended June 30,	2021		2020
	(in millions)
Unrealized gains (losses) on investment securities:
Balance at beginning of period	$	750	$	(116)
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses on securities available-for-sale, net of tax of $1 million(5)	—		2


Balance at beginning of period, adjusted	750		(114)
Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of $(174) million and $286 million, respectively	(550)		906
Reclassification adjustment for gains realized in net income (loss), net of tax of $(11) million and $(14) million, respectively(1)	(36)		(45)

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity realized in net income (loss), net of tax of $2 million and $2 million, respectively(3)	8		7
Total other comprehensive income (loss) for period	(578)		868
Balance at end of period	172		754
Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread:
Balance at beginning of period	15		(9)


Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of NaN and $46 million, respectively	0		146

Total other comprehensive income for period	0		146
Balance at end of period	15		137
Unrealized gains (losses) on derivatives designated as cash flow hedges:
Balance at beginning of period	(79)		(151)


Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of $(6) million and $28 million, respectively	(19)		85
Reclassification adjustment for (gains) losses realized in net income (loss), net of tax of $(1) million and $2 million, respectively(4)	(2)		8
Total other comprehensive income (loss) for period	(21)		93
Balance at end of period	(100)		(58)
Pension and postretirement benefit liability:
Balance at beginning of period	(7)		(3)


Other comprehensive income (loss) for period:
Change in unfunded pension and postretirement liability, net of tax of less than $1 million and NaN, respectively	1		0

Total other comprehensive income for period	1		0
Balance at end of period	(6)		(3)
Total accumulated other comprehensive income at end of period	$	81	$	830

(1)~~See Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," in our 2020 Form 10-K for additional discussion.~~

~~(2)~~Amount reclassified to net income (loss) is included in other securities gains, net in our consolidated statement of income (loss).

~~(3)~~(2)Changes in the allowance for credit losses on securities available-for-sale are included in the provision for credit losses in our consolidated statement of income (loss).

~~(4)~~(3)Amount amortized to net income (loss) is included in interest income in our consolidated statement of income (loss). During 2014, we transferred securities from available-for-sale to held-to-maturity. At the date of transfer, AOCI included net pretax unrealized losses related to the transferred securities which are being amortized over the remaining contractual life of each security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.

~~(5)~~(4)Amount reclassified to net income (loss) is included in net interest income in our consolidated statement of income (loss).

(5)See Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," in our 2020 Form 10-K for additional discussion.

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HSBC USA Inc.

~~12.~~13. Pension and Other Postretirement Benefits

Defined Benefit Pension Plan The following table reflects the portion of pension expense and its related components of the combined HSBC North America Pension Plan (either the "HSBC North America Pension Plan" or the "Plan") which has been allocated to us and is recorded in our consolidated statement of income (loss). We have not been allocated any portion of the Plan's net pension asset.


		Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,			2021		2020
									2021		2020		2021		2020
			(in millions)				(in millions)
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation		$	10	$	12		Interest cost on projected benefit obligation	$	11	$	12	$	21	$	24
Expected return on plan assets	Expected return on plan assets		(15)		(19)			Expected return on plan assets	(14)		(20)		(29)		(39)
Amortization of net actuarial loss	Amortization of net actuarial loss		0		2			Amortization of net actuarial loss	0		2		0		4
Administrative costs	Administrative costs		1		1			Administrative costs	1		1		2		2

Pension (income) expense	Pension (income) expense		$	(4)	$	(4)		Pension (income) expense	$	(2)	$	(5)	$	(6)	$	(9)

Postretirement Plans Other Than Pensions Certain employees also participate in plans which provide medical and life insurance benefits to retirees and eligible dependents. These plans cover all eligible employees who meet certain age and vested service requirements. We have instituted dollar limits on payments under the plans to control the cost of future medical benefits. Net periodic postretirement benefit cost was less than $1 million during ~~both~~ the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

~~13.~~14. Fee Income from Contracts with Customers

The following table summarizes fee income from contracts with customers disaggregated by type of activity, as well as a reconciliation to total other revenues, during the three and six months ended ~~March 31,~~June 30, 2021 and 2020. See Note 22, "Fee Income from Contracts with Customers," in our 2020 Form 10-K for a description of the various types of fee-based activities and how revenue associated with these activities is recognized. There have been no significant changes in these activities since December 31, 2020.


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Credit card fees, net	Credit card fees, net	$	10		$	11		Credit card fees, net	$	13	$	9	$	23	$	20
Trust and investment management fees	Trust and investment management fees	29			31			Trust and investment management fees	26		33		55		64
Other fees and commissions:	Other fees and commissions:							Other fees and commissions:
Account services	Account services	70			61			Account services	73		58		143		119
Credit facilities	Credit facilities	83			73			Credit facilities	89		64		172		137
Other fees	Other fees	12			17			Other fees	9		15		21		32
Total other fees and commissions	Total other fees and commissions	165			151			Total other fees and commissions	171		137		336		288
Servicing and other fees from HSBC affiliates	Servicing and other fees from HSBC affiliates	83			88			Servicing and other fees from HSBC affiliates	70		81		153		169
Insurance(1)	Insurance(1)	1			2			Insurance(1)	2		2		3		4
Total fee income from contracts with customers	Total fee income from contracts with customers	288			283			Total fee income from contracts with customers	282		262		570		545
Other non-fee revenues	Other non-fee revenues	96			104			Other non-fee revenues	22		202		118		306
Total other revenues(2)	Total other revenues(2)	$	384		$	387		Total other revenues(2)	$	304	$	464	$	688	$	851

(1)Included within other income (loss) in the consolidated statement of income (loss).

(2)See Note ~~15,~~16, "Business Segments," for a reconciliation of total other revenues on a U.S. GAAP basis to other operating income for each business segment under the Group Reporting Basis.

Credit card fees, net We recognized interchange fees of ~~$18~~$26 million and ~~$22~~$44 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, compared with $13 million and $35 million during the three and six months ended June 30, 2020, respectively. Credit card rewards program costs totaled ~~$11~~$13 million and ~~$13~~$24 million during the three and six months ended ~~March 31, 2021 and 2020, respectively.~~June

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HSBC USA Inc.

30, 2021, respectively, compared with $5 million and $18 million during the three and six months ended June 30, 2020, respectively.

Deferred Fee Income

Information related to deferred fee income on loan commitments, revolving credit facilities and standby letters of credit is included in Note ~~18,~~19, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," and Note ~~19,~~20, "Fair Value Measurements." Excluding these items, we had deferred fee income related to certain account service fees that are paid upfront and recognized over the service period and annual fees on credit cards which collectively was $3 million at both ~~March 31,~~June 30, 2021 and December 31, 2020. We expect to recognize this revenue over a remaining period of one year or less.

Other than trust and investment management fees as discussed in our 2020 Form 10-K, we do not use significant judgments in the determination of the amount and timing of fee income from contracts with customers. Additionally, costs to obtain or fulfill contracts with customers were immaterial.

~~14.~~15. Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. HSBC policy requires that these transactions occur at prevailing market rates and terms and, where applicable, these transactions are compliant with United States banking regulations. All extensions of credit by (and certain credit exposures of) HSBC Bank USA, National Association (together with its subsidiaries, "HSBC Bank USA") to other HSBC affiliates (other than Federal Deposit Insurance Corporation insured banks) are legally required to be secured by eligible collateral. The following tables present related party balances and the income (expense) generated by related party transactions:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	607	$	516	Cash and due from banks	$	595	$	516
Interest bearing deposits with banks	Interest bearing deposits with banks	104		187		Interest bearing deposits with banks	15		187
Securities purchased under agreements to resell(1)	Securities purchased under agreements to resell(1)	724		3,941		Securities purchased under agreements to resell(1)	40		3,941
Trading assets	Trading assets	98		314		Trading assets	25		314
Loans	Loans	1,652		1,100		Loans	1,406		1,100
Other(2)	Other(2)	402		319		Other(2)	328		319
Total assets	Total assets	$	3,587	$	6,377	Total assets	$	2,409	$	6,377
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	15,943	$	15,163	Deposits	$	14,263	$	15,163
Trading liabilities(3)	Trading liabilities(3)	44		2,375		Trading liabilities(3)	131		2,375
Short-term borrowings	Short-term borrowings	660		270		Short-term borrowings	559		270
Long-term debt	Long-term debt	3,528		2,878		Long-term debt	5,528		2,878
Other(2)	Other(2)	269		268		Other(2)	296		268
Total liabilities	Total liabilities	$	20,444	$	20,954	Total liabilities	$	20,777	$	20,954

(1)Reflects purchases of securities under which other HSBC affiliates have agreed to repurchase.

(2)Other assets and other liabilities primarily consist of derivative balances associated with hedging activities and other miscellaneous account receivables and payables.

(3)The decrease in trading liabilities at ~~March 31,~~June 30, 2021 primarily reflects a decrease in borrowing of gold inventory from HSBC Bank plc to support client activity levels.

4452


HSBC USA Inc.


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Income (Expense):	Income (Expense):							Income (Expense):
Interest income	Interest income	$	7		$	26		Interest income	$	7	$	12	$	14	$	38
Interest expense	Interest expense	(73)			(120)			Interest expense	(60)		(79)		(133)		(199)
Net interest expense	Net interest expense	(66)			(94)			Net interest expense	(53)		(67)		(119)		(161)
Trading revenue (expense)	Trading revenue (expense)	131			(261)			Trading revenue (expense)	(1,121)		(356)		(990)		(617)
Servicing and other fees from HSBC affiliates:	Servicing and other fees from HSBC affiliates:							Servicing and other fees from HSBC affiliates:
HSBC Bank plc	HSBC Bank plc	48			47			HSBC Bank plc	32		41		80		88
HSBC Markets (USA) Inc. ("HMUS")	HSBC Markets (USA) Inc. ("HMUS")	22			24			HSBC Markets (USA) Inc. ("HMUS")	26		26		48		50

Other HSBC affiliates	Other HSBC affiliates	13			17			Other HSBC affiliates	12		14		25		31
Total servicing and other fees from HSBC affiliates	Total servicing and other fees from HSBC affiliates	83			88			Total servicing and other fees from HSBC affiliates	70		81		153		169
Gain (loss) on instruments designated at fair value and related derivatives	Gain (loss) on instruments designated at fair value and related derivatives	468			(1,606)			Gain (loss) on instruments designated at fair value and related derivatives	397		1,096		865		(510)
Support services from HSBC affiliates:	Support services from HSBC affiliates:							Support services from HSBC affiliates:
HTSU	HTSU	(244)			(263)			HTSU	(268)		(272)		(512)		(535)
HMUS	HMUS	(28)			(27)			HMUS	(18)		(19)		(46)		(46)
Other HSBC affiliates	Other HSBC affiliates	(95)			(92)			Other HSBC affiliates	(106)		(98)		(201)		(190)
Total support services from HSBC affiliates	Total support services from HSBC affiliates	(367)			(382)			Total support services from HSBC affiliates	(392)		(389)		(759)		(771)
Rental income from HSBC affiliates, net(1)	Rental income from HSBC affiliates, net(1)	13			12			Rental income from HSBC affiliates, net(1)	7		6		20		18
Stock based compensation expense(2)	Stock based compensation expense(2)	(6)			(6)			Stock based compensation expense(2)	(5)		(7)		(11)		(13)

(1)We receive rental income from our affiliates, and in some cases pay rental expense to our affiliates, for rent on certain office space. Net rental income from our affiliates is recorded as a component of occupancy expense, net in our consolidated statement of income (loss).

(2)Employees may participate in one or more stock compensation plans sponsored by HSBC. These expenses are included in salaries and employee benefits in our consolidated statement of income (loss). Certain employees are also eligible to participate in a defined benefit pension plan and other postretirement plans sponsored by HSBC North America which are discussed in Note ~~12,~~13, "Pension and Other Postretirement Benefits."

Funding Arrangements with HSBC Affiliates:

We use HSBC affiliates to fund a portion of our borrowing and liquidity needs. At ~~March 31,~~June 30, 2021 and December 31, 2020, long-term debt with affiliates reflected ~~$3.5~~$5.5 billion and $2.9 billion, respectively, of borrowings from HSBC North America. During the first quarter of 2021, $850 million of these borrowings were repaid. The remaining outstanding balances include:

•$2.0 billion of fixed-rate senior debt which matures in September 2025; ~~and~~

•$1.5 billion of fixed-rate senior debt which was issued during the first quarter of 2021 and matures in June ~~2030.~~2030; and

•$2.0 billion of fixed-rate senior debt which was issued during the second quarter of 2021 and matures in June 2025.

We have a $4.0 billion uncommitted line of credit with HSBC North America. The available borrowing capacity under this facility is fungible between HSBC USA, HSBC Securities (USA) Inc. ("HSI") and HSBC North America, but total borrowings cannot collectively exceed $4.0 billion at any time. There was 0 outstanding balance under this credit facility at either ~~March 31,~~June 30, 2021 or December 31, 2020.

We have also incurred short-term borrowings with certain affiliates. In addition, certain affiliates have also placed deposits with us.

Lending and Derivative Related Arrangements Extended to HSBC Affiliates:

At ~~March 31,~~June 30, 2021 and December 31, 2020, we had the following loan balances outstanding with HSBC affiliates:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)

HMUS and subsidiaries	HMUS and subsidiaries	$	1,591	$	1,088	HMUS and subsidiaries	$	1,311	$	1,088

Other short-term affiliate lending	Other short-term affiliate lending	61		12		Other short-term affiliate lending	95		12
Total loans	Total loans	$	1,652	$	1,100	Total loans	$	1,406	$	1,100


HSBC USA Inc.

HMUS and subsidiaries We have extended loans and lines of credit, some of them uncommitted, to HMUS and its subsidiaries in the amount of $11.6 billion and $12.0 billion at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, of which ~~$1.6~~$1.3 billion and $1.1 billion, respectively, was outstanding. The maturities of the outstanding balances range from overnight to three months. Each borrowing is re-evaluated prior to its maturity date and either extended or allowed to mature.


~~HSBC USA Inc.~~

We have extended lines of credit to various other HSBC affiliates totaling ~~$3.9~~$3.2 billion and $4.7 billion which did 0t have any outstanding balances at either ~~March 31,~~June 30, 2021 or December 31, 2020.

Other short-term affiliate lending In addition to loans and lines extended to affiliates discussed above, from time to time we may extend loans to affiliates which are generally short term in nature. At ~~March 31,~~June 30, 2021 and December 31, 2020, there were ~~$61~~$95 million and $12 million, respectively, of these loans outstanding.

Derivative contracts As part of a global HSBC strategy to offset interest rate or other market risks associated with certain securities, debt issues and derivative contracts with unaffiliated third parties, we routinely enter into derivative transactions with HSBC Bank plc and other HSBC affiliates. The notional value of derivative contracts related to these transactions was approximately ~~$835.0~~$817.2 billion and $923.6 billion at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The net credit exposure (defined as the net fair value of derivative assets and liabilities, including any collateral received) related to the contracts was approximately ~~$110~~$32 million and $66 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. We account for these transactions on a mark to market basis, with the change in value of contracts with HSBC affiliates substantially offset by the change in value of related contracts entered into with unaffiliated third parties.

As discussed further in Note 2, "Strategic Initiatives," during the ~~first quarter of~~three and six months ended June 30, 2021, we continued to transfer certain interest rate derivative contracts to HSBC Bank plc as part of our Restructuring Plan.

Services Provided Between HSBC Affiliates:

Under multiple service level agreements, we provide services to and receive services from various HSBC affiliates. These activities are summarized in Note 23, "Related Party Transactions," in our 2020 Form 10-K. There have been no significant changes in these activities since December 31, 2020.

Other Transactions with HSBC Affiliates:

At both ~~March 31,~~June 30, 2021 and December 31, 2020, we had $1,265 million of non-cumulative preferred stock issued and outstanding to HSBC North America. See Note 18, "Preferred Stock," in our 2020 Form 10-K for additional details.

~~15.~~16. Business Segments

We have 4 distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Wealth and Personal Banking ("WPB") ~~which was created in 2020 and is discussed further below,~~, Commercial Banking ("CMB"), Global Banking and Markets ("GBM") and a Corporate Center ("CC").

~~We previously announced as part of our Restructuring Plan that we combined our Retail Banking and Wealth Management ("RBWM") and Private Banking ("PB") businesses to create a single WPB business.~~ During the ~~second quarter~~first half of ~~2020,~~2021, we implemented a change to our internal management reporting to prospectively report ~~what was historically RBWM and PB together within the newly created WPB segment and, as a result, we have aligned our segment reporting to reflect this change for all periods presented.~~

~~During the second quarter of 2020, we also implemented a change~~assets related to our ~~internal management reporting to allocate Markets Treasury,~~active branches as of January 1, 2021, which ~~was~~were historically reported within ~~the~~our CC segment, ~~to the~~within our WPB ~~CMB and GBM businesses to better align the revenue and expense to the businesses generating or utilizing this activity.~~segment. As a result, ~~we have aligned~~lease impairment and other related costs associated with these branches is recorded within our WPB segment ~~reporting to reflect~~beginning in 2021. Prior periods were not impacted by this ~~change for all periods presented.~~


~~HSBC USA Inc.~~

~~The following tables summarize the impact of these changes on reported segment profit (loss) before tax, total assets and total deposits as of and for the three months ended March 31, 2020:~~

As Previously Reported After Reporting Changes
(in millions)
Segment profit (loss) before tax during the three months ended March 31, 2020:
RBWM $ (546) NR
WPB NR $ (869)
CMB (3) (2)
GBM 43 45
PB (323) NR
CC (169) (172)
Segment total assets at March 31, 2020:
RBWM $ 18,954 NR
WPB NR $ 58,246
CMB 31,540 42,882
GBM 114,802 165,838
PB 7,159 NR
CC 97,154 2,643
Segment total deposits at March 31, 2020:
RBWM $ 39,083 NR
WPB NR $ 48,800
CMB 32,309 32,844
GBM 40,417 42,671
PB 8,201 NR
CC 4,305 0

~~NR Not Reported~~change.

There have been no additional changes in the basis of our segmentation as compared with the presentation in our 2020 Form 10-K.

Net interest income of each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for a funding charge or credit that includes both interest rate and liquidity components. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates that incorporate both repricing (interest rate risk) and tenor (liquidity) characteristics. The objective of these charges/credits is to transfer interest rate risk to one centralized unit in Markets Treasury. 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.

Certain other revenue and operating expense amounts are also apportioned among the business segments based upon the benefits derived from this activity or the relationship of this activity to other segment activity. These inter-segment transactions have not been eliminated, and we generally account for them as if they were with third parties.

Our segment results are presented in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB. As a result, our segment results are prepared and presented using financial information prepared on the Group Reporting Basis as operating results are monitored and reviewed, trends are evaluated and decisions about allocating


HSBC USA Inc.

resources, such as employees, are primarily made on this basis. We continue, however, to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

There have been no changes in the measurement of segment profit as compared with the presentation in our 2020 Form 10-K.

A summary of significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results are summarized in Note 24, "Business Segments," in our 2020 Form 10-K. There have been no significant changes since December 31, 2020 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.


~~HSBC USA Inc.~~

The following table summarizes the results for each segment on a Group Reporting Basis, as well as provides a reconciliation of total results under the Group Reporting Basis to U.S. GAAP consolidated totals:


		Group Reporting Basis Consolidated Amounts												Group Reporting Basis Consolidated Amounts
		WPB		CMB		GBM		CC		Total		Group Reporting Basis Adjustments(1)			Group Reporting Basis Reclassi- fications(2)				U.S. GAAP Consolidated Totals
		(in millions)												WPB				CMB				GBM						CC	Total		Group Reporting Basis Adjustments(1)	Group Reporting Basis Reclassi- fications(2)		U.S. GAAP Consolidated Totals
																	(in millions)
Three Months Ended June 30, 2021																					Three Months Ended June 30, 2021
Net interest income (expense)																					Net interest income (expense)	$	205	$	190	$	86		$	(1)		$	480	$	9	$	34	$	523
Other operating income																					Other operating income	71		72		183			18			344		(11)		(29)		304
Total operating income																					Total operating income	276		262		269			17			824		(2)		5		827
Expected credit losses / provision for credit losses																					Expected credit losses / provision for credit losses	1		(12)		(72)			0			(83)		(146)		0		(229)
																						275		274		341			17			907		144		5		1,056
Operating expenses																					Operating expenses	355		153		186			71			765		32		5		802
Profit (loss) before income tax																					Profit (loss) before income tax	$	(80)	$	121	$	155		$	(54)		$	142	$	112	$	0	$	254

Three Months Ended June 30, 2020																					Three Months Ended June 30, 2020
Net interest income (expense)																					Net interest income (expense)	$	197	$	204	$	122		$	(7)		$	516	$	2	$	20	$	538
Other operating income																					Other operating income	99		52		263			85			499		(19)		(16)		464
Total operating income																					Total operating income	296		256		385			78			1,015		(17)		4		1,002
Expected credit losses / provision for credit losses																					Expected credit losses / provision for credit losses	36		181		19			0			236		(17)		0		219
																						260		75		366			78			779		0		4		783
Operating expenses																					Operating expenses	326		142		201			63			732		(9)		4		727
Profit (loss) before income tax																					Profit (loss) before income tax	$	(66)	$	(67)	$	165		$	15		$	47	$	9	$	0	$	56

Three Months Ended March 31, 2021
Six Months Ended June 30, 2021																					Six Months Ended June 30, 2021
Net interest income (expense)	Net interest income (expense)	$	209	$	190	$	95	$	(1)	$	493	$	4		$	34			$	531	Net interest income (expense)	$	414	$	380	$	181		$	(2)		$	973	$	13	$	68	$	1,054
Other operating income	Other operating income	87		66		246		11		410		5			(31)				384		Other operating income	158		138		429			29			754		(6)		(60)		688
Total operating income	Total operating income	296		256		341		10		903		9			3				915		Total operating income	572		518		610			27			1,727		7		8		1,742
Expected credit losses / provision for credit losses	Expected credit losses / provision for credit losses	(2)		(38)		(51)		0		(91)		(136)			0				(227)		Expected credit losses / provision for credit losses	(1)		(50)		(123)			0			(174)		(282)		0		(456)
		298		294		392		10		994		145			3				1,142			573		568		733			27			1,901		289		8		2,198
Operating expenses	Operating expenses	287		150		201		31		669		10			3				682		Operating expenses	642		303		387			102			1,434		42		8		1,484
Profit (loss) before income tax	Profit (loss) before income tax	$	11	$	144	$	191	$	(21)	$	325	$	135		$	0			$	460	Profit (loss) before income tax	$	(69)	$	265	$	346		$	(75)		$	467	$	247	$	0	$	714
Balances at end of period:	Balances at end of period:																				Balances at end of period:
Total assets	Total assets	$	63,747	$	44,170	$	110,524	$	1,508	$	219,949	$	(25,093)		$	0			$	194,856	Total assets	$	64,120	$	43,360	$	105,521		$	1,820		$	214,821	$	(19,933)	$	0	$	194,888
Total loans, net	Total loans, net	24,513		22,785		11,676		0		58,974		(1,367)			3,066				60,673		Total loans, net	21,778		21,517		10,233			0			53,528		(2,261)		2,584		53,851
Goodwill	Goodwill	0		358		0		0		358		100			0				458		Goodwill	0		358		0			0			358		100		0		458
Total deposits	Total deposits	49,578		42,874		48,687		0		141,139		(4,472)			11,915				148,582		Total deposits	38,416		43,340		49,322			0			131,078		(4,213)		20,500		147,365

Three Months Ended March 31, 2020
Net interest income (expense)		$	232	$	210	$	90	$	(13)	$	519	$	3		$	(18)			$	504
Other operating income (expense)		74		58		263		(24)		371		(4)			20				387
Total operating income (expense)		306		268		353		(37)		890		(1)			2				891
Expected credit losses / provision for credit losses		140		123		116		0		379		347			0				726
		166		145		237		(37)		511		(348)			2				165
Operating expenses		1,035		147		192		135		1,509		94			2				1,605
Profit (loss) before income tax		$	(869)	$	(2)	$	45	$	(172)	$	(998)	$	(442)		$	0			$	(1,440)
Balances at end of period:
Total assets		$	58,246	$	42,882	$	165,838	$	2,643	$	269,609	$	(64,532)		$	0			$	205,077
Total loans, net		24,478		30,615		23,562		0		78,655		(4,596)			6,738				80,797
Goodwill		0		358		0		0		358		100			0				458
Total deposits		48,800		32,844		42,671		0		124,315		(7,066)			19,474				136,723


HSBC USA Inc.


	Group Reporting Basis Consolidated Amounts

	WPB		CMB		GBM		CC		Total		Group Reporting Basis Adjustments(1)		Group Reporting Basis Reclassi- fications(2)		U.S. GAAP Consolidated Totals

Six Months Ended June 30, 2020
Net interest income (expense)	$	429	$	414	$	212	$	(20)	$	1,035	$	5	$	2	$	1,042
Other operating income	173		110		526		61		870		(23)		4		851
Total operating income	602		524		738		41		1,905		(18)		6		1,893
Expected credit losses / provision for credit losses	176		304		135		0		615		330		0		945
	426		220		603		41		1,290		(348)		6		948
Operating expenses	1,361		289		393		198		2,241		85		6		2,332
Profit (loss) before income tax	$	(935)	$	(69)	$	210	$	(157)	$	(951)	$	(433)	$	0	$	(1,384)
Balances at end of period:
Total assets	$	61,326	$	41,511	$	155,090	$	2,449	$	260,376	$	(47,514)	$	0	$	212,862
Total loans, net	24,059		28,125		17,673		0		69,857		(3,931)		5,350		71,276
Goodwill	0		358		0		0		358		100		0		458
Total deposits	49,871		39,245		54,414		0		143,530		(4,874)		17,377		156,033

(1)Represents adjustments associated with differences between U.S. GAAP and the Group Reporting Basis.

(2)Represents differences in financial statement presentation between U.S. GAAP and the Group Reporting Basis.

~~16.~~17. Retained Earnings and Regulatory Capital Requirements

Bank dividends are one of the sources of funds used for payment of shareholder dividends and other HSBC USA cash needs. Approval from the Office of the Comptroller of the Currency ("OCC") is required if the total of all dividends HSBC Bank USA declares in any year exceeds the cumulative net income for that year, combined with the net income for the two preceding years reduced by dividends attributable to those years. OCC approval also is required for a reduction of permanent capital of HSBC Bank USA. Under a separate restriction, payment of dividends is prohibited in amounts greater than undivided profits then on hand, after deducting actual losses and bad debts. Bad debts are debts due and unpaid for a period of six months unless well secured, as defined, and in the process of collection.

4856


HSBC USA Inc.

We are subject to regulatory capital rules issued by U.S. banking regulators including Basel III (the "Basel III rule"). A bank or bank holding company's failure to meet minimum capital requirements can result in certain mandatory actions and possibly additional discretionary actions by its regulators. The following table summarizes the capital amounts and ratios of HSBC USA and HSBC Bank USA, calculated in accordance with the Basel III rule at ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021							December 31, 2020								June 30, 2021							December 31, 2020
		Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio		Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio			Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio		Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio
		(dollars are in millions)															(dollars are in millions)
Common equity Tier 1 ratio:(4)	Common equity Tier 1 ratio:(4)															Common equity Tier 1 ratio:(4)
HSBC USA	HSBC USA	$	16,154	4.5	%	(2)	15.1	%	$	15,891	4.5	%	(2)	14.5	%	HSBC USA	$	16,261	4.5	%	(2)	15.6	%	$	15,891	4.5	%	(2)	14.5	%
HSBC Bank USA	HSBC Bank USA	18,374		6.5			17.2		18,180		6.5			16.4		HSBC Bank USA	18,524		6.5			17.8		18,180		6.5			16.4
Tier 1 capital ratio:(4)	Tier 1 capital ratio:(4)															Tier 1 capital ratio:(4)
HSBC USA	HSBC USA	17,419		6.0			16.2		17,156		6.0			15.6		HSBC USA	17,526		6.0			16.8		17,156		6.0			15.6
HSBC Bank USA	HSBC Bank USA	20,874		8.0			19.6		20,680		8.0			18.7		HSBC Bank USA	21,024		8.0			20.3		20,680		8.0			18.7
Total capital ratio:(4)	Total capital ratio:(4)															Total capital ratio:(4)
HSBC USA	HSBC USA	20,080		10.0			18.7		20,680		10.0			18.8		HSBC USA	19,867		10.0			19.0		20,680		10.0			18.8
HSBC Bank USA	HSBC Bank USA	23,314		10.0			21.8		23,303		10.0			21.1		HSBC Bank USA	23,142		10.0			22.3		23,303		10.0			21.1
Tier 1 leverage ratio:	Tier 1 leverage ratio:															Tier 1 leverage ratio:
HSBC USA	HSBC USA	17,419		4.0		(2)	8.8		17,156		4.0		(2)	8.6		HSBC USA	17,526		4.0		(2)	9.0		17,156		4.0		(2)	8.6
HSBC Bank USA	HSBC Bank USA	20,874		5.0			10.5		20,680		5.0			10.3		HSBC Bank USA	21,024		5.0			10.8		20,680		5.0			10.3
Supplementary leverage ratio ("SLR"):	Supplementary leverage ratio ("SLR"):															Supplementary leverage ratio ("SLR"):
HSBC USA	HSBC USA	17,419		3.0		(3)	8.3		17,156		3.0		(3)	7.8		HSBC USA	17,526		3.0		(3)	6.9		17,156		3.0		(3)	7.8
HSBC Bank USA	HSBC Bank USA	20,874		3.0		(3)	9.9		20,680		3.0		(3)	9.3		HSBC Bank USA	21,024		3.0		(3)	8.3		20,680		3.0		(3)	9.3
Risk-weighted assets:(4)(5)	Risk-weighted assets:(4)(5)															Risk-weighted assets:(4)(5)
HSBC USA	HSBC USA	107,232							109,809							HSBC USA	104,532							109,809
HSBC Bank USA	HSBC Bank USA	106,758							110,682							HSBC Bank USA	103,818							110,682
Adjusted quarterly average assets:(6)	Adjusted quarterly average assets:(6)															Adjusted quarterly average assets:(6)
HSBC USA	HSBC USA	197,127							198,698							HSBC USA	195,484							198,698
HSBC Bank USA	HSBC Bank USA	198,580							200,026							HSBC Bank USA	195,291							200,026
Total leverage exposure:(7)	Total leverage exposure:(7)															Total leverage exposure:(7)
HSBC USA	HSBC USA	209,808							221,216							HSBC USA	254,552							221,216
HSBC Bank USA	HSBC Bank USA	210,105							221,334							HSBC Bank USA	253,233							221,334

(1)HSBC USA and HSBC Bank USA are categorized as "well-capitalized," as defined by their principal regulators. To be categorized as well-capitalized under regulatory guidelines, a banking institution must maintain capital equal to or in excess of the ratios reflected in the above table, and must not be subject to a directive, order, or written agreement to meet and maintain specific capital levels.

(2)There are no common equity Tier 1 or Tier 1 leverage ratio components in the definition of a well-capitalized bank holding company. The ratios shown are the regulatory minimums.

(3)There is no SLR component in the definition of a well-capitalized banking institution. The ratios shown are the regulatory minimums.

(4)During the first quarter of 2021, it was determined that certain collateral did not qualify for risk-weighted asset reduction purposes under U.S. capital rules. As a result, reported risk-weighted assets were understated and reported Common equity Tier 1 capital, Tier 1 capital and Total capital ratios were overstated at HSBC USA and HSBC Bank USA at December 31, 2020. We have revised December 31, 2020 amounts to conform to the current period presentation. The following table summarizes the impact of this change on reported risk-weighted assets and capital ratios as of December 31, 2020:


	December 31, 2020
	As Previously Reported						As Revised
	HSBC USA			HSBC Bank USA			HSBC USA			HSBC Bank USA
	(in millions)
Common equity Tier 1 ratio	14.7		%	17.2		%	14.5		%	16.4		%
Tier 1 capital ratio	15.9		%	19.6		%	15.6		%	18.7		%
Total capital ratio	19.2		%	22.0		%	18.8		%	21.1		%
Risk-weighted assets	$	107,808		$	105,681		$	109,809		$	110,682

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HSBC USA Inc.

(5)Calculated using the generally-applicable Standardized Approach.

(6)Represents the Tier 1 leverage ratio denominator which reflects quarterly average assets adjusted for amounts permitted to be deducted from Tier 1 capital.

(7)Represents the SLR denominator which includes adjusted quarterly average assets plus certain off-balance sheet exposures.

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. HSBC North America and HSBC Bank USA have elected the five-year transition option and, as a result, beginning in 2020, our capital ratios are reported in accordance with the transition rules in the final rule. Accordingly, during 2020 and 2021, we will exclude from regulatory capital the change in retained earnings resulting from adoption of the new accounting standard on January 1, 2020 as well as 25 percent of the change in the allowance for credit losses recognized between January 1, 2020 and December 31, 2021. Beginning January 1, 2022, the excluded impacts will be phased in to regulatory capital over a three-year transition period and will be fully reflected at January 1, 2025.

Also in response to the COVID-19 pandemic, the federal banking agencies issued final rules that permitted intermediate holding companies, such as HSBC North America, and depository institutions, such as HSBC Bank USA, to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the denominator of their SLR. The rules were designed to allow banking institutions to expand their balance sheets to accommodate increased customer deposits while continuing to provide credit to companies and households. These changes took effect in 2020 and expired on April 1, 2021.

~~17.~~18. Variable Interest Entities

In the ordinary course of business, we have organized special purpose entities ("SPEs") primarily to structure financial products to meet our clients' investment needs, to facilitate clients to access and raise financing from capital markets and to securitize financial assets held to meet our own funding needs. For disclosure purposes, we aggregate SPEs based on the purpose, risk characteristics and business activities of the SPEs. An SPE is a VIE if it lacks sufficient equity investment at risk to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack either a) the power through voting or similar rights to direct the activities of the entity that most significantly impacts the entity's economic performance; or b) the obligation to absorb the entity's expected losses, the right to receive the expected residual returns, or both.

Variable Interest Entities We consolidate VIEs in which we hold a controlling financial interest as evidenced by the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE and therefore are deemed to be the primary beneficiary. We take into account our entire involvement in a VIE (explicit or implicit) in identifying variable interests that individually or in the aggregate could be significant enough to warrant our designation as the primary beneficiary and hence require us to consolidate the VIE or otherwise require us to make appropriate disclosures. We consider our involvement to be potentially significant where we, among other things, (i) enter into derivative contracts to absorb the risks and benefits from the VIE or from the assets held by the VIE; (ii) provide a financial guarantee that covers assets held or liabilities issued by a VIE; (iii) sponsor the VIE in that we design, organize and structure the transaction; and (iv) retain a financial or servicing interest in the VIE.

We are required to evaluate whether to consolidate a VIE when we first become involved and on an ongoing basis. In almost all cases, a qualitative analysis of our involvement in the entity provides sufficient evidence to determine whether we are the primary beneficiary. In rare cases, a more detailed analysis to quantify the extent of variability to be absorbed by each variable interest holder is required to determine the primary beneficiary.

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HSBC USA Inc.

Consolidated VIEs The following table summarizes assets and liabilities related to our consolidated VIEs at ~~March 31,~~June 30, 2021 and December 31, 2020 which are consolidated on our balance sheet. Assets and liabilities exclude intercompany balances that eliminate in consolidation.


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Consolidated Assets		Consolidated Liabilities		Consolidated Assets		Consolidated Liabilities			Consolidated Assets		Consolidated Liabilities		Consolidated Assets		Consolidated Liabilities
		(in millions)									(in millions)
Low income housing limited liability partnership:	Low income housing limited liability partnership:									Low income housing limited liability partnership:
Other assets	Other assets	$	75	$	—	$	79	$	—	Other assets	$	70	$	—	$	79	$	—

Interest, taxes and other liabilities	Interest, taxes and other liabilities	—		3		—		9		Interest, taxes and other liabilities	—		23		—		9
Subtotal	Subtotal	75		3		79		9		Subtotal	70		23		79		9
Venture debt financing entity:	Venture debt financing entity:									Venture debt financing entity:
Loans	Loans	8		—		10		—		Loans	—		—		10		—

Interest, taxes and other liabilities	Interest, taxes and other liabilities	—		2		—		1		Interest, taxes and other liabilities	—		1		—		1
Subtotal	Subtotal	8		2		10		1		Subtotal	0		1		10		1
Total	Total	$	83	$	5	$	89	$	10	Total	$	70	$	24	$	89	$	10

Low income housing limited liability partnership In 2009, all low income housing investments held by us at the time were transferred to a Limited Liability Partnership ("LLP") in exchange for debt and equity while a third party invested cash for an equity interest that was mandatorily redeemable. The LLP was created in order to ensure the utilization of future tax benefits from these low income housing tax projects. The LLP was deemed to be a VIE as it does not have sufficient equity investment at risk to finance its activities. Upon entering into this transaction, we concluded that we were the primary beneficiary of the LLP due to the nature of our continuing involvement and, as a result, we consolidated the LLP and reported the equity interest issued to the third party investor in long-term debt and the assets of the LLP in other assets on our consolidated balance sheet. The investments held by the LLP represent equity investments in the underlying low income housing partnerships. The LLP does not consolidate the underlying partnerships because it does not have the power to direct the activities of the partnerships that most significantly impact the economic performance of the partnerships. In 2019, the equity interest issued to the third party investor was redeemed.

We amortize our low income housing investments in proportion to the allocated tax benefits under the proportional amortization method and present the associated tax benefits net of investment amortization in income tax expense (benefit).

Venture debt financing entity HSBC USA has organized and provided equity financing to HSBC Ventures USA Inc. ("HSBC Ventures"), an entity designed to provide debt financing to venture capital-backed companies generally in the form of term or revolving loans, or loan commitments. Given the generally early stage and development of the companies, the loans are typically collateralized by all of the company's assets and intellectual property, or by specific items such as receivables or equipment. The loan terms may, at times, also include warrants for company stock granting HSBC Ventures a share of the financial returns in case of a positive realization event. HSBC USA also provides debt financing to HSBC Ventures in the form of loans on an as-needed basis. HSBC Ventures is a VIE because it does not have sufficient equity investment at risk to finance its activities. As the sole investor, HSBC USA is considered to be the primary beneficiary because it has the obligation to absorb losses and the right to receive benefits that could be potentially significant to HSBC Ventures. As a result, we consolidate HSBC Ventures and report the third party loans and warrants, if any, on our consolidated balance sheet.

Unconsolidated VIEs We also have variable interests in other VIEs that are not consolidated because we are not the primary beneficiary. The following table provides additional information on these unconsolidated VIEs, including the variable interests held by us and our maximum exposure to loss arising from our involvement in these VIEs, at ~~March 31,~~June 30, 2021 and December 31, 2020:


		Total Assets Held by Unconsolidated VIEs		Carrying Value of Variable Interests Held Reported as				Maximum Exposure to Loss			Total Assets Held by Unconsolidated VIEs		Carrying Value of Variable Interests Held Reported as				Maximum Exposure to Loss
				Assets		Liabilities							Assets		Liabilities
		(in millions)									(in millions)
At March 31, 2021
At June 30, 2021										At June 30, 2021

Limited partnership investments	Limited partnership investments	$	4,713	$	676	$	330	$	676	Limited partnership investments	$	4,738	$	727	$	383	$	727

At December 31, 2020	At December 31, 2020									At December 31, 2020

Limited partnership investments	Limited partnership investments	$	4,266	$	629	$	285	$	629	Limited partnership investments	$	4,266	$	629	$	285	$	629

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HSBC USA Inc.

Information on the types of VIEs with which we are involved, the nature of our involvement and the variable interests held in those entities is presented below.

Limited partnership investments We invest as a limited partner in partnerships that operate qualified affordable housing, renewable energy and community development projects. The returns of these investments are generated primarily from the tax benefits, including Federal tax credits and tax deductions from operating losses in the project companies. In addition, some of the investments also help us comply with the Community Reinvestment Act. Certain limited partnership structures are considered to be VIEs because either (a) they do not have sufficient equity investment at risk or (b) the limited partners with equity at risk do not have substantive kick-out rights through voting rights or substantive participating rights over the general partner. As a limited partner, we are not the primary beneficiary of the VIEs and do not consolidate them. Our investments in these partnerships are recorded in other assets on the consolidated balance sheet. The maximum exposure to loss shown in the table above represents our recorded investments as well as any outstanding funding commitments extended to the partnerships.

Third-party sponsored securitization entities We invest in asset-backed securities issued by third party sponsored securitization entities which may be considered VIEs. The investments are transacted at arm's-length and decisions to invest are based on a credit analysis of the underlying collateral assets or the issuer. We are a passive investor in these issuers and do not have the power to direct the activities of these issuers. As such, we do not consolidate these securitization entities. Additionally, we do not have other involvements in servicing or managing the collateral assets or provide financial or liquidity support to these issuers which potentially give rise to risk of loss exposure. These investments are an integral part of the disclosure in Note 3,4, "Trading Assets and Liabilities," Note 4,5, "Securities," and Note ~~19,~~20, "Fair Value Measurements," and, therefore, are not disclosed in this note to avoid redundancy.

~~18.~~19. Guarantee Arrangements, Pledged Assets and Repurchase Agreements

Guarantee Arrangements As part of our normal operations, we enter into credit derivatives and various off-balance sheet guarantee arrangements with affiliates and third parties. These arrangements arise principally in connection with our lending and client intermediation activities and include standby letters of credit and certain credit derivative transactions. The contractual amounts of these arrangements represent our maximum possible credit exposure in the event that we are required to fulfill the maximum obligation under the contractual terms of the guarantee.

The following table presents total carrying value and contractual amounts of our sell protection credit derivatives and major off-balance sheet guarantee arrangements at ~~March 31,~~June 30, 2021 and December 31, 2020. Following the table is a description of the various arrangements.


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Carrying Value		Notional / Maximum Exposure to Loss		Carrying Value		Notional / Maximum Exposure to Loss			Carrying Value		Notional / Maximum Exposure to Loss		Carrying Value		Notional / Maximum Exposure to Loss
		(in millions)									(in millions)
Credit derivatives(1)(2)	Credit derivatives(1)(2)	$	91	$	15,963	$	144	$	19,500	Credit derivatives(1)(2)	$	25	$	2,392	$	144	$	19,500
Financial standby letters of credit, net of participations(3)(4)	Financial standby letters of credit, net of participations(3)(4)	0		5,832		0		5,703		Financial standby letters of credit, net of participations(3)(4)	0		5,407		0		5,703
Performance standby letters of credit, net of participations(3)(4)	Performance standby letters of credit, net of participations(3)(4)	0		2,865		0		2,842		Performance standby letters of credit, net of participations(3)(4)	0		2,736		0		2,842
Total	Total	$	91	$	24,660	$	144	$	28,045	Total	$	25	$	10,535	$	144	$	28,045

(1)Includes ~~$13,448~~$1,958 million and $13,550 million of notional issued for the benefit of HSBC affiliates at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(2)For credit derivatives, the maximum loss is represented by the notional amounts without consideration of mitigating effects from collateral or recourse arrangements.

(3)Includes ~~$1,834~~$1,829 million and $1,836 million of both financial and performance standby letters of credit issued for the benefit of HSBC affiliates at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(4)For standby letters of credit, maximum loss represents losses to be recognized assuming the letters of credit have been fully drawn and the obligors have defaulted with zero recovery.

Credit-Risk Related Guarantees

Credit derivatives Credit derivatives are financial instruments that transfer the credit risk of a reference obligation from the credit protection buyer to the credit protection seller who is exposed to the credit risk without buying the reference obligation. We sell credit protection on underlying reference obligations (such as loans or securities) by entering into credit derivatives, primarily in the form of credit default swaps, with various institutions. We account for all credit derivatives at fair value. Where we sell credit protection to a counterparty that holds the reference obligation, the arrangement is effectively a financial guarantee on the reference obligation. Under a credit derivative contract, the credit protection seller will reimburse the credit

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HSBC USA Inc.

