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 June 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 August 10, 2001 was 4,055,250.


<PAGE>



                                Table of Contents
<TABLE>
                                                          PART I                                             Page
                                                                                                             ----
<S>                                                                                                           <C>
Item 1        Financial Statements
                  Condensed Consolidated Statements of Financial Condition -
                       June 30, 2001(unaudited) and December 31, 2000                                          1

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

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

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

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

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

Item 2        Management's Discussion and Analysis of Financial Condition and Results of Operations            8
Item 3        Quantitative and Qualitative Disclosures about Market Risk                                      17


                                                         PART II

Item 4        Submission of Matters to a Vote of Security Holders                                             17
Item 6        Exhibits and Reports on Form 8-K                                                                17
                  Signatures
</TABLE>

<PAGE>
                                     PART I
Item 1.  Financial Statements

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Financial Condition
                       June 30, 2001 and December 31, 2000
                  (Dollars in thousands, except per share data)

<TABLE>
                                                                                  June 30,         December 31,
                                  Assets                                            2001               2000
                                                                               ---------------    ----------------
                                                                                 (unaudited)
<S>                                                                                  <C>                <C>
Cash and due from banks                                                      $        17,061    $        15,001
      ($1,569 and $1,158, respectively, are restricted)
Interest-earning deposits                                                                994              1,428
Federal funds sold                                                                        --                750
                                                                               ---------------    ----------------
     Total cash and cash equivalents                                                  18,055             17,179
                                                                               ---------------    ----------------

Federal Home Loan Bank stock                                                             872                844
Investment securities available for sale                                               4,621              4,995
Investment securities held to maturity                                                19,673             21,491
                                                                               ---------------    ----------------
     Total investment securities                                                      25,166             27,330
                                                                               ---------------    ----------------

Loans receivable, net                                                                345,772            299,998
Premises and equipment, net                                                           13,769             13,730
Other real estate owned                                                                  124                124
Deferred tax asset                                                                       336                378
Other assets                                                                           2,884              2,906
                                                                               ---------------    ----------------
              Total assets                                                   $       406,106    $       361,645
                                                                               ===============    ================

                   Liabilities and Shareholders' Equity
Liabilities:
     Deposits                                                                $       345,075    $       317,776
     Federal funds purchased                                                          16,000                 --
     Federal Home Loan Bank advances                                                  10,000             10,000
     Other liabilities                                                                 1,982              2,368
                                                                               ---------------    ----------------
              Total liabilities                                                      373,057            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 June 30, 2001 and December 31, 2000, respectively                   16,124             16,058
     Retained earnings                                                                16,870             15,470
     Accumulated other comprehensive income (loss), net                                   55                (27)
                                                                               ---------------    ----------------
              Total shareholders' equity                                              33,049             31,501
Commitments and contingencies                                                  ---------------    ----------------
              Total liabilities and shareholders' equity                     $       406,106    $       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 six months ended June 30, 2001 and 2000 (unaudited)
                  (Dollars in thousands, except per share data)
<TABLE>


                                                             Three Months Ended          Six Months Ended
                                                                June 30,                     June 30,
                                                           2001         2000             2001          2000
                                                        -----------  -----------      -----------   -----------
<S>                                                      <C>          <C>              <C>           <C>
Interest income:
     Interest and fees on loans                       $     7,900  $     6,064      $   15,340    $   11,549
     Interest on taxable investment securities                115          164             245           350
     Interest on tax-exempt investment securities             198          203             398           404
     Other                                                     49           45             113           125
                                                        -----------  -----------      -----------   -----------
           Total interest income                            8,262        6,476          16,096        12,428
Interest expense                                            3,593        2,665           7,351         4,970
                                                        -----------  -----------      -----------   -----------
           Net interest income                              4,669        3,811           8,745         7,458
Provision for loan losses                                    (655)        (400)         (1,060)         (726)
                                                        -----------  -----------      -----------   -----------
           Net interest income after
              provision for loan losses                     4,014        3,411           7,685         6,732
Noninterest income:
     Service charges and fees                                 437          454             841           857
     Other                                                    648          271           1,174           449
                                                        -----------  -----------      -----------   -----------
           Total noninterest income                         1,085          725           2,015         1,306
Noninterest expense:
     Salaries and benefits                                  2,104        1,729           4,224         3,518
     Occupancy                                                678          563           1,335         1,138
     Office supplies and printing                             138          101             263           240
     Data processing                                           81           82             163           163
     Consulting and professional fees                          67           58             122            99
     Other                                                    547          457           1,011           888
                                                        -----------  -----------      -----------   -----------
           Total noninterest expense                        3,615        2,990           7,118         6,046
                                                        -----------  -----------      -----------   -----------
           Income before income taxes                       1,484        1,146           2,582         1,992
Provision for income taxes                                   (400)        (314)           (697)         (543)
                                                        -----------  -----------      -----------   -----------
           Net income                                 $     1,084  $       832      $    1,885    $    1,449
                                                        ===========  ===========      ===========   ===========

