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, 2002

          [ ] 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 registrant 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 8, 2002 was 4,520,403.


<PAGE>









                                Table of Contents

                                    PART I

<TABLE>
                                                                                                             Page
Item 1.       Financial Statements
<S>                                                                                                           <C>
                  Condensed Consolidated Statements of Financial Condition -
                       September 30, 2002 and December 31, 2001                                                1

                  Condensed Consolidated Statements of Income -
                       Three and Nine Months Ended September 30, 2002 and 2001                                 2

                  Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
                       Nine Months Ended September 30, 2002 and 2001                                           3

                  Condensed Consolidated Statements of Cash Flows -
                       Nine Months Ended September 30, 2002 and 2001                                           4

                  Notes to Condensed Consolidated Financial Statements                                         5

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of Operations            9
Item 3.       Quantitative and Qualitative Disclosures about Market Risk                                      18
Item 4.       Controls and Procedures                                                                         19
</TABLE>

                                     PART II
<TABLE>
<S>                                                                                                          <C>
Item 2.       Changes in Securities                                                                           19
Item 6.       Exhibits and Reports on Form 8-K                                                                19
                  Signatures                                                                                  20
                  Certification of Chief Executive Officer                                                    21
                  Certification of Chief Financial Officer                                                    22

</TABLE>






<PAGE>
                                     PART I
Item 1.  Financial Statements

                           WASHINGTON BANKING COMPANY
                                AND SUBSIDIARIES
            Condensed Consolidated Statements of Financial Condition
                    September 30, 2002 and December 31, 2001
                  (Dollars in thousands, except per share data)

<TABLE>
                                                                               September 30,       December 31,
                                  Assets                                           2002                2001
                                                                              ----------------    ----------------
                                                                                (unaudited)           (audited)
<S>                                                                         <C>                 <C>
Cash and due from banks                                                     $        18,515     $        16,838
      ($2,440 and $4,096, respectively, are restricted)
Interest-earning deposits                                                            11,997                 427
Federal funds sold                                                                   20,000               2,500
                                                                              ----------------    ----------------
     Total cash and cash equivalents                                                 50,512              19,765
                                                                              ----------------    ----------------

Federal Home Loan Bank stock                                                          2,122               2,029
Investment securities available for sale                                              6,065               4,145
Investment securities held to maturity                                               16,786              18,401
                                                                              ----------------    ----------------
     Total investment securities                                                     24,973              24,575
                                                                              ----------------    ----------------

Loans receivable, net                                                               428,226             373,198
Premises and equipment, net                                                          16,618              15,647
Other real estate owned                                                                 449                 473
Deferred tax assets                                                                     833                 812
Other assets                                                                          4,207               3,216
                                                                              ----------------    ----------------
              Total assets                                                  $       525,818     $       437,686
                                                                              ================    ================

                   Liabilities and Shareholders' Equity
Liabilities:
     Deposits                                                               $       452,680     $       367,175
     Other borrowed funds                                                            17,500              32,500
     Other liabilities                                                                2,263               3,034
     Trust preferred securities                                                      15,000                  --
                                                                              ----------------    ----------------
              Total liabilities                                                     487,443             402,709
                                                                              ----------------    ----------------
Commitments and contingencies                                                            --                  --

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 4,077,750 and 4,055,250
       shares at September 30, 2002 and December 31, 2001, respectively              16,191              16,124
       Stock dividends to be distributed                                              4,669                  --
     Retained earnings                                                               17,470              18,782
     Accumulated other comprehensive income, net                                         45                  71
                                                                              ----------------    ----------------
              Total shareholders' equity                                             38,375              34,977
                                                                              ----------------    ----------------
              Total liabilities and shareholders' equity                    $       525,818     $       437,686
                                                                              ================    ================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       1
<PAGE>
                           WASHINGTON BANKING COMPANY
                                AND SUBSIDIARIES
                   Condensed Consolidated Statements of Income
       Three and nine months ended September 30, 2002 and 2001 (unaudited)
                  (Dollars in thousands, except per share data)


<TABLE>
                                                           Three Months Ended               Nine Months Ended
                                                              September 30,                   September 30,
                                                         ------------------------         -----------------------
                                                            2002         2001               2002         2001
                                                         -----------  -----------         ----------   ----------
<S>                                                    <C>          <C>                 <C>          <C>
Interest income:
     Interest and fees on loans                        $    8,591   $     8,097         $    25,173  $   23,437
     Interest on taxable investment securities                 64           104                 214         349
     Interest on tax-exempt investment securities             186           196                 565         594
     Other                                                    145            28                 212         141
                                                         -----------  -----------         ----------   ----------
              Total interest income                         8,986         8,425              26,164      24,521
Interest expense:
     Interest on deposits                                   2,483         3,054               7,229      10,178
     Interest on trust preferred securities                   211            --                 218          --
     Interest on other borrowings                             187           191                 592         418
                                                         -----------  -----------         ----------   ----------
              Total interest expense                        2,881         3,245               8,039      10,596
                                                         -----------  -----------         ----------   ----------
              Net interest income                           6,105         5,180              18,125      13,925
Provision for loan losses                                    (589)         (755)             (2,467)     (1,815)
                                                         -----------  -----------         ----------   ----------
              Net interest income after
                 provision for loan losses                  5,516         4,425              15,658      12,110
Noninterest income:
     Service charges and fees                                 458           422               1,310       1,263
     Other                                                    487           581               1,766       1,577
                                                         -----------  -----------         ----------   ----------
              Total noninterest income                        945         1,003               3,076       2,840
Noninterest expense:
     Salaries and benefits                                  2,664         2,139               7,386       6,185
     Occupancy                                                719           670               2,114       2,005
     Office supplies and printing                             129           122                 376         384
     Data processing                                          116            85                 296         249
     Consulting and professional fees                          62            55                 183         177
     Other                                                    731           602               2,074       1,613
                                                         -----------  -----------         ----------   ----------
              Total noninterest expense                     4,421         3,673              12,429      10,613
                                                         -----------  -----------         ----------   ----------
              Income before income taxes                    2,040         1,755               6,305       4,337
Provision for income taxes                                   (720)         (593)             (2,156)     (1,290)
                                                         -----------  -----------         ----------   ----------
              Net income                               $    1,320   $     1,162         $     4,149  $    3,047
                                                         ===========  ===========         ==========   ==========

Net income per share, basic                            $      0.29  $      0.26         $      0.93  $     0.68
                                                         ===========  ===========         ==========   ==========
Net income per share, diluted                          $      0.28  $      0.25         $      0.87  $     0.65
                                                         ===========  ===========         ==========   ==========

Average number of shares outstanding, basic                4,485,525   4,460,775           4,471,291    4,449,684
Average number of shares outstanding, diluted              4,768,188   4,684,874           4,753,488    4,657,623
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                           WASHINGTON BANKING COMPANY
                                AND SUBSIDIARIES
            Condensed Consolidated Statements of Shareholders' Equity
                            and Comprehensive Income
            Nine months ended September 30, 2002 and 2001 (unaudited)
                  (Dollars in thousands, except per share data)




