Loans

Loans consisted of the following:



At December 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate	$	9,034	$	8,457
Business and corporate banking	14,446		12,608
Global banking⁽¹⁾⁽²⁾	21,625		20,009
Other commercial	3,389		3,076
Total commercial	48,494		44,150
Consumer loans:
Residential mortgages	15,826		15,371
Home equity mortgages	2,011		2,324
Credit cards	854		815
Other consumer	510		598
Total consumer	19,201		19,108
Total loans	$	67,695	$	63,258


⁽¹⁾	Represents large multinational firms including globally focused U.S. corporate and financial institutions and U.S. Dollar lending to multinational banking customers managed by HSBC on a global basis as well as loans to HSBC affiliates.


⁽²⁾	Includes loans to HSBC affiliates of $5.3 billion and $4.5 billion at December 31, 2013 and 2012, respectively. See Note 22, "Related Party Transactions" for additional information regarding loans to HSBC affiliates.

We have loans outstanding to certain executive officers and directors. The loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collectibility. The aggregate amount of such loans did not exceed 5 percent of shareholders’ equity at either December 31, 2013 or 2012.

Net deferred origination costs (fees) totaled $(23) million and $27 million at December 31, 2013 and 2012, respectively.

At December 31, 2013 and 2012, we had a net unamortized premium on our loans of $16 million and $22 million, respectively. We amortized net premiums of $4 million, $23 million and $35 million on our loans in 2013, 2012 and 2011 respectively.

Age Analysis of Past Due Loans The following table summarizes the past due status of our loans at December 31, 2013 and 2012. The aging of past due amounts is determined based on the contractual delinquency status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status is affected by customer account management policies and practices such as re-age, which results in the re-setting of the contractual delinquency status to current.



	Past Due				Total Past Due 30 Days or More
At December 31, 2013	30 - 89 days		90+ days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$	6	$	58	$	64	$	8,970	$	9,034
Business and corporate banking	48		36		84		14,362		14,446
Global banking	8		3		11		21,614		21,625
Other commercial	27		9		36		3,353		3,389
Total commercial	89		106		195		48,299		48,494
Consumer loans:
Residential mortgages	443		1,037		1,480		14,346		15,826
Home equity mortgages	28		59		87		1,924		2,011
Credit cards	16		14		30		824		854
Other consumer	15		24		39		471		510
Total consumer	502		1,134		1,636		17,565		19,201
Total loans	$	591	$	1,240	$	1,831	$	65,864	67,695



	Past Due				Total Past Due 30 Days or More
At December 31, 2012	30 - 89 days		90+ days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$	89	$	152	$	241	$	8,216	$	8,457
Business and corporate banking	73		70		143		12,465		12,608
Global banking	30		8		38		19,971		20,009
Other commercial	16		31		47		3,029		3,076
Total commercial	208		261		469		43,681		44,150
Consumer loans:
Residential mortgages	493		976		1,469		13,902		15,371
Home equity mortgages	40		82		122		2,202		2,324
Credit cards	14		15		29		786		815
Other consumer	5		33		38		560		598
Total consumer	552		1,106		1,658		17,450		19,108
Total loans	$	760	$	1,367	$	2,127	$	61,131	$	63,258


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

Contractual Maturities Contractual maturities of loans were as follows:



	At December 31,
	2014		2015		2016		2017		2018		Thereafter		Total
	(in millions)
Commercial loans:
Construction and other real estate	$	3,233	$	870	$	1,019	$	1,030	$	1,890	$	992	$	9,034
Business and corporate banking	5,170		1,392		1,630		1,647		3,022		1,585		14,446
Global banking	7,739		2,084		2,440		2,466		4,523		2,373		21,625
Other commercial	1,213		327		382		386		709		372		3,389
Consumer loans:
Residential mortgages	1,645		432		427		426		413		12,483		15,826
Home equity mortgages⁽¹⁾	838		444		272		168		105		184		2,011
Credit cards⁽²⁾	—		854		—		—		—		—		854
Other consumer	271		228		9		2		—		—		510
Total	$	20,109	$	6,631	$	6,179	$	6,125	$	10,662	$	17,989	$	67,695


⁽¹⁾	Home equity mortgages maturities reflect estimates based on historical payment patterns.


