Loans

Loans consisted of the following:



	March 31, 2017		December 31, 2016
	(in millions)
Commercial loans:
Real estate, including construction	$	10,802	$	10,890
Business and corporate banking	13,152		14,080
Global banking⁽¹⁾⁽²⁾	22,527		23,481
Other commercial⁽²⁾	3,515		5,765
Total commercial	49,996		54,216
Consumer loans:
Residential mortgages	17,219		17,181
Home equity mortgages	1,344		1,408
Credit cards	646		688
Other consumer	383		382
Total consumer	19,592		19,659
Total loans	$	69,588	$	73,875


⁽¹⁾	Represents large multinational firms including globally focused U.S. corporate and financial institutions, U.S. dollar lending to multinational banking clients managed by HSBC on a global basis and complex large business clients supported by GB&M relationship managers.

(2)

During the first quarter of 2017, in conjunction with the creation of the new Corporate Center segment as discussed further in Note 13, "Business Segments," we reclassified loans to HSBC affiliates from global banking to other commercial and revised the prior period to conform with the current year presentation. As a result, other commercial includes loans to HSBC affiliates which totaled $939 million and $3,274 million at March 31, 2017 and December 31, 2016, respectively. All tables below have been restated to reflect this reclassification, as applicable. See Note 12, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

Net deferred origination fees totaled $39 million and $48 million at March 31, 2017 and December 31, 2016, respectively. At March 31, 2017 and December 31, 2016, we had a net unamortized premium (discount) on our loans of $7 million and $(5) 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 March 31, 2017 and December 31, 2016. 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 March 31, 2017	30 - 89 Days		90+ Days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Real estate, including construction	$	57	$	3	$	60	$	10,742	$	10,802
Business and corporate banking	94		2		96		13,056		13,152
Global banking	—		64		64		22,463		22,527
Other commercial	1		7		8		3,507		3,515
Total commercial	152		76		228		49,768		49,996
Consumer loans:
Residential mortgages	350		353		703		16,516		17,219
Home equity mortgages	10		39		49		1,295		1,344
Credit cards	8		9		17		629		646
Other consumer	5		6		11		372		383
Total consumer	373		407		780		18,812		19,592
Total loans	$	525	$	483	$	1,008	$	68,580	$	69,588



	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:
Real estate, including construction	$	17	$	6	$	23	$	10,867	$	10,890
Business and corporate banking	35		9		44		14,036		14,080
Global banking	1		64		65		23,416		23,481
Other commercial	4		7		11		5,754		5,765
Total commercial	57		86		143		54,073		54,216
Consumer loans:
Residential mortgages	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


⁽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:



	March 31, 2017		December 31, 2016
	(in millions)
Nonaccrual loans:
Commercial:
Real estate, including construction	$	53	$	56
Business and corporate banking	208		187
Global banking	490		546
Other commercial	1		1
Commercial nonaccrual loans held for sale	5		11
Total commercial	757		801
Consumer:
Residential mortgages^(1)(2)(3)	446		435
Home equity mortgages⁽¹⁾⁽²⁾	71		75
Consumer nonaccrual loans held for sale	39		369
Total consumer	556		879
Total nonaccruing loans	1,313		1,680
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	7		7
Total consumer	16		17
Total accruing loans contractually past due 90 days or more	17		18
Total nonperforming loans	$	1,330	$	1,698


⁽¹⁾	At March 31, 2017 and December 31, 2016, nonaccrual consumer mortgage loans held for investment include $396 million and $382 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.

The following table provides additional information on our nonaccrual loans:



Three Months Ended March 31,	2017		2016
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	20	$	21
Interest income that was recorded on nonaccrual loans and included in interest income during the period	11		6

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 on consumer loans 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 months ended March 31, 2017 and 2016 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 months ended March 31, 2017 and 2016 and as a result of this action became classified as TDR Loans:



Three Months Ended March 31,	2017		2016
	(in millions)
Commercial loans:
Business and corporate banking	$	—	$	114
Total commercial	—		114
Consumer loans:
Residential mortgages	6		27
Home equity mortgages	2		2
Credit cards	1		1
Total consumer	9		30
Total	$	9	$	144

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three months ended March 31, 2017 and 2016 was 1.63 percent and 2.29 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:



	March 31, 2017				December 31, 2016
	Carrying Value		Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance
	(in millions)
TDR Loans:⁽¹⁾⁽²⁾
Commercial loans:
Real estate, including construction	$	31	$	33	$	32	$	33
Business and corporate banking	269		340		300		363
Global banking	88		90		150		152
Total commercial⁽³⁾	388		463		482		548
Consumer loans:
Residential mortgages⁽⁴⁾	712		809		708		797
Home equity mortgages⁽⁴⁾	30		61		27		59
Credit cards	4		4		5		5
Total consumer	746		874		740		861
Total TDR Loans⁽⁵⁾	$	1,134	$	1,337	$	1,222	$	1,409
Allowance for credit losses for TDR Loans:⁽⁶⁾
Commercial loans:
Real estate, including construction	$	5			$	—
Business and corporate banking	15				37
Total commercial	20				37
Consumer loans:
Residential mortgages	8				9
Home equity mortgages	1				1
Credit cards	1				1
Total consumer	10				11
Total allowance for credit losses for TDR Loans	$	30			$	48


⁽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 $540 million and $571 million at March 31, 2017 and December 31, 2016, 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 $232 million and $184 million at March 31, 2017 and December 31, 2016, respectively.