<TABLE>
                                                                Stock                     Accumulated
                                          Common stock        dividends                      other            Total
                                       --------------------     to be       Retained     comprehensive    shareholder's
                                        Shares     Amount    distributed    earnings   gain (loss), net      equity
                                       ---------  ---------  -------------  ----------   ---------------  --------------
<S>                                      <C>     <C>        <C>            <C>          <C>              <C>
Balances at December 31, 2000            4,033   $  16,058  $              $   15,470   $        (27)    $     31,501
Comprehensive income:
    Net income                              --          --           --         3,047             --            3,047
    Net change in unrealized gain
     on securities available for sale,
     net of tax of $54                      --          --           --            --            105              105
                                                                                                          --------------
          Total comprehensive income (1)                                                                        3,152
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
                                       =========  =========  =============  ==========   ===============  ==============


Balances at December 31, 2001            4,055   $  16,124  $        --    $   18,782   $         71     $     34,977
Comprehensive income:
    Net income                              --          --           --         4,149             --            4,149
    Net change in unrealized loss
     on securities available for sale,
     net of tax of $13                      --          --           --            --            (26)             (26)
                                                                                                          --------------
          Total comprehensive income (1)                                                                        4,123
Cash dividend, $0.195 per share             --          --           --          (792)            --             (792)
10% Stock dividend                          --          --        4,669        (4,669)            --               --

Stock options exercised                     23          67           --            --             --               67
                                       ---------  ---------  -------------  ----------   ---------------  --------------
Balances at September 30, 2002           4,078   $  16,191  $     4,669    $   17,470   $         45     $     38,375
                                       =========  =========  =============  ==========   ===============  ==============

(1) Includes comprehensive income for the three months ended September 30, 2002 and 2001 of $1,322 and $1,185, respectively.
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3


<PAGE>

                           WASHINGTON BANKING COMPANY
                                AND SUBSIDIARies
                 Condensed Consolidated Statements of Cash Flows
            Nine months ended September 30, 2002 and 2001 (unaudited)
                             (Dollars in thousands)
<TABLE>
                                                                              Nine Months Ended September 30,
                                                                                2002                   2001
                                                                           ----------------        --------------
<S>                                                                      <C>                     <C>
Cash flows from operating activities:
     Net income                                                          $       4,149           $       3,047
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Federal Home Loan Bank stock dividends                                    (93)                    (44)
         Deferred income tax expense                                                (8)                     --
         Amortization of investment premiums, net                                   56                      25
         Provision for loan losses                                               2,467                   1,815
         Net increase in loans held for sale                                    (1,809)                 (2,516)
         Depreciation of premises and equipment                                    937                     911
         Net gains on sale of premises and equipment and real estate              (194)                    (32)
         Net gains on sale of other real estate                                     (3)                    (50)
         Net increase in other assets                                             (991)                 (1,299)
         Net (increase) decrease in other liabilities                             (771)                    536
                                                                           ----------------        --------------
                  Net cash provided by operating activities                      3,740                   2,393
                                                                           ----------------        --------------
Cash flows from investing activities:
     Purchases of Federal Home Loan Bank Stock                                      --                    (478)
     Purchases of investment securities available for sale                      (4,000)                     --
     Maturities of investment securities available for sale                      2,000                   1,500
     Maturities of investment securities held to maturity                        1,600                   1,465
     Net increase in loans                                                     (55,726)                (55,742)
     Purchases of premises and equipment                                        (2,082)                 (2,791)
     Proceeds from the sale of premises and equipment                              368                      98
     Purchases of real estate                                                       --                    (175)
     Proceeds from the sale of real estate owned                                    67                      80
                                                                           ----------------        --------------
                  Net cash used in investing activities                        (57,773)                (56,043)
                                                                           ----------------        --------------
Cash flows from financing activities:
     Net increase in deposits                                                   85,505                  40,977
     Net decrease in other borrowed funds                                      (15,000)                     --
     Net increase in federal funds purchased                                        --                  20,000
     Proceed from trust preferred securities                                    15,000                      --
     Dividends paid on common stock                                               (792)                   (729)
     Proceeds from stock options exercised                                          67                      66
                                                                           ----------------        --------------
                  Net cash provided by financing activities                     84,780                  60,314
                                                                           ----------------        --------------
                  Net increase in cash and cash equivalents                     30,747                   6,664
Cash and cash equivalents at beginning of period                                19,765                  17,179
                                                                           ----------------        --------------
Cash and cash equivalents at end of period                               $      50,512           $      23,843
                                                                           ================        ==============
Supplemental information:
     Loans foreclosed and transferred to real estate owned               $          40           $          75
     Cash paid for interest                                                      8,021                  10,755
     Cash paid for taxes                                                         2,911                   1,500
     Transfer of investments from HTM to AFS                                        --                   1,000
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2002 and 2001 (unaudited)

(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 (the  "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,  a
substantial  portion of its borrowers' ability to repay their loans is dependent
upon the  economic  conditions  affecting  this area  related  to the retail and
service trades,  tourism,  agricultural and  manufacturing  industries,  and the
large  military  base  presence  in the area.  The Bank also  offers  nondeposit
investment  products for sale through its  subsidiary,  WIB Financial  Services,
Inc. ("WIB FSI"), which are not FDIC insured.

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 $14.9
million.

Washington Banking Capital Trust I (the "Trust"), the second subsidiary of WBCO,
was formed in June 2002 for the  exclusive  purpose of issuing  Trust  Preferred
Securities  and common  securities  and using the $15.0 million in proceeds from
the issuance to acquire junior subordinated debentures issued by WBCO.

   (b) Basis of Presentation

The accompanying interim condensed consolidated financial statements include the
accounts  of  WBCO  and  its  subsidiaries   (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 generally accepted accounting  principles for complete
financial statements.  These condensed  consolidated financial statements should
be read in conjunction with the December 31, 2001 audited consolidated financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-K filed with the Securities and Exchange Commission. In management's 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, 2002 are not  necessarily  indicative  of the
results that may be expected for the year ending December 31, 2002. In preparing
the consolidated financial statements, estimates and assumptions that affect the
reported  amounts of assets,  liabilities,  revenues and expenses are  required.
Actual results could differ from those estimates.

Certain amounts in 2001 have been  reclassified to conform to the 2002 financial
statement presentation.

   (c) Recently Issued Accounting Pronouncements

In July 2001,  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
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  Company  adopted  the
provisions  of SFAS 142 on January 1, 2002 and it had no material  effect on its
results of operations or financial position.

                                       5
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2002 and 2001 (unaudited)

In June  2001,  the FASB  issued  SFAS 143,  "Accounting  for  Asset  Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible  long-lived assets and the associated
asset retirement  costs. The standard  applies to legal  obligations  associated
with the  retirement  of  long-lived  assets that  result from the  acquisition,
construction,  development  and (or) normal use of the asset.  SFAS 143 requires
that the fair  value  of a  liability  for an  asset  retirement  obligation  be
recognized  in the period in which it is  incurred if a  reasonable  estimate of
fair value can be made. The fair value of the liability is added to the carrying
amount  of  the  associated  asset  and  this  additional   carrying  amount  is
depreciated over the life of the asset.

