As discussed further in Note 21, "New Accounting Pronouncements," beginning January 1, 2020, an allowance for credit losses is recognized based on lifetime ECL for loans, securities held-to-maturity and certain other financial assets measured at amortized cost, and an allowance for credit losses is also recognized for securities available-for-sale. Prior to January 1, 2020, an allowance for credit losses was recognized based on probable incurred losses for loans only while debt securities were assessed for other-than-temporary impairment. In addition, beginning January 1, 2020, the liability for off-balance sheet credit exposures is recognized based on lifetime ECL while, prior to January 1, 2020, it was recognized based on probable incurred losses. The new guidance also requires inclusion of expected recoveries of amounts previously written off, limited to the cumulative amount of prior write-offs, when estimating the allowance for credit losses for in scope financial assets (including collateral-dependent assets). Prior to January 1, 2020, these expected recoveries were not recognized.

Measurement of ECL Estimates The recognition and measurement of lifetime ECL is highly complex and involves the use of significant judgment and estimation. Multiple forward-looking economic forecasts are formulated and incorporated into the lifetime ECL calculations when estimating the allowance for credit losses for in scope financial assets and the liability for off-balance sheet credit exposures as discussed below under the heading "Calculation of Lifetime ECL". We utilize a standard framework to form economic scenarios to reflect assumptions about future economic conditions supplemented by the use of management judgment, which may result in using alternative or additional economic scenarios and/or management adjustments.

Methodology HUSI has adopted the use of a minimum of three forward-looking economic scenarios, representative of management's view of forecasted economic conditions, sufficient to calculate unbiased expected loss in most economic environments. They represent a 'most likely outcome' (the "Central scenario") and two less likely 'outer' scenarios, referred to as the "Upside scenario" and the "Downside scenario". Each scenario is assigned a weighting with the significant majority of the weighting placed on the Central scenario and lower equal weights placed on the Upside and Downside scenarios. This weighting is deemed appropriate for the estimation of lifetime ECL in most economic environments, unless determined otherwise. See Updates to Economic Scenarios and Other Changes During the Nine Months Ended September 30, 2020 below for further discussion. Key Central scenario assumptions are set using the average of forecasts of external economists, helping to ensure the scenarios are unbiased and maximize the use of independent information, except when in management's judgment it is believed not to be representative of the current economic environment. The Central, Upside and Downside scenarios selected with reference to external forecast distributions using the above approach are termed the "Consensus Economic Scenarios". We have determined that two years is a reasonable and supportable forecast period for the Consensus Economic Scenarios. At the end of the two year reasonable and supportable forecast period, assumption variables start to revert to their 20-year average of historical values over a reversion period. The reversion period for most assumption variables is generally three years, but is longer in some specific cases. The reversion path for this period is linear in the Central scenario for all variables. The reversion path for variables in the Upside and Downside scenarios is generally non-linear.

For the Central scenario, we set key assumptions such as Gross Domestic Product ("GDP") growth, inflation, unemployment, housing price growth, U.S. Treasury yields, equity price growth, short-term interest rates and oil price using either the average of external forecasts (commonly referred to as consensus forecasts) or market implied rates. An external provider's model, conditioned to follow the consensus forecasts for the above key assumption variables, projects the remaining variable paths required as inputs to credit models. This external provider is subject to our risk governance framework, including oversight by an internal independent model review team.

The Upside and Downside scenarios are constructed following a standard process supported by a scenario narrative reflecting our top and emerging risks and by consulting external and internal subject matter experts. They are designed to be cyclical in that GDP growth, inflation and unemployment usually revert back to the Central scenario after the first two years. We determine the maximum divergence of GDP growth from the Central scenario using the 10th and the 90th percentile of the entire distribution of consensus forecast outcomes. Using externally available forecast distributions ensures independence in scenario construction. Key economic variables are set with reference to external distributional forecasts and we project additional variable paths using the external provider's model.

