Minimum Regulatory Capital Requirements

12 Months Ended

Jun. 30, 2022

Minimum Regulatory Capital Requirements

Minimum Regulatory Capital Requirements

Note 15 -     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. A qualifying community bank may elect to utilize the CBLR in lieu of the general capital requirements and will be considered well capitalized if it exceeds the minimum CBLR of 9.0%. 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 opted into the CBLR framework as of June 30, 2022 and June 30, 2021.

As of June 30, 2022 and June 30, 2021, management believes the Bank has met all capital adequacy requirements to which it is subject. As of June 30, 2022 and June 30, 2021, 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
										Capitalized Under
					Minimum Capital					Prompt Corrective
	Actual				Requirements					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
June 30, 2022		(Dollars in thousands)
Tier I Capital to Average Assets	$	27,152	12.17	%	$	17,848	>	8.0	%	$	20,080	>	9.0	%

										Minimum To Be Well
										Capitalized Under
					Minimum Capital					Prompt Corrective
	Actual				Requirements					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
June 30, 2021					(Dollars in thousands)
Tier I Capital to Average Assets	$	25,452	12.47	%	$	15,313	>	7.5	%	$	17,355	>	8.5	%

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 June 30, 2022, the Bank’s net worth was $26,783,484 and general loan loss reserve was $2,195,050, totaling 13.17% of total assets, which meets the state of Wisconsin’s minimum net worth requirements. At June 30, 2021, the Bank’s net worth was $25,842,077 and general loan loss reserve was $2,186,182, totaling 13.12% of total assets, which meets the state of Wisconsin’s minimum net worth net worth requirements.