Sovereign Bancorp, Wyomissing, Pa., last week announced the execution of a definitive agreement to acquire $45 million-asset Colonial State Bank, Freehold, N.J.

The terms of the definitive agreement are consistent with the terms stated in the letter of intent signed by Sovereign and Colonial on March 2. These terms call for Sovereign to pay a total of approximately $6.25 million in cash to Colonial shareholders.

The transaction will be accounted for as a purchase and is expected to close by June 30, but no later than Nov. 15. The transaction is subject to regulatory approval and approval of Colonial's shareholders.

Sovereign, which is insured by the Savings Association Insurance Fund, plans to shift its deposits into Colonial, insured by the Bank Insurance Fund, in an attempt to avoid paying a high deposit premium.

The Federal Deposit Insurance Corp. plans to cut bank fund premiums while keeping thrift fund rates intact.

"In keeping with Sovereign's philosophy and commitment to increasing shareholder value, this acquisition could save up to $10 million per year in FDIC premiums within the next two years," said chief executive Jay Sidhu.

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