Loans

Loans consisted of the following:



	June 30, 2019		December 31, 2018
	(in millions)
Commercial loans:
Real estate, including construction	$	11,704	$	11,344
Business and corporate banking	14,310		13,066
Global banking⁽¹⁾	20,896		20,167
Other commercial⁽²⁾	5,835		4,765
Total commercial	52,745		49,342
Consumer loans:
Residential mortgages	17,421		17,383
Home equity mortgages	911		982
Credit cards	1,129		1,019
Other consumer	272		252
Total consumer	19,733		19,636
Total loans	$	72,478	$	68,978


⁽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 $3,096 million and $2,274 million at June 30, 2019 and December 31, 2018, respectively. See Note 14, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

Net deferred origination costs totaled $77 million at both June 30, 2019 and December 31, 2018. At June 30, 2019 and December 31, 2018, we had a net unamortized premium on our loans of $1 million and $11 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 June 30, 2019 and December 31, 2018. 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 June 30, 2019	30 - 89 Days		90+ Days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Real estate, including construction	$	10	$	1	$	11	$	11,693	$	11,704
Business and corporate banking	10		19		29		14,281		14,310
Global banking	—		—		—		20,896		20,896
Other commercial	—		—		—		5,835		5,835
Total commercial	20		20		40		52,705		52,745
Consumer loans:
Residential mortgages	341		257		598		16,823		17,421
Home equity mortgages	12		25		37		874		911
Credit cards	16		18		34		1,095		1,129
Other consumer	6		4		10		262		272
Total consumer	375		304		679		19,054		19,733
Total loans	$	395	$	324	$	719	$	71,759	$	72,478



	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


⁽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:



	June 30, 2019		December 31, 2018
	(in millions)
Nonaccrual loans:
Commercial:
Real estate, including construction	$	7	$	7
Business and corporate banking	90		70
Global banking	53		65
Other commercial	—		1
Commercial nonaccrual loans held for sale	22		—
Total commercial	172		143
Consumer:
Residential mortgages^(1)(2)(3)	370		341
Home equity mortgages⁽¹⁾⁽²⁾	48		55
Consumer nonaccrual loans held for sale	1		1
Total consumer	419		397
Total nonaccruing loans	591		540
Accruing loans contractually past due 90 days or more:
Commercial:
Business and corporate banking	1		1
Total commercial	1		1
Consumer:
Credit cards	18		14
Other consumer	4		6
Total consumer	22		20
Total accruing loans contractually past due 90 days or more	23		21
Total nonperforming loans	$	614	$	561


⁽¹⁾	At June 30, 2019 and December 31, 2018, nonaccrual consumer mortgage loans held for investment include $267 million and $289 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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	7	$	13	$	16	$	27
Interest income that was recorded on nonaccrual loans and included in interest income during the period	3		6		6		15

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 second quarter of 2019, a $12 million commercial loan met this criterion and was removed from TDR Loan classification. There were no loans removed from TDR Loan classification during the prior year periods.

The following table presents information about loans which were modified during the three and six months ended June 30, 2019 and 2018 and as a result of this action became classified as TDR Loans:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in millions)

Residential mortgages	$	—	$	12	$	1	$	17
Home equity mortgages	—		1		—		3
Credit cards	1		1		2		2
Total consumer	$	1	$	14	$	3	$	22

During the three and six months ended June 30, 2019 and 2018, there were no commercial loans which were modified and as a result of this action became classified as TDR Loans.

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and six months ended June 30, 2019 was 3.88 percent and 1.45 percent, respectively, compared with 1.58 percent and 2.02 percent during the three and six months ended June 30, 2018, respectively.

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



	June 30, 2019				December 31, 2018
	Carrying Value		Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance
	(in millions)
TDR Loans:⁽¹⁾⁽²⁾
Commercial loans:
Business and corporate banking	$	59	$	74	$	68	$	86
Global banking	84		92		113		119
Total commercial⁽³⁾	143		166		181		205
Consumer loans:
Residential mortgages⁽⁴⁾	608		694		640		730
Home equity mortgages⁽⁴⁾	33		62		35		65
Credit cards	4		4		3		4
Total consumer	645		760		678		799
Total TDR Loans⁽⁵⁾	$	788	$	926	$	859	$	1,004
Allowance for credit losses for TDR Loans:⁽⁶⁾
Commercial loans:
Business and corporate banking	$	12			$	12
Global banking	—				—
Total commercial	12				12
Consumer loans:
Residential mortgages	3				3
Home equity mortgages	—				1
Credit cards	1				1
Total consumer	4				5
Total allowance for credit losses for TDR Loans	$	16			$	17


⁽¹⁾	TDR Loans are considered to be impaired loans. For commercial loans, impaired loans include other loans in addition to TDR Loans which totaled $63 million and $54 million at June 30, 2019 and December 31, 2018, respectively.


