Heritage Financial Corp. reached a definitive agreement Tuesday to acquire Harbor Bancorp, Grays Harbor, Wash., in a stock deal valued at $40 million.

Heritage officials said the proposed transaction would strengthen its presence in the South Puget Sound area, where it already operates 12 branches.

Under the terms of the tax-free deal, Heritage would pay about $155 for each outstanding share of Harbor. Heritage would then have $525 million of assets and 17 branches.

The agreement has been unanimously approved by the the boards of both companies and is subject to regulatory and shareholder approval. It is expected to close by yearend.

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