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Note 11 - Stockholders' Equity and Earnings Per Share

12 Months Ended

Dec. 31, 2019

11.

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, 2019, is restricted to approximately $166.3 million.

Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the years ended December 31, 2019, and 2018 was as follows:

	2019									2018
	Pre-tax			Tax expense/ (benefit)			Net-of-tax			Pre-tax			Tax expense/ (benefit)			Net-of-tax
	(In thousands)
Beginning balance, loss, net of tax
Securities available-for-sale							$	(17,765	)							$	(1,060	)
Cash flow hedge derivatives								(241	)								(1,451	)
Total							$	(18,006	)							$	(2,511	)

Reclassification adjustment for stranded tax effects of Tax Cuts and Jobs Act ⁽¹⁾
Securities available-for-sale		—			—			—			—			200			(200	)
Cash flow hedge derivatives		—			—			—			—			315			(315	)
Total		—			—			—			—			515			(515	)

Reclassification adjustment for equity securities ⁽²⁾
Equity securities		—			—			—			(12,147	)		(3,591	)		(8,556	)

Net unrealized gains/(losses) arising during the period
Securities available-for-sale	$	33,543		$	9,915		$	23,628		$	(11,263	)	$	(3,329	)	$	(7,934	)
Cash flow hedge derivatives		(4,502	)		(1,331	)		(3,171	)		2,165			640			1,525
Total		29,041			8,584			20,457			(9,098	)		(2,689	)		(6,409	)

Reclassification adjustment for net gains in net income
Securities available-for-sale		(211	)		(62	)		(149	)		(22	)		(7	)		(15	)
Cash flow hedge derivatives		—			—			—			—			—			—
Total		(211	)		(62	)		(149	)		(22	)		(7	)		(15	)

Total other comprehensive income/(loss)
Securities available-for-sale		33,332			9,853			23,479			(11,285	)		(3,336	)		(7,949	)
Cash flow hedge derivatives		(4,502	)		(1,331	)		(3,171	)		2,165			640			1,525
Total	$	28,830		$	8,522		$	20,308		$	(9,120	)	$	(2,696	)	$	(6,424	)
Ending balance, gain/(loss), net of tax
Securities available-for-sale							$	5,714								$	(17,765	)
Cash flow hedge derivatives								(3,412	)								(241	)
Total							$	2,302								$	(18,006	)

(1) These amounts were recorded as of January 1, 2018 as a result of the adoption of ASU 2018-2.
(2) This amount was recorded as of January 1, 2018 as a result of the adoption of ASU 2016-1.

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. There are no shares of preferred stock currently issued and outstanding.

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,
	2019						2018						2017
					Per						Per						Per
	*Income*		*Shares*		*Share*		*Income*		*Shares*		*Share*		*Income*		*Shares*		*Share*
	*(Numerator)*		*(Denominator)*		*Amount*		*(Numerator)*		*(Denominator)*		*Amount*		*(Numerator)*		*(Denominator)*		*Amount*
	(In thousands, except shares and per share data)
Net income	$	279,135					$	271,885					$	176,042
Basic EPS, income	$	279,135		79,999,703	$	3.49	$	271,885		81,131,269	$	3.35	$	176,042		80,262,782	$	2.19

Effect of dilutive stock options				248,190						476,077						741,768

Diluted EPS, income	$	279,135		80,247,893	$	3.48	$	271,885		81,607,346	$	3.33	$	176,042		81,004,550	$	2.17