Loans

Loans consisted of the following:



At December 31,	2018		2017
	(in millions)
Commercial loans:
Real estate, including construction	$	11,344	$	10,533
Business and corporate banking	13,066		12,504
Global banking⁽¹⁾	20,167		20,088
Other commercial⁽²⁾	4,765		9,910
Total commercial	49,342		53,035
Consumer loans:
Residential mortgages	17,383		17,273
Home equity mortgages	982		1,191
Credit cards	1,019		721
Other consumer	252		343
Total consumer	19,636		19,528
Total loans	$	68,978	$	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 $2,274 million and $6,750 million at December 31, 2018 and 2017, respectively. See Note 22, "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, 2018 or 2017.

Net deferred origination costs totaled $77 million and $81 million at December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, we had a net unamortized premium on our loans of $11 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 December 31, 2018 and 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 December 31, 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	$	76	$	3	$	79	$	11,265	$	11,344
Business and corporate banking	79		38		117		12,949		13,066
Global banking	—		—		—		20,167		20,167
Other commercial	15		—		15		4,750		4,765
Total commercial	170		41		211		49,131		49,342
Consumer loans:
Residential mortgages	469		254		723		16,660		17,383
Home equity mortgages	14		27		41		941		982
Credit cards	13		14		27		992		1,019
Other consumer	5		5		10		242		252
Total consumer	501		300		801		18,835		19,636
Total loans	$	671	$	341	$	1,012	$	67,966	$	68,978



	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.

Contractual Maturities Contractual maturities of loans outstanding at December 31, 2018 were as follows:



	2019		2020		2021		2022		2023		Thereafter		Total
	(in millions)
Commercial loans:
Real estate, including construction	$	4,380	$	1,750	$	1,482	$	1,231	$	1,801	$	700	$	11,344
Business and corporate banking	5,045		2,016		1,707		1,418		2,075		805		13,066
Global banking	7,787		3,111		2,634		2,189		3,202		1,244		20,167
Other commercial	1,840		735		622		517		757		294		4,765
Consumer loans:
Residential mortgages	688		453		459		456		479		14,848		17,383
Home equity mortgages⁽¹⁾	413		216		131		80		52		90		982
Credit cards⁽²⁾	—		1,019		—		—		—		—		1,019
Other consumer	93		132		11		6		3		7		252
Total	$	20,246	$	9,432	$	7,046	$	5,897	$	8,369	$	17,988	$	68,978


⁽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 outstanding at December 31, 2018 due after one year by repricing characteristic:



December 31, 2018	After One But Within Five Years		After Five Years
	(in millions)
Receivables at predetermined interest rates	$	1,860	$	4,772
Receivables at floating or adjustable rates	28,884		13,216
Total	$	30,744	$	17,988

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,	2018		2017
	(in millions)
Nonaccrual loans:
Commercial:
Real estate, including construction	$	7	$	12
Business and corporate banking	70		215
Global banking	65		385
Other commercial	1		1
Total commercial	143		613
Consumer:
Residential mortgages^(1)(2)(3)	341		414
Home equity mortgages⁽¹⁾⁽²⁾	55		67
Consumer nonaccrual loans held for sale	1		1
Total consumer	397		482
Total nonaccruing loans	540		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	14		9
Other consumer	6		8
Total consumer	20		17
Total accruing loans contractually past due 90 days or more	21		18
Total nonperforming loans	$	561	$	1,113


⁽¹⁾	At December 31, 2018 and 2017, nonaccrual consumer mortgage loans held for investment include $289 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:



Year Ended December 31,	2018		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	$	46	$	68	$	91
Interest income that was recorded on nonaccrual loans and included in interest income during the period	31		24		22

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 primarily based on the present value of expected future cash flows, discounted at the loan's original effective interest rate, which generally results in a higher reserve requirement for these loans, or as a practical expedient, the fair value of the collateral if the loan is collateral dependent or, for commercial loans, the observable market price if the loan is traded in the market. 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 2018, 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 2018, 2017 and 2016 and as a result of this action became classified as TDR Loans:



Year Ended December 31,	2018		2017		2016
	(in millions)
Commercial loans:
Business and corporate banking	$	6	$	40	$	323
Global banking	—		160		—
Total commercial	6		200		323
Consumer loans:
Residential mortgages	26		34		62
Home equity mortgages	5		9		8
Credit cards	4		4		4
Total consumer	35		47		74
Total	$	41	$	247	$	397

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during 2018, 2017 and 2016 was 1.93 percent, 1.91 percent and 1.48 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, 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	$	68	$	86	$	194	$	266
Global banking	113		119		175		180
Total commercial⁽³⁾	181		205		369		446
Consumer loans:
Residential mortgages⁽⁴⁾	640		730		683		779
Home equity mortgages⁽⁴⁾	35		65		33		66
Credit cards	3		4		4		4
Total consumer	678		799		720		849
Total TDR Loans⁽⁵⁾	$	859	$	1,004	$	1,089	$	1,295
Allowance for credit losses for TDR Loans:⁽⁶⁾
Commercial loans:
Business and corporate banking	$	12			$	12
Global banking	—				19
Total commercial	12				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	$	17			$	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 $54 million and $329 million at December 31, 2018 and 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 $151 million and $245 million at December 31, 2018 and 2017, respectively.


