Regulatory Capital Requirements

3 Months Ended

Sep. 30, 2020

Regulatory Capital Requirements

Regulatory Capital Requirements

NOTE 13 – Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal and state 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 Bank’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 its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The 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 that follows) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 Common Equity (as defined), and Tier 1 capital (as defined) to average assets (as defined).

As of September 30, 2020 and June 30, 2020, the Bank was categorized as well capitalized.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, Tier I common equity, and Tier 1 leverage ratios as set forth in the following table.

Listed below is a comparison of the Bank's actual capital amounts with the minimum requirements for adequately capitalized banks, as defined by the federal regulatory agencies' Prompt Corrective Action Rules as of September 30, 2020 and June 30, 2020.  Under Basel III rules, the Bank must hold a capital conservation buffer 2.5% above the adequately capitalized risk-based capital ratios. Failure to maintain the full amount of the buffer will result in restrictions on the Bank’s ability to make discretionary payments.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying bank may opt in and out of the community bank leverage ratio framework on its quarterly call report. A bank that ceases to meet any qualifying criteria is provided with a two-quarter grace period to comply with the community bank leverage ratio requirements or the general capital regulations by the federal regulators.

Section 4012 of the Coronavirus Aid, Relief and Economic Security Act of 2020 required that the community bank leverage ratio be temporarily lowered to 8%. The federal regulators issued a rule making the lower ratio effective April 23, 2020. The rules also established a two-quarter grace period for a qualifying community bank whose leverage ratio falls below the 8% community bank leverage ratio requirement so long as the bank maintains a leverage ratio of 7% or greater. Another rule was issued to transition back to the 9% community bank leverage ratio, increasing the ratio to 8.5% for calendar year 2021 and to 9% thereafter. The Bank opted into the community bank leverage ratio framework as of March 31, 2020.

As of September 30, 2020 and 2019, the Bank was categorized as well capitalized. To be categorized as well capitalized or adequately capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, Tier I common equity, and Tier 1 leverage ratios as set forth in the following table.

					For Capital Adequacy				To be Considered
	Actual				Purposes				Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2020 (unaudited)
Total capital (to risk weighted assets)	$	30,757,308	15.52	%	$	15,856,342	8.00	%	$	19,820,428	10.00	%
Tier 1 capital (to risk weighted assets)		29,403,825	14.83	%		11,892,257	6.00	%		15,856,342	8.00	%
Common Equity Tier 1 (to risk weighted assets)		29,403,825	14.83	%		8,919,192	4.50	%		12,883,278	6.50	%
Tier 1 capital (to average assets)		29,403,825	10.04	%		11,716,249	4.00	%		14,645,311	5.00	%
As of June 30, 2020
Total capital (to risk weighted assets)	$	28,928,180	15.02	%	$	15,408,708	8.00	%	$	19,260,885	10.00	%
Tier 1 capital (to risk weighted assets)		27,574,753	14.32	%		11,556,531	6.00	%		15,408,708	8.00	%
Common Equity Tier 1 (to risk weighted assets)		27,574,753	14.32	%		8,667,398	4.50	%		12,519,575	6.50	%
Tier 1 capital (to average assets)		27,574,753	9.30	%		11,857,514	4.00	%		14,821,893	5.00	%

A Wisconsin state-chartered savings bank is required by state law to maintain minimum net worth in an amount equal to at least 6.0% of its total assets. At September 30, 2020 and June 30, 2020, the Bank’s net worth was $24,340,182 with general loan loss reserve of $1,172,947 and $22,472,487 with general loan loss reserve of $1,147,504, totaling 8.4% and 7.7% of total assets, respectively, which meets the state of Wisconsin’s minimum net worth requirements.