UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

     [X] Quarterly report pursuant to Section 13 or l5 (d) of the Securities
                          Exchange Act of 1934
                For the quarterly period ended September 30, 2001

     [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
                          Exchange Act of 1934

               For the transition period from ________ to ________

                        Commission File Number 000-24503


                           WASHINGTON BANKING COMPANY
        (Exact name of small business issuer as specified in its charter)

          Washington                                            91-1725825
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                              450 SW Bayshore Drive
                          Oak Harbor, Washington 98277
               (Address of principal executive offices) (Zip Code)

                                 (360) 679-3121
                (Issuer's telephone number, including area code)


              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the issuer: (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 number of shares of the issuer's Common Stock outstanding
                       at November 13, 2001 was 4,055,250.


<PAGE>



                                Table of Contents


                                     PART I
<TABLE>
                                                                                                          Page
<S>                                                                                                        <C>
Item 1   Financial Statements

           Condensed Consolidated Statements of Financial Condition -
                September 30, 2001(unaudited) and December 31, 2000                                         1

           Condensed Consolidated Statements of Income -
                Three and Nine Months Ended September 30, 2001 and 2000 (unaudited)                         2

           Condensed Consolidated Statements of Shareholders' Equity -
                Nine Months Ended September 30, 2001 (unaudited)                                            3

           Condensed Consolidated Statements of Comprehensive Income -
                Three and Nine Months Ended September 30, 2001 and 2000 (unaudited)                         3

           Condensed Consolidated Statements of Cash Flows -
                Nine Months Ended September 30, 2001 and 2000 (unaudited)                                   4

           Notes to Condensed Consolidated Financial Statements
                Nine Months Ended September 30, 2001 and 2000 (unaudited)                                   5

Item 2     Management's Discussion and Analysis of Financial Condition and Results of Operations            7

Item 3     Quantitative and Qualitative Disclosures about Market Risk                                      15
</TABLE>


                                     PART II

<TABLE>
<S>     <C>

Item 6     Exhibits and Reports on Form 8-K                                                                15

             Signatures

</TABLE>
<PAGE>
                                     PART I
Item 1.  Financial Statements

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Financial Condition
                    September 30, 2001 and December 31, 2000
                  (Dollars in thousands, except per share data)
<TABLE>
                                                                                September 30,      December 31,
                                  Assets                                            2001               2000
                                                                               ----------------   ----------------
<S>                                                                             <C>              <C>
                                                                                 (unaudited)
Cash and due from banks                                                         $     23,138    $        15,001
      ($3,275 and $1,158, respectively, are restricted)
Interest-earning deposits                                                                705              1,428
Federal funds sold                                                                        --                750
                                                                               ----------------   ----------------
     Total cash and cash equivalents                                                  23,843             17,179

Federal Home Loan Bank stock                                                           1,366                844
Deferred compensation plan                                                               109                 --
Investment securities available for sale                                               4,656              4,995
Investment securities held to maturity                                                18,999             21,491
                                                                               ----------------   ----------------
     Total investment securities                                                      25,130             27,330

Loans receivable, net                                                                356,366            299,998
Premises and equipment, net                                                           15,544             13,730
Other real estate owned                                                                  344                124
Deferred taxes, net                                                                      324                378
Other assets                                                                           4,205              2,906
                                                                               ----------------   ----------------
              Total assets                                                   $       425,756    $       361,645
                                                                               ================   ================

                      Liabilities and Shareholders' Equity
Liabilities:
     Deposits                                                                $       358,753    $       317,776
     Federal funds purchased                                                          20,000                 --
     Other borrowed funds                                                             10,000             10,000
     Deferred compensation liability                                                     109                 --
     Other liabilities                                                                 2,904              2,368
                                                                               ----------------   ----------------
              Total liabilities                                                      391,766            330,144
                                                                               ----------------   ----------------
Shareholders' equity:
     Preferred stock, no par value.  Authorized 20,000 shares:
        no shares issued or outstanding                                                   --                 --
     Common stock, no par value.  Authorized 10,000,000 shares:
        issued and outstanding 4,055,250 and 4,032,750 shares
        at September 30, 2001 and December 31, 2000, respectively                     16,124             16,058
     Retained earnings                                                                17,788             15,470
     Accumulated other comprehensive income (loss), net                                   78                (27)
                                                                               ----------------   ----------------
              Total shareholders' equity                                              33,990             31,501
Commitments and contingencies                                                  ----------------   ----------------
              Total liabilities and shareholders' equity                     $       425,756    $       361,645
                                                                               ================   ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       1
<PAGE>
                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
                        Condensed Consolidated Statements of Income
       Three and nine months ended September 30, 2001 and 2000 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>

