<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                    For the Quarter ended September 30, 1999
                         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 SW Everett Mall Way
                                 P. O. Box 2215
                            Everett, Washington 98203

            (Address of Principal Administrative Offices) (Zip Code)

                                 (425) 514-0719

               (Registrants Telephone Number, Including Area Code)

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

                           Common Stock (No Par Value)

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 [ ]

The issuer has one class of common stock (no par value) with 17,536,626 shares
outstanding as of September 30, 1999.



<PAGE>   2

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q


<TABLE>
<CAPTION>
PART I - Financial Information                                               Page
------------------------------                                               ----
<S>                                                                          <C>
    Item 1. Financial Statements

            Consolidated Balance Sheet - September 30, 1999,
            and Year End 1998                                                 1

            Consolidated Statement of Income - Three and Nine Months
            Ended September 30, 1999 and 1998                                 2

            Consolidated Statement of Cash Flows - Nine Months
            Ended September 30, 1999 and 1998                                3-4

            Statement of Changes in Stockholder's Equity -
            September 30, 1999                                                5

            Notes                                                            6-8

    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operation                                         9-20

    Item 3. Quantitative and Qualitative Disclosures about
            Market Risk                                                      16

PART II - Other Information
---------------------------

    Item 1. Legal Proceedings                                                21

    Item 4. Submission of Matters to a Vote of Security Holders              21

    Item 5. Other Information                                                21

    Item 6. Exhibits and Reports on Form 8-K                                 21

            Signature                                                        22

</TABLE>



                                      -i-
<PAGE>   3

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Note 1)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                        (In thousands)
                                                                             September 30,          December 31,
ASSETS                                                                           1999                  1998
------                                                                           ----                  ----
<S>                                                                          <C>                   <C>
Cash & Balances Due from Depositary Institutions                             $     51,693          $     44,233
Securities: (Note 3)
  Available for Sale-Market Value                                                 107,896               112,707
  Held to Maturity-Amortized Cost (Fair Value 12-31-98: $34,517)                   33,149                32,894
                                                                             ----------------------------------
    Total Securities                                                              141,045               145,601
Federal Funds Sold                                                                 18,000                45,712
Loans: (Note 4)
  Loans, Net of Unearned Income                                                 1,036,614               898,142
  Less:  Allowance for Loan Losses                                                (19,711)              (18,098)
                                                                             ----------------------------------
    Net Loans                                                                   1,016,903               880,044
Premises & Equipment, Net                                                          16,003                15,647
Other Real Estate Owned                                                               779                 1,287
Intangible assets                                                                   1,303                 1,396
Other Assets                                                                       16,174                13,953
                                                                             ----------------------------------
         TOTAL ASSETS                                                        $  1,261,900          $  1,147,873
                                                                             ==================================

LIABILITIES
-----------
Deposits:
  Non-Interest Bearing                                                       $    149,109          $    147,981
  Interest Bearing                                                                823,971               778,661
                                                                             ----------------------------------
    Total Deposits                                                                973,080               926,642
Federal Funds Purchased                                                            38,532                 5,524
Securities sold under repurchase agreements                                        23,037                26,334
Federal Home Loan Bank advances                                                    75,195                50,214
Long-term debt                                                                          0                     0
Other Liabilities                                                                   9,992                 9,910
                                                                             ----------------------------------
    TOTAL LIABILITIES                                                           1,119,836             1,018,624
                                                                             ----------------------------------

EQUITY CAPITAL (Note 5)
--------------
Common Stock                                                                       91,263                90,547
Accumulated other comprehensive income,
    Net of Tax effect (Note 3)                                                     (2,044)                  626
Retained Earnings                                                                  52,845                38,076
                                                                             ----------------------------------
    TOTAL CAPITAL                                                                 142,064               129,249
                                                                             ----------------------------------
 TOTAL LIABILITIES & CAPITAL                                                 $  1,261,900          $  1,147,873
 ---------------------------                                                 ==================================
Shares outstanding at the end of the period                                    17,536,626            17,394,522
                                                                             ==================================
</TABLE>

----------
The accompanying notes are an integral part of these financial statements.



                                       -1-
<PAGE>   4

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Note 1)
(Unaudited)
(In thousands, Except for Per Share Amounts)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                  ------------------                    -----------------
                                              Sept. 30,         Sept. 30,          Sept. 30,         Sept. 30,
                                                 1999             1998                1999             1998
                                                 ----             ----                ----             ----
<S>                                      <C>                <C>                <C>               <C>
INTEREST INCOME
  Interest & Fees on Loans                     24,254             21,086             68,571            60,450
  Interest on Investments                       2,314              2,724              7,493             8,238
                                         -------------------------------       ------------------------------
    Total Interest Income                      26,568             23,810             76,064            68,688
                                         -------------------------------       ------------------------------
INTEREST EXPENSE
  Interest on Deposits                          8,899              8,845             26,049            25,796
  Interest on Borrowed Funds                    1,405                828              3,741             2,172
                                         -------------------------------       ------------------------------
    Total Interest Expense                     10,304              9,673             29,790            27,968
                                         -------------------------------       ------------------------------

Net Interest Income                            16,264             14,137             46,274            40,720
                                         -------------------------------       ------------------------------
PROVISION FOR LOAN LOSSES                      (1,100)              (425)            (1,600)             (925)

NONINTEREST INCOME
  Securities Gains/(Losses)                         0                  0                  0                 0
  Service Charges on Deposit Accounts             602                486              1,716             1,462
  Other Noninterest Income                      1,421                722              2,893             2,250
                                         -------------------------------       ------------------------------
    Total Noninterest Income                    2,023              1,208              4,609             3,712

NONINTEREST EXPENSE
  Salaries & Employee Benefits                  4,307              3,715             12,090            11,406
  Occupancy Expense                               913                814              2,597             2,418
  Other Noninterest Expense                     1,793              1,749              5,506             5,257
                                         -------------------------------       ------------------------------
    Total Noninterest Expense                   7,013              6,278             20,193            19,081

INCOME BEFORE INCOME TAX                       10,174              8,642             29,090            24,426
                                         -------------------------------       ------------------------------

APPLICABLE INCOME TAX                          (3,397)            (3,108)            (9,946)           (8,474)

    NET INCOME                           $      6,777       $      5,534       $     19,144      $     15,952
                                         ===============================       ==============================

Average Number of Shares Outstanding
  for the Period                           17,524,616         17,349,920         17,524,616        17,349,920
Basic earnings per share                 $       0.39       $       0.32       $       1.09      $       0.92
                                         ===============================       ==============================
Diluted shares                             17,609,083         17,567,501         17,609,083        17,567,501
Diluted earnings per share               $       0.38       $       0.32       $       1.09      $       0.91
                                         ===============================       ==============================
Efficiency ratio                                   39%                41%
</TABLE>

----------
The accompanying notes are an integral part of these financial statements.