⁽²⁾	As credit card receivables do not have stated maturities, the table reflects estimates based on historical payment patterns.

As a substantial portion of consumer loans, based on our experience, will be renewed or repaid prior to contractual maturity, the above maturity schedule should not be regarded as a forecast of future cash collections. The following table summarizes contractual maturities of loans due after one year by repricing characteristic:



	At December 31, 2013
	Over 1 But Within 5 Years		Over 5 Years
	(in millions)
Receivables at predetermined interest rates	$	5,677	$	3,803
Receivables at floating or adjustable rates	23,921		14,186
Total	$	29,598	$	17,989

Nonaccrual Loans Nonaccrual loans totaled $1.3 billion and $1.6 billion at December 31, 2013 and 2012, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $107 million and $125 million in 2013 and 2012, respectively. Interest income that was included in interest income on these loans was $35 million and $19 million in 2013 and 2012, 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 consisted of the following:



At December 31,	2013		2012
	(in millions)
Nonaccrual loans:
Commercial:
Real Estate:
Construction and land loans	$	44	$	104
Other real estate	122		281
Business and corporate banking	21		47
Global banking	65		18
Other commercial	2		13
Total commercial	254		463
Consumer:
Residential mortgages	949		1,038
Home equity mortgages	77		86
Total residential mortgages^(1)(2)(3)	1,026		1,124
Other consumer loans	—		5
Total consumer loans	1,026		1,129
Nonaccrual loans held for sale	25		37
Total nonaccruing loans	1,305		1,629
Accruing loans contractually past due 90 days or more:
Commercial:
Real Estate:
Construction and land loans	—		—
Other real estate	—		8
Business and corporate banking	5		28
Other commercial	1		1
Total commercial	6		37
Consumer:
Credit card receivables	14		15
Other consumer	24		28
Total consumer loans	38		43
Total accruing loans contractually past due 90 days or more	44		80
Total nonperforming loans	$	1,349	$	1,709


⁽¹⁾	At December 31, 2013 and 2012, residential mortgage loan nonaccrual balances include $0.9 billion and $1.0 billion, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽²⁾	Nonaccrual residential mortgages includes all receivables 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⁾	Residential mortgage nonaccrual loans for all periods does not include guaranteed loans purchased from the Government National Mortgage Association ("GNMA"). Repayment of these loans are predominantly insured by the Federal Housing Administration and as such, these loans have different risk characteristics from the rest of our customer loan portfolio.

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. A substantial amount of our modifications involve interest rate reductions 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 either based on the present value of expected future cash flows discounted at the loans’ original effective interest rates which generally results in a higher reserve requirement for these loans or in the case of certain secured 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. 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. Since 2010, approximately $11 million of commercial loans have met this criteria and have been removed from TDR Loan classification.

The following table presents information about receivables which were modified during 2013 and 2012 and as a result of this action became classified as TDR Loans.



Year Ended December 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate	$	59	$	78
Business and corporate banking	4		21
Global banking	51		—
Total commercial	114		99
Consumer loans:
Residential mortgages	230		452
Credit cards	2		4
Total consumer	232		456
Total	$	346	$	555

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during 2013 and 2012 was 1.90 percent. The weighted-average contractual rate reduction for commercial loans was not significant in either the number of loans or rate.

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



At December 31,	2013		2012
	(in millions)
TDR Loans⁽¹⁾⁽²⁾:
Commercial loans:
Construction and other real estate	$	292	$	343
Business and corporate banking	21		86
Global banking	51		—
Other commercial	25		31
Total commercial	389		460
Consumer loans:
Residential mortgages⁽³⁾	973		960
Credit cards	8		14
Total consumer	981		974
Total TDR Loans⁽⁴⁾	$	1,370	$	1,434



At December 31,	2013		2012
	(in millions)
Allowance for credit losses for TDR Loans⁽⁵⁾:
Commercial loans:
Construction and other real estate	$	16	$	23
Business and corporate banking	1		3
Global banking	—		—
Other commercial	—		—
Total commercial	17		26
Consumer loans:
Residential mortgages	68		109
Credit cards	2		5
Total consumer	70		114
Total allowance for credit losses for TDR Loans	$	87	$	140