~~guarantee on the reference obligation. Under a credit derivative contract, the credit protection seller will reimburse the credit~~ protection buyer upon occurrence of a credit event (such as bankruptcy, insolvency, restructuring or failure to meet payment obligations when due) as defined in the derivative contract, in return for a periodic premium. Upon occurrence of a credit event, we will pay the counterparty the stated notional amount of the derivative contract and receive the underlying reference obligation. The recovery value of the reference obligation received could be significantly lower than its notional principal amount when a credit event occurs.

Certain derivative contracts are subject to master netting arrangements and related collateral agreements. A party to a derivative contract may demand that the counterparty post additional collateral in the event its net exposure exceeds certain predetermined limits and when the credit rating falls below a certain grade. We set the collateral requirements by counterparty such that the collateral covers various transactions and products, and is not allocated to specific individual contracts.

We manage our exposure to credit derivatives using a variety of risk mitigation strategies where we enter into offsetting hedge positions or transfer the economic risks, in part or in entirety, to investors through the issuance of structured credit products. We actively manage the credit and market risk exposure in the credit derivative portfolios on a net basis and, as such, retain no or a limited net position at any time. The following table summarizes our net credit derivative positions at ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Carrying / Fair Value		Notional		Carrying / Fair Value		Notional			Carrying / Fair Value		Notional		Carrying / Fair Value		Notional
		(in millions)									(in millions)
Sell-protection credit derivative positions	Sell-protection credit derivative positions	$	91	$	15,963	$	144	$	19,500	Sell-protection credit derivative positions	$	25	$	2,392	$	144	$	19,500
Buy-protection credit derivative positions	Buy-protection credit derivative positions	67		27,424		(74)		33,111		Buy-protection credit derivative positions	(89)		9,350		(74)		33,111
Net position(1)	Net position(1)	$	158	$	11,461	$	70	$	13,611	Net position(1)	$	(64)	$	6,958	$	70	$	13,611

(1)Positions are presented net in the table above to provide a complete analysis of our risk exposure and depict the way we manage our credit derivative portfolio. The offset of the sell-protection credit derivatives against the buy-protection credit derivatives may not be legally binding in the absence of master netting agreements with the same counterparty. Furthermore, the credit loss triggering events for individual sell protection credit derivatives may not be the same or occur in the same period as those of the buy protection credit derivatives thereby not providing an exact offset.

Standby letters of credit A standby letter of credit is issued to a third party for the benefit of a client and is a guarantee that the client will perform or satisfy certain obligations under a contract. It irrevocably obligates us to pay a specified amount to the third party beneficiary if the client fails to perform the contractual obligation. We issue two types of standby letters of credit: performance and financial. A performance standby letter of credit is issued where the client is required to perform some non-financial contractual obligation, such as the performance of a specific act, whereas a financial standby letter of credit is issued where the client's contractual obligation is of a financial nature, such as the repayment of a loan or debt instrument.

The issuance of a standby letter of credit is subject to our credit approval process and collateral requirements. We charge fees for issuing letters of credit commensurate with the client's credit evaluation and the nature of any collateral. Included in other liabilities are deferred fees on standby letters of credit amounting to $42 million and $44 million at ~~both March 31,~~June 30, 2021 and December 31, ~~2020.~~2020, respectively. Also included in other liabilities is an allowance for credit losses on unfunded standby letters of credit of ~~$17~~$15 million and $32 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

The following table summarizes the credit ratings related to guarantees including the ratings of counterparties against which we sold credit protection and financial standby letters of credit at ~~March 31,~~June 30, 2021 as an indicative proxy of payment risk:


		Average Life (in years)	Credit Ratings of the Obligors							Average Life (in years)	Credit Ratings of the Obligors
Notional/Contractual Amounts	Notional/Contractual Amounts		Investment Grade		Non-Investment Grade		Total		Notional/Contractual Amounts		Investment Grade		Non-Investment Grade		Total
			(dollars are in millions)								(dollars are in millions)
Sell-protection Credit Derivatives(1)	Sell-protection Credit Derivatives(1)								Sell-protection Credit Derivatives(1)
Single name credit default swaps ("CDS")	Single name credit default swaps ("CDS")	2.6	$	8,767	$	2,290	$	11,057	Single name credit default swaps ("CDS")	2.6	$	1,274	$	612	$	1,886

Index credit derivatives	Index credit derivatives	3.3	1,062		3,612		4,674		Index credit derivatives	19.2	215		65		280
Total return swaps	Total return swaps	5.6	51		181		232		Total return swaps	5.3	49		177		226
Subtotal	Subtotal		9,880		6,083		15,963		Subtotal		1,538		854		2,392
Standby Letters of Credit(2)	Standby Letters of Credit(2)	1.2	6,479		2,218		8,697		Standby Letters of Credit(2)	1.2	6,064		2,079		8,143
Total	Total		$	16,359	$	8,301	$	24,660	Total		$	7,602	$	2,933	$	10,535

(1)The credit ratings in the table represent external credit ratings for classification as investment grade and non-investment grade.


~~HSBC USA Inc.~~

(2)External ratings for most of the obligors are not available. Presented above are the internal credit ratings which are developed using similar methodologies and rating scale equivalent to external credit ratings for purposes of classification as investment grade and non-investment grade.


HSBC USA Inc.

Our internal credit ratings are determined based on HSBC's risk rating systems and processes which assign a credit grade based on a scale which ranks the risk of default of a client. The credit grades are assigned and used for managing risk and determining level of credit exposure appetite based on the client's operating performance, liquidity, capital structure and debt service ability. In addition, we also incorporate subjective judgments into the risk rating process concerning such things as industry trends, comparison of performance to industry peers and perceived quality of management. We compare our internal risk ratings to outside external rating agency benchmarks, where possible, at the time of formal review and regularly monitor whether our risk ratings are comparable to the external ratings benchmark data.

A non-investment grade rating of a referenced obligor has a negative impact to the fair value of the credit derivative and increases the likelihood that we will be required to perform under the credit derivative contract. We employ market-based parameters and, where possible, use the observable credit spreads of the referenced obligors as measurement inputs in determining the fair value of the credit derivatives. We believe that such market parameters are more indicative of the current status of payment/performance risk than external ratings by the rating agencies which may not be forward-looking in nature and, as a result, lag behind those market-based indicators.

Non Credit-Risk Related Guarantees and Other Arrangements

Visa covered litigation In 2008, we received Class B Shares as part of Visa's initial public offering ("IPO"). Pursuant to the IPO, we, along with all the other Class B shareholders, agreed to indemnify Visa for the claims and obligations arising from certain specific covered litigation. The Class B Shares are not eligible to be converted into publicly traded Class A Shares until settlement of the covered litigation described in Note 29, "Litigation and Regulatory Matters" in our 2020 Form 10-K. Accordingly, the Class B Shares are considered restricted and are only transferable under limited circumstances, which include transfers to other Class B shareholders.

In 2017, we sold substantially all of our remaining Visa Class B Shares to a third party. Under the terms of the sale agreements, we entered into swap agreements with the purchaser to retain the litigation risk associated with the Class B Shares sold until the related litigation is settled and the Class B Shares can be converted into Class A Shares. These swaps had a carrying value of ~~$57~~$54 million and $67 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The swap agreements we entered into with the purchaser requires us to (a) make periodic payments, calculated by reference to the market price of Class A Shares and (b) make or receive payments based on subsequent changes in the conversion rate of Class B Shares into Class A Shares. We have entered into a total return swap position to economically hedge the periodic payments made under these swap agreements. The payments under the derivative will continue until the Class B Shares are able to be converted into Class A Shares. The fair value of the swap agreements is estimated using a discounted cash flow methodology and is dependent upon the final resolution of the related litigation. Changes in fair value between periods are recognized in other income (loss). See Note 9,10, "Derivative Financial Instruments," for further information.

Clearing houses and exchanges We are a member of various exchanges and clearing houses that trade and clear securities and/or derivatives contracts. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, members of a clearing house may be required to contribute to a guaranty fund to backstop members' obligations to the clearing house. As a member, we may be required to pay a proportionate share of the financial obligations of another member who defaults on its obligations to the exchange or the clearing house. Our guarantee obligations would arise only if the exchange or clearing house had exhausted its resources. Any potential contingent liability under these membership agreements cannot be estimated.

Lease Obligations We are obligated under a number of noncancellable operating leases for premises and equipment. See Note 11, "Leases," in our 2020 Form 10-K, for a full discussion of our leases, including a maturity analysis of our operating lease liabilities.

Mortgage Loan Repurchase Obligations We originate and sell mortgage loans to third parties and provide various representations and warranties related to, among other things, the ownership of the loans, the validity of the liens, the loan selection and origination process, and the compliance to the origination criteria established by the government agencies. In the event of a breach of our representations and warranties, we may be obligated to repurchase the loans with identified defects or to indemnify the buyers. Our contractual obligation arises only when the breach of representations and warranties are discovered and repurchase is demanded.

In estimating our repurchase liability arising from breaches of representations and warranties, we consider historical losses on residual risks not covered by settlement agreements adjusted for any risk factors not captured in the historical losses as well as the level of outstanding repurchase demands received. Outstanding repurchase demands received were immaterial at ~~March 31,~~June 30, 2021 and December 31, 2020.

Our estimated repurchase liability for obligations arising from the breach of representations and warranties associated with mortgage loans sold was $4 million and $3 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Our repurchase


~~HSBC USA Inc.~~

liability represents our best estimate of the loss that has been incurred, including interest, arising from breaches of representations and warranties associated with mortgage loans sold. Because the level of mortgage loan repurchase losses is


HSBC USA Inc.

dependent upon economic factors, investor demand strategies and other external risk factors such as housing market trends that may change, the level of the liability for mortgage loan repurchase losses requires significant judgment. We continue to evaluate our methods of determining the best estimate of loss based on recent trends. As these estimates are influenced by factors outside our control, there is uncertainty inherent in these estimates making it reasonably possible that they could change. The range of reasonably possible losses in excess of our recorded repurchase liability is between 0 and $25 million at ~~March 31,~~June 30, 2021. This estimated range of reasonably possible losses was determined based upon modifying the assumptions utilized in our best estimate of probable losses to reflect what we believe to be reasonably possible adverse assumptions.

Securitization Activity In addition to the repurchase risk described above, we have also been involved as a sponsor/seller of loans used to facilitate whole loan securitizations underwritten by our affiliate, HSI. In this regard, we began acquiring residential mortgage loans in 2005 which were warehoused on our balance sheet with the intent of selling them to HSI to facilitate HSI's whole loan securitization program which was discontinued in 2007. During 2005-2007, we purchased and sold $24 billion of such loans to HSI which were subsequently securitized and sold by HSI to third parties. See "Mortgage Securitization Matters" in Note 29, "Litigation and Regulatory Matters," in our 2020 Form 10-K for additional discussion of related exposure. The outstanding principal balance on these loans was approximately ~~$3.0~~$2.9 billion and $3.1 billion at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Pledged Assets

Pledged assets included in the consolidated balance sheet consisted of the following:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Interest bearing deposits with banks(1)	Interest bearing deposits with banks(1)	$	1,138	$	2,158	Interest bearing deposits with banks(1)	$	988	$	2,158
Trading assets(2)	Trading assets(2)	1,115		1,265		Trading assets(2)	2,193		1,265
Securities available-for-sale(3)	Securities available-for-sale(3)	8,781		8,652		Securities available-for-sale(3)	6,360		8,652
Securities held-to-maturity(3)	Securities held-to-maturity(3)	917		1,076		Securities held-to-maturity(3)	804		1,076
Loans(4)	Loans(4)	18,938		18,146		Loans(4)	21,277		18,146
Other assets(5)	Other assets(5)	1,566		2,352		Other assets(5)	1,570		2,352
Total	Total	$	32,455	$	33,649	Total	$	33,192	$	33,649

(1)Represents gross amount of cash on deposit with banks related to derivative collateral-support agreements, of which a majority has been netted against derivative liabilities on the consolidated balance sheet.

(2)Trading assets are primarily pledged against liabilities associated with repurchase agreements.

(3)Securities are primarily pledged against derivatives, public fund deposits, trust deposits and various short-term and long term borrowings, as well as providing capacity for potential secured borrowings from the FHLB and the Federal Reserve Bank of New York.

(4)Loans are primarily residential mortgage loans pledged against current and potential borrowings from the FHLB and the Federal Reserve Bank of New York.

(5)Represents gross amount of cash on deposit with non-banks related to derivative collateral support agreements, of which a majority has been netted against derivative liabilities on the consolidated balance sheet.

Debt securities pledged as collateral under repurchase agreements that can be sold or repledged by the secured party continue to be reported on the consolidated balance sheet. The fair value of securities available-for-sale that could be sold or repledged was ~~$2,821~~$800 million and $2,077 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The fair value of trading assets that could be sold or repledged was ~~$1,115~~$2,193 million and $1,265 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

The fair value of collateral we accepted under security resale agreements but was not reported on the consolidated balance sheet was ~~$7,019~~$13,395 million and $41,447 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Of this collateral, ~~$6,619~~$13,395 million and $41,047 million could be sold or repledged at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, of which ~~$1,046~~$239 million and $4,063 million, respectively, had been sold or repledged as collateral under repurchase agreements or to cover short sales.

Repurchase Agreements

We enter into purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) identical or substantially the same securities. Resale and repurchase agreements are accounted for as secured lending and secured borrowing transactions, respectively.

Repurchase agreements may require us to deposit cash or other collateral with the lender. In connection with resale agreements, it is our policy to obtain possession of collateral, which may include the securities purchased, with market value in excess of the principal amount loaned. The market value of the collateral subject to the resale and repurchase agreements is regularly

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~~principal amount loaned. The market value of the collateral subject to the resale and repurchase agreements is regularly~~ monitored, and additional collateral is obtained or provided when appropriate, to ensure appropriate collateral coverage of these secured financing transactions.

The following table provides information about resale and repurchase agreements that are subject to offset at ~~March 31,~~June 30, 2021 and December 31, 2020:


								Gross Amounts Not Offset in the Balance Sheet													Gross Amounts Not Offset in the Balance Sheet
		Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet(1)		Net Amounts Presented in the Balance Sheet		Financial Instruments(2)		Cash Collateral Received / Pledged		Net Amount(3)			Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet(1)		Net Amounts Presented in the Balance Sheet		Financial Instruments(2)		Cash Collateral Received / Pledged		Net Amount(3)
		(in millions)													(in millions)
At March 31, 2021
At June 30, 2021														At June 30, 2021
Assets:	Assets:													Assets:
Securities purchased under resale agreements	Securities purchased under resale agreements	$	7,190	$	3,430	$	3,760	$	3,687	$	10	$	63	Securities purchased under resale agreements	$	13,425	$	2,922	$	10,503	$	10,460	$	43	$	0
Liabilities:	Liabilities:													Liabilities:
Securities sold under repurchase agreements	Securities sold under repurchase agreements	$	5,147	$	3,430	$	1,717	$	1,654	$	62	$	1	Securities sold under repurchase agreements	$	3,140	$	2,922	$	218	$	218	$	0	$	0

At December 31, 2020	At December 31, 2020													At December 31, 2020
Assets:	Assets:													Assets:
Securities purchased under resale agreements	Securities purchased under resale agreements	$	41,382	$	5,636	$	35,746	$	35,746	$	0	$	0	Securities purchased under resale agreements	$	41,382	$	5,636	$	35,746	$	35,746	$	0	$	0
Liabilities:	Liabilities:													Liabilities:
Securities sold under repurchase agreements	Securities sold under repurchase agreements	$	7,401	$	5,636	$	1,765	$	1,762	$	0	$	3	Securities sold under repurchase agreements	$	7,401	$	5,636	$	1,765	$	1,762	$	0	$	3

(1)Represents recognized amount of resale and repurchase agreements with counterparties subject to legally enforceable netting agreements that meet the applicable netting criteria as permitted by generally accepted accounting principles.

(2)Represents securities received or pledged to cover financing transaction exposures.

(3)Represents the amount of our exposure that is not collateralized / covered by pledged collateral.

The following table provides the class of collateral pledged and remaining contractual maturity of repurchase agreements accounted for as secured borrowings at ~~March 31,~~June 30, 2021 and December 31, 2020:


		Overnight and Continuous		Up to 30 Days		31 to 90 Days		91 Days to One Year		Greater Than One Year		Total			Overnight and Continuous		Up to 30 Days		31 to 90 Days		91 Days to One Year		Greater Than One Year		Total
		(in millions)													(in millions)
At March 31, 2021
At June 30, 2021														At June 30, 2021
U.S. Treasury, U.S. Government sponsored and U.S. Government agency securities	U.S. Treasury, U.S. Government sponsored and U.S. Government agency securities	$	324	$	1,928	$	2,895	$	0	$	0	$	5,147	U.S. Treasury, U.S. Government sponsored and U.S. Government agency securities	$	659	$	581	$	1,900	$	0	$	0	$	3,140

At December 31, 2020	At December 31, 2020													At December 31, 2020
U.S. Treasury, U.S. Government sponsored and U.S. Government agency securities	U.S. Treasury, U.S. Government sponsored and U.S. Government agency securities	$	4,091	$	2,810	$	500	$	0	$	0	$	7,401	U.S. Treasury, U.S. Government sponsored and U.S. Government agency securities	$	4,091	$	2,810	$	500	$	0	$	0	$	7,401

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~~19.~~20. Fair Value Measurements

Accounting principles related to fair value measurements provide a framework for measuring fair value that focuses on the exit price that would be received to sell an asset or paid to transfer a liability in the principal market (or in the absence of the principal market, the most advantageous market) accessible in an orderly transaction between willing market participants (the "Fair Value Framework"). Where required by the applicable accounting standards, assets and liabilities are measured at fair value using the "highest and best use" valuation premise. Fair value measurement guidance clarifies that financial instruments do not have alternative use and, as such, the fair value of financial instruments should be determined using an "in-exchange" valuation premise. However, the fair value measurement guidance provides a valuation exception and permits an entity to measure the fair value of a group of financial assets and financial liabilities with offsetting credit risks and/or market risks based on the exit price it would receive or pay to transfer the net risk exposure of a group of assets or liabilities if certain conditions are met. We elected to apply the measurement exception to a group of derivative instruments with offsetting credit risks and market risks, which primarily relate to interest rate, foreign currency, debt and equity price risk, and commodity price risk as of the reporting date.

Fair Value Adjustments The best evidence of fair value is quoted market price in an actively traded market, where available. In the event listed price or market quotes are not available, valuation techniques that incorporate relevant transaction data and market parameters reflecting the attributes of the asset or liability under consideration are applied. Where applicable, fair value adjustments are made to ensure the financial instruments are appropriately recorded at fair value. The fair value adjustments reflect the risks associated with the products, contractual terms of the transactions, and the liquidity of the markets in which the transactions occur. The fair value adjustments are broadly categorized by the following major types:

Credit valuation adjustment - The credit valuation adjustment is an adjustment to a group of financial assets and financial liabilities, predominantly derivative assets and derivative liabilities, to reflect the credit quality of the parties to the transaction in arriving at fair value. A credit valuation adjustment to a financial asset is required to reflect the default risk of the counterparty. A debit valuation adjustment to a financial liability is recorded to reflect the default risk of HUSI. See "Valuation Techniques - Derivatives" below for additional details.

Liquidity risk adjustment - The liquidity risk adjustment (primarily in the form of bid-offer adjustment) reflects the cost that would be incurred to close out the market risks by hedging, disposing or unwinding the position. Valuation models generally produce mid-market values. The bid-offer adjustment is made in such a way that results in a measure that reflects the exit price that most represents the fair value of the financial asset or financial liability under consideration or, where applicable, the fair value of the net market risk exposure of a group of financial assets or financial liabilities. These adjustments relate primarily to Level 2 assets.

Model valuation adjustment - Where fair value measurements are determined using an internal valuation model based on observable and unobservable inputs, certain valuation inputs may be less readily determinable. There may be a range of possible valuation inputs that market participants may assume in determining the fair value measurement. The resultant fair value measurement has inherent measurement risk if one or more parameters are unobservable and must be estimated. An input valuation adjustment is necessary to reflect the likelihood that market participants may use different input parameters, and to mitigate the possibility of measurement error. In addition, the values derived from valuation techniques are affected by the choice of valuation model and model limitation. When different valuation techniques are available, the choice of valuation model can be subjective. Furthermore, the valuation model applied may have measurement limitations. In those cases, an additional valuation adjustment is also applied to mitigate the measurement risk. Model valuation adjustments are not material and relate primarily to Level 2 instruments.

We apply stress scenarios in determining appropriate liquidity risk and model risk adjustments for Level 3 fair values by reviewing the historical data for unobservable inputs (e.g., correlation, volatility). Some stress scenarios involve at least a 95 percent confidence interval (i.e., two standard deviations). We also utilize unobservable parameter adjustments when instruments are valued using internally developed models which reflects the uncertainty in the value estimates provided by the model.

Funding Fair Value Adjustment ("FFVA") - The FFVA reflects the estimated present value of the future market funding cost or benefit associated with funding uncollateralized derivative exposure at rates other than the Overnight Indexed Swap ("OIS") rate. See "Valuation Techniques - Derivatives" below for additional details.

Fair Value Hierarchy The Fair Value Framework establishes a three-tiered fair value hierarchy as follows:

Level 1 quoted market price - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 valuation technique using observable inputs - Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are inactive, and measurements

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determined using valuation models where all significant inputs are observable, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 valuation technique with significant unobservable inputs - Level 3 inputs are unobservable inputs for the asset or liability and include situations where fair values are measured using valuation techniques based on one or more significant unobservable inputs.

Classification within the fair value hierarchy is based on whether the lowest hierarchical level input that is significant to the fair value measurement is observable. As such, the classification within the fair value hierarchy is dynamic and can be transferred to other hierarchy levels in each reporting period.

Where fair value measurements are determined based on information obtained from independent pricing services or brokers, Finance applies appropriate validation procedures to substantiate fair value. For price validation purposes, quotations from at least two independent pricing sources are obtained for each financial instrument, where possible.

The following factors are considered in determining fair values:

•similarities between the asset or the liability under consideration and the asset or liability for which quotation is received;

•collaboration of pricing by referencing to other independent market data such as market transactions and relevant benchmark indices;

•consistency among different pricing sources;

•the valuation approach and the methodologies used by the independent pricing sources in determining fair value;

•the elapsed time between the date to which the market data relates and the measurement date;

•the source of the fair value information; and

•whether the security is traded in an active or inactive market.

Greater weight is given to quotations of instruments with recent market transactions, pricing quotes from dealers who stand ready to transact, quotations provided by market-makers who structured such instrument and market consensus pricing based on inputs from a large number of survey participants. Any significant discrepancies among the external quotations are reviewed and adjustments to fair values are recorded where appropriate. Where the transaction volume of a specific instrument has been reduced and the fair value measurement becomes less transparent, Finance will apply more detailed procedures to understand and challenge the appropriateness of the unobservable inputs and the valuation techniques used by the independent pricing service. Where applicable, Finance will develop a fair value estimate using its own pricing model inputs to test reasonableness. Where fair value measurements are determined using internal valuation models, Finance will validate the fair value measurement by either developing unobservable inputs based on the industry consensus pricing surveys in which we participate or back testing by observing the actual settlements occurring soon after the measurement date.

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents information about our assets and liabilities measured at fair value on a recurring basis at ~~March 31,~~June 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. Unless otherwise noted below, assets and liabilities in the following table are recorded at fair value through net income (loss).


		Fair Value Measurements on a Recurring Basis													Fair Value Measurements on a Recurring Basis
March 31, 2021		Level 1		Level 2		Level 3		Gross Balance		Netting(6)		Net Balance
June 30, 2021														June 30, 2021	Level 1		Level 2		Level 3		Gross Balance		Netting(6)		Net Balance
		(in millions)													(in millions)
Assets:	Assets:													Assets:

Trading assets, excluding derivatives:	Trading assets, excluding derivatives:													Trading assets, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	2,616	$	79	$	0	$	2,695	$	—	$	2,695	U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	2,572	$	307	$	0	$	2,879	$	—	$	2,879

Asset-backed securities:	Asset-backed securities:													Asset-backed securities:
Collateralized debt obligations	Collateralized debt obligations	0		66		0		66		—		66		Collateralized debt obligations	0		58		0		58		—		58
Residential mortgages	Residential mortgages	0		0		24		24		—		24		Residential mortgages	0		24		0		24		—		24
Student loans	Student loans	0		63		0		63		—		63		Student loans	0		59		0		59		—		59

Debt securities issued by foreign entities	Debt securities issued by foreign entities	8,155		12		0		8,167		—		8,167		Debt securities issued by foreign entities	4,021		0		0		4,021		—		4,021
Equity securities	Equity securities	7,750		0		0		7,750		—		7,750		Equity securities	11,869		0		0		11,869		—		11,869
Precious metals trading	Precious metals trading	0		4,497		0		4,497		—		4,497		Precious metals trading	0		7,448		0		7,448		—		7,448
Derivatives:(1)	Derivatives:(1)													Derivatives:(1)
Interest rate contracts	Interest rate contracts	7		3,670		3		3,680		0		3,680		Interest rate contracts	3		2,871		9		2,883		0		2,883
Foreign exchange contracts	Foreign exchange contracts	0		15,752		15		15,767		0		15,767		Foreign exchange contracts	0		12,247		13		12,260		0		12,260
Equity contracts	Equity contracts	0		3,991		466		4,457		0		4,457		Equity contracts	0		3,183		407		3,590		0		3,590
Precious metals contracts	Precious metals contracts	14		1,363		0		1,377		0		1,377		Precious metals contracts	4		1,206		0		1,210		0		1,210
Credit contracts	Credit contracts	0		289		50		339		0		339		Credit contracts	0		32		50		82		0		82
Other contracts(2)	Other contracts(2)	0		0		7		7		0		7		Other contracts(2)	0		0		6		6		0		6
Derivatives netting	Derivatives netting	0		0		0		0		(23,001)		(23,001)		Derivatives netting	0		0		0		0		(18,026)		(18,026)
Total derivatives	Total derivatives	21		25,065		541		25,627		(23,001)		2,626		Total derivatives	7		19,539		485		20,031		(18,026)		2,005
Securities available-for-sale:(3)	Securities available-for-sale:(3)													Securities available-for-sale:(3)
U.S. Treasury, U.S. Government agencies and sponsored enterprises	U.S. Treasury, U.S. Government agencies and sponsored enterprises	15,091		16,417		0		31,508		—		31,508		U.S. Treasury, U.S. Government agencies and sponsored enterprises	13,758		18,419		0		32,177		—		32,177
Asset-backed securities:	Asset-backed securities:													Asset-backed securities:

Home equity	Home equity	0		0		25		25		—		25		Home equity	0		0		23		23		—		23

Other	Other	0		0		105		105		—		105		Other	0		0		103		103		—		103

Debt securities issued by foreign entities	Debt securities issued by foreign entities	2,947		74		0		3,021		—		3,021		Debt securities issued by foreign entities	2,302		112		0		2,414		—		2,414
Loans(4)	Loans(4)	0		30		0		30		—		30		Loans(4)	0		29		0		29		—		29
Loans held for sale(4)	Loans held for sale(4)	0		83		0		83		—		83		Loans held for sale(4)	0		215		0		215		—		215
Other assets:	Other assets:													Other assets:
Mortgage servicing rights	Mortgage servicing rights	0		0		11		11		—		11		Mortgage servicing rights	0		0		12		12		—		12
Equity securities	Equity securities	0		145		0		145		—		145		Equity securities	0		146		0		146		—		146
Equity securities measured at net asset value(5)	Equity securities measured at net asset value(5)	0		0		0		137		—		137		Equity securities measured at net asset value(5)	0		0		0		138		—		138
Total assets	Total assets	$	36,580	$	46,531	$	706	$	83,954	$	(23,001)	$	60,953	Total assets	$	34,529	$	46,356	$	623	$	81,646	$	(18,026)	$	63,620
Liabilities:	Liabilities:													Liabilities:
Domestic deposits(4)	Domestic deposits(4)	$	0	$	3,166	$	599	$	3,765	$	—	$	3,765	Domestic deposits(4)	$	0	$	2,729	$	593	$	3,322	$	—	$	3,322
Trading liabilities, excluding derivatives	Trading liabilities, excluding derivatives	655		0		0		655		—		655		Trading liabilities, excluding derivatives	960		2		0		962		—		962
Derivatives:(1)	Derivatives:(1)													Derivatives:(1)
Interest rate contracts	Interest rate contracts	5		3,303		1		3,309		0		3,309		Interest rate contracts	4		2,652		1		2,657		0		2,657
Foreign exchange contracts	Foreign exchange contracts	0		14,678		17		14,695		0		14,695		Foreign exchange contracts	0		11,727		14		11,741		0		11,741
Equity contracts	Equity contracts	0		2,470		424		2,894		0		2,894		Equity contracts	0		1,781		420		2,201		0		2,201
Precious metals contracts	Precious metals contracts	0		1,228		0		1,228		0		1,228		Precious metals contracts	0		1,091		0		1,091		0		1,091
Credit contracts	Credit contracts	0		222		5		227		0		227		Credit contracts	0		138		4		142		0		142
Other contracts(2)	Other contracts(2)	0		0		57		57		0		57		Other contracts(2)	0		0		54		54		0		54
Derivatives netting	Derivatives netting	0		0		0		0		(20,594)		(20,594)		Derivatives netting	0		0		0		0		(15,782)		(15,782)
Total derivatives	Total derivatives	5		21,901		504		22,410		(20,594)		1,816		Total derivatives	4		17,389		493		17,886		(15,782)		2,104

Long-term debt(4)	Long-term debt(4)	0		9,384		486		9,870		—		9,870		Long-term debt(4)	0		8,918		919		9,837		—		9,837
Total liabilities	Total liabilities	$	660	$	34,451	$	1,589	$	36,700	$	(20,594)	$	16,106	Total liabilities	$	964	$	29,038	$	2,005	$	32,007	$	(15,782)	$	16,225

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	Fair Value Measurements on a Recurring Basis
December 31, 2020	Level 1		Level 2		Level 3		Gross Balance		Netting(6)		Net Balance
	(in millions)
Assets:

Trading assets, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	5,145	$	192	$	0	$	5,337	$	—	$	5,337

Asset-backed securities:
Collateralized debt obligations	0		63		0		63		—		63
Residential mortgages	0		0		15		15		—		15
Student loans	0		65		0		65		—		65



Debt securities issued by foreign entities	7,953		18		0		7,971		—		7,971
Equity securities	6,043		0		0		6,043		—		6,043
Precious metals trading	0		4,989		0		4,989		—		4,989
Derivatives:(1)
Interest rate contracts	15		6,637		35		6,687		0		6,687
Foreign exchange contracts	0		18,452		15		18,467		0		18,467
Equity contracts	0		5,051		565		5,616		0		5,616
Precious metals contracts	0		1,323		0		1,323		0		1,323
Credit contracts	0		298		69		367		0		367
Other contracts(2)	0		0		8		8		0		8
Derivatives netting	0		0		0		0		(29,616)		(29,616)
Total derivatives	15		31,761		692		32,468		(29,616)		2,852
Securities available-for-sale:(3)
U.S. Treasury, U.S. Government agencies and sponsored enterprises	22,880		12,528		0		35,408		—		35,408

Asset-backed securities:


Home equity	0		0		27		27		—		27

Other	0		0		104		104		—		104

Debt securities issued by foreign entities	1,942		3,191		0		5,133		—		5,133
Loans(4)	0		32		0		32		—		32
Loans held for sale(4)	0		36		0		36		—		36
Other assets:
Mortgage servicing rights	0		0		7		7		—		7
Equity securities	0		149		0		149		—		149
Equity securities measured at net asset value(5)	0		0		0		135		—		135

Total assets	$	43,978	$	53,024	$	845	$	97,982	$	(29,616)	$	68,366
Liabilities:
Domestic deposits(4)	$	0	$	3,509	$	646	$	4,155	$	—	$	4,155
Trading liabilities, excluding derivatives	727		2,312		0		3,039		—		3,039
Derivatives:(1)
Interest rate contracts	9		6,615		1		6,625		0		6,625
Foreign exchange contracts	0		18,597		6		18,603		0		18,603
Equity contracts	0		3,845		446		4,291		0		4,291
Precious metals contracts	28		1,550		0		1,578		0		1,578
Credit contracts	0		291		6		297		0		297
Other contracts(2)	0		0		67		67		0		67
Derivatives netting	0		0		0		0		(28,914)		(28,914)
Total derivatives	37		30,898		526		31,461		(28,914)		2,547

Long-term debt(4)	0		10,277		448		10,725		—		10,725
Total liabilities	$	764	$	46,996	$	1,620	$	49,380	$	(28,914)	$	20,466

(1)Includes trading derivative assets of ~~$2,560~~$1,985 million and $2,801 million and trading derivative liabilities of ~~$1,664~~$1,978 million and $2,358 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, as well as derivatives held for hedging and commitments accounted for as derivatives. See Note 9,10, "Derivative Financial Instruments," for additional information. Excluding changes in fair value of a derivative instrument associated with a qualifying cash flow hedge, which are recognized initially in other comprehensive income (loss), derivative assets and liabilities are recorded at fair value through net income (loss).

(2)Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.

(3)Securities available-for-sale are recorded at fair value through other comprehensive ~~income.~~income (loss). Changes in the allowance for credit losses on securities available-for-sale are recorded through net income (loss).

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(4)See Note ~~10,~~11, "Fair Value Option," for additional information. Excluding the fair value movement on fair value option liabilities attributable to our own credit spread, which is recorded in other comprehensive income (loss), fair value option assets and liabilities are recorded at fair value through net income (loss).

(5)Investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy.

(6)Represents counterparty and cash collateral netting which allow the offsetting of amounts relating to certain contracts if certain conditions are met.

Information on Level 3 assets and liabilities The following table summarizes additional information about changes in the fair value of Level 3 assets and liabilities during the three and six months ended ~~March 31,~~June 30, 2021 and 2020. As a risk management practice, we may risk manage the Level 3 assets and liabilities, in whole or in part, using securities and derivative positions that are classified as Level 1 or Level 2 measurements within the fair value hierarchy. Since those Level 1 and Level 2 risk management positions are not included in the table below, the information provided does not reflect the effect of such risk management activities related to the Level 3 assets and liabilities.


		Jan. 1, 2021		Total Realized / Unrealized Gains (Losses) Included in				Purch- ases		Issu- ances		Settle- ments		Transfers Into Level 3		Transfers Out of Level 3		Mar. 31, 2021		Current Period Unrealized Gains (Losses) Still Held Included in					Apr. 1, 2021		Total Realized / Unrealized Gains (Losses) Included in				Purch- ases		Issu- ances		Settle- ments		Transfers Into Level 3		Transfers Out of Level 3		Jun. 30, 2021		Current Period Unrealized Gains (Losses) Still Held Included in
				Earnings		Other Compre- hensive Income														Earnings		Other Compre- hensive Income					Earnings		Other Compre- hensive Income														Earnings		Other Compre- hensive Income
		(in millions)																							(in millions)
Assets:	Assets:																							Assets:
Trading assets, excluding derivatives:(1)	Trading assets, excluding derivatives:(1)																							Trading assets, excluding derivatives:(1)

Residential mortgage asset-backed securities	Residential mortgage asset-backed securities	$	15	$	9	$	0	$	0	$	0	$	0	$	0	$	0	$	24	$	9	$	0	Residential mortgage asset-backed securities	$	24	$	0	$	0	$	0	$	0	$	0	$	0	$	(24)	$	0	$	0	$	0

Derivatives, net:(2)	Derivatives, net:(2)																							Derivatives, net:(2)
Interest rate contracts	Interest rate contracts	34		(32)		0		0		0		0		0		0		2		(17)		0		Interest rate contracts	2		6		0		0		0		0		0		0		8		5		0
Foreign exchange contracts	Foreign exchange contracts	9		(11)		0		0		0		0		0		0		(2)		(12)		0		Foreign exchange contracts	(2)		1		0		0		0		0		0		0		(1)		1		0
Equity contracts	Equity contracts	119		(22)		0		0		0		(54)		0		(1)		42		(32)		0		Equity contracts	42		(117)		0		0		0		81		8		(27)		(13)		(47)		0

Credit contracts	Credit contracts	63		(17)		0		0		0		(1)		0		0		45		(19)		0		Credit contracts	45		1		0		0		0		0		0		0		46		2		0
Other contracts(3)	Other contracts(3)	(59)		2		0		0		0		7		0		0		(50)		0		0		Other contracts(3)	(50)		(5)		0		0		0		7		0		0		(48)		0		0
Asset-backed securities available-for-sale(4)	Asset-backed securities available-for-sale(4)	131		0		1		0		0		(2)		0		0		130		0		1		Asset-backed securities available-for-sale(4)	130		0		(2)		0		0		(2)		0		0		126		0		(2)

Mortgage servicing rights(5)	Mortgage servicing rights(5)	7		1		0		0		3		0		0		0		11		1		0		Mortgage servicing rights(5)	11		(2)		0		0		3		0		0		0		12		(2)		0
Total assets	Total assets	$	319	$	(70)	$	1	$	0	$	3	$	(50)	$	0	$	(1)	$	202	$	(70)	$	1	Total assets	$	202	$	(116)	$	(2)	$	0	$	3	$	86	$	8	$	(51)	$	130	$	(41)	$	(2)
Liabilities:	Liabilities:																							Liabilities:
Domestic deposits(6)	Domestic deposits(6)	$	(646)	$	4	$	0	$	0	$	0	$	28	$	0	$	15	$	(599)	$	8	$	0	Domestic deposits(6)	$	(599)	$	(12)	$	1	$	0	$	0	$	60	$	(109)	$	66	$	(593)	$	(12)	$	1
Long-term debt(6)	Long-term debt(6)	(448)		(3)		0		0		(123)		89		(2)		1		(486)		4		0		Long-term debt(6)	(486)		(20)		(1)		0		(418)		34		(34)		6		(919)		(23)		(1)
Total liabilities	Total liabilities	$	(1,094)	$	1	$	0	$	0	$	(123)	$	117	$	(2)	$	16	$	(1,085)	$	12	$	0	Total liabilities	$	(1,085)	$	(32)	$	0	$	0	$	(418)	$	94	$	(143)	$	72	$	(1,512)	$	(35)	$	0

6169


HSBC USA Inc.


		Jan. 1, 2020		Total Realized / Unrealized Gains (Losses) Included in				Purch- ases		Issu- ances		Settle- ments		Transfers Into Level 3		Transfers Out of Level 3		Mar. 31, 2020		Current Period Unrealized Gains (Losses) Still Held Included in					Jan. 1, 2021		Total Realized / Unrealized Gains (Losses) Included in				Purch- ases		Issu- ances		Settle- ments		Transfers Into Level 3		Transfers Out of Level 3		Jun. 30, 2021		Current Period Unrealized Gains (Losses) Still Held Included in
				Earnings		Other Compre- hensive Income														Earnings		Other Compre- hensive Income					Earnings		Other Compre- hensive Income														Earnings		Other Compre- hensive Income
		(in millions)																							(in millions)
Assets:	Assets:																							Assets:
Trading assets, excluding derivatives:(1)	Trading assets, excluding derivatives:(1)																							Trading assets, excluding derivatives:(1)

Residential mortgage asset-backed securities	Residential mortgage asset-backed securities	$	17	$	(1)	$	0	$	0	$	0	$	0	$	0	$	0	$	16	$	(1)	$	0	Residential mortgage asset-backed securities	$	15	$	9	$	0	$	0	$	0	$	0	$	0	$	(24)	$	0	$	9	$	0

Corporate and other domestic debt securities		510		(45)		0		0		0		0		0		0		465		(45)		0

Derivatives, net:(2)	Derivatives, net:(2)																							Derivatives, net:(2)
Interest rate contracts	Interest rate contracts	10		31		0		0		0		0		0		0		41		31		0		Interest rate contracts	34		(26)		0		0		0		0		0		0		8		(12)		0
Foreign exchange contracts	Foreign exchange contracts	(1)		(2)		0		0		0		0		0		0		(3)		(2)		0		Foreign exchange contracts	9		(10)		0		0		0		0		0		0		(1)		(11)		0
Equity contracts	Equity contracts	72		(74)		0		0		0		6		0		0		4		12		0		Equity contracts	119		(139)		0		0		0		27		8		(28)		(13)		10		0

Credit contracts	Credit contracts	59		35		0		0		0		4		0		0		98		35		0		Credit contracts	63		(16)		0		0		0		(1)		0		0		46		(17)		0
Other contracts(3)	Other contracts(3)	(75)		11		0		0		0		6		0		0		(58)		0		0		Other contracts(3)	(59)		(3)		0		0		0		14		0		0		(48)		0		0
Asset-backed securities available-for-sale(4)	Asset-backed securities available-for-sale(4)	111		0		5		0		0		0		0		0		116		0		5		Asset-backed securities available-for-sale(4)	131		0		(1)		0		0		(4)		0		0		126		0		(1)

Mortgage servicing rights(5)	Mortgage servicing rights(5)	4		(1)		0		0		1		0		0		0		4		(1)		0		Mortgage servicing rights(5)	7		(1)		0		0		6		0		0		0		12		(1)		0
Total assets	Total assets	$	707	$	(46)	$	5	$	0	$	1	$	16	$	0	$	0	$	683	$	29	$	5	Total assets	$	319	$	(186)	$	(1)	$	0	$	6	$	36	$	8	$	(52)	$	130	$	(22)	$	(1)
Liabilities:	Liabilities:																							Liabilities:
Domestic deposits(6)	Domestic deposits(6)	$	(774)	$	1	$	18	$	0	$	(36)	$	105	$	0	$	33	$	(653)	$	0	$	18	Domestic deposits(6)	$	(646)	$	(8)	$	1	$	0	$	0	$	88	$	(109)	$	81	$	(593)	$	(4)	$	1
Long-term debt(6)	Long-term debt(6)	(354)		5		10		0		(101)		65		0		4		(371)		4		10		Long-term debt(6)	(448)		(23)		(1)		0		(541)		123		(36)		7		(919)		(19)		(1)
Total liabilities	Total liabilities	$	(1,128)	$	6	$	28	$	0	$	(137)	$	170	$	0	$	37	$	(1,024)	$	4	$	28	Total liabilities	$	(1,094)	$	(31)	$	0	$	0	$	(541)	$	211	$	(145)	$	88	$	(1,512)	$	(23)	$	0


HSBC USA Inc.


	Apr. 1, 2020		Total Realized / Unrealized Gains (Losses) Included in				Purch- ases		Issu- ances		Settle- ments		Transfers Into Level 3		Transfers Out of Level 3		Jun. 30, 2020		Current Period Unrealized Gains (Losses) Still Held Included in
			Earnings		Other Compre- hensive Income														Earnings		Other Compre- hensive Income
	(in millions)
Assets:
Trading assets, excluding derivatives:(1)

Residential mortgage asset-backed securities	16		(1)		0		0		0		0		0		0		15		(1)		0

Corporate and other domestic debt securities	465		36		0		0		0		0		0		0		501		36		0

Derivatives, net:(2)
Interest rate contracts	41		(8)		0		0		0		0		0		0		33		(8)		0
Foreign exchange contracts	(3)		1		0		0		0		0		0		0		(2)		1		0
Equity contracts	(22)		107		0		0		0		6		0		1		92		113		0

Credit contracts	98		(9)		0		0		0		(27)		0		0		62		(8)		0
Other contracts(3)	(58)		(12)		0		0		0		6		0		0		(64)		0		0

Asset-backed securities available-for-sale(4)	116		0		(7)		0		0		0		8		0		117		0		(7)
Mortgage servicing rights(5)	4		(1)		0		0		1		0		0		0		4		(1)		0
Total assets	$	657	$	113	$	(7)	$	0	$	1	$	(15)	$	8	$	1	$	758	$	132	$	(7)
Liabilities:
Domestic deposits(6)	$	(678)	$	(13)	$	(16)	$	0	$	(7)	$	27	$	0	$	15	$	(672)	$	(16)	$	(16)
Long-term debt(6)	(320)		(43)		(8)		0		(37)		48		0		13		(347)		(41)		(8)
Total liabilities	$	(998)	$	(56)	$	(24)	$	0	$	(44)	$	75	$	0	$	28	$	(1,019)	$	(57)	$	(24)


HSBC USA Inc.


