Whidbey Island and Heritage banks to merge

Washington Banking Co., the Oak Harbor-based parent of Whidbey Island Bank, will merge sometime next year with Olympia-based Heritage Financial Corp., the companies said Thursday. The combined company will take the Heritage name and have $3.3 billion in assets and 73 branches in the I-5 corridor from Bellingham to Portland.

Six Washington Banking branches on the island itself will retain the Whidbey Island Bank name. All other Whidbey branches, including those in Snohomish County, will be called Heritage Bank.

The combined Heritage Financial Corp. will be based in Olympia. But the merged entity’s executives and members of the board of directors will be a mix from both firms.

Heritage President and CEO Brian Vance will retain that title. Washington Banking President and CEO Jack Wagner will become an advisor to the merged company. At 70, Wagner is ready for retirement, but he wanted to ensure Whidbey Island Bank and its employees had a solid future.

“Brian and I have known each other quite a while,” Wagner said Friday. “Our banks are quite similar.” The companies are so complementary, he said, that for a long time people in community banking have asked why they shouldn’t merge.

“A few months ago, we sat down and said, ‘Let’s take a look at it,’” Wagner said.

Wagner said community bank mergers are being driven by a need for revenue growth in the absence of a strong economic rebound. “We’d been hoping for organic growth” in the bank’s business, Wagner said, but it didn’t materialize.

Both companies are publicly traded. A prospectus filed by Washington Banking with the U.S. Securities and Exchange Commission says that the Whidbey Island company’s shareholders will receive 0.89 shares of Heritage stock and $2.75 in cash for every share of Washington Banking stock they own.

In essence, Washington Banking stockholders will be paid about $16 per share in consideration of the merger. Based on share prices Thursday, the deal is worth $265.1 million to Washington Banking Co.’s owners.

Whidbey Island Bank and Heritage Bank are similar in many ways — nearly identical in size and with similar histories as community banks which not only survived the recession but acquired several troubled banks in the process.

Founded in 1961, Whidbey Island Bank has grown to 31 branches in Island, Snohomish and four other adjacent counties. Today it has deposits worth $1.4 billion and a $1.1 billion loan portfolio.

Heritage Bank was founded in 1927 and has 42 branches, mostly in the South Sound area and points south. In Yakima and Kittitas counties, Heritage does business as Central Valley Bank.

A key difference is that Whidbey Island Bank has a bigger consumer loan portfolio, while Heritage is primarily a commercial lender.

The two banks have no overlapping territory, and neither has a significant presence in King County. The prospectus states that the merger will give the new company the heft to possibly expand to Seattle and Bellevue. Wagner said the Eastside suburbs are the most promising area in which Heritage could expand.

The combined bank will be the 11th-biggest in the state, based on deposits, and the third-biggest bank among those headquartered in Washington.

Both companies’ boards of director have approved the deal, but it is subject to regulatory approval and requires the consent of shareholders of both companies. The merger is expected to be complete in the first half of 2014.

Chuck Taylor: 425-339-3429; ctaylor@heraldnet.com.

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