<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 1997

                         Commission File Number 0-15540

                         FRONTIER FINANCIAL CORPORATION            
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

            Washington                                      91-1223535
----------------------------------              --------------------------------
(State or Other Jurisdiction of                   (IRS Employer Identification
Incorporation or Organization)                              Number)

                            332 S.W. Everett Mall Way
                                 P. O. Box 2215
                            Everett, Washington 98203

               (Address of Principal Executive Office) (Zip Code)

                                 (425) 514-0719

              (Registrant's Telephone Number, Including Area Code)

           Securities Registered Pursuant to Section 12(g) of the Act:

                           Common Stock (No Par Value)
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (S229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]

The aggregate market value of common stock held by nonaffiliates at December 31,
1997 was $216,944,690 based on the price at December 31, 1997.

The issuer has one class of common stock (no par value) with 7,357,935 shares
outstanding as of February 28, 1998.

<TABLE>
<CAPTION>
Documents Incorporated by Reference
-----------------------------------
Portions of Annual Report to Shareholders for the year ended:
<S>                                <C>
December 31, 1997..................Part II
1998 Proxy Statement...............Part III
</TABLE>



<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         Annual
Item Number                                                                           Shareholders'     Proxy
                                                                      Form 10-K          Report       Statement
PART I                                                                  Page              Page          Page
------                                                                ----------      -------------   ---------
<S>        <C>           <C>                                           <C>                <C>            <C>
           1             Business                                      1-10

                         Statistical Disclosure Index                    11

           2              Properties                                     20

           3             Legal Proceedings                               21

           4             Submission of Matters to
                         a Vote of Security Holders                      21
PART II
           5             Market for Registrant's Common
                         Stock and Related Shareholder
                         Matters                                                           36

           6             Selected Financial Data                         21

           7             Management's Discussion and
                         Analysis of Financial Condition
                         and Results of Operations                                       25-39

           7a            Quantitative and Qualitative Disclosures
                         About Market Risks                                              34-35

           8             Financial Statements and
                         Supplementary Data                              22

           9             Changes in and Disagreements with
                         Accountants on Accounting and
                         Financial Disclosure                            22
PART III
           10            Directors and Executive
                         Officers of Frontier
                         Financial Corporation                                                        2-4, 8-9

           11            Executive Compensation                                                         9-10

           12            Security Ownership of Certain
                         Beneficial Owners and
                         Management                                                                       8

           13            Certain Relationships and
                         Related Transactions                            25                20            11
PART IV
           14            Exhibits, Financial Statement
                         Schedules, and Reports on
                         Form 8-K                                        24

                         Signatures                                      27
</TABLE>



                                        i

<PAGE>   3


                                     PART I

ITEM 1 - BUSINESS

Frontier Financial Corporation ("FFC" or "the Corporation") is a Washington
corporation which was incorporated in 1983 and is registered as a bank holding
company under the Bank Holding Company Act of 1956. As part of a plan of
reorganization consummated following the close of business September 30, 1983,
FFC acquired all of the stock of Frontier Bank (the Bank), issuing its common
stock in an exchange for the Bank's common stock on a share-for-share basis. FFC
has two subsidiaries; the Bank, which is engaged in a general banking business
and in businesses related to banking, and FFP, Inc., a nonbank corporation which
leases property to the Bank.

The Bank

The Bank is a state-chartered banking association with its principal office
located in Everett, Snohomish County, Washington. It was founded in September,
1978 by Robert J. Dickson and local business persons. The Bank is an "insured
bank" as defined in the Federal Deposit Insurance Act.

The Bank engages in general banking business, including the acceptance of
demand, time and savings deposits and the making of loans. As of December 31,
1997, the Bank conducted its business operations out of 19 offices located in
Snohomish, King and Skagit Counties, which is the bank's principal market area.
Four offices are located in Everett, one office each is located in Arlington,
Snohomish, Smokey Point, Lake Stevens, Marysville, Lynnwood, Mill Creek,
Edmonds, Stanwood, Bothell, Woodinville, Monroe, Lake City (Seattle), Redmond
and Burlington.

Banking Services

The Bank provides a full range of consumer banking services including savings
accounts, checking accounts, installment and commercial lending, safe deposit
facilities, time deposits and other consumer and business related financial
services. In addition to consumer oriented activities, the Bank maintains a
strong commercial lending program, servicing businesses headquartered in the
Bank's principal market area. At the end of 1983, the Bank began to offer a
discount brokerage service to its customers. In September of 1984, the Bank
opened its Real Estate Division, offering a broad range of home, construction
and commercial long-term financing. The Trust Department opened for business in
March of 1985. This department offers a full array of trust services to its
customers. In May 1988, the Bank opened a Private Banking Office to give
personal service to upscale customers. In August 1989, the Bank acquired,
through a merger, three banking offices of Citizens Bank of Snohomish County,
and a real estate origination department. In January 1991, the Bank opened an
office in Mill Creek, providing a full range of consumer banking services.

In March 1991, the Bank opened an Insurance and Investment Center which markets
annuities, life insurance products, and mutual funds to Bank customers and the
general public. In July 1992, the Bank opened its Stanwood Office. In November
1992, the Bank acquired through merger, Edmonds National Bank, which had one
office. In July 1993, the Bank acquired through merger, The Bank of Northshore,
which had two offices located in Bothell and Woodinville, King County,
Washington. This merger marked the first time the Bank branched outside of
Snohomish County. In June 1995, the Bank opened an office in Monroe, providing a
full range of consumer banking services. In August 1996, the Bank opened the
Lake City Office, (North Seattle) and in December 1996 opened its first office
in Skagit county, in Burlington, named the Skagit County Office. In May 1997,
the Bank opened an office in Redmond, Washington, which also houses a Commercial
Banking Office. This is the Bank's first office in eastern King county.



                                       -1-
<PAGE>   4

Employees

At December 31, 1997, the Bank had 269 full and 51 part time employees. The Bank
considers its relations with employees to be very good.

Competition

All phases of the Bank's activities are highly competitive. The Bank competes
actively with national and state banks, mutual savings banks, savings and loan
associations, finance companies, credit unions, brokerage houses, and other
financial institutions operating in its service area. Some of these financial
institutions have greater resources than those of the Bank. On December 31,
1997, the Bank had total assets of $882.9 million and deposits of $730.9
million.

Supervision and Regulation

The following refers to certain statutes and regulations affecting the banking
industry. These references are only intended to provide brief summaries and
therefore are not complete and are qualified by the statutes and regulations
referenced. In addition, due to the numerous statutes and regulations which
apply to and regulate the operation of the banking industry, many are not
referenced below.

FRONTIER FINANCIAL CORPORATION ("FFC")

GENERAL. FFC is a bank holding company by virtue of its ownership of Frontier
Bank (the "Bank"), and is registered as such with the Federal Reserve Bank
("FRB"). As a bank holding company, FFC is subject to the Bank Holding Company
Act ("BHCA"), which governs and subjects FFC to supervision and examination by
the FRB. Under the BHCA, FFC files with the FRB quarterly and annual reports of
its operations and such additional information as the FRB may require.

BANK HOLDING COMPANY STRUCTURE. In general, the BHCA limits bank holding company
business to owning or controlling banks and engaging in other banking-related
activities. Certain recent legislation designed to expand interstate branching
and relax federal restrictions on interstate banking may expand opportunities
for bank holding companies (see below under "Interstate Banking and Branching").
However, the impact that this legislation may have on FFC and the Bank is
unclear at this time.

