HR Block 2007 Annual Report Download - page 102

NOTE 16: INTEREST INCOME AND OPERATING INTEREST EXPENSE
The following table shows the components of interest income and
operating interest expense of our continuing operations. Operating
interest expense is included in cost of other revenues on our
consolidated income statements.
(in 000s)
Year Ended April 30, 2007 2006 2005
Interest income:
Loans, net $53,396 $– $–
Investment securities 44,489 27,771 17,674
Margin receivables 34,226 39,038 30,166
Other 2,910 2,694 1,494
$135,021 $69,503 $ 49,334
Operating interest expense:
Borrowings $53,820 $27,309 $ 19,944
Deposits 32,128 ––
$85,948 $27,309 $ 19,944
Net interest income $49,073 $42,194 $ 29,390
NOTE 17: REGULATORY REQUIREMENTS
REGISTERED BROKER-DEALER –H&R Block Financial Advisors, Inc. Quantitative measures established by regulation to ensure capital
(HRBFA) is subject to regulatory requirements intended to ensure the adequacy require HRB Bank to maintain minimum amounts and ratios
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general financial soundness and liquidity of broker-dealers. At April 30, of tangible equity, total risk-based capital and Tier 1 capital, as set forth
2007, HRBFA’s net capital of $122.0 million, which was 27.8% of in the table below. In addition to these minimum ratio requirements,
aggregate debit items, exceeded its minimum required net capital of HRB Bank is required to continually maintain a 12.0% minimum leverage
$8.8 million by $113.2 million. ratio as a condition of its charter-approval order through fiscal year
Pledged securities at April 30, 2007 totaled $47.0 million, an excess of 2009. This condition was extended through fiscal year 2012 as a result of
$11.5 million over the margin requirement. Pledged securities at a Supervisory Directive issued on May 29, 2007. See further discussion
April 30, 2006 totaled $53.0 million, an excess of $9.9 million over the of the Supervisory Directive below. As of April 30, 2007, our fiscal year
margin requirement. end, HRB Bank’s leverage ratio was 11.6%. We have discussed this with
BANKING –HRB Bank and the Company are subject to variousthe OTS and the OTS has indicated that we are not in violation of our
regulatory capital guidelines and requirements administered by federal minimum leverage ratio, as the requirement is as of calendar quarterly
banking agencies. Failure to meet minimum capital requirements can TFR filings. We will monitor regulatory compliance with this ratio
trigger certain mandatory and possibly additional discretionary actions monthly and discuss with the OTS in the event the minimum is not
by regulators that, if undertaken, could have a direct material effect on maintained.
HRB Bank and the consolidated financial statements. All savings As of March 31, 2007, our most recent TFR filing with the OTS, HRB
associations are subject to the capital adequacy guidelines and the Bank was a ‘‘well capitalized’’ institution under the prompt corrective
regulatory framework for prompt corrective action. HRB Bank must action provisions of the Federal Deposit Insurance Corporation (FDIC).
meet specific capital guidelines that involve quantitative measures of The five capital categories are: (1) ‘‘well capitalized’’ (total risk-based
HRB Bank’s assets, liabilities and certain off-balance sheet items as capital ratio of 10%, Tier 1 Risk-based capital ratio of 6% and leverage
calculated under regulatory accounting practices. HRB Bank’s capital ratio of 5%); (2) ‘‘adequately capitalized’’; (3) ‘‘undercapitalized’’;
amounts and classification are also subject to qualitative judgments by (4) ‘‘significantly undercapitalized’’; and (5) ‘‘critically
the regulators about components, risk weightings and other factors. undercapitalized.’’ There are no conditions or events since March 31,
HRB Bank files its regulatory Thrift Financial Report (TFR) on a2007 that management believes have changed HRB Bank’s category.
calendar quarter basis.
H&R BLOCK 2007 Form 10K