Loans

3 Months Ended

Mar. 31, 2012

Loans, Allowance for Credit Losses and Loans Held for Sale [Abstract]

Loans

6.    Loans

Loans consisted of the following:

	March 31, 2012		December 31, 2011
	(in millions)
Commercial loans:
Construction and other real estate	$	7,777	$	7,860
Business banking and middle markets enterprises		10,889		10,225
Global banking (1)		13,852		12,658
Other commercial		3,051		2,906
Total commercial		35,569		33,649
Consumer loans:
Home equity mortgages		2,491		2,563
Other residential mortgages		14,344		14,113
Credit cards		786		828
Other consumer		679		714
Total consumer		18,300		18,218
Total loans	$	53,869	$	51,867

⁽¹⁾  Represents large multinational firms including globally focused U.S. corporate and financial institutions and USD lending to select high quality Latin American and other multinational customers managed by HSBC on a global basis.

Net deferred origination costs totaled $38 million and $48 million at March 31, 2012 and December 31, 2011, respectively.

At March 31, 2012 and December 31, 2011, we had net unamortized premium on our loans of $42 million and $28 million, respectively. We amortized net premiums of $9 million and $15 million on our loans for the three months ended March 31, 2012 and 2011, respectively.

Age Analysis of Past Due Loans  The following table summarizes the past due status of our loans at March 31, 2012 and December 31, 2011. The aging of past due amounts are 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 may be affected by customer account management policies and practices such as re-age or modification.

	Days Past Due
At March 31, 2012	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$	51	$	126	$	120	$	297	$	7,480	$	7,777
Business banking and middle market enterprises		400		49		84		533		10,356		10,889
Global banking		285		-		18		303		13,549		13,852
Other commercial		684		25		21		730		2,321		3,051
Total commercial		1,420		200		243		1,863		33,706		35,569
Consumer loans:
HELOC and home equity mortgages		153		53		76		282		2,209		2,491
Other residential mortgages		97		455		810		1,362		12,982		14,344
Credit cards		30		17		18		65		721		786
Other consumer		9		5		29		43		636		679
Total consumer		289		530		933		1,752		16,548		18,300
Total loans	$	1,709	$	730	$	1,176	$	3,615	$	50,254	$	53,869

	Days Past Due
At December 31, 2011	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$	72	$	31	$	231	$	334	$	7,526	$	7,860
Business banking and middle market enterprises		615		58		71		744		9,481		10,225
Global banking		898		34		74		1,006		11,652		12,658
Other commercial		350		84		21		455		2,451		2,906
Total commercial		1,935		207		397		2,539		31,110		33,649
Consumer loans:
HELOC and home equity mortgages		181		54		89		324		2,239		2,563
Other residential mortgages		109		526		815		1,450		12,663		14,113
Credit cards		37		20		20		77		751		828
Other consumer		11		6		35		52		662		714
Total consumer		338		606		959		1,903		16,315		18,218
Total loans	$	2,273	$	813	$	1,356	$	4,442	$	47,425		51,867

Nonaccrual Loans  Nonaccrual loans totaled $1.6 billion and $1.8 billion at March 31, 2012 and December 31, 2011, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $29 million and $27 million for the three months ended March 31, 2012 and 2011, respectively. Interest income (expense) that was included in finance and other interest income on these loans was approximately $(2) million and $1 million for the three months ended March 31, 2012 and 2011, respectively. For an analysis of reserves for credit losses, see Note 7, “Allowance for Credit Losses”.

Nonaccrual loans and accruing receivables 90 days or more delinquent are summarized in the following table:

	March 31, 2012		December 31, 2011
	(in millions)
Nonaccrual loans:
Commercial:
Real Estate:
Construction and land loans	$	102	$	103
Other real estate		427		512
Business banking and middle markets enterprises		66		58
Global banking		18		137
Other commercial		19		15
Total commercial		632		825
Consumer:
Residential mortgages, excluding home equity mortgages		810		815
Home equity mortgages		87		89
Total residential mortgages (1)		897		904
Other consumer loans		5		8
Total consumer loans		902		912
Nonaccrual loans held for sale		114		91
Total nonaccruing loans		1,648		1,828
Accruing loans contractually past due 90 days or more:
Commercial:
Real Estate:
Construction and land loans		-		-
Other real estate		14		1
Business banking and middle market enterprises		17		11
Global banking		-		-
Other commercial		1		2
Total commercial		32		14
Consumer:
Credit card receivables		18		20
Other consumer		24		27
Total consumer loans		42		47
Total accruing loans contractually past due 90 days or more		74		61
Total nonperforming loans	$	1,722	$	1,889

⁽¹⁾  Nonaccrual residential mortgages includes all receivables which are 90 or more days contractually delinquent as well as second lien loans where the first lien loan that we own or service is 90 or more days contractually delinquent.

