CAPITAL REQUIREMENTS AND RESTRICTION ON DIVIDENDS

12 Months Ended

Sep. 30, 2022

CAPITAL REQUIREMENTS AND RESTRICTION ON DIVIDENDS

CAPITAL REQUIREMENTS AND RESTRICTION ON DIVIDENDS

(20)       CAPITAL REQUIREMENTS AND RESTRICTION ON DIVIDENDS

The Bank is subject to various regulatory capital requirements administered by the federal 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”) became effective for the Bank on January 1, 2015, with full compliance with all of the requirements having been phased in over a multi-year schedule through 2019. Under the Basel III rules, the Bank must hold a conservation buffer above the adequately capitalized risk-based capital ratios disclosed in the table below. The capital conservation buffer was phased in from 0.0% for 2015 to 2.5% by 2019.  The capital conservation buffer was 2.50% for 2022, 2021 and 2020.  The Bank met all capital adequacy requirements to which it was subject as of September 30, 2022 and 2021.

As of September 30, 2022, the most recent notification from the FRB categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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The Company’s and Bank’s actual capital amounts and ratios are also presented in the table. The Company is not subject to the FRB’s consolidated capital requirements because it has less than $3 billion in total consolidated assets. However, management has elected to disclose the Company’s capital amounts and ratios in addition to the Bank’s required disclosures in the table below. No amount was deducted from capital for interest-rate risk at either date.

									Minimum To Be Well
					Minimum				Capitalized Under
					for Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2022:
Total capital (to risk-weighted assets):
Consolidated	$	226,283	12.65	%	$	143,088	8.00	%		N/A	N/A
Bank		209,602	11.74	%		142,828	8.00	%	$	178,535	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	160,706	8.99	%	$	107,316	6.00	%		N/A	N/A
Bank		194,242	10.88	%		107,121	6.00	%	$	142,828	8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	160,706	8.99	%	$	80,487	4.50	%		N/A	N/A
Bank		194,242	10.88	%		80,341	4.50	%	$	116,048	6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	160,706	8.03	%	$	80,043	4.00	%		N/A	N/A
Bank		194,242	9.64	%		80,565	4.00	%	$	100,706	5.00	%
As of September 30, 2021:
Total capital (to risk-weighted assets):
Consolidated	$	193,476	14.28	%	$	108,401	8.00	%		N/A	N/A
Bank		183,885	13.60	%		108,156	8.00	%	$	135,195	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	$	159,310	11.76	%	$	81,301	6.00	%		N/A	N/A
Bank		169,584	12.54	%		81,117	6.00	%	$	108,156	8.00	%
Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	159,310	11.76	%	$	60,976	4.50	%		N/A	N/A
Bank		169,584	12.54	%		60,838	4.50	%	$	87,877	6.50	%
Tier 1 capital (to average adjusted total assets):
Consolidated	$	159,310	9.73	%	$	65,480	4.00	%		N/A	N/A
Bank		169,584	10.07	%		67,333	4.00	%	$	84,166	5.00	%

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Dividend Restriction

As an Indiana corporation, the Company is subject to Indiana law with respect to the payment of dividends. Under Indiana law, the Company may pay dividends so long as it is able to pay its debts as they become due in the usual course of business and its assets exceed the sum of its total liabilities, plus the amount that would be needed, if the Company were to be dissolved at the time of the dividend, to satisfy any rights that are preferential to the rights of the persons receiving the dividend. The ability of the Company to pay dividends depends primarily on the ability of the Bank to pay dividends to the Company.

The payment of dividends by the Bank is subject to banking regulations and applicable Indiana state law. The amount of dividends that the Bank may pay to the Company in any calendar year without prior approval from banking regulators cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. The Bank may not declare or pay a cash dividend or repurchase any of its capital stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below regulatory capital requirements imposed by banking regulators or the FDIC, or below the amount of the liquidation account established upon completion of the conversion.

Liquidation Account

Upon completion of its conversion from mutual to stock form on October 6, 2008, the Bank established a liquidation account in an amount equal to its retained earnings at March 31, 2008, totaling $29.3 million. The liquidation account is maintained for the benefit of depositors as of the March 31, 2007 eligibility record date (or the June 30, 2008 supplemental eligibility record date) who maintain their deposits in the Bank after conversion.

In the event of complete liquidation, and only in such an event, each eligible depositor is entitled to receive a liquidation distribution from the liquidation account in the proportionate amount of the then current adjusted balance for deposits then held, before any liquidation distribution may be made with respect to the Bank’s stockholders. Except for the repurchase of stock and payment of dividends by the Bank, the existence of the liquidation account does not restrict the use or application of retained earnings of the Bank.

Stock Split

On August 16, 2021, the Company approved and declared a three-for-one stock split in the form of a stock dividend, payable September 15, 2021, to stockholders of record as of August 31, 2021.  Under the terms of the stock split, the Company’s stockholders received a dividend of two shares for every share held on the record date.  The dividend was paid in authorized but unissued shares of common stock of the Company.  The par value of the Company’s stock was not affected by the split and remained at $0.01 per share.  All share and per share amounts reported in the consolidated financial statements have been adjusted to reflect the three-for-one stock split effective September 15, 2021.