Segment Results

6 Months Ended

Jun. 30, 2012

Segment Results

Segment Results

Note 18. Segment Results

The Company has three reportable segments: Commercial and Private Banking, Wealth Management and Other. The factors considered in determining whether individual operating segments could be aggregated include that the operating segments: (i) offer the same products and services, (ii) offer services to the same types of clients, (iii) provide services in the same manner and (iv) operate in the same regulatory environment. The management accounting process measures the performance of the operating segments based on the Company’s management structure and is not necessarily comparable with similar information for other financial services companies. If the management structures and/or the allocation process changes, allocations, transfers and assignments may change.

The Commercial and Private Banking reportable segment is the aggregation of the Commercial and Private Banking, Real Estate, Entertainment, Corporate Banking and Core Branch Banking operating segments. The Commercial and Private Banking segment provides banking products and services, including commercial and mortgage loans, lines of credit, deposits, cash management services, international trade finance and letters of credit to small and medium-sized businesses, entrepreneurs and affluent individuals. This segment primarily serves clients in California, New York, Nevada, Tennessee and Georgia.

The Wealth Management segment includes the Corporation’s investment advisory affiliates and the Bank’s Wealth Management Services. The asset management affiliates and the Wealth Management division of the Bank make the following investment advisory and wealth management resources and expertise available to individual and institutional clients: investment management, wealth advisory services, brokerage, estate and financial planning and personal, business, custodial and employee trust services. The Wealth Management segment also advises and makes available mutual funds under the name of CNI Charter Funds. Both the asset management affiliates and the Bank’s Wealth Management division provide proprietary and nonproprietary products to offer a full spectrum of investment solutions in all asset classes and investment styles, including fixed-income instruments, mutual funds, domestic and international equities and alternative investments such as hedge funds. This segment serves clients nationwide.

The Other segment includes all other subsidiaries of the Company, the corporate departments, including the Treasury Department and the Asset Liability Funding Center, that have not been allocated to the other segments, and inter-segment eliminations for revenue recognized in multiple segments for management reporting purposes. The Company uses traditional matched-maturity funds transfer pricing methodology. However, both positive and negative variances occur over time when transfer pricing non-maturing balance sheet items such as demand deposits. These variances, offset in the Funding Center, are evaluated annually by management and allocated back to the business segments as deemed necessary.

Business segment earnings are the primary measure of the segment’s performance as evaluated by management. Business segment earnings include direct revenue and expenses of the segment as well as corporate and inter-company cost allocations. Allocations of corporate expenses, such as data processing and human resources, are calculated based on estimated activity levels for the fiscal year. Costs associated with intercompany support and services groups, such as Operational Services, are allocated to each business segment based on actual services used. Capital is allocated based on the estimated risk within each business segment. The methodology of allocating capital is based on each business segment’s credit, market, and operational risk profile. If applicable, any provision for credit losses is allocated based on various credit factors, including but not limited to, credit risk ratings, credit rating fluctuation, charge-offs and recoveries and loan growth.

Income taxes are charged to the business segments at the statutory rate. The Other segment includes an adjustment to reconcile to the Company’s overall effective tax rate.

Exposure to market risk is managed in the Company’s Treasury department. Interest rate risk is mostly removed from the Commercial and Private Banking segment and transferred to the Funding Center through a fund transfer pricing (“FTP”) methodology and allocating model. The FTP model records a cost of funds or credit for funds using a combination of matched maturity funding for fixed term assets and liabilities and a blended rate for the remaining assets and liabilities with varying maturities.

The Bank’s investment portfolio and unallocated equity are included in the Other segment. Amortization expense associated with customer-relationship intangibles is charged to the affected operating segments.

Selected financial information for each segment is presented in the following tables. Commercial and Private Banking includes all revenue and costs from products and services utilized by clients of Commercial and Private Banking, including both revenue and costs for Wealth Management products and services. The revenues and costs associated with Wealth Management products and services that are allocated to Commercial and Private Banking for management reporting purposes are eliminated in the Other segment. The current period reflects any changes made in the process or methodology for allocations to the reportable segments. Prior period segment results have been revised to conform with current period presentation.