The liability is accreted at the end of each period through charges to operating
expense.  If the obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement.  The Company
is required and plans to adopt the provisions of SFAS 143 for the quarter ending
March 31,  2003.  The  Company is  currently  evaluating  the  impact  that this
statement  will have on their  financial  position  and  results of  operations,
however, they do not expect such impact to be material.

On October 3, 2001, the FASB issued SFAS 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets,"  which  addresses  financial  accounting  and
reporting for the  impairment or disposal of long-lived  assets.  While SFAS 144
supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived  Assets  to Be  Disposed  Of," it  retains  many  of the  fundamental
provisions  in that  SFAS 144  also  supersedes  the  accounting  and  reporting
provisions    of   APB   Opinion   No.   30,    "Reporting    the   Results   of
Operations--Reporting  the Effects of  Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business.  However, it retains the requirement in
Opinion No. 30 to report  separately  discontinued  operations  and extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment,  or in a distribution to owners) or is classified as held for sale.
The Company  adopted the provisions of SFAS 144 on January 1, 2002 and it had no
material effect on its results of operations or financial position.

In April 2002, the FASB issued FSAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
Statement  No.  145  eliminates  the  treatment  of  extinguishment  of  debt as
extraordinary   and  clarifies  the   accounting   for  certain   sale-leaseback
transactions.  The  provisions  of Statement  No. 145 are required to be applied
starting with fiscal years  beginning  after May 15, 2002,  with early  adoption
encouraged.  The Company believes the adoption of Statement No. 145 will have no
material impact on its financial statements.

In July 2002,  the FASB issued FSAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities."  Statement  No. 146  requires  companies  to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
The provisions of Statement No. 146 are required to be applied  prospectively to
exit or disposal  activities  initiated  after  December 31,  2002.  The Company
believes the adoption of Statement  No. 146 will have no material  impact on its
financial statements.

In October 2002, the FASB issued FSAS No. 147, "Acquisition of Certain Financial
Institution"-  an  amendment  of  FASB  Statements  No.  72  and  144  and  FASB
Interpretation  No.  9. The  provisions  of this  Statement  that  relate to the
application of the purchase  method of accounting  apply to all  acquisitions of
financial   institutions,   except  transactions  between  two  or  more  mutual
enterprises.  This Statement removes acquisitions of financial institutions from
the scope of both  Statement 72 and  Interpretation  9 and  requires  that those
transactions  be  accounted  for in  accordance  with FASB  Statements  No. 141,
"Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." In
addition,  this  Statement  amends FASB Statement No. 144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets," to include in its scope long-term
customer-relationship  intangible  assets  of  financial  institutions  such  as
depositor- and  borrower-relationship  intangible  assets and credit  cardholder
intangible  assets.  This Statement is effective for  acquisitions for which the

                                       6
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2002 and 2001 (unaudited)

date of  acquisition is on or after October 1, 2002. The Company does not expect
the  Statement  will result in a material  impact on its  financial  position or
results of operations.


(2)   Trust Preferred Securities

On June 27, 2002, the Trust issued $15.0 million of trust  preferred  securities
with a 30-year  maturity,  callable  after the fifth year, at an initial rate of
5.51%.  The rate adjusts  quarterly  based on LIBOR  (London  Inter Bank Offered
Rate).  These  securities  are  considered  Tier I capital  for the  purposes of
regulatory capital requirements.  The Trust, a wholly-owned  subsidiary of WBCO,
is a statutory  business trust created for the exclusive purposes of issuing and
selling  capital  securities  and  utilizing  sale  proceeds  to acquire  junior
subordinated  debt  issued  to  WBCO.   Accordingly,   the  junior  subordinated
debentures  are the sole  assets of the  Trust,  and  payments  under the junior
subordinated  debentures  will be the sole  revenues  of the  Trust.  All of the
common securities of the Trust are owned by WBCO. Washington Banking Company has
fully and  unconditionally  guaranteed  the  capital  securities  along with all
obligations  of the  Trust  under  the trust  agreements.  The  trust  preferred
securities  are  included  with  borrowings  as a  separate  line item in WBCO's
statement  of  financial  conditions  and  distributions  payable are treated as
interest expense in the consolidated statement of operations.

(3)      Stock Dividend

On September  26, 2002,  the Board of Directors  declared a 10% stock  dividend,
which was issued on October 24, 2002 to  shareholders of record as of October 8,
2002.


 (4)  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, 2002
                                                    ---------------------------------------------------------
                                                                            Weighted             Per share
                                                       Income            average shares            amount
                                                    --------------     --------------------     -------------
<S>                                               <C>                        <C>              <C>
Basic EPS
Income available to common shareholders           $    1,320                 4,485,525        $      0.29
Effect of dilutive securities: stock options              --                   282,663              (0.01)
                                                    --------------     --------------------     -------------
Diluted EPS                                       $    1,320                 4,768,188        $      0.28
                                                    ==============     ====================     =============


                                                             Three Months Ended September 30, 2001
                                                    ---------------------------------------------------------
                                                                            Weighted             Per share
                                                       Income            average shares            amount
                                                    --------------     --------------------     -------------
Basic EPS
Income available to common shareholders           $    1,162                 4,460,775        $      0.26
Effect of dilutive securities: stock options              --                   224,099              (0.01)
                                                    --------------     --------------------     -------------
Diluted EPS                                       $    1,162                 4,684,874        $      0.25
                                                    ==============     ====================     =============
</TABLE>

                                        7



<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2002 and 2001 (unaudited)


<TABLE>

                                                              Nine Months Ended September 30, 2002
                                                    ---------------------------------------------------------
                                                                            Weighted             Per share
                                                       Income            average shares            amount
                                                    --------------     --------------------     -------------
<S>                                               <C>                        <C>              <C>
Basic EPS
Income available to common shareholders           $    4,149                 4,471,291        $      0.93
Effect of dilutive securities: stock options              --                   282,197              (0.06)
                                                    --------------     --------------------     -------------
Diluted EPS                                       $    4,149                 4,753,488        $      0.87
                                                    ==============     ====================     =============


                                                              Nine Months Ended September 30, 2001
                                                    ---------------------------------------------------------
                                                                            Weighted             Per share
                                                       Income            average shares            Amount
                                                    --------------     --------------------     -------------
Basic EPS
Income available to common shareholders           $    3,047                 4,449,684        $      0.68
Effect of dilutive securities: stock options              --                   207,939              (0.03)
                                                    --------------     --------------------     -------------
Diluted EPS                                       $    3,047                 4,657,623        $      0.65
                                                    ==============     ====================     =============
</TABLE>


Earnings  per share have been  adjusted for all periods to include the effect of
the 10% stock dividend  declared on September 26, 2002 and issued on October 24,
2002 to shareholders of record as of October 8, 2002.

