Loans

3 Months Ended

Mar. 31, 2013

Loans Receivable, Net [Abstract]

Loans

Loans

Loans consisted of the following:

	March 31, 2013		December 31, 2012
	(in millions)
Commercial loans:
Construction and other real estate	$	8,319	$	8,457
Business and corporate banking	12,725		12,608
Global banking(1)	19,718		20,009
Other commercial	2,877		3,076
Total commercial	43,639		44,150
Consumer loans:
Home equity mortgages	2,236		2,324
Residential mortgages, excluding home equity mortgages	15,730		15,371
Credit cards	749		815
Other consumer	578		598
Total consumer	19,293		19,108
Total loans	$	62,932	$	63,258

⁽¹⁾  Represents large multinational firms including globally focused U.S. corporate and financial institutions and USD lending to select high quality Latin American and other multinational customers managed by HSBC on a global basis.

Net deferred origination costs totaled $64 million and $30 million at March 31, 2013 and December 31, 2012, respectively.

At March 31, 2013 and December 31, 2012, we had net unamortized premium on our loans of $23 million and $25 million, respectively. We amortized net premiums of $2 million and $9 million on our loans in the three months ended March 31, 2013 and 2012, respectively.

Age Analysis of Past Due Loans  The following table summarizes the past due status of our loans at March 31, 2013 and December 31, 2012. The aging of past due amounts are 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 may be affected by customer account management policies and practices such as re-age or modification.

	Days Past Due
At March 31, 2013	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$	94	$	31	$	62	$	187	$	8,132	$	8,319
Business and corporate banking	684		36		42		762		11,963		12,725
Global banking	547		17		8		572		19,146		19,718
Other commercial	343		28		19		390		2,487		2,877
Total commercial	1,668		112		131		1,911		41,728		43,639
Consumer loans:
Home equity mortgages	338		34		69		441		1,795		2,236
Residential mortgages, excluding home equity mortgages	85		448		931		1,464		14,266		15,730
Credit cards	22		12		13		47		702		749
Other consumer	5		3		27		35		543		578
Total consumer	450		497		1,040		1,987		17,306		19,293
Total loans	$	2,118	$	609	$	1,171	$	3,898	$	59,034	62,932

	Days Past Due
At December 31, 2012	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$	27	$	89	$	152	$	268	$	8,189	$	8,457
Business and corporate banking	558		73		70		701		11,907		12,608
Global banking	777		30		8		815		19,194		20,009
Other commercial	37		16		31		84		2,992		3,076
Total commercial	1,399		208		261		1,868		42,282		44,150
Consumer loans:
Home equity mortgages	348		40		82		470		1,854		2,324
Residential mortgages, excluding home equity mortgages	100		493		976		1,569		13,802		15,371
Credit cards	28		14		15		57		758		815
Other consumer	7		5		33		45		553		598
Total consumer	483		552		1,106		2,141		16,967		19,108
Total loans	$	1,882	$	760	$	1,367	$	4,009	$	59,249	$	63,258

Nonaccrual Loans Nonaccrual loans totaled $1.5 billion and $1.6 billion at March 31, 2013 and December 31, 2012, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $31 million and $29 million in the three months ended March 31, 2013 and 2012. Interest income that was included in interest income on these loans was $5 million and $(2) million in the three months March 31, 2013 and 2012. For an analysis of reserves for credit losses, see Note 6 “Allowance for Credit Losses.”

Nonaccrual loans and accruing receivables 90 days or more delinquent are summarized in the following table:

	March 31, 2013		December 31, 2012
	(in millions)
Nonaccrual loans:
Commercial:
Real Estate:
Construction and land loans	$	47	$	104
Other real estate	218		281
Business and corporate banking	30		47
Global banking	18		18
Other commercial	14		13
Total commercial	327		463
Consumer:
Residential mortgages, excluding home equity mortgages	1,026		1,038
Home equity mortgages	74		86
Total residential mortgages(1)	1,100		1,124
Other consumer loans	5		5
Total consumer loans	1,105		1,129
Nonaccrual loans held for sale	34		37
Total nonaccruing loans	1,466		1,629
Accruing loans contractually past due 90 days or more:
Commercial:
Real Estate:
Construction and land loans	—		—
Other real estate	2		8
Business and corporate banking	2		28
Other commercial	1		1
Total commercial	5		37
Consumer:
Credit card receivables	13		15
Other consumer	22		28
Total consumer loans	35		43
Total accruing loans contractually past due 90 days or more	40		80
Total nonperforming loans	$	1,506	$	1,709

⁽¹⁾ Nonaccrual residential mortgages includes all receivables which are 90 or more days contractually delinquent as well as second lien loans where the first lien loan that we own or service is 90 or more days contractually delinquent.

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  Troubled debt restructurings 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 and 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 rate which generally results in a higher reserve requirement for these loans or in the case of certain secured commercial 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. From 2010, approximately $11 million of commercial loans have met the criteria and have been removed from TDR classification.

