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. From time to time, the Corporation may make reclassifications among the segments to more appropriately reflect management's current view of the segments, and methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. For comparability purposes, amounts in all periods are based on business unit structure and methodologies in effect at December 31, 2017.

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 Corporate Treasury department within the Finance segment, where such exposures are centrally managed. Effective January 1, 2016, in conjunction with the effective date for regulatory Liquidity Coverage Ratio (LCR) requirements, the Corporation prospectively implemented an additional FTP charge, primarily for the cost of maintaining liquid assets to support potential draws on unfunded loan commitments and for the long-term economic cost of holding collateral for secured deposits. 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.

The following discussion provides information about the activities of each business segment. A discussion of the financial results and the factors impacting 2017 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, 2017	Business Bank			Retail Bank			Wealth Management			Finance			Other				Total
Earnings summary:
Net interest income (expense)	$	1,372		$	658		$	170		$	(175	)	$	36			$	2,061
Provision for credit losses	58			13			1			—			2				74
Noninterest income	601			193			255			48			10				1,107
Noninterest expenses	802			731			285			(4		)	46				1,860
Provision (benefit) for income taxes	389			39			51			(58		)	70			(a)	491
Net income (loss)	$	724		$	68		$	88		$	(65	)	$	(72	)		$	743
Net credit-related charge-offs (recoveries)	$	82		$	15		$	(5	)	$	—		$	—			$	92

Selected average balances:
Assets	$	38,801		$	6,478		$	5,401		$	13,954		$	6,818			$	71,452
Loans	37,445			5,857			5,256			—			—				48,558
Deposits	28,803			23,971			4,081			241			162				57,258

Statistical data:
Return on average assets (b)	1.87		%	0.28		%	1.63		%	N/M			N/M				1.04		%
Efficiency ratio (c)	40.61			85.54			66.84			N/M			N/M				58.57



(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance			Other		Total
Year Ended December 31, 2016	Business Bank			Retail Bank			Wealth Management			Finance			Other		Total
Earnings summary:
Net interest income (expense)	$	1,417		$	618		$	167		$	(428	)	$	23	$	1,797
Provision for credit losses	217			35			(4		)	—			—		248
Noninterest income	572			189			243			43			4		1,051
Noninterest expenses	839			767			301			(4		)	27		1,930
Provision (benefit) for income taxes	295			1			39			(142		)	—		193
Net income (loss)	$	638		$	4		$	74		$	(239	)	$	—	$	477
Net credit-related charge-offs	$	145		$	12		$	—		$	—		$	—	$	157

Selected average balances:
Assets	$	39,497		$	6,551		$	5,232		$	13,993		$	6,470	$	71,743
Loans	38,067			5,881			5,048			—			—		48,996
Deposits	29,704			23,558			4,126			88			265		57,741

Statistical data:
Return on average assets (b)	1.61		%	0.02		%	1.42		%	N/M			N/M		0.67		%
Efficiency ratio (c)	42.11			94.35			73.48			N/M			N/M		67.53

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(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Year Ended December 31, 2015	Business Bank			Retail Bank			Wealth Management			Finance			Other			Total
Earnings summary:
Net interest income (expense)	$	1,497		$	623		$	177		$	(623	)	$	15		$	1,689
Provision for credit losses	158			8			(20		)	—			1			147
Noninterest income	571			185			235			44			—			1,035
Noninterest expenses	778			734			305			(4		)	14			1,827
Provision (benefit) for income taxes	371			21			43			(206		)	—			229
Net income (loss)	$	761		$	45		$	84		$	(369	)	$	—		$	521
Net credit-related charge-offs (recoveries)	$	89		$	29		$	(17	)	$	—		$	—		$	101

Selected average balances:
Assets	$	39,501		$	6,474		$	5,153		$	11,764		$	7,355		$	70,247
Loans	37,889			5,792			4,953			—			(6		)	48,628
Deposits	30,894			22,876			4,151			138			267			58,326

Statistical data:
Return on average assets (b)	1.93		%	0.19		%	1.62		%	N/M			N/M			0.74		%
Efficiency ratio (c)	37.59			90.64			73.68			N/M			N/M			66.93


(a)	Included a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act and a $35 million tax benefit from employee stock transactions.