FRB REGULATION. Bank holding companies must obtain the FRB's approval before
they: (1) acquire direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, they would own or control, directly or
indirectly, more than 5 percent of the voting shares of such bank; (2) merge or
consolidate with another bank holding company; and (3) acquire substantially all
of the assets of any additional banks. Until September of 1995, the BHCA also
prohibited bank holding companies from acquiring any such interest in any bank
or bank holding company located in a state other than the state in which the
bank holding company was located, unless the laws of both states expressly
authorized the acquisition. Now, subject to certain state laws, such as age and
contingency laws, a bank holding company that is adequately capitalized and
adequately managed may acquire the assets of an out-of-state bank.



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CONTROL OF NONBANKS. With certain exceptions, the BHCA also prohibits bank
holding companies from acquiring direct or indirect ownership or control of
voting shares in any company other than a bank or a bank holding company unless
the FRB finds FFC's business to be incidental to the business of banking. When
making this determination, the FRB in part considers whether allowing a bank
holding company to engage in those activities would offer advantages to the
public that would outweigh possible adverse effects.

The Economic Growth and Regulatory Paperwork Reductions Act of 1996 ("Economic
Growth Act") amended the BHCA to eliminate the requirement that a bank holding
company seek FRB approval before engaging de novo in permissible nonbanking
activities, if the holding company is well capitalized and meets certain other
criteria specified in the statute. A bank holding company meeting the
specifications is now required only to notify the FRB within 10 business days
after the activity has begun. The FRB has issued a final rule incorporating the
changes enacted by the Economic Growth Act, and as of April 21, 1997, a well-run
bank holding company, without any prior notice or FRB approval, may commence
immediately any activity that is currently or at the time of commencement,
included in the FRB's list of acceptable nonbanking activities.

Acceptable nonbanking activities include: (1) operating an industrial loan
company, mortgage company, finance company, trust company, or credit card
company; (2) performing certain data processing operations; and (3) providing
investment and financial advice. In contrast, prohibited nonbanking activities
include real estate brokerage and syndication, and land development, property
management, and the underwriting of life insurance not related to credit
transactions permissible for bank holding companies.

CONTROL TRANSACTIONS. The Change in Bank Control Act of 1978, as amended,
requires a person or group of persons acquiring "control" of a bank holding
company to provide the FRB with at least 60 days' prior written notice of the
proposed acquisition. Following receipt of the notice, the FRB has 60 days to
issue a notice disapproving the proposed acquisition, but the FRB may extend
this time period for up to another 30 days. An acquisition may be completed
before the disapproval period expires if the FRB issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the FRB, the acquisition of 10 percent of more of a class of voting stock of
a bank holding company with a class of securities registered under Section 12 of
the Exchange Act would, under the circumstances, set forth in the presumption,
constitute the acquisition of control. In addition, any "company" would be
required to obtain the approval of the FRB under the BHCA before acquiring 25
percent (5 percent if the "company" is a bank holding company) or more of the
outstanding shares of FFC, or otherwise obtain control over FFC.

TRANSACTIONS WITH AFFILIATES. FFC and the Bank are deemed affiliates within the
meaning of the Federal Reserve Act, and transactions between affiliates are
subject to certain restrictions. These restrictions apply to FFC and the Bank
through the BHCA, which provide that transactions between an insured subsidiary
of a holding company and its affiliates are subject to restrictions applicable
to transactions between banks that are members of the Federal Reserve System and
their affiliates in accordance with Sections 23A and 23B of the Federal Reserve
Act. Generally, Sections 23A and 23B: (1) limit the extent to which the
financial institution or its subsidiaries may engage in "covered transactions"
with an affiliate, as defined, to an amount equal to 10 percent of such
institutions capital and surplus and an aggregate limit on all such transactions
with all affiliates to an amount equal to 20 percent of such capital and
surplus, and (2) require all transactions with an affiliate, whether or not
"covered transactions," to be



                                       -3-
<PAGE>   6

on terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions.

REGULATION OF MANAGEMENT. Federal law: (1) sets forth circumstances under which
officers or directors of a financial institution may be removed by the
institution's federal supervisory agency; (2) places restraints on lending by an
institution to its executive officers, directors, principal shareowners, and
their related interests; and (3) prohibits management personnel from serving as
a director or in other management positions of another financial institution
whose assets exceed a specified amount or which has an office within a specified
geographic area.

FIRREA. The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial bank and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquire healthy savings associations; (4)
permitted commercial banks that meet certain housing-related assets requirements
to secure advances and other federal services from their local Federal Home Loan
Banks; and (5) greatly enhanced the regulators' enforcement powers by removing
procedural barriers and sharply increasing the civil and criminal penalties for
violating statutes and regulations.

TIE-IN ARRANGEMENTS. FFC and the Bank, are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither FFC, nor the Bank, may condition an extension of credit on either (1) a
requirement that the customer obtain additional services provided by it or (2)
an agreement by the customer to refrain from obtaining other services from a
competitor. Effective April 1997, the FRB has adopted significant amendments to
its anti-tying rules that; (1) remove FRB-imposed anti-tying restrictions on
bank holding companies and their non-bank subsidiaries; (2) create exemptions
from the statutory restriction on bank tying arrangements to allow banks greater
flexibility to package products with their affiliates; and (3) establish a safe
harbor from the tying restrictions for certain foreign transactions. These
amendments are designed to enhance competition in banking and nonbanking
products and allow banks and their affiliates to provide more efficient and
lower-cost services to customers. However, the impact of the amendments on FFC
and the Bank is unclear at this time.

STATE LAW RESTRICTIONS. As a corporation chartered under the laws of the State
of Washington, FFC may be subject to certain limitations and restrictions as
provided under applicable Washington corporate laws.

SECURITIES REGISTRATION AND REPORTING. FFC Common Stock is registered as a class
with the SEC under Section 12(g) of the Securities Exchange Act of 1934 and thus
is subject to the periodic reporting and proxy solicitation requirements and the
insider-trading restrictions of that Act. The periodic reports, proxy
statements, and other information filed by FFC under that Act can be inspected
and copied at or obtained from the Washington D.C., office of the SEC. In
addition, the securities issued by FFC are subject to the registration
requirements of the Securities Act of 1933 and applicable state securities laws
unless exemptions are available.



                                       -4-

<PAGE>   7

THE BANK

GENERAL. Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, mergers and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The FDIC has authority to prohibit banks under
their supervision from engaging in what they consider to be an unsafe and
unsound practice in conducting their business.

The Bank is a state-chartered commercial bank subject to extensive regulation
and supervision by the Washington State Department of Financial Institutions
Division of Banks (the "Division"). The Bank is also subject to regulation and
examination by the FDIC which insures the deposits of the Bank to the maximum
extent permitted by law and by requirements established by the FRB. The federal
laws that apply to the Bank regulate, among other things, the scope of its
business, investments, reserves against deposits, the timing of the availability
of deposited funds and the nature and amount of and collateral for loans. The
laws and regulations governing the Bank generally have been promulgated to
protect depositors and not to protect stockowners of such institutions or their
holding companies.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires federal banking regulators to adopt regulations or guidelines in a
number of areas to ensure bank safety and soundness, including: internal
controls, credit underwriting, asset growth, management compensation, ratios of
classified assets to capital, and earnings. FDICIA also contains provisions
which are intended to change independent auditing requirements; restrict the
activities of "undercapitalized banks" to borrow from the FRB's discount window;
and require regulators to perform annual on-site bank examinations and set
standards for real estate lending.