⁽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 TDR Loans which totaled $92 million and $237 million at December 31, 2013 and 2012, 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:



At December 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate	$	309	$	398
Business and corporate banking	60		137
Global banking	51		—
Other commercial	28		34
Total commercial	448		569
Consumer loans:
Residential mortgages	1,153		1,118
Credit cards	8		14
Total consumer	1,161		1,132
Total	$	1,609	$	1,701


⁽³⁾	Includes $706 million and $608 million at December 31, 2013 and 2012, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁴⁾	Includes $458 million and $519 million at December 31, 2013 and 2012, respectively, of loans which are classified as nonaccrual.


⁽⁵⁾	Included in the allowance for credit losses.

The following table provides additional information relating to TDR Loans.



Year Ended December 31,	2013		2012		2011
	(in millions)
Average balance of TDR Loans
Commercial loans:
Construction and other real estate	$	349	$	360	$	346
Business and corporate banking	44		91		89
Global banking	20		—		—
Other commercial	28		33		44
Total commercial	441		484		479
Consumer loans:
Residential mortgages⁽¹⁾	922		738		532
Credit cards	11		16		23
Total consumer	933		754		555
Total average balance of TDR Loans	$	1,374	$	1,238	$	1,034
Interest income recognized on TDR Loans
Commercial loans:
Construction and other real estate	$	12	$	8	$	9
Business and corporate banking	—		—		—
Other commercial	3		4		5
Total commercial	15		12		14
Consumer loans:
Residential mortgages	33		33		20
Credit cards	1		1		1
Total consumer	34		34		21
Total interest income recognized on TDR Loans	$	49	$	46	$	35


⁽¹⁾	Beginning in the third quarter of 2012, average balances for residential mortgages include loans discharged under Chapter 7 bankruptcy and not re-affirmed.

The following table presents loans which were classified as TDR Loans during the previous 12 months which for commercial loans became 90 days or greater contractually delinquent or for consumer loans became 60 days or greater contractually delinquent during 2013 and 2012:



Year Ended December 31,	2013		2012
	(in millions)
Commercial loans:
Construction and other real estate	$	12	$	27
Business and corporate banking	2		—
Other commercial	—		—
Total commercial	14		27
Consumer loans:
Residential mortgages	44		86
Credit cards	—		—
Total consumer	44		86
Total	$	58	$	113

Impaired commercial loans The following table summarizes impaired commercial loan statistics:



	Amount with Impairment Reserves		Amount without Impairment Reserves		Total Impaired Commercial Loans⁽¹⁾⁽²⁾		Impairment Reserve
	(in millions)
At December 31, 2013
Construction and other real estate	$	122	$	211	$	333	$	32
Business and corporate banking	28		12		40		3
Global banking	14		51		65		5
Other commercial	1		42		43		—
Total	$	165	$	316	$	481	$	40
At December 31, 2012
Construction and other real estate	$	192	$	305	$	497	$	86
Business and corporate banking	57		49		106		10
Global banking	—		18		18		—
Other commercial	1		75		76		—
Total	$	250	$	447	$	697	$	96


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



At December 31,	2013		2012
	(in millions)
Construction and other real estate	$	292	$	343
Business and corporate banking	21		86
Global banking	51		—
Other commercial	25		31
Total	$	389	$	460


⁽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 partial charge-offs, unamortized deferred fees and costs on originated loans and any premiums or discounts. The following table reflects the unpaid principal balance of impaired commercial loans included in the table above:



At December 31,	2013		2012
	(in millions)
Construction and other real estate	$	380	$	552
Business and corporate banking	91		157
Global banking	123		18
Other commercial	47		79
Total	$	641	$	806