                                            -2-
<PAGE>   5

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS

<TABLE>
<CAPTION>
                                                           (In thousands)
                                                           --------------
                                                          NINE MONTHS ENDED
(Unaudited)                                               -----------------
CASH FLOWS FROM OPERATING ACTIVITIES            Sept. 30, 1999     Sept. 30, 1998
------------------------------------            --------------     --------------
<S>                                             <C>                <C>
Net Income                                           $  19,144          $  15,952
Adjustments to reconcile net income to net
cash provided by operating activities
    Depreciation and amortization                        1,416              1,254
    Provision for loan losses                            1,600                925
    FHLB stock dividends                                  (575)              (555)
    Deferred taxes                                        (551)              (399)
    Increase in income taxes payable                       202                621
    Decrease in interest receivable                     (1,878)            (1,308)
    Increase(Decrease) in interest payable                 139                273
    Cash dividends paid                                 (4,379)              (341)
    Loss on sale of HTM or AFS securities                    0                  0
    Loss on sale of ORE                                      0                (80)
    Loss on sale of fixed assets                            70                  0
    Loans originated for sale                          (16,998)           (25,871)
    Proceeds from sale of loans                         18,621             25,499
    Other operating activities                           1,113              2,767
                                                     ---------          ---------
Net cash provided by operating activities               17,924             18,737
                                                     ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Net cash flows from Fed Funds Sold                      27,854              6,421
Proceeds from maturities of AFS & HTM securities        26,899             48,572
Purchase of AFS securities                             (17,914)           (33,306)
Purchase of HTM securities                              (7,962)           (14,501)
Net cash flows from loan activities                   (140,353)          (117,724)
Purchases of premises and equipment                     (1,508)              (835)
Proceeds from the sale of ORE                              909                171
Cash invested in other real estate                           0                  0
Other investing activities                                   0               (141)
                                                     ---------          ---------
Net cash used by investing activities                 (112,075)          (111,343)
                                                     ---------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Net change in core deposits                             34,449             43,494
Net change in certificates of deposit                   12,113             35,513
Proceeds from issuance of stock                            716                257
Principal payments on long term debt                      (145)              (134)
Advances from FHLB                                      85,000             10,000
</TABLE>



(Continued on next page)                 -3-
<PAGE>   6

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS-(Continued)
(Unaudited)

<TABLE>
<CAPTION>
                                                                (In thousands)
                                                               NINE MONTHS ENDED
                                                               -----------------
                                                     Sept. 30, 1999     Sept. 30, 1998
                                                     --------------     --------------
<S>                                                  <C>                <C>
Repayment of FHLB advances                                  (60,019)               (19)
Net change in Federal Funds purchased                        29,711             10,522
Other financing activities                                     (214)             1,172
                                                          ---------          ---------
Net cash provided by financing activities                   101,611            100,805
                                                          ---------          ---------

INCREASE IN CASH AND DUE FROM BANKS                       $   7,460          $   8,199

CASH & DUE FROM BANKS AT BEGINNING
    OF YEAR                                                  44,233             33,704
                                                          ---------          ---------

CASH AND DUE FROM BANKS AT END
    OF PERIOD                                             $  51,693          $  41,903
                                                          =========          =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-------------------------------------------------
Cash paid during the year for interest                    $  29,665          $  27,091
Cash paid during the year for income taxes                   10,607              7,974
Real estate taken as settlement for loan
  obligations                                                   400                  0
Real estate taken as settlement for loan
  obligations - financed by bank                          $       0          $     155
</TABLE>



----------
The accompanying notes are an integral part of these financial statements.


                                       -4-
<PAGE>   7

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (Note 5)
(Unaudited)
(In thousands, except for number of shares)

<TABLE>
<CAPTION>
                                                                                  Compre-                Accumulated
                                                       Common Stock               hensive    Retained   Comprehensive
                                                    Shares         Amount         Income     Earnings   income/(loss)    Total
                                                  -----------    ----------       -------   ---------   -------------- ---------

<S>                                                <C>              <C>           <C>        <C>             <C>       <C>
Balance, December 31, 1996                          7,624,566       $58,044                  $ 30,178        $  129    $ 88,351
                                                   ========================                  ==================================
Net income for 1997                                                               $18,594      18,594                    18,594
Other comprehensive income, net of tax $174
  Unrealized gains on AFS securities                                                  324                       324         324
                                                                                  -------
      Comprehensive income                                                        $18,918
                                                                                  =======
Stock Options Exercised                                40,548           365                                                 365
7% Stock Dividend                                     478,475        13,920                   (13,920)
Fractional Shares Purchased                               872            25                                                  25
Cash dividend declared by VBC (1)                                                                (275)                     (275)
                                                   ------------------------                  ----------------------------------
Balance, December 31, 1997                          8,144,461        72,354                    34,577           453     107,384
                                                   ========================                  ==================================
Net income for 1998                                                                21,649      21,649                    21,649
Other comprehensive income, net of tax $93
  Unrealized gains on AFS securities                                                  173                       173         173
                                                                                  -------
      Comprehensive income                                                        $21,822
                                                                                  =======
Stock Options Exercised                                36,765           356                                                 356
7% Stock Dividend                                     514,999        17,809                   (17,809)
Fractional Shares Purchased                             1,036            28                                                  28
Cash dividends declared by VBC                                                                   (341)                     (341)
                                                  -------------------------                  ----------------------------------
Balance, December 31, 1998                          8,697,261       $90,547                  $ 38,076       $   626    $129,249
                                                  =========================                  ==================================

