Washington Banks to Combine in $176.6M Deal

Heritage Financial is set to acquire Olympic Bancorp, the parent company of Kitsap Bank, in a $176.6 million transaction that will expand its footprint across the Kitsap and Olympic peninsulas west of Seattle. The acquisition marks Heritage’s first purchase since 2018 and highlights a continued trend of consolidation among community banks seeking scale and efficiency in a competitive banking environment.

Strengthening Local Presence

The deal will add 17 new branch locations to Heritage’s existing 50-branch network, boosting the combined bank’s assets to roughly $8.8 billion, loans to $5.7 billion, and deposits to $7.2 billion. By merging operations, Heritage will achieve a 14% deposit market share on the Kitsap and Olympic peninsulas, becoming the second-largest community bank in the area.

Heritage CEO Bryan McDonald emphasized the value of Kitsap Bank’s longstanding community relationships, stating, “We have deep respect for the banking institution they have built over the last 117 years. Their relationship banking strategy has created an exceptionally high-quality, low-cost core deposit franchise.” In certain markets, Heritage plans to maintain the Kitsap Bank name, a model it has successfully applied with previous acquisitions such as Whidbey Island Bank.

Financial and Operational Impact

Kitsap Bank brings approximately $1.7 billion in assets, $1.4 billion in deposits, and $941.6 million in loans, adding scale and lending capacity to Heritage. McDonald noted the bank’s “excess liquidity on its balance sheet” offers opportunities to deploy additional credit, including mortgages, loans, and commercial financing.

Heritage expects the transaction to generate $8.1 million in cost savings in 2026 and $18.7 million in 2027. Olympic shareholders will receive 45 shares of Heritage common stock for each share they own, representing roughly 17.4% ownership of the combined company. The acquisition will also incur $26.2 million in one-time transaction expenses, but Heritage projects 18% accretion in earnings per share by 2027.

Broader Trends in Community Banking

The Heritage-Kitsap deal reflects a wider trend of banking mergers across the United States. Analysts note that 2025 is on track to match or exceed last year’s total of 127 announced banking transactions, with community banks increasingly combining to achieve scale, improve efficiency, and compete with larger institutions and digital banking services.

Mergers like these can benefit customers by expanding access to checking accounts, mortgages, digital banking platforms, and other financial services while maintaining local, relationship-focused banking. At the same time, they provide banks with opportunities to optimize operations, manage interest rate and credit risk, and deploy liquidity more effectively.

Looking Ahead

The combination of Heritage Financial and Kitsap Bank illustrates how community banks can grow strategically while maintaining high-touch customer service. By leveraging scale, enhanced lending capacity, and operational efficiencies, the merged institution is positioned to compete effectively in a dynamic banking landscape. For investors and customers, the merger signals stronger financial stability, broader product offerings, and continued attention to local community needs.

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