Generally, the Upside and Downside scenarios are generated at year-end and are only updated during the year if economic conditions change significantly. The Central scenario is generated every quarter. In quarters where only the Central scenario is updated, the Upside and Downside scenarios used for commercial loans are adjusted such that the relationship between the key assumptions used in the Central scenario and the Upside and Downside scenarios in the quarter is consistent with that observed at the last full scenario generation. For consumer loans, in quarters where only the Central scenario is updated, the relationship

We also exclude from our lifetime ECL calculation financial assets which are secured by collateral maintenance provisions (e.g., the borrower is contractually required to adjust the amount of financial collateral securing the financial asset) if such collateral meets liquidity requirements. In most circumstances subject to such requirements, collateral exceeds our amortized cost basis and no allowance for credit losses is recorded for these financial assets, consisting of the substantial majority of our securities purchased under agreements to resell as well as substantially all of our margin loans provided to our private banking customers.

Description of Consensus Economic Scenarios Adopted on January 1, 2020 The following discussion summarizes the key macroeconomic variable forecasts in the Central, Upside and Downside scenarios at January 1, 2020. The economic assumptions described in this section have been formed specifically for the purpose of calculating ECL. While macroeconomic assumptions have changed significantly during the first nine months of 2020, the following scenarios are being provided to explain the impact of adopting the Consensus Economic Scenarios on January 1, 2020.

The Central scenario at January 1, 2020 - In the Central scenario, growth was expected to slow down in the United States as the benefits from tax reform waned in 2020. Inflation was forecast to remain around the target of 2 percent, while the unemployment rate was expected to stay at a low level in 2020 before gradually rising towards its long-term trend. The expected paths for Federal Reserve Board ("FRB") policy rates implied three rate cuts in 2020.

The Upside scenario at January 1, 2020 - In the Upside scenario, the economic forecast distribution of risks (as captured by consensus probability distribution of GDP growth) showed a marginal increase in upside risk for the United States in the reasonable and supportable period. Increased confidence, positive resolution of trade disputes and expansionary fiscal policy supported the Upside scenario. In this scenario, GDP growth rose to 4.0 percent in 2020, which drove inflation higher and unemployment to fall further than in the Central scenario. Stronger GDP growth and domestic demand supported stronger equity and housing prices in this scenario.

The Downside scenario at January 1, 2020 - In the Downside scenario, the economic forecast distribution of risks (as captured by consensus probability distribution of GDP growth) showed a marginal increase in the downside risks for the United States in the reasonable and supportable period. In this scenario, the U.S. economy was expected to contract in 2020 before slowly reverting back to the long-run trend. The slowdown in growth was consistent with an escalation of trade tensions with China and other trading partners in this scenario. Additional tariffs and non-tariff barriers on trade were expected to lead to the benefits from corporate tax cuts being offset by a sharp rise in costs for businesses and consumers and a loss of confidence in this scenario, while lower business investment and confidence were expected to affect hiring, with an impact on the unemployment rate and earnings expectations. In the downside scenario, policy interest rates were expected to be cut back below 0.5 percent in order to support growth and inflation.

In conjunction with adopting the new accounting guidance, we performed a review of the methodology used to estimate lifetime ECL and determined that risk associated with the non-homogeneous nature of our current commercial loan portfolio and the potential impact of large loan defaults was not fully captured in the models. As a result, we recorded a management judgment allowance of $125 million for risk factors associated with large loan exposure in our commercial loan portfolio at January 1, 2020.

related increase in economic uncertainty given the rapidly changing economic impact, we determined that the Consensus Economic Scenarios described above were no longer representative of management's view of forecasted economic conditions and, as a result, three new COVID-19 forward-looking economic scenarios were developed and utilized for estimating lifetime ECL at March 31, 2020. The three new COVID-19 scenarios, referred to as mild, moderate and severe, were assigned weightings with the majority of the weighting placed on the mild scenario and progressively lower weights placed on the moderate and severe scenarios. This weighting was deemed appropriate for the estimation of lifetime ECL under conditions at that time.

During the second quarter of 2020, economic conditions remained weak and economic uncertainty caused by the COVID-19 pandemic continued to remain high. As a result, we updated our Upside and Downside scenarios, in addition to updating our Central scenario, to reflect management's current view of forecasted economic conditions and utilized the three updated Consensus Economic Scenarios for estimating lifetime ECL at June 30, 2020. In addition, given the high level of economic uncertainty, we developed and utilized a fourth scenario, referred to as the "Alternative Downside scenario", to reflect the possibility that the adverse impact associated with the deterioration in economic conditions could manifest itself over a far longer period of time. Each of the four scenarios were assigned weightings with the majority of the weighting placed on the Central scenario, the second most weighting placed on the Downside scenario and lower equal weights placed on the Upside and Alternative Downside scenarios. This weighting was deemed appropriate for the estimation of lifetime ECL under conditions at that time.