LOANS TO ONE BORROWER. The Bank is subject to limitations on the aggregate
amount of loans that it can make to any one borrower, including related
entities. Applicable regulations generally limit loans-to-one borrower to 15 to
20 percent of unimpaired capital and surplus. As of December 31, 1997, the Bank
was in compliance with applicable loans-to-one borrower requirements.

FDIC INSURANCE. Generally, customer deposit accounts in banks are insured by the
FDIC for up to a maximum amount of $100,000. The FDIC has adopted a risk-based
insurance assessment system under which depository institutions contribute funds
to the Bank Insurance Fund ("BIF"), based on their risk.

On September 30, 1996, the Deposit Insurance Fund Act of 1996 ("Funds Act") was
enacted. The Funds Act provides, among other things, for the recapitalization of
the SAIF through a special assessment on all depository institutions that hold
SAIF insured deposits. The one-time assessment was designed to place the SAIF at
its 1.25 reserve ratio goal.

The Funds Act, for the three-year period beginning in 1997, subjects BIF insured
deposits to a Financing Corporation ("FICO") premium assessment on domestic
deposits at one-fifth the premium rate (approximately 1.3 basis points) imposed
on SAIF insured deposits (approximately 6.5 basis points).



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Beginning in the year 2000, BIF insured institutions will be required to pay the
FICO obligations on a pro-rata basis with all thrift institutions; annual
assessments are expected to equal approximately 2.4 basis points until 2017, to
be phased out completely by 2019.

For the remainder of 1997 and until further action by the FDIC, BIF premiums
will be maintained at their current level.

Banking regulations are empowered under the Funds Act to prohibit insured
institutions and their holding companies from facilitating or encouraging the
shifting of deposits from the SAIF to the BIF in order to avoid higher
assessment rates. The Funds Act also provides for the merger of the BIF and SAIF
on January 1, 1999, only if no thrift institutions exist on that date. It is
expected that Congress will continue to address comprehensive legislation on the
merger of the funds and elimination of the thrift charter.

The FDIC may terminate the deposit insurance of any insured depository
institution if it determined after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law. The insurance may be
terminated permanently, if the institution has no tangible capital. If deposit
insurance is terminated, the accounts at the institution at the time of the
termination, less subsequent withdrawals, will continue to be insured for a
period of six months to two years, as determined by the FDIC.

CAPITAL ADEQUACY REQUIREMENTS. The FRB and the FDIC (collectively, the
"Agencies") have adopted risk-based capital guidelines for banks and bank
holding companies that are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding companies
and account for off-balance sheet items. The guidelines are minimums, and the
federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios in excess of the
minimums. Failure to achieve and maintain adequate capital levels may give rise
to supervisory action through the issuance of a capital directive to ensure the
maintenance of required capital levels.

The current guidelines require all federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8 percent, of which at least 4
percent must be Tier 1 capital. Tier 1 capital includes common shareowners'
equity, qualifying perpetual preferred stock, and minority interest in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles and the allowance for losses on loans. Total capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term preferred stock, and the allowance for losses on loans up to
1.25 percent of risk-weighted assets. The Bank has not received notice
indicating that it will be subject to higher capital requirements.

Under these guidelines, banks' assets are given risk-weights of 0 percent, 20
percent, 50 percent or 100 percent. In addition, certain off-balance sheet items
are given credit conversion factors to convert them to asset equivalent amounts
to which an appropriate risk-weight will apply. These computations result in the
total risk-weighted assets. Most loans are assigned to the 100 percent risk
category, except for first



                                       -6-

<PAGE>   9

mortgage loans fully secured by residential property and, under certain
circumstances, residential construction loans (both carry a 50 percent rating).
Most investment securities are assigned to the 20 percent category, except for
municipal or state revenue bonds (which have a 50 percent rating) and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government Agencies (which have a 0 and 20 percent rating, respectively).

The Agencies have also implemented a leverage ratio, which is equal to Tier 1
capital as a percentage of average total assets less intangibles, to be used as
a supplement to the risk-based guidelines. The principal objective of the
leverage ratio is to limit the maximum degree to which a bank may leverage its
equity capital base. The minimum required leverage ratio for top-rated
institutions is 3 percent, but most institutions are required to maintain an
additional cushion of at least 100 to 200 basis points. Any institution
operating at or near the 3 percent level is expected to have well-diversified
risk, including no undue interest rate risk exposure, excellent asset quality,
high liquidity and good earnings, and in general, to be a strong banking
organization without any supervisory, financial or operational weaknesses or
deficiencies. Any institutions experiencing or anticipating significant growth
would be expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.

PROMPT CORRECTIVE ACTION. Regulations adopted by the Agencies as required by
FDICIA impose even more stringent capital requirements. The regulators require
the FDIC and other Federal Banking Agencies to take certain "prompt corrective
action" when a bank fails to meet certain capital requirements. The regulations
establish and define five capital levels: (1) "well-capitalized," (2)
"adequately capitalized," (3) "undercapitalized," (4) significantly
undercapitalized" and (5) "critically under capitalized." To qualify as "well
capitalized", an institution must maintain at least 10 percent total risk-based
capital, 6 percent Tier 1 risk-based capital, and a leverage ratio of no less
than 5 percent. Increasingly severe restrictions are imposed on the payment of
dividends and management fees, asset growth and other aspects of the operations
of institutions that fall below the category of being "adequately capitalized"
(which requires at least 8 percent total risk-based capital, 4 percent Tier 1
risk-based capital, and a leverage ratio of at least 4 percent).
Undercapitalized institutions are required to develop and implement capital
plans acceptable to the appropriate federal regulatory agency. Such plans must
require that any company that controls the undercapitalzed institution must
provide certain guarantees that the institution will comply with the plan until
it is adequately capitalized. As of December 31, 1997, the Bank was well
capitalized and maintained a leverage ratio of 10.65 percent, a risk-based Tier
1 capital ratio of 13.09 percent, and a risk-based total capital ratio of 14.35
percent.

In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners will consider exposure to declines in the economic value of
the bank's capital due to changes in interest rates. A bank may be required to
hold additional capital for interest rate risk if it has a significant exposure
or a weak interest rate risk management process.



                                       -7-
<PAGE>   10

RESTRICTIONS ON CAPITAL DISTRIBUTIONS. Dividends paid to FFC by the Bank are a
material source of FFC's cash flow. Various federal and state statutory
provisions limit the amount of dividends the Bank is permitted to pay to FFC
without regulatory approval.

FRB policy further limits the circumstances under which bank holding companies
may declare dividends. For example, a bank holding company should not continue
its existing rate of cash dividends on its common stock unless its net income is
sufficient to fully fund each dividend and its prospective rate of earnings
retention appears consistent with its capital needs, asset quality, and overall
financial condition.

If, in the opinion of the applicable federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which depending on the financial condition of the
institution, could include the payment of dividends), the agency may require,
after notice and hearing, that such institution cease and desist from such
practice. In addition, the FRB and the FDIC have issued policy statements which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.

According to Washington law, the Bank may not declare or pay a cash dividend in
an amount greater than its retained earnings, without the approval of the
Director of the Division.

