Updated from 5:52 p.m. EST:

Powerhouse financial

Citigroup

(C) - Get Report

agreed Monday to acquire

European American Bank

for $1.6 billion, boosting its presence in the lucrative Long Island market and giving it a foothold in small- and middle-market commercial lending.

Citibank said the deal will make it the leading bank in terms of deposits on Long Island. EAB, a unit of Netherlands-based

ABN Amro

(ABN)

, has $15.4 billion in assets and 97 branches, including 67 on Long Island and 30 in New York City.

The deal also includes the assumption of $350 million in preferred stock and is expected to close at midyear. Citigroup said it expects the deal to be accretive to earnings soon, adding a few cents by the end of the calendar year. The current consensus earnings estimate is $3.10, according to

First Call/Thomson Financial

.

Reflecting the strength of EAB's concentration in lending in relatively smaller markets, Citibank has created a new unit called the Citibank Commercial Markets Group and chosen EAB Chairman and CEO Edward Travaglianti to head the group as president. EAB President and COO Brendan Dugan will also stay with the bank after the merger as COO of the commercial markets group.

In a conference call with analysts and reporters, Citigroup domestic retail operations head Marge Magner minimized the possibility of layoffs, saying there would be none associated with closing branches due to overlaps. Magner said there will undoubtedly be some overlaps in the bank branches, but said "we expect those branch positions to be handled by reabsorption into the other branches and attrition over time." EAB currently has about 2,200 employees.

The conference call also brought questions about whether Citigroup saw the EAB acquisition as an opportunity for cheap deposits that could be used to fund growth in other areas such as the recently acquired consumer finance company

Associates Capital

. Citigroup sought to downplay that notion. Representatives of the bank also declined to comment on whether this deal is indicative of more retail bank acquisitions to come, either inside or outside of its current geographic footprint.