Business Segments and Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Business Segments and Revenue from Contracts with Customers

NOTE 12—BUSINESS SEGMENTS AND REVENUE FROM CONTRACTS WITH CUSTOMERS

Our principal operations are organized into three major business segments, which are defined primarily based on the products and services provided or the types of customers served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.

Basis of Presentation

We report the results of each of our business segments on a continuing operations basis. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources.

Business Segment Reporting Methodology

The results of our business segments are intended to present each segment as if it were a stand-alone business. Our internal management and reporting process used to derive our segment results employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds by each segment. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments are based on specific criteria or approximate third-party rates. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods. We provide additional information on the allocation methodologies used to derive our business segment results in “Note 17—Business Segments and Revenue from Contracts with Customers” in our 2020 Form 10-K.

Segment Results and Reconciliation

We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies or changes in organizational alignment. The following table presents our business segment results for the three months ended March 31, 2021 and 2020, selected balance sheet data as of March 31, 2021 and 2020, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, loans held for investment and deposits.

Table 12.1: Segment Results and Reconciliation

	Three Months Ended March 31, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	3,372	$	2,030	$	520	$	(100)	$	5,822
Non-interest income (loss)	1,029		141		240		(119)		1,291
Total net revenue (loss)(2)	4,401		2,171		760		(219)		7,113
Provision (benefit) for credit losses	(492)		(126)		(203)		(2)		(823)
Non-interest expense	2,135		1,117		419		69		3,740
Income (loss) from continuing operations before income taxes	2,758		1,180		544		(286)		4,196
Income tax provision (benefit)	653		278		128		(190)		869
Income (loss) from continuing operations, net of tax	$	2,105	$	902	$	416	$	(96)	$	3,327
Loans held for investment	$	99,127	$	70,202	$	73,802	$	0	$	243,131
Deposits	0		254,001		41,552		14,775		310,328

	Three Months Ended March 31, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income	$	3,702	$	1,657	$	491	$	175	$	6,025
Non-interest income (loss)	911		126		238		(51)		1,224
Total net revenue(2)	4,613		1,783		729		124		7,249
Provision (benefit) for credit losses	3,702		860		856		5		5,423
Non-interest expense	2,208		991		412		118		3,729
Income (loss) from continuing operations before income taxes	(1,297)		(68)		(539)		1		(1,903)
Income tax benefit	(306)		(16)		(128)		(113)		(563)
Income (loss) from continuing operations, net of tax	$	(991)	$	(52)	$	(411)	$	114	$	(1,340)
Loans held for investment	$	117,797	$	64,033	$	81,160	$	0	$	262,990
Deposits	0		217,607		32,822		19,260		269,689

__________

(1)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.

(2)Total net revenue was reduced by $180 million and $389 million in the first quarters of 2021 and 2020, respectively, for finance charges and fees charged-off as uncollectible.

Revenue from Contracts with Customers

The majority of our revenue from contracts with customers consists of interchange fees, service charges and other customer-related fees, and other contract revenue. Interchange fees are primarily from our Credit Card business and are recognized upon settlement with the interchange networks, net of rewards earned by customers. Service charges and other customer-related fees within our Consumer Banking business are primarily related to fees earned on consumer deposit accounts for account maintenance and various transaction-based services such as overdrafts and ATM usage. Service charges and other customer-related fees within our Commercial Banking business are mostly related to fees earned on treasury management and capital markets services. Other contract revenue in our Credit Card business consists primarily of revenue from our partnership arrangements. Other contract revenue in our Consumer Banking business consists primarily of revenue earned on certain marketing and promotional events from our auto dealers. Revenue from contracts with customers is included in non-interest income in our consolidated statements of income.

The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment for the three months ended March 31, 2021 and 2020.

Table 12.2: Revenue from Contracts with Customers and Reconciliation to Segment Results

	Three Months Ended March 31, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	743	$	57	$	17	$	0	$	817
Service charges and other customer-related fees	0		44		50		0		94
Other	70		19		1		0		90
Total contract revenue	813		120		68		0		1,001
Revenue (reduction) from other sources	216		21		172		(119)		290
Total non-interest income (loss)	$	1,029	$	141	$	240	$	(119)	$	1,291

	Three Months Ended March 31, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	688	$	50	$	15	$	(1)	$	752
Service charges and other customer-related fees	0		64		31		0		95
Other	70		19		1		0		90
Total contract revenue	758		133		47		(1)		937
Revenue (reduction) from other sources	153		(7)		191		(50)		287
Total non-interest income (loss)	$	911	$	126	$	238	$	(51)	$	1,224

________

(1)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.

(2)Interchange fees are presented net of customer reward expenses