Net income per share, basic                           $      0.27  $      0.21      $     0.47    $     0.36
                                                        ===========  ===========      ===========   ===========
Net income per share, diluted                         $      0.26  $      0.20      $     0.45    $     0.34
                                                        ===========  ===========      ===========   ===========

Average number of shares outstanding, basic              4,047,097    4,046,691        4,040,043     4,054,252
Average number of shares outstanding, diluted            4,233,794    4,249,886        4,223,131     4,258,502

</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Shareholders' Equity
                   Six months ended June 30, 2001 (unaudited)
            (Dollars and shares in thousands, except per share data)

<TABLE>




                                                Common stock                          Accumulated 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                                       --             --         1,885               --                1,885
Net change in unrealized gain
     on securities available for sale            --             --            --               82                   82
Cash dividend, $0.12 per share                   --             --          (485)              --                 (485)
Stock options exercised                          22             66            --               --                   66
                                          -------------  -----------   ------------   ------------------   ----------------
Balances at June 30, 2001                     4,055    $    16,124   $    16,870    $          55        $      33,049
                                          =============  ===========   ============   ==================   ================
</TABLE>

See accompanying notes to condensed consolidated financial statements.






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


<TABLE>

                                                      Three Months Ended              Six Months Ended
                                                           June 30,                       June 30,
                                                      2001           2000            2001           2000
                                                  ------------   ------------    ------------   ------------
<S>                                             <C>            <C>             <C>            <C>
Net income                                      $    1,084     $      832      $    1,885     $     1,449
Increase in unrealized gain on securities
     available for sale, net of tax
     $7, $5, $42 and $0, respectively                   13              9              82              --
                                                  ------------   ------------    ------------   ------------
Comprehensive income                            $    1,097     $      841      $    1,967     $     1,449
                                                  ============   ============    ============   ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
               Six months ended June 30, 2001 and 2000 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>

                                                                                  Six Months Ended June 30,
                                                                                   2001                2000
                                                                              ---------------      --------------
<S>                                                                         <C>                  <C>
Cash flows from operating activities:
     Net income                                                             $       1,885        $       1,449
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Federal Home Loan Bank stock dividends                                       (28)                 (26)
         Amortization of investment premiums, net                                      16                   21
         Provision for loan losses                                                  1,060                  726
         Depreciation of premises and equipment                                       600                  520
         Net gains on sale of premises and equipment and real estate                  (32)                  --
         Net (increase) decrease in other assets                                       22                 (480)
         Net increase (decrease) in other liabilities                                (386)                  61
                                                                              ---------------      --------------
                  Net cash provided by operating activities                         3,137                2,271
                                                                              ---------------      --------------

Cash flows from investing activities:
     Maturities of investment securities available for sale                         1,500                1,500
     Maturities of investment securities held to maturity                             800                1,610
     Net increase in loans                                                        (46,834)             (42,203)
     Purchases of premises and equipment                                             (704)                (596)
     Proceeds from the sale of premises and equipment and real estate                  97                   --
                                                                              ---------------      --------------
                  Net cash used in investing activities                           (45,141)             (39,689)
                                                                              ---------------      --------------

Cash flows from financing activities:
     Net increase in deposits                                                      27,299               14,223
     Net increase in Federal Home Loan Bank advances                                   --               16,080
     Net increase in federal funds purchased                                       16,000                5,000
     Dividends paid on common stock                                                  (485)                (406)
     Proceeds from stock options exercised                                             66                   66
     Repurchase of common stock                                                        --                 (454)
                                                                              ---------------      --------------
                  Net cash provided by financing activities                        42,880               34,509
                                                                              ---------------      --------------
                  Net increase (decrease) in cash and cash equivalents                876               (2,909)
Cash and cash equivalents at beginning of period                                   17,179               20,793
                                                                              ---------------      --------------
Cash and cash equivalents at end of period                                  $      18,055        $      17,884
                                                                              ===============      ==============

Supplemental information:
     Cash paid for interest                                                 $       8,949        $       4,882
     Cash paid for taxes                                                              925                  400

</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 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
six months  ended June 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.

