Business Segment Information

12 Months Ended

Dec. 31, 2019

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, 2019.

Net interest income for each segment reflects the 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 allocates credits to each business segment for deposits and other funds provided as well as charges for loans and other assets being funded. This credit or charge is based on matching stated or implied maturities for these assets and liabilities. The FTP crediting rates on deposits and other funds provided reflect the long-term value of deposits and other funding sources based on their implied maturity. FTP charge rates for funding loans and other assets reflect a matched cost of funds based on the pricing and duration 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, 2019, the Corporation prospectively discontinued allocating an additional FTP charge for the cost of maintaining liquid assets to support potential draws on unfunded loan commitments. 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 2019 performance can be found in the section entitled "Business Segments" in the financial review.

The Business Bank meets the needs of small and 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 a full range of personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. 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, 2019	Business Bank			Retail Bank			Wealth Management			Finance			Other				Total
Earnings summary:
Net interest income (expense)	$	1,655		$	568		$	183		$	(126	)	$	59			$	2,339
Provision for credit losses	88			(4		)	(14		)	—			4				74
Noninterest income	555			132			270			43			10				1,010
Noninterest expenses	795			597			283			(1		)	69				1,743
Provision (benefit) for income taxes	306			24			44			(26		)	(14		)	(a)	334
Net income (loss)	$	1,021		$	83		$	140		$	(56	)	$	10			$	1,198
Net credit-related charge-offs (recoveries)	$	111		$	1		$	(5	)	$	—		$	—			$	107

Selected average balances:
Assets	$	44,946		$	2,852		$	5,083		$	14,235		$	4,372			$	71,488
Loans	43,472			2,104			4,935			—			—				50,511
Deposits	29,047			20,743			3,833			1,673			185				55,481

Statistical data:
Return on average assets (b)	2.27		%	0.39		%	2.76		%	n/m			n/m				1.68		%
Efficiency ratio (c)	35.96			84.49			62.45			n/m			n/m				51.82
Year Ended December 31, 2018
Earnings summary:
Net interest income (expense)	$	1,613		$	548		$	181		$	(46	)	$	56			$	2,352
Provision for credit losses	6			(1		)	(3		)	—			(3		)		(1		)
Noninterest income	547			136			266			27			—				976
Noninterest expenses	847			602			293			(4		)	56				1,794
Provision (benefit) for income taxes	283			18			36			(14		)	(23		)	(a)	300
Net income (loss)	$	1,024		$	65		$	121		$	(1	)	$	26			$	1,235
Net credit-related charge-offs (recoveries)	$	52		$	—		$	(1	)	$	—		$	—			$	51

Selected average balances:
Assets	$	43,207		$	2,633		$	5,214		$	13,705		$	5,965			$	70,724
Loans	41,618			2,067			5,081			—			—				48,766
Deposits	30,116			20,812			3,941			941			125				55,935

Statistical data:
Return on average assets (b)	2.37		%	0.31		%	2.32		%	n/m			n/m				1.75		%
Efficiency ratio (c)	39.22			87.59			65.60			n/m			n/m				53.56

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(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)	$	1,513		$	453		$	169		$	(111	)	$	37			$	2,061
Provision for credit losses	69			2			1			—			2				74
Noninterest income	639			154			255			49			10				1,107
Noninterest expenses	918			615			285			(4		)	46				1,860
Provision (benefit) for income taxes	410			(4		)	51			(35		)	69			(a)	491
Net income (loss)	$	755		$	(6	)	$	87		$	(23	)	$	(70	)		$	743
Net credit-related charge-offs (recoveries)	$	96		$	1		$	(5	)	$	—		$	—			$	92

Selected average balances:
Assets	$	42,653		$	2,626		$	5,401		$	13,954		$	6,818			$	71,452
Loans	41,241			2,061			5,256			—			—				48,558
Deposits	31,999			20,775			4,081			241			162				57,258

Statistical data:
Return on average assets (b)	1.77		%	(0.03		)%	1.61		%	n/m			n/m				1.04		%
Efficiency ratio (c)	42.67			101.29			67.06			n/m			n/m				58.70


(a)	Primarily reflected discrete tax items, including benefits of $17 million and $48 million in 2019 and 2018, respectively, and a net charge of $72 million in 2017.