	Jan. 1, 2020		Total Realized / Unrealized Gains (Losses) Included in				Purch- ases		Issu- ances		Settle- ments		Transfers Into Level 3		Transfers Out of Level 3		Jun. 30, 2020		Current Period Unrealized Gains (Losses) Still Held Included in
			Earnings		Other Compre- hensive Income														Earnings		Other Compre- hensive Income
	(in millions)
Assets:
Trading assets, excluding derivatives:(1)

Residential mortgage asset-backed securities	$	17	$	(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	15	$	(2)	$	0

Corporate and other domestic debt securities	510		(9)		0		0		0		0		0		0		501		(9)		0

Derivatives, net:(2)
Interest rate contracts	10		23		0		0		0		0		0		0		33		23		0
Foreign exchange contracts	(1)		(1)		0		0		0		0		0		0		(2)		(1)		0
Equity contracts	72		12		0		0		0		6		0		2		92		24		0

Credit contracts	59		26		0		0		0		(23)		0		0		62		27		0
Other contracts(3)	(75)		(1)		0		0		0		12		0		0		(64)		0		0
Asset-backed securities available-for-sale(4)	111		0		(2)		0		0		0		8		0		117		0		(2)
Mortgage servicing rights(5)	4		(2)		0		0		2		0		0		0		4		(2)		0
Total assets	$	707	$	46	$	(2)	$	0	$	2	$	(5)	$	8	$	2	$	758	$	60	$	(2)
Liabilities:
Domestic deposits(6)	$	(774)	$	13	$	2	$	0	$	(43)	$	82	$	0	$	48	$	(672)	$	7	$	2
Long-term debt(6)	(354)		38		2		0		(138)		89		0		16		(347)		23		2
Total liabilities	$	(1,128)	$	51	$	4	$	0	$	(181)	$	171	$	0	$	64	$	(1,019)	$	30	$	4

(1)Gains (losses) on trading assets, excluding derivatives are included in trading revenue in the consolidated statement of income (loss).

(2)Level 3 net derivatives included derivative assets of ~~$541~~$485 million and derivative liabilities of ~~$504~~$493 million at ~~March 31,~~June 30, 2021 and derivative assets of ~~$628~~$534 million and derivative liabilities of ~~$546~~$413 million at ~~March 31,~~June 30, 2020. Gains (losses) on derivatives, net are predominantly included in trading revenue and gain ~~(loss)~~ on instruments designated at fair value and related derivatives in the consolidated statement of income (loss).

(3)Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares. Gains (losses) on these swap agreements are included in other income (loss) in the consolidated statement of income (loss).

(4)Realized gains (losses) on securities available-for-sale are included in other securities gains, net in the consolidated statement of income (loss). Changes in the allowance for credit losses on securities available-for-sale are included in the provision for credit losses in the consolidated statement of income (loss). Unrealized gains (losses) on securities available-for-sale are included in other comprehensive ~~income.~~income (loss).

(5)Gain (losses) on mortgage servicing rights are included in other income (loss) in the consolidated statement of income (loss).

(6)Excluding unrealized gains (losses) on fair value option liabilities attributable to our own credit spread, which are recorded in other comprehensive income (loss), gains (losses) on fair value option liabilities are included in gain ~~(loss)~~ on instruments designated at fair value and related derivatives in the consolidated statement of income (loss).

6272


HSBC USA Inc.

Significant Unobservable Inputs for Recurring Fair Value Measurements

The following table presents quantitative information about the unobservable inputs used to determine the recurring fair value measurement of assets and liabilities classified as Level 3 fair value measurements at ~~March 31,~~June 30, 2021 and December 31, 2020:


March 31, 2021
June 30, 2021								June 30, 2021
Financial Instrument Type	Financial Instrument Type	Fair Value (in millions)		Valuation Technique(s)	Significant Unobservable Inputs	Range of Inputs	Weighted Average(1)	Financial Instrument Type	Fair Value (in millions)		Valuation Technique(s)	Significant Unobservable Inputs	Range of Inputs	Weighted Average(1)

Residential mortgage asset-backed securities		$	24	Broker quotes or consensus pricing and, where applicable, discounted cash flows	Prepayment rates	7%	N/A

					Conditional default rates	51%	N/A
					Loss severity rates	34%	N/A
					Discount margin	527bps	N/A

Interest rate derivative contracts	Interest rate derivative contracts	$	2	Market comparable adjusted for probability to fund and, where applicable, discounted cash flows or option pricing model	Probability to fund for rate lock commitments	36% - 100%	85%	Interest rate derivative contracts	$	8	Market comparable adjusted for probability to fund and, where applicable, discounted cash flows or option pricing model	Probability to fund for rate lock commitments	36% - 100%	82%
					Likelihood of transaction being executed	90%	N/A					Likelihood of transaction being executed	90%	N/A
					Interest rate yield curve	8%	N/A					Interest rate yield curve	8%	N/A
Foreign exchange derivative contracts(2)	Foreign exchange derivative contracts(2)	$	(2)	Option pricing model	Implied volatility of currency pairs	8% - 12%	10%	Foreign exchange derivative contracts(2)	$	(1)	Option pricing model	Implied volatility of currency pairs	9% - 13%	11%
					Cross-currency basis	(4)bps	N/A					Cross-currency basis	(19)bps	N/A
Equity derivative contracts(2)	Equity derivative contracts(2)	$	42	Option pricing model	Equity / Equity Index volatility	6% - 87%	36%	Equity derivative contracts(2)	$	(13)	Option pricing model	Equity / Equity Index volatility	6% - 81%	33%
					Equity / Equity and Equity / Index correlation	36% - 96%	48%					Equity / Equity and Equity / Index correlation	21% - 96%	53%
					Equity dividend yields and forward price	(5)% - 1%	0%					Equity dividend yields and forward price	(6)% - 1%	0%

Credit derivative contracts	Credit derivative contracts	$	45	Option pricing model and, where applicable, discounted cash flows	Credit default swap spreads	96bps - 234bps	102bps	Credit derivative contracts	$	46	Option pricing model and, where applicable, discounted cash flows	Credit default swap spreads	63bps - 227bps	145bps
Other derivative contracts	Other derivative contracts	$	(50)	Discounted cash flows	Conversion rate	1.6 times	N/A	Other derivative contracts	$	(48)	Discounted cash flows	Conversion rate	1.6 times	N/A
					Expected duration	1.8 years	N/A					Expected duration	1.5 years	N/A
Asset-backed securities available-for-sale	Asset-backed securities available-for-sale	$	130	Discounted cash flows	Market assumptions related to yields for comparable instruments	2%	N/A	Asset-backed securities available-for-sale	$	126	Discounted cash flows	Market assumptions related to yields for comparable instruments	3%	N/A
Mortgage servicing rights	Mortgage servicing rights	$	11	Discounted cash flows	Constant prepayment rates	13% - 24%	13%	Mortgage servicing rights	$	12	Discounted cash flows	Constant prepayment rates	13% - 23%	14%
					Discount rate	9% - 10%	9%					Discount rate	9% - 10%	9%
					Estimated annualized costs to service	$72 - $152 per account	$75 per account					Estimated annualized costs to service	$72 - $152 per account	$75 per account
Domestic deposits (structured deposits)(2)(3)	Domestic deposits (structured deposits)(2)(3)	$	(599)	Option adjusted discounted cash flows	Implied volatility of currency pairs	8% - 12%	10%	Domestic deposits (structured deposits)(2)(3)	$	(593)	Option adjusted discounted cash flows	Implied volatility of currency pairs	9% - 13%	11%
					Equity / Equity Index volatility	8% - 39%	17%					Equity / Equity Index volatility	8% - 21%	15%
					Equity / Equity and Equity / Index correlation	48% - 66%	57%					Equity / Equity and Equity / Index correlation	35% - 85%	66%
Long-term debt (structured notes)(2)(3)	Long-term debt (structured notes)(2)(3)	$	(486)	Option adjusted discounted cash flows	Implied volatility of currency pairs	8% - 12%	10%	Long-term debt (structured notes)(2)(3)	$	(919)	Option adjusted discounted cash flows	Implied volatility of currency pairs	9% - 13%	11%
					Equity / Equity Index volatility	8% - 64%	26%					Equity / Equity Index volatility	8% - 81%	22%
					Equity / Equity and Equity / Index correlation	48% - 96%	88%					Equity / Equity and Equity / Index correlation	21% - 96%	78%

6373


HSBC USA Inc.


December 31, 2020
Financial Instrument Type	Fair Value (in millions)		Valuation Technique(s)	Significant Unobservable Inputs	Range of Inputs	Weighted Average(1)



Residential mortgage asset-backed securities	$	15	Broker quotes or consensus pricing and, where applicable, discounted cash flows	Prepayment rates	10%	N/A
				Conditional default rates	5%	N/A
				Loss severity rates	65%	N/A
				Discount margin	500bps	N/A








Interest rate derivative contracts	$	34	Market comparable adjusted for probability to fund and, where applicable, discounted cash flows or option pricing model	Probability to fund for rate lock commitments	41% - 100%	78%
				Likelihood of transaction being executed	90%	N/A
				Interest rate yield curve	4% - 7%	6%
Foreign exchange derivative contracts(2)	$	9	Option pricing model	Implied volatility of currency pairs	9% - 11%	10%
				Cross-currency basis	(9)bps - 40bps	24bps
Equity derivative contracts(2)	$	119	Option pricing model	Equity / Equity Index volatility	0% - 67%	27%
				Equity / Equity and Equity / Index correlation	17% - 62%	30%
				Equity dividend yields and forward price	(1)% - 0%	0%
Credit derivative contracts	$	63	Option pricing model and, where applicable, discounted cash flows	Credit default swap spreads	150bps	N/A
Other derivative contracts	$	(59)	Discounted cash flows	Conversion rate	1.6 times	N/A
				Expected duration	2 years	N/A
Asset-backed securities available-for-sale	$	131	Discounted cash flows	Market assumptions related to yields for comparable instruments	4%	N/A
Mortgage servicing rights	$	7	Discounted cash flows	Constant prepayment rates	17% - 26%	19%
				Discount rate	9% - 10%	9%
				Estimated annualized costs to service	$73 - $157 per account	$76 per account
Domestic deposits (structured deposits)(2)(3)	$	(646)	Option adjusted discounted cash flows	Implied volatility of currency pairs	9% - 11%	10%
				Equity / Equity Index volatility	0% - 42%	15%
				Equity / Equity and Equity / Index correlation	43% - 47%	45%
Long-term debt (structured notes)(2)(3)	$	(448)	Option adjusted discounted cash flows	Implied volatility of currency pairs	9% - 11%	10%
				Equity / Equity Index volatility	0% - 67%	23%
				Equity / Equity and Equity / Index correlation	32% - 62%	52%

(1)For foreign exchange derivatives, equity derivatives, credit derivatives, structured deposits and structured notes, weighted averages are calculated based on the fair value of the instruments. For all remaining instrument types, weighted averages are calculated based on the notional value of the instruments.

(2)We are the client-facing entity and we enter into identical but opposite derivatives to transfer the resultant risks to our affiliates. With the exception of counterparty credit risks, we are market neutral. The corresponding intra-group derivatives are presented as equity derivatives and foreign exchange derivatives in the table.

(3)Structured deposits and structured notes contain embedded derivative features whose fair value measurements contain significant Level 3 inputs. See equity and foreign exchange derivatives below for a discussion of the uncertainty of Level 3 inputs related to structured deposits and structured notes.

N/A Not Applicable

Uncertainty of Level 3 Inputs to Fair Value Measurements

~~Residential mortgage asset-backed securities~~ ~~- Prepayment rate, probability of default, loss severity rate and discount margin are significant unobservable inputs.~~

•Prepayment rate - The rate at which borrowers pay off the loans early. The prepayment rate is affected by a number of factors including location of the collateral, interest rate type of the loan, borrowers' credit and sensitivity to interest rate movement.

•~~Probability of default - Annualized percentage of default rate over a group of collateral such as residential mortgage loans.~~


~~HSBC USA Inc.~~

•~~Loss severity rate~~ - ~~The loss severity rate is the percentage of total lifetime losses (both interest and principal) as a percentage of principal balance measured at default date.~~

•~~Discount margin -An expected return earned in addition to the index underlying (in this case LIBOR) is another input into valuation of securities.~~

A significant increase (decrease) in one or more of these inputs would have resulted in a lower (higher) fair value measurement of the securities. Generally, a change in assumption for default probability would have been accompanied by a directionally similar change in loss severity, and a directionally opposite change in prepayment speed.

Interest rate derivatives - The fair value measurement of certain forward starting interest rate derivatives is affected by the underlying project contingency risk for which probability of execution is not certain (i.e., the interest rate derivative can be canceled if the project fails to execute). For mortgage rate lock commitments, the fair value measurement is affected by the probability of executing and funding the mortgage. An increase (decrease) in the likelihood of a project or mortgage being executed would have resulted in a lower (higher) fair value measurement of the interest rate derivative. For certain other interest


HSBC USA Inc.

rate derivatives, the interest rates for longer dated tenors were not observable. An increase (decrease) in the interest rate would have resulted in a higher (lower) fair value measurement of the derivative depending on if we receive or pay the floating rate.

Equity and foreign exchange derivatives - The fair value measurement of a structured equity or foreign exchange derivative is primarily affected by the implied volatility of the underlying equity price or exchange rate of the paired foreign currencies. The level of volatility is a function of the nature of the underlying risk, the level of strike price and the years to maturity of the option. Depending on the underlying risk and tenure, we determine the implied volatility based on observable input where information is available. However, substantially all of the implied volatilities are derived based on historical information and are not observable. A significant increase (decrease) in the implied volatility would have resulted in a higher (lower) fair value of a long position in the derivative contract. For a derivative referenced to a basket of variables such as equities or foreign currencies, the fair value measurement is also affected by the correlation of the referenced variables. Correlation measures the relative change in values among two or more variables (i.e., equity or foreign currency pair), which can be positively or negatively correlated. A majority of the correlations are not observable, but are derived based on historical data. A significant increase (decrease) in the correlation of the referenced variables would have resulted in a higher (lower) fair value of a long position in the derivative contract. For certain other foreign exchange derivatives, the cross-currency basis for longer dated tenors were not observable. An increase (decrease) in the cross-currency basis would have resulted in a higher (lower) fair value measurement of the derivative depending on if we receive or pay the floating rate plus the basis spread.

Credit derivatives - The fair value measurement of certain credit derivatives is primarily affected by the credit spreads of credit default swap contracts insuring asset-backed securities. A significant increase (decrease) in the credit spreads would have resulted in a lower (higher) fair value measurement of the credit derivative.

Other derivatives - The fair value of the swap agreements we entered into in conjunction with the sales of Visa Class B Shares is dependent upon the final resolution of the related litigation. Significant unobservable inputs used in the fair value measurement include estimated changes in the conversion rate of Visa Class B Shares into Visa Class A Shares and the expected timing of the final resolution. An increase (decrease) in the loss estimate or in the timing of the resolution of the related litigation would have resulted in a higher (lower) fair value measurement of the derivative.

Asset-backed securities available-for-sale - The fair value measurement of certain asset-backed securities is primarily affected by estimated yields which are determined based on current market yields of comparable instruments adjusted for market liquidity. An increase (decrease) in the yields would have resulted in a lower (higher) fair value measurement of the securities.

Mortgage servicing rights - The fair value measurement of mortgage servicing rights is primarily affected by the estimated prepayment rates of the mortgage loans and the discount rates. An increase (decrease) in either of these inputs would have resulted in a lower (higher) fair value measurement of the mortgage servicing rights.

Significant Transfers Into and Out of Level 3 Measurements During the three and six months ended ~~March 31,~~June 30, 2021, we transferred ~~$15~~$66 million and $81 million, respectively, of domestic deposits and $1$6 million and $7 million, respectively, of long-term debt, which we have elected to carry at fair value, from Level 3 to Level 2 as a result of the embedded derivative no longer being unobservable as the derivative option is closer to maturity and there is more observability in short term volatility. During the three and six months ended June 30, 2021, we transferred $109 million and $109 million, respectively, of domestic deposits and $34 million and $36 million, respectively, of long-term debt, which we elected to carry at fair value, from Level 2 to Level 3 as a result of a change in the observability of underlying inputs that resulted in the embedded derivative being unobservable. Additionally, during the second quarter of 2021, we transferred $24 million of residential mortgage asset-backed securities and $27 million of equity derivatives from Level 3 to Level 2 as the inputs used to value these securities and derivative contracts have become more observable.

During the three and six months ended ~~March 31,~~June 30, 2020, we transferred ~~$33~~$15 million and $48 million, respectively, of domestic deposits and $4$13 million and $16 million, respectively, of long-term debt, which we have elected to carry at fair value, from Level 3 to Level 2 as a result of the embedded derivative no longer being unobservable as the derivative option is closer into maturity and there is more observability in short term volatility.

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Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis Certain financial and non-financial assets are measured at fair value on a non-recurring basis and therefore, are not included in the tables above. These assets include (a) loans classified as held for sale reported at the lower of amortized cost or fair value, (b) impaired loans or assets that are written down to fair value based on the valuation of underlying collateral during the period and (c) goodwill, lease ROU assets or leasehold improvement assets that were written down during the period. These instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustment in certain circumstances (e.g., impairment). The following table presents the fair value hierarchy level within which the fair value of the financial and non-financial assets has been recorded at ~~March 31,~~June 30, 2021 and December 31, 2020. The gains (losses) during the three and six months ended ~~March 31,~~June 30, 2021 and 2020 are also included.


		Non-Recurring Fair Value Measurements at March 31, 2021										Total Gains (Losses) For the Three Months Ended March 31, 2021			Non-Recurring Fair Value Measurements at June 30, 2021								Total Gains (Losses) For the Three Months Ended June 30, 2021		Total Gains (Losses) For the Six Months Ended June 30, 2021
		Level 1		Level 2		Level 3		Total		Total Gains (Losses) For the Three Months Ended March 31, 2021	Level 1				Level 2		Level 3		Total		Total Gains (Losses) For the Three Months Ended June 30, 2021
		(in millions)									(in millions)
Residential mortgage loans held for sale(1)		$	0	$	23	$	0	$	23			$	0
Consumer loans held for sale(1)														Consumer loans held for sale(1)	$	0	$	11	$	616			$	627	$	0	$	0
Consumer loans(2)	Consumer loans(2)	0		305		0		305				4		Consumer loans(2)	0		210		0		210		2		6

Commercial loans held for sale(3)														Commercial loans held for sale(3)	0		63		131		194		(12)		(12)
Commercial loans~~(3)~~(4)	Commercial loans~~(3)~~(4)	0		0		226		226				19		Commercial loans~~(3)~~(4)	0		0		175		175		50		69
Real estate owned(4)		0		1		0		1				0

Leases(5)														Leases(5)	0		0		0		0		(55)		(55)

Total assets at fair value on a non-recurring basis	Total assets at fair value on a non-recurring basis	$	0	$	329	$	226	$	555			$	23	Total assets at fair value on a non-recurring basis	$	0	$	284	$	922	$	1,206	$	(15)	$	8


		Non-Recurring Fair Value Measurements at December 31, 2020										Total Gains (Losses) For the Three Months Ended March 31, 2020			Non-Recurring Fair Value Measurements at December 31, 2020								Total Gains (Losses) For the Three Months Ended June 30, 2020		Total Gains (Losses) For the Six Months Ended June 30, 2020
		Level 1		Level 2		Level 3		Total		Total Gains (Losses) For the Three Months Ended March 31, 2020	Level 1				Level 2		Level 3		Total		Total Gains (Losses) For the Three Months Ended June 30, 2020
		(in millions)									(in millions)
Residential mortgage loans held for sale(1)		$	0	$	4	$	0	$	4			$	0
Consumer loans held for sale(1)														Consumer loans held for sale(1)	$	0	$	4	$	0			$	4	$	0	$	0
Consumer loans(2)	Consumer loans(2)	0		312		0		312				3		Consumer loans(2)	0		312		0		312		4		7
Commercial loans held for sale~~(5)~~(3)	Commercial loans held for sale~~(5)~~(3)	0		68		0		68				0		Commercial loans held for sale~~(5)~~(3)	0		68		0		68		(9)		(9)
Commercial loans~~(3)~~(4)	Commercial loans~~(3)~~(4)	0		0		270		270				(53)		Commercial loans~~(3)~~(4)	0		0		270		270		(117)		(170)
Real estate owned~~(4)~~(6)	Real estate owned~~(4)~~(6)	0		1		0		1				0		Real estate owned~~(4)~~(6)	0		1		0		1		1		1
Goodwill~~(6)~~(7)	Goodwill~~(6)~~(7)	0		0		0		0				(784)		Goodwill~~(6)~~(7)	0		0		0		0		0		(784)
Leases~~(7)~~(5)	Leases~~(7)~~(5)	0		0		3		3				(68)		Leases~~(7)~~(5)	0		0		3		3		6		(62)
Total assets at fair value on a non-recurring basis	Total assets at fair value on a non-recurring basis	$	0	$	385	$	273	$	658			$	(902)	Total assets at fair value on a non-recurring basis	$	0	$	385	$	273	$	658	$	(115)	$	(1,017)

(1)At ~~March 31,~~June 30, 2021 and December 31, 2020, the fair value of the loans held for sale was below cost. During the second quarter of 2021, certain consumer loans were transferred to held for sale for which significant inputs in estimating fair value were unobservable.

(2)Represents residential mortgage loans held for investment whose carrying amount was adjusted during the period based on the fair value of the underlying collateral.

(3)At June 30, 2021 and December 31, 2020, the fair value of the loans held for sale was below cost. During the second quarter of 2021, certain commercial loans were transferred to held for sale for which significant inputs in estimating fair value were unobservable.

(4)Certain commercial loans are individually assessed for impairment. We measure the credit impairment of a collateral-dependent loan based on the fair value of the collateral asset. The collateral often involves real estate properties that are illiquid due to market conditions. As a result, these loans are classified as a Level 3 fair value measurement within the fair value hierarchy.

~~(4)Real estate owned is required to be reported on the balance sheet net of transactions costs. The real estate owned amounts in the table above reflect the fair value unadjusted for transaction costs.~~

(5)~~At December 31, 2020, the fair value of the loans held for sale was below cost.~~

~~(6)~~During the ~~first~~second quarter of ~~2020,~~2021, we determined that we would exit certain branches and, as a result, the ~~goodwill allocated~~lease ROU assets, leasehold improvement assets and equipment assets associated with these branches were written off. During the second quarter of 2021, we also wrote down the lease ROU assets and leasehold improvement assets associated with branches closed prior to ~~our previously separate RBWM~~2021 and PB businesses were both written down to $0 million. See Note 8, "Goodwill," in this From 10-Q for further discussion of the results of our goodwill impairment testing, including the events and circumstances leading to the impairments.

~~(7)~~certain office space that we determined we would exit. During the first quarter of 2020, we determined that we would exit certain branches and, as a result, the lease ROU assets and leasehold improvement assets associated with these branches were written down based on their estimated remaining useful lives. See Note 2, "Strategic Initiatives," in this Form 10-Q for further discussion.

(6)Real estate owned is required to be reported on the balance sheet net of transactions costs. The real estate owned amounts in the table above reflect the fair value unadjusted for transaction costs.

(7)During the first quarter of 2020, the goodwill allocated to our previously separate RBWM and PB businesses were both written down to $0 million. See Note 9, "Goodwill," in this From 10-Q for further discussion of the results of our goodwill impairment testing, including the events and circumstances leading to the impairments.


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Significant Unobservable Inputs for Non-Recurring Fair Value Measurements

The following tables present quantitative information about non-recurring fair value measurements of assets and liabilities classified with Level 3 of the fair value hierarchy at ~~March 31,~~June 30, 2021 and December 31, 2020:

At March 31, 2021

At June 30, 2021

Financial Instrument Type

Fair Value (in millions)

Valuation Technique(s)

Significant Unobservable Inputs

Range of Inputs

Weighted Average(1)

Financial Instrument Type

Fair Value (in millions)

Valuation Technique(s)

Significant Unobservable Inputs

Range of Inputs

Weighted Average(1)

Consumer loans held for sale

616

Market comparables and internal assumptions

Adjusted market price

10% - 100%

97%

Commercial loans held for sale

131

Market comparables and internal assumptions

Adjusted market price

95%

N/A

Commercial loans

226

Valuation of third party appraisal
on underlying collateral

Loss severity rates

4% - 100%

35%

Commercial loans

175

Valuation of third party appraisal
on underlying collateral

Loss severity rates

3% - 74%

25%

At December 31, 2020

Financial Instrument Type

Fair Value (in millions)

Valuation Technique(s)

Significant Unobservable Inputs

Range of Inputs

Weighted Average(1)

Commercial loans

270

Valuation of third party appraisal
on underlying collateral

Loss severity rates

0% - 76%

35%

(1)Weighted average is calculated based on the carrying value of the loans.

N/A Not Applicable

Valuation Techniques

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Consumer loans designated under FVO – We elected to apply FVO accounting to certain student loans held for investment. The fair value of these loans is based on observed market prices of instruments with similar characteristics.

Consumer loans held for sale – Consumer loans held for sale are recorded at the lower of amortized cost or fair value. The fair value estimates of consumer loans held for sale are determined primarily using observed market prices of instruments with similar characteristics. Adjustments are made to reflect differences in collateral location, loan-to-value ratio, FICO scores, vintage year, default rates, the completeness of the loan documentation and other risk characteristics. Where observable market parameters are not available, fair value is determined using the discounted cash flow method using assumptions consistent with those which would be used by market participants in valuing such loans, including estimates of prepayment rates, default rates, loss severities and market rates of return. We also may hold discussions on value directly with potential investors. For consumer loans transferred to held for sale during the second quarter of 2021, the fair value measurement processes use significant unobservable inputs to adjust market prices which are specific to the characteristics of the various loan portfolios.

Commercial loans held for sale - Commercial loans held for sale (that are not designated under FVO as discussed below) are recorded at the lower of amortized cost or fair value. The fair value estimates of commercial loans held for sale are determined primarily using observable market pricing obtained from independent sources, relevant broker quotes or observed market prices of instruments with similar characteristics. We also may hold discussions on value directly with potential investors. For commercial loans transferred to held for sale during the second quarter of 2021, the fair value measurement process uses significant unobservable inputs to adjust market prices which are specific to the characteristics of the loan portfolio.

Commercial loans held for sale designated under FVO – We elected to apply FVO accounting to certain commercial loans held for sale at fair value. Where available, fair value is based on observable market pricing obtained from independent sources, relevant broker quotes or observed market prices of instruments with similar characteristics. Where observable market parameters are not available, fair value is determined based on contractual cash flows adjusted for estimates of prepayment rates, expected default rates and loss severity discounted at management's estimate of the expected rate of return required by market participants. We also consider loan-specific risk mitigating factors such as collateral arrangements in determining the fair value estimate.

Commercial loans individually assessed for impairment – Generally represents collateral-dependent commercial loans with fair value determined based on pricing quotes obtained from an independent third party appraisal.

Precious metals trading - Precious metals trading primarily includes physical inventory which is valued using spot prices.

Securities - Where available, debt and equity securities are valued based on quoted market prices. If a quoted market price for the identical security is not available, the security is valued based on quotes from similar securities, where possible. For certain securities, internally developed valuation models are used to determine fair values or validate quotes obtained from pricing services. The following summarizes the valuation methodology used for our major security classes:


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•U.S. Treasury, U.S. Government agency issued or guaranteed and obligations of U.S. state and political subdivisions – As these securities transact in an active market, fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated.

•U.S. Government sponsored enterprises – For government sponsored mortgage-backed securities which transact in an active market, fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated. For government


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sponsored mortgage-backed securities which do not transact in an active market, fair value is determined primarily based on pricing information obtained from pricing services and is verified by internal review processes.

•Asset-backed securities, including CDOs – Fair value is primarily determined based on pricing information obtained from independent pricing services adjusted for the characteristics and the performance of the underlying collateral.

•~~Other domestic debt and foreign~~Foreign debt securities ~~(corporate~~(government and ~~government)~~corporate) - Government securities transact in an active market and therefore fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated. For non-callable corporate securities, a credit spread scale is created for each issuer. These spreads are then added to the equivalent maturity U.S. Treasury yield to determine current pricing. Credit spreads are obtained from the ~~new~~primary market, secondary trading levels and dealer quotes. For securities with early redemption features, an option adjusted spread model is incorporated to adjust the spreads determined above. Additionally, we survey the broker/dealer community to obtain relevant trade data including benchmark quotes and updated spreads.

•Equity securities – Fair value measurements are determined based on quoted prices for the identical security. Certain equity securities represent investments in private equity funds that help us comply with the Community Reinvestment Act. The fair value of these investments are estimated using the net asset value per share as calculated by the fund managers. Distributions will be received from the funds as the underlying assets are liquidated. While the funds do not allow us to redeem our investments, we are permitted to sell or transfer our investments subject to the approval of the fund manager. Unfunded commitments associated with these investments totaled ~~$32~~$30 million and $33 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

The following tables provide additional information relating to our asset-backed securities, including CDOs, at ~~March 31,~~June 30, 2021:

Trading asset-backed securities:

Rating of Securities:(1)
Collateral Type: Level 2 Level 3 Total
(in millions)
AAA - A Collateralized debt obligations $ 41 $ 0 $ 41
Student loans 63 0 63
Total AAA - A 104 0 104
BBB - B Collateralized debt obligations 25 0 25
CCC - Unrated Residential mortgages - Subprime 0 24 24
$ 129 $ 24 $ 153


Rating of Securities:(1)	Collateral Type:	Level 2
		(in millions)


AAA - A	Collateralized debt obligations	$	33
	Student loans	59
	Total AAA - A	92
BBB - B	Collateralized debt obligations	25
CCC - Unrated	Residential mortgages - Subprime	24
		$	141

Available-for-sale asset-backed securities:

Rating of Securities:(1)

Collateral Type:

Level 3

(in millions)

AAA - A

Home equity - Alt A

2523

BBB - B

Other

~~105~~103

~~130~~126

(1)We utilize S&P as the primary source of credit ratings in the tables above. If S&P ratings are not available, ratings by Moody's and Fitch are used in that order. Ratings for CDOs represent the ratings associated with the underlying collateral.

Derivatives – Derivatives are recorded at fair value. Asset and liability positions in individual derivatives that are covered by legally enforceable master netting agreements, including receivables (payables) for cash collateral posted (received), are offset and presented net in accordance with accounting principles which allow the offsetting of amounts.

Derivatives traded on an exchange are valued using quoted prices. OTC derivatives, which comprise a majority of derivative contract positions, are valued using valuation techniques. The fair value for the majority of our derivative instruments are determined based on internally developed models that utilize independently corroborated market parameters, including interest rate yield curves, option volatilities, and currency rates. For complex or long-dated derivative products where market data is not


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available, fair value may be affected by the underlying assumptions about, among other things, the timing of cash flows, expected exposure, probability of default and recovery rates. The fair values of certain structured derivative products are sensitive to unobservable inputs such as default correlations of the referenced credit and volatilities of embedded options. These estimates are susceptible to significant change in future periods as market conditions change.

We use the OIS curves as the base discounting curve for measuring the fair value of all derivatives, both collateralized and uncollateralized, and apply a FFVA to reflect the estimated present value of the future market funding cost or benefit associated with funding uncollateralized derivative exposure at rates other than the OIS rate. The FFVA is calculated by applying future market funding spreads to the expected future funding exposure of any uncollateralized component of the OTC derivative


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portfolio. The expected future funding exposure is calculated by a simulation methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HUSI or the counterparty.

Significant inputs related to derivative classes are broken down as follows:

•Credit Derivatives – Use credit default curves and recovery rates which are generally provided by broker quotes and various pricing services. Certain credit derivatives may also use correlation inputs in their model valuation.

•Interest Rate Derivatives – Swaps use interest rate curves based on currency that are actively quoted by brokers and other pricing services. Options will also use volatility inputs which are also quoted in the broker market.

•Foreign Exchange ("FX") Derivatives – FX transactions, to the extent possible, use spot and forward FX rates which are quoted in the broker market. Where applicable, we also use implied volatility of currency pairs as inputs.

•Equity Derivatives – Use listed equity security pricing and implied volatilities from equity traded options position.

•Precious Metal Derivatives – Use spot and forward metal rates which are quoted in the broker market.

As discussed earlier, we make fair value adjustments to model valuations in order to ensure that those values represent appropriate estimates of fair value. These adjustments, which are applied consistently over time, are generally required to reflect factors such as bid-ask spreads and counterparty credit risk that can affect prices in arms-length transactions with unrelated third parties. Such adjustments are based on management judgment and may not be observable.

We estimate the counterparty credit risk for financial assets and our own credit standing for financial liabilities (the "credit valuation adjustments") in determining the fair value measurement. For derivative instruments, we calculate the credit valuation adjustment by applying the probability of default of the counterparty to the expected exposure, and multiplying the result by the expected loss given default. We also take into consideration the risk mitigating factors including collateral agreements and master netting agreements in determining credit valuation adjustments. We estimate the implied probability of default based on the credit spread of the specific counterparty observed in the credit default swap market. Where credit default spread of the counterparty is not available, we use the credit default spread of a specific proxy (e.g., the credit default swap spread of the counterparty's parent) or a proxy based on credit default swaps referencing to credit names of similar credit standing.

Real estate owned - Fair value is determined based on third party appraisals obtained at the time we take title to the property and, if less than the carrying amount of the loan, the carrying amount of the loan is adjusted to the fair value. The carrying amount of the property is further reduced, if necessary, at least every 90 days to reflect observable local market data, including local area sales data.

Mortgage servicing rights - Mortgage servicing rights are recorded at fair value. The fair value for the mortgage servicing rights is determined based on a single rate path cash flow analysis approach which involves discounting servicing cash flows under static interest rate projections at risk-adjusted rates. The valuation model also incorporates our best estimates of the prepayment speed of the mortgage loans, current cost to service and discount rates which are unobservable.

Structured notes and deposits designated under FVO – Structured notes and deposits are hybrid instruments containing embedded derivatives and are elected to be measured at fair value in their entirety under FVO accounting principles. The valuation of hybrid instruments is predominantly driven by the derivative features embedded within the instruments and our own credit risk. The valuation of embedded derivatives may include significant unobservable inputs such as correlation of the referenced credit names or volatility of the embedded option. Cash flows of the funded notes and deposits in their entirety, including the embedded derivatives, are discounted at the relevant interest rates for the duration of the instrument adjusted for our own credit spreads. The credit spreads so applied are determined with reference to our own debt issuance rates observed in primary and secondary markets, internal funding rates, and the structured note rates in recent executions.

Long-term debt designated under FVO – We elected to apply FVO accounting to certain of our own debt issuances for which fair value hedge accounting otherwise would have been applied. These own debt issuances elected under FVO are traded in secondary markets and, as such, the fair value is determined based on observed prices for the specific instrument. The observed market price of these instruments reflects the effect of our own credit spreads. The credit spreads applied to these instruments were derived from the spreads at the measurement date.

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Additional Disclosures About the Fair Value of Financial Instruments that are Not Carried at Fair Value on the Consolidated Balance Sheet The fair value estimates set forth below are made solely to comply with disclosures required by generally accepted accounting principles in the United States and should be read in conjunction with the financial statements and notes included in this report.

The carrying amount of certain financial instruments recorded at cost on the consolidated balance sheet is considered to approximate fair value because they are short-term in nature, bear interest rates that approximate market rates, and generally have negligible credit risk. These items include cash and due from banks, interest bearing deposits with banks, customer acceptance assets and liabilities, federal funds sold and purchased, securities purchased and sold under resale and repurchase agreements, deposits with no stated maturity (e.g., demand, savings and certain money market deposits), short-term borrowings and dividends payable.

The following table summarizes the carrying value and estimated fair value of our financial instruments, excluding financial instruments that are carried at fair value on a recurring basis, at ~~March 31,~~June 30, 2021 and December 31, 2020, and their classification within the fair value hierarchy:


March 31, 2021		Carrying Value		Fair Value		Level 1		Level 2		Level 3
June 30, 2021												June 30, 2021	Carrying Value		Fair Value		Level 1		Level 2		Level 3
		(in millions)											(in millions)
Financial assets:	Financial assets:											Financial assets:
Short-term financial assets, net of allowance for credit losses	Short-term financial assets, net of allowance for credit losses	$	55,066	$	55,066	$	1,447	$	53,607	$	12	Short-term financial assets, net of allowance for credit losses	$	49,881	$	49,881	$	1,364	$	48,504	$	13
Federal funds sold and securities purchased under agreements to resell	Federal funds sold and securities purchased under agreements to resell	3,760		3,760		0		3,760		0		Federal funds sold and securities purchased under agreements to resell	10,503		10,503		0		10,503		0
Securities held-to-maturity, net of allowance for credit losses	Securities held-to-maturity, net of allowance for credit losses	7,837		8,166		0		8,166		0		Securities held-to-maturity, net of allowance for credit losses	6,758		7,027		0		7,027		0
Commercial loans, net of allowance for credit losses	Commercial loans, net of allowance for credit losses	40,482		41,303		0		0		41,303		Commercial loans, net of allowance for credit losses	37,263		37,636		0		0		37,636
Commercial loans held for sale	Commercial loans held for sale	173		173		0		173		0		Commercial loans held for sale	210		211		0		63		148
Consumer loans, net of allowance for credit losses	Consumer loans, net of allowance for credit losses	20,161		19,508		0		0		19,508		Consumer loans, net of allowance for credit losses	16,559		16,069		0		0		16,069

Residential mortgage loans held for sale		95		96		0		96		0

Consumer loans held for sale												Consumer loans held for sale	3,681		3,774		0		66		3,708
Financial liabilities:	Financial liabilities:											Financial liabilities:
Short-term financial liabilities	Short-term financial liabilities	$	5,256	$	5,256	$	0	$	5,243	$	13	Short-term financial liabilities	$	3,819	$	3,819	$	0	$	3,806	$	13
Deposits	Deposits	144,817		144,821		0		144,821		0		Deposits	134,104		134,107		0		134,107		0

Deposits held for sale												Deposits held for sale	9,939		9,939		0		9,939		0
Long-term debt	Long-term debt	8,309		8,735		0		8,735		0		Long-term debt	9,397		9,888		0		9,888		0


December 31, 2020	December 31, 2020	Carrying Value		Fair Value		Level 1		Level 2		Level 3		December 31, 2020	Carrying Value		Fair Value		Level 1		Level 2		Level 3
		(in millions)											(in millions)
Financial assets:	Financial assets:											Financial assets:
Short-term financial assets, net of allowance for credit losses	Short-term financial assets, net of allowance for credit losses	$	15,667	$	15,667	$	1,302	$	14,353	$	12	Short-term financial assets, net of allowance for credit losses	$	15,667	$	15,667	$	1,302	$	14,353	$	12
Federal funds sold and securities purchased under agreements to resell	Federal funds sold and securities purchased under agreements to resell	35,746		35,746		0		35,746		0		Federal funds sold and securities purchased under agreements to resell	35,746		35,746		0		35,746		0
Securities held-to-maturity, net of allowance for credit losses	Securities held-to-maturity, net of allowance for credit losses	8,981		9,369		0		9,369		0		Securities held-to-maturity, net of allowance for credit losses	8,981		9,369		0		9,369		0
Commercial loans, net of allowance for credit losses	Commercial loans, net of allowance for credit losses	40,785		41,417		0		0		41,417		Commercial loans, net of allowance for credit losses	40,785		41,417		0		0		41,417
Commercial loans held for sale	Commercial loans held for sale	93		93		0		93		0		Commercial loans held for sale	93		93		0		93		0
Consumer loans, net of allowance for credit losses	Consumer loans, net of allowance for credit losses	20,256		19,865		0		0		19,865		Consumer loans, net of allowance for credit losses	20,256		19,865		0		0		19,865

Residential mortgage loans held for sale		208		217		0		217		0
Consumer loans held for sale												Consumer loans held for sale	208		217		0		217		0

Financial liabilities:	Financial liabilities:											Financial liabilities:
Short-term financial liabilities	Short-term financial liabilities	$	4,965	$	4,965	$	0	$	4,952	$	13	Short-term financial liabilities	$	4,965	$	4,965	$	0	$	4,952	$	13
Deposits	Deposits	140,995		141,001		0		141,001		0		Deposits	140,995		141,001		0		141,001		0

Long-term debt	Long-term debt	9,254		9,720		0		9,720		0		Long-term debt	9,254		9,720		0		9,720		0

Lending-related commitments - The fair value of loan commitments, revolving credit facilities and standby letters of credit are not included in the above table. The majority of the lending-related commitments are not carried at fair value on a recurring basis nor are they actively traded. These instruments generate fees, which approximate those currently charged to originate similar commitments, which are recognized over the term of the commitment period. Deferred fees on loan commitments, ~~revolving credit facilities and standby letters of credit totaled $139 million and $137 million at March 31, 2021 and December 31, 2020, respectively.~~

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~~20.~~revolving credit facilities and standby letters of credit totaled $140 million and $137 million at June 30, 2021 and December 31, 2020, respectively.

21. Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 29, "Litigation and Regulatory Matters," in our 2020 Form ~~10-K.~~10-K and in Note 20, "Litigation and Regulatory Matters," in our Form 10-Q for the three month period ended March 31, 2021 (the "2021 First Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2020 Form 10-K and our 2021 First Quarter Form 10-Q are reported herein.

In addition to the matters described below and in our 2020 Form 10-K and our 2021 First Quarter Form 10-Q, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

Due to the inherent unpredictability of legal matters, including litigation, governmental and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of such matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation, governmental and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. Once established, reserves are adjusted from time to time, as appropriate, in light of additional information. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 29, "Litigation and Regulatory Matters," in our 2020 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2021 First Quarter Form 10-Q, as to which a loss in excess of accrued liability is reasonably possible in future periods and for which there is sufficient currently available information on the basis of which management believes it can make a reliable estimate, we believe a reasonable estimate could be as much as $150 million for HUSI. The legal matters underlying this estimate of possible loss will change from time to time and actual results may differ significantly from this current estimate.

In addition, based on the facts currently known for each of the ongoing investigations disclosed in Note 29, "Litigation and Regulatory Matters," in our 2020 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2021 First Quarter Form 10-Q, it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution. As matters progress, it is possible that any fines and/or penalties could be significant.

Given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in any particular quarterly or annual period.

~~Mortgage Securitization~~Foreign Exchange ("FX") Matters

Investigations

In ~~2013, Deutsche Bank National Trust Company, as trustee~~July 2021, the Department of ~~HASCO 2007-NC1,~~Justice ("DOJ") filed a complaint in New York County Supreme Court, State of New York, naming HSBC Bank USA as the sole defendant. The parties finalized the settlement of the matter in March 2021, and the matter is now concluded.

~~Mortgage Securitization Trust Litigation~~ ~~The court granted in part and denied in part the~~ motion to dismiss in the ~~action brought~~charges deferred by ~~IKB Bank AG in New York State court. A trial has been scheduled for Fall 2022 in the RMBS Recovery Holdings I, LLC case pending in Virginia state court.~~

~~Anti-Terrorism Act Cases~~

~~Mary Zapata, et al. v.~~its three-year deferred prosecution agreement with HSBC Holdings plc ~~et al.~~ ~~Following the US Court of Appeals for the Second Circuit's decision affirming the lower court's dismissal of the action, the matter~~(the "FX DPA"), which is ~~now concluded.~~

~~Dana Bernhardt et al. v. HSBC Holdings plc, et al.~~ ~~In February 2021, plaintiffs filed an appeal of the decision granting the HSBC defendants' motion to dismiss.~~

~~Rigoberto Vasquez and Eva Garcia et al v.Hong Kong and Shanghai Banking Corporation Ltd., HSBC Bank USA, N.A., et al.~~ ~~By agreement among the parties, plaintiffs will dismiss the appeal. The matter is now concluded.~~currently pending.

