Lakeland Bancorp (LBAI) in Oak Ridge, N.J., has agreed to buy Somerset Hills Bancorp (SOMH) in Bernardsville, N.J.

Lakeland will pay $64.4 million for Somerset Hills, with 90% of the consideration involving stock. The deal values Somerset Hills' at about $12 a share, or a 31% premium compared to the company's closing price on Monday.

The acquisition is expected to add to Lakeland's earnings next year. The deal will be slightly dilutive to Lakeland's tangible book value at the time of closing, though it will immediately add 25 basis points to the bank's tangible common equity ratio.

Stewart McClure Jr., Somerset Hills' president and chief executive, would become a co-president of Lakeland Bank, and two members of the seller's board, including its chairman, will join Lakeland's board.

"We are delighted to be combining with Somerset Hills … and expanding Lakeland's presence in the New Jersey counties it serves," Thomas Shara, who will remain Lakeland Bancorp's president and chief executive, said in a press release. "Both banks share a focus on community banking and providing the highest level of service to our customers. We look forward to working with the Somerset Hills team in delivering to all of our customers and shareholders the benefits that we expect from this transaction."

Somerset Hills earned $844,000 in the fourth quarter, posting modest increases from the third quarter and a year earlier. The $369 million-asset company's net interest income fell compared with prior periods even though its loan portfolio grew. The company was named one of Sandler O'Neill's 25 banking all-stars in September.

Lakeland's fourth-quarter earnings rose 6% from the third quarter and 21% from a year earlier, to $5.8 million. The $2.9 billion-asset company's net interest income rose compared to previous quarters as its loan growth offset a net interest margin that was flat compared to the third quarter.

Lakeland would have $2.4 billion in loans and $2.7 billion in deposits after the acquisition's expected closing in the second or third quarter. Somerset Hills also owns a licensed mortgage lender.

Raymond James served as Lakeland's financial advisor, while Lowenstein Sandler was its legal advisor. Keefe, Bruyette & Woods was Somerset Hills' financial advisor; Windels Marx Lane & Mittendorf was its legal advisor.

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