At  September  30,  2002 and 2001 there were  options to  purchase  493,611  and
447,480 shares of common stock outstanding, respectively. For the quarters ended
September  30,  2002 and 2001,  options to  purchase  zero and 37,950  shares of
common stock,  respectively,  were antidilutive and, therefore,  not included in
computation of diluted net income per share. For the nine months ended September
30, 2002 and 2001,  options to purchase  zero and 98,550 shares of common stock,
respectively,  were antidilutive and, therefore,  not included in computation of
diluted net income per share.



(5)   Subsequent Event

On October 17, 2002,  the Board of Directors  declared a cash dividend of $0.065
per share to shareholders of record as of November 5, 2002,  which is payable on
November 25, 2002.

                                       8



<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  Washington  Banking
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  business  plan 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  in 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 and any
further similar  events,  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 banking
and financial  services sector;  and (7) Washington Banking Company's ability to
realize the  efficiencies it expects to receive from its investment in personnel
and infrastructure.

Overview

Washington  Banking Company (the "Company") is a registered bank holding company
with two  wholly-owned  subsidiaries  - Whidbey  Island Bank (the  "Bank"),  the
Company's  principal  subsidiary,  and Washington  Banking  Capital Trust I (the
"Trust").  The  Bank  is a  Washington  state-chartered  bank  that  conducts  a
full-service  community  commercial  banking  business.  Its  business  includes
commercial  loan,  real estate loan and  construction  loan  portfolios,  and is
active in the consumer banking field,  providing personal and  consumer-oriented
loan programs. The Bank also provides a wide range of deposit services,  insured
by the FDIC,  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.  The Company also offers nondeposit  investment products for
sale through the Bank's subsidiary,  WIB Financial Services, Inc., which are not
FDIC insured.

The Trust was formed in June 2002 for the  exclusive  purpose  of issuing  trust
preferred  securities to acquire junior  subordinated  debentures  issued by the
Company.  Those  debentures are the sole assets of the Trust and payments on the
debt  will be the  sole  revenues  of the  Trust.  The  Company  has  fully  and
unconditionally guaranteed all obligations of the Trust.

Headquartered  in Oak Harbor,  the Company's  primary  market area is located in
northwestern Washington state between Seattle and the Canadian border. In recent
years,  the  region  has  experienced  strong  population  growth  and  economic
diversification. The region's economy has evolved from one that was once heavily
dependent  upon  forestry,  fishing and  farming to an economy  with a much more
diverse blend of industries  including  retail trade,  services,  manufacturing,
tourism and a large military base presence.

The Company's strategy is one of value-added  growth.  Management  believes that
qualitative  and  sustainable  growth of the Company,  coupled with  maintaining
profitability,  is currently the most  appropriate  path to providing good value
for  its  shareholders.   To  date,  the  Company's  growth  has  been  achieved
organically  and it attributes its  reputation for focusing on customer  service
and  satisfaction  as one of the  cornerstones  to the  Company's  success.  The
Company's  primary  objectives  are  to  improve   profitability  and  operating
efficiencies,  increase  market  penetration in areas currently  served,  and to
continue an expansion strategy in appropriate market areas.

                                       9
<PAGE>

The Company  believes  that growing the  infrastructure  is an excellent  way to
build  franchise  value and increase  business  while managing  up-front  costs.
During the third  quarter the Company  constructed a building for the new branch
in   Stanwood   (Snohomish   county)   and   began   leasing   space   for   the
Fairhaven/Bellingham  branch  (Whatcom  county) and the Loan  Production  Office
("LPO") in Smokey Point/Arlington (Snohomish county). With the addition of these
offices,  the Company now has  locations  in four  counties.  Construction  of a
building  is also  underway  for the  relocation  of the Camano  Island  branch.
Management  believes these locations will enhance  customer service by providing
easier branch  access and more  convenient  availability  of services to new and
existing Bank customers.


Financial Condition

Total  Assets.  Total assets  increased to $525.8  million at September 30, 2002
from $437.7  million at December 31, 2001,  an increase of 20.1%.  This increase
resulted  primarily  from  growth in the loan  portfolio,  which  was  funded by
deposit  growth,  investment  maturities  and  borrowings.  The proceeds  from a
non-dilutive  private  placement of $15.0 million of trust preferred  securities
issued in June 2002  contributed  to the  increase  in assets and are also being
used to fund the Company's expansion.

Loans.  Net loans totaled  $428.2  million at September 30, 2002, an increase of
14.7%,  from $373.2  million at December 31,  2001.  The Company  increased  its
allowance  for loan losses to $5.5  million at September  30, 2002  representing
1.26% of total loans,  from $4.3 million or 1.14% of total loans at December 31,
2001, in an effort to remain  conservative  and improve  coverage.  See "Lending
Activities - Provision and Allowance for Loan Losses," below.

Total Investment Securities.  Total investment securities were $25.0 million and
$24.6 million at September 30, 2002 and December 2001, respectively, an increase
of 1.6%.  Management  is using a portion of the proceeds of the trust  preferred
securities  to  purchase  investments  and is in the  process  of  building  the
portfolio with laddered securities that reflect the Company's  investment policy
guidelines  and  collateral  funding issues to help achieve the business plan of
the Company.

Premises and Equipment. Premises and equipment, net of depreciation,  were $16.6
million  and  $15.6  million  at  September  30,  2002 and  December  31,  2001,
respectively, an increase of 6.2%. The increase reflects the construction of new
branch  offices and related  furniture and  fixtures,  offset by the sale of the
North  Whidbey  branch  property  during  first  quarter  2002.  The increase to
premises and equipment is an indication  of future  expectations  as the Company
continues its strategy of expansion and market penetration. Acquisition of banks
or  branches  may  also  be  used  as  a  means  of  expansion  if   appropriate
opportunities arise.

Deposits.  Deposits  grew 23.3% to $452.7  million at  September  30,  2002 from
$367.2  million at December 31, 2001.  The  Company's  philosophy  is to develop
long-term  customer  relationships.  Management  believes  that  the best way to
establish  customer  loyalty is by placing an emphasis on meeting the customers'
financial needs and providing  exceptional  service.  The Company attributes its
successful  deposit  growth to its continuing  efforts to meet these  objectives
through various deposit promotions,  cross-sales efforts, financial planning and
other  means.   In  addition,   many  customers  are  seeking  the  security  of
FDIC-insured  deposit  vehicles  given the recent  volatility of the  investment
market. Average  noninterest-bearing  deposits increased 13.0% to $56.1 million,
at September 30, 2002 from  September 30, 2001,  while average  interest-bearing
deposits  increased 24.5% to $379.8 million,  compared to the like period a year
ago. See " - Deposits," below.

Shareholders' Equity. The Company's shareholders' equity increased 9.7% to $38.4
million at  September  30, 2002 from $35.0  million at December  31,  2001.  The
increase reflects earnings and proceeds from stock options exercised,  offset by
the  payment  of  cash  dividends  and  the  decrease  in  unrealized   gain  on
available-for-sale securities, net of tax, during the first nine months of 2002.

