Capital Requirements

6 Months Ended

Jun. 30, 2016

Capital Requirements

Capital Requirements

13) 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.

        As of January 1, 2015, HCC and HBC along with other community banking organizations became subject to new capital requirements. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Federal Banking regulators approved the new rules to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, as amended. The Company's consolidated capital ratios and the Bank's capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at June 30, 2016.

        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 June 30, 2016 and December 31, 2015, 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 June 30, 2016, and December 31, 2015.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of June 30, 2016:
Total Capital	$	226,820		12.3	%	$	159,214		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	206,181		11.2	%	$	122,295		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	187,426		10.2	%	$	94,606		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	206,181		9.0	%	$	91,499		4.000	%
(to average assets)

(1)           Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	218,915		12.5	%	$	140,041		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		11.4	%	$	105,031		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	181,221		10.4	%	$	78,773		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		8.6	%	$	92,918		4.0	%
(to average assets)

        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 June 30, 2016, and December 31, 2015.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of June 30, 2016:
Total Capital	$	224,712		12.2	%	$	184,576		10.0	%	$	159,197		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	204,073		11.1	%	$	147,661		8.0	%	$	122,282		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	204,073		11.1	%	$	119,974		6.5	%	$	94,595		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	204,073		8.9	%	$	114,363		5.0	%	$	91,491		4.000	%
(to average assets)

(1)           Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	219,943		12.6	%	$	175,022		10.0	%	$	140,018		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		11.4	%	$	140,018		8.0	%	$	105,013		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	200,327		11.4	%	$	113,764		6.5	%	$	78,760		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		8.6	%	$	116,112		5.0	%	$	92,889		4.0	%
(to average assets)

        HCC is dependent upon dividends from HBC. 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 Business Oversight—Division of Financial Institutions ("DBO") 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 DBO 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 June 30, 2016, HBC would not be required to obtain regulatory approval, and the amount available for cash divideneds is $12,361,000. Similar restrictions applied to the amount and sum of loan advances and other transfers of funds from HBC to the parent company. During the second and first quarters of 2016, HBC distributed dividends of $4,000,000 and $6,000,000, respectively, for a total of $10,000,000 during the first six months of 2016.