   (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 a nonamortization approach, goodwill and
certain  intangibles  will not be  amortized  into  results of  operations,  but
instead would 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 its 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.

                                       5
<PAGE>

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


In June 1998, the FASB issued SFAS 133,  "Accounting for Derivative  Instruments
and Hedging  Activities,"  which requires all  derivatives to be recorded on the
balance sheet at fair value and establishes  accounting  standards for different
types of hedging  activities,  including fair value hedges, cash flow hedges and
hedges  of  foreign  currency  exposures.  In May  1999,  the FASB  delayed  the
effective  date of SFAS 133 to fiscal years  beginning  after June 15, 2000 with
interim reporting required.  In June 2000, the FASB issued SFAS 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," an amendment
of FASB  Statement  No. 133,  which makes minor  modifications  to SFAS 133. The
adoption  of these  statements  by the  Company  did not  materially  affect the
results of  operations or financial  condition of the Company.  During the first
quarter of 2001, the Company transferred $1.0 million of securities from held to
maturity to available for sale.


(2)   Borrowing Arrangements

At June 30,  2001,  the Company had a line of credit with the Federal  Home Loan
Bank of Seattle  ("FHLB") of $60.8  million,  of which  there was $10.0  million
advanced  in other  borrowed  funds and $7.0  million in  overnight  funds.  The
Company also had lines of credit with  correspondent  financial  institutions in
the amount of $13.0  million,  of which there were $9.0 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 June 30, 2001
                                                        ------------------------------------------------------
                                                                              Weighted            Per share
                                                           Income          average shares          amount
                                                        ------------    --------------------    --------------
    <S>                                               <C>                     <C>             <C>
    Basic EPS
    Income available to common shareholders           $    1,084              4,047,097       $      0.27
    Effect of dilutive securities: stock options              --                186,697             (0.01)
                                                        ------------    --------------------    --------------
    Diluted EPS                                       $    1,084              4,233,794       $      0.26
                                                        ============    ====================    ==============


                                                                    Three Months Ended June 30, 2000
                                                        ------------------------------------------------------
                                                                              Weighted            Per share
                                                           Income          average shares          Amount
                                                        ------------    --------------------    --------------
    Basic EPS
    Income available to common shareholders           $      832              4,046,691       $      0.21
    Effect of dilutive securities: stock options              --                203,195             (0.01)
                                                        ------------    --------------------    --------------
    Diluted EPS                                       $      832              4,249,886       $      0.20
                                                        ============    ====================    ==============
</TABLE>

                                       6
<PAGE>

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


<TABLE>
                                                                     Six Months Ended June 30, 2001
                                                        ------------------------------------------------------
                                                                              Weighted            Per share
                                                           Income          average shares          Amount
                                                        ------------    --------------------    --------------
    <S>                                               <C>                     <C>             <C>
    Basic EPS
    Income available to common shareholders           $    1,885              4,040,043       $      0.47
    Effect of dilutive securities: stock options              --                183,088             (0.02)
                                                        ------------    --------------------    --------------
    Diluted EPS                                       $    1,885              4,223,131       $      0.45
                                                        ============    ====================    ==============


                                                                     Six Months Ended June 30, 2000
                                                        ------------------------------------------------------
                                                                              Weighted            Per share
                                                           Income          average shares          amount
                                                        ------------    --------------------    --------------
    Basic EPS
    Income available to common shareholders           $    1,449              4,054,252       $      0.36
    Effect of dilutive securities: stock options              --                204,250             (0.02)
                                                        ------------    --------------------    --------------
    Diluted EPS                                       $    1,449              4,258,502       $      0.34
                                                        ============    ====================    ==============
    </TABLE>


At June 30,  2001 and 2000 there were  options to  purchase  406,800 and 469,700
shares of common stock  outstanding,  respectively,  of which 98,550 and 122,450
were  antidilutive  and therefore not included in the computation of diluted net
income per share.