                                       10
<PAGE>

Consolidated  Average  Balance  Sheet and  Analysis of Net  Interest  Income and
Expense

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, 2002      Three Months Ended September 30, 2001
                                               Interest                                   Interest
                                 Average       earned/     Average           Average       earned/      Average
(Dollars in thousands)           balance         paid      yield (1)          balance        paid       yield (1)
                                -----------   -----------  -----------     ------------  ------------ ------------
           Assets
<S>                            <C>           <C>              <C>         <C>           <C>              <C>
Loans (2)                      $  426,048    $   8,591        8.07%       $  352,457    $   8,097        9.19%
Federal funds sold                 15,784           63        1.60%              177            2        4.52%
Interest-earning cash              12,019           51        1.70%              829            6        2.90%
Investments:
     Taxable                        6,987           95        5.44%            8,071          124        6.15%
     Non-taxable (3)               15,848          249        6.28%           16,747          262        6.26%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-earning assets           476,686        9,049        7.59%          378,281        8,491        8.98%
Noninterest-earning assets         32,564                                     31,328
                                -----------                                ------------
     Total assets              $  509,250                                 $  409,609
                                ===========                                ============

       Liabilities and
    Shareholders' equity
Deposits:
     Interest-bearing demand
      and money market         $  155,850    $     678        1.74%       $  117,099    $     691        2.36%
     Savings                       29,743          104        1.40%           26,576          129        1.94%
     CDs                          193,894        1,701        3.51%          161,048        2,234        5.55%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing deposits         379,487        2,483        2.62%          304,723        3,054        4.01%
Federal funds purchased               --            --         --              9,529           88        3.69%
Trust preferred securities         15,000          211        5.63%              --            --         --
Borrowings and other
  interest-bearing liabilities     18,885          187        3.96%           10,268          103        4.01%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing liabilities      413,372        2,881        2.79%          324,520        3,245        4.00%
Noninterest-bearing deposits       56,087                                     49,638
Other noninterest-bearing
liabilities                         2,276                                      2,156
                                -----------                                ------------
Total liabilities                 471,735                                    376,314
Shareholders' equity               37,515                                     33,295
                                -----------                                ------------
     Total liabilities and
     shareholders' equity      $  509,250                                 $  409,609
                                ===========                                ============

Net interest income (3)                      $   6,168                                  $   5,246
                                              ===========                                ============
Net interest spread (1)                                       4.80%                                      4.98%
                                                           ===========                                ============
Net interest margin (1)                                       5.18%                                      5.55%
                                                           ===========                                ============
(1)  Annualized
(2) Includes loan fees of $231 and $165 for the three months ended September 30, 2002 and 2001, respectively.
(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 $63 and $66 for the three months ended September 30, 2002 and 2001, respectively.

</TABLE>

                                       11
<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
generates  noninterest  income  generally  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.  Net income for the third  quarter of 2002  increased  13.6% to $1.3
million,  or $0.28 per diluted  share,  from $1.2 million,  or $0.25 per diluted
share,  for the third  quarter of 2001.  Net income  for the nine  months  ended
September 30, 2002 increased 36.2% to $4.1 million,  or $0.87 per diluted share,
from $3.0  million,  or $0.65  per  diluted  share,  for the nine  months  ended
September 30, 2001. The  improvement was primarily due to increased net interest
income.

Net Interest Income. Net interest income for the third quarter of 2002 increased
17.9% to $6.1 million from $5.2 million for the third  quarter of 2001.  For the
first nine months of 2002, net interest income  increased 30.2% to $18.1 million
from $13.9  million for the like period in 2001.  The  increase in net  interest
income is largely due to the  consistent  growth rate,  repricing,  and changing
maturities of both our loan portfolio and our deposits.

Average  interest-earning  assets  for the  third  quarter  increased  to $476.7
million at September 30, 2002, compared to $378.3 million at September 30, 2001,
a growth of 26.0%, while the average yield on interest-earning  assets decreased
to 7.59% compared to 8.98% in third quarter of the prior year. The average yield
on loans  decreased to 8.07% for the quarter ended September 30, 2002 from 9.19%
for the quarter ended September 30, 2001.

The average cost of interest-bearing  liabilities decreased in the third quarter
of 2002 to 2.79% from 4.00% for the quarter ended  September 30, 2001 due to the
lower  deposit  costs.  This  resulting  decrease was  realized  even though the
Company  had a higher  cost on  borrowings,  mostly  due to the trust  preferred
interest costs. Average  interest-bearing  liabilities for the quarter increased
to $413.4  million at September 30, 2002 compared to $324.5 million at September
30, 2001, a growth of 27.4%.

During the third quarter of 2002,  asset yields  decreased  more than  liability
costs  resulting in a lower net interest spread compared to the third quarter of
2001. The net interest spread was 4.80% for the quarter ended September 30, 2002
compared to 4.98% for the quarter ended September 30, 2001.

Net interest  margin (net interest  income  divided by average  interest-earning
assets)  decreased to 5.18% in the third quarter of 2002 from 5.55% in the third
quarter of 2001.  Interest-earning  assets  increased 26.0% in comparison to the
net interest income (on a fully taxable-equivalent basis) increase of 17.6%. The
lower  net  interest  margin  for  third  quarter  2002  was  due in part to the
greater-than-anticipated deposit growth invested in lower-yielding,  short-term,
overnight funds.

Noninterest Income.  Noninterest income decreased $58,000, or 5.8%, in the third
quarter of 2002  compared  to the like period  last year.  The  majority of this
decrease  is due to  profits  from WIB  Financial  Services,  Inc.,  the  bank's
investment  services  subsidiary,  declining  in the third  quarter  after being
relatively strong in the first half of the year.

For the first nine months of 2002,  noninterest  income increased  $236,000,  or
8.3%  compared to the like period a year ago. This increase was primarily due to
the gain on sale of assets from the sale of the  vacated  North  Whidbey  branch
property and strong  annuity and mutual fund sales in the first  quarter of 2002
and an increase in ATM income for the year.

                                      12
<PAGE>

Noninterest  Expense.  Noninterest expense increased $748,000,  or 20.4%, in the
third quarter of 2002. Employee  compensation,  a major component of noninterest
expense,  increased 24.5% for the quarter compared with the like period in 2001.
For the first nine months of 2002,  noninterest  expense  rose to $12.4  million
from  $10.6  million  one year ago,  a 17.1%  increase.  Year to date,  employee
compensation  expense  increased  19.4%.  These  increases  were  mainly  due to
additional  costs for salaries and employee  benefits,  reflecting the growth of
the Company. As expected, with the addition of new offices, the efficiency ratio
(noninterest  expense divided by the sum of net interest income plus noninterest
income less  non-recurring  gains) rose slightly to 62.71% for the third quarter
2002  compared to 59.40% for the like period in 2001.  For the first nine months
of 2002 and 2001, the efficiency ratio improved to 58.62% from 63.30%.

