Loans

Loans consisted of the following:



	June 30, 2020		December 31, 2019
	(in millions)
Commercial loans:
Real estate, including construction	$	11,420	$	11,501
Business and corporate banking⁽¹⁾	17,345		13,479
Global banking⁽²⁾	18,668		17,915
Other commercial:
Affiliates⁽³⁾	1,565		2,343
Other	2,915		2,973
Total other commercial	4,480		5,316
Total commercial	51,913		48,211
Consumer loans:
Residential mortgages	18,281		17,801
Home equity mortgages	792		853
Credit cards	1,175		1,405
Other consumer⁽⁴⁾	307		283
Total consumer	20,555		20,342
Total loans	$	72,468	$	68,553


⁽¹⁾	Includes loans funded under the Paycheck Protection Program ("PPP") which totaled $1,197 million at June 30, 2020. PPP loans are fully guaranteed by the Small Business Administration, if certain conditions are met.


⁽²⁾	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.


⁽³⁾	See Note 14, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.


⁽⁴⁾	Includes certain student loans that we have elected to designate under the fair value option and are therefore carried at fair value, which totaled $35 million at June 30, 2020. See Note 10, "Fair Value Option," for further details.

Net deferred origination costs totaled $44 million and $79 million at June 30, 2020 and December 31, 2019, respectively. At June 30, 2020 and December 31, 2019, we had a net unamortized premium on our loans of $9 million and $3 million, respectively.

COVID-19 Loan Forbearance Initiatives We have implemented various loan modification payment deferral programs to provide borrowers relief from the economic impacts of COVID-19. In April 2020, federal banking regulators issued a revised interagency statement on loan modifications and the reporting for financial institutions working with customers affected by the COVID-19 pandemic ("Interagency Statement"). The Interagency Statement confirmed that COVID-19 related short-term loan modifications (e.g., payment deferrals of six months or less) provided to borrowers that were current (less than 30 days past due) at the time the relief was granted are not troubled debt restructurings ("TDR Loans"). We are applying the guidance in the Interagency Statement. Borrowers that were not current at the time the relief was granted are assessed for TDR Loan classification in accordance with our accounting policies.

In addition, under the Interagency Statement, for COVID-19 related loan modifications in the form of a payment deferral, the borrower’s past due status will not be impacted during the deferral period and, if the loan was accruing at the time the relief was granted, the loan will generally not be placed on nonaccrual status as long as the payment deferral is for six months or less. For consumer loans, when a borrower requests and is provided with extended relief in the form of a payment deferral of more than six months, the loan will generally be placed on nonaccrual status and assessed for TDR Loan classification. Any accrued interest recorded on these loans is generally not reversed against income and will remain recorded as accrued interest receivable. We have not modified our commercial loan nonaccrual policies as a result of this guidance.

Aging Analysis of Past Due Loans The following table summarizes the past due status of our loans at June 30, 2020 and December 31, 2019. 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. For COVID-19 related loan modifications in the form of a payment deferral, the borrower’s past due status will not be impacted during the deferral period.



	Past Due				Total Past Due 30 Days or More
	30 - 89 Days		90+ Days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
At June 30, 2020
Commercial loans:
Real estate, including construction	$	11	$	—	$	11	$	11,409	$	11,420
Business and corporate banking	20		17		37		17,308		17,345
Global banking	—		—		—		18,668		18,668
Other commercial	32		—		32		4,448		4,480
Total commercial	63		17		80		51,833		51,913
Consumer loans:
Residential mortgages	387		315		702		17,579		18,281
Home equity mortgages	13		24		37		755		792
Credit cards	20		27		47		1,128		1,175
Other consumer	6		6		12		295		307
Total consumer	426		372		798		19,757		20,555
Total loans	$	489	$	389	$	878	$	71,590	$	72,468
At December 31, 2019
Commercial loans:
Real estate, including construction	$	7	$	1	$	8	$	11,493	$	11,501
Business and corporate banking	60		35		95		13,384		13,479
Global banking	—		—		—		17,915		17,915
Other commercial	22		—		22		5,294		5,316
Total commercial	89		36		125		48,086		48,211
Consumer loans:
Residential mortgages	342		272		614		17,187		17,801
Home equity mortgages	10		24		34		819		853
Credit cards	24		24		48		1,357		1,405
Other consumer	5		5		10		273		283
Total consumer	381		325		706		19,636		20,342
Total loans	$	470	$	361	$	831	$	67,722	$	68,553


⁽¹⁾	Loans less than 30 days past due are presented as current.

