Loans Held for Sale

3 Months Ended

Mar. 31, 2022

Loans held for sale consisted of the following:


	March 31, 2022		December 31, 2021
	(in millions)
Commercial loans:

Business and corporate banking	$	7	$	123
Global banking	204		338
Total commercial	211		461
Consumer loans:
Residential mortgages	568		3,082
Home equity mortgages	47		275
Credit cards	17		195
Other consumer	105		204
Total consumer	737		3,756
Total loans held for sale	$	948	$	4,217

Commercial Loans During the first quarter of 2022, we completed the sale of the branch disposal group that we previously transferred to held for sale in 2021 as part of our Restructuring Plan. The sale included certain retail business banking loans with a carrying value at the time of sale of $37 million. See Note 3, "Branch Assets and Liabilities Held for Sale," for additional information.

Also included in commercial loans held for sale are certain other loans that we no longer intend to hold for investment and were transferred to held for sale which totaled $91 million and $359 million at March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022 and 2021, lower of amortized cost or fair value adjustments on these commercial loans held for sale were immaterial.

In addition, commercial loans held for sale includes certain loans that we have elected to designate under the fair value option which consists of loans that we originate in connection with our participation in a number of syndicated credit facilities with the intent of selling them to unaffiliated third parties as well as loans that we purchase from the secondary market and hold as hedges against our exposure to certain total return swaps. The fair value of these loans totaled $120 million and $23 million at March 31, 2022 and December 31, 2021, respectively. See Note 11, "Fair Value Option," for additional information.

Consumer Loans As discussed above, during the first quarter of 2022, we completed the sale of the branch disposal group that we previously transferred to held for sale in 2021 as part of our Restructuring Plan. The sale included certain consumer loans with a carrying value at the time of sale which collectively totaled $2,102 million, including $1,665 million of residential mortgages, $185 million of home equity mortgages, $168 million of credit cards and $84 million of other consumer loans. See Note 3, "Branch Assets and Liabilities Held for Sale," for additional information.

In addition to the branch disposal group discussed above, during the first quarter of 2022, we sold a portfolio of consumer loans to a third party consisting primarily of certain non-performing mortgage loans and government-backed mortgage loans that we previously transferred to held for sale in 2021 as part of our Restructuring Plan. These mortgage loans had a carrying value at the time of sale which collectively totaled $904 million, including $865 million of residential mortgages and $39 million of home equity mortgages, and we recognized a loss on sale of $35 million, largely reflecting changes in the final terms of the sale. The loss on sale is reflected as a component of other income (loss) in the consolidated statement of income.

At March 31, 2022, remaining mass market retail banking loans and other consumer loans that we previously transferred to held for sale in 2021 as part of our Restructuring Plan remained in consumer loans held for sale. The carrying value of these loans collectively totaled $707 million, including $538 million of residential mortgages, $47 million of home equity mortgages, $17 million of credit cards and $105 million of other consumer loans (of which $24 million are student loans that we have previously elected to designate under the fair value option and are therefore carried at fair value).

In addition, residential mortgage loans held for sale includes agency-eligible conforming residential mortgage loans which are originated and held for sale to third parties, currently on a servicing retained basis. Gains and losses from the sale of these residential mortgage loans are reflected as a component of other income (loss) in the consolidated statement of income.

Loans held for sale are subject to market risk, liquidity risk and interest rate risk, in that their value will fluctuate as a result of changes in market conditions, as well as the credit environment. Interest rate risk for residential mortgage loans which are

originated and held for sale is partially mitigated through an economic hedging program to offset changes in the fair value of these mortgage loans held for sale, from the time of commitment to sale, attributable to changes in market interest rates. Revenue associated with this economic hedging program, which is reflected as a component of other income (loss) in the consolidated statement of income, was a gain of $4 million during the three months ended March 31, 2022 compared with a gain of $2 million during the three months ended March 31, 2021.

Valuation Allowances Excluding the loans designated under the fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value, with adjustments to fair value being recorded as a valuation allowance through other revenues. The valuation allowance on consumer loans held for sale was $5 million and $7 million at March 31, 2022 and December 31, 2021, respectively. The valuation allowance on commercial loans held for sale was $1 million and $5 million at March 31, 2022 and December 31, 2021, respectively.