Loans

Loans consisted of the following:



	September 30, 2018		December 31, 2017
	(in millions)
Commercial loans:
Real estate, including construction	$	11,882	$	10,533
Business and corporate banking	12,731		12,504
Global banking⁽¹⁾	18,672		20,088
Other commercial⁽²⁾	3,898		9,910
Total commercial	47,183		53,035
Consumer loans:
Residential mortgages	17,376		17,273
Home equity mortgages	1,027		1,191
Credit cards	907		721
Other consumer	263		343
Total consumer	19,573		19,528
Total loans	$	66,756	$	72,563


⁽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⁾	Includes loans to HSBC affiliates which totaled $1,557 million and $6,750 million at September 30, 2018 and December 31, 2017, respectively. See Note 14, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

Net deferred origination costs totaled $81 million at both September 30, 2018 and December 31, 2017, respectively. At September 30, 2018 and December 31, 2017, we had a net unamortized premium on our loans of $10 million and $8 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 September 30, 2018 and December 31, 2017. 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, 2018	30 - 89 Days		90+ Days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Real estate, including construction	$	13	$	1	$	14	$	11,868	$	11,882
Business and corporate banking	137		45		182		12,549		12,731
Global banking	—		—		—		18,672		18,672
Other commercial	7		—		7		3,891		3,898
Total commercial	157		46		203		46,980		47,183
Consumer loans:
Residential mortgages	379		264		643		16,733		17,376
Home equity mortgages	12		29		41		986		1,027
Credit cards	12		13		25		882		907
Other consumer	5		5		10		253		263
Total consumer	408		311		719		18,854		19,573
Total loans	$	565	$	357	$	922	$	65,834	$	66,756



	Past Due				Total Past Due 30 Days or More
At December 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	$	27	$	9	$	36	$	10,497	$	10,533
Business and corporate banking	25		5		30		12,474		12,504
Global banking	—		25		25		20,063		20,088
Other commercial	43		—		43		9,867		9,910
Total commercial	95		39		134		52,901		53,035
Consumer loans:
Residential mortgages	369		344		713		16,560		17,273
Home equity mortgages	11		36		47		1,144		1,191
Credit cards	8		9		17		704		721
Other consumer	5		7		12		331		343
Total consumer	393		396		789		18,739		19,528
Total loans	$	488	$	435	$	923	$	71,640	$	72,563


⁽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:



	September 30, 2018		December 31, 2017
	(in millions)
Nonaccrual loans:
Commercial:
Real estate, including construction	$	6	$	12
Business and corporate banking	75		215
Global banking	80		385
Other commercial	1		1
Commercial nonaccrual loans held for sale	—		—
Total commercial	162		613
Consumer:
Residential mortgages^(1)(2)(3)	406		414
Home equity mortgages⁽¹⁾⁽²⁾	62		67
Consumer nonaccrual loans held for sale	1		1
Total consumer	469		482
Total nonaccruing loans	631		1,095
Accruing loans contractually past due 90 days or more:
Commercial:
Business and corporate banking	1		1
Total commercial	1		1
Consumer:
Credit cards	13		9
Other consumer	6		8
Total consumer	19		17
Total accruing loans contractually past due 90 days or more	20		18
Total nonperforming loans	$	651	$	1,113


⁽¹⁾	At September 30, 2018 and December 31, 2017, nonaccrual consumer mortgage loans held for investment include $334 million and $360 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 is 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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	10	$	15	$	37	$	53
Interest income that was recorded on nonaccrual loans and included in interest income during the period	12		3		27		16

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 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, the loan's observable market price 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 nine months ended September 30, 2018 and 2017 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 nine months ended September 30, 2018 and 2017 and as a result of this action became classified as TDR Loans:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Commercial loans:
Business and corporate banking	$	—	$	—	$	—	$	24
Global banking	—		—		—		86
Total commercial	—		—		—		110
Consumer loans:
Residential mortgages	5		11		22		27
Home equity mortgages	1		2		4		6
Credit cards	1		1		3		3
Total consumer	7		14		29		36
Total	$	7	$	14	$	29	$	146

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and nine months ended September 30, 2018 was 1.88 percent and 1.98 percent, respectively, compared with 2.41 percent and 1.98 percent during the three and nine months ended September 30, 2017, 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:



	September 30, 2018				December 31, 2017
	Carrying Value		Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance
	(in millions)
TDR Loans:⁽¹⁾⁽²⁾
Commercial loans:
Business and corporate banking	$	76	$	95	$	194	$	266
Global banking	110		116		175		180
Total commercial⁽³⁾	186		211		369		446
Consumer loans:
Residential mortgages⁽⁴⁾	649		740		683		779
Home equity mortgages⁽⁴⁾	35		67		33		66
Credit cards	4		4		4		4
Total consumer	688		811		720		849
Total TDR Loans⁽⁵⁾	$	874	$	1,022	$	1,089	$	1,295
Allowance for credit losses for TDR Loans:⁽⁶⁾
Commercial loans:
Business and corporate banking	$	6			$	12
Global banking	—				19
Total commercial	6				31
Consumer loans:
Residential mortgages	3				7
Home equity mortgages	1				1
Credit cards	1				1
Total consumer	5				9
Total allowance for credit losses for TDR Loans	$	11			$	40


⁽¹⁾	TDR Loans are considered to be impaired loans. For commercial loans, impaired loans include other loans in addition to TDR Loans which totaled $64 million and $329 million at September 30, 2018 and December 31, 2017, respectively.


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


⁽³⁾	Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled $105 million and $245 million at September 30, 2018 and December 31, 2017, respectively.


