Minimum Regulatory Capital Requirements

6 Months Ended

Dec. 31, 2020

Minimum Regulatory Capital Requirements

Minimum Regulatory Capital Requirements

Note 6- Minimum Regulatory Capital Requirements

Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy.

The risk-based capital standards require financial institutions to maintain: (a) a minimum ratio of common equity tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%; (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%); and (d) a minimum leverage ratio of 3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). In addition, the rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% above the minimum standards stated in (a) - (c) above.

The CARES Act allows banking organizations to apply a zero percent risk weight to PPP covered loans for risk-based capital requirement purposes. In addition, because of the non-recourse nature of the Federal Reserve’s extension of credit to the banking organization, the banking organization is not exposed to credit or market risk from the pledged PPP covered loans. Therefore, pledged PPP covered loans are excluded from a banking organization’s regulatory capital calculation.

In September 2019, the FDIC finalized a rule to simplify the capital calculation for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR framework”)), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. Section 4012 of the CARES Act requires regulatory agencies to temporarily lower the CBLR eligibility requirement from 9.00% to 8.00% through the end of 2020. The associated regulatory interim final rule modified the CBLR framework allowing banks with a leverage ratio of 8.00% or greater to elect to use the CBLR framework. The interim final rule gradually increases the requirement back to 9.00% on January 1, 2022, requiring a ratio of 8.5% for the year beginning January 1, 2021. The interim final rule also provides a two-quarter grace period for qualifying banks whose leverage ratio falls no more than 1.00% below the required ratio for that reporting quarter. The Bank did not opt into the CBRL framework.

As of December 31, 2020 and June 30, 2020, management believes the Bank has met all capital adequacy requirements to which they are subject. As of December 31, 2020 and June 30, 2020, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are presented in the following table (in thousands):

									Minimum To Be Well				Minimum
									Capitalized Under				Capital Adequacy
					Minimum Capital				Prompt Corrective				with
	Actual				Requirements				Action Provisions				Capital Buffer
Unaudited	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2020
Common Equity Tier I ratio	$	21,017	11.86	%	$	7,976	>4.5	%	$	11,521	>6.5	%	$	12,407	>7.0	%
Tier I Capital to Risk Weighted Assets		21,017	11.86	%		10,635	>6.0	%		14,180	>8.0	%		15,066	>8.5	%
Total Risk Based Capital to Risk Weighted Assets		23,135	13.05	%		14,180	>8.0	%		17,725	>10.0	%		18,611	>10.5	%
Tier I Capital to Average Assets		21,017	12.60	%		6,672	>4.0	%		8,340	>5.0	%		8,340	>5.0	%

									Minimum To Be Well				Minimum
									Capitalized Under				Capital Adequacy
					Minimum Capital				Prompt Corrective				with
	Actual				Requirements				Action Provisions				Capital Buffer
	Amount		Ratio			Amount	Ratio			Amount	Ratio			Amount	Ratio
June 30, 2020
Common Equity Tier I ratio	$	20,015	13.58	%	$	6,632	>4.5	%	$	9,580	>6.5	%	$	10,314	>7.0	%
Tier I Capital to Risk Weighted Assets		20,015	13.58	%		8,843	>6.0	%		11,791	>8.0	%		12,524	>8.5	%
Total Risk Based Capital to Risk Weighted Assets		21,715	14.74	%		11,786	>8.0	%		14,732	>10.0	%		15,471	>10.5	%
Tier I Capital to Average Assets		20,015	13.12	%		6,102	>4.0	%		7,628	>5.0	%		7,628	>5.0	%

A Wisconsin state-chartered savings bank is required by state law to maintain minimum net worth, as defined, in an amount equal to at least 6.0% of its total assets. At December 31, 2020, the Bank’s net worth was $21,620,687 and general loan loss reserve was $2,117,711, totaling 13.60% of total assets, which meets the state of Wisconsin’s minimum net worth requirements. At June 30, 2020, the Bank’s net worth was $20,782,335 and general loan loss reserve was $644,594, totaling 12.56% of total assets, which meets the state of Wisconsin’s minimum net worth requirements.