<PAGE>

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

                                    FORM 10-Q

(Mark One)

    [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
                              Exchange Act of 1934
                For the quarterly period ended September 30, 2000

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

               For the transition period from ________ to ________

                        Commission File Number 000-24503


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

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

                      1421 S.W. Barlow Street
                      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 10, 2000 was 4,032,750.

<PAGE>


                                Table of Contents
<TABLE>

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

           Condensed Consolidated Statements of Financial Condition -                                           1
                September 30, 2000 and December 31, 1999 (unaudited)

           Condensed Consolidated Statements of Income -                                                        2
                Three and Nine Months Ended September 30, 2000 and 1999 (unaudited)

           Condensed Consolidated Statements of Shareholders' Equity -                                          3
                Nine Months Ended September 30, 2000 (unaudited)

           Condensed Consolidated Statements of Comprehensive Income -                                          3
                Three and Nine Months Ended September 30, 2000 and 1999 (unaudited)

           Condensed Consolidated Statements of Cash Flows -                                                    4
                Nine Months Ended September 30, 2000 and 1999 (unaudited)

           Notes to Condensed Consolidated Financial Statements -                                               5
                Nine Months Ended September 30, 2000 and 1999 (unaudited)

Item 2   Management's Discussion and Analysis of Financial Condition                                            8
          and Results of Operations

Item 3   Quantitative and Qualitative Disclosures about Market Risk                                            17

                                                       PART II

Item 6   Exhibits and Reports on Form 8-K                                                                      17

           Signatures                                                                                          17
</TABLE>
<PAGE>

                                     PART I
Item 1. Financial Statements

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Financial Condition
              September 30, 2000 and December 31, 1999 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
                                                                                September 30,      December 31,
                                  Assets                                            2000               1999
                                                                               ----------------   ----------------
<S>                                                                          <C>                <C>
Cash and due from banks                                                      $        15,896    $        10,651
Interest-bearing deposits                                                              1,611              5,842
Federal funds sold                                                                        --              4,300
                                                                               ----------------   ----------------
     Total cash and cash equivalents                                                  17,507             20,793

Federal Home Loan Bank stock                                                             830                791
Investment securities, available-for-sale                                              4,927              6,373
Investment securities, held-to-maturity                                               21,852             24,090
                                                                               ----------------   ----------------
     Total investment securities                                                      27,609             31,254

Loans receivable, net                                                                283,549            220,222
Premises and equipment, net                                                           11,977             11,177
Other real estate owned                                                                  170                170
Deferred tax asset                                                                       415                434
Other assets                                                                           2,601              1,920
                                                                               ----------------   ----------------
              Total assets                                                   $       343,828    $       285,970
                                                                               ================   ================

                   Liabilities and Shareholders' Equity
Liabilities:
     Noninterest-bearing deposits                                            $        43,742    $        35,388
     Interest-bearing deposits                                                       251,661            219,087
                                                                               ----------------   ----------------
         Total deposits                                                              295,403            254,475
     Federal funds purchased                                                           5,600                 --
     Federal Home Loan Bank advances                                                  10,000                 --
     Other liabilities                                                                 1,811              1,697
                                                                               ----------------   ----------------
              Total liabilities                                                      312,814            256,172

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 4,032,750 and 4,061,785
        shares at September 30, 2000 and December 31, 1999, respectively              15,979             16,413
     Retained earnings                                                                15,107             13,493
     Accumulated other comprehensive income (loss), net                                  (72)              (108)
                                                                               ----------------   ----------------
              Total shareholders' equity                                              31,014             29,798
                                                                               ----------------   ----------------
              Total liabilities and shareholders' equity                     $       343,828    $       285,970
                                                                               ================   ================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       1
<PAGE>

                          WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
                   Condensed Consolidated Statements of Income
       Three and nine months ended September 30, 2000 and 1999 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>

                                                           Three Months Ended                Nine Months Ended
                                                             September 30,                     September 30,
                                                          2000           1999               2000           1999
                                                       ------------   ------------       ------------   ------------
<S>                                                  <C>            <C>                <C>            <C>
Interest income:
     Interest and fees on loans                      $     6,699    $     4,439        $    18,248    $    11,892
     Interest on taxable investment securities               150            257                500            831
     Interest on tax-exempt investment securities            200            206                604            610
     Other                                                    49             69                174            237
                                                       ------------   ------------       ------------   ------------
              Total interest income                        7,098          4,971             19,526         13,570

