Loans

Loans consisted of the following:



	September 30, 2019		December 31, 2018
	(in millions)
Commercial loans:
Real estate, including construction	$	11,896	$	11,344
Business and corporate banking	14,832		13,066
Global banking⁽¹⁾	18,877		20,167
Other commercial:
Affiliates⁽²⁾	2,828		2,274
Other	2,884		2,491
Total other commercial	5,712		4,765
Total commercial	51,317		49,342
Consumer loans:
Residential mortgages	17,574		17,383
Home equity mortgages	880		982
Credit cards	1,308		1,019
Other consumer	257		252
Total consumer	20,019		19,636
Total loans	$	71,336	$	68,978


⁽¹⁾	Represents large multinational firms including globally focused U.S. corporate and financial institutions, U.S. dollar lending to multinational banking clients managed by HSBC on a global basis and complex large business clients supported by Global Banking and Markets relationship managers.


⁽²⁾	See Note 14, "Related Party Transactions," for additional information regarding loans to HSBC affiliates.

Net deferred origination costs totaled $79 million and $77 million at September 30, 2019 and December 31, 2018, respectively. At September 30, 2019 and December 31, 2018, we had a net unamortized premium on our loans of $2 million and $11 million, respectively.

Aging Analysis of Past Due Loans The following table summarizes the past due status of our loans, excluding loans held for sale, at September 30, 2019 and December 31, 2018. The aging of past due amounts is determined based on the contractual delinquency status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status is affected by customer account management policies and practices such as re-age, which results in the re-setting of the contractual delinquency status to current.



	Past Due				Total Past Due 30 Days or More
At September 30, 2019	30 - 89 Days		90+ Days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Real estate, including construction	$	8	$	2	$	10	$	11,886	$	11,896
Business and corporate banking	40		14		54		14,778		14,832
Global banking	70		—		70		18,807		18,877
Other commercial	7		—		7		5,705		5,712
Total commercial	125		16		141		51,176		51,317
Consumer loans:
Residential mortgages	304		253		557		17,017		17,574
Home equity mortgages	11		24		35		845		880
Credit cards	19		18		37		1,271		1,308
Other consumer	5		6		11		246		257
Total consumer	339		301		640		19,379		20,019
Total loans	$	464	$	317	$	781	$	70,555	$	71,336



	Past Due				Total Past Due 30 Days or More
At December 31, 2018	30 - 89 Days		90+ Days		Total Past Due 30 Days or More		Current⁽¹⁾		Total Loans
	(in millions)
Commercial loans:
Real estate, including construction	$	76	$	3	$	79	$	11,265	$	11,344
Business and corporate banking	79		38		117		12,949		13,066
Global banking	—		—		—		20,167		20,167
Other commercial	15		—		15		4,750		4,765
Total commercial	170		41		211		49,131		49,342
Consumer loans:
Residential mortgages	469		254		723		16,660		17,383
Home equity mortgages	14		27		41		941		982
Credit cards	13		14		27		992		1,019
Other consumer	5		5		10		242		252
Total consumer	501		300		801		18,835		19,636
Total loans	$	671	$	341	$	1,012	$	67,966	$	68,978


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

Nonaccrual Loans Nonaccrual loans, including nonaccrual loans held for sale, and accruing loans 90 days or more delinquent consisted of the following:



	September 30, 2019		December 31, 2018
	(in millions)
Nonaccrual loans:
Commercial:
Real estate, including construction	$	3	$	7
Business and corporate banking	149		70
Global banking	112		65
Other commercial	—		1
Total commercial	264		143
Consumer:
Residential mortgages^(1)(2)(3)	371		341
Home equity mortgages⁽¹⁾⁽²⁾	47		55
Consumer nonaccrual loans held for sale	1		1
Total consumer	419		397
Total nonaccruing loans	683		540
Accruing loans contractually past due 90 days or more:
Commercial:
Business and corporate banking	1		1
Total commercial	1		1
Consumer:
Credit cards	18		14
Other consumer	6		6
Total consumer	24		20
Total accruing loans contractually past due 90 days or more	25		21
Total nonperforming loans	$	708	$	561


⁽¹⁾	At September 30, 2019 and December 31, 2018, nonaccrual consumer mortgage loans held for investment include $273 million and $289 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽²⁾	Nonaccrual consumer mortgage loans held for investment include all loans which are 90 or more days contractually delinquent as well as loans discharged under Chapter 7 bankruptcy and not re-affirmed and second lien loans where the first lien loan that we own or service is 90 or more days contractually delinquent.