                                                          Three Months Ended            Nine Months Ended
                                                             September 30,                 September 30,
                                                           2001         2000             2001          2000
                                                        ----------  ------------      ----------    ----------
<S>                                                  <C>           <C>            <C>           <C>
Interest income:
     Interest and fees on loans                       $     8,097  $     6,699      $   23,437    $   18,248
     Interest on taxable investment securities                104          150             349           500
     Interest on tax-exempt investment securities             196          200             594           604
     Other                                                     28           49             141           174
                                                        -----------  -----------      -----------   -----------
           Total interest income                            8,425        7,098          24,521        19,526
Interest expense                                            3,245        3,221          10,596         8,191
                                                        -----------  -----------      -----------   -----------
           Net interest income                              5,180        3,877          13,925        11,335
Provision for loan losses                                    (755)        (300)         (1,815)       (1,026)
                                                        -----------  -----------      -----------   -----------
           Net interest income after
              provision for loan losses                     4,425        3,577          12,110        10,309
Noninterest income:
     Service charges and fees                                 422          448           1,263         1,305
     Other                                                    668          219           1,842           668
                                                        -----------  -----------      -----------   -----------
           Total noninterest income                         1,090          667           3,105         1,973
Noninterest expense:
     Salaries and benefits                                  2,226        1,830           6,450         5,348
     Occupancy                                                670          608           2,005         1,746
     Office supplies and printing                             122          107             384           347
     Data processing                                           85           79             249           242
     Consulting and professional fees                          55           59             177           158
     Other                                                    602          522           1,613         1,410
                                                        -----------  -----------      -----------   -----------
           Total noninterest expense                        3,760        3,205          10,878         9,251
                                                        -----------  -----------      -----------   -----------
           Income before income taxes                       1,755        1,039           4,337         3,031
Provision for income taxes                                   (593)        (268)         (1,290)         (811)
                                                        -----------  -----------      -----------   -----------
           Net income                                 $     1,162  $       771      $    3,047    $    2,220
                                                        ===========  ===========      ===========   ===========

Net income per share, basic                           $      0.29  $      0.19      $     0.75    $     0.55
Net income per share, diluted                         $      0.27  $      0.18      $     0.72    $     0.52
                                                        ===========  ===========      ===========   ===========

Average number of shares outstanding, basic              4,055,250    4,031,538        4,045,167     4,046,623
Average number of shares outstanding, diluted            4,258,976    4,226,884        4,234,202     4,241,146

</TABLE>


See accompanying notes to condensed consolidated financial statements.




                                       2
<PAGE>
                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Shareholders' Equity
                Nine months ended September 30, 2001 (unaudited)
            (Dollars and shares in thousands, except per share data)

<TABLE>
                                                                                        Accumulated
                                                Common stock                               other               Total
                                          --------------------------    Retained       comprehensive        shareholders'
                                             Shares        Amount       earnings      income (loss), net       equity
                                          -------------  -----------   ------------   ------------------   ----------------
<S>                                         <C>          <C>             <C>            <C>              <C>
Balances at December 31, 2000                 4,033    $    16,058   $    15,470    $         (27)       $      31,501
Net income                                       --             --         3,047               --                3,047
Net change in unrealized gain
     on securities available for sale            --             --            --              105                  105
Cash dividend, $0.18 per share                   --             --          (729)              --                 (729)
Stock options exercised                          22             66            --               --                   66
                                          -------------  -----------   ------------   ------------------   ----------------
Balances at September 30, 2001                4,055    $    16,124   $    17,788    $          78        $      33,990
                                          =============  ===========   ============   ==================   ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.




                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Comprehensive Income
       Three and nine months ended September 30, 2001 and 2000 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
                                                      Three Months Ended             Nine Months Ended
                                                        September 30,                  September 30,
                                                      2001           2000            2001           2000
                                                  ------------   ------------    ------------   ------------
<S>                                              <C>            <C>              <C>             <C>

Net income                                       $    1,162        $    771       $   3,047     $     2,220
Increase in unrealized gain on securities
    available for sale, net of tax of
    $12, $19, $54 and $19, respectively                  23              36             105              36
                                                  ------------   ------------    ------------   ------------
Comprehensive income                             $    1,185        $    807       $   3,152     $     2,256
                                                  ============   ============    ============   ============
</TABLE>
      See accompanying notes to condensed consolidated financial statements.










                                       3
<PAGE>
                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
            Nine months ended September 30, 2001 and 2000 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
                                                                              Nine Months Ended September 30,
                                                                                 2001                  2000
                                                                            ---------------       ---------------
<S>                                                                        <C>                   <C>
Cash flows from operating activities:
     Net income                                                           $       3,047         $       2,220
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Federal Home Loan Bank stock dividends                                     (44)                  (39)
         Amortization of investment premiums, net                                    25                    29
         Provision for loan losses                                                1,815                 1,026
         Depreciation of premises and equipment                                     911                   781
         Net gains on sale of premises and equipment                                (32)                   --
         Net gains on sale of other real estate owned                               (50)                   --
         Net increase in other assets                                            (1,299)                 (681)
         Net increase in other liabilities                                          536                   114
                                                                            ---------------       ---------------
                  Net cash provided by operating activities                       4,909                 3,450
                                                                            ---------------       ---------------
Cash flows from investing activities:
     Purchases of Federal Home Loan Bank stock                                     (478)                   --
     Maturities of investment securities available for sale                       1,500                 1,500
     Maturities of investment securities held to maturity                         1,465                 2,210
     Net increase in loans                                                      (58,258)              (64,353)
     Purchases of premises and equipment                                         (2,791)                   --
     Proceeds from the sale of premises                                              98                (1,581)
     Purchases of other real estate owned                                          (175)                   --
     Proceeds from the sale of other real estate owned                               80                    --
                                                                            ---------------       ---------------
                  Net cash used in investing activities                         (58,559)              (62,224)
                                                                            ---------------       ---------------
Cash flows from financing activities:
     Net increase in deposits                                                    40,977                40,928
     Net increase in federal funds purchased                                     20,000                 5,600
     Net increase in other borrowed funds                                            --                10,000
     Dividends paid on common stock                                                (729)                 (606)
     Proceeds from stock options exercised                                           66                   116
     Repurchase of common stock                                                      --                  (550)
                                                                            ---------------       ---------------
                  Net cash provided by financing activities                      60,314                55,488
                                                                            ---------------       ---------------
                  Net increase (decrease) in cash and cash equivalents            6,664                (3,286)
Cash and cash equivalents at beginning of period                                 17,179                20,793
                                                                            ---------------       ---------------
Cash and cash equivalents at end of period                                $      23,843         $      17,507
                                                                            ===============       ===============
Supplemental information:
     Loans foreclosed and transferred to real estate owned                $          75         $          --
     Cash paid for interest                                                      10,755                 7,928
     Cash paid for taxes                                                          1,500                   850
     Transfer of investments from held to maturity to available for sale          1,000                    --
</TABLE>
See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2001 and 2000 (unaudited)
(Dollars in thousands, except per share data)