~~21.~~22. New Accounting Pronouncements

There have been no accounting pronouncements issued that are expected to have or could have a material impact on our consolidated financial statements.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain matters discussed throughout this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make or approve certain statements in future filings with the United States Securities and Exchange Commission ("SEC"), in press releases, or oral or written presentations by representatives of HSBC USA Inc. ("HSBC USA" and, together with its subsidiaries, "HUSI") that are not statements of historical fact and may also constitute forward-looking statements. Words such as "may," "will," "should," "would," "could," "appears," "believe," "intends," "expects," "estimates," "targeted," "plans," "anticipates," "goal," and similar expressions are intended to identify forward-looking statements but should not be considered as the only means through which these statements may be made. All discussions related to strategy, including the matters discussed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview" and discussions of those matters elsewhere in this Form 10-Q are forward-looking statements. These matters or statements will relate to our future structure, operations, strategy, financial condition, economic forecast, results of operations, plans, objectives, performance or business developments and will involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from that which was expressed or implied by such forward-looking statements.

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:

•the impact of the coronavirus ("COVID-19") pandemic and subsequent outbreaks, including the economic downturn and recovery, effect on global trade and changes in customer behavior and corporate strategy;

•our ability to effectively implement and deliver on our business strategies, and the effect implementation of our business strategy may have on our operations and relationships with our customers, regulators, employees and other stakeholders;

•uncertainty concerning the future market and economic conditions in the United States and abroad, including but not limited to, changes in interest rates, energy prices and unemployment levels, a decline in housing prices, the availability of credit and liquidity, changes in consumer confidence and consumer spending and behavior, consumer perception as to the continuing availability of credit and price competition in the market segments we serve and the consequences of unexpected geopolitical events, such as trade disputes;

•compliance with the Chinese National Security Law and the Hong Kong Autonomy Act, which may impact, among other things, individuals or entities with which we are able to conduct business;

•changes in laws and regulatory requirements;

•the potential impact of any legal, regulatory or policy changes affecting financial institutions and the global economy as a result of the new administration;

•the ability to deliver on our regulatory priorities;

•capital and liquidity requirements under Basel guidance, the Federal Reserve Board's ("FRB") Comprehensive Capital Analysis and Review ("CCAR") program, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act" or "Dodd-Frank") stress testing ("DFAST"), including the U.S. FRB requirements for U.S. global systemically important banks ("G-SIBs") and U.S. intermediate holding companies ("IHCs") owned by non-U.S. G-SIBs to issue total loss-absorbing capacity ("TLAC") instruments;

•regulatory requirements in the U.S. and in non-U.S. jurisdictions to facilitate the future orderly resolution of large financial institutions;

•changes in central banks' policies with respect to the provision or removal of liquidity support to financial markets;

•the ability of HSBC Holdings plc ("HSBC" and, together with its subsidiaries, "HSBC Group") and HSBC Bank USA, National Association (together with its subsidiaries, "HSBC Bank USA") to fulfill the requirements imposed by applicable consent orders or guidance from regulators generally;

•the use of us as a conduit for illegal activities without our knowledge by third parties;

•the ability to successfully manage our risks;

•the possibility of the inadequacy of our data management and policies and processes;

•the financial condition of our clients and counterparties and our ability to manage counterparty risk;

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•concentrations of credit and market risk;

•increases in our allowance for credit losses and changes in our assessment of our loan portfolios;

•the ability to successfully implement changes to our operational practices as needed and/or required from time to time;

•damage to our reputation;

•the ability to attract or retain key employees, including foreign workers, and customers;

•the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms;

•the effects of operational risks that are inherent in banking operations, including fraudulent and other criminal activities, breakdowns in processes or procedures and systems failure or non-availability;

•disruption in our operations from the external environment arising from events such as natural disasters, climate change, outbreaks of contagious disease, acts of war, terrorist attacks, or essential utility outages;

•a failure in or a breach of our operation or security systems or infrastructure, or those of third party servicers or vendors, including as a result of cyberattacks;

•the ability of third party suppliers, outsourcing vendors, off-shored functions and our affiliates to provide adequate services;

•losses suffered due to the negligence, fraud or misconduct of our employees or the negligence, fraud or misconduct on the part of third parties;

•a failure in our internal controls;

•our ability to meet our funding requirements;

•adverse changes to our credit ratings;

•financial difficulties or credit downgrades of mortgage bond insurers;

•changes in Financial Accounting Standards Board ~~("FASB")~~ and International Accounting Standards Board ("IASB") accounting standards and their interpretation;

•heightened regulatory and government enforcement scrutiny of financial institutions, including in connection with product governance and sales practices, account opening and closing procedures, customer and employee complaints and sales compensation structures related to such practices;

•possible negative impact of regulatory investigations and legal proceedings related to alleged foreign exchange manipulation;

•changes in the methodology for determining benchmark rates and the implementation of alternative benchmark rates, such as the Secured Overnight Financing Rate ("SOFR");

•heightened regulatory and government enforcement scrutiny of financial markets, with a particular focus on traded asset classes, including foreign exchange;

•the possibility of incorrect assumptions or estimates in our financial statements, including reserves related to litigation, deferred tax assets and the fair value of certain assets and liabilities;

•model limitations or failure;

•the possibility of incorrect interpretations, application of or changes in tax laws to which we and our clients are subject;

•the potential for additional financial contribution requirements to the HSBC North America Holdings Inc. ("HSBC North America") pension plan;

•unexpected and/or increased expenses relating to, among other things, litigation and regulatory matters, remediation efforts, penalties and fines; and

•the other risk factors and uncertainties described under Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K").

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. You should, however, consider any additional disclosures of a forward-looking nature that arise after the date hereof as may be discussed in any of our subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

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HSBC USA Inc.

Executive Overview

HSBC USA is a wholly-owned subsidiary of HSBC North America, which is an indirect wholly-owned subsidiary of HSBC. HUSI may also be referred to in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") as "we," "us" or "our."

Economic Environment The U.S. economy continued its recovery during the first ~~quarter~~half of 2021 after ~~deteriorating rapidly into recession during the second quarter of~~contracting sharply in 2020 driven by the COVID-19 pandemic which resulted in disruption to business and economic activity as well as to the capital markets. 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. Unprecedented government economic intervention, including additional government support enacted during the first quarter of 2021, has likely dampened the pandemic's effects, but at uncertain long-term cost. However, these government support measures combined with accelerated progress on vaccinations ~~and~~along with the easing and recent removal of restrictions by many states as new infections continue to drop significantly, have helped speed the economic recovery along ~~considerably.~~considerably while also contributing to higher inflation. U.S. Gross Domestic Product ("GDP") ~~is currently forecast to grow~~grew at an estimated annual rate ~~in excess~~ of ~~6.0~~6.5 percent in the ~~first~~second quarter of 2021, while the U.S. economy added over ~~400~~800 thousand jobs during the first ~~quarter~~half of 2021 and the total unemployment rate fell to ~~6.0~~5.9 percent at ~~March~~June 2021 as compared with 6.7 percent at December 2020. In ~~March~~June 2021, the FRB decided to hold short-term interest rates steady (at near zero) and indicated it expects short-term rates to remain low for some ~~time. The FRB~~time, but also ~~announced that~~signaled it ~~will continue~~may increase short-term rates sooner than previously anticipated as the economy continues to ~~increase its holdings~~recover from the effects of ~~U.S. Treasury~~the COVID-19 pandemic and ~~U.S. Government agency mortgage-backed securities, thereby supporting the flow of credit to households and businesses.~~market expectations for inflation remain uncertain.

Although the U.S. economy ~~improved~~continued to improve in the first ~~quarter~~half of 2021, the impact of the COVID-19 pandemic, including the emergence of new variants, on economic conditions both in the United States and abroad continues to create global uncertainty about the future economic environment, including the pace and extent of an economic recovery. 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 this 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 2021 and beyond.

Performance, Developments and Trends As mentioned above, the COVID-19 pandemic has disrupted global financial markets, negatively affected supply and demand across a broad range of industries and caused disruption to our customers, vendors and employees. This pandemic has had a significant impact on our business, financial condition and results of operations. Despite the improvement in economic conditions during the first ~~quarter~~half of 2021 as discussed above, the circumstances around this pandemic will continue to impact our business in future periods. The extent of such impact 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 II, Item 1A, "Risk Factors - Risks related to the impact of COVID-19," in our 2020 Form 10-K for further discussion.

We continue to progress our strategic plan to restructure our operations ("Restructuring Plan") as discussed further in Note 2, "Strategic Initiatives," in the accompanying consolidated financial statements. We remain committed to our multi-year strategic plan to re-profile our ~~business, and continue~~business.

We previously disclosed that as part of our Restructuring Plan, we were continuing to explore strategic options with respect to our retail ~~operations~~operations. In May 2021, we announced that we would take further actions to strategically reposition our Wealth and Personal Banking business to focus on ~~our~~the banking and wealth management needs of globally-connected affluent and high net worth ~~client base~~clients through our Premier, Jade and Private Banking propositions. We will exit our mass market retail banking business, including our Personal and Advance propositions as well as retail business banking, and will rebrand approximately 20-25 of our retail branches into international wealth centers to serve our Premier and Jade customers. In conjunction with the execution of this strategy, we have entered into definitive sale agreements with third parties to sell approximately 90 of our retail branches along with substantially all residential mortgage, unsecured and retail business banking loans and all deposits in our branch network not associated with our Premier, Jade and Private Banking customers. Certain assets under management ~~products.~~

associated with our mass market retail banking business which are managed by an affiliate will also be transferred. The remaining branches not sold or rebranded will be closed. As a result of entering into these sale agreements, assets and liabilities with an aggregate carrying value of approximately $2.9 billion and $10.1 billion, respectively, were transferred to held for sale during the second quarter of 2021. Although the disposal group will be sold in multiple transactions that are expected to be completed by the first quarter of 2022, the actual time to complete these sales depends on many factors, including regulatory approval. In addition, mass market retail banking loans that will not be purchased in the transaction described above, including our remaining retail credit card portfolio, which collectively totaled $1.1 billion, were also transferred to held for sale during the second quarter of 2021 as we currently do not intend to hold these loans for the foreseeable future. See Note 3, "Branch Assets and Liabilities Held for Sale," in the accompanying consolidated financial statements for additional information.

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The following table sets forth selected financial highlights of HUSI on a U.S. GAAP basis for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 and at ~~March 31,~~June 30, 2021 and December 31, 2020:


		Three Months Ended June 30,								Six Months Ended June 30,
Three Months Ended March 31,			2021			2020
										2021			2020			2021			2020
			(dollars are in millions)							(dollars are in millions)
Net income (loss)	Net income (loss)		$	339		$	(1,283)		Net income (loss)	$	193		$	7		$	532		$	(1,276)
Rate of return on average:	Rate of return on average:								Rate of return on average:
Total assets	Total assets		.7		%	(2.7)		%	Total assets	.4		%	—		%	.5		%	(1.3)		%
Risk-weighted assets(1)	Risk-weighted assets(1)		1.3			(4.0)			Risk-weighted assets(1)	.7			—			1.0			(2.0)
Common equity	Common equity		8.1			(29.9)			Common equity	3.7			(.8)			5.9			(15.4)
Tangible common equity	Tangible common equity		8.4			(32.2)			Tangible common equity	3.8			(.8)			6.1			(16.2)
Total equity	Total equity		7.6			(27.9)			Total equity	4.3			.2			5.9			(13.9)
Net interest margin	Net interest margin		1.17			1.15			Net interest margin	1.14			1.10			1.16			1.12
Efficiency ratio	Efficiency ratio		74.5			180.1			Efficiency ratio	97.0			72.6			85.2			123.2
Commercial net charge-off ratio(2)	Commercial net charge-off ratio(2)		.01			.23			Commercial net charge-off ratio(2)	.25			.37			.13			.31
Consumer net charge-off ratio(2)	Consumer net charge-off ratio(2)		.32			.37			Consumer net charge-off ratio(2)	1.66			.45			.98			.41

(1)Prior period amount has been revised to conform to the current period presentation. See Note ~~16,~~17, "Retained Earnings and Regulatory Capital Requirements," in the accompanying consolidated financial statements for further discussion.

(2)Excludes loans held for sale.


		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		(dollars are in millions)							(dollars are in millions)
Additional Select Ratios:	Additional Select Ratios:							Additional Select Ratios:
Allowance as a percent of loans(1)	Allowance as a percent of loans(1)	1.39		%	1.63		%	Allowance as a percent of loans(1)	1.01		%	1.63		%
Commercial allowance as a percent of loans(1)	Commercial allowance as a percent of loans(1)	1.63			1.96			Commercial allowance as a percent of loans(1)	1.42			1.96
Consumer allowance as a percent of loans(1)	Consumer allowance as a percent of loans(1)	.90			.98			Consumer allowance as a percent of loans(1)	.05			.98
Consumer two-months-and-over contractual delinquency	Consumer two-months-and-over contractual delinquency	2.31			2.27			Consumer two-months-and-over contractual delinquency	2.40			2.27
Loans to deposits ratio(2)	Loans to deposits ratio(2)	46.50			48.90			Loans to deposits ratio(2)	47.29			48.90
Common equity Tier 1 capital to risk-weighted assets(3)	Common equity Tier 1 capital to risk-weighted assets(3)	15.1			14.5			Common equity Tier 1 capital to risk-weighted assets(3)	15.6			14.5
Tier 1 capital to risk-weighted assets(3)	Tier 1 capital to risk-weighted assets(3)	16.2			15.6			Tier 1 capital to risk-weighted assets(3)	16.8			15.6
Total capital to risk-weighted assets(3)	Total capital to risk-weighted assets(3)	18.7			18.8			Total capital to risk-weighted assets(3)	19.0			18.8
Tier 1 leverage ratio	Tier 1 leverage ratio	8.8			8.6			Tier 1 leverage ratio	9.0			8.6
Supplementary leverage ratio	Supplementary leverage ratio	8.3			7.8			Supplementary leverage ratio	6.9			7.8
Total equity to total assets	Total equity to total assets	9.2			9.3			Total equity to total assets	9.3			9.3

Select Balance Sheet Data:	Select Balance Sheet Data:							Select Balance Sheet Data:
Cash and interest bearing deposits with banks	Cash and interest bearing deposits with banks	$	55,054		$	15,655		Cash and interest bearing deposits with banks	$	49,868		$	15,655
Trading assets	Trading assets	25,822			27,284			Trading assets	28,343			27,284
Securities available-for-sale	Securities available-for-sale	34,659			40,672			Securities available-for-sale	34,717			40,672
Loans:	Loans:							Loans:
Commercial loans	Commercial loans	41,152			41,599			Commercial loans	37,801			41,599
Consumer loans	Consumer loans	20,374			20,489			Consumer loans	16,597			20,489
Total loans	Total loans	61,526			62,088			Total loans	54,398			62,088
Deposits(4)	Deposits(4)	148,582			145,150			Deposits(4)	147,365			145,150

(1)Excludes loans held for sale.

(2)Represents period end loans, net of allowance for loan losses, as a percentage of core deposits as calculated in accordance with Federal Financial Institutions Examination Council guidelines which generally include all domestic demand, money market and other savings accounts, as well as time deposits with balances not exceeding $250,000.

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(3)Prior period amounts have been revised to conform to the current period presentation. See Note ~~16,~~17, "Retained Earnings and Regulatory Capital Requirements," in the accompanying consolidated financial statements for further discussion.

(4)Includes $9.9 billion of deposits held for sale at June 30, 2021.

Net income (loss) was income of ~~$339~~$193 million and $532 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, compared with income of $7 million and a loss of ~~$1,283~~$1,276 million during the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. Income (loss) before income tax was income of ~~$460~~$254 million and $714 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, compared with income of $56 million and a loss of ~~$1,440~~$1,384 million during the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. The increase in income (loss) before income tax during the three and six months ended ~~March 31,~~June 30, 2021 was due primarily to a lower provision for credit losses driven by improved economic conditions and the impact of our decision to exit our mass market retail banking business as well as our remaining 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 the second quarter of 2021. Also contributing to the increase in the year-to-date period was lower operating expenses driven by the non-recurrence of a $784 million goodwill impairment charge recorded during the first quarter of ~~2020 and~~2020. The increases in both periods were partially offset by lower ~~occupancy expense. Also contributing to the increase was higher net interest income.~~other revenues driven by lower trading revenue.

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:


				Three Months Ended June 30,					Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)					(in millions)
Income (loss) before income tax, as reported	Income (loss) before income tax, as reported	$	460		$	(1,440)		Income (loss) before income tax, as reported	$	254	$	56	$	714	$	(1,384)
Goodwill impairment	Goodwill impairment	—			784			Goodwill impairment	—		—		—		784

Costs to achieve(1)	Costs to achieve(1)	25			100			Costs to achieve(1)	129		49		154		151

Adjusted performance(2)	Adjusted performance(2)	$	485		$	(556)		Adjusted performance(2)	$	383	$	105	$	868	$	(449)

(1)Reflects costs related to the delivery of our Restructuring Plan. Costs to achieve primarily consists of lease impairment and other related costs, severance costs, allocated costs from HSBC Technology & Services ("HTSU"), and trading losses associated with the exit of certain derivative contracts. See Note 2, "Strategic Initiatives," in the accompanying consolidated financial statements for a more detailed discussion of these costs. The expense during the three and six months ended ~~March 31,~~June 30, 2021 also includes $7$11 million and $18 million, respectively, of allocated costs from other HSBC affiliates related to the HSBC Group's restructuring activities. The expense during the ~~three~~six months ended ~~March 31,~~June 30, 2020 also includes a $9 million gain on the sale of one of our owned retail branch properties.

(2)Represents a non-U.S. GAAP financial measure.

Excluding the impact of the items in the table above, our adjusted performance during the three and six months ended ~~March 31,~~June 30, 2021, respectively, increased ~~$1,041~~$278 million and $1,317 million compared with the prior year ~~period~~periods due primarily to a lower provision for credit losses driven by improved economic ~~conditions.~~conditions and the impact of our decision to exit our mass market retail banking business as well as our remaining credit card portfolio which resulted in a release in credit loss reserves during the second quarter of 2021 as discussed above. Also contributing to the increase in the year-to-date period was lower operating ~~expenses and higher net interest income.~~expenses. The increases in both periods were partially offset by lower other revenues driven by lower trading revenue.

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.

London Interbank Offered Rate ("LIBOR") Transition Regulators and central banks in various national jurisdictions continue to actively work to help transition from interbank offered rates ("IBORs") to acceptable alternative rates, such as the Secured Overnight Financing Rate ("SOFR") recommended by the Alternative Reference Rates Committee convened by the FRB. We have a considerable number of contracts referencing IBORs, primarily U.S. dollar ("USD") LIBOR, such as loans, derivatives and long-term debt.

In March 2021, the United Kingdom ("U.K.") Financial Conduct Authority ("FCA") confirmed that all LIBOR tenors will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of the one-week and two-month USD LIBOR tenors, and immediately after June 30, 2023, in the case of the remaining overnight, one-month, three-month, six-month and twelve-month USD LIBOR tenors. The extension of certain USD LIBOR tenors until June 2023 will allow many legacy LIBOR-based contracts to mature naturally and significantly aids in reducing the risks associated with transitioning legacy contracts onto replacement rates. 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 FCA announcement. As a result, the ISDA fallbacks (i.e. to the adjusted risk-free rate plus the fixed spread


HSBC USA Inc.

adjustment) will automatically occur for outstanding derivative contracts that incorporate the ISDA 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 ~~immediately after~~at the first reset subsequent to June 30, 2023. These announcements provide clarity on the future terms of the many derivative contracts which now incorporate the ISDA fallbacks. In addition, during the first ~~quarter~~half of 2021, central clearing counterparties amended their rules to incorporate the new ISDA fallback language and adhere to the ISDA fallback protocol for cleared derivative contracts.


~~HSBC USA Inc.~~

We continue to actively participate in HSBC's global transition program 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. In particular, during the first ~~quarter~~half of 2021, we:

•implemented the capabilities ~~to offer~~for SOFR-based derivatives in our Markets Treasury function and to offer SOFR-based bilateral loans in our Commercial Banking business; ~~and~~

•continued to reduce our LIBOR derivative exposures through the exit or transfer of certain derivative contracts as part of our Restructuring ~~Plan.~~Plan; and

•started to engage our clients to provide alternative products and determine their ability and readiness to transition.

The current focus of our client transition efforts is on those contracts that will be impacted by tenors ceasing or becoming non-representative immediately after December 31, 2021. Such contracts outstanding at June 30, 2021 included contracts for non-derivative financial assets with a carrying value of approximately $746 million, primarily consisting of certain non-USD LIBOR-based commercial loans, and contracts for non-USD LIBOR-based derivatives with a notional value of approximately $2.8 billion. Such contracts for non-derivative financial liabilities were immaterial at June 30, 2021. The ability of HUSI and its clients to transition legacy contracts onto replacement rates is dependent on the availability and market liquidity of products that reference replacement rates, including SOFR, and on our clients being ready and able to adapt their own processes and systems to accommodate the replacement products. 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. For further discussion of our LIBOR transition program and the associated risks, see "Executive Overview" in MD&A in our 2020 Form 10-K.

Other COVID-19 Related Developments

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 provided financial assistance for businesses and individuals and targeted regulatory relief for financial institutions. In December 2020, the Consolidated Appropriations Act was signed into law, which extended many of the CARES Act programs and provided additional financial assistance for businesses and individuals.

Loan Forbearance Initiatives The CARES Act created a forbearance program for federally-backed mortgage loans and provided financial institutions with the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings ("TDR Loans") beginning March 1, 2020. This TDR Loan guidance can be applied until the earlier of January 1, 2022 or 60 days following the termination of the presidentially declared national emergency. We elected to adopt the TDR Loan guidance in the CARES Act and are not applying TDR Loan classification to COVID-19 related loan modifications in the form of a long-term payment deferral (for commercial loans all payment modifications, including all payment deferrals) granted to borrowers that were current (less than 30 days past due) as of December 31, 2019 which otherwise may have been reported as TDR Loans. The CARES Act also ~~prohibits~~prohibited servicers of federally-backed mortgage loans from initiating any foreclosure action on any residential property that is not vacant or abandoned for a period of 60 days. This moratorium ~~has been extended until June 30,~~expired on July 31, 2021. In addition to these federal measures, some state governments have taken action to require 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.


HSBC USA Inc.

will generally be placed on nonaccrual status and, if the loan does not meet the criteria in the CARES Act, assessed for TDR Loan classification. Any accrued interest recorded on these loans is generally not reversed against income and will remain recorded as accrued interest receivable. We have not modified our commercial loan nonaccrual policies as a result of this guidance.


~~HSBC USA Inc.~~

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 ~~March 31,~~June 30, 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.


		March 31, 2021						June 30, 2021
		Number of Loans	Loan Amount		% of Loans with Payment(1)	Program Details		Number of Loans	Loan Amount		% of Loans with Payment(1)	Program Details
		(in thousands)	(in millions)					(in thousands)	(in millions)
Commercial:	Commercial:						Commercial:
Real estate, including construction	Real estate, including construction	—	$	499	0%	Primarily deferrals of up to eighteen months	Real estate, including construction	—	$	421	0%	Primarily deferrals of up to twenty-one months
Business and corporate banking	Business and corporate banking	—	88		0	Primarily deferrals of up to eighteen months	Business and corporate banking	—	88		0	Primarily deferrals of up to twenty-one months
Global banking	Global banking	—	190		0	Primarily deferrals of up to eighteen months	Global banking	—	38		0	Primarily deferrals of up to twenty-one months
Other commercial	Other commercial		4		0	Primarily deferrals of up to eighteen months	Other commercial		4		0	Primarily deferrals of up to twenty-one months
Total commercial(2)	Total commercial(2)	—	781		0		Total commercial(2)	—	551		0
Consumer:	Consumer:						Consumer:
Residential mortgages(3)	Residential mortgages(3)	1.6	749		30	Deferrals of either three or six month increments up to a maximum of eighteen months	Residential mortgages(3)	1.1	484		29	Deferrals of either three or six month increments up to a maximum of eighteen months
Home equity mortgages(3)	Home equity mortgages(3)	0.3	38		31	Deferrals of either three or six month increments up to a maximum of eighteen months	Home equity mortgages(3)	0.3	26		22	Deferrals of either three or six month increments up to a maximum of eighteen months
Credit cards		3.1	15		82	Currently offering deferrals of up to three months (initially offered deferrals of either three, four or six month increments up to a maximum of nine months)
Other consumer		0.4	1		78	Currently offering deferrals of up to three months (initially offered deferrals of either three, four or six month increments up to a maximum of nine months)

Total consumer(4)	Total consumer(4)	5.4	803		31		Total consumer(4)	1.4	510		28
Total	Total	5.4	$	1,584	16		Total	1.4	$	1,061	14

(1)Represents the percentage of loans under a COVID-19 related payment deferral program at ~~March 31,~~June 30, 2021 for which at least one payment was collected during the ~~first~~second quarter of 2021.

(2)Total number of commercial loans is less than 20.

(3)Includes ~~$675~~$446 million of consumer mortgage loans where the borrowers were provided with extended payment deferral relief of more than six months at ~~March 31,~~June 30, 2021. Due to our CARES Act election, ~~$646~~$424 million of these loans were exempted from TDR assessment. In addition, ~~$535~~$384 million of these loans have been placed on nonaccrual status, because the borrowers utilized a payment deferral of more than six months.

(4)Not included in the table at June 30, 2021 are $139 million of consumer loans under COVID-19 payment deferral programs which were transferred to held for sale during the second quarter of 2021 as part of our decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio.

When the payment relief period ends, borrowers have various options, including repaying the deferred payments in full, repaying the deferred payments over an installment period or moving the deferred payments to the end of the loan. If a borrower is experiencing financial difficulty when the payment relief period ends, they may enter into a modification program to reduce the interest rate and extend the term of the loan which would result in the loan being classified as a TDR Loan. As of ~~March 31,~~June 30, 2021, ~~$674~~$905 million and ~~$978~~$1,035 million of commercial and consumer loans, respectively, have exited a COVID-19 related payment deferral program, of which nil and $33 million, respectively, entered into a modification program upon exiting that resulted in the loans being classified as TDR Loans. Of the commercial and consumer loans that have exited a COVID-19 related payment deferral program, 100 percent and 8281 percent, respectively, were current or less than 30 days past due as of ~~March 31,~~June 30, 2021.

Paycheck Protection Program The CARES Act created a new loan guarantee program entitled the Paycheck Protection Program ("PPP") targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"), whose guarantee is backed by the full faith and credit of the United States. PPP covered loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. Lenders receive pre-determined fees for processing and servicing PPP loans. In addition, PPP loans are risk-weighted at zero percent under the generally-applicable Standardized

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Approach used to calculate risk-weighted assets for regulatory capital purposes. HSBC Bank USA is a PPP participating lender and had loans funded under the PPP which totaled ~~$1,294~~$819 million at ~~March 31,~~June 30, 2021. The SBA deadline for accepting PPP loan applications from participating lenders ~~has been extended until~~expired on May 31, 2021.

Basis of Reporting

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").

Group Reporting Basis We report financial information to HSBC in accordance with HSBC Group accounting and reporting policies, which apply International Financial Reporting Standards ("IFRSs") as issued by the 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"). Because operating results on the Group Reporting Basis are used in managing our businesses and rewarding performance of employees, our management also separately monitors profit before tax under this basis of reporting. The following table reconciles our U.S. GAAP versus Group Reporting Basis profit before tax:


							Three Months Ended June 30,		Six Months Ended June 30,
Three Months Ended March 31,		2021			2020
									2021		2020		2021		2020
		(in millions)		(in millions)
Profit (loss) before tax – U.S. GAAP basis	Profit (loss) before tax – U.S. GAAP basis	$	460		$	(1,440)		Profit (loss) before tax – U.S. GAAP basis	$	254	$	56	$	714	$	(1,384)
Adjustments:	Adjustments:							Adjustments:
Expected credit losses	Expected credit losses	(139)			347			Expected credit losses	(49)		(17)		(188)		330
Loans held for sale	Loans held for sale	(8)			2			Loans held for sale	(96)		—		(104)		—
Loan origination								Loan origination	(5)		5		(6)		9
Pension and other postretirement benefit costs	Pension and other postretirement benefit costs	(4)			(5)			Pension and other postretirement benefit costs	(1)		(5)		(5)		(10)
Precious metal loans								Precious metal loans	—		9		2		9
Leases								Leases	2		(11)		5		(9)
Renewable energy tax credit investments	Renewable energy tax credit investments	4			2			Renewable energy tax credit investments	5		5		9		7
Other long-lived assets	Other long-lived assets	10			—			Other long-lived assets	29		—		39		—
Goodwill impairment	Goodwill impairment	—			91			Goodwill impairment	—		—		—		91
Other	Other	2			5			Other	3		5		1		6
Profit (loss) before tax – Group Reporting Basis	Profit (loss) before tax – Group Reporting Basis	$	325		$	(998)		Profit (loss) before tax – Group Reporting Basis	$	142	$	47	$	467	$	(951)

The significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results are summarized in Note 24, "Business Segments," in the our 2020 Form 10-K. There have been no significant changes since December 31, 2020 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results. Differences in reported profit before tax in the table above that were individually significant for the periods presented are explained below.

During the ~~first quarter of~~three and six months ended June 30, 2021, expected credit losses were lower under U.S. GAAP than under the Group Reporting Basis. Under the Group Reporting Basis, a majority of our loans are considered to be in "stage 1" (which requires a 12-month expected credit losses estimate), while under U.S. GAAP such loans require a lifetime expected credit losses ("lifetime ECL") estimate. Primarily as a result of the different requirements, releases in credit reserves driven by improved economic conditions, which resulted in improved economic forecasts used to calculate expected credit losses ~~and improvements in credit conditions associated with certain clients,~~as well as client paydowns, were more pronounced under U.S. GAAP. ~~Client paydowns also contributed to the higher releases in credit reserves under U.S. GAAP.~~

During the ~~first quarter of~~six months ended June 30, 2020, expected credit losses were higher under U.S. GAAP than under the Group Reporting Basis. Primarily as a result of the different requirements related to stage 1 loans discussed above, loss provisions driven by the deterioration of economic conditions caused by the COVID-19 pandemic, which resulted in a worsening of the economic forecasts used to calculate expected credit losses, downgrades reflecting weakness in the financial condition of certain clients and loan growth as clients drew on their available lines of credit, were more pronounced under U.S. GAAP.

During the ~~first~~three and six months ended June 30, 2021, we transferred certain loans to held for sale which under U.S. GAAP require the loans to be carried at the lower of amortized cost or fair value which resulted in a release of credit loss reserves on the loans. Under the Group Reporting Basis, loans held for sale continue to be accounted for and credit losses continue to be measured in accordance with IFRS 9, "Financial Instruments," with any gain or loss recorded at the time of sale. In addition, a portion of the loans transferred under U.S. GAAP did not meet the more stringent criteria for held for sale classification under the Group Reporting Basis.


HSBC USA Inc.

During the three and six months ended June 30, 2021, amortization expense for long-lived assets was higher under U.S. GAAP. During the third quarter of 2020, we recorded an impairment charge under the Group Reporting Basis related to the write-off of all the capitalized software and a portion of the leasehold improvements primarily associated with our Wealth and Personal Banking business segment, while under U.S. GAAP, no impairment charge was required. Consequently, the carrying amounts for capitalized software and leasehold improvements are higher under U.S. GAAP than under the Group Reporting Basis and, as a result, corresponding amortization expense is higher under U.S. GAAP. In addition, during the second quarter of 2021, we determined we would exit certain branches as part of our Restructuring Plan and, as a result, we recorded an impairment charge of $18 million under U.S. GAAP to write-off the leasehold improvements associated with these branches. These leasehold improvements were previously written-off under the Group Reporting Basis as discussed above.

During the six months ended June 30, 2020, goodwill impairment charges were lower under the Group Reporting Basis than under ~~U.S. GAAP.~~U.S.GAAP. Under the Group Reporting Basis, goodwill was amortized until 2005, however goodwill was amortized under U.S. GAAP until 2002, which resulted in a lower carrying ~~amounts~~amount of goodwill and, therefore, a lower impairment ~~charges~~charge under the Group Reporting Basis.


~~HSBC USA Inc.~~

Balance Sheet Review

The following table provides balance sheet totals at ~~March 31,~~June 30, 2021 and increases (decreases) since December 31, 2020:


				Increase (Decrease) From								Increase (Decrease) From
				December 31, 2020								December 31, 2020
		March 31, 2021		Amount		%				June 30, 2021		Amount		%
		(dollars are in millions)						(dollars are in millions)
Period end assets:	Period end assets:								Period end assets:
Short-term investments	Short-term investments	$	58,814	$	7,413	14.4	%		Short-term investments	$	60,371	$	8,970	17.5	%
Loans, net	Loans, net	60,673		(400)		(.7)			Loans, net	53,851		(7,222)		(11.8)
Loans held for sale	Loans held for sale	351		14		4.2			Loans held for sale	4,106		3,769		*
Trading assets	Trading assets	25,822		(1,462)		(5.4)			Trading assets	28,343		1,059		3.9
Securities	Securities	42,496		(7,157)		(14.4)			Securities	41,475		(8,178)		(16.5)
All other assets	All other assets	6,700		14		.2			All other assets	6,742		56		.8
		$	194,856	$	(1,578)	(.8)	%			$	194,888	$	(1,546)	(.8)	%
Period end liabilities and equity:	Period end liabilities and equity:								Period end liabilities and equity:
Total deposits	Total deposits	$	148,582	$	3,432	2.4	%		Total deposits	$	147,365	$	2,215	1.5	%
Trading liabilities	Trading liabilities	2,319		(3,078)		(57.0)			Trading liabilities	2,940		(2,457)		(45.5)
Short-term borrowings	Short-term borrowings	5,243		291		5.9			Short-term borrowings	3,806		(1,146)		(23.1)
Long-term debt	Long-term debt	18,179		(1,800)		(9.0)			Long-term debt	19,234		(745)		(3.7)
Interest, taxes and other liabilities	Interest, taxes and other liabilities	2,559		(106)		(4.0)			Interest, taxes and other liabilities	3,359		694		26.0
Total equity	Total equity	17,974		(317)		(1.7)			Total equity	18,184		(107)		(.6)
		$	194,856	$	(1,578)	(.8)	%			$	194,888	$	(1,546)	(.8)	%

*Percentage change is greater than 100 percent.

Short-Term Investments Short-term investments include cash and due from banks, interest bearing deposits with banks and federal funds sold and securities purchased under agreements to resell. Balances may fluctuate from period to period depending upon our liquidity position at the time and our strategy for deploying liquidity. Short-term investments increased compared with December 31, 2020 due to an increase in overall liquidity as we raised funds in advance of their usage. The increase in funds was driven primarily by net sales, paydowns and maturities of ~~securities as well as~~securities. Also contributing to the increase were lower loans and higher deposits as ~~our customers increased their demand and savings deposits~~discussed in ~~response to the economic uncertainty caused by the COVID-19 pandemic and the actions taken by the U.S. Government to provide financial support to households and businesses.~~detail below. These increases were partially offset by repayments of precious metal trading liabilities, short-term borrowings and long-term debt.

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Loans, Net The following table summarizes our loan balances at ~~March 31,~~June 30, 2021 and increases (decreases) since December 31, 2020:


				Increase (Decrease) From								Increase (Decrease) From
				December 31, 2020						December 31, 2020
		March 31, 2021		Amount		%				June 30, 2021		Amount		%
		(dollars are in millions)						(dollars are in millions)
Commercial loans:	Commercial loans:								Commercial loans:
Real estate, including construction	Real estate, including construction	$	10,087	$	(377)	(3.6)	%		Real estate, including construction	$	9,692	$	(772)	(7.4)	%
Business and corporate banking	Business and corporate banking	13,125		(354)		(2.6)			Business and corporate banking	12,139		(1,340)		(9.9)
Global banking(1)	Global banking(1)	13,157		(362)		(2.7)			Global banking(1)	11,119		(2,400)		(17.8)
Other commercial(2)	Other commercial(2)	4,783		646		15.6			Other commercial(2)	4,851		714		17.3
Total commercial	Total commercial	41,152		(447)		(1.1)			Total commercial	37,801		(3,798)		(9.1)
Consumer loans:	Consumer loans:								Consumer loans:
Residential mortgages	Residential mortgages	18,425		48		.3			Residential mortgages	16,066		(2,311)		(12.6)
Home equity mortgages	Home equity mortgages	698		(29)		(4.0)			Home equity mortgages	388		(339)		(46.6)

Credit cards	Credit cards	937		(129)		(12.1)			Credit cards	—		(1,066)		(100.0)
Other consumer	Other consumer	314		(5)		(1.6)			Other consumer	143		(176)		(55.2)
Total consumer	Total consumer	20,374		(115)		(.6)			Total consumer	16,597		(3,892)		(19.0)
Total loans	Total loans	61,526		(562)		(.9)			Total loans	54,398		(7,690)		(12.4)
Allowance for credit losses(3)	Allowance for credit losses(3)	853		(162)		(16.0)			Allowance for credit losses(3)	547		(468)		(46.1)
Loans, net	Loans, net	$	60,673	$	(400)	(.7)	%		Loans, net	$	53,851	$	(7,222)	(11.8)	%

(1)Represents large multinational firms including globally focused U.S. corporate and financial institutions, U.S. dollar lending to multinational banking clients managed by HSBC on a global basis and complex large business clients supported by GBM relationship managers.

(2)Includes loans to HSBC affiliates which totaled ~~$1,652~~$1,406 million and $1,100 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(3)See "Credit Quality" in this MD&A for a discussion of trends in our allowance for credit losses on loans.

Commercial loans decreased compared with December 31, 2020 due primarily to the impact of our efforts to improve returns through disciplined lending, paydowns and lower demand from clients reflecting increased capital markets activity. Also contributing to the decrease was the transfer of our retail business banking loan portfolio with a carrying value of $149 million to held for sale during the second quarter of 2021 as discussed below. These decreases were partially offset by higher loans to ~~affiliates and PPP loan originations.~~affiliates. The decline in commercial non-affiliate loans was primarily in the energy, real estate, diversified financial, ~~real estate, energy~~semiconductor and ~~semiconductor industries, partially offset by an increase in the~~ banking ~~industry.~~industries.

Consumer loans decreased ~~modestly~~ compared with December 31, 2020 due primarily to ~~paydowns in credit card receivables reflecting seasonality and lower origination volumes.~~the transfer of certain consumer loans with a carrying value of $3,616 million to held for sale during the second quarter of 2021 as discussed below.

The following table presents loan-to-value ("LTV") ratios for our residential mortgage loan portfolio, excluding mortgage loans held for sale:


		LTV Ratios(1)(2)									LTV Ratios(1)(2)
		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		First Lien		Second Lien		First Lien		Second Lien			First Lien		Second Lien		First Lien		Second Lien
LTV < 80%	LTV < 80%	97.8	%	97.9	%	97.6	%	96.8	%	LTV < 80%	97.8	%	97.6	%	97.6	%	96.8	%
80% < LTV < 90%	80% < LTV < 90%	2.0		1.8		2.1		2.7		80% < LTV < 90%	2.0		2.2		2.1		2.7
90% < LTV < 100%	90% < LTV < 100%	.1		.2		.2		.4		90% < LTV < 100%	.1		.2		.2		.4
LTV > 100%	LTV > 100%	.1		.1		.1		.1		LTV > 100%	.1		—		.1		.1
Average LTV for portfolio	Average LTV for portfolio	52.7		43.2		52.6		46.2		Average LTV for portfolio	53.6		46.7		52.6		46.2

(1)LTVs for first liens are calculated using the loan balance as of the reporting date. LTVs for second liens are calculated using the loan balance as of the reporting date plus the senior lien amount at origination. Current estimated property values are derived from the property's appraised value at the time of loan origination updated by the change in the Federal Housing Finance Agency's House Price Index ("HPI") at either a Core Based Statistical Area or state level. The estimated value of the homes could differ from actual fair values due to changes in condition of the underlying property, variations in housing price changes within metropolitan statistical areas and other factors. As a result, actual property values associated with loans that end in foreclosure may be significantly lower than the estimates used for purposes of this disclosure.

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(2)Current estimated property values are calculated using the most current HPIs available and applied on an individual loan basis, which results in an approximate three month delay in the production of reportable statistics. Therefore, the information in the table above reflects current estimated property values using HPIs at ~~December~~March 31, 2021 and September 30, 2020, respectively.

Loans Held for Sale The following table summarizes loans held for sale at ~~March 31,~~June 30, 2021 and increases (decreases) since December 31, 2020:


				Increase (Decrease) From								Increase (Decrease) From
				December 31, 2020						December 31, 2020
		March 31, 2021		Amount		%				June 30, 2021		Amount		%
		(dollars are in millions)						(dollars are in millions)
Commercial loans:	Commercial loans:								Commercial loans:
Real estate, including construction	Real estate, including construction	$	—	$	(10)	(100.0)	%		Real estate, including construction	$	—	$	(10)	(100.0)	%

Business and corporate banking									Business and corporate banking	149		149		*
Global banking	Global banking	256		137		*			Global banking	276		157		*
Total commercial	Total commercial	256		127		98.4			Total commercial	425		296		*
Consumer loans:	Consumer loans:								Consumer loans:
Residential mortgages	Residential mortgages	95		(113)		(54.3)			Residential mortgages	2,429		2,221		*

Home equity mortgages									Home equity mortgages	265		265		*
Credit cards									Credit cards	829		829		*
Other consumer									Other consumer	158		158		*
Total consumer	Total consumer	95		(113)		(54.3)			Total consumer	3,681		3,473		*
Total loans held for sale	Total loans held for sale	$	351	$	14	4.2	%		Total loans held for sale	$	4,106	$	3,769	*

*Percentage change is greater than 100 percent.

Commercial loans held for sale increased compared with December 31, 2020. ~~Included~~During the second quarter of 2021, as part of our Restructuring Planwe made the decision to exit our mass market retail banking business. See Note 3, "Branch Assets and Liabilities Held for Sale," in the accompanying consolidated financial statements for additional information. As a result, we transferred our retail business banking loan portfolio to held for sale with a carrying value of $149 million.

Also included in commercial loans held for sale are certain loans that we have elected to designate under the fair value option which consists of loans that we originate in connection with our participation in a number of syndicated credit facilities with the intent of selling them to unaffiliated third parties as well as loans that we purchase from the secondary market and hold as hedges against our exposure to certain total return swaps. The fair value of these loans totaled ~~$83~~$215 million and $36 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Balances will fluctuate from period to period depending on the volume and level of activity.

Consumer loans held for sale ~~decreased~~increased compared with December 31, 2020. ~~Included~~As discussed above, during the second quarter of 2021, as part of our Restructuring Plan we made the decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio. As a result, we transferred certain consumer loans to held for sale, including loans related to the branch disposal group, which collectively totaled $3,616 million, including $2,364 million of residential mortgages, $265 million of home equity mortgages, $829 million of credit cards and $158 million of other consumer loans.

Also included in residential mortgage loans held for sale are agency-eligible residential mortgage loans which are originated and held for sale to third parties, currently on a servicing retained basis. Balances will fluctuate from period to period depending on the volume and level of activity. Gains and losses from the sale of these residential mortgage loans are reflected as a component of other income (loss) in the accompanying consolidated statement of income (loss).

Excluding the commercial loans designated under fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value, with adjustments to fair value being recorded as a valuation allowance through other revenues. The valuation allowance on consumer loans held for sale was nil at both ~~March 31,~~June 30, 2021 and December 31, ~~2020, respectively.~~2020. The valuation allowance on commercial loans held for sale was $5 million and $1 million at ~~both March 31,~~June 30, 2021 and December 31, 2020, respectively.

8292


HSBC USA Inc.