⁽³⁾	Nonaccrual consumer mortgage loans for all periods does not include guaranteed loans purchased from the Government National Mortgage Association. Repayment of these loans is predominantly insured by the Federal Housing Administration and as such, these loans have different risk characteristics from the rest of our consumer loan portfolio.

The following table provides additional information on our nonaccrual loans:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Interest income that would have been recorded if the nonaccrual loans had been current in accordance with contractual terms during the period	$	10	$	10	$	26	$	37
Interest income that was recorded on nonaccrual loans and included in interest income during the period	4		12		10		27

Impaired Loans A loan is considered to be impaired when it is deemed probable that not all principal and interest amounts due according to the contractual terms of the loan agreement will be collected. Probable losses from impaired loans are quantified and recorded as a component of the overall allowance for credit losses. Commercial and consumer loans for which we have modified the loan terms as part of a troubled debt restructuring are considered to be impaired loans. Additionally, commercial loans in nonaccrual status, or that have been partially charged-off or assigned a specific allowance for credit losses are also considered impaired loans.

Troubled debt restructurings TDR Loans represent loans for which the original contractual terms have been modified to provide for terms that are less than what we would be willing to accept for new loans with comparable risk because of deterioration in the borrower's financial condition.

Modifications for consumer or commercial loans may include changes to one or more terms of the loan, including, but not limited to, a change in interest rate, extension of the amortization period, reduction in payment amount and partial forgiveness or deferment of principal, accrued interest or other loan covenants. A substantial amount of our modifications involve interest rate reductions on consumer loans, which lower the amount of interest income we are contractually entitled to receive in future periods. Through lowering the interest rate and other loan term changes, we believe we are able to increase the amount of cash flow that will ultimately be collected from the loan, given the borrower's financial condition. TDR Loans are reserved for primarily based on the present value of expected future cash flows, discounted at the loan's original effective interest rate, which generally results in a higher reserve requirement for these loans, or as a practical expedient, the fair value of the collateral if the loan is collateral dependent or, for commercial loans, the observable market price if the loan is traded in the market. Once a consumer loan is classified as a TDR Loan, it continues to be reported as such until it is paid off or charged-off. For commercial loans, if subsequent performance is in accordance with the new terms and such terms reflect current market rates at the time of restructure, they will no longer be reported as a TDR Loan beginning in the year after restructuring. During the second quarter of 2019, a $12 million commercial loan met this criterion and was removed from TDR Loan classification. There were no loans removed from TDR Loan classification during the prior year.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)

Residential mortgages	$	2	$	5	$	3	$	22
Home equity mortgages	—		1		—		4
Credit cards	1		1		3		3
Total consumer	$	3	$	7	$	6	$	29

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

The weighted-average contractual rate reduction for consumer loans which became classified as TDR Loans during the three and nine months ended September 30, 2019 was 3.12 percent and 2.53 percent, respectively, compared with 1.88 percent and 1.98 percent during the three and nine months ended September 30, 2018, respectively.

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



	September 30, 2019				December 31, 2018
	Carrying Value		Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance
	(in millions)
TDR Loans:⁽¹⁾⁽²⁾
Commercial loans:
Business and corporate banking	$	42	$	69	$	68	$	86
Global banking	58		67		113		119
Total commercial⁽³⁾	100		136		181		205
Consumer loans:
Residential mortgages⁽⁴⁾	595		680		640		730
Home equity mortgages⁽⁴⁾	32		61		35		65
Credit cards	4		4		3		4
Total consumer	631		745		678		799
Total TDR Loans⁽⁵⁾	$	731	$	881	$	859	$	1,004
Allowance for credit losses for TDR Loans:⁽⁶⁾
Commercial loans:
Business and corporate banking	$	1			$	12
Global banking	—				—
Total commercial	1				12
Consumer loans:
Residential mortgages	4				3
Home equity mortgages	—				1
Credit cards	1				1
Total consumer	5				5
Total allowance for credit losses for TDR Loans	$	6			$	17


⁽¹⁾	TDR Loans are considered to be impaired loans. For commercial loans, impaired loans include other loans in addition to TDR Loans which totaled $195 million and $54 million at September 30, 2019 and December 31, 2018, respectively.


