Business Segments and Revenue from Contracts with Customers

9 Months Ended

Sep. 30, 2022

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 2021 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, 2022 and 2021, selected balance sheet data as of September 30, 2022 and 2021, 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, 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

	Three Months Ended September 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	3,620	$	2,159	$	578	$	(201)	$	6,156
Non-interest income (loss)	1,263		127		306		(22)		1,674
Total net revenue (loss)(2)	4,883		2,286		884		(223)		7,830
Provision (benefit) for credit losses	(198)		(91)		(53)		0		(342)
Non-interest expense	2,424		1,186		459		117		4,186
Income (loss) from continuing operations before income taxes	2,657		1,191		478		(340)		3,986
Income tax provision (benefit)	627		282		113		(140)		882
Income (loss) from continuing operations, net of tax	$	2,030	$	909	$	365	$	(200)	$	3,104
Loans held for investment	$	105,030	$	77,112	$	79,248	$	0	$	261,390
Deposits	0		252,387		43,347		10,204		305,938

                                                                                                                                                                                                                                                                                                                                                                                                                                                    

	Nine Months Ended September 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	10,209	$	6,290	$	1,558	$	(336)	$	17,721
Non-interest income (loss)	3,545		412		803		(164)		4,596
Total net revenue (loss)(2)	13,754		6,702		2,361		(500)		22,317
Benefit for credit losses	(1,325)		(523)		(475)		(2)		(2,325)
Non-interest expense	6,822		3,426		1,295		349		11,892
Income (loss) from continuing operations before income taxes	8,257		3,799		1,541		(847)		12,750
Income tax provision (benefit)	1,952		897		364		(431)		2,782
Income (loss) from continuing operations, net of tax	$	6,305	$	2,902	$	1,177	$	(416)	$	9,968
Loans held for investment	$	105,030	$	77,112	$	79,248	$	0	$	261,390
Deposits	0		252,387		43,347		10,204		305,938

__________

(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 $222 million and $625 million in the three and nine months ended September 30, 2022, respectively, and $123 million and $478 million in the three and nine months ended September 30, 2021, 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, 2022 and 2021.

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

	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

	Three Months Ended September 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	930	$	68	$	24	$	0	$	1,022
Service charges and other customer-related fees	0		42		71		0		113
Other	98		17		1		0		116
Total contract revenue	1,028		127		96		0		1,251
Revenue (reduction) from other sources	235		0		210		(22)		423
Total non-interest income (loss)	$	1,263	$	127	$	306	$	(22)	$	1,674

	Nine Months Ended September 30, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	2,598	$	192	$	65	$	0	$	2,855
Service charges and other customer-related fees	0		131		187		0		318
Other	262		55		3		0		320
Total contract revenue	2,860		378		255		0		3,493
Revenue (reduction) from other sources	685		34		548		(164)		1,103
Total non-interest income (loss)	$	3,545	$	412	$	803	$	(164)	$	4,596

__________

(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.