 (1)  Description of Business and Summary of Significant Accounting Policies

   (a) Description of Business

Washington Banking Company ("WBCO"), a Washington State bank holding company was
formed on April 30, 1996.  Whidbey Island Bank ("WIB" or "Bank"),  the principal
subsidiary  of  WBCO,  is a  Washington  state-chartered  commercial  bank.  The
business  of the  Bank,  which  is  focused  in the  northern  area  of  Western
Washington,  consists  primarily of attracting  deposits from the general public
and originating  loans.  Although the Bank has a diversified  loan portfolio and
its market  area  currently  enjoys a stable  economic  climate,  a  substantial
portion of its  borrowers'  ability to repay their loans is  dependent  upon the
economic  conditions  affecting this area related to the agricultural,  forestry
and  manufacturing  industries,  and the large  military  base  presence  in Oak
Harbor, Washington.

Effective  June 23, 1998,  WBCO sold  1,380,000  shares of its common stock at a
price of $12 per share, resulting in net proceeds to the company of $14,893.

   (b) Basis of Presentation

The accompanying interim condensed consolidated financial statements include the
accounts of Washington Banking Company and its wholly-owned subsidiary,  Whidbey
Island Bank  (together,  "the  Company").  The  accompanying  interim  condensed
consolidated financial statements have been prepared, without audit, pursuant to
the  rules  and   regulations  of  the   Securities  and  Exchange   Commission.
Accordingly,  they do not include all of the information and footnotes  required
by accounting  principles generally accepted in the United States of America for
complete financial statements. These consolidated financial statements should be
read in conjunction  with our December 31, 2000 audited  consolidated  financial
statements and notes thereto  included in our Annual Report on Form 10-K. In our
opinion, all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included.  Operating results for the
nine months  ended  September  30, 2001 are not  necessarily  indicative  of the
results that may be expected for the year ending December 31, 2001. In preparing
the  consolidated  financial  statements,  we are required to make estimates and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses. Actual results could differ from those estimates.

Certain  amounts in 2000 may have been  reclassified  to  conform  with the 2001
financial statement presentation.

   (c) Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 141, "Business Combinations" and SFAS
142,  "Goodwill  and  Other  Intangible  Assets."  SFAS  141  requires  business
combinations  initiated  after  June 30,  2001 to be  accounted  for  using  the
purchase  method  of  accounting,   and  broadens  the  criteria  for  recording
intangible assets separate from goodwill. Recorded goodwill and intangibles will
be evaluated  against  this new  criteria and may result in certain  intangibles
being subsumed into goodwill,  or alternatively,  amounts initially  recorded as
goodwill may be separately  identified and recognized apart from goodwill.  SFAS
142  requires  the use of a  nonamortization  approach to account for  purchased
goodwill and certain intangibles.  Under this nonamortization approach, goodwill


                                       5
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2001 and 2000 (unaudited)
(Dollars in thousands, except per share data)



and certain  intangibles  will not be amortized into results of operations,  but
instead will be reviewed for  impairment and written down and charged to results
of  operations  only in the periods in which the recorded  value of goodwill and
certain  intangibles  is more than this fair value.  The  provisions of SFAS 142
will be adopted by the  Company  on January 1, 2002.  We do not expect  that the
adoption  of this  statement  will  have a  material  effect on our  results  of
operations or financial position.

(2)   Borrowing Arrangements

At September  30,  2001,  the Company had a line of credit with the Federal Home
Loan Bank of Seattle  ("FHLB") of $63.6 million  conditioned on meeting  certain
collateral and stock  ownership  requirements,  of which there was $10.0 million
advanced in other borrowed  funds and $17.0 million in overnight  federal funds.
The Company also had lines of credit with correspondent  financial  institutions
in the amount of $13.0  million,  of which  there  were $3.0  million in federal
funds purchased advanced.