Net income for the first 9 months of 1999                                          19,144      19,144                    19,144
Other comprehensive income, net of tax $(1,437)
  Unrealized Loss on AFS securities                                                (2,670)                   (2,670)     (2,670)
                                                                                  -------
      Comprehensive income                                                        $16,474
                                                                                  =======
Stock Options Exercised                                80,866           716                                                 716
Two-for-one Stock Split                             8,758,499
Change incident to merger                                                                           4                         4
Cash dividends declared by FFC                                                                 (4,379)                   (4,379)
                                                  -------------------------                  ----------------------------------
Balance, September 30, 1999                        17,536,626       $91,263                  $  52,845      $(2,044)   $142,064
                                                  =========================                  ==================================
</TABLE>


(1)  Valley Bancorporation


                                      -5-
<PAGE>   8

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  PRINCIPLES OF CONSOLIDATION - RESULTS OF OPERATIONS

The consolidated financial statements of Frontier Financial Corporation include
the accounts of Frontier Financial Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated. These
statements are unaudited and should be read in conjunction with the December 31,
1998 Annual Report on Form 10-K of Frontier Financial Corporation. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Operating
results for the three months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for year-end December 31, 1999.

Certain reclassifications of 1998 amounts were made in order to conform to the
1999 presentation, none of which affect previously reported net income.

The bank subsidiary of Frontier Financial Corporation is Frontier Bank.

NOTE 2.  ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Upon adoption of the Statement,
all derivatives must be recognized at fair value as with assets or liabilities
in the balance sheet. Changes in the fair value of the derivatives not
designated as hedging instruments are to be recognized currently in earnings or
are to be recognized as a component of other comprehensive income, depending on
the intended use of the derivatives and the resulting designations. Upon
adoption, retroactive application of this Statement to financial statements in
prior periods is not permitted. The standard becomes effective January 1, 2000
for the Corporation, and is not anticipated to have a material effect on its
financial position or results of operations, as the Corporation does not use
interest rate risk management products such as interest rate swaps, hedges, or
derivatives, nor does management intend to use such products in the future.

The Financial Accounting Standards Board also issued SFAS No. 134, "Accounting
for Mortgage-Backed Securities Retained After Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" in October of 1998. SFAS No. 134
becomes effective for fiscal quarters beginning after December 15, 1998.
Adoption of this standard has had no material impact on the financial condition
or results of operations of the Corporation, as management does not currently
engage in these types of activities, nor does management currently intend to do
so in the future.

NOTE 3.  INVESTMENT SECURITIES

The investment portfolio of the Corporation is classified in one of two groups:
1) securities Held-To-Maturity (HTM), and 2) securities Available-For-Sale
(AFS).

Securities that are classified as HTM, are carried at cost, adjusted for
amortization of premiums and accretion of discounts which are recognized as
adjustments to income. With some exceptions, securities classified as HTM may
only be sold within three months of maturity.


                                      -6-
<PAGE>   9

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - (Continued)

Securities that are classified as AFS, are carried at fair value, adjusted for
amortization of premiums and accretion of discounts which are recognized as
adjustments to income.

Unrealized gains and losses are excluded from earnings and reported as a
separate component of equity capital. AFS securities may be sold at any time.

Gains and losses on both HTM and AFS securities that are disposed of prior to
maturity, are based on the net proceeds and the adjusted carrying amount of the
specific security sold as an adjustment to income.

The tables below display the characteristics of the AFS and HTM portfolios as of
September 30, 1999:

     AGGREGATE FAIR VALUE AND AMORTIZED COST OF INVESTMENTS

<TABLE>
<CAPTION>
    (In thousands)                 Amortized   Gross Unreal-     Gross Unreal-   Aggregate
                                        Cost      ized Gains       ized Losses   Fair Value
                                   --------------------------------------------------------
<S>                                 <C>            <C>           <C>            <C>

AFS SECURITIES:
    Equities                        $14,981        $426                             $15,407
    U.S. Treasuries                     252          17                                 269
    U.S. Agencies                    71,467          24            (3,614)           67,877
    Corporate securities             24,341         146              (144)           24,343
                                   --------------------------------------------------------
         Totals                     111,041         613            (3,758)          107,896
                                   --------------------------------------------------------
HTM SECURITIES:
    Municipal securities             27,849         659                (6)           28,502
    Certificates of deposit           5,300                                           5,300
                                   --------------------------------------------------------
         Totals                     $33,149        $659               $(6)          $33,802
                                   --------------------------------------------------------
         Totals                    $144,190      $1,272           $(3,764)         $141,698
                                   ========================================================
</TABLE>





                                                 MATURITY SCHEDULE OF SECURITIES


<TABLE>
<CAPTION>
                                    Available For Sale                  Held To Maturity
                                   --------------------                 ----------------
                                   Amortized       Fair         Amortized              Fair
         MATURITY                       Cost      Value              Cost             Value
                                   --------------------------------------------------------
         <S>                        <C>         <C>                <C>               <C>
         0-1 Yr                     $18,662     $19,114            $5,605            $5,606
          1-5 Yrs                    23,361      23,301             4,133             4,263
          5-10 Yrs                   64,579      61,188            23,072            23,594
         Over 10 Yrs                  4,439       4,293               339               339
                                   --------------------------------------------------------
                                   $111,041    $107,896            $33,149          $33,802
                                   ========================================================
</TABLE>


                                      -7-
<PAGE>   10

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - (Continued)


                        CHANGES IN AFS AND HTM SECURITIES

    For the Quarter Ended September 30, 1999:

<TABLE>
<CAPTION>
<S>                                                         <C>
    AFS SECURITIES
    Proceeds From Sales                                        $0
    Gross Realized Gains                                        --
    Gross Realized Losses                                       --
    Gross Gains & Losses Included In Earnings From
         Transfers To The Trading Category                      --
    Net Change In Unrealized Holding Gains Or
         Losses Included In The Separate
         Component of Equity Capital                        ($671)

    HTM SECURITIES
    Sales Or Transfers From this Category                      $0
</TABLE>





NOTE 4.  LOANS
         The following is an analysis of the loan portfolio by major type of
         loans:

<TABLE>
<CAPTION>
                                  Sept 30, 1999         Dec 31, 1998
                                  -------------         ------------
<S>                                <C>                    <C>
    Commercial                     $  211,501             $207,887
    Real Estate:
         Commercial                   429,541              383,840
         Construction                 266,019              176,036
         Residential                  103,612              103,998
    Installment                        32,540               32,106
                                   ----------             --------
                                    1,043,213              903,867
    Unearned Fee Income                (6,599)              (5,725)
                                   ----------             --------
         Total Loans               $1,036,614             $898,142
                                   ==========             ========
</TABLE>


NOTE 5.  The Board of Directors declared a two-for-one stock split and a $.25
         per share, post-split cash dividend which was paid on March 19, 1999
         and a 7% stock dividend which was paid on March 16, 1998.