During the third quarter of 2020, economic conditions rebounded partially while economic uncertainty caused by the COVID-19 pandemic continued to remain high. As a result, we updated our three Consensus Economic Scenarios and our Alternative Downside scenario to reflect management's current view of forecasted economic conditions and utilized the four updated scenarios for estimating lifetime ECL at September 30, 2020. Each of the four scenarios were assigned weightings with the majority of the weighting placed on the Central scenario, the second most weighting placed on the Downside scenario and lower equal weights placed on the Upside and Alternative Downside scenarios. This weighting was deemed appropriate for the estimation of lifetime ECL under current conditions. The following discussion summarizes the key macroeconomic variable forecasts in the Central, Upside, Downside and Alternative Downside scenarios at September 30, 2020.

In the Central scenario, GDP continues to expand in the fourth quarter of 2020 and through 2021 under the assumption of a phased re-opening of the economy. With the economic recovery, the unemployment rate gradually declines after peaking in the second quarter of 2020. The residential housing market continues its growth into the fourth quarter of 2020, driven by low interest rates and demand from people who need more space to work from home. In the financial markets, the federal funds rate remains at the lowest level for an extended period of time and the 10-year U.S. Treasury yield slowly climbs.

In the Upside scenario, the re-opening of the economy is expected to proceed at a faster pace than in the Central scenario. As a result, the economy rebounds stronger and the unemployment rate falls faster. Home price appreciation gradually picks up reaching its pre-COVID-19 level in late 2021. In this scenario, the equity price index returns to its pre-COVID-19 level by the end of 2020, but the 10-year U.S. Treasury yield stays at a low level during the next two years.

In the Downside scenario, the re-opening of the economy is delayed due to a rapid rise of COVID-19 cases. In this scenario, the economic recovery is quite anemic, with the unemployment rate staying at double digits through the third quarter of 2021. The residential housing market slowly loses its momentum due to weakness in the labor market and the commercial real estate market suffers a heavier blow than the residential housing market. The equity price index in this scenario loses more than half of its value by the end of 2022, driven by disappointing corporate earnings, and the FRB keeps its policy rate at the lowest level for the next two years.

In the Alternative Downside scenario, economic recessions re-emerge in both 2021 and 2022, under the assumption that no vaccine or effective treatment for COVID-19 can be broadly distributed. An extended period of economic contraction and stagnation keeps the unemployment rate at a very high level, which pressures residential housing prices to fall further. At the same time, contracting corporate activities pushes the commercial real estate market into a severe downturn. Volatility in the financial markets remains extremely high until the end of 2021, widening corporate credit spreads substantially. Flight to safe haven assets pushes the 10-year U.S. Treasury yield to negative territory in 2021 in this scenario

In addition to the updates to the economic scenarios, during the three months ended September 30, 2020, we increased our management judgment allowance for risk factors associated with higher risk client and industry exposures in our commercial loan portfolio that are not fully captured in the models. This increase was partially offset by a decrease in our management judgment allowance for risk factors associated with large loan exposures in our commercial loan portfolio, reflecting the partial rebound in economic conditions. In the year-to-date period, we increased our management judgment allowance for risk factors associated with higher risk client and industry exposures as well as large loan exposures in our commercial loan portfolio, reflecting an overall increase in projected lifetime large loan defaults. In addition, we recorded a management judgment allowance during the three months ending September 30, 2020 for risk factors associated with forbearance accounts in our consumer loan portfolio that are not fully captured in the models.

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

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

Commercial loans Commercial loans are monitored on a continuous basis with a formal assessment completed, at a minimum, annually. As part of this process, a credit rating and loss given default ("LGD") are assigned and serve as the basis for establishing an allowance for these loans' expected balance at default ("EAD") based on a probability of default ("PD") estimate associated with each credit rating under our credit risk policies. In assigning the credit 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. We utilize a consistent methodology for the application of forward economic guidance ("FEG") into the calculation of lifetime ECL by incorporating FEG into the estimation of the term structure of PD and LGD. For PDs, we consider the correlation of FEG to default rates for a particular industry. For LGDs, we consider the correlation of FEG to collateral values and realization rates for a particular industry and if applicable, country which is adjusted for recoveries. Our PD estimates are validated on an annual basis using back-testing of actual default rates and benchmarking of the internal ratings with external rating agency data like S&P ratings and default rates. PDs and LGDs are estimated for the entire term structure of the loan. Credit Review, a function independent of the business, provides an on-going assessment of lending activities that includes independently assessing credit ratings and LGD estimates for sampled credits across various portfolios.