INTERSTATE BANKING AND BRANCHING. The Riegle-Neal Interstate Banking and
branching Efficiency Act of 1994 ("Interstate Act") generally permits nationwide
interstate banking and branching by relaxing federal law restrictions on
interstate banking and providing general authorization for interstate branching.
Subject to certain state laws, such as age and contingency laws, the Interstate
Act allows adequately capitalized and adequately managed bank holding companies
to purchase the assets of out-of-state banks. Additionally, since June 1, 1997,
the Interstate Act permits interstate bank mergers, subject to these state laws,
unless the home state of either merging bank has "opted-out" of these provisions
by enacting "opt-out" legislation. The Interstate Act does allow states to
impose certain conditions on interstate bank mergers within their borders; for
example, states may require that the in-state merging bank exist for up to five
years before the interstate merger. Under the Interstate Act, states may also
"opt-in" to de novo branching, allowing out-of-state banks to establish de novo
branches within the state.

In 1996, Washington enacted "opting-in" legislation authorizing interstate
mergers pursuant to the Interstate Act. Accordingly, as of June 6, 1996, an
out-of-state bank holding company may now acquire more than 5 percent of the
voting shares of a Washington-based bank, regardless of reciprocity, provided
such bank or its predecessor has been doing business for at least five years
prior to the acquisition. Further, an out-of-state bank may engage in banking in
Washington if the requirement of Washington's interstate banking statute are
met, and either (1) was lawfully engaged in banking in Washington on June 6,
1996, (2) resulted from an interstate combination pursuant to Washington law,
(3) resulted from a relocation of a head office of a state bank or a main office
of a national bank pursuant to federal law, or (4)



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<PAGE>   11

resulted from the establishment of a savings bank branch in compliance with
applicable Washington law. Additionally, the Director of the Division may
approve interstate combinations if the basis for such approval does not
discriminate against out-of-state banks, out-of-state holding companies, or
their subsidiaries.

REGULATORY IMPROVEMENT. In 1994, Congress enacted the Community Development and
Regulatory Improvement Act ("Regulatory Improvement Act"), with the intent of,
among other things, reducing the regulatory burden on financial institutions.
This Act is intended to streamline certain regulatory procedures and relax
certain regulatory compliance requirements. In addition, the Regulatory
Improvement Act specifically directs each federal banking agency to review and
streamline its regulations and written supervisory policies.

Effect of Governmental Policies

The Bank is affected not only by general economic conditions, but also by the
monetary and fiscal policies of the United States Government and various
agencies, particularly the Federal Reserve System. In its role of implementing
its monetary policy, the Federal Reserve Board has the power to regulate the
national supply of bank credit through such methods as open market operations in
the United States Government securities markets, control of the discount rate on
member bank borrowings, and establishment of reserve requirements against bank
deposits. These means are used in varying combinations and have an influence
over the growth of bank loans, investments, and deposits. They may also affect
interest rates charged on loans or paid on deposits. The nature and timing of
future changes in monetary policies and their impact on the Bank are not
predictable. As a consequence of extensive regulation of commercial banking
activities in the United States, the Bank's business is particularly susceptible
to being affected by Federal legislation and regulations which may have the
effect of increasing the cost of doing business or limiting permissible
activities.

FFP, Inc.

On April 4, 1988, the Corporation formed a new subsidiary corporation called
FFP, Inc. The purpose of this corporation is to purchase and lease real property
to the Bank. The reason for this approach was to preclude placing nonearning
assets on the books of the Bank or the Corporation. As of December 31, 1997, all
banking offices have been moved into FFP, except those offices which are leased.
For further details, please see page 20 of this Form 10-K Report, "Properties."
It is intended that future purchases of real property will be made by FFP, Inc.
At this time, it is not anticipated that FFP, Inc. will engage in any other type
of business.



                                       -9-

<PAGE>   12

Washington Banking Company ("WBC")

In April 1996, the Corporation purchased 4.99% of the common stock of Whidbey
Island Bank, located approximately 15 miles west of Everett. Shortly thereafter,
the bank converted to the holding company structure and is now called Washington
Banking Company. Subsequent to the initial investment, the Corporation made
application to the Board of Governors of the Federal Reserve System to purchase
up to 10.0% ownership in the company. Approval was received, and the Corporation
has since purchased an additional .5% ownership, to total 5.4%. The Corporation
intends to purchase more of the stock in WBC if it becomes available.



                                      -10-

<PAGE>   13

                          STATISTICAL DISCLOSURE INDEX

The schedules listed below set forth the statistical information relating to
Frontier Financial Corporation and subsidiaries (unless otherwise stated) in
accordance with Guide 3. This information should be read in conjunction with the
consolidated financial statements.


<TABLE>
<CAPTION>                                                                                 Annual   
         I.Distribution of Assets, Liabilities                           Form 10-K        Report
           and Stockholders' Equity; Interest                               Page           Page
           Rates and Interest Differential:                              ---------        ------
<S>                                                                          <C>            <C>
                       A.  Consolidated Average Balance
                           Sheets/Interest Income and
                           Expense/Rates                                                    38
                       
                       B.  Changes in Net Interest Income
                           and Expense due to Rate and Volume                               39
                 

        II.Investment Portfolio:

                       A.  Analysis of Investment Securities
                           at Year-end                                       12             10
                       
                       B.  Maturity Distribution of Investment
                           Securities                                        12             11

       III.Loan Portfolio:

                       A.  Types of Loans                                    13             11
                       
                       B.  Loan Maturities and Sensitivity to
                           Changes in Interest Rates                         13             12
                       
                       C.  Risk Elements                                     14
                       
                       D.  Credit Concentrations                             19

        IV.Summary of Loan Loss Experience:

                       A.  Analysis                                          17
                       
                       B.  Allocation of Allowance for Possible
                           Loan Losses                                       18

         V.Deposits:

           Average Interest and Noninterest
           Bearing Deposit Balances                                                         38

        VI.Return on Equity and Assets:

           Selected Financial Ratios                                         21

       VII.Short-term Borrowings                                             20
</TABLE>



                                      -11-

<PAGE>   14

Analysis of Investment Securities

The Aggregate amortized recorded values of investment securities at December 31
are as follows:

<TABLE>
<CAPTION>
                                                                           1997             1996             1995
(In thousands)                                                          Amortized        Amortized        Amortized
                                                                           Cost             Cost             Cost
                                                                        --------------------------------------------
<S>                                                                     <C>              <C>              <C>       
U.S. Treasuries                                                         $      754       $      758       $    2,759
U.S. Agencies                                                               43,490           45,824           48,591
Municipal Bonds                                                             28,531           29,727           30,046
Corporate Bonds                                                             28,151           40,578           51,567
Equities                                                                     9,927            9,270            7,542
Certificates of Deposit                                                      3,550            4,775            3,050
                                                                        --------------------------------------------
                                                           Totals       $  114,403       $  130,932       $  143,555
                                                                        ============================================
</TABLE>

Maturity Distribution of Investment Securities

The following table sets forth the maturities of investment securities at
December 31, 1997. Taxable equivalent values are used in calculating yields
assuming a tax rate of 35%.

