Citizens Financial Group in Providence, R.I., has agreed to buy the assets of Franklin American Mortgage in Franklin, Tenn.

The $154 billion-asset Citizens said in a press release Thursday that its bank will pay $511 million in cash for the assets. The deal, which is expected to close in the third quarter, priced Franklin at 110% of its tangible book value.

The deal is the sixth largest for a bank acquirer in 2018.

Citizens Bank signage.
Bloomberg News

Franklin manages a $41 billion mortgage servicing portfolio. The company generated nearly $14 billion in annualized originations during the first quarter; most of those originations were for conforming mortgages.

The acquisition will triple the size of Citizens’ off-balance-sheet mortgage servicing portfolio, to $61.6 billion, and will more than double its origination platform. The deal will add about 200,000 servicing households, more than 600 correspondent relationships and more than 1,000 wholesale-broker relationships.

Conforming mortgages at Citizens would increase to 85% of originations from 45% with the acquisition.

Citizens said it will have one of the 15 biggest bank-owned, residential mortgage servicing and origination platforms once the deal closes.

“This transaction takes our mortgage business to the next level, expanding our reach and adding immediate scale in servicing as well as innovative correspondent and wholesale solutions,” Brad Conner, Citizens’ vice chairman and head of consumer banking, said in the release. Franklin’s “strong history of excellence in customer service is a great cultural fit with our organization,” he added.

Citizens said it expects to cut about $50 million in annual expenses by 2020. The company also expects to incur $30 million to $45 million in merger-related expenses.

The transaction is expected to be modestly accretive in the second half of 2018 and 3% accretive in 2020. It should take less than three years to earn back any dilution to Citizens’ tangible book value.

Dan Crockett, Franklin’s owner, president and CEO, will remain involved in an advisory role. Scott Tansil, Franklin’s chief financial officer and chief operating officer, will lead the acquired correspondent and wholesale origination businesses based in Tennessee. Citizens said it plans to keep a “significant presence” in Tennessee and Texas, where Franklin has offices.

Debevoise & Plimpton advised Citizens. Morgan Stanley and Baker, Donelson, Bearman, Caldwell & Berkowitz advised Franklin.

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