H&R Bloc To Divest Its Bank To BofI; Stock Up 9%

(RTTNews) - Tax preparer H&R Block Inc (HRB) said Thursday that H&R Block Bank has entered into a definitive purchase and assumption agreement with BofI Federal Bank to sell certain assets and transfer certain liabilities to BofI.

Also the parties have agreed to terms of a program management agreement under which BofI will act as the bank for H&R Block-branded financial services products: Emerald Prepaid MasterCard, Refund Transfers and Emerald Advance lines of credit through H&R Block's retail and digital channels.

The deal is subject to regulatory approvals and other customary closing conditions.

"We're very pleased to reach a definitive agreement with BofI that enables us to exit our bank while continuing to offer best-in-class financial services products to our clients," said Bill Cobb, H&R Block's chief executive officer.

"This is an important step in ceasing to be regulated as a savings and loan holding company, which we believe is in the best strategic interests of our company and our shareholders."

Upon fulfillment of all closing conditions, H&R Block Bank will complete the transaction, merge with and into its parent, Block Financial LLC, and surrender its bank charter.

H&R Block continues to expect that the closing will occur in time for next tax season.

H&R Block expects the net, ongoing annual financial impact of the program management agreement to be dilutive by about $0.07 to $0.09 per share beginning in fiscal 2015.

Contingent upon the timing of regulatory approval, H&R Block also expects to incur one-time charges and related costs of about $0.01 per share in fiscal 2014 and about $0.02 to $0.03 per share in fiscal 2015.

Additionally, the company will sell certain available for sale securities held by H&R Block Bank, and expects to recognize a loss of about $0.03 per share in fiscal year 2014 in connection with the planned sale.

The company also expects the bank transaction will result in about $200 million to $250 million of immediate excess capital.

H&R Block in October 2012 said it was seeking strategic alternatives for H&R Block Bank that would result in H&R Block and some subsidiaries no longer being regulated by the Board of Governors of the Federal Reserve System as savings and loan holding companies.

This decision was prompted by new rules that will impose higher capital requirements on savings and loan holding companies such as H&R Block. The Federal Reserve promulgated the rules in order to implement changes required by the Dodd-Frank Act. H&R Block's stock closed Thursday at $28.42, down $0.76 or 2.60%, on a volume of 2.2 million shares. In after hours, the stock gained $2.62 or 9.22% at $31.04.