Trading Assets and Liabilities The following table summarizes trading assets and liabilities at ~~March 31,~~June 30, 2021 and increases (decreases) since December 31, 2020:


				Increase (Decrease) From							Increase (Decrease) From
				December 31, 2020							December 31, 2020
		March 31, 2021		Amount		%			June 30, 2021		Amount		%
		(dollars are in millions)							(dollars are in millions)
Trading assets:	Trading assets:							Trading assets:
Securities(1)	Securities(1)	$	18,765	$	(729)	(3.7)	%	Securities(1)	$	18,910	$	(584)	(3.0)	%
Precious metals	Precious metals	4,497		(492)		(9.9)		Precious metals	7,448		2,459		49.3
Derivatives, net	Derivatives, net	2,560		(241)		(8.6)		Derivatives, net	1,985		(816)		(29.1)
		$	25,822	$	(1,462)	(5.4)	%		$	28,343	$	1,059	3.9	%
Trading liabilities:	Trading liabilities:							Trading liabilities:
Securities sold, not yet purchased	Securities sold, not yet purchased	$	655	$	(72)	(9.9)	%	Securities sold, not yet purchased	$	960	$	233	32.0	%
Payables for precious metals	Payables for precious metals	—		(2,312)		(100.0)		Payables for precious metals	2		(2,310)		(99.9)
Derivatives, net	Derivatives, net	1,664		(694)		(29.4)		Derivatives, net	1,978		(380)		(16.1)
		$	2,319	$	(3,078)	(57.0)	%		$	2,940	$	(2,457)	(45.5)	%

(1)See Note 3,4, "Trading Assets and Liabilities," in the accompanying consolidated financial statements for a breakout of trading securities by category.

Trading securities balances were lower compared with December 31, 2020 due ~~primarily~~ to ~~a decrease~~decreases in foreign sovereign and U.S. Treasury positions, partially offset by an increase in equity positions. Trading security positions are held as economic hedges of interest rate, credit and equity derivative products issued to clients of domestic and emerging markets. Balances of securities sold, not yet purchased were ~~lower~~higher compared with December 31, 2020 driven by ~~a decrease~~an increase in short U.S. Treasury positions related to economic hedges of derivatives in the interest rate trading portfolio.

Precious metals trading assets ~~decreased~~increased compared with December 31, 2020 due primarily to ~~a decrease~~increases in our own ~~silver inventory position, partially offset by an increase in our own~~gold and palladium inventory position. Payables for precious metals were lower compared with December 31, 2020 reflecting a decrease in borrowing of gold inventory to support client activity levels. Precious metal positions may not represent our net underlying exposure as we may use derivatives contracts to reduce our risk associated with these positions, the fair value of which would appear in derivatives in the table above.

Derivative asset and liability balances both decreased compared with December 31, 2020 mainly from market movements and reduced positions driven by the exit or transfer of certain derivative contracts as part of our Restructuring ~~Plan. Market movements~~Plan which resulted in lower valuations of foreign exchange, interest rate, ~~foreign exchange,~~ equity, commodity and credit derivatives. ~~Market movements on commodity derivatives were mixed resulting in higher derivative asset valuations, but lower derivative liability valuations.~~

Securities Securities include securities available-for-sale and securities held-to-maturity, net. Securities balances were lower compared with December 31, 2020 driven by net sales, paydowns and maturities as part of our continuing strategy to maximize returns while balancing the securities portfolio for risk management purposes as well as unfavorable market valuations due to increasing yields. The decline in securities balances was primarily in U.S. Treasury, foreign sovereign and U.S. Government agency mortgage-backed ~~and foreign sovereign~~ securities which was partially offset by net purchases of U.S. Government sponsored mortgage-backed securities.

All Other Assets All other assets includes, among other items, properties and equipment, net, goodwill and ~~goodwill.~~other branch related assets held for sale. All other assets were relatively flat compared with December 31, 2020 as higher ~~tax assets and higher~~ outstanding ~~clearing receivables from correspondent banks~~settlement balances related to security sales were largely offset by lower cash collateral ~~posted.~~posted, lower lease assets and lower investments in Federal Home Loan Bank ("FHLB") stock.

During the third quarter of 2020, we completed a quantitative impairment test of goodwill and determined that the fair value of our Commercial Banking reporting unit exceeded its carrying value, with its fair value being approximately 110 percent of book value, including allocated goodwill. Our fair value calculations are highly sensitive to certain assumptions and estimates used. We will continue to monitor changes to our business forecasts as we continue to perform periodic analyses of the risks and strategies of our business and product offerings. If deterioration in economic and credit conditions, a change in the strategy or performance of our business or product offerings, or an increase in the capital requirements of our business occurs, interim goodwill impairment tests could again be required, which may result in an impairment charge.

8393


HSBC USA Inc.

Deposits The following table summarizes deposit balances by major depositor categories at ~~March 31,~~June 30, 2021 and increases (decreases) since December 31, 2020:


				Increase (Decrease) From							Increase (Decrease) From
				December 31, 2020							December 31, 2020
		March 31, 2021		Amount		%			June 30, 2021		Amount		%
		(dollars are in millions)							(dollars are in millions)
Individuals, partnerships and corporations	Individuals, partnerships and corporations	$	131,347	$	(1,118)	(.8)	%	Individuals, partnerships and corporations	$	118,435	$	(14,030)	(10.6)	%
Domestic and foreign banks	Domestic and foreign banks	14,299		4,079		39.9		Domestic and foreign banks	16,119		5,899		57.7
U.S. government and states and political subdivisions	U.S. government and states and political subdivisions	339		18		5.6		U.S. government and states and political subdivisions	306		(15)		(4.7)
Foreign governments and official institutions	Foreign governments and official institutions	2,597		453		21.1		Foreign governments and official institutions	2,566		422		19.7

Deposits held for sale(1)								Deposits held for sale(1)	9,939		9,939		*
Total deposits	Total deposits	$	148,582	$	3,432	2.4	%	Total deposits	$	147,365	$	2,215	1.5	%
Total core deposits~~(1)~~(2)	Total core deposits~~(1)~~(2)	$	131,230	$	5,644	4.5	%	Total core deposits~~(1)~~(2)	$	122,560	$	(3,026)	(2.4)	%

*Percentage change is greater than 100 percent.

(1)Represents deposits associated with the exit of our mass market retail banking business as part of our Restructuring Plan which were transferred to held for sale during the second quarter of 2021.

(2)Core deposits, as calculated in accordance with Federal Financial Institutions Examination Council ("FFIEC") guidelines, generally include all domestic demand, money market and other savings accounts, as well as time deposits with balances not exceeding $250,000. Balance at June 30, 2021 excludes deposits held for sale.

Total deposits increased compared with December 31, 2020 as our ~~customers~~commercial clients increased their demand and savings deposits in response to the economic uncertainty caused by the COVID-19 pandemic, improved economic conditions and the actions taken by the U.S. Government to provide financial support to ~~households and~~ businesses. ~~Also contributing to the~~The increase was ~~higher overall~~partially offset by declines in time deposits and deposits from affiliates. ~~However, a~~A shift in mix ~~resulted in an increase in~~of deposits from ~~bank~~ affiliates ~~partially offset by~~resulted in a decline in deposits from non-bank affiliates, ~~which drove the reduction~~partially offset by an increase in deposits from ~~individuals, partnerships and corporations. The increase in deposits was partially offset by a decline in time deposits.~~bank affiliates.

Short-Term Borrowings Short-term borrowings ~~increased slightly~~decreased compared with December 31, 2020 reflecting ~~higher short-term borrowings from affiliates.~~a decline in securities sold under repurchase agreements.

Long-Term Debt Long-term debt decreased compared with December 31, 2020 as the impact of debt issuances, including ~~$1,500~~$3,500 million of senior debt issued to HSBC North America during the first ~~quarter~~half of 2021, was more than offset by debt retirements. Debt issuances during the three and six months ended ~~March 31,~~June 30, 2021 totaled ~~$2,288~~$3,029 million and $5,317 million, respectively, of which ~~$82~~$113 million and $195 million, respectively, was issued by HSBC Bank USA.

Incremental issuances from our shelf registration statement with the SEC totaled ~~$706~~$1,622 million of senior structured notes during the ~~three~~six months ended ~~March 31,~~June 30, 2021. Total long-term debt outstanding under this shelf was ~~$8,364~~$8,082 million and $9,138 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Incremental issuances from the HSBC Bank USA Global Bank Note Program totaled ~~$82~~$195 million during the ~~three~~six months ended ~~March 31,~~June 30, 2021. Total debt outstanding under this program was ~~$1,743~~$1,724 million and $1,888 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Borrowings from the FHLB totaled ~~$2,750~~$2,000 million and $4,250 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Interest, Taxes and Other Liabilities Interest, taxes and other liabilities ~~were lower~~includes, among other items, other branch related liabilities held for sale. Interest, taxes and other liabilities increased compared with December 31, 2020 due primarily to higher outstanding settlement balances related to security purchases, partially offset by lower lease liabilities and a lower liability for off-balance sheet credit ~~exposures and lower accrued incentive compensation, partially offset by higher outstanding settlement balances related to security purchases.~~exposures.

8494


HSBC USA Inc.

Results of Operations

Net Interest Income Net interest income is the total interest income on earning assets less the total interest expense on deposits and borrowed funds. An analysis of consolidated average balances and interest rates is presented in this MD&A under the caption "Consolidated Average Balances and Interest Rates."

The significant components of net interest margin are summarized in the following table:


													2021 Compared to 2020 Increase (Decrease)

					2021 Compared with 2020 Increase (Decrease)
Three Months Ended March 31,		2021			Volume		Rate		2020
Three Months Ended June 30,														Three Months Ended June 30,	2021			Volume		Rate		2020
		(dollars are in millions)										(dollars are in millions)
Interest income:	Interest income:													Interest income:
Short-term investments	Short-term investments	$	16		$	53	$	(124)	$	87				Short-term investments	$	17		$	8	$	(14)	$	23
Trading securities	Trading securities	48			(18)		(14)		80					Trading securities	54			8		(2)		48
Securities	Securities	177			(21)		(45)		243					Securities	160			(55)		(47)		262
Commercial loans	Commercial loans	282			(72)		(94)		448					Commercial loans	275			(118)		(7)		400
Consumer loans	Consumer loans	169			1		(22)		190					Consumer loans	166			(1)		(13)		180
Other	Other	9			(8)		(2)		19					Other	4			(4)		3		5
Total interest income	Total interest income	701			(65)		(301)		1,067					Total interest income	676			(162)		(80)		918
Interest expense:	Interest expense:													Interest expense:
Deposits	Deposits	81			38		(278)		321					Deposits	69			(14)		(117)		200
Short-term borrowings	Short-term borrowings	5			(13)		(22)		40					Short-term borrowings	4			(7)		(4)		15
Long-term debt	Long-term debt	82			(37)		(79)		198					Long-term debt	78			(35)		(49)		162
Tax liabilities and other	Tax liabilities and other	2			(1)		(1)		4					Tax liabilities and other	2			1		(2)		3
Total interest expense	Total interest expense	170			(13)		(380)		563					Total interest expense	153			(55)		(172)		380
Net interest income	Net interest income	$	531		$	(52)	$	79	$	504				Net interest income	$	523		$	(107)	$	92	$	538

Yield on total interest earning assets	Yield on total interest earning assets	1.54		%					2.43		%			Yield on total interest earning assets	1.48		%					1.88		%
Cost of total interest bearing liabilities	Cost of total interest bearing liabilities	.49							1.66					Cost of total interest bearing liabilities	.46							.98
Interest rate spread	Interest rate spread	1.05							.77					Interest rate spread	1.02							.90
Benefit from net non-interest paying funds(1)	Benefit from net non-interest paying funds(1)	.12							.38					Benefit from net non-interest paying funds(1)	.12							.20
Net interest margin on average earning assets	Net interest margin on average earning assets	1.17		%					1.15		%			Net interest margin on average earning assets	1.14		%					1.10		%


HSBC USA Inc.


				2021 Compared with 2020 Increase (Decrease)
Six Months Ended June 30,	2021			Volume		Rate		2020
	(dollars are in millions)
Interest income:
Short-term investments	$	33		$	51	$	(128)	$	110
Trading securities	102			(10)		(16)		128
Securities	337			(76)		(92)		505
Commercial loans	557			(189)		(102)		848
Consumer loans	335			(1)		(34)		370
Other	13			(15)		4		24
Total interest income	1,377			(240)		(368)		1,985
Interest expense:
Deposits	150			10		(381)		521
Short-term borrowings	9			(21)		(25)		55
Long-term debt	160			(72)		(128)		360
Tax liabilities and other	4			1		(4)		7
Total interest expense	323			(82)		(538)		943
Net interest income	$	1,054		$	(158)	$	170	$	1,042



Yield on total interest earning assets	1.51		%					2.14		%
Cost of total interest bearing liabilities	.48							1.30
Interest rate spread	1.03							.84
Benefit from net non-interest paying funds(1)	.13							.28
Net interest margin on average earning assets	1.16		%					1.12		%

(1)Represents the benefit associated with interest earning assets in excess of interest bearing liabilities. Increased percentages reflect growth in this excess or a higher cost of interest bearing liabilities, while decreased percentages reflect a reduction in this excess or a lower cost of interest bearing liabilities.

Net interest income ~~increased~~decreased during the three months ended ~~March 31,~~June 30, 2021 due primarily to lower interest income from interest earning assets driven by the unfavorable impact of lower average interest earning asset balances, primarily commercial loans and securities, as well as lower yields on securities, loans and short-term investments. The decrease in the three-month period was partially offset by lower interest expense from interest bearing liabilities driven by lower rates paid and the favorable impact of lower average interest bearing liability balances. In the year-to-date period, net interest income increased due primarily to lower interest expense from interest bearing liabilities driven by lower rates paid and ~~a shift~~the favorable impact of lower average interest bearing liability balances, primarily long-term debt and short-term borrowings. The increase in ~~mix to lower cost deposits. The increase~~the year-to-date period was partially offset by lower interest income from interest earning assets driven by lower yields on short-term investments, loans and securities as well as the unfavorable impact of lower average interest earning asset balances, primarily commercial loans ~~securities~~ and ~~trading~~ securities.

Short-term investments Interest income decreased during the three and six months ended ~~March 31,~~June 30, 2021 due to lower yields earned on these balances reflecting the impact of lower market rates, partially offset by higher average balances.

Trading securities Interest income ~~decreased~~increased during the three months ended ~~March 31,~~June 30, 2021 due primarily to ~~lower~~higher average balances driven by an increase in equity positions, partially offset by declines in U.S. Treasury, foreign sovereign and corporate bond positions. In the year-to-date period, interest income decreased due to lower yields reflecting the impact of lower market ~~rates. The decrease in~~rates as well as lower average balances ~~was~~ driven by declines in U.S. Treasury, foreign sovereign and corporate bond positions, partially offset by an increase in equity positions. Interest income associated with trading securities was partially offset within trading revenue by the performance of the associated derivatives as discussed further below.

Securities ~~Interest~~Lower interest income ~~was lower~~ during the three and six months ended ~~March 31,~~June 30, 2021 was due to lower yields reflecting the impact of lower market rates and lower average balances. Lower average balances were driven by declines in U.S. Government agency mortgage-backed, ~~and~~ U.S. Treasury and foreign sovereign securities, partially offset by an increase in U.S. Government sponsored mortgage-backed securities.

8596


HSBC USA Inc.

Commercial loans Interest income was lower during the three months ended ~~March 31,~~June 30, 2021 due primarily to lower average balances. In the year-to-date period, interest income was lower due to lower average balances and lower yields reflecting the impact of lower market rates on variable rate ~~loans and lower rates on newly originated PPP~~ loans. ~~Also contributing to the decrease was lower~~Lower average balances in both the three-month and year-to-date periods were driven primarily by the impact of our efforts to improve returns through disciplined lending, paydowns and lower demand from clients reflecting increased capital markets activity ~~coupled with economic uncertainty caused by the COVID-19 pandemic~~ as well as lower loans to affiliates.

Consumer loans ~~Interest~~Lower interest income ~~decreased~~ during the three and six months ended ~~March 31,~~June 30, 2021 was due primarily to lower yields reflecting the impact of lower market rates on residential mortgage and, in the year-to-date period, home equity mortgage loans.

Other ~~Lower interest~~Interest income was relatively flat during the three months ended ~~March 31, 2021 was~~June 30, 2021. In the year-to-date period, interest income decreased due primarily to lower average cash collateral balances.

Deposits Interest expense decreased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to lower rates paid reflecting the impact of lower market ~~rates, partially offset by higher average balances. Higher~~rates. While average balances were ~~due primarily~~lower and contributed to the decrease in the three-month period, they were higher and partially offset the decrease in the year-to-date period. In the three month period, lower average balances were driven by declines in time deposits and deposits from affiliates which were partially offset by growth in savings and demand deposits as ~~we raised funds and~~ our customers increased their deposits in response to the economic uncertainty caused by the COVID-19 pandemic and the actions taken by the U.S. Government to provide financial support to households and businesses. ~~The increase~~In the year-to-date period, average balances were higher as declines in ~~balances was partially~~time deposits and deposits from affiliates were more than offset by ~~a decline~~growth in ~~time deposits.~~savings and demand deposits as our customers increased their deposits in response to the economic uncertainty caused by the COVID-19 pandemic and the actions taken by the U.S. Government to provide financial support to households and businesses.

Short-term borrowings Lower interest expense during the three and six months ended ~~March 31,~~June 30, 2021 was due to lower rates paid reflecting the impact of lower market rates and lower average borrowings driven by a decline in securities sold under repurchase agreements.

Long-term debt Interest expense decreased during the three and six months ended ~~March 31,~~June 30, 2021 due to lower rates paid reflecting the impact of lower market rates on variable rate borrowings and lower average borrowings.

Tax liabilities and other Interest expense was relatively flat during the three and six months ended ~~March 31,~~June 30, 2021.

Provision for Credit Losses The following table summarizes the components of the provision for credit losses:


						Increase (Decrease)									Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,										Three Months Ended June 30,	2021		2020		Amount		%
		(dollars are in millions)						(dollars are in millions)
Loans:	Loans:									Loans:
Commercial loans:	Commercial loans:									Commercial loans:
Real estate, including construction	Real estate, including construction	$	(25)	$	51	$	(76)		*	Real estate, including construction	$	(3)	$	28	$	(31)	*
Business and corporate banking	Business and corporate banking	(53)		213		(266)			*	Business and corporate banking	(24)		106		(130)		*
Global banking	Global banking	(65)		110		(175)			*	Global banking	(79)		176		(255)		*
Other commercial	Other commercial	—		1		(1)			(100.0)	Other commercial	(1)		(1)		—		—
Total commercial loans	Total commercial loans	(143)		375		(518)			*	Total commercial loans	(107)		309		(416)		*
Consumer loans:	Consumer loans:									Consumer loans:
Residential mortgages	Residential mortgages	(2)		30		(32)			*	Residential mortgages	8		20		(12)		(60.0)
Home equity mortgages	Home equity mortgages	(3)		3		(6)			*	Home equity mortgages	(5)		(1)		(4)		*
Credit cards	Credit cards	(1)		95		(96)			*	Credit cards	(76)		3		(79)		*

Other consumer	Other consumer	4		9		(5)			(55.6)	Other consumer	(21)		6		(27)		*
Total consumer loans	Total consumer loans	(2)		137		(139)			*	Total consumer loans	(94)		28		(122)		*
Total loans	Total loans	(145)		512		(657)			*	Total loans	(201)		337		(538)		*

Other financial assets measured at amortized cost	Other financial assets measured at amortized cost	—		2		(2)			(100.0)	Other financial assets measured at amortized cost	(1)		(1)		—		—
Securities available-for-sale	Securities available-for-sale	—		(1)		1			100.0	Securities available-for-sale	—		1		(1)		(100.0)
Off-balance sheet credit exposures	Off-balance sheet credit exposures	(82)		213		(295)			*	Off-balance sheet credit exposures	(27)		(118)		91		77.1
Total provision for credit losses	Total provision for credit losses	$	(227)	$	726	$	(953)		*	Total provision for credit losses	$	(229)	$	219	$	(448)	*


HSBC USA Inc.


					Increase (Decrease)
Six Months Ended June 30,	2021		2020		Amount		%
	(dollars are in millions)
Loans:
Commercial loans:
Real estate, including construction	$	(28)	$	79	$	(107)	*
Business and corporate banking	(77)		319		(396)		*
Global banking	(144)		286		(430)		*
Other commercial	(1)		—		(1)		*
Total commercial loans	(250)		684		(934)		*
Consumer loans:
Residential mortgages	6		50		(44)		(88.0)
Home equity mortgages	(8)		2		(10)		*
Credit cards	(77)		98		(175)		*

Other consumer	(17)		15		(32)		*
Total consumer loans	(96)		165		(261)		*
Total loans	(346)		849		(1,195)		*

Other financial assets measured at amortized cost	(1)		1		(2)		*
Securities available-for-sale	—		—		—		—
Off-balance sheet credit exposures	(109)		95		(204)		*
Total provision for credit losses	$	(456)	$	945	$	(1,401)	*

*Percentage change is greater than 100 percent.

Our provision for credit losses decreased ~~$953~~$448 million and $1,401 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, due to a lower provision for credit losses on both our commercial and consumer loan ~~portfolios as well as a lower~~portfolios. While the provision for credit losses on off-balance sheet credit ~~exposures.~~exposures was higher in the three-month period, it was lower in the year-to-date period.

The provision for credit losses on our commercial loan portfolio decreased ~~$518~~$416 million and $934 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, reflecting ~~a release~~releases in credit loss reserves compared with a loss ~~provision~~provisions in the prior year ~~period.~~periods. The ~~release~~releases in credit


~~HSBC USA Inc.~~

reserves in the current year ~~period was~~periods were driven by improved economic conditions which resulted in improved economic forecasts used for calculating lifetime ECL and improvements in credit conditions associated with certain clients as well as ~~a decline~~declines in credit reserves for risk factors associated with higher risk client exposures and, in the year-to-date period, economic uncertainty. Client paydowns and loan sales also contributed to the ~~release~~releases in credit reserves in the current year ~~period.~~periods. In the prior year ~~period,~~periods, the loss ~~provision was~~provisions were driven by the deterioration of economic conditions caused by the COVID-19 pandemic which resulted in a worsening of the economic forecasts used for calculating lifetime ECL, ~~and provisions for risk factors associated with large loan exposures,~~ downgrades reflecting weakness in the financial condition of certain clients and provisions for risk factors associated with large loan exposures. While a loss provision associated with loan growth as clients drew on their available lines of ~~credit.~~credit contributed to the loss provision in the 2020 year-to-date period, a significant portion of the commercial lines of credit that were drawn in March 2020 were repaid during the second quarter of 2020 resulting in a release of credit loss reserves.

The provision for credit losses on our consumer loan portfolio decreased ~~$139~~$122 million and $261 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, reflecting ~~a modest release~~releases in credit loss reserves compared with a loss ~~provision~~provisions in the prior year ~~period.~~periods. The ~~release~~releases in credit reserves in the current year ~~period was~~periods were driven by the impact of our decision to exit our mass market retail banking business as well as our remaining credit card portfolio which resulted in a release of credit loss reserves and a reduction to the provision for credit losses of approximately $100 million during the second quarter of 2021. Also contributing to the releases in credit reserves in the current year periods were improved economic conditions which resulted in improved economic forecasts used for calculating lifetime ECL and ~~a release~~declines in credit reserves for risk factors primarily associated with economic uncertainty and forbearance ~~accounts as well as a release in credit reserves due to a decline in credit card balances.~~accounts. In the prior year ~~period,~~periods, the loss ~~provision was~~provisions were driven by the deterioration of economic conditions caused by the COVID-19 pandemic which resulted in a worsening of the economic forecasts used for calculating lifetime ECL as well as higher dollars of delinquency ~~in credit cards~~ and, to a lesser extent, growth in personal loan balances due to new product promotions. While loss provisions were recorded for credit cards in the prior year periods, the provision in the second quarter of 2020 was not as significant due to lower customer spending and a decline in credit card balances.


HSBC USA Inc.

The provision for credit losses on off-balance sheet credit exposures ~~decreased $295~~increased $91 million during the three months ended ~~March 31,~~June 30, 2021 reflecting lower releases in credit loss reserves. The release in credit loss reserves in the prior year period resulted from lower outstanding exposure and a lower estimate of expected future draws, which more than offset the impact of the deterioration of economic conditions caused by the COVID-19 pandemic consistent with commercial loans as discussed above. In the current year period, the release in credit loss reserves resulted from the improved economic conditions consistent with commercial loans as discussed above. In the year-to-date period, the provision for credit losses on off-balance sheet credit exposures decreased $204 million reflecting a release in credit loss reserves compared with a loss provision in the prior ~~year~~year-to-date period. The release in credit reserves in the current ~~year~~year-to-date period resulted from the improved economic conditions consistent with commercial loans as discussed above. In the prior ~~year~~year-to-date period, the loss provision resulted from the deterioration of economic conditions caused by the COVID-19 pandemic consistent with commercial loans as discussed ~~above.~~above, partially offset by the impact of lower outstanding exposure.

See "Credit Quality" in this MD&A for additional discussion on the allowance for credit losses associated with our various loan portfolios.

Other Revenues The following table summarizes the components of other revenues:


																Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Credit card fees, net	Credit card fees, net	$	10	$	11	$	(1)		(9.1)	%	Credit card fees, net	$	13	$	9		$	4	44.4	%
Trust and investment management fees	Trust and investment management fees	29		31		(2)			(6.5)		Trust and investment management fees	26		33			(7)		(21.2)
Other fees and commissions	Other fees and commissions	165		151		14			9.3		Other fees and commissions	171		137			34		24.8
Trading revenue	Trading revenue	41		14		27			*		Trading revenue	2		192			(190)		(99.0)

Other securities gains, net	Other securities gains, net	29		28		1			3.6		Other securities gains, net	18		31			(13)		(41.9)
Servicing and other fees from HSBC affiliates	Servicing and other fees from HSBC affiliates	83		88		(5)			(5.7)		Servicing and other fees from HSBC affiliates	70		81			(11)		(13.6)
Gain (loss) on instruments designated at fair value and related derivatives		18		(22)		40			*
Other income:
Gain on instruments designated at fair value and related derivatives											Gain on instruments designated at fair value and related derivatives	7		22			(15)		(68.2)
Other income (loss):											Other income (loss):
Valuation of loans held for sale	Valuation of loans held for sale	—		1		(1)			(100.0)		Valuation of loans held for sale	(5)		(9)			4		44.4
Residential mortgage banking revenue (expense)		16		(2)		18			*
Residential mortgage banking revenue											Residential mortgage banking revenue	1		4			(3)		(75.0)
Insurance											Insurance	2		2			—		—

Miscellaneous income (loss)											Miscellaneous income (loss)	(1)		(38)			37		97.4
Total other income (loss)											Total other income (loss)	(3)		(41)			38		92.7
Total other revenues											Total other revenues	$	304	$	464		$	(160)	(34.5)	%

																	Increase (Decrease)
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Credit card fees, net											Credit card fees, net	$	23	$	20		$	3	15.0	%
Trust and investment management fees											Trust and investment management fees	55		64			(9)		(14.1)
Other fees and commissions											Other fees and commissions	336		288			48		16.7
Trading revenue											Trading revenue	43		206			(163)		(79.1)

Other securities gains, net											Other securities gains, net	47		59			(12)		(20.3)
Servicing and other fees from HSBC affiliates											Servicing and other fees from HSBC affiliates	153		169			(16)		(9.5)
Gain on instruments designated at fair value and related derivatives											Gain on instruments designated at fair value and related derivatives	25		—			25		*
Other income (loss):											Other income (loss):
Valuation of loans held for sale											Valuation of loans held for sale	(5)		(8)			3		37.5
Residential mortgage banking revenue											Residential mortgage banking revenue	17		2			15		*
Insurance	Insurance	1		2		(1)			(50.0)		Insurance	3		4			(1)		(25.0)

Miscellaneous income (loss)	Miscellaneous income (loss)	(8)		85		(93)			*		Miscellaneous income (loss)	(9)		47			(56)		*
Total other income		9		86		(77)			(89.5)
Total other income (loss)											Total other income (loss)	6		45			(39)		(86.7)
Total other revenues	Total other revenues	$	384	$	387	$	(3)		(.8)	%	Total other revenues	$	688	$	851		$	(163)	(19.2)	%


HSBC USA Inc.

*Percentage change is greater than 100 percent.

Credit card fees, net Credit card fees, net ~~were relatively flat~~increased during the three and six months ended ~~March 31,~~June 30, 2021 ~~as lower~~due to higher interchange fees ~~due to lower~~driven by higher customer spending ~~were largely~~reflecting improved economic conditions compared with the prior year periods, partially offset by ~~lower~~higher cost estimates associated with our credit rewards program.

Trust and investment management fees Trust and investment management fees ~~decreased modestly~~declined during the three and six months ended ~~March 31,~~June 30, 2021 reflecting a shift in mix to products with lower management fees.

Other fees and commissions Other fees and commissions increased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to higher fees from loan syndication, ~~loan commitments,~~ wire transfers and other account ~~services. These increases were partially offset by lower debit card fees.~~services reflecting improved economic conditions compared with the prior year periods. See Note ~~13,~~14, "Fee Income from Contracts with Customers," in the accompanying


~~HSBC USA Inc.~~

consolidated financial statements for additional information including a summary of the components of other fees and commissions.

Trading revenue Trading revenue is generated by participation in the foreign exchange, precious metals, rates, credit and equities markets. The following table presents trading revenue by business activity. Not included in the table below is the impact of net interest income associated with trading securities which is an integral part of trading activities' overall performance. Certain derivatives, such as total return swaps, are economically hedged by holding the underlying interest bearing referenced assets. Net interest income related to trading activities is recorded in net interest income in the consolidated statement of income (loss). Trading revenue related to the mortgage banking business is included as a component of other ~~income.~~income (loss). During the first quarter of 2021, we changed our presentation for the components of trading revenue to provide a more detailed view. As a result, we have reclassified prior year amounts in order to conform to the current year presentation.


																Increase (Decrease)
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Business Activities:											Business Activities:
Foreign Exchange											Foreign Exchange	$	36	$	74		$	(38)	(51.4)	%
Metals											Metals	9		57			(48)		(84.2)
Debt Markets											Debt Markets	2		21			(19)		(90.5)
Securities Financing											Securities Financing	(42)		(20)			(22)		*
Markets Treasury											Markets Treasury	4		—			4		*
Legacy structured credit products											Legacy structured credit products	1		60			(59)		(98.3)

Other trading(1)											Other trading(1)	(8)		—			(8)		*
Total trading revenue											Total trading revenue	$	2	$	192		$	(190)	(99.0)	%

								Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Business Activities:	Business Activities:										Business Activities:
Foreign Exchange	Foreign Exchange	$	60	$	163	$	(103)		(63.2)	%	Foreign Exchange	$	96	$	237		$	(141)	(59.5)	%
Metals	Metals	19		(1)		20			*		Metals	28		56			(28)		(50.0)
Debt Markets	Debt Markets	(1)		(16)		15			93.8		Debt Markets	1		5			(4)		(80.0)
Securities Financing	Securities Financing	(35)		(18)		(17)			(94.4)		Securities Financing	(77)		(38)			(39)		*
Markets Treasury	Markets Treasury	2		(14)		16			*		Markets Treasury	6		(14)			20		*
Legacy structured credit products	Legacy structured credit products	2		(74)		76			*		Legacy structured credit products	3		(14)			17		*
Other trading(1)	Other trading(1)	(6)		(26)		20			76.9		Other trading(1)	(14)		(26)			12		46.2
Total trading revenue	Total trading revenue	$	41	$	14	$	27		*		Total trading revenue	$	43	$	206		$	(163)	(79.1)	%

*Percentage change is greater than 100 percent.

(1)Includes trading revenue related to Global Banking and Equities as well as trading revenue associated with the exit or transfer of certain derivative contracts as part of our Restructuring Plan, including trading losses of $4$6 million and $10 million recorded during the ~~first quarter~~three and six months ended June 30, 2021, respectively, compared with trading losses of ~~2021.~~$10 million during both the three and six months ended June 30, 2020.

Trading revenue ~~increased~~decreased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to lower revenue in Foreign Exchange and Metals as market volatility driven by the COVID-19 pandemic resulted in increased trading opportunities in the prior year periods. Also contributing to the decreases in both periods was lower revenue in Foreign Exchange and Debt Markets

100


HSBC USA Inc.

reflecting the impact of our decision to exit or transfer certain derivatives as part of our Restructuring Plan which resulted in lower revenue from emerging markets rate products and interest rate swaps. Lower revenue in Securities Financing in both periods was due to higher losses related to swaps in prime brokerage. These decreases in trading revenue were partially offset by higher revenue in Markets Treasury due to the improved performance of economic hedge positions used to manage interest rate risk. While revenue in legacy structured credit products was lower and contributed to the decrease in the three-month period, it was higher and partially offset the decrease in the year-to-date period. Lower revenue in legacy structured credit products in the three-month period was due primarily to the non-recurrence of the recovery of valuation losses ~~of approximately $70 million~~in the prior year period as valuation losses that were recorded in March 2020 due to market volatility caused by the COVID-19 pandemic ~~which resulted in higher revenue in legacy~~largely recovered during the second quarter of 2020. Legacy structured credit products ~~Metals, other trading and Markets Treasury. The increase~~revenue in ~~legacy structured credit products~~both periods also reflects the impact of a structured note vehicle that was unwound during the third quarter of 2020 which was a key contributor to ~~the loss recorded in the~~ prior year period. Also contributing to the increase was higher revenue in Debt Markets due to better trading results and improved risk management in sovereign debt and other debt products. These increases were partially offset by lower revenue in Foreign Exchange as market volatility driven by the COVID-19 pandemic resulted in increased trading opportunities in the prior year period as well as the impact of our decision to exit or transfer certain derivative contracts as part of our Restructuring Plan which resulted in lower revenue from emerging markets rate products. Securities Financing revenue was also lower due to higher losses related to swaps in prime brokerage.results.

Other securities gains, net We maintain securities portfolios as part of our balance sheet diversification and risk management strategies. During the three and six months ended ~~March 31,~~June 30, 2021, ~~and 2020,~~ we sold ~~$3,907~~$2,263 million and ~~$4,630~~$6,170 million, respectively, of primarily U.S. Treasury, U.S. Government agency mortgage-backed and U.S. Government sponsored mortgage-backed securities compared with $3,609 million and $8,239 million during the prior year periods as part of a continuing strategy to maximize returns while balancing the securities portfolio for risk management purposes. Other securities gains, net ~~was relatively flat~~decreased during the three and six months ended ~~March 31, 2021.~~June 30, 2021 reflecting the impact of lower sales activity as well as lower net gains from the sale of U.S. Government sponsored mortgage-backed securities. The gross realized gains and losses from sales of securities, which are included as a component of other securities gains, net above, are summarized in Note 4,5, "Securities," in the accompanying consolidated financial statements.

Servicing and other fees from HSBC affiliates Servicing and other fees from HSBC affiliates decreased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to lower cost reimbursements associated with shared services performed on behalf of other HSBC affiliates, including internal audit, ~~partially offset by higher~~as well as lower sales commissions from HSBC Bank plc. While cost reimbursements associated with trading activities performed on behalf of HSBC Bank ~~plc.~~plc were lower and contributed to the decrease in the three-month period, they were higher and partially offset the decrease in the year-to-date.

Gain ~~(loss)~~ on instruments designated at fair value and related derivatives We have elected to apply fair value option accounting to certain commercial loans held for sale, certain student loans held for investment, certain of our own fixed-rate debt issuances and all of our hybrid instruments issued, including structured notes and deposits. We also use derivatives to economically hedge the interest rate and other risks associated with certain financial assets and liabilities for which fair value option accounting has been elected. Gain ~~(loss)~~ on instruments designated at fair value and related derivatives ~~increased~~was lower during


~~HSBC USA Inc.~~

the three months ended ~~March 31,~~June 30, 2021 attributable primarily to unfavorable movements related to the economic hedging of interest rate and other risks within our structured notes. In the year-to-date period, gain on instruments designated at fair value and related derivatives was higher attributable primarily to favorable movements related to the economic hedging of interest rate and other risks within our structured notes and the non-recurrence of unfavorable fair value adjustments recorded in the prior ~~year~~year-to-date period on certain commercial loans held for sale which were impacted by the COVID-19 pandemic. These increases in the year-to-date period were partially offset by unfavorable movements related to the economic hedging of interest rate risk within our own debt. See Note ~~10,~~11, "Fair Value Option," in the accompanying consolidated financial statements for additional information including a breakout of these amounts by individual component.

Other income (loss) Other income (loss) was ~~lower~~higher during the three months ended ~~March 31,~~June 30, 2021 due primarily to a loss of $6 million in the ~~first quarter~~current year period associated with credit default swap protection which largely reflects the hedging of ~~2021~~a few client relationships compared with a loss of $38 million in the prior year period. Also contributing to the increase in the three-month period was higher gains on sales of commercial loans. In the year-to-date period, other income (loss) was lower due primarily to a loss of $12 million in the current year-to-date period associated with credit default swap protection which largely reflects the hedging of a few client relationships compared with a gain of ~~$51~~$13 million in the prior ~~year~~year-to-date period. Also contributing to the decrease in the year-to-date period was lower income associated with bank owned life insurance and the non-recurrence of miscellaneous gains recorded in the first quarter of 2020, including a $12 million gain on extinguishment of time deposits reflecting early client withdrawals and a $9 million gain on the sale of one of our owned retail branch properties. These decreases in the year-to-date period were partially offset by higher residential mortgage banking revenue driven by higher gains on sales of residential mortgage loans as well as higher gains on sales of commercial loans.

101


HSBC USA Inc.

Operating Expenses The following table summarizes the components of operating expenses:


																				Increase (Decrease)

								Increase (Decrease)
Three Months Ended March 31,		2021			2020			Amount			%
Three Months Ended June 30,													Three Months Ended June 30,	2021			2020				Amount		%
		(dollars are in millions)								(dollars are in millions)
Salaries and employee benefits	Salaries and employee benefits	$	176		$	207		$	(31)		(15.0)	%	Salaries and employee benefits	$	182		$	190			$	(8)	(4.2)	%
Support services from HSBC affiliates:	Support services from HSBC affiliates:												Support services from HSBC affiliates:
Fees paid to HSBC Technology & Services (USA) ("HTSU")	Fees paid to HSBC Technology & Services (USA) ("HTSU")	244			263			(19)			(7.2)		Fees paid to HSBC Technology & Services (USA) ("HTSU")	268			272				(4)		(1.5)
Fees paid to HSBC Markets (USA) Inc. ("HMUS")	Fees paid to HSBC Markets (USA) Inc. ("HMUS")	28			27			1			3.7		Fees paid to HSBC Markets (USA) Inc. ("HMUS")	18			19				(1)		(5.3)
Fees paid to other HSBC affiliates	Fees paid to other HSBC affiliates	95			92			3			3.3		Fees paid to other HSBC affiliates	106			98				8		8.2
Total support services from HSBC affiliates	Total support services from HSBC affiliates	367			382			(15)			(3.9)		Total support services from HSBC affiliates	392			389				3		.8
Occupancy expense, net	Occupancy expense, net	30			140			(110)			(78.6)		Occupancy expense, net	118			38				80		*
Goodwill impairment		—			784			(784)			(100.0)

Other expenses:	Other expenses:												Other expenses:
Equipment and software	Equipment and software	23			21			2			9.5		Equipment and software	33			27				6		22.2
Marketing	Marketing	9			17			(8)			(47.1)		Marketing	9			16				(7)		(43.8)
Outside services	Outside services	17			14			3			21.4		Outside services	18			14				4		28.6
Professional fees	Professional fees	19			17			2			11.8		Professional fees	23			21				2		9.5

Federal Deposit Insurance Corporation ("FDIC") assessment fees	Federal Deposit Insurance Corporation ("FDIC") assessment fees	18			7			11			*		Federal Deposit Insurance Corporation ("FDIC") assessment fees	15			26				(11)		(42.3)

Miscellaneous	Miscellaneous	23			16			7			43.8		Miscellaneous	12			6				6		100.0
Total other expenses	Total other expenses	109			92			17			18.5		Total other expenses	110			110				—		—
Total operating expenses	Total operating expenses	$	682		$	1,605		$	(923)		(57.5)	%	Total operating expenses	$	802		$	727			$	75	10.3	%
Personnel - average number	Personnel - average number	3,943			4,576								Personnel - average number	3,799			4,523
Efficiency ratio	Efficiency ratio	74.5		%	180.1		%						Efficiency ratio	97.0		%	72.6		%

																					Increase (Decrease)
Six Months Ended June 30,													Six Months Ended June 30,	2021			2020				Amount		%
														(dollars are in millions)
Salaries and employee benefits													Salaries and employee benefits	$	358		$	397			$	(39)	(9.8)	%
Support services from HSBC affiliates:													Support services from HSBC affiliates:
Fees paid to HTSU													Fees paid to HTSU	512			535				(23)		(4.3)
Fees paid to HMUS													Fees paid to HMUS	46			46				—		—
Fees paid to other HSBC affiliates													Fees paid to other HSBC affiliates	201			190				11		5.8
Total support services from HSBC affiliates													Total support services from HSBC affiliates	759			771				(12)		(1.6)
Occupancy expense, net													Occupancy expense, net	148			178				(30)		(16.9)
Goodwill impairment													Goodwill impairment	—			784				(784)		(100.0)
Other expenses:													Other expenses:
Equipment and software													Equipment and software	56			48				8		16.7
Marketing													Marketing	18			33				(15)		(45.5)
Outside services													Outside services	35			28				7		25.0
Professional fees													Professional fees	42			38				4		10.5

FDIC assessment fees													FDIC assessment fees	33			33				—		—

Miscellaneous													Miscellaneous	35			22				13		59.1
Total other expenses													Total other expenses	219			202				17		8.4
Total operating expenses													Total operating expenses	$	1,484		$	2,332			$	(848)	(36.4)	%
Personnel - average number													Personnel - average number	3,867			4,544
Efficiency ratio													Efficiency ratio	85.2		%	123.2		%

*Percentage change is greater than 100 percent.

102


HSBC USA Inc.

Salaries and employee benefits Salaries and employee benefits expense decreased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to lower salaries expense driven by staff reductions related to our Restructuring Plan ~~and, to a lesser extent,~~as well as lower severance costs. These decrease were partially offset by higher incentive compensation expense and increased health care costs.

Support services from HSBC affiliates Servicing and other fees from HSBC affiliates ~~decreased~~increased modestly during the three months ended ~~March 31,~~June 30, 2021 as higher cost allocations from our technology and support service functions were largely offset by lower allocated restructuring related costs from HTSU and other HSBC affiliates. In the year-to-date period, servicing and other fees from HSBC affiliates decreased due primarily to lower cost allocations from our technology and support service functions driven by the execution of our Restructuring Plan. ~~These decreases were~~The decrease in the year-to-date period was partially offset by higher allocated restructuring related costs from HTSU and other HSBC affiliates, primarily severance costs and support service project costs. During the ~~first quarter of~~three and six months ended June 30, 2021, we recorded ~~$19~~$29 million and $48 million, respectively, of allocated restructuring related costs from HTSU and other HSBC affiliates compared with $8$32 million and $42 million of allocated costs during the prior year ~~period.~~periods. A summary of the services received from various HSBC affiliates is included in Note ~~14,~~15, "Related Party Transactions," in the accompanying consolidated financial statements.

Occupancy expense, net Occupancy expense, net was ~~lower~~higher during the three months ended ~~March 31,~~June 30, 2021 due primarily to ~~the non-recurrence of $92~~$82 million of lease impairment and other related costs ~~that~~recorded in the second quarter of 2021 related to the exit of certain branches and office space as part of our Restructuring Plan. The increase in the three-month period was partially offset by lower operating lease costs and depreciation expense driven by the execution of our Restructuring Plan. In the year-to-date period, occupancy expense, net was lower due primarily to lower operating lease costs and depreciation expense driven by the execution of our Restructuring Plan. Also contributing to the decrease in the year-to-date period were lower lease impairment and other related costs as the impact of the costs recorded in the second quarter of 2021 as discussed above was more than offset by $86 million of lease impairment and other related costs recorded in the first ~~quarter~~half of 2020 related to the initial consolidation of our retail branch network as part of our Restructuring Plan. See Note 2, "Strategic Initiatives," in the


~~HSBC USA Inc.~~

accompanying consolidated financial statements for additional information. ~~Also contributing to the decrease was lower operating lease costs driven by the execution of our Restructuring Plan.~~

Goodwill impairment Reflects a goodwill impairment charge of $784 million recorded during the first quarter of 2020 representing the entire amount of goodwill allocated to our previously separate Retail Banking and Wealth Management and Private Banking reporting units. For additional discussion of the results of our goodwill impairment testing, see Note 8,9, "Goodwill," in the accompanying consolidated financial statements.

