Business Segments and Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 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 and six months ended June 30, 2024 and 2023, selected balance sheet data as of June 30, 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 June 30, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	5,294	$	2,025	$	609	$	(382)	$	7,546
Non-interest income	1,506		172		271		11		1,960
Total net revenue (loss)(2)	6,800		2,197		880		(371)		9,506
Provision for credit losses	3,545		330		34		0		3,909
Non-interest expense	3,134		1,250		483		79		4,946
Income (loss) from continuing operations before income taxes	121		617		363		(450)		651
Income tax provision (benefit)	30		146		85		(207)		54
Income (loss) from continuing operations, net of tax	$	91	$	471	$	278	$	(243)	$	597
Loans held for investment	$	153,895	$	75,663	$	88,628	$	0	$	318,186
Deposits	0		305,422		29,210		16,810		351,442

	Six Months Ended June 30, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	10,566	$	4,036	$	1,208	$	(776)	$	15,034
Non-interest income	2,982		331		552		9		3,874
Total net revenue (loss)(2)	13,548		4,367		1,760		(767)		18,908
Provision for credit losses	5,804		756		32		0		6,592
Non-interest expense	6,363		2,496		998		226		10,083
Income (loss) from continuing operations before income taxes	1,381		1,115		730		(993)		2,233
Income tax provision (benefit)	329		263		172		(408)		356
Income (loss) from continuing operations, net of tax	$	1,052	$	852	$	558	$	(585)	$	1,877
Loans held for investment	$	153,895	$	75,663	$	88,628	$	0	$	318,186
Deposits	0		305,422		29,210		16,810		351,442

	Three Months Ended June 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	4,727	$	2,269	$	632	$	(515)	$	7,113
Non-interest income (loss)	1,499		149		257		(6)		1,899
Total net revenue (loss)(2)	6,226		2,418		889		(521)		9,012
Provision for credit losses	2,084		259		146		1		2,490
Non-interest expense	3,020		1,231		482		61		4,794
Income (loss) from continuing operations before income taxes	1,122		928		261		(583)		1,728
Income tax provision (benefit)	265		219		61		(248)		297
Income (loss) from continuing operations, net of tax	$	857	$	709	$	200	$	(335)	$	1,431
Loans held for investment	$	142,491	$	77,280	$	91,552	$	0	$	311,323
Deposits	0		286,174		36,793		20,738		343,705

                                                                                                                                                                                                                                                                                                                                                                                                                                    

	Six Months Ended June 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	9,384	$	4,629	$	1,280	$	(994)	$	14,299
Non-interest income	2,862		284		469		1		3,616
Total net revenue (loss)(2)	12,246		4,913		1,749		(993)		17,915
Provision for credit losses	4,345		534		405		1		5,285
Non-interest expense	6,058		2,514		1,012		155		9,739
Income (loss) from continuing operations before income taxes	1,843		1,865		332		(1,149)		2,891
Income tax provision (benefit)	437		440		78		(455)		500
Income (loss) from continuing operations, net of tax	$	1,406	$	1,425	$	254	$	(694)	$	2,391
Loans held for investment	$	142,491	$	77,280	$	91,552	$	0	$	311,323
Deposits	0		286,174		36,793		20,738		343,705

_________

(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 $649 million and $1.3 billion in the three and six months ended June 30, 2024, respectively, and $443 million and $848 million in the three and six months ended June 30, 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 and six months ended June 30, 2024 and 2023.

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

	Three Months Ended June 30, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,116	$	107	$	26	$	0	$	1,249
Service charges and other customer-related fees	0		22		74		0		96
Other	83		38		2		0		123
Total contract revenue	1,199		167		102		0		1,468
Revenue from other sources	307		5		169		11		492
Total non-interest income	$	1,506	$	172	$	271	$	11	$	1,960

	Six Months Ended June 30, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	2,136	$	205	$	53	$	0	$	2,394
Service charges and other customer-related fees	0		43		147		0		190
Other	204		65		5		0		274
Total contract revenue	2,340		313		205		0		2,858
Revenue from other sources	642		18		347		9		1,016
Total non-interest income	$	2,982	$	331	$	552	$	9	$	3,874

	Three Months Ended June 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,111	$	92	$	10	$	0	$	1,213
Service charges and other customer-related fees	0		22		55		0		77
Other	91		27		8		0		126
Total contract revenue	1,202		141		73		0		1,416
Revenue (reduction) from other sources	297		8		184		(6)		483
Total non-interest income (loss)	$	1,499	$	149	$	257	$	(6)	$	1,899

	Six Months Ended June 30, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	2,136	$	178	$	37	$	1	$	2,352
Service charges and other customer-related fees	0		43		95		(1)		137
Other	146		46		13		0		205
Total contract revenue	2,282		267		145		0		2,694
Revenue from other sources	580		17		324		1		922
Total non-interest income	$	2,862	$	284	$	469	$	1	$	3,616

__________

(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