Business Segments

We have five distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Retail Banking and Wealth Management ("RBWM"), Commercial Banking ("CMB"), Global Banking and Markets ("GB&M"), Private Banking ("PB") and a Corporate Center ("CC"). There have been no changes in the basis of our segmentation as compared with the presentation in our 2018 Form 10-K.

Net interest income of each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for a funding charge or credit that includes both interest rate and liquidity components. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates that incorporate both repricing (interest rate risk) and tenor (liquidity) characteristics. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Balance Sheet Management, recognize term funding costs/benefits and more appropriately reflect the profitability of the segments.

Certain other revenue and operating expense amounts are also apportioned among the business segments based upon the benefits derived from this activity or the relationship of this activity to other segment activity. These inter-segment transactions have not been eliminated, and we generally account for them as if they were with third parties.

Our segment results are presented in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB and endorsed by the EU, and, as a result, our segment results are prepared and presented using financial information prepared on the Group Reporting Basis as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees, are primarily made on this basis. We continue, however, to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

There have been no changes in the measurement of segment profit as compared with the presentation in our 2018 Form 10-K.

A summary of significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results are summarized in Note 23, "Business Segments," in our 2018 Form 10-K. Other than the changes discussed below, there have been no other significant changes since December 31, 2018 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.

Leases - In January 2019, new accounting guidance was adopted for leases under both U.S. GAAP and the Group Reporting Basis. Under U.S. GAAP, expense on operating leases is generally recognized on a straight-line basis. Under the Group Reporting Basis, all leases are recognized as financing arrangements with interest expense on the lease obligation and depreciation of the ROU asset recorded over the remaining life of the lease.

Property - The sale and leaseback of our 452 Fifth Avenue property, including the 1 W. 39th Street building, in 2010 resulted in the recognition of a gain under the Group Reporting Basis, while under U.S. GAAP, such gain was historically deferred and was being recognized over the lease term. As a result of adopting the new accounting guidance for leases under U.S. GAAP as discussed above, we recorded a cumulative effect adjustment to recognize the previously deferred gain in retained earnings as of January 1, 2019.

The following table summarizes the results for each segment on a Group Reporting Basis, as well as provides a reconciliation of total results under the Group Reporting Basis to U.S. GAAP consolidated totals:



	Group Reporting Basis Consolidated Amounts
	RBWM			CMB			GB&M			PB			CC			Total			Group Reporting Basis Adjustments⁽¹⁾			Group Reporting Basis Reclassi- fications⁽²⁾			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended September 30, 2019
Net interest income	$	209		$	211		$	67		$	31		$	25		$	543		$	1		$	(41	)	$	503
Other operating income	70			63			251			19			35			438			2			46			486
Total operating income	279			274			318			50			60			981			3			5			989
Expected credit losses / provision for credit losses	51			19			(2		)	—			—			68			25			1			94
	228			255			320			50			60			913			(22		)	4			895
Operating expenses	503			144			196			50			53			946			156			4			1,106
Profit (loss) before income tax expense	$	(275	)	$	111		$	124		$	—		$	7		$	(33	)	$	(178	)	$	—		$	(211	)

Three Months Ended September 30, 2018
Net interest income	$	223		$	206		$	157		$	42		$	17		$	645		$	(2	)	$	(84	)	$	559
Other operating income	75			56			195			17			70			413			(15		)	88			486
Total operating income	298			262			352			59			87			1,058			(17		)	4			1,045
Expected credit losses / provision for credit losses	10			(4		)	(30		)	(1		)	(1		)	(26		)	47			(1		)	20
	288			266			382			60			88			1,084			(64		)	5			1,025
Operating expenses	317			150			203			59			55			784			1			5			790
Profit (loss) before income tax expense	$	(29	)	$	116		$	179		$	1		$	33		$	300		$	(65	)	$	—		$	235

Nine Months Ended September 30, 2019
Net interest income	$	647		$	614		$	354		$	105		$	57		$	1,777		$	10		$	(182	)	$	1,605
Other operating income	209			176			596			52			108			1,141			(18		)	189			1,312
Total operating income	856			790			950			157			165			2,918			(8		)	7			2,917
Expected credit losses / provision for credit losses	84			34			(17		)	1			1			103			89			6			198
	772			756			967			156			164			2,815			(97		)	1			2,719
Operating expenses	1,119			424			612			159			141			2,455			174			1			2,630
Profit (loss) before income tax expense	$	(347	)	$	332		$	355		$	(3	)	$	23		$	360		$	(271	)	$	—		$	89
Balances at end of period:
Total assets	$	19,128		$	27,734		$	89,154		$	7,042		$	79,457		$	222,515		$	(37,755	)	$	—		$	184,760
Total loans, net	17,378			26,251			17,871			5,940			1,735			69,175			(1,965		)	3,450			70,660
Goodwill	372			358			—			321			—			1,051			191			—			1,242
Total deposits	34,877			25,489			32,002			7,720			3,876			103,964			(4,036		)	19,873			119,801



	Group Reporting Basis Consolidated Amounts
	RBWM			CMB			GB&M			PB			CC			Total			Group Reporting Basis Adjustments⁽¹⁾			Group Reporting Basis Reclassi- fications⁽²⁾			U.S. GAAP Consolidated Totals
	(in millions)
Nine Months Ended September 30, 2018
Net interest income	$	664		$	587		$	457		$	132		$	50		$	1,890		$	12		$	(236	)	$	1,666
Other operating income	239			169			644			53			225			1,330			(35		)	241			1,536
Total operating income	903			756			1,101			185			275			3,220			(23		)	5			3,202
Expected credit losses / provision for credit losses	16			(50		)	(187		)	(4		)	3			(222		)	114			12			(96		)
	887			806			1,288			189			272			3,442			(137		)	(7		)	3,298
Operating expenses	983			440			628			181			641			2,873			(8		)	(7		)	2,858
Profit (loss) before income tax expense	$	(96	)	$	366		$	660		$	8		$	(369	)	$	569		$	(129	)	$	—		$	440
Balances at end of period:
Total assets	$	18,977		$	25,289		$	76,194		$	6,742		$	78,421		$	205,623		$	(31,621	)	$	—		$	174,002
Total loans, net	16,814			24,126			17,464			5,656			1,306			65,366			(829		)	1,684			66,221
Goodwill	581			358			—			321			—			1,260			347			—			1,607
Total deposits	32,051			22,440			29,777			8,167			5,211			97,646			(3,441		)	17,885			112,090


⁽¹⁾	Represents adjustments associated with differences between U.S. GAAP and the Group Reporting Basis.


⁽²⁾	Represents differences in financial statement presentation between U.S. GAAP and the Group Reporting Basis.