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Loans (Tables)

9 Months Ended

Sep. 30, 2017

Loans consisted of the following:



	September 30, 2017		December 31, 2016
	(in millions)
Commercial loans:
Real estate, including construction	$	10,442	$	10,890
Business and corporate banking	13,328		14,080
Global banking⁽¹⁾⁽²⁾	19,950		23,481
Other commercial⁽²⁾	4,408		5,765
Total commercial	48,128		54,216
Consumer loans:
Residential mortgages	17,196		17,181
Home equity mortgages	1,234		1,408
Credit cards	656		688
Other consumer	379		382
Total consumer	19,465		19,659
Total loans	$	67,593	$	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 Global Banking and Markets 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 14, "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 $1,820 million and $3,274 million at September 30, 2017 and December 31, 2016, respectively. All tables below have been restated to reflect this reclassification, as applicable. See Note 13, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

Summary of Past Due Status of Loans

The following table summarizes the past due status of our loans, excluding loans held for sale, at September 30, 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 September 30, 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	$	7	$	12	$	19	$	10,423	$	10,442
Business and corporate banking	94		2		96		13,232		13,328
Global banking	—		56		56		19,894		19,950
Other commercial	1		—		1		4,407		4,408
Total commercial	102		70		172		47,956		48,128
Consumer loans:
Residential mortgages	368		331		699		16,497		17,196
Home equity mortgages	10		34		44		1,190		1,234
Credit cards	8		8		16		640		656
Other consumer	6		6		12		367		379
Total consumer	392		379		771		18,694		19,465
Total loans	$	494	$	449	$	943	$	66,650	$	67,593



	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.

Summary of Nonaccrual Loans and Accruing Receivables 90 Days or More Delinquent

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



	September 30, 2017		December 31, 2016
	(in millions)
Nonaccrual loans:
Commercial:
Real estate, including construction	$	18	$	56
Business and corporate banking	244		187
Global banking	469		546
Other commercial	—		1
Commercial nonaccrual loans held for sale	—		11
Total commercial	731		801
Consumer:
Residential mortgages^(1)(2)(3)	435		435
Home equity mortgages⁽¹⁾⁽²⁾	69		75
Consumer nonaccrual loans held for sale	3		369
Total consumer	507		879
Total nonaccruing loans	1,238		1,680
Accruing loans contractually past due 90 days or more:
Commercial:
Business and corporate banking	5		1
Total commercial	5		1
Consumer:
Credit cards	8		10
Other consumer	6		7
Total consumer	14		17
Total accruing loans contractually past due 90 days or more	19		18
Total nonperforming loans	$	1,257	$	1,698


⁽¹⁾	At September 30, 2017 and December 31, 2016, nonaccrual consumer mortgage loans held for investment include $378 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.

Schedule of Additional Information on Nonaccrual Loans

The following table provides additional information on our nonaccrual loans:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		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	$	15	$	23	$	53	$	67
Interest income that was recorded on nonaccrual loans and included in interest income during the period	3		5		16		14

Summary of Receivables which were Modified and as a Result Became Classified as TDR Loans

The following table presents information about loans which were modified during the three and nine months ended September 30, 2017 and 2016 and as a result of this action became classified as TDR Loans:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Commercial loans:
Business and corporate banking	$	—	$	—	$	24	$	304
Global banking	—		—		86		—
Total commercial	—		—		110		304
Consumer loans:
Residential mortgages	11		12		27		55
Home equity mortgages	2		2		6		7
Credit cards	1		1		3		3
Total consumer	14		15		36		65
Total	$	14	$	15	$	146	$	369

Summary of TDR and Related Credit Loss Reserves for TDR Loans

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



	September 30, 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	$	—	$	—	$	32	$	33
Business and corporate banking	244		320		300		363
Global banking	119		123		150		152
Total commercial⁽³⁾	363		443		482		548
Consumer loans:
Residential mortgages⁽⁴⁾	693		789		708		797
Home equity mortgages⁽⁴⁾	31		64		27		59
Credit cards	4		4		5		5
Total consumer	728		857		740		861
Total TDR Loans⁽⁵⁾	$	1,091	$	1,300	$	1,222	$	1,409
Allowance for credit losses for TDR Loans:⁽⁶⁾
Commercial loans:
Real estate, including construction	$	—			$	—
Business and corporate banking	24				37
Global banking	—				—
Total commercial	24				37
Consumer loans:
Residential mortgages	7				9
Home equity mortgages	1				1
Credit cards	1				1
Total consumer	9				11
Total allowance for credit losses for TDR Loans	$	33			$	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 $490 million and $571 million at September 30, 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 $223 million and $184 million at September 30, 2017 and December 31, 2016, respectively.