Loans with similar risk characteristics are pooled for determining lifetime ECL. When it is deemed probable based upon known facts and circumstances that full interest and principal on an individual loan will not be collected in accordance with its contractual terms, in general the loan is no longer considered part of the collective pool of homogeneous loans against which lifetime ECL are established. Instead, an allowance for credit losses is established on an individual basis ("individually assessed") primarily based on the present value of expected future cash flows, discounted at the loan's original effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Individually assessed loans are evaluated quarterly. Generally, loans that are placed on non-accrual must be removed from a collective pool and individually assessed.

In addition, the allowance for credit losses may reflect consideration of management judgment of risk factors that are considered likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience as well as where the models used to generate the reserves do not produce an estimate that is sufficient to encompass the current view of lifetime ECL. In making this determination, we consider the characteristics of our portfolio and any other significant factors that are relevant. Factors that are relevant to determining the expected collectability of our loan portfolio include, but are not limited to, the volume and severity of past due loans, the volume and severity of adversely classified or rated loans, the underlying collateral on loans that are not collateral dependent, lending policies and procedures including changes in lending strategies, underwriting standards or collection and recovery practices as well as the obligor's operations, environmental factors of an obligor and the areas in which our credit exposure is concentrated, the non-homogeneous nature of the portfolio, changes and expected changes in the general market condition of either a geographical area or an industry, and changes in international, national, regional, and local economic and business conditions.

For loans which have been identified as TDR Loans, including beginning in 2020 loans which we reasonably expect to become TDR Loans, judgment will be used as to whether or not we expect full repayment of principal and interest. If full repayment is expected, the TDR Loan will remain in a collective pool of homogeneous loans for determining lifetime ECL. When full repayment of principal and interest is not expected or, beginning in 2020, when we anticipate offering payment concessions, the loan will be removed from the pool and individually assessed. If a commercial TDR subsequently performs in accordance with the new terms and the loan is upgraded, it is possible the loan will no longer be reported as a TDR Loan at the earliest one year after the restructure had been anticipated.

Consumer loans For pools of homogeneous consumer loans and certain small business loans, we estimate lifetime ECL using a component based framework based on PD, LGD and EAD that estimates the likelihood that a loan will progress through the various stages of delinquency and ultimately charge-off based upon a forward-looking view of macro-economic expectations that impact a lifetime ECL and historical experience. The impact of FEG on PD is modeled at the loan or segment level depending on the portfolio. Historic relationships between observed default rates and macroeconomic variables are integrated

into lifetime ECL estimates by leveraging economic response models. The impact of FEG on PD is modeled over a period equal to the remaining maturity of the underlying loans. The impact on LGD is modeled for mortgage portfolios by forecasting future loan-to-value ("LTV") profiles for the remaining maturity of the loans by leveraging national forecasts of the house price index ("HPI") and applying the corresponding LGD expectation. The models consider delinquency status, loss experience and severity, and take into account where borrowers have historically filed for bankruptcy or have been subject to account management actions, such as the re-age or modification of accounts. Expected loss severity is based on the underlying collateral, if any, for the loan in the event of default based on historical and recent trends which are updated monthly based on a rolling average of several months' data using the most recently available information.

The lifetime ECL recognized for consumer loans considers the effect on lifetime ECL over a range of potential outcomes, calculated on a probability-weighted basis, based on the economic scenarios described above, including management judgment where required. Management judgment reflects consideration of risk factors that are considered likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience as well as where the models used to generate the reserves do not produce an estimate that is sufficient to encompass the current view of lifetime ECL. In making this determination, we consider the characteristics of our portfolio and any other significant factors that are relevant. Factors that are relevant to determining the expected collectability of our consumer loan portfolio include, but are not limited to, changes in risk selection or underwriting standards, changes in collection, account management, charge-off and recovery practices and changes in loan concentrations affecting either the frequency or severity of losses.