(3)   Earnings Per Share

The following  illustrates the reconciliation of the numerators and denominators
of the basic and diluted earnings per share ("EPS") computations:

<TABLE>
                                                                    Three Months Ended September 30, 2001
                                                           ---------------------------------------------------------
                                                                                   Weighted             Per share
                                                              Income            average shares           amount
                                                           --------------    ---------------------    --------------
<S>                                                         <C>               <C>                     <C>
Basic EPS
Income available to common shareholders                   $     1,162               4,055,250        $      0.29
Effect of dilutive securities: stock options                       --                 203,726                 --
                                                         --------------    ---------------------    --------------
Diluted EPS                                               $     1,162               4,258,976        $      0.27
                                                           ==============    =====================    ==============


                                                                    Three Months Ended September 30, 2000
                                                           ---------------------------------------------------------
                                                                                   Weighted             Per share
                                                              Income            average shares           amount
                                                           --------------    ---------------------    --------------
Basic EPS
Income available to common shareholders                  $       771               4,031,538        $      0.19
Effect of dilutive securities: stock options                      --                 195,346                 --
                                                            --------------    ---------------------    --------------
Diluted EPS                                              $       771               4,226,884        $      0.18
                                                           ==============    =====================    ==============
</TABLE>







                                       6
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2001 and 2000 (unaudited)
(Dollars in thousands, except per share data)

<TABLE>
<S>     <C>

                                                                     Nine Months Ended September 30, 2001
                                                           ---------------------------------------------------------
                                                                                   Weighted             Per share
                                                              Income            average shares           amount
                                                           --------------    ---------------------    --------------
Basic EPS
Income available to common shareholders                  $     3,047               4,045,167        $      0.75
Effect of dilutive securities: stock options                      --                 189,035                 --
                                                           --------------    ---------------------    --------------
Diluted EPS                                              $     3,047               4,234,202        $      0.72
                                                           ==============    =====================    ==============


                                                                     Nine Months Ended September 30, 2000
                                                           ---------------------------------------------------------
                                                                                   Weighted             Per share
                                                              Income            average shares           amount
                                                           --------------    ---------------------    --------------
Basic EPS
Income available to common shareholders                 $     2,220               4,046,623        $      0.55
Effect of dilutive securities: stock options                     --                 194,523                 --
                                                           --------------    ---------------------    --------------
Diluted EPS                                             $     2,220               4,241,146        $      0.52
                                                           ==============    =====================    ==============
</TABLE>



At  September  30,  2001 and 2000 there were  options to  purchase  406,800  and
444,300 shares of common stock outstanding, respectively. For the quarters ended
September 30, 2001 and 2000, 34,500 and 113,550, respectively, were antidilutive
and, therefore, excluded from the calculation of diluted earnings per share. For
the  nine-month  period ended  September 30, 2001 and 2000,  98,550 and 113,550,
respectively, were antidilutive and, therefore, excluded from the calculation of
diluted earnings per share.

(4)  Subsequent Event

On October 18, 2001,  the Board of Directors  declared a cash  dividend of $0.06
per share to shareholders of record as of November 5, 2001,  payable on November
26, 2001.

Item 2. Management's  Discussion and Analysis of Financial Condition
         and Results of Operations

Note Regarding Forward-Looking Statements

This Form 10-Q includes  forward-looking  statements,  which management believes
are a benefit to shareholders.  These  forward-looking  statements  describe the
Company's  management's  expectations  regarding  future events and developments
such as  future  operating  results,  growth in loans  and  deposits,  continued
success of the Company's style of banking and the strength of the local economy.




                                       7
<PAGE>

The words  "will,"  "believe,"  "expect,"  "should,"  "anticipate"  and words of
similar  construction  are  intended  in part to help  identify  forward-looking
statements.  Future  events  are  difficult  to  predict,  and the  expectations
described below are necessarily  subject to risk and uncertainty  that may cause
actual results to differ  materially  and adversely.  In addition to discussions
about  risks  and  uncertainties  set forth  from time to time in the  Company's
filings with the SEC, factors that may cause actual results to differ materially
from  those  contemplated  by such  forward-looking  statements  include,  among
others, the following possibilities: (1) local and national general and economic
conditions,  including the impact of the events of September 11, 2001,  are less
favorable  than  expected  or have a more  direct and  pronounced  effect on the
Company than expected and adversely affect the Company's ability to continue its
internal  growth at  historical  rates and  maintain  the quality of its earning
assets; (2) changes in interest rates reduce interest margins more than expected
and  negatively  affect  funding  sources;   (3)  projected  business  increases
following  strategic  expansion or opening or  acquiring  new branches are lower
than  expected;  (4)  costs  or  difficulties  related  to  the  integration  of
acquisitions are greater than expected; (5) competitive pressure among financial
institutions increases significantly; (6) legislation or regulatory requirements
or changes adversely affect the businesses in which the Company is engaged.

Overview

Washington   Banking   Company  is  a  registered  bank  holding  company  whose
wholly-owned subsidiary,  Whidbey Island Bank, conducts a full-service community
commercial banking business. The Bank is a Washington  state-chartered bank. Its
deposits  are insured by the Federal  Deposit  Insurance  Corporation  ("FDIC").
Headquartered  in  Oak  Harbor,   the  Company's  primary  market  area  is  the
increasingly  diversified  and steadily  growing region located in  northwestern
Washington between Seattle and Canada. WBCO's business includes commercial loan,
real estate loan and construction loan portfolios. The Company is also active in
the consumer banking field.  WBCO also provides a wide range of deposit services
for individuals and businesses  including  checking and savings accounts as well
as  money  market  accounts,  certificates  of  deposit,  individual  retirement
accounts,  safe deposit boxes and other consumer and business related  financial
services. WBCO offers nondeposit investment products for sale through the Bank's
wholly-owned subsidiary, WIB Financial Services, Inc.