(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 and noninterest income excluding net gains (losses) from securities and a derivative contract tied to the conversion rate of Visa Class B shares.

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, 2019.

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, 2019	Michigan			California			Texas			Other Markets			Finance & Other				Total
Earnings summary:
Net interest income (expense)	$	729		$	811		$	493		$	373		$	(67	)		$	2,339
Provision for credit losses	(11		)	(33		)	119			(5		)	4				74
Noninterest income	291			173			128			365			53				1,010
Noninterest expenses	554			406			345			369			69				1,743
Provision (benefit) for income taxes	108			155			38			74			(41		)	(a)	334
Net income (loss)	$	369		$	456		$	119		$	300		$	(46	)		$	1,198
Net credit-related charge-offs (recoveries)	$	11		$	8		$	93		$	(5	)	$	—			$	107

Selected average balances:
Assets	$	13,157		$	18,856		$	11,269		$	9,599		$	18,607			$	71,488
Loans	12,553			18,540			10,616			8,802			—				50,511
Deposits	20,081			16,857			8,780			7,905			1,858				55,481

Statistical data:
Return on average assets (b)	1.77		%	2.42		%	1.06		%	3.13		%	n/m				1.68		%
Efficiency ratio (c)	54.02			41.21			55.59			50.03			n/m				51.82

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(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other				Total
Year Ended December 31, 2018	Michigan			California			Texas			Other Markets			Finance & Other				Total
Earnings summary:
Net interest income	$	727		$	788		$	474		$	353		$	10			$	2,352
Provision for credit losses	30			26			(53		)	(1		)	(3		)		(1		)
Noninterest income	296			164			130			359			27				976
Noninterest expenses	577			424			365			376			52				1,794
Provision (benefit) for income taxes	90			123			64			60			(37		)	(a)	300
Net income	$	326		$	379		$	228		$	277		$	25			$	1,235
Net credit-related charge-offs	$	7		$	27		$	12		$	5		$	—			$	51

Selected average balances:
Assets	$	13,207		$	18,544		$	10,380		$	8,922		$	19,671			$	70,724
Loans	12,531			18,283			9,812			8,140			—				48,766
Deposits	20,770			16,964			8,992			8,144			1,065				55,935

Statistical data:
Return on average assets (b)	1.51		%	2.04		%	2.20		%	3.11		%	n/m				1.75		%
Efficiency ratio (c)	56.22			44.58			60.30			52.93			n/m				53.56
Year Ended December 31, 2017
Earnings summary:
Net interest income (expense)	$	657		$	711		$	451		$	316		$	(74	)		$	2,061
Provision for credit losses	8			101			(72		)	36			1				74
Noninterest income	324			171			131			423			58				1,107
Noninterest expenses	589			404			375			450			42				1,860
Provision for income taxes	137			145			104			71			34			(a)	491
Net income (loss)	$	247		$	232		$	175		$	182		$	(93	)		$	743
Net credit-related (recoveries) charge-offs	$	(1	)	$	33		$	46		$	14		$	—			$	92

Selected average balances:
Assets	$	13,393		$	18,269		$	10,434		$	8,584		$	20,772			$	71,452
Loans	12,676			18,008			9,960			7,914			—				48,558
Deposits	21,818			17,533			9,623			7,881			403				57,258

Statistical data:
Return on average assets (b)	1.09		%	1.25		%	1.61		%	2.12		%	n/m				1.04		%
Efficiency ratio (c)	60.01			45.83			64.35			60.98			n/m				58.70


(a)	Primarily reflected discrete tax items, including benefits of $17 million and $48 million in 2019 and 2018, respectively, and a net charge of $72 million in 2017.


(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 and noninterest income excluding net gains (losses) from securities and a derivative contract tied to the conversion rate of Visa Class B shares.

n/m – not meaningful