<TABLE>
<CAPTION>
(In thousands)                                     After 1 Yr          After 5 Yrs                                 Totals &
(Amortized cost used)           Within             But Within           But Within              After              Weighted
                                1 Year/             5 Years/             10 Years/            10 Years/             Average
                                 Yield                Yield                Yield                Yield                Yield
                              ------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                  <C>                  <C>                  <C>         
U.S. Treasury                 $        501         $          0         $          0         $        253         $        754
                                      7.71%                0.00%                0.00%                7.16%                7.53%

U.S. Agencies                        9,397                3,026               30,863                  204               43,490
                                      5.26%                7.20%                7.01%                8.86%                6.65%

Municipal Bonds                        195                1,940               24,439                1,957               28,531
                                      9.87%               10.19%                8.51%                8.96%                8.66%

Corporate Bonds                      1,417               10,364               16,370                    0               28,151
                                      7.81%                7.54%                6.65%                0.00%                7.04%

Equities                             9,927                    0                    0                    0                9,927
                                      7.13%                0.00%                0.00%                0.00%                7.13%

Certificates of                      3,550                    0                    0                    0                3,550
                                      5.54%                0.00%                0.00%                0.00%                5.54%
                              ------------------------------------------------------------------------------------------------
TOTALS                        $     24,987         $     15,330         $     71,672         $      2,414         $    114,403
                              ================================================================================================
                                      6.27%                7.81%                7.44%                8.76%                7.26%
                              ================================================================================================
</TABLE>



                                      -12-

<PAGE>   15

Types of Loans

Major classifications of loans, net of deferred loan fees, at December 31 are as
follows:

<TABLE>
<CAPTION>
(In thousands)                                  1997            1996            1995            1994            1993
                                              --------        -------         --------        --------        --------
<S>                                           <C>             <C>             <C>             <C>             <C>     
Commercial                                    $123,569        $117,258        $126,914        $121,218        $118,871
Real Estate Commercial                         270,899         230,341         171,590         151,829          89,430
Real Estate Construction                       144,978         131,148          94,393          99,278          71,355
Real Estate Mortgage                           101,436          98,580          92,342          79,264          70,600
Installment                                     24,448          23,067          19,749          18,923          19,350
                                              ------------------------------------------------------------------------
                                 TOTAL        $665,330        $600,394        $504,988        $470,512        $369,606
                                              ========================================================================
</TABLE>

Loan Maturities and Sensitivity to Changes in Interest Rates

The following table shows the amounts and maturity analysis of loans outstanding
as of December 31, 1997. Also, the amounts are classified as to fixed and
variable rate sensitivity for amounts due after one year.

<TABLE>
<CAPTION>
                                                                              Maturity
                                              ------------------------------------------------------------------------
(In thousands)                                   Within              1 - 5               After
                                                 1 Year              Years              5 Years              Total
                                              ------------------------------------------------------------------------
<S>                                           <C>                 <C>                 <C>                 <C>         
Commercial                                    $     62,890        $     53,815        $      6,864        $    123,569
Real Estate Commercial                              54,289             210,095               6,515             270,899
Real Estate Construction                            97,938              42,266               4,774             144,978
Real Estate Mortgage                                32,013              65,028               4,395             101,436
Installment                                          6,349              10,560               7,539              24,448
                                              ------------------------------------------------------------------------
                                 TOTAL        $    253,479        $    381,764        $     30,087        $    665,330
                                              ========================================================================
</TABLE>

Loans maturing after one year with:
<TABLE>
<CAPTION>
                                                            1 - 5            After
                                                            Years           5 Years
                                                        ----------------------------
<S>                                                     <C>               <C>       
        Fixed Rates                                     $  323,498        $   13,073
        Variable Rates                                      58,266            17,014
                                                        ----------------------------
                                           TOTAL        $  381,764        $   30,087
                                                        ============================
</TABLE>


It is not uncommon to rollover loans at the maturity period, provided that the
rate and terms of the loan conform to the current policy.



                                      -13-

<PAGE>   16

Loan Administration

The Bank provides revolving lines of credit to many of its borrowers. Such lines
are approved by the Director's Loan Committee ("Loan Committee") or other
administrative level committee or person if the amount exceeds the lending units
authorized loan limit.

Credit Review personnel, under the direction of the Credit Administrator,
examine the loan portfolio regularly. Reports are made by the Senior Vice
President/Credit Administrator to senior management and the Loan Committee, and
follow-up corrective action is monitored. Problem loan reports are prepared for
management review on a regular basis.

Certain problem loans are placed on a nonaccrual basis in conformance with
defined policy. The Loan Committee and other administrative personnel regularly
review information reports on classified and delinquent loans. Comparative
summaries of delinquent loans are also provided on a regular basis to senior
management and to the Board of Directors.

Management closely monitors the adequacy of the loan loss reserve and an
analysis is performed four times a year. The allowance is maintained at a level
deemed sufficient to meet potential losses.

The reviews, examinations and actions described above are in addition to the
periodic examinations by federal and state regulatory agencies, as well as the
Bank's internal audit department and the Bank's outside public accounting firm.

Risk Elements - Impaired Assets

Loans are placed in a nonaccrual status when, in the opinion of management, the
collection of additional interest is doubtful, or when the loan becomes ninety
(90) days past due in principal or interest. When a loan is placed in a
nonaccrual status, all interest previously accrued but not collected is reversed
and charged against interest income. Income on nonaccrual loans is then
recognized only to the extent cash is received and where the future collection
of principal is probable. Accruals are resumed only when the loan is brought
current, or when, in the opinion of management, the borrower has demonstrated
the ability to resume payments of principal and interest on a regular basis. As
a consequence, some of these loans are current in their payments at this time.

The dollar amount of loans placed in nonaccrual, past due 90 days or more,
restructured loans and other real estate owned as a percentage of total loans
was .67%, .62%, and .90% for year-end 1997, 1996 and 1995, respectively. These
loans have a variety of situations, some of which may lead to foreclosure or
involve a bankruptcy case. Others may continue payment as the borrower's
financial situation improves. A very small amount represents federally insured
loans. The rise at year-end 1995 occurred primarily as a result of two borrowers
which, together, constituted $4.0 million, or 91% of total nonaccruing loans.
Although these loans were adequately secured by real estate, it was nonetheless
felt prudent to place them in nonaccrual. At year-end 1996, two borrowers
comprise 72% of the totals, the majority of which is real estate secured. At
year-end 1997, the total represented 21 different loans, 8 out of those 21 were
real estate in nature. However, there does not appear to be any trend
developing.



                                      -14-

<PAGE>   17

Management monitors these loans on a frequent basis and conducts aggressive
collection efforts, unless constraints are placed on the Bank by the bankruptcy
courts. These efforts are directed toward the best long-term results for the
Bank, and to the extent reasonable, to the borrower as well. If, in the opinion
of management, it is felt, or if it can be determined, that full collection of
these loans or their payment streams will not occur, then they are charged off
against the loan loss reserve.

Loans past due 90 days or more, nonaccruing, restructured and other real estate
owned (OREO) on which the accrual of interest has been discontinued as of
December 31st are as follows:

<TABLE>
<CAPTION>
(In thousands)
                                    1997             1996             1995             1994             1993
                                  --------         --------         --------         --------         --------
<S>                               <C>              <C>              <C>              <C>              <C>     
Commercial                        $    254         $    478         $    175         $    866         $    893
Real Estate                          4,087            3,144            4,228            1,736              721
Installment                             14                4               14               59               26
Restructured                           109              121              122              126              131
                                  ----------------------------------------------------------------------------
Total Non-Performing Loans           4,464            3,747            4,539            2,787            1,771
                                  ----------------------------------------------------------------------------
Other real estate owned              1,000              444              590            1,118              683
                                  ----------------------------------------------------------------------------
Total Impaired Assets             $  5,464         $  4,191         $  5,129         $  3,905         $  2,454
                                  ============================================================================
Total Loans at end
    of period                     $665,330         $600,394         $504,988         $470,512         $369,606
                                  ============================================================================
As a percent of
    total loans                       0.67%            0.62%            0.90%            0.59%            0.48%
                                  ============================================================================
</TABLE>

There are certain amounts of interest collected on the above loans and included
in income, and amounts that have not been accrued which are indicated in the
table below:

<TABLE>
<CAPTION>
(In thousands)
At December 31,                        1997            1996            1995            1994            1993
                                     --------        --------        --------        --------        --------
<S>                                  <C>             <C>             <C>             <C>             <C>     
Total interest income which
would have been recorded
during the period under
original terms of loans above        $    237        $    289        $    501        $    261        $    203

Portion of interest
income included in
net income for the
period                                    384        $    264        $    378        $    207        $     98

Commitments for additional
funds related to loans
above                                     -0-             -0-             -0-             -0-             -0-
</TABLE>



                                      -15-

<PAGE>   18

Restructured loans are those loans that had problems in the past, and a
concession was made in the interest rate, principal amount, and/or the repayment
schedule has been modified to the extent that there has been tangible impairment
of value. These loans are monitored on a regular basis for performance.