The  Company's  strategy  has been to establish a strong  geographical  presence
within its  principal  market  area while  growing the  company  through  market
penetration and providing premier personal service.  The market areas of Island,
Skagit and Whatcom Counties encompass three distinct economies.  Island County's
economy  receives a  significant  contribution  from the jobs  generated  at NAS
Whidbey  Island.  Tourism,  construction,  forestry  and  agriculture  are  also
significant  contributors.  Skagit County's economy  historically has been based
primarily  on forestry  and  agriculture,  but in recent  years,  manufacturing,
mining, construction and service/retail businesses have grown considerably.  The
economic    diversification   in   Whatcom   County   includes    manufacturing,
academic/research based, vocational/technical based, and governmental. The local
economies  appear to remain  relatively  stable,  despite the  uncertainty  seen
nationally.

Since  February  1997,  the Company  leased real  property in Anacortes  (Skagit
County)  under a Lease with Option to Purchase  agreement.  The purchase of this
property  was  completed  in  September  2001.  The Company is in the process of
selling two vacated  properties  in Oak Harbor  (Island  County),  following the
relocations of two branch offices and some administrative consolidations.

Construction  of a new building in the  Bakerview  area of  Bellingham  (Whatcom
County) was  completed in August 2001.  Management  believes  this location will
assist in enhancing the Company's  geographical presence and will complement the
downtown Bellingham location.

                                       8
<PAGE>

Continuing the strategy of expanding into appropriate  market areas, the Company
purchased a building site in Stanwood  (Snohomish  County) and is in the process
of constructing a branch. Additionally, the Company purchased property on Camano
Island  (Island  County)  and is in the  process of  constructing  a building to
relocate the existing branch.  Management  believes these locations will enhance
customer   service  by  providing  easier  branch  access  and  more  convenient
availability of services.

With the primary physical  locations  established,  the Company's strategy is to
turn the focus toward improving profitability.  Emphasis has also been placed on
maintaining asset quality,  improving internal operating systems, and delivering
products and services more efficiently.


Financial Condition

Total  assets  increased  to $425.8  million at  September  30, 2001 from $361.6
million at December 31, 2000,  an increase of 17.7%.  Net loans  totaled  $356.4
million at  September  30,  2001,  an increase  of 18.8% from $300.0  million at
December 31, 2000.  Deposits  increased 12.9% to $358.8 million at September 30,
2001 from $317.8 million at December 31, 2000.

The Company's  shareholders'  equity increased to $34.0 million at September 30,
2001 from $31.5 million at December 31, 2000. The increase  reflects earnings of
$3.0 million, an increase in unrealized gain on available-for-sale securities of
$105,000 and the exercise of stock  options of $66,000  offset by the payment of
cash dividends of $729,000 during the first nine months of 2001.

The  Company's  allowance for loan losses was $3.7 million at September 30, 2001
and $2.7  million at December 31,  2000,  representing  1.03% and 0.88% of total
loans,  respectively.  Nonperforming  assets were $2.3 million at September  30,
2001,  or 0.55% of total  assets,  compared  to $1.4  million  or 0.37% of total
assets at December 31, 2000.


Results of Operations

The  Company's  results of  operations  are  dependent  to a large degree on net
interest income. Interest income and cost of funds are affected significantly by
general economic conditions,  particularly changes in market interest rates, and
by government  policies and the actions of regulatory  authorities.  The Company
also generates noninterest income primarily through service charges and fees and
other  sources.   The  Company's   noninterest  expenses  consist  primarily  of
compensation and employee benefit expense and occupancy expense.

Net income  for the third  quarter of 2001  increased  50.7% to $1.2  million or
$0.27 per diluted  share,  from $771,000,  or $0.18 per diluted  share,  for the
third quarter of 2000.  Net income for the nine months ended  September 30, 2001
increased  37.3% to $3.0 million or $0.72 per diluted share,  from $2.2 million,
or $0.52 per diluted  share,  for the nine months ended  September 30, 2000. The
increase in net income was primarily due to interest  income from continued loan
growth and secondary market real estate fees.

Net Interest Income

Net  interest  income  for the third  quarter  of 2001  increased  33.6% to $5.2
million  from $3.9  million  for the third  quarter of 2000.  For the first nine
months of 2001, net interest income  increased 22.8% to $13.9 million from $11.3
million for the like period in 2000.  The  increase  in net  interest  income is
largely due to the growth of the Company's loan portfolio  resulting from strong
loan demand.

                                        9
<PAGE>

The following table sets forth at the dates indicated the Company's consolidated
average balance sheet and analysis of net interest income and expense:
<TABLE>
                                Three Months Ended September 30, 2001      Three Months Ended September 30, 2000
                                 Average       Interest     Average          Average      Interest      Average
(Dollars in thousands)           balance      earned/paid  yield (1)         balance     earned/paid   yield (1)
                                -----------   -----------  -----------     ------------  ------------ ------------
           Assets
<S>                             <C>             <C>         <C>           <C>            <C>            <C>
Loans (2)                      $  352,457    $   8,097        9.19%       $  273,539    $   6,699        9.80%
Federal funds sold                    177            2        4.52%              478            8        6.69%
Interest-earning cash                 829            6        2.90%            1,799           28        6.23%
Investments:
     Taxable                        8,071          124        6.15%           10,789          163        6.04%
     Non-taxable (3)               16,747          262        6.26%           17,093          268        6.27%
Deferred comp plan                    105           --        0.00%               --           --        0.00%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-earning assets        $  378,386    $   8,491        8.98%       $  303,698    $   7,166        9.44%
Noninterest-earning assets         31,223                                     25,772
                                -----------                                ------------
     Total assets              $  409,609                                 $  329,470
                                ===========                                ============