Nonperforming Loans Nonperforming loans, including nonaccrual loans and accruing loans contractually 90 days or more past due, consisted of the following:



	Nonaccrual Loans		Accruing Loans Contractually Past Due 90 Days or More		Nonaccrual Loans With No Allowance For Credit Losses
	(in millions)
At June 30, 2020
Commercial:
Real estate, including construction	$	41	$	—	$	1
Business and corporate banking	229		3		11
Global banking	383		—		132
Total commercial	653		3		144
Consumer:
Residential mortgages^(1)(2)(3)	428		—		177
Home equity mortgages⁽¹⁾⁽²⁾	38		—		31
Credit cards	—		28		—
Other consumer	—		3		—
Total consumer	466		31		208
Total nonperforming loans	$	1,119	$	34	$	352
At December 31, 2019
Commercial:
Real estate, including construction	$	6	$	—	$	3
Business and corporate banking	82		1		19
Global banking	149		—		117
Total commercial	237		1		139
Consumer:
Residential mortgages^(1)(2)(3)	381		—		257
Home equity mortgages⁽¹⁾⁽²⁾	46		—		32
Credit cards	—		24		—
Other consumer	—		5		—
Total consumer	427		29		289
Total nonperforming loans	$	664	$	30	$	428

⁽¹⁾

At June 30, 2020 and December 31, 2019, nonaccrual consumer mortgage loans include $293 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. The decrease in nonaccrual consumer mortgage loans with no allowance for credit losses at June 30, 2020 reflects the impact of adopting new accounting guidance which requires expected recoveries related to subsequent increases in the fair value of collateral for collateral-dependent loans to be recognized in the allowance for credit losses beginning January 1, 2020. See Note 21, "New Accounting Pronouncements," for additional discussion.


⁽²⁾	Nonaccrual consumer mortgage loans 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,
	2020			2019		2020		2019
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	11		$	7	$	19	$	16
Interest income that was recorded on nonaccrual loans and included in interest income during the period	(1		)	3		6		6

Collateral-Dependent Loans Loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty are considered to be collateral-dependent loans. Collateral can have a significant financial effect in mitigating our exposure to credit risk and, where there is sufficient collateral, an allowance for expected credit losses is not recognized or is minimal.

Collateral-dependent residential mortgage loans are carried at the lower of amortized cost or fair value of the collateral less costs to sell, with any excess in the carrying amount of the loan generally charged off at the time foreclosure is initiated or when settlement is reached with the borrower, but not to exceed the end of the month in which the account becomes six months contractually delinquent. Collateral values are based on broker price opinions or appraisals which are updated at least every 180 days less estimated costs to sell. During the quarterly period between updates, real estate price trends are reviewed on a geographic basis and incorporated as necessary. At June 30, 2020 and December 31, 2019, we had collateral-dependent residential mortgage loans totaling $802 million and $803 million, respectively.

For collateral-dependent commercial loans, the allowance for expected credit losses is individually assessed based on the fair value of the collateral. Various types of collateral are used, including real estate, inventory, equipment, accounts receivable, securities and cash, among others. For commercial real estate loans, collateral values are generally based on appraisals which are updated based on management judgment under the specific circumstances on a case-by-case basis. In situations where an appraisal is not used, borrower-specific factors such as operating results, cash flows and debt service ratios are reviewed along with relevant market data of comparable properties in order to create a 10-year cash flow model to be discounted at appropriate rates to present value. The collateral value for securities is based on their quoted market prices or broker quotes. The collateral value for other financial assets is generally based on appraisals or is estimated using a discounted cash flow analysis. Commercial loan balances are charged off at the time all or a portion of the balance is deemed uncollectible. At June 30, 2020 and December 31, 2019, we had collateral-dependent commercial loans totaling $593 million and $227 million, respectively.