⁽⁴⁾	At September 30, 2017 and December 31, 2016, the carrying value of consumer mortgage TDR Loans held for investment includes $662 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 September 30, 2017 and December 31, 2016, the carrying value of TDR Loans includes $514 million and $645 million, respectively, of loans which are classified as nonaccrual.


⁽⁶⁾	Included in the allowance for credit losses.

Trouble Debt Restructuring Additional Information

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Real estate, including construction	$	15	$	63	$	23	$	78
Business and corporate banking	248		380		259		290
Global banking	164		116		149		113
Total commercial	427		559		431		481
Consumer loans:
Residential mortgages	705		917		709		966
Home equity mortgages	31		27		30		25
Credit cards	4		5		4		5
Total consumer	740		949		743		996
Total average balance of TDR Loans	$	1,167	$	1,508	$	1,174	$	1,477
Interest income recognized on TDR Loans:
Commercial loans:
Real estate, including construction	$	—	$	2	$	—	$	3
Business and corporate banking	1		3		5		7
Global banking	1		—		2		—
Total commercial	2		5		7		10
Consumer loans:
Residential mortgages	7		10		21		29
Home equity mortgages	—		—		1		1
Total consumer	7		10		22		30
Total interest income recognized on TDR Loans	$	9	$	15	$	29	$	40

Loans Classified as TDR Loans

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 and nine months ended September 30, 2017 and 2016:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Consumer loans:
Residential mortgages	$	2	$	6	$	7	$	21
Home equity mortgages	$	1	$	—	1		—
Total consumer	$	3	$	6	$	8	$	21

Impaired Commercial Loans Considered as TDR 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 September 30, 2017
Real estate, including construction	$	1	$	16	$	17	$	1	$	17
Business and corporate banking	183		137		320		51		384
Global banking	372		144		516		162		530
Other commercial	—		—		—		—		—
Total commercial	$	556	$	297	$	853	$	214	$	931
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 $363 million and $482 million at September 30, 2017 and December 31, 2016, respectively.

Average Balance and Interest Income Recognized on Impaired Commercial Loans

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Average balance of impaired commercial loans:
Real estate, including construction	$	30	$	79	$	37	$	93
Business and corporate banking	302		428		318		345
Global banking	559		679		583		443
Other commercial	3		8		5		7
Total average balance of impaired commercial loans	$	894	$	1,194	$	943	$	888
Interest income recognized on impaired commercial loans:
Real estate, including construction	$	—	$	2	$	—	$	3
Business and corporate banking	1		3		6		8
Global banking	1		—		2		—
Total interest income recognized on impaired commercial loans	$	2	$	5	$	8	$	11

Summary of Criticized Assets for Commercial Loans

The following table summarizes criticized commercial loans:



	Special Mention		Substandard		Doubtful		Total
	(in millions)
At September 30, 2017
Real estate, including construction	$	502	$	58	$	7	$	567
Business and corporate banking	558		594		49		1,201
Global banking	537		2,206		158		2,901
Other commercial	11		—		—		11
Total commercial	$	1,608	$	2,858	$	214	$	4,680
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

Status of Commercial Loan Portfolio

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 September 30, 2017
Real estate, including construction	$	10,424	$	18	$	—	$	10,442
Business and corporate banking	13,079		244		5		13,328
Global banking	19,481		469		—		19,950
Other commercial	4,408		—		—		4,408
Total commercial	$	47,392	$	731	$	5	$	48,128
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 of Commercial Loan

The following table shows the credit risk profile of our commercial loan portfolio:



	Investment Grade⁽¹⁾		Non-Investment Grade		Total
	(in millions)
At September 30, 2017
Real estate, including construction	$	7,264	$	3,178	$	10,442
Business and corporate banking	6,113		7,215		13,328
Global banking	13,543		6,407		19,950
Other commercial	3,195		1,213		4,408
Total commercial	$	30,115	$	18,013	$	48,128
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.

Delinquency Ratio for Consumer Loan

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:



	September 30, 2017				December 31, 2016
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	406	2.36	%	$	765	4.23	%
Home equity mortgages⁽¹⁾⁽²⁾	36		2.92		46		3.26
Credit cards	11		1.68		14		2.03
Other consumer	10		2.26		11		2.43
Total consumer	$	463	2.37	%	$	836	4.05	%


⁽¹⁾	At September 30, 2017 and December 31, 2016, consumer mortgage loan delinquency includes $328 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 $3 million and $358 million, respectively, relating to loans held for sale.


⁽²⁾	At September 30, 2017 and December 31, 2016, consumer mortgage loans and loans held for sale include $168 million and $474 million, respectively, of loans that were in the process of foreclosure.

Status of Consumer Loan Portfolio

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 September 30, 2017
Residential mortgages	$	16,761	$	435	$	—	$	17,196
Home equity mortgages	1,165		69		—		1,234
Credit cards	648		—		8		656
Other consumer	373		—		6		379
Total consumer	$	18,947	$	504	$	14	$	19,465
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