                                      -8-
<PAGE>   11

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS.

HIGHLIGHTS

Consolidated net income of Frontier Financial Corporation ("the Corporation")
for the third quarter of 1999 was $6.8 million versus $5.5 million for the third
quarter of 1998, or up 22.5%. The reason for the increase in net income in 1999
was due to an increase in net interest income of $2.1 million, or 15.0%. This
marks the sixty-third consecutive quarter in which Frontier's earnings exceeded
the prior years' comparable quarter. In the discussion below, comparison is with
the third quarter of 1998, unless otherwise stated.

Annualized return on average assets (ROA) was 2.24% in 1999, and 2.08% in 1998.
Annualized return on average stockholder's equity (ROE) in 1999 was 19.07%, as
compared to 18.25% in 1998. Diluted earnings per share were $.38 for 1999, and
$.32 for 1998. Earnings per share have been adjusted for the two-for-one stock
split paid on March 19, 1999.

FINANCIAL REVIEW - MARKET AREA AND ECONOMIC ENVIRONMENT

Frontier Financial Corporation headquartered in Everett, Washington, is the
parent of Frontier Bank, which operates twenty-five banking offices in King,
Pierce, Snohomish, Skagit and Whatcom counties. Two new do novo offices located
in Bellingham (Whatcom county) and Mount Vernon, Washington, (Skagit county)
were opened during the third quarter. These five counties would be considered
the market or service area of the Corporation. The Boeing airplane manufacturing
plant for 747's and 777's is located in the city of Everett, as is the
headquarters of the Corporation. Microsoft, the world's largest software
company, is located in Redmond, Washington, 25 miles from Everett. The Bank also
has a branch office in Redmond.

Since the publication of the Corporation's 1998 Annual Report, there has been
continued strength in the local economy. While Boeing has had a reduction in
workforce in the thousands, and there has been little decrease in loan growth.
During the first 9 months of 1999, loans increased $138.5 million, or 15.4%, as
compared to the first 9 months of 1998 which had loan growth of $116.6 million,
or 15.8%. Management remains cautiously optimistic regarding the local and
national economy.

BALANCE SHEET

Below, are abbreviated balance sheets at the end of the respective quarters
which indicate the changes that have occurred in the major portfolios of the
Corporation over the past year:

<TABLE>
<CAPTION>
At September 30,                   1999        1998      $ Change    % Change
----------------                 --------------------------------------------

<S>                              <C>         <C>           <C>          <C>
Loans                            $1,036,614  $  853,540    $183,074     21.4%
Investments  *                      144,190     116,006      28,184     24.3%
Federal Funds Sold                   18,000      64,869     (46,869)   -72.3%
                                 --------------------------------------------
Total Assets                     $1,261,900  $1,091,308    $170,592     15.6%
</TABLE>

*  Shown at amortized cost.


                                      -9-
<PAGE>   12

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Balance Sheet - (Continued)

<TABLE>
<CAPTION>
At September 30,                    1999        1998      $ Change   % Change
----------------                 --------------------------------------------
<S>                                <C>         <C>          <C>        <C>
Noninterest bearing deposits       $149,109    $138,341     $10,768      7.8%
Interest bearing deposits           823,971     750,674      73,297      9.8%
                                 --------------------------------------------
Total deposits                      973,080     889,015      84,065      9.5%
Federal Funds purchased
  and Repurchase Agreements          61,569      28,202      33,367    118.3%
FHLB borrowings                      75,195      40,221      34,974     87.0%
Capital *                          $144,108    $122,798     $21,310     17.4%
</TABLE>

*  Adjusted for unrealized gain/(loss).

At quarter end 1999, loans were up $183.1 million, or 21.4% over the previous
year. This increase in loans over the last year, was due, for the most part, to
the economic growth of the region and continued emphasis on loan development.
The annualized growth rate after 9 months of 1999 versus the same period in
1998, was 20.5% versus 21.1% respectively.

Investments increased $28.2 million, or 24.3% for the period. Over the past
year, there have been agency bonds with short call periods, whose yields made
sense to allow a reduction in short-term federal funds sold to fund the
purchases. This is one of the reasons why fed funds declined $46.9 million, or
72.3% during the period. The other reason for the decline in fed funds sold is
loan demand.

Noninterest bearing deposits increased 7.8%, or $10.8 million over the last
year, with most of the increase in business checking. Interest bearing deposits
increased $73.3 million, or 9.8%, with most of the growth happening in time
deposits, NOW and Money Market accounts.

At September 30, 1999, NOW and Money Market accounts made up 19% of total
interest bearing deposits. Savings deposits made up 24%, and time deposits made
up 57%. The mix of these deposits at September 30, 1998 was; NOW and Money
Market 17%; savings 24% and time deposits 59%.

Over the last year, NOW and Money Market deposits increased $28.4 million, or
22.0%; savings deposits increased $16.0 million, or 8.8%, and time deposits
increased $28.9 million, or 6.6%. During this past year, it was the interest
rates paid and business development efforts that caused the growth in deposits.

The increase of $33.4 million, or 118.3% in federal funds purchased and
securities sold under agreements to repurchase (repo's) for the period, was
caused by strong demand for sweep accounts by local businesses and the need for
additional funding of loan growth. FHLB borrowings increased substantially over
the year due to the attractive rates offered by the agency and loan demand. Over
the next 12 months, $35.0 million of these advances will mature or reach their
call dates. These maturities or calls have been planned for by management.


                                      -10-
<PAGE>   13

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Balance Sheet - (Continued)

Capital has grown $21.3 million over the past year, or 17.4%, excluding gains or
losses in the securities portfolio. Management has recognized that the capital
of the Corporation is excessive, and this year moved toward improving the ROE by
paying a first cash dividend to shareowners. Management will continue to review
strategies to offset the negative effect of excessive capital.