Interest expense                                           3,221          1,814              8,191          4,847
                                                       ------------   ------------       ------------   ------------
              Net interest income                          3,877          3,157             11,335          8,723
Provision for loan losses                                    300            255              1,026            765
                                                       ------------   ------------       ------------   ------------
              Net interest income after provision
                for loan losses                            3,577          2,902             10,309          7,958
                                                       ------------   ------------       ------------   ------------
Noninterest income:
     Service charges on deposits                             448            359              1,305          1,053
     Other                                                   219            198                668            782
                                                       ------------   ------------       ------------   ------------
              Total noninterest income                       667            557              1,973          1,835
                                                       ------------   ------------       ------------   ------------
Noninterest expense:
     Salaries and benefits                                 1,830          1,421              5,348          4,046
     Occupancy expense                                       608            582              1,746          1,526
     Office supplies and printing                            107            148                347            326
     Data processing                                          79             79                242            230
     Consulting and professional fees                         59             22                158            167
     Other                                                   522            454              1,410          1,273
                                                       ------------   ------------       ------------   ------------
              Total noninterest expense                    3,205          2,706              9,251          7,568
                                                       ------------   ------------       ------------   ------------
              Income before income taxes                   1,039            753              3,031          2,225
Provision for income taxes                                   268            209                811            572
                                                       ------------   ------------       ------------   ------------
              Net income                             $       771    $       544        $     2,220    $     1,653
                                                       ============   ============       ============   ============

Net income per share, basic                          $      0.19    $      0.13        $      0.55    $      0.40
                                                       ============   ============       ============   ============
Net income per share, diluted                        $      0.18    $      0.12        $      0.52    $      0.37
                                                       ============   ============       ============   ============

Average number of shares outstanding, basic              4,031,538      4,108,932          4,046,623      4,161,733
Average number of shares outstanding, diluted            4,226,884      4,361,093          4,241,146      4,408,329

</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Shareholders' Equity
                Nine months ended September 30, 2000 (unaudited)
                        (Dollars and shares in thousands)

<TABLE>
                                                                                  Accumulated
                                                                                     other            Total
                                            Common stock           Retained      comprehensive    shareholders'
                                        Shares       Amount        earnings   income (loss), net     equity
                                      -----------  ------------   ------------  ----------------  ---------------
<S>                                       <C>      <C>             <C>           <C>               <C>
Balances at December 31, 1999             4,062    $  16,413       $  13,493      $   (108)        $  29,798
Cash dividend, $0.15 per share               --           --            (606)           --              (606)
Net income                                   --           --           2,220            --             2,220
Net change in unrealized gain (loss)
    on securities available-for-sale         --           --              --            36                36
Repurchase of common stock                  (68)        (550)             --            --              (550)
Stock options exercised                      39          116              --            --               116
                                      -----------  ------------   ------------  ----------------  ---------------
Balances at September 30, 2000            4,033    $  15,979       $  15,107      $    (72)        $  31,014
                                      ===========  ============   ============  ================  ===============
</TABLE>







            Condensed Consolidated Statements of Comprehensive Income
       Three and nine months ended September 30, 2000 and 1999 (unaudited)
                        (Dollars and shares in thousands)

<TABLE>

                                                       Three Months Ended                 Nine Months Ended
                                                           September 30,                     September 30,
                                                        2000           1999               2000           1999
                                                    -------------   ------------      -------------   ------------
<S>                                               <C>             <C>               <C>             <C>
Net income                                              $  771        $   544           $  2,220       $  1,653
Increase in unrealized gain (loss) on securities
     available-for-sale, net of tax of
     $19, $9, $19 and $66, respectively                     36            (18)                36           (128)
                                                    -------------   ------------      -------------   ------------
Comprehensive income                                    $  807        $   526           $  2,256       $  1,525
                                                    =============   ============      =============   ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.












