Banking holding company Susquehanna Bancshares Inc. (NASDAQ: SUSQ) announced it agreed to pay $860 million in cash and stock to acquire smaller rival Community Banks Inc. (NASDAQ: CMTY) as it expands in new territories.

The agreement, announced on Tuesday, will allow Community shareholders to receive either $34 or 1.48 Susquehanna shares for each share they own.

Shares of Community Banks jumped on the news, gaining $8.49, or 35.9 percent, to $32.12 in afternoon trading on the Nasdaq Stock Market. Susquehanna shares dropped, 43 cents, or 1.9 percent, to $21.85.

Susquehanna's similar focus on community banking and its wealth management business complement Community's strategy and will enable us to leverage our platform to better serve our combined customer base, said Eddie L. Dunklebarger, CEO of Community. We believe that this combination will provide tremendous opportunities to create value for our combined shareholders, customers, employees and communities.

The cash offer is at a 44 percent premium to Community Banks' Monday's closing share price of $23.63. Combined, the company will have over $12 billion in assets, and Susquehanna expects the deal to save the company about $33 million.

The deal is expected to close in the fourth quarter and will add to earnings in the first year after closing.