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Citizens Financial (CFG) Acquires Franklin American Mortgage

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Shares of Citizens Financial Group CFG have gained nearly 1% since Aug 1, after it announced the completion of Franklin American Mortgage Company buyout. The all-cash deal was announced in early June 2018 and was valued at $511 million.

Franklin, TN-based Franklin American Mortgage is a well-diversified and nationwide provider of mortgage servicing and origination, with a leading position among private, nonbank mortgage companies.

Citizens Financial’s off-balance sheet mortgage servicing portfolio has tripled because of the acquisition, from $21.6 billion to nearly $65.3 billion, with a total servicing portfolio of about $83.1 billion including existing on-balance sheet mortgage portfolio. The acquisition also includes mortgage servicing rights valued at $600 million as of Jun 30, 2018.

Further, Citizens Financial seeks to maintain a significant presence in Tennessee and Texas markets with help from the expanded distribution platform of the combined business.

Brad Conner, Citizens Financial’s Vice Chairman and Head of Consumer Banking, said “We believe this transaction creates tremendous value for Citizens and 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.”

Other Benefits Derived From the Acquisition

Citizens Financial expects the deal to be accretive to earnings in the second half of 2018 and in 2020. Further, the addition of Franklin American Mortgage is likely to boost fee income ratio by 2%. The company expects the deal to deliver an internal rate of return of about 20%.

Also, Citizens Financial considers the deal to be financially attractive and low risk transaction.

Our Take

Citizens Financial’s involvement in strategic acquisitions reflect its strong capital position and focused approach to expand reach and product offerings.

Also, Citizens Financial has an impressive organic growth history as can be seen from its healthy balance sheet and growing top line. Further, the company’s series of revenue and efficiency initiatives bode well for the long term.

This Zacks Rank #3 (Hold) stock has lost 7.7% in the past six months compared with 2% decline recorded by the industry.

Stocks to Consider

A few top-ranked stocks from the finance space are First Defiance Financial Corp. FDEF, Guaranty Federal Bancshares, Inc. GFED and ServisFirst Bancshares, Inc. SFBS. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Defiance has witnessed 1.8% upward estimate revision for current-year earnings in the last 60 days. Over the past year, the company’s share price has been up 28.1%.

Guaranty Federal’s 2018 earnings estimates have been revised 8.9% upward for the last 60 days. Additionally, the stock has jumped 16.6% in 12 months’ time.

ServisFirst has witnessed slight upward estimate revision for the current-year earnings, over the last 60 days. Also, the company’s shares have risen 18.9% in the past year.

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