BUSINESS SEGMENT INFORMATION

The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. Business segment results are produced by the Corporation’s internal management accounting system. This system measures financial results based on the internal business unit structure of the Corporation. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. The management accounting system assigns balance sheet and income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. For comparability purposes, amounts in all periods are based on business segments and methodologies in effect at December 31, 2013. These methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines.

Net interest income for each business segment is the total of interest income generated by earning assets less interest expense on interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP) funding credits and charges. The FTP methodology provides the business segments credits for deposits and other funds provided and charges the business segments for loans and other assets utilizing funds. This credit or charge is based on matching stated or implied maturities for these assets and liabilities. The FTP credit provided for deposits reflects the long-term value of deposits generated based on their implied maturity. The FTP charge for funding assets reflects a matched cost of funds based on the pricing and term characteristics of the assets. For acquired loans and deposits, matched maturity funding is determined based on origination date. Accordingly, the FTP process reflects the transfer of interest rate risk exposures to the Treasury group within the Finance segment, where such exposures are centrally managed. The allowance for loan losses is allocated to the business segments based on the methodology used to estimate the consolidated allowance for loan losses described in Note 1. The related provision for loan losses is assigned based on the amount necessary to maintain an allowance for loan losses appropriate for each business segment. Noninterest income and expenses directly attributable to a line of business are assigned to that business segment. Direct expenses incurred by areas whose services support the overall Corporation are allocated to the business segments as follows: product processing expenditures are allocated based on standard unit costs applied to actual volume measurements; administrative expenses are allocated based on estimated time expended; and corporate overhead is assigned 50 percent based on the ratio of the business segment’s noninterest expenses to total noninterest expenses incurred by all business segments and 50 percent based on the ratio of the business segment’s attributed equity to total attributed equity of all business segments. Equity is attributed based on credit, operational and interest rate risks. Most of the equity attributed relates to credit risk, which is determined based on the credit score and expected remaining life of each loan, letter of credit and unused commitment recorded in the business segments. Operational risk is allocated based on loans and letters of credit, deposit balances, non-earning assets, trust assets under management, certain noninterest income items, and the nature and extent of expenses incurred by business units. Virtually all interest rate risk is assigned to Finance, as are the Corporation’s hedging activities.

In 2013, the Corporation changed the method of assigning the allowance for loan losses to each business segment. In 2012, national probability of default and loss given default statistics were incorporated into the Corporation's allowance methodology. Each business segment was assigned an allowance for loan losses based on market-specific standard reserve factors applied to the loans in each segment, and the difference between the total allowance required on a national basis and the market-specific allowances was allocated based on the relative loan balances in each segment. Effective 2013, each segment was assigned an allowance for loan losses by applying national standard reserve factors to the loan balances in each segment by risk rating distribution. This change was retroactively applied to 2012. Also in 2013, the Corporation changed the method of allocating FDIC insurance expense to the segments as well as certain noninterest income and expense associated with commercial charge cards. The changes did not have a material impact on segment operating results.

The following discussion provides information about the activities of each business segment. A discussion of the financial results and the factors impacting 2013 performance can be found in the section entitled "Business Segments" in the financial review.

The Business Bank meets the needs of middle market businesses, multinational corporations and governmental entities by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services.

The Retail Bank includes small business banking and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. In addition to a full range of financial services provided to small business customers, this business segment offers a variety of consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans.

Wealth Management offers products and services consisting of fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and brokerage services. This business segment also offers the sale of annuity products, as well as life, disability and long-term care insurance products.

The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.

The Other category includes the income and expense impact of equity and cash, tax benefits not assigned to specific business segments, charges of an unusual or infrequent nature that are not reflective of the normal operations of the business segments and miscellaneous other expenses of a corporate nature.

Business segment financial results are as follows:



(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Year Ended December 31, 2013	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Earnings summary:
Net interest income (expense) (FTE)	$	1,503		$	610		$	184		$	(653	)	$	31		$	1,675
Provision for credit losses	54			13			(18		)	—			(3		)	46
Noninterest income	326			175			252			61			12			826
Noninterest expenses	643			708			319			10			42			1,722
Provision (benefit) for income taxes (FTE)	347			22			48			(226		)	1			192
Net income (loss)	$	785		$	42		$	87		$	(376	)	$	3		$	541
Net credit-related charge-offs	$	43		$	22		$	8		$	—		$	—		$	73

Selected average balances:
Assets	$	35,532		$	5,974		$	4,807		$	11,422		$	6,201		$	63,936
Loans	34,473			5,289			4,650			—			—			44,412
Deposits	26,169			21,247			3,775			312			208			51,711

Statistical data:
Return on average assets (a)	2.21		%	0.19		%	1.82		%	N/M			N/M			0.85		%
Efficiency ratio (b)	35.18			89.95			73.14			N/M			N/M			68.83



(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Year Ended December 31, 2012	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Earnings summary:
Net interest income (expense) (FTE)	$	1,517		$	647		$	187		$	(658	)	$	38		$	1,731
Provision for credit losses	34			24			19			—			2			79
Noninterest income	319			173			258			60			8			818
Noninterest expenses	602			723			320			12			100			1,757
Provision (benefit) for income taxes (FTE)	374			23			39			(228		)	(16		)	192
Net income (loss)	$	826		$	50		$	67		$	(382	)	$	(40	)	$	521
Net credit-related charge-offs	$	107		$	40		$	23		$	—		$	—		$	170

Selected average balances:
Assets	$	34,447		$	6,008		$	4,623		$	11,881		$	5,613		$	62,572
Loans	33,470			5,308			4,528			—			—			43,306
Deposits	24,837			20,623			3,680			206			187			49,533