Income  Taxes.  For the third  quarters of 2002 and 2001,  the Company  recorded
income tax provisions of $720,000 and $593,000, respectively. For the first nine
months of 2002 and 2001,  the Company  recorded  income tax  provisions  of $2.2
million and $1.3 million,  respectively.  The overall year-to-date effective tax
rate was  approximately  34% and 30%,  respectively,  at September  30, 2002 and
2001. The higher tax rate is in anticipation of the Company's increased tax base
due to the decrease in tax-exempt interest income as a percentage of income.


Lending Activities

Loan  Portfolio  Composition.  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>

                                             September 30, 2002                  December 31, 2001
                                       -------------------------------     -------------------------------
(Dollars in thousands)                    Balance        % of total           Balance        % of total
                                       ---------------  --------------     ---------------  --------------
<S>                                   <C>                    <C>          <C>                    <C>
Commercial                            $     103,045          23.8%        $    109,867           29.1%
Real estate mortgages:
  One-to-four family residential             42,638           9.8%              42,850           11.4%
  Five-or-more family
    residential and commercial               92,944          21.5%              65,782           17.4%
                                       ---------------  --------------     -------------------------------
     Total real estate mortgages            135,582          31.3%             108,632           28.8%

Real estate construction                     34,879           8.0%              26,917            7.1%
Consumer                                    160,069          36.9%             132,067           35.0%
                                       ---------------  --------------     -------------------------------
  Subtotal                                  433,575         100.0%             377,483          100.0%
                                                        ==============                      ==============
Less: allowance for loans losses             (5,467)                            (4,308)
Deferred loan fees, net                         118                                 23
                                       ---------------                     ---------------
Loans, net                            $     428,226                       $    373,198
                                       ===============                     ===============
</TABLE>

During the nine months ended  September 30, 2002, net loans increased 14.7% from
year-end  2001.  Total  commercial  loans  decreased  6.2%,  while  real  estate
mortgage, real estate construction and consumer loans increased 24.8%, 29.6% and
21.2%, respectively,  at September 30, 2002 from year-end 2001. At September 30,
2002,  indirect  dealer loans were $95.5 million,  or 59.7% of the consumer loan
portfolio,  as compared to $73.0  million,  or 55.3%,  at December 31, 2001. The
commercial loan decrease reflects some weakening in the local economy.  However,
other loan growth has been driven by the favorable interest rate environment.

                                       13
<PAGE>

Nonperforming  Assets.  The  following  table  sets  forth  an  analysis  of the
composition  of  the  Company's  nonperforming  assets  ("NPAs")  at  the  dates
indicated:

<TABLE>

    (Dollars in thousands)                                          September 30, 2002        December 31, 2001
                                                                   ----------------------   ----------------------
   <S>                                                           <C>                      <C>
    Nonaccrual loans                                             $         4,103          $         2,094
    Restructured loans                                                --                       --
                                                                   ----------------------   ----------------------
         Total nonperforming loans                                         4,103                    2,094
    Real estate owned                                                        449                      473
                                                                   ----------------------   ----------------------
         Total nonperforming assets                              $         4,552          $         2,567
                                                                   ======================   ======================

    Accruing loans past due >= 90 days                                  $     50                 $    --
    Allowance for loan losses                                              5,467                    4,308

    Ratio of nonperforming loans to loans                                  0.95%                    0.55%
    Ratio of allowance for loan losses to loans                            1.26%                    1.14%
    Ratio of allowance for loan losses to nonperforming loans            133.24%                  205.73%
    Ratio of nonperforming assets to total assets                          0.87%                    0.59%

</TABLE>

Nonperforming  loans  increased to $4.1  million,  or 0.95% of total  loans,  at
September 30, 2002 from $2.1 million,  or 0.55% of total loans,  at December 31,
2001. One credit,  which has been significantly  impacted by the downturn in the
telecommunications  industry,  accounts  for  $1.2  million,  or  60.0%  of this
increase.  The remainder of the increase in nonperforming  loans comes primarily
from the commercial loan sector,  reflecting some weakening in the local economy
and some softening in the commercial  real estate arena,  although the Company's
market is removed from the high level of commercial  real estate  vacancies that
have  impacted the Seattle  metropolitan  area.  The current  allowance for loan
losses of $5.5 million  represents  133.24% of nonperforming  loans at September
30, 2002,  as compared to 205.73% of  nonperforming  loans at December 31, 2001.
The  allowance  for loan losses is 1.26% of total loans at September 30, 2002 as
compared to 1.14% of total loans at December 31, 2001.

In general, delinquencies remain low and underwriting standards continue to be
strengthened to mitigate risk associated with the potential softening of the
economy. NPAs continue to be comparable to state and national FDIC peer group
averages and management remains confident in the Company's asset quality.


Provision  and  Allowance  for Loan  Losses.  The  Company  recorded  a $589,000
provision for loan losses for the third quarter of 2002,  compared with $755,000
for the like period a year ago. The allowance  for loan losses  ratios  remained
adequate in all  categories.  Management  determined  that these  additions were
warranted  in  anticipation  of potential  additional  economic  softening.  The
Company had  $691,000  in net loan  charge-offs,  representing  0.16% of average
loans during the third quarter of 2002,  compared to $423,000,  or 0.12%, in the
third quarter of 2001.

For the nine months  ended  September  30,  2002,  the  Company  recorded a $2.5
million  provision  for loan  losses,  compared  with $1.8  million for the like
period a year ago. The Company  recorded  $1.3 million in net loan  charge-offs,
representing  0.32% of  average  loans  during  the first  nine  months of 2002,
compared to $753,000 in net loan charge-offs,  or 0.23% of average loans for the
like  period  in  2001.  The  increase  in  charge-offs  is  attributed  to more
aggressive  write-downs  on consumer  delinquencies,  overall growth of the loan
portfolio, increased charge-offs on certain loans in the construction trades and
a softening  economy.  Net loan charge-offs  attributed to indirect dealer loans
were $574,000,  representing  0.68% of average  indirect dealer loans during the
first nine months of 2002,  compared to $197,000,  or 0.34% of average  indirect
dealer  loans for the like period in 2001.  Management  has  tightened  consumer
lending standards over the last year and established  additional  guidelines and
limits on lending to certain industries in order to mitigate risk.

                                       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.  This includes a
review of problem loans, general business and economic conditions,  seasoning of
the loan portfolio, bank regulatory examination results and findings of internal
and external credit examiners,  loss experience and an overall evaluation of the
quality of the underlying collateral.  Management's  assessment of the allowance
for  loan  losses  is  done  formally  on a  quarterly  basis  and  is  reviewed
continually  throughout  each quarter with  increases to the  allowance for loan
losses made as deemed necessary.

