H&R Block Bank has entered into a definitive purchase and assumption agreement with Republic Bank and Trust Co. to sell certain assets and transfer certain liabilities of H&R Block Bank to Republic.
The agreement is subject to regulatory approvals as well as the negotiation of additional agreements under which Republic would act as the bank for H&R Block’s core financial services products: Refund Transfers, Emerald Advance lines of credit, and the Emerald Prepaid MasterCard.
"We’re pleased to take this important step in the process of exiting our bank and finding the right bank to continue offering our best-in-class financial services products," said Bill Cobb, H&R Block’s president and chief executive officer. "We are committed to continuing our long-term strategy of providing tax and related financial solutions to our clients, and this agreement will help us accomplish our goals."
H&R Block Bank and Republic are both applying for required regulatory approvals. H&R Block Bank will complete the transaction, merge with and into its parent, Block Financial, and surrender its bank charter after obtaining regulatory approvals.
"Our hope is to complete the transaction and have the financial services agreements with Republic in place in time to execute tax season 2014 with Republic," said Cobb. "If regulatory approval is not received in time to accomplish this, we have contingency plans in place to offer financial services products through H&R Block Bank for tax season 2014."
In fiscal year 2014, the transaction and related costs are expected to result in one-time expenses to H&R Block of approximately $0.03 to $0.04 (based on current fully diluted shares outstanding), contingent on the timing of regulatory approval.
H&R Block anticipates the net financial impact of the service agreement with Republic to be dilutive by approximately $0.06 to $0.09 per share (based on current fully diluted shares outstanding), on an annual basis. Results will vary depending on the volume of financial services products sold.
In October 2012, H&R Block announced that it was seeking strategic alternatives for H&R Block Bank that would mean the Federal Reserve Bank as a savings and loan holding company was no longer regulating H&R Block.
This decision was urged on by proposed rules that would impose higher capital requirements on savings and loan holding companies such as H&R Block. The Federal Reserve proposed the rules in order to implement changes required by the Dodd-Frank Act.
"The proposed rules would require us to hold significant levels of additional capital, which does not properly align with our capital-light business model," said Greg Macfarlane, H&R Block’s chief financial officer. "We believe it is in the best strategic interests of our company and our shareholders to cease being regulated as a savings and loan holding company and are taking the appropriate steps to do so."