Dive Brief:

• Olympia, Washington-based Heritage Financial will acquire Olympic Bancorp – the holding company of Kitsap Bank – in a roughly $176.6 million deal, the banks said Thursday in a release.
• The transaction – set to close in the first quarter of 2026, according to an investor presentation – will ramp up Heritage’s presence on the Kitsap Peninsula, west of Seattle, and the Olympic Peninsula, farther north.
• The acquisition will add 17 locations to Heritage’s 50-branch footprint. After the transaction closes, Heritage will count roughly $8.8 billion in assets, $5.7 billion in loans and $7.2 billion in deposits.

Dive Insight:

The Kitsap deal marks a return to growth by acquisition for Heritage, which bought seven banks between 2010 and 2018, according to the presentation.

The move will bolster Heritage with roughly $1.7 billion in assets, $1.4 billion in deposits and $941.6 million in loans from Kitsap Bank. The transaction will give the combined company a 14% deposit market share on the Kitsap and Olympic peninsulas, making it the second-largest community bank in the area, the lenders said.

In certain markets on the peninsulas, Heritage will continue operating under the Kitsap Bank name, Heritage CEO Bryan McDonald said. That follows a previous model Heritage maintained – it kept the Whidbey Island Bank name after buying that lender, which McDonald once ran.

“We have deep respect for the banking institution they have built over the last 117 years," McDonald said of Kitsap. "Their relationship banking strategy has created an exceptionally high-quality, low-cost core deposit franchise.”

On a conference call Friday, McDonald said Kitsap “has a lot of excess liquidity on its balance sheet," adding "there's an opportunity to deploy a lot of that into loans."

In its presentation, Heritage said it expects the transaction to generate $8.1 million in cost savings next year and $18.7 million in 2027.

As part of the deal, Olympic shareholders will receive 45 shares of Heritage common stock for every share they own. The transaction’s $176.6 million value is based on Heritage’s $24.64 closing price from Wednesday. Olympic shareholders will own roughly 17.4% of the combined company once the acquisition is complete.

Olympic and Kitsap CEO Steve Politakis said he is “excited” for the lender’s next chapter.

“Kitsap Bank has always operated with a community-first mindset, building strong, trust-based relationships with our clients and the markets we serve,” Politakis said. “The combination of our two organizations provides the scale and capabilities of a larger bank while maintaining the high-touch community bank approach our customers have come to expect.”

The Heritage deal came at the end of a busy week in banking M&A. Earlier Thursday, Muncie, Indiana-based First Merchants Corp. said it would buy in-state First Savings Financial in a $241.3 million deal that would give it access to the neighboring Louisville, Kentucky, market.

Elsewhere, Quakertown, Pennsylvania-based QNB Corp. announced Tuesday it would buy Victory Bancorp, a smaller in-state peer, in a deal worth roughly $41 million.

Harrisburg, Pennsylvania-based Mid Penn Bancorp, meanwhile, proposed two acquisitions last week – a cash-and-stock deal for Mount Laurel, New Jersey-based 1st Colonial Bancorp on Wednesday, and then a $5.5 million purchase of Sarasota, Florida-based investment management firm Cumberland Advisors the following day.

In a note Thursday, Christopher Marinac, Janney Montgomery Scott’s research director, said 106 deals had been announced in the banking space through Sept. 23, putting 2025 easily within reach of last year’s transaction total of 127.

Heritage expects to take on $26.2 million in one-time transaction expenses from the deal. However, the company projects it will realize 18% accretion in earnings per share by 2027.

“It will be fun to watch what we're able to accomplish together," McDonald said on Friday’s conference call.