Note 15. Share-Based Compensation

On December 31, 2012, the Company had one share-based compensation plan, the Amended and Restated City National Corporation 2008 Omnibus Plan (the "Plan"), which was originally approved by the Company's shareholders on April 23, 2008. No new awards have been or will be granted under predecessor plans since the adoption of the plan. A description of the Plan is provided below. The compensation cost that has been recognized for all share-based awards was $18.6 million, $19.5 million and $16.7 million for 2012, 2011 and 2010, respectively. The total income tax benefit recognized in the consolidated statements of income for share-based compensation arrangements was $7.8 million, $8.1 million and $7.0 million for 2012, 2011 and 2010, respectively. The Company received $22.4 million and $5.1 million in cash for the exercise of stock options during 2012 and 2011, respectively. The actual tax benefit realized for the tax deductions from stock option exercises was $2.7 million and $1.2 million for 2012 and 2011, respectively.

Plan Description

The Plan permits the grant of stock options, restricted stock, restricted stock units, cash-settled 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 or stock appreciation rights had been made as of December 31, 2012. 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 and restricted stock unit awards granted under the Plan generally vest over five years. 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. A participant with restricted stock awards is entitled to dividends and voting rights for all shares issued even though they are not vested. Restricted stock unit awards are entitled to dividend equivalents, but have no voting rights.

In February 2012, the Company amended the Plan to permit the grant of cash-settled restricted stock units. In general, twenty-five percent of the cash-settled restricted stock units vests two years from the date of grant, then twenty-five percent vests on each of the next three consecutive grant anniversary dates. The units are subject to forfeiture until the restrictions lapse or terminate. Upon vesting, the units are converted to cash based on the closing stock price at vesting date and distributed to plan participants. Plan participants are entitled to dividend equivalents, which vest and are paid in cash at the same time as the underlying cash-settled restricted stock units. Dividend equivalents are subject to forfeiture in the same manner as the underlying cash-settled restricted stock units. Cash-settled restricted stock units are initially valued at the closing price of the Company's stock on the date of award and subsequently remeasured to the closing price of the Company's stock at each reporting date until settlement.

The Plan provides for acceleration of vesting if there is a change in control (as defined in the Plan), a termination of service due to death or total disability (as defined in the Plan), or at the discretion of the Company. Unvested awards are forfeited upon termination of employment, except for those instances noted above. The Company generally issues treasury shares upon share option exercises. At December 31, 2012, there were approximately 2.0 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,

	2012			2011			2010
Weighted-average volatility		30.55	%		30.90	%		31.41	%
Dividend yield		2.14	%		1.67	%		0.73	%
Expected term (in years)		6.11			6.11			6.10
Risk-free interest rate		1.43	%		2.86	%		2.91	%

Using the Black-Scholes methodology, the weighted-average grant-date fair values of options granted during the years ended December 31, 2012, 2011 and 2010 were $11.63, $17.55 and $16.82, respectively. The total intrinsic values of options exercised during the years ended December 31, 2012, 2011 and 2010 were $8.0 million, $2.8 million and $11.8 million, respectively.

A summary of option activity and related information for the years ended December 31, 2012, 2011 and 2010 is presented below:

Options			Weighted Average Exercise Price (per share)		Aggregate Intrinsic Value (in thousands) (1)

Outstanding at January 1, 2012	4,990		$	52.61
Granted	614			46.70
Exercised	(599	)		37.44
Forfeited or expired	(588	)		52.14

Outstanding at December 31, 2012	4,417		$	53.91	$	17,514	5.58

Exercisable at December 31, 2012	2,888		$	57.28	$	10,150	4.25

(1): Includes in-the-money options only.

	2011					2010

Options	Number of Shares (in thousands)			Weighted Average Exercise Price		Number of Shares (in thousands)			Weighted Average Exercise Price
Outstanding at January 1		4,650		$	51.38		4,862		$	49.64
Granted		581			59.46		591			50.34
Exercised		(138	)		36.80		(645	)		36.85
Forfeited or expired		(103	)		56.96		(158	)		53.30

Outstanding at December 31		4,990		$	52.61		4,650		$	51.38

Exercisable		3,349		$	55.62		2,897		$	57.10

A summary of changes in unvested options and related information for the year ended December 31, 2012 is presented below:

Unvested Options			Weighted Average Grant Date Fair Value (per share)

Unvested at January 1, 2012	1,641		$	13.57
Granted	614			11.63
Vested	(677	)		12.31
Forfeited	(49	)		13.04

Unvested at December 31, 2012	1,529		$	13.36

The number of options vested during the year ended December 31, 2012, 2011 and 2010 was 677,282, 656,461 and 603,051, respectively. The total fair value of options vested during 2012, 2011 and 2010 was $8.3 million, $7.8 million and $7.4 million, respectively. As of December 31, 2012, there was $12.9 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 2.4 years.

A summary of changes in restricted stock and related information for the year ended December 31, 2012 is presented below:

Restricted Stock (1)			Weighted Average Grant Date Fair Value (per share)

Unvested at January 1, 2012	875		$	50.12
Granted	84			47.12
Vested	(192	)		46.58
Forfeited	(20	)		48.66

Unvested at December 31, 2012	747		$	50.73

(1): Includes restricted stock units.

The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2012, 2011 and 2010 was $47.12, $60.56 and $50.75, respectively. The number of restricted shares vested during 2012, 2011 and 2010 was 191,965, 157,245 and 115,764. The total fair value of restricted stock vested during 2012, 2011 and 2010 was $8.9 million, $7.7 million and $7.7 million, respectively. As of December 31, 2012, the unrecognized compensation cost related to restricted stock granted under the Company's plans was $20.6 million. That cost is expected to be recognized over a weighted-average period of 3.0 years.

A summary of changes in cash-settled restricted stock units for the year ended December 31, 2012 is presented below:

Cash-Settled Restricted Stock Units

Unvested at January 1, 2012	—
Granted	103
Vested	—
Forfeited	(2	)

Unvested at December 31, 2012	101