Troubled debt restructurings TDR Loans, including beginning in 2020 loans which we reasonably expect to become 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. 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 the loan is upgraded, it is possible the loan will no longer be reported as a TDR Loan at the earliest one year after the restructure had been anticipated. During the three and six months ended June 30, 2020, there were no commercial loans removed from TDR Loan classification. During the second quarter of 2019, a $12 million commercial loan met this criteria and was removed from TDR Loan classification.

As previously discussed, we have implemented various loan modification payment deferral programs to provide borrowers relief from the economic impacts of COVID-19. Substantially all of the loans under these programs are not classified as TDR Loans at June 30, 2020 due to their short-term nature as discussed under the Interagency Statement.

The following table summarizes our TDR Loans at June 30, 2020 and December 31, 2019:



	June 30, 2020		December 31, 2019
	(in millions)
Commercial loans:
Business and corporate banking	$	71	$	36
Global banking	74		68
Total commercial⁽¹⁾	145		104
Consumer loans:
Residential mortgages⁽²⁾	549		580
Home equity mortgages⁽²⁾	31		32
Credit cards	5		4
Total consumer	585		616
Total TDR Loans⁽³⁾	$	730	$	720


⁽¹⁾	Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled $49 million and $222 million at June 30, 2020 and December 31, 2019, respectively.


⁽²⁾	At June 30, 2020 and December 31, 2019, the carrying value of consumer mortgage TDR Loans includes $501 million and $557 million, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽³⁾	At June 30, 2020 and December 31, 2019, the carrying value of TDR Loans includes $357 million and $230 million, respectively, of loans which are classified as nonaccrual.

The following table presents information about loans which were modified during the three and six months ended June 30, 2020 and 2019 and as a result of this action became classified as TDR Loans:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Commercial loans:
Business and corporate banking	$	4	$	—	$	4	$	—
Global banking	32		—		44		—
Total commercial	36		—		48		—
Consumer loans:
Residential mortgages	3		—		7		1
Home equity mortgages	1		—		2		—
Credit cards	1		1		2		2
Total consumer	5		1		11		3
Total	$	41	$	1	$	59	$	3

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and six months ended June 30, 2020 was 1.07 percent and 2.65 percent, respectively, compared with 3.88 percent and 1.45 percent, during the three and six months ended June 30, 2019, 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 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, 2020 and 2019:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Consumer loans:
Residential mortgages	$	—	$	1	$	1	$	3
Total consumer	$	—	$	1	$	1	$	3

During the three and six months ended June 30, 2020 and 2019, 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.

Commercial Loan Credit Quality Indicators The following credit quality indicators are utilized to monitor 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 facility grades are deemed to be criticized:

Special Mention - generally includes loans that are protected by collateral and/or the credit worthiness of the customer, but are potentially weak based upon economic or market circumstances which, if not checked or corrected, could weaken our credit position at some future date.

Substandard - includes loans that are inadequately protected by the underlying collateral and/or general credit worthiness of the customer. These loans present a distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful - includes loans that have all the weaknesses exhibited by substandard loans, with the added characteristic that the weaknesses make collection or liquidation in full of the recorded loan highly improbable. However, although the possibility of loss is extremely high, certain factors exist which may strengthen the credit at some future date, and therefore the decision to charge-off the loan is deferred. Loans graded as doubtful are required to be placed in nonaccrual status.

The following table summarizes our criticized commercial loans, including a disaggregation of the loans by year of origination as of June 30, 2020:



	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Jun. 30, 2020		Total at Dec. 31, 2019
	(in millions)
Real estate, including construction:
Special mention	$	—	$	146	$	244	$	189	$	45	$	365	$	—	$	—	$	989	$	516
Substandard	—		130		—		—		—		52		—		—		182		203
Doubtful	—		—		—		—		—		34		—		—		34		—
Total real estate, including construction	—		276		244		189		45		451		—		—		1,205		719
Business and corporate banking:
Special mention	—		23		106		16		38		779		445		5		1,412		467
Substandard	—		—		38		61		2		246		325		2		674		386
Doubtful	—		16		—		—		—		37		115		—		168		23
Total business and corporate banking	—		39		144		77		40		1,062		885		7		2,254		876
Global banking:
Special mention	—		—		49		—		—		—		474		—		523		184
Substandard	—		—		—		—		—		264		166		—		430		196
Doubtful	—		—		—		—		—		74		143		—		217		15
Total global banking	—		—		49		—		—		338		783		—		1,170		395
Other commercial:
Special mention	—		—		—		—		—		126		—		—		126		11
Substandard	—		—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—		—
Total other commercial	—		—		—		—		—		126		—		—		126		11
Total commercial:
Special mention	—		169		399		205		83		1,270		919		5		3,050		1,178
Substandard	—		130		38		61		2		562		491		2		1,286		785
Doubtful	—		16		—		—		—		145		258		—		419		38
Total commercial	$	—	$	315	$	437	$	266	$	85	$	1,977	$	1,668	$	7	$	4,755	$	2,001

