- What's at stake: Heritage Financial's $176.6 million deal to acquire Olympic Bancorp will create an $8.8 billion-asset community bank.
- Key insight: After completing its last bank acquisition in July 2018, Heritage spent seven years on the M&A sidelines.
- Forward look: Heritage is predicting an 18% earnings accretion in 2027, after costs savings totaling 35% of Olympic's operating expense base are fully phased in.
In a deal that expands its footprint in the Puget Sound region, Heritage Financial Corp. in Olympia, Washington, has agreed to pay $176.6 million in stock for the holding company of the 117-year-old Kitsap Bank.
The transaction marks a return from the merger-and-acquisition sidelines for Heritage. The $7.1 billion-asset company bought seven banks between 2010 and 2018. Its most recent transaction, for the $401 million-asset Premier Commercial Bancorp in Hillsboro, Oregon, closed in July 2018.
Founded in 1908, Kitsap Bank holds the second-largest deposit share in both Kitsap County, Washington — home to the sprawling Puget Sound Naval Shipyard — and in neighboring Jefferson County. Overall, Kitsap controls about 20% of the two-county-region's $5.2 billion deposit market. Kitsap is the banking unit of Port Orchard, Washington-based Olympic Bancorp.
The merger of Heritage, with roots stretching back to 1927, and Olympic would result in a company that would start with about $8.8 billion of assets and $7.2 billion of deposits.
"This combination … will create a more robust banking platform for communities across the Puget Sound region," Heritage CEO Bryan McDonald said in a press release Thursday. "Kitsap Bank is one of the longest tenured banks in Washington state, and we have deep respect for the banking institution they have built over the last 117 years."
On a conference call with analysts Friday, McDonald characterized the strategic fit between the two banks as "exceptional," with Kitsap contributing a low-cost deposit base and a pristine loan book.
"It will be fun to watch what we're able to accomplish together," McDonald said.
McDonald, who was appointed Heritage's president and CEO in July 2024, served previously as CEO of Whidbey Island Bank, acquired by Heritage in 2014.
The latest deal's $176.6 million price tag works out to 151% of Olympic's tangible book value, slightly higher than the 146% price-to-tangible–book average for 2025 bank mergers, according to Janney Montgomery Scott Director of Research Christopher Marinac.
Industry-wide, 2025 merger-and-acquisition activity appears on pace to eclipse the 2024 totals. There were 106 deals announced through Sept. 23, compared with 127 in all of 2024, Marinac noted Thursday in a research note.
Events this week further confirmed the trend. The $1.9-billion-asset QNB Corp. in Quakertown, Pennsylvania, said Tuesday it would
Heritage, which is the holding company for Heritage Bank, is expecting to close its purchase of Olympic in the first quarter of 2026, and to follow with the systems conversion in the second half of the year. It is projecting cost savings equal to 35% of the seller's operating expense base, which totaled $48.4 million in 2024, according to the Federal Deposit Insurance Corp.
Those cost savings, combined with the addition of Olympic's low-cost core deposit base, should drive 18% earnings accretion in 2027, according to McDonald.
"Kitsap has a lot of excess liquidity on its balance sheet," McDonald said on the conference call. "There's an opportunity to deploy a lot of that into loans."
Olympic shareholders will receive 45 Heritage shares for each Olympic share they hold. They'll own about 17% of the combined company.
While much of Heritage's attention will be focused on completing and integrating the deal for Olympic, the company "continues to engage in conversations" and remains open to M&A opportunities, McDonald said.
"If something attractive surfaces, we would consider it," the CEO said.