The Bank originates commercial, commercial real estate, residential mortgage and
installment loans primarily in Snohomish, north King and Skagit Counties. Loan
growth in 1997 and 1996 was much stronger than in 1995. Total loans as of
December 31, 1997, 1996 and 1995 were $665.3, $600.4 and $505.0 million,
respectively.

The area's economy is diversified with trade, high-tech, military and service
industries. Military personnel assigned to the new Everett Naval facility began
arriving in the later part of 1995, and it is expected that continuing increases
in personnel will serve to further diversify and stabilize the local economy.
While management estimates that the loan portfolio is reasonably diversified,
the quality of the portfolio is significantly related to the strength and
stability of real estate values which are controlled by the local economy.

The Boeing Company continues to be one of the major employers in Snohomish
County. It would appear that concerns over the past (1994-1995) downsizing at
Boeing were somewhat mitigated by the increased diversification of the local
economy. Boeing is now showing significant net employment growth. However,
concern still persists regarding the employment stability of Boeing, and,
accordingly, management will continue to exercise caution in the execution of
the Bank's lending activities.

A concern on the national level is the continued negotiations on balancing the
federal budget and policies going forward. Changes in the monetary and fiscal
policies, as well as military base locations, may have adverse effects on the
credit and equity markets, which could affect consumer and business confidence
locally.

Other Real Estate Owned

As of December 31, 1997, the Bank had three parcels of other real estate owned
(OREO) on its books, which totaled $1.0 million. One residential parcel is soon
to be under an earnest money agreement to sell. The remaining two parcels are
commercial land. No losses are expected on sales of OREO which are recorded at
the lower of cost or fair value, less estimated costs to sell. The current
levels are felt to be nominal, and no particular trends are noted at this time.

The table below shows the carrying value of OREO at December 31st:

<TABLE>
<CAPTION>
(In thousands)                   1997            1996            1995            1994            1993
                               --------        --------        --------        --------        --------
<S>                            <C>             <C>             <C>             <C>             <C>     
Other Real Estate Owned        $  1,000        $    444        $    590        $  1,118        $    683
</TABLE>



                                      -16-

<PAGE>   19

Summary of Loan Loss Experience

The following table provides an analysis of net losses by loan type for the last
five years at December 31st:

<TABLE>
<CAPTION>
(In thousands)                      1997              1996               1995               1994                1993
                                 ---------          ---------          ---------          ---------          ---------
<S>                              <C>                <C>                <C>                <C>                <C>      
Balance at beginning
of year                          $  13,268          $  11,897          $  10,410          $   7,368          $   5,906

Provision charged to
operating expense                    1,850              1,980              1,525              3,900              3,012

Deduct:
  Loans charged-off:

            Commercial                (338)              (526)            (1,250)            (1,111)            (1,886)
            Real Estate             (1,324)            (1,333)              (875)              (879)              (290)
            Installment                (77)               (84)               (87)              (100)               (93)
                                 -----------------------------------   -----------------------------------------------
  Total charged-off loans           (1,739)            (1,943)            (2,212)            (2,090)            (2,269)

  Less recoveries:
            Commercial                 283                752              1,245                613                500
            Real Estate              1,161                535                901                557                151
            Installment                 22                 47                 28                 62                 68
                                 -----------------------------------   -----------------------------------------------
  Total recoveries                   1,466              1,334              2,174              1,232                719

Net charge-offs                       (273)              (609)               (38)              (858)            (1,550)


Balance at end of year           $  14,845          $  13,268          $  11,897          $  10,410          $   7,368
                                 =====================================================================================
Net total loans at
end of period                    $ 665,330          $ 600,394          $ 504,988          $ 470,512          $ 369,606

Daily average loans              $ 640,415          $ 555,105          $ 485,430          $ 426,344          $ 338,029

Ratio of net charged-off
loans during period to
average loans outstanding             0.04%              0.11%              0.01%              0.20%              0.46%
                                 =====================================================================================
</TABLE>



                                      -17-

<PAGE>   20

It is the policy of Frontier Financial Corporation and its subsidiary to
charge-off any loan or portion of a loan that is deemed uncollectible in the
ordinary course of business. The entire allowance for possible loan losses is
available to absorb such charge-offs.

In the opinion of management, if a loan represents a long-term liquidation
project, particularly when the liquidation is under the control of the
bankruptcy courts, a decision may be made to write off the asset. Many
charge-offs will ultimately have recoveries in full or a significant part, and
some are currently under repayment programs.

For fiscal year-end 1997, net loan losses were $273 thousand, or .04% of average
loans outstanding. This amount represents less than half the 1996 net
charge-offs of $609 thousand.

As indicated by the previous chart, the Bank has recovered a significant portion
of its charged-off loans for fiscal years 1996 and 1995. The chart also
indicates that the Bank's net charge-offs for fiscal year 1993 were
substantially higher. The higher level, at that time, was primarily attributed
to loans acquired through merger.

Charged-off loans that continue to be actively pursued for collection as of
fiscal year-end 1997, total over $3 million. While additional recoveries are
expected, the amounts and timing cannot be determined with certainty.

Based on certain characteristics of the portfolio, potential losses can be
anticipated for major loan categories. In the following table, the allowance for
possible loan losses at year-end, for the last five years, has been allocated
among major loan categories based primarily on their historical net charge-off
experience, along with consideration of factors such as quality, volume,
anticipated economic conditions, and other business considerations.

<TABLE>
<CAPTION>
(In thousands, except percents)
                             Loan                   Loan                  Loan                 Loan                  Loan
                   1997    Category     1996      Category     1995     Category     1994    Category     1993     Category
                 Reserve    Percent    Reserve     Percent    Reserve    Percent    Reserve   Percent    Reserve    Percent
                --------   --------   ---------   --------   --------   --------   --------  --------   --------   --------
<S>             <C>          <C>       <C>        <C>        <C>           <C>     <C>       <C>        <C>           <C>
Commercial       $8,010      18.6%      $ 7,960     19.5%     $ 7,138      25.1%    $ 6,246    25.8%     $ 4,781      32.2%
Real Estate       6,485      77.8%        4,953     76.7%       4,283      71.0%      3,748    70.2%       2,425      62.6%
Installment         350       3.6%          355      3.8%         476       3.9%        416     4.0%         162       5.2%
                -----------------------------------------------------------------------------------------------------------
   TOTAL        $14,845     100.0%      $13,268    100.0%     $11,897     100.0%    $10,410   100.0%     $ 7,368     100.0%
                ===========================================================================================================
</TABLE>

Historical net charge-offs are not necessarily accurate indicators of future
losses since net charge-offs vary from period to period due to economic
conditions and other factors that cannot be accurately predicted. Thus, an
evaluation based on historical loss experience of individual loan categories is
only one of many factors considered by management in evaluating the adequacy of
the overall allocation, and in determining the amount of the provision for
possible loan losses. Other factors are the continuing level of nonperforming
loans, credit concentrations, and uncertain economic conditions. At December 31,
1997, based on current economic conditions, the total of the allocation for
possible loan losses is, in management's opinion, adequate to provide for future
losses. However, a worsening of the economy in the Bank's market area could
negatively affect loan performance and underlying collateral values. The full
impact of such a trend on the condition of the Bank cannot be estimated.