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  Troubled debt restructurings 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 and 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. A substantial amount of our modifications involve interest rate reductions which lower the amount of finance 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 either based on the present value of expected future cash flows discounted at the loans’ original effective interest rate which generally results in a higher reserve requirement for these loans or in the case of certain secured commercial loans, the estimated fair value of the underlying collateral. Once a consumer loan is classified as a TDR Loan, it continues to be reported as such until it is paid off or charged-off.

The following table presents information about receivables which were modified during the three months ended March 31, 2012 and as a result of this action became classified as TDR Loans.

Three Months Ended March 31,	2012
	(in millions)
Commercial loans:
Construction and other real estate	$	73
Business banking and middle market enterprises		22
Global banking		-
Other commercial		-
Total commercial		95
Consumer loans:
Residential mortgages		55
Credit cards		1
Total consumer		56
Total	$	151

The following tables present information about our TDR Loans and the related credit loss reserves for TDR Loans:

	March 31, 2012		December 31, 2011
	(in millions)
TDR Loans (1)(2):
Commercial loans:
Construction and other real estate	$	368	$	342
Business banking and middle market enterprises		106		94
Global banking		-		-
Other commercial		36		37
Total commercial		510		473
Consumer loans:
Residential mortgages		658		608
Credit cards		19		21
Total consumer		677		629
Total TDR Loans (3):	$	1,187	$	1,102

	March 31, 2012		December 31, 2011
	(in millions)
Allowance for credit losses for TDR Loans (4):
Commercial loans:
Construction and other real estate	$	26	$	17
Business banking and middle market enterprises		4		3
Global banking		-		-
Other commercial		-		-
Total commercial		30		20
Consumer loans:
Residential mortgages		92		94
Credit cards		6		7
Total consumer		98		101
Total Allowance for credit losses for TDR Loans	$	128	$	121

⁽¹⁾  TDR Loans are considered to be impaired loans. For consumer loans, all such loans are considered impaired loans regardless of accrual status. For commercial loans, impaired loans include other loans in addition to TDRs which totaled $391 million and $614 million at March 31, 2012 and December 31, 2011, respectively.

⁽²⁾  The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans, partial charge-offs and premiums or discounts on purchased loans.

The following table reflects the unpaid principal balance of TDR Loans:

	March 31, 2012		December 31, 2011
	(in millions)
Commercial loans:
Construction and other real estate	$	388	$	393
Business banking and middle market enterprises		174		147
Global banking		-		-
Other commercial		39		40
Total commercial		601		580
Consumer loans:
Residential mortgages		743		682
Credit cards		19		20
Total consumer		762		702
Total	$	1,363	$	1,282

⁽³⁾  Includes balances of $377 million and $331 million at March 31, 2012 and December 31, 2011, respectively, which are classified as nonaccrual loans.

⁽⁴⁾  Included in the allowance for credit losses.

Additional information relating to TDR Loans is presented in the table below.

At March 31,	2012		2011
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Construction and other real estate	$	355	$	390
Business banking and middle market enterprises		100		89
Global banking		-		-
Other commercial		36		49
Total commercial		491		528
Consumer loans:
Residential mortgages		638		434
Credit cards		20		26
Total consumer		658		460
Total average balance of TDR Loans	$	1,149	$	988
Interest income recognized on TDR Loans:
Commercial loans:
Construction and other real estate	$	2	$	2
Business banking and middle market enterprises		-		-
Global banking		-		-
Other commercial		1		1
Total commercial		3		3
Consumer loans:
Residential mortgages		6		3
Credit cards		-		-
Total consumer		6		3
Total interest income recognized on TDR Loans	$	9	$	6

The following table presents commercial loans which were classified as TDR Loans during the previous 12 months which became 90 days or greater contractually delinquent (for consumer loans 60 days or greater contractually delinquent) during the three months ended March 31, 2012:

Three Months Ended March 31,	2012
	(in millions)
Commercial loans:
Construction and other real estate	$	-
Business banking and middle market enterprises		-
Global banking		-
Other commercial		-
Total commercial		-
Consumer loans:
Residential mortgages		8
Credit cards		1
Total consumer		9
Total	$	9

Impaired commercial loans Impaired commercial loan statistics are summarized in the following table:

	Amount with Impairment Reserves		Amount without Impairment Reserves		Total Impaired Commercial Loans(1)(2)		Impairment Reserve
	(in millions)
At March 31, 2012:
Construction and other real estate	$	325	$	330	$	655	$	110
Business banking and middle market enterprises		75		64		139		12
Global banking		-		18		18		-
Other commercial		3		86		89		-
Total	$	403	$	498	$	901	$	122
At December 31, 2011:
Construction and other real estate	$	391	$	342	$	733	$	114
Business banking and middle market enterprises		68		59		127		12
Global banking		137		-		137		90
Other commercial		1		89		90		-
Total	$	597	$	490	$	1,087	$	216

⁽¹⁾  Includes impaired commercial loans which are also considered TDR Loans as follows:

	March 31, 2012		December 31, 2011
	(in millions)
Construction and other real estate	$	368	$	342
Business banking and middle market enterprises		106		94
Global banking		-		-
Other commercial		36		37
Total	$	510	$	473

⁽²⁾  The impaired commercial loan balances included in the table above reflect the current carrying amount of the loan and includes all basis adjustments, such as unamortized deferred fees and costs on originated loans, any premiums or discounts and any principal write-downs. The unpaid principal balance of impaired commercial loans included in the table above are as follows:

	March 31, 2012		December 31, 2011
	(in millions)
Construction and other real estate	$	675	$	784
Business banking and middle market enterprises		207		180
Global banking		18		137
Other commercial		92		93
Total	$	992	$	1,194

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

Three Months Ended March 31,	2012		2011
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$	694	$	787
Business banking and middle market enterprises		133		159
Global banking		78		89
Other commercial		90		110
Total average balance of impaired commercial loans	$	995	$	1,145
Interest income recognized on impaired commercial loans:
Construction and other real estate	$	1	$	2
Business banking and middle market enterprises		1		1
Global banking		-		-
Other commercial		-		1
Total interest income recognized on impaired commercial loans	$	2	$	4

Commercial Loan Credit Quality Indicators  The following credit quality indicators are monitored for our commercial loan portfolio:

Criticized asset classifications  These classifications are based on the risk rating standards of our primary regulator. Problem loans are assigned various criticized facility grades. We also assign obligor grades which are used under our allowance for credit losses methodology. Criticized assets for commercial loans are summarized in the following table:

	Special Mention		Substandard		Doubtful		Total
	(in millions)
At March 31, 2012:
Construction and other real estate	$	1,099	$	911	$	117	$	2,127
Business banking and middle market enterprises		473		212		11		696
Global banking		32		101		5		138
Other commercial		48		122		-		170
Total commercial	$	1,652	$	1,346	$	133	$	3,131
At December 31, 2011:
Construction and other real estate	$	1,009	$	990	$	186	$	2,185
Business banking and middle market enterprises		445		241		12		698
Global banking		45		397		109		551
Other commercial		99		131		-		230
Total commercial	$	1,598	$	1,759	$	307	$	3,664

Nonperforming  The status of our commercial loan portfolio is summarized in the following table:

	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At March 31, 2012:
Construction and other real estate	$	7,234	$	529	$	14	$	7,777
Business banking and middle market enterprise		10,806		66		17		10,889
Global banking		13,834		18		-		13,852
Other commercial		3,031		19		1		3,051
Total commercial	$	34,905	$	632	$	32	$	35,569
At December 31, 2011:
Construction and other real estate	$	7,244	$	615	$	1	$	7,860
Business banking and middle market enterprise		10,156		58		11		10,225
Global banking		12,521		137		-		12,658
Other commercial		2,889		15		2		2,906
Total commercial	$	32,810	$	825	$	14	$	33,649

Credit risk profile  The following table shows the credit risk profile of our commercial loan:

	Investment Grade(1)		Non-Investment Grade		Total
	(in millions)
At March 31, 2012:
Construction and other real estate	$	3,190	$	4,587	$	7,777
Business banking and middle market enterprises		5,299		5,590		10,889
Global banking		12,181		1,671		13,852
Other commercial		1,021		2,030		3,051
Total commercial	$	21,691	$	13,878	$	35,569
At December 31, 2011:
Construction and other real estate	$	3,133	$	4,727	$	7,860
Business banking and middle market enterprises		4,612		5,613		10,225
Global banking		9,712		2,946		12,658
Other commercial		843		2,063		2,906
Total commercial	$	18,300	$	15,349	$	33,649

⁽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 monitored 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:

	March 31, 2012					December 31, 2011
	Dollars of Delinquency		Delinquency Ratio			Dollars of Delinquency		Delinquency Ratio
	(dollars are in millions)
Consumer:
Residential mortgage, excluding home equity mortgages (1)	$	1,063		6.94	%	$	1,101		7.19	%
Home equity mortgages		94		2.81			99		2.89
Total residential mortgages		1,157		6.20			1,200		6.41
Credit card receivables		25		2.13			28		2.25
Other consumer		26		2.92			30		3.17
Total consumer	$	1,208		5.83	%	$	1,258		6.01	%

⁽¹⁾  At March 31, 2012 and December 31, 2011, residential mortgage loan delinquency includes $836 million and $803 million, respectively, of loans that are carried at the lower of amortized cost or fair value less cost to sell.

Nonperforming   The status of our consumer loan portfolio is summarized in the following table:

	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At March 31, 2012:
Consumer:
Residential mortgage, excluding home equity mortgages	$	13,534	$	810	$	-	$	14,344
Home equity mortgages		2,404		87		-		2,491
Total residential mortgages		15,938		897		-		16,835
Credit card receivables		768		-		18		786
Other consumer		650		5		24		679
Total consumer	$	17,356	$	902	$	42	$	18,300
At December 31, 2011:
Continuing operations:
Consumer:
Residential mortgage, excluding home equity mortgages	$	13,298	$	815	$	-	$	14,113
Home equity mortgages		2,474		89		-		2,563
Total residential mortgages		15,772		904		-		16,676
Credit card receivables		808		-		20		828
Other consumer		679		8		27		714
Total consumer	$	17,259	$	912	$	47	$	18,218

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

Concentrations of Credit Risk   Our loan portfolio includes the following types of loans:

• High loan-to-value (“LTV”) loans – Certain residential mortgages on primary residences with LTV ratios equal to or exceeding 90 percent at the time of origination and no mortgage insurance, which could result in the potential inability to recover the entire investment in loans involving foreclosed or damaged properties.

• Interest-only loans – A loan which 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.

• Adjustable rate mortgage (“ARM”) loans – A loan which allows us to adjust pricing on the loan in line with market movements. A customer’s financial situation and the general interest rate environment at the time of the interest rate reset could affect the customer’s ability to repay or refinance the loan after the adjustment.

The following table summarizes the balances of high LTV, interest-only and ARM loans in our loan portfolios, including certain loans held for sale, at March 31, 2012 and December 31, 2011, respectively.

	March 31, 2012		December 31, 2011
	(in billions)
Residential mortgage loans with high LTV and no mortgage insurance (1)	$	1.0	$	1.1
Interest-only residential mortgage loans		4.0		3.9
ARM loans (2)		10.0		9.9

⁽¹⁾  Residential mortgage loans with high LTV and no mortgage insurance includes both fixed rate and adjustable rate mortgages. Excludes $64 million and $68 million of sub-prime residential mortgage loans held for sale at March 31, 2012 and December 31, 2011, respectively.

⁽²⁾  ARM loan balances above exclude $65 million and $28 million of sub-prime residential mortgage loans held for sale at March 31, 2012 and December 31, 2011, respectively. During the remainder of 2012 and during 2013, approximately $212 million and $386 million, respectively, of these ARM loans will experience their first interest rate reset.

Concentrations of first and second liens within the outstanding residential mortgage loan portfolio are summarized in the following table. Amounts in the table exclude closed end first lien loans held for sale of $1.8 billion and $2.0 billion at March 31, 2012 and December 31, 2011, respectively.

	March 31, 2012		December 31, 2011
	(in millions)
Closed end:
First lien	$	14,344	$	14,113
Second lien		220		237
Revolving:
Second lien		2,271		2,326
Total	$	16,835	$	16,676