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, Core Branch Banking and FAEF 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. FAEF serves clients nationwide.

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 at least 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 to current period presentation.

	For the three months ended March 31, 2013
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	183,562	$	314	$	17,197		$	201,073
Provision for credit losses on loans and leases, excluding covered loans	—		—		—			—
Provision for losses on covered loans	9,892		—		—			9,892
Noninterest income	50,263		55,452		(12,187		)	93,528
Depreciation and amortization	3,618		1,900		4,586			10,104
Noninterest expense	170,860		47,117		(16,741		)	201,236
Income before income taxes	49,455		6,749		17,165			73,369
Provision (benefit) for income taxes	20,771		2,589		(2,099		)	21,261
Net income	28,684		4,160		19,264			52,108
Less: Net income attributable to noncontrolling interest	—		585		—			585
Net income attributable to City National Corporation	$	28,684	$	3,575	$	19,264		$	51,523

Selected Average Balances:
Loans and leases, excluding covered loans	$	14,754,689	$	—	$	54,652		$	14,809,341
Covered loans	989,452		—		—			989,452
Total assets	15,985,918		644,338		11,078,903			27,709,159
Deposits	21,840,183		106,345		464,425			22,410,953
Goodwill	393,177		249,445		—			642,622
Customer-relationship intangibles, net	5,916		41,394		—			47,310

	For the three months ended March 31, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	171,815	$	615	$	28,283		$	200,713
Provision for credit losses on loans and leases, excluding covered loans	—		—		—			—
Provision for losses on covered loans	7,466		—		—			7,466
Noninterest income	47,245		39,371		(10,916		)	75,700
Depreciation and amortization	3,582		1,446		4,286			9,314
Noninterest expense	171,524		36,053		(16,171		)	191,406
Income before income taxes	36,488		2,487		29,252			68,227
Provision for income taxes	15,325		943		5,451			21,719
Net income	21,163		1,544		23,801			46,508
Less: Net income attributable to noncontrolling interest	—		243		—			243
Net income attributable to City National Corporation	$	21,163	$	1,301	$	23,801		$	46,265

Selected Average Balances:
Loans and leases, excluding covered loans	$	12,379,023	$	—	$	53,269		$	12,432,292
Covered loans	1,438,714		—		—			1,438,714
Total assets	14,137,481		537,732		8,969,686			23,644,899
Deposits	19,721,998		99,035		396,362			20,217,395
Goodwill	324,761		161,921		—			486,682
Customer-relationship intangibles, net	9,007		26,493		—			35,500