Note 13 - Stockholders' Equity and Earnings per Share

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Text Block]

13.   Stockholders’ Equity and Earnings per Share

        As a bank holding company, the Bancorp’s ability to pay dividends will depend upon the dividends it receives from the Bank and on the income it may generate from any other activities in which it may engage, either directly or through other subsidiaries.

Under California banking law, the Bank may not, without regulatory approval, pay a cash dividend that exceeds the lesser of the Bank’s retained earnings or its net income for the last three fiscal years, less any cash distributions made during that period.  Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after December 31, 2012, is restricted to approximately $80.8 million.

During 2003, the Bank formed Cathay Real Estate Investment Trust (“Trust”) to provide the Bank flexibility in raising capital.  In 2003 and 2004, the Trust sold to accredited investors $8.6 million of its 7.0% Series A Non-Cumulative preferred stock which pays dividends, if declared, at the end of each quarter.  This preferred stock qualifies as Tier 1 capital under current regulatory guidelines.  The Company paid dividends of $605,000 in 2012, $605,000 in 2011, and $611,000 in 2010.  For the years ended and as of December 31, 2012, December 31, 2011, and December 31, 2010, the net income and assets of the Trust were eliminated in consolidation.

       The Board of Directors of the Bancorp is authorized to issue preferred stock in one or more series and to fix the voting powers, designations, preferences or other rights of the shares of each such class or series and the  qualifications, limitations, and restrictions thereon.  Any preferred stock issued by the Bancorp may rank prior to the Bancorp common stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights, and may be convertible into shares of the Bancorp common stock.

        On November 16, 2000, the Bancorp’s Board of Directors adopted a Rights Agreement between the Bancorp and American Stock Transfer and Trust Company, as Rights Agent, and declared a dividend of one preferred share purchase right for each outstanding share of the Bancorp common stock.  The dividend was payable on January 19, 2001, to stockholders of record at the close of business on the record date, December 20, 2000.  Each preferred share purchase right entitles the registered holder to purchase from the Bancorp one one-thousandth of a share of the Bancorp’s Series A junior participating preferred stock at a price of $200, subject to adjustment.  In general, the rights become exercisable if, after December 20, 2000, a person or group acquires 15% or more of the Bancorp’s common stock or announces a tender offer for 15% or more of the common stock.  The Board of Directors is entitled to redeem the rights at one cent per right at any time before any such person acquires 15% or more of the outstanding common stock.  The Rights Agreement expired at the close of business on November 16, 2010, and was not renewed.

Pursuant to the U.S. Treasury’s Troubled Asset Relief Program Capital Purchase Program under the Emergency Economic Stabilization Act of 2008, on December 5, 2008, the U.S. Treasury purchased 258,000 shares of the Company’s Series B Preferred Stock in the amount of $258.0 million.  The Series B 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.  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 per share with an aggregate market price equal to $38.7 million, or 15%, of the senior preferred stock amount that the U.S. Treasury invested.  The exercise price of $20.96 on warrants was calculated based on the average of closing prices of the Company’s common stock on the 20 trading days ending on the last trading day prior to November 17, 2008, the date that the Company received the preliminary approval of the purchase from the U.S. Treasury.

The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years as indicated:

	Year Ended December 31,
	2012							2011							2010
	Income (Numerator)			Shares (Denominator)		Per Share Amount		Income (Numerator)			Shares (Denominator)		Per Share Amount		Income (Numerator)			Shares (Denominator)		Per Share Amount
	(In thousands, except shares and per share data)
Net income	$	117,438						$	100,150						$	11,565
Dividends on preferred stock		(16,488	)						(16,437	)						(16,388	)
Basic EPS, income/(loss)	$	100,950			78,719,133	$	1.28	$	83,713			78,633,317	$	1.06	$	(4,823	)		77,073,954	$	(0.06	)
Effect of dilutive stock options					4,164							7,335							-
Diluted EPS, income/(loss)	$	100,950			78,723,297	$	1.28	$	83,713			78,640,652	$	1.06	$	(4,823	)		77,073,954	$	(0.06	)

Options to purchase an additional 4.0 million shares, and warrants to purchase an additional 1.8 million shares at December 31, 2012, were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.  Options to purchase an additional 4.4 million shares, restricted stock units for an additional 103,000 shares, and warrants to purchase an additional 1.8 million shares at December 31, 2011, were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.