Sallie Mae 2014 Annual Report Download - page 61

Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by federal banking authorities. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material adverse effect on our financial statements. Under the regulatory framework for
prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets and certain
off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
“Well capitalized” regulatory requirements are the quantitative measures established by regulation to ensure capital
adequacy. The Bank is required to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I
Capital to risk-weighted assets and of Tier I Capital to average assets, as defined by the regulation. The following amounts and
ratios are based upon the Bank's assets.
Actual
Well Capitalized Regulatory
Requirements
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
As of December 31, 2014:
Tier I Capital (to Average Assets) ............................
$
1,413,988
11.5
%
$
614,709
>
5.0
%
Tier I Capital (to Risk Weighted Assets) ...................
$
1,413,988
15.0
%
$
565,148
>
6.0
%
Total Capital (to Risk Weighted Assets)....................
$
1,497,830
15.9
%
$
941,913
>
10.0
%
As of December 31, 2013:
Tier I Capital (to Average Assets) ............................
$
1,221,416
11.7
%
$
521,973
>
5.0
%
Tier I Capital (to Risk Weighted Assets) ...................
$
1,221,416
16.4
%
$
446,860
>
6.0
%
Total Capital (to Risk Weighted Assets)....................
$
1,289,497
17.3
%
$
745,374
>
10.0
%
Capital Management
The Bank seeks to remain well-capitalized at all times with sufficient capital to support asset growth, operating needs,
unexpected credit risks and to protect the interests of depositors and the FDIC deposit insurance fund. The Bank is required by
its regulators, the UDFI and the FDIC, to comply with mandated capital ratios. We intend to maintain levels of capital at the
Bank that significantly exceed the levels of capital necessary to be considered “well capitalized” by the FDIC. The Company is
a source of strength for the Bank and will provide additional capital if necessary. The Board of Directors and management
periodically evaluate the anticipated change in the Bank’s ownership structure, the quality of assets, the stability of earnings,
and the adequacy of the allowance for loan losses. We currently believe that current and projected capital levels are appropriate
for the remainder of 2015. As our balance sheet grows in 2015, these ratios will decline but will remain significantly in excess
of the capital levels required to be considered “well capitalized” by our regulators. We expect significant asset growth
subsequent to the Spin-Off. We do not plan to pay dividends on our common stock. We do not intend to initiate share
repurchase programs as a means to return capital to shareholders. We only expect to repurchase common stock acquired in
connection with taxes withheld in connection with award exercises and vesting under our employee stock based compensation
plans. Our Board of Directors will periodically reconsider these matters.
On July 9, 2013, the FDIC Board of Directors approved an interim final rule that adopts new guidelines related to
regulatory capital measurement and reporting. The interim final rule became effective January 2015. It strengthens both the
quantity and quality of risk-based capital for all banks, placing greater emphasis on Tier 1 common equity capital. The Bank’s
Capital Policy requires management monitor the new capital standards. Under the new guidelines, well-capitalized institutions
must maintain a minimum Tier 1 Leverage ratio of 5 percent, a minimum Tier 1 common equity risk-based capital ratio of 6.5
percent, a minimum Tier 1 risk-based capital of 8 percent and minimum total risk-based capital of 10 percent. In addition, a
capital conservation buffer will be phased in over four years beginning on January 1, 2016, as follows: the maximum buffer will
be 0.625 percent of risk weighted assets for 2016, 1.25 percent for 2017, 1.875 percent for 2018 and 2.5 percent for 2019 and
beyond, resulting in the following minimum ratios beginning in 2019: a Tier 1 common equity risk-based capital ratio of a
minimum 7.0 percent, a Tier 1 capital ratio of a minimum 8.5 percent and a total risk-based capital ratio of a minimum 10.5
percent. Institutions that do not maintain the capital conservation buffer could face restrictions on dividend payments, share
repurchases and the payment of discretionary bonuses.
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