& Risk Committee Charter
for City National Corporation (ticker symbol: CYN)
Reaffirmed February 22, 2006
This Audit & Risk Committee is appointed by the Board of Directors to assist the Board of Directors in fulfilling its oversight responsibilities regarding the following:
The function of the Committee is oversight. The management of the Corporation is responsible for the preparation, presentation and integrity of the Corporation's financial statements. Management and the internal auditing department are responsible for maintaining appropriate accounting and financial reporting principles, policies, internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for planning and carrying out a proper audit of the Corporation's annual financial statements, and reviewing of the Corporation's quarterly financial statements prior to the filing of each quarterly report on Form 10-Q and other procedures. The members of this Committee are not full-time employees of the Corporation. They are not, and do not represent themselves to be, accountants or auditors by profession or experts in the fields of accounting or auditing, including with respect to the issue of auditor independence. It is not the duty or responsibility of this Committee or any of its members to conduct "field work" or other types of auditing or accounting reviews or procedures or to set auditor independence standards.
Each member of this Committee is entitled to rely on (i) the integrity of those persons and organizations within and outside the Corporation from which it receives information, (ii) the accuracy of the financial and other information provided to this Committee by such persons or organizations absent actual knowledge to the contrary (which shall be reported promptly to the Board of Directors) and (iii) representations made by management as to any information technology or other non-audit services provided by the independent registered public accounting firm to the Corporation.
2. Committee Membership and Qualifications.
This Committee shall comprise at least three members appointed by the Board of Directors. Each member of this Committee shall meet the independence and experience requirements of the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934 and the Federal Deposit Insurance Act and implementing regulations, as such may be in effect from time to time. Each member shall be "financially literate" (as such term is interpreted by the Board of Directors in its business judgment). Not less than one member of this Committee shall be an "Audit Committee Financial Expert" as defined by the Securities Exchange Commission, and not less than two members of this Committee shall have "banking or related financial management expertise" (as determined by the Board of Directors in accordance with guidelines of the Federal Deposit Insurance Corporation (12 CFR 363, Appendix A)). Committee members shall not simultaneously serve on the audit committees of more than two other public companies, unless the Board of Directors determines that such service is not otherwise prohibited and will not impair the effectiveness and ability of Committee members to serve on this Committee. The members of the Committee shall be appointed by the Board on recommendation of the Compensation, Nominating and Governance Committee. Committee members may be replaced by the Board.
3. Responsibilities and Authority.
This Committee shall also function as the Audit Committee of the Corporation's wholly owned subsidiary, City National Bank (the ďBankĒ), as permitted by the Federal Deposit Insurance Act and implementing regulations (12 USC 1831m(i), 12 CFR 363.1(b)(2)). This Committee shall also function as the Trust Audit Committee with audit oversight responsibility for all wealth management and fiduciary activities of the Bank under 12 CFR section 9.9, and for all fiduciary and wealth management activities of the Corporation and its non-bank affiliates.
The Committee shall have the sole authority to appoint or replace the independent registered public accounting firm (subject to any applicable required shareholder approval). The Committee shall be directly responsible for the compensation and oversight of the work of the independent registered public accounting firm, including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting arising from the preparation or issuance of an audit report or related work. The independent registered public accounting firm shall report directly to the Committee.
This Committee shall have the authority to investigate any matter brought to its attention and shall have full access to all books, records, facilities and personnel of the Corporation and any subsidiaries of the Corporation, including City National Bank, direct access to the independent registered public accounting firms and the power to retain independent legal, accounting, or other advisors or experts for this purpose. The Corporation shall provide for appropriate funding, as determined by the Audit Committee, for the payment of compensation to independent advisors to the Committee, and for the payment of compensation to the independent registered public accounting firm for the purpose of rendering or issuing an audit report.
This Committee shall review and reassess the adequacy of this charter at least annually and shall obtain approval of any revisions to this charter from the Board of Directors. This Committee shall report the results of its activities to the Board of Directors on a regular basis. The Committee shall annually review the Committee's own performance.
4. Additional Duties and Responsibilities.
A. This Committee is responsible for ensuring that the independent registered public accounting firm submits on a periodic basis:
(i) A formal written statement, as required by the Independence Standards Board Statement No. 1, delineating all relationships between the independent registered public accounting firm and the Corporation and
(ii) A formal written statement of the fees billed by the independent registered public accounting firm for each of the following categories of services: (A) the audit of the Corporation's annual financial statements for the most recent fiscal year and the reviews of the financial statements included in the Corporation's Quarterly Reports on Form 10-Q for that fiscal year; (B) audit related services, (C) tax compliance fees, and (D) all other services, which may include non-financial statement audit services such as capital or debt issuance and tax planning strategies, benefit plan design and acquisition related issues, among others.
B. This Committee shall pre-approve the retention of the independent registered public accounting firm for any auditing and permitted non-audit services (including the fees and terms thereof), subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act which are approved by the Committee prior to the completion of the audit. This Committee will be responsible for actively engaging in a dialogue with the independent registered public accounting firm with respect to any disclosed relationships or services that may impact the objectivity or independence of the independent registered public accounting firm and for recommending action by the Board of Directors to satisfy itself of the independent registered public accounting firms' independence. This Committee shall consider the effect on the independent registered public accounting firm's independence of the provision of non-audit services (it being recognized that, in connection with such consideration, this Committee will rely on the accuracy of the information provided by the independent registered public accounting firm as to the services provided and the fees billed and on the representations of management).
