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2003 Annual Report: Financial Review: Statements and Notes: Note 20 Business Segment Information

Note 20

Business Segment Information

The Corporation reports the results of its operations through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. Certain operating segments have been aggregated into a single business segment.

Consumer and Commercial Banking provides a diversified range of products and services to individuals and small businesses through multiple delivery channels. The segment also includes commercial lending and treasury management services primarily to middle market companies with annual revenue between $10 million and $500 million. Asset Management offers investment, fiduciary and comprehensive banking and credit expertise; asset management services to institutional clients, high-net-worth individuals and retail customers; and investment, securities and financial planning services to affluent and high-net-worth individuals. Global Corporate and Investment Banking provides capital raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for our corporate, commercial and institutional clients as well as traditional bank deposit and loan products, cash management and payment services to large corporations and institutional clients. Equity Investments includes Principal Investing, which is comprised of a diversified portfolio of investments in privately-held and publicly-traded companies at all stages, from start-up to buyout.

Corporate Other consists primarily of certain amounts associated with the ALM process and certain consumer finance and commercial lending businesses that are being liquidated. Beginning in the first quarter of 2003, net interest income from certain results associated with the ALM process was allocated directly to the business units. Prior periods have been restated to reflect this change in methodology. In addition, compensation expense related to stock-based employee compensation plans is included in Corporate Other.

Total revenue includes net interest income on a fully taxable-equivalent basis and noninterest income. The net interest income of the business segments includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net interest income also reflects an allocation of net interest income generated by assets and liabilities used in the Corporation's ALM process.

Segments are allocated provision for credit losses based on charge-offs and changes in their profile balances and credit risk portfolio. This adjustment was based on an estimate of the related segment's contribution to the improvement in credit quality experienced by the Corporation.

Certain expenses not directly attributable to a specific business segment are allocated to the segments based on pre-determined means. The most significant of these expenses include data processing and item processing costs. Data processing costs are allocated to the segments based on equipment usage. Additionally, item processing costs are allocated to the segments based on the volume of items processed for each segment.

The following table presents total revenue and net income for 2003, 2002 and 2001, and total assets at December 31, 2003 and 2002 for each business segment. Certain prior period amounts have been reclassified between segments to conform to the current period presentation.

