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Loans
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
Loans Loans
Loans consisted of the following:
September 30, 2020December 31, 2019
 (in millions)
Commercial loans:
Real estate, including construction$11,283 $11,501 
Business and corporate banking(1)
15,164 13,479 
Global banking(2)
15,505 17,915 
Other commercial:
Affiliates(3)
1,180 2,343 
Other2,651 2,973 
Total other commercial3,831 5,316 
Total commercial45,783 48,211 
Consumer loans:
Residential mortgages18,439 17,801 
Home equity mortgages765 853 
Credit cards1,107 1,405 
Other consumer(4)
315 283 
Total consumer20,626 20,342 
Total loans$66,409 $68,553 
(1)Includes loans funded under the Paycheck Protection Program ("PPP") which totaled $1,186 million at September 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 $34 million at September 30, 2020. See Note 10, "Fair Value Option," for further details.
Net deferred origination costs totaled $46 million and $79 million at September 30, 2020 and December 31, 2019, respectively. At September 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 programs to provide borrowers relief from the economic impacts of the COVID-19 pandemic. In March 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law, which provides financial institutions with the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings ("TDR Loans") from March 1, 2020 until the earlier of December 31, 2020 or 60 days following the termination of the presidentially declared national emergency. During the third quarter of 2020, we elected to adopt the TDR Loan guidance in the CARES Act and are not applying TDR Loan classification to COVID-19 related loan modifications in the form of a long-term payment deferral (for commercial loans all payment modifications, including all payment deferrals) granted to borrowers that were current (less than 30 days past due) as of December 31, 2019 which otherwise may have been reported as TDR Loans.
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 TDR Loans. Borrowers that do not meet the criteria in the CARES Act or the Interagency Statement 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 mortgage 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, if the loan does not meet the criteria in the CARES Act, 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 September 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 DueTotal Past Due 30 Days or More  
30 - 89 Days90+ Days
Current(1)
Total Loans
 (in millions)
At September 30, 2020
Commercial loans:
Real estate, including construction$47 $ $47 $11,236 $11,283 
Business and corporate banking
21 50 71 15,093 15,164 
Global banking 7 7 15,498 15,505 
Other commercial70  70 3,761 3,831 
Total commercial138 57 195 45,588 45,783 
Consumer loans:
Residential mortgages
364 349 713 17,726 18,439 
Home equity mortgages10 28 38 727 765 
Credit cards16 19 35 1,072 1,107 
Other consumer6 5 11 304 315 
Total consumer396 401 797 19,829 20,626 
Total loans$534 $458 $992 $65,417 $66,409 
At December 31, 2019
Commercial loans:
Real estate, including construction$$$$11,493 $11,501 
Business and corporate banking
60 35 95 13,384 13,479 
Global banking— — — 17,915 17,915 
Other commercial22 — 22 5,294 5,316 
Total commercial89 36 125 48,086 48,211 
Consumer loans:
Residential mortgages
342 272 614 17,187 17,801 
Home equity mortgages10 24 34 819 853 
Credit cards24 24 48 1,357 1,405 
Other consumer10 273 283 
Total consumer381 325 706 19,636 20,342 
Total loans$470 $361 $831 $67,722 $68,553 
(1)      Loans less than 30 days past due are presented as current.
Nonperforming Loans  Nonperforming loans, including nonaccrual loans and accruing loans contractually 90 days or more past due, consisted of the following:
Nonaccrual LoansAccruing Loans Contractually Past Due 90 Days or MoreNonaccrual Loans With No Allowance For Credit Losses
 (in millions)
At September 30, 2020
Commercial:
Real estate, including construction$13 $ $2 
Business and corporate banking225 1 10 
Global banking363  115 
Total commercial601 1 127 
Consumer:
Residential mortgages(1)(2)(3)
553  207 
Home equity mortgages(1)(2)
42  31 
Credit cards 19  
Other consumer 2  
Total consumer595 21 238 
Total nonperforming loans$1,196 $22 $365 
At December 31, 2019
Commercial:
Real estate, including construction$$— $
Business and corporate banking82 19 
Global banking149 — 117 
Total commercial237 139 
Consumer:
Residential mortgages(1)(2)(3)
381 — 257 
Home equity mortgages(1)(2)
46 — 32 
Credit cards— 24 — 
Other consumer— — 
Total consumer427 29 289 
Total nonperforming loans$664 $30 $428 
(1)    At September 30, 2020 and December 31, 2019, nonaccrual consumer mortgage loans include $324 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 September 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. At September 30, 2020, nonaccrual consumer mortgage loans also include $24 million of loans under COVID-19 related payment deferral programs where the borrowers were provided with extended payment deferral relief of more than six months and, as a result, have been placed on nonaccrual status.
