Axos dealing with Durbin-related snags in H&R Block pact

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Axos Financial in San Diego has yet to reach a new deal with H&R Block as the bank prepares to lose an important exemption as part of the Durbin amendment.

The $11.6 billion-asset Axos, which faces a cap on interchange fees on July 1, said in a Monday regulatory filing that H&R Block can terminate their partnership if the bank does not strike a deal to compensate H&R Block for the lower fees.

"As of the date of this report, we have not agreed to the terms of such an amendment with H&R Block," the filing said. "While we intend to seek additional dialogue with H&R Block as to a suitable amendment, there can be no assurances that a mutually agreeable amendment will be reached."

Axos and H&R Block formed their partnership in 2014 when the bank agreed to buy certain assets and all the deposits belonging to H&R Block Bank. Under the deal, set to expire in mid-2022, Axos' bank agreed to provide H&R Block-branded financial products through the tax preparation firm's retail and digital channels.

Michael Perito, an analyst at Keefe, Bruyette & Woods, wrote in a Monday note to clients that negotiations are continuing and that he expects a new agreement under which Axos gives up some revenue.

"That said, if an agreement isn't reached before the summer, after the conclusion of tax season, our confidence in a new deal being reached would need to be re-evaluated," he wrote.

Perito said Axos had disclosed that about $25 million in annual pretax revenue is at risk because of the Durbin amendment. He also estimated that the H&R Block relationship represents $35 million to $40 million in annual revenue at Axos.

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