                                       3
<PAGE>

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
            Nine months ended September 30, 2000 and 1999 (unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
                                                                              Nine Months Ended September 30,
                                                                                 2000                 1999
                                                                           ------------------   -----------------
<S>                                                                      <C>                  <C>
Cash flows from operating activities:
     Net income                                                          $       2,220        $       1,653
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Federal Home Loan Bank stock dividends                                      (39)                 (41)
       Amortization of investment premiums, net                                     29                   48
       Provision for loan losses                                                 1,026                  765
       Depreciation of premises and equipment                                      781                  466
       Net increase in other assets                                               (681)                (529)
       Net decrease in other liabilities                                           114                  154
                                                                           ------------------   -----------------
           Net cash provided by operating activities                             3,450                2,516
                                                                           ------------------   -----------------

Cash flows from investing activities:
     Purchases of investment securities, available-for-sale                         --               (1,033)
     Maturities of investment securities, available-for-sale                     1,500                3,000
     Purchases of investment securities, held-to-maturity                           --               (1,790)
     Maturities of investment securities, held-to-maturity                       2,210                2,145
     Net increase in loans                                                     (64,353)             (53,974)
     Purchases of premises and equipment                                        (1,581)              (3,429)
                                                                           ------------------   -----------------
           Net cash used in investing activities                               (62,224)             (55,081)
                                                                           ------------------   -----------------

Cash flows from financing activities:
     Net increase in deposits                                                   40,928               38,465
     Net increase in Federal Home Loan Bank advances                            10,000                   --
     Net increase in federal funds purchased                                     5,600                5,000
     Dividends paid on common stock                                               (606)                (500)
     Proceeds from stock options exercised                                         116                   46
     Repurchase of common stock                                                   (550)              (1,043)
                                                                           ------------------   -----------------
           Net cash provided by financing activities                            55,488               41,968
                                                                           ------------------   -----------------
           Net decrease in cash and cash equivalents                            (3,286)             (10,597)
Cash and cash equivalents at beginning of period                                20,793               24,252
                                                                           ------------------   -----------------
Cash and cash equivalents at end of period                               $      17,507        $      13,655
                                                                           ==================   =================

Supplemental information:
     Loans foreclosed and transferred to real estate owned               $          --        $          --
     Cash paid for interest                                                      7,928                4,739
     Cash paid for taxes                                                           850                  632

</TABLE>

See accompanying notes to condensed consolidated financial statements.




                                       4
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2000 and 1999 (unaudited)
(Dollars in thousands, except per share data)


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

   (a) Description of Business

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

   (b) Basis of Presentation

The accompanying interim condensed consolidated financial statements include the
accounts of Washington Banking Company and its wholly-owned subsidiary,  Whidbey
Island Bank (together,  "the Company").  The accompanying  financial  statements
have been prepared,  without audit,  pursuant to generally  accepted  accounting
principles  and  instructions  to Form 10-Q for interim  financial  information.
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 Company's December 1999 audited  consolidated  financial statements and
notes thereto  included in the Company's Form 10-K filed with the Securities and
Exchange Commission.  In the opinion of management,  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,
2000 are not necessarily  indicative of the results that may be expected for the
year ending December 31, 2000.

Certain  amounts  in 1999  have  been  reclassified  to  conform  with  the 2000
financial statement presentation.

   (c) Recently Issued Accounting Pronouncements

In June 1998,  FASB issued SFAS  Statement No. 133 ("SFAS 133"),  Accounting for
Derivative Instruments and Hedging Activities, which requires all derivatives to
be  recorded  on the  balance  sheet at fair  value and  establishes  accounting
standards  for  different  types of  hedging  activities,  including  fair value
hedges, cash flow hedges and hedges of foreign currency exposures.  In May 1999,
the FASB delayed the effective date of SFAS 133 to fiscal years  beginning after
June 15, 2000 with interim  reporting  required.  In June 2000,  the FASB issued
SFAS  Statement  No.  138  ("SFAS  138"),   Accounting  for  Certain  Derivative
Instruments and Certain Hedging  Activities,  an amendment of FASB Statement No.
133, which makes minor  modifications  to SFAS 133.  Management  does not expect
SFAS 133 or 138 to have a material impact on the Company's financial position or
results of operations.









                                       5
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2000 and 1999 (unaudited)
(Dollars in thousands, except per share data)


The SEC issued Staff Accounting  Bulletin No. 101B ("SAB 101B"). SAB 101B delays
the effective  date of Staff  Accounting  Bulletin No. 101 ("SAB 101")  "Revenue
Recognition  in Financial  Statements,"  to the fourth  quarter for fiscal years
beginning  between  December  15,  1999 and March  16,  2000.  SAB 101  provides
guidance on revenue  recognition and the SEC staff's views on the application of
accounting  principles to selected revenue  recognition issues. The Company will
adopt the  provisions of SAB 101 in the fourth  quarter of 2000 and  anticipates
that  such  adoption  will  not have an  impact  on the  Company's  consolidated
financial statements.