The following  table sets forth the changes in the Company's  allowance for loan
losses at the dates  indicated.  The  allocation  is based on an  evaluation  of
defined loan problems,  historical  ratios of loan losses and other factors that
may affect future loan losses in the categories of loans shown:

<TABLE>

(Dollars in thousands)                           Three Months Ended                     Nine Months Ended
                                                   September 30,                          September 30,
                                              2002               2001                2002               2001
                                          --------------     --------------      --------------    ---------------
<S>                                     <C>                <C>                 <C>               <C>
Balance at beginning of period          $     5,569        $     3,394         $     4,308       $     2,664
Charge-offs:
     Commercial                                (234)              (145)               (508)             (249)
     Real estate                                (33)               (72)                (43)             (117)
     Consumer                                  (474)              (275)               (932)             (563)
                                          --------------     --------------      --------------    ---------------
              Total charge-offs                (741)              (492)             (1,483)             (929)

Recoveries:
     Commercial                                   1                  4                  10                70
     Real estate                                 --                  6                  --                 6
     Consumer                                    49                 59                 165               100
                                          --------------     --------------      --------------    ---------------
              Total recoveries                   50                 69                 175               176
Net charge-offs                                (691)              (423)             (1,308)             (753)
Provision for loan losses                       589                755               2,467             1,815
                                          --------------     --------------      --------------    ---------------
Balance at end of period                $     5,467        $     3,726         $     5,467       $     3,726
                                          ==============     ==============      ==============    ===============
</TABLE>

While  management  believes  that it uses  the  best  information  available  to
determine the allowance for loan losses,  potential continuation of the economic
downturn and  unforeseen  market  conditions  could result in adjustments to the
allowance for loan losses,  and net income could be significantly  affected,  if
circumstances differ substantially from the assumptions used in making the final
determination.  Management anticipates that normal growth of the loan portfolio,
coupled  with  credit  weakness  that  could  occur as a result of a  continuing
slowdown in the local  economy may require  increases in the  provisions  to the
allowance for loan losses during the remainder of 2002.


Deposits

The Company provides a range of deposit services, including  noninterest-bearing
checking accounts,  interest-bearing checking and savings accounts, money market
accounts and  certificates  of deposit  ("CDs").  These accounts  generally earn
interest at rates established by management based on competitive  market factors
and  management's  desire to increase or decrease certain types or maturities of
deposits. The Company does not pay brokerage commissions to attract deposits. It
strives  to  establish  customer  relationships  to  attract  core  deposits  in
noninterest-bearing transactional accounts and thus reduce its costs of funds.

                                       15
<PAGE>

The  following  table sets forth the average  balances  outstanding  and average
interest rates for each major category of deposits at the dates indicated:

<TABLE>

                                                           Three Months Ended September 30,
                                                  ----------------------------------------------------
                                                            2002                      2001
                                                  ------------------------- --------------------------
(Dollars in thousands)                              Average     Average       Average      Average
                                                    balance       rate        balance       rate
                                                  ------------------------- --------------------------
<S>                                              <C>              <C>      <C>              <C>
Interest-bearing demand and
   money market deposits                         $    155,850     1.74%    $   117,099      2.36%
Savings deposits                                       29,743     1.40%         26,576      1.94%
CDs                                                   193,894     3.51%        161,048      5.55%
                                                  ------------------------- --------------------------
     Total interest-bearing deposits                  379,487     2.62%        304,723      4.01%
Demand and other
   noninterest-bearing deposits                        56,087                   49,638
                                                  -------------             -------------
     Total average deposits                      $    435,574              $   354,361
                                                  =============             =============
</TABLE>


Liquidity and Sources of Funds

Sources of Funds.  The Company's  sources of funds are customer  deposits,  loan
repayments,  current  earnings,  cash and demand  balances due from other banks,
federal funds sold,  short-term  investments and investment securities available
for  sale.  These  funds  are  used  to make  loans  and to  support  continuing
operations.  The Bank relies primarily upon customer deposits and investments to
provide  liquidity.  The Company will mainly use such funds to make loans and to
purchase  securities,  the  majority of which are issued by  federal,  state and
local governments.  Additional funds are available through  established  Federal
Home Loan Bank  ("FHLB")  and  correspondent  bank  lines of  credit,  which the
Company may use to supplement funding sources.

The Company's  strategy  includes  maintaining a  "well-capitalized"  status for
regulatory purposes, while maintaining a favorable liquidity position and proper
asset/liability mix. With this strategy in mind,  management evaluated potential
capital-raising  alternatives  such as trust preferred  securities,  issuance of
common  stock,  and other  sources.  Management  determined  that issuing  trust
preferred  securities  would be in the best  interest of the Company and on June
27, 2002, the Trust issued $15.0 million of trust  preferred  securities.  Trust
preferred  securities  are held as debt for tax purposes,  while the proceeds of
the offering count as Tier I capital without  increasing the  shareholder  base,
and therefore not diluting earnings per share.

Deposits.  Total deposits  increased 23.3%, to $452.7 million,  at September 30,
2002 from $367.2 million at December 31, 2001. 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.

The Company's  deposits are expected to fluctuate  according to the level of the
Company's  deposit  market  share,   economic  conditions  and  normal  seasonal
variations,  among other  things.  Certificates  of deposit are the only deposit
group that has stated  maturity  dates.  At September 30, 2002,  the Company had
$196.8  million in CDs of which  approximately  $161.1  million,  or 81.9%,  are
scheduled  to mature  within one year,  as compared to $161.7  million in CDs of
which  approximately  $150.9 million,  or 93.4% at December 31, 2001.  Uncertain
market and economic  conditions may cause some customers to choose to move funds
into core  deposit  accounts  or withdraw  funds,  rather than renew CDs as they
mature.  However,  based on prior  experience,  the Company  anticipates  that a
substantial portion of outstanding CDs will renew upon maturity.

                                       16
<PAGE>

Borrowings. At September 30, 2002 the Company had a $78.8 million line of credit
with the FHLB,  of which $17.5  million was  advanced,  and lines of credit with
financial institutions in the amount of $14.0 million, with no advances on these
lines of credit as of that date.  At  December  31, 2001 the Company had a $65.5
million line of credit with the FHLB, of which $32.5  million was advanced,  and
lines of credit with financial institutions in the amount of $13.0 million, with
no advances on these lines of credit as of that date.

The  Company has $15.0  million of trust  preferred  obligations  at a quarterly
adjusted  floating  rate  based on the  3-month  LIBOR plus 3.65% with a 30-year
maturity,  and an  option  to redeem at par  anytime  after the fifth  year.  At
September 30, 2002 the rate on the Company's  trust  preferred  obligations  was
5.51%.


Investments.  The Company's total portfolio of investment  securities  increased
1.6% to $25.0  million at September  30, 2002 from $24.6 million at December 31,
2001.  The  investment  portfolio  consists  of  government  agency  securities,
municipal  securities,  mortgage backed  securities,  FHLB stock,  and corporate
obligations.  No investment exceeds 10% of the Company's  shareholders'  equity.
The following  table  summarizes the amortized  cost,  market value and recorded
value of securities in the Company's portfolio by contractual maturity groups:

<TABLE>

                                                       September 30, 2002
                                     --------------------------------------------------------
 (Dollars in thousands)               Amortized cost      Market value         Recorded value
                                      ----------------   -----------------  -----------------
<S>                                  <C>                <C>                <C>
 Amounts maturing:
 Within one year                     $       6,108      $       6,162      $       6,138
 One to five years                           9,637             10,139              9,670
 Six to ten years                            7,583              8,016              7,577
 Over ten years                              1,576              1,596              1,588
                                      ----------------   -----------------  -----------------
        Total                        $      24,904      $      25,913      $      24,973
                                      ================   =================  =================
</TABLE>

At September 30, 2002,  the Company's  investment  portfolio  consisted of $16.8
million,  or  67.22% in  held-to-maturity  investments  at  carrying  value,  as
compared to $18.4, or 74.88%, at December 31, 2001, and $8.2 million, or 32.78%,
in available-for-sale securities at carrying value, as compared to $6.2 million,
or 25.12%,  at December 31, 2001. For liquidity  purposes,  the Company's future
security purchases will primarily be designated as  available-for-sale  and will
increase as a percent of total investment securities at carrying value.