Statistical data:
Return on average assets (a)	2.40		%	0.23		%	1.45		%	N/M			N/M			0.83		%
Efficiency ratio (b)	32.79			87.93			74.21			N/M			N/M			69.24

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(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Year Ended December 31, 2011	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Earnings summary:
Net interest income (expense) (FTE)	$	1,390		$	621		$	182		$	(572	)	$	36		$	1,657
Provision for credit losses	29			77			40			—			(2		)	144
Noninterest income	306			169			239			74			4			792
Noninterest expenses	650			683			315			11			112			1,771
Provision (benefit) for income taxes (FTE)	318			12			25			(193		)	(21		)	141
Net income (loss)	$	699		$	18		$	41		$	(316	)	$	(49	)	$	393
Net credit-related charge-offs	$	199		$	89		$	40		$	—		$	—		$	328

Selected average balances:
Assets	$	30,686		$	5,815		$	4,720		$	10,252		$	5,444		$	56,917
Loans	30,074			5,292			4,709			—			—			40,075
Deposits	21,394			18,912			3,096			231			129			43,762

Statistical data:
Return on average assets (a)	2.27		%	0.09		%	0.87		%	N/M			N/M			0.69		%
Efficiency ratio (b)	38.33			85.57			76.74			N/M			N/M			72.73


(a)	Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.

(b) Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains.

FTE – Fully Taxable Equivalent

N/M – not meaningful

The Corporation operates in three primary markets - Texas, California, and Michigan, as well as in Arizona and Florida, with select businesses operating in several other states, and in Canada and Mexico. The Corporation produces market segment results for the Corporation’s three primary geographic markets as well as Other Markets. Other Markets includes Florida, Arizona, the International Finance division and businesses with a national perspective. The Finance & Other category includes the Finance segment and the Other category as previously described. Market segment results are provided as supplemental information to the business segment results and may not meet all operating segment criteria as set forth in GAAP. For comparability purposes, amounts in all periods are based on market segments and methodologies in effect at December 31, 2013.

A discussion of the financial results and the factors impacting performance can be found in the section entitled "Market Segments" in the financial review.

Market segment financial results are as follows:



(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other			Total
Year Ended December 31, 2013	Michigan			California			Texas			Other Markets			Finance & Other			Total
Earnings summary:
Net interest income (expense) (FTE)	$	751		$	692		$	541		$	313		$	(622	)	$	1,675
Provision for credit losses	(12		)	18			35			8			(3		)	46
Noninterest income	357			150			132			114			73			826
Noninterest expenses	714			396			363			197			52			1,722
Provision (benefit) for income taxes (FTE)	145			160			98			14			(225		)	192
Net income (loss)	$	261		$	268		$	177		$	208		$	(373	)	$	541
Net credit-related charge-offs	$	6		$	27		$	20		$	20		$	—		$	73

Selected average balances:
Assets	$	13,879		$	14,229		$	10,694		$	7,511		$	17,623		$	63,936
Loans	13,461			13,974			9,989			6,988			—			44,412
Deposits	20,346			14,705			10,247			5,893			520			51,711

Statistical data:
Return on average assets (a)	1.22		%	1.71		%	1.54		%	2.77		%	N/M			0.85		%
Efficiency ratio (b)	64.38			47.06			53.86			46.12			N/M			68.83

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(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other			Total
Year Ended December 31, 2012	Michigan			California			Texas			Other Markets			Finance & Other			Total
Earnings summary:
Net interest income (expense) (FTE)	$	777		$	692		$	564		$	318		$	(620	)	$	1,731
Provision for credit losses	(16		)	17			47			29			2			79
Noninterest income	385			136			124			105			68			818
Noninterest expenses	707			395			360			183			112			1,757
Provision (benefit) for income taxes (FTE)	165			158			99			14			(244		)	192
Net income (loss)	$	306		$	258		$	182		$	197		$	(422	)	$	521
Net credit-related charge-offs	$	41		$	47		$	22		$	60		$	—		$	170

Selected average balances:
Assets	$	13,921		$	12,978		$	10,307		$	7,872		$	17,494		$	62,572
Loans	13,618			12,736			9,552			7,400			—			43,306
Deposits	19,573			14,568			10,040			4,959			393			49,533

Statistical data:
Return on average assets (a)	1.48		%	1.66		%	1.62		%	2.50		%	N/M			0.83		%
Efficiency ratio (b)	60.75			47.65			52.28			44.84			N/M			69.24



(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other			Total
Year Ended December 31, 2011	Michigan			California			Texas			Other Markets			Finance & Other			Total
Earnings summary:
Net interest income (expense) (FTE)	$	795		$	637		$	468		$	293		$	(536	)	$	1,657
Provision for credit losses	84			21			2			39			(2		)	144
Noninterest income	379			136			103			96			78			792
Noninterest expenses	735			405			294			214			123			1,771
Provision (benefit) for income taxes (FTE)	127			127			100			1			(214		)	141
Net income (loss)	$	228		$	220		$	175		$	135		$	(365	)	$	393
Net credit-related charge-offs	$	148		$	75		$	17		$	88		$	—		$	328

Selected average balances:
Assets	$	14,155		$	12,017		$	8,092		$	6,957		$	15,696		$	56,917
Loans	13,933			11,823			7,705			6,614			—			40,075
Deposits	18,535			12,667			7,805			4,395			360			43,762

Statistical data:
Return on average assets (a)	1.16		%	1.61		%	2.05		%	1.94		%	N/M			0.69		%
Efficiency ratio (b)	62.22			52.37			51.45			56.54			N/M			72.73


(a)	Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.

(b) Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains.

FTE – Fully Taxable Equivalent

N/M – not meaningful