Loans

Loans consisted of the following:



	June 30, 2015		December 31, 2014
	(in millions)
Commercial loans:
Construction and other real estate	$	11,520	$	10,300
Business and corporate banking	19,712		17,819
Global banking⁽¹⁾	28,942		26,387
Other commercial	3,422		3,581
Total commercial	63,596		58,087
Consumer loans:
Residential mortgages	17,233		16,661
Home equity mortgages	1,686		1,784
Credit cards	692		720
Other consumer	410		489
Total consumer	20,021		19,654
Total loans	$	83,617	$	77,741

⁽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. Also includes loans to HSBC affiliates which totaled $4,607 million and $4,821 million at June 30, 2015 and December 31, 2014, respectively. See Note 13, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

Net deferred origination fees totaled $52 million and $34 million at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015 and December 31, 2014, we had a net unamortized premium on our loans of $12 million and $10 million, respectively.

Aging Analysis of Past Due Loans The following table summarizes the past due status of our loans at June 30, 2015 and December 31, 2014. 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 June 30, 2015	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	$	14	$	21	$	35	$	11,485	$	11,520
Business and corporate banking	23		7		30		19,682		19,712
Global banking	—		—		—		28,942		28,942
Other commercial	4		6		10		3,412		3,422
Total commercial	41		34		75		63,521		63,596
Consumer loans:
Residential mortgages	356		831		1,187		16,046		17,233
Home equity mortgages	13		52		65		1,621		1,686
Credit cards	9		9		18		674		692
Other consumer	7		8		15		395		410
Total consumer	385		900		1,285		18,736		20,021
Total loans	$	426	$	934	$	1,360	$	82,257	$	83,617



	Past Due				Total Past Due 30 Days or More
At December 31, 2014	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	$	25	$	22	$	47	$	10,253	$	10,300
Business and corporate banking	32		9		41		17,778		17,819
Global banking	—		—		—		26,387		26,387
Other commercial	15		6		21		3,560		3,581
Total commercial	72		37		109		57,978		58,087
Consumer loans:
Residential mortgages	390		931		1,321		15,340		16,661
Home equity mortgages	21		56		77		1,707		1,784
Credit cards	11		10		21		699		720
Other consumer	9		9		18		471		489
Total consumer	431		1,006		1,437		18,217		19,654
Total loans	$	503	$	1,043	$	1,546	$	76,195	$	77,741


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

Nonaccrual Loans Nonaccrual loans, including nonaccrual loans held for sale, and accruing loans 90 days or more delinquent consisted of the following:



	June 30, 2015		December 31, 2014
	(in millions)
Nonaccrual loans:
Commercial:
Construction and other real estate	$	64	$	65
Business and corporate banking	47		74
Commercial nonaccrual loans held for sale	30		43
Total commercial	141		182
Consumer:
Residential mortgages^(1)(2)(3)	798		847
Home equity mortgages⁽¹⁾⁽²⁾	70		68
Consumer nonaccrual loans held for sale	3		4
Total consumer	871		919
Total nonaccruing loans	1,012		1,101
Accruing loans contractually past due 90 days or more:
Commercial:
Business and corporate banking	1		1
Total commercial	1		1
Consumer:
Credit cards	9		10
Other consumer	9		10
Total consumer	18		20
Total accruing loans contractually past due 90 days or more	19		21
Total nonperforming loans	$	1,031	$	1,122


⁽¹⁾	At June 30, 2015 and December 31, 2014, nonaccrual consumer mortgage loans include $755 million and $817 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽²⁾	Nonaccrual consumer mortgage loans include all 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⁾	Nonaccrual consumer mortgage 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 consumer loan portfolio.

The following table provides additional information on our nonaccrual loans:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	23	$	22	$	44	$	46
Interest income that was recorded on nonaccrual loans and included in interest income during the period	6		6		12		14

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 or accrued interest . 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. During the three and six months ended June 30, 2015 and 2014 there were no commercial loans that met this criteria and were removed from TDR Loan classification.