Business Segments
At and for the Year Ended December 31
Total Corporation Consumer and
Commercial Banking(1)
(Dollars in millions) 2003 2002 2001 2003 2002 2001
Net interest income (fully taxable-equivalent basis) $ 22,107 $ 21,511 $ 20,633 $ 15,970 $ 15,205 $ 13,866
Noninterest income(2) 16,422 13,571 14,348 10,333 8,411 7,773
     Total revenue 38,529 35,082 34,981 26,303 23,616 21,639
Provision for credit losses 2,839 3,697 4,287 2,062 1,806 1,580
Gains on sales of debt securities 941 630 475 12 45 3
Amortization of intangibles(3) 217 218 878 179 175 633
Other noninterest expense 19,909 18,218 19,831 12,301 11,301 10,702
     Income before income taxes 16,505 13,579 10,460 11,773 10,379 8,727
Income tax expense 5,695 4,330 3,668 4,252 3,836 3,371
     Net income $ 10,810 $ 9,249 $ 6,792 $ 7,521 $ 6,543 $ 5,356
Period-end total assets $ 736,445 $ 660,951   $ 386,330 $ 339,976  
Asset Management(1) Global Corporate and
Investment Banking(1)
(Dollars in millions) 2003 2002 2001 2003 2002 2001
Net interest income (fully taxable-equivalent basis) $ 754 $ 752 $ 764 $ 4,825 $ 4,797 $ 4,605
Noninterest income(2) 1,880 1,626 1,734 4,108 3,880 4,890
     Total revenue 2,634 2,378 2,498 8,933 8,677 9,495
Provision for credit losses 1 318 123 477 1,208 1,292
Losses on sales of debt securities - - - (14 ) (97 ) (45 )
Amortization of intangibles(3) 6 6 57 28 32 143
Other noninterest expense 1,608 1,488 1,504 5,407 5,031 5,319
     Income before income taxes 1,019 566 814 3,007 2,309 2,696
Income tax expense 349 191 295 995 748 853
     Net income $ 670 $ 375 $ 519 $ 2,012 $ 1,561 $ 1,843
Period-end total assets $ 27,540 $ 25,645   $ 248,833 $ 220,241  
Equity Investments(1) Corporate Other
(Dollars in millions) 2003 2002 2001 2003 2002 2001
Net interest income (fully taxable-equivalent basis) $ (160 ) $ (165 ) $ (156 ) $ 718 $ 922 $ 1,554
Noninterest income(2) (94 ) (281 ) 179 195 (65 ) (228 )
Total revenue (254 ) (446 ) 23 913 857 1,326
Provision for credit losses(4) 25 7 8 274 358 1,284
Gains on sales of debt securities - - - 943 682 517
Amortization of intangibles(3) 3 3 10 1 2 35
Other noninterest expense(5) 108 88 203 485 310 2,103
     Income before income taxes (390 ) (544 ) (198 ) 1,096 869 (1,579 )
Income tax expense (benefit) (141 ) (213 ) (79 ) 240 (232 ) (772 )
     Net income $ (249 ) $ (331 ) $ (119 ) $ 856 $ 1,101 $ (807 )
Period-end total assets $ 6,251 $ 6,064   $ 67,491 $ 69,025  
(1)  There were no material intersegment revenues among the segments.
(2)  Noninterest income in 2001 included the $83 SFAS 133 transition adjustment net loss which was recorded in trading account profits. The components of the transition adjustment by segment were a gain of $4 for Consumer and Commercial Banking, a gain of $19 for Global Corporate and Investment Banking and a loss of $106 for Corporate Other.
(3)  The Corporation adopted SFAS 142 on January 1, 2002. Accordingly, no goodwill amortization was recorded in 2003 and 2002.
(4)  Corporate Other includes exit charges consisting of provision for credit losses of $395 and noninterest expense of $1,305 related to the exit of certain consumer finance businesses in 2001.

Reconciliations of the four business segments' revenue, net income and assets to consolidated totals follow:
(Dollars in millions) Year Ended December 31
2003 2002 2001
Segments' revenue $ 37,616 $ 34,225 $ 33,655
Adjustments:
     Revenue associated with unassigned capital 616 669 498
     ALM activities(1) 560 319 (147 )
     Liquidating businesses 310 481 1,383
     Fully taxable-equivalent basis adjustment (643 ) (588 ) (343 )
     SFAS 133 transition adjustment net loss - - (106 )
     Other (573 ) (612 ) (302 )
          Consolidated revenue $ 37,886 $ 34,494 $ 34,638
Segments' net income $ 9,954 $ 8,148 $ 7,599
Adjustments, net of taxes:
     Gains on sales of debt securities 643 460 332
     Earnings associated with unassigned capital 420 451 320
     ALM activities(1) 382 146 (103 )
     Liquidating businesses (27 ) 23 219
     Litigation expense (150 ) - (214 )
     Tax settlement - 488 -
     Severance charge - (86 ) (96 )
     Tax benefit associated with basis difference in subsidiary stock - - 267
     SFAS 133 transition adjustment net loss - - (68 )
     Provision for credit losses in excess of net charge-offs - - (182 )
     Exit charges - - (1,250 )
     Other (412 ) (381 ) (32 )
          Consolidated net income $ 10,810 $ 9,249 $ 6,792
December 31
2003 2002
Segments' total assets $ 668,954 $ 591,926
Adjustments:
     ALM activities(1) 103,313 65,447
     Securities portfolio 61,253 65,979
     Liquidating businesses 6,503 9,294
     Elimination of excess earning asset allocations (144,894 ) (107,746 )
     Other, net 41,316 36,051
          Consolidated total assets $ 736,445 $ 660,951
(1)  Includes whole mortgage loan sale gains.

The adjustments presented in the table above include consolidated income, expense and asset amounts not specifically allocated to individual business segments.


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