NET INTEREST INCOME

Net interest income is the difference between total interest income and total
interest expense. Several factors contribute to changes in net interest income.
These include the effects of changes in average balances, changes in rates on
earning assets and rates paid for interest bearing liabilities, the level of
noninterest bearing deposits, stockholder's equity, and the level of nonaccrual
loans.

The earnings from certain assets are exempt from federal income tax, and it is
customary in the financial services industry to analyze changes in net interest
income on a "tax equivalent" or fully taxable basis. Under this method,
nontaxable income from loans and investments is adjusted to an amount which
would have been earned if such income were subject to federal income tax. The
discussion below presents an analysis based on "taxable equivalent" amounts at a
35% tax rate. (However, there are no tax equivalent additions to interest
expense or noninterest income and expense amounts discussed below.) Abbreviated
quarterly average balance sheets and net interest income data for the periods
are shown below:

                                            (In thousands)

<TABLE>
<CAPTION>

For quarter ended September 30,     1999        1998         $ Change    % Change
-------------------------------  ------------------------------------------------
<S>                              <C>         <C>              <C>           <C>
Loans                            $1,000,524  $  830,643       $169,881      20.5%
Investments                         144,506     114,418         30,088      26.3%
Federal Funds Sold                    6,998      63,568        (56,570)    -89.0%
Total Earning Assets              1,152,028   1,008,629        143,399      14.2%
                                 ------------------------------------------------
Total Assets                      1,209,456   1,063,061        146,395      13.8%

Noninterest bearing deposits        151,108     137,744         13,364       9.7%
Interest bearing deposits           797,352     731,882         65,470       8.9%
                                 ------------------------------------------------
Total deposits                   $  948,460  $  869,626       $ 78,834       9.1%
Fed Funds purchased
     and repurchase agreements   $   37,845  $   26,145       $ 11,700      44.8%
FHLB borrowings                      70,416      35,625         34,791      97.7%
Capital   *                         142,120     121,293         20,827      17.2%

Total interest income                26,875      24,031          2,844      11.8%
Total interest expense               10,278       9,673            605       6.3%
                                 ------------------------------------------------
Net Interest Income              $   16,597  $   14,358       $  2,239      15.6%
</TABLE>


*  Shown at amortized cost, or adjusted for unrealized gain/(loss).


                                      -11-
<PAGE>   14

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Net Interest Income - (Continued)

In 1999, average total earning assets as a percent of average total assets were
95.3%, and 94.9% in 1998. This ratio indicates how efficiently assets are being
utilized. Average loans were 82.7% and 78.1%, respectively and investments were
11.9% and 10.8%, for the same periods. Average federal funds sold decreased from
$63.6 million to $7.0 million, or 89.0% over the period. Again, this was due to
loan growth. Average total deposits increased $78.8 million, or 9.1%. Not shown
in the table above are the components of interest bearing deposits. Average NOW
and Money Market accounts increased $10.5 million, or 8.6%; savings accounts
increased $17.8 million, or 9.9%, and time cd's increased $37.2 million, or
8.6%.

Earning Assets

The yield on total earning assets declined .19% in the third quarter 1999 to
9.26% from 9.45%. The cost of total interest bearing liabilities decreased .34%,
from a 4.84% in 1998 to a 4.50% in 1999. At the end of the current quarter, the
net interest margin increased to 5.49% from 5.40% a year earlier. However,
during the 3rd quarter, there was approximately $137 thousand recovered in
interest from ORE. Without that recovery, the net interest margin would have
been 5.44%.

On a tax equivalent basis, net interest income was $16.6 million in 1999, versus
$14.4 million in 1998, for an increase in net interest income of $2.2 million.

Total interest income increased $2.8 million, and total interest expense
increased $.6 million, for an increase in net interest income of $2.2 million.

The increase in the average balance of earning assets increased interest income
by $4.4 million, and a decrease in interest rates decreased interest income by
$1.6 million, for a net increase of $2.8 million.

The yield on total loans decreased from 10.08% in 1998 to 9.66% in 1999.
Business loans decreased from 9.80% to 9.38%; real estate commercial loans
decreased in yield from 9.59% to 9.09%; real estate construction loans decreased
in yield from 12.04% to 10.77%; real estate mortgage loans decreased from 9.71%
to 9.79%, and installment loans decreased from 9.72% to 9.66%.

The yield on investments decreased from 7.08% in 1998 to 6.69% in 1999, and the
yield on federal funds sold decreased from 5.52% in 1998 to 4.89% in 1999.

Interest Bearing Liabilities

The increase in the average balance of total interest bearing liabilities
increased interest expense by $1.3 million, and the rates paid on interest
bearing liabilities decreased $.7 million for a net change of $.6 million.

The cost of total interest bearing deposits decreased from 4.79% to 4.43%. The
cost of NOW and money market accounts dropped from 2.97% in 1998, to 2.66% in
1999. Savings accounts costs were 3.89% in


                                      -12-
<PAGE>   15

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Noninterest income and expense

1998, and 3.63% in 1999. Time cd's decreased in cost from 5.69% in 1998 to 5.26%
in 1999. Short term borrowings dropped from 5.06% to 4.67%, and long-term debt
cost decreased from 5.50% in 1998 to 5.26% in 1999.

NONINTEREST INCOME AND EXPENSE

Total noninterest income increased $814 thousand in the 3rd quarter of 1999, or
67.4% from a year ago. Service charges increased from $486 thousand to $602
thousand, or 23.8%. This is a change in the prior years trend of slight growth
in service charges, as compared to the growth in the number of accounts
susceptible to service charges. The increase is mainly due to increased nsf and
od fees of $86 thousand, or 34.3% for the period.

Other income for the period was up by $699 thousand, or 96.8%. However, in the
3rd quarter of 1999, there was a gain on the sale of ORE of $732 thousand. If
this amount is adjusted, other income is down by $33 thousand, or 4.6%. Broker
loan fees decreased $65 thousand, while insurance and financial services fees
increased $33 thousand for the period. Management has expected a decline in
broker loan fees due to higher interest rates.

The market value of trust assets at quarter end 1999 was $188.5 million, as
compared to $158.5 million in 1998, an increase of $30.0 million, or 18.9%.
Trust department income for the 3rd quarter of 1999 was up $22 thousand, or
9.0%.

