Note 6 - Common and Preferred Stock and Earnings (Loss) per Share

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Note Disclosure [Text Block]

Note 6 —Common and Preferred Stock and Earnings (Loss) per Share

Common Stock

During 2010, the Company issued an aggregate of 5,000,000 shares of its common stock paired with warrants to purchase an additional 5,000,000 shares of its common stock (the “2010 Warrants”) for an aggregate purchase price of $25 million.  These securities were sold pursuant to the terms of a Securities Purchase Agreement dated December 22, 2009, as amended, by and between the Company and Carpenter Fund Manager GP, LLC (the “Manager”) on behalf of and as General Partner of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. (the “Investors”)(the “Securities Purchase Agreement”).  The 2010 Warrants were issued for a term of five years at an exercise price of $5.00 per share and contained customary anti-dilution provisions.  The Company used a substantial majority of the proceeds from the sale of securities under the Securities Purchase Agreement to enable a newly-formed wholly-owned subsidiary, Mission Asset Management, Inc., to purchase from the Bank certain non-performing loans and other real estate owned assets.

The Securities Purchase Agreement further provided that the Company would conduct a rights offering to its existing shareholders, pursuant to which each shareholder was offered the right to purchase 15 additional shares of common stock, paired with a warrant (the “Public Warrants”), for each share held, at a price of $5.00 per unit of common stock and warrant.  The rights offering closed on December 15, 2010, with 748,672 shares being issued. Net proceeds from the rights offering totaled $3,527,000.  On September 5, 2012, the expiration date of the Public Warrants was extended from December 17, 2015 to March 21, 2017.  No other terms or conditions of the Public Warrant were modified and no consideration was transferred.

Bancorp-Issued Preferred Stock

As a result of a change in control in 2010, the Company lost its status as a Community Development Financial Institution (“CDFI”) in 2012.  Accordingly, the Company may be required to redeem the Company’s Series A and C preferred stock at a total redemption price of $1,000,000.  Those series of preferred stock are carried at their redemption values in the consolidated balance sheets and are classified as mezzanine financing rather than equity.

Mission Asset Management, Inc. Preferred Stock and Company Warrants

On October 21, 2011, for an aggregate purchase price of $10 million, Mission Asset Management, Inc. issued 10,000 shares of its newly authorized Series A Non-Cumulative Perpetual Preferred Stock (“MAM Preferred Stock”) and the Company issued warrants to purchase an aggregate of 2,202,641 shares of the Company’s common stock (the “2011 Warrants”).  The 2011 Warrants were issued for a term of 10 years from issuance at an exercise price of $4.54 per share.  In December 2011, 660,792 of the 2011 Warrants were exercised and $3,000,000 of the MAM Preferred Stock was liquidated.  From June 2012 through December 2012 an additional $5,000,000 of the MAM Preferred Stock was liquidated.  These preferred shares include redemption provisions that are outside the control of the Company.  Accordingly, these preferred shares are presented as mezzanine financing at their redemption value of $1,250,000 as of March 31, 2013.

In addition to customary anti-dilution provisions, the 2010 Warrants and the 2011 Warrants referred to above contain certain anti-dilution features that have caused these warrants to be reflected as derivative liabilities pursuant to ASC 815—at their fair values—in the consolidated balance sheets rather than as components of equity.  Subsequent changes in their fair values are recognized as gains or losses through non-interest income, which impacts net loss and loss per share in the consolidated statement of operations.  In March 2012 all 2010 Warrants and substantially all of the 2011 Warrants (i.e., those issued to the Investors) were cancelled and replaced with 6,487,800 five-year warrants having approximately the equivalent aggregate fair value as the cancelled warrants but without the anti-dilution features that call for derivative accounting treatment.  Accordingly, $4,955,000 (the fair value of the cancelled warrants immediately prior to cancellation) was transferred from warrant liability to additional paid-in capital in March 2012.  In September 2012 the remaining 153,876 of the 2011 Warrants were cancelled and replaced with 171,980 warrants having substantially identical terms as those issued in March 2012 and aggregate fair value equivalent to the cancelled warrants.  The remaining $161,000 of warrant liability at that date was transferred to additional paid-in capital.

Activity in the Company’s outstanding warrants follows:

	Shares			Weighted Average Exercise Price
Outstanding December 31, 2011		7,290,521		$	4.90
Warrants cancelled in 2012		(6,541,849	)		4.89
Warrants issued in 2012		6,659,780			5.00
Warrants exercised in 2012		(400,000	)		5.00
Outstanding December 31, 2012		7,008,452			5.00
Warrants granted 1st Quarter 2013		-
Warrants exercised 1st Quarter 2013		-
Outstanding March 31, 2013		7,008,452		$	5.00

Prior to the consummation of the transactions under the Securities Purchase Agreement, the Manager was the largest shareholder of the Company, beneficially owning 333,334 shares of the common stock of the Company or 24.7% of the issued and outstanding shares.  As of March 31, 2013, following the consummation of the transactions under the Securities Purchase Agreement, the rights offering, the 2011 warrants exercise, and the 2012 warrants exercises, the Manager is the beneficial owner of 6,328,179 shares of the common stock of the Company (not including warrants), or 77.6% of the issued and outstanding shares.

Earnings (Loss) per Share

The following table shows the calculation of earnings (loss) per common share and the allocation of the Company’s net income (loss) among common stock and the various classes of preferred stock:

(in thousands, except per share data)	For the Three Months Ended March 31,
	2013		2012
Net income (loss)	$	935	$	(831	)
Less earnings and dividends applicable to preferred stock:
Convertible preferred (Series A & C)		11		-
Non-convertible subsidiary-issued preferred stock		49		175
Net income allocated to all classes of preferred stock		60		175
Net income (loss) attributable to common stock	$	875	$	(1,006	)
Average common shares outstanding		8,155,066		7,755,066
Dilutive effect of outstanding stock-based awards and other potential common shares		-		-
Average common shares used for diluted EPS		8,155,066		7,755,066
Basic earnings (loss) per common share	$	0.11	$	(0.13	)
Diluted earnings (loss) per common share	$	0.11	$	(0.13	)

The following potential common shares were excluded from diluted EPS in 2013: 452,900 outstanding stock options; 7,008,452 outstanding warrants and 220,264 shares related to convertible preferred shares, due to the exercise or conversion price of each exceeding the average market price of the Company’s common shares.  Excluded from diluted EPS in 2012 were 284,900 outstanding stock options; 7,390,348 outstanding warrants and 220,264 shares related to convertible preferred shares, as the Company incurred a net loss for the first quarter of 2012.