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



Year Ended December 31,	2013		2012		2011
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$	422	$	602	$	744
Business and corporate banking	63		119		151
Global banking	37		86		107
Other commercial	64		86		111
Total average balance of impaired commercial loans	$	586	$	893	$	1,113
Interest income recognized on impaired commercial loans:
Construction and other real estate	$	13	$	11	$	9
Business and corporate banking	—		5		4
Global banking	—		—		1
Other commercial	5		3		3
Total interest income recognized on impaired commercial loans	$	18	$	19	$	17

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. The following table summarizes criticized assets for commercial loans:



	Special Mention		Substandard		Doubtful		Total
	(in millions)
At December 31, 2013
Construction and other real estate	$	351	$	346	$	30	$	727
Business and corporate banking	557		156		2		715
Global banking	367		112		5		484
Other commercial	79		33		—		112
Total	$	1,354	$	647	$	37	$	2,038
At December 31, 2012
Construction and other real estate	$	627	$	677	$	105	$	1,409
Business and corporate banking	369		115		10		494
Global banking	93		50		—		143
Other commercial	36		74		2		112
Total	$	1,125	$	916	$	117	$	2,158

Nonperforming The following table summarizes the status of our commercial loan portfolio:



	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At December 31, 2013
Commercial:
Construction and other real estate	$	8,868	$	166	$	—	$	9,034
Business and corporate banking	14,420		21		5		14,446
Global banking	21,560		65		—		21,625
Other commercial	3,386		2		1		3,389
Total commercial	$	48,234	$	254	$	6	$	48,494
At December 31, 2012
Commercial:
Construction and other real estate	$	8,064	$	385	$	8	$	8,457
Business and corporate banking	12,533		47		28		12,608
Global banking	19,991		18		—		20,009
Other commercial	3,062		13		1		3,076
Total commercial	$	43,650	$	463	$	37	$	44,150

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



	Investment Grade⁽¹⁾		Non-Investment Grade		Total
	(in millions)
At December 31, 2013
Construction and other real estate	$	6,069	$	2,965	$	9,034
Business and corporate banking	7,279		7,167		14,446
Global banking	18,636		2,989		21,625
Other commercial	1,583		1,806		3,389
Total commercial	$	33,567	$	14,927	$	48,494
At December 31, 2012
Construction and other real estate	$	4,727	$	3,730	$	8,457
Business and corporate banking	6,012		6,596		12,608
Global banking	16,206		3,803		20,009
Other commercial	1,253		1,823		3,076
Total commercial	$	28,198	$	15,952	$	44,150


⁽¹⁾	Investment grade includes commercial loans with credit ratings of at least BBB- or above or the equivalent based on our internal credit rating system.

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

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total loans and loans held for sale ("delinquency ratio") for our consumer loan portfolio:



	December 31, 2013				December 31, 2012
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Consumer:
Residential mortgages	$	1,208	7.59	%	$	1,233	7.78	%
Home equity mortgages	68		3.38		75		3.23
Total residential mortgages⁽¹⁾	1,276		7.11		1,308		7.20
Credit cards	21		2.46		21		2.58
Other consumer	29		5.06		30		4.52
Total consumer	$	1,326	6.85	%	$	1,359	6.92	%


⁽¹⁾	At December 31, 2013 and 2012, residential mortgage loan delinquency includes $1.1 billion and $1.0 billion, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

Nonperforming The following table summarizes the status of our consumer loan portfolio:



	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At December 31, 2013
Consumer:
Residential mortgages	$	14,877	$	949	$	—	$	15,826
Home equity mortgages	1,934		77		—		2,011
Total residential mortgages	16,811		1,026		—		17,837
Credit cards	840		—		14		854
Other consumer	486		—		24		510
Total consumer	$	18,137	$	1,026	$	38	$	19,201
At December 31, 2012
Consumer:
Residential mortgages	$	14,333	$	1,038	$	—	$	15,371
Home equity mortgages	2,238		86		—		2,324
Total residential mortgages	16,571		1,124		—		17,695
Credit cards	800		—		15		815
Other consumer	565		5		28		598
Total consumer	$	17,936	$	1,129	$	43	$	19,108

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

Concentration of Credit Risk At December 31, 2013 and 2012, our loan portfolio included interest-only residential mortgage loans totaling $3.6 billion and $4.0 billion, 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.