⁽⁴⁾	At December 31, 2018 and 2017, the carrying value of consumer mortgage TDR Loans held for investment includes $615 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 December 31, 2018 and 2017, the carrying value of TDR Loans includes $286 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:



Year Ended December 31,	2018		2017		2016
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Real estate, including construction	$	—	$	19	$	69
Business and corporate banking	122		246		292
Global banking	124		154		121
Total commercial	246		419		482
Consumer loans:
Residential mortgages	660		704		740
Home equity mortgages	35		31		25
Credit cards	4		4		5
Total consumer	699		739		770
Total average balance of TDR Loans	$	945	$	1,158	$	1,252
Interest income recognized on TDR Loans:
Commercial loans:
Real estate, including construction	$	—	$	—	$	4
Business and corporate banking	12		7		8
Global banking	3		2		1
Total commercial	15		9		13
Consumer loans:
Residential mortgages	27		28		25
Home equity mortgages	2		2		1
Total consumer	29		30		26
Total interest income recognized on TDR Loans	$	44	$	39	$	39

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, 2018, 2017 and 2016:



Year Ended December 31,	2018		2017		2016
	(in millions)
Consumer loans:
Residential mortgages	$	8	$	9	$	24
Home equity mortgages	2		2		—
Total consumer	$	10	$	11	$	24

During the years ended December 31, 2018, 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:



	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, 2018
Real estate, including construction	$	3	$	3	$	6	$	1	$	6
Business and corporate banking	58		37		95		18		109
Global banking	—		133		133		—		140
Other commercial	—		1		1		—		1
Total commercial	$	61	$	174	$	235	$	19	$	256
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 $181 million and $369 million at December 31, 2018 and 2017, respectively.

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



Year Ended December 31,	2018		2017		2016
	(in millions)
Average balance of impaired commercial loans:
Real estate, including construction	$	9	$	32	$	83
Business and corporate banking	200		304		344
Global banking	239		554		487
Other commercial	—		4		7
Total average balance of impaired commercial loans	$	448	$	894	$	921
Interest income recognized on impaired commercial loans:
Real estate, including construction	$	—	$	—	$	4
Business and corporate banking	15		9		9
Global banking	7		2		—
Total interest income recognized on impaired commercial loans	$	22	$	11	$	13

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, 2018
Real estate, including construction	$	452	$	93	$	4	$	549
Business and corporate banking	193		314		15		522
Global banking	262		277		—		539
Other commercial	—		1		—		1
Total commercial	$	907	$	685	$	19	$	1,611
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 December 31, 2018
Real estate, including construction	$	11,337	$	7	$	—	$	11,344
Business and corporate banking	12,995		70		1		13,066
Global banking	20,102		65		—		20,167
Other commercial	4,764		1		—		4,765
Total commercial	$	49,198	$	143	$	1	$	49,342
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 December 31, 2018
Real estate, including construction	$	6,769	$	4,575	$	11,344
Business and corporate banking	5,674		7,392		13,066
Global banking	14,764		5,403		20,167
Other commercial	3,990		775		4,765
Total commercial	$	31,197	$	18,145	$	49,342
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:



	December 31, 2018				December 31, 2017
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	347	1.99	%	$	425	2.46	%
Home equity mortgages⁽¹⁾⁽²⁾	30		3.05		39		3.27
Credit cards	20		1.96		12		1.66
Other consumer	8		2.62		10		2.48
Total consumer	$	405	2.05	%	$	486	2.48	%


⁽¹⁾	At December 31, 2018 and 2017, consumer mortgage loan delinquency includes $254 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 December 31, 2018 and 2017, consumer mortgage loans and loans held for sale include $125 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 December 31, 2018
Residential mortgages	$	17,042	$	341	$	—	$	17,383
Home equity mortgages	927		55		—		982
Credit cards	1,005		—		14		1,019
Other consumer	246		—		6		252
Total consumer	$	19,220	$	396	$	20	$	19,636
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 December 31, 2018 and 2017, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,208 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.