Business Segments and Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 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 and six months ended June 30, 2021 and 2020, selected balance sheet data as of June 30, 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 June 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	3,217	$	2,101	$	460	$	(35)	$	5,743
Non-interest income (loss)	1,253		144		257		(23)		1,631
Total net revenue (loss)(2)	4,470		2,245		717		(58)		7,374
Provision (benefit) for credit losses	(635)		(306)		(219)		0		(1,160)
Non-interest expense	2,263		1,123		417		163		3,966
Income (loss) from continuing operations before income taxes	2,842		1,428		519		(221)		4,568
Income tax provision (benefit)	672		337		123		(101)		1,031
Income (loss) from continuing operations, net of tax	$	2,170	$	1,091	$	396	$	(120)	$	3,537
Loans held for investment	$	101,017	$	74,759	$	73,821	$	0	$	249,597
Deposits	0		251,155		42,973		12,180		306,308

	Six Months Ended June 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	6,589	$	4,131	$	980	$	(135)	$	11,565
Non-interest income (loss)	2,282		285		497		(142)		2,922
Total net revenue (loss)(2)	8,871		4,416		1,477		(277)		14,487
Provision (benefit) for credit losses	(1,127)		(432)		(422)		(2)		(1,983)
Non-interest expense	4,398		2,240		836		232		7,706
Income (loss) from continuing operations before income taxes	5,600		2,608		1,063		(507)		8,764
Income tax provision (benefit)	1,325		615		251		(291)		1,900
Income (loss) from continuing operations, net of tax	$	4,275	$	1,993	$	812	$	(216)	$	6,864
Loans held for investment	$	101,017	$	74,759	$	73,821	$	0	$	249,597
Deposits	0		251,155		42,973		12,180		306,308

	Three Months Ended June 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	3,369	$	1,665	$	518	$	(92)	$	5,460
Non-interest income (loss)	845		97		180		(26)		1,096
Total net revenue (loss)(2)	4,214		1,762		698		(118)		6,556
Provision (benefit) for credit losses	2,944		876		427		(1)		4,246
Non-interest expense	1,969		1,036		425		340		3,770
Loss from continuing operations before income taxes	(699)		(150)		(154)		(457)		(1,460)
Income tax benefit	(166)		(36)		(36)		(305)		(543)
Loss from continuing operations, net of tax	$	(533)	$	(114)	$	(118)	$	(152)	$	(917)
Loans held for investment	$	107,310	$	66,712	$	77,490	$	0	$	251,512
Deposits	0		246,804		35,669		21,765		304,238

	Six Months Ended June 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income	$	7,071	$	3,322	$	1,009	$	83	$	11,485
Non-interest income (loss)	1,756		223		418		(77)		2,320
Total net revenue(2)	8,827		3,545		1,427		6		13,805
Provision for credit losses	6,646		1,736		1,283		4		9,669
Non-interest expense	4,177		2,027		837		458		7,499
Loss from continuing operations before income taxes	(1,996)		(218)		(693)		(456)		(3,363)
Income tax benefit	(472)		(52)		(164)		(418)		(1,106)
Loss from continuing operations, net of tax	$	(1,524)	$	(166)	$	(529)	$	(38)	$	(2,257)
Loans held for investment	$	107,310	$	66,712	$	77,490	$	0	$	251,512
Deposits	0		246,804		35,669		21,765		304,238

__________

(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 $175 million and $355 million in the three and six months ended June 30, 2021, respectively, and $318 million and $707 million in the three and six months ended June 30, 2020, respectively, for credit card 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 Automated teller machine (“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 and six months ended June 30, 2021 and 2020.

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

	Three Months Ended June 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	925	$	67	$	24	$	0	$	1,016
Service charges and other customer-related fees	0		45		66		0		111
Other	94		19		1		0		114
Total contract revenue	1,019		131		91		0		1,241
Revenue (reduction) from other sources	234		13		166		(23)		390
Total non-interest income (loss)	$	1,253	$	144	$	257	$	(23)	$	1,631

	Six Months Ended June 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,668	$	124	$	41	$	0	$	1,833
Service charges and other customer-related fees	0		89		116		0		205
Other	164		38		2		0		204
Total contract revenue	1,832		251		159		0		2,242
Revenue (reduction) from other sources	450		34		338		(142)		680
Total non-interest income (loss)	$	2,282	$	285	$	497	$	(142)	$	2,922

	Three Months Ended June 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	612	$	48	$	13	$	(1)	$	672
Service charges and other customer-related fees	0		31		43		(1)		73
Other	57		3		0		0		60
Total contract revenue	669		82		56		(2)		805
Revenue (reduction) from other sources	176		15		124		(24)		291
Total non-interest income	$	845	$	97	$	180	$	(26)	$	1,096

	Six Months Ended June 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,300	$	98	$	28	$	(2)	$	1,424
Service charges and other customer-related fees	0		95		74		(1)		168
Other	127		22		1		0		150
Total contract revenue	1,427		215		103		(3)		1,742
Revenue (reduction) from other sources	329		8		315		(74)		578
Total non-interest income	$	1,756	$	223	$	418	$	(77)	$	2,320

________

(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