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H&R Block to sell banking arm to Republic Bank

H&R Block to sell banking arm to Republic Bank

July 11th, 2013 in News

KANSAS CITY, Mo. (AP) - Tax preparation company H&R Block Inc. said Thursday it will sell its H&R Block Bank assets to Republic Bank and Trust Co.

After the deal is complete, the H&R Block Bank will close by surrendering its charter.

The companies did not disclose terms of the sale, which is subject to regulatory approval. H&R Block said it expects to take 3 to 4 cents per share in costs related to the sale, which will reduce its annual net income by 6 to 9 cents per share.

Republic said it is acquiring non-cash assets projected to be about $3 million at closing, along with assuming approximately $470 million in projected customer deposits. The bank said the acquisition will add about 57 cents per Class A shares to its annual earnings.

H&R Block said it wants to complete the move in time to execute the 2014 tax season with Republic, which will take control of Block's Emerald Card prepaid card, used to distribute refunds and lines of credit, which offer customers short-term loans throughout the year.

The two companies had prior relationships, including one in which Republic backed refund anticipation loans that Block used to offer to customers waiting for their refunds, but those products were discontinued last year, after a move by the Internal Revenue Service aimed at ending the high-cost products.

The nation's largest tax prep company said in October that it hired Goldman Sachs to help it explore options for H&R Block Bank. It said those options could result in the company no longer being regulated as a savings and loan holding company by the Federal Reserve. The sale removes any burden that would come with new Fed rules requiring savings and loans to hold more cash in reserve to cover potential losses.

Some analysts have suggested H&R Block would be a more attractive takeover target if it sold the bank.

Selling the bank also reflects further retrenching after the company took a big hit when the housing bubble burst. As recently as last year, President and CEO Bill Cobb was looking to the bank, and in particular the Emerald prepaid card, as a potential source of growth.

Block had a mortgage bank, Option One, that was closed in 2007 as the subprime loan market it was part of imploded. The company was left with liabilities related to hundreds of millions in failed subprime loans that were packaged and sold on the secondary market. It paid a $28.2 million settlement to the Securities and Exchange Commission to settle charges that it misled investors about subprime mortgage offerings last year.

In June H&R Block reported a 63-percent jump in fiscal-year profit, after several years of sharp declines amid competition for tax prep customers, especially online.

Shares of H&R Block rose 36 cents to $29.94 Thursday. The stock has traded between $15.53 and $30.23 in the last 52 weeks.

Shares of Louisville, Ky.-based Republic Bancorp Inc. closed down 11 cents at $24.29. The lightly traded stock has changed hands between $19.56 and $25.29 in the past year.