The following table presents information about receivables which were modified during the three months ended March 31, 2013 and 2012 and as a result of this action became classified as TDR Loans.

Three Months Ended March 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate	$	—	$	73
Business and corporate banking	4		22
Total commercial	4		95
Consumer loans:
Residential mortgages	44		55
Credit cards	—		1
Total consumer	44		56
Total	$	48	$	151

The weighted-average contractual rate reduction for loans which became classified as TDR Loans during the three months ended March 31, 2013 and 2012 was 1.99 percent and 1.81 percent, respectively, for consumer loans. Weighted-average contractual rate reduction for commercial loans was not significant in both number of loans and rate.

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

	March 31, 2013		December 31, 2012
	(in millions)
TDR Loans(1)(2):
Commercial loans:
Construction and other real estate	$	297	$	343
Business and corporate banking	34		86
Other commercial	30		31
Total commercial	361		460
Consumer loans:
Residential mortgages (3)	869		960
Credit cards	13		14
Total consumer	882		974
Total TDR Loans(4)	$	1,243	$	1,434

	March 31, 2013		December 31, 2012
	(in millions)
Allowance for credit losses for TDR Loans(5):
Commercial loans:
Construction and other real estate	$	21	$	23
Business and corporate banking	2		3
Other commercial	—		—
Total commercial	23		26
Consumer loans:
Residential mortgages	80		109
Credit cards	5		5
Total consumer	85		114
Total allowance for credit losses for TDR Loans	$	108	$	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 TDRs which totaled $171 million and $237 million at March 31, 2013 and December 31, 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:

	March 31, 2013		December 31, 2012
	(in millions)
Commercial loans:
Construction and other real estate	$	318	$	398
Business and corporate banking	73		137
Other commercial	33		34
Total commercial	424		569
Consumer loans:
Residential mortgages	1,029		1,118
Credit cards	13		14
Total consumer	1,042		1,132
Total	$	1,466	$	1,701

⁽³⁾  Includes $632 million and $445 million at March 31, 2013 and December 31, 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 balances of $416 million and $519 million at March 31, 2013 and December 31, 2012, respectively, which are classified as nonaccrual loans.

⁽⁵⁾  Included in the allowance for credit losses.

Additional information relating to TDR Loans is presented in the table below.

Three Months Ended March 31,	2013		2012
	(in millions)
Average balance of TDR Loans
Commercial loans:
Construction and other real estate	$	320	$	355
Business and corporate banking	60		100
Other commercial	31		36
Total commercial	411		491
Consumer loans:
Residential mortgages	849		638
Credit cards	14		20
Total consumer	863		658
Total average balance of TDR Loans	$	1,274	$	1,149
Interest income recognized on TDR Loans
Commercial loans:
Construction and other real estate	$	2	$	2
Business and corporate banking	—		—
Other commercial	1		1
Total commercial	3		3
Consumer loans:
Residential mortgages	8		6
Credit cards	—		—
Total consumer	8		6
Total interest income recognized on TDR Loans	$	11	$	9

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 the twelve months ended March 31, 2013 and 2012:

Three Months Ended March 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate	$	2	$	—
Business and corporate banking	—		—
Other commercial	—		—
Total commercial	2		—
Consumer loans:
Residential mortgages	13		19
Credit cards	1		1
Total consumer	14		20
Total	$	16	$	20

Impaired commercial loans  Impaired commercial loan statistics are summarized in the following table:

	Amount with Impairment Reserves		Amount without Impairment Reserves		Total Impaired Commercial Loans(1)(2)(3)		Impairment Reserve
	(in millions)
At March 31, 2013
Construction and other real estate	$	101	$	292	$	393	$	27
Business and corporate banking	20		27		47		8
Global banking	—		18		18		—
Other commercial	10		64		74		—
Total	$	131	$	401	$	532	$	35
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⁾  The reduction in impaired commercial loans for construction and other real estate loans primarily relates to the charge-off of a single loan totaling $57 million in the first quarter of 2013 for which we were fully reserved.

⁽²⁾  Includes impaired commercial loans which are also considered TDR Loans as follows:

	March 31, 2013		December 31, 2012
	(in millions)
Construction and other real estate	$	297	$	343
Business and corporate banking	34		86
Other commercial	30		31
Total	$	361	$	460

⁽³⁾  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 unamortized deferred fees and costs on originated loans and any premiums or discounts. The unpaid principal balance of impaired commercial loans included in the table above are as follows:

	March 31, 2013		December 31, 2012
	(in millions)
Construction and other real estate	$	414	$	552
Business and corporate banking	86		157
Global banking	18		18
Other commercial	77		79
Total	$	595	$	806

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

Three Months Ended March 31,	2013		2012
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$	445	$	694
Business and corporate banking	77		133
Global banking	18		78
Other commercial	75		90
Total average balance of impaired commercial loans	$	615	$	995
Interest income recognized on impaired commercial loans:
Construction and other real estate	$	1	$	1
Business and corporate banking	—		1
Global banking	—		—
Other commercial	—		—
Total interest income recognized on impaired commercial loans	$	1	$	2