	For the three months ended June 30, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	184,768	$	649	$	31,062		$	216,479
Provision for credit losses on loans and leases, excluding covered loans	1,000		—		—			1,000
Provision for losses on covered loans	13,293		—		—			13,293
Noninterest income	50,311		39,966		(15,509		)	74,768
Depreciation and amortization	3,414		1,538		4,579			9,531
Noninterest expense	165,834		36,102		(16,951		)	184,985
Income before income taxes	51,538		2,975		27,925			82,438
Provision for income taxes	21,646		1,078		4,547			27,271
Net income	29,892		1,897		23,378			55,167
Less: Net income attributable to noncontrolling interest	—		409		—			409
Net income attributable to City National Corporation	$	29,892	$	1,488	$	23,378		$	54,758
Selected Average Balances:
Loans and leases, excluding covered loans	$	13,073,029	$	—	$	52,838		$	13,125,867
Covered loans	1,341,041		—		—			1,341,041
Total assets	14,728,913		530,179		9,103,454			24,362,546
Deposits	20,379,604		96,839		471,803			20,948,246
Goodwill	370,333		162,813		—			533,146
Customer-relationship intangibles, net	8,129		25,714		—			33,843

	For the three months ended June 30, 2011
	Commercial and		Wealth						Consolidated
(in thousands)	Private Banking		Management			Other			Company
Earnings Summary:
Net interest income	$	181,034	$	531		$	9,262		$	190,827
Provision for losses on covered loans	1,716		—			—			1,716
Noninterest income	60,121		41,065			(9,249		)	91,937
Depreciation and amortization	3,654		1,498			3,856			9,008
Noninterest expense	178,690		39,551			(15,417		)	202,824
Income before income taxes	57,095		547			11,574			69,216
Provision (benefit) for income taxes	23,980		(6		)	(3,324		)	20,650
Net income	33,115		553			14,898			48,566
Less: Net income attributable to noncontrolling interest	—		562			533			1,095
Net income (loss) attributable to City National Corporation	$	33,115	$	(9	)	$	14,365		$	47,471
Selected Average Balances:
Loans and leases, excluding covered loans	$	11,453,329	$	—		$	62,660		$	11,515,989
Covered loans	1,770,377		—			—			1,770,377
Total assets	13,733,704		553,839			7,722,206			22,009,749
Deposits	18,348,651		61,393			374,404			18,784,448
Goodwill	324,762		161,635			—			486,397
Customer-relationship intangibles, net	12,511		28,164			—			40,675

	For the six months ended June 30, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	356,568	$	1,265	$	59,359		$	417,192
Provision for credit losses on loans and leases, excluding covered loans	1,000		—		—			1,000
Provision for losses on covered loans	20,759		—		—			20,759
Noninterest income	97,555		79,337		(26,424		)	150,468
Depreciation and amortization	6,996		2,984		8,865			18,845
Noninterest expense	337,322		72,191		(33,122		)	376,391
Income before income taxes	88,046		5,427		57,192			150,665
Provision for income taxes	36,979		2,006		10,005			48,990
Net income	51,067		3,421		47,187			101,675
Less: Net income attributable to noncontrolling interest	—		652		—			652
Net income attributable to City National Corporation	$	51,067	$	2,769	$	47,187		$	101,023
Selected Average Balances:
Loans and leases, excluding covered loans	$	12,726,026	$	—	$	53,054		$	12,779,080
Covered loans	1,389,877		—		—			1,389,877
Total assets	14,433,156		533,956		9,036,610			24,003,722
Deposits	20,050,801		97,937		434,083			20,582,821
Goodwill	347,547		162,367		—			509,914
Customer-relationship intangibles, net	8,568		26,103		—			34,671

	For the six months ended June 30, 2011
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	353,719	$	1,099	$	17,299		$	372,117
Provision for losses on covered loans	20,832		—		—			20,832
Noninterest income	123,332		82,941		(20,443		)	185,830
Depreciation and amortization	7,287		2,947		7,690			17,924
Noninterest expense	344,195		77,735		(30,625		)	391,305
Income before income taxes	104,737		3,358		19,791			127,886
Provision (benefit) for income taxes	43,990		940		(6,394		)	38,536
Net income	60,747		2,418		26,185			89,350
Less: Net income attributable to noncontrolling interest	—		1,120		1,067			2,187
Net income attributable to City National Corporation	$	60,747	$	1,298	$	25,118		$	87,163
Selected Average Balances:
Loans and leases, excluding covered loans	$	11,326,163	$	—	$	60,494		$	11,386,657
Covered loans	1,790,569		—		—			1,790,569
Total assets	13,634,595		553,547		7,507,430			21,695,572
Deposits	18,051,444		54,020		380,205			18,485,669
Goodwill	324,985		161,638		—			486,623
Customer-relationship intangibles, net	12,461		28,551		—			41,012