OLYMPIA -- Heritage Financial Corp.'s stock, powered by a solid earnings report for 2001 and the fourth fiscal quarter, hit a 52-week high of $12.15 a share in afternoon trading Wednesday.

The Olympia-based bank announced earlier in the day that its net income for 2001 was $6.96 million, an increase of 16.5 percent compared to 2000. In the fourth quarter, which ended Dec. 31, Heritage posted a net income of $2.21 million, up a robust 44 percent over the same quarter in 2000.

"We certainly had a strong year, particularly in the second half," said Ed Cameron, Heritage's vice president and treasurer.

Amid a wave of lukewarm to poor fourth-quarter earnings reports that have buffeted stock markets, investors saddled up to Heritage's report, which also saw return on average equity -- an important benchmark for financial institutions -- reach 11 percent in the fourth quarter compared to 7.12 for the same quarter last year.

Heritage's stock finished the day at $11.95 after hitting its 52-week high on larger than average trading volume.

Scott Kaufman, an analyst with Friedman Billings Ramsey investment bank in Arlington, Va., said Heritage and community-based banks in general can be seen as good investments during economic slowdowns.

"Investors like thrifts in this environment because their business is primarily in the real estate sector," Kaufman said. "And that's the safest investment you can have right now."

Cameron said Wednesday that Heritage capitalized on a strong mortgage loan market and benefited from a companywide program called Vision 2001, which was implemented to streamline bank operations and increase profitability.

For Vision 2001, Heritage enlisted Alex Sheshunoff Management Services LP, a bank industry guru, to refine the company's banking practices.

The project from March to May involved looking at Heritage's work flow from top to bottom and back again.

"They specialize in community banks," Cameron said in October. "We brought their team in to look at what we do, create efficiencies in the way we do things and look for revenue opportunities we are missing or not taking full advantage of."

Cameron said Wednesday that the program already has paid off.

"Vision 2001 was exercised, or initiated, in the first half of the year, and in the second half we started getting benefits of the different things we put in place," Cameron said of the $600,000 project. "The goal was to be expense-neutral in 2001, and we exceeded that expectation by getting our cost back plus some."

Low interest rates, which fueled the mortgage loan market, also boosted Heritage's bottom line.

But Cameron said Heritage is seeing that segment of its business wane.

"Mortgages are a rate driven deal, and we have already seen the volume of business from refinancing go down," Cameron said.

Cameron said the overall state of the economy also is a worry to the banking industry.

"Sept. 11 will have an impact on banks, but we don't know how much for the long run," he said. "But the flat economy makes for flat loan growth, and all banks look at that."

Since going public in 1998, Heritage has worked hard to diversify its business by supplementing mainstay residential home lending with commercial banking activities.

That helps Heritage perform better as the economy waxes and wanes and has led to years of consistent earnings -- evident by 16 straight quarterly dividends, each a half cent larger than the preceding quarter.

"We're not here trying to hit home runs," Cameron said. "We're here focusing on steady earnings growth."

Heritage Financial Corp.

-Company: Operates two independent community banks, Heritage Bank in South Sound and Central Valley Bank in Eastern Washington

- Stock: Traded on the Nasdaq under the symbol HFWA

- Wednesday's closing price: $11.95 on volume of 13,500 shares. Average daily volume of 9,272 shares.