In March 2000, the Financial  Accounting  Standards Board issued  Interpretation
No. 44,  "Accounting for Certain  Transactions  involving  Stock  Compensation."
Interpretation  No. 44 clarifies the application of Accounting  Principles Board
Opinion No. 25 ("APB 25") and was effective July 1, 2000.  Interpretation No. 44
clarifies  the  definition  of  "employee"  for purposes of applying APB 25, the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting  consequence  of various  modifications  to the terms of a previously
fixed  stock  option or  award,  and the  accounting  for an  exchange  of stock
compensation  awards in a business  combination.  The adoption of Interpretation
No. 44 did not have a material  impact on the Company's  consolidated  financial
statements.

(2)   Borrowing Arrangements

At September  30,  2000,  the Company had a line of credit with the Federal Home
Loan Bank of Seattle  ("FHLB") of $51.3 million of which there was $10.0 million
advanced and lines of credit with  correspondent  financial  institutions in the
amount of $12.1 million of which there were $5.6 million advanced.































                                       6
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2000 and 1999 (unaudited)
(Dollars in thousands, except per share data)


(3)   Earnings Per Share and Stockholders' Equity

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

                                                                 Three Months Ended September 30, 1999
                                                    ----------------------------------------------------------------
                                                        Income          Weighted average shares    Per share amount
                                                     ----------------    -----------------------   ------------------
Basic EPS
Income available to common shareholders                $    544                4,108,932             $     0.13
Effect of dilutive securities: stock options                 --                  252,161                     --
                                                    ----------------    -----------------------   ------------------
Diluted EPS                                            $    544                4,361,093             $     0.12
                                                    ================    =======================   ==================
</TABLE>



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

                                                                 Nine Months Ended September 30, 1999
                                                    ----------------------------------------------------------------
                                                        Income          Weighted average shares    Per share amount
                                                    ----------------    -----------------------   ------------------
Basic EPS
Income available to common shareholders                $  1,653                4,161,733             $     0.40
Effect of dilutive securities: stock options                 --                  246,596                     --
                                                    ----------------    -----------------------   ------------------
Diluted EPS                                            $  1,653                4,408,329             $     0.37
                                                    ================    =======================   ==================
</TABLE>


                                       7
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2000 and 1999 (unaudited)
(Dollars in thousands, except per share data)


For the  three-month  periods  ended  September  30,  2000 and 1999,  there were
options to purchase  113,550 and 41,000  shares,  respectively,  of common stock
outstanding,   which  were  antidilutive  and  therefore  not  included  in  the
computation of diluted net income per share.  For the  nine-month  periods ended
September 30, 2000 and 1999,  there were options to purchase  113,550 and 41,000
shares, respectively,  of common stock outstanding,  which were antidilutive and
therefore not included in the computation of diluted net income per share.

On April 29, 1999,  the Board of  Directors  approved a stock  repurchase  plan,
allowing the Company to repurchase up to 210,000 shares of the Company's  common
stock.  During the third quarter of 2000, the Company repurchased 11,735 shares,
resulting in a total of 210,000 shares repurchased under the plan.


(4)   Subsequent Event

On October 19, 2000,  the Board of Directors  declared a cash  dividend of $0.05
per share to shareholders of record as of November 1, 2000.


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

Warning about Forward-Looking Statements

The following discussion includes  "forward-looking  statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are based on management's  beliefs and assumptions based on currently
available  information,  and we have not  undertaken to update these  statements
except as required by the Securities  Exchange Act of 1934, as amended,  and the
rules promulgated thereunder. All statements other than statements of historical
fact regarding our financial position,  business strategy and management's plans
and objectives for future operations are forward-looking  statements.  When used
in this report, the words  "anticipate,"  "believe,"  "estimate,"  "expect," and
"intend" and words or phrases of similar meaning,  as they relate to the Company
or  management,  are  intended  to  help  identify  forward-looking  statements.
Although  we  believe   that   management's   expectations   as   reflected   in
forward-looking  statements are reasonable,  we cannot assure readers that those
expectations will prove to be correct. Forward-looking statements are subject to
various  risks and  uncertainties  that may cause our  actual  results to differ
materially   and   adversely   from  our   expectations   as  indicated  in  the
forward-looking statements. These risks and uncertainties include our ability to
maintain or expand our market  share or net interest  margins,  and to implement
our marketing and growth strategies.  Further, actual results may be affected by
our  ability  to  compete  on price  and  other  factors  with  other  financial
institutions;  customer acceptance of new products and services;  the regulatory
environment in which we operate;  and general trends in the local,  regional