Share-Based Compensation

3 Months Ended

Mar. 31, 2013

Share-Based Compensation

Share-Based Compensation

Note 11. Share-Based Compensation

On March 31, 2013, 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. 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 March 31, 2013. At March 31, 2013, there were approximately 1.3 million shares available for future grants. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for further discussion of the Company’s share-based compensation plan.

The compensation cost that has been recognized for all share-based awards was $5.1 million and $4.7 million for the three months ended March 31, 2013 and 2012. The total income tax benefit recognized in the consolidated statements of income for share-based compensation arrangements was $2.1 million and $2.0 million for the three months ended March 31, 2013 and 2012. The Company received $11.8 million and $2.0 million in cash for the exercise of stock options during the three months ended March 31, 2013 and 2012, respectively. The actual tax benefit realized for the tax deductions from stock option exercises was $2.4 million and $0.4 million for the three months ended March 31, 2013 and 2012, respectively.

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:

	For the three months ended March 31,
	2013		2012
Weighted-average volatility	28.12	%	30.58	%
Dividend yield	2.15	%	2.14	%
Expected term (in years)	6.15		6.11
Risk-free interest rate	1.24	%	1.44	%

Using the Black-Scholes methodology, the weighted-average grant-date fair values of options granted during the three months ended March 31, 2013 and 2012 were $12.57 and $11.64, respectively. The total intrinsic values of options exercised during the three months ended March 31, 2013 and 2012 were $6.0 million and $0.9 million, respectively.

A summary of option activity and related information for the three months ended March 31, 2013 is presented below:

			Weighted				Weighted
			Average		Aggregate		Average
	Number of		Exercise		Intrinsic		Remaining
	Shares		Price		Value		Contractual
Options	(in thousands)		(per share)		(in thousands) (1)		Term
Outstanding at January 1, 2013	4,417		$	53.91
Granted	593		55.73
Exercised	(320	)	36.98
Forfeited or expired	(30	)	57.73
Outstanding at March 31, 2013	4,660		$	55.28	$	33,343	6.04
Exercisable at March 31, 2013	3,197		$	56.27	$	24,419	4.70

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

A summary of changes in unvested options and related information for the three months ended March 31, 2013 is presented below:

			Weighted Average
	Number of		Grant Date
	Shares		Fair Value
Unvested Options	(in thousands)		(per share)
Unvested at January 1, 2013	1,529		$	13.36
Granted	593		12.57
Vested	(644	)	12.12
Forfeited	(15	)	13.12
Unvested at March 31, 2013	1,463		$	13.60

The number of options vested during the three months ended March 31, 2013 and 2012 was 643,601 and 599,119, respectively. The total fair value of options vested during the three months ended March 31, 2013 and 2012 was $7.8 million and $7.3 million, respectively. As of March 31, 2013, there was $17.6 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 2.8 years.

A summary of changes in restricted stock and related information for the three months ended March 31, 2013 is presented below:

			Weighted Average
	Number of		Grant Date
	Shares		Fair Value
Restricted Stock (1)	(in thousands)		(per share)
Unvested at January 1, 2013	747		$	50.73
Granted	68		55.73
Vested	(181	)	45.49
Forfeited	(5	)	49.31
Unvested at March 31, 2013	629		$	52.79

(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 value of restricted stock granted during the three months ended March 31, 2013 and 2012 was $55.73 and $46.66, respectively. The number of restricted shares vested during the three months ended March 31, 2013 and 2012 was 181,469 and 169,568, respectively. The total fair value of restricted stock vested during the three months ended March 31, 2013 and 2012 was $8.3 million and $7.8 million, respectively. As of March 31, 2013, the unrecognized compensation cost related to restricted stock granted under the Company’s plans was $21.6 million. That cost is expected to be recognized over a weighted-average period of 3.1 years.

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 at each reporting date until settlement. A summary of changes in cash-settled restricted stock units for the three months ended March 31, 2013 is presented below:

	Number of
	Shares
Cash-Settled Restricted Stock Units	(in thousands)
Unvested at January 1, 2013	101
Granted	88
Forfeited	(1	)
Unvested at March 31, 2013	188