Business Segments

We have five distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Retail Banking and Wealth Management ("RBWM"), Commercial Banking ("CMB"), Global Banking and Markets ("GB&M") and Private Banking ("PB") and a Corporate Center ("CC") which was created in 2017 and is discussed further below.

We previously announced that we made the decision to implement changes to our internal management reporting for certain activities and functions and report them within a new CC segment beginning in January 2017. These activities and functions include Balance Sheet Management and our legacy structured credit products which historically were both reported in GB&M, as well as a portfolio of residential mortgage loans previously purchased from HSBC Finance, including certain loan servicing activities performed on behalf of HSBC Finance, which were historically reported in RBWM. In addition, we have reviewed central costs historically reported in the Other segment and have reallocated these costs to the global businesses where appropriate. Remaining residual costs are reported in the CC along with all other remaining items historically reported in the Other segment. As a result, beginning in the first quarter of 2017, we have aligned our segment reporting with the changes made to our internal management reporting and are reporting these changes as part of the newly created CC segment for all periods presented.

The following table summarizes the impact on reported segment profit before tax, total assets and total deposits as of and for the three and nine months ended September 30, 2016:



	2016
	(in millions)
Increase (decrease) in segment profit before tax during the three months ended September 30:
RBWM	$	1
CMB	3
GB&M	(50		)
PB	—
CC (as compared with previously reported Other)	46

Increase (decrease) in segment profit before tax during the nine months ended September 30:
RBWM	$	1
CMB	9
GB&M	(131		)
PB	—
CC (as compared with previously reported Other)	121

Increase (decrease) in segment total assets at September 30:
RBWM	$	(611	)
CMB	—
GB&M	(107,318		)
PB	—
CC (as compared with previously reported Other)	107,929

Increase (decrease) in segment total deposits at September 30:
RBWM	$	—
CMB	—
GB&M	(6,672		)
PB	—
CC (as compared with previously reported Other)	6,672

Our segment results are presented in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB and as endorsed by the EU, and, as a result, our segment results are prepared and presented using financial information prepared on the Group Reporting Basis as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees, are primarily made on this basis. However, we continue to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

We continue to evaluate the financial information used to manage our businesses, including the presentation of financial data being reported to our Management and our Board. To the extent we make changes to this reporting in the future, we will evaluate any impact such changes may have on our segment reporting.

During the first quarter of 2017, we adopted new accounting guidance under the Group Reporting Basis which, for financial liabilities measured under the fair value option, requires recognizing the change in fair value attributable to our own credit spread in other comprehensive income (loss) consistent with the new accounting guidance also adopted under U.S. GAAP. The adoption of this guidance did not require periods prior to 2017 to be restated. During the three and nine months ended September 30, 2016, total other revenues under the Group Reporting Basis included gains of $5 million and $113 million, respectively, from the change in fair value of our own debt attributable to our own credit spread for which we have elected fair value option accounting.

There have been no additional changes in the basis of our segmentation or measurement of segment profit as compared with the presentation in our 2016 Form 10-K.

A summary of differences between U.S. GAAP and the Group Reporting Basis as they impact our results are presented in Note 22, "Business Segments," in our 2016 Form 10-K. Other than the changes discussed below, there have been no other significant changes since December 31, 2016 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.

Structured notes and deposits - Structured notes and deposits are classified as trading liabilities under the Group Reporting Basis and are carried at fair value with changes in fair value recorded in earnings. We elected to apply fair value option accounting to these structured notes and deposits under U.S. GAAP. Beginning January 1, 2017, the adoption of new accounting guidance under U.S. GAAP requires the fair value movement on fair value option liabilities, including structured notes and deposits, attributable to our own credit spread to be recorded in other comprehensive income (loss).

Property - The sale and leaseback of our 452 Fifth Avenue property, including the 1 W. 39th Street building, in 2010 resulted in the recognition of a gain under the Group Reporting Basis while under U.S. GAAP, such gain is deferred and was being recognized over the lease term (which was ten years) due to our continuing involvement. During the second quarter of 2017, we extended the lease for an additional five years as well as the amortization of the deferred gain to reflect the new lease term.

The following table summarizes the results for each segment on a Group Reporting Basis, as well as provides a reconciliation of total results under the Group Reporting Basis to U.S. GAAP consolidated totals:



	Group Reporting Basis Consolidated Amounts
	RBWM			CMB⁽³⁾			GB&M⁽³⁾			PB			CC			Adjustments/ Reconciling Items		Total			Group Reporting Basis Adjustments⁽⁴⁾			Group Reporting Basis Reclassi- fications⁽⁵⁾			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended September 30, 2017
Net interest income⁽¹⁾	$	231		$	187		$	131		$	56		$	(10	)	$	—	$	595		$	(9	)	$	(26	)	$	560
Other operating income	54			55			111			31			33			—		284			61			23			368
Total operating income	285			242			242			87			23			—		879			52			(3		)	928
Loan impairment charges	11			(8		)	(18		)	(2		)	1			—		(16		)	1			(7		)	(22		)
	274			250			260			89			22			—		895			51			4			950
Operating expenses⁽²⁾	281			142			200			67			103			—		793			(2		)	4			795
Profit (loss) before income tax expense	$	(7	)	$	108		$	60		$	22		$	(81	)	$	—	$	102		$	53		$	—		$	155