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


(c)	Noninterest expenses as a percentage of the sum of net interest income (fully taxable equivalent basis) and noninterest income excluding net securities gains.

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, 2017.

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, 2017	Michigan			California			Texas			Other Markets			Finance & Other				Total
Earnings summary:
Net interest income (expense)	$	685		$	719		$	465		$	331		$	(139	)		$	2,061
Provision for credit losses	8			100			(72		)	36			2				74
Noninterest income	324			171			131			423			58				1,107
Noninterest expenses	590			404			375			449			42				1,860
Provision (benefit) for income taxes	147			148			109			75			12			(a)	491
Net income (loss)	$	264		$	238		$	184		$	194		$	(137	)		$	743
Net credit-related (recoveries) charge-offs	$	(1	)	$	33		$	46		$	14		$	—			$	92

Selected average balances:
Assets	$	13,395		$	18,269		$	10,443		$	8,573		$	20,772			$	71,452
Loans	12,677			18,008			9,969			7,904			—				48,558
Deposits	21,823			17,533			9,625			7,874			403				57,258

Statistical data:
Return on average assets (b)	1.17		%	1.29		%	1.69		%	2.25		%	N/M				1.04		%
Efficiency ratio (c)	58.30			45.26			62.80			59.57			N/M				58.57

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(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other			Total
Year Ended December 31, 2016	Michigan			California			Texas			Other Markets			Finance & Other			Total
Earnings summary:
Net interest income (expense)	$	666		$	716		$	470		$	350		$	(405	)	$	1,797
Provision for credit losses	9			21			225			(7		)	—			248
Noninterest income	320			162			129			393			47			1,051
Noninterest expenses	620			434			408			445			23			1,930
Provision (benefit) for income taxes	114			152			(12		)	81			(142		)	193
Net income (loss)	$	243		$	271		$	(22	)	$	224		$	(239	)	$	477
Net credit-related charge-offs	$	9		$	26		$	118		$	4		$	—		$	157

Selected average balances:
Assets	$	13,105		$	18,012		$	11,101		$	9,062		$	20,463		$	71,743
Loans	12,457			17,731			10,637			8,171			—			48,996
Deposits	21,777			17,438			10,168			8,005			353			57,741

Statistical data:
Return on average assets (b)	1.08		%	1.46		%	(0.18		)%	2.47		%	N/M			0.67		%
Efficiency ratio (c)	62.33			49.55			67.94			59.86			N/M			67.53



(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other			Total
Year Ended December 31, 2015	Michigan			California			Texas			Other Markets			Finance & Other			Total
Earnings summary:
Net interest income (expense)	$	708		$	735		$	518		$	336		$	(608	)	$	1,689
Provision for credit losses	(27		)	17			131			25			1			147
Noninterest income	329			150			131			381			44			1,035
Noninterest expenses	594			405			387			431			10			1,827
Provision (benefit) for income taxes	151			166			54			64			(206		)	229
Net income (loss)	$	319		$	297		$	77		$	197		$	(369	)	$	521
Net credit-related charge-offs	$	8		$	18		$	46		$	29		$	—		$	101

Selected average balances:
Assets	$	13,598		$	17,044		$	11,778		$	8,708		$	19,119		$	70,247
Loans	13,016			16,778			11,168			7,673			(7		)	48,628
Deposits	21,848			17,788			10,882			7,403			405			58,326

Statistical data:
Return on average assets (b)	1.40		%	1.57		%	0.62		%	2.26		%	N/M			0.74		%
Efficiency ratio (c)	56.93			45.88			59.63			59.92			N/M			66.93


(a)	Included a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act and a $35 million tax benefit from employee stock transactions.


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


(c)	Noninterest expenses as a percentage of the sum of net interest income (fully taxable equivalent basis) and noninterest income excluding net securities gains.

N/M – not meaningful