Introduction

This Excessive or Luxury Expenditures Policy (the “Policy”) is adopted to comply with the requirements under Section 111(d) of the Emergency Economic Stabilization Act of 2008 (“EESA”), as amended by the American Recovery and Reinvestment Act of 2009 (“ARRA”), and the Troubled Assets Relief Program (“TARP”) Standards for Compensation and Corporate Governance, Interim Final Rule, promulgated by the Secretary of the U.S. Treasury Department (the “U.S. Treasury”).  Section 111(d) of EESA requires the board of directors of each recipient of funds under the Capital Purchase Program of the TARP to adopt a company-wide policy regarding excessive or luxury expenditures.  This Policy is designed and adopted to meet all these requirements.

Excessive or Luxury Expenditure Standard

In conformity with applicable laws, City National Corporation and its subsidiaries (collectively, the “Company”) hereby reaffirm the long-standing prohibition against excessive or luxury expenditures, including with respect to the following:

1. Entertainment or events;
2. Office and facility renovations;
3. Aviation or other transportation services; or
4. Other activities or events that are not reasonable expenditures for staff development, reasonable performance incentives, or other similar measures conducted in the normal course of the Company’s business operations.

For the purposes of this Policy, “excessive or luxury expenditures” are generally defined as those expenditures which a) can not be justified as a reasonable and prudent expense in the normal course of business, or b) can be reasonably viewed as excessive or luxurious when other reasonable cost-efficient expenditures or methods are available but not utilized.

This Policy reaffirms existing and long-standing expense approval, limits, and related policies and procedures. All expenses are required to be documented through the normal Accounts Payable Policies and Procedures, including but not limited to the Administration Manual, except as revised by this Policy. Expenditures related to the following events, matters and activities are subject to the following additional prior approval requirements to the extent the expenditure exceed the dollar thresholds indicated in this Policy, or to the extent that such expenditures are not conclusively supported as reasonable and justifiable expenditures for staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the Company’s business operations in accordance with the terms of the policies and procedures governing Accounts Payable and the Administration Manual:

Entertainment

All entertainment expenses are required to be incurred for business-related and/or marketing purposes.  Expenditures that are related to social entertainment for prospects or current clients are a necessary part of the Company’s business and marketing strategies and, therefore, are not deemed excessive or in violation of this Policy.  All entertainment expenses are required to be documented through the normal Accounts Payable and Administration Manual process.

Events

From time to time, the Company may require or permit its colleagues or directors to attend events that are appropriate educational, marketing, strategic planning, business development or other business purposes opportunities.  These events must be related to colleague or director responsibilities and must be approved in accordance with existing Accounts Payable and Administration Manual approval procedures.  At times it may be appropriate that a spouse travel to these events with an individual director, officer or employee. Events that do not have an educational, marketing, strategic planning, business development or other business purpose will generally not be subsidized by the Company. Contributions to charitable events must similarly conform to these business purpose requirements.

Renovations

Reasonable renovations of facilities and office spaces of the Company are considered acceptable.  In addition, management may incur additional renovation expenses in connection with renovations in an emergency situation, such as an act of nature.  All renovation expenditures must be supported by a reasonable business purpose and approved in accordance with all applicable capital expenditure and Administrative Manual prior approval policies.

Aviation or Other Transportation Services

Transportation for directors or colleagues in fulfilling their respective duties, including without limitation, transport to bank locations, conferences, merger and acquisition due diligence, and for business development purposes must be conducted in a reasonable and appropriate cost-efficient manner. Appropriate modes of transportation to be used may include commercial or private air travel, provided that all private air travel has been limited to travel by or including the Chief Executive Officer, and is subject to approved reimbursement limits established by the Board of Directors. The selection of transportation services must take into account cost, efficiency, timeliness of travel and the needs of the Company and its directors and colleagues.