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


⁽³⁾	Additional commitments to lend to commercial borrowers whose loans have been modified in TDR Loans totaled $244 million and $151 million at September 30, 2019 and December 31, 2018, respectively.


⁽⁴⁾	At September 30, 2019 and December 31, 2018, the carrying value of consumer mortgage TDR Loans held for investment includes $571 million and $615 million, respectively, of loans that are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁵⁾	At September 30, 2019 and December 31, 2018, the carrying value of TDR Loans includes $231 million and $286 million, respectively, of loans which are classified as nonaccrual.


⁽⁶⁾	Included in the allowance for credit losses.

The following table presents information about average TDR Loans and interest income recognized on TDR Loans:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Average balance of TDR Loans:
Commercial loans:
Business and corporate banking	$	50	$	97	$	60	$	136
Global banking	71		117		83		126
Total commercial	121		214		143		262
Consumer loans:
Residential mortgages	602		657		615		666
Home equity mortgages	33		35		33		35
Credit cards	4		4		4		4
Total consumer	639		696		652		705
Total average balance of TDR Loans	$	760	$	910	$	795	$	967
Interest income recognized on TDR Loans:
Commercial loans:
Business and corporate banking	$	—	$	5	$	2	$	9
Global banking	1		1		2		3
Total commercial	1		6		4		12
Consumer loans:
Residential mortgages	7		6		20		20
Home equity mortgages	—		—		1		1
Total consumer	7		6		21		21
Total interest income recognized on TDR Loans	$	8	$	12	$	25	$	33

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, 2019 and 2018:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Consumer loans:
Residential mortgages	$	—	$	4	$	3	$	6
Home equity mortgages	—		—		—		2
Total consumer	$	—	$	4	$	3	$	8

During the three and nine months ended September 30, 2019 and 2018, there were no commercial TDR Loans which were classified as TDR Loans during the previous 12 months which subsequently became 90 days or greater contractually delinquent.

Impaired commercial loans The following table presents information about impaired commercial loans and the related impairment reserve:



	Amount with Impairment Reserves⁽¹⁾		Amount without Impairment Reserves⁽¹⁾		Total Impaired Commercial Loans⁽¹⁾⁽²⁾		Impairment Reserve		Unpaid Principal Balance
	(in millions)
At September 30, 2019
Real estate, including construction	$	2	$	2	$	4	$	1	$	4
Business and corporate banking	121		38		159		29		200
Global banking	—		132		132		—		141
Total commercial	$	123	$	172	$	295	$	30	$	345
At December 31, 2018
Real estate, including construction	$	3	$	3	$	6	$	1	$	6
Business and corporate banking	58		37		95		18		109
Global banking	—		133		133		—		140
Other commercial	—		1		1		—		1
Total commercial	$	61	$	174	$	235	$	19	$	256


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


⁽²⁾	Includes impaired commercial loans that are also considered TDR Loans which totaled $100 million and $181 million at September 30, 2019 and December 31, 2018, respectively.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Average balance of impaired commercial loans:
Real estate, including construction	$	4	$	8	$	5	$	10
Business and corporate banking	130		185		116		227
Global banking	117		152		116		266
Other commercial	—		1		—		—
Total average balance of impaired commercial loans	$	251	$	346	$	237	$	503
Interest income recognized on impaired commercial loans:
Business and corporate banking	$	1	$	6	$	4	$	12
Global banking	1		1		2		3
Total interest income recognized on impaired commercial loans	$	2	$	7	$	6	$	15

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

Criticized loans Criticized loan classifications presented in the table below are determined by the assignment of various criticized facility grades based on the risk rating standards of our regulator. The following table summarizes criticized commercial loans:



	Special Mention		Substandard		Doubtful		Total
	(in millions)
At September 30, 2019
Real estate, including construction	$	699	$	284	$	—	$	983
Business and corporate banking	435		415		31		881
Global banking	208		292		—		500
Other commercial	10		—		—		10
Total commercial	$	1,352	$	991	$	31	$	2,374
At December 31, 2018
Real estate, including construction	$	452	$	93	$	4	$	549
Business and corporate banking	193		314		15		522
Global banking	262		277		—		539
Other commercial	—		1		—		1
Total commercial	$	907	$	685	$	19	$	1,611

Nonperforming The following table summarizes the status of our commercial loan portfolio, excluding loans held for sale:



	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At September 30, 2019
Real estate, including construction	$	11,893	$	3	$	—	$	11,896
Business and corporate banking	14,682		149		1		14,832
Global banking	18,765		112		—		18,877
Other commercial	5,712		—		—		5,712
Total commercial	$	51,052	$	264	$	1	$	51,317
At December 31, 2018
Real estate, including construction	$	11,337	$	7	$	—	$	11,344
Business and corporate banking	12,995		70		1		13,066
Global banking	20,102		65		—		20,167
Other commercial	4,764		1		—		4,765
Total commercial	$	49,198	$	143	$	1	$	49,342

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



	Investment Grade⁽¹⁾		Non-Investment Grade		Total
	(in millions)
At September 30, 2019
Real estate, including construction	$	6,610	$	5,286	$	11,896
Business and corporate banking	6,261		8,571		14,832
Global banking	13,585		5,292		18,877
Other commercial	4,931		781		5,712
Total commercial	$	31,387	$	19,930	$	51,317
At December 31, 2018
Real estate, including construction	$	6,769	$	4,575	$	11,344
Business and corporate banking	5,674		7,392		13,066
Global banking	14,764		5,403		20,167
Other commercial	3,990		775		4,765
Total commercial	$	31,197	$	18,145	$	49,342


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

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

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



	September 30, 2019				December 31, 2018
	Delinquent Loans		Delinquency Ratio		Delinquent Loans		Delinquency Ratio
	(dollars are in millions)
Residential mortgages⁽¹⁾⁽²⁾	$	332	1.88	%	$	347	1.99	%
Home equity mortgages⁽¹⁾⁽²⁾	26		2.95		30		3.05
Credit cards	26		1.99		20		1.96
Other consumer	7		2.72		8		2.62
Total consumer	$	391	1.95	%	$	405	2.05	%


⁽¹⁾	At September 30, 2019 and December 31, 2018, consumer mortgage loan delinquency includes $240 million and $254 million, respectively, of loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell, including $1 million and $1 million, respectively, relating to loans held for sale.


⁽²⁾	At September 30, 2019 and December 31, 2018, consumer mortgage loans and loans held for sale include $140 million and $125 million, respectively, of loans that were in the process of foreclosure.

Nonperforming The following table summarizes the status of our consumer loan portfolio, excluding loans held for sale:



	Performing Loans		Nonaccrual Loans		Accruing Loans Contractually Past Due 90 days or More		Total
	(in millions)
At September 30, 2019
Residential mortgages	$	17,203	$	371	$	—	$	17,574
Home equity mortgages	833		47		—		880
Credit cards	1,290		—		18		1,308
Other consumer	251		—		6		257
Total consumer	$	19,577	$	418	$	24	$	20,019
At December 31, 2018
Residential mortgages	$	17,042	$	341	$	—	$	17,383
Home equity mortgages	927		55		—		982
Credit cards	1,005		—		14		1,019
Other consumer	246		—		6		252
Total consumer	$	19,220	$	396	$	20	$	19,636

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

Concentration of Credit Risk At September 30, 2019 and December 31, 2018, our loan portfolios included interest-only residential mortgage and home equity mortgage loans totaling $3,272 million and $3,208 million, respectively. An interest-only residential mortgage loan allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer's financial position could affect the ability of customers to repay the loan in the future when the principal payments are required which increases the credit risk of this loan type.