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Regulatory Matters
 12 Months Ended
Jun. 30, 2021
Federal Home Loan Banks [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.
In addition, to avoid restrictions on capital distributions, including dividend payments and stock repurchases, or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” of 2.5 percent on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity and the buffer applies to all three measurements: Common Equity Tier 1, Tier 1 capital and total capital.
As a result of the 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 issued a final rule setting the Community Bank Leverage Ratio at 9%, effective with the quarter ended March 31, 2020. The rule also established a
two-quarter
grace period for a qualifying institution that ceases to meet any qualifying criteria provided that the bank maintains a leverage ratio 8% or greater. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements. 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% on January 1, 2022. The Association “opted in” to elect the Community Bank Leverage Ratio, effective with the quarter ended March 31, 2020.
 
As of June 30, 2021 and 2020, the Association met all capital adequacy requirements to which it is subject and was categorized as well capitalized under regulatory framework for prompt corrective action. 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, 2021
                            
Community Bank Leverage Ratio
  $78,539    10.48%  $63,685    8.50%  $63,685    8.50% 
Tier 1 capital (to adjusted total assets)
   78,539    10.48%   29,970    4.00%   37,462    5.00% 
Tangible capital (to adjusted tangible assets)
   78,539    10.48%   11,239    1.50%   N/A    N/A 
As of June 30, 2020
                            
Community Bank Leverage Ratio
  $76,428    10.68%  $57,238    8.00%  $57,238    8.00% 
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 
The following is a reconciliation of the Association equity amounts included in the consolidated balance sheets to the amounts reflected for regulatory purposes:
 
   
2021
   
2020
 
Association equity
  $80,472   $80,631 
Less net unrealized gains
   2,361    4,865 
Less postretirement benefit plan
   (428)    (662) 
   
 
 
   
 
 
 
Tier 1 capital
   78,539    76,428 
Plus allowance for loan losses subject to limit
   6,599    6,234 
   
 
 
   
 
 
 
Total risk-based capital
  $85,138   $82,662 
   
 
 
   
 
 
 
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.