(4)   Subsequent Event

On July 19, 2001,  the Board of Directors  declared a cash dividend of $0.06 per
share to  shareholders  of record as of August 3,  2001,  payable  on August 20,
2001.

                                       7


<PAGE>

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.  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
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
fast-growing, increasingly diversified region located between Vancouver, BC, and
Seattle in northwestern  Washington.  WBCO's business includes  commercial loan,
real estate loan and construction loan portfolios.  The Company is active in the
consumer  banking  field  and  provides  personal  and  consumer-oriented   loan
programs.  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  subsidiary,  WIB
Financial Services, Inc.

                                       8
<PAGE>

The Company's strategy has been to build a strong  geographical  presence within
its principal  market area while inducing growth through market  penetration and
providing premier personal service.  Following the relocations of two Oak Harbor
branch offices and recent administrative  consolidations,  the Company currently
has two  vacant  properties  for sale.  Construction  of a new  building  in the
Bakerview  area of  Bellingham  (Whatcom  County) is expected to be completed by
fall 2001. Management believes the building, which replaces the temporary branch
that was opened in August  2000 at the same site,  will  enhance  the  Company's
presence and complement the existing Bellingham location.

Continuing the strategy of expanding into appropriate  market areas, the Company
purchased a potential future building site in Stanwood (Snohomish County) and is
in the process of  evaluating  the  feasibility  of a branch at this  location..
Management  believes this location  will enhance  customer  service by providing
easier branch access and more convenient availability of services.

The Company has leased real  property in Anacortes  under a Lease with Option to
Purchase agreement since February 1997. The Company recently gave notice that it
intends to exercise its option to purchase  the land and earnest  money has been
placed in an escrow  account.  The sale is  expected  to close  during the third
quarter of 2001.

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 $406.1 million at June 30, 2001 from $361.6 million at
December 31, 2000,  an increase of 12.3%.  Net loans totaled  $345.8  million at
June 30,  2001,  an increase of 15.3% from $300.0  million at December 31, 2000.
Deposits  increased  8.6% to $345.1 million at June 30, 2001 from $317.8 million
at December 31, 2000.

The Company's  shareholders'  equity increased to $33.0 million at June 30, 2001
from $31.5  million at December 31, 2000.  The increase  reflects  earnings,  an
increase in unrealized gain on available-for-sale  securities of $82,000 and the
excise of stock  options of $66,000  offset by the payment of cash  dividends of
$485,000 during the first six months of 2001.

The  Company's  allowance  for loan losses was $3.4 million at June 30, 2001 and
$2.7 million at December 31, 2000,  representing 0.97% and 0.88% of total loans,
respectively.  Nonperforming assets were $2.2 million on June 30, 2001, or 0.54%
of total  assets,  compared to $1.4 million or 0.37% of total assets at December
31, 2000.

                                       9
<PAGE>

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 second  quarter of 2001  increased  30.3% to $1.1  million or
$0.26 per diluted  share,  from $832,000,  or $0.20 per diluted  share,  for the
second  quarter  of 2000.  Net income  for the six  months  ended June 30,  2001
increased  30.1% to $1.9 million or $0.45 per diluted share,  from $1.4 million,
or $0.34 per diluted share, for the six months ended June 30, 2000. The increase
in net income was  primarily due to continued  loan growth and secondary  market
real estate fees.

Net Interest Income

Net  interest  income for the second  quarter  of 2001  increased  22.5% to $4.7
million  from $3.8  million  for the second  quarter of 2000.  For the first six
months of 2001, net interest  income  increased  17.3% to $8.7 million from $7.5
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.