Nonperforming The following table summarizes the nonperforming status of our commercial loan portfolio, including a disaggregation of the loans by year of origination as of June 30, 2020:



	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Jun. 30, 2020		Total at Dec. 31, 2019
	(in millions)
Real estate, including construction:
Performing loans	$	538	$	3,865	$	3,154	$	1,384	$	268	$	2,061	$	84	$	25	$	11,379	$	11,495
Nonaccrual loans	—		—		—		—		1		40		—		—		41		6
Accruing loans contractually past due 90 days or more	—		—		—		—		—		—		—		—		—		—
Total real estate, including construction	538		3,865		3,154		1,384		269		2,101		84		25		11,420		11,501
Business and corporate banking:
Performing loans	1,265		837		445		301		172		4,273		9,431		389		17,113		13,396
Nonaccrual loans	—		15		13		52		—		20		126		3		229		82
Accruing loans contractually past due 90 days or more	—		—		—		—		—		—		3		—		3		1
Total business and corporate banking	1,265		852		458		353		172		4,293		9,560		392		17,345		13,479
Global banking:
Performing loans	379		1,082		367		265		108		6,754		9,330		—		18,285		17,766
Nonaccrual loans	—		—		—		—		—		141		242		—		383		149
Accruing loans contractually past due 90 days or more	—		—		—		—		—		—		—		—		—		—
Total global banking	379		1,082		367		265		108		6,895		9,572		—		18,668		17,915
Other commercial:
Performing loans	91		424		275		220		110		660		2,700		—		4,480		5,316
Nonaccrual loans	—		—		—		—		—		—		—		—		—		—
Accruing loans contractually past due 90 days or more	—		—		—		—		—		—		—		—		—		—
Total other commercial	91		424		275		220		110		660		2,700		—		4,480		5,316
Total commercial:
Performing loans	2,273		6,208		4,241		2,170		658		13,748		21,545		414		51,257		47,973
Nonaccrual loans	—		15		13		52		1		201		368		3		653		237
Accruing loans contractually past due 90 days or more	—		—		—		—		—		—		3		—		3		1
Total commercial	$	2,273	$	6,223	$	4,254	$	2,222	$	659	$	13,949	$	21,916	$	417	$	51,913	$	48,211

Credit risk profile Commercial loans are assigned a credit rating based on the estimated probability of default. Investment grade includes loans with credit ratings of at least BBB- or above or the equivalent based on our internal credit rating system. The following table shows the credit risk profile of our commercial loan portfolio, including a disaggregation of the loans by year of origination as of June 30, 2020:



	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total at Jun. 30, 2020		Total at Dec. 31, 2019
	(in millions)
Real estate, including construction:
Investment grade	$	357	$	1,511	$	1,549	$	527	$	180	$	1,146	$	9	$	3	$	5,282	$	6,332
Non-investment grade	181		2,354		1,605		857		89		955		75		22		6,138		5,169
Total real estate, including construction	538		3,865		3,154		1,384		269		2,101		84		25		11,420		11,501
Business and corporate banking:
Investment grade	354		355		73		46		33		1,846		3,301		104		6,112		6,029
Non-investment grade	911		497		385		307		139		2,447		6,259		288		11,233		7,450
Total business and corporate banking	1,265		852		458		353		172		4,293		9,560		392		17,345		13,479
Global banking:
Investment grade	277		1,003		136		250		26		4,247		5,770		—		11,709		12,981
Non-investment grade	102		79		231		15		82		2,648		3,802		—		6,959		4,934
Total global banking	379		1,082		367		265		108		6,895		9,572		—		18,668		17,915
Other commercial:
Investment grade	83		97		127		207		105		545		2,377		—		3,541		4,649
Non-investment grade	8		327		148		13		5		115		323		—		939		667
Total other commercial	91		424		275		220		110		660		2,700		—		4,480		5,316
Total commercial:
Investment grade	1,071		2,966		1,885		1,030		344		7,784		11,457		107		26,644		29,991
Non-investment grade	1,202		3,257		2,369		1,192		315		6,165		10,459		310		25,269		18,220
Total commercial	$	2,273	$	6,223	$	4,254	$	2,222	$	659	$	13,949	$	21,916	$	417	$	51,913	$	48,211

