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, as well as the covered loan portfolio. 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 June 30, 2015
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	227,792	$	647	$	8,071		$	236,510
Provision for credit losses on loans and leases, excluding covered loans	10,000		—		—			10,000
Provision for losses on covered loans	1,091		—		—			1,091
Noninterest income	55,546		70,329		(12,971		)	112,904
Depreciation and amortization	2,492		1,921		6,321			10,734
Noninterest expense	185,756		56,248		(21,078		)	220,926

Income before income taxes	83,999		12,807		9,857			106,663
Provision for income taxes	29,811		4,375		3,498			37,684

Net income	54,188		8,432		6,359			68,979
Less: Net income attributable to noncontrolling interest	—		480		—			480

Net income attributable to City National Corporation	$	54,188	$	7,952	$	6,359		$	68,499


Selected Average Balances:
Loans and leases, excluding covered loans	$	21,221,481	$	255	$	59,732		$	21,281,468
Covered loans	455,406		—		—			455,406
Total assets	21,747,378		741,824		10,391,313			32,880,515
Deposits	28,434,220		98,144		90,959			28,623,323
Goodwill	393,177		242,995		—			636,172
Customer-relationship intangibles, net	1,419		31,464		—			32,883

	For the three months ended June 30, 2014
	Commercial and			Wealth					Consolidated
(in thousands)	Private Banking			Management		Other			Company

Earnings Summary:
Net interest income	$	208,340		$	474	$	10,288		$	219,102
Reversal of provision for credit losses on loans and leases, excluding covered loans	(1,000		)	—		—			(1,000		)
Reversal of provision for losses on covered loans	(1,461		)	—		—			(1,461		)
Noninterest income	38,511			68,729		(6,141		)	101,099
Depreciation and amortization	2,774			1,766		4,799			9,339
Noninterest expense	174,324			56,836		(18,917		)	212,243

Income before income taxes	72,214			10,601		18,265			101,080
Provision for income taxes	25,210			3,523		6,376			35,109

Net income	47,004			7,078		11,889			65,971
Less: Net income attributable to noncontrolling interest	—			510		—			510

Net income attributable to City National Corporation	$	47,004		$	6,568	$	11,889		$	65,461


Selected Average Balances:
Loans and leases, excluding covered loans	$	17,901,508		$	—	$	57,683		$	17,959,191
Covered loans	643,690			—		—			643,690
Total assets	18,705,693			693,473		10,566,732			29,965,898
Deposits	25,584,025			73,784		254,272			25,912,081
Goodwill	393,177			249,445		—			642,622
Customer-relationship intangibles, net	2,692			35,778		—			38,470

	For the six months ended June 30, 2015
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	436,013	$	1,457	$	15,620		$	453,090
Provision for credit losses on loans and leases, excluding covered loans	10,000		—		—			10,000
Provision for losses on covered loans	1,588		—		—			1,588
Noninterest income	107,043		145,418		(28,482		)	223,979
Depreciation and amortization	5,206		3,783		18,104			27,093
Noninterest expense	375,486		111,003		(47,480		)	439,009


Income before income taxes	150,776		32,089		16,514			199,379
Provision for income taxes	51,905		10,691		5,685			68,281


Net income	98,871		21,398		10,829			131,098
Less: Net income attributable to noncontrolling interest	—		1,033		—			1,033


Net income attributable to City National Corporation	$	98,871	$	20,365	$	10,829		$	130,065



Selected Average Balances:
Loans and leases, excluding covered loans	$	20,787,046	$	287	$	58,183		$	20,845,516
Covered loans	473,819		—		—			473,819
Total assets	21,355,970		743,487		10,472,326			32,571,783
Deposits	27,994,486		93,025		130,593			28,218,104
Goodwill	393,177		242,844		—			636,021
Customer-relationship intangibles, net	1,534		31,996		—			33,530

	For the six months ended June 30, 2014
	Commercial and			Wealth					Consolidated
(in thousands)	Private Banking			Management		Other			Company

Earnings Summary:
Net interest income	$	398,078		$	802	$	20,020		$	418,900
Reversal of provision for credit losses on loans and leases, excluding covered loans	(1,000		)	—		—			(1,000		)
Provision for losses on covered loans	3,194			—		—			3,194
Noninterest income	84,592			132,129		(14,374		)	202,347
Depreciation and amortization	5,595			3,513		9,546			18,654
Noninterest expense	341,180			109,039		(36,439		)	413,780

Income before income taxes	133,701			20,379		32,539			186,619
Provision for income taxes	47,679			6,836		11,604			66,119

Net income	86,022			13,543		20,935			120,500
Less: Net income attributable to noncontrolling interest	—			1,209		—			1,209

Net income attributable to City National Corporation	$	86,022		$	12,334	$	20,935		$	119,291


Selected Average Balances:
Loans and leases, excluding covered loans	$	17,594,167		$	—	$	56,353		$	17,650,520
Covered loans	669,781			—		—			669,781
Total assets	18,473,951			675,663		10,541,858			29,691,472
Deposits	25,319,356			80,738		243,238			25,643,332
Goodwill	393,177			249,445		—			642,622
Customer-relationship intangibles, net	2,912			36,346		—			39,258