Capital Requirements

12 Months Ended

Dec. 31, 2021

Capital Requirements

Capital Requirements

18) Capital Requirements

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and HBC must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. There are no conditions or events since December 31, 2021, that management believes have changed the categorization of the Company or HBC as “well-capitalized.”  

The Company’s consolidated capital ratios and the HBC’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at December 31, 2021.

As permitted by the interim final rule issued on March 27, 2020 by our federal regulatory agency, we elected the option to delay the estimated impact of the adoption of the CECL Standard in our regulatory capital for two years. This two-year delay is in addition to the three-year transition period the agency had already made available. The adoption will delay the effects of CECL on our regulatory capital, which will be phased-in over a three-year period from January 1, 2022 through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period include both the initial impact of adoption of the CECL Standard at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ending December 31, 2022.

Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios (set forth in the tables below) of total, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of December 31, 2021 and December 31, 2020, the Company and HBC met all capital adequacy guidelines to which they were subject.

The Company’s consolidated capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements as of December 31, 2021, and December 31, 2020.

					Required For
					Capital
					Adequacy
					Purposes
	Actual				Under Basel III
	Amount		Ratio		Amount		Ratio (1)
	(Dollars in thousands)
As of December 31, 2021
Total Capital	$	506,209	14.4	%	$	369,711	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	433,488	12.3	%	$	299,290	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	433,488	12.3	%	$	246,474	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	433,488	7.9	%	$	220,193	4.0	%
(to average assets)

(1) Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.

					Required For
					Capital
					Adequacy
					Purposes
	Actual				Under Basel III
	Amount		Ratio		Amount		Ratio (1)
		(Dollars in thousands)
As of December 31, 2020
Total Capital	$	483,870	16.5	%	$	307,067	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	410,307	14.0	%	$	248,578	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	410,307	14.0	%	$	204,711	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	410,307	9.1	%	$	180,281	4.0	%
(to average assets)

(1) Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.

HBC’s actual capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements as of December 31, 2021, and December 31, 2020.

									Required For
									Capital
					To Be Well-Capitalized				Adequacy
					Under Basel III PCA Regulatory				Purposes
	Actual				Requirements				Under Basel III
	Amount		Ratio		Amount		Ratio		Amount		Ratio (1)
	(Dollars in thousands)
As of December 31, 2021
Total Capital	$	484,382	13.8	%	$	351,839	10.0	%	$	369,431	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	451,586	12.8	%	$	281,471	8.0	%	$	299,063	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	451,586	12.8	%	$	228,695	6.5	%	$	246,287	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	451,586	8.2	%	$	275,109	5.0	%	$	220,087	4.0	%
(to average assets)

(1) Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets ratio.

									Required For
									Capital
					To Be Well-Capitalized				Adequacy
					Under Basel III PCA Regulatory				Purposes
	Actual				Requirements				Under Basel III
	Amount		Ratio		Amount		Ratio		Amount		Ratio (1)
		(Dollars in thousands)
As of December 31, 2020
Total Capital	$	461,933	15.8	%	$	292,258	10.0	%	$	306,871	10.5	%
(to risk-weighted assets)
Tier 1 Capital	$	428,109	14.6	%	$	233,806	8.0	%	$	248,419	8.5	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	428,109	14.6	%	$	189,968	6.5	%	$	204,580	7.0	%
(to risk-weighted assets)
Tier 1 Capital	$	428,109	9.5	%	$	225,263	5.0	%	$	180,211	4.0	%
(to average assets)

(1) Includes 2.5% capital conservation buffer, except the Tier 1 Capital to average assets.

The Subordinated Debt, net of unamortized issuance costs, totaled $39,925,000 at December 31, 2021, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Bank.

Under California General Corporation Law, the holders of common stock are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available. The California Financial Code provides that a state licensed bank may not make a cash distribution to its shareholders in excess of the lesser of the following: (i) the bank’s retained earnings; or (ii) the bank’s net income for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period. However, a bank, with the prior approval of the Commissioner of the California Department of Financial Protection and Innovation (“DFPI”) may make a distribution to its shareholders of an amount not to exceed the greater of (i) a bank’s retained earnings; (ii) its net income for its last fiscal year; or (iii) its net income for the current fiscal year. Also with the prior approval of the Commissioner of the DFPI and the shareholders of the bank, the bank may make a distribution to its shareholders, as a reduction in capital of the bank. In the event that the Commissioner determines that the shareholders’ equity of a bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Commissioner may order a bank to refrain from making such a proposed distribution. As of December 31, 2021, HBC would not be required to obtain regulatory approval, and the amount available for cash dividends is $19,173,000. Similar restrictions applied to the amount and sum of loan advances and other transfers of funds from HBC to the parent company. HBC distributed to HCC dividends of $32,000,000 for both years ended December 31, 2021 and 2020.