Regulatory Requirements

12 Months Ended

Apr. 30, 2011

Regulatory Requirements

Regulatory Requirements

 

NOTE 20: REGULATORY REQUIREMENTS

HRB Bank and the Company are subject to various regulatory requirements, including capital guidelines for HRB Bank, administered by federal banking agencies. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on HRB Bank and our consolidated financial statements. All savings associations are subject to the capital adequacy guidelines and the regulatory framework for prompt corrective action. HRB Bank must meet specific capital guidelines that involve quantitative measures of HRB Bank's assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. HRB Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. HRB Bank files its regulatory Thrift Financial Report (TFR) on a calendar quarter basis.

Quantitative measures established by regulation to ensure capital adequacy require HRB Bank to maintain minimum amounts and ratios of tangible equity, total risk-based capital and Tier 1 capital, as set forth in the table below. In addition to these minimum ratio requirements, HRB Bank is required to continually maintain a 12.0% minimum leverage ratio. As of April 30, 2011, HRB Bank's leverage ratio was 30.8%.

As of March 31, 2011, our most recent TFR filing with the Office of Thrift Supervision (OTS), HRB Bank was a "well capitalized" institution under the prompt corrective action provisions of the FDIC. The five capital categories are: (1) "well capitalized" (total risk-based capital ratio of 10%, Tier 1 Risk-based capital ratio of 6% and leverage ratio of 5%); (2) "adequately capitalized;" (3) "undercapitalized;" (4) "significantly undercapitalized;" and (5) "critically undercapitalized." There are no conditions or events since March 31, 2011 that management believes have changed HRB Bank's category.

The following table sets forth HRB Bank's regulatory capital requirements, as calculated in its TFR:

(dollars in 000s)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2011:
Total risk-based capital ratio (1)	$	405,000		92.5%	$	35,019		8.0%	$	43,773		10.0%
Tier 1 risk-based capital ratio (2)	$	399,187		91.2%		N/A		N/A	$	26,264		6.0%
Tier 1 capital ratio (leverage) (3)	$	399,187		22.8%	$	209,758		12.0%	$	87,399		5.0%
Tangible equity ratio (4)	$	399,187		22.8%	$	26,220		1.5%		N/A		N/A
As of March 31, 2010:
Total risk-based capital ratio (1)	$	420,401		75.7%	$	44,436		8.0%	$	55,545		10.0%
Tier 1 risk-based capital ratio (2)	$	413,074		74.4%		N/A		N/A	$	33,327		6.0%
Tier 1 capital ratio (leverage) (3)	$	413,074		24.9%	$	199,272		12.0%	$	83,030		5.0%
Tangible equity ratio (4)	$	413,074		24.9%	$	24,909		1.5%		N/A		N/A

(1)	Total risk-based capital divided by risk-weighted assets.
(2)	Tier 1 (core) capital less deduction for low-level recourse and residual interest divided by risk-weighted assets.
(3)	Tier 1 (core) capital divided by adjusted total assets.
(4)	Tangible capital divided by tangible assets.

Block Financial LLC (BFC) typically makes capital contributions to HRB Bank to help it meet its capital requirements. BFC made capital contributions to HRB Bank of $235.0 million during fiscal years 2011 and 2010, and $245.0 million during fiscal year 2009.

HRB Bank received approval from the OTS during fiscal year 2011 to pay cash and non-cash dividends. The dividend payments were subject to HRB Bank maintaining a leverage capital ratio of 12% immediately after payment and on a continual basis. HRB Bank paid dividends and returned of capital of $262.5 million during fiscal year 2011, comprised of $37.5 million in REO properties and loans and $225.0 million in cash.