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. Criticized assets for commercial loans are summarized in the following table:

	Special Mention		Substandard		Doubtful		Total
	(in millions)
At March 31, 2013
Construction and other real estate	$	510	$	611	$	28	$	1,149
Business and corporate banking	363		81		9		453
Global banking	242		50		—		292
Other commercial	29		68		3		100
Total	$	1,144	$	810	$	40	$	1,994
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 status of our commercial loan portfolio is summarized in the following table:

	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At March 31, 2013
Commercial:
Construction and other real estate	$	8,052	$	265	$	2	$	8,319
Business and corporate banking	12,693		30		2		12,725
Global banking	19,700		18		—		19,718
Other commercial	2,862		14		1		2,877
Total commercial	$	43,307	$	327	$	5	$	43,639
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 March 31, 2013
Construction and other real estate	$	3,492	$	4,827	$	8,319
Business and corporate banking	6,098		6,627		12,725
Global banking	16,472		3,246		19,718
Other commercial	1,142		1,735		2,877
Total commercial	$	27,204	$	16,435	$	43,639
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:

	March 31, 2013				December 31, 2012
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Consumer:
Residential mortgage, excluding home equity mortgages(1)	$	1,158	7.23	%	$	1,233	7.78	%
Home equity mortgages	85		3.80		75		3.23
Total residential mortgages	1,243		6.81		1,308		7.20
Credit card receivables	18		2.40		21		2.58
Other consumer	24		3.74		30		4.52
Total consumer	$	1,285	6.54	%	$	1,359	6.92	%

⁽¹⁾  At March 31, 2013 and December 31, 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 less cost to sell.

Nonperforming   The status of our consumer loan portfolio is summarized in the following table:

	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At March 31, 2013
Consumer:
Residential mortgage, excluding home equity mortgages	$	14,704	$	1,026	$	—	$	15,730
Home equity mortgages	2,162		74		—		2,236
Total residential mortgages	16,866		1,100		—		17,966
Credit card receivables	736		—		13		749
Other consumer	551		5		22		578
Total consumer	$	18,153	$	1,105	$	35	$	19,293
At December 31, 2012
Consumer:
Residential mortgage, excluding home equity 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 card receivables	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   A concentration of credit risk is defined as a significant credit exposure with an individual or group engaged in similar activities or affected similarly by economic conditions. We enter into a variety of transactions in the normal course of business that involve both on and off-balance sheet credit risk. Principal among these activities is lending to various commercial, institutional, governmental and individual customers. We participate in lending activity throughout the United States and internationally. In general, we manage the varying degrees of credit risk involved in on and off-balance sheet transactions through specific credit policies. These policies and procedures provide for a strict approval, monitoring and reporting process. It is our policy to require collateral when it is deemed appropriate. Varying degrees and types of collateral are secured depending upon management’s credit evaluation. As with any nonconforming and non-prime loan products, we utilize high underwriting standards and price these loans in a manner that is appropriate to compensate for higher risk.

Our loan portfolio includes the following types of loans:

• High loan-to-value (“LTV”) loans – Certain residential mortgages on primary residences with LTV ratios equal to or exceeding 90 percent at the time of origination and no mortgage insurance, which could result in the potential inability to recover the entire investment in loans involving foreclosed or damaged properties.

• Interest-only loans – A loan which allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. 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.

• Adjustable rate mortgage (“ARM”) loans – A loan which allows us to adjust pricing on the loan in line with market movements. A customer’s financial situation and the general interest rate environment at the time of the interest rate reset could affect the customer’s ability to repay or refinance the loan after the adjustment.

The following table summarizes the balances of high LTV, interest-only and ARM loans in our loan portfolios, including certain loans held for sale, at March 31, 2013 and December 31, 2012, respectively.

	March 31, 2013		December 31, 2012
	(in billions)
Residential mortgage loans with high LTV and no mortgage insurance(1)	$	.9	$	.9
Interest-only residential mortgage loans	3.9		4.0
ARM loans(2)	10.4		10.4

⁽¹⁾  Residential mortgage loans with high LTV and no mortgage insurance includes both fixed rate and adjustable rate mortgages. Excludes $19 million and $20 million of subprime residential mortgage loans held for sale at March 31, 2013 and December 31, 2012, respectively.

⁽²⁾  ARM loan balances above exclude $18 million and $19 million of subprime residential mortgage loans held for sale at March 31, 2013 and December 31, 2012, respectively. In 2013 and 2014, approximately $232 million and $327 million, respectively, of the ARM loans will experience their first interest rate reset.

Concentrations of first and second liens within the outstanding residential mortgage loan portfolio are summarized in the following table. Amounts in the table exclude residential mortgage loans held for sale of $277 million and $472 million at March 31, 2013 and December 31, 2012, respectively.

	March 31, 2013		December 31, 2012
	(in millions)
Closed end:
First lien	$	15,730	$	15,371
Second lien	175		186
Revolving:
Second lien	2,061		2,138
Total	$	17,966	$	17,695