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April 10, 2014

H&R Block finds a new buyer for its bank

The deal for H&R Block Bank is with BofI Federal Bank, which is based in San Diego and operates principally as an online bank called Bank of Internet USA. By selling the bank, H&R Block will free between $200 million and $250 million in capital. It represents excess funds the company could use to raise its dividend, buy back its own shares or invest in business operations.

H&R Block has again found a buyer for its Kansas City-based H&R Block Bank.

The deal is with BofI Federal Bank, which is based in San Diego and operates principally as an online bank called Bank of Internet USA. It is owned by BofI Holding Inc., a publicly traded company in San Diego.

Under a related agreement announced Thursday, BofI Federal Bank will issue the Emerald prepaid debit cards and other banking products that H&R Block offers customers through H&R Block Bank.

The companies did not disclose the financial terms of the combined deals.

Block has tried to sell its federally insured bank since 2012 and thought it found a buyer in July 2013. But Republic Bank & Trust Co. did not win approval from banking regulators, and the deal fell apart last October.

The Kansas City-based tax preparer wants out of the banking business to avoid what it calls costly regulatory capital requirements.

By selling the bank, H&R Block will free between $200 million and $250 million in capital. It represents excess funds the company could use to raise its dividend, buy back its own shares or invest in business operations.

H&R Block also said the transaction would cut its earnings between 7 and 9 cents a share each year after the sale. H&R Block earned $1.58 a share in its most recently reported fiscal year. Transaction costs and some asset sales tied to the transaction will affect earnings this year as well.

Other bank assets not involved in the sale will stay with H&R Block, which will give up its bank charter once the deal is complete.

Unwinding H&R Block’s bank ownership will involve a complex three-state transaction, each of which requires regulatory approval, according to a filing with the Securities and Exchange Commission.

H&R Block first would convert its bank from a federal savings bank to a nationally chartered bank. The rechartered bank would sell some assets and transfer its deposit accounts to BofI Federal. H&R Block would then merge H&R Block Bank into Block Financial, one of the tax company’s subsidiaries.

H&R Block’s filing said the conversion to a national charter is necessary because “there is clear regulatory authority for a national bank to merge with and into a non-bank affiliate, whereas the regulatory authority for a federal savings bank to do so is unclear.”

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