Citizens Financial Group Inc. has agreed to sell 56 branches in New York to People's United Financial Inc., ending two months of speculation about a possible branch deal between the two Northeastern banks.

The $28 billion-asset People's United said Tuesday that it would pay a 1% premium, or $3.25 million in cash, on the $325 million of deposits it will assume at the branches. The deal, which is expected to close late in the second quarter, includes 52 branches at Stop & Shop supermarkets. The transaction involves all existing Citizens Bank branches in Long Island and New York City in addition to certain branches in several other counties.

Sources said in December that Citizens was mulling a sale of 27 branches inside Stop & Shop stores on Long Island as its parent company, the Royal Bank of Scotland Group PLC, slims down. People's United was mentioned as a front-runner if a deal did happen.

It also seemed likely that if Citizens of Providence, R.I., wanted to exit the Long Island market, then it would have to relinquish its branches in Stop & Shop stores in other parts of the state. Stop & Shop grants in-store banking contracts to one bank per state.

The Royal Bank of Scotland suffered a bruising fourth quarter, posting a loss of 1.8 billion pounds, or $2.9 billion, because of continued weakness in its loan portfolio and steep revenue declines in its global banking and capital markets divisions.

The $131 billion-asset Citizens was a bright spot, though, reporting fourth-quarter operating profit of $249 million, up 144% from the same period a year earlier, as credit quality improved, expenses fell and interest and noninterest income rose. Its earnings for 2011 increased 63% to $769 million.

People's United said it anticipates keeping the Citizens employees at the branches. The Bridgeport, Conn., company has roughly doubled its assets through acquisitions since it switched from a mutual holding company to a 100% stock-owned one in 2007. Since the beginning of 2009, it has acquired four banking companies in New England and New York in addition to an equipment financing company in New York.

"This acquisition leverages the excellent in-store banking track record of People's United to deepen our presence and introduce the convenience of our in-store banking to customers on Long Island and in Westchester County," Jack Barnes, president and chief executive of People's United, said in a news release. "It is a unique opportunity to be the exclusive provider of banking services at 139 Stop & Shop stores across Long Island, southern New York state and Connecticut."

People's United currently has 37 branches on Long Island and in Westchester County and 87 branches in Stop & Stop stores in Connecticut. Overall, it has almost 370 branches in six states.

Jefferies & Company Inc. and Simpson Thacher & Bartlett LLP advised People's United. Keefe, Bruyette & Woods Inc. advised Citizens.

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