Total noninterest expenses increased $734 thousand, or 11.7% for the period.
Salaries and benefits increased $592 thousand, or 15.9%. Salaries themselves,
increased $277 thousand, or 10.2%. 3.7% of the increase was due to an increase
in staff, and 6.5% was attributable to merit raises and bonuses. There were 394
FTE employees at September 30, 1999. Benefits increased $315 thousand, or 31.3%.
Profit sharing contributions were up $230 thousand over a year ago, which is due
mainly to timing, and medical insurance premiums were up $23 thousand, or 14.3%.
Deferred human resources expense related to loan fees was responsible for a $58
thousand decline.

Total occupancy expense increased $99 thousand, or 12.2%. In 1999, 36% of
occupancy expense was depreciation, and in 1998, depreciation was responsible
for 40% of the expense. The remaining increase of $58 thousand, was due to
increased rental expense and furniture and fixture expenses.

Other expense increased $44 thousand, or 2.5%, to $1.8 million.

Banks and bank holding companies use a computation called the "efficiency ratio"
to measure overhead. This ratio is then compared to others in the industry. The
ratio is arrived at by dividing total noninterest expense, less intangible
amortization expense, by the sum of net interest income on a taxable equivalent
basis, and other noninterest income, less any non-recurring income. The lower
the number, the more efficient the organization. The Corporation's efficiency
ratio for the year-to-date 1999 period was 39%, and 41% for 1998. The
Corporation's ratio places it among the performance leaders in the industry.


                                      -13-
<PAGE>   16

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Loans - Impaired assets

LOANS
IMPAIRED ASSETS

<TABLE>
<CAPTION>
Impaired assets are summarized as follows:                        (In thousands)
              Period Ended September 30,                      1999            1998
                                                              ----            ----
<S>                                                           <C>            <C>
Non-accruing loans                                            $2,997         $9,619
Loans past due 90 days or more and still accruing                  0              0
Restructured loans                                                 0              0
Other real estate owned                                          779          1,155
                                                          -------------------------
    Total non-performing loans                                $3,776        $10,774
                                                          =========================
Total assets at end of period                             $1,261,900     $1,091,308
                                                          ----------     ----------
As a percent of total loans outstanding                         0.30%          0.99%
                                                          =========================
</TABLE>



Delinquent and problem loans are a part of any lending enterprise. When a
borrower fails to make payments, the Bank implements collection activities
commencing with simple past due notices. This then progresses to phone calls and
letters, followed by legal activity when and if necessary. At one month past
due, the loan is tracked and reported as a delinquency.

It is the bank's practice to discontinue accruing interest on loans that are
delinquent in excess of 90 days. Some problem loans which are less than 90 days
delinquent are also placed into non-accrual status if the success of collecting
full principal and interest, in a timely manner, is in doubt.

Restructured loans are those loans that had problems in the past, and that have
been restructured in such a way that some forgiveness of debt or other terms
have occurred.

Management works diligently on the collection or liquidation of non-performing
assets. The overall level of non-accruing loans declined in the third quarter
due to the resolution of some impaired loans. Other real estate owned has
decreased due to the sale of two commercial land parcels. Other ORE properties
are actively being marketed.

All in-substance foreclosures are included in other real estate owned (ORE), and
the carrying values of all properties are below their market value.

CREDIT CONCENTRATIONS

There is a concentration of credit in the loan portfolio comprised of real
estate construction and land development loans. These loans totaled $231.4
million in 1999, or 22.3% of total loans, and $129.3 million in 1998, or 15.2%
of total loans. Many years ago, management established a real estate loan
committee which meets semi-annually to review the economic conditions and
building industry trends. As a result of these and other efforts, there have
been very limited losses on these types of loans. The bank's trade area is now
enjoying a real estate market that has moved upward due to the employment
opportunities in the area and other favorable economic factors. At this time,
the Puget Sound economy's job growth is slower than in 1998 due primarily to job
reductions at Boeing. Some further slowing of job


                                      -14-
<PAGE>   17

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Credit Concentrations - (Continued)

growth is expected in the coming year. The bank has expanded the geographic
spread of its loans into Pierce County, and to a lesser extent Whatcom County.
Management is cautiously optimistic as to the real estate market's
prospects in the months ahead.

SOME CONCERNS ARE PRESENTED BY THE RECENT LISTING OF CERTAIN SPECIES OF SALMON
AS ENDANGERED. HOW GOVERNMENT REGULATORY AUTHORITIES INTERPRET AND APPLY THIS
ACT MAY AFFECT THE ECONOMIC ACTIVITY OF THE AREA.

At September 30, 1999 and 1998, the Corporation had an immaterial amount of
foreign loans and no loans related to highly leveraged transactions.

ALLOWANCE FOR POSSIBLE LOAN LOSSES - QUALITATIVE FACTORS

For the quarter ended September 30, 1999, the allowance for possible loan losses
increased to $19.7 million, or 1.90% of total loans, from $17.2 million, or
2.02% of total loans in 1998. Year-to-date net loan losses were net recoveries
of $13 thousand, versus a like net recovery position of $459 thousand in 1998.

The Corporation has fashioned its credit risk management practices after an
analysis of a consolidation of numerous banks by a worldwide management
consulting firm. Management and the Board review policies and procedures
annually, and changes are made to reflect the current operating environment
integrated with regulatory requirements. Out of these policies has evolved an
internal credit risk review process, which has the greatest effect on the
current valuation of the allowance for loan losses. During this process, loans
are quality graded, and assigned a dollar value by degree of risk. This analysis
is performed quarterly and reviewed by senior management who makes the
determination if the risk is reasonable, and if the reserve is adequate.

Taken into consideration when the analysis is performed is the national and
local economic trends and conditions. The Boeing company is a strong force in
the local economy, so it is important that this analysis recognizes Boeing's
current and anticipated personnel strength, and the possible effect on Boeing's
suppliers.

There is a Year 2000 risk associated with the businesses that borrow from the
Corporation. As part of the due diligence performed on all loans over a certain
dollar amount, there is an allowance for losses associated with those businesses
who do not, or cannot, mitigate the known or unknown effects of the upcoming
event.

