Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation

Share-Based Compensation

Note 15. Share-Based Compensation

        On December 31, 2011, the Company had one share-based compensation plan, the City National Corporation 2008 Omnibus Plan (the "Plan"), which was approved by the Company's shareholders on April 23, 2008. No new awards will be granted under predecessor plans. A description of the Plan is provided below. The compensation cost that has been recognized for all share-based awards was $19.5 million, $16.7 million and $14.4 million for 2011, 2010 and 2009, respectively. The total income tax benefit recognized in the consolidated statements of income for share-based compensation arrangements was $8.1 million, $7.0 million and $6.0 million for 2011, 2010 and 2009, respectively. The Company received $5.1 million and $23.8 million in cash for the exercise of stock options during 2011 and 2010, respectively. The actual tax benefit realized for the tax deductions from stock option exercises was $1.2 million and $4.7 million for 2011 and 2010, respectively.

Plan Description

        The Plan permits the grant of stock options, restricted stock, restricted stock units, performance shares, performance share units, performance units and stock appreciation rights, or any combination thereof, to the Company's eligible employees and non-employee directors. No grants of performance shares, performance share units, performance units or stock appreciation rights had been made as of December 31, 2011. The purpose of the Plan is to promote the success of the Company by providing additional means to attract, motivate, retain and reward key employees of the Company with awards and incentives for high levels of individual performance and improved financial performance of the Company, and to link non-employee director compensation to shareholder interests through equity grants. Stock option awards are granted with an exercise price equal to the market price of the Company's stock at the date of grant. These awards vest in four years and have 10-year contractual terms. Restricted stock awards granted under the Plan vest over a period of at least three years, as determined by the Compensation, Nominating and Governance Committee. The participant is entitled to dividends and voting rights for all shares issued even though they are not vested. Restricted stock awards generally vest over five years. The Plan provides for acceleration of vesting if there is a change in control (as defined in the Plan) or a termination of service, which may include disability or death. Unvested options are forfeited upon termination of employment, except for those instances noted above, and the case of the retirement of a retirement-age employee for options granted prior to January 31, 2006. The Company generally issues treasury shares upon share option exercises. All unexercised options expire 10 years from the grant date. At December 31, 2011, there were approximately 1.4 million shares available for future grants.

Fair Value

        The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation methodology that uses the assumptions noted in the following table. The Company evaluates exercise behavior and values options separately for executive and non-executive employees. Expected volatilities are based on the historical volatility of the Company's stock. The Company uses a 20-year look back period to calculate the volatility factor. The length of the look back period reduces the impact of the recent disruptions in the capital markets, and provides values that management believes are more representative of expected future volatility. The Company uses historical data to predict option exercise and employee termination behavior. The expected term of options granted is derived from historical exercise activity and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is equal to the dividend yield of the Company's stock at the time of the grant.

        To estimate the fair value of stock option awards, the Company uses the Black-Scholes methodology, which incorporates the assumptions summarized in the table below:

	December 31,
	2011			2010			2009
Weighted-average volatility		30.90	%		31.41	%		31.42	%
Dividend yield		1.67	%		0.73	%		3.33	%
Expected term (in years)		6.11			6.10			6.11
Risk-free interest rate		2.86	%		2.91	%		2.84	%

        Using the Black-Scholes methodology, the weighted-average grant-date fair values of options granted during the years ended December 31, 2011, 2010 and 2009 were $17.55, $16.82 and $6.90, respectively. The total intrinsic values of options exercised during the years ended December 31, 2011, 2010 and 2009 were $2.8 million, $11.8 million and $0.9 million, respectively.

        A summary of option activity and related information for the years ended December 31, 2011, 2010 and 2009 is presented below:

Options	Number of Shares (in thousands)			Weighted Average Exercise Price (per share)		Aggregate Intrinsic Value (in thousands) (1)		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011		4,650		$	51.38
Granted		581			59.46
Exercised		(138	)		36.80
Forfeited or expired		(103	)		56.96
Outstanding at December 31, 2011		4,990		$	52.61	$	262,526		5.20
Exercisable at December 31, 2011		3,349		$	55.62	$	186,279		3.79

(1)

Includes in-the-money options only.

	2010					2009
Options	Number of Shares (in thousands)			Weighted Average Exercise Price		Number of Shares (in thousands)			Weighted Average Exercise Price
Outstanding at January 1		4,862		$	49.64		4,029		$	55.28
Granted		591			50.34		1,133			27.42
Exercised		(645	)		36.85		(77	)		29.13
Forfeited or expired		(158	)		53.30		(223	)		45.61
Outstanding at December 31		4,650		$	51.38		4,862		$	49.64
Exercisable		2,897		$	57.10		3,001		$	54.39

        A summary of changes in unvested option and related information for the year ended December 31, 2011 is presented below:

Unvested Options	Number of Shares (in thousands)			Weighted Average Grant Date Fair Value (per share)
Unvested at January 1, 2011		1,753		$	11.62
Granted		581			17.55
Vested		(656	)		11.88
Forfeited		(37	)		13.36
Unvested at December 31, 2011		1,641		$	13.57

        The number of options vested during the year ended December 31, 2011, 2010 and 2009 was 656,461, 603,051 and 464,637, respectively. The total fair value of options vested during 2011, 2010 and 2009 was $7.8 million, $7.4 million and $7.4 million respectively. As of December 31, 2011, there was $13.8 million of unrecognized compensation cost related to unvested stock options granted under the Company's plans. That cost is expected to be recognized over a weighted-average period of 2.6 years.

        The Plan provides for granting of restricted shares of Company stock to employees. In general, twenty-five percent of the restricted stock vests two years from the date of grant, then twenty-five percent vests on each of the next three consecutive grant anniversary dates. The restricted stock is subject to forfeiture until the restrictions lapse or terminate. A summary of changes in restricted stock and related information for the year ended December 31, 2011 is presented below:

Restricted Stock (1)	Number of Shares (in thousands)			Weighted Average Grant Date Fair Value (per share)
Unvested at January 1, 2011		717		$	45.04
Granted		336			60.56
Vested		(157	)		49.26
Forfeited		(21	)		50.31
Unvested at December 31, 2011		875		$	50.12

(1)

Includes restricted stock units.

        Restricted stock is valued at the closing price of the Company's stock on the date of award. The weighted-average grant-date fair values of restricted stock granted during the years ended December 31, 2011, 2010 and 2009 were $60.56, $50.75 and $27.81, respectively. The number of restricted shares vested during 2011, 2010 and 2009 was 157,245, 115,764 and 103,418. The total fair value of restricted stock vested during 2011, 2010 and 2009 was $7.7 million, $7.7 million and $7.2 million, respectively. The compensation expense related to restricted stock for 2011 was $10.1 million compared with $8.4 million for 2010 and $7.3 million for 2009. As of December 31, 2011, the unrecognized compensation cost related to restricted stock granted under the Company's plans was $25.9 million. That cost is expected to be recognized over a weighted-average period of 3.5 years.