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Capital

12 Months Ended

Jun. 30, 2021

Note 10: Capital

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 Corporation’s 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.

For a bank holding company such as the Corporation with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis. The Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations. If the Corporation was subject to regulatory guidelines for bank holding companies at June 30, 2021, it would have exceeded all regulatory capital requirements.

The Bank is subject to capital regulations which establish minimum required ratios for common equity Tier 1 capital (“CET1”), Tier1 and total capital require an additional capital conservation buffer over the required minimum capital ratios, and defines what qualifies as capital for purposes of meeting the capital requirements. Failure to meet minimum requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements.

In addition to the minimum CET1, Tier 1 and total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. As of June 30, 2021, the capital conservation buffer of a minimum of 2.50% of risk weighted assets.

For calendar 2020 and thereafter, the minimum requirements call for a Tier1 leverage ratio of 4.00%, a CET1 ratio to total risk-weighted assets (“CET1 risk-based ratio”) of 7.00%, a Tier 1 capital ratio of 8.50%, and a total capital ratio of 10.50%.

Under the standards, in order to be considered well-capitalized, the Bank must have at minimum a Tier1 leverage ratio of 5.00%, a CET1 capital ratio of 6.50%, a Tier 1 capital ratio of 8.00%, and a total capital ratio of 10.00%.

The Bank’s actual and required minimum capital amounts and ratios at the dates indicated are as follows (dollars in thousands):


					Regulatory Requirements
					Minimum for Capital				Minimum to Be
	Actual				Adequacy Purposes⁽¹⁾				Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio

Provident Savings Bank, F.S.B.:

As of June 30, 2021
Tier 1 leverage capital (to adjusted average assets)	$	121,621	10.19	%	$	47,736	4.00	%	$	59,670	5.00	%
CET1 capital (to risk-weighted assets)	$	121,621	18.58	%	$	45,816	7.00	%	$	42,544	6.50	%
Tier 1 capital (to risk-weighted assets)	$	121,621	18.58	%	$	55,634	8.50	%	$	52,361	8.00	%
Total capital (to risk-weighted assets)	$	129,335	19.76	%	$	68,724	10.50	%	$	65,452	10.00	%

As of June 30, 2020
Tier 1 leverage capital (to adjusted average assets)	$	116,967	10.13	%	$	46,188	4.00	%	$	57,735	5.00	%
CET1 capital (to risk-weighted assets)	$	116,967	17.51	%	$	46,747	7.00	%	$	43,408	6.50	%
Tier 1 capital (to risk-weighted assets)	$	116,967	17.51	%	$	56,765	8.50	%	$	53,426	8.00	%
Total capital (to risk-weighted assets)	$	125,316	18.76	%	$	70,121	10.50	%	$	66,782	10.00	%

(1)	Inclusive of the conservation buffer of 2.50% for CET1 capital, Tier 1 capital and Total capital ratios.

At June 30, 2021, the Bank exceeded all regulatory capital requirements. The Bank was categorized as "well-capitalized" at June 30, 2021 under the regulations of the OCC.

The ability of the Corporation to pay dividends to stockholders depends primarily on the ability of the Bank to pay dividends to the Corporation. The Bank may not declare or pay cash dividends on or repurchase any of its shares of common stock, if the effect would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

Generally, savings institutions, such as the Bank, that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision or in troubled condition by the OCC may have its dividend authority restricted by the OCC. If the Bank, however, proposes to make a capital distribution when it does not meet its capital requirements (or will not following the proposed capital distribution) or that will exceed these net income-based limitations, it must obtain the OCC's approval prior to making such distribution. In addition, the Bank must file a prior written notice of a dividend with the Federal Reserve Board (“FRB”). The FRB or the OCC may object to a capital distribution based on safety and soundness concerns. Additional restrictions on Bank dividends may apply if the Bank fails the Qualified Thrift Lender test. In fiscal 2021 and 2020, the Bank declared $5.0 million and $7.5 million of cash dividends to its parent, the Corporation, respectively.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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