⁽⁴⁾	At March 31, 2017 and December 31, 2016, the carrying value of consumer mortgage TDR Loans held for investment includes $681 million and $672 million, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁵⁾	At March 31, 2017 and December 31, 2016, the carrying value of TDR Loans includes $515 million and $645 million, respectively, of loans which are classified as nonaccrual.


⁽⁶⁾	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 March 31,	2017		2016
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Real estate, including construction	$	31	$	93
Business and corporate banking	285		199
Global banking	119		112
Total commercial	435		404
Consumer loans:
Residential mortgages	715		1,047
Home equity mortgages	29		24
Credit cards	4		5
Total consumer	748		1,076
Total average balance of TDR Loans	$	1,183	$	1,480
Interest income recognized on TDR Loans:
Commercial loans:
Real estate, including construction	$	—	$	1
Business and corporate banking	3		1
Total commercial	3		2
Consumer loans:
Residential mortgages	7		10
Total consumer	7		10
Total interest income recognized on TDR Loans	$	10	$	12

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 three months ended March 31, 2017 and 2016:



Three Months Ended March 31,	2017		2016
	(in millions)
Consumer loans:
Residential mortgages	$	3	$	11
Total consumer	3		11

During the three months ended March 31, 2017 and 2016, 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 March 31, 2017
Real estate, including construction	$	33	$	11	$	44	$	6	$	46
Business and corporate banking	148		176		324		36		392
Global banking	425		128		553		223		564
Other commercial	1		6		7		1		7
Total commercial	$	607	$	321	$	928	$	266	$	1,009
At December 31, 2016
Real estate, including construction	$	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


⁽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 $388 million and $482 million at March 31, 2017 and December 31, 2016, respectively.

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



Three Months Ended March 31,	2017		2016
	(in millions)
Average balance of impaired commercial loans:
Real estate, including construction	$	44	$	107
Business and corporate banking	333		262
Global banking	607		139
Other commercial	7		7
Total average balance of impaired commercial loans	$	991	$	515
Interest income recognized on impaired commercial loans:
Real estate, including construction	$	—	$	1
Business and corporate banking	4		2
Total interest income recognized on impaired commercial loans	$	4	$	3

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 March 31, 2017
Real estate, including construction	$	423	$	96	$	6	$	525
Business and corporate banking	588		789		37		1,414
Global banking	749		2,527		250		3,526
Other commercial	—		6		1		7
Total commercial	$	1,760	$	3,418	$	294	$	5,472
At December 31, 2016
Real estate, including construction	$	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

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 March 31, 2017
Real estate, including construction	$	10,749	$	53	$	—	$	10,802
Business and corporate banking	12,943		208		1		13,152
Global banking	22,037		490		—		22,527
Other commercial	3,514		1		—		3,515
Total commercial	$	49,243	$	752	$	1	$	49,996
At December 31, 2016
Real estate, including construction	$	10,834	$	56	$	—	$	10,890
Business and corporate banking	13,892		187		1		14,080
Global banking	22,935		546		—		23,481
Other commercial	5,764		1		—		5,765
Total commercial	$	53,425	$	790	$	1	$	54,216

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, 2017
Real estate, including construction	$	7,787	$	3,015	$	10,802
Business and corporate banking	5,701		7,451		13,152
Global banking	14,006		8,521		22,527
Other commercial	2,315		1,200		3,515
Total commercial	$	29,809	$	20,187	$	49,996
At December 31, 2016
Real estate, including construction	$	7,857	$	3,033	$	10,890
Business and corporate banking	6,348		7,732		14,080
Global banking	14,205		9,276		23,481
Other commercial	4,473		1,292		5,765
Total commercial	$	32,883	$	21,333	$	54,216


⁽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, 2017				December 31, 2016
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	434	2.51	%	$	765	4.23	%
Home equity mortgages⁽¹⁾⁽²⁾	40		2.98		46		3.26
Credit cards	12		1.86		14		2.03
Other consumer	10		2.20		11		2.43
Total consumer	$	496	2.51	%	$	836	4.05	%


⁽¹⁾	At March 31, 2017 and December 31, 2016, consumer mortgage loan delinquency includes $395 million and $711 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell, including $41 million and $358 million, respectively, relating to loans held for sale.


⁽²⁾	At March 31, 2017 and December 31, 2016, consumer mortgage loans and loans held for sale include $241 million and $474 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 March 31, 2017
Residential mortgages	$	16,773	$	446	$	—	$	17,219
Home equity mortgages	1,273		71		—		1,344
Credit cards	637		—		9		646
Other consumer	376		—		7		383
Total consumer	$	19,059	$	517	$	16	$	19,592
At December 31, 2016
Residential mortgages	$	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

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

Concentration of Credit Risk At March 31, 2017 and December 31, 2016, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,594 million and $3,589 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.