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, retirement, 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 City National Rochdale Funds. Both the asset management affiliates and the Bank’s Wealth Management division provide proprietary and nonproprietary products and offer a full spectrum of investment solutions in multiple 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 administration 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 or usage 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. Provision for income taxes is allocated to the segments based on the Company’s 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 allocation 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, 2015
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	207,826	$	807	$	7,947		$	216,580
Provision for losses on covered loans	497		—		—			497
Noninterest income	51,496		75,089		(15,510		)	111,075
Depreciation and amortization	2,715		1,861		11,783			16,359
Noninterest expense	189,882		54,603		(26,402		)	218,083
Income before income taxes	66,228		19,432		7,056			92,716
Provision for income taxes	21,987		6,268		2,342			30,597
Net income	44,241		13,164		4,714			62,119
Less: Net income attributable to noncontrolling interest	—		553		—			553
Net income attributable to City National Corporation	$	44,241	$	12,611	$	4,714		$	61,566

Selected Average Balances:
Loans and leases, excluding covered loans	$	20,348,103	$	—	$	56,617		$	20,404,720
Covered loans	492,438		—		—			492,438
Total assets	20,960,198		745,258		10,554,163			32,259,619
Deposits	27,549,867		87,848		170,668			27,808,383
Goodwill	393,177		242,691		—			635,868
Customer-relationship intangibles, net	1,650		32,534		—			34,184

	For the three months ended March 31, 2014
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	189,708	$	325	$	9,765		$	199,798
Provision for losses on covered loans	4,655		—		—			4,655
Noninterest income	47,142		63,566		(9,460		)	101,248
Depreciation and amortization	2,821		1,747		4,747			9,315
Noninterest expense	167,695		52,214		(18,372		)	201,537
Income before income taxes	61,679		9,930		13,930			85,539
Provision for income taxes	22,544		3,375		5,091			31,010
Net income	39,135		6,555		8,839			54,529
Less: Net income attributable to noncontrolling interest	—		699		—			699
Net income attributable to City National Corporation	$	39,135	$	5,856	$	8,839		$	53,830

Selected Average Balances:
Loans and leases, excluding covered loans	$	17,283,410	$	—	$	55,009		$	17,338,419
Covered loans	696,163		—		—			696,163
Total assets	18,239,567		657,723		10,516,708			29,413,998
Deposits	25,051,747		87,769		232,082			25,371,598
Goodwill	393,177		249,445		—			642,622
Customer-relationship intangibles, net	3,134		36,921		—			40,055