H&R Bloc To Sell Bank To BofI; Stock Up - Update

(RTTNews) - Tax preparer H&R Block Inc (HRB) said Thursday that H&R Block Bank has entered into a deal to sell certain assets and transfer certain liabilities to BofI Federal Bank, the banking unit of BofI Holding Inc (BOFI). The financial terms of the deal were not disclosed.

Following the announcement, H&R Block shares gained 9 percent in after-hours trade on the Nasdaq, while BofI shares were up 5.5 percent.

H&R Block said the deal, which is subject to customary closing conditions, is expected to close in time for next tax season.

Also, upon closing of the deal, the two companies agreed to a program management deal under which BofI will act as the bank for H&R Block-branded financial services products comprising Emerald Prepaid MasterCard, Refund Transfers and Emerald Advance lines of credit.

"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," said Bill Cobb, H&R Block's chief executive officer.

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.

Also, 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.

H&R Block also expects the bank transaction will result in approximately $200 to $250 million of immediate excess capital.

H&R Block in October 2012 said it was seeking strategic alternatives for its bank that would result in the company 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.

Meanwhile BofI Holding expects the ongoing annual revenue from the H&R Block program management agreement to be about $26 million to $28 million starting in fiscal 2015.

BofI Federal Bank expects no significant additions to regulatory capital will be required as a result of this deal. H&R Block 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.

BofI stock closed at $74.44, down $2.27 or 2.96%, on a volume of 174k shares. In after hours, the stock gained $4.12 or 5.53% at $78.56.