       Liabilities and
    Shareholders' equity
Deposits:
     Interest demand and
      money market             $  117,099    $     691        2.36%       $   92,077    $     843        3.66%
     Savings                       26,576          129        1.94%           25,175          179        2.84%
     Time deposits                161,048        2,234        5.55%          123,673        1,938        6.27%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing deposits      $  304,723    $   3,054        4.01%       $  240,925    $   2,960        4.91%
Fed funds purchased                 9,529           88        3.69%            5,363           90        6.71%
Other interest-bearing             10,268          103        4.01%           10,038          171        6.81%
liabilites                      -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing liabilities   $  324,520    $   3,245        4.00%       $  256,326    $   3,221        5.03%
Noninterest-bearing deposits       49,638                                     40,626
Other noninterest-bearing           2,156                                      1,785
liabilities                     -----------                                ------------
Total liabilities              $  376,314                                 $  298,737
Shareholders' equity               33,295                                     30,733
                                -----------                                ------------
     Total liabilities and
     Shareholders' equity      $  409,609                                 $  329,470
                                ===========                                ============

Net interest income (3)                      $   5,246                                  $   3,945
                                              ===========                                ============

Net interest spread (1)                                       4.98%                                      4.41%
                                                           ===========                                ============

Net interest margin (1)                                       5.55%                                      5.20%
                                                           ===========                                ============

(1) Annualized
(2) Includes loan fees of $165 and $76 for the three months ended September 30, 2001 and 2000.
(3) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis
    using the federal statutory rate of 34%.
    These adjustments were $66 and $68 for the three months ended September 30,2001 and 2000.
</TABLE>

                                       10
<PAGE>

Average  interest-earning  assets  for the  third  quarter  increased  to $378.4
million at September 30, 2001 compared to $303.7  million at September 30, 2000,
a growth of $74.7 million, or 24.6%, while the average yield on interest-earning
assets  decreased to 8.98%  compared to 9.44% in the third  quarter of the prior
year.  The  average  yield on loans  decreased  to 9.19% for the  quarter  ended
September  30, 2001 from 9.80% for the quarter  ended  September  30, 2000.  The
average  yield on  interest-bearing  deposits  decreased in the third quarter of
2001 to 4.01% from 4.91% for the  quarter  ended  September  30,  2000.  Average
interest-bearing  deposits  for the  quarter  increased  to  $304.7  million  at
September 30, 2001 compared to $240.9 million at September 30, 2000, a growth of
$63.8 million,  or 26.5%. The overall result of these changes was an increase in
the net  interest  spread  and the net  interest  margin  to  4.98%  and  5.55%,
respectively, for the quarter ended September 30, 2001 and from 4.41% and 5.20%,
respectively, for the quarter ended September 30, 2000.


Noninterest Income and Expense

Noninterest  income increased  $423,000,  or 63.4%, in the third quarter of 2001
compared  to the like  period  in  2000.  For the  first  nine  months  of 2001,
noninterest  income  increased $1.1 million or 57.4% compared to the like period
in 2000.  The growth is primarily  due to increased  volume of secondary  market
fees on loans originated on behalf of third parties.

Noninterest expense was $3.8 million, an increase of $555,000,  or 17.3%, in the
third quarter of 2001.  Two major  components of noninterest  expense,  employee
compensation  and occupancy,  increased 21.6% and 10.2%,  respectively,  for the
quarter  compared to the like period in 2000. For the first nine months of 2001,
noninterest  expense  rose to $10.9  million  from $9.3  million one year ago, a
17.6% increase.  Employee compensation and occupancy expense increased 20.6% and
14.8%, respectively,  for the nine months ended September 30, 2001. The increase
in noninterest  expenses  mainly reflects  personnel  costs and  depreciation of
fixed assets associated with growth. The efficiency ratio  (noninterest  expense
divided  by  the  sum  of net  interest  income  plus  noninterest  income  less
non-recurring  gains)  improved to 59.97% for the third quarter 2001 compared to
70.53% for the like period in 2000.  For the first nine months of 2001 and 2000,
the efficiency ratio was 63.88% and 69.51%, respectively.


Income Taxes

For the third  quarter  and first nine months of 2001,  the Company  recorded an
income tax  provision of $593,000 and $1.3  million,  respectively.  The overall
effective  tax rate is  approximately  34% and 30% for the three and nine months
ended September 30, 2001. The difference  between the expected federal statutory
rate of 34% and the actual  effective  tax rate is primarily  due to  tax-exempt
interest income from municipal investments.


Lending Activities

The Company originates a wide variety of loans including commercial, real estate
and consumer loans.