For loans which have been identified as TDR Loans, including beginning in 2020, loans which we reasonably expect to become TDR Loans, an allowance for credit losses is maintained primarily based on the present value of expected future cash flows, discounted at the loan's original effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Once a loan is classified as a TDR Loan, it continues to be reported as such until it is paid off or charged-off.

Collateral-dependent loans As discussed above, beginning January 1, 2020, expected recoveries related to subsequent increases in the fair value of collateral for collateral-dependent loans that were previously written down below current recovery value estimates are recognized in the allowance for credit losses. The amount recognized is limited to the cumulative amount of prior write-offs. See Note 5, "Loans," for additional information regarding collateral-dependent loans.

Off-balance sheet credit exposures A separate estimate of lifetime ECL for off-balance sheet credit exposures is also maintained, which is recorded in interest, taxes and other liabilities on the consolidated balance sheet and includes lifetime ECL arising from off-balance sheet exposures such as letters of credit, guarantees and unused commitments to extend credit. The process for measuring lifetime ECL on these exposures is consistent with that for commercial or consumer loans discussed above as applicable, but is subject to an additional parameter reflecting the likelihood that funding will occur. No lifetime ECL is recognized for off-balance sheet credit exposures that are unconditionally cancellable by us such as unused credit card lines of credit.


	Commercial Loans														Consumer Loans
	Real Estate, including Construction		Business and Corporate Banking		Global Banking		Other Comm'l		Residential Mortgages		Home Equity Mortgages		Credit Cards		Other Consumer		Total Loans
	(in millions)
Three Months Ended September 30, 2020
Allowance for credit losses – beginning of period	$	120	$	434	$	424	$	5	$	(19)	$	16	$	190	$	22	$	1,192
Provision charged (credited) to income	43		(36)		(103)		3		12		(1)		(2)		9		(75)
Charge-offs	(12)		(2)		(1)		—		(1)		(1)		(23)		(4)		(44)
Recoveries	—		5		—		—		3		1		2		—		11
Net (charge-offs) recoveries	(12)		3		(1)		—		2		—		(21)		(4)		(33)

Allowance for credit losses – end of period	$	151	$	401	$	320	$	8	$	(5)	$	15	$	167	$	27	$	1,084

Three Months Ended September 30, 2019
Allowance for credit losses – beginning of period	$	149	$	251	$	110	$	9	$	11	$	7	$	71	$	5	$	613
Provision charged (credited) to income	27		32		1		—		(1)		(1)		34		2		94
Charge-offs	—		(18)		—		—		(1)		(1)		(17)		—		(37)
Recoveries	—		2		—		—		2		1		1		—		6
Net (charge-offs) recoveries	—		(16)		—		—		1		—		(16)		—		(31)

Allowance for credit losses – end of period	$	176	$	267	$	111	$	9	$	11	$	6	$	89	$	7	$	676

Nine Months Ended September 30, 2020
Allowance for credit losses – beginning of period	$	153	$	239	$	106	$	9	$	12	$	6	$	105	$	7	$	637
Cumulative effect adjustment to initially apply new accounting guidance for measuring credit losses	(112)		(60)		51		(5)		(86)		7		32		3		(170)
Allowance for credit losses – beginning of period, adjusted	41		179		157		4		(74)		13		137		10		467
Provision charged (credited) to income	122		283		183		3		62		1		96		24		774
Charge-offs	(12)		(69)		(20)		—		(1)		(3)		(71)		(8)		(184)
Recoveries	—		8		—		1		8		4		5		1		27
Net (charge-offs) recoveries	(12)		(61)		(20)		1		7		1		(66)		(7)		(157)

Allowance for credit losses – end of period	$	151	$	401	$	320	$	8	$	(5)	$	15	$	167	$	27	$	1,084

Nine Months Ended September 30, 2019
Allowance for credit losses – beginning of period	$	116	$	219	$	108	$	15	$	13	$	7	$	58	$	5	$	541
Provision charged (credited) to income	60		67		6		(6)		(1)		(1)		69		4		198
Charge-offs	—		(22)		(3)		—		(8)		(3)		(42)		(3)		(81)
Recoveries	—		3		—		—		7		3		4		1		18
Net (charge-offs) recoveries	—		(19)		(3)		—		(1)		—		(38)		(2)		(63)

Allowance for credit losses – end of period	$	176	$	267	$	111	$	9	$	11	$	6	$	89	$	7	$	676

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