Royal Bank of Scotland and Bank of Ireland said Monday they have agreed to merge their New England banking subsidiaries into a $14 billion-asset company that will rank third in the region behind Fleet Financial Group and Bank of Boston Corp.

The resulting combination will take the name of the Scottish-owned unit, Citizens Financial Group of Providence, R.I., and will have 219 branches and $12 billion of deposits.

Bank of Ireland, which owns Manchester, N.H.-based First NH Bank, will get a 23.5% stake in the new company, valued at $435 million. Royal Bank of Scotland will own the remaining 76.5%, with total equity value set at $1.85 billion.

Bank of Ireland will also receive approximately $245 million in cash and notes for its unit's surplus capital and the value of tax-loss deductions to be used by the new entity.

The merger, expected to close in the second quarter, comes on the heels of last week's $2 billion merger agreement between Bank of Boston Corp. and BayBanks Inc. That deal would create a stronger No. 2 in the region, at $58 billion of assets, compared with the $84 billion of Fleet Financial Group, which completed its merger with Shawmut National Corp. at the end of November.

At the new Citizens Financial, Lawrence K. Fish will retain his current posts of chairman, president, and chief executive officer.

L. Douglas O'Brien, president and chief executive officer at First NH, said he will resign early next year. He will be succeeded by D. Patrick Murphy, currently senior executive vice president and chief operating officer, until the transaction is completed.

Banking analysts were pleased with the European owners' agreement to join forces in the United States.

"There is certainly a recognition on the part of all that the competitive environment has considerably ramped up," said Nancy Bush, an analyst with Brown Brothers Harriman & Co. "There's a need for scale and all the technology that accompanies that."

Robert Albertson of Goldman, Sachs & Co. agreed that "the logic is compelling. It parallels the realities of the domestic U.S. banking marketplace and the advantages of merging, particularly with regard to cost structure."

Mr. Albertson noted that New England, long a fragmented banking market, is beginning to resemble other, more concentrated areas like California.

In an interview Monday, Mr. Fish said the merging banks expect to achieve back-office savings, but also noted there will be no savings from branch shutdowns because there is virtually no overlap in branch networks.

He also dismissed speculation that the two banks are packaging their U.S. units together with an eye to selling them off.

"This is a very inventive way for both organizations to participate in the consolidation of banking in America without paying the kind of premium that has been paid recently," Mr. Fish said.

"We have two large-moneyed partners from which we can continue to draw capital in order to expand, and it isn't part of our plans to flip the combined entity."

Mr. O'Brien said the combined bank plans to keep expanding in northern Massachusetts and "west of that."

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