                                       10
<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 June 30, 2001            Three Months Ended June 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                          $  337,524    $   7,900        9.36%       $  248,908    $   6,064        9.74%
Federal funds sold                  1,244           17        5.47%               46            1        8.70%
Interest-bearing cash               1,618           18        4.45%            2,215           31        5.60%
Investments:
     Taxable                        8,637          130        6.02%           11,620          177        6.09%
     Non-taxable (2)               16,927          265        6.26%           17,131          272        6.35%
Deferred comp plan                     92           --        0.00%               --           --        0.00%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-earning assets        $  366,042    $   8,330        9.10%       $  279,920    $   6,545        9.35%
Noninterest-earning assets         30,516                                     24,861
                                -----------                                ------------
    Total assets               $  396,558                                 $  304,781
                                ===========                                ============

       Liabilities and Shareholders' equity
Deposits:
     Interest demand and
      Money market             $  108,068    $     741        2.74%       $   82,225    $     664        3.23%
     Savings                       24,958          123        1.97%           24,706          158        2.56%
     Time deposits                169,638        2,570        6.06%          113,123        1,613        5.70%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing deposits      $  302,664    $   3,434        4.54%       $  220,054    $   2,435        4.43%
Fed funds purchased                 8,131           90        4.43%           13,776          230        6.68%
Other borrowings (3)                6,799           69        4.06%              177           --        0.00%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing liabilities   $  317,549    $   3,593        4.53%       $  234,007    $   2,665        4.56%
Noninterest-bearing deposits       42,788                                     38,852
Other noninterest-bearing           2,272                                      1,650
liabilities
                                -----------                                ------------
Total liabilities              $  362,654                                 $  274,509
Shareholders' equity               33,904                                     30,272
                                -----------                                ------------
    Total liabilities and
       Shareholders' equity    $  396,558                                 $  304,781
                                ===========                                ============
Net interest income (2)                      $   4,737                                  $   3,880
                                              ===========                                ============
Net interest spread (1)                                       4.57%                                      4.79%
                                                           ===========                                ============
Net interest margin (1)                                       5.18%                                      5.54%
                                                           ===========                                ============

(1)  Annualized
(2)  Interest income on non-taxable investments is presented on a fully taxable-equivalent basis using the federal statutory
     rate of 34%. These adjustments were $68 and $69 for the three months ended June 30, 2001 and 2000.
(3)  Funds were borrowed on June 30, 2000.

</TABLE>
                                       11
<PAGE>

Average  interest-earning  assets for the  second  quarter  increased  to $366.0
million at June 30, 2001  compared to $279.9  million at June 30, 2000, a growth
of $86.1 million, or 30.8%, while the average yield on  interest-earning  assets
decreased to 9.10%  compared to 9.35% in second  quarter of the prior year.  The
average  yield on loans  decreased to 9.36% for the quarter  ended June 30, 2001
from  9.74%  for  the  quarter  ended  June  30,  2000.  The  average  yield  on
interest-bearing  deposits increased in the second quarter of 2001 to 4.54% from
4.43% for the quarter ended June 30, 2000. Average interest-bearing deposits for
the quarter  increased  to $302.7  million at June 30,  2001  compared to $220.1
million at June 30,  2000,  a growth of $82.6  million,  or 37.5%.  The  overall
result of these  changes was a decrease in the net  interest  spread and the net
interest margin to 4.57% and 5.18%, respectively, for the quarter ended June 30,
2001 from 4.79% and 5.54%, respectively, for the quarter ended June 30, 2000.

Noninterest Income and Expense

Noninterest income increased  $360,000,  or 49.7%, in the second quarter of 2001
compared  to the  like  period  in  2000.  For the  first  six  months  of 2001,
noninterest income increased  $709,000,  or 54.3% compared to the like period in
2000.  The growth is primarily due to increased  secondary  market fees on loans
originated on behalf of third parties.

Noninterest expense was $3.6 million, an increase of $625,000,  or 20.9%, in the
second quarter of 2001. Two major  components of noninterest  expense,  employee
compensation  and occupancy,  increased 21.7% and 20.4%,  respectively,  for the
quarter  compared to the like period in 2000.  For the first six months of 2001,
noninterest expense rose to $7.1 million from $6.0 million one year ago, a 17.7%
increase. Employee compensation and occupancy expense increased 20.1% and 17.3%,
respectively,  for  the  six  months  ended  June  30,  2001.  The  increase  in
noninterest expenses mainly reflects personnel costs 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 62.83% for the
second  quarter  2001  compared to 65.92% for the like  period in 2000.  For the
first six months of 2001 and 2000, the  efficiency  ratio was 66.15% and 68.99%,
respectively.