Three Months Ended September 30, 2016
Net interest income⁽¹⁾	$	206		$	187		$	133		$	53		$	29		$	—	$	608		$	(18	)	$	14		$	604
Other operating income	69			49			183			22			34			—		357			(27		)	(10		)	320
Total operating income	275			236			316			75			63			—		965			(45		)	4			924
Loan impairment charges	30			(18		)	31			1			(2		)	—		42			16			4			62
	245			254			285			74			65			—		923			(61		)	—			862
Operating expenses⁽²⁾	278			151			242			56			87			—		814			(11		)	—			803
Profit (loss) before income tax expense	$	(33	)	$	103		$	43		$	18		$	(22	)	$	—	$	109		$	(50	)	$	—		$	59



	Group Reporting Basis Consolidated Amounts
	RBWM			CMB⁽³⁾			GB&M⁽³⁾			PB		CC			Adjustments/ Reconciling Items			Total			Group Reporting Basis Adjustments⁽⁴⁾			Group Reporting Basis Reclassi- fications⁽⁵⁾			U.S. GAAP Consolidated Totals
	(in millions)
Nine Months Ended September 30, 2017
Net interest income⁽¹⁾	$	665		$	548		$	439		$	165	$	(9	)	$	—		$	1,808		$	(38	)	$	(31	)	$	1,739
Other operating income	416			159			385			73		205			—			1,238			190			30			1,458
Total operating income	1,081			707			824			238		196			—			3,046			152			(1		)	3,197
Loan impairment charges	17			(49		)	(55		)	1		—			—			(86		)	(47		)	13			(120		)
	1,064			756			879			237		196			—			3,132			199			(14		)	3,317
Operating expenses⁽²⁾	830			422			635			191		338			—			2,416			—			(14		)	2,402
Profit (loss) before income tax expense	$	234		$	334		$	244		$	46	$	(142	)	$	—		$	716		$	199		$	—		$	915
Balances at end of period:
Total assets	$	18,968		$	24,154		$	90,779		$	7,684	$	90,262		$	—		$	231,847		$	(33,961	)	$	—		$	197,886
Total loans, net	16,781			22,959			18,843			5,900		3,751			—			68,234			(1,039		)	(401		)	66,794
Goodwill	581			358			—			321		—			—			1,260			347			—			1,607
Total deposits	34,275			23,919			21,628			9,737		8,394			—			97,953			(3,874		)	27,761			121,840

Nine Months Ended September 30, 2016
Net interest income⁽¹⁾	$	613		$	562		$	440		$	153	$	119		$	(2	)	$	1,885		$	(59	)	$	70		$	1,896
Other operating income	214			166			598			67		209			2			1,256			(111		)	(70		)	1,075
Total operating income	827			728			1,038			220		328			—			3,141			(170		)	—			2,971
Loan impairment charges	57			13			385			—		(4		)	—			451			(72		)	(26		)	353
	770			715			653			220		332			—			2,690			(98		)	26			2,618
Operating expenses⁽²⁾	793			451			711			173		220			—			2,348			(22		)	26			2,352
Profit (loss) before income tax expense	$	(23	)	$	264		$	(58	)	$	47	$	112		$	—		$	342		$	(76	)	$	—		$	266
Balances at end of period:
Total assets	$	20,108		$	25,262		$	92,055		$	8,149	$	108,400		$	—		$	253,974		$	(45,673	)	$	9		$	208,310
Total loans, net	17,116			24,170			24,065			6,433		1,846			—			73,630			(447		)	3,382			76,565
Goodwill	581			358			—			325		—			—			1,264			348			—			1,612
Total deposits	31,702			21,858			26,547			13,216		6,672			—			99,995			(4,919		)	36,006			131,082

⁽¹⁾

Net interest income of each segment represents the difference between actual interest earned on assets and interest paid on liabilities of the segment adjusted for a funding charge or credit. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Balance Sheet Management and more appropriately reflect the profitability of the segments.


⁽²⁾	Expenses for the segments include fully apportioned corporate overhead expenses.

⁽³⁾

During the fourth quarter of 2016, we transferred certain client relationships from CMB to GB&M as discussed further in Note 22, "Business Segments," in our 2016 Form 10-K. As a result, we reclassified $23 million and $67 million of profit before tax from the CMB segment to the GB&M segment during the three and nine months ended September 30, 2016, respectively, to conform with the current year presentation. In addition, we reclassified $3,570 million of loans and $3,068 million of deposits from the CMB segment to the GB&M segment at September 30, 2016.


⁽⁴⁾	Represents adjustments associated with differences between U.S. GAAP and the Group Reporting Basis.


⁽⁵⁾	Represents differences in financial statement presentation between U.S. GAAP and the Group Reporting Basis.