Business Segments and Revenue from Contracts with Customers

9 Months Ended

Sep. 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 revenues and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process managed by our centralized Corporate Treasury group provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each segment. The allocation is unique to each business segment and acquired business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the business segments. 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 market rate. 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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 17—Business Segments and Revenue from Contracts with Customers” in our 2022 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 nine months ended September 30, 2023 and 2022, selected balance sheet data as of September 30, 2023 and 2022, 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 September 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	5,114	$	2,133	$	621	$	(445)	$	7,423
Non-interest income	1,513		142		288		0		1,943
Total net revenue (loss)(2)	6,627		2,275		909		(445)		9,366
Provision for credit losses	1,953		213		116		2		2,284
Non-interest expense	3,015		1,262		512		71		4,860
Income (loss) from continuing operations before income taxes	1,659		800		281		(518)		2,222
Income tax provision (benefit)	393		189		67		(217)		432
Income (loss) from continuing operations, net of tax	$	1,266	$	611	$	214	$	(301)	$	1,790
Loans held for investment	$	146,783	$	76,844	$	91,153	$	0	$	314,780
Deposits	0		290,789		36,035		19,187		346,011

	Nine Months Ended September 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	14,498	$	6,762	$	1,901	$	(1,439)	$	21,722
Non-interest income	4,375		426		757		1		5,559
Total net revenue (loss)(2)	18,873		7,188		2,658		(1,438)		27,281
Provision for credit losses	6,298		747		521		3		7,569
Non-interest expense	9,073		3,776		1,524		226		14,599
Income (loss) from continuing operations before income taxes	3,502		2,665		613		(1,667)		5,113
Income tax provision (benefit)	830		629		145		(672)		932
Income (loss) from continuing operations, net of tax	$	2,672	$	2,036	$	468	$	(995)	$	4,181
Loans held for investment	$	146,783	$	76,844	$	91,153	$	0	$	314,780
Deposits	0		290,789		36,035		19,187		346,011

	Three Months Ended September 30, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	4,313	$	2,311	$	699	$	(320)	$	7,003
Non-interest income (loss)	1,454		129		319		(100)		1,802
Total net revenue (loss)(2)	5,767		2,440		1,018		(420)		8,805
Provision (benefit) for credit losses	1,261		285		123		0		1,669
Non-interest expense	3,004		1,340		542		63		4,949
Income (loss) from continuing operations before income taxes	1,502		815		353		(483)		2,187
Income tax provision (benefit)	356		193		83		(139)		493
Income (loss) from continuing operations, net of tax	$	1,146	$	622	$	270	$	(344)	$	1,694
Loans held for investment	$	126,913	$	81,199	$	95,831	$	0	$	303,943
Deposits	0		256,661		41,058		19,474		317,193

                                                                                                                                                                                                                                                                                                                                                                                                                                        

	Nine Months Ended September 30, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	12,051	$	6,571	$	1,941	$	(646)	$	19,917
Non-interest income (loss)	4,322		330		868		(227)		5,293
Total net revenue (loss)(2)	16,373		6,901		2,809		(873)		25,210
Provision (benefit) for credit losses	2,387		696		353		(5)		3,431
Non-interest expense	8,558		3,862		1,515		148		14,083
Income (loss) from continuing operations before income taxes	5,428		2,343		941		(1,016)		7,696
Income tax provision (benefit)	1,291		555		223		(501)		1,568
Income (loss) from continuing operations, net of tax	$	4,137	$	1,788	$	718	$	(515)	$	6,128
Loans held for investment	$	126,913	$	81,199	$	95,831	$	0	$	303,943
Deposits	0		256,661		41,058		19,474		317,193

_________

(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 $449 million and $1.3 billion in the three and nine months ended September 30, 2023, respectively, and $222 million and $625 million in the three and nine months ended September 30, 2022, 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 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 nine months ended September 30, 2023 and 2022.

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

	Three Months Ended September 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,115	$	92	$	27	$	0	$	1,234
Service charges and other customer-related fees	0		21		78		0		99
Other	111		28		3		0		142
Total contract revenue	1,226		141		108		0		1,475
Revenue from other sources	287		1		180		0		468
Total non-interest income	$	1,513	$	142	$	288	$	0	$	1,943

	Nine Months Ended September 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	3,251	$	270	$	64	$	1	$	3,586
Service charges and other customer-related fees	0		64		173		(1)		236
Other	257		74		16		0		347
Total contract revenue	3,508		408		253		0		4,169
Revenue from other sources	867		18		504		1		1,390
Total non-interest income	$	4,375	$	426	$	757	$	1	$	5,559

	Three Months Ended September 30, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,085	$	83	$	27	$	0	$	1,195
Service charges and other customer-related fees	0		23		62		0		85
Other	104		18		13		0		135
Total contract revenue	1,189		124		102		0		1,415
Revenue (reduction) from other sources	265		5		217		(100)		387
Total non-interest income (loss)	$	1,454	$	129	$	319	$	(100)	$	1,802

	Nine Months Ended September 30, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	3,115	$	234	$	79	$	1	$	3,429
Service charges and other customer-related fees	0		70		190		(1)		259
Other	297		56		14		0		367
Total contract revenue	3,412		360		283		0		4,055
Revenue (reduction) from other sources	910		(30)		585		(227)		1,238
Total non-interest income (loss)	$	4,322	$	330	$	868	$	(227)	$	5,293

__________

(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