Loans

During the fourth quarter of 2016, we transferred certain customer relationships from CMB to GB&M as discussed further in Note 22, "Business Segments." As a result, we reclassified $4.8 billion of loans from business and corporate banking to global banking at December 31, 2015 to conform with the current year presentation. All tables below have been restated to reflect this reclassification, as applicable.

Loans consisted of the following:



At December 31,	2016		2015
	(in millions)
Commercial loans:
Construction and other real estate	$	10,890	$	10,000
Business and corporate banking	14,080		14,365
Global banking⁽¹⁾	26,755		34,720
Other commercial	2,491		3,368
Total commercial	54,216		62,453
Consumer loans:
Residential mortgages	17,181		17,758
Home equity mortgages	1,408		1,600
Credit cards	688		699
Other consumer	382		407
Total consumer	19,659		20,464
Total loans	$	73,875	$	82,917

⁽¹⁾

Represents large multinational firms including globally focused U.S. corporate and financial institutions, U.S. dollar lending to multinational banking customers managed by HSBC on a global basis and complex large business customers supported by GB&M relationship managers. Also includes loans to HSBC affiliates which totaled $3,274 million and $4,815 million at December 31, 2016 and 2015, respectively. See Note 21, "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 total equity at either December 31, 2016 or 2015.

Net deferred origination fees totaled $48 million and $62 million at December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, we had a net unamortized premium (discount) on our loans of ($5 million) and $16 million, respectively.

Aging Analysis of Past Due Loans The following table summarizes the past due status of our loans, excluding loans held for sale, at December 31, 2016 and 2015. 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, 2016	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	$	17	$	6	$	23	$	10,867	$	10,890
Business and corporate banking	35		9		44		14,036		14,080
Global banking	1		64		65		26,690		26,755
Other commercial	4		7		11		2,480		2,491
Total commercial	57		86		143		54,073		54,216
Consumer loans:
Residential mortgages⁽²⁾	402		317		719		16,462		17,181
Home equity mortgages	10		43		53		1,355		1,408
Credit cards	9		10		19		669		688
Other consumer	7		7		14		368		382
Total consumer	428		377		805		18,854		19,659
Total loans	$	485	$	463	$	948	$	72,927	$	73,875



	Past Due				Total Past Due 30 Days or More
At December 31, 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	$	31	$	33	$	64	$	9,936	$	10,000
Business and corporate banking	36		25		61		14,304		14,365
Global banking	—		—		—		34,720		34,720
Other commercial	—		6		6		3,362		3,368
Total commercial	67		64		131		62,322		62,453
Consumer loans:
Residential mortgages	397		781		1,178		16,580		17,758
Home equity mortgages	15		50		65		1,535		1,600
Credit cards	10		9		19		680		699
Other consumer	7		7		14		393		407
Total consumer	429		847		1,276		19,188		20,464
Total loans	$	496	$	911	$	1,407	$	81,510	$	82,917


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


⁽²⁾	The decrease in past due loans at December 31, 2016 reflects the impact of transfers of certain residential mortgage loans to held for sale during 2016. See Note 7, "Loans Held for Sale" for additional details.

Contractual Maturities Contractual maturities of loans were as follows:



	At December 31,
	2017		2018		2019		2020		2021		Thereafter		Total
	(in millions)
Commercial loans:
Construction and other real estate	$	4,041	$	1,857	$	1,775	$	1,397	$	958	$	862	$	10,890
Business and corporate banking	5,225		2,402		2,294		1,806		1,238		1,115		14,080
Global banking	9,927		4,565		4,360		3,431		2,353		2,119		26,755
Other commercial	924		425		406		319		219		198		2,491
Consumer loans:
Residential mortgages	663		430		471		432		444		14,741		17,181
Home equity mortgages⁽¹⁾	283		433		262		159		101		170		1,408
Credit cards⁽²⁾	—		688		—		—		—		—		688
Other consumer	162		218		1		1		—		—		382
Total	$	21,225	$	11,018	$	9,569	$	7,545	$	5,313	$	19,205	$	73,875


