Related Party Transactions

9 Months Ended

Sep. 30, 2022

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


	September 30, 2022		December 31, 2021
	(in millions)
Assets:
Cash and due from banks	$	211	$	300
Interest bearing deposits with banks	241		59
Securities purchased under agreements to resell(1)	43		594
Trading assets	257		119
Loans	3,717		2,793
Other(2)	398		401
Total assets	$	4,867	$	4,266
Liabilities:
Deposits	$	14,962	$	9,137
Trading liabilities	74		130
Short-term borrowings	1,252		309
Long-term debt	5,511		5,511
Other(2)	292		277
Total liabilities	$	22,091	$	15,364

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in millions)
Income (Expense):
Interest income	$	36	$	6	$	58	$	20
Interest expense	(79)		(52)		(191)		(185)
Net interest expense	(43)		(46)		(133)		(165)
Trading revenue (expense)	1,320		(1,116)		3,925		(2,106)
Servicing and other fees from HSBC affiliates:
HSBC Bank plc	43		44		151		124
HSBC Markets (USA) Inc. ("HMUS")	15		22		57		70

Other HSBC affiliates	19		13		57		38
Total servicing and other fees from HSBC affiliates	77		79		265		232
Gain (loss) on instruments designated at fair value and related derivatives	(337)		(62)		(1,627)		803
Support services from HSBC affiliates:
HTSU	(244)		(242)		(748)		(754)
HMUS	(46)		(26)		(129)		(72)
Other HSBC affiliates	(129)		(121)		(379)		(322)
Total support services from HSBC affiliates	(419)		(389)		(1,256)		(1,148)
Rental income from HSBC affiliates, net(1)	10		12		29		32
Stock based compensation expense(2)	(3)		(1)		(10)		(12)

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

(2)Employees may participate in one or more stock compensation plans sponsored by HSBC. These expenses are included in salaries and employee benefits in our consolidated statement of income. Certain employees are also eligible to participate in a defined benefit pension plan and other postretirement plans sponsored by HSBC North America which are discussed in Note 22, "Pension and Other Postretirement Benefits," in our 2021 Form 10-K.

Funding Arrangements with HSBC Affiliates:

We use HSBC affiliates to fund a portion of our borrowing and liquidity needs. At both September 30, 2022 and December 31, 2021, long-term debt with affiliates reflected $5.5 billion of borrowings from HSBC North America. The outstanding balances include $2.0 billion of fixed-rate senior debt which matures in June 2025, $2.0 billion of fixed-rate senior debt which matures in September 2025 and $1.5 billion of fixed-rate senior debt which matures in June 2030.

We have a $4.0 billion uncommitted line of credit with HSBC North America. The available borrowing capacity under this facility is fungible between HSBC USA, HSBC Securities (USA) Inc. ("HSI") and HSBC North America, but total borrowings cannot collectively exceed $4.0 billion at any time. We had no outstanding borrowing under this credit facility at either September 30, 2022 or December 31, 2021.

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

Lending and Derivative Related Arrangements Extended to HSBC Affiliates:

At September 30, 2022 and December 31, 2021, we had the following loan balances outstanding with HSBC affiliates:


	September 30, 2022		December 31, 2021
	(in millions)

HMUS and subsidiaries	$	2,435	$	1,576

HSBC North America	1,250		1,000



Other short-term affiliate lending	32		217
Total loans	$	3,717	$	2,793

HMUS and subsidiaries We have extended loans and lines of credit, some of them uncommitted, to HMUS and its subsidiaries in the amount of $12.0 billion and $11.9 billion at September 30, 2022 and December 31, 2021, respectively, of which $2.4

billion and $1.6 billion, respectively, was outstanding. The maturities of the outstanding balances range from overnight to three months. Each borrowing is re-evaluated prior to its maturity date and either extended or allowed to mature.

HSBC North America Under the $4.0 billion uncommitted fungible line of credit with HSBC North America as discussed above, there was $1.3 billion and $1.0 billion outstanding at September 30, 2022 and December 31, 2021, respectively. The outstanding balance includes $250 million that matures in the fourth quarter of 2022 and $1.0 billion that matures in the first quarter of 2023.

We have extended lines of credit to various other HSBC affiliates totaling $3.7 billion which did not have any outstanding balances at either September 30, 2022 or December 31, 2021.

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 September 30, 2022 and December 31, 2021, there were $32 million and $217 million, respectively, of these loans outstanding.

Derivative contracts As part of a global HSBC strategy to offset interest rate or other market risks associated with certain securities, debt issues and derivative contracts with unaffiliated third parties, we routinely enter into derivative transactions with HSBC Bank plc and other HSBC affiliates. The notional value of derivative contracts related to these transactions was approximately $881.8 billion and $753.2 billion at September 30, 2022 and December 31, 2021, respectively. The net credit exposure (defined as the net fair value of derivative assets and liabilities, including any collateral received) related to the contracts was approximately $262 million and $127 million at September 30, 2022 and December 31, 2021, respectively. We account for these transactions on a mark to market basis, with the change in value of contracts with HSBC affiliates substantially offset by the change in value of related contracts entered into with unaffiliated third parties.

Services Provided Between HSBC Affiliates:

Under multiple service level agreements, we provide services to and receive services from various HSBC affiliates. These activities are summarized in Note 24, "Related Party Transactions," in our 2021 Form 10-K. There have been no significant changes in these activities since December 31, 2021.

Other Transactions with HSBC Affiliates:

At both September 30, 2022 and December 31, 2021, we had $1,265 million of non-cumulative preferred stock issued and outstanding to HSBC North America. See Note 19, "Preferred Stock," in our 2021 Form 10-K for additional details.

During the third quarter of 2022, we paid a distribution on our common stock of $1.0 billion from surplus capital to HSBC North America. See Note 16, "Retained Earnings and Regulatory Capital Requirements," for additional details.