                                      -18-

<PAGE>   21

Credit Concentrations

At year-end 1997, 17.7% of the Bank's loan portfolio was in residential and
commercial construction and land development projects centered in Snohomish,
King and Skagit Counties. Management has established a Real Estate Review
Committee which meets periodically to monitor local economic conditions, and the
performance of borrowers in this industry. The chart below indicates the amount
of those loans, and as a percent of total loans for the period:

<TABLE>
<CAPTION>
At December 31,
(In thousands)                             1997               1996               1995               1994               1993
                                        ----------         ----------         ----------         ----------         ----------
<S>                                     <C>                <C>                <C>                <C>                <C>       
Construction                            $   74,759         $   66,065         $   50,675         $   55,551         $   38,324
Land Development                            43,015             52,186             33,946             38,582             28,835
                                        --------------------------------------------------------------------------------------
                           TOTAL        $  117,774         $  118,251         $   84,621         $   94,133         $   67,159
                                        ======================================================================================
Total Loans at end of period            $  665,330         $  600,394         $  504,988         $  470,512         $  369,606
                                        ======================================================================================

Construction and Land
Development loans as a
percent of total loans                        17.7%              19.7%              16.8%              20.0%              18.2%
                                        ======================================================================================
</TABLE>

Deposits

For the average amount of deposits and rates paid on such deposits for years
ended December 31, 1997, 1996, and 1995 please refer to page 38 of 1997 Annual
Report to Shareowners.

Maturities of time certificates of deposit $100,000 and over at year end 1997,
are shown below:

<TABLE>
<CAPTION>
(In thousands)

<S>                                                                   <C>       
3 months or less                                                      $   28,362
Over 3 months through 6 months                                            25,897
6 months through 12 months                                                34,266
Over 12 months                                                            20,907
                                                                      ----------
                                           TOTAL                      $  109,432
                                                                      ==========
</TABLE>

Significant Financial Ratios

Ratios for the years ended December 31, 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                             1997             1996             1995
                                           --------         --------         --------
<S>                                            <C>              <C>              <C>  
Return on Average Assets                       2.02%            1.94%            1.82%
Return on Average Equity                      18.84%           20.01%           21.59%
Cash dividends paid/dividend payout             -0-              -0-              -0-
Average Equity to Average Assets              10.71%            9.70%            8.45%
</TABLE>



                                      -19-

<PAGE>   22

<TABLE>
<CAPTION>
Borrowings

Short-Term Borrowings                Weighted                      Weighted                     Weighted
(In thousands)                        Average                      Average                      Average
                                     Interest                      Interest                     Interest
At December 31,           1997         Rate             1996         Rate             1995        Rate
                       ----------------------------------------   ----------       -----------------------
<S>                    <C>                <C>        <C>                <C>        <C>                <C>  
Year-end balance:      $   17,962         5.00%      $   12,011         4.89%      $    7,596         5.51%

Highest month end
balance during
the period:            $   22,245                    $   12,390                    $   12,400
</TABLE>

For information regarding average balances and yields, please refer to page 38
of 1997 Annual Report to Shareowners.

Long-Term Debt

For detailed information relating to long-term debt, please refer to Note 9,
page 15, of 1997 Annual Report to Shareowners.

ITEM 2 - PROPERTIES

FFC's main office, which is owned by FFP, is located in Everett, Washington. At
December 31, 1997, the Bank had 19 offices, including the main office, all of
which are located in the state of Washington. These offices are located in
Arlington, Bothell, Burlington, Edmonds, Everett (4), Lake City (North Seattle),
Lake Stevens, Lynnwood, Marysville, Mill Creek, Monroe, Redmond, Smokey Point,
Snohomish, Stanwood and Woodinville. All of its branches are located in
properties owned by FFP, Inc., a real estate holding subsidiary, except for the
offices located in Burlington (lease expires May 1999), Edmonds, (lease expires
July 31, 2004), one office in Everett (lease expires October 2014), Lake Stevens
(lease expires May 2001), Mill Creek (lease expires November 2000), and
Woodinville (lease expires March 1998). The Bank has acqired property in
Woodinville, and anticipates moving its Woodinville office to that site in the
fall of 1998. The total net book value of the investment in premises and
equipment at December 31, 1997, totaled $13.8 million.



                                      -20-

<PAGE>   23

ITEM 3 - LEGAL PROCEEDINGS

            There are no material legal proceedings.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            No matters were submitted to security holders during the fourth
            quarter of 1997.

                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
         STOCKOWNER MATTERS

         Please see 1997 Annual Report to Shareholders, page 36.

ITEM 6 - SELECTED FINANCIAL DATA
(In thousands, except per share data)

                              FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                                                                           % Change
AT YEAR-END                               1997             1996             1995              1994              1993       1996-1997
                                       ------------------------------------------------------------------------------------------
<S>                                    <C>              <C>              <C>               <C>               <C>           <C>
Total assets                           $ 882,880        $ 803,619        $ 735,183        $ 642,568        $ 558,043         9.9%
Net loans                                650,485          587,126          493,091          460,102          362,238        10.8%
Deposits                                 730,931          670,516          641,218          539,603          506,538         9.0%
Long-term debt                                56              100              136              565              737       -44.0%
Investment securities                    115,100          131,130          144,976          136,326          151,509       -12.2%
Shareowners' equity                       97,839           80,317           65,353           50,459           41,167        21.8%
FOR THE YEAR
Interest income                           76,311           68,000           63,086           52,945           44,324        12.2%
Interest expense                          32,160           30,100           29,347           20,639           17,782         6.8%
Securities gains(losses)                       0                0               (4)            (355)               0          nm 
Provision for loan losses                  1,850            1,980            1,525            3,900            3,012        -6.6%
Net income                                16,902           14,617           12,615           10,360            7,746        15.6%
Basic earnings per share               $    2.31        $    2.01        $    1.75        $    1.44        $    1.08        15.0%
Fully diluted earnings per share       $    2.28        $    1.99        $    1.72        $    1.41        $    1.05        15.2%
Return on Average
  Assets                                    2.02%            1.94%            1.82%            1.69%            1.50%
  Equity                                   18.84%           20.01%           21.59%           22.21%           20.59%
Avg. equity/avg. assets                    10.71%            9.70%            8.45%            7.63%            7.28%
nm=Not meaningful
</TABLE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

         Please see 1997 Annual Report to Shareholders, pages 25 through 39.