The following table presents information about loans which were modified during the three and six months ended June 30, 2015 and 2014 and as a result of this action became classified as TDR Loans:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in millions)
Commercial loans:
Construction and other real estate	$	4	$	—	$	4	$	—
Business and corporate banking	24		11		50		11
Global banking	—		—		13		—
Other commercial	—		—		—		10
Total commercial	28		11		67		21
Consumer loans:
Residential mortgages	35		46		70		79
Home equity mortgages	1		1		1		2
Credit cards	1		1		2		3
Total consumer	37		48		73		84
Total	$	65	$	59	$	140	$	105

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and six months ended June 30, 2015 was 1.90 percent and 1.84 percent, respectively, compared with 1.52 percent and 1.51 percent during the three and six months ended June 30, 2014, respectively. 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:



	June 30, 2015		December 31, 2014
	(in millions)
TDR Loans⁽¹⁾⁽²⁾:
Commercial loans:
Construction and other real estate	$	120	$	186
Business and corporate banking	68		24
Global banking	13		—
Total commercial	201		210
Consumer loans:
Residential mortgages⁽³⁾	1,021		972
Home equity mortgages⁽³⁾	21		20
Credit cards	6		6
Total consumer	1,048		998
Total TDR Loans⁽⁴⁾	$	1,249	$	1,208
Allowance for credit losses for TDR Loans⁽⁵⁾:
Commercial loans:
Construction and other real estate	$	2	$	4
Business and corporate banking	4		5
Total commercial	6		9
Consumer loans:
Residential mortgages	41		43
Home equity mortgages	1		2
Credit cards	1		2
Total consumer	43		47
Total allowance for credit losses for TDR Loans	$	49	$	56


⁽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 $39 million and $85 million at June 30, 2015 and December 31, 2014, respectively.


⁽²⁾	The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes 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:



	June 30, 2015		December 31, 2014
	(in millions)
Commercial loans:
Construction and other real estate	$	139	$	201
Business and corporate banking	75		51
Global banking	13		—
Total commercial	227		252
Consumer loans:
Residential mortgages	1,189		1,139
Home equity mortgages	46		44
Credit cards	6		6
Total consumer	1,241		1,189
Total	$	1,468	$	1,441


⁽³⁾	Includes $775 million and $763 million at June 30, 2015 and December 31, 2014, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁴⁾	Includes $471 million and $485 million at June 30, 2015 and December 31, 2014, respectively, of loans which are classified as nonaccrual.


⁽⁵⁾	Included in the allowance for credit losses.

The following table presents information about average TDR Loans and interest income recognized on TDR Loans:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Construction and other real estate	$	149	$	220	$	161	$	244
Business and corporate banking	56		23		45		22
Global banking	13		—		9		17
Other commercial	—		5		—		12
Total commercial	218		248		215		295
Consumer loans:
Residential mortgages	999		929		988		928
Home equity mortgages	20		19		20		19
Credit cards	6		8		6		8
Total consumer	1,025		956		1,014		955
Total average balance of TDR Loans	$	1,243	$	1,204	$	1,229	$	1,250
Interest income recognized on TDR Loans:
Commercial loans:
Construction and other real estate	$	1	$	2	$	2	$	8
Business and corporate banking	—		—		1		—
Total commercial	1		2		3		8
Consumer loans:
Residential mortgages	9		8		18		17
Home equity mortgages	1		1		1		1
Total consumer	10		9		19		18
Total interest income recognized on TDR Loans	$	11	$	11	$	22	$	26

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 three and six months ended June 30, 2015 and 2014:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in millions)
Commercial loans:
Construction and other real estate	$	—	$	—	$	2	$	12
Business and corporate banking	2		—		3		—
Total commercial	2		—		5		12
Consumer loans:
Residential mortgages	8		9		17		17
Total consumer	8		9		17		17
Total	$	10	$	9	$	22	$	29

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 June 30, 2015
Construction and other real estate	$	13	$	119	$	132	$	3
Business and corporate banking	13		75		88		3
Global banking	—		13		13		—
Other commercial	1		6		7		1
Total commercial	$	27	$	213	$	240	$	7
At December 31, 2014
Construction and other real estate	$	18	$	179	$	197	$	5
Business and corporate banking	72		18		90		24
Global banking	—		—		—		—
Other commercial	2		6		8		1
Total commercial	$	92	$	203	$	295	$	30


⁽¹⁾	Includes impaired commercial loans that are also considered TDR Loans which totaled $201 million and $210 million at June 30, 2015 and December 31, 2014, respectively.


