Regulatory Matters

9 Months Ended

Mar. 31, 2015

Regulatory Matters

Regulatory Matters

Note 11. Regulatory Matters

The Bank is subject to 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 regulators about components, risk weightings, and other factors.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.  If only adequately capitalized, regulatory approval is required to accept brokered deposits.  If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.  Management believes, as of March 31, 2015, that the Bank meets all capital adequacy requirements to which it is subject.

Actual capital levels and minimum required levels for the Bank were:

							Minimum
							Required to Be
							Well Capitalized
				Minimum Required for			Under Prompt
				Capital Adequacy			Corrective Action
				Purposes			Provisions
(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
March 31, 2015
Total capital (to risk-weighted assets)	$	20,847	13.3%	$	12,560	8.0%	$	15,700	10.0%
Common equity Tier 1 capital (to risk-weighted assets)	18,879		12.0%	7,065		4.5%		10,205	6.5%
Tier 1 (core) capital (to risk-weighted assets)	18,879		12.0%	9,420		6.0%	12,560		8.0%
Tier 1 (core) capital (to adjusted total assets)	18,879		9.4%	8,016		4.0%	10,020		5.0%
June 30, 2014
Total capital (to risk-weighted assets)	$	18,729	11.7%	$	12,852	8.0%	$	16,065	10.0%
Tier 1 (core) capital (to risk-weighted assets)	16,736		10.4%	6,426		4.0%	9,639		6.0%
Tier 1 (core) capital (to adjusted total assets)	16,736		9.3%	7,196		4.0%	8,994		5.0%

Federal regulations require the Bank to comply with a Qualified Thrift Lender (“QTL”) test, which requires that 65% of assets be maintained in housing-related finance and other specified assets.  If the QTL test is not met, limits are placed on growth, branching, new investment, FHLB advances, and dividends or the institution must convert to a commercial bank charter.  Management believes the QTL test has been met.

In July 2013, the Federal Reserve Board and the Federal Deposit Insurance Corporation issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rules revised minimum capital requirements and adjusted prompt corrective action thresholds. The final rules revised the regulatory capital elements, added a new common equity Tier 1 capital ratio, increased the minimum Tier 1 capital ratio requirement, and implemented a new capital conservation buffer.  The rules also permitted certain banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income.  The final rules took effect for community banks on January 1, 2015, subject to a transition period for certain parts of the rules.