⁽⁴⁾	At September 30, 2018 and December 31, 2017, the carrying value of consumer mortgage TDR Loans held for investment includes $623 million and $655 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, 2018 and December 31, 2017, the carrying value of TDR Loans includes $340 million and $559 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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Real estate, including construction	$	—	$	15	$	—	$	23
Business and corporate banking	97		248		136		259
Global banking	117		164		126		149
Total commercial	214		427		262		431
Consumer loans:
Residential mortgages	657		705		666		709
Home equity mortgages	35		31		35		30
Credit cards	4		4		4		4
Total consumer	696		740		705		743
Total average balance of TDR Loans	$	910	$	1,167	$	967	$	1,174
Interest income recognized on TDR Loans:
Commercial loans:
Business and corporate banking	$	5	$	1	$	9	$	5
Global banking	1		1		3		2
Total commercial	6		2		12		7
Consumer loans:
Residential mortgages	6		7		20		21
Home equity mortgages	—		—		1		1
Total consumer	6		7		21		22
Total interest income recognized on TDR Loans	$	12	$	9	$	33	$	29

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, 2018 and 2017:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Consumer loans:
Residential mortgages	$	4	$	2	$	6	$	7
Home equity mortgages	—		1		2		1
Total consumer	$	4	$	3	$	8	$	8

During the three and nine months ended September 30, 2018 and 2017, 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:



	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, 2018
Real estate, including construction	$	3	$	2	$	5	$	1	$	5
Business and corporate banking	61		52		113		24		126
Global banking	—		131		131		—		138
Other commercial	—		1		1		—		1
Total commercial	$	64	$	186	$	250	$	25	$	270
At December 31, 2017
Real estate, including construction	$	—	$	11	$	11	$	—	$	11
Business and corporate banking	121		129		250		45		311
Global banking	262		175		437		82		520
Total commercial	$	383	$	315	$	698	$	127	$	842


⁽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 premiums or discounts on purchased loans.


⁽²⁾	Includes impaired commercial loans that are also considered TDR Loans which totaled $186 million and $369 million at September 30, 2018 and December 31, 2017, respectively.

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,
	2018		2017		2018		2017
	(in millions)
Average balance of impaired commercial loans:
Real estate, including construction	$	8	$	30	$	10	$	37
Business and corporate banking	185		302		227		318
Global banking	152		559		266		583
Other commercial	1		3		—		5
Total average balance of impaired commercial loans	$	346	$	894	$	503	$	943
Interest income recognized on impaired commercial loans:
Business and corporate banking	$	6	$	1	$	12	$	6
Global banking	1		1		3		2
Total interest income recognized on impaired commercial loans	$	7	$	2	$	15	$	8

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 September 30, 2018
Real estate, including construction	$	504	$	72	$	4	$	580
Business and corporate banking	247		285		19		551
Global banking	258		775		—		1,033
Other commercial	—		1		—		1
Total commercial	$	1,009	$	1,133	$	23	$	2,165
At December 31, 2017
Real estate, including construction	$	467	$	117	$	1	$	585
Business and corporate banking	477		519		44		1,040
Global banking	452		1,612		82		2,146
Other commercial	11		—		—		11
Total commercial	$	1,407	$	2,248	$	127	$	3,782

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 September 30, 2018
Real estate, including construction	$	11,876	$	6	$	—	$	11,882
Business and corporate banking	12,655		75		1		12,731
Global banking	18,592		80		—		18,672
Other commercial	3,897		1		—		3,898
Total commercial	$	47,020	$	162	$	1	$	47,183
At December 31, 2017
Real estate, including construction	$	10,521	$	12	$	—	$	10,533
Business and corporate banking	12,288		215		1		12,504
Global banking	19,703		385		—		20,088
Other commercial	9,909		1		—		9,910
Total commercial	$	52,421	$	613	$	1	$	53,035

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 September 30, 2018
Real estate, including construction	$	7,439	$	4,443	$	11,882
Business and corporate banking	5,507		7,224		12,731
Global banking	13,189		5,483		18,672
Other commercial	3,016		882		3,898
Total commercial	$	29,151	$	18,032	$	47,183
At December 31, 2017
Real estate, including construction	$	7,456	$	3,077	$	10,533
Business and corporate banking	5,752		6,752		12,504
Global banking	13,218		6,870		20,088
Other commercial	8,341		1,569		9,910
Total commercial	$	34,767	$	18,268	$	53,035


⁽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:



	September 30, 2018				December 31, 2017
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	329	1.89	%	$	425	2.46	%
Home equity mortgages⁽¹⁾⁽²⁾	31		3.02		39		3.27
Credit cards	18		1.98		12		1.66
Other consumer	7		2.20		10		2.48
Total consumer	$	385	1.96	%	$	486	2.48	%


⁽¹⁾	At September 30, 2018 and December 31, 2017, consumer mortgage loan delinquency includes $263 million and $342 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell, including $1 million and $1 million, respectively, relating to loans held for sale.


⁽²⁾	At September 30, 2018 and December 31, 2017, consumer mortgage loans and loans held for sale include $157 million and $159 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 September 30, 2018
Residential mortgages	$	16,970	$	406	$	—	$	17,376
Home equity mortgages	965		62		—		1,027
Credit cards	894		—		13		907
Other consumer	257		—		6		263
Total consumer	$	19,086	$	468	$	19	$	19,573
At December 31, 2017
Residential mortgages	$	16,859	$	414	$	—	$	17,273
Home equity mortgages	1,124		67		—		1,191
Credit cards	712		—		9		721
Other consumer	335		—		8		343
Total consumer	$	19,030	$	481	$	17	$	19,528

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

Concentration of Credit Risk At September 30, 2018 and December 31, 2017, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,209 million and $3,424 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.