Note 11 - Capital Resources

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note Disclosure [Text Block]

11.   Capital Resources

In 2010, the Company sold $132.3 million of new common stock consisting of 15,028,409 shares at an average price of $8.80 per share.  Net of issuance costs and fees, this issuance added $124.9 million to common stockholders’ equity.  The Company did not sell any common stock in 2012 and in 2011.

The Company has participated in the U.S. Treasury’s Troubled Asset Relief Program Capital Purchase Program under the Emergency Economic Stabilization Act of 2008.  Upon the approval of participation, the U.S. Treasury purchased the Company’s senior preferred stock on December 5, 2008, in the amount of $258.0 million.  The senior preferred stock pays cumulative compounding dividends at a rate of 5% per year for the first five years, and thereafter at a rate of 9% per year.  The shares are non-voting, other than class voting rights on matters that could adversely affect the shares. They are callable at par after three years. Prior to the end of three years, the shares may only be redeemed with the proceeds from one or more qualified equity offerings.  In conjunction with the purchase of senior preferred shares, the U.S. Treasury received warrants to purchase 1,846,374 shares of common stock at the exercise price of $20.96 with an aggregate market price equal to $38.7 million, 15% of the senior preferred stock amount that U.S. Treasury invested.

On September 29, 2006, the Bank issued $50.0 million in subordinated debt in a private placement transaction.  The debt had an original maturity term of 10 years, was unsecured and bore interest at a rate of three-month LIBOR plus 110 basis points, payable on a quarterly basis.  In March 2011, the Company extended the debt for an additional year.  As part of the extension agreement, the rate was increased from LIBOR plus 110 basis points to LIBOR plus 330 basis points for 2012 and 2011, after which time it reverts back to LIBOR plus 110 basis points.  At December 31, 2012, the per annum interest rate on the subordinated debt was 3.61% compared to 3.88% at December 31, 2011.  The subordinated debt was issued through the Bank and qualifies as Tier 2 capital for regulatory reporting purposes and is included in long-term debt in the accompanying condensed Consolidated Balance Sheets.

The Bancorp established three special purpose trusts in 2003 and two in 2007 for the purpose of issuing trust preferred securities to outside investors (“Capital Securities”).  The trusts exist for the purpose of issuing the Capital Securities and investing the proceeds thereof, together with proceeds from the purchase of the common securities of the trusts by the Bancorp, in Junior Subordinated Notes issued by the Bancorp.  Subject to some limitations, payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts or the redemption of the Capital Securities are guaranteed by the Bancorp to the extent the trusts have funds on hand at such time.  The obligations of the Bancorp under the guarantees and the Junior Subordinated Notes are subordinate and junior in right of payment to all indebtedness of the Bancorp and will be structurally subordinated to all liabilities and obligations of the Bancorp’s subsidiaries.  The Bancorp has the right to defer payments of interest on the Junior Subordinated Notes at any time or from time to time for a period of up to twenty consecutive quarterly periods with respect to each deferral period.  Under the terms of the Junior Subordinated Notes, the Bancorp may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock if the Bancorp has deferred payment of interest on the Junior Subordinated Notes.

The five special purpose trusts are considered variable interest entities under FIN 46R.  Because the Bancorp is not the primary beneficiary of the trusts, the financial statements of the trusts are not included in the Consolidated Financial Statements of the Company.

The Junior Subordinated Notes are currently included in the Tier 1 capital of the Bancorp for regulatory capital purposes. On March 1, 2005, the Federal Reserve adopted a final rule that retains trust preferred securities in the Tier I capital of bank holding companies, which after a five-year transition period, limited the aggregate amount of trust preferred securities and certain other capital elements to 25% of Tier 1 capital elements, net of goodwill, less any associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. This rule did not have a materially adverse effect on the Company’s capital positions.

Interest expense on the Junior Subordinated Notes was $3.2 million for 2012, $3.0 million for 2011, and $3.1 million for 2010.

The table below summarizes the outstanding Junior Subordinated Notes issued by the Company to each trust as of December 31, 2012:

Trust Name	Issuance Date	Principal Balance of Notes		Not Redeemable Until	Stated Maturity	Annualized Coupon Rate	Current Interest Rate			Date of Rate Change	Payable/ Distribution Date
	(Dollars in thousands)
Cathay Capital Trust I	June 26, 2003	$	20,619	June 30, 2008	June 30, 2033	3-month LIBOR + 3.15%		3.46	%	December 30, 2012	March 30 June 30 September 30 December 30
Cathay Statutory Trust I	September 17, 2003		20,619	September 17, 2008	September 17, 2033	3-month LIBOR + 3.00%		3.31	%	December 17, 2012	March 17 June 17 September 17 December 17
Cathay Capital Trust II	December 30, 2003		12,887	March 30, 2009	March 30, 2034	3-month LIBOR + 2.90%		3.21	%	December 30, 2012	March 30 June 30 September 30 December 30
Cathay Capital Trust III	March 28, 2007		46,392	June 15, 2012	June 15, 2037	3-month LIBOR + 1.48%		1.79	%	December 17, 2012	March 15 June 15 September 15 December 15
Cathay Capital Trust IV	May 31, 2007		20,619	September 6, 2012	September 6, 2037	3-month LIBOR 1.40%		1.71	%	December 6, 2012	March 6 June 6 September 6 December 6
Total Junior Subordinated Notes		$	121,136