Business Segments and Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2024

Segment Reporting [Abstract]

Business Segments and Revenue from Contracts with Customers

NOTE 13—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 business segment are included in the Other category, such as the management of our corporate investment portfolio and asset/liability positions performed by our centralized Corporate Treasury group and any residual tax expense or benefit beyond what is assessed to our business segments in order to arrive at the consolidated effective tax rate. The Other category also includes 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.

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 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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 17—Business Segments and Revenue from Contracts with Customers” in our 2023 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, 2024 and 2023, selected balance sheet data as of March 31, 2024 and 2023, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, loans held for investment and deposits.

Table 13.1: Segment Results and Reconciliation

	Three Months Ended March 31, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	5,272	$	2,011	$	599	$	(394)	$	7,488
Non-interest income (loss)	1,476		159		281		(2)		1,914
Total net revenue (loss)(2)	6,748		2,170		880		(396)		9,402
Provision (benefit) for credit losses	2,259		426		(2)		0		2,683
Non-interest expense	3,229		1,246		515		147		5,137
Income (loss) from continuing operations before income taxes	1,260		498		367		(543)		1,582
Income tax provision (benefit)	299		117		87		(201)		302
Income (loss) from continuing operations, net of tax	$	961	$	381	$	280	$	(342)	$	1,280
Loans held for investment	$	150,594	$	75,099	$	89,461	$	0	$	315,154
Deposits	0		300,806		31,082		19,081		350,969

                                                                                                                                                                                                                                                                                                                                                                                                                                    

	Three Months Ended March 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	4,657	$	2,360	$	648	$	(479)	$	7,186
Non-interest income	1,363		135		212		7		1,717
Total net revenue (loss)(2)	6,020		2,495		860		(472)		8,903
Provision (benefit) for credit losses	2,261		275		259		0		2,795
Non-interest expense	3,038		1,283		530		94		4,945
Income (loss) from continuing operations before income taxes	721		937		71		(566)		1,163
Income tax provision (benefit)	172		221		17		(207)		203
Income (loss) from continuing operations, net of tax	$	549	$	716	$	54	$	(359)	$	960
Loans held for investment	$	137,142	$	78,151	$	93,543	$	0	$	308,836
Deposits	0		291,163		38,380		20,284		349,827

_________

(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 $630 million and $405 million in the first quarters of 2024 and 2023, 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 from services provided to auto industry participants. 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, 2024 and 2023.

Table 13.2: Revenue from Contracts with Customers and Reconciliation to Segment Results

	Three Months Ended March 31, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,020	$	98	$	27	$	0	$	1,145
Service charges and other customer-related fees	0		4		74		0		78
Other	121		44		2		0		167
Total contract revenue	1,141		146		103		0		1,390
Revenue (reduction) from other sources	335		13		178		(2)		524
Total non-interest income (loss)	$	1,476	$	159	$	281	$	(2)	$	1,914

	Three Months Ended March 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,025	$	86	$	27	$	1	$	1,139
Service charges and other customer-related fees	0		21		40		(1)		60
Other	55		19		5		0		79
Total contract revenue	1,080		126		72		0		1,278
Revenue from other sources	283		9		140		7		439
Total non-interest income	$	1,363	$	135	$	212	$	7	$	1,717

__________

(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