                                       11
<PAGE>

The following table sets forth the Company's loan portfolio
composition by type of loan at the dates indicated:
<TABLE>
                                             September 30, 2001                  December 31, 2000
                                       -------------------------------     -------------------------------
(Dollars in thousands)                    Balance        % of total           Balance        % of total
                                       ---------------  --------------     ---------------  --------------
<S>                                      <C>            <C>                 <C>             <C>
Commercial                            $     113,397          31.5%        $    105,410           34.8%
Real estate mortgage:
  One-to-four family residential             32,795           9.1%              31,766           10.5%
  Five-or-more family
    residential and commercial               50,430          14.0%              39,300           13.0%
                                       ---------------  --------------     -------------------------------
     Total real estate mortgage       $      83,225          23.1%        $     71,066           23.5%

Real estate construction                     40,635          11.3%              28,036            9.3%
Consumer                                    122,857          34.1%              98,172           32.4%
                                       ---------------  --------------     -------------------------------
  Subtotal                            $     360,114         100.0%        $    302,684          100.0%
                                                        ==============                      ==============
Less: allowance for loan losses              (3,726)                            (2,664)
Deferred loan fees                              (22)                               (22)
                                       ---------------                     ---------------
Loans, net                            $     356,366                       $    299,998
                                       ===============                     ===============
</TABLE>

Total  loans,   net,   increased  to  $356.4  million  at  September  30,  2001,
representing an 18.8% increase from year-end 2000. Total commercial, real estate
mortgage,  real estate  construction  and consumer loans increased 7.6%,  17.1%,
44.9% and 25.1%,  respectively,  at September 30, 2001 from year-end 2000. These
changes  reflect  seasonal  trends,  the  Company's  geographical  expansion and
increased  average loan size  resulting in solid growth from its various  market
areas and diversified customer base.


Nonperforming Assets

The following table sets forth an analysis of the composition of the Company's
nonperforming assets at the dates indicated:
<TABLE>

    (Dollars in thousands)                                         September 30, 2001         December 31, 2000
                                                                  ----------------------    -----------------------
<S>                                                             <C>                        <C>
    Nonaccrual loans                                            $            1,977        $            1,152
    Restructured loans                                                                                    77
                                                                  ----------------------    -----------------------
     Total nonperforming loans                                               1,977                     1,229
    Real estate owned                                                          344                       124
                                                                  ----------------------    -----------------------
     Total nonperforming assets                                              2,321                     1,353
                                                                  ======================    =======================

    Accruing loans past due > 90 days                                            7                        --
    Potential problem loans                                                     --                        --
    Allowance for loan losses                                                3,726                     2,664

    Nonperforming loans to loans                                            0.55 %                     0.41%
    Allowance for loan losses to loans                                      1.03 %                     0.88%
    Allowance for loan losses to nonperforming loans                       188.47%                   216.76%
    Nonperforming assets to total assets                                    0.55 %                     0.37%
</TABLE>
                                       12
<PAGE>

Nonperforming  loans  increased to $2.0  million,  or 0.55% of total  loans,  at
September 30, 2001 from $1.2 million,  or 0.41% of total loans,  at December 31,
2000 due primarily to an increase in nonaccrual real estate loans. The loan loss
reserve  represents  188.47% of  nonperforming  loans as  compared to 216.76% at
December 31,  2000.  The loan loss reserve was 1.03% of total loans at September
30, 2001 as compared to 0.88% at December 31, 2000.


Provision and Allowance for Loan Losses

The Company recorded a $755,000  provision for loan losses for the third quarter
of 2001,  compared  with  $300,000  for the same  period a year ago.  There were
$423,000 in net loan charge-offs  during the third quarter of 2001,  compared to
$187,000 in net charge-offs for the same period in 2000.

For the nine months  ended  September  30,  2001,  the  Company  recorded a $1.8
million  provision  for loan  losses,  compared  with $1.0  million for the same
period a year ago. There were $753,000 in net loan charge-offs  during the first
nine months of 2001, compared to $438,000 in net charge-offs for the same period
in 2000.

The allowance for loan losses is  maintained at a level  considered  adequate by
management  to  provide  for  anticipated  loan  losses  based  on  management's
assessment of various factors  affecting the loan portfolio,  including a review
of problem loans,  business  conditions,  current  economic  conditions and loss
experience,  and  an  overall  evaluation  of  the  quality  of  the  underlying
collateral.  The allowance is increased by provisions  charged to operations and
reduced by loans charged off, net of recoveries.

The following table sets forth the changes in the Company's allowance for loan
losses at the dates indicated:
<TABLE>

(Dollars in thousands)                           Three Months Ended                     Nine Months Ended
                                                   September 30,                          September 30,
                                              2001               2000                2001              2000
                                          --------------     --------------      --------------    --------------
<S>                                         <C>            <C>                    <C>             <C>

Balance at beginning of period          $     3,394        $     2,657         $     2,664       $     2,182
Charge-offs:
     Commercial                                (145)              (100)               (249)             (195)
     Real estate                                (72)                --                (117)               --
     Consumer                                  (275)              (109)               (563)             (305)
                                          --------------     --------------      --------------    --------------
              Total charge-offs                (492)              (209)               (929)             (500)

Recoveries:
     Commercial                                   4                 --                  70                 5
     Real estate                                  6                 --                   6                --
     Consumer                                    59                 22                 100                57
                                          --------------     --------------      --------------    --------------
              Total recoveries                   69                 22                 176                62
Net charge-offs                                (423)              (187)               (753)             (438)
Provision for loan losses                       755                300               1,815             1,026
                                          --------------     --------------      --------------    --------------
Balance at end of period                $     3,726        $     2,770         $     3,726       $     2,770
                                          ==============     ==============      ==============    ==============
</TABLE>



                                       13
<PAGE>

Liquidity and Sources of Funds

The Company's sources of funds are customer  deposits,  cash and demand balances
due from other  banks,  federal  funds  purchased,  short-term  investments  and
investment  securities  available  for sale.  These  funds,  together  with loan
repayments,  are  used  to make  loans  and to fund  continuing  operations.  In
addition,  at September  30, 2001 the Company had a line of credit with the FHLB
of $63.6 million and lines of credit with financial  institutions  in the amount
of $13.0  million,  with $30.0  million in  advances on these lines of credit at
September 30, 2001.

