HR Block 2007 Annual Report Download - page 103

The following table sets forthHRB Bank’s regulatory capital requirements at March 31, 2007, as calculated in the most recently filed TFR:
(dollars in 000s)
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
AmountRatio Amount Ratio Amount Ratio
Total risk-based capital ratio (1) $177,337 26.3% $53,884 8.0% $67,355 10.0%
Tier 1 risk-based capital ratio (2) $173,000 25.7% n/a n/a $ 40,413 6.0%
Tier 1 capital ratio (leverage) (3) $173,000 13.0% $53,332 12.0% $66,665 5.0%
Tangible equity ratio (4) $173,000 13.0% $20,000 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.
In conjunction with H&R Block, Inc.’s application with the OTS for than projected in the preliminary revised capital plan for the period May
HRB Bank, we made commitments as part of our charter approval order 2007 through April 2009; (3) institutes reporting requirements to the
(Master Commitment) which included, but were not limited to: (1) a OTS quarterly and monthly by the Board of Directors and management,
three percent minimum ratio of adjusted tangible capital to adjusted respectively; and (4) requires HRB Bank’s Board of Directors to have an
total assets, as defined by the OTS; (2) maintain all HRB Bank capital independent chairperson and at least the same number of outside
within HRB Bank in accordance with the submitted three-year business directors as inside directors.
plan; and (3) follow federal regulations surrounding intercompany We plan to submit our formal plan with approval from our Board of
transactions and approvals. We fell below the three percent minimum Directors to the OTS by July 31, 2007. The OTS is aware that the primary
ratio at April 30, 2007. Normal seasonal operating losses are also difference between our preliminary revised capital plan and the final
75 m
expected to cause us to be in non-compliance until the end of fiscal year plan to be submitted is the beginning capital levels as of April 30, 2007,
2008. We notified the OTS of our failure to meet this requirement, and of as our fiscal year results were not final at the time the preliminary
our expectations for fiscal year 2008. We submitted a preliminary revised capital plan was submitted to the OTS, and they have indicated
revised capital plan to the OTS that provides for us to regain that the final plan submitted must meet the three percent requirement
compliance with the three percent minimum capital requirement by by April 30, 2008 to be approved. Failure to meet the conditions under
April 30, 2008. The preliminary revised capital plan contemplates that our charter-approval order and the Supervisory Directive could result in
we will meet the minimum capital requirement primarily through the OTS taking further regulatory actions, such as a supervisory
earnings generated by our normal business operations in fiscal year agreement, cease-and-desist orders and civil monetary penalties. At this
2008. On May 29, 2007, the OTS issued a Supervisory Directive, in which time, the financial impact, if any, of additional regulatory actions cannot
the OTS granted approval of our preliminary revised capital plan. be determined. If we are not in a position to cure deficiencies, a
Included in the Supervisory Directive were additional conditions that resulting failure could impair our ability to repurchase shares of our
we will be required to meet in addition to the Master Commitment. The common stock, acquire businesses and pay dividends.
significant additional conditions included in the Supervisory Directive Achievement of the capital plan depends on future events and
are as follows: (1) requires HRB Bank to extend its compliance with a circumstances, the outcome of which cannot be assured. Nevertheless,
minimum 12.0% leverage ratio through fiscal year 2012; (2) requires at this time we believe that we will meet all of the OTS provisions
H&R Block, Inc. to comply with the Master Commitment at all times, agreed to by July 31, 2007.
except as provided herein, and at no time may we have capital lower
NOTE 18: COMMITMENTS, CONTINGENCIES AND RISKS
COMMITMENTS AND CONTINGENCIES –We offer guarantees under and direct costs associated with these guarantees, recognizing these
our POM program to tax clients whereby we will assume the cost, amounts over the term of the guarantee based upon historical and
subject to certain limits, of additional tax assessments, up to a actual payment of claims. The related current asset is included in
cumulative per client limit of $5,000, attributable to tax return prepaid expenses and other current assets. The related liability is
preparation error for which we are responsible. We defer all revenues included in accounts payable, accrued expenses and other on the
H&R BLOCK 2007 Form 10K