Providence, R.I.-based Citizens Financial Group Inc. is buying the assets of Franklin, Tenn.-based Franklin American Mortgage Co. Inc. for $511 million in cash, or 1.1x tangible book value.
The addition of Franklin American Mortgage would make Citizens Financial a top-15 bank-owned, residential mortgage servicing and origination platform, Citizens Financial said in a news release. The deal triples the size of Citizens Financial's off-balance sheet mortgage servicing portfolio and more than doubles its origination platform.
The assets have a net book value of about $488 million, including a mortgage servicing rights portfolio valued at $550 million.
The deal is expected to deliver a mid-teens return on invested capital with an internal rate of return of more than 20%. It is also expected to modestly add to the earnings in the second half of 2018, about 2% to 2019 EPS and approximately 3% to 2020 EPS with an earn back period of less than three years.
The company expects to achieve annual expense synergies of around $50 million by 2020, with total estimated after-tax integration costs of $30 million to $45 million. Furthermore, the deal is expected to improve return on average tangible common equity by around 30 basis points in 2019 and about 45 basis points in 2020. It is also expected to reduce Citizens Financial's Basel III common equity tier ratio by about 18 basis points upon the deal's closing.
Citizens Financial expects to maintain a significant presence in Tennessee and Texas in connection with the expanded distribution platform of the combined mortgage business.
The deal, which is subject to regulatory approval, is expected to close in the third quarter.
Upon deal closing, Citizens Home Mortgage President Eric Schuppenhauer will lead the combined mortgage business. Franklin American Mortgage CFO and COO Scott Tansil will lead the acquired correspondent and wholesale origination businesses, while the company's owner, president and CEO, Dan Crockett, will remain in an advisory role.
As of March 31, Citizens Financial, the parent of Citizens Bank NA, had $153.5 billion in assets. Franklin American Mortgage, meanwhile, managed a $41.4 billion mortgage servicing portfolio and has generated around $13.7 billion in annualized originations for the first quarter.
Debevoise & Plimpton LLP is Citizens Financial's legal adviser in connection with the deal. Morgan Stanley & Co. LLC is financial adviser to Franklin American Mortgage, while Baker Donelson Bearman Caldwell & Berkowitz PC is its legal adviser.