⁽¹⁾	Home equity mortgage 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, 2016
	Over 1 But Within 5 Years		Over 5 Years
	(in millions)
Receivables at predetermined interest rates	$	4,047	$	4,777
Receivables at floating or adjustable rates	29,398		14,428
Total	$	33,445	$	19,205

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



At December 31,	2016		2015
	(in millions)
Nonaccrual loans:
Commercial:
Construction and other real estate	$	56	$	53
Business and corporate banking	187		167
Global banking	546		44
Other commercial	1		1
Commercial nonaccrual loans held for sale	11		26
Total commercial	801		291
Consumer:
Residential mortgages^(1)(2)(3)(4)	435		814
Home equity mortgages⁽¹⁾⁽²⁾	75		71
Consumer nonaccrual loans held for sale⁽⁴⁾	369		3
Total consumer	879		888
Total nonaccruing loans	1,680		1,179
Accruing loans contractually past due 90 days or more:
Commercial:
Business and corporate banking	1		1
Total commercial	1		1
Consumer:
Credit cards	10		9
Other consumer	7		7
Total consumer	17		16
Total accruing loans contractually past due 90 days or more	18		17
Total nonperforming loans	$	1,698	$	1,196


⁽¹⁾	At December 31, 2016 and 2015, nonaccrual consumer mortgage loans held for investment include $382 million and $768 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 held for investment include all loans 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. 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.


⁽⁴⁾	The trend in nonaccrual loans reflects the impact of transfers of certain residential mortgage loans to held for sale during 2016.

The following table provides additional information on our nonaccrual loans:



Year Ended December 31,	2016		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	$	91	$	85	$	96
Interest income that was recorded on nonaccrual loans and included in interest income during the period	22		22		23

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, accrued interest or other loan covenants. 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 years ended 2016, 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 2016, 2015 and 2014 and as a result of this action became classified as TDR Loans:



Year Ended December 31,	2016		2015		2014
	(in millions)
Commercial loans:
Construction and other real estate	$	—	$	4	$	5
Business and corporate banking	323		162		16
Global banking	—		67		—
Other commercial	—		—		10
Total commercial	323		233		31
Consumer loans:
Residential mortgages	62		168		157
Home equity mortgages	8		4		4
Credit cards	4		4		5
Total consumer	74		176		166
Total	$	397	$	409	$	197

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during 2016, 2015 and 2014 was 1.48 percent, 1.74 percent and 1.64 percent, respectively. The weighted-average contractual rate reduction for commercial loans was not significant in either the number of loans or rate.

The following table presents information about our TDR Loans and the related allowance for credit losses for TDR Loans:



	December 31, 2016				December 31, 2015
	Carrying Value		Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance
	(in millions)
TDR Loans⁽¹⁾⁽²⁾:
Commercial loans:
Construction and other real estate	$	32	$	33	$	94	$	106
Business and corporate banking	300		363		152		165
Global banking	150		152		119		119
Total commercial⁽³⁾	482		548		365		390
Consumer loans:
Residential mortgages⁽⁴⁾⁽⁵⁾	708		797		1,060		1,233
Home equity mortgages⁽⁴⁾	27		59		23		50
Credit cards	5		5		5		5
Total consumer	740		861		1,088		1,288
Total TDR Loans⁽⁶⁾	$	1,222	$	1,409	$	1,453	$	1,678
Allowance for credit losses for TDR Loans⁽⁷⁾:
Commercial loans:
Construction and other real estate	$	—			$	—
Business and corporate banking	37				24
Global banking	—				—
Total commercial	37				24
Consumer loans:
Residential mortgages	9				33
Home equity mortgages	1				1
Credit cards	1				1
Total consumer	11				35
Total allowance for credit losses for TDR Loans	$	48			$	59


⁽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 $571 million and $88 million at December 31, 2016 and 2015, respectively.