Other expenses Other expenses were ~~higher~~flat during the three months ended ~~March 31,~~June 30, 2021 as lower levels of expense capitalization related to internally developed software as well as higher costs related to equipment, outside services and professional fees were offset by lower deposit insurance assessment fees and lower marketing expense. In the year-to-date period, other expenses increased due primarily to lower levels of expense capitalization related to internally developed software as well as higher costs related to equipment, outside services and ~~increased deposit insurance assessment~~professional fees ~~driven primarily by lower unsecured debt balances. These increases~~which were partially offset by lower marketing ~~expense and lower travel~~ expense.

Efficiency ratio Our efficiency ratio ~~improved~~increased during the three months ended ~~March 31,~~June 30, 2021 due primarily to lower other revenues driven by lower trading revenue and higher operating expenses driven by lease impairment and other related costs recorded in the second quarter of 2021 as discussed in detail above. In the year-to-date period, our efficiency ratio improved due primarily to lower operating expenses driven by the non-recurrence of a goodwill impairment charge recorded in the first quarter of 2020 and lower other revenues driven by lower trading revenue as discussed in detail above.

Income tax expense (benefit) The following table summarizes our effective tax rate based on the provision for income taxes attributable to pretax income (loss):


Three Months Ended June 30,								Three Months Ended June 30,	2021			2020
									(dollars are in millions)
Income before income tax								Income before income tax	$	254		$	56
Income tax expense								Income tax expense	61			49
Effective tax rate								Effective tax rate	24.0		%	87.5		%

Three Months Ended March 31,		2021			2020
Six Months Ended June 30,								Six Months Ended June 30,	2021			2020
		(dollars are in millions)							(dollars are in millions)
Income (loss) before income tax	Income (loss) before income tax	$	460		$	(1,440)		Income (loss) before income tax	$	714		$	(1,384)
Income tax expense (benefit)	Income tax expense (benefit)	121			(157)			Income tax expense (benefit)	182			(108)
Effective tax rate	Effective tax rate	26.3		%	(10.9)		%	Effective tax rate	25.5		%	(7.8)		%

103


HSBC USA Inc.

Income tax expense (benefit) increased during the three and six months ended ~~March 31,~~June 30, 2021 driven by higher income. The income tax ~~benefit~~expense and higher effective tax rate for the three months ended ~~March 31,~~June 30, 2020 ~~was computed as~~primarily relates to a ~~discrete~~tax benefit limitation on interim period ~~actual~~ordinary losses under ASC 740. The income tax ~~calculation~~benefit and the lower effective tax benefit rate for the six months ended June 30, 2020 was related primarily to a non-deductible goodwill impairment related to our previously separate Retail Banking and Wealth Management and Private Banking businesses.

In April 2021, the New York State legislature approved comprehensive tax legislation as part of the State’s fiscal year 2022 budget which, among other things, will increase the entire net income tax rate from 6.5 percent to 7.25 percent and reinstate the capital tax with a $5 million cap. Given HSBC North America’s current tax position, we do not anticipate that these tax law changes will have a material impact on our current or deferred taxes or results of operations.

Segment Results – Group Reporting Basis

We have four distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Wealth and Personal Banking ("WPB") ~~which was created in 2020 and is discussed further below,~~, Commercial Banking ("CMB"), Global Banking and Markets ("GBM") and a Corporate Center ("CC"). See Item 1, "Business," in our 2020 Form 10-K for a description of our segments which are based upon our global businesses, including a discussion of the main business activities of the segments and a summary of their products and services.

~~During the second quarter of 2020, we also implemented a change~~assets related to our ~~internal management reporting to allocate Markets Treasury,~~active branches as of January 1, 2021, which ~~was~~were historically reported within ~~the~~our CC segment, ~~to the~~within our WPB ~~CMB and GBM businesses to better align the revenue and expense to the businesses generating or utilizing this activity.~~segment. As a result, ~~we have aligned~~lease impairment and other related costs associated with these branches is recorded within our WPB segment ~~reporting to reflect this change for all~~beginning in 2021. Prior periods ~~presented.~~were not impacted by the change.

See Note 15, "Business Segments," in the accompanying consolidated financial statements for a table that summarizes the impact of these changes on reported segment profit (loss) before tax, total assets and total deposits as of and for the three months ended March 31, 2020. There have been no additional changes in the basis of our segmentation as compared with the presentation in our 2020 Form 10-K. We are currently reviewing the financial information used to manage our GBM business, including the scope and content of the financial data being reported to our management and our Board of Directors. We will evaluate any impact such changes may have on our segment reporting once completed.


~~HSBC USA Inc.~~

Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates that incorporate both repricing (interest rate risk) and tenor (liquidity) characteristics. The objective of these charges/credits is to transfer interest rate risk to one centralized unit in Markets Treasury. 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.

We report financial information to our parent, HSBC, in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB. As a result, our segment results are prepared and presented using financial information prepared on the Group Reporting Basis as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees, are primarily made on this basis. We continue, however, to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

There have been no changes in the measurement of segment profit as compared with the presentation in our 2020 Form 10-K.

The significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results are summarized in Note 24, "Business Segments," in our 2020 Form 10-K. There have been no significant changes since December 31, 2020 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.

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HSBC USA Inc.

Wealth and Personal Banking The following table summarizes the Group Reporting Basis results for our WPB segment:


																Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Net interest income	Net interest income	$	209	$	232	$	(23)		(9.9)	%	Net interest income	$	205	$	197		$	8	4.1	%
Other operating income	Other operating income	87		74		13			17.6		Other operating income	71		99			(28)		(28.3)
Total operating income(1)	Total operating income(1)	296		306		(10)			(3.3)		Total operating income(1)	276		296			(20)		(6.8)
Expected credit losses	Expected credit losses	(2)		140		(142)			*		Expected credit losses	1		36			(35)		(97.2)
Net operating income	Net operating income	298		166		132			79.5		Net operating income	275		260			15		5.8
Operating expenses	Operating expenses	287		1,035		(748)			(72.3)		Operating expenses	355		326			29		8.9
Profit (loss) before tax		$	11	$	(869)	$	880		*
Loss before tax											Loss before tax	$	(80)	$	(66)		$	(14)	(21.2)	%

																	Increase (Decrease)
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Net interest income											Net interest income	$	414	$	429		$	(15)	(3.5)	%
Other operating income											Other operating income	158		173			(15)		(8.7)
Total operating income(1)											Total operating income(1)	572		602			(30)		(5.0)
Expected credit losses											Expected credit losses	(1)		176			(177)		*
Net operating income											Net operating income	573		426			147		34.5
Operating expenses											Operating expenses	642		1,361			(719)		(52.8)
Loss before tax											Loss before tax	$	(69)	$	(935)		$	866	92.6	%

*Percentage change is greater than 100 percent.

(1)The following table summarizes the impact of key activities on the total operating income of our WPB segment:


																Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Retail banking current accounts, savings and deposits	Retail banking current accounts, savings and deposits	$	110	$	148	$	(38)		(25.7)	%	Retail banking current accounts, savings and deposits	$	106	$	119		$	(13)	(10.9)	%
Retail banking mortgages, credit cards and other personal lending	Retail banking mortgages, credit cards and other personal lending	88		67		21			31.3		Retail banking mortgages, credit cards and other personal lending	77		74			3		4.1
Wealth and asset management products	Wealth and asset management products	20		23		(3)			(13.0)		Wealth and asset management products	19		25			(6)		(24.0)
Private banking	Private banking	45		47		(2)			(4.3)		Private banking	43		41			2		4.9
Retail business banking and other(2)	Retail business banking and other(2)	33		21		12			57.1		Retail business banking and other(2)	31		37			(6)		(16.2)
Total operating income	Total operating income	$	296	$	306	$	(10)		(3.3)	%	Total operating income	$	276	$	296		$	(20)	(6.8)	%

																	Increase (Decrease)
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Retail banking current accounts, savings and deposits											Retail banking current accounts, savings and deposits	$	216	$	267		$	(51)	(19.1)	%
Retail banking mortgages, credit cards and other personal lending											Retail banking mortgages, credit cards and other personal lending	165		141			24		17.0
Wealth and asset management products											Wealth and asset management products	39		48			(9)		(18.8)
Private banking											Private banking	88		88			—		—
Retail business banking and other(2)											Retail business banking and other(2)	64		58			6		10.3
Total operating income											Total operating income	$	572	$	602		$	(30)	(5.0)	%

(2)Includes cost reimbursements associated with activities performed on behalf of other HSBC affiliates and allocated Markets Treasury revenue.

During the second quarter of 2021, as part of our Restructuring Plan we made the decision to exit our mass market retail banking business, including our Personal and Advance propositions as well as retail business banking, and focus on the banking and wealth management needs of globally-connected affluent and high net worth clients through our Premier, Jade or Private Banking propositions. In conjunction with the execution of this strategy, we have entered into definitive sale agreements with third parties to sell approximately 90 of our retail branches along with substantially all residential mortgage, unsecured and retail business banking loans and all deposits in our branch network not associated with our Premier, Jade and Private Banking customers. Certain assets under management associated with our mass market retail banking business which are managed by an affiliate will also be transferred. Although this disposal group will be sold in multiple transactions that are expected to be

105


HSBC USA Inc.

completed by the first quarter of 2022, the actual time to complete these sales depends on many factors, including regulatory approval. We will continue to offer deposits and retail loan products to our Premier, Jade and Private Banking customers.

Our WPB segment reported a ~~profit~~higher loss before tax during the three months ended ~~March 31,~~June 30, 2021 ~~compared with~~due to higher operating expenses driven by $57 million of lease impairment and other related costs recorded in the second quarter of 2021 primarily related to the exit of certain branches as part of our Restructuring Plan as well as lower other operating income. The higher loss in the three-month period was partially offset by lower expected credit losses and higher net interest income. In the year-to-date period, our WPB segment reported a lower loss before tax ~~in the prior year period~~ due primarily to lower operating expenses ~~driven~~as the impact of the lease impairment and other related costs recorded in the second quarter of 2021 as discussed above was more than offset by the non-recurrence of a goodwill impairment charge of $693 million recorded during the first quarter of 2020, representing the entire amount of remaining goodwill previously recorded. Also contributing to the improvement in the year-to-date period was lower expected credit losses, ~~and, to a lesser extent, higher~~partially offset by lower other operating income ~~partially offset by~~and lower net interest income.

Net interest income ~~decreased~~increased during the three months ended ~~March 31,~~June 30, 2021 due ~~primarily~~ to improved residential mortgage loan spreads. In the year-to-date period, net interest income decreased as improved residential mortgage loan spreads were more than offset by lower deposit spreads reflecting the impact of lower market ~~rates, partially offset by improved residential mortgage loan spreads.~~rates.

Other operating income ~~increased~~decreased during the three and six months ended ~~March 31,~~June 30, 2021 due to ~~higher~~lower investment management fees reflecting a shift in mix to products with lower management fees and lower residential mortgage banking revenue driven by ~~higher gains~~unfavorable fair value adjustments on ~~sales of~~ residential mortgage loans ~~as well as~~held for sale. The decrease in the year-to-date period was partially offset by the non-recurrence of a loss of $7 million recorded during the first quarter of 2020 related to extending the maturity of the total return swap position used to economically hedge the periodic payments made under the swap agreements entered into in conjunction with the sales of Visa Inc. Class B


~~HSBC USA Inc.~~

common shares. ~~These increases were partially offset by lower credit card fees due to lower customer spending and lower investment management fees reflecting a shift in mix to products with lower management fees.~~

Expected credit losses improved during the three and six months ended ~~March 31,~~June 30, 2021 reflecting ~~a modest release~~lower loss estimates due to declines in credit ~~loss reserves compared with a loss provision in the prior year period. The release in credit reserves~~card balances as well as improved economic conditions in the current year ~~period was driven by improved economic conditions~~periods which resulted in improved economic forecasts used for calculating ~~ECL as well as a release in credit reserves due to a decline in credit card balances.~~ECL. In the prior year ~~period, the~~periods, loss ~~provision was~~provisions were driven by the deterioration of economic conditions caused by the COVID-19 pandemic which resulted in a worsening of the economic forecasts used for calculating ECL as well as higher dollars of delinquency ~~in credit cards~~ and, to a lesser extent, growth in personal loan balances due to new product promotions. While loss provisions were recorded for credit cards in the prior year periods, the provision in the second quarter of 2020 was not as significant due to lower customer spending and a decline in credit card balances.

Excluding the lease impairment and other related costs as well as the goodwill impairment charge discussed above, operating expenses ~~remained lower~~decreased during the three and six months ended ~~March 31,~~June 30, 2021 driven by the execution of our Restructuring Plan which resulted in lower staff costs, lower operating lease costs, lower marketing expense, lower ~~fraud losses, lower~~ severance costs and lower cost allocations from our technology and support service ~~function. These decreases~~functions. Also contributing to the decrease in the three-month period were ~~partially offset by higher~~lower deposit insurance assessment fees.

Client Assets The following table provides information regarding private banking client assets during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020:


Three Months Ended March 31,		2021		2020
Six Months Ended June 30,						Six Months Ended June 30,	2021		2020
		(in millions)					(in millions)
Client assets at beginning of period	Client assets at beginning of period	$	44,104	$	39,295	Client assets at beginning of period	$	44,104	$	39,295
Net new money		5,524		937
Net new money (outflows)						Net new money (outflows)	9,008		(1,437)

Value change	Value change	16		(2,440)		Value change	2,078		232
Client assets at end of period	Client assets at end of period	$	49,644	$	37,792	Client assets at end of period	$	55,190	$	38,090

The increase in client assets during the six months ended June 30, 2021 reflects new money growth primarily driven by a few large clients as well as positive market performance.

106


HSBC USA Inc.

Commercial Banking The following table summarizes the Group Reporting Basis results for our CMB segment:


																Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Net interest income	Net interest income	$	190	$	210	$	(20)		(9.5)	%	Net interest income	$	190	$	204		$	(14)	(6.9)	%
Other operating income	Other operating income	66		58		8			13.8		Other operating income	72		52			20		38.5
Total operating income(1)	Total operating income(1)	256		268		(12)			(4.5)		Total operating income(1)	262		256			6		2.3
Expected credit losses	Expected credit losses	(38)		123		(161)			*		Expected credit losses	(12)		181			(193)		*
Net operating income	Net operating income	294		145		149			*		Net operating income	274		75			199		*
Operating expenses	Operating expenses	150		147		3			2.0		Operating expenses	153		142			11		7.7
Profit (loss) before tax	Profit (loss) before tax	$	144	$	(2)	$	146		*		Profit (loss) before tax	$	121	$	(67)		$	188	*

																	Increase (Decrease)
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Net interest income											Net interest income	$	380	$	414		$	(34)	(8.2)	%
Other operating income											Other operating income	138		110			28		25.5
Total operating income(1)											Total operating income(1)	518		524			(6)		(1.1)
Expected credit losses											Expected credit losses	(50)		304			(354)		*
Net operating income											Net operating income	568		220			348		*
Operating expenses											Operating expenses	303		289			14		4.8
Profit (loss) before tax											Profit (loss) before tax	$	265	$	(69)		$	334	*

*Percentage change is greater than 100 percent.

(1)The following table summarizes the impact of key activities on the total operating income of our CMB segment:


																Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Lending and Transaction Management	Lending and Transaction Management	$	106	$	118	$	(12)		(10.2)	%	Lending and Transaction Management	$	111	$	101		$	10	9.9	%
Global Liquidity and Cash Management, current accounts and savings deposits	Global Liquidity and Cash Management, current accounts and savings deposits	99		110		(11)			(10.0)		Global Liquidity and Cash Management, current accounts and savings deposits	100		113			(13)		(11.5)
Global Trade and Receivables Finance	Global Trade and Receivables Finance	14		14		—			—		Global Trade and Receivables Finance	16		13			3		23.1
Investment banking products and other(2)	Investment banking products and other(2)	37		26		11			42.3		Investment banking products and other(2)	35		29			6		20.7
Total operating income	Total operating income	$	256	$	268	$	(12)		(4.5)	%	Total operating income	$	262	$	256		$	6	2.3	%

																	Increase (Decrease)
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Lending and Transaction Management											Lending and Transaction Management	$	217	$	219		$	(2)	(.9)	%
Global Liquidity and Cash Management, current accounts and savings deposits											Global Liquidity and Cash Management, current accounts and savings deposits	199		223			(24)		(10.8)
Global Trade and Receivables Finance											Global Trade and Receivables Finance	30		27			3		11.1
Investment banking products and other(2)											Investment banking products and other(2)	72		55			17		30.9
Total operating income											Total operating income	$	518	$	524		$	(6)	(1.1)	%

(2)Includes allocated Markets Treasury revenue.

Our CMB segment reported a profit before tax during the three and six months ended ~~March 31,~~June 30, 2021 compared with a loss before tax in the prior year ~~period~~periods due primarily to lower expected credit losses and, to a lesser extent, higher other operating income. The ~~improvement was~~improvements were partially offset by lower net interest income and higher operating expenses.

Net interest income decreased during the three and six months ended ~~March 31,~~June 30, 2021 due to lower deposit spreads reflecting the impact of lower market rates and lower average loan balances, partially offset by higher average deposit ~~balances.~~balances, higher earnings on capital and lower liquidity charges.

Other operating income increased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to higher ~~allocated Markets Treasury revenue~~fees from loan syndication and ~~higher~~other account ~~service fees,~~services as well as the non-recurrence of a loss recorded on the sale of a loan in the second quarter of 2020. The increase in the three-month period was partially offset by lower ~~loan syndication fees.~~allocated Markets Treasury revenue.

92107


HSBC USA Inc.

Expected credit losses improved during the three and six months ended ~~March 31,~~June 30, 2021 reflecting ~~a release~~releases in credit loss reserves compared with a loss ~~provision~~provisions in the prior year ~~period.~~periods. The ~~release~~releases in credit reserves in the current year ~~period was~~periods were driven by improved economic conditions which resulted in improved economic forecasts used for calculating ECL ~~and~~as well as client paydowns. In the prior year ~~period,~~periods, the loss ~~provision was~~provisions were driven by the deterioration of economic conditions caused by the COVID-19 pandemic which resulted in a worsening of the economic forecasts used for calculating ECL and provisions for downgrades reflecting weakness in the financial condition of certain ~~clients and~~clients. Also contributing to the loss provision in the 2020 year-to-date period was loan growth as clients drew on their available lines of credit.

Operating expenses increased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to higher ~~deposit insurance assessment fees and higher~~ incentive compensation expense ~~partially offset by lower salaries expense, lower travel expense~~ and ~~lower~~higher cost allocations from our support service ~~functions, primarily~~functions. These increases were partially offset by lower branch network and corporate real estate costs.

Global Banking and Markets The following table summarizes the Group Reporting Basis results for our GBM segment:


																Increase (Decrease)
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Net interest income											Net interest income	$	86	$	122		$	(36)	(29.5)	%
Other operating income											Other operating income	183		263			(80)		(30.4)
Total operating income(1)											Total operating income(1)	269		385			(116)		(30.1)
Expected credit losses											Expected credit losses	(72)		19			(91)		*
Net operating income											Net operating income	341		366			(25)		(6.8)
Operating expenses											Operating expenses	186		201			(15)		(7.5)
Profit before tax											Profit before tax	$	155	$	165		$	(10)	(6.1)	%

								Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Net interest income	Net interest income	$	95	$	90	$	5		5.6	%	Net interest income	$	181	$	212		$	(31)	(14.6)	%
Other operating income	Other operating income	246		263		(17)			(6.5)		Other operating income	429		526			(97)		(18.4)
Total operating income(1)	Total operating income(1)	341		353		(12)			(3.4)		Total operating income(1)	610		738			(128)		(17.3)
Expected credit losses	Expected credit losses	(51)		116		(167)			*		Expected credit losses	(123)		135			(258)		*
Net operating income	Net operating income	392		237		155			65.4		Net operating income	733		603			130		21.6

Operating expenses	Operating expenses	201		192		9			4.7		Operating expenses	387		393			(6)		(1.5)
Profit before tax	Profit before tax	$	191	$	45	$	146		*		Profit before tax	$	346	$	210		$	136	64.8	%

*Percentage change is greater than 100 percent.

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HSBC USA Inc.

(1)The following table summarizes the impact of key activities on the total operating income of our GBM segment. For purposes of the discussion below the table, total operating income is referred to as revenue. During the first quarter of 2021, we changed our presentation for the components of total operating income to provide a more detailed view. As a result, we have reclassified prior year amounts in order to conform to the current year presentation.


																Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Foreign Exchange and Metals	Foreign Exchange and Metals	$	86	$	136	$	(50)		(36.8)	%	Foreign Exchange and Metals	$	48	$	141		$	(93)	(66.0)	%
Debt Markets	Debt Markets	(2)		(15)		13			86.7		Debt Markets	(1)		20			(21)		*
Securities Financing	Securities Financing	9		5		4			80.0		Securities Financing	6		17			(11)		(64.7)
Equities	Equities	16		8		8			100.0		Equities	—		3			(3)		(100.0)
Securities Services	Securities Services	6		7		(1)			(14.3)		Securities Services	7		7			—		—
Markets and Securities Services other(2)	Markets and Securities Services other(2)	(4)		7		(11)			*		Markets and Securities Services other(2)	(6)		(5)			(1)		(20.0)
Credit and funding valuation adjustments	Credit and funding valuation adjustments	18		(40)		58			*		Credit and funding valuation adjustments	(1)		9			(10)		*
Total Markets and Securities Services ("MSS")	Total Markets and Securities Services ("MSS")	129		108		21			19.4		Total Markets and Securities Services ("MSS")	53		192			(139)		(72.4)
Global Liquidity and Cash Management ("GLCM")	Global Liquidity and Cash Management ("GLCM")	87		109		(22)			(20.2)		Global Liquidity and Cash Management ("GLCM")	91		102			(11)		(10.8)
Capital Markets	Capital Markets	67		40		27			67.5		Capital Markets	64		47			17		36.2
Credit and Lending	Credit and Lending	18		18		—			—		Credit and Lending	26		14			12		85.7
Global Trade and Receivables Finance ("GTRF")	Global Trade and Receivables Finance ("GTRF")	12		13		(1)			(7.7)		Global Trade and Receivables Finance ("GTRF")	13		14			(1)		(7.1)
Global Banking other(3)	Global Banking other(3)	4		60		(56)			(93.3)		Global Banking other(3)	(2)		(20)			18		90.0
Total Global Banking	Total Global Banking	188		240		(52)			(21.7)		Total Global Banking	192		157			35		22.3
GBM other(4)	GBM other(4)	24		5		19			*		GBM other(4)	24		36			(12)		(33.3)
Total operating income	Total operating income	$	341	$	353	$	(12)		(3.4)	%	Total operating income	$	269	$	385		$	(116)	(30.1)	%

																	Increase (Decrease)
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Foreign Exchange and Metals											Foreign Exchange and Metals	$	134	$	277		$	(143)	(51.6)	%
Debt Markets											Debt Markets	(3)		5			(8)		*
Securities Financing											Securities Financing	15		22			(7)		(31.8)
Equities											Equities	16		11			5		45.5
Securities Services											Securities Services	13		14			(1)		(7.1)
Markets and Securities Services other(2)											Markets and Securities Services other(2)	(10)		2			(12)		*
Credit and funding valuation adjustments											Credit and funding valuation adjustments	17		(31)			48		*
Total MSS											Total MSS	182		300			(118)		(39.3)
GLCM											GLCM	178		211			(33)		(15.6)
Capital Markets											Capital Markets	131		87			44		50.6
Credit and Lending											Credit and Lending	44		32			12		37.5
GTRF											GTRF	25		27			(2)		(7.4)
Global Banking other(3)											Global Banking other(3)	2		40			(38)		(95.0)
Total Global Banking											Total Global Banking	380		397			(17)		(4.3)
GBM other(4)											GBM other(4)	48		41			7		17.1
Total operating income											Total operating income	$	610	$	738		$	(128)	(17.3)	%

(2)Includes revenue associated with the exit or transfer of certain derivative contracts as part of our Restructuring Plan, including trading losses of $4$6 million and $10 million recorded during the ~~first quarter~~three and six months ended June 30, 2021, respectively, compared with trading losses of ~~2021.~~$10 million during both the three and six months ended June 30, 2020.

(3)Includes net interest income on capital held in the business and not assigned to products as well as revenue associated with credit default swap protection and loan sales.

(4)Includes cost reimbursements associated with activities performed on behalf of other HSBC affiliates, allocated Markets Treasury revenue and certain corporate funding charges not assigned to products.

Our GBM segment reported a lower profit before tax during the three months ended June 30, 2021 due to lower other operating income and lower net interest income, partially offset by lower expected credit losses and lower operating expenses. In the year-to-date period, our GBM segment reported a higher profit before tax due primarily to lower expected credit losses, partially offset by lower other operating income and lower net interest income.

MSS revenue decreased during the three and six months ended June 30, 2021 due primarily to lower revenue in Foreign Exchange and Metals as market volatility driven by the COVID-19 pandemic resulted in increased trading opportunities in the prior year periods. Also contributing to the decreases in both periods was lower revenue in Foreign Exchange, Debt Markets

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~~Our GBM segment reported a higher profit before tax during~~and, in the ~~three months ended March 31, 2021~~year-to-date period, MSS other reflecting the impact of our decision to exit or transfer certain derivatives as part of our Restructuring Plan which resulted in lower revenue from emerging markets rate products and interest rate swaps. Lower revenue in Securities Financing in both periods was due ~~primarily~~ to ~~lower expected credit losses,~~compressed spreads. These decreases were partially offset ~~by lower other operating income and higher operating expenses.~~

~~MSS revenue increased during~~in the ~~three months ended March 31, 2021 due primarily to~~year-to-date period by a gain from credit and funding valuation adjustments in the current ~~year~~year-to-date period due to compressed credit and funding spreads ~~as well as widening interest rate spreads. In~~compared with a loss in the prior ~~year~~year-to-date period ~~credit and funding valuation adjustments was a loss~~ due to ~~tightening interest rate spreads as well as~~ widening credit spreads on derivative assets driven by market volatility caused by the COVID-19 pandemic. Also contributing to the increase was higher revenue in Debt Markets due to better trading results and improved risk management, higher revenue in Equities due to improved trading in structured derivatives and higher revenue in Securities Financing due to stronger revenue in short-term lending. The increase in MSS revenue was partially offset by lower Foreign Exchange and Metals revenue as market volatility driven by the COVID-19 pandemic resulted in increased trading opportunities in Foreign Exchange in the prior year period as well as lower other revenue reflecting the impact of our decision to exit or transfer certain derivative contracts as part of our Restructuring Plan, including trading losses of $4 million recorded during the first quarter of 2021.

Global Banking revenue ~~decreased~~increased during the three months ended ~~March 31,~~June 30, 2021 ~~due primarily to~~and decreased in the year-to-date period reflecting higher revenue in Capital Markets and Credit and Lending which was partially offset in the three-month period by lower revenue in GLCM and more than offset in the year-to-date period by lower revenue in GLCM and Global Banking ~~other due to lower~~other. Higher revenue associated with credit default swap protection which largely reflects the hedging of a few client relationships. Also contributing to the decrease was lower GLCM revenue due to lower net interest income driven by lower deposit spreads reflecting the impact of lower market rates, partially offset by the impact of higher average deposit balances. The decrease in ~~Global Banking revenue was partially offset by increased~~ Capital Markets ~~revenue~~and Credit and Lending in both periods was due to higher loan syndication fees and higher revenue associated with ~~the collection~~collections of a nonaccrual ~~loan during the first quarter of 2021. The increase in Capital Markets revenue was~~loans, partially offset by lower net interest income from lower average loan balances driven by the impact of our efforts to improve returns through disciplined lending as well as lower demand from clients reflecting increased capital markets ~~activity~~activity. The decrease in GLCM revenue in both periods was due to lower net interest income driven by ~~clients coupled with economic uncertainty caused~~lower deposit spreads reflecting the impact of lower market rates, partially offset by the ~~COVID-19 pandemic.~~impact of higher average deposit balances as well as higher account service fees. Global Banking other revenue was higher in the three-month period and lower in the year-to-date period driven by revenue associated with credit default swap protection which largely reflects the hedging of a few client relationships.

GBM other revenue ~~increased~~decreased during the three months ended ~~March 31,~~June 30, 2021 ~~due to higher~~and increased in the year-to-date period as lower allocated Markets Treasury revenue was partially offset in the three-month period and more than offset in the year-to-date period by lower corporate funding charges and lower liquidity ~~charges, partially offset by lower cost reimbursements.~~charges.

Expected credit losses improved during the three and six months ended ~~March 31,~~June 30, 2021 reflecting ~~a release~~releases in credit loss reserves compared with a loss ~~provision~~provisions in the prior year ~~period.~~periods. The ~~release~~releases in credit reserves in the current year ~~period was~~periods were driven by improved economic conditions which resulted in improved economic forecasts used for calculating ECL and improvements in credit conditions associated with certain clients. Client paydowns and loan sales also contributed to the ~~release~~releases in credit reserves in the current year ~~period.~~periods. In the prior year ~~period,~~periods, the loss ~~provision was~~provisions were driven by the deterioration of economic conditions caused by the COVID-19 pandemic which resulted in a worsening of the economic forecasts used for calculating ECL and provisions for risk factors associated with oil and gas industry loan exposures and downgrades reflecting weakness in the financial condition of certain ~~clients and loan growth as clients drew on their available lines of credit.~~clients.

Operating expenses ~~increased~~decreased during the three and six months ended ~~March 31,~~June 30, 2021 due primarily to lower salaries expense and lower market data costs, partially offset by higher incentive compensation expense and higher cost allocations from our support service ~~functions, higher incentive compensation expense and higher deposit insurance assessment fees, partially offset by lower salaries expense.~~functions.

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Corporate Center The following table summarizes the Group Reporting Basis results for our CC segment:


																Increase (Decrease)
Three Months Ended June 30,											Three Months Ended June 30,	2021		2020			Amount		%
												(dollars are in millions)
Net interest expense											Net interest expense	$	(1)	$	(7)		$	6	85.7	%
Other operating income											Other operating income	18		85			(67)		(78.8)
Total operating income(1)											Total operating income(1)	17		78			(61)		(78.2)
Expected credit losses											Expected credit losses	—		—			—		—
Net operating income											Net operating income	17		78			(61)		(78.2)
Operating expenses											Operating expenses	71		63			8		12.7
Profit (loss) before tax											Profit (loss) before tax	$	(54)	$	15		$	(69)	*

								Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Six Months Ended June 30,											Six Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)
Net interest expense	Net interest expense	$	(1)	$	(13)	$	12		92.3	%	Net interest expense	$	(2)	$	(20)		$	18	90.0	%
Other operating income (expense)		11		(24)		35			*
Total operating income (expense)(1)		10		(37)		47			*
Other operating income											Other operating income	29		61			(32)		(52.5)
Total operating income(1)											Total operating income(1)	27		41			(14)		(34.1)
Expected credit losses	Expected credit losses	—		—		—			—		Expected credit losses	—		—			—		—
Net operating income (expense)		10		(37)		47			*
Net operating income											Net operating income	27		41			(14)		(34.1)
Operating expenses	Operating expenses	31		135		(104)			(77.0)		Operating expenses	102		198			(96)		(48.5)
Loss before tax	Loss before tax	$	(21)	$	(172)	$	151		87.8	%	Loss before tax	$	(75)	$	(157)		$	82	52.2	%

*Percentage change is greater than 100 percent.


~~HSBC USA Inc.~~

(1)The following table summarizes the impact of key activities on the total operating income (expense) of our CC segment:


															Increase (Decrease)

						Increase (Decrease)
Three Months Ended March 31,		2021		2020		Amount			%
Three Months Ended June 30,										Three Months Ended June 30,	2021		2020			Amount		%
		(dollars are in millions)						(dollars are in millions)

Legacy structured credit products	Legacy structured credit products	$	3	$	(74)	$	77		*	Legacy structured credit products	$	—	$	61		$	(61)	(100.0)	%

Other	Other	7		37		(30)			(81.1)	Other	17		17			—		—	%
Total operating income (expense)		$	10	$	(37)	$	47		*
Total operating income										Total operating income	$	17	$	78		$	(61)	(78.2)	%

																Increase (Decrease)
Six Months Ended June 30,										Six Months Ended June 30,	2021		2020			Amount		%
											(dollars are in millions)

Legacy structured credit products										Legacy structured credit products	$	3	$	(13)		$	16	*

Other										Other	24		54			(30)		(55.6)
Total operating income										Total operating income	$	27	$	41		$	(14)	(34.1)	%

Our CC segment reported a loss before tax during the three months ended June 30, 2021 compared with a profit before tax in the prior year period due primarily to lower other operating income. In the year-to-date period, our CC segment reported a lower loss before tax ~~during the three months ended March 31, 2021~~ due to lower operating expenses ~~higher other operating income~~ and lower net interest ~~expense.~~expense, partially offset by lower other operating income.

Net interest expense was lower during the three and six months ended ~~March 31,~~June 30, 2021 driven by lower retained liquidity charges and lower net interest expense from legacy structured credit products.

Other operating income ~~increased~~decreased during the three months ended ~~March 31,~~June 30, 2021 due primarily to ~~the non-recurrence of valuation losses on legacy structured credit products that were recorded in March 2020 due to market volatility caused by the COVID-19 pandemic. The increase~~lower revenue in legacy structured credit products ~~also reflects~~as discussed below. In the ~~impact of a structured note vehicle that was unwound during the third quarter of 2020 which was a key contributor~~year-to-date period, other operating income decreased due primarily to ~~the loss recorded in the prior year period. These increases were partially offset by~~ unfavorable movements related to the economic hedging of interest rate risk within our own debt, lower cost reimbursements associated with shared services performed on behalf of other HSBC affiliates, including internal audit, and the non-recurrence of a $9 million gain recorded during the first quarter of 2020 on the sale of one of our owned retail branch properties.

~~Operating expenses were lower during~~ The decrease in the ~~three months ended March 31, 2021~~year-to-date period was partially offset by higher revenue in legacy structured credit products. Lower revenue in legacy structured credit products in the three-month period was due primarily to the non-recurrence of ~~$97~~the recovery of valuation losses in the prior year period as valuation losses that were recorded in March 2020 due to market volatility caused by the

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COVID-19 pandemic largely recovered during the second quarter of 2020. Legacy structured credit products revenue in both periods also reflects the impact of a structured note vehicle that was unwound during the third quarter of 2020 which was a key contributor to prior year results.

Operating expenses increased during the three months ended June 30, 2020 due primarily to higher lease impairment and other related costs driven by $10 million of costs recorded in the second quarter of 2021 associated with branches closed prior to 2021 and certain office space as part of our Restructuring Plan. In the year-to-date period, operating expenses decreased due primarily to lower lease impairment and other related costs as the impact of the costs recorded in the second quarter of 2021 as discussed above was more than offset by $92 million of lease impairment and other related costs ~~that were~~ recorded induring the first ~~quarter~~half of 2020 related to the initial consolidation of our retail branch network as part of our Restructuring Plan. Also contributing to the decrease ~~was~~in the year-to-date period were lower cost allocations from our technology and support service functions. These decreases were partially offset by higher allocated restructuring related costs from HTSU and other HSBC affiliates, primarily severance costs and support service project costs.

Reconciliation of Segment Results As previously discussed, segment results are reported on a Group Reporting Basis. See Note ~~15,~~16, "Business Segments," in the accompanying consolidated financial statements for a reconciliation of our Group Reporting Basis segment results to U.S. GAAP consolidated totals.

Credit Quality

In the normal course of business, we enter into a variety of transactions that involve both on and off-balance sheet credit risk. Principal among these activities is lending to various commercial, institutional, governmental and individual customers. We participate in lending activity throughout the United States and, on a limited basis, internationally.

COVID-19 Loan Forbearance Initiatives We have implemented various loan modification payment deferral programs to provide borrowers relief from the economic impacts of the COVID-19 pandemic. Substantially all of the loans under these programs are not classified as TDR Loans due to our election to suspend TDR Loan classification under the CARES Act or their short-term nature as discussed under the Interagency Statement. 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 will not be affected during the deferral period and, if the loan was accruing at the time the relief was granted, the loan will generally not be placed on nonaccrual status as long as the borrower utilizes a payment deferral of six months or less. For consumer mortgage loans, when a borrower utilizes a payment deferral of more than six months, the loan will generally be placed on nonaccrual status and, if the loan does not meet the criteria in the CARES Act, assessed for TDR Loan classification. We have not modified our commercial loan nonaccrual policies as a result of this guidance. These COVID-19 related payment deferral programs could delay the recognition of delinquencies, nonaccrual status, and net charge-offs for those customers who may have otherwise moved into past due or nonaccrual status had such relief not been offered. See "Executive Overview," in this MD&A for additional information.

Allowance for Credit Losses / Liability for Off-Balance Sheet Credit Exposures Our accounting policies and methodologies related to the allowance for credit losses and liability for off-balance sheet credit exposures in prior periods are presented under the caption "Critical Accounting Policies and Estimates" in MD&A and in Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," in our 2020 Form 10-K. Our approach toward credit risk management is summarized under the caption "Risk Management" in MD&A in our 2020 Form 10-K. There have been no significant revisions to our policies or methodologies during the first ~~quarter~~half of 2021.

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The following table summarizes our allowance for credit losses and the liability for off-balance sheet credit exposures:


		March 31, 2021			December 31, 2020			June 30, 2021		March 31, 2021		December 31, 2020
		(in millions)		(in millions)
Allowance for credit losses:	Allowance for credit losses:						Allowance for credit losses:
Loans:	Loans:						Loans:
Commercial loans	Commercial loans	$	670		$	814	Commercial loans	$	538	$	670	$	814
Consumer loans	Consumer loans	183			201		Consumer loans	9		183		201
Total loans	Total loans	853			1,015		Total loans	547		853		1,015
Securities held-to-maturity	Securities held-to-maturity	2			2		Securities held-to-maturity	2		2		2
Other financial assets measured at amortized cost(1)	Other financial assets measured at amortized cost(1)	2			2		Other financial assets measured at amortized cost(1)	1		2		2
Securities available-for-sale	Securities available-for-sale	1			1		Securities available-for-sale	1		1		1
Total allowance for credit losses	Total allowance for credit losses	$	858		$	1,020	Total allowance for credit losses	$	551	$	858	$	1,020

Liability for off-balance sheet credit exposures	Liability for off-balance sheet credit exposures	$	155		$	237	Liability for off-balance sheet credit exposures	$	128	$	155	$	237

(1)Primarily includes accrued interest receivables and customer acceptances.

The total allowance for credit losses at June 30, 2021 decreased $307 million or 36 percent as compared with March 31, 2021and decreased ~~$162~~$469 million or 1646 percent as compared with December 31, 2020 due to lower loss estimates on both our commercial ~~loan portfolio~~ and ~~to a lesser extent, our~~ consumer loan ~~portfolio.~~portfolios.

Our commercial allowance for credit losses at June 30, 2021 decreased $132 million or 20 percent as compared with March 31, 2021 and decreased ~~$144~~$276 million or 1834 percent as compared with December 31, 2020 driven by improved economic conditions which resulted in improved economic forecasts used for calculating lifetime ECL and improvements in credit conditions associated with certain clients as well as a decline in credit reserves for risk factors associated with higher risk client exposures and, as compared with December 31, 2020, economic uncertainty. Also contributing to the ~~decrease~~decreases were client ~~paydowns.~~paydowns and loan sales.

Our consumer allowance for credit losses at June 30, 2021 decreased $174 million or 95 percent as compared with March 31, 2021 and decreased ~~$18~~$192 million or 996 percent as compared with December 31, 2020 ~~due primarily~~driven by the impact of our decision to exit our mass market retail banking business as well as our remaining credit card portfolio which resulted in a ~~lower allowance for credit losses~~reduction in credit ~~cards driven by~~loss reserves on consumer loans of approximately $156 million during the second quarter of 2021. Also contributing to the decreases were improved economic conditions which resulted in improved economic forecasts used for calculating lifetime ECL and ~~a release~~declines in credit reserves for risk factors primarily associated with economic uncertainty and forbearance accounts. ~~Also contributing to the decrease was a release in credit reserves due to a decline in credit card balances reflecting seasonality and lower origination volumes.~~

The liability for off-balance sheet credit exposures at June 30, 2021 decreased $27 million or 17 percent as compared with March 31, 2021 and decreased ~~$82~~$109 million or 3546 percent as compared with December 31, 2020 resulting from the improved economic conditions consistent with commercial loans as discussed above.

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Summary of Credit Loss Experience for Loans

The following table presents the allowance for credit losses on loans by major loan categories:


		Amount		% of Loans to Total Loans				Amount		% of Loans to Total Loans					Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans
		March 31, 2021					December 31, 2020					June 30, 2021	March 31, 2021		December 31, 2020
		(dollars are in millions)				(dollars are in millions)
Commercial(1)	Commercial(1)	$	670	66.9	%			$	814	67.0	%			Commercial(1)	$	538	69.5	%	$	670	66.9	%	$	814	67.0	%
Consumer:	Consumer:													Consumer:
Residential mortgages	Residential mortgages	(9)		29.9				(9)		29.6				Residential mortgages	(6)		29.5		(9)		29.9		(9)		29.6
Home equity mortgages	Home equity mortgages	21		1.1				22		1.2				Home equity mortgages	15		.7		21		1.1		22		1.2
Credit cards	Credit cards	144		1.5				161		1.7				Credit cards	—		—		144		1.5		161		1.7
Other consumer	Other consumer	27		.6				27		.5				Other consumer	—		.3		27		.6		27		.5
Total consumer	Total consumer	183		33.1				201		33.0				Total consumer	9		30.5		183		33.1		201		33.0
Total	Total	$	853	100.0	%			$	1,015	100.0	%			Total	$	547	100.0	%	$	853	100.0	%	$	1,015	100.0	%

(1)See Note 6,7, "Allowance for Credit Losses," in the accompanying consolidated financial statements for components of the commercial allowance for credit losses.


~~HSBC USA Inc.~~

The following table sets forth key ratios for the allowance for credit losses on loans for the periods indicated:


		March 31, 2021		December 31, 2020			June 30, 2021		March 31, 2021		December 31, 2020

Ratio of Allowance for credit losses to:	Ratio of Allowance for credit losses to:					Ratio of Allowance for credit losses to:
Loans:(1)	Loans:(1)					Loans:(1)
Commercial:	Commercial:					Commercial:
Non-affiliates	Non-affiliates	1.70	%	2.01	%	Non-affiliates	1.48	%	1.70	%	2.01	%
Affiliates	Affiliates	—		—		Affiliates	—		—		—
Total commercial	Total commercial	1.63		1.96		Total commercial	1.42		1.63		1.96
Consumer:	Consumer:					Consumer:
Residential mortgages	Residential mortgages	(.05)		(.05)		Residential mortgages	(.04)		(.05)		(.05)
Home equity mortgages	Home equity mortgages	3.01		3.03		Home equity mortgages	3.87		3.01		3.03
Credit cards	Credit cards	15.37		15.10		Credit cards	N/A		15.37		15.10
Other consumer	Other consumer	8.60		8.46		Other consumer	—		8.60		8.46
Total consumer	Total consumer	.90		.98		Total consumer	.05		.90		.98
Total loans	Total loans	1.39		1.63		Total loans	1.01		1.39		1.63
Net charge-offs:(2)	Net charge-offs:(2)					Net charge-offs:(2)
Commercial(3)	Commercial(3)	16,750	%	754	%	Commercial(3)	1,035	%	16,750	%	754	%
Consumer	Consumer	282		251		Consumer	5		282		251
Total net charge-offs	Total net charge-offs	1,236		540		Total net charge-offs	222		1,236		540
Nonperforming loans:(1)(4)	Nonperforming loans:(1)(4)					Nonperforming loans:(1)(4)
Commercial	Commercial	140	%	150	%	Commercial	134	%	140	%	150	%
Consumer	Consumer	15		17		Consumer	1		15		17
Total nonperforming loans	Total nonperforming loans	51		59		Total nonperforming loans	42		51		59

(1)Ratios exclude loans held for sale as these loans are carried at the lower of amortized cost or fair value.