Consumer Loan Credit Quality Indicators The following credit quality indicators are utilized to monitor our consumer loan portfolio:

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency for our consumer loan portfolio, including a disaggregation of the loans by year of origination as of June 30, 2020:



	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total at Jun. 30, 2020		Total at Dec. 31, 2019
	(in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	23	$	5	$	11	$	28	$	17	$	329	$	—	$	413	$	350
Home equity mortgages⁽¹⁾⁽²⁾	—		—		—		—		—		27		—		27		25
Credit cards													38		38		34
Other consumer	1		1		—		—		—		3		3		8		7
Total consumer	$	24	$	6	$	11	$	28	$	17	$	359	$	41	$	486	$	416


⁽¹⁾	At June 30, 2020 and December 31, 2019, consumer mortgage loan delinquency includes $243 million and $256 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽²⁾	At June 30, 2020 and December 31, 2019, consumer mortgage loans include $122 million and $142 million, respectively, of loans that were in the process of foreclosure.

Nonperforming The following table summarizes the nonperforming status of our consumer loan portfolio, including a disaggregation of the loans by year of origination as of June 30, 2020:



	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total at Jun. 30, 2020		Total at Dec. 31, 2019
	(in millions)
Residential mortgages:
Performing loans	$	2,293	$	2,780	$	1,670	$	1,912	$	2,219	$	6,979	$	—	$	17,853	$	17,420
Nonaccrual loans	11		10		9		21		20		357		—		428		381
Total residential mortgages	2,304		2,790		1,679		1,933		2,239		7,336		—		18,281		17,801
Home equity mortgages:
Performing loans	27		54		42		39		50		542		—		754		807
Nonaccrual loans	—		—		1		—		—		37		—		38		46
Total home equity mortgages	27		54		43		39		50		579		—		792		853
Credit cards:
Performing loans	—		—		—		—		—		—		1,147		1,147		1,381
Accruing loans contractually past due 90 days or more	—		—		—		—		—		—		28		28		24
Total credit cards	—		—		—		—		—		—		1,175		1,175		1,405
Other consumer:
Performing loans	58		57		1		2		3		119		64		304		278
Accruing loans contractually past due 90 days or more	—		1		—		—		—		—		2		3		5
Total other consumer	58		58		1		2		3		119		66		307		283
Total consumer:
Performing loans	2,378		2,891		1,713		1,953		2,272		7,640		1,211		20,058		19,886
Nonaccrual loans	11		10		10		21		20		394		—		466		427
Accruing loans contractually past due 90 days or more	—		1		—		—		—		—		30		31		29
Total consumer	$	2,389	$	2,902	$	1,723	$	1,974	$	2,292	$	8,034	$	1,241	$	20,555	$	20,342

Troubled debt restructurings The following table summarizes TDR Loans in our consumer loan portfolio, including a disaggregation of the loans by year of origination as of June 30, 2020:



	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total at Jun. 30, 2020		Total at Dec. 31, 2019
	(in millions)
Residential mortgages	$	—	$	—	$	—	$	1	$	1	$	547	$	—	$	549	$	580
Home equity mortgages	—		—		—		—		—		31		—		31		32
Credit cards	—		—		—		—		—		—		5		5		4
Total consumer	$	—	$	—	$	—	$	1	$	1	$	578	$	5	$	585	$	616

Concentration of Credit Risk At June 30, 2020 and December 31, 2019, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,448 million and $3,362 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.