Income Taxes

For the second  quarter and first six months of 2001,  the  Company  recorded an
income tax  provision  of  $400,000  and  $697,000,  respectively.  The  overall
effective tax rate is approximately  27% for the three and six months ended June
30, 2001 and 2000. The difference between the expected federal statutory rate of
34% and the actual  effective  tax rate of 27% is  primarily  due to  tax-exempt
interest income from municipal investments.

                                       12
<PAGE>

Lending Activities

The Company originates a wide variety of loans including commercial, real estate
and consumer loans.  The following table sets forth the Company's loan portfolio
composition by type of loan at the dates indicated:

<TABLE>


                                               June 30, 2001                     December 31, 2000
                                       -------------------------------     -------------------------------
(Dollars in thousands)                    Balance        % of total           Balance        % of total
                                       ---------------  --------------     ---------------  --------------
<S>                                   <C>                    <C>          <C>                    <C>
Commercial                            $     118,686          34.0%        $    105,410           34.8%
Real estate mortgage:
  One-to-four family residential             35,809          10.3%              31,766           10.5%
  Five-or-more family
    residential and commercial               45,250          13.0%              39,300           13.0%
                                       ---------------  --------------     -------------------------------
     Total real estate mortgage       $      81,059          23.2%        $     71,066           23.5%

Real estate construction                     32,420           9.3%              28,036            9.3%
Consumer                                    117,009          33.5%              98,172           32.4%
                                       ---------------  --------------     -------------------------------
  Subtotal                            $     349,174         100.0%        $    302,684          100.0%
                                                        ==============                      ==============
Less: allowance for loan losses              (3,394)                            (2,664)
Deferred loan fees                               (8)                               (22)
                                       ---------------                     ---------------
Loans, net                            $     345,772                       $    299,998
                                       ===============                     ===============
</TABLE>

Total loans, net,  increased to $345.8 million at June 30, 2001,  representing a
15.3% increase from year-end 2000. Total commercial,  real estate mortgage, real
estate  construction and consumer loans increased 12.6%, 14.1%, 15.6% and 19.2%,
respectively,  at June 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.


                                       13
<PAGE>

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)                                         June 30, 2001        December 31, 2000
                                                             -----------------    ---------------------
<S>                                                         <C>                 <C>
Nonaccrual loans                                            $        2,074      $            1,152
Restructured loans                                                      --                      77
                                                             -----------------    ---------------------
 Total nonperforming loans                                           2,074                   1,229
Real estate owned                                                      124                     124
                                                             -----------------    ---------------------
 Total nonperforming assets                                          2,198                   1,353
                                                             =================    =====================

Accruing loans past due > 90 days                                       18                      --
Potential problem loans                                                 --                      --
Allowance for loan losses                                            3,394                    2,664

Nonperforming loans to loans                                          0.59%                   0.41%
Allowance for loan losses to loans                                    0.97%                   0.88%
Allowance for loan losses to nonperforming loans                    163.65%                 216.76%
Nonperforming assets to total assets                                  0.54%                   0.37%

</TABLE>

Nonperforming  loans increased to $2.1 million, or 0.59% of total loans, at June
30, 2001 from $1.2 million or 0.41% of total loans,  at December 31, 2000 due to
a small number of borrowing relationships that were added to nonaccrual loans in
the  first  quarter  of 2001.  The  loan  loss  reserve  represents  163.65%  of
nonperforming  loans as compared to 216.76% at December 31, 2000.  The loan loss
reserve  was  0.97% of total  loans at June  30,  2001 as  compared  to 0.88% at
December 31, 2000.

Provision and Allowance for Loan Losses

The Company recorded a $655,000 provision for loan losses for the second quarter
of 2001,  compared  with  $400,000  for the same  period a year ago.  There were
$265,000 in net loan charge-offs during the second quarter of 2001,  compared to
$105,000 in net charge-offs for the same period in 2000.

For the six months  ended June 30,  2001,  the Company  recorded a $1.1  million
provision  for loan losses,  compared  with  $726,000 for the same period a year
ago. There were $330,000 in net loan charge-offs  during the first six months of
2001, compared to $251,000 in net charge-offs for the same period in 2000.