(2)Ratios at June 30, 2021 and March 31, 2021 reflect year-to-date net charge-offs, annualized. Ratios at December 31, 2020 reflect full year net charge-offs.

(3)Our commercial net charge-off coverage ratio for the ~~quarter~~year-to-date periods ended June 30, 2021 and March 31, 2021 and year ended December 31, 2020 was 124 months, 2,010 months and 90 months, respectively. The net charge-off coverage ratio represents the commercial allowance for credit losses at period end divided by average monthly commercial net charge-offs during the period.

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(4)Represents our commercial and consumer allowance for credit losses, as appropriate, divided by the corresponding outstanding balance of total nonperforming loans held for investment. Nonperforming loans include accruing loans contractually past due 90 days or more.

N/A Not Applicable

See Note 6,7, "Allowance for Credit Losses," in the accompanying consolidated financial statements for a rollforward of credit losses by general loan categories for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

The allowance for credit losses on loans as a percentage of total loans held for investment at ~~March 31,~~June 30, 2021 decreased as compared with both March 31, 2021 and December 31, 2020 as the decrease in our allowance for credit losses for the reasons discussed above outpaced a decrease in total loans held for investment.

The allowance for credit losses on loans as a percentage of net charge-offs at June 30, 2021 decreased as compared with both March 31, 2021 ~~increased as compared with~~and December 31, 2020 ~~as a decrease in~~due to increased dollars of net charge-offs driven by ~~lower~~higher charge-offs in ~~our commercial loan portfolio and, to a lesser extent,~~ our consumer loan portfolio ~~outpaced~~due primarily to the transfer of our credit card loan portfolio to held for sale during the second quarter of 2021 as well as the decrease in our allowance for credit losses for the reasons discussed above. Also contributing to increased dollars of net charge-offs as compared with March 31, 2021 were higher charge-offs in our commercial loan portfolio due primarily to the sale of a global banking loan.

The allowance for credit losses on loans as a percentage of nonperforming loans held for investment at ~~March 31,~~June 30, 2021 decreased as compared with both March 31, 2021 and December 31, 2020 as the decrease in our allowance for credit losses for the reasons discussed above outpaced a decrease in nonperforming loans driven by lower nonperforming loans in both our commercial ~~loan portfolio, partially offset by higher nonperforming loans in our~~and consumer loan ~~portfolio.~~


~~HSBC USA Inc.~~

portfolios.

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and two-months-and-over contractual delinquency as a percentage of total loans, excluding loans held for sale ("delinquency ratio"). For COVID-19 related loan modifications in the form of a payment deferral, the borrower's past due status will not be affected during the deferral period.


		March 31, 2021					December 31, 2020					June 30, 2021				March 31, 2021						December 31, 2020
		Delinquent Loans		Delinquency Ratio				Delinquent Loans		Delinquency Ratio				Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio			Delinquent Loans		Delinquency Ratio
		(dollars are in millions)				(dollars are in millions)

Commercial	Commercial	$	194	.47	%			$	109	.26	%		Commercial	$	33	.09	%	$	194	.47	%		$	109	.26	%
Consumer:	Consumer:												Consumer:
Residential mortgages(1)(2)	Residential mortgages(1)(2)	400		2.17				404		2.20			Residential mortgages(1)(2)	372		2.32		400		2.17			404		2.20
Home equity mortgages(1)(2)	Home equity mortgages(1)(2)	25		3.58				25		3.44			Home equity mortgages(1)(2)	22		5.67		25		3.58			25		3.44
Credit cards	Credit cards	36		3.84				28		2.63			Credit cards	—		N/A		36		3.84			28		2.63
Other consumer	Other consumer	9		2.87				8		2.51			Other consumer	4		2.80		9		2.87			8		2.51
Total consumer	Total consumer	470		2.31				465		2.27			Total consumer	398		2.40		470		2.31			465		2.27
Total	Total	$	664	1.08				$	574	.92			Total	$	431	.79		$	664	1.08			$	574	.92

(1)At June 30, 2021, March 31, 2021 and December 31, 2020, consumer mortgage loan delinquency includes $289 million, $273 million and $281 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less costs to sell.

(2)The following table reflects dollars of contractual delinquency and delinquency ratios for interest-only loans and adjustable rate mortgage loans:


		March 31, 2021					December 31, 2020			June 30, 2021								March 31, 2021			December 31, 2020
		Delinquent Loan		Delinquency Ratio				Delinquent Loan			Delinquency Ratio			Delinquent Loans		Delinquency Ratio			Delinquent Loan		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
		(dollars are in millions)				(dollars are in millions)

Interest-only loans	Interest-only loans	$	33	.89	%			$	34		.94	%	Interest-only loans	$	34	.94	%		$	33	.89	%	$	34	.94	%
ARM loans	ARM loans	201		1.54				191			1.46		ARM loans	177		1.49			201		1.54		191		1.46

N/A Not Applicable

Our two-months-and-over contractual delinquency ratio ~~increased 16~~decreased 29 basis points and 13 basis points compared with March 31, 2021 and December 31, 2020, respectively, due ~~primarily~~ to ~~higher~~lower dollars of delinquency in both our commercial and consumer loan ~~portfolio.~~portfolios, partially offset by lower outstanding loan balances in both our consumer and commercial loan portfolios.

Our commercial loan two-months-and-over contractual delinquency ratio ~~increased 21~~decreased 38 basis points and 17 basis points compared with March 31, 2021 and December 31, 2020, respectively, due to ~~higher~~lower dollars of delinquency driven primarily by the collection of a global banking ~~client~~loan and, as compared with March 31, 2021, the sale of a global banking loan and the collection of a commercial real estate ~~client,~~loan, both of which became 60 days delinquent during the first quarter. The ~~increase~~decrease in ~~commercial loan dollars of delinquency was partially offset by collections on several corporate banking loans.~~

~~Our consumer loan two-months-and-over contractual delinquency~~the ratio ~~increased slightly compared with December 31, 2020 as an increase in dollars of delinquency in credit cards driven by customers that exited forbearance relief~~ was partially offset by lower ~~dollars of delinquency in residential mortgages.~~outstanding loan balances.

98115


HSBC USA Inc.

Our consumer loan two-months-and-over contractual delinquency ratio increased 9 basis points and 13 basis points compared with March 31, 2021 and December 31, 2020, respectively, as lower dollars of delinquency reflecting 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 the transfer of certain loans to held for sale during the second quarter of 2021, including $61 million of delinquent consumer loans, was more than offset by lower outstanding loan balances.

Net Charge-offs of Loans The following table summarizes net charge-off (recovery) dollars as well as net charge-off (recovery) of loans for the period as a percentage of average loans, excluding loans held for sale, ("net charge-off ratio"):


		Three Months Ended March 31,				Three Months Ended June 30,									Six Months Ended June 30,
			2021	2020							2021				2020				2021				2020
				Net Charge-off Dollars			Net Charge-off Ratio		Net Charge-off Dollars			Net Charge-off Ratio					Net Charge-off Dollars		Net Charge-off Ratio		Net Charge-off Dollars		Net Charge-off Ratio		Net Charge-off Dollars		Net Charge-off Ratio		Net Charge-off Dollars		Net Charge-off Ratio
				(dollars are in millions)										(dollars are in millions)

Commercial:	Commercial:															Commercial:

Business and corporate banking	Business and corporate banking			$	1		.03	%	$	10		.27	%			Business and corporate banking	$	13	.40	%	$	54	1.10	%	$	14	.21	%	$	64	.75	%
Global banking	Global banking			—			—		19			.42				Global banking	12		.39		—		—		12		.19		19		.19

Other commercial																Other commercial	—		—		(1)		(.08)		—		—		(1)		(.04)
Total commercial	Total commercial			1			.01		29			.23				Total commercial	25		.25		53		.37		26		.13		82		.31
Consumer:	Consumer:															Consumer:
Residential mortgages	Residential mortgages			(2)			(.04)		(3)			(.07)				Residential mortgages	5		.11		(2)		(.04)		3		.03		(5)		(.06)
Home equity mortgages	Home equity mortgages			(2)			(1.12)		—			—				Home equity mortgages	1		.69		(1)		(.50)		(1)		(.31)		(1)		(.25)
Credit cards	Credit cards			16			6.57		20			5.89				Credit cards	68		33.01		25		8.30		84		18.62		45		6.99
Other consumer	Other consumer			4			5.51		2			3.05				Other consumer	6		9.77		1		1.40		10		7.46		3		2.20
Total consumer	Total consumer			16			.32		19			.37				Total consumer	80		1.66		23		.45		96		.98		42		.41
Total	Total			$	17		.11		$	48		.27				Total	$	105	.71		$	76	.39		$	122	.41		$	124	.33

Our net charge-off ratio as a percentage of average loans ~~decreased 16~~increased 32 basis points during the three months ended ~~March 31,~~June 30, 2021 due ~~primarily~~ to a lower level of net charge-offs in our commercial loan portfolio driven by the sale of a global banking loan and deterioration of a corporate banking loan in the prior year period. Also contributing to the decrease, to a lesser extent, was a lowerhigher level of net charge-offs in our consumer loan portfolio due primarily to ~~lower charge-offs in credit cards reflecting a decline in~~the transfer of our credit card ~~balances. The decrease in our~~loan portfolio to held for sale during the second quarter of 2021 which increased net ~~charge-off ratio was partially offset~~charge-offs by $56 million as well as lower average loan balances driven by a decline in the commercial loan portfolio. Net charge-offs in our commercial loan portfolio were lower during the three months ended June 30, 2021 due primarily to the deterioration of two corporate banking loans in the prior year period.

In the year-to-date period, our net charge-off ratio as a percentage of average loans increased 8 basis points due primarily to lower average loan balances driven by a decline in the commercial loan portfolio. Net charge-offs in the year-to-date period were relatively flat as a lower level of net charge-offs in our commercial loan portfolio due primarily to the deterioration of two corporate banking loans in the prior year period was largely offset by a higher level of net charge-offs in our consumer loan portfolio due primarily to the transfer of our credit card loan portfolio to held for sale during the second quarter of 2021 as discussed above.

99116


HSBC USA Inc.

Nonperforming Loans The following table summarizes nonperforming loans, including nonaccrual loans and accruing loans contractually 90 days or more past due, as well as nonperforming loans as a percentage of total loans, excluding loans held for sale ("nonperforming ratio"):


		March 31, 2021				December 31, 2020					June 30, 2021		March 31, 2021				December 31, 2020
		Nonperforming Loans(1)		Nonperforming Ratio			Nonperforming Loans(1)		Nonperforming Ratio				Nonperforming Loans(1)		Nonperforming Ratio		Nonperforming Loans(1)		Nonperforming Ratio		Nonperforming Loans(1)		Nonperforming Ratio
		(dollars are in millions)									(dollars are in millions)

Commercial	Commercial	$	478	1.16	%		$	544	1.31	%		Commercial	$	402	1.06	%	$	478	1.16	%	$	544	1.31	%
Consumer:	Consumer:											Consumer:
Residential mortgages(2)(3)(4)	Residential mortgages(2)(3)(4)	1,101		5.98			1,079		5.87			Residential mortgages(2)(3)(4)	844		5.25		1,101		5.98		1,079		5.87
Home equity mortgages(2)(3)	Home equity mortgages(2)(3)	64		9.17			63		8.67			Home equity mortgages(2)(3)	50		12.89		64		9.17		63		8.67
Credit cards	Credit cards	28		2.99			19		1.78			Credit cards	—		N/A		28		2.99		19		1.78
Other consumer	Other consumer	3		.96			2		.63			Other consumer	—		—		3		.96		2		.63
Total consumer	Total consumer	1,196		5.87			1,163		5.68			Total consumer	894		5.39		1,196		5.87		1,163		5.68
Total	Total	$	1,674	2.72			$	1,707	2.75			Total	$	1,296	2.38		$	1,674	2.72		$	1,707	2.75

Other real estate owned(5)	Other real estate owned(5)	$	2				$	3				Other real estate owned(5)	$	2			$	2			$	3

(1)See Note 5,6, "Loans," in the accompanying consolidated financial statements for a breakout of nonaccrual loans and accruing loans contractually 90 days or more past due. At June 30, 2021, March 31, 2021 and December 31, 2020, total nonperforming loans include $1 million, $31 million and $21 million, respectively, of accruing loans contractually 90 days or more past ~~due, primarily credit cards and other consumer loans.~~due.

(2)At June 30, 2021, March 31, 2021 and December 31, 2020, nonperforming consumer mortgage loans include $343 million, $371 million and $375 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

(3)Nonperforming consumer mortgage loans held for investment include all loans which are 90 or more days contractually delinquent as well as loans discharged under Chapter 7 bankruptcy and not re-affirmed and second lien loans where the first lien loan that we own or service is 90 or more days contractually delinquent. At June 30, 2021, March 31, 2021 and December 31, 2020, nonaccrual consumer mortgage loans also included $384 million, $535 million and $590 million, respectively, of loans under COVID-19 related payment deferral programs where the borrowers utilized a payment deferral of more than six months and, as a result, have been placed on nonaccrual status.

(4)Nonperforming consumer mortgage loans for all periods does not include guaranteed loans purchased from the Government National Mortgage Association. Repayment of these loans is predominantly insured by the Federal Housing Administration and as such, these loans have different risk characteristics from the rest of our customer loan portfolio.

(5)Includes $1 million or less of commercial other real estate owned at June 30, 2021, March 31, 2021 and December 31, 2020.

N/A Not Applicable

Our nonperforming loans ratio decreased 334 basis points and 37 basis points compared with March 31, 2021 and December 31, 2020, respectively, due to lower nonperforming loans in both our commercial and consumer loan ~~portfolio,~~portfolios, partially offset by ~~higher nonperforming loans~~lower outstanding loan balances in both our consumer and commercial loan ~~portfolio.~~ portfolios.

Our commercial nonperforming loans ratio decreased 1510 basis points and 25 basis points compared with March 31, 2021 and December 31, 2020, respectively, due to lower nonperforming loans driven primarily by ~~the paydown~~paydowns of ~~two~~ global banking loans and the sale of a global banking loan, partially offset by ~~downgrades.~~ the downgrade of a commercial real estate loan. The decrease in the ratio was partially offset by lower outstanding loan balances.

Our consumer nonperforming loans ratio ~~increased 19~~decreased 48 basis points and 29 basis points compared with March 31, 2021 and December 31, 2020, respectively, due primarily to ~~higher~~lower nonperforming loans reflecting 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 ~~residential mortgages reflecting an increase in~~the transfer of certain loans to held for sale during the second quarter of 2021, including $206 million of nonperforming consumer loans, of which $21 million were accruing loans contractually 90 days or more past due. Lower nonperforming consumer loans also reflects payoffs as well as the impact of customers ~~that utilized a~~exiting forbearance relief ~~payment deferral of more than six months~~ and returning to ~~a lesser extent, higher nonperforming loans~~accruing status. The decrease in ~~credit cards driven~~the ratio was partially offset by ~~customers that exited forbearance relief.~~lower outstanding loan balances.

Our policies and practices for problem loan management and placing loans on nonaccrual status are summarized in Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," in our 2020 Form 10-K.

~~100~~117


HSBC USA Inc.

Concentration of Credit Risk A concentration of credit risk is defined as a significant credit exposure with an individual or group engaged in similar activities or affected similarly by economic conditions. We enter into a variety of transactions in the normal course of business that involve both on and off-balance sheet credit risk. Principal among these activities is lending to various commercial, institutional, governmental and individual customers throughout the United States and internationally. We manage the varying degrees of credit risk associated with on and off-balance sheet transactions through specific credit policies and procedures which provide for a strict approval, monitoring and reporting process. It is our policy to require collateral when it is deemed appropriate. Varying degrees and types of collateral are secured depending upon management's credit evaluation.

Commercial Credit Exposure Our commercial credit exposure is diversified across a broad range of industries. Commercial loans outstanding and unused commercial commitments by industry are presented in the table below:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Commercial Utilized		Unused Commercial Commitments		Commercial Utilized		Unused Commercial Commitments			Commercial Utilized		Unused Commercial Commitments		Commercial Utilized		Unused Commercial Commitments
		(in millions)									(in millions)
Real estate	Real estate	$	7,995	$	2,293	$	8,323	$	2,163	Real estate	$	7,590	$	2,058	$	8,323	$	2,163
Diversified financials	Diversified financials	6,878		12,571		7,644		13,058		Diversified financials	7,049		12,146		7,644		13,058
Consumer services	Consumer services	4,895		3,645		4,619		3,692		Consumer services	4,354		3,467		4,619		3,692
Retailing	Retailing	2,255		5,565		2,286		4,989		Retailing	2,162		6,068		2,286		4,989
Commercial and professional services										Commercial and professional services	2,088		5,536		1,877		5,245
Chemicals	Chemicals	2,028		3,887		2,012		4,025		Chemicals	1,788		4,247		2,012		4,025
Commercial and professional services		1,954		5,407		1,877		5,245
Capital goods	Capital goods	1,764		5,880		1,696		5,884		Capital goods	1,494		5,579		1,696		5,884
Energy		1,543		5,978		1,849		6,123
Consumer durables and apparel	Consumer durables and apparel	1,315		2,920		1,457		2,914		Consumer durables and apparel	1,307		3,413		1,457		2,914
Technology hardware and equipment	Technology hardware and equipment	1,110		7,207		1,329		7,054		Technology hardware and equipment	1,147		7,118		1,329		7,054
Banks		922		311		476		187
Energy										Energy	1,086		6,023		1,849		6,123
Utilities	Utilities	862		813		839		1,371		Utilities	849		1,218		839		1,371
Software and services	Software and services	825		2,307		823		2,322		Software and services	815		3,232		823		2,322
Telecommunication services										Telecommunication services	652		578		367		606
Food, beverage and tobacco										Food, beverage and tobacco	600		2,930		612		3,030
Health care equipment and services	Health care equipment and services	680		2,048		761		1,957		Health care equipment and services	599		2,091		761		1,957
Telecommunication services		655		578		367		606
Transportation										Transportation	565		481		676		398
Pharmaceuticals, biotechnology and life science	Pharmaceuticals, biotechnology and life science	598		3,660		605		3,912		Pharmaceuticals, biotechnology and life science	562		3,511		605		3,912
Food, beverage and tobacco		581		2,876		612		3,030
Transportation		581		526		676		398
Food and staples retailing	Food and staples retailing	469		2,173		522		2,055		Food and staples retailing	423		2,215		522		2,055
Metals and mining	Metals and mining	462		1,148		455		1,158		Metals and mining	357		1,163		455		1,158
Semiconductors & semiconductor equipment										Semiconductors & semiconductor equipment	354		1,694		705		1,951
Total commercial credit exposure in top 20 industries(1)	Total commercial credit exposure in top 20 industries(1)	38,372		71,793		39,228		72,143		Total commercial credit exposure in top 20 industries(1)	35,841		74,768		39,457		73,907
All other industries	All other industries	1,128		12,865		1,271		13,257		All other industries	710		11,697		1,042		11,493
Total commercial credit exposure(2)	Total commercial credit exposure(2)	$	39,500	$	84,658	$	40,499	$	85,400	Total commercial credit exposure(2)	$	36,551	$	86,465	$	40,499	$	85,400

(1)Based on utilization at ~~March 31,~~June 30, 2021.

(2)Excludes commercial credit exposures with affiliates.

~~101~~118


HSBC USA Inc.

Geographic Concentrations The following table reflects regional exposure at ~~March 31,~~June 30, 2021 and December 31, 2020 for our real estate secured loan ~~portfolios:~~portfolios, excluding agency-eligible residential mortgage loans held for sale:


		Commercial Real Estate, including Construction Loans		Residential Mortgages and Home Equity Mortgages			Commercial Real Estate, including Construction Loans		Residential Mortgages and Home Equity Mortgages
March 31, 2021
June 30, 2021						June 30, 2021
New York State	New York State	27.4	%	30.4	%	New York State	28.5	%	30.5	%
California	California	23.8		46.3		California	21.0		46.4
North Central United States	North Central United States	4.0		1.3		North Central United States	4.2		1.3
North Eastern United States, excluding New York State	North Eastern United States, excluding New York State	6.4		7.6		North Eastern United States, excluding New York State	6.3		7.4
Southern United States	Southern United States	30.7		9.3		Southern United States	31.9		9.2
Western United States, excluding California	Western United States, excluding California	7.7		5.1		Western United States, excluding California	8.1		5.2

Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%
December 31, 2020	December 31, 2020					December 31, 2020
New York State	New York State	27.1	%	30.6	%	New York State	27.1	%	30.6	%
California	California	25.6		45.9		California	25.6		45.9
North Central United States	North Central United States	3.9		1.4		North Central United States	3.9		1.4
North Eastern United States, excluding New York State	North Eastern United States, excluding New York State	6.2		7.7		North Eastern United States, excluding New York State	6.2		7.7
Southern United States	Southern United States	29.8		9.4		Southern United States	29.8		9.4
Western United States, excluding California	Western United States, excluding California	7.4		5.0		Western United States, excluding California	7.4		5.0

Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%

Residential Mortgage Loans Our consumer loan portfolio includes the following types of loans:

•Interest-only loans – A loan which allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period.

•Adjustable rate mortgage ("ARM") loans – A loan which allows us to adjust pricing on the loan in line with market movements.

The following table summarizes the balances of interest-only and ARM loans in our loan portfolios, excluding mortgages held for sale, at ~~March 31,~~June 30, 2021 and December 31, 2020. Each category is not mutually exclusive and loans may appear in more than one category below.


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)

Interest-only residential mortgage and home equity mortgage loans	Interest-only residential mortgage and home equity mortgage loans	$	3,703	$	3,597	Interest-only residential mortgage and home equity mortgage loans	$	3,627	$	3,597
ARM loans(1)	ARM loans(1)	13,083		13,038		ARM loans(1)	11,909		13,038

(1)During the remainder of 2021 and during 2022, approximately ~~$465~~$265 million and ~~$651~~$543 million, respectively, of the ARM loans will experience their first interest rate reset.

The following table summarizes the concentrations of first and second liens within the outstanding residential mortgage and home equity mortgage ~~portfolios. Amounts in the table exclude residential mortgage loans~~portfolios, excluding mortgages held for sale, ~~of $95 million and $208 million~~ at ~~March 31,~~June 30, 2021 and December 31, ~~2020, respectively.~~2020:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Closed end:	Closed end:					Closed end:
First lien	First lien	$	18,425	$	18,377	First lien	$	16,066	$	18,377
Second lien	Second lien	35		31		Second lien	22		31
Revolving(1)	Revolving(1)	663		696		Revolving(1)	366		696
Total	Total	$	19,123	$	19,104	Total	$	16,454	$	19,104

(1)A majority of revolving are second lien mortgages.

~~102~~119


HSBC USA Inc.

Credit Risks Associated with Derivative Contracts Credit risk associated with derivatives is measured as the net replacement cost of derivative contracts in a receivable position in the event the counterparties of such contracts fail to perform under the terms of those contracts. In managing derivative credit risk, both the current exposure, which is the replacement cost of contracts on the measurement date, as well as an estimate of the potential change in value of contracts over their remaining lives are considered. Counterparties to our derivative activities include financial institutions, central clearing parties, foreign and domestic government agencies, corporations, funds (mutual funds, hedge funds, etc.), insurance companies and private clients as well as other HSBC entities. These counterparties are subject to regular credit review by the credit risk management department. To minimize credit risk, we may enter into legally enforceable master netting agreements which reduce risk by permitting the closeout and netting of transactions with the same counterparty upon occurrence of certain events. In addition, we reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral will differ based on an assessment of the credit risk of the counterparty and/or regulatory requirements.

The total risk in a derivative contract is a function of a number of variables, such as:

•volatility of interest rates, currencies, equity or corporate reference entity used as the basis for determining contract payments;

•current market events or trends;

•country risk;

•maturity and liquidity of contracts;

•creditworthiness of the counterparties in the transaction;

•the existence of a master netting agreement among the counterparties; and

•existence and value of collateral received from counterparties to secure exposures.

The table below presents total credit risk exposure calculated using the general risk-based capital rules of the Basel III Standardized Approach which includes the net positive mark-to-market of the derivative contracts plus any adjusted potential future exposure as measured in reference to the notional amount. The regulatory capital rules recognize that bilateral netting agreements reduce credit risk and, therefore, allow for reductions of risk-weighted assets when netting requirements have been met and collateral exists. As a result, risk-weighted amounts for regulatory capital purposes are a portion of the original gross exposures. Furthermore, many contracts contain provisions that allow us to close out the transaction if the counterparty fails to post required collateral. In addition, many contracts give us the right to break the transactions earlier than the final maturity date. As a result, these contracts have potential future exposures that are often much smaller than the future exposures derived from the regulatory capital rules.


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in millions)					(in millions)
Risk associated with derivative contracts:	Risk associated with derivative contracts:					Risk associated with derivative contracts:
Total credit risk exposure	Total credit risk exposure	$	19,073	$	21,624	Total credit risk exposure	$	16,693	$	21,624
Less: collateral held against exposure	Less: collateral held against exposure	6,060		5,907		Less: collateral held against exposure	5,530		5,907
Net credit risk exposure	Net credit risk exposure	$	13,013	$	15,717	Net credit risk exposure	$	11,163	$	15,717

Liquidity and Capital Resources

Effective liquidity management is defined as ensuring we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, we have guidelines that require sufficient liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. Guidelines are set for the consolidated balance sheet of HSBC USA to ensure that it is a source of strength for our regulated, deposit-taking banking subsidiary, as well as to address the more limited sources of liquidity available to it as a holding company. Similar guidelines are set for HSBC Bank USA to ensure that it can meet its liquidity needs in various stress scenarios. Cash flow analysis, including stress testing scenarios, forms the basis for liquidity management and contingency funding plans.

During the first ~~quarter~~half of 2021, the COVID-19 pandemic continued to impact business and economic activity. We continue to actively monitor and control our liquidity and funding risk in accordance with HSBC policy. To date, we have not experienced any significant impact to our liquidity or funding capabilities as a result of the pandemic. See "Risk Management" in this MD&A for further discussion of our approach towards liquidity and funding risk management, including information regarding the key measures employed to define, monitor and control our liquidity and funding risk. We continuously monitor the impact of market events on our liquidity positions and will continue to adapt our framework as necessary to reflect market events.

~~103~~120


HSBC USA Inc.

Interest Bearing Deposits with Banks totaled ~~$53,607~~$48,504 million and $14,353 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, of which ~~$53,404~~$48,351 million and $13,895 million, respectively, were held with the Federal Reserve Bank. Balances may fluctuate from period to period depending upon our liquidity position at the time and our strategy for deploying liquidity. Surplus interest bearing deposits with the Federal Reserve Bank may be deployed into securities purchased under agreements to resell or other investments depending on market conditions and the opportunity to maximize returns.

Federal Funds Sold and Securities Purchased under Agreements to Resell totaled ~~$3,760~~$10,503 million and $35,746 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Balances may fluctuate from period to period depending upon our liquidity position at the time and our strategy for deploying liquidity.

Trading Assets includes securities totaling ~~$18,765~~$18,910 million and $19,494 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. See "Balance Sheet Review" in this MD&A for further analysis and discussion on trends.

Securities includes securities available-for-sale and securities held-to-maturity totaling ~~$42,496~~$41,475 million and $49,653 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. See "Balance Sheet Review" in this MD&A for further analysis and discussion on trends.

Short-Term Borrowings totaled ~~$5,243~~$3,806 million and $4,952 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. See "Balance Sheet Review" in this MD&A for further analysis and discussion on short-term borrowing trends.

Deposits totaled ~~$148,582~~$147,365 million and $145,150 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which included ~~$131,230~~$122,560 million and $125,586 million, respectively, of core deposits as calculated in accordance with FFIEC guidelines. See "Balance Sheet Review" in this MD&A for further analysis and discussion on deposit trends.

Long-Term Debt decreased to ~~$18,179~~$19,234 million at ~~March 31,~~June 30, 2021 from $19,979 million at December 31, 2020. The following table presents the maturities of long-term debt at ~~March 31,~~June 30, 2021:


		(in millions)			(in millions)
2021	2021	$	4,286	2021	$	2,699
2022	2022	2,870		2022	3,026
2023	2023	1,452		2023	1,474
2024	2024	1,506		2024	1,633
2025	2025	2,743		2025	4,765
Thereafter	Thereafter	5,322		Thereafter	5,637
Total	Total	$	18,179	Total	$	19,234

The following table summarizes issuances and retirements of long-term debt during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020:


Three Months Ended March 31,		2021		2020
Six Months Ended June 30,						Six Months Ended June 30,	2021		2020
		(in millions)					(in millions)
Long-term debt issued	Long-term debt issued	$	2,288	$	5,844	Long-term debt issued	$	5,317	$	6,350
Long-term debt repaid	Long-term debt repaid	(4,071)		(2,864)		Long-term debt repaid	(6,154)		(3,656)
Net long-term debt issued (repaid)	Net long-term debt issued (repaid)	$	(1,783)	$	2,980	Net long-term debt issued (repaid)	$	(837)	$	2,694

See "Balance Sheet Review" in this MD&A for further analysis and discussion on long-term debt trends, including additional information on debt issued and repaid during the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Under our shelf registration statement on file with the SEC, we may issue certain securities including debt securities and preferred stock. We satisfy the eligibility requirements for designation as a "well-known seasoned issuer," which allows us to file a registration statement that does not have a limit on issuance capacity. The ability to issue under the registration statement is limited by the authority granted by the Board of Directors. During the first quarter of 2021, due to an anticipated decrease in utilization of the shelf registration statement, the Board of Directors approved a reduction in the amount we are authorized to issue from $25,000 million at December 31, 2020 to $20,000 million, of which ~~$11,636~~$11,918 million was available at ~~March 31,~~June 30, 2021. HSBC Bank USA has a $40,000 million Global Bank Note Program that provides for the issuance of subordinated and senior notes, of which ~~$12,867~~$12,754 million was available at ~~March 31,~~June 30, 2021. We anticipate using the Global Bank Note Program more in the future as part of our efforts designed to minimize overall funding costs while accessing diverse funding channels.

As a member of the FHLB and the Federal Reserve Bank of New York, we have secured borrowing facilities which are collateralized by loans and investment securities. At ~~March 31,~~June 30, 2021, long-term debt included ~~$2,750~~$2,000 million of borrowings from the FHLB facility. Based upon the amounts pledged as collateral under these facilities, we have additional borrowing capacity of up to ~~$14,392~~$17,099 million.

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Preferred Equity See Note 18, "Preferred Stock," in our 2020 Form 10-K for information regarding all outstanding preferred share issues.

Common Equity During the ~~first quarter of~~six months ended June 30, 2021, HSBC USA did not receive any cash capital contributions from its parent, HSBC North America, and did not make any capital contributions to its subsidiary, HSBC Bank USA.

Capital Ratios In managing capital, we develop targets for common equity Tier 1 capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, total capital to risk-weighted assets, Tier 1 capital to adjusted quarterly average assets (i.e., the "Tier 1 leverage ratio") and Tier 1 capital to total leverage exposure (i.e., the "supplementary leverage ratio" or "SLR"). Capital targets are reviewed at least semi-annually to ensure they reflect our business mix and risk profile, as well as real-time conditions and circumstances. The following table summarizes HSBC USA's Basel III capital ratios calculated as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Common equity Tier 1 capital to risk-weighted assets(1)	Common equity Tier 1 capital to risk-weighted assets(1)	15.1	%	14.5	%	Common equity Tier 1 capital to risk-weighted assets(1)	15.6	%	14.5	%
Tier 1 capital to risk-weighted assets(1)	Tier 1 capital to risk-weighted assets(1)	16.2		15.6		Tier 1 capital to risk-weighted assets(1)	16.8		15.6
Total capital to risk-weighted assets(1)	Total capital to risk-weighted assets(1)	18.7		18.8		Total capital to risk-weighted assets(1)	19.0		18.8
Tier 1 leverage ratio(2)	Tier 1 leverage ratio(2)	8.8		8.6		Tier 1 leverage ratio(2)	9.0		8.6
Supplementary leverage ratio(3)(4)	Supplementary leverage ratio(3)(4)	8.3		7.8		Supplementary leverage ratio(3)(4)	6.9		7.8

(1)Prior period amounts have been revised to conform to the current period presentation. See Note ~~16,~~17, "Retained Earnings and Regulatory Capital Requirements," in the accompanying consolidated financial statements for further discussion.

(2)Adjusted quarterly average assets, the Tier 1 leverage ratio denominator, reflects quarterly average assets adjusted for amounts permitted to be deducted from Tier 1 capital.

(3)Total leverage exposure, the SLR denominator, includes adjusted quarterly average assets plus certain off-balance sheet exposures.

(4)As discussed further below, the rules that permitted banking institutions to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the denominator of their SLR expired on ~~April 1, 2021. As a result, HSBC USA's SLR decreased to approximately 6.7 percent at~~ April 1, 2021.

We manage capital in accordance with HSBC Group policy. The HSBC North America Internal Capital Adequacy Assessment Process ("ICAAP") works in conjunction with the HSBC Group's ICAAP. The HSBC North America ICAAP applies to HSBC Bank USA and evaluates regulatory capital adequacy and capital adequacy under various stress scenarios. Our approach is to meet our capital needs for these stress scenarios locally through activities which reduce risk. To the extent that local alternatives are insufficient, as a wholly-owned subsidiary of HSBC, we would seek support from our ultimate parent. Regulatory capital requirements are based on the amount of capital required to be held, plus applicable capital buffers, as defined by regulations, and the amount of risk-weighted assets and leverage exposure, also calculated based on regulatory definitions.

We are subject to regulatory capital rules issued by U.S. banking regulators including Basel III (the "Basel III rule"). The Basel III rule establishes minimum capital ratios and overall capital adequacy standards for banks and bank holding companies ("BHCs"). In 2019, the FRB and the other federal banking agencies jointly finalized rules to implement the Economic Growth, Regulatory Relief and Consumer Protection Act that tailor the application of the enhanced prudential standards for large BHC and foreign banking organizations (the "Tailoring Rules"). The Tailoring Rules assign each BHC and IHC with $50 billion or more in total U.S. assets into one of five classifications (Categories I through IV, and 'other firms') based on its size and four risk-based indicators. Under the Tailoring Rules, HSBC North America and HSBC Bank USA are subject to Category III standards and calculate their risk-based capital requirements for credit risk solely using the generally-applicable Standardized Approach. For additional discussion of the Basel III final rule requirements, including required minimum capital ratios, as well

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as further discussion of the Tailoring Rules and other related regulatory developments and their expected impact see Part I, ~~"Regulation~~

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"Regulation and Competition - Regulatory Capital and Liquidity Requirements," in our 2020 Form 10-K. We continue to review the composition of our capital structure and capital buffers in light of these developments.

Capital Planning and Stress Testing The FRB requires certain U.S. top-tier BHCs and IHCs, including HSBC North America, to comply with the FRB's capital plan rule and CCAR program, as well as the annual supervisory stress tests conducted by the FRB, and annual company-run stress tests as required under Dodd-Frank (collectively, "DFAST"). Disclosure of the company-run stress tests is required only every other year. The company-run stress tests are forward looking exercises to assess the impact of hypothetical macroeconomic baseline and severely adverse scenarios provided by the FRB (and internally developed scenarios for the company-run exercises) on the financial condition and capital adequacy of a CCAR firm over a nine quarter planning horizon. For further discussion of capital planning and stress testing, including detail regarding the FRB's supervisory assessment as part of the CCAR process, see Part I, "Regulation and Competition - Regulatory Capital and Liquidity Requirements," in our 2020 Form 10-K.

HSBC North America submitted its 2021 CCAR capital plan and its 2021 annual company-run DFAST results in April 2021. In ~~March~~July 2021, HSBC North America publicly disclosed its 2021 annual DFAST results. In June 2021, the FRB publicly disclosed its own DFAST and CCAR results and informed HSBC North America that it did not object to HSBC North America's capital plan or the planned capital distributions included in its 2021 CCAR submission. The FRB previously announced that it ~~intends~~intended to terminate restrictions on capital distributions put in place in connection with additional stress tests that the FRB conducted to assess the impact of the COVID-19 pandemic. ~~These additional restrictions on CCAR firms' distributions will remain in place through the second quarter of 2021, but will terminate for firms~~Firms with capital levels above the minimum requirements in the 2021 CCAR exercise, including HSBC North America, are no longer subject to the ~~results of which will be made public on or before~~additional restrictions after June 30, 2021. Under these additional restrictions, CCAR firms ~~may~~were allowed to make certain capital distributions in the first two quarters of 2021, provided that the distributions generally dodid not exceed net income.

HSBC North America submitted its 2021 CCAR capital plan and its 2021 annual company-run DFAST results in April 2021. HSBC North America will publicly disclose their latest annual DFAST results, as required, within 15 days of the FRB disclosing the results of its own DFAST results. The FRB will publicly disclose its own DFAST and CCAR results on or before June 30, 2021. Stress testing results are based solely on hypothetical adverse stress scenarios and should not be viewed or interpreted as forecasts of expected outcomes or capital adequacy or of the actual financial condition of HSBC North America. Capital planning and stress testing for HSBC North America may impact our future capital and liquidity.

While BHC regulatory capital compliance is generally performed at the HSBC North America level, and also separately for HSBC Bank USA, as a BHC we are required to meet minimum capital requirements imposed by the FRB. We present our capital ratios, together with HSBC Bank USA's in Note ~~16,~~17, "Retained Earnings and Regulatory Capital Requirements," in the accompanying consolidated financial statements.

2021 Funding Strategy Our current estimate for funding needs and sources for 2021 are summarized in the following table:


		Actual January 1 through March 31, 2021		Estimated April 1 through December 31, 2021		Estimated Full Year 2021			Actual January 1 through June 30, 2021		Estimated July 1 through December 31, 2021		Estimated Full Year 2021
		(in billions)							(in billions)
Increase (decrease) in funding needs:	Increase (decrease) in funding needs:							Increase (decrease) in funding needs:
Net change in loans	Net change in loans	$	—	$	3	$	3	Net change in loans	$	(3)	$	(1)	$	(4)
Net change in short-term investments and securities	Net change in short-term investments and securities	—		(4)		(4)		Net change in short-term investments and securities	1		(9)		(8)
Net change in trading and other assets	Net change in trading and other assets	(2)		—		(2)		Net change in trading and other assets	1		(1)		—
Total funding needs	Total funding needs	$	(2)	$	(1)	$	(3)	Total funding needs	$	(1)	$	(11)	$	(12)
Increase (decrease) in funding sources:	Increase (decrease) in funding sources:							Increase (decrease) in funding sources:
Net change in deposits	Net change in deposits	$	3	$	3	$	6	Net change in deposits	$	2	$	(4)	$	(2)
Net change in trading and other short-term liabilities	Net change in trading and other short-term liabilities	(3)		(2)		(5)		Net change in trading and other short-term liabilities	(3)		(2)		(5)
Net change in long-term debt	Net change in long-term debt	(2)		(2)		(4)		Net change in long-term debt	—		(5)		(5)
Total funding sources	Total funding sources	$	(2)	$	(1)	$	(3)	Total funding sources	$	(1)	$	(11)	$	(12)

The above table reflects a long-term funding strategy. Daily balances fluctuate as we accommodate customer needs, while ensuring that we have liquidity in place to support the balance sheet maturity funding profile. Should market conditions deteriorate, we have contingency plans to generate additional liquidity through the sales of assets or financing transactions. We remain confident in our ability to access the market for long-term debt funding needs in the current market environment. We continue to seek well-priced and stable customer deposits. We also continue to sell new agency-eligible mortgage loan originations to third parties. The above funding plan assumes that the announced sale of our mass market retail banking business will not be completed in 2021.

HSBC Bank USA is subject to significant restrictions imposed by federal law on extensions of credit to, and certain other 'covered transactions' with HSBC USA and other affiliates. For further discussion, see Part I, "Regulation and Competition - Affiliate Transaction Restrictions," in our 2020 Form 10-K.

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See "Risk Management" in this MD&A for further discussion relating to our liquidity contingency plans and our approach to liquidity and funding risk management.

Off-Balance Sheet Arrangements, Credit Derivatives and Other Contractual Obligations

As part of our normal operations, we enter into credit derivatives and various off-balance sheet arrangements with affiliates and third parties. These arrangements arise principally in connection with our lending and client intermediation activities and involve primarily extensions of credit and, in certain cases, guarantees.

As a financial services provider, we routinely extend credit through loan commitments and lines and letters of credit and provide financial guarantees, including derivative transactions having characteristics of a guarantee. The contractual amounts of these financial instruments represent our maximum possible credit exposure in the event that a counterparty draws down the full commitment amount or we are required to fulfill our maximum obligation under a guarantee.

The following table provides maturity information related to our credit derivatives and off-balance sheet arrangements. Many of these commitments and guarantees expire unused or without default. In addition, implementation of our business strategy (as described under the heading "Executive ~~Overview - 2020 Events"~~Overview" in our 2020 Form ~~10-K)~~10-K and in this MD&A) will affect our contractual obligations over time, including with respect to credit ~~derivatives.~~derivatives and consumer commitments. As a result, we believe that the contractual amount is not representative of the actual future credit exposure or funding requirements.


		Balance at March 31, 2021											Balance at June 30, 2021
		One Year or less		Over One through Five Years		Over Five Years		Total		Balance at December 31, 2020			One Year or less		Over One through Five Years		Over Five Years		Total		Balance at December 31, 2020

Standby letters of credit, net of participations(1)	Standby letters of credit, net of participations(1)	$	6,476	$	2,070	$	151	$	8,697	$	8,545	Standby letters of credit, net of participations(1)	$	5,899	$	2,088	$	156	$	8,143	$	8,545
Commercial letters of credit	Commercial letters of credit	240		66		—		306		197		Commercial letters of credit	288		67		—		355		197
Credit derivatives(2)	Credit derivatives(2)	2,117		12,960		886		15,963		19,500		Credit derivatives(2)	259		1,693		440		2,392		19,500
Other commitments to extend credit:	Other commitments to extend credit:											Other commitments to extend credit:
Commercial(3)	Commercial(3)	19,017		64,250		2,943		86,210		87,875		Commercial(3)	20,275		63,266		4,723		88,264		87,875
Consumer	Consumer	8,337		—		—		8,337		8,173		Consumer	8,168		—		—		8,168		8,173
Total	Total	$	36,187	$	79,346	$	3,980	$	119,513	$	124,290	Total	$	34,889	$	67,114	$	5,319	$	107,322	$	124,290

(1)Includes ~~$1,834~~$1,829 million and $1,836 million issued for the benefit of HSBC affiliates at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(2)Includes ~~$13,448~~$1,958 million and $13,550 million issued for the benefit of HSBC affiliates at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(3)Includes ~~$1,552~~$1,799 million and $2,475 million issued for the benefit of HSBC affiliates at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Other Commitments to Extend Credit Other commitments to extend credit include arrangements whereby we are contractually obligated to extend credit in the form of loans, participations in loans, lease financing receivables, or similar transactions. Commercial commitments comprise primarily those related to secured and unsecured loans and lines of credit. Consumer commitments comprise certain unused MasterCard/Visa credit card lines, where we have the right to change terms or conditions upon notification to the customer, and commitments to extend credit secured by residential properties, where we have the right to change terms or conditions, for cause, upon notification to the customer. ~~Commercial commitments comprise primarily those related to secured and unsecured loans and lines of credit.~~

In addition to the above, we have established and manage a number of constant net asset value ("CNAV") money market funds that invest in shorter-dated highly-rated money market securities to provide investors with a highly liquid and secure investment. These funds price the assets in their portfolio on an amortized cost basis, which enables them to create and liquidate shares at a constant price. The funds, however, are not permitted to price their portfolios at amortized cost if that amount varies by more than 50 basis points from the portfolio's market value. In that case, the fund would be required to price its portfolio at market value and consequently would no longer be able to create or liquidate shares at a constant price. We do not consolidate the CNAV funds because we do not absorb the majority of the expected future risk associated with the fund's assets, including interest rate, liquidity, credit and other relevant risks that are expected to affect the value of the assets.

