Business Segments and Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2020

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 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 2019 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, 2020 and 2019, selected balance sheet data as of March 31, 2020 and 2019, 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 March 31, 2020
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking⁽¹⁾			Other⁽¹⁾			Consolidated Total
Net interest income	$	3,702		$	1,657		$	491		$	175		$	6,025
Non-interest income (loss)	911			126			238			(51		)	1,224
Total net revenue⁽²⁾	4,613			1,783			729			124			7,249
Provision for credit losses	3,702			860			856			5			5,423
Non-interest expense	2,208			991			412			118			3,729
Income (loss) from continuing operations before income taxes	(1,297		)	(68		)	(539		)	1			(1,903		)
Income tax benefit	(306		)	(16		)	(128		)	(113		)	(563		)
Income (loss) from continuing operations, net of tax	$	(991	)	$	(52	)	$	(411	)	$	114		$	(1,340	)
Loans held for investment	$	117,797		$	64,033		$	81,160		$	0		$	262,990
Deposits	0			217,607			32,822			19,260			269,689



	Three Months Ended March 31, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Net interest income	$	3,590	$	1,679	$	489	$	33		$	5,791
Non-interest income (loss)	950		160		187		(5		)	1,292
Total net revenue	4,540		1,839		676		28			7,083
Provision for credit losses	1,389		235		69		0			1,693
Non-interest expense	2,171		994		417		89			3,671
Income (loss) from continuing operations before income taxes	980		610		190		(61		)	1,719
Income tax provision (benefit)	229		142		44		(106		)	309
Income from continuing operations, net of tax	$	751	$	468	$	146	$	45		$	1,410
Loans held for investment	$	109,836	$	59,248	$	71,189	$	0		$	240,273
Deposits	0		205,439		31,248		18,420			255,107

__________


⁽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⁾	In the first quarter of 2020, total net revenue was reduced by $389 million 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 overdrafts and 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 months ended March 31, 2020 and 2019.

Table 12.2: Revenue from Contracts with Customers and Reconciliation to Segments Result



	Three Months Ended March 31, 2020
(Dollars in millions)	Credit Card		Consumer Banking			Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Contract revenue:
Interchange fees, net⁽²⁾	$	688	$	50		$	15	$	(1	)	$	752
Service charges and other customer-related fees	0		64			31		0			95
Other	70		19			1		0			90
Total contract revenue	758		133			47		(1		)	937
Revenue from other sources	153		(7		)	191		(50		)	287
Total non-interest income	$	911	$	126		$	238	$	(51	)	$	1,224



	Three Months Ended March 31, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Contract revenue:
Interchange fees, net⁽²⁾	$	702	$	46	$	11	$	(1	)	$	758
Service charges and other customer-related fees	0		75		25		0			100
Other	12		24		0		0			36
Total contract revenue	714		145		36		(1		)	894
Revenue from other sources	236		15		151		(4		)	398
Total non-interest income	$	950	$	160	$	187	$	(5	)	$	1,292

__________


⁽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.