                                      -21-

<PAGE>   24

ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

          Please see 1997 Annual Report to Shareowners, page 34 and 35.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                         Annual
                                                                            Form       Report to
                                                                            10-K      Shareholders
                                                                            Page          Page
                                                                            -----------------------
<S>                                                                          <C>          <C>
Independent Auditors Report                                                  26

Report of Management                                                                       1

Consolidated Balance Sheet at
December 31, 1997 and 1996                                                                 3

Consolidated Statement of Income for the Years
Ended December 31, 1997, 1996 and 1995                                                     4

Consolidated Statement of Changes in
Shareowners' Equity                                                                        5

Consolidated Statement of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995                                               6

Condensed Balance Sheet (Parent Only) at
December 31, 1997 and 1996                                                                 23

Condensed Statement of Income (Parent Only) for the
Years Ended December 31, 1997, 1996 and 1995                                               23

Condensed Statement of Cash Flows (Parent Only)
for Years Ended December 31, 1997, 1996 and 1995                                           24

Notes to Consolidated Financial Statements                                               7-24
</TABLE>

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

                 None.



                                      -22-
<PAGE>   25

                                    PART III


ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF FRONTIER FINANCIAL
            CORPORATION

            Please see pages 2,3 and 9 of 1998 Proxy Statement.


ITEM 11 - EXECUTIVE COMPENSATION

            Please see pages 9 and 10 of 1998 Proxy Statement.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

            Please see page 8 of 1998 Proxy Statement.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Please see page 11 of 1998 Proxy Statement; and, 
          Note 14, page 20 of 1997 Annual Report to Shareowners; and, 
          Page 25 of this Form 10-K report.



                                      -23-

<PAGE>   26

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a)     The following documents are filed as part of the report:

          1.Financial Statements.

            Financial statements required by Item 8 of this report are
            incorporated by reference, from the 1997 Annual Report to
            Shareowners, attached hereto as an exhibit.

          2.Financial Statement Schedules.

            Additional financial statement schedules filed with this report are
            included in Item 14(d) and are as follows:

                      Schedule I - Amounts Receivable from Certain Persons

                      Schedules other than those listed above are omitted
                      because of the absence of the condition under which they
                      are required or because the information called for is
                      included in the financial statements or notes thereto.

          3. Exhibits.

               (3)    Articles of Incorporation and By-Laws are incorporated
                      herein by reference to Exhibits 3(a) and 3(b) to
                      Registration on Form S-14, File No. 2-82420.

              (11)    Statement Regarding Computation of Earnings Per Share.

              (13)    Annual Report to Shareowners for the year ended December
                      31, 1997. (Pages 1 to 39, inclusive)

              (21)    Subsidiaries of Registrant is incorporated by reference
                      from Part I, page 1 thru 9 of this report.

            (27.1)    Financial Data Schedule / Jan 1, 1997 - Dec 31, 1997
                      (This exhibit is included only in the electronic EDGAR
                      filing version of this Form 10-K. The Financial Data 
                      Schedule is not a separate financial statement, but a 
                      schedule that summarizes certain standard financial
                      information extracted directly from the financial
                      statements in this filing.)

            (27.2)    Financial Data Schedule / Restated and Amended Jan 1, 1995
                      - Dec 31, 1996 (This exhibit is included only in the
                      electronic EDGAR filing version of this Form 10-K. The
                      Financial Data Schedule is not a separate financial
                      statement, but a schedule that summarizes certain 
                      standard financial information extracted directly 
                      from the financial statements for the period referred to.)

            (27.3)    Financial Data Schedule / Restated and Amended Jan 1, 1997
                      - Dec 31,1997 (This exhibit is included only in the 
                      electronic EDGAR filing version of this Form 10-K. The 
                      Financial Data Schedule is not a separate financial 
                      statement, but a schedule that summarizes certain 
                      standard financial information extracted directly 
                      from the financial statements for the period referred to.)

    (b)     Reports on Form 8-K:

            No Form 8-K's were filed, nor required to be filed for any event
            during the fourth quarter ended December 31, 1997.

    (c)     Exhibits - See list of exhibits set forth above at Item 14 (a)3.

    (d)     Financial Statement Schedules:

            Schedules required to be filed in response to this portion of Item
            14 are listed above in Item 14 (a)1 and 2. The independent auditors'
            report covering these items is included on page 26 of this 
            Form 10-K.



                                      -24-

<PAGE>   27

                                                                      SCHEDULE I
                 FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
                     AMOUNTS RECEIVABLE FROM CERTAIN PERSONS

<TABLE>
<CAPTION>
(In thousands)
                                                                                              Balance at
Year Ended       Balance at                                      Deductions                   December 31
December 31      January 1           Additions        Collections          Write-offs         all current
------------    ------------       ------------       ------------        ------------       ------------
<S>             <C>                <C>                <C>                 <C>                <C>         
   1997

 Eleven         $      6,502       $     21,542       $     (6,140)       $          0       $     21,904
Directors
 and Two
Officers

  1996

  Nine                 8,552              3,218             (5,268)                  0              6,502
Directors
 and Two
Officers

  1995

   Ten                10,044              4,123             (5,615)                  0              8,552
Directors
 and Two
Officers

  1994

  Nine          $      5,969       $      7,695       $     (3,620)       $          0       $     10,044
Directors
 and Two
Officers
</TABLE>



                                      -25-

<PAGE>   28
                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors and Shareowners
Frontier Financial Corporation


We have audited the consolidated financial statements and related financial
statement schedule of Frontier Financial Corporation and subsidiaries listed
in item 14(a)1 and 2 of the Annual Report on Form 10-K of Frontier Financial
Corporation for the year ended December 31, 1997. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Frontier Financial
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly the information required to be
included therein.

/s/ Moss Adams LLP

Everett, Washington
January 20, 1998



                                      -26-
<PAGE>   29

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     FRONTIER FINANCIAL CORPORATION


March 18, 1998                       /s/ Robert J. Dickson
--------------                       -------------------------------------------
Date                                 Robert J. Dickson
                                     President & Chief Executive Officer

March 18, 1998                       /s/ James F. Felicetty
--------------                       -------------------------------------------
Date                                 James F. Felicetty
                                     Secretary/Treasurer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

March 18, 1998                        /s/ George E. Barber
--------------                       -------------------------------------------
                                      George E. Barber, Director

March 18, 1998                        /s/ Lucy DeYoung
--------------                       -------------------------------------------
                                      Lucy DeYoung, Director

March 18, 1998                        /s/ Robert J. Dickson
--------------                       -------------------------------------------
                                      Robert J. Dickson, Director

March 18, 1998                        /s/ David A. Dujardin
--------------                       -------------------------------------------
                                      David A. Dujardin, Director

March 18, 1998                        /s/ Edward D. Hansen
--------------                       -------------------------------------------
                                      Edward D. Hansen, Director

March 18, 1998                        /s/ William H. Lucas
--------------                       -------------------------------------------
                                      William H. Lucas, Director


--------------                       -------------------------------------------
                                      James H. Mulligan, Director

March 18, 1998                        /s/ Edward J. Novack
--------------                       -------------------------------------------
                                      Edward J. Novack, Secretary of the Board

March 18, 1998                        /s/ J. Donald Regan
--------------                       -------------------------------------------
                                      J. Donald Regan, Director

March 18, 1998                        /s/ Roger L. Rice
--------------                       -------------------------------------------
                                      Roger L. Rice, Director

March 18, 1998                        /s/ Roy A. Robinson
--------------                       -------------------------------------------
                                      Roy A. Robinson, Director

March 18, 1998                        /s/ William J. Robinson
--------------                       -------------------------------------------
                                      William J. Robinson, Chairman of the Board

March 18, 1998                        /s/ Edward C. Rubatino
--------------                       -------------------------------------------
                                      Edward C. Rubatino, Director


--------------                       -------------------------------------------
                                      Darrell J. Storkson, Director



                                      -27-