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Fair Value

Fair Value Hierarchy Fair value measurement accounting principles establish a fair value hierarchy structure that prioritizes the inputs to determine the fair value of an asset or liability (the "Fair Value Framework"). The Fair Value Framework distinguishes between inputs that are based on observed market data and unobservable inputs that reflect market participants' assumptions. It emphasizes the use of valuation methodologies that maximize observable market inputs. For financial

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instruments carried at fair value, the best evidence of fair value is a quoted price in an actively traded market (Level 1). Where the market for a financial instrument is not active, valuation techniques are used. The majority of our valuation techniques use market inputs that are either observable or indirectly derived from and corroborated by observable market data for substantially the full term of the financial instrument (Level 2). Because Level 1 and Level 2 instruments are determined by observable inputs, less judgment is applied in determining their fair values. In the absence of observable market inputs, the financial instrument is valued based on valuation techniques that feature one or more significant unobservable inputs (Level 3). The determination of the level of fair value hierarchy within which the fair value measurement of an asset or a liability is classified often requires judgment and may change over time as market conditions evolve. We consider the following factors in developing the fair value hierarchy:

•whether the asset or liability is transacted in an active market with a quoted market price;

•the level of bid-ask spreads;

•a lack of pricing transparency due to, among other things, complexity of the product and market liquidity;

•whether only a few transactions are observed over a significant period of time;

•whether the pricing quotations differ substantially among independent pricing services;

•whether inputs to the valuation techniques can be derived from or corroborated with market data; and

•whether significant adjustments are made to the observed pricing information or model output to determine the fair value.

Level 1 inputs are unadjusted quoted prices in active markets that the reporting entity has the ability to access for identical assets or liabilities. A financial instrument is classified as a Level 1 measurement if it is listed on an exchange or is an instrument actively traded in the over-the-counter ("OTC") market where transactions occur with sufficient frequency and volume. We regard financial instruments such as debt securities, equity securities and derivative contracts listed on the primary exchanges of a country to be actively traded. Non-exchange-traded instruments classified as Level 1 assets include securities issued by the U.S. Treasury, to-be-announced securities, non-callable securities issued by U.S. Government sponsored enterprises and certain foreign government-backed debt.

Level 2 inputs are those that are observable either directly or indirectly but do not qualify as Level 1 inputs. We classify mortgage pass-through securities, agency and certain non-agency mortgage collateralized obligations, non-exchange-traded derivative contracts, asset-backed securities, obligations of U.S. states and political subdivisions, corporate debt securities, certain foreign government-backed debt, preferred securities, securities purchased and sold under resale and repurchase agreements, precious metals, certain loans held for sale, certain student loans held for investment, residential mortgage loans whose carrying amount was reduced based on the fair value of the underlying collateral and real estate owned as Level 2 measurements. Where possible, at least two quotations from independent sources are obtained based on transactions involving comparable assets and liabilities to validate the fair value of these instruments. We have established a process to understand the methodologies and inputs used by the third party pricing services to ensure that pricing information meets the fair value objective and, where appropriate, this pricing data is back-tested to market trade executions. Where significant differences arise among the independent pricing quotes and the internally determined fair value, we investigate and reconcile the differences. If the investigation results in a significant adjustment to the fair value, the instrument will be classified as Level 3 within the fair value hierarchy. In general, we have observed that there is a correlation between the credit standing and the market liquidity of a non-derivative instrument.

Level 2 derivative instruments are generally valued based on discounted future cash flows or an option pricing model adjusted for counterparty credit risk and market liquidity. The fair value of certain derivative products is determined using valuation techniques based on inputs derived from observable indices traded in the OTC market. Appropriate control processes and procedures have been applied to ensure that the derived inputs are applied to value only those instruments that share similar risks to the relevant benchmark indices and therefore demonstrate a similar response to market factors.

Level 3 inputs are unobservable estimates that management expects market participants would use to determine the fair value of the asset or liability. That is, Level 3 inputs incorporate market participants' assumptions about risk and the risk premium required by market participants in order to bear that risk. We develop Level 3 inputs based on the best information available in the circumstances. At ~~March 31,~~June 30, 2021 and December 31, 2020, our Level 3 measurements included the following: certain structured deposits and structured notes for which the embedded credit, foreign exchange or equity derivatives have significant

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unobservable inputs (e.g., volatility or default correlations), asset-backed credit default swaps with certain inputs which are unobservable, certain asset-backed securities, individually assessed commercial loans, mortgage servicing rights, derivatives referenced to illiquid assets of less desirable credit quality, ~~and~~ swap agreements entered into in conjunction with the sales of Visa Class B Shares for which the fair value is dependent upon the final resolution of the related ~~litigation.~~litigation and, at June 30, 2021, certain loans held for sale. See Note ~~19,~~20, "Fair Value Measurements," in the accompanying consolidated financial statements for additional information on Level 3 inputs.

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Level 3 Measurements The following table provides information about Level 3 assets/liabilities in relation to total assets/liabilities measured at fair value at ~~March 31,~~June 30, 2021 and December 31, 2020:


		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		(dollars are in millions)							(dollars are in millions)
Level 3 assets(1)(2)	Level 3 assets(1)(2)	$	932		$	1,118		Level 3 assets(1)(2)	$	1,545		$	1,118
Total assets measured at fair value(1)(3)	Total assets measured at fair value(1)(3)	84,509			98,640			Total assets measured at fair value(1)(3)	82,852			98,640
Level 3 liabilities(1)	Level 3 liabilities(1)	1,589			1,620			Level 3 liabilities(1)	2,005			1,620
Total liabilities measured at fair value(1)	Total liabilities measured at fair value(1)	36,700			49,380			Total liabilities measured at fair value(1)	32,007			49,380
Level 3 assets as a percent of total assets measured at fair value	Level 3 assets as a percent of total assets measured at fair value	1.1		%	1.1		%	Level 3 assets as a percent of total assets measured at fair value	1.9		%	1.1		%
Level 3 liabilities as a percent of total liabilities measured at fair value	Level 3 liabilities as a percent of total liabilities measured at fair value	4.3		%	3.3		%	Level 3 liabilities as a percent of total liabilities measured at fair value	6.3		%	3.3		%

(1)Presented without netting which allows the offsetting of amounts relating to certain contracts if certain conditions are met.

(2)Includes ~~$706~~$623 million of recurring Level 3 assets and ~~$226~~$922 million of non-recurring Level 3 assets at ~~March 31,~~June 30, 2021. Includes $845 million of recurring Level 3 assets and $273 million of non-recurring Level 3 assets at December 31, 2020.

(3)Includes ~~$83,954~~$81,646 million of assets measured on a recurring basis and ~~$555~~$1,206 million of assets measured on a non-recurring basis at ~~March 31,~~June 30, 2021. Includes $97,982 million of assets measured on a recurring basis and $658 million of assets measured on a non-recurring basis at December 31, 2020.

Significant Changes in Fair Value for Level 3 Assets and Liabilities During the second quarter of 2021, we transferred certain loans to held for sale which were determined to be Level 3 assets measured at fair value on a non-recurring basis. See Note ~~19,~~8, "Loans Held for Sale" in the accompanying consolidated financial statements for additional information.

See Note 20, "Fair Value Measurements," in the accompanying consolidated financial statements for information on additions to and transfers into (out of) Level 3 measurements during the three and six months ended ~~March 31,~~June 30, 2021 and 2020 as well as for further details including the classification hierarchy associated with assets and liabilities measured at fair value.

Effect of Changes in Significant Unobservable Inputs The fair value of certain financial instruments is measured using valuation techniques that incorporate pricing assumptions not supported by, derived from or corroborated by observable market data. The resultant fair value measurements are dependent on unobservable input parameters which can be selected from a range of estimates and may be interdependent. Changes in one or more of the significant unobservable input parameters may change the fair value measurements of these financial instruments. For the purpose of preparing the financial statements, the final valuation inputs selected are based on management's best judgment that reflect the assumptions market participants would use in pricing similar assets or liabilities.

The unobservable input parameters selected are subject to the internal valuation control processes and procedures. When we perform a test of all the significant input parameters to the extreme values within the range at the same time, it could result in an increase of the overall fair value measurement of approximately ~~$11~~$4 million or a decrease of the overall fair value measurement of approximately ~~$10~~$2 million at ~~March 31,~~June 30, 2021. The effect of changes in significant unobservable input parameters are primarily driven by the uncertainty in determining the fair value of credit derivatives executed against certain insurers and certain deal-contingent forward starting interest rate derivatives.

Risk Management

Overview Managing risk effectively is fundamental to the delivery of our strategic priorities.

We use a comprehensive risk management framework across the organization and across all risk types underpinned by our risk culture. This framework fosters continuous monitoring, promotes risk awareness and encourages sound operational and strategic decision-making. It also ensures a consistent approach to identifying, assessing, managing and reporting the risks we accept and incur in our activities.

Our Board of Directors has the ultimate responsibility for effective management of risk. It is advised on risk matters by the Risk Committee and the Compliance and Conduct Committee of the Board of Directors. In particular, the Risk Committee of the Board of Directors advises the Board of Directors on risk appetite and its alignment with our strategy, risk governance and

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internal controls as well as high-level risk related matters. Robust risk governance and accountability are embedded throughout our business through an established framework that helps to ensure appropriate oversight of and accountability for the effective management of risk.

Our material risks The principal risks associated with our operations include the following:

•Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract;

•Treasury risk is the risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, including pension risk. Treasury risk also includes the risk to our earnings due to changes in market interest rates;

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•Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios;

•Resilience risk is the risk that we are unable to provide critical services to our customers, affiliates and counterparties as a result of sustained and significant operational disruption;

•Regulatory compliance risk is the risk that we fail to observe the letter and spirit of relevant laws, codes, rules, regulations and standards of good market practice, which as a consequence incur fines and penalties and suffer damage to our business;

•Financial crime risk is the risk that we knowingly or unknowingly help parties to commit or to further potentially illegal activity, including money laundering, fraud, bribery and corruption, tax evasion, sanctions breaches, and terrorist and proliferation financing;

•Strategic risk is the risk that the business will fail to identify, execute and react appropriately to opportunities and/or threats arising from changes in the market, some of which may emerge over a number of years such as changing economic and political circumstances, customer requirements, demographic trends, regulatory developments or competitor action; and

•Model risk is the potential for adverse consequences from business decisions informed by models, which can be exacerbated by errors in methodology, design or the way they are used.

In the course of our regular risk management activities, we use models to help quantify the risk we are taking. We believe that the assumptions used in these models are reasonable within the parameters for which the models have been built and calibrated to operate, but events may unfold differently than what is assumed in the models. Consequently, actual results may differ significantly from model projections. The severe projections of macroeconomic variables during the current COVID-19 pandemic represent events outside the parameters for which the models have been built. As a result, adjustments to model outputs to reflect consideration of management judgment are used with stringent governance in place to ensure appropriate results. Where models do not require adjustments, enhanced model monitoring confirms models are performing as intended.

See "Risk Management" in MD&A in our 2020 Form 10-K for a more complete discussion of the objectives of our risk management system as well as our risk management policies and practices. Other than the change to financial crime risk management discussed below, there have been no material changes to our approach to risk management since December 31, 2020.

Credit Risk Management Credit risk is managed through a robust risk identification and control framework which outlines clear and consistent policies, principles and guidance for risk managers. Credit risk is monitored using various internal risk management measures and within limits approved by individuals within a framework of delegated authorities. Our credit risk management procedures are designed for all stages of economic and financial cycles, including challenging periods of market volatility and economic uncertainty. The impact of the COVID-19 pandemic continued to create economic uncertainty during the first ~~quarter~~half of 2021. We continue to monitor the performance of our material commercial loans as conditions evolve and take necessary credit actions where warranted. See "Risk Management" in MD&A in our 2020 Form 10-K for a more complete discussion of our approach to credit risk.

Treasury Risk Management We continuously monitor our capital ratios and the impact of market events on our liquidity positions and will continue to adapt our frameworks as necessary to reflect market events and the evolving regulatory landscape and view as to best practices. See "Risk Management" in MD&A in our 2020 Form 10-K for a more complete discussion of our approach to treasury risk.

Capital risk See "Liquidity and Capital Resources" in this MD&A for a discussion of our approach to capital risk management, including our capital ratios and regulatory capital requirements.

Liquidity and funding risk As part of our approach towards liquidity and funding risk management, we employ the measures discussed below to define, monitor and control our liquidity and funding risk in accordance with HSBC policy.

The Basel Committee based Liquidity Coverage Ratio ("LCR") is designed to be a short-term liquidity measure to ensure banks have sufficient High Quality Liquid Assets ("HQLA") to cover net stressed cash outflows over the next 30 days. At both ~~March 31,~~June

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30, 2021 and December 31, 2020, HSBC USA's LCR exceeded 100 percent. A LCR of 100 percent or higher reflects an unencumbered HQLA balance that is equal to or exceeds liquidity needs for a 30 calendar day liquidity stress scenario. HQLA consists of cash or assets that can be converted into cash at little or no loss of value in private markets. HSBC North America and HSBC Bank USA are also subject to the U.S. LCR rule and are required to report their LCR to U.S. regulators on a daily basis. Under the Tailoring Rules, an 85 percent LCR requirement applies to Category III firms with weighted short-term wholesale funding under $75 billion, including HSBC North America, and their depository institution subsidiaries, such as HSBC Bank USA, from 100 to 85 percent beginning January 1, 2020. 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

~~110~~


~~HSBC USA Inc.~~

liquidity needs for a 30 calendar day liquidity stress scenario. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, HSBC Bank USA's LCR under the U.S. LCR rule remained above the 100 percent minimum requirement.

The U.K. calibration of the Basel Committee based Net Stable Funding Ratio ("NSFR"), which is a longer term liquidity measure with a 12-month time horizon to ensure a sustainable maturity structure of assets and liabilities, is still pending. Therefore, our calculation of NSFR is based on our current interpretation and understanding of the Basel Committee NSFR guidance, which may differ in future periods depending on completion of the U.K. calibration. The U.K. NSFR rules are expected to become effective in January 2022. At both ~~March 31,~~June 30, 2021 and December 31, 2020, HSBC USA's estimated NSFR exceeded 100 percent. 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 the required amount of funding for assets and off-balance sheet exposures. 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 take~~which took effect July 1, 2021. Consistent with the Tailoring Rules, an 85 percent NSFR requirement ~~will apply~~applies to Category III firms with weighted short-term wholesale funding under $75 billion, including HSBC North America, and their depository institution subsidiaries, such as HSBC Bank ~~USA, when the final rule becomes effective July 1, 2021.~~USA. 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. At both ~~March 31,~~June 30, 2021 and December 31, 2020, HSBC Bank USA's estimated NSFR ~~based on our interpretation and understanding of~~under the U.S. NSFR rule exceeded 100 percent.

As a Category III firm, HSBC North America remains subject to liquidity stress testing on a monthly basis and related liquidity buffer and liquidity risk management requirements. HSBC North America and HSBC Bank USA have liquidity profiles to support compliance with these ~~rules. HSBC North America~~rules and ~~HSBC Bank USA~~ may need to make changes to their liquidity profiles to support compliance with any future ~~rules and will continue to evaluate the impact of the final U.S. NSFR rule on our operations.~~rules.

Our liquidity and funding risk management approach includes deposits, supplemented by wholesale borrowing to fund our balance sheet, and using security sales or secured borrowings for liquidity stress situations in our liquidity contingency plans. In addition, regulations require banks to retain a portfolio of HQLA. As such, we are maintaining a large portfolio of high quality sovereign and sovereign guaranteed securities.

Our ability to regularly attract wholesale funds at a competitive cost is enhanced by strong ratings from the major credit ratings agencies. The following table reflects the short and long-term credit ratings of HSBC USA and HSBC Bank USA at ~~March 31,~~June 30, 2021:


	Moody's	S&P	Fitch
HSBC USA:
Short-term borrowings	P-1	A-2	F1+
Long-term/senior debt	A2	A-	A+
HSBC Bank USA:
Short-term borrowings	P-1	A-1	F1+
Long-term/senior debt	Aa3	A+	AA-

Rating agencies continue to evaluate economic and geopolitical trends, regulatory developments, future profitability, risk management practices and legal matters, all of which could lead to adverse ratings actions.

In June 2021, Moody's downgraded both the long-term deposit rating and the adjusted baseline credit assessment of HSBC Bank USA by one notch following similar downgrades to the senior unsecured rating and the notional baseline credit assessment of HSBC. These rating downgrades reflect Moody's view that the HSBC Group will face challenges in restoring profitability to levels in line with its main peers in the next 12-18 months, which could reduce the capacity of HSBC to provide support to HSBC Bank USA in case of need. Concurrently, Moody's affirmed the standalone baseline credit assessment and the short-term deposit rating of HSBC Bank USA. While these rating actions did not have a material financial impact on our borrowing costs or liquidity, any future actions could have such an impact.

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HSBC USA Inc.

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 ~~March 31,~~June 30, 2021, ~~there were no pending actions in terms~~none of ~~changes to~~the ratings on the debt of HSBC USA or HSBC Bank USA from any of the rating ~~agencies.~~agencies were under review for potential downgrade.

See "Liquidity and Capital Resources" in this MD&A for further discussion of our liquidity position, including additional information regarding our outstanding borrowings, the remaining availability of our debt issuance programs and our funding strategy.

Interest rate risk Various techniques are utilized to quantify and monitor risks associated with the repricing characteristics of our assets, liabilities and derivative contracts. See "Risk Management" in MD&A in our 2020 Form 10-K for a more complete discussion of our approach to interest rate risk. Interest rate metrics have been adjusted to reflect the impact of our decision to exit our mass market retail banking business as part of our Restructuring Plan. The risk metrics at June 30, 2021 reflect current assumed transaction dates, with balances reduced at projected sale dates and the associated impacts of those reductions is included in both base and shock scenarios.

~~111~~


~~HSBC USA Inc.~~

Economic value of equity ("EVE") EVE represents the present value of the banking book cash flows that could be provided to our equity holder under a managed run-off scenario. An EVE sensitivity represents the change in EVE due to a defined movement in interest rates. We manage to an immediate parallel upward shock of 200 basis points and an immediate parallel downward shock of 200 basis points to the market implied interest rates. At both ~~March 31,~~June 30, 2021 and December 31, 2020, our EVE remained within risk ~~appetite~~limits for the up 200 and down 200 basis point interest rate shock scenarios.

Net interest income simulation modeling techniques We utilize simulation modeling to monitor a number of interest rate scenarios for their impact on projected net interest income. These techniques simulate the impact on projected net interest income under various scenarios, such as rate shock scenarios which assume immediate market rate movements by 100 basis points, as well as scenarios in which rates gradually rise or fall by 100 basis points over a twelve month period. In the gradual scenarios, 25 percent of the interest rate movement occurs at the beginning of each quarter. The following table reflects the impact on our projected net interest income of the scenarios utilized by these modeling techniques:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount		%		Amount		%			Amount		%		Amount		%
		(dollars are in millions)									(dollars are in millions)
Estimated increase (decrease) in projected net interest income (reflects projected rate movements on April 1, 2021 and January 1, 2021, respectively):
Estimated increase (decrease) in projected net interest income (reflects projected rate movements on July 1, 2021 and January 1, 2021, respectively):										Estimated increase (decrease) in projected net interest income (reflects projected rate movements on July 1, 2021 and January 1, 2021, respectively):
Resulting from a gradual 100 basis point increase in the yield curve	Resulting from a gradual 100 basis point increase in the yield curve	$	241	10	%	$	186	7	%	Resulting from a gradual 100 basis point increase in the yield curve	$	301	13	%	$	186	7	%
Resulting from a gradual 100 basis point decrease in the yield curve	Resulting from a gradual 100 basis point decrease in the yield curve	(261)		(11)		(213)		(8)		Resulting from a gradual 100 basis point decrease in the yield curve	(256)		(11)		(213)		(8)
Other significant scenarios monitored (reflects projected rate movements on April 1, 2021 and January 1, 2021, respectively):
Other significant scenarios monitored (reflects projected rate movements on July 1, 2021 and January 1, 2021, respectively):										Other significant scenarios monitored (reflects projected rate movements on July 1, 2021 and January 1, 2021, respectively):
Resulting from an immediate 100 basis point increase in the yield curve	Resulting from an immediate 100 basis point increase in the yield curve	361		15		274		11		Resulting from an immediate 100 basis point increase in the yield curve	468		20		274		11
Resulting from an immediate 100 basis point decrease in the yield curve	Resulting from an immediate 100 basis point decrease in the yield curve	(485)		(20)		(379)		(15)		Resulting from an immediate 100 basis point decrease in the yield curve	(486)		(21)		(379)		(15)

The projections do not take into consideration possible complicating factors such as the effect of changes in interest rates on the credit quality, size and composition of the balance sheet. Therefore, although this provides a reasonable estimate of interest rate sensitivity, actual results will differ from these estimates, possibly by significant amounts.

Market Risk Management Exposure to market risk is separated into two portfolios:

•Trading portfolios comprise positions arising from market-making and warehousing of client-derived positions.

•Non-trading portfolios comprise positions that primarily arise from the interest rate management of our retail and commercial banking assets and liabilities and financial investments classified as available-for-sale and held-to-maturity.

We apply similar risk management policies and measurement techniques to both trading and non-trading portfolios. Our objective is to manage and control market risk exposures to optimize return on risk while maintaining a market profile consistent with our established risk appetite. See "Risk Management" in MD&A in our 2020 Form 10-K for a more complete discussion of our approach to market risk.

Value at risk ("VaR") VaR is a technique for estimating potential losses on risk positions as a result of movements in market rates and prices over a specified time horizon and to a given level of confidence. The use of VaR is integrated into market risk management and calculated for all trading positions regardless of how we capitalize them. In addition, we calculate VaR for non-trading portfolios to have a complete picture of risk. VaR measures are calculated to a 99 percent confidence level and use a one-day holding period.

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HSBC USA Inc.

Trading portfolios Trading VaR generates primarily from the Markets and Securities Services unit of our GBM business segment. Portfolios comprise mainly foreign exchange products, ~~interest rate swaps, credit default swaps and~~ precious metals (i.e., gold, silver, platinum) ~~in both North America~~ and ~~emerging markets.~~credit default swaps.

~~112~~


~~HSBC USA Inc.~~

The following graph summarizes daily VaR for our trading portfolios at a 99 percent confidence level (in millions):

The following table summarizes our trading VaR for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and at December 31, 2020:


		Foreign exchange and commodity		Interest rate		Credit Spread		Portfolio Diversification(1)		Total(2)			Foreign exchange and commodity		Interest rate		Credit Spread		Portfolio Diversification(1)		Total(2)
		(in millions)											(in millions)
At March 31, 2021		$	3	$	8	$	1	$	(2)	$	10
At June 30, 2021												At June 30, 2021	$	3	$	8	$	2	$	(5)	$	8

Three Months Ended March 31, 2021
Six Months Ended June 30, 2021												Six Months Ended June 30, 2021
Average	Average	3		7		1		(3)		8		Average	3		8		2		(5)		8
Maximum	Maximum	5		10		2				12		Maximum	5		10		6				12
Minimum	Minimum	1		6		—				6		Minimum	1		6		—				6

At December 31, 2020	At December 31, 2020	$	3	$	7	$	2	$	(5)	$	7	At December 31, 2020	$	3	$	7	$	2	$	(5)	$	7

(1)Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in unsystematic market risk that occurs when combining a number of different risk types, for example, foreign exchange, interest rate and credit spread, together in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number represents the benefit of portfolio diversification. As the maximum and minimum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit for these measures.

(2)The total VaR is non-additive across risk types due to diversification effects. For presentation purposes, portfolio diversification of the VaR for trading portfolios includes VaR-based risk-not-in-VaR.

Back-testing We routinely validate the accuracy of our VaR models by back-testing them against hypothetical profit and loss that excludes non-modeled items such as fees, commissions and revenues of intra-day transactions from the actual reported profit and loss. We would expect, under stable market conditions, to see two or three losses in excess of VaR at the 99 percent confidence level over a one-year period. However, in periods of unstable market conditions, we could see an increase in the number of back-testing exceptions.

During the ~~first quarter of~~six months ended June 30, 2021, we experienced no loss back-testing exceptions.

Non-trading portfolios Non-trading VaR predominantly relates to Markets Treasury and represents the potential negative changes in the investment portfolio market value (which includes available-for-sale and held-to-maturity assets) and associated hedges. Our investment portfolio holdings comprise mainly U.S. Treasury, U.S. Government agency mortgage-backed and U.S. Government sponsored mortgage-backed securities. Our non-trading VaR exposure is driven by interest rates and agency spread volatility.

~~113~~130


HSBC USA Inc.

The following table summarizes our non-trading VaR for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and at December 31, 2020:


		Interest rate		Credit Spread		Portfolio Diversification(1)		Total(1)			Interest rate		Credit Spread		Portfolio Diversification(1)		Total(1)
		(in millions)									(in millions)
At March 31, 2021		$	120	$	64	$	(59)	$	125
At June 30, 2021										At June 30, 2021	$	97	$	54	$	(51)	$	100

Three Months Ended March 31, 2021
Six Months Ended June 30, 2021										Six Months Ended June 30, 2021
Average	Average	85		74		(61)		98		Average	95		66		(59)		102
Maximum	Maximum	126		83				128		Maximum	126		83				128
Minimum	Minimum	61		64				72		Minimum	61		52				72

At December 31, 2020	At December 31, 2020	$	69	$	66	$	(66)	$	69	At December 31, 2020	$	69	$	66	$	(66)	$	69

(1) Refer to the Trading VaR table above for additional information.

Non trading VaR was higher at ~~March 31,~~June 30, 2021 as compared with December 31, 2021 due primarily to an increase in volatility of interest rates and spread volatility on U.S. Treasury and U.S. Government agency mortgage-backed securities.

Non-trading VaR also includes the interest rate risk of non-trading financial assets and liabilities held by the global businesses and transfer priced into Markets Treasury which has the mandate to centrally manage and hedge it. See "Treasury Risk Management" above for a broader discussion on how interest rate risk is managed.

Financial Crime Risk Management The Financial Crime Risk Management Committee ("FCRMC"), chaired by the U.S. Head of Financial Crime and Bank Secrecy Act/Anti-Money Laundering Compliance Officer, served as the principal financial crime governance forum, responsible for the management of financial crime risk. As a reflection of the growing maturity and effectiveness of financial crime risk management, the functions of the FCRMC were integrated into the Risk Management Meeting ("RMM") during the first quarter of 2021. With this change, the RMM now oversees the risk management of both regulatory compliance and financial crime. There have been no other material changes to our approach to financial crime risk management since December 31, 2020.

~~114~~131


HSBC USA Inc.

CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES

The following table summarizes the quarter-to-date and year-to-date average daily balances of the principal components of assets, liabilities and equity together with their respective interest amounts and rates earned or paid. Net interest margin is calculated by dividing net interest income by the average interest earning assets from which interest income is earned. Loan interest for the three and six months ended ~~March 31,~~June 30, 2021 ~~and 2020~~ included fees of ~~$20~~$28 million and ~~$17~~$48 million, respectively, compared with fees of $19 million and $36 million during the three and six months ended June 30, 2020, respectively.


Three Months Ended March 31,		2021						2020

Three Months Ended June 30,															Three Months Ended June 30,	2021						2020
		Average Balance		Interest		Rate		Average Balance		Interest		Rate				Average Balance		Interest		Rate		Average Balance		Interest		Rate
		(dollars are in millions)												(dollars are in millions)
Assets:	Assets:														Assets:
Interest bearing deposits with banks	Interest bearing deposits with banks	$	29,184	$	7	.10	%	$	17,688	$	54	1.23	%		Interest bearing deposits with banks	$	53,780	$	15	.11	%	$	28,866	$	8	.11	%
Federal funds sold and securities purchased under resale agreements	Federal funds sold and securities purchased under resale agreements	24,652		9		.15		5,364		33		2.47			Federal funds sold and securities purchased under resale agreements	4,204		2		.19		11,117		15		.54
Trading securities	Trading securities	18,956		48		1.03		25,206		80		1.28			Trading securities	20,594		54		1.05		17,738		48		1.09
Securities	Securities	46,798		177		1.53		51,534		243		1.90			Securities	40,992		160		1.57		53,497		262		1.97
Loans:	Loans:														Loans:
Commercial	Commercial	41,443		282		2.76		50,525		448		3.57			Commercial	40,587		275		2.72		57,944		400		2.78
Consumer:	Consumer:														Consumer:
Residential mortgages	Residential mortgages	18,552		138		3.02		18,018		155		3.46			Residential mortgages	18,563		135		2.92		18,267		150		3.30
Home equity mortgages	Home equity mortgages	712		5		2.85		821		9		4.41			Home equity mortgages	676		4		2.37		804		5		2.50
Credit cards	Credit cards	989		21		8.61		1,358		20		5.92			Credit cards	896		21		9.40		1,217		18		5.95

Other consumer	Other consumer	291		5		6.97		262		6		9.21			Other consumer	288		6		8.36		285		7		9.88
Total consumer	Total consumer	20,544		169		3.34		20,459		190		3.74			Total consumer	20,423		166		3.26		20,573		180		3.52
Total loans	Total loans	61,987		451		2.95		70,984		638		3.61			Total loans	61,010		441		2.90		78,517		580		2.97
Other	Other	2,879		9		1.27		5,545		19		1.38			Other	2,671		4		.60		6,415		5		.31
Total interest earning assets	Total interest earning assets	$	184,456	$	701	1.54	%	$	176,321	$	1,067	2.43	%		Total interest earning assets	$	183,251	$	676	1.48	%	$	196,150	$	918	1.88	%
Allowance for credit losses	Allowance for credit losses	(991)						(457)							Allowance for credit losses	(799)						(1,060)
Cash and due from banks	Cash and due from banks	1,304						1,245							Cash and due from banks	1,232						1,119
Other assets	Other assets	14,322						11,881							Other assets	12,811						14,390

Total assets	Total assets	$	199,091					$	188,990						Total assets	$	196,495					$	210,599
Liabilities and Equity:	Liabilities and Equity:														Liabilities and Equity:
Domestic deposits:	Domestic deposits:														Domestic deposits:
Savings deposits	Savings deposits	$	68,118	$	31	.18	%	$	51,334	$	108	.85	%		Savings deposits	$	67,091	$	28	.17	%	$	62,230	$	71	.46	%
Time deposits	Time deposits	17,507		34		.79		29,971		164		2.20			Time deposits	12,962		24		.74		30,012		121		1.62
Other interest bearing deposits	Other interest bearing deposits	22,229		16		.29		13,482		43		1.28			Other interest bearing deposits	21,424		14		.26		21,223		6		.11
Foreign deposits:	Foreign deposits:														Foreign deposits:
Foreign banks deposits	Foreign banks deposits	5,401		—		.03		4,625		4		.35			Foreign banks deposits	5,946		1		.03		5,137		1		.08
Other interest bearing deposits	Other interest bearing deposits	271		—		—		761		2		1.06			Other interest bearing deposits	230		—		—		691		1		.58

Deposits held for sale															Deposits held for sale	2,773		2		.23		—		—		—
Total interest bearing deposits	Total interest bearing deposits	113,526		81		.29		100,173		321		1.29			Total interest bearing deposits	110,426		69		.25		119,293		200		.67
Short-term borrowings	Short-term borrowings	5,700		5		.36		10,558		40		1.52			Short-term borrowings	4,242		4		.38		10,795		15		.56
Long-term debt	Long-term debt	19,659		82		1.69		25,097		198		3.17			Long-term debt	19,031		78		1.64		25,466		162		2.56
Total interest bearing deposits and debt	Total interest bearing deposits and debt	138,885		168		.49		135,828		559		1.66			Total interest bearing deposits and debt	133,699		151		.45		155,554		377		.97
Tax liabilities and other	Tax liabilities and other	684		2		1.19		820		4		1.96			Tax liabilities and other	858		2		.93		496		3		2.43
Total interest bearing liabilities	Total interest bearing liabilities	$	139,569	$	170	.49	%	$	136,648	$	563	1.66	%		Total interest bearing liabilities	$	134,557	$	153	.46	%	$	156,050	$	380	.98	%
Net interest income/Interest rate spread	Net interest income/Interest rate spread			$	531	1.05	%			$	504	.77	%		Net interest income/Interest rate spread			$	523	1.02	%			$	538	.90	%
Noninterest bearing deposits	Noninterest bearing deposits	35,190						25,689							Noninterest bearing deposits	38,128						28,106
Other liabilities	Other liabilities	6,126						8,131							Other liabilities	5,735						8,169

Total equity	Total equity	18,206						18,522							Total equity	18,075						18,274
Total liabilities and equity	Total liabilities and equity	$	199,091					$	188,990						Total liabilities and equity	$	196,495					$	210,599
Net interest margin on average earning assets	Net interest margin on average earning assets					1.17	%					1.15	%		Net interest margin on average earning assets					1.14	%					1.10	%
Net interest income to average total assets	Net interest income to average total assets					1.08	%					1.07	%		Net interest income to average total assets					1.07	%					1.02	%

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Six Months Ended June 30,	2021						2020

	Average Balance		Interest		Rate		Average Balance		Interest		Rate
	(dollars are in millions)
Assets:
Interest bearing deposits with banks	$	41,550	$	22	.11	%	$	23,277	$	62	.54	%
Federal funds sold and securities purchased under resale agreements	14,371		11		.15		8,241		48		1.17
Trading securities	19,780		102		1.04		21,472		128		1.20
Securities	43,879		337		1.55		52,516		505		1.93
Loans:
Commercial	41,013		557		2.74		54,234		848		3.14
Consumer:
Residential mortgages	18,558		273		2.97		18,143		305		3.38
Home equity mortgages	694		9		2.62		813		14		3.46
Credit cards	942		42		8.99		1,288		38		5.93

Other consumer	289		11		7.68		273		13		9.58
Total consumer	20,483		335		3.30		20,517		370		3.63
Total loans	61,496		892		2.93		74,751		1,218		3.28
Other	2,774		13		.95		5,980		24		.81
Total interest earning assets	$	183,850	$	1,377	1.51	%	$	186,237	$	1,985	2.14	%
Allowance for credit losses	(894)						(758)
Cash and due from banks	1,268						1,182
Other assets	13,562						13,134

Total assets	$	197,786					$	199,795
Liabilities and Equity:
Domestic deposits:
Savings deposits	$	67,602	$	59	.18	%	$	56,782	$	179	.63	%
Time deposits	15,222		58		.77		29,992		285		1.91
Other interest bearing deposits	21,824		30		.28		17,353		49		.57
Foreign deposits:
Foreign banks deposits	5,675		1		.03		4,881		5		.21
Other interest bearing deposits	251		—		—		726		3		.83
Deposits held for sale	1,394		2		.23		—		—		—
Total interest bearing deposits	111,968		150		.27		109,734		521		.95
Short-term borrowings	4,967		9		.37		10,676		55		1.04
Long-term debt	19,343		160		1.67		25,282		360		2.86
Total interest bearing deposits and debt	136,278		319		.47		145,692		936		1.29
Tax liabilities and other	771		4		1.05		658		7		2.14
Total interest bearing liabilities	$	137,049	$	323	.48	%	$	146,350	$	943	1.30	%
Net interest income/Interest rate spread			$	1,054	1.03	%			$	1,042	.84	%
Noninterest bearing deposits	36,667						26,898
Other liabilities	5,930						8,149

Total equity	18,140						18,398
Total liabilities and equity	$	197,786					$	199,795
Net interest margin on average earning assets					1.16	%					1.12	%
Net interest income to average total assets					1.07	%					1.05	%

~~115~~133


HSBC USA Inc.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information required by this Item is included within Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in the Risk Management section under the captions "Treasury Risk Management - Interest Rate Risk" and "Market Risk Management."

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures We maintain a system of disclosure controls and procedures designed to ensure that information required to be disclosed by HSBC USA in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported on a timely basis. Our Board of Directors, operating through its Audit Committee, which is composed entirely of independent non-executive directors, provides oversight to our financial reporting process.

We conducted an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report so as to alert them in a timely fashion to material information required to be disclosed in reports we file under the Exchange Act.

Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting that occurred during the quarter ended ~~March 31,~~June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

See Note ~~20,~~21, "Litigation and Regulatory Matters," in the accompanying consolidated financial statements for our legal proceedings disclosure, which is incorporated herein by reference.

Item 5. Other Information

Disclosures pursuant to Section 13(r) of the Securities Exchange Act Section 13(r) of the Securities Exchange Act requires each issuer registered with the SEC to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions with persons or entities targeted by U.S. sanctions programs relating to Iran, terrorism, or the proliferation of weapons of mass destruction, even if those activities are not prohibited by U.S. law and are conducted outside the U.S. by non-U.S. affiliates in compliance with local laws and regulations.

To comply with this requirement, HSBC has requested relevant information from its affiliates globally. During the period covered by this Form 10-Q, HUSI did not engage in activities or transactions requiring disclosure pursuant to Section 13(r) other than those activities related to frozen accounts and transactions permitted under relevant U.S. sanctions programs described under "Frozen Accounts and Transactions" below. The following activities conducted by our affiliates are disclosed in response to Section 13(r):

Legacy contractual obligations related to guarantees Between 1996 and 2007, the HSBC Group provided guarantees to a number of its non-Iranian customers in Europe and the Middle East for various business activities in Iran. In a number of cases, the HSBC Group issued counter indemnities involving Iranian banks as the Iranian beneficiaries of the guarantees required that they be backed directly by Iranian banks. The Iranian banks to which the HSBC Group provided counter indemnities included Bank Tejarat, Bank Melli, and the Bank of Industry and Mine.

There was no measurable gross revenue in the ~~first~~second quarter of 2021 under those guarantees and counter indemnities. The HSBC Group does not allocate direct costs to fees and commissions and, therefore, has not disclosed a separate net profit measure. The HSBC Group is seeking to cancel all relevant guarantees and counter indemnities, and does not currently intend to provide any new guarantees or counter indemnities involving Iran. ~~None~~Two guarantees were cancelled in the ~~first~~second quarter of 2021 and approximately 1715 remain outstanding.

~~116~~134


HSBC USA Inc.

Other relationships with Iranian banks Activity related to U.S.-sanctioned Iranian banks not covered elsewhere in this disclosure includes the matter described below.

The HSBC Group acts as the trustee and administrator for a pension scheme involving eight employees of a U.S.-sanctioned Iranian bank in Hong Kong. Under the rules of this scheme, the HSBC Group accepts contributions from the Iranian bank each month and allocates the funds into the pension accounts of the Iranian bank’s employees. The HSBC Group runs and operates this pension scheme in accordance with Hong Kong laws and regulations. Estimated gross revenue, which includes fees and/or commissions, generated by this pension scheme during the ~~first~~second quarter of 2021, was approximately ~~$632.~~$724.

For the Iranian bank related-activity discussed above, the HSBC Group does not allocate direct costs to fees and commissions and, therefore, has not disclosed a separate net profit measure.

The HSBC Group has been holding a safe custody box for the Central Bank of Iran. For a number of years, the box has not been accessed by the Central Bank of Iran, and no fees have been charged to the Central Bank of Iran.

The HSBC Group currently intends to continue to wind down the ~~activity discussed in this section,~~above activities, to the extent legally permissible, and not enter into any new such activity.

Activity related to U.S. Executive Order 13224 During the second quarter of 2021, the HSBC Group processed two small domestic local currency payments on behalf of United Kingdom ("U.K.") customers to a U.K.-registered charity that is designated under Executive Order 13224, but that is not sanctioned by the U.K., European Union, or the United Nations Security Council.

There was no measurable gross revenue or net profit to the HSBC Group during the second quarter of 2021 relating to these transactions.

Other activity The HSBC Group has an insurance company customer in the United Arab Emirates that, during the ~~first~~second quarter of 2021, made local currency payments for the reimbursement of medical treatment to a hospital located in the United Arab Emirates and owned by the Government of Iran. The HSBC Group processed these payments to the hospital made by its customer.

The HSBC Group has ~~a customer~~two customers in the United Arab Emirates that, during the ~~first~~second quarter of 2021, received a local currency ~~check~~checks from a hospital located in the United Arab Emirates and owned by the Government of Iran. The HSBC Group processed ~~this check~~these checks from the hospital to its ~~customer.~~customers.

The HSBC Group has a customer in the United Arab Emirates that, during the ~~first~~second quarter of 2021, received asmall local currency ~~check~~checks from an ~~Iranian-owned~~ insurance ~~company.~~company owned by the Government of Iran. The HSBC Group processed ~~this check~~these checks from the insurance company to its ~~customer.~~customers.

The HSBC Group has two customers in France that, during the ~~first~~second quarter of 2021, each received a local currency payment from an Iranian-owned bank in relation to management charges for property owned by the Iranian-owned bank. The HSBC Group processed these payments to its customers.

The HSBC Group has a customer in ~~Hong Kong~~Malta that, during the ~~first~~second quarter of 2021, ~~received local currency salary payments from an Iranian-owned bank.~~made a Euro-denominated payment to the Iranian Consulate in Rome for passport renewal fees. The HSBC Group processed ~~these payments to its customer.~~this payment.

For these activities, there was no measurable gross revenue or net profit to the HSBC Group during the ~~first~~second quarter of 2021.

Frozen accounts and transactions The HSBC Group and HSBC Bank USA maintain several accounts that are frozen as a result of relevant sanctions programs, and safekeeping boxes and other similar custodial relationships, for which no activity, except as licensed or otherwise authorized, took place during the ~~first~~second quarter of 2021. There was no measurable gross revenue or net profit to the HSBC Group during the ~~first~~second quarter of 2021 relating to these frozen accounts.

~~117~~

135


HSBC USA Inc.

Item 6. Exhibits


3(i)			Articles of Incorporation and amendments and supplements thereto (incorporated by reference to Exhibit 3(a) to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999, Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed April 4, 2005, Exhibit 3.3 to HSBC USA Inc.'s Current Report on Form 8-K filed April 4, 2005, Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed October 14, 2005, Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed May 22, 2006 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed on May 31, 2016).

3(ii)			Bylaws of HSBC USA Inc., as Amended and Restated effective April 13, 2021 (incorporated by reference to Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed April 14, 2021).















31			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document(1)

101.SCH			Inline XBRL Taxonomy Extension Schema Document(1)

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document(1)

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document(1)

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document(1)

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document(1)

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in our Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2021, formatted in Inline eXtensible Business Reporting Language ("Inline XBRL"): (i) the Consolidated Statement of Income (Loss) for the three and six months ended ~~March 31,~~June 30, 2021 and 2020, (ii) the Consolidated Statement of Comprehensive ~~Loss~~Income (Loss) for the three and six months ended ~~March 31,~~June 30, 2021 and 2020, (iii) the Consolidated Balance Sheet at ~~March 31,~~June 30, 2021 and December 31, 2020, (iv) the Consolidated Statement of Changes in Equity for the three and six months ended ~~March 31,~~June 30, 2021 and 2020, (v) the Consolidated Statement of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, and (vi) the Notes to Consolidated Financial Statements.

~~118~~136


HSBC USA Inc.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, HSBC USA Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~April 27,~~August 2, 2021


HSBC USA INC.

By:						/s/ KAVITA MAHTANI
						Kavita Mahtani
						Senior Executive Vice President and
						Chief Financial Officer

~~119~~137



	As Previously Reported		After Reporting Changes
	(in millions)
Segment profit (loss) before tax during the three months ended March 31, 2020:
RBWM	$	(546)	NR
WPB	NR		$	(869)
CMB	(3)		(2)
GBM	43		45
PB	(323)		NR
CC	(169)		(172)









Segment total assets at March 31, 2020:
RBWM	$	18,954	NR
WPB	NR		$	58,246
CMB	31,540		42,882
GBM	114,802		165,838
PB	7,159		NR
CC	97,154		2,643

Segment total deposits at March 31, 2020:
RBWM	$	39,083	NR
WPB	NR		$	48,800
CMB	32,309		32,844
GBM	40,417		42,671
PB	8,201		NR
CC	4,305		0