                                       14
<PAGE>

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  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                     Six Months Ended
                                                      June 30,                              June 30,
                                              2001               2000                2001              2000
                                          --------------     --------------      --------------    --------------
<S>                                     <C>                <C>                 <C>               <C>
Balance at beginning of period          $     3,004        $     2,362         $     2,664       $     2,182
Charge-offs:
     Commercial                                 (58)                (9)                (84)              (95)
     Real estate                                 --                 --                 (15)               --
     Consumer                                  (276)              (111)               (338)             (196)
                                          --------------     --------------      --------------    --------------
              Total charge-offs                (334)              (120)               (437)             (291)

Recoveries:
     Commercial                                  35                  3                  66                 5
     Real estate                                 --                 --                  --                --
     Consumer                                    34                 12                  41                35
                                          --------------     --------------      --------------    --------------
              Total recoveries                   69                 15                 107                40
Net charge-offs                                (265)              (105)               (330)             (251)
Provision for loan losses                       655                400               1,060               726
                                          --------------     --------------      --------------    --------------
Balance at end of period                $     3,394        $     2,657         $     3,394       $     2,657
                                          ==============     ==============      ==============    ==============

</TABLE>

Liquidity and Sources of Funds

The Company's sources of funds are customer  deposits,  cash and demand balances
due from other banks, federal funds sold, 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 June 30,
2001 the Company  had a line of credit with the FHLB of $60.7  million and lines
of credit with financial institutions in the amount of $13.0 million, with $26.0
million in advances on these lines of credit at June 30, 2001.

Total  deposits  increased  8.6% to $345.1  million at June 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.

                                       15
<PAGE>

Capital

The Company's  shareholders'  equity increased to $33.0 million at June 30, 2001
from $31.5  million at December 31, 2000.  This increase is due to net income of
$1.9 million, an increase in unrealized gain on available-for-sale securities of
$82,000,  net of tax, and the exercise of stock options of $66,000 offset by the
payment of cash dividends of $485,000 during the first six months ended June 30,
2001.  Total  assets  increased  to $406.1  million at June 30, 2001 from $361.6
million at December  31,  2000,  an increase of 12.3%.  Shareholders'  equity to
total assets was 8.1% at June 30, 2001 compared to 8.7% at December 31, 2000.
<TABLE>

                                                                    June 30, 2001
                                       ------------------------------------------------------------------------
                                                                                           Well-capitalized
                                           Actual ratio           Minimum requirement         requirement
                                       ----------------------    --------------------    ----------------------
<S>                                            <C>                       <C>                      <C>
Total risk-based capital ratio                 9.73%                     8%                       10%
Tier 1 risk-based capital ratio                8.80%                     4%                        6%
Leverage ratio                                 8.09%                     4%                        5%

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

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 June 30, 2001.

                                       16
<PAGE>

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

The annual meeting of shareholders  was held at Oak Harbor,  Washington on April
26,  2001 at 3:00 p.m.  3,275,866  shares of common  stock were  represented  in
person or by proxy at the meeting.  This represented 81% of the 4,032,750 shares
held by  shareholders  as of  February  28,  2001  and  entitled  to vote at the
meeting. The following issue came before the shareholders for vote:

     Election of directors  to serve on the Board of Directors  until the Annual
     meeting of  shareholders  in the year 2004, or until their  successors  are
     duly  elected and  qualified  - three of the nine  director  positions  had
     expired and were open for election.  The nominees for these  positions were
     Michal D. Cann,  Jerry C.  Chambers and Marlen L.  Knutson.  All these were
     elected with the following vote totals:

                                  For           Against        Withheld
                           ---------------   -------------  --------------
     Michal D. Cann           3,222,756            0            53,110
     Jerry C. Chambers        3,224,937            0            50,929
     Marlen L. Knutson        3,227,656            0            48,210

     The other six directors who continue in office are: Karl C. Krieg, III; Jay
     T. Lien; Robert B. Olson; Anthony B. Pickering; Alvin J. Sherman and Edward
     J. Wallgren.


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         None

(b)      Reports on Form 8-K

         None

                                       17
<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: August 13, 2001                                 By   /s/  Michal D. Cann
                                                           -------------------

                                                           Michal D. Cann
                                                            President and
                                                      Chief Executive Officer


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

                                                         Phyllis A. Hawkins
                                                      Senior Vice President and
                                                       Chief Financial Officer