The analysis also takes into consideration the level of, or trends in,
delinquencies and nonaccruing loans. Management monitors delinquencies monthly
and reports are prepared for the Board of Directors to review. Delinquencies for
commercial, personal and real estate loans are charted separately.

Another consideration is the volume and terms of loans. Management reviews the
growth and terms of loans so that the allowance can be adjusted for current and
anticipated future needs.


                                      -15-
<PAGE>   18

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Allowance for loan losses - (Continued)

Conclusion of Qualitative Factors

The allowance for loan losses is the amount which, in the opinion of management,
is necessary to absorb loan losses. Management's evaluation of the adequacy of
the allowance is based on the market area served, local and national economic
conditions, the growth and composition of the loan portfolio and the related
risk characteristics, by continual review by management of the quality of the
portfolio.

The actual loan loss reserve is larger than the indicated amount based on the
analysis performed for the third quarter of 1999. However, based on the on-going
and announced cutbacks at Boeing, and the overall local and national economy,
the excess is not considered material.


LIQUIDITY AND INTEREST RATE RISK
LIQUIDITY

The primary function of asset/liability management is to ensure adequate
liquidity and maintain an appropriate balance between interest sensitive earning
assets and liabilities. Liquidity management involves the ability to meet the
cash flow requirements of customers who may be either depositors wanting to
withdraw funds, or depositors who have credit needs.

The statement of cash flows on pages 3 and 4 of this report provides information
on the sources and uses of cash for the respective year-to-date periods ending
September 30, 1999 and 1998. This discussion addresses those periods of time.

Net cash provided by operating activities in 1999 totaled $17.9 million, as
compared to $18.7 million in 1998. The largest component providing net cash was
net income of $19.1 million in 1999 and $16.0 million in 1998. The second
largest component for 1998 was other activities, and provision for loan losses
in 1999. March 1999 marked the first time Frontier has paid a cash dividend,
paying out $4.4 million as noted on the statement.

Loans originated in the real estate secondary market for the year-to-date period
ended September 1999 were $17.0 million, or 34.3% lower in 1999 due to a slowing
of refinancings. This slowdown had been expected by management.

Investing activities, in 1999 and 1998, were centered in the loan area, which
had a net funding requirement of $140.4 million in 1999, and $117.7 million in
1998. Maturing investments were rolled over in 1998 and 1999. Fed funds grew
substantially from the 1998 period as liquidity has been necessary due to loan
growth.

Financing the investment activities in 1999 was mainly a combination of core
deposits (including NOW, Money Market and Savings accounts) of $34.4 and $85.0
million in additional advances from the FHLB. In 1998, the funding of investment
activities came from increased core deposits of $43.5 million, and $35.5 million
in cd's.


                                      -16-
<PAGE>   19

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Liquidity - (Continued)

Management has many sources of liquidity, such as the sale of AFS securities,
additional borrowings from the FHLB, participation in the Treasury department's
short-term note program, borrowings from the Federal Reserve Bank, or additional
borrowings at correspondent banks. In addition to AFS securities, treasury and
agency securities in the HTM securities portfolio are also subject to sale under
repurchase agreements. The Corporation has a policy that liquidity of 12.5% of
total assets be maintained as a minimum and has done so.

INTEREST RATE RISK

Interest rate risk refers to the exposure of earnings and capital arising from
changes in interest rates. Management's objectives are to control interest rate
risk and to ensure predictable and consistent growth of earnings and capital.
Interest rate risk management focuses on fluctuations in net interest income
identified through computer simulations to evaluate volatility under varying
interest rate, spread and volume assumptions. The risk is quantified and
compared against tolerance levels.

The simulation model used by the Corporation combines the significant factors
that affect interest rate sensitivity into a comprehensive earnings simulation.
Earning assets and interest-bearing liabilities with longer lives may be subject
to more volatility than those with shorter lives. The model accounts for these
differences in its simulations. At September 30, 1999, the simulation modeled
the impact of assumptions that interest rates would increase or decrease 200
basis points. Results indicated that the Corporation was positioned such that
equity would not drop below that point where the Corporation, for regulatory
purposes, would continue to be classified "well capitalized". It should be
emphasized that the model is static in nature and does not take into
consideration possible management actions to minimize the impact on equity.
Management also matches assets and liabilities on a static "gap" report monthly
to assist in interest rate sensitivity measurements.

MANAGEMENT DOES NOT USE INTEREST RATE RISK MANAGEMENT PRODUCTS SUCH AS INTEREST
RATE SWAPS, OPTIONS, HEDGES, OR DERIVATIVES, NOR DOES MANAGEMENT CURRENTLY HAVE
ANY INTENTION TO USE SUCH PRODUCTS IN THE FUTURE.

CAPITAL

Consolidated capital of the Corporation for financial statement purposes at 3rd
quarter end 1999 was $142.1 million (including unrealized gains or losses on
securities). This amount compares to $124.2 million at September 30, 1998, an
increase of $17.9 million, or 14.4%. Almost all of the increase came from the
retained earnings of the Bank.


                                      -17-
<PAGE>   20

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Capital - (Continued)

Under regulatory capital rules, the minimum "leverage" ratio (primary capital
ratio) of core capital that the most highly rated holding companies must
maintain is 4 percent. At September 30, 1999, the Corporation's leverage ratio
was 11.82%, compared to 11.43% at quarter end 1998. In addition, Regulatory
capital requires a minimum of Tier I capital of 4% of risk-adjusted assets and
total capital (combined Tier I and Tier II) of 8%. The Corporation's Tier I and
combined Tier II capital ratios were 13.09% and 14.35% at September 30, 1999,
and 13.28% and 14.57% at September 30, 1998.

Management constantly monitors the level of capital of the Corporation, and
believes that capital is excessive to meet present needs, considering, among
other things, the present and anticipated needs of the Corporation, current
market conditions, and other relevant factors, including regulatory requirements
which may necessitate changes in the level of capital.

IMPACT OF YEAR 2000 ISSUE

The Year 2000 problem

The century date change creates a problem because computer programs and systems
were designed to store calendar years with only two numbers, rather than four
numbers. Because of this faulty design, computer programs and systems may
recognize a date using "00" as 1900 rather than the Year 2000. The extent of the
potential impact of this Year 2000 problem is not yet known and could affect the
global economy and every organization.