Review and Approval of Expenditures

Questions regarding the application or interpretation of this Policy, including the review and prior approval of any expenditure as to its reasonableness, shall be directed to the Controller, who may consult with the General Counsel or his designee, and make a recommendation to the Chief Executive Officer or the Chief Financial Officer for a final determination in accordance with this Policy, provided that neither the Controller, the General Counsel, Chief Executive Officer, Chief Financial Officer nor any Senior Executive Officer (as defined under applicable regulations) shall participate in the making of any final determination with respect to his or her own covered expenditures.  For any expense approval under this Policy involving actual or proposed expenditures by the Chief Executive Officer or by the Chief Financial Officer, the President shall make the final determination (“CEO or CFO related expenses”).  All determinations by the Chief Executive Officer or Chief Financial Officer (or by the President for CEO or CFO related expenses), shall be final, binding and conclusive. 

Policy Thresholds

The following dollar thresholds will be in effect for the four categories of expenditures noted above. In every case where these expenditure thresholds would be surpassed, or if the Controller determines that there is a reasonable concern regarding the justification of the expenditure as a reasonable and prudent expense in the normal course of business, the expense will require prior approval by the Chief Executive Officer or the Chief Financial Officer (or by the President for CEO or CFO related expenses).  Final determinations on the review and approval of expenses shall be documented consistent with this Policy.

Entertainment

Any entertainment expense associated with a single event exceeding $25,000 shall require prior review by the Controller and prior approval of the Chief Executive Officer or Chief Financial Officer (or by the President for CEO or CFO related expenses).  Entertainment in this regard will cover any colleague or proposed client expenditure related to parties, dinners, sporting events, meetings, gifts, and related matters.

Events

Any single event expenditure exceeding $25,000 shall require prior approval of the Chief Executive Officer or Chief Financial Officer (or by the President for CEO or CFO related expenses).  Events in this regard will cover any colleague or proposed client expenditure related to offsite meetings, seminars, community and charity events, golf tournaments, and related matters.

Renovations

Any office or facilities renovation expenditures must be approved in accordance with the terms of the Capital Expenditure and Administrative Manual policies. Renovation in this regard include expenditures related to leasing of buildings or equipment, construction costs, remodeling projects, or purchase, lease, installation or repair of major furniture and equipment.

Aviation or Other Transportation Services

Any aviation or transportation expenditure for any individual colleague or director exceeding $20,000 shall require the prior review by the Controller, and prior approval of the Chief Executive Officer or Chief Financial Officer (or by the President for CEO or CFO related expenses).

Prior Approval Procedures

Any invoice, ACH wire request, colleague expense claim or other form of payment request exceeding the thresholds noted above must be routed to the Controllers Department for review and reporting. The Controllers Department will, in consultation with the General Counsel, initiate the review cycle with the Chief Executive Officer or Chief Financial Officer (or by the President for CEO or CFO related expenses) as required.

Reporting

The Controllers Department will prepare a quarterly report for the Chief Financial Officer detailing any prior approvals or exceptions to this Policy. Business unit or colleague justification will accompany any items detailed on the quarterly report.  This report will include documentation of all matters and determinations by the Chief Executive Officer or Chief Financial Officer (or by the President for CEO or CFO related expenses) in accordance with this Policy

Policy Compliance

Any violation of this Policy must be promptly reported to the Controller or the General Counsel through means available for the internal reporting of policy violations, and all such violations shall be reported to the Audit & Risk Committee of the Board of Directors at its next subsequent meeting.  Violations of this Policy may result in disciplinary action against those acting in violation of Policy, up to and including termination of employment.

Policy Certification

The Chief Executive Officer and the Chief Financial Officer of the Company shall annually certify to the Board of Directors that the Company has complied with this Policy during the applicable period and that all expenditures requiring prior approval pursuant to this Policy have been properly approved in accordance with the requirements of this Policy. 

Records Retention

Appropriate documentation and records to substantiate actions in accordance with this Policy and all certifications shall be preserved for six (6) years after the date of each such certification in accordance with applicable government regulations and guidance

Policy Maintenance

At all times during the TARP period, the Company shall maintain this Policy in effect, and post the text of the Policy on the Company website.  A copy of this Policy, and any material amendments, shall be provided to the U.S. Treasury, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency, on or prior to September 13, 2009, and within 90 days of any material amendment.

Policy Amendments

Amendments to the Policy shall be made as necessary on the recommendation and approval of the Compensation, Nominating & Governance Committee and the approval of the Board of Directors.