⁽²⁾	The carrying value of TDR Loans includes basis adjustments on the loans, such as partial charge-offs.


⁽³⁾	Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled $226 million and $151 million at June 30, 2019 and December 31, 2018, respectively.


⁽⁴⁾	At June 30, 2019 and December 31, 2018, the carrying value of consumer mortgage TDR Loans held for investment includes $584 million and $615 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 June 30, 2019 and December 31, 2018, the carrying value of TDR Loans includes $256 million and $286 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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Business and corporate banking	$	65	$	137	$	66	$	156
Global banking	82		110		92		132
Total commercial	147		247		158		288
Consumer loans:
Residential mortgages	615		664		621		670
Home equity mortgages	33		35		34		34
Credit cards	4		4		4		4
Total consumer	652		703		659		708
Total average balance of TDR Loans	$	799	$	950	$	817	$	996
Interest income recognized on TDR Loans:
Commercial loans:
Business and corporate banking	$	1	$	—	$	2	$	4
Global banking	—		1		1		2
Total commercial	1		1		3		6
Consumer loans:
Residential mortgages	6		7		13		14
Home equity mortgages	1		1		1		1
Total consumer	7		8		14		15
Total interest income recognized on TDR Loans	$	8	$	9	$	17	$	21

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 six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in millions)
Consumer loans:
Residential mortgages	$	1	$	—	$	3	$	2
Home equity mortgages	—		1		—		2
Total consumer	$	1	$	1	$	3	$	4

During the three and six months ended June 30, 2019 and 2018, 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 June 30, 2019
Real estate, including construction	$	3	$	1	$	4	$	2	$	4
Business and corporate banking	46		55		101		21		110
Global banking	—		101		101		—		111
Total commercial	$	49	$	157	$	206	$	23	$	225
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


⁽¹⁾	Reflects the carrying value of impaired commercial loans and includes basis adjustments on the loans, such as partial charge-offs.


⁽²⁾	Includes impaired commercial loans that are also considered TDR Loans which totaled $143 million and $181 million at June 30, 2019 and December 31, 2018, respectively.

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in millions)
Average balance of impaired commercial loans:
Real estate, including construction	$	4	$	12	$	5	$	11
Business and corporate banking	105		272		101		264
Global banking	100		248		111		311
Total average balance of impaired commercial loans	$	209	$	532	$	217	$	586
Interest income recognized on impaired commercial loans:
Business and corporate banking	$	2	$	1	$	3	$	6
Global banking	—		1		1		2
Total interest income recognized on impaired commercial loans	$	2	$	2	$	4	$	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 June 30, 2019
Real estate, including construction	$	784	$	151	$	1	$	936
Business and corporate banking	282		441		27		750
Global banking	243		276		—		519
Total commercial	$	1,309	$	868	$	28	$	2,205
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

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 June 30, 2019
Real estate, including construction	$	11,697	$	7	$	—	$	11,704
Business and corporate banking	14,219		90		1		14,310
Global banking	20,843		53		—		20,896
Other commercial	5,835		—		—		5,835
Total commercial	$	52,594	$	150	$	1	$	52,745
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

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 June 30, 2019
Real estate, including construction	$	6,807	$	4,897	$	11,704
Business and corporate banking	5,969		8,341		14,310
Global banking	14,860		6,036		20,896
Other commercial	5,158		677		5,835
Total commercial	$	32,794	$	19,951	$	52,745
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


⁽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:



	June 30, 2019				December 31, 2018
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	319	1.83	%	$	347	1.99	%
Home equity mortgages⁽¹⁾⁽²⁾	27		2.96		30		3.05
Credit cards	25		2.21		20		1.96
Other consumer	6		2.21		8		2.62
Total consumer	$	377	1.91	%	$	405	2.05	%


⁽¹⁾	At June 30, 2019 and December 31, 2018, consumer mortgage loan delinquency includes $239 million and $254 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 June 30, 2019 and December 31, 2018, consumer mortgage loans and loans held for sale include $146 million and $125 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 June 30, 2019
Residential mortgages	$	17,051	$	370	$	—	$	17,421
Home equity mortgages	863		48		—		911
Credit cards	1,111		—		18		1,129
Other consumer	268		—		4		272
Total consumer	$	19,293	$	418	$	22	$	19,733
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

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

Concentration of Credit Risk At June 30, 2019 and December 31, 2018, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,254 million and $3,208 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.