Total  deposits  increased  12.9% to $358.8  million at September  30, 2001 from
$317.8  million at December 31, 2000. The Company,  by policy,  has not accepted
brokered  deposits.  It has made a concerted  effort to attract  deposits in the
market  area it serves  through  competitive  pricing  and  delivery  of quality
service.  Historically, the Company has been able to retain a significant amount
of its deposits as they mature.

Management  anticipates  that the  Company  will rely  primarily  upon  customer
deposits, loan repayments and current earnings to provide liquidity. The Company
also expects to continue to use FHLB advances to supplement funding sources.

Capital

The Company's  shareholders'  equity increased to $34.0 million at September 30,
2001 from $31.5 million at December 31, 2000. This increase is due to net income
of $3.0 million, an increase in unrealized gain on available-for-sale securities
of $105,000,  net of tax, and the exercise of stock options of $66,000 offset by
the payment of cash  dividends  of $729,000  during the first nine months  ended
September 30, 2001.  Total assets  increased to $425.8  million at September 30,
2001  from  $361.6   million  at  December  31,  2000,  an  increase  of  17.7%.
Shareholders'  equity to total assets was 8.0% at September 30, 2001 compared to
8.7% at December 31, 2000.

The following table sets forth the bank's capital ratios at the dates indicated:
<TABLE>

                                                                   September 30, 2001
                                         ------------------------------------------------------------------------
                                                                          Minimum             Well-capitalized
                                              Actual ratio              requirement             requirement
                                         ----------------------    --------------------    ----------------------
<S>                                        <C>                           <C>                       <C>
  Total risk-based capital ratio                 9.66%                     8%                       10%
  Tier 1 risk-based capital ratio                8.68%                     4%                        6%
  Leverage ratio                                 8.08%                     4%                        5%

                                                                    December 31, 2000
                                         ------------------------------------------------------------------------
                                                                          Minimum             Well-capitalized
                                             Actual ratio               requirement             requirement
                                          ----------------------    --------------------   ----------------------

  Total risk-based capital ratio                10.31%                     8%                       10%
  Tier 1 risk-based capital ratio                9.47%                     4%                        6%
  Leverage ratio                                 8.54%                     4%                        5%

</TABLE>




                                       14
<PAGE>

To  be  "adequately-capitalized,"   banking  regulations  require  bank  holding
companies  and banks to maintain a minimum  "leverage"  ratio of core capital to
adjusted  average total assets of at least 4%. In addition,  banking  regulators
have adopted  risk-based  capital  guidelines,  under which risk percentages are
assigned  to  various  categories  of  assets  and  off-balance  sheet  items to
calculate a risk-adjusted  capital ratio. Tier I capital  generally  consists of
common  shareholders' equity (which does not include unrealized gains and losses
on securities),  less goodwill and certain identifiable intangible assets, while
Tier II capital  includes the  allowance for loan losses and  subordinated  debt
both  subject to certain  limitations.  Regulatory  minimum  risk-based  capital
guidelines  require  Tier I  capital  of 4% of  risk-adjusted  assets  and total
capital  (combined  Tier I and Tier II) of 8%.  Whidbey Island Bank qualified as
"adequately-capitalized" at September 30, 2001.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

A number  of  measures  are used to  monitor  and  manage  interest  rate  risk,
including income simulations and interest sensitivity (gap) analyses.  An income
simulation  model is the primary tool used to assess the direction and magnitude
of changes in net interest income  resulting from changes in interest rates. Key
assumptions in the model include prepayment speeds on  mortgage-related  assets,
cash flows and  maturities  of other  investment  securities,  loan and  deposit
volumes and  pricing.  These  assumptions  are  inherently  uncertain  and, as a
result,  the model cannot  precisely  estimate net interest  income or precisely
predict the impact of higher or lower  interest  rates on net  interest  income.
Actual results will differ from simulated  results due to timing,  magnitude and
frequency of interest rate changes,  changes in market conditions and management
strategies,  among other factors.  At September 30, 2001,  based on the measures
used to monitor  and manage  interest  rate risk,  there had not been a material
change in the  Company's  interest  rate  risk  since  December  31,  2000.  For
additional  information,  refer to the  Company's  Form 10-K for the year  ended
December 31, 2000.



                                     PART II


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         None

(b)      Reports on Form 8-K

         None
















                                       15
<PAGE>

                                   SIGNATURES

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.


                           WASHINGTON BANKING COMPANY



Date: November 13, 2001                          By   /s/  Michal D. Cann
                                                     -------------------

                                                       Michal D. Cann
                                                       President and
                                                   Chief Executive Officer


Date: November 13, 2001                          By   /s/ Phyllis A. Hawkins
                                                     ----------------------

                                                       Phyllis A. Hawkins
                                                   Senior Vice President and
                                                    Chief Financial Officer




































                                       16