Capital and Capital Ratios

The Company's  shareholders' equity increased 9.7% to $38.4 million at September
30, 2002 from $35.0  million at December 31, 2001.  This  increase is due to net
income of $4.1  million  and  $67,000 in  proceeds  from the  exercise  of stock
options,  offset by the payment of cash  dividends of $792,000 and a decrease in
unrealized gain on available-for-sale  securities of $26,000, net of tax, during
the nine months  ended  September  30, 2002.  Total  assets  increased to $525.8
million at  September  30, 2002 from $437.7  million at December  31,  2001,  an
increase of 20.1%. The ratio of shareholders' equity to total assets was 7.3% at
September 30, 2002, as compared to 8.0% at December 31, 2001.

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.

                                       17
<PAGE>

The  FDIC  established  the  qualifications  necessary  to  be  classified  as a
"well-capitalized"  bank,  primarily for  assignment of FDIC  insurance  premium
rates. As the following table indicates,  the Company (on a consolidated  basis)
and the Bank qualified as "well capitalized" at September 30, 2002:

<TABLE>

                                          FDIC Requirements                        Company Ratios
                                   --------------------------------    ----------------------------------------
                                   Adequately-          Well-         September 30,          December 31,
                                   capitalized        capitalized          2002                  2001
                                  --------------     -------------    ---------------      -----------------
<S>                                      <C>              <C>             <C>                     <C>
Total risk-based capital ratio           8%               10%             12.45%                  9.64%
Tier 1 risk-based capital ratio          4%                6%             11.27%                  8.57%
Leverage ratio                           4%                5%             10.32%                  8.03%

</TABLE>

There can be no assurance  that  additional  capital will not be required in the
future due to greater-than-expected growth, or otherwise.


Capital Expenditures and Commitments.

The Company had no material capital  expenditures or commitments for the quarter
ended September 30, 2002.


Significant Accounting Policies

See "Notes to Condensed Consolidated Financial Statements."


2002 Anticipated Financial Performance

In February  2002, the Company  announced  targets for 2002 including 20% to 25%
earnings growth,  15% to 20% loan growth,  10% to 15% deposit growth,  ROE of at
least 13%, and an efficiency ratio in the low sixties. The Company believes that
these goals can be attained  through  continuing  its basic banking  strategy of
building core deposits and building a conservative  loan portfolio.  The Company
is on track to meet its 2002  performance  goals  however  it  anticipates  that
earnings per share and  earnings  growth will likely come in at the lower end of
the projected range.  This reflects the  expectations  that the costs associated
with  expanding the branch system and  increasing  the allowance for loan losses
may have on the Company's bottom line.


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, 2002,  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,  2001.  For
additional  information,  refer to the  Company's  Form 10-K for the year  ended
December 31, 2001.

                                       18
<PAGE>

Item 4.  Controls and Procedures

The Company's  management,  including the Chief Executive  Officer and the Chief
Financial Officer,  evaluated the Company's  disclosure  controls and procedures
(as defined in Rule 13a-14(c) under the Securities  Exchange Act of 1934) within
90 days  prior  to the  filing  date of this  quarterly  report.  Based  on this
evaluation,  the  Chief  Executive  Officer  and  the  Chief  Financial  Officer
concluded that the Company's  disclosure  controls and procedures are effective.
There were no significant  changes in the Company's internal controls that could
significantly  affect its disclosure  controls and procedures  since the date of
the evaluation.



                                     PART II


Item 2.  Changes in Securities

(a) On June 27, 2002,  the Company  issued a $15.0 million  Floating Rate Junior
Subordinated  Debenture (the "Debenture") to Washington Banking Capital Trust I,
a statutory  business trust subsidiary.  The Trust issued $15.0 million in Trust
Preferred  Securities to Bear Stearns Securities Corp. based upon this Debenture
and a guarantee from the Company. The Trust Preferred  Securities,  due June 30,
2032,  have a 30-year  maturity and are callable by the Company  after the fifth
year.  Interest is payable  quarterly  at a rate of 3.65% above the  three-month
LIBOR rate.  The Company paid a placement fee of $450,000 plus certain  expenses
to SAMCO Capital Markets, which acted as placement agent for the offering of the
Trust  Preferred  Securities.  The  issuance  of the  Debenture  and  the  Trust
Preferred  Securities  were exempt from  registration  under the  Securities Act
pursuant to Section 4(2) thereunder.  The proceeds of the Debenture will be used
primarily to fund the Company's expansion.



Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         99.1     Section 906 Certification of Chief Executive Officer
         99.2     Section 906 Certification of Chief Financial Officer

(b)      Reports on Form 8-K

         The Company did not file any current reports on Form 8-K during the
         third quarter of 2002.



                                       19


<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, 2002                             By   /s/  Michal D. Cann
                                                         -------------------

                                                         Michal D. Cann
                                                          President and
                                                    Chief Executive Officer
                                                   Principal executive officer


Date: November 13, 2002                            By   /s/ Phyllis A. Hawkins
                                                        ----------------------

                                                       Phyllis A. Hawkins
                                                    Senior Vice President and
                                                    Chief Financial Officer
                                                    Principal financial and
                                                       accounting officer





                                       20
<PAGE>


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

         I, Michal D. Cann, certify that:

1.   I have reviewed this  quarterly  report on Form 10-Q of Washington  Banking
     Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure  and  controls  and  procedures  to be  designed  under our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this report (the "Evaluation Date"); and

     c)   Presented in this report our conclusions  about the  effectiveness  of
          the disclosure  controls and procedures  based on our evaluation as of
          the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   All  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     report whether or not there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.


Date: November 13, 2002                             By   /s/  Michal D. Cann
                                                         -------------------

                                                         Michal D. Cann
                                                          President and
                                                    Chief Executive Officer

                                       21
<PAGE>



                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

         I, Phyllis A. Hawkins, certify that:

1.   I have reviewed this  quarterly  report on Form 10-Q of Washington  Banking
     Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure  and  controls  and  procedures  to be  designed  under our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this report (the "Evaluation Date"); and

     c)   Presented in this report our conclusions  about the  effectiveness  of
          the disclosure  controls and procedures  based on our evaluation as of
          the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   All  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     report whether or not there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.


Date: November 13, 2002                             By   /s/ Phyllis A. Hawkins
                                                         ----------------------

                                                        Phyllis A. Hawkins
                                                     Senior Vice President and
                                                      Chief Financial Officer


                                       22