Heritage Financial (HFWA) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition expands presence in the Puget Sound region, entering adjacent communities and building scale and density in key markets, including Kitsap, Jefferson, and Clallam counties.

• Combined entity will be the leading community bank in Kitsap County, with about 14% deposit market share and a pro forma asset base of $9 billion, ranking 5th in Washington.

• Both organizations share a relationship banking model, conservative credit culture, and strong community commitment.

• Kitsap's low-cost core deposits and clean credit portfolio complement the acquirer's strengths.

• The merger leverages compatible cultures and operating models, aiming for higher density and deeper market penetration.

Financial terms and conditions

• All-stock transaction with a fixed exchange ratio: 45 shares of acquirer stock for each Olympic share, valued at $176.6 million.

• Implied deal value represents 151% of tangible book value (or 103% excluding AOCI); price/2025E core EPS of 20.4x, dropping to 7.8x with cost savings.

• Olympic shareholders will own approximately 17.4% of the combined company post-closing.

• Tangible book value dilution under 10% at closing, expected to be earned back in about three years.

• Approximately 7.2 million shares will be issued in the transaction.

Synergies and expected cost savings

• Targeting 35% cost savings, mainly from back-office FTE reductions and elimination of duplicate systems, with $8.1 million realized in 2026 and $18.7 million in 2027.

• 45% of cost savings expected in 2026, with full realization by 2027.

• Minimal branch overlap, so limited branch closures anticipated.

• Transaction expected to enhance profitability and efficiency ratios, and improve balance sheet liquidity.

• Approximately 18% earnings per share accretion anticipated after full realization of operating efficiencies.