C. This Committee shall oversee all risk management functions and activities of the company and shall discuss with management, the internal auditors and the independent registered public accounting firms the adequacy and effectiveness of the Corporation's and subsidiaries' internal controls regarding financial, accounting, regulatory, and legal compliance and conformity with the Corporation's Code of Conduct, including disclosures of insider and affiliated party transactions.
D. This Committee shall review with management and the independent registered public accounting firms financial results prior to the release of earnings and quarterly financial statements, including Managementís Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the results of the independent registered public accounting firmís review of the quarterly financial statements, prior to the filing of the Corporation's quarterly report on Form 10-Q. The chair of this Committee (or in his or her absence, another member of this Committee) may represent the entire Committee for the purposes of this review.
E. This Committee shall meet to review and discuss with management and the independent registered public accounting firms the financial statements to be included in the Corporation's annual report on Form 10-K (or the annual report to stockholders if distributed prior to the filing of the Form 10-K), including disclosures made in MD&A, the independent registered public accounting firms' judgment about the quality of accounting principles, the reasonableness of significant judgments and the clarity of disclosures, prior to filing of the Companyís Annual Report on Form 10-K, and will recommend to the Board whether the audited financial statements should be included in the Companyís Form 10-K.
F. This Committee will discuss with management the Corporation's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.
G. This Committee will discuss with management and the independent registered public accounting firm significant financial reporting issues and judgments made in connection with the preparation of the Corporation's financial statements, including any significant changes in the Corporation's selection of application of accounting principles, any major issues as to the adequacy of internal controls and any special steps in light of identified material control deficiencies.
With regard to internal controls:
H. This Committee will review disclosures made by the Corporation's CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Corporation's internal controls. The Committee will also discuss with management its process for performing its required quarterly certifications under Section 302 of the Sarbanes-Oxley Act.
I. This Committee will periodically review with management and the independent registered public accounting firms:
(i) All critical accounting policies and practices to be used.
(ii) All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent registered public accounting firm.
(iii) Other material written communications between the independent registered public accounting firm and management, such as any management letter or schedule of unadjusted differences.
J. This Committee will discuss with management and the independent registered public accounting firm the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Corporation's financial statements.
K. This Committee will discuss with management the Corporation's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Corporation's risk assessment and risk management policies.
L. This Committee will discuss with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
M. With respect to the oversight of the Corporation's independent registered public accounting firm, this Committee will:
(i) Review and evaluate the lead partner of the independent registered public accounting firm team.
(ii) Obtain and review a report from the independent registered public accounting firm at least annually regarding:
∑ the independent registered public accounting firm's internal quality-control procedures,
∑ any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm,
∑ any steps taken to deal with any such issues, and
∑ all relationships between the independent registered public accounting firm and the Corporation.
(iii) Evaluate the qualifications, performance and independence of the independent registered public accounting firm, including considering whether the auditor's quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor's independence, and taking into account the opinions of management and internal auditors.
(iv) Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent registered public accounting firm on a regular basis.
(v) Recommend to the Board policies for the Corporation's hiring of employees or former employees of the independent registered public accounting firm who participated in any capacity in the audit of the Corporation.
(vi) Regularly review with the independent registered public accounting firm any difficulties encountered in the course of the audit work, including any restrictions on the scope of the independent registered public accounting firmís activities or on access to requested information, and managementís response. To the extent deemed necessary and appropriate by the Committee, it can discuss with the national office of the independent registered public accounting firm issues on which they were consulted by the Corporation' s audit team and matters of audit quality and consistency.
(vii) Meet with the independent registered public accounting firm prior to the audit to discuss the planning and staffing of the audit.
N. With respect to oversight of the Corporation's internal audit function, this Committee will:
(i) Review the appointment and replacement of the senior internal auditing executive.
(ii) Review the significant reports to management prepared by the internal auditing department and management's responses.
(iii) Discuss with the independent registered public accounting firm and management the internal audit department responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit.
O. This Committee will obtain from the independent registered public accounting firm assurance that Section 10A(b) of the Exchange Act has not been triggered.
P. This Committee will obtain reports from management, including as appropriate the managers of Human Resources, Risk Management, Internal Audit, Legal & Compliance, and Credit Risk Review, that the Corporation and its subsidiary and affiliated entities are in conformity with applicable legal and regulatory requirements and the Corporation's Code of Conduct and shall review with management its periodic evaluation of the effectiveness of its compliance programs. The Committee shall also review with senior management the Companyís overall anti-fraud programs and controls.
Q. This Committee will review reports and disclosures of insider and affiliated party transactions and advise the Board with respect to the Corporation's policies and procedures regarding compliance with applicable laws and regulations and with the Corporation's Code of Conduct.
R. This Committee will establish and maintain procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
S. This Committee will discuss with management and the independent
registered public accounting firm any correspondence with regulators or
governmental agencies and any published reports that raise material issues
regarding the Corporation's financial statements or accounting policies.
U. This Committee will prepare, or cause to be prepared subject to this
Committee's review and approval, a report to be included in the Corporation's
proxy statement relating to the annual meeting stating whether this Committee
has (1) reviewed and discussed the audited financial statements with
management, (2) discussed with the independent registered public accounting
firms the matters required to be discussed by Statement on Accounting
Standards No. 61, (3) received from the independent registered public
accounting firms the disclosures regarding the auditors' independence
required by Independence Standards Board Statement No. 1, and (4) based upon
its review and discussions, recommended to the Board of Directors that the
audited financial statements be included in the Corporation's annual report
on Form 10-K.