Segment Results

9 Months Ended

Sep. 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 lending, lines of credit, equipment lease financing, 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 and Rochdale Investment Trust. 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 September 30, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	184,597	$	1,133	$	24,192		$	209,922
Provision for credit losses on loans and leases, excluding covered loans	2,000		—		—			2,000
Provision for losses on covered loans	18,089		—		—			18,089
Noninterest income	60,203		54,405		(7,351		)	107,257
Depreciation and amortization	3,569		1,996		4,691			10,256
Noninterest expense	170,040		45,233		(17,643		)	197,630
Income before income taxes	51,102		8,309		29,793			89,204
Provision for income taxes	21,463		3,334		4,255			29,052
Net income	29,639		4,975		25,538			60,152
Less: Net income attributable to noncontrolling interest	—		372		—			372
Net income attributable to City National Corporation	$	29,639	$	4,603	$	25,538		$	59,780
Selected Average Balances:
Loans and leases, excluding covered loans	$	13,526,284	$	—	$	61,224		$	13,587,508
Covered loans	1,207,031		—		—			1,207,031
Total assets	15,098,090		638,445		9,918,059			25,654,594
Deposits	21,298,105		104,195		538,520			21,940,820
Goodwill	393,176		239,297		—			632,473
Customer-relationship intangibles, net	7,392		47,359		—			54,751

	For the three months ended September 30, 2011
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	189,999	$	479	$	8,838		$	199,316
Provision for credit losses on loans and leases, excluding covered loans	7,500		—		—			7,500
Provision for losses on covered loans	5,147		—		—			5,147
Noninterest income	39,139		41,070		(10,574		)	69,635
Depreciation and amortization	3,689		1,525		3,821			9,035
Noninterest expense	169,073		34,613		(15,084		)	188,602
Income before income taxes	43,729		5,411		9,527			58,667
Provision (benefit) for income taxes	18,367		1,852		(3,952		)	16,267
Net income	25,362		3,559		13,479			42,400
Less: Net income attributable to noncontrolling interest	—		1,002		—			1,002
Net income attributable to City National Corporation	$	25,362	$	2,557	$	13,479		$	41,398
Selected Average Balances:
Loans and leases, excluding covered loans	$	11,747,735	$	—	$	48,909		$	11,796,644
Covered loans	1,664,349		—		—			1,664,349
Total assets	13,882,867		556,584		8,559,111			22,998,562
Deposits	19,274,187		58,884		391,527			19,724,598
Goodwill	324,761		161,622		—			486,383
Customer-relationship intangibles, net	11,597		27,320		—			38,917

	For the nine months ended September 30, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	541,163	$	2,399	$	83,552		$	627,114
Provision for credit losses on loans and leases, excluding covered loans	3,000		—		—			3,000
Provision for losses on covered loans	38,848		—		—			38,848
Noninterest income	157,758		133,743		(33,776		)	257,725
Depreciation and amortization	10,565		4,980		13,556			29,101
Noninterest expense	507,450		117,336		(50,765		)	574,021
Income before income taxes	139,058		13,826		86,985			239,869
Provision for income taxes	58,405		5,377		14,260			78,042
Net income	80,653		8,449		72,725			161,827
Less: Net income attributable to noncontrolling interest	—		1,024		—			1,024
Net income attributable to City National Corporation	$	80,653	$	7,425	$	72,725		$	160,803
Selected Average Balances:
Loans and leases, excluding covered loans	$	12,994,726	$	—	$	55,797		$	13,050,523
Covered loans	1,328,484		—		—			1,328,484
Total assets	14,656,195		569,043		9,332,792			24,558,030
Deposits	20,469,604		100,038		469,149			21,038,791
Goodwill	362,868		188,197		—			551,065
Customer-relationship intangibles, net	8,173		33,240		—			41,413

	For the nine months ended September 30, 2011
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company
Earnings Summary:
Net interest income	$	543,719	$	1,578	$	26,136		$	571,433
Provision for credit losses on loans and leases, excluding covered loans	7,500		—		—			7,500
Provision for losses on covered loans	25,979		—		—			25,979
Noninterest income	162,470		124,011		(31,016		)	255,465
Depreciation and amortization	10,976		4,471		11,512			26,959
Noninterest expense	513,215		111,334		(44,642		)	579,907
Income before income taxes	148,519		9,784		28,250			186,553
Provision (benefit) for income taxes	62,378		2,770		(10,345		)	54,803
Net income	86,141		7,014		38,595			131,750
Less: Net income attributable to noncontrolling interest	—		3,189		—			3,189
Net income attributable to City National Corporation	$	86,141	$	3,825	$	38,595		$	128,561
Selected Average Balances:
Loans and leases, excluding covered loans	$	11,468,231	$	—	$	56,590		$	11,524,821
Covered loans	1,748,033		—		—			1,748,033
Total assets	13,718,262		554,570		7,861,843			22,134,675
Deposits	18,463,503		55,659		384,021			18,903,183
Goodwill	324,910		161,633		—			486,543
Customer-relationship intangibles, net	12,200		28,106		—			40,306