Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Washington Banking (NASDAQ: WBCO) gained more than 20% this morning on two pieces of good news released after yesterday's market close: a strong earnings report, followed immediately by news of a merger with Heritage Financial (HFWA -0.17%), which saw its shares gain only modestly in value after the announcement. Both banks saw their shares halted, but trading has resumed and the interest in this merger is clearly driving Washington Banking's gains today.

So what: Washington Banking, parent of that state's Whidbey Island Bank, reported its last earnings as a fully independent company last night. Nearly every financial category improved, including total assets, net non-covered loans, the capital ratio, and tangible book value, which all increased, and non-performing loans, which decreased. Washington Banking's earnings per share increased to $0.29 for the third quarter, ahead of analysts' $0.26 estimate.

The larger news, of the merger between Washington Banking and Heritage Financial, was released less than half an hour after the earnings report last afternoon. Washington Banking shareholders will get 0.89 shares in Heritage Financial and $2.75 in cash per share they now own, which actually represents a $0.20 per share premium over the current share prices of both banks.

Now what: Heritage is valued more dearly than Washington at the moment, with a P/E near 22 against Washington's P/E of 16 even after the pop, and its dividend yield is somewhat lower, but the two institutions appear otherwise very similar. If you invested in Washington for the long haul, there doesn't appear to be any reason why you should want to get out today, as you'll still own a smaller Washington-based bank with a respectable dividend and a comfortable balance sheet after the merger completes.

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