⁽²⁾	The impaired commercial loan balances included in the table above reflect the current carrying amount of the loan and includes 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:



	June 30, 2015		December 31, 2014
	(in millions)
Construction and other real estate	$	156	$	224
Business and corporate banking	120		122
Global banking	13		—
Other commercial	7		8
Total commercial	$	296	$	354

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$	166	$	237	$	176	$	269
Business and corporate banking	92		36		91		37
Global banking	13		—		9		22
Other commercial	7		15		7		24
Total average balance of impaired commercial loans	$	278	$	288	$	283	$	352
Interest income recognized on impaired commercial loans:
Construction and other real estate	$	1	$	2	$	2	$	8
Business and corporate banking	—		—		1		—
Total interest income recognized on impaired commercial loans	$	1	$	2	$	3	$	8

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

Criticized loans Criticized loan classifications are based on the risk rating standards of our 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 facility grades are deemed to be criticized:


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


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

•

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

The following table summarizes criticized commercial loans:



	Special Mention		Substandard		Doubtful		Total
	(in millions)
At June 30, 2015
Construction and other real estate	$	158	$	213	$	2	$	373
Business and corporate banking	1,060		447		4		1,511
Global banking	2,088		218		—		2,306
Other commercial	2		7		1		10
Total commercial	$	3,308	$	885	$	7	$	4,200
At December 31, 2014
Construction and other real estate	$	310	$	230	$	7	$	547
Business and corporate banking	1,001		238		22		1,261
Global banking	1,770		202		—		1,972
Other commercial	1		6		—		7
Total commercial	$	3,082	$	676	$	29	$	3,787

Nonperforming The following table summarizes the status of our commercial loan portfolio, excluding loans held for sale:



	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At June 30, 2015
Construction and other real estate	$	11,456	$	64	$	—	$	11,520
Business and corporate banking	19,664		47		1		19,712
Global banking	28,942		—		—		28,942
Other commercial	3,422		—		—		3,422
Total commercial	$	63,484	$	111	$	1	$	63,596
At December 31, 2014
Construction and other real estate	$	10,235	$	65	$	—	$	10,300
Business and corporate banking	17,744		74		1		17,819
Global banking	26,387		—		—		26,387
Other commercial	3,581		—		—		3,581
Total commercial	$	57,947	$	139	$	1	$	58,087

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 June 30, 2015
Construction and other real estate	$	8,946	$	2,574	$	11,520
Business and corporate banking	10,491		9,221		19,712
Global banking	23,767		5,175		28,942
Other commercial	1,796		1,626		3,422
Total commercial	$	45,000	$	18,596	$	63,596
At December 31, 2014
Construction and other real estate	$	7,820	$	2,480	$	10,300
Business and corporate banking	8,835		8,984		17,819
Global banking	23,400		2,987		26,387
Other commercial	1,873		1,708		3,581
Total commercial	$	41,928	$	16,159	$	58,087


⁽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:



	June 30, 2015				December 31, 2014
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	903	5.23	%	$	1,013	6.07	%
Home equity mortgages⁽¹⁾⁽²⁾	56		3.32		62		3.48
Credit cards	13		1.88		14		1.94
Other consumer	11		2.21		14		2.52
Total consumer	$	983	4.88	%	$	1,103	5.59	%


⁽¹⁾	At June 30, 2015 and December 31, 2014, consumer mortgage loan delinquency includes $873 million and $936 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽²⁾	At June 30, 2015 and December 31, 2014, consumer mortgage loans include $634 million and $658 million, respectively, of loans that were in the process of foreclosure.

Nonperforming The following table summarizes the status of our consumer loan portfolio, excluding loans held for sale:



	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At June 30, 2015
Residential mortgages	$	16,435	$	798	$	—	$	17,233
Home equity mortgages	1,616		70		—		1,686
Credit cards	683		—		9		692
Other consumer	401		—		9		410
Total consumer	$	19,135	$	868	$	18	$	20,021
At December 31, 2014
Residential mortgages	$	15,814	$	847	$	—	$	16,661
Home equity mortgages	1,716		68		—		1,784
Credit cards	710		—		10		720
Other consumer	479		—		10		489
Total consumer	$	18,719	$	915	$	20	$	19,654

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

Concentration of Credit Risk At June 30, 2015 and December 31, 2014, our loan portfolio included interest-only residential mortgage loans totaling $3,643 million and $3,531 million, respectively. An interest-only residential mortgage loan allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer's financial position could affect the ability of customers to repay the loan in the future when the principal payments are required which increases the credit risk of this loan type.