Business Segments and Revenue from Contracts with Customers

12 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Business Segments and Revenue from Contracts with Customers

NOTE 17—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 are included in the Other category.

•Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in Canada and the United Kingdom.

•Consumer Banking: Consists of our deposit gathering and lending activities for consumers and small businesses, and national auto lending.

•Commercial Banking: Consists of our lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers. Our customers typically include companies with annual revenues between $20 million and $2 billion.

•Other category: Includes the residual impact of the allocation of our centralized Corporate Treasury group activities, such as management of our corporate investment portfolio and asset/liability management, to our business segments. Accordingly, net gains and losses on our investment securities portfolio and certain trading activities are included in the Other category. Other category also includes foreign exchange-rate fluctuations on foreign currency-denominated transactions; unallocated corporate expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges; certain material items that are non-recurring in nature; offsets related to certain line-item reclassifications; and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments.

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.

The following is additional information on the principles and methodologies used in preparing our business segment results.

•Net interest income: Interest income from loans held for investment and interest expense from deposits and other interest-bearing liabilities are reflected within each applicable business segment. Because funding and asset/liability management are managed centrally by our Corporate Treasury group, net interest income for our business segments also includes the results of a funds transfer pricing process that is intended to allocate a cost of funds used or credit for funds provided to all business segment assets and liabilities, respectively, using a matched funding concept. The taxable-equivalent benefit of tax-exempt products is also allocated to each business unit with a corresponding increase in income tax expense.

•Non-interest income: Non-interest fees and other revenue associated with loans or customers managed by each business segment and other direct revenues are accounted for within each business segment.

•Provision for credit losses: The provision for credit losses is directly attributable to the business segment in accordance with the loans each business segment manages.

•Non-interest expense: Non-interest expenses directly managed and incurred by a business segment are accounted for within each business segment. We allocate certain non-interest expenses indirectly incurred by business segments, such as corporate support functions, to each business segment based on various factors, including the actual cost of the services from the service providers, the utilization of the services, the number of employees or other relevant factors.

•Goodwill and other intangible assets: Goodwill and other intangible assets that are not directly attributable to business segments are assigned to business segments based on the relative fair value of each segment. Intangible amortization is included in the results of the applicable segment.

•Income taxes: Income taxes are assessed for each business segment based on a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in the Other category.

•Loans held for investment: Loans are reported within each business segment based on product or customer type served by that business segment.

•Deposits: Deposits are reported within each business segment based on product or customer type served by that business segment.

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 years ended December 31, 2021, 2020 and 2019, selected balance sheet data as of December 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 17.1: Segment Results and Reconciliation

	Year Ended December 31, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	14,074	$	8,448	$	2,153	$	(504)	$	24,171
Non-interest income (loss)	4,806		554		1,148		(244)		6,264
Total net revenue (loss)(2)	18,880		9,002		3,301		(748)		30,435
Benefit for credit losses	(902)		(521)		(519)		(2)		(1,944)
Non-interest expense	9,621		4,711		1,815		423		16,570
Income (loss) from continuing operations before income taxes	10,161		4,812		2,005		(1,169)		15,809
Income tax provision (benefit)	2,403		1,136		473		(597)		3,415
Income (loss) from continuing operations, net of tax	$	7,758	$	3,676	$	1,532	$	(572)	$	12,394
Loans held for investment	$	114,772	$	77,646	$	84,922	$	0	$	277,340
Deposits	0		256,407		44,809		9,764		310,980

	Year Ended December 31, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	13,776	$	7,238	$	2,048	$	(149)	$	22,913
Non-interest income	3,823		466		923		398		5,610
Total net revenue(2)	17,599		7,704		2,971		249		28,523
Provision for credit losses	7,327		1,753		1,181		3		10,264
Non-interest expense	8,491		4,159		1,706		700		15,056
Income (loss) from continuing operations before income taxes	1,781		1,792		84		(454)		3,203
Income tax provision (benefit)	420		425		19		(378)		486
Income (loss) from continuing operations, net of tax	$	1,361	$	1,367	$	65	$	(76)	$	2,717
Loans held for investment	$	106,956	$	68,888	$	75,780	$	0	$	251,624
Deposits	0		249,815		39,590		16,037		305,442

	Year Ended December 31, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income	$	14,461	$	6,732	$	1,983	$	164	$	23,340
Non-interest income (loss)	3,888		643		831		(109)		5,253
Total net revenue(2)	18,349		7,375		2,814		55		28,593
Provision for credit losses	4,992		938		306		0		6,236
Non-interest expense	9,271		4,091		1,699		422		15,483
Income (loss) from continuing operations before income taxes	4,086		2,346		809		(367)		6,874
Income tax provision (benefit)	959		547		188		(353)		1,341
Income (loss) from continuing operations, net of tax	$	3,127	$	1,799	$	621	$	(14)	$	5,533
Loans held for investment	$	128,236	$	63,065	$	74,508	$	0	$	265,809
Deposits	0		213,099		32,134		17,464		262,697

__________

(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 $629 million and $1.1 billion for the years ended December 31, 2021 and 2020, respectively, for credit card finance charges and fees charged off as uncollectible and by $1.4 billion for the year ended December 31, 2019, for the estimated uncollectible amount of billed finance charges and fees and related losses.

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 years ended December 31, 2021, 2020 and 2019.

Table 17.2: Revenue from Contracts with Customers and Reconciliation to Segment Results

	Year Ended December 31, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	3,497	$	267	$	96	$	0	$	3,860
Service charges and other customer-related fees	0		171		287		(1)		457
Other	383		75		5		0		463
Total contract revenue	3,880		513		388		(1)		4,780
Revenue (reduction) from other sources	926		41		760		(243)		1,484
Total non-interest income (loss)	$	4,806	$	554	$	1,148	$	(244)	$	6,264

	Year Ended December 31, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	2,747	$	209	$	63	$	(2)	$	3,017
Service charges and other customer-related fees	0		188		175		(1)		362
Other	315		39		4		0		358
Total contract revenue	3,062		436		242		(3)		3,737
Revenue from other sources	761		30		681		401		1,873
Total non-interest income	$	3,823	$	466	$	923	$	398	$	5,610

	Year Ended December 31, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	2,925	$	205	$	55	$	(6)	$	3,179
Service charges and other customer-related fees	0		298		120		(1)		417
Other	120		101		3		0		224
Total contract revenue	3,045		604		178		(7)		3,820
Revenue (reduction) from other sources	843		39		653		(102)		1,433
Total non-interest income (loss)	$	3,888	$	643	$	831	$	(109)	$	5,253

__________

(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 of $6.4 billion for the year ended December 31, 2021 and $4.9 billion for both the years ended December 31, 2020 and 2019.