(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,
2020201920202019
(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 $10 $29 $26 
Interest income that was recorded on nonaccrual loans and included in interest income during the period2 8 10 
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 September 30, 2020 and December 31, 2019, we had collateral-dependent residential mortgage loans totaling $805 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 September 30, 2020 and December 31, 2019, we had collateral-dependent commercial loans totaling $480 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 nine months ended September 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 September 30, 2020 due to our election to suspend TDR Loan classification under the CARES Act or their short-term nature as discussed under the Interagency Statement.
The following table summarizes our TDR Loans at September 30, 2020 and December 31, 2019:
September 30, 2020December 31, 2019
 (in millions)
Commercial loans:
Business and corporate banking$120 $36 
Global banking35 68 
Total commercial(1)(2)
155 104 
Consumer loans:
Residential mortgages(3)(4)
553 580 
Home equity mortgages(3)(4)
31 32 
Credit cards5 
Total consumer589 616 
Total TDR Loans(5)
$744 $720 
(1)Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled $99 million and $222 million at September 30, 2020 and December 31, 2019, respectively.
(2)Not included in the table at September 30, 2020 are $1,103 million of commercial loans that were exempted from TDR assessment due to our CARES Act election.
(3)At September 30, 2020 and December 31, 2019, the carrying value of consumer mortgage TDR Loans includes $490 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.
(4)Not included in the table at September 30, 2020 are $24 million of consumer mortgage loans under COVID-19 related payment deferral programs where the borrowers were provided with extended payment deferral relief of more than six months that were exempted from TDR assessment due to our CARES Act election.
(5)At September 30, 2020 and December 31, 2019, the carrying value of TDR Loans includes $359 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 nine months ended September 30, 2020 and 2019 and as a result of this action became classified as TDR Loans:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)
Commercial loans:
Business and corporate banking$41 $— $45 $— 
Global banking — 44 — 
Total commercial41 — 89 — 
Consumer loans:
Residential mortgages20 27 
Home equity mortgages — 2 — 
Credit cards1 3 
Total consumer21 32 
Total$62 $$121 $
The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and nine months ended September 30, 2020 was 1.80 percent and 2.14 percent, respectively, compared with 3.12 percent and 2.53 percent, during the three and nine months ended September 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 nine months ended September 30, 2020 and 2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)
Consumer loans:
Residential mortgages$2 $— $3 $
Total consumer$2 $— $3 $
During the three and nine months ended September 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 September 30, 2020 and in total as of December 31, 2019:
20202019201820172016PriorRevolving
Loans
Revolving Loans Converted to Term LoansTotal at Sep. 30, 2020Total at Dec. 31, 2019
 (in millions)
Real estate, including construction:
Special mention$ $290 $244 $81 $45 $312 $ $ $972 $516 
Substandard 130  122  52   304 203 
Doubtful     25   25 — 
Total real estate, including construction 420 244 203 45 389   1,301 719 
Business and corporate banking:
Special mention1 91 39 13 43 489 736 59 1,471 467 
Substandard 71 25 23 1 124 442 1 687 386 
Doubtful     31 125  156 23 
Total business and corporate banking1 162 64 36 44 644 1,303 60 2,314 876 
Global banking:
Special mention     128 486  614 184 
Substandard  62   1 79  142 196 
Doubtful     137 101  238 15 
Total global banking  62   266 666  994 395 
Other commercial:
Special mention     55 40  95 11 
Substandard     70   70 — 
Doubtful         — 
Total other commercial     125 40  165 11 
Total commercial:
Special mention1 381 283 94 88 984 1,262 59 3,152 1,178 
Substandard 201 87 145 1 247 521 1 1,203 785 
Doubtful     193 226  419 38 
Total commercial$1 $582 $370 $239 $89 $1,424 $2,009 $60 $4,774 $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 September 30, 2020 and in total as of December 31, 2019:
20202019201820172016PriorRevolving
Loans
Revolving Loans Converted to Term LoansTotal at Sep. 30, 2020Total at Dec. 31, 2019
 (in millions)
Real estate, including construction:
Performing loans$549 $3,909 $3,114 $1,413 $267 $1,915 $81 $22 $11,270 $11,495 
Nonaccrual loans    1 12   13 
Accruing loans contractually past due 90 days or more         — 
Total real estate, including construction549 3,909 3,114 1,413 268 1,927 81 22 11,283 11,501 
Business and corporate banking:
Performing loans1,182 647 252 295 166 4,324 7,721 351 14,938 13,396 
Nonaccrual loans 15 13 59  18 119 1 225 82 
Accruing loans contractually past due 90 days or more      1  1 
Total business and corporate banking1,182 662 265 354 166 4,342 7,841 352 15,164 13,479 
Global banking:
Performing loans283 724 203 100 105 6,681 7,046  15,142 17,766 
Nonaccrual loans  4 131   228  363 149 
Accruing loans contractually past due 90 days or more         — 
Total global banking283 724 207 231 105 6,681 7,274  15,505 17,915 
Other commercial:
Performing loans52 424 241 112 118 700 2,184  3,831 5,316 
Nonaccrual loans         — 
Accruing loans contractually past due 90 days or more         — 
Total other commercial52 424 241 112 118 700 2,184  3,831 5,316 
Total commercial:
Performing loans2,066 5,704 3,810 1,920 656 13,620 17,032 373 45,181 47,973 
Nonaccrual loans 15 17 190 1 30 347 1 601 237 
Accruing loans contractually past due 90 days or more      1  1 
Total commercial$2,066 $5,719 $3,827 $2,110 $657 $13,650 $17,380 $374 $45,783 $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 September 30, 2020 and in total as of December 31, 2019:
20202019201820172016PriorRevolving
Loans
Revolving Loans Converted to Term LoansTotal at Sep. 30, 2020Total at Dec. 31, 2019
 (in millions)
Real estate, including construction:
Investment grade$357 $1,368 $1,216 $529 $180 $832 $6 $ $4,488 $6,332 
Non-investment grade192 2,541 1,898 884 88 1,095 75 22 6,795 5,169 
Total real estate, including construction549 3,909 3,114 1,413 268 1,927 81 22 11,283 11,501 
Business and corporate banking:
Investment grade346 267 44 49 27 1,795 2,415 73 5,016 6,029 
Non-investment grade836 395 221 305 139 2,547 5,426 279 10,148 7,450 
Total business and corporate banking1,182 662 265 354 166 4,342 7,841 352 15,164 13,479 
Global banking:
Investment grade218 691 49 231 29 4,769 5,228  11,215 12,981 
Non-investment grade65 33 158  76 1,912 2,046  4,290 4,934 
Total global banking283 724 207 231 105 6,681 7,274  15,505 17,915 
Other commercial:
Investment grade45 142 126 105 110 603 1,821  2,952 4,649 
Non-investment grade7 282 115 7 8 97 363  879 667 
Total other commercial52 424 241 112 118 700 2,184  3,831 5,316 
Total commercial:
Investment grade966 2,468 1,435 914 346 7,999 9,470 73 23,671 29,991 
Non-investment grade1,100 3,251 2,392 1,196 311 5,651 7,910 301 22,112 18,220 
Total commercial$2,066 $5,719 $3,827 $2,110 $657 $13,650 $17,380 $374 $45,783 $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 September 30, 2020 and in total as of December 31, 2019:
20202019201820172016PriorRevolving
Loans
Total at Sep. 30, 2020Total at Dec. 31, 2019
 (in millions)
Residential mortgages(1)(2)
$7 $20 $21 $24 $25 $334 $ $431 $350 
Home equity mortgages(1)(2)
     31  31 25 
Credit cards25 25 34 
Other consumer1     4 2 7 
Total consumer$8 $20 $21 $24 $25 $369 $27 $494 $416 
(1)At September 30, 2020 and December 31, 2019, consumer mortgage loan delinquency includes $283 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 September 30, 2020 and December 31, 2019, consumer mortgage loans include $115 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 September 30, 2020 and in total as of December 31, 2019:
20202019201820172016PriorRevolving
Loans
Total at Sep. 30, 2020Total at Dec. 31, 2019
 (in millions)
Residential mortgages:
Performing loans$3,526 $2,603 $1,504 $1,751 $2,053 $6,449 $ $17,886 $17,420 
Nonaccrual loans
20 35 27 38 31 402  553 381 
Total residential mortgages3,546 2,638 1,531 1,789 2,084 6,851  18,439 17,801 
Home equity mortgages:
Performing loans42 54 39 37 48 503  723 807 
Nonaccrual loans
  1   41  42 46 
Total home equity mortgages42 54 40 37 48 544  765 853 
Credit cards:
Performing loans      1,088 1,088 1,381 
Accruing loans contractually past due 90 days or more
      19 19 24 
Total credit cards      1,107 1,107 1,405 
Other consumer:
Performing loans73 45 1  5 132 57 313 278 
Accruing loans contractually past due 90 days or more
      2 2 
Total other consumer73 45 1  5 132 59 315 283 
Total consumer:
Performing loans3,641 2,702 1,544 1,788 2,106 7,084 1,145 20,010 19,886 
Nonaccrual loans20 35 28 38 31 443  595 427 
Accruing loans contractually past due 90 days or more
      21 21 29 
Total consumer$3,661 $2,737 $1,572 $1,826 $2,137 $7,527 $1,166 $20,626 $20,342 
Troubled debt restructurings  The following table summarizes TDR Loans in our consumer loan portfolio, including a disaggregation of the loans by year of origination as of September 30, 2020 and in total as of December 31, 2019:
20202019201820172016PriorRevolving
Loans
Total at Sep. 30, 2020Total at Dec. 31, 2019
 (in millions)
Residential mortgages$ $2 $2 $1 $2 $546 $ $553 $580 
Home equity mortgages     31  31 32 
Credit cards      5 5 
Total consumer$ $2 $2 $1 $2 $577 $5 $589 $616 
Concentration of Credit Risk  At September 30, 2020 and December 31, 2019, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,473 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.