Only one thing is certain about the impact of the Year 2000--it is difficult to
predict with any degree of certainty what will happen after December 31, 1999.
The Corporation is committed to address and is addressing these Year 2000 issues
and the uncertainty that is presented by these Year 2000 issues. The total
financial effect that the Year 2000 problem will have on the Corporation is
uncertain and will not be known until the year 2000 arrives. The Corporation is
working to mitigate the Year 2000 problem, however, the success of the
Corporation's efforts will not be known until the year 2000 arrives.

The Challenges Faced by the Corporation

The year 2000 problem is of particular concern to the Corporation and other
financial institutions because most financial transactions, such as interest
accruals and payments, are date sensitive. The Year 2000 problem will impact
both information technology ("IT") systems, such as computers, and non-IT
systems. Non-IT systems typically include embedded technology such as
microcontrollers, and include automated teller machines, elevators, alarm
systems, and vaults. Non-IT systems are more difficult to assess and repair than
IT systems.

The Corporation's State of Readiness

The Corporation established a Year 2000 Committee in February 1997 with
representatives from all significant functional areas which report to the Board
of Directors. Detailed inventories for all IT systems

                                            -18-

<PAGE>   21

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Impact of the Year 2000 Issue - (Continued)

and all identified non-IT systems have been conducted to catalog potential
hardware and software problems. The Corporation has identified and completed all
Year 2000 testing on business-critical systems, and has had several regulatory
examinations. The Corporation has been pleased with the results of those
examinations. All modifications have been made to internal systems which will
mitigate, but not eliminate, the risks associated with the Year 2000 problem.

Third Party Concerns

The Corporation interacts with numerous customers, vendors and third party
service providers whose Year 2000 problems may create business disruption. Due
to the interdependence of computer systems today, it is simply impossible for
any one party to eliminate the risks related to the Year 2000 problem. It is
even possible that the Year 2000 problem could disrupt the Corporation's
business through the loss of electric power or phone service, or for other
reasons outside of the Corporation's control. The Corporation has initiated
formal communications with certain significant suppliers and large customers to
attempt to determine the extent to which the Corporation is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. Systems of other
companies on which the Corporation's systems rely appear to be making
satisfactory progress in their Year 2000 efforts.

The Corporation is in the process of assessing the incremental credit risk in
the loan portfolio relating to individual customers' ability to successfully
address Year 2000 IT and non-IT issues. For those over an established dollar
threshold, credit risk assessments are being or will be performed on each
borrower. This process will be ongoing until the Year 2000.

Frontier's Contingency Plans

The Year 2000 Committee is in the process of developing and implementing
contingency plans to handle the most reasonably likely worst case scenarios.
Since these worst case scenarios are difficult or even impossible to predict at
this time, these contingency plans are particularly challenging. The Corporation
intends to develop contingency plans that are reasonably necessary to address
the Year 2000 problem and to revise those contingency plans on an ongoing basis
until the problem is confronted and resolved.

Estimated Costs

It is impossible to predict with any degree of certainty the costs that the
Corporation will incur as a result of the Year 2000 problem. The Corporation's
current estimate for the total year 2000 testing and remediation is roughly
$550,000, which will be funded through cash flows from operations. The


                                      -19-
<PAGE>   22

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Impact of the Year 2000 Issue - (Continued)

Corporation has expensed and reserved $400,000, of which $354,000 is remaining,
for addressing the Year 2000 problem. These future financial estimates are just
rough estimates, as these are "forward-looking" statements subject to risks and
uncertainties that may cause future results to differ materially. It is
uncertain to what extent the actual costs of the Year 2000 problem will have on
the Corporation's results of operations, liquidity, and financial condition.
Actual lost revenue resulting from the Year 2000 problem is impossible to
predict because of the inherent uncertainty of the Year 2000 problem. The
Corporation, through its Year 2000 committee, is analyzing and determining how
to best handle and mitigate this uncertainty. The Corporation presently believes
that costs associated with compliance efforts will not have a significant impact
on the Corporation's ongoing operations or financial condition, although there
can be no assurance in this regard. There can be no assurance that there will
not be a delay in, or increased costs associated with, the implementation of the
necessary changes to address the Year 2000 problem, and the Corporation's
inability to implement such changes could have an adverse effect on future
results of operations. In addition, the failure of certain of the Corporation's
customers, vendors and third party service providers to appropriately address
the Year 2000 problem could have a material adverse effect on the Corporation.

FORWARD-LOOKING INFORMATION

Except for historical financial information contained herein, the matters
discussed in this quarterly report on Form 10Q may be considered
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended and subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995, and may be identified by the use of such words as
"believe", "expect", "anticipate", "should", "planned", "estimated" or
"potential" to name a few. Forward-looking statements are subject to risks and
uncertainties that may cause actual future results to differ materially. Such
risks and uncertainties with respect to Frontier Financial Corporation include
those related to the economic environment, particularly in the areas in which
Frontier operates, competitive products and pricing, fiscal and monetary
policies of the U. S. government, changes in governmental regulations affecting
financial institutions, including regulatory fees and capital requirements,
changes in prevailing interest rates, acquisitions and the integration of
acquired businesses, credit risk management and asset/liability management, the
financial and securities markets, and the availability of and costs associated
with sources of liquidity.


                                      -20-
<PAGE>   23

FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

        No material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

        There were no matters submitted to a vote of shareowners in the
        current quarter.

Item 5. Other Information.

    (a) In January 1999, the Corporation completed its systems conversion of the
        Bank of Sumner files.

    (b) On February 17, 1999, the Board of Directors of the Corporation declared
        a two-for-one stock split and a $.25 per share post-split dividend to
        shareowners of record as of March 1, 1999, and payable on March 19,
        1999.

Item 6. Exhibits and Reports on Form 8-K

        (b)(11)  Computation of basic and diluted earnings per share is attached
                 as Exhibit 11.

        (b)(20)  There were no reports filed on Form 8-K in the current quarter.

        (b)(27)  Financial Data Schedule - This exhibit is included only in
                 the electronic EDGAR filing version of this Form 10Q. 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.


                                      -21-
<PAGE>   24
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURE


Pursuant to the requirements 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



Date:    November 4, 1999                    /s/ James F. Felicetty
         ----------------                   ----------------------------
                                            James F. Felicetty
                                            Secretary/Treasurer


                                      -22-