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 acquired impaired 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 September 30, 2015
	Commercial and			Wealth						Consolidated
(in thousands)	Private Banking			Management			Other			Company

Earnings Summary:
Net interest income	$	226,171		$	592		$	5,494		$	232,257
(Reversal of) provision for credit losses on loans and leases, excluding acquired impaired loans	(6,000		)	—			—			(6,000		)
Provision for losses on acquired impaired loans	1,148			—			—			1,148
Noninterest income	51,675			70,127			(16,931		)	104,871
Depreciation and amortization	2,482			1,839			6,398			10,719
Noninterest expense	188,367			59,872			(20,915		)	227,324

Income before income taxes	91,849			9,008			3,080			103,937
Provision for income taxes	28,440			2,814			954			32,208

Net income	63,409			6,194			2,126			71,729
Less: Net loss attributable to noncontrolling interest	—			(79		)	—			(79		)

Net income attributable to City National Corporation	$	63,409		$	6,273		$	2,126		$	71,808


Selected Average Balances:
Loans and leases, excluding acquired impaired loans	$	21,913,554		$	—		$	56,038		$	21,969,592
Acquired impaired loans	420,308			—			—			420,308
Total assets	22,390,469			730,148			11,330,543			34,451,160
Deposits	29,953,606			98,004			54,447			30,106,057
Goodwill	393,176			244,742			—			637,918
Customer-relationship intangibles, net	1,315			30,399			—			31,714

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

Earnings Summary:
Net interest income	$	204,803		$	452	$	10,521		$	215,776
(Reversal of) provision for credit losses on loans and leases, excluding acquired impaired loans	(8,000		)	—		—			(8,000		)
Provision for losses on acquired impaired loans	589			—		—			589
Noninterest income	50,906			69,289		(12,278		)	107,917
Depreciation and amortization	2,786			1,797		5,119			9,702
Noninterest expense	175,844			57,237		(19,869		)	213,212

Income before income taxes	84,490			10,707		12,993			108,190
Provision for income taxes	29,478			3,441		4,533			37,452

Net income	55,012			7,266		8,460			70,738
Less: Net income attributable to noncontrolling interest	—			847		—			847

Net income attributable to City National Corporation	$	55,012		$	6,419	$	8,460		$	69,891


Selected Average Balances:
Loans and leases, excluding acquired impaired loans	$	18,777,758		$	—	$	60,002		$	18,837,760
Acquired impaired loans	580,200			—		—			580,200
Total assets	19,482,692			738,004		10,675,661			30,896,357
Deposits	26,481,108			71,595		277,930			26,830,633
Goodwill	393,176			249,079		—			642,255
Customer-relationship intangibles, net	2,335			34,689		—			37,024

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

Earnings Summary:
Net interest income	$	662,184	$	2,049	$	21,114		$	685,347
Provision for credit losses on loans and leases, excluding acquired impaired loans	4,000		—		—			4,000
Provision for losses on acquired impaired loans	2,736		—		—			2,736
Noninterest income	158,718		215,544		(45,412		)	328,850
Depreciation and amortization	7,688		5,622		24,502			37,812
Noninterest expense	563,775		170,873		(68,315		)	666,333

Income before income taxes	242,703		41,098		19,515			303,316
Provision for income taxes	80,661		13,342		6,486			100,489

Net income	162,042		27,756		13,029			202,827
Less: Net income attributable to noncontrolling interest	—		954		—			954

Net income attributable to City National Corporation	$	162,042	$	26,802	$	13,029		$	201,873


Selected Average Balances:
Loans and leases, excluding acquired impaired loans	$	21,166,866	$	—	$	57,460		$	21,224,326
Acquired impaired loans	455,786		—		—			455,786
Total assets	21,704,604		738,981		10,761,541			33,205,126
Deposits	28,654,702		94,703		104,932			28,854,337
Goodwill	393,176		243,484		—			636,660
Customer-relationship intangibles, net	1,460		31,458		—			32,918

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

Earnings Summary:
Net interest income	$	602,879		$	1,256	$	30,541		$	634,676
(Reversal of) provision for credit losses on loans and leases, excluding acquired impaired loans	(9,000		)	—		—			(9,000		)
Provision for losses on acquired impaired loans	3,783			—		—			3,783
Noninterest income	135,498			201,418		(26,652		)	310,264
Depreciation and amortization	8,381			5,310		14,665			28,356
Noninterest expense	517,022			166,278		(56,308		)	626,992

Income before income taxes	218,191			31,086		45,532			294,809
Provision for income taxes	77,192			10,270		16,109			103,571

Net income	140,999			20,816		29,423			191,238
Less: Net income attributable to noncontrolling interest	—			2,056		—			2,056

Net income attributable to City National Corporation	$	140,999		$	18,760	$	29,423		$	189,182


Selected Average Balances:
Loans and leases, excluding acquired impaired loans	$	17,993,033		$	—	$	57,583		$	18,050,616
Acquired impaired loans	639,592			—		—			639,592
Total assets	18,814,041			696,524		10,586,949			30,097,514
Deposits	25,710,863			77,657		254,929			26,043,449
Goodwill	393,176			249,322		—			642,498
Customer-relationship intangibles, net	2,717			35,788		—			38,505