⁽²⁾	The carrying value of TDR Loans includes basis adjustments on the loans, such as unearned income, unamortized deferred fees and costs on originated loans, partial charge-offs and premiums or discounts on purchased loans.


⁽³⁾	Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled $184 million and $112 million at December 31, 2016 and 2015, respectively.


⁽⁴⁾	At December 31, 2016 and 2015, the carrying value of consumer mortgage TDR Loans held for investment includes $672 million and $881 million, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁵⁾	The decrease in TDR Loans at December 31, 2016 reflects the impact of transfers of certain residential mortgage loans to held for sale during 2016. There is no allowance for credit losses associated with loans classified as held for sale as they are carried at the lower of amortized cost or fair value less cost to sell.


⁽⁶⁾	At December 31, 2016 and 2015, the carrying value of TDR Loans includes $645 million and $676 million, respectively, of loans which are classified as nonaccrual.


⁽⁷⁾	Included in the allowance for credit losses.

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



Year Ended December 31,	2016		2015		2014
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Construction and other real estate	$	69	$	136	$	224
Business and corporate banking	292		76		24
Global banking	121		44		10
Other commercial	—		—		7
Total commercial	482		256		265
Consumer loans:
Residential mortgages	740		1,017		942
Home equity mortgages	25		21		19
Credit cards	5		6		8
Total consumer	770		1,044		969
Total average balance of TDR Loans	$	1,252	$	1,300	$	1,234
Interest income recognized on TDR Loans:
Commercial loans:
Construction and other real estate	$	4	$	4	$	10
Business and corporate banking	8		3		1
Global banking	1		—		—
Total commercial	13		7		11
Consumer loans:
Residential mortgages	25		37		36
Home equity mortgages	1		1		1
Total consumer	26		38		37
Total interest income recognized on TDR Loans	$	39	$	45	$	48

The following table presents consumer loans which were classified as TDR Loans during the previous 12 months which subsequently became 60 days or greater contractually delinquent during the years ended December 31, 2016, 2015 and 2014:



Year Ended December 31,	2016		2015		2014
	(in millions)
Consumer loans:
Residential mortgages	$	24	$	36	$	34
Home equity mortgages	—		1		—
Total consumer	24		37		34
Total	$	24	$	37	$	34

During the years ended 2016, 2015 and 2014, there were no commercial TDR Loans which were classified as TDR Loans during the previous 12 months which subsequently became 90 days or greater contractually delinquent.

Impaired commercial loans The following table presents information about impaired commercial loans and the related impairment reserve for impaired commercial loans:



	Amount with Impairment Reserves⁽¹⁾		Amount without Impairment Reserves⁽¹⁾		Total Impaired Commercial Loans⁽¹⁾⁽²⁾		Impairment Reserve		Unpaid Principal Balance
	(in millions)
At December 31, 2016
Construction and other real estate	$	2	$	41	$	43	$	1	$	45
Business and corporate banking	176		166		342		55		397
Global banking	417		244		661		251		674
Other commercial	1		6		7		1		7
Total commercial	$	596	$	457	$	1,053	$	308	$	1,123
At December 31, 2015
Construction and other real estate	$	2	$	108	$	110	$	1	$	125
Business and corporate banking	168		49		217		52		267
Global banking	—		119		119		—		119
Other commercial	1		6		7		1		8
Total commercial	$	171	$	282	$	453	$	54	$	519


⁽¹⁾	Reflects the carrying value of impaired commercial loans and includes basis adjustments on the loans, such as partial charge-offs, unamortized deferred fees and costs on originated loans and any premiums or discounts on purchased loans.


⁽²⁾	Includes impaired commercial loans that are also considered TDR Loans which totaled $482 million and $365 million at December 31, 2016 and 2015, respectively.

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



Year Ended December 31,	2016		2015		2014
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$	83	$	151	$	241
Business and corporate banking	344		125		48
Global banking	487		44		13
Other commercial	7		7		18
Total average balance of impaired commercial loans	$	921	$	327	$	320
Interest income recognized on impaired commercial loans:
Construction and other real estate	$	4	$	4	$	10
Business and corporate banking	9		4		2
Total interest income recognized on impaired commercial loans	$	13	$	8	$	12

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

Criticized loans Criticized loan classifications presented in the table below are determined by the assignment of various criticized facility grades based on the risk rating standards of our regulator. The following table summarizes criticized commercial loans:



	Special Mention		Substandard		Doubtful		Total
	(in millions)
At December 31, 2016
Construction and other real estate	$	445	$	152	$	1	$	598
Business and corporate banking	597		803		58		1,458
Global banking	899		2,478		298		3,675
Other commercial	—		6		1		7
Total commercial	$	1,941	$	3,439	$	358	$	5,738
At December 31, 2015
Construction and other real estate	$	239	$	187	$	—	$	426
Business and corporate banking	935		615		52		1,602
Global banking	1,075		2,375		12		3,462
Other commercial	1		37		1		39
Total commercial	$	2,250	$	3,214	$	65	$	5,529

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 December 31, 2016
Construction and other real estate	$	10,834	$	56	$	—	$	10,890
Business and corporate banking	13,892		187		1		14,080
Global banking	26,209		546		—		26,755
Other commercial	2,490		1		—		2,491
Total commercial	$	53,425	$	790	$	1	$	54,216
At December 31, 2015
Construction and other real estate	$	9,947	$	53	$	—	$	10,000
Business and corporate banking	14,197		167		1		14,365
Global banking	34,676		44		—		34,720
Other commercial	3,367		1		—		3,368
Total commercial	$	62,187	$	265	$	1	$	62,453

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, 2016
Construction and other real estate	$	7,857	$	3,033	$	10,890
Business and corporate banking	6,348		7,732		14,080
Global banking	17,597		9,158		26,755
Other commercial	1,312		1,179		2,491
Total commercial	$	33,114	$	21,102	$	54,216
At December 31, 2015
Construction and other real estate	$	8,487	$	1,513	$	10,000
Business and corporate banking	6,862		7,503		14,365
Global banking	26,622		8,098		34,720
Other commercial	1,883		1,485		3,368
Total commercial	$	43,854	$	18,599	$	62,453


⁽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, 2016				December 31, 2015
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	765	4.23	%	$	858	4.83	%
Home equity mortgages⁽¹⁾⁽²⁾	46		3.26		56		3.50
Credit cards	14		2.03		13		1.86
Other consumer	11		2.43		11		2.26
Total consumer	$	836	4.05	%	$	938	4.56	%


⁽¹⁾	At December 31, 2016 and 2015, consumer mortgage loan delinquency includes $711 million and $793 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell, including $358 million and $3 million, respectively, relating to loans held for sale.


⁽²⁾	At December 31, 2016 and 2015, consumer mortgage loans and loans held for sale include $474 million and $567 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 December 31, 2016
Residential mortgages⁽¹⁾	$	16,746	$	435	$	—	$	17,181
Home equity mortgages	1,333		75		—		1,408
Credit cards	678		—		10		688
Other consumer	375		—		7		382
Total consumer	$	19,132	$	510	$	17	$	19,659
At December 31, 2015
Residential mortgages	$	16,944	$	814	$	—	$	17,758
Home equity mortgages	1,529		71		—		1,600
Credit cards	690		—		9		699
Other consumer	400		—		7		407
Total consumer	$	19,563	$	885	$	16	$	20,464


⁽¹⁾	The decrease in nonaccrual loans at December 31, 2016 reflects the impact of transfers of certain residential mortgage loans to held for sale during 2016.

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

Concentration of Credit Risk At December 31, 2016 and 2015, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,589 million and $3,645 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.