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Regulatory Matters
 12 Months Ended
Jun. 30, 2020
Banking and Thrift [Abstract]  
Regulatory Matters
Note 13: Regulatory Matters
The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Association’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association’s assets, liabilities and certain
off-balance-sheet
items as calculated under regulatory accounting practices. The Association’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establish the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) set forth the acceptable scope of deductions/adjustments to the specified capital measures. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions fully phased in on January 1, 2019.
Additionally, the Basel III Capital Rules require that we maintain a capital conservation buffer with respect to each of the CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. The capital conservation buffer was phased in and became fully phased in on January 1, 2019 at 2.5%. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.
As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were 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 federal banking agencies have issued a final rule setting the Community Bank Leverage Ratio at 9%, effective with the quarter ended March 31, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which temporarily reduced the required Community Bank Leverage Ratio to 8% through the end of 2020, and to 8.5% throughout 2021, before returning to 9% in 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.
As of June 30, 2020 and 2019, the Association was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized at June 30, 2020, the Association has to maintain a minimum Community Bank Leverage Ratio as disclosed in the table below. To be categorized as well capitalized at June 30, 2019, the Association had to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events that management believes have changed the Association’s prompt corrective action category. The Association’s actual capital amounts (in thousands) and ratios are also presented in the table.
 
   
Actual
   
Minimum
Capital Requirement
   
Minimum to Be Well
Capitalized Under Prompt
Corrective Action
Provisions
 
   
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
 
As of June 30, 2020
            
Community Bank Leverage Ratio
  $76,428    10.68%   $57,238    8.00%   $57,238    8.00% 
Total capital (to risk-weighted assets)
   N/A    N/A    N/A    N/A    N/A    N/A 
Tier 1 capital (to risk-weighted assets)
   N/A    N/A    N/A    N/A    N/A    N/A 
Common Equity Tier 1 capital (to risk-weighted assets)
   N/A    N/A    N/A    N/A    N/A    N/A 
Tier 1 capital (to adjusted total assets)
   76,428    10.68%    28,619    4.00%    35,774    5.00% 
Tangible capital (to adjusted tangible assets)
   76,428    10.68%    10,732    1.50%    N/A    N/A 
As of June 30, 2019
            
Community Bank Leverage Ratio
  $N/A    N/A%   $N/A    N/A%   $N/A    N/A% 
Total capital (to risk-weighted assets)
   81,624    16.28%    40,119    8.00%    50,149    10.00% 
Tier 1 capital (to risk-weighted assets)
   75,355    15.03%    30,090    6.00%    40,119    8.00% 
Common Equity Tier 1 capital (to risk-weighted assets)
   75,355    15.03%    22,567    4.50%    32,597    6.50% 
Tier 1 capital (to adjusted total assets)
   75,355    10.96%    27,513    4.00%    34,392    5.00% 
Tangible capital (to adjusted tangible assets)
   75,355    10.96%    10,317    1.50%    N/A    N/A 
 
The following is a reconciliation of the Association equity amounts included in the consolidated balance sheets to the amounts reflected for regulatory purposes:
 
   
2020
   
2019
 
Association equity
  $80,631   $75,920 
Less net unrealized gains
   4,865    991 
Less postretirement benefit plan
   (662)    (426) 
  
 
 
   
 
 
 
Tier 1 capital
   76,428    75,355 
Plus allowance for loan losses subject to limit
   6,234    6,269 
  
 
 
   
 
 
 
Total risk-based capital
  $82,662   $81,624 
  
 
 
   
 
 
 
The Association’s ability to pay dividends on its common stock to the Company is restricted to maintain adequate capital as shown in the previous tables. Additionally, prior regulatory approval is required for the declaration of any dividends generally in excess of the sum of net income for the calendar year and retained net income for the preceding two calendar years.