HSBC USA Inc FY2013 Form 10-K - Part 2

RNS Number : 7409A

HSBC Holdings PLC

24 February 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note		Page	Note		Page
1	Organization................................................................		16	Fair Value Option........................................................
2	Summary of Significant Accounting Policies and New Accounting Pronouncements......................		17	Income Taxes...............................................................
3	Discontinued Operations..........................................		18	Preferred Stock............................................................
4	Trading Assets and Liabilities..................................		19	Accumulated Other Comprehensive Income (Loss)............................................................................
5	Securities......................................................................		20	Share-Based Plans......................................................
6	Loans............................................................................		21	Pension and Other Postretirement Benefits............
7	Allowance for Credit Losses.....................................		22	Related Party Transactions.......................................
8	Loans Held for Sale....................................................		23	Business Segments....................................................
9	Properties and Equipment, Net.................................		24	Retained Earnings and Regulatory Capital Requirements...............................................................
10	Intangible Assets........................................................		25	Variable Interest Entities............................................
11	Goodwill.......................................................................		26	Guarantee Arrangements, Pledged Assets and Collateral......................................................................
12	Deposits.......................................................................		27	Fair Value Measurements..........................................
13	Short-Term Borrowings..............................................		28	Litigation and Regulatory Matters...........................
14	Long-Term Debt..........................................................		29	Financial Statements of HSBC USA Inc. (Parent)..
15	Derivative Financial Instruments.............................			.......................................................................................
	.......................................................................................

1. Organization

HSBC USA Inc. ("HSBC USA"), incorporated under the laws of Maryland, is a New York State based bank holding company and an indirect 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"). HSBC USA (together with its subsidiaries, "HUSI") may also be referred to in these notes to the consolidated financial statements as "we", "us" or "our".

Through our subsidiaries, we offer a comprehensive range of consumer and commercial banking products and related financial services. HSBC Bank USA, National Association ("HSBC Bank USA"), our principal U.S. banking subsidiary, is a national banking association with banking branch offices and/or representative offices in 16 states and the District of Columbia. In addition to our domestic offices, we maintain foreign branch offices, subsidiaries and/or representative offices in Europe, Asia, Latin America, and Canada. Our customers include individuals, including high net worth individuals, small businesses, corporations, institutions and governments. We also engage in mortgage banking and serve as an international dealer in derivative instruments denominated in U.S. dollars and other currencies, focusing on structuring transactions to meet clients' needs.

2. Summary of Significant Accounting Policies and New Accounting Pronouncements

Significant Accounting Policies

Basis of Presentation The consolidated financial statements include the accounts of HSBC USA and all subsidiaries in which we hold, directly or indirectly, more than 50 percent of the voting rights, or where we exercise control, including all variable interest entities ("VIEs") in which we are the primary beneficiary. Investments in companies where we have significant influence over operating and financing decisions, which primarily are those where the percentage of ownership is at least 20 percent but not more than 50 percent, are accounted for under the equity method and reported as equity method investments in other assets. All significant intercompany accounts and transactions have been eliminated.

We assess whether an entity is a VIE and, if so, whether we are its primary beneficiary at the time of initial involvement with the entity and on an ongoing basis. A VIE is an entity in which the equity investment at risk is not sufficient to finance the entity's activities, the equity investors lack certain characteristics of a controlling financial interest, or voting rights are not proportionate to the economic interests of equity investors and the entity's activities are conducted primarily on behalf of investors having few voting rights. A VIE must be consolidated by its primary beneficiary, which is the entity with 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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Areas which we consider to be critical accounting estimates and require a high degree of judgment and complexity include allowance for credit losses, goodwill impairment, valuation of financial instruments, derivatives held for hedging, mortgage servicing rights, deferred tax asset valuation allowances and contingent liabilities.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. In addition, a reduction in trading assets and trading liabilities of $5.1 billion at December 31, 2012 was made to properly reflect the elimination of certain affiliate inter-company balances relating to trading derivatives. We have determined that this correction had no impact to any other consolidated financial information presented for 2012.

In May 2013, we consolidated our commercial paper conduit variable interest entity, otherwise known as Bryant Park Funding LLC ("Bryant Park") upon the completion of a restructuring of that entity. See Note 25, "Variable Interest Entities" for further details. The consolidation of Bryant park did not have a significant impact to our consolidated assets or liabilities.

Unless otherwise indicated, information included in these notes to the consolidated financial statements relates to continuing operations for all periods presented. In 2012, we completed the sale of all of our private label cards and substantially all of our credit card receivables to Capital One Financial Corporation. In 2011, we completed the exit of the wholesale banknotes business operated through our U.S. and Asian entities. As a result, these asset groups are reported as discontinued operations. See Note 3, "Discontinued Operations," for further details.

Cash and Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks.

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

The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the consolidated balance sheets at the amount advanced or borrowed, plus accrued interest to date. Interest earned on resale agreements is reported as interest income. Interest paid on repurchase agreements is reported as interest expense. We offset resale and repurchase agreements executed with the same counterparty under legally enforceable netting agreements that meet the applicable netting criteria as permitted by generally accepted accounting principles.

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 monitored, and additional collateral is obtained or provided when appropriate, to ensure appropriate collateral coverage of these secured financing transactions.

Trading Assets and Liabilities Financial instruments utilized in trading activities are stated at fair value. Fair value is generally based on quoted market prices. If quoted market prices are not available, fair values are estimated based on dealer quotes, pricing models, using observable inputs where available or quoted prices for instruments with similar characteristics. The validity of internal pricing models is regularly substantiated by reference to actual market prices realized upon sale or liquidation of these instruments and such models are periodically validated by a group independent of the front office. Realized and unrealized gains and losses are recognized in trading revenues.

Trading assets and liabilities include precious metals deposited by customers with us in exchange for general claims on our physical unallocated precious metals inventory. We measure this inventory and related claims at fair value using the spot prices of the respective underlying metals and recognize changes in spot prices in trading revenue.

Securities Debt securities that we have the ability and intent to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to yield over the contractual lives of the related securities. Securities acquired principally for the purpose of selling them in the near term are classified as trading assets and reported at fair value. Fair value adjustments to trading securities and gains and losses on the sale of such securities are reported in other revenues (losses) as trading revenues.

Equity securities that are not quoted on a recognized exchange are not considered to have a readily determinable fair value, and are recorded at cost, less any provisions for impairment. Unquoted equity securities, which include Federal Home Loan Bank stock, Federal Reserve Bank stock and Visa Class B securities, are recorded in other assets.

All other securities are classified as available-for-sale and carried at fair value, with unrealized gains and losses, net of related income taxes, recorded as adjustments to common shareholder's equity as a component of accumulated other comprehensive income.

Realized gains and losses on sales of securities not classified as trading assets are computed on a specific identified cost basis and are reported in other revenues (losses) as security gains, net. When the fair value of a security has declined below its amortized cost basis, we evaluate the decline to assess if it is considered other-than-temporary. For debt securities that we intend to sell or for which it is more likely than not that we will be required to sell before the recovery of its amortized cost basis, the decline in fair value below the security's amortized cost is deemed to be other than temporary and we recognize an other-than-temporary impairment loss in earnings equal to the difference between the security's amortized cost and its fair value. We measure impairment loss for equity securities that are deemed other-than-temporarily impaired in the same manner. For a debt security that we do not intend to sell and for which it is not more likely than not that we will be required to sell prior to recovery of its amortized cost basis, but for which we nonetheless do not expect to recover the entire amortized cost basis of the security, we recognize the portion of the decline in the security's fair value below its amortized cost that represents a credit loss as an other-than-temporary impairment in earnings and the remaining portion of the decline as an other-than-temporary impairment in other comprehensive income. For these debt securities, a new cost basis is established, which reflects the amount of the other-than-temporary impairment loss recognized in earnings.

Loans Loans are stated at amortized cost, which represents the principal amount outstanding, net of unearned income, charge offs, unamortized purchase premium or discount, unamortized nonrefundable fees and related direct loan origination costs and purchase accounting fair value adjustments. The carrying amount of loans represents their amortized cost reduced by the allowance for credit losses.

Premiums and discounts and purchase accounting fair value adjustments are recognized as adjustments to yield over the expected lives of the related loans. Interest income is recorded based on the interest method.

Troubled debt restructurings are loans for which the original contractual terms have been modified to provide for terms that are less than we would be willing to accept for new loans with comparable risk because of deterioration in the borrower's financial condition. Interest on these loans is recognized when collection is reasonably assured. For commercial loans, the resumption of interest accrual generally occurs when the borrower has complied with the new payment terms and conditions for six months while maintaining a debt service coverage ratio greater than one with the loan balances fully collateralized. For consumer loans, interest accruals are resumed when the loan becomes current or becomes less than 90 days delinquent and six months of consecutive payments have been made. Modifications resulting in troubled debt restructurings may include changes to one or more terms of the loan, including but not limited to, a change in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of principal or accrued interest.

Nonrefundable fees and related direct costs associated with the origination of loans are deferred and netted against outstanding loan balances. The amortization of net deferred fees, which include points on real estate secured loans and costs, is recognized in interest income, generally by the interest method, based on the estimated or contractual lives of the related loans. Amortization periods are periodically adjusted for loan prepayments and changes in other market assumptions. Annual fees on MasterCard/Visa credit card and home equity lines of credit ("HELOC"), net of direct lending costs, are deferred and amortized on a straight-line basis over one year.

Nonrefundable fees related to lending activities other than direct loan origination are recognized as other revenues over the period in which the related service is provided. This includes fees associated with the issuance of loan commitments where the likelihood of the commitment being exercised is considered remote. In the event of the exercise of the commitment, the remaining unamortized fee is recognized in interest income over the loan term using the interest method. Other credit-related fees, such as standby letter of credit fees, loan syndication and agency fees are recognized as other operating income over the period the related service is performed.

Allowance for Credit Losses We maintain an allowance for credit losses that is, in the judgment of management, adequate to absorb estimated probable incurred losses in our commercial and consumer loan portfolios. The adequacy of the allowance for credit losses is assessed in accordance with generally accepted accounting principles and is based, in part, upon an evaluation of various factors including:

• an analysis of individual exposures where applicable;

• current and historical loss experience;

• changes in the overall size and composition of the portfolio; and

• specific adverse situations and general economic conditions.

We also assess the overall adequacy of the allowance for credit losses by considering key ratios such as reserves to nonperforming loans and reserves as a percentage of net charge offs in developing our loss reserve estimates. Loss estimates are reviewed periodically and adjustments are reported in earnings when they become known. As these estimates are influenced by factors outside of our control, such as consumer payment patterns and economic conditions, there is uncertainty inherent in these estimates, making it reasonably possible they could change.

For individually assessed commercial loans, we conduct a periodic assessment on a loan-by-loan basis of losses we believe to be inherent in the loan portfolio. When it is deemed probable, based upon known facts and circumstances, that full contractual interest and principal on an individual loan will not be collected in accordance with its contractual terms, the loan is considered impaired. An impairment reserve is established based on the present value of expected future cash flows, discounted at the loan's original effective interest rate, or as a practical expedient, the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, impaired loans include loans in nonaccruing status, loans which have been assigned a specific allowance for credit losses, loans which have been partially charged off, and loans designated as troubled debt restructurings. Problem commercial loans are assigned various obligor grades under the allowance for credit losses methodology. In assigning the obligor ratings to a particular loan, among the risk factors considered are the obligor's debt capacity and financial position, the level of earnings, the amount and sources for repayment, the level of contingencies, management strength and the industry or geography in which the obligor operates.

Formula-based reserves are also established against commercial loans when, based upon an analysis of relevant data, it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated, even though an actual loss has yet to be identified. This methodology uses the probability of default from the customer risk rating assigned to each counterparty. The "Loss Given Default" rating assigned to each transaction or facility is based on the collateral securing the transaction and the measure of exposure based on the transaction. Specifically, the presence of collateral (secured vs. unsecured), the loan-to-value ratio and the quality of the collateral are the primary drivers of Loss Given Default. A separate reserve for credit losses associated with off-balance sheet exposures including unfunded lending commitments such as letters of credit, guarantees to extend credit and financial guarantees is also maintained and included in other liabilities, which incorporates estimates of the probability that customers will actually draw upon off-balance sheet obligations. These reserves are determined by reference to continuously monitored and updated historical loss rates or factors, derived from a migration analysis which considers net charge off experience by loan and industry type in relation to internal customer credit grading.

Probable incurred losses for pools of homogeneous consumer loans other than troubled debt restructurings are generally estimated using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency, or buckets, and ultimately charge off. This analysis considers delinquency status, loss experience and severity and takes into account whether loans are in bankruptcy or have been subject to account management actions, such as the re-age of accounts or modification arrangements. The allowance for credit losses on consumer receivables also takes into consideration the loss severity expected based on the underlying collateral, if any, for the loan in the event of default based on historical and recent trends. In addition, loss reserves are maintained on consumer and commercial receivables to reflect our judgment of portfolio risk factors which may not be fully reflected in the statistical roll rate calculation or when historical trends are not reflective of current inherent losses in the loan portfolio. Risk factors considered in establishing the allowance for credit losses on receivables include, as appropriate, growth, including expansion into new lending markets, geographic and customer concentrations, product mix and risk selection, unemployment rates, loan product features such as adjustable rate loans, economic conditions such as industry and business performance and trends in housing markets and interest rates, portfolio seasoning, account management policies and procedures, model imprecision, changes in laws and regulations, and other items which can affect payment patterns on outstanding loans such as natural disasters.

Provisions for credit losses on commercial and consumer loans for which we have modified the loan terms as part of a troubled debt restructuring ("TDR Loans") are determined using a discounted cash flow impairment analysis or in the case of certain loans which are solely dependent on the collateral for repayment, the estimated fair value of the collateral less costs to sell. During the third quarter of 2011, we adopted a new Accounting Standards Update which provided additional guidance for determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring for purposes of the identification and reporting of TDR Loans as well as for recording impairment. Under this new guidance, we determined that substantially all consumer loans modified as a result of financial difficulty, including all modifications with trial periods regardless of whether the modification was permanent or temporary, should be reported as TDR Loans. For residential mortgage loans purchased from HSBC Finance Corporation ("HSBC Finance"), we determined that all re-ages, except first time early stage delinquency re-ages where the customer has not been granted a prior re-age or modification since the first quarter of 2007, should be considered a TDR Loan. We believe that multiple or later stage delinquency re-ages or a need for a modification to any of the loan terms other than to provide a market rate of interest provides evidence that the borrower is experiencing financial difficulty. Prior to 2011, substantially all consumer loans that had been granted a modification greater than twelve months were considered TDR Loans. Modifications 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 or accrued interest. As a result of regulatory guidance adopted in the fourth quarter of 2012, TDR Loans also include loans discharged under Chapter 7 bankruptcy and not re-affirmed.

TDR Loans are considered to be impaired loans. Interest income on TDR Loans is recognized when collection is reasonably assured. For consumer loans, once a 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 a TDR loan subsequently performs in accordance with the new terms and such terms represent current market rates at the time of restructure, such loan will be no longer be reported as a TDR beginning in the year after restructure.

Charge-Off and Nonaccrual Policies and Practices Our charge-off and nonaccrual policies differ by product and are summarized below:

Product	Charge-off Policies and Practices	Nonaccrual Policies and Practices
Commercial Loans Construction and other real estate Business and corporate banking Global banking Other commercial	Commercial loan balances are charged off at the time all or a portion of the balance is deemed uncollectible.	Loans are generally categorized as nonaccruing when contractually delinquent for more than 90 days and in the opinion of management, reasonable doubt exists with respect to the ultimate collectibility of interest or principal based on certain factors including the period of time past due and adequacy of collateral. When classified as nonaccruing, any accrued interest recorded on the loan is generally deemed uncollectible and reversed against income. Interest income is subsequently recognized only to the extent of cash received until the loan is placed on accrual status. In instances where there is doubt as to collectibility of principal, interest payments received are applied to principal. Loans are not reclassified as accruing until interest and principal payments are current and future payments are reasonably assured.
Residential Mortgage Loans	Carrying amounts in excess of fair value less costs to sell are generally charged off at or before the time foreclosure is completed 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. If foreclosure is not pursued and there is no reasonable expectation for recovery, the account is generally charged off no later than the end of the month in which the account becomes six months contractually delinquent.⁽¹⁾	Loans are generally designated as nonaccruing when contractually delinquent for more than three months. When classified as nonaccruing, any accrued interest on the loan is generally deemed uncollectible and reversed against income. Interest accruals are resumed when the loan either becomes current or becomes less than 90 days delinquent and six months of consecutive payments have been made.
Credit Cards	Loan balances are generally charged off by the end of the month in which the account becomes six months contractually delinquent.	Interest generally accrues until charge-off.
Other Consumer Loans	Loan balances are generally charged off by the end of the month in which the account becomes four months contractually delinquent.	Interest generally accrues until charge-off.

⁽¹⁾Values are determined based upon broker price opinions or appraisals which are updated at least every 180 days. During the quarterly period between updates, real estate price trends are reviewed on a geographic basis and additional downward adjustments are recorded as necessary. Fair values of foreclosed properties at the time of acquisition are initially determined based upon broker price opinions. Subsequent to acquisition, a more detailed property valuation is performed, reflecting information obtained from a walk-through of the property in the form of a listing agent broker price opinion as well as an independent broker price opinion or appraisal. A valuation is determined from this information within 90 days and any additional write-downs required are recorded through charge-off at that time. In determining the appropriate amounts to charge-off when a property is acquired in exchange for a loan, we do not consider losses on sales of foreclosed properties resulting from deterioration in value during the period the collateral is held because these losses result from future loss events which cannot be considered in determining the fair value of the collateral at the acquisition date in accordance with generally accepted accounting principles.

Charge-offs involving a bankruptcy for credit card receivables occurs by the end of the month, 60 days after notification or 180 days contractually delinquent, whichever comes first.

Delinquency status for loans is determined using the contractual method which is based on the 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 may be affected by customer account management policies and practices such as the restructure, re-age or modification of accounts.

Payments received on nonaccrual loans are generally applied to reduce the carrying amount of such loans.

Loans Held for Sale With the exception of leveraged loans and commercial loans for which the fair value option has been elected, certain residential mortgage whole loans, consumer receivables and commercial loans are classified as held for sale and are accounted for at the lower of cost or fair value. Where available, we measure held-for-sale residential mortgage whole loans based on transaction prices of similar loan portfolios observed in the whole loan market with adjustments 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. The fair value estimates of consumer receivables and commercial loans are determined primarily using the discounted cash flow method with estimated inputs in prepayment rates, default rates, loss severity, and market rate of return. Increases in the valuation allowance utilized to adjust held-for-sale loans to fair value, and subsequent recoveries of prior allowances recorded, are recorded in other income in the consolidated statement of income (loss). Receivables are classified as held for sale when management no longer intends, or no longer has the ability, to hold the receivables for the foreseeable future or until maturity or payoff. While receivables are held for sale, the carrying amounts of any unearned income, unamortized deferred fees or costs (on originated receivables), or discounts and premiums (on purchased receivables) are not amortized into earnings.

Transfers of Financial Assets and Securitizations Transfers of financial assets in which we have surrendered control over the transferred assets are accounted for as sales. In assessing whether control has been surrendered, we consider whether the transferee would be a consolidated affiliate, the existence and extent of any continuing involvement in the transferred financial assets and the impact of all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of transfer. Control is generally considered to have been surrendered when (i) the transferred assets have been legally isolated from us and our consolidated affiliates, even in bankruptcy or other receivership, (ii) the transferee (or, if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing that is constrained from pledging or exchanging the assets it receives, each third-party holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received without any constraints that provide more than a trivial benefit to us, and (iii) neither we nor our consolidated affiliates and agents have (a) both the right and obligation under any agreement to repurchase or redeem the transferred assets before their maturity, (b) the unilateral ability to cause the holder to return specific financial assets that also provides us with a more-than-trivial benefit (other than through a cleanup call) and (c) an agreement that permits the transferee to require us to repurchase the transferred assets at a price so favorable that it is probable that it will require us to repurchase them.

If the sale criteria are met, the transferred financial assets are removed from our balance sheet and a gain or loss on sale is recognized. If the sale criteria are not met, the transfer is recorded as a secured borrowing in which the assets remain on our balance sheet and the proceeds from the transaction are recognized as a liability. For the majority of financial asset transfers, it is clear whether or not we have surrendered control. For other transfers, such as in connection with complex transactions or where we have continuing involvement such as servicing responsibilities, we generally obtain a legal opinion as to whether the transfer results in a true sale by law.

Properties and Equipment, Net Properties and equipment are recorded at cost, net of accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the related assets, which generally range from 3 to 40 years. Leasehold improvements are depreciated over the shorter of the useful life of the improvement or the term of the lease. The costs of maintenance and repairs are expensed as incurred. Impairment testing is performed whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Mortgage Servicing Rights Residential mortgage servicing rights ("MSRs") are initially measured at fair value at the time that the related loans are sold and are periodically re-measured using the fair value measurement method. Residential MSRs are measured at fair value at each reporting date with changes in fair value reflected in earnings in the period that the changes occur.

MSRs are subject primarily to interest rate risk, in that their fair value will fluctuate as a result of changes in the interest rate environment. Fair value is determined based upon the application of valuation models and other inputs. The valuation models incorporate assumptions market participants would use in estimating future cash flows. These assumptions include expected prepayments, default rates and market based option adjusted spreads.

We use certain derivative financial instruments, including Treasury and Eurodollar futures, options and interest rate swaps, to protect against a decline in the economic value of MSRs. These instruments have not been designated as qualifying hedges and are therefore recorded as trading assets that are marked-to-market through earnings.

Goodwill Goodwill, representing the excess of purchase price over the fair value of identifiable net assets acquired, results from business combinations. Goodwill is not amortized, but is reviewed for impairment at a minimum on an annual basis at the reporting unit level using discounted cash flow and market approaches. The market approach focuses on valuation multiples for reasonably similar publicly traded companies and also considers recent market transactions, while the discounted cash flows method utilizes cash flow estimates based on internal forecasts updated to reflect current economic conditions and discount rates that we believe adequately reflect the risk and uncertainty in our internal forecasts and are appropriate based on the implicit market rates in current comparable transactions. Impairment is reviewed as of an interim date if circumstances indicate that it is more likely than not that the carrying amount of a reporting unit is above fair value. The carrying amount of a reporting unit is determined on the basis of capital invested in the unit including attributable goodwill. We determine the invested capital of a reporting unit by applying to the reporting unit's risk-weighted assets a capital charge that, prior to the fourth quarter of 2013, was consistent with Basel 2.5 requirements, and additionally, allocating to that unit the remaining carrying amount of HUSI's net assets that is attributable to that unit. Accordingly, the entire carrying amount of HUSI's net assets is allocated to our reporting units. During the fourth quarter of 2013, in conjunction with the preparation of HSBC North America's first Comprehensive Capital Analysis and Review ("CCAR") submission and HSBC Bank USA's first Dodd-Frank Act Stress Testing ("DFAST") submission along with the finalization of Basel III rules, we made the decision to manage our businesses to a higher common equity Tier 1 ratio and, for years beginning with 2015, that we would calculate risk-weighted assets in our projections for goodwill impairment testing purposes based on Basel III advanced requirements (as opposed to Basel 2.5). We consider significant and long-term changes in industry and economic conditions to be examples of primary indicators of potential impairment.

Repossessed Collateral Collateral acquired in satisfaction of a loan is initially recognized at the lower of amortized cost or the collateral's fair value less estimated costs to sell and is reported in other assets. Once a property is classified as real estate owned ("REO"), we do not consider the losses on past sales of foreclosed properties when determining the fair value of any collateral during the period it is held in REO. Any subsequent declines in fair value less estimated costs to sell are recorded through a valuation allowance. Recoveries in fair value less estimated costs to sell are recognized as a reduction of the valuation allowance but not in excess of cumulative losses previously recognized subsequent to the date of repossession. Adjustments to the valuation allowance, costs of holding repossessed collateral, and any gain or loss on disposition are credited or charged to operating expense.

Collateral We pledge assets as collateral as required for various transactions involving security repurchase agreements, public deposits, Treasury tax and loan notes, derivative financial instruments, short-term borrowings and long-term borrowings. Non-cash assets that have been pledged as collateral, including those that can be sold or repledged by the secured party, continue to be reported on our consolidated balance sheet.

We also accept collateral, primarily as part of various transactions involving security resale agreements. Non-cash collateral accepted by us, including collateral that we can sell or repledge, is excluded from our consolidated balance sheet. If we resell the collateral, we recognize the proceeds and a liability to return the collateral.

The market value of collateral we have accepted or pledged is regularly monitored and additional collateral is obtained or provided as necessary to ensure appropriate collateral coverage in these transactions.

Derivative Financial Instruments Derivative financial instruments are recognized on the consolidated balance sheet at fair value. On the date a derivative contract is entered into, we designate it as either:

• a qualifying hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge);

• a qualifying hedge of the variability of cash flows to be received or paid related to a recognized asset, liability or forecasted transaction (cash flow hedge); or

• a trading instrument or a non-qualifying (economic) hedge.

Changes in the fair value of a derivative designated as a fair value hedge, along with the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current period earnings. Changes in the fair value of a derivative that has been designated as a cash flow hedge, to the extent effective as a hedge, are recorded in accumulated other comprehensive income, net of income taxes, and reclassified into earnings in the period during which the hedged item affects earnings. Ineffectiveness in the hedging relationship is reflected in current period earnings. Changes in the fair value of derivatives held for trading purposes or which do not qualify for hedge accounting are reported in current period earnings.

At the inception of each designated qualifying hedge, we formally document all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions, the nature of the hedged risk, and how hedge effectiveness will be assessed and how ineffectiveness will be measured. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess both at inception and on a quarterly basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items and whether they are expected to continue to be highly effective in future periods. This assessment is conducted using statistical regression analysis.

Earnings volatility may result from the on-going mark to market of certain economically viable derivative contracts that do not satisfy the hedging requirements under U.S. GAAP, as well as from the hedge ineffectiveness associated with the qualifying hedges.

Embedded Derivatives We may acquire or originate a financial instrument that contains a derivative instrument "embedded" within it. Upon origination or acquisition of any such instrument, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the principal component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.

When we determine that: (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is either separated from the host contract (bifurcated), carried at fair value, and designated as a trading instrument or the entire financial instrument is carried at fair value with all changes in fair value recorded to current period earnings. If bifurcation is elected, the consideration for the hybrid financial instrument that is allocated to the bifurcated derivative reduces the consideration that is allocated to the host contract with the difference being recognized over the life of the financial instrument.

Hedge Discontinuation We discontinue hedge accounting prospectively when:

• the derivative is no longer effective or expected to be effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions) related to the designated risk;

• the derivative expires or is sold, terminated, or exercised;

• it is unlikely that a forecasted transaction will occur;

• the hedged firm commitment no longer meets the definition of a firm commitment; or

• the designation of the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value or cash flow hedge, the hedging relationship will cease. The hedging instrument will continue to be carried on the balance sheet at fair value.

In the case of a discontinued fair value hedge of a recognized asset or liability, as long as the hedged item continues to exist on the balance sheet, the hedged item will no longer be adjusted for changes in fair value attributable to the hedged risk. The basis adjustment that had previously been recorded to the hedged item during the period from the hedge designation date to the hedge discontinuation date is recognized as an adjustment to the yield of the hedged item over the remaining life of the hedged item.

In the case of a discontinued cash flow hedge of a recognized asset or liability, as long as the hedged item continues to exist on the balance sheet, further changes in fair value of the hedging derivative will no longer be recorded in other comprehensive income. The balance applicable to the discontinued hedging relationship will be recognized in earnings over the remaining life of the hedged item as an adjustment to yield. If the discontinued hedged item was a forecasted transaction where it is probable the forecasted transaction will not occur at the end of the original specified time period or within an additional two-month period thereafter, any amounts recorded in accumulated other comprehensive income are immediately reclassified to current period earnings.

In the case of a cash flow hedge, if the previously hedged item is sold or extinguished, the basis adjustment to the underlying asset or liability or any remaining unamortized other comprehensive income balance will be reclassified to current period earnings.

In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value on the consolidated balance sheet, with changes in its fair value recognized in current period earnings unless redesignated in a qualifying cash flow hedge.

Interest Rate Lock Commitments We enter into commitments to originate residential mortgage loans whereby the interest rate on the loan is set prior to funding (rate lock commitments). The interest rate lock commitments on residential mortgage loans that are classified as held for sale are considered to be derivatives and are recorded at fair value in other assets or other liabilities in the consolidated balance sheet. Changes in fair value are recorded in other income in the consolidated statement of income (loss).

Share-Based Compensation We use the fair value based method of accounting for awards of HSBC stock granted to employees under various stock options, restricted share and employee stock purchase plans. Stock compensation costs are recognized prospectively for all new awards granted under these plans. Compensation expense relating to restricted share rights, restricted shares and restricted share units is based upon the fair value on the date of grant and is charged to earnings over the requisite service period (e.g., vesting period). Compensation expense relating to share options is calculated using a methodology that is based on the underlying assumptions of the Black-Scholes option pricing model and is charged to expense over the requisite service period (e.g., vesting period), generally one to five years. When modeling awards with vesting that is dependent on performance targets, these performance targets are incorporated into the model using Monte Carlo simulation. The expected life of these awards depends on the behavior of the award holders, which is incorporated into the model consistent with historical observable data.

Pension and Other Postretirement Benefits We recognize the funded status of the postretirement benefit plans on the consolidated balance sheet. Net postretirement benefit cost charged to current earnings related to these plans is based on various actuarial assumptions regarding expected future experience.

Certain employees are participants in various defined contribution, defined benefit or other non-qualified supplemental retirement plans sponsored by HSBC North America. Our contributions to these plans are charged to current earnings.

We maintain various 401(k) plans covering substantially all employees. Employer contributions to the plan, which are charged to current earnings, are based on employee contributions.

Income Taxes HSBC USA is included in HSBC North America's consolidated federal income tax return and in various combined state income tax returns. As such, we have entered into a tax allocation agreement with HSBC North America and its subsidiary entities ("the HNAH Group") included in the consolidated return which governs the current amount of taxes to be paid or received by the various entities included in the consolidated return filings. Generally, such agreements allocate taxes to members of the HNAH Group based on the calculation of tax on a separate return basis, adjusted for the utilization or limitation of credits of the consolidated group. To the extent all the tax attributes available cannot be currently utilized by the consolidated group, the proportionate share of the utilized attribute is allocated based on each affiliate's percentage of the available attribute computed in a manner that is consistent with the taxing jurisdiction's laws and regulations regarding the ordering of utilization. In addition, we file some unconsolidated state tax returns.

We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and state net operating losses. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the deferred tax items are expected to be realized. If applicable, valuation allowances are recorded to reduce deferred tax assets to the amounts we conclude are more likely than not to be realized. Since we are included in HSBC North America's consolidated federal tax return and various combined state tax returns, the related evaluation of the recoverability of the deferred tax assets is performed at the HSBC North America consolidated level. We consider the HNAH Group's consolidated deferred tax assets and various sources of taxable income, including the impact of HSBC and HNAH Group tax planning strategies, in reaching conclusions on recoverability of deferred tax assets. The HNAH Group evaluates deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any available carryback capacity. In evaluating the need for a valuation allowance, the HNAH Group estimates future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies, including capital support from HSBC necessary as part of such plans and strategies. This process involves significant management judgment about assumptions that are subject to change from period to period. Only those tax planning strategies that are both prudent and feasible, and for which management has the ability and intent to implement, are incorporated into our analysis and assessment.

Where a valuation allowance is determined to be necessary at the HSBC North America consolidated level, such allowance is allocated to principal subsidiaries within the HNAH Group in a manner that is systematic, rational and consistent with the broad principles of accounting for income taxes. The methodology allocates the valuation allowance to the principal subsidiaries based primarily on the entity's relative contribution to the growth of the HNAH consolidated deferred tax asset against which the valuation allowance is being recorded.

Further evaluation is performed at the HSBC USA legal entity level to evaluate the need for a valuation allowance where we file separate company state income tax returns. Foreign taxes paid are applied as credits to reduce federal income taxes payable, to the extent that such credits can be utilized.

Transactions with Related Parties In the normal course of business, we enter into transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms and include funding arrangements, derivative, servicing arrangements, information technology, centralized support services, banking and other miscellaneous services. Prior to 2013, we also purchased loans from related parties.

New Accounting Pronouncements Adopted

The following new accounting pronouncements were adopted in 2013:

• Disclosures About Offsetting Assets and Liabilities In December 2011, the FASB issued an Accounting Standards Update ("ASU") that required entities to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and those which are subject to an agreement similar to master netting arrangement. The new guidance became effective for all annual and interim periods beginning January 1, 2013. Additionally, entities are required to provide the disclosures required by the new guidance retrospectively for all comparative periods. In January 2013, the FASB issued another ASU to clarify the instruments and transactions to which the guidance in the previously issued Accounting Standards Update would apply. The adoption of the guidance in these ASUs did not have an impact on our financial position or results of operations. See Note 15, "Derivative Financial Instruments."

• Accumulated Other Comprehensive Income In February 2013, the FASB issued an ASU that adds new disclosure requirements for items reclassified out of accumulated other comprehensive income. The new guidance became effective for all annual and interim periods beginning January 1, 2013 and was applied prospectively. The adoption of this guidance did not have an impact on our financial position or results of operations. See Note 19, "Accumulated Other Comprehensive Income."

• Additional Benchmark Interest Rate for Hedge Accounting Purposes In July 2013, the FASB issued an ASU that amends existing U.S. GAAP to recognize, in addition to U.S. Treasury and LIBOR swap rates, the Federal Funds Effective Swap Rate (also referred to as the Overnight Index Swap rate) as an acceptable U.S. benchmark interest rate for hedge accounting purposes. The amendment became effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. In light of the prospective transition, the amendment did not affect the accounting for our existing hedges and thus did not have an impact on our financial position or results of operations.

3. Discontinued Operations

Sale of Certain Credit Card Operations to Capital One On August 10, 2011, HSBC, through its wholly-owned subsidiaries HSBC Finance, HSBC USA and other wholly-owned affiliates, entered into an agreement to sell its Card and Retail Services business to Capital One Financial Corporation ("Capital One"). This transaction was completed on May 1, 2012. The sale included our General Motors ("GM") and Union Plus ("UP") credit card receivables as well as our private label credit card and closed-end receivables, all of which were purchased from HSBC Finance. Prior to completing the transaction, we recorded lower of amortized cost or fair value adjustments on these receivables, which prior to the sale were classified as held for sale on our balance sheet as a component of assets of discontinued operations, which totaled $1.0 billion, of which $440 million was recorded in 2012 and $604 million was recorded in 2011, and is reflected in net interest income and other revenues in the table below. These fair value adjustments were largely offset by held for sale accounting adjustments in which loan impairment charges and premium amortization were no longer recorded. The total final cash consideration allocated to us was approximately $19.2 billion, which did not result in the recognition of a gain or loss upon completion of the sale as the receivables were recorded at fair value. The sale to Capital One did not include credit card receivables associated with HSBC Bank USA's legacy credit card program and, therefore, are excluded from the table below. However a portion of these receivables were included as part of the branch sale to First Niagara Bank, N.A. in 2012 and HSBC Bank USA continues to offer credit cards to its customers. No significant one-time closure costs were incurred as a result of exiting these portfolios. In connection with the sale of our credit card portfolio to Capital One, we entered into an outsourcing arrangement with Capital One with respect to the servicing of our remaining credit card portfolio. In September 2013, the outsourcing arrangement with Capital One ended and we resumed the servicing of our remaining credit card portfolio.

Because the credit card and private label receivables sold were classified as held for sale prior to disposition and the operations and cash flows from these receivables were eliminated from our ongoing operations post-disposition without any significant continuing involvement, we determined we had met the requirements to report the results of these credit card and private label card receivables sold as discontinued operations for all periods presented.

Following the completion of the sale in May of 2012, there was no remaining impact on our results related to the discontinued credit cards operations. The following table summarizes the results of our discontinued credit card operations for the periods presented:

Year Ended December 31,	2013		2012		2011
	(in millions)
Net interest income and other revenues ⁽¹⁾.......................................................................................	$	-	$	541	$	1,936
Income from discontinued operations before income tax...............................................................	-		315		871

⁽¹⁾Interest expense was allocated to discontinued operations in accordance with our existing internal transfer pricing policy. This policy uses match funding based on the expected lives of the assets and liabilities of the business at the time of origination, subject to periodic review, as demonstrated by the expected cash flows and re-pricing characteristics of the underlying assets.

At December 31, 2013 and 2012 there were no remaining assets and liabilities of our discontinued credit cards operations reported on our consolidated balance sheet.

Banknotes Business In June 2010, we decided that the wholesale banknotes business ("Banknotes Business") within our Global Banking and Markets ("GB&M") segment did not fit with our core strategy in the U.S. and, therefore, made the decision to exit this business. This business, which was managed out of the United States with operations in key locations worldwide, arranged for the physical distribution of banknotes globally to central banks, large commercial banks and currency exchanges. As a result of this decision, we recorded closure costs of $14 million during 2010, primarily relating to termination and other employee benefits.

As part of the decision to exit the Banknotes Business, in October 2010 we sold the assets of our Asian banknotes operations ("Asian Banknotes Operations") to an unaffiliated third party for total consideration of approximately $11 million in cash. As a result, during the third quarter of 2010 we classified the assets of the Asian Banknotes Operations of $23 million, including an allocation of goodwill of $21 million, as held for sale. Because the carrying amount of the assets being sold exceeded the agreed-upon sales price, we recorded a lower of amortized cost or fair value adjustment of $12 million in the third quarter of 2010. As the exit of our Banknotes Business, including the sale of our Asian Banknotes Operations, was substantially completed in the fourth quarter of 2010, we began to report the results of our Banknotes Business as discontinued operations at that time. The exit of our Banknotes Business was completed in the second quarter of 2011 with the sale of our European Banknotes Business to HSBC Bank plc. The table below summarizes the operating results of our Banknotes Business for the periods presented.

Year Ended December 31,	2013		2012		2011
	(in millions)
Net interest income and other revenues...................................................................................	$	-	$	-	$	19
Income from discontinued operations before income tax benefit.........................................	-		-		-

At December 31, 2013 and 2012 there were no remaining assets and liabilities of our Banknotes Business reported as assets of discontinued operations and liabilities of discontinued operations in our consolidated balance sheet.

4. Trading Assets and Liabilities

Trading assets and liabilities consisted of the following.

At December 31,	2013		2012
	(in millions)
Trading assets:
U.S. Treasury........................................................................................................................................................	$	1,344	$	2,484
U.S. Government agency issued or guaranteed..............................................................................................	19		337
U.S. Government sponsored enterprises⁽¹⁾......................................................................................................	159		32
Obligations of U.S. states and political subdivisions....................................................................................	25		-
Asset backed securities......................................................................................................................................	481		687
Corporate and foreign bonds⁽²⁾.........................................................................................................................	9,099		9,583
Other securities....................................................................................................................................................	25		36
Precious metals....................................................................................................................................................	11,751		12,332
Derivatives............................................................................................................................................................	5,991		5,383
................................................................................................................................................................................	$	28,894	$	30,874
Trading liabilities:
Securities sold, not yet purchased....................................................................................................................	$	308	$	207
Payables for precious metals.............................................................................................................................	3,826		5,767
Derivatives............................................................................................................................................................	6,741		8,725
................................................................................................................................................................................	$	10,875	$	14,699

⁽¹⁾Includes mortgage backed securities of $133 million and $16 million issued or guaranteed by the Federal National Mortgage Association ("FNMA") and $26 million and $16 million issued or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC") at December 31, 2013 and 2012, respectively.

⁽²⁾We did not hold any foreign bonds issued by the governments of Greece, Ireland, Italy, Portugal or Spain at either December 31, 2013 or December 31, 2012.

At December 31, 2013 and 2012, the fair value of derivatives included in trading assets has been reduced by $3.9 billion and $5.1 billion, respectively, relating to amounts recognized for the obligation to return cash collateral received under master netting agreements with derivative counterparties.

At December 31, 2013 and 2012, the fair value of derivatives included in trading liabilities has been reduced by $2.1 billion and $1.3 billion, respectively, relating to amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.

See Note 15, "Derivative Financial Instruments," for further information on our trading derivatives and related collateral.

5. Securities

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

December 31, 2013	Amortized Cost		Non-Credit Loss Component of OTTI Securities			Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury....................................................................................	$	27,716	$	-		$	391	$	(113	)	$	27,994
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities......................................................	159		-			-		(14		)	145
Collateralized mortgage obligations.........................................	41		-			-		(1		)	40
Direct agency obligations..........................................................	4,115		-			225		(16		)	4,324
U.S. Government agency issued or guaranteed:
Mortgage-backed securities......................................................	10,304		-			40		(342		)	10,002
Collateralized mortgage obligations.........................................	6,584		-			17		(154		)	6,447
Obligations of U.S. states and political subdivisions.................	755		-			12		(25		)	742
Asset backed securities collateralized by:
Residential mortgages................................................................	1		-			-		-			1
Commercial mortgages...............................................................	125		-			1		-			126
Home equity.................................................................................	263		-			-		(36		)	227
Other.............................................................................................	100		-			-		(6		)	94
Foreign debt securities⁽²⁾⁽⁴⁾.............................................................	4,607		-			10		(15		)	4,602
Equity securities...............................................................................	165		-			2		(5		)	162
Total available-for-sale securities.......................................................	$	54,935	$	-		$	698	$	(727	)	$	54,906
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities......................................................	$	845	$	-		$	88	$	-		$	933
U.S. Government agency issued or guaranteed:
Mortgage-backed securities......................................................	52		-			8		-			60
Collateralized mortgage obligations.........................................	214		-			24		-			238
Obligations of U.S. states and political subdivisions.................	29		-			1		-			30
Asset-backed securities collateralized by residential mortgages..........................................................................................	18		-			1		-			19
Asset-backed securities and other debt securities held by consolidated VIE⁽⁵⁾...........................................................................	304		(104		)	19		-			219
Total held-to-maturity securities....................................................	$	1,462	$	(104	)	$	141	$	-		$	1,499

December 31, 2012	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury.......................................................................................................	$	34,800	$	566	$	(24	)	$	35,342
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities.........................................................................	144		1		(1		)	144
Collateralized mortgage obligations............................................................	22		-		-			22
Direct agency obligations.............................................................................	4,039		364		(2		)	4,401
U.S. Government agency issued or guaranteed:
Mortgage-backed securities.........................................................................	15,646		674		(6		)	16,314
Collateralized mortgage obligations............................................................	4,315		156		-			4,471
Direct agency obligations.............................................................................	1		-		-			1
Obligations of U.S. states and political subdivisions....................................	877		37		(2		)	912
Asset backed securities collateralized by:
Residential mortgages...................................................................................	1		-		-			1
Commercial mortgages..................................................................................	208		6		-			214
Home equity....................................................................................................	310		-		(52		)	258
Other................................................................................................................	102		-		(18		)	84
Corporate and other domestic debt securities................................................	24		2		-			26
Foreign debt securities⁽²⁾⁽⁴⁾................................................................................	5,385		16		(48		)	5,353
Equity securities..................................................................................................	167		6		-			173
Total available-for-sale securities..........................................................................	$	66,041	$	1,828	$	(153	)	$	67,716
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities.........................................................................	$	1,121	$	148	$	-		$	1,269
U.S. Government agency issued or guaranteed:
Mortgage-backed securities.........................................................................	66		12		-			78
Collateralized mortgage obligations............................................................	277		42		-			319
Obligations of U.S. states and political subdivisions....................................	38		3		-			41
Asset-backed securities collateralized by residential mortgages................	118		6		-			124
Total held-to-maturity securities............................................................................	$	1,620	$	211	$	-		$	1,831

⁽¹⁾Includes securities at amortized cost of $167 million and $153 million issued or guaranteed by FNMA at December 31, 2013 and 2012, respectively, and $33 million and $13 million issued or guaranteed by FHLMC at December 31, 2013 and 2012, respectively.

⁽²⁾At December 31, 2013 and 2012, foreign debt securities consisted of $1.1 billion and $1.5 billion, respectively, of securities fully backed by foreign governments. The remainder of foreign debt securities represents foreign bank or corporate debt.

⁽³⁾Includes securities at amortized cost of $398 million and $507 million issued or guaranteed by FNMA at December 31, 2013 and 2012, respectively, and $447 million and $614 million issued and guaranteed by FHLMC at December 31, 2013 and 2012, respectively.

⁽⁴⁾We did not hold any foreign debt securities issued by the governments of Greece, Ireland, Italy, Portugal or Spain at December 31, 2013 and 2012.

⁽⁵⁾Relates to securities held by Bryant Park Funding LLC, a variable interest entity which was consolidated in May 2013. See Note 25, "Variable Interest Entities" for additional information.

The following table summarizes gross unrealized losses and related fair values as of December 31, 2013 and 2012 classified as to the length of time the losses have existed:

	One Year or Less						Greater Than One Year
December 31, 2013	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)
Securities available-for-sale:
U.S. Treasury..................................................	22	$	(82	)	$	16,958	6	$	(31	)	$	630
U.S. Government sponsored enterprises....	23	(12		)	400		20	(19		)	356
U.S. Government agency issued or guaranteed...................................................	170	(494		)	10,243		5	(2		)	23
Obligations of U.S. states and political subdivisions................................................	42	(19		)	330		5	(6		)	65
Asset backed securities................................	3	(6		)	115		10	(36		)	237
Foreign debt securities..................................	1	-			50		7	(15		)	2,916
Equity Securities.............................................	1	(5		)	154		-	-			-
Securities available-for-sale...............................	262	$	(618	)	$	28,250	53	$	(109	)	$	4,227
Securities held-to-maturity:
U.S. Government sponsored enterprises....	13	$	-		$	-	48	$	-		$	-
U.S. Government agency issued or guaranteed...................................................	79	-			-		859	-			2
Obligations of U.S. states and political subdivisions................................................	7	-			4		2	-			1
Securities held-to-maturity............................	99	$	-		$	4	909	$	-		$	3

	One Year or Less						Greater Than One Year
December 31, 2012	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)
Securities available-for-sale:
U.S. Treasury..................................................	6	$	(3	)	$	3,344	6	$	(21	)	$	587
U.S. Government sponsored enterprises....	9	(3		)	431		14	-			7
U.S. Government agency issued or guaranteed...................................................	18	(6		)	1,059		-	-			-
Obligations of U.S. states and political subdivisions................................................	14	(2		)	168		1	-			7
Asset backed securities................................	3	-			20		13	(70		)	354
Foreign debt securities..................................	-	-			-		9	(48		)	3,787
Securities available-for-sale...............................	50	$	(14	)	$	5,022	43	$	(139	)	$	4,742
Securities held-to-maturity:
U.S. Government sponsored enterprises....	24	$	-		$	-	52	$	-		$	-
U.S. Government agency issued or guaranteed...................................................	75	-			-		947	-			2
Obligations of U.S. states and political subdivisions................................................	2	-			1		1	-			-
Asset backed securities................................	1	-			4		2	-			7
Securities held-to-maturity.................................	102	$	-		$	5	1,002	$	-		$	9

Unrealized gains decreased and unrealized losses increased within the available-for-sale portfolio in 2013 primarily due to a significant rise in yields on U.S. Government agency securities and U.S. Treasury securities during 2013 due to concerns that the Federal Reserve would wind down its bond buying program sooner than previously expected as well as security sales occurring during the year. We have reviewed the securities for which there is an unrealized loss for other-than-temporary impairment in accordance with our accounting policies. During 2013 and 2012, none of our debt securities were determined to have either initial other-than-temporary impairment or changes to previous other-than-temporary impairment estimates relating to credit.

Upon consolidation of Bryant Park during the second quarter of 2013, we have held-to-maturity asset backed securities totaling $200 million at December 31, 2013 which were previously determined to be other-than-temporarily impaired. We do not consider any other debt securities to be other-than-temporarily impaired at December 31, 2013 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 securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

On-going Assessment for Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if its fair value is less than its amortized cost at the reporting date. If impaired, we assess whether the unrealized loss is other-than-temporary.

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss attributable to factors other than credit loss is recognized, net of tax, in other comprehensive income provided we do not intend to sell the underlying debt security and it is more likely than not that we would not have to sell the debt security prior to recovery.

For all securities held in the available-for-sale or held-to-maturity portfolios for which unrealized losses attributed to factors other than credit have existed for a period of time, we do not have the intention to sell and believe we will not be required to sell the securities for contractual, regulatory or liquidity reasons as of the reporting date. Our assessment for credit loss was concentrated on private label asset-backed securities. Substantially all of the private label asset-backed securities are supported by residential mortgages, home equity loans or commercial mortgages. Our assessment for credit loss was concentrated on this particular asset class because of the following inherent risk factors:

• The recovery of the U.S. economy has been slow;

• The high levels of pending foreclosure volume associated with a U.S. housing market which only recently has began recovery;

• A lack of significant traction in government sponsored programs in loan modifications;

• A lack of refinancing activities within certain segments of the mortgage market, even at the current low interest rate environment, and the re-default rate for refinanced loans;

• The unemployment rate although improving remains high compared with historical levels;

• The decline in the occupancy rate in commercial properties; and

• The severity and duration of unrealized loss.

In determining whether a credit loss exists and the period over which the debt security is expected to recover, we considered the following factors:

• The length of time and the extent to which the fair value has been less than the amortized cost basis;

• The level of credit enhancement provided by the structure, which includes but is not limited to credit subordination positions, over collateralization, protective triggers and financial guarantees provided by monoline wraps;

• Changes in the near term prospects of the issuer or 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 the rating agencies.

We use a standard valuation model to measure the credit loss for available-for-sale and held-to-maturity securities. The valuation model captures the composition of the underlying collateral and the cash flow structure of the security. We make reference to external forecasts on key economic data and consider internal assessments on credit quality in developing significant inputs to the impairment model. Significant inputs to the model include delinquencies, collateral types and related contractual features, estimated rates of default, loss given default and prepayment assumptions. Using the inputs, the model estimates cash flows generated from the underlying collateral and distributes those cash flows to respective tranches of securities considering credit subordination and other credit enhancement features. The projected future cash flows attributable to the debt security held are discounted using the effective interest rates determined at the original acquisition date if the security bears a fixed rate of return. The discount rate is adjusted for the floating index rate for securities which bear a variable rate of return, such as LIBOR-based instruments.

The amortized cost and fair value of those asset-backed securities with unrealized loss of more than 12 months for which no other-than-temporary-impairment has been recognized at December 31, 2013 and 2012 are as follows:

	Balance as of December 31, 2013
	Amortized Cost		Unrealized Losses for More Than 12 Months			Fair Value
	(in millions)
Available-for-sale:
Asset-backed securities:
Commercial mortgages.................................................................................................................	$	10	$	-		$	10
Home equity loans.......................................................................................................................	263		(36		)	227
Total..........................................................................................................................................	$	273	$	(36	)	$	237

	Balance as of December 31, 2012
	Amortized Cost		Unrealized Losses for More Than 12 Months			Fair Value
	(in millions)
Available-for-sale:
Asset-backed securities:
Commercial mortgages.................................................................................................................	$	11	$	-		$	11
Home equity loans.......................................................................................................................	311		(52		)	259
Other...............................................................................................................................................	102		(18		)	84
Subtotal....................................................................................................................................	424		(70		)	354
Held-to-maturity classification:
Asset-backed securities:
Residential mortgages.................................................................................................................	7		-			7
Total..........................................................................................................................................	$	431	$	(70	)	$	361

Although the fair value of a particular security is below its amortized cost for more than 12 months, it does not necessarily result in a credit loss and hence other-than-temporary impairment. The decline in fair value may be caused by, among other things, the illiquidity of the market. To the extent we do not intend to sell the debt security and it is more-likely-than-not we will not be required to sell the security before the recovery of the amortized cost basis, no other-than-temporary impairment is deemed to have occurred.

For 2013 and 2012 there were no other-than-temporary impairment losses recognized related to credit loss. At December 31, 2013, as a result of consolidating Bryant Park in the second quarter of 2013, the excess of discounted future cash flows over fair value, representing the non-credit component of the unrealized loss associated with all other-than-temporarily impaired securities, was $104 million. At December 31, 2012, there were no non-credit component unrealized loss amounts recognized in accumulated other comprehensive income.

The following table summarizes the rollforward of credit losses on debt securities that were other-than-temporarily impaired which have previously been recognized in income that we do not intend to sell nor will likely be required to sell:

Year ended December 31,	2013		2012
	(in millions)
Credit losses at the beginning of the period.....................................................................................................	$	-	$	-
Credit losses previously recognized on held-to-maturity debt securities of a VIE consolidated during the second quarter of 2013..................................................................................................................................	61		-
Ending balance of credit losses on held-to-maturity debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss)..................................	$	61	$	-

At December 31, 2013, we held 22 individual asset-backed securities in the available-for-sale portfolio, of which 8 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $321 million of the total aggregate fair value of asset-backed securities of $448 million at December 31, 2013. The gross unrealized losses on these monoline securities were $42 million at December 31, 2013. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2013 and, therefore, we only considered the financial guarantee of monoline insurers on securities for purposes of evaluating other-than-temporary impairment on securities with a fair value of $98 million. No security wrapped by a below investment grade monoline insurance company was deemed to be other-than-temporarily impaired at December 31, 2013.

At December 31, 2012, we held 27 individual asset-backed securities in the available-for-sale portfolio, of which 8 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $343 million of the total aggregate fair value of asset-backed securities of $557 million at December 31, 2012. The gross unrealized losses on these monoline securities were $69 million at December 31, 2012. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2012 and, therefore, we only considered the financial guarantee of monoline insurers on securities with a fair value of $110 million for purposes of evaluating other-than-temporary impairment. No security wrapped by a below investment grade monoline insurance company was deemed to be other-than-temporarily impaired at December 31, 2012.

As discussed above, certain asset-backed securities in the available-for-sale portfolio have an embedded financial guarantee provided by monoline insurers. Because the financial guarantee is not a separate and distinct contract from the asset-backed security, they are considered as a single unit of account for fair value measurement and impairment assessment purposes. The monoline insurers are regulated by the insurance commissioners of the relevant states and certain monoline insurers that write the financial guarantee contracts are public companies. We did not consider the value of the monoline wrap of any non-investment grade monoline insurer at December 31, 2013 and 2012. In evaluating the extent of our reliance on investment grade monoline insurance companies, consideration is given to our assessment of the creditworthiness of the monoline and other market factors. We perform both a credit as well as a liquidity analysis on the monoline insurers each quarter. Our analysis also compares market-based credit default spreads, when available, to assess the appropriateness of our monoline insurer's creditworthiness. Based on the public information available, including the regulatory reviews and actions undertaken by the state insurance commissions and the published financial results, we determine the degree of reliance to be placed on the financial guarantee policy in estimating the cash flows to be collected for the purpose of recognizing and measuring impairment loss.

A credit downgrade to non-investment grade is a key but not the only factor in determining the credit risk or the monoline insurer's ability to fulfill its contractual obligation under the financial guarantee arrangement. Although a monoline may have been down-graded by the credit rating agencies or have been ordered to commute its operations by the insurance commissioners, it may retain the ability and the obligation to continue to pay claims in the near term. We evaluate the short-term liquidity of and the ability to pay claims by the monoline insurers in estimating the amounts of cash flows expected to be collected from specific asset-backed securities for the purpose of assessing and measuring credit loss.

Realized Gains (Losses) The following table summarizes realized gains and losses on investment securities transactions attributable to available-for-sale securities.

Year Ended December 31,	2013			2012			2011
	(in millions)
Gross realized gains......................................................................................................................	$	314		$	260		$	276
Gross realized losses....................................................................................................................	(120		)	(115		)	(147		)
Net realized gains..........................................................................................................................	$	194		$	145		$	129

During the first quarter of 2013, we sold six asset-backed securities out of our held-to-maturity portfolio with a total carrying value of $71 million and recognized a gain of $8 million. These sales were in response to the significant credit deterioration which had occurred on these securities which had been classified as substandard for regulatory reporting purposes and, therefore, these disposals do not affect our intent and ability to hold our remaining held-to-maturity portfolio until maturity.

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 December 31, 2013 by contractual maturity. Expected maturities differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties in certain cases. Securities available-for-sale amounts exclude equity securities as they do not have stated maturities. The table below also reflects the distribution of maturities of debt securities held at December 31, 2013, together with the approximate taxable equivalent yield of the portfolio. The yields shown are calculated by dividing annual interest income, including the accretion of discounts and the amortization of premiums, by the amortized cost of securities outstanding at December 31, 2013. Yields on tax-exempt obligations have been computed on a taxable equivalent basis using applicable statutory tax rates.

	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years
Taxable Equivalent Basis	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(dollars are in millions)
Available-for-sale:
U.S. Treasury...........................................	$	774	.33	%	$	21,777	.62	%	$	3,238	2.46	%	$	1,927	4.22	%
U.S. Government sponsored enterprises............................................	50		.38		822		2.28		2,741		3.34		702		4.15
U.S. Government agency issued or guaranteed............................................	-		-		14		4.22		81		2.29		16,793		2.75
Obligations of U.S. states and political subdivisions.........................................	-		-		94		3.98		316		3.40		345		3.42
Asset backed securities.........................	-		-		1		1.82		10		.38		478		2.62
Foreign debt securities...........................	526		2.20		4,081		1.94				-		-		-
Total amortized cost.....................................	$	1,350	1.06	%	$	26,789	.89	%	$	6,386	2.88	%	$	20,245	2.95	%
Total fair value...............................................	$	1,353			$	26,796			$	6,648			$	19,947
Held-to-maturity:
U.S. Government sponsored enterprises............................................	$	1	7.96	%	$	-	-	%	$	2	8.05	%	$	842	6.15	%
U.S. Government agency issued or guaranteed............................................	-		-		1		7.64		2		7.70		263		6.51
Obligations of U.S. states and political subdivisions.........................................	5		5.40		11		4.46		6		3.92		7		5.05
Asset backed securities.........................	-		-		-		-		-		-		18		6.19
Asset backed securities issued by consolidated VIE.....................................	-		-		-		-		65		.28		135		.28
Total amortized cost.....................................	$	6	5.85	%	$	12	4.89	%	$	75	.98	%	$	1,265	5.59	%
Total fair value...............................................	$	6			$	14			$	76			$	1,403

Investments in Federal Home Loan Bank stock and Federal Reserve Bank stock of $139 million and $483 million, respectively, were included in other assets at December 31, 2013. Investments in Federal Home Loan Bank stock and Federal Reserve Bank stock of $143 million and $483 million, respectively, were included in other assets at December 31, 2012.

6. Loans

Loans consisted of the following:

At December 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate.......................................................................................................	$	9,034	$	8,457
Business and corporate banking..........................................................................................................	14,446		12,608
Global banking⁽¹⁾⁽²⁾..................................................................................................................................	21,625		20,009
Other commercial....................................................................................................................................	3,389		3,076
Total commercial.....................................................................................................................................	48,494		44,150
Consumer loans:
Residential mortgages............................................................................................................................	15,826		15,371
Home equity mortgages.........................................................................................................................	2,011		2,324
Credit cards..............................................................................................................................................	854		815
Other consumer.......................................................................................................................................	510		598
Total consumer........................................................................................................................................	19,201		19,108
Total loans.....................................................................................................................................................	$	67,695	$	63,258

⁽¹⁾Represents large multinational firms including globally focused U.S. corporate and financial institutions and U.S. Dollar lending to multinational banking customers managed by HSBC on a global basis as well as loans to HSBC affiliates.

⁽²⁾Includes loans to HSBC affiliates of $5.3 billion and $4.5 billion at December 31, 2013 and 2012, respectively. See Note 22, "Related Party Transactions" for additional information regarding loans to HSBC affiliates.

We have loans outstanding to certain executive officers and directors. The loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collectibility. The aggregate amount of such loans did not exceed 5 percent of shareholders' equity at either December 31, 2013 or 2012.

Net deferred origination costs (fees) totaled $(23) million and $27 million at December 31, 2013 and 2012, respectively.

At December 31, 2013 and 2012, we had a net unamortized premium on our loans of $16 million and $22 million, respectively. We amortized net premiums of $4 million, $23 million and $35 million on our loans in 2013, 2012 and 2011 respectively.

Age Analysis of Past Due Loans The following table summarizes the past due status of our loans at December 31, 2013 and 2012. 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.

	Past Due				Total Past Due 30 Days or More
At December 31, 2013	30 - 89 days		90+ days				Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate........................................	$	6	$	58	$	64	$	8,970	$	9,034
Business and corporate banking...........................................	48		36		84		14,362		14,446
Global banking..........................................................................	8		3		11		21,614		21,625
Other commercial......................................................................	27		9		36		3,353		3,389
Total commercial............................................................................	89		106		195		48,299		48,494
Consumer loans:
Residential mortgages.............................................................	443		1,037		1,480		14,346		15,826
Home equity mortgages..........................................................	28		59		87		1,924		2,011
Credit cards...............................................................................	16		14		30		824		854
Other consumer........................................................................	15		24		39		471		510
Total consumer..............................................................................	502		1,134		1,636		17,565		19,201
Total loans......................................................................................	$	591	$	1,240	$	1,831	$	65,864	67,695

	Past Due				Total Past Due 30 Days or More
At December 31, 2012	30 - 89 days		90+ days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate........................................	$	89	$	152	$	241	$	8,216	$	8,457
Business and corporate banking...........................................	73		70		143		12,465		12,608
Global banking..........................................................................	30		8		38		19,971		20,009
Other commercial......................................................................	16		31		47		3,029		3,076
Total commercial.......................................................................	208		261		469		43,681		44,150
Consumer loans:
Residential mortgages.............................................................	493		976		1,469		13,902		15,371
Home equity mortgages..........................................................	40		82		122		2,202		2,324
Credit cards...............................................................................	14		15		29		786		815
Other consumer........................................................................	5		33		38		560		598
Total consumer.........................................................................	552		1,106		1,658		17,450		19,108
Total loans......................................................................................	$	760	$	1,367	$	2,127	$	61,131	$	63,258

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

Contractual Maturities Contractual maturities of loans were as follows:

	At December 31,
	2014		2015		2016		2017		2018		Thereafter		Total
	(in millions)
Commercial loans:
Construction and other real estate......	$	3,233	$	870	$	1,019	$	1,030	$	1,890	$	992	$	9,034
Business and corporate banking.........	5,170		1,392		1,630		1,647		3,022		1,585		14,446
Global banking........................................	7,739		2,084		2,440		2,466		4,523		2,373		21,625
Other commercial....................................	1,213		327		382		386		709		372		3,389
Consumer loans:
Residential mortgages...........................	1,645		432		427		426		413		12,483		15,826
Home equity mortgages⁽¹⁾.....................	838		444		272		168		105		184		2,011
Credit cards⁽²⁾..........................................	-		854		-		-		-		-		854
Other consumer......................................	271		228		9		2		-		-		510
Total...............................................................	$	20,109	$	6,631	$	6,179	$	6,125	$	10,662	$	17,989	$	67,695

(1) Home equity mortgages maturities reflect estimates based on historical payment patterns.

(2) As credit card receivables do not have stated maturities, the table reflects estimates based on historical payment patterns.

As a substantial portion of consumer loans, based on our experience, will be renewed or repaid prior to contractual maturity, the above maturity schedule should not be regarded as a forecast of future cash collections. The following table summarizes contractual maturities of loans due after one year by repricing characteristic:

	At December 31, 2013
	Over 1 But Within 5 Years		Over 5 Years
	(in millions)
Receivables at predetermined interest rates..............................................................................................	$	5,677	$	3,803
Receivables at floating or adjustable rates................................................................................................	23,921		14,186
Total.................................................................................................................................................................	$	29,598	$	17,989

Nonaccrual Loans Nonaccrual loans totaled $1.3 billion and $1.6 billion at December 31, 2013 and 2012, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $107 million and $125 million in 2013 and 2012, respectively. Interest income that was included in interest income on these loans was $35 million and $19 million in 2013 and 2012, respectively. For an analysis of reserves for credit losses, see Note 7, "Allowance for Credit Losses."

Nonaccrual loans and accruing receivables 90 days or more delinquent consisted of the following:

At December 31,	2013		2012
	(in millions)
Nonaccrual loans:
Commercial:
Real Estate:
Construction and land loans..........................................................................................................	$	44	$	104
Other real estate...............................................................................................................................	122		281
Business and corporate banking........................................................................................................	21		47
Global banking.......................................................................................................................................	65		18
Other commercial...................................................................................................................................	2		13
Total commercial.........................................................................................................................................	254		463
Consumer:
Residential mortgages..........................................................................................................................	949		1,038
Home equity mortgages.......................................................................................................................	77		86
Total residential mortgages^(1)(2)(3)..................................................................................................	1,026		1,124
Other consumer loans..........................................................................................................................	-		5
Total consumer loans...........................................................................................................................	1,026		1,129
Nonaccrual loans held for sale..............................................................................................................	25		37
Total nonaccruing loans......................................................................................................................................	1,305		1,629
Accruing loans contractually past due 90 days or more:
Commercial:
Real Estate:
Construction and land loans..........................................................................................................	-		-
Other real estate...............................................................................................................................	-		8
Business and corporate banking........................................................................................................	5		28
Other commercial...................................................................................................................................	1		1
Total commercial....................................................................................................................................	6		37
Consumer:
Credit card receivables.........................................................................................................................	14		15
Other consumer.....................................................................................................................................	24		28
Total consumer loans...........................................................................................................................	38		43
Total accruing loans contractually past due 90 days or more......................................................................	44		80
Total nonperforming loans.................................................................................................................................	$	1,349	$	1,709

⁽¹⁾At December 31, 2013 and 2012, residential mortgage loan nonaccrual balances include $0.9 billion and $1.0 billion, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

⁽²⁾ Nonaccrual residential mortgages includes all receivables 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.

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

Impaired Loans A loan is considered to be impaired when it is deemed probable that not all principal and interest amounts due according to the contractual terms of the loan agreement will be collected. Probable losses from impaired loans are quantified and recorded as a component of the overall allowance for credit losses. Commercial and consumer loans for which we have modified the loan terms as part of a troubled debt restructuring are considered to be impaired loans. Additionally, commercial loans in nonaccrual status, or that have been partially charged-off or assigned a specific allowance for credit losses are also considered impaired loans.

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. A substantial amount of our modifications involve interest rate reductions 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. TDR Loans are reserved for either based on the present value of expected future cash flows discounted at the loans' original effective interest rates which generally results in a higher reserve requirement for these loans or in the case of certain secured loans, the estimated fair value of the underlying collateral. 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 such terms reflect current market rates at the time of restructure, they will no longer be reported as a TDR Loan beginning in the year after restructuring. Since 2010, approximately $11 million of commercial loans have met this criteria and have been removed from TDR Loan classification.

The following table presents information about receivables which were modified during 2013 and 2012 and as a result of this action became classified as TDR Loans.

Year Ended December 31,	2013		2012
....................................................................................................................................................................................	(in millions)
Commercial loans:
Construction and other real estate...................................................................................................................	$	59	$	78
Business and corporate banking......................................................................................................................	4		21
Global banking....................................................................................................................................................	51		-
Total commercial.................................................................................................................................................	114		99
Consumer loans:
Residential mortgages........................................................................................................................................	230		452
Credit cards..........................................................................................................................................................	2		4
Total consumer....................................................................................................................................................	232		456
Total...........................................................................................................................................................................	$	346	$	555

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during 2013 and 2012 was 1.90 percent. The weighted-average contractual rate reduction for commercial loans was not significant in either the number of loans or rate.

The following tables present information about our TDR Loans and the related credit loss reserves for TDR Loans:

At December 31,	2013		2012
	(in millions)
TDR Loans⁽¹⁾⁽²⁾:
Commercial loans:
Construction and other real estate.............................................................................................................	$	292	$	343
Business and corporate banking................................................................................................................	21		86
Global banking...............................................................................................................................................	51		-
Other commercial...........................................................................................................................................	25		31
Total commercial............................................................................................................................................	389		460
Consumer loans:
Residential mortgages⁽³⁾...............................................................................................................................	973		960
Credit cards....................................................................................................................................................	8		14
Total consumer..............................................................................................................................................	981		974
Total TDR Loans⁽⁴⁾................................................................................................................................................	$	1,370	$	1,434

At December 31,	2013		2012
	(in millions)
Allowance for credit losses for TDR Loans⁽⁵⁾:
Commercial loans:
Construction and other real estate.............................................................................................................	$	16	$	23
Business and corporate banking................................................................................................................	1		3
Global banking...............................................................................................................................................	-		-
Other commercial...........................................................................................................................................	-		-
Total commercial............................................................................................................................................	17		26
Consumer loans:
Residential mortgages..................................................................................................................................	68		109
Credit cards....................................................................................................................................................	2		5
Total consumer..............................................................................................................................................	70		114
Total allowance for credit losses for TDR Loans.............................................................................................	$	87	$	140

⁽¹⁾TDR Loans are considered to be impaired loans. For consumer loans, all such loans are considered impaired loans regardless of accrual status. For commercial loans, impaired loans include other loans in addition to TDR Loans which totaled $92 million and $237 million at December 31, 2013 and 2012, respectively.

⁽²⁾The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans, partial charge-offs and premiums or discounts on purchased loans. The following table reflects the unpaid principal balance of TDR Loans:

At December 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate............................................................................................	$	309	$	398
Business and corporate banking.................................................................................................	60		137
Global banking..........................................................................................................................	51		-
Other commercial.....................................................................................................................	28		34
Total commercial...........................................................................................................................	448		569
Consumer loans:
Residential mortgages...............................................................................................................	1,153		1,118
Credit cards...............................................................................................................................	8		14
Total consumer..............................................................................................................................	1,161		1,132
Total...................................................................................................................................................	$	1,609	$	1,701

⁽³⁾Includes $706 million and $608 million at December 31, 2013 and 2012, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.

⁽⁴⁾Includes $458 million and $519 million at December 31, 2013 and 2012, respectively, of loans which are classified as nonaccrual.

⁽⁵⁾Included in the allowance for credit losses.

The following table provides additional information relating to TDR Loans.

Year Ended December 31,	2013		2012		2011
	(in millions)
Average balance of TDR Loans
Commercial loans:
Construction and other real estate.........................................................................................	$	349	$	360	$	346
Business and corporate banking............................................................................................	44		91		89
Global banking..........................................................................................................................	20		-		-
Other commercial......................................................................................................................	28		33		44
Total commercial.......................................................................................................................	441		484		479
Consumer loans:
Residential mortgages⁽¹⁾..........................................................................................................	922		738		532
Credit cards................................................................................................................................	11		16		23
Total consumer..........................................................................................................................	933		754		555
Total average balance of TDR Loans...............................................................................................	$	1,374	$	1,238	$	1,034
Interest income recognized on TDR Loans
Commercial loans:
Construction and other real estate.........................................................................................	$	12	$	8	$	9
Business and corporate banking............................................................................................	-		-		-
Other commercial......................................................................................................................	3		4		5
Total commercial.......................................................................................................................	15		12		14
Consumer loans:
Residential mortgages..............................................................................................................	33		33		20
Credit cards................................................................................................................................	1		1		1
Total consumer..........................................................................................................................	34		34		21
Total interest income recognized on TDR Loans...........................................................................	$	49	$	46	$	35

⁽¹⁾ Beginning in the third quarter of 2012, average balances for residential mortgages include loans discharged under Chapter 7 bankruptcy and not re-affirmed.

The following table presents loans which were classified as TDR Loans during the previous 12 months which for commercial loans became 90 days or greater contractually delinquent or for consumer loans became 60 days or greater contractually delinquent during 2013 and 2012:

Year Ended December 31,	2013		2012
....................................................................................................................................................................................	(in millions)
Commercial loans:
Construction and other real estate...................................................................................................................	$	12	$	27
Business and corporate banking......................................................................................................................	2		-
Other commercial................................................................................................................................................	-		-
Total commercial.................................................................................................................................................	14		27
Consumer loans:
Residential mortgages........................................................................................................................................	44		86
Credit cards..........................................................................................................................................................	-		-
Total consumer....................................................................................................................................................	44		86
Total...........................................................................................................................................................................	$	58	$	113

Impaired commercial loans The following table summarizes impaired commercial loan statistics:

	Amount with Impairment Reserves		Amount without Impairment Reserves		Total Impaired Commercial Loans⁽¹⁾⁽²⁾		Impairment Reserve
	(in millions)
At December 31, 2013
Construction and other real estate.........................................................	$	122	$	211	$	333	$	32
Business and corporate banking............................................................	28		12		40		3
Global banking...........................................................................................	14		51		65		5
Other commercial.......................................................................................	1		42		43		-
Total............................................................................................................	$	165	$	316	$	481	$	40
At December 31, 2012
Construction and other real estate.........................................................	$	192	$	305	$	497	$	86
Business and corporate banking............................................................	57		49		106		10
Global banking...........................................................................................	-		18		18		-
Other commercial.......................................................................................	1		75		76		-
Total............................................................................................................	$	250	$	447	$	697	$	96

⁽¹⁾Includes impaired commercial loans which are also considered TDR Loans as follows:

At December 31,	2013		2012
	(in millions)
Construction and other real estate..............................................................................................................	$	292	$	343
Business and corporate banking...................................................................................................................	21		86
Global banking............................................................................................................................................	51		-
Other commercial.......................................................................................................................................	25		31
Total..........................................................................................................................................................	$	389	$	460

⁽²⁾The impaired commercial loan balances included in the table above reflect the current carrying amount of the loan and includes all basis adjustments, such as partial charge-offs, unamortized deferred fees and costs on originated loans and any premiums or discounts. The following table reflects the unpaid principal balance of impaired commercial loans included in the table above:

At December 31,	2013		2012
	(in millions)
Construction and other real estate................................................................................................................	$	380	$	552
Business and corporate banking....................................................................................................................	91		157
Global banking.............................................................................................................................................	123		18
Other commercial........................................................................................................................................	47		79
Total............................................................................................................................................................	$	641	$	806

The following table presents information about average impaired commercial loan balances and interest income recognized on the impaired commercial loans:

Year Ended December 31,	2013		2012		2011
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate..............................................................................................	$	422	$	602	$	744
Business and corporate banking.................................................................................................	63		119		151
Global banking................................................................................................................................	37		86		107
Other commercial............................................................................................................................	64		86		111
Total average balance of impaired commercial loans................................................................	$	586	$	893	$	1,113
Interest income recognized on impaired commercial loans:
Construction and other real estate..............................................................................................	$	13	$	11	$	9
Business and corporate banking.................................................................................................	-		5		4
Global banking................................................................................................................................	-		-		1
Other commercial............................................................................................................................	5		3		3
Total interest income recognized on impaired commercial loans............................................	$	18	$	19	$	17

Commercial Loan Credit Quality Indicators The following credit quality indicators are monitored for our commercial loan portfolio:

Criticized asset classifications These classifications are based on the risk rating standards of our primary regulator. Problem loans are assigned various criticized facility grades. We also assign obligor grades which are used under our allowance for credit losses methodology. The following table summarizes criticized assets for commercial loans:

	Special Mention		Substandard		Doubtful		Total
	(in millions)
At December 31, 2013
Construction and other real estate.........................................................	$	351	$	346	$	30	$	727
Business and corporate banking............................................................	557		156		2		715
Global banking...........................................................................................	367		112		5		484
Other commercial.......................................................................................	79		33		-		112
Total............................................................................................................	$	1,354	$	647	$	37	$	2,038
At December 31, 2012
Construction and other real estate.........................................................	$	627	$	677	$	105	$	1,409
Business and corporate banking............................................................	369		115		10		494
Global banking...........................................................................................	93		50		-		143
Other commercial.......................................................................................	36		74		2		112
Total............................................................................................................	$	1,125	$	916	$	117	$	2,158

Nonperforming The following table summarizes the status of our commercial loan portfolio:

	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At December 31, 2013
Commercial:
Construction and other real estate........................................	$	8,868	$	166	$	-	$	9,034
Business and corporate banking...........................................	14,420		21		5		14,446
Global banking..........................................................................	21,560		65		-		21,625
Other commercial......................................................................	3,386		2		1		3,389
Total commercial............................................................................	$	48,234	$	254	$	6	$	48,494
At December 31, 2012
Commercial:
Construction and other real estate........................................	$	8,064	$	385	$	8	$	8,457
Business and corporate banking...........................................	12,533		47		28		12,608
Global banking..........................................................................	19,991		18		-		20,009
Other commercial......................................................................	3,062		13		1		3,076
Total commercial............................................................................	$	43,650	$	463	$	37	$	44,150

Credit risk profile The following table shows the credit risk profile of our commercial loan portfolio:

	Investment Grade⁽¹⁾		Non-Investment Grade		Total
	(in millions)
At December 31, 2013
Construction and other real estate.............................................................................................	$	6,069	$	2,965	$	9,034
Business and corporate banking................................................................................................	7,279		7,167		14,446
Global banking..............................................................................................................................	18,636		2,989		21,625
Other commercial..........................................................................................................................	1,583		1,806		3,389
Total commercial......................................................................................................................	$	33,567	$	14,927	$	48,494
At December 31, 2012
Construction and other real estate.............................................................................................	$	4,727	$	3,730	$	8,457
Business and corporate banking................................................................................................	6,012		6,596		12,608
Global banking..............................................................................................................................	16,206		3,803		20,009
Other commercial..........................................................................................................................	1,253		1,823		3,076
Total commercial......................................................................................................................	$	28,198	$	15,952	$	44,150

⁽¹⁾Investment grade includes commercial loans with credit ratings of at least BBB- or above or the equivalent based on our internal credit rating system.

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

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total loans and loans held for sale ("delinquency ratio") for our consumer loan portfolio:

	December 31, 2013				December 31, 2012
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Consumer:
Residential mortgages....................................................................................	$	1,208	7.59	%	$	1,233	7.78	%
Home equity mortgages.................................................................................	68		3.38		75		3.23
Total residential mortgages⁽¹⁾.....................................................................	1,276		7.11		1,308		7.20
Credit cards......................................................................................................	21		2.46		21		2.58
Other consumer...............................................................................................	29		5.06		30		4.52
Total consumer.....................................................................................................	$	1,326	6.85	%	$	1,359	6.92	%

⁽¹⁾At December 31, 2013 and 2012, residential mortgage loan delinquency includes $1.1 billion and $1.0 billion, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

Nonperforming The following table summarizes the status of our consumer loan portfolio:

	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At December 31, 2013
Consumer:
Residential mortgages..................................................................	$	14,877	$	949	$	-	$	15,826
Home equity mortgages...............................................................	1,934		77		-		2,011
Total residential mortgages....................................................	16,811		1,026		-		17,837
Credit cards....................................................................................	840		-		14		854
Other consumer.............................................................................	486		-		24		510
Total consumer....................................................................................	$	18,137	$	1,026	$	38	$	19,201
At December 31, 2012
Consumer:
Residential mortgages..................................................................	$	14,333	$	1,038	$	-	$	15,371
Home equity mortgages...............................................................	2,238		86		-		2,324
Total residential mortgages....................................................	16,571		1,124		-		17,695
Credit cards....................................................................................	800		-		15		815
Other consumer.............................................................................	565		5		28		598
Total consumer....................................................................................	$	17,936	$	1,129	$	43	$	19,108

Troubled debt restructurings See discussion of impaired loans above for further details on this credit quality indicator.

Concentration of Credit Risk At December 31, 2013 and 2012, our loan portfolio included interest-only residential mortgage loans totaling $3.6 billion and $4.0 billion, 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.

7. Allowance for Credit Losses

The following table summarizes the changes in the allowance for credit losses by product and the related loan balance by product during the years ended December 31, 2013 , 2012 and 2011:

	Commercial												Consumer
	Construction and Other Real Estate			Business and Corporate Banking			Global Banking			Other Comm'l			Residential Mortgages			Home Equity Mortgages			Credit Card			Other Consumer			Total
	(in millions)
Year Ended December 31, 2013
Allowance for credit losses - beginning of period..........................................	$	162		$	97		$	41		$	17		$	210		$	45		$	55		$	20		$	647
Provision charged to income................	(7		)	48			26			(5		)	42			54			32			3			193
Charge offs........................................	(62		)	(42		)	-			-			(78		)	(52		)	(41		)	(13		)	(288		)
Recoveries.........................................	15			9			1			8			12			2			4			3			54
Net (charge offs) recoveries.................	(47		)	(33		)	1			8			(66		)	(50		)	(37		)	(10		)	(234		)
Other...................................................	-			-			-			-			-			-			-			-			-
Allowance for credit losses - end of period...............................................	$	108		$	112		$	68		$	20		$	186		$	49		$	50		$	13		$	606
Ending balance: collectively evaluated for impairment.................................	$	76		$	109		$	63		$	20		$	120		$	47		$	48		$	13		$	496
Ending balance: individually evaluated for impairment.................................	32			3			5			-			66			2			2			-			110
Total allowance for credit losses...........	$	108		$	112		$	68		$	20		$	186		$	49		$	50		$	13		$	606

Loans:
Collectively evaluated for impairment..	$	8,701		$	14,420		$	21,560		$	3,346		$	13,967		$	1,991		$	846		$	510		$	65,341
Individually evaluated for impairment⁽¹⁾	333			26			65			43			247			20			8			-			742
Loans carried at lower of amortized cost or fair value less cost to sell..........	-			-			-			-			1,612			-			-			-			1,612
Total loans...........................................	$	9,034		$	14,446		$	21,625		$	3,389		$	15,826		$	2,011		$	854		$	510		$	67,695

Year Ended December 31, 2012
Allowance for credit losses - beginning of period..........................................	$	212		$	78		$	131		$	21		$	192		$	52		$	39		$	18		$	743
Provision charged to income................	(33		)	48			14			(10		)	114			72			67			21			293
Charge offs........................................	(36		)	(37		)	(105		)	(1		)	(107		)	(79		)	(62		)	(25		)	(452		)
Recoveries.........................................	19			8			1			7			11			-			11			6			63
Net (charge offs) recoveries.................	(17		)	(29		)	(104		)	6			(96		)	(79		)	(51		)	(19		)	(389		)
Other...................................................	-			-			-			-			-			-			-			-			-
Allowance for credit losses - end of period...............................................	$	162		$	97		$	41		$	17		$	210		$	45		$	55		$	20		$	647
Ending balance: collectively evaluated for impairment.................................	$	76		$	87		$	41		$	17		$	105		$	41		$	50		$	20		$	437
Ending balance: individually evaluated for impairment.................................	86			10			-			-			105			4			5			-			210
Total allowance for credit losses...........	$	162		$	97		$	41		$	17		$	210		$	45		$	55		$	20		$	647
............................................................
Loans:
Collectively evaluated for impairment	$	7,960		$	12,502		$	19,991		$	3,000		$	13,563		$	2,303		$	801		$	598		$	60,718
Individually evaluated for impairment⁽¹⁾	497			106			18			76			331			21			14			-			1,063
Loans carried at lower of amortized cost or fair value less cost to sell	-			-			-			-			1,477			-			-			-			1,477
Total loans...........................................	$	8,457		$	12,608		$	20,009		$	3,076		$	15,371		$	2,324		$	815		$	598		$	63,258


	Commercial												Consumer
	Construction and Other Real Estate			Business and Corporate Banking			Global Banking			Other Comm'l			Residential Mortgages			Home Equity Mortgages			Credit Card			Other Consumer			Total
	(in millions)
Year Ended December 31, 2011
Allowance for credit losses - beginning of period........................	$	243		$	132		$	116		$	32		$	167		$	77		$	58		$	27		$	852
Provision charged to income..............	11			(3		)	31			(28		)	133			49			46			19			258
Charge offs........................................	(51		)	(53		)	-			(6		)	(106		)	(70		)	(71		)	(29		)	(386		)
Recoveries.........................................	9			12			-			23			5			-			12			4			65
Net charge offs..................................	(42		)	(41		)	-			17			(101		)	(70		)	(59		)	(25		)	(321		)
Allowance on loans transferred to held for sale...........................................	-			(10		)	(16		)	-			(7		)	(4		)	(6		)	(3		)	(46		)
Other.................................................	-			-			-			-			-			-			-			-			-
Allowance for credit losses - end of period............................................	$	212		$	78		$	131		$	21		$	192		$	52		$	39		$	18		$	743
Ending balance: collectively evaluated for impairment..............................	$	98		$	66		$	41		$	21		$	104		$	48		$	32		$	18		$	428
Ending balance: individually evaluated for impairment..............................	114			12			90			-			88			4			7			-			315
Total allowance for credit losses.........	$	212		$	78		$	131		$	21		$	192		$	52		$	39		$	18		$	743
Loans:
Collectively evaluated for impairment..........................................................	$	7,127		$	10,098		$	12,521		$	2,816		$	12,817		$	2,550		$	807		$	714		$	49,450
Individually evaluated for impairment⁽¹⁾.....................................	733			127			137			90			244			13			21			-			1,365
Loans carried at lower of amortized cost or fair value less cost to sell........	-			-			-			-			1,052			-			-			-			1,052
Total loans.........................................	$	7,860		$	10,225		$	12,658		$	2,906		$	14,113		$	2,563		$	828		$	714		$	51,867

⁽¹⁾For consumer loans, these amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow analysis is then applied to these groups of TDR Loans. Loans individually evaluated for impairment exclude TDR loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $706 million, $608 million and $303 million at December 31, 2013 , 2012 and 2011, respectively.

We estimate probable losses for consumer loans and certain small balance commercial loans which do not qualify as a troubled debt restructure using a roll rate migration analysis. As previously disclosed, during 2012 our regulators indicated they would like us to more closely align our loss coverage period implicit within the roll rate methodology with U.S. bank industry practice for these loan products. Therefore, during 2012, we extended our loss emergence period to 12 months for U.S. GAAP resulting in an increase to our allowance for credit losses by approximately $80 million for these loans. We regularly monitor our portfolio to evaluate the period of time utilized in our roll rate migration analysis and perform a formal review on an annual basis.

8. Loans Held for Sale

Loans held for sale consisted of the following:

At December 31,	2013		2012
	(in millions)
Commercial loans..............................................................................................................................................	$	76	$	481
Consumer loans:
Residential mortgages................................................................................................................................	91		472
Other consumer...........................................................................................................................................	63		65
Total consumer.................................................................................................................................................	154		537
Total loans held for sale..................................................................................................................................	$	230	$	1,018

We originate commercial loans in connection with our participation in a number of leveraged acquisition finance syndicates. A substantial majority of these loans were originated with the intent of selling them to unaffiliated third parties and are classified as commercial loans held for sale at December 31, 2013 and 2012. The fair value of commercial loans held for sale under this program was $3 million and $465 million at December 31, 2013 and 2012, respectively. We have elected to designate all of the leveraged acquisition finance syndicated loans classified as held for sale at fair value under fair value option. See Note 16, "Fair Value Option," for additional information.

Commercial loans held for sale also includes a $55 million global banking project financing syndicated loan at December 31, 2013, as well as commercial real estate loans totaling $18 million and $16 million at December 31, 2013 and 2012, respectively.

Gains and losses from the sale of residential mortgage loans are reflected as a component of residential mortgage banking revenue in the accompanying consolidated statement of income (loss). Upon conversion of our mortgage processing and servicing operations to PHH Mortgage in the second quarter of 2013, we no longer retain the servicing rights in relation to new mortgage loans upon sale and new agency eligible loan originations are sold servicing released directly to PHH Mortgage beginning with May 2013 applications. Also included in residential mortgage loans held for sale are subprime residential mortgage loans with a fair value of $46 million and $52 million at December 31, 2013 and 2012, respectively, which were acquired from unaffiliated third parties and from HSBC Finance with the intent of securitizing or selling the loans to third parties.

Other consumer loans held for sale include certain student loans which we no longer originate.

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. While the initial carrying amount of loans held for sale continued to exceed fair value at December 31, 2013, we experienced a decrease in the valuation allowance for consumer loans held for sale during 2013 due primarily to loan sales. The valuation allowance on consumer loans held for sale was $77 million and $114 million at December 31, 2013 and 2012, respectively.

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 residential mortgage loans held for sale was partially mitigated through an economic hedging program to offset changes in the fair value of the mortgage loans held for sale attributable to changes in market interest rates. Trading related revenue associated with this economic hedging program was included in residential mortgage banking revenue in the consolidated statement of income (loss). With the conversion of our mortgage processing and servicing operations to PHH Mortgage in the second quarter of 2013, PHH Mortgage is obligated to purchase agency eligible loans from us as of the earlier of when the customer locks the mortgage loan pricing or when the mortgage loan application is approved beginning with May 2013 applications. As a result, we retain none of the risk of market changes in mortgage rates and, therefore, an economic hedging program is no longer required for these loans.

9. Properties and Equipment, Net

Properties and equipment, net of accumulated depreciation, is summarized in the following table.

At December 31,	2013			2012			Depreciable Life
	(in millions)
Land..........................................................................................................................................	$	8		$	8		-
Buildings and improvements⁽¹⁾.............................................................................................	551			617			10-40 years
Furniture and equipment.......................................................................................................	137			137			3-30
Total..........................................................................................................................................	696			762
Accumulated depreciation and amortization⁽¹⁾...................................................................	(427		)	(486		)
Properties and equipment, net..............................................................................................	$	269		$	276

⁽¹⁾ Decreases since December 31, 2012 are due primarily to the retirement of assets associated with a corporate location in Buffalo, NY, which we exited in 2013.

Depreciation and amortization expense totaled $59 million, $61 million and $77 million in 2013, 2012 and 2011, respectively.

10. Intangible Assets

Intangible assets consisted of the following:

At December 31,	2013		2012
	(in millions)
Mortgage servicing rights:
Residential....................................................................................................................................................	$	227	$	168
Commercial...................................................................................................................................................	10		11
Total mortgage servicing rights.....................................................................................................................	$	237	$	179
Purchased credit card relationships..............................................................................................................	54		60
Favorable lease agreements............................................................................................................................	4		8
Total intangible assets.....................................................................................................................................	$	295	$	247

Mortgage Servicing Rights ("MSRs") A servicing asset is a contract under which estimated future revenues from contractually specified cash flows, such as servicing fees and other ancillary revenues, are expected to exceed the obligation to service the financial assets. We recognize the right to service mortgage loans as a separate and distinct asset at the time they are acquired or when originated loans are sold.

MSRs are subject to credit, prepayment and interest rate risk, in that their value will fluctuate as a result of changes in these economic variables. Interest rate risk is mitigated through an economic hedging program that uses securities and derivatives to offset changes in the fair value of MSRs. Since the hedging program involves trading activity, risk is quantified and managed using a number of risk assessment techniques.

Residential mortgage servicing rights Residential MSRs are initially measured at fair value at the time that the related loans are sold and remeasured at fair value at each reporting date. Changes in fair value of MSRs are reflected in residential mortgage banking revenue in the period in which the changes occur. Fair value is determined based upon the application of valuation models and other inputs. The valuation models incorporate assumptions market participants would use in estimating future cash flows. The reasonableness of these valuation models is periodically validated by reference to external independent broker valuations and industry surveys.

The following table summarizes the critical assumptions used to calculate the fair value of residential MSRs:

At December 31,	2013		2012
Annualized constant prepayment rate ("CPR")...........................................................................................	11.3	%	22.4	%
Constant discount rate....................................................................................................................................	12.7	%	11.3	%
Weighted average life......................................................................................................................................	5.3		3.4

The following table summarizes residential MSRs activity:

Year Ended December 31,	2013			2012
	(in millions)
Fair value of MSRs:
Beginning balance...........................................................................................................................................	$	168		$	220
Additions related to loan sales......................................................................................................................	14			24
Changes in fair value due to:
Change in valuation model inputs or assumptions...............................................................................	88			(15		)
Customer payments...................................................................................................................................	(43		)	(61		)
Ending balance......................................................................................................................................................	$	227		$	168

The following table summarizes information regarding residential mortgage loans serviced for others, which are not included in the consolidated balance sheet:

At December 31,	2013		2012
	(in millions)
Outstanding principal balances at period end.............................................................................................	$	26,951	$	32,041
Custodial balances maintained and included in noninterest bearing deposits at period end..............	$	-	$	810

Our CPR assumption declined significantly at December 31, 2013 compared with December 31, 2012 due to rising interest rates which was the primary driver of the increase in value.

Servicing fees collected are included in residential mortgage banking revenue and totaled $79 million, $87 million and $109 million during 2013, 2012 and 2011, respectively.

During the second quarter of 2013, we completed the conversion of our mortgage processing and servicing operations to PHH Mortgage under our previously announced strategic relationship agreement with PHH Mortgage to manage our mortgage processing and servicing operations. Under the terms of the agreement, PHH Mortgage provides us with mortgage origination processing services as well as sub-servicing of our portfolio of owned and serviced mortgages totaling $44.0 billion as of December 31, 2013. Although we continue to own both the mortgages on our balance sheet and the mortgage servicing rights associated with the serviced loans at the time of conversion, we now sell our agency eligible originations beginning with May 2013 applications to PHH Mortgage on a servicing released basis which results in no new mortgage servicing rights being recognized. As a result, we no longer maintain custodial balances for loans sold to PHH. No significant one-time restructuring costs have been incurred as a result of this transaction.

Commercial mortgage servicing rights Commercial MSRs, which represent servicing rights associated with commercial mortgage loans originated and sold to FNMA and are accounted for using the lower of amortized cost or fair value method, totaled $10 million and $11 million at December 31, 2013 and 2012, respectively. During the fourth quarter of 2013, we decided to sell our commercial mortgage servicing rights and, as a result, we now consider this asset held for sale at December 31, 2013. As the estimated sale price of this asset is in excess of its carrying amount, this MSR continues to be carried at amortized cost.

Purchased credit card relationships In March 2012, we purchased from HSBC Finance the account relationships associated with $746 million of credit card receivables which were not included in the sale to Capital One at a fair value of $108 million. Approximately $43 million of this value was associated with the credit card receivables sold to First Niagara. The remaining $65 million was included in intangible assets and is being amortized over the estimated useful life of the credit card relationships which is ten years.

11. Goodwill

Goodwill was $1.6 billion and $2.2 billion at December 31, 2013 and 2012, respectively. Included in goodwill for these periods were accumulated impairment losses of $670 million and $54 million, respectively.

In July 2013, we completed our annual impairment test of goodwill and determined that the fair value of all of our reporting units exceeded their carrying amounts. However, our testing results continued to indicate that there was only marginal excess of fair value over book value in our Global Banking and Markets reporting unit as its book value including allocated goodwill was 92 percent of fair value. Based on the results of this testing, as of September 30, 2013, we performed an interim impairment test of the goodwill associated with our Global Banking and Markets reporting unit which indicated that the fair value of this reporting unit continued to exceed its book value. During the fourth quarter of 2013, in conjunction with the preparation of HSBC North America's first CCAR submission and HSBC Bank USA's first DFAST submission along with the finalization of Basel III rules, we made the decision to manage our businesses to a higher common equity Tier 1 ratio and, for years beginning with 2015, that we would calculate risk-weighted assets in our projections for goodwill impairment testing purposes based on Basel III advanced requirements (as opposed to Basel 2.5). Accordingly, we performed an interim impairment test of the goodwill associated with all of our reporting units at December 31, 2013. As a result of this testing, the fair value of our Retail Banking and Wealth Management, Commercial Banking and Private Banking reporting units continued to exceed their carrying values, with the book value of each reporting unit, including allocated goodwill being 80 percent or less of fair value. However, while our updated cash flow projections for our Global Banking and Markets reporting unit continue to reflect strong levels of earnings as we continue to expand this business, as a result of the changes discussed above related to the Tier 1 common ratio and Basel III risk-weighted asset calculations, the interim impairment test of the goodwill associated with our Global Banking and Markets reporting unit as of December 31, 2013 indicated the book value of the reporting unit including goodwill was higher than its fair value. As a result of this indicator of impairment, the second step of testing was performed for this reporting unit whereby the fair value of tangible net assets and unrecognized intangible assets were deducted from the fair value of the reporting unit to determine the implied fair value of goodwill. As the fair value of the tangible net assets and unrecognized intangible assets exceeded the fair value of this reporting unit, the step two analysis resulted in the impairment and write-off of the entire $616 million of goodwill allocated to this reporting unit.

12. Deposits

The aggregate amount of time deposit accounts with a minimum of $100,000 (primarily certificates of deposit) included in domestic office deposits was approximately $6.8 billion and $7.8 billion at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, deposits totaling $7.7 billion and $8.7 billion, respectively, were carried at fair value. The scheduled maturities of all time deposits at December 31, 2013 are summarized in the following table.

	Domestic Offices		Foreign Offices		Total
	(in millions)
2014:
0-90 days......................................................................................................................................	$	5,152	$	2,691	$	7,843
91-180 days..................................................................................................................................	781		178		959
181-365 days................................................................................................................................	1,300		28		1,328
............................................................................................................................................................	7,233		2,897		10,130
2015....................................................................................................................................................	1,091		11		1,102
2016....................................................................................................................................................	1,607		12		1,619
2017....................................................................................................................................................	1,444		-		1,444
2018....................................................................................................................................................	824		-		824
Later years.........................................................................................................................................	2,775		-		2,775
............................................................................................................................................................	$	14,974	$	2,920	$	17,894

Overdraft deposits, which are classified as loans, were approximately $1.3 billion and $2.2 billion at December 31, 2013 and 2012, respectively. A substantial majority of these overdrafts were related to metals activities which are fully collateralized by customer metals deposits.

13. Short-Term Borrowings

Short-term borrowings consisted of the following:

	December 31
	2013				Rate		2012				Rate
	(dollars are in millions)
Federal funds purchased (day to day)...........................	$	700					$	3
Securities sold under repurchase agreements⁽¹⁾...........	12,921				0.15	%	6,817				0.15	%
Average during year.........................................................			$	10,643	0.24				$	6,046	0.19
Maximum month-end balance..........................................			18,748						11,040
Commercial paper..............................................................	3,379				0.22		5,022				0.27
Average during year.........................................................			3,969		0.25				4,587		0.26
Maximum month-end balance..........................................			4,990						5,022
Precious metals..................................................................	1,517						2,326
Other....................................................................................	618						765
Total short-term borrowings............................................	$	19,135					$	14,933

⁽¹⁾The following table presents the quarter end and average quarterly balances of securities sold under repurchase agreements:

	2013								2012
	Fourth		Third		Second		First		Fourth		Third		Second		First
	(in millions)
Quarter end balance.......................	$	12,921	$	12,523	$	12,445	$	3,659	$	6,817	$	3,238	$	3,843	$	4,813
Average quarterly balance..............	14,781		11,371		8,794		7,538		5,481		5,155		5,394		8,168

In April 2012, we established a third party back-up line of credit to support issuances of commercial paper totaling $1.9 billion to replace a $2.5 billion unused line of credit with HSBC France which was terminated effective in July 2012. The third party back-up line of credit commitment was reduced to zero in January 2013 and expired in April 2013. At December 31, 2013 and 2012, we had a committed unused line of credit with HSBC Investments (Bahamas) Limited of $900 million, an uncommitted unused line of credit from our immediate parent, HSBC North America Inc. ("HNAI") of $150 million and a committed unused line of credit with HSBC of $500 million.

As a member of the New York FHLB, we have a secured borrowing facility that is collateralized by real estate loans and investment securities. At December 31, 2013 and 2012, the facility included $1.0 billion of borrowings included in long-term debt. The facility also allows access to further short-term borrowings based upon the amount of residential mortgage loans and securities pledged as collateral with the FHLB, which allows access to borrowings of up to $5.3 billion as of December 31, 2013. See Note 14, "Long-Term Debt," for further information regarding these borrowings.

14. Long-Term Debt

The composition of long-term debt is presented in the following table. Interest rates on floating rate notes are determined periodically by formulas based on certain money market rates or, in certain instances, by minimum interest rates as specified in the agreements governing the issues. Interest rates in effect at December 31, 2013 are shown in parentheses.

At December 31,	2013		2012
	(in millions)
Issued by HSBC USA:
Non-subordinated debt:
Medium-Term Floating Rate Notes due 2013-2043 (.00% - 2.55%).....................................................	$	5,424	$	4,730
Floating Rate Debt due 2013-2017 (.89% - 1.59%).................................................................................	4,000		4,000
2.375% Senior Notes due 2015..................................................................................................................	2,258		2,257
5 year Senior Notes due 2018 (1.26% - 2.625%)......................................................................................	2,488		1,500
Total non-subordinated debt.......................................................................................................................	14,170		12,487
Subordinated debt:
Fixed Rate Subordinated Notes due 2014-2097 (5.00% - 9.50%).........................................................	1,319		1,320
Junior Subordinated Debentures due 2026-2027 (7.75% - 8.38%).......................................................	560		559
Total subordinated debt................................................................................................................................	1,879		1,879
Total issued by HSBC USA............................................................................................................................	16,049		14,366

Issued or acquired by HSBC Bank USA and its subsidiaries:
Non-subordinated debt:
Global Bank Note Program:
Medium-Term Notes due 2013-2040 (.00% - 2.31%)...........................................................................	294		658
Total Global Bank Note Program:..............................................................................................................	294		658
Federal Home Loan Bank of New York advances:
Floating Rate FHLB advance due 2036 (.30%).....................................................................................	1,000		1,000
Total Federal Home Loan Bank of New York advances:........................................................................	1,000		1,000
Precious metal leases due 2013 - 2014 (1.02%)........................................................................................	39		54
Secured financings with Structured Note Vehicles⁽¹⁾.............................................................................	-		63
Other..............................................................................................................................................................	12		12
Total non-subordinated debt.......................................................................................................................	1,345		1,787
Subordinated debt:
4.625% Global Subordinated Notes due 2014.........................................................................................	1,000		999
Other..............................................................................................................................................................	92		92
Global Bank Note Program:
Fixed Rate Global Bank Notes due 2017-2039 (4.875% - 7.00%).......................................................	4,361		4,498
Total subordinated debt................................................................................................................................	5,453		5,589
Total issued or acquired by HSBC Bank USA and its subsidiaries..........................................................	6,798		7,376
Obligations under capital leases....................................................................................................................	-		3
Total long-term debt.........................................................................................................................................	$	22,847	$	21,745

⁽¹⁾See Note 25, "Variable Interest Entities," for additional information.

The table above excludes $900 million of long-term debt at December 31, 2013 and 2012, due to us from HSBC Bank USA. Of this amount, the earliest note is due to mature in 2022 and the latest note is due to mature in 2097.

Foreign currency denominated long-term debt was immaterial at December 31, 2013 and 2012.

At December 31, 2013 and 2012, we have elected fair value option accounting for some of our medium-term floating rate notes and certain subordinated debt. See Note 16, "Fair Value Option," for further details. At December 31, 2013 and 2012, medium term notes totaling $5.7 billion and $5.3 billion, respectively, were carried at fair value. Subordinated debt of $1.9 billion and $2.0 billion was carried at fair value at December 31, 2013 and 2012.

The Junior Subordinated Debentures due 2026-2027 were issued to and held by three capital funding trusts organized by us. The trusts issued preferred stock collateralized by the debentures which are guaranteed by us. The trusts also issued common stock, all of which is held by us and recorded in other assets. The debentures issued to the capital funding trusts, less the amount of their common stock we hold, qualified as Tier 1 capital at December 31, 2013. Although the capital funding trusts are VIEs, our investment in the common stock does not expose us to risk as it does not require funding from us and therefore, is not considered to be equity at risk. Under Basel III capital requirements, these securities are required to be phased out of Tier 1 capital by January 1, 2016, with 50 percent of these capital securities includable in 2014 and 25 percent includable in 2015. The trust preferred securities excluded from Tier 1 Capital may be included fully in Tier 2 Capital during those two years, but must be phased out of Tier 2 Capital by January 1, 2022. As we hold no other interests in the capital funding trusts and therefore are not their primary beneficiary, we do not consolidate them. In December 2012, we exercised our option to call $309 million of debentures previously issued by HUSI to HSBC USA Capital Trust VII (the "Trust") at the contractual call price of 103.925 percent which resulted in a net loss on extinguishment of approximately $12 million. The Trust used the proceeds to redeem the trust preferred securities previously issued to an affiliate. We subsequently issued one share of common stock to our parent, HNAI for a capital contribution of $312 million.

Maturities of long-term debt at December 31, 2013, including secured financings, were as follows:

	(in millions)
2014..................................................................................................................................................................................................	$	3,926
2015..................................................................................................................................................................................................	4,333
2016..................................................................................................................................................................................................	1,462
2017..................................................................................................................................................................................................	1,859
2018..................................................................................................................................................................................................	3,066
Thereafter.......................................................................................................................................................................................	8,201
Total.................................................................................................................................................................................................	$	22,847

15. Derivative Financial Instruments

In the normal course of business, the derivative instruments entered into are for trading, market making and risk management purposes. For financial reporting purposes, a derivative instrument is designated in one of the following categories: (a) financial instruments held for trading, (b) hedging instruments designated as a qualifying hedge under derivative and hedge accounting principles or (c) a non-qualifying economic hedge. 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 arrangements with counterparties, the master netting arrangements 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 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 credit support 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 that we have not yet determined to be enforceable, have not been netted in the table below. Where we have received or posted collateral under credit support agreements, but have not yet determined such agreements are enforceable, the related collateral also has not been netted in the table below.

	December 31, 2013				December 31, 2012
	Derivative assets		Derivative liabilities		Derivative assets		Derivative liabilities
	(in millions)
Derivatives accounted for as fair value hedges⁽¹⁾
OTC-cleared⁽²⁾..............................................................................................................	$	75	$	20	$	-	$	15
Bilateral OTC⁽²⁾............................................................................................................	203		192		10		860
Interest rate contracts..............................................................................................	278		212		10		875

Derivatives accounted for as cash flow hedges⁽¹⁾
Bilateral OTC⁽²⁾............................................................................................................	-		3		33		9
Foreign exchange contracts.....................................................................................	-		3		33		9
....................................................................................................................................
OTC-cleared⁽²⁾..............................................................................................................	16		-		-		-
Bilateral OTC⁽²⁾............................................................................................................	16		62		14		227
Interest rate contracts..............................................................................................	32		62		14		227
.....................................................................................................................................
Total derivatives accounted for as hedges...............................................................	310		277		57		1,111

Trading derivatives not accounted for as hedges⁽³⁾
Exchange-traded⁽²⁾........................................................................................................	82		32		99		82
OTC-cleared⁽²⁾..............................................................................................................	24,218		25,468		17,204		16,663
Bilateral OTC⁽²⁾............................................................................................................	31,097		30,451		48,480		48,623
Interest rate contracts..............................................................................................	55,397		55,951		65,783		65,368

Exchange-traded⁽²⁾........................................................................................................	7		16		4		25
Bilateral OTC⁽²⁾............................................................................................................	15,422		14,565		13,756		13,537
Foreign exchange contracts.....................................................................................	15,429		14,581		13,760		13,562

Equity contract - bilateral OTC⁽²⁾............................................................................	1,413		1,412		1,287		1,291

Exchange-traded⁽²⁾........................................................................................................	181		6		135		19
Bilateral OTC⁽²⁾............................................................................................................	1,402		815		656		719
Precious metals contracts........................................................................................	1,583		821		791		738

OTC-cleared⁽²⁾..............................................................................................................	576		604		511		437
Bilateral OTC⁽²⁾............................................................................................................	4,079		4,104		6,617		6,910
Credit contracts.........................................................................................................	4,655		4,708		7,128		7,347

Other derivatives not accounted for as hedges⁽¹⁾
.....................................................................................................................................
Interest rate contracts - bilateral OTC⁽²⁾................................................................	470		91		901		97

Foreign exchange contracts - bilateral OTC⁽²⁾......................................................	-		44		52		17

Equity contracts - bilateral OTC⁽²⁾...........................................................................	789		148		472		126

Precious metals contracts - bilateral OTC⁽²⁾..........................................................	-		36		-		-
.....................................................................................................................................
Credit contracts - bilateral OTC⁽²⁾..........................................................................	9		11		1		4
.....................................................................................................................................
Total derivatives	80,055		78,080		90,232		89,661

Less: Gross amounts of receivable / payable subject to enforceable master netting agreements⁽⁴⁾⁽⁶⁾.............................................................................................	68,616		68,616		78,244		78,244
Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements⁽⁵⁾⁽⁶⁾................................................................................	3,870		2,116		5,123		1,336
Net amounts of derivative assets / liabilities presented in the balance sheet...	7,569		7,348		6,865		10,081

Less: Gross amounts of financial instrument collateral received / posted subject to enforceable master netting agreements but not offset in the consolidated balance sheet	1,641		3,094		627		4,887
Net amounts of derivative assets / liabilities.........................................................	$	5,928	$	4,254	$	6,238	$	5,194

⁽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 master netting agreements and obtaining collateral. 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 both of the original counterparties. Exchange traded derivatives are executed directly on an organized exchange that provides pre-trade price transparency. Credit risk is minimized for OTC-cleared derivatives and exchange traded derivatives through daily margining required by central clearing counterparties.

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

⁽⁴⁾Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.

⁽⁵⁾Represents the netting of cash collateral posted and received by counterparty under enforceable credit support agreements.

⁽⁶⁾Netting is performed at a counterparty level in cases where enforceable master netting and credit support agreements are in place, regardless of the type of derivative instrument. Therefore, we have not attempted to allocate netting to the different types of derivative instruments shown in the table above.

See Note 26, "Guarantee Arrangements, Pledged Assets and Collateral," for further information on offsetting related to resale and repurchase agreements and securities borrowing and lending arrangements.

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 senior and subordinated debt obligations. The fair value of fixed-rate (USD and non-USD denominated) assets and liabilities fluctuates in response to changes in interest rates or foreign currency exchange rates. We utilize interest rate swaps, forward and futures contracts and foreign currency swaps to minimize the effect on earnings caused by interest rate and foreign currency 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 terminated and the hedged item continues to exist, the basis adjustment is amortized over the remaining life of the hedged item. We recorded basis adjustments for active fair value hedges which increased the carrying amount of our debt by $2 million during 2013, compared with a decrease in the carrying amount of our debt of $8 million during 2012. We amortized $14 million and $12 million of basis adjustments related to terminated and/or re-designated fair value hedge relationships during 2013 and 2012, respectively. The total accumulated unamortized basis adjustment amounted to an increase in the carrying amount of our debt of $33 million and $49 million as of December 31, 2013 and 2012, respectively. Basis adjustments for active fair value hedges of available-for-sale securities increased the carrying amount of the securities by $775 million during 2013, compared with an increase in the carrying amount of the securities of $130 million during 2012. Total accumulated unamortized basis adjustments for active fair value hedges of available-for-sale securities amounted to a decrease in carrying amount of $84 million as of December 31, 2013 compared with an increase of $836 million as of December 31, 2012.

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

	Gain (Loss) on Derivative						Gain (Loss) on Hedged Items						Net Ineffective Gain (Loss) Recognized
	Interest Income (Expense)			Other Income			Interest Income (Expense)			Other Income			Other Income
	(in millions)
Year Ended December 31, 2013
Interest rate contracts/AFS Securities..............	$	(202	)	$	821		$	427		$	(801	)	$	20
Interest rate contracts/commercial loans..........	-			(2		)	-			-			(2		)
Interest rate contracts/subordinated debt........	16			-			(61		)	2			2
Total........................................................................	$	(186	)	$	819		$	366		$	(799	)	$	20

Year Ended December 31, 2012
Interest rate contracts/AFS Securities..............	$	(204	)	$	(235	)	$	424		$	222		$	(13	)
Interest rate contracts/subordinated debt........	14			9			(62		)	(8		)	1
Total........................................................................	$	(190	)	$	(226	)	$	362		$	214		$	(12	)

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 the effective portion of a qualifying cash flow hedge are recognized initially in other comprehensive income. When the cash flows for which the derivative is hedging materialize and are recorded in income or expense, the associated gain or loss from the hedging derivative previously recorded in accumulated other comprehensive income 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 de-designated 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 accumulated other comprehensive income (loss) 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. As of December 31, 2013 and 2012, active cash flow hedge relationships extend or mature through July 2036. During 2013, $10 million of losses related to terminated and/or re-designated cash flow hedge relationships were amortized to earnings from accumulated other comprehensive income compared with $17 million during 2012. During the next twelve months, we expect to amortize $6 million of remaining losses to earnings resulting from these terminated and/or de-designated cash flow hedges. The interest accrual related to the derivative contract is recognized in interest income.

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 accumulated other comprehensive income ("AOCI") from all terminated cash flow hedges) and their locations on the consolidated statement of income (loss).

	Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Gain (Loss) Reclassed From AOCI into Income (Effective Portion)						Location of Gain (Loss) Recognized in Income on the Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Gain (Loss) Recognized in Income on the Derivative (Ineffective Portion)
	2013		2012			2013			2012				2013		2012
	(in millions)
Foreign exchange contracts................................................	$	-	$	-	Interest income (expense)	$	-		$	-		Other income	$	-	$	-
Interest rate contracts.........	190		29		Interest income (expense)	(10		)	(17		)	Other income	-		-
Total.......................................	$	190	$	29		$	(10	)	$	(17	)		$	-	$	-

Trading Derivatives and Non-Qualifying Hedging Activities In addition to risk management, we enter into derivative instruments for trading and market making purposes, to repackage risks and structure trades to facilitate clients' needs for various risk taking and risk modification purposes. We manage our risk exposure by entering into offsetting derivatives with other financial institutions to mitigate the market risks, in part or in full, arising from our trading activities with our clients. In addition, we also enter into buy-protection credit derivatives with other market participants 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 or residential mortgage banking revenue. Credit losses arising from counterparty risk on over-the-counter derivative instruments and offsetting buy protection credit derivative positions are recognized as an adjustment to the fair value of the derivatives and are recorded in trading revenue.

We have elected the fair value option for certain fixed rate long-term debt issuances as well as hybrid instruments which include all structured notes and structured deposits and have entered into certain derivative contracts related to these debt issuances and hybrid instruments carried at fair value. These derivative contracts are non-qualifying hedges but are considered economic hedges. We have also entered into 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. In addition, we also from time to time have designated certain forward purchase or sale of to-be-announced ("TBA") securities to economically hedge mortgage servicing rights. Changes in the fair value of TBA positions, which are considered derivatives, are recorded in residential mortgage banking revenue. 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 are recognized in gain (loss) on instruments designated at fair value and related derivatives, other income or residential mortgage banking revenue 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	Amount of Gain (Loss) Recognized in Income on Derivatives Year Ended December 31,
		2013			2012
		(in millions)
Interest rate contracts...........................................	Trading revenue	$	(348	)	$	(29	)
Interest rate contracts...........................................	Residential mortgage banking revenue	(61		)	26
Foreign exchange contracts.................................	Trading revenue	655			649
Equity contracts....................................................	Trading revenue	5			57
Precious metals contracts....................................	Trading revenue	24			115
Credit contracts.....................................................	Trading revenue	83			(790		)
Total.........................................................................		$	358		$	28

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

	Location of Gain (Loss) Recognized in Income on Derivatives	Amount of Gain (Loss) Recognized in Income on Derivatives Year Ended December 31,
		2013			2012
	(in millions)
Interest rate contracts...........................................	Gain (loss) on instruments designated at fair value and related derivatives	$	(303	)	$	91
Interest rate contracts...........................................	Residential mortgage banking revenue	(5		)	4
Foreign exchange contracts.................................	Gain (loss) on instruments designated at fair value and related derivatives	(70		)	95
Equity contracts.....................................................	Gain (loss) on instruments designated at fair value and related derivatives	774			630
Credit contracts......................................................	Gain (loss) on instruments designated at fair value and related derivatives	2			1
Credit contracts......................................................	Other income	(7		)	(4		)
Total.........................................................................		$	391		$	817

Credit-Risk Related Contingent Features We enter into total return swap, interest rate swap, cross-currency swap and credit default swap contracts, amongst others which 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 HSBC Bank USA's 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 HSBC Bank USA is downgraded by one or more notches and whether the downgrade is in relation to long-term or short-term ratings. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of December 31, 2013, was $5.6 billion for which we have posted collateral of $5.1 billion. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of December 31, 2012, was $8.7 billion for which we have posted collateral of $7.9 billion. Substantially all of the collateral posted is in the form of cash or securities available-for-sale. See Note 26, "Guarantee Arrangements, Pledged Assets and Collateral," for further details.

In the event of a credit downgrade, we currently do not expect HSBC Bank USA's long-term ratings to go below A2 and A+ or the short-term ratings to go below P-2 and A-1 by Moody's and S&P, respectively. The following tables summarize our obligation to post additional collateral (from the current collateral level) in certain hypothetical commercially reasonable downgrade scenarios. It is not appropriate to accumulate or extrapolate information presented in the tables below to determine our total obligation because the information presented to determine the obligation in hypothetical rating scenarios is not mutually exclusive.

Moody's	Long-Term Ratings
Short-Term Ratings	A1		A2		A3
	(in millions)
P-1...................................................................................................................................................	$	-	$	18	$	130
P-2...................................................................................................................................................	2		18		130

S&P	Long-Term Ratings
Short-Term Ratings	AA-		A+		A
	(in millions)
A-1+................................................................................................................................................	$	-	$	-	$	16
A-1..................................................................................................................................................	5		5		21

We would be required to post $6 million of additional collateral on total return swaps if HSBC Bank USA is downgraded by S&P and Moody's by two notches on our long term rating accompanied by one notch downgrade in our short term rating.

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

At December 31,	2013		2012
	(in millions)
Interest rate:
Futures and forwards...................................................................................................................	$	175,468	$	313,935
Swaps.............................................................................................................................................	3,645,085		2,842,555
Options written.............................................................................................................................	85,021		43,261
Options purchased.......................................................................................................................	87,735		44,169
..............................................................................................................................................................	3,993,309		3,243,920
Foreign Exchange:
Swaps, futures and forwards......................................................................................................	804,278		743,678
Options written.............................................................................................................................	82,817		54,891
Options purchased.......................................................................................................................	84,835		55,477
Spot.................................................................................................................................................	52,193		56,326
..............................................................................................................................................................	1,024,123		910,372
Commodities, equities and precious metals:
Swaps, futures and forwards......................................................................................................	41,123		48,052
Options written.............................................................................................................................	21,531		21,025
Options purchased.......................................................................................................................	21,723		21,377
..............................................................................................................................................................	84,377		90,454
Credit derivatives...............................................................................................................................	367,443		484,932
Total.....................................................................................................................................................	$	5,469,252	$	4,729,678

16. Fair Value Option

We report our results to HSBC in accordance with its reporting basis, International Financial Reporting Standards ("IFRSs"). We typically have elected to apply fair value option accounting to selected financial instruments to align the measurement attributes of those instruments under U.S. GAAP and IFRSs and to simplify the accounting model applied to those financial instruments. We elected to apply fair value option ("FVO") reporting to commercial leveraged acquisition finance loans held for sale and related unfunded commitments, certain fixed rate long-term debt issuances and hybrid instruments which include all structured notes and structured deposits. Changes in fair value for these assets and liabilities are reported as gain (loss) on instruments designated at fair value and related derivatives in the consolidated statement of income (loss).

Loans We elected to apply FVO to all commercial leveraged acquisition finance loans held for sale and related unfunded commitments. The election allows us to account for these loans and commitments at fair value which is consistent with the manner in which the instruments are managed. During the first quarter of 2013, we completed the sale of substantially all of our remaining leveraged acquisition finance syndicated loans which we had been holding since the financial crisis.

These loans are included in loans held for sale in the consolidated balance sheet. 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 assets, 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 summarized in the table below. As of December 31, 2013 and 2012, no loans for which the fair value option has been elected are 90 days or more past due or on nonaccrual status.

Long-Term Debt (Own Debt Issuances) We elected to apply FVO 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). The components of gain (loss) related to long-term debt designated at fair value are summarized in the table below.

Hybrid Instruments We elected to apply fair value option accounting to all of our hybrid instruments issued, inclusive of structured notes and structured deposits. The valuation of the hybrid instruments is predominantly driven by the derivative features embedded within the instruments. Cash flows of the hybrid instruments 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). The components of gain (loss) related to hybrid instruments designated at fair value which reflect the instruments described above are summarized in the table below.

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

	Fair Value		Unpaid Principal Balance
	(in millions)
December 31, 2013
Commercial leveraged acquisition finance loans.................................................................	$	3	$	3
Fixed rate long-term debt.........................................................................................................	1,893		1,750
Hybrid instruments:
Structured deposits.............................................................................................................	7,740		7,539
Structured notes..................................................................................................................	5,693		5,377
December 31, 2012
Commercial leveraged acquisition finance loans.................................................................	$	465	$	486
Fixed rate long-term debt.........................................................................................................	2,016		1,750
Hybrid instruments:
Structured deposits.............................................................................................................	8,692		8,399
Structured notes..................................................................................................................	5,264		5,030

Components of Gain on Instruments at Fair Value and Related Derivatives Gain (loss) on instruments designated at fair value and related derivatives includes the changes in fair value related to interest, credit and other risks as well as the mark-to-market adjustment on derivatives related to the financial instrument designated at fair value and net realized gains or losses on these derivatives. The following table summarizes the components of gain (loss) on instruments designated at fair value and related derivatives related to the changes in fair value of the financial instrument accounted for under FVO:

	Loans			Long-Term Debt			Hybrid Instruments			Total
	(in millions)
Year Ended December 31, 2013
Interest rate and other components⁽¹⁾........................................................	$	-		$	289		$	(697	)	$	(408	)
Credit risk component⁽²⁾⁽³⁾............................................................................	21			(165		)	125			(19		)
Total mark-to-market on financial instruments designated at fair value.....................................................................................................................	21			124			(572		)	(427		)
Net realized loss on financial instruments.................................................	(8		)	-			-			(8		)
Mark-to-market on the related derivatives................................................	-			(294		)	631			337
Net realized gain on the related long-term debt derivatives...................	-			66			-			66
Gain (loss) on instruments designated at fair value and related derivatives..................................................................................................	$	13		$	(104	)	$	59		$	(32	)

Year Ended December 31, 2012
Interest rate and other components⁽¹⁾........................................................	$	3		$	13		$	(791	)	$	(775	)
Credit risk component⁽²⁾⁽³⁾............................................................................	49			(361		)	(75		)	(387		)
Total mark-to-market on financial instruments designated at fair value.........................................................................................................................	52			(348		)	(866		)	(1,162		)
Net realized loss on financial instruments.................................................	(1		)	-			-			(1		)
Mark-to-market on the related derivatives................................................	-			(38		)	796			758
Net realized gain on the related long-term debt derivatives...................	-			63			-			63
Gain (loss) on instruments designated at fair value and related derivatives......................................................................................................	$	51		$	(323	)	$	(70	)	$	(342	)

Year Ended December 31, 2011
Interest rate and other components⁽¹⁾........................................................	$	(5	)	$	(345	)	$	(391	)	$	(741	)
Credit risk component⁽²⁾⁽³⁾............................................................................	(14		)	376			113			475
Total mark-to-market on financial instruments designated at fair value.........................................................................................................................	(19		)	31			(278		)	(266		)
Net realized loss on financial instruments.................................................	(1		)	-			-			(1		)
Mark-to-market on the related derivatives................................................	-			369			305			674
Net realized gain on the related long-term debt derivatives...................	-			64			-			64
Gain (loss) on instruments designated at fair value and related derivatives......................................................................................................	$	(20	)	$	464		$	27		$	471

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

⁽²⁾For 2013 and 2012, the losses in the credit risk component for long-term debt were attributable to the tightening of our own credit spreads, while the widening of our own credit spreads resulted in the gain for 2011.

⁽³⁾For 2013, the gain in the credit risk component for hybrid instruments was attributable primarily to the widening of credit spreads on structured deposits. For 2012, the the losses in the credit risk component for hybrid instruments was attributable primarily to the tightening of our own credit spreads related to structured notes, while the widening of our own credit spreads related to structured notes resulted in the gain for 2011.

17. Income Taxes

Total income taxes for continuing operations were as follows.

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

The components of income tax expense were as follows.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate was $334 million, $314 million and $276 million at December 31, 2013, 2012 and 2011, respectively. Included in the unrecognized tax benefits are some items the recognition of which would not affect the effective tax rate, such as the tax effect of temporary differences and the amount of state taxes that would be deductible for U.S. federal purposes. It is reasonably possible that there could be a change in the amount of our unrecognized tax benefits within the next 12 months due to settlements or statutory expirations in various state and local tax jurisdictions.

It is our policy to recognize accrued interest related to uncertain tax positions in interest expense in the consolidated statement of income (loss) and to recognize penalties, if any, related to uncertain tax positions as a component of other expenses in the consolidated statement of income (loss). We had accruals for the payment of interest and penalties associated with uncertain tax positions of $208 million, $159 million and $130 million at December 31, 2013, 2012 and 2011, respectively. Our accrual for the payment of interest and penalties associated with uncertain tax positions increased by $49 million during 2013 and $29 million during 2012.

HSBC North America Consolidated Income Taxes We are included in HSBC North America's consolidated Federal income tax return and in various combined state income tax returns. As such, we have entered into a tax allocation agreement with the HNAH Group entities included in the consolidated returns which govern the current amount of taxes to be paid or received by the various entities included in the consolidated return filings. As a result, we have looked at the HNAH Group's consolidated deferred tax assets and various sources of taxable income, including the impact of HSBC and HNAH Group tax planning strategies, in reaching conclusions on recoverability of deferred tax assets. Where a valuation allowance is determined to be necessary at the HSBC North America consolidated level, such allowance is allocated to the principal subsidiaries within the HNAH Group as described below in a manner that is systematic, rational and consistent with the broad principles of accounting for income taxes.

The HNAH Group evaluates deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any available carryback capacity.

In evaluating the need for a valuation allowance, the HNAH Group estimates future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies, including capital support from HSBC necessary as part of such plans and strategies. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period.

Market conditions have created losses in the HNAH Group in recent periods and volatility in our pre-tax book income. As a consequence, our current analysis of the recoverability of the deferred tax assets significantly discounts any future taxable income expected from continuing operations and relies on continued capital support from our parent, HSBC, including tax planning strategies implemented in relation to such support. HSBC has indicated it remains fully committed and has the capacity and willingness to provide capital as needed to the HNAH Group to run operations, maintain sufficient regulatory capital, and fund certain tax planning strategies.

Only those tax planning strategies that are both prudent and feasible, and which management has the ability and intent to implement, are incorporated into our analysis and assessment. The primary and most significant strategy is HSBC's commitment to reinvest excess HNAH Group capital to reduce debt funding or otherwise invest in assets to ensure that it is more likely than not that the deferred tax assets will be utilized.

Currently, it has been determined that the HNAH Group's primary tax planning strategy, in combination with other tax planning strategies, provides support for the realization of the net deferred tax assets recorded for the HNAH Group. Such determination is based on HSBC's business forecasts and assessment as to the most efficient and effective deployment of HSBC capital, most importantly including the length of time such capital will need to be maintained in the U.S. for purposes of the tax planning strategy.

Notwithstanding the above, the HNAH Group has valuation allowances against certain state deferred tax assets and certain Federal tax loss carry forwards for which the aforementioned tax planning strategies do not provide appropriate support.

HNAH Group valuation allowances are allocated to the principal subsidiaries. The methodology allocates the valuation allowance to the principal subsidiaries based primarily on the entity's relative contribution to the growth of the HSBC North America consolidated deferred tax asset against which the valuation allowance is being recorded. At December 31, 2013, none of these valuation allowances were recorded at HUSI.

If future results differ from the HNAH Group's current forecasts or the tax planning strategies were to change, a valuation allowance against some or all of the remaining net deferred tax assets may need to be established which could have a material adverse effect on our results of operations, financial condition and capital position. The HNAH Group will continue to update its assumptions and forecasts of future taxable income, including relevant tax planning strategies, and assess the need for such incremental valuation allowances.

Absent the capital support from HSBC and implementation of the related tax planning strategies, the HNAH Group, including us, would be required to record a valuation allowance against the remaining deferred tax assets.

HSBC USA Inc. Income Taxes We recognize deferred tax assets and liabilities for the future tax consequences related to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and state net operating losses. Our net deferred tax assets, including deferred tax liabilities, totaled $1,557 million and $905 million as of December 31, 2013 and 2012, respectively.

The Internal Revenue Service ("IRS") concluded its examination of our 2006 through 2009 income tax returns in the third quarter of 2013. The IRS forwarded the Revenue Agents' Report ("RAR") to the Joint Committee of Taxation ("JCT") for approval in the fourth quarter of 2013. We expect the RAR to be approved by the JCT in the first half of 2014. The final impact is not expected to significantly affect our financial statements.

We remain subject to state and local income tax examinations for years 2004 and forward. We are currently under audit by various state and local tax jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and the closing of statute of limitations. Such adjustments are reflected in the tax provision.

At December 31, 2013, for Federal tax purposes we had foreign tax credits of $18 million which expire as follows: $6 million in 2018; $8 million in 2019; and $4 million in 2020 and we had general business credits of $12 million which expire in 2029.

At December 31, 2013, we had net operating losses carryforwards of $23 million for state tax purposes which expire as follows:$1 million in 2019 - 2023, $16 million in 2024 - 2028, and $6 million in 2029 and forward.

18. Preferred Stock

The following table presents information related to the issues of HSBC USA preferred stock outstanding.

	Shares Outstanding	Dividend Rate		Amount Outstanding
At December 31,	2013	2013		2013		2012
	(dollars are in millions)
Floating Rate Non-Cumulative Preferred Stock, Series F ($25 stated value)	20,700,000	3.549	%	$	517	$	517
14,950,000 Depositary Shares each representing a one-fortieth interest in a share of Floating Rate Non-Cumulative Preferred Stock, Series G ($1,000 stated value)..........................................................................................	373,750	4.056		374		374
14,950,000 Depositary Shares each representing a one-fortieth interest in a share of 6.50% Non-Cumulative Preferred Stock, Series H ($1,000 stated value)...................................................................................................................	373,750	6.500		374		374
6,000,000 Depositary shares each representing a one-fourth interest in a share of Adjustable Rate Cumulative Preferred Stock, Series D ($100 stated value).............................................................................................	1,500,000	4.500		150		150
$2.8575 Cumulative Preferred Stock ($50 stated value)....................................	3,000,000	5.715		150		150
				$	1,565	$	1,565

Dividends on the Floating Rate Non-Cumulative Series F Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors quarterly on the first calendar day of January, April, July and October of each year. Dividends on the stated value per share are payable for each dividend period at a rate equal to a floating rate per annum of .75% above three month LIBOR, but in no event will the rate be less than 3.5% per annum. The Series F Preferred Stock may be redeemed at our option, in whole or in part, on or after April 7, 2010 at a redemption price equal to $25 per share, plus accrued and unpaid dividends for the then-current dividend period.

Dividends on the Floating Rate Non-Cumulative Series G Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors quarterly on the first calendar day of January, April, July and October of each year. Dividends on the stated value per share are payable for each dividend period at a rate equal to a floating rate per annum of .75% above three month LIBOR, but in no event will the rate be less than 4% per annum. The Series G Preferred Stock may be redeemed at our option, in whole or in part, on or after January 1, 2011 at a redemption price equal to $1,000 per share, plus accrued and unpaid dividends for the then-current dividend period.

Dividends on the 6.50% Non-Cumulative Series H Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors quarterly on the first calendar day of January, April, July and October of each year at the stated rate of 6.50%. The Series H Preferred Stock may be redeemed at our option, in whole or in part, on or after July 1, 2011 at $1,000 per share, plus accrued and unpaid dividends for the then-current dividend period.

The Adjustable Rate Cumulative Preferred Stock, Series D is redeemable, as a whole or in part, at our option at $100 per share (or $25 per depositary share), plus accrued and unpaid dividends. The dividend rate is determined quarterly, by reference to a formula based on certain benchmark market interest rates, but will not be less than 4.5% or more than 10.5% per annum for any applicable dividend period.

The $2.8575 Cumulative Preferred Stock may be redeemed at our option, in whole or in part, on or after October 1, 2007 at $50 per share, plus accrued and unpaid dividends. Dividends are paid quarterly.

19. Accumulated Other Comprehensive Income

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

Year Ended December 31,	2013			2012			2011
	(in millions)
Unrealized gains (losses) on securities available-for-sale:
Balance at beginning of period........................................................................................................................	$	992		$	883		$	97
Other comprehensive income (loss) for period:
Net unrealized gains (losses) arising during period, net of tax of $(617) million, $136 million and $605 million, respectively.............................................................................................................................	(897		)	194			862
Reclassification adjustment for gains realized in net income (loss), net of tax of $(80) million, $(60) million and $(53) million, respectively⁽¹⁾...................................................................................................	(113		)	(85		)	(76		)
Total other comprehensive income (loss) for period....................................................................................	(1,010		)	109			786
Balance at end of period.................................................................................................................................	(18		)	992			883
Unrealized gains (losses) on other-than-temporarily impaired debt securities available-for-sale:
Balance at beginning of period........................................................................................................................	-			-			(1		)
Other comprehensive income for period:.....................................................................................................
Reclassification adjustment for losses realized in net income (loss), net of tax of $1 million in 2011⁽²⁾.....	-			-			1
Total other comprehensive income (loss) for period....................................................................................	-			-			1
Balance at end of period.................................................................................................................................	-			-			-
Unrealized losses on other-than-temporarily impaired debt securities held-to-maturity:
Balance at beginning of period........................................................................................................................	-			-			(153		)
Adjustment to add other-than-temporary impairment due to the consolidation of a VIE, net of tax of $(47) million...........................................................................................................................................	(67		)	-			-
Other comprehensive income for period:
Reclassification adjustment related to the accretion of unrealized other-than-temporary impairment, net of tax of $4 million⁽²⁾................................................................................................................................	7			-			-
Net unrealized other-than-temporary impairment arising during period.....................................................	-			-			11
Adjustment to reverse other-than-temporary impairment due to deconsolidation of VIE..........................	-			-			142
Total other comprehensive income for period.............................................................................................	7			-			153
Balance at end of period.................................................................................................................................	(60		)	-			-
Unrealized gains (losses) on derivatives designated as cash flow hedges:
Balance at beginning of period........................................................................................................................	(201		)	(229		)	(87		)
Other comprehensive income (loss) for period:
Net gains (losses) arising during period, net of tax of $78 million, $10 million and $(115) million, respectively..........................................................................................................................................	112			18			(150		)
Reclassification adjustment for losses realized in net income (loss), net of tax of $4 million, $7 million and $5 million, respectively⁽³⁾...................................................................................................................	6			10			8
Total other comprehensive income for period.............................................................................................	118			28			(142		)
Balance at end of period.................................................................................................................................	(83		)	(201		)	(229		)
Pension and postretirement benefit liability:
Balance at beginning of period........................................................................................................................	(6		)	(12		)	(9		)
Other comprehensive income for period:
Change in unfunded pension postretirement liability, net of tax of $5 million, $4 million and $(5) million, respectively.............................................................................................................................	8			4			(5		)
Reclassification adjustment of prior service costs and transition obligations in net income (loss), net of tax of less than $1 million, $1 million and $2 million, respectively⁽⁴⁾........................................................	-			2			2
Total other comprehensive income for period.............................................................................................	8			6			(3		)
Balance at end of period.................................................................................................................................	2			(6		)	(12		)
Total accumulated other comprehensive income at end of period........................................................	$	(159	)	$	785		$	642

⁽¹⁾Amount reclassified to net income (loss) is included in other securities gains, net in our consolidated statement of income (loss).

⁽²⁾Amount reclassified to net income (loss) is included in interest income in our consolidated statement of income (loss).

⁽³⁾Amount reclassified to net income (loss) is included in interest income (expense) in our consolidated statement of income (loss).

⁽⁴⁾Amount reclassified to net income (loss) is included in salaries and employee benefits in our consolidated statement of income (loss).

20. Share-Based Plans

Employee Stock Purchase Plans The HSBC Holdings Savings-Related Share Option Plan ("HSBC Sharesave Plan") allowed eligible employees to enter into savings contracts of one, three or five year lengths, with the ability to decide at the end of the contract term to either use their accumulated savings to purchase HSBC ordinary shares at a discounted option price or have the savings plus any interest repaid in cash. Compensation expense related to grants under the HSBC Sharesave Plan was less than $3 million in 2013, 2012 and 2011, respectively. The HSBC Shareshave Plan was not offered to employees during the 2013 enrollment period and therefore, there were no options granted under the plan during the year.

The following table presents information for the HSBC Sharesave Plan.

At December 31,	2012			2011
	(dollars are in millions)
Sharesave (5 year vesting period):
Total options granted........................................................................................................................	107,000			59,000
Fair value per option granted...........................................................................................................	$	1.61		$	2.22
Significant assumptions used to calculate fair value:
Risk free interest rate....................................................................................................................	0.92		%	2.17		%
Expected life (years).....................................................................................................................	5			5
Expected volatility........................................................................................................................	25		%	25		%
Sharesave (3 year vesting period):
Total options granted........................................................................................................................	430,000			209,000
Fair value per option granted...........................................................................................................	$	1.63		$	2.08
Significant assumptions used to calculate fair value:
Risk free interest rate....................................................................................................................	0.45		%	1.19		%
Expected life (years).....................................................................................................................	3			3
Expected volatility........................................................................................................................	25		%	25		%
Sharesave (1 year vesting period):
Total options granted........................................................................................................................	153,000			173,000
Fair value per option granted...........................................................................................................	$	1.35		$	1.62
Significant assumptions used to calculate fair value:
Risk free interest rate....................................................................................................................	.23		%	.25		%
Expected life (years).....................................................................................................................	1			1
Expected volatility........................................................................................................................	25		%	25		%

Restricted Share Plans Key employees have been provided awards in the form of restricted share rights ("RSRs"), restricted shares ("RSs") and restricted share units ("RSUs") under the HSBC Group Share Plan. These shares have been granted subject to either time-based vesting or performance based-vesting, typically over three to five years. Currently, share-based awards granted to U.S. employees are granted in the form of RSUs. Annual awards to employees in 2013, 2012 and 2011 are generally subject to three-year time-based graded vesting. Also during 2011, we made a one-time grant of performance-based awards that are subject to performance-based vesting periods ranging from 12 to 30 months. We also issue a small number of off-cycle grants each year, primarily for reasons related to recruitment of new employees. Compensation expense for these restricted share plans totaled $34 million in 2013, $34 million in 2012 and $54 million in 2011. As of December 31, 2013 , future compensation cost related to grants which have not yet fully vested is approximately $14 million. This amount is expected to be recognized over a weighted-average period of less than one year.

21. Pension and Other Postretirement Benefits

Defined Benefit Pension Plans Effective January 1, 2005, our previously separate qualified defined benefit pension plan was combined with that of HSBC Finance into a single HSBC North America qualified defined benefit pension plan (either the "HSBC North America Pension Plan" or the "Plan") which facilitates the development of a unified employee benefit policy and unified employee benefit plan administration for HSBC companies operating in the U.S. The following table reflects the portion of pension expense and its related components of the HSBC North America Pension Plan which has been allocated to us and is recorded in our consolidated statement of income (loss).

Year Ended December 31,	2013			2012			2011
	(in millions)
Service cost - benefits earned during the period....................................................................	$	4		$	15		$	14
Interest cost on projected benefit obligation...........................................................................	71			67			74
Expected return on assets...........................................................................................................	(83		)	(91		)	(81		)
Amortization of prior service cost (benefit)..............................................................................	-			(5		)	(6		)
Recognized losses........................................................................................................................	49			46			38
Curtailment benefit recognized...................................................................................................	-			(31		)	-
Pension expense...........................................................................................................................	$	41		$	1		$	39

Pension expense in 2012 reflects the recognition of a curtailment benefit associated with the decision in 2012 to cease all future contributions under the Cash Balance formula and freeze the Plan effective January 1, 2013. While participants with existing balances continue to receive interest credits until the account is distributed, they no longer accrue benefits beginning in 2013. Excluding the impact of the curtailment benefit from the prior year, pension expense remained higher in 2013 largely due to lower expected returns on plan assets driven by a lower return assumption due to asset mix.

During December 2011, an amendment was made to the Plan effective January 1, 2011 to amend the benefit formula, thus increasing the benefits associated with services provided by certain employees in past periods. The financial impact is being amortized to pension expense over the remaining life expectancy of the participants. As a result of the decision to cease all future contributions under the Cash Balance formula and freeze the Plan effective January 1, 2013, the remaining unamortized prior service credit was recognized during 2012.

The assumptions used in determining pension expense of the HSBC North America Pension Plan are as follows:

	2013		2012		2011
Discount rate.................................................................................................................................	3.95	%	4.60	%	5.30	%
Salary increase assumption.........................................................................................................	*		2.75		2.75
Expected long-term rate of return on Plan assets....................................................................	6.00		7.00		7.25

* As the result of decision to cease all future contributions under the cash balance formula and to freeze the plan effective January 1, 2013, a salary increase assumption no longer applies to the Plan.

Long-term historical rates of return in conjunction with our current outlook of return rates over the term of the pension obligation are considered in determining an appropriate long-term rate of return on Plan assets. In this regard, a "best estimate range" of expected rates of return on Plan assets is established by our actuaries based on a portfolio of passive investments considering asset mix upon which a distribution of compound average returns for such portfolio is calculated over a 20 year horizon. This approach, however, ignores the characteristics and performance of the specific investments the pension plan is invested in, their historical returns and their performance against industry benchmarks. In evaluating the range of potential outcomes, a "best estimate range" is established between the 25th and 75th percentile. In addition to this analysis, we also seek the input of the firm which provides us pension advisory services. This firm performs an analysis similar to that done by our actuaries, but instead uses real investment types and considers historical fund manager performance. In this regard, we also focus on the range of possible outcomes between the 25th and 75th percentile, with a focus on the 50th percentile. The combination of these analyses creates a range of potential long-term rate of return assumptions from which we determine an appropriate rate. Given the Plan's current allocation of equity and fixed income securities and using investment return assumptions which are based on long term historical data, the long term expected return for plan assets is reasonable.

Investment strategy for Plan Assets The primary objective of the HSBC North America Pension Plan is to provide eligible employees with regular pension benefits. Since the Plan is governed by the Employee Retirement Security Act of 1974 ("ERISA"), ERISA regulations serve as guidance for the management of plan assets. In this regard, an Investment Committee (the "Committee") for the Plan has been established and its members have been appointed by the Chief Executive Officer as authorized by the Board of Directors of HSBC North America. The Committee is responsible for establishing the funding policy and investment objectives supporting the Plan including allocating the assets of the Plan, monitoring the diversification of the Plan's investments and investment performance, assuring the Plan does not violate any provisions of ERISA and the appointment, removal and monitoring of investment advisers and the trustee. Consistent with prudent standards for preservation of capital and maintenance of liquidity, the goal of the Plan is to earn the highest possible total rate of return consistent with the Plan's tolerance for risk as periodically determined by the Committee. A key factor shaping the Committee's attitude towards risk is the generally long term nature of the underlying benefit obligations. The asset allocation decision reflects this long term horizon as well as the ability and willingness to accept some short-term variability in the performance of the portfolio in exchange for the expectation of competitive long-term investment results for its participants.

The Plan's investment committee utilizes a proactive approach to managing the Plan's overall investment strategy. During the past year, this resulted in the Committee conducting four quarterly meetings including two strategic reviews and two in-depth manager performance reviews with the final meeting for 2013 being held in January 2014. These quarterly meetings are supplemented by the pension investment staff tracking actual investment manager performance versus the relevant benchmark and absolute return expectations on a monthly basis. The pension investment staff also monitors adherence to individual investment manager guidelines via a quarterly compliance certification process. A sub-committee consisting of the pension investment staff and three members of the investment committee are delegated responsibility for conducting in-depth reviews of managers performing below expectation. This sub-committee also provides replacement recommendations to the Committee when manager performance fails to meet expectations for an extended period. In 2011, the Committee shifted the Plan's target asset allocation to 40 percent equities, 59 percent fixed income securities and 1 percent cash and maintained this mix through 2013. Should interest rates rise faster than currently anticipated by the Committee, a further shift to a higher percentage of fixed income securities may be made.

In order to achieve the return objectives of the Plan, investment diversification is employed to ensure that adverse results from one security or security class will not have an unduly detrimental effect on the entire portfolio. Diversification is interpreted to include diversification by type, characteristic, and number of investments as well as investment style of investment managers and number of investment managers for a particular investment style. Equity securities are invested in large, mid and small capitalization domestic stocks as well as large and small capitalization international, global and emerging market stocks. Fixed income securities are invested in U.S. Treasuries (including Treasury Inflation Protected Securities), agencies, corporate bonds, and mortgage and other asset backed securities. Without sacrificing returns or increasing risk, the Committee prefers a limited number of investment manager relationships which improves efficiency of administration while providing economies of scale with respect to fees.

An investment consultant is used to provide investment consulting services such as recommendations on the type of funds to be utilized, appropriate fund managers, and the monitoring of the performance of those fund managers. Plan performance is measured against absolute and relative return objectives. Results are reviewed from both a short-term (less than 1 year) and intermediate term (three to five year i.e. a full market cycle) perspective. Separate account fund managers are prohibited from investing in all HSBC Securities, restricted stock (except Rule 144(a) securities which are not prohibited investments), short-sale contracts, non-financial commodities, investments in private companies, leveraged investments and any futures or options (unless used for hedging purposes and approved by the Committee). Commingled account and limited partnership fund managers however are allowed to invest in the preceding to the extent allowed in each of their offering memoranda. As a result of the current low interest rate environment and expectation that interest rates will rise in the future, the Committee mandated the suspension of its previously approved interest rate hedging strategy in June 2009. Outside of the approved interest rate hedging strategy, the use of derivative strategies by investment managers must be explicitly authorized by the Committee. Such derivatives may be used only to hedge an account's investment risk or to replicate an investment that would otherwise be made directly in the cash market.

The Committee expects total investment performance to exceed the following long-term performance objectives:

• A long-term return of 6.00 percent;

• Prior to January 10, 2014, a passive, blended index comprised of 9.5 percent S&P 500, 3 percent Russell 2000, 8 percent EAFE, 3 percent S&P Dev ex-US Small Cap, 11 percent MSCI AC World Free Index, 6 percent MSCI Emerging Markets, 51 percent Barclays Long Gov/Credit, 8 percent Barclays Treasury Inflation Protected Securities and 1 percent 90-day T-Bills;

• From January 10, 2014, a passive, blended index comprised of 9.5 percent S&P 500, 3 percent Russell 2000, 8 percent EAFE, 3 percent S&P Dev ex-US Small Cap, 11 percent MSCI AC World. 5.5 percent MSCI Emerging Markets, 59 percent Barclays Long Gov/Credit and 1 percent 90-day T-Bills; and

• Above median performance of peer corporate pension plans.

HSBC North America's overall investment strategy for Plan assets is to achieve a mix of at least 95 percent of investments for long-term growth and up to 5 percent for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target sector allocations of Plan assets at December 31, 2013 are as follows:

	Percentage of Plan Assets at December 31, 2013
Domestic Large/Mid-Cap Equity............................................................................................................................................	9.9	%
Domestic Small Cap Equity......................................................................................................................................................	3.3
International Large Cap Equity...............................................................................................................................................	8.1
International Small Cap Equity................................................................................................................................................	3.2
Global Equity.............................................................................................................................................................................	11.4
Emerging Market Equity..........................................................................................................................................................	5.4
Fixed Income Securities............................................................................................................................................................	58.7
Cash or Cash Equivalents........................................................................................................................................................	-
Total.......................................................................................................................................................................................	100.0	%

Plan Assets A reconciliation of beginning and ending balances of the fair value of net assets associated with the HSBC North America Pension Plan is shown below.

Year Ended December 31,	2013			2012
	(in millions)
Fair value of net Plan assets at beginning of year...........................................................................................	$	3,485		$	3,130
Cash contributions by HSBC North America....................................................................................................	131			181
Actual return on Plan assets...............................................................................................................................	(8		)	383
Benefits paid..........................................................................................................................................................	(173		)	(209		)
Fair value of net Plan assets at end of year.......................................................................................................	$	3,435		$	3,485

The fair value of Plan assets decreased approximately 1.4 percent compared with December 31, 2012 due primarily to significantly increasing Treasury yields which negatively impacted fixed income assets and swaps during 2013, partially offset by an improvement in equities and a $131 million cash contribution to the Plan.

The Pension Protection Act of 2006 requires companies to meet certain pension funding requirements. As a result, during 2009, the Committee revised the Pension Funding Policy to better reflect current marketplace conditions and ensure the Plan's ability to continue to make lump sum payments to retiring participants. Until the Plan is fully funded, the revised Pension Funding Policy requires HSBC North America to annually contribute the greater of:

• The minimum contribution required under ERISA guidelines;

• An amount necessary to ensure the adjusted funding target attainment percentage for the Plan Year is equal to or greater than 90 percent; or

• Pension expense for the year as determined under current accounting guidance.

Because the Plan was frozen effective January 1, 2013 and Plan participants no longer accrue benefits, the actuarial present value of benefits is $3.1 billion.

As a result, during 2013 HSBC North America made a contribution to the Plan of $131 million. Additional contributions during 2014 are anticipated.

Accounting principles related to fair value measurements provide a framework for measuring fair value and focuses on an exit price in the principal (or alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants (the "Fair Value Framework"). The Fair Value Framework establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs are inputs that are observable for the identical asset or liability, either directly or indirectly. 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 inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. Transfers between leveling categories are recognized at the end of each reporting period. The following table presents the fair values associated with the major categories of Plan assets and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair values as of December 31, 2013 and 2012.

	Fair Value Measurement at December 31, 2013
	Total			(Level 1)			(Level 2)			(Level 3)
	(in millions)
Investments at Fair Value:
Cash and short term investments......................................................................	$	106		$	106		$	-		$	-
Equity Securities
U.S. Large-cap⁽¹⁾..............................................................................................	303			303			-			-
U.S. Small-cap⁽²⁾...............................................................................................	104			104			-			-
International Large-cap⁽³⁾...............................................................................	310			28			282			-
Global................................................................................................................	387			65			322			-
Emerging Market.............................................................................................	206			-			206			-
U.S. Treasury........................................................................................................	716			716			-			-
U.S. Government agency issued or guaranteed..............................................	83			9			74			-
Obligations of U.S. states and political subdivisions.....................................	70			-			70			-
Asset-backed securities......................................................................................	31			-			11			20
U.S. corporate debt securities⁽⁴⁾.........................................................................	827			-			827			-
Foreign debt securities........................................................................................	279			-			268			11
Other investments................................................................................................	114			-			114			-
Accrued interest...................................................................................................	23			6			17			-
Total investments.................................................................................................	3,559			1,337			2,191			31
Receivables:
Receivables from sale of investments in process of settlement....................	106			106			-			-
Derivative financial assets..................................................................................	5			-			5			-
Total receivables...................................................................................................	111			106			5			-
Total Assets...........................................................................................................	3,670			1,443			2,196			31
Derivative financial liabilities..............................................................................	(137		)	(13		)	(124		)	-
Other liabilities......................................................................................................	(98		)	(98		)	-			-
Total Liabilities....................................................................................................	(235		)	(111		)	(124		)	-
Total Net Assets...................................................................................................	$	3,435		$	1,332		$	2,072		$	31

	Fair Value Measurement at December 31, 2012
	Total			(Level 1)			(Level 2)		(Level 3)
	(in millions)
Investments at Fair Value:
Cash and short term investments.....................................................................	$	74		$	74		$	-	$	-
Equity Securities
U.S. Large-cap⁽¹⁾............................................................................................	378			374			4		-
U.S. Small-cap⁽²⁾.............................................................................................	109			109			-		-
International Large-Cap⁽³⁾............................................................................	401			150			251		-
Global..............................................................................................................	189			53			136		-
Emerging Market...........................................................................................	207			-			207		-
U.S. Treasury.......................................................................................................	829			829			-		-
U.S. Government agency issued or guaranteed.............................................	82			7			75		-
Obligations of U.S. states and political subdivisions...................................	70			-			70		-
Asset-backed securities....................................................................................	44			-			1		43
U.S. corporate debt securities⁽⁴⁾.......................................................................	754			-			752		2
Corporate stocks - preferred............................................................................	4			4			-		-
Foreign debt securities......................................................................................	211			4			186		21
Other investments..............................................................................................	103			-			103		-
Accrued interest.................................................................................................	20			6			14		-
Total investments...............................................................................................	3,475			1,610			1,799		66
Receivables:
Receivables from sale of investments in process of settlement..................	89			89			-		-
Derivative financial assets................................................................................	7			-			7		-
Total receivables.................................................................................................	96			89			7		-
Total Assets.........................................................................................................	3,571			1,699			1,806		66
Liabilities............................................................................................................	(86		)	(86		)	-		-
Total Net Assets..................................................................................................	$	3,485		$	1,613		$	1,806	$	66

⁽¹⁾This category comprises actively managed enhanced index investments that track the S&P 500 and actively managed U.S. investments that track the Russell 1000.

⁽²⁾This category comprises actively managed U.S. investments that track the Russell 2000.

⁽³⁾This category comprises actively managed equity investments in non-U.S. and Canada developed markets that generally track the MSCI EAFE index. MSCI EAFE is an equity market index of 21 developed market countries in Europe, Australia, Asia and the Far East including Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

⁽⁴⁾This category represents predominantly investment grade bonds of U.S. issuers from diverse industries.

The following table provides additional detail regarding the rating of our U.S. corporate debt securities at December 31, 2013:

	Level 2		Level 3		Total
	(in millions)
AAA to AA⁽¹⁾...............................................................................................................................	$	104	$	-	$	104
A+ to A-⁽¹⁾.....................................................................................................................................	299		-		299
BBB+ to Unrated⁽¹⁾......................................................................................................................	424		-		424
Total...............................................................................................................................................	$	827	$	-	$	827

⁽¹⁾We obtain ratings on U.S. corporate debt securities from both Moody's Investor Services and Standard and Poor's Corporation. In the event the ratings obtained from these agencies differ, the lower of the two ratings is utilized.

Significant Transfers Into/Out of Levels 1 and 2 for Plan Assets There were no significant transfers between Levels 1 and 2 during 2013.

Information on Level 3 Assets and Liabilities The following table summarizes additional information about changes in the fair value of Level 3 assets during 2013 and 2012.

			Total Gains and (Losses) Included in																	Current Period Unrealized Gains (Losses)
	Jan 1, 2013		Income		Other Comp. Income			Purchases		Settlement			Transfers Into Level 3		Transfers Out of Level 3			Dec. 31, 2013		Current Period Unrealized Gains (Losses)
	(in millions)
Asset-backed securities..........	43		-		(1		)	-		(21		)	-		(1		)	20		4
U.S. corporate debt securities	2		-		-			-		(2		)	-		-			-		-
Foreign debt securities............	21		-		-			5		(10		)	-		(5		)	11		-
Total assets............................	$	66	$	-	$	(1	)	$	5	$	(33	)	$	-	$	(6	)	$	31	$	4

			Total Gains and (Losses) Included in																	Current Period UnrealizedGains (Losses)
	Jan 1, 2012		Income		Other Comp. Income			Purchases		Settlement			Transfers Into Level 3		Transfers Out of Level 3			Dec. 31, 2012		Current Period UnrealizedGains (Losses)
	(in millions)
Obligations of U.S. states and political subdivisions.............................................	$	8	$	-	$	-		$	-	$	(1	)	$	-	$	(7	)	$	-	$	-
Asset-backed securities......	36		-		3			9		(5		)	-		-			43		4
U.S. corporate debt securities................................	$	-	$	-	$	-		$	2	$	-		$	-	$	-		$	2	$	-
Foreign debt securities........	8		-		(2		)	17		-			-		(2		)	21		1
Total assets.........................	$	52	$	-	$	1		$	28	$	(6	)	$	-	$	(9	)	$	66	$	5

Valuation techniques for Plan Assets Following is a description of valuation methodologies used for significant categories of Plan assets recorded at fair value.

Securities: Fair value of securities is generally determined by a third party valuation source. The pricing services generally source fair value measurements from quoted market prices and if not available, the security is valued based on quotes from similar securities using broker quotes and other information obtained from dealers and market participants. For securities which do not trade in active markets, such as fixed income securities, the pricing services generally utilize various pricing applications, including models, to measure fair value. The pricing applications are based on market convention and use inputs that are derived principally from or corroborated by observable market data by correlation or other means. The following summarizes the valuation methodology used for the major security types of our pension plan assets:

• Equity securities - Since most of our securities are transacted in active markets, fair value measurements are determined based on quoted prices for the identical security. Equity securities and derivative contracts that are non-exchange traded are primarily investments in common stock funds. The funds permit investors to redeem the ownership interests back to the issuer at end-of-day for the net asset value ("NAV") per share and there are no significant redemption restrictions. Thus the end-of-day NAV is considered observable.

• U.S. Treasury, U.S. government agency issued or guaranteed and Obligations of U.S. States and political subdivisions - As these securities transact in an active market, the pricing services source fair value measurements from 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 certain government sponsored mortgage-backed securities which transact in an active market, the pricing services source fair value measurements from 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 sponsored mortgage-backed securities which do not transact in an active market, fair value is determined using discounted cash flow models and inputs related to interest rates, prepayment speeds, loss curves and market discount rates that would be required by investors in the current market given the specific characteristics and inherent credit risk of the underlying collateral.

• Asset-backed securities - Fair value is determined using discounted cash flow models and inputs related to interest rates, prepayment speeds, loss curves and market discount rates that would be required by investors in the current market given the specific characteristics and inherent credit risk of the underlying collateral.

• U.S. corporate and foreign debt securities - 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 issue market, secondary trading levels and dealer quotes. For securities with early redemption features, an option adjusted spread ("OAS") model is incorporated to adjust the spreads determined above. Additionally, the pricing services will survey the broker/dealer community to obtain relevant trade data including benchmark quotes and updated spreads.

• Corporate stocks - preferred - In general, fair value for preferred securities is calculated using an appropriate spread over a comparable U.S. Treasury security for each issue. These spreads represent the additional yield required to account for risk including credit, refunding and liquidity. The inputs are derived principally from or corroborated by observable market data.

• Derivatives - Derivatives are recorded at fair value. 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-sourced market parameters, including interest rate yield curves, option volatilities, and currency rates. For complex or long-dated derivative products where market data is not available, fair value may be affected by the choice of valuation model and the underlying assumptions about, among other things, the timing of cash flows and credit spreads. The fair values of certain structured derivative products are sensitive to unobservable inputs such as default correlations and volatilities. These estimates are susceptible to significant change in future periods as market conditions change.

Projected benefit obligation A reconciliation of beginning and ending balances of the projected benefit obligation of the defined benefit pension plan is shown below and reflects the projected benefit obligation of the merged HSBC North American plan.

	2013			2012
	(in millions)
Projected benefit obligation at beginning of year............................................................................................	$	4,374		$	3,923
Service cost............................................................................................................................................................	11			39
Interest cost...........................................................................................................................................................	176			168
Actuarial losses (gains).......................................................................................................................................	(496		)	453
Benefits paid..........................................................................................................................................................	(173		)	(209		)
Projected benefit obligation at end of year.......................................................................................................	$	3,892		$	4,374

The accumulated benefit obligation for the HSBC North America Pension Plan was $3.9 billion and $4.4 billion at December 31, 2013 and 2012, respectively. As the projected benefit obligation and the accumulated benefit obligation relate to the HSBC North America Pension Plan, only a portion of this deficit should be considered our responsibility.

The assumptions used in determining the projected benefit obligation of the HSBC North America Pension Plan at December 31 are as follows:

	2013		2012		2011
Discount rate.................................................................................................................................	4.80	%	3.95	%	4.60	%
Salary increase assumption.........................................................................................................	*		2.75		2.75

Estimated future benefit payments for the HSBC North America Pension Plan are as follows:

	HSBC North America
	(in millions)
2014.............................................................................................................................................................................................	$	179
2015.............................................................................................................................................................................................	182
2016.............................................................................................................................................................................................	185
2017.............................................................................................................................................................................................	188
2018.............................................................................................................................................................................................	190
2019-2022....................................................................................................................................................................................	1,007

Defined Contribution Plans We maintain a 401(k) plan covering substantially all employees. Employer contributions to the plan are based on employee contributions. Total expense recognized for this plan was approximately $30 million, $30 million and $32 million in 2013, 2012 and 2011, respectively.

Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans all of which have been frozen. Total expense recognized for these plans was less than $3 million in each of 2013, 2012 and 2011.

Postretirement Plans Other Than Pensions Our employees also participate in plans which provide medical and life insurance benefits to retirees and eligible dependents. These plans cover substantially all 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. The following table reflects the components of the net periodic postretirement benefit cost:

Year Ended December 31,	2013		2012		2011
	(in millions)
Service cost - benefits earned during the period....................................................................	$	1	$	1	$	1
Interest cost...................................................................................................................................	$	2	$	3	4
Amortization of transition obligation........................................................................................	-		2		2
Net periodic postretirement benefit cost...................................................................................	$	3	$	6	$	7

The assumptions used in determining the net periodic postretirement benefit cost for our postretirement benefit plans are as follows:

	2013		2012		2011
Discount rate.................................................................................................................................	3.35	%	4.25	%	4.95	%
Salary increase assumption.........................................................................................................	2.75		2.75		2.75

A reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation is as follows:

	2013			2012
	(in millions)
Accumulated benefit obligation at beginning of year.....................................................................................	$	70		$	85
Service cost............................................................................................................................................................	1			1
Interest cost............................................................................................................................................................	2			3
Actuarial losses (gains)........................................................................................................................................	(8		)	(2		)
Plan curtailments....................................................................................................................................................	-			(8		)
Benefits paid...........................................................................................................................................................	(6		)	(9		)
Accumulated benefit obligation at end of year.................................................................................................	$	59		$	70

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $6 million relating to our postretirement benefit plans in 2014. The funded status of our postretirement benefit plans was a liability of $59 million at December 31, 2013.

Estimated future benefit payments for our postretirement benefit plans are summarized in the following table.

	(in millions)
2014.................................................................................................................................................................................................	$	6
2015.................................................................................................................................................................................................	6
2016.................................................................................................................................................................................................	6
2017.................................................................................................................................................................................................	6
2018.................................................................................................................................................................................................	6
2019-2022........................................................................................................................................................................................	28

The assumptions used in determining the benefit obligation of our postretirement benefit plans at December 31 are as follows:

	2013		2012
Discount rate.........................................................................................................................................................	4.35	%	3.35	%
Salary increase assumption.................................................................................................................................	2.75		2.75

For measurement purposes, 7.2 percent (pre-65) and 6.8 percent (post-65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2013. These rates are assumed to decrease gradually reaching the ultimate rate of 4.5 percent in 2027, and remain at that level thereafter.

Assumed health care cost trend rates have an effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would increase (decrease) service and interest costs and the postretirement benefit obligation as follows:

	One Percent Increase		One Percent Decrease
	(in millions)
Effect on total of service and interest cost components...............................................................................	$	-	$	-
Effect on accumulated postretirement benefit obligation..............................................................................	1		(1		)

22. Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms and include funding arrangements, derivative, servicing arrangements, information technology, centralized support services, banking and other miscellaneous services. Prior to 2013, we also purchased loans from related parties. All extensions of credit by (and certain credit exposures of) HSBC Bank USA to other HSBC affiliates (other than FDIC-insured banks) are legally required to be secured by eligible collateral. The following tables and discussions below present the more significant related party balances and the income (expense) generated by related party transactions:

At December 31,	2013		2012
	(in millions)
Assets:
Cash and due from banks......................................................................................................................	$	102	$	114
Interest bearing deposits with banks ⁽¹⁾..............................................................................................	631		714
Trading assets ⁽²⁾....................................................................................................................................	17,082		21,370
Loans........................................................................................................................................................	5,328		4,514
Other ⁽³⁾.....................................................................................................................................................	1,219		858
Total assets..............................................................................................................................................	$	24,362	$	27,570
Liabilities:
Deposits...................................................................................................................................................	$	16,936	$	13,863
Trading liabilities ⁽²⁾................................................................................................................................	19,463		23,910
Short-term borrowings...........................................................................................................................	1,514		2,721
Long-term debt........................................................................................................................................	3,987		3,990
Other ⁽³⁾.....................................................................................................................................................	573		459
Total liabilities.........................................................................................................................................	$	42,473	$	44,943

⁽¹⁾Includes interest bearing deposits with HSBC Mexico S.A. of $500 million at both December 31, 2013 and 2012, respectively.

⁽²⁾Trading assets and liabilities do not reflect the impact of netting which allows the offsetting of amounts relating to certain contracts if certain conditions are met. Trading assets and liabilities primarily consist of derivatives contracts.

⁽³⁾Other assets and other liabilities primarily consist of derivative contracts.

Year Ended December 31,	2013			2012			2011
	(in millions)
Income/(Expense):
Interest income..............................................................................................................................	$	232		$	193		$	128
Interest expense............................................................................................................................	(78		)	(91		)	(82		)
Net interest income (loss)............................................................................................................	$	154		$	102		$	46
Servicing and other fees from HSBC affiliate:
Fees and commissions:
HSBC Finance Corporation..............................................................................................	$	86		$	72		$	65
HSBC Markets (USA) Inc. ("HMUS")............................................................................	17			18			23
Other HSBC affiliates.........................................................................................................	51			74			79
Other HSBC affiliates income................................................................................................	48			38			35
Total affiliate income....................................................................................................................	$	202		$	202		$	202
Residential mortgage banking revenue.....................................................................................	$	-		$	3		$	17
Support services from HSBC affiliates:
HSBC Finance Corporation....................................................................................................	$	(14	)	$	(27	)	$	(36	)
HMUS.......................................................................................................................................	(228		)	(326		)	(275		)
HSBC Technology & Services (USA) ("HTSU")...............................................................	(1,000		)	(912		)	(967		)
Other HSBC affiliates..............................................................................................................	(217		)	(215		)	(235		)
Total support services from HSBC affiliates.............................................................................	$	(1,459	)	$	(1,480	)	$	(1,513	)
Stock based compensation expense with HSBC ⁽¹⁾.................................................................	$	(34	)	$	(36	)	$	(56	)

⁽¹⁾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). Employees also may participate in a defined benefit pension plan and other postretirement plans sponsored by HSBC North America which are discussed in Note 21, "Pension and Other Postretirement Benefits."

Funding Arrangements with HSBC Affiliates:

We use HSBC affiliates to fund a portion of our borrowing and liquidity needs. Long-term debt with affiliates reflects $4.0 billion in senior debt with HSBC North America. Of this amount, $1.0 billion is a 5 year floating rate note which matures in August 2014 and $3.0 billion that matures in three equal installments of $1.0 billion in April 2015, 2016 and 2017. The debt bears interest at 90 day USD Libor plus a spread, with each maturity at a different spread.

We have the following funding arrangements available with HSBC affiliates, although there were no outstanding balances at either December 31, 2013 and 2012:

• $900 million committed line of credit with HSBC Investment (Bahamas) Limited;

• $500 million committed line of credit with HSBC; and

• $150 million uncommitted line of credit with HSBC North America Inc. ("HNAI").

We have also incurred short-term borrowings with certain affiliates, largely related to metals activity. In addition, certain affiliates have also placed deposits with us.

Lending and Derivative Related Arrangements Extended to HSBC Affiliates:

At December 31, 2013 and 2012, we have the following loan balances outstanding with HSBC affiliates:

At December 31,	2013		2012
	(in millions)
HSBC Finance Corporation........................................................................................................................	$	3,015	$	2,019
HSBC Markets (USA) Inc. ("HMUS") and subsidiaries........................................................................	199		310
HSBC Bank Brasil S.A.................................................................................................................................	1,000		1,000
HSBC Bank Panama S.A.............................................................................................................................	-		372
Other short-term affiliate lending...............................................................................................................	1,114		813
Total assets...................................................................................................................................................	$	5,328	$	4,514

HSBC Finance Corporation - We have extended a $5.0 billion, 364 day uncommitted unsecured revolving credit agreement to HSBC Finance which allows for borrowings with maturities of up to 15 years. As of December 31, 2013 and 2012, $3.0 billion and $2.0 billion, respectively, was outstanding under this credit agreement with $512 million maturing in September 2017, $1.5 billion maturing in January 2018 and $1.0 billion maturing in September 2018. We also had the following lending arrangements extended which did not have any outstanding balances at either December 31, 2013 and 2012:

• $2.0 billion committed revolving credit facility extended to HSBC Finance was available at December 31, 2012. In December 2013, the amount available was reduced to $1.0 billion. This credit facility expires in May 2017; and

• $1.5 billion uncommitted secured credit facility extended to certain subsidiaries of HSBC Finance was available at December 31, 2012. In December 2013, the amount available was reduced to $0.

HMUS and subsidiaries - We have extended loans and lines, some of them uncommitted, to HMUS and its subsidiaries in the amount of $3.8 billion at December 31, 2013 and 2012, of which $199 million and $310 million, respectively, was outstanding. The outstanding balances mature at various stages between 2014 and 2015. In January 2014, we increased the uncommitted lines to HMUS and its subsidiaries which increased the total extended loans and lines to $4.8 billion.

HSBC Bank Brasil S.A. - We have extended uncommitted lines of credit to HSBC Bank Brasil in the amount of $1.5 billion and $1.0 billion at December 31, 2013 and 2012, respectively, of which $1.0 billion and $1.0 billion was outstanding at both December 31, 2013 and 2012. The outstanding balances mature at various stages between 2014 and 2015.

HSBC Bank Panama S.A. - At December 31, 2012, we had extended an uncommitted line of credit to HSBC Panama in the amount of $752 million, of which $372 million was outstanding. In October 2013, the outstanding loan amount was repaid in full and the line was closed.

We have extended lines of credit to various other HSBC affiliates totaling $2.3 billion which did not have any outstanding balances at either December 31, 2013 and 2012.

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 December 31, 2013 and 2012, there were $1,114 million and $813 million of loans outstanding mostly related to metals activities.

Historically, we have provided support to several HSBC affiliate sponsored asset-backed commercial paper ("ABCP") conduits by purchasing A-1/P-1 rated commercial paper issued by them. At December 31, 2013 and 2012, no ABCP issued by such conduits was held. Pursuant to a global restructure of HSBC sponsored ABCP conduits, certain assets previously originated and funded by Bryant Park, an ABCP conduit organized by HUSI, were refinanced in 2013 by Regency, another ABCP conduit organized and consolidated by our affiliate. HUSI is committed to provide liquidity facilities to backstop the liquidity risk in Regency in relation to assets originated in the U.S. region. The notional amount of the liquidity facilities provided by HUSI to Regency was approximately $2.4 billion as of December 31, 2013, which is less than half of Regency's total liquidity facilities.

As part of a global HSBC strategy to offset interest rate or other market risks associated with debt issues and derivative contracts with unaffiliated third parties, we routinely enter into derivative transactions with HSBC Finance and other HSBC affiliates. The notional value of derivative contracts related to these contracts was approximately $1,210.6 billion and $1,066.5 billion at December 31, 2013 and 2012, respectively. The net credit exposure (defined as the net fair value of derivative assets and liabilities) related to the contracts was approximately $845 million and $691 million at December 31, 2013 and 2012, respectively. Our Global Banking and Markets business accounts 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.

Services Provided Between HSBC Affiliates:

Under multiple service level agreements, we provide services to and receive services from various HSBC affiliates. The following summarizes these activities:

• Servicing activities for residential mortgage loans across North America are performed both by us and HSBC Finance. As a result, we receive servicing fees from HSBC Finance for services performed on their behalf and pay servicing fees to HSBC Finance for services performed on our behalf. The fees we receive from HSBC Finance are reported in Servicing and other fees from HSBC affiliates. Fees we pay to HSBC Finance are reported in Support services from HSBC affiliates. This includes fees paid for the servicing of residential mortgage loans (with a carrying amount of $1.0 billion and $1.2 billion at December 31, 2013 and 2012) that we purchased from HSBC Finance in 2003 and 2004.

• HSBC North America's technology and certain centralized support services including human resources, corporate affairs, risk management, legal, compliance, tax, finance and other shared services are centralized within HTSU. HTSU also provides certain item processing and statement processing activities to us. The fees we pay HTSU for the centralized support services and processing activities are included in Support services from HSBC affiliates. We also receive fees from HTSU for providing certain administrative services to them. The fees we receive from HTSU are included in Servicing and other fees from HSBC affiliates.

• We use HSBC Global Resourcing (UK) Ltd., an HSBC affiliate located outside of the United States, to provide various support services to our operations including among other areas, customer service, systems, collection and accounting functions. The expenses related to these services are included in Support services from HSBC affiliates.

• We utilize HSBC Securities (USA) Inc. ("HSI") for broker dealer, debt underwriting, customer referrals, loan syndication and all other treasury and traded markets related services, pursuant to service level agreements. Fees charged by HSI for broker dealer, loan syndication services, treasury and traded markets related services are included in Support services from HSBC affiliates. Debt underwriting fees charged by HSI are deferred as a reduction of long-term debt and amortized to interest expense over the life of the related debt. Customer referral fees paid to HSI are netted against customer fee income, which is included in other fees and commissions.

Other Transactions with HSBC Affiliates

In July 2004, we sold the account relationships associated with $970 million of credit card receivables to HSBC Finance and on a daily basis, we purchased new originations on these credit card receivables. As discussed in Note 10, "Intangible Assets," on March 29, 2012 we re-purchased these account relationships from HSBC Finance on $746 million of credit card receivables on that date for $108 million and as a result, we stopped purchasing new originations on these credit card accounts from HSBC Finance. We purchased $492 million of credit card receivables from HSBC Finance during the three months ended March 31, 2012. HSBC Finance continued to service these loans for us through April 30, 2012 for a fee which was included in Support services from affiliates. Effective with the close of the sale of our GM and UP credit card receivables and our private label credit card and closed-end receivables on May 1, 2012, these loans had been serviced by Capital One for a fee. In September 2013, the outsourcing arrangement with Capital One ended and we resumed the servicing of our remaining credit card portfolio. Premiums previously paid are amortized to interest income over the estimated life of the receivables purchased.

We also received revenue from our affiliates for rent on certain office space, which has been recorded as a component of support services from HSBC affiliates. Rental revenue from our affiliates was $50 million, $55 million and $54 million during 2013, 2012 and 2011, respectively.

In 2011, we sold our equity interest in Guernsey Joint Venture to HSBC Private Bank (Suisse) SA, resulting in a gain of $53 million.

Transactions with HSBC Affiliates involving our Discontinued Operations:

As it relates to our discontinued credit card and private label operations, in January 2009 we purchased the General Motors ("GM") and Union Plus ("UP") portfolios from HSBC Finance with an outstanding principal balance of $12.4 billion at the time of sale, at a total net premium of $113 million. Additionally in December 2004, we purchased the private label credit card receivable portfolio as well as private label commercial and closed end loans from HSBC Finance. HSBC Finance retained the customer account relationships for both the GM and UP receivables and the private label credit card receivables and by agreement we purchased on a daily basis substantially all new originations from these account relationships from HSBC Finance prior to the sale of these accounts to Capital One on May 1, 2012. Premiums paid for these receivables were amortized to interest income over the estimated life of the receivables purchased and are included as a component of Income from discontinued operations. HSBC Finance serviced these credit card loans for us for a fee through April 30, 2012. During 2012, we purchased a total of $9.9 billion of loans on a daily basis from HSBC Finance. Fees paid for servicing these loan portfolios, which are included as a component of Income from discontinued operations, totaled $199 million and $578 million during 2012 and 2011, respectively.

23. Business Segments

We have four distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global businesses and business strategy. There have been no changes in the basis of our segmentation or measurement of segment profit as compared with the presentation in our 2012 Form 10-K except as noted below.

Commercial Banking ("CMB") has historically held investments in low income housing tax credits. The financial benefit from these investments is obtained through lower taxes. Since business segment returns are measured on a pre-tax basis, a revenue share has historically been in place in the form of a funding credit to provide CMB with an exact and equal offset booked to the Other segment. Beginning in 2013, this practice has been eliminated and the low income housing tax credit investments and related financial impact are being recorded entirely in the Other segment. In addition, in the fourth quarter of 2013, we concluded that given the inter-relationship between the tax benefits obtained from our investment in low income housing tax credits and the amortization of our investment balance in these credits, such amounts would be better presented net in other operating income rather than separately in operating expense and income tax provision for segment reporting purposes. We have reclassified prior period results in both the CMB and Other segments to conform to the revised current year presentation.

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. 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. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Global Banking and Markets and more appropriately reflect the profitability of segments.

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 are accounted for as if they were with third parties.

Our segment results are presented in accordance with IFRSs (a non-U.S. GAAP financial measure) on a legal entity basis ("IFRSs Basis") as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees are made almost exclusively on an IFRSs basis since we report financial information to our parent, HSBC in accordance with IFRSs. We continue to monitor capital adequacy, establish dividend policy and report to regulatory agencies on a U.S. GAAP legal entity basis.

A summary of differences between U.S. GAAP and IFRSs as they impact our results are presented below:

Net Interest Income

Effective interest rate - The calculation of effective interest rates under IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"), requires an estimate of changes in estimated contractual cash flows, including fees and points paid or received between parties to the contract that are an integral part of the effective interest rate to be included. U.S. GAAP generally prohibits recognition of interest income to the extent the net interest in the loan would increase to an amount greater than the amount at which the borrower could settle the obligation. Under U.S. GAAP, prepayment penalties are generally recognized as received. U.S. GAAP also includes interest income on loans originated as held for sale which is included in other operating income for IFRSs.

Deferred loan origination costs and fees - Certain loan fees and incremental direct loan costs, which would not have been incurred but for the origination of loans, are deferred and amortized to earnings over the life of the loan under IFRSs. Certain loan fees and direct incremental loan origination costs, including internal costs directly attributable to the origination of loans in addition to direct salaries, are deferred and amortized to earnings under U.S. GAAP.

Loan origination deferrals under IFRSs are more stringent and generally result in lower costs being deferred than permitted under U.S. GAAP. In addition, all deferred loan origination fees, costs and loan premiums must be recognized based on the expected life of the loan under IFRSs as part of the effective interest calculation while under U.S. GAAP they may be recognized on either a contractual or expected life basis.

Derivative interest expense - Under IFRSs, net interest income includes the interest element for derivatives which corresponds to debt designated at fair value. For U.S. GAAP, this is included in gain (loss) on instruments designated at fair value and related derivatives which is a component of other revenues.

Other Operating Income (Total Other Revenues)

Derivatives - Effective January 1, 2008, U.S. GAAP removed the observability requirement of valuation inputs to allow up-front recognition of the difference between transaction price and fair value in the consolidated statement of income (loss). Under IFRSs, recognition is permissible only if the inputs used in calculating fair value are based on observable inputs. If the inputs are not observable, profit and loss is deferred and is recognized (1) over the period of contract, (2) when the data becomes observable, or (3) when the contract is settled.

Unquoted equity securities - Under IFRSs, equity securities which are not quoted on a recognized exchange, but for which fair value can be reliably measured, are required to be measured at fair value. Securities measured at fair value under IFRSs are classified as either available-for-sale securities, with changes in fair value recognized in shareholders' equity, or as trading securities, with changes in fair value recognized in income. Under U.S. GAAP, equity securities that are not quoted on a recognized exchange are not considered to have a readily determinable fair value and are required to be measured at cost, less any provisions for known impairment, and classified in other assets.

Loans held for sale - IFRSs requires loans originated with the intent to sell to be classified as trading assets and recorded at their fair value. Under U.S. GAAP, loans designated as held for sale are reflected as loans and recorded at the lower of amortized cost or fair value. Under IFRSs, the income related to loans held for sale is reported in trading revenue. Under U.S. GAAP, the income related to loans held for sale is reported similarly to loans held for investment.

For loans transferred to held for sale subsequent to origination, IFRSs requires these receivables to be reported separately on the balance sheet when certain criteria are met which are generally more stringent than those under U.S. GAAP, but does not change the recognition and measurement criteria. Accordingly, for IFRSs purposes such loans continue to be accounted for and impairment continues to be measured in accordance with IAS 39 with any gain or loss recorded at the time of sale. U.S. GAAP requires loans that meet the held for sale classification requirements be transferred to a held for sale category at the lower of amortized cost or fair value. Under U.S. GAAP, the component of the lower of amortized cost or fair value adjustment related to credit risk is recorded in the statement of income (loss) as provision for credit losses while the component related to interest rates and liquidity factors is reported in the statement of income (loss) in other revenues.

IFRS reclassification of fair value measured financial assets during 2008 - Certain securities were reclassified from "trading assets" to "loans and receivables" under IFRSs as of July 1, 2008 pursuant to an amendment to IAS 39 and are no longer marked to market. In November 2008, additional securities were similarly transferred to loans and receivables. These securities continue to be classified as "trading assets" under U.S. GAAP.

Additionally, certain Leverage Acquisition Finance ("LAF") loans had been classified as trading assets for IFRSs and to be consistent, an irrevocable fair value option was elected on these loans under U.S. GAAP on January 1, 2008. These loans were reclassified to "loans and advances" as of July 1, 2008 pursuant to the IAS 39 amendment discussed above. Under U.S. GAAP, these loans were classified as "held for sale" and carried at fair value due to the irrevocable nature of the fair value option.

Servicing assets - Under IFRSs, servicing assets are initially recorded on the balance sheet at cost and amortized over the projected life of the assets. Servicing assets are periodically tested for impairment with impairment adjustments charged against current earnings. Under U.S. GAAP, servicing assets are initially recorded on the balance sheet at fair value. All subsequent adjustments to fair value are reflected in current period earnings.

Other-than-temporary impairments - Under U.S. GAAP, a decline in fair value of an available-for-sale debt security below its amortized cost may indicate that the security is other-than-temporarily impaired under certain conditions. IFRSs do not have an "other than temporary" impairment concept. Under IFRSs, a decline in fair value of an available-for-sale debt security below its amortized cost is considered evidence of impairment if the decline can, at least partially, be attributed to an incurred loss event that impacts the estimated future cash flows of the security (i.e., a credit loss event). Thus a security may not be considered impaired if the decline in value is the result of events that do not negatively impact the estimated future cash flows of the security (e.g., an increase in the risk-free interest rate). However, until the entity sells the security, it will have to assess the security for credit losses at each reporting date.

Another difference between U.S. GAAP and IFRSs is the amount of the loss that an entity recognizes in earnings on an impaired (other-than-temporarily impaired for U.S. GAAP) available-for-sale debt security. Under U.S. GAAP, if an entity has decided to sell a debt security whose fair value has declined below its amortized cost, or will be more likely than not required to sell the debt security before it recovers its amortized cost basis, it will recognize an impairment loss in earnings equal to the difference between the debt security's carrying amount and its fair value. If the entity has not decided to sell the debt security and will not be more likely than not required to sell the debt security before it recovers its amortized cost basis, but nonetheless expects that it will not recover the security's amortized cost basis, it will bifurcate the impairment loss into a credit loss component and a non-credit loss component, and recognize the credit loss component in earnings and the non-credit loss component in other comprehensive income. Under IFRSs, the entity recognizes the entire decline in fair value below amortized cost in earnings.

REO expense - Other revenues under IFRSs include losses on sale and the lower of amortized cost or fair value of the collateral less cost to sell adjustments on REO properties which are classified as other expense under U.S. GAAP.

Securities -Under IFRSs, securities include HSBC shares held for stock plans at fair value. These shares held for stock plans are measured at fair value through other comprehensive income. If it is determined that these shares have become impaired, the unrealized loss in accumulated other comprehensive income is reclassified to profit or loss. There is no similar requirement under U.S. GAAP.

Loan Impairment Charges (Provision for Credit Losses)

IFRSs requires a discounted cash flow methodology for estimating impairment on pools of homogeneous customer loans which requires the discounting of cash flows including recovery estimates at the original effective interest rate of the pool of customer loans. The amount of impairment relating to the discounting of future cash flows unwinds with the passage of time, and is recognized in interest income. Also under IFRSs, if the recognition of a write-down to fair value on secured loans decreases because collateral values have improved and the improvement can be related objectively to an event occurring after recognition of the write-down, such write-down is reversed, which is not permitted under U.S. GAAP. Additionally under IFRSs, future recoveries on charged-off loans or loans written down to fair value less cost to obtain title and sell are accrued for on a discounted basis and a recovery asset is recorded. Subsequent recoveries are recorded to earnings under U.S. GAAP, but are adjusted against the recovery asset under IFRSs. Under IFRSs, interest on impaired loans is recorded at the effective interest rate on the customer loan balance net of impairment allowances.

Under U.S. GAAP, the credit risk component of the lower of amortized cost or fair value adjustment related to the transfer of receivables to held for sale is recorded in the consolidated statement of income (loss) as provision for credit losses. There is no similar requirement under IFRSs.

As previously discussed, in the third quarter of 2011 we adopted new guidance under U.S. GAAP for determining whether a restructuring of a receivable meets the criteria to be considered a TDR Loan. Credit loss reserves on TDR Loans are established based on the present value of expected future cash flows discounted at the loans' original effective interest rate.

For loans collectively evaluated for impairment under U.S. GAAP, bank industry practice which we adopted in the fourth quarter of 2012 generally results in a loss emergence period for these loans using a roll rate migration analysis which results in 12 months of losses in our allowance for credit losses. Under IFRSs, we concluded that the estimated average period of time from last current status to write-off for real estate loans collectively evaluated for impairment using a roll rate migration analysis was 10 months (previously a period of 7 months was used) which was also adopted in the fourth quarter of 2012. In the second quarter of 2013, we updated our review under IFRSs to reflect the period of time after a loss event a loan remains current before delinquency is observed which resulted in an estimated average period of time from a loss event occurring and its ultimate migration from current status through to delinquency and ultimately write-off for real estate loans collectively evaluated for impairment using a roll rate migration analysis of 12 months.

Operating Expenses

Pension and other postretirement benefit costs - Pension expense under U.S. GAAP is generally higher than under IFRSs as a result of the amortization of the amount by which actuarial losses exceeds the higher of 10 percent of the projected benefit obligation or fair value of plan assets (the "corridor."). As a result of amendments to the applicable IFRSs effective January 1, 2013, interest cost and expected return on plan assets is replaced by a finance cost component comprising the net interest on the net defined benefit liability. This has resulted in an increase in pension expense as the net interest does not reflect the benefit from the expectation of higher returns on plan assets. In 2012, amounts include a higher pension curtailment benefit under U.S. GAAP as a result of the decision in the third quarter to cease all future benefit accruals under the Cash Balance formula of the HSBC North America Pension Plan and freeze the plan effective January 1, 2013. In 2011, amounts reflect a pension curtailment gain relating to the branch sales as under IFRSs recognition occurs when "demonstrably committed to the transaction" as compared with U.S. GAAP when recognition occurs when the transaction is completed. Furthermore, in 2010, changes to future accruals for legacy participants under the HSBC North America Pension Plan were accounted for as a plan curtailment under IFRSs, which resulted in immediate income recognition. Under U.S. GAAP, these changes were considered to be a negative plan amendment which resulted in no immediate income recognition.

Share-based bonus arrangements - Under IFRSs, the recognition of compensation expense related to share-based bonuses begins on January 1 of the current year for awards expected to be granted in the first quarter of the following year. Under U.S. GAAP, the recognition of compensation expense related to share-based bonuses does not begin until the date the awards are granted.

Property - Under IFRSs, the carrying amount of property held for own use reflects revaluation surpluses recorded prior to January 1, 2004. Consequently, the carrying amounts of tangible fixed assets and shareholders' equity are lower under U.S. GAAP than under IFRSs. There is a correspondingly lower depreciation charge and higher net income as well as higher gains (or smaller losses) on the disposal of fixed assets under U.S. GAAP. For investment properties, net income under U.S. GAAP does not reflect the unrealized gain or loss recorded under IFRSs for the period. In addition, the sale of our 452 Fifth Avenue property, including the 1 W. 39th Street building in April 2010, resulted in the recognition of a gain under IFRSs while under U.S. GAAP, such gain is deferred and recognized over the lease term due to our continuing involvement.

Litigation accrual - Under U.S. GAAP, litigation accruals are recorded when it is probable a liability has been incurred and the amount is reasonably estimable. Under IFRSs, a present obligation must exist for an accrual to be recorded. In certain cases, this creates differences in the timing of accrual recognition between IFRSs and U.S. GAAP.

Goodwill impairment - Under IFRSs, goodwill was amortized until 2005 however under U.S. GAAP, goodwill was amortized until 2002, which resulted in a lower carrying amount of goodwill and, therefore, a lower impairment charge under IFRSs.

Assets

Customer loans (Loans) - As discussed more fully above under "Other Operating Income (Total Other Revenues) - Loans held for sale," on an IFRSs basis loans designated as held for sale at the time of origination and accrued interest are classified as trading assets. However, the accounting requirements governing when receivables previously held for investment are transferred to a held for sale category are more stringent under IFRSs than under U.S. GAAP which results in loans generally being reported as held for sale later then under U.S. GAAP.

Precious metals - Precious metals leased or loaned to customers are reclassified from trading precious metals into loans. Precious metal leases or loans are stated at spot price of the underlying precious metals with changes in value arising from changes in spot price recorded in other income. Interests are recorded as interest income in the consolidated statement of income (loss). Under IFRSs, precious metals leased or loaned to customers continue to be part of the precious metal inventory which is stated at fair value. We take into consideration any financing and leasing arrangement in determining the fair value of precious metals.

Derivatives - Under U.S. GAAP, derivative receivables and payables with the same counterparty may be reported on a net basis in the balance sheet when there is an executed International Swaps and Derivatives Association, Inc. ("ISDA") Master Netting Arrangement. In addition, under U.S. GAAP, fair value amounts recognized for the obligation to return cash collateral received or the right to reclaim cash collateral paid are offset against the fair value of derivative instruments. Under IFRSs, these agreements do not necessarily meet the requirements for offset, and therefore such derivative receivables and payables are presented gross on the balance sheet.

Goodwill - IFRSs and U.S. GAAP require goodwill to be tested for impairment at least annually, or more frequently if circumstances indicate that goodwill may be impaired. For IFRSs, goodwill was amortized until 2005, however goodwill was amortized under U.S. GAAP until 2002, which resulted in a lower carrying amount of goodwill under IFRSs.

The following table summarizes the results for each segment on an IFRSs basis, as well as provides a reconciliation of total results under IFRSs to U.S. GAAP consolidated totals.

	IFRSs Consolidated Amounts
	RBWM			CMB		GB&M			PB			Other			Adjustments/ Reconciling Items			Total			IFRSs Adjustments⁽³⁾			IFRSs Reclassi- fications⁽⁴⁾			U.S. GAAP Consolidated Totals
	(in millions)
December 31, 2013
Net interest income⁽¹⁾......	$	842		$	706	$	423		$	189		$	(46	)	$	(13	)	$	2,101		$	(76	)	$	16		$	2,041
Other operating income..	347			293		1,165			109			(78		)	13			1,849			22			(14		)	1,857
Total operating income...	1,189			999		1,588			298			(124		)	-			3,950			(54		)	2			3,898
Loan impairment charges⁽³⁾.........................	129			45		(4		)	5			-			-			175			-			18			193
.......................................	1,060			954		1,592			293			(124		)	-			3,775			(54		)	(16		)	3,705
Operating expenses⁽²⁾......	1,206			680		1,464			254			98			-			3,702			286			(16		)	3,972
Profit before income tax expense...........................	$	(146	)	$	274	$	128		$	39		$	(222	)	$	-		$	73		$	(340	)	$	-		$	(267	)
Balances at end of period:
Total assets.....................	$	19,267		$	23,427	$	180,559		$	8,340		$	766		$	-		$	232,359		$	(49,879	)	$	3,007		$	185,487
Total loans, net...............	16,233			22,254		20,454			6,206			-			-			65,147			1,503			439			67,089
Goodwill..........................	581			358		-			325			-			-			1,264			348			-			1,612
Total deposits.................	30,220			21,601		46,152			12,036			-			-			110,009			(3,869		)	6,468			112,608
December 31, 2012
Net interest income⁽¹⁾......	$	854		$	673	$	606		$	184		$	(43	)	$	(15	)	$	2,259		$	(123	)	$	22		$	2,158
Other operating income..	555			539		916			106			(269		)	15			1,862			43			68			1,973
Total operating income...	1,409			1,212		1,522			290			(312		)	-			4,121			(80		)	90			4,131
Loan impairment charges⁽³⁾.........................	204			4		(1		)	(3		)	-			-			204			73			16			293
.......................................	1,205			1,208		1,523			293			(312		)	-			3,917			(153		)	74			3,838
Operating expenses⁽²⁾......	1,301			631		997			232			1,465			-			4,626			48			74			4,748
Profit before income tax expense...........................	$	(96	)	$	577	$	526		$	61		$	(1,777	)	$	-		$	(709	)	$	(201	)	$	-		$	(910	)
Balances at end of period:
Total assets.....................	$	22,789		$	23,585	$	203,680		$	8,208		$	633		$	-		$	258,895		$	(67,543	)	$	94		$	191,446
Total loans, net...............	16,422			19,754		20,679			5,707			-			-			62,562			3,495			(3,446		)	62,611
Goodwill..........................	581			358		480			325			-			-			1,744			484			-			2,228
Total deposits.................	35,406			21,759		43,951			12,141			-			-			113,257			(5,122		)	9,536			117,671
December 31, 2011
Net interest income⁽¹⁾......	$	1,023		$	728	$	504		$	180		$	(100	)	$	(23	)	$	2,312		$	(41	)	$	163		$	2,434
Other operating income..	409			322		969			184			493			23			2,400			(20		)	(55		)	2,325
Total operating income...	1,432			1,050		1,473			364			393			-			4,712			(61		)	108			4,759
Loan impairment charges⁽³⁾.........................	247			6		5			(30		)	-			-			228			(3		)	33			258
.......................................	1,185			1,044		1,468			394			393			-			4,484			(58		)	75			4,501
Operating expenses⁽²⁾......	1,653			652		986			261			68			-			3,620			124			75			3,819
Profit before income tax expense...........................	$	(468	)	$	392	$	482		$	133		$	325		$	-		$	864		$	(182	)	$	-		$	682
Balances at end of period:
Total assets.....................	$	28,017		$	21,148	$	210,846		$	6,525		$	613		$	-		$	267,149		$	(80,526	)	$	(115	)	$	186,508
Total loans, net...............	16,233			16,782		21,390			4,716			-			-			59,121			(4,636		)	(3,361		)	51,124
Goodwill..........................	581			358		480			325			-			-			1,744			484			-			2,228
Total deposits.................	36,837			21,799		45,061			13,169			-			-			116,866			(4,788		)	27,651			139,729

⁽¹⁾Net interest income of each segment represents the difference between actual interest earned on assets and interest paid on liabilities of the segment adjusted for a funding charge or credit. 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. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Treasury and more appropriately reflect the profitability of segments.

⁽²⁾Expenses for the segments include fully apportioned corporate overhead expenses.

⁽³⁾Represents adjustments associated with differences between IFRSs and U.S. GAAP bases of accounting. These adjustments, which are more fully described above, consist of the following:

	Net Interest Income			Other Revenues			Provision for Credit Losses			Operating Expenses			(Loss) Income before Income Tax Expense			Total Assets
	(in millions)
December 31, 2013
Unquoted equity securities.....................	$	-		$	-		$	-		$	-		$	-		$	(163	)
Reclassification of financial assets.........	(14		)	40			-			-			26			11
Securities...............................................	-			(1		)	-			(2		)	1			(24		)
Derivatives............................................	-			(3		)	-			-			(3		)	(49,876		)
Loan impairment..................................	(57		)	1			(11		)	1			(46		)	(94		)
Property...............................................	-			-			-			(17		)	17			37
Pension costs........................................	-			-			-			24			(24		)	(154		)
Servicing assets......................................	-			6			-			-			6			8
Interest recognition...............................	2			-			-			-			2			(3		)
Goodwill impairment.............................	-			-			-			135			(135		)	348
Low Income Housing Tax Credit...........	-			(30		)	-			85			(115		)	-
Other....................................................	(7		)	10			11			60			(68		)	31
Total.....................................................	$	(76	)	$	23		$	-		$	286		$	(339	)	$	(49,879	)
December 31, 2012
Unquoted equity securities.....................	$	-		$	-		$	-		$	-		$	-		$	(108	)
Reclassification of financial assets.........	(64		)	181			-			-			117			(4		)
Securities...............................................	-			-			-			(13		)	13			(27		)
Derivatives............................................	(4		)	(5		)	-			-			(9		)	(67,762		)
Loan impairment..................................	(34		)	3			73			-			(104		)	(66		)
Property...............................................	(9		)	16			-			(21		)	28			42
Pension costs........................................	-			-			-			11			(11		)	(137		)
Servicing assets......................................	-			(1		)	-			-			(1		)	4
Interest recognition...............................	(2		)	-			-			-			(2		)	(4		)
Sale of Cards and Retail Services business.............................................................	-			(92		)	-			-			(92		)	-
Low Income Housing Tax Credit...........	-			(29		)	-			84			(113		)	-
Other....................................................	(10		)	(30		)	-			(13		)	(27		)	519
Total.....................................................	$	(123	)	$	43		$	73		$	48		$	(201	)	$	(67,543	)
December 31, 2011
Unquoted equity securities.....................	$	-		$	-		$	-		$	-		$	-		$	(71	)
Reclassification of financial assets.........	(37		)	37			-			-			-			187
Securities...............................................	-			(18		)	-			(7		)	(11		)	(9		)
Derivatives............................................	(4		)	(7		)	-			-			(11		)	(81,262		)
Loan impairment..................................	(8		)	-			(4		)	-			(4		)	(28		)
Property...............................................	(5		)	-			-			(27		)	22			164
Pension costs........................................	-			-			-			48			(48		)	(134		)
Purchased loan portfolios......................	-			-			-			-			-			3
Servicing assets......................................	-			-			-			-			-			4
Interest recognition...............................	2			-			-			-			2			(3		)
Low Income Housing Tax Credit...........	-			(26		)	-			87			(113		)	-
Other....................................................	11			(6		)	1			24			(20		)	(623		)
Total.....................................................	$	(41	)	$	(20	)	$	(3	)	$	125		$	(183	)	$	(81,772	)

⁽⁴⁾Represents differences in financial statement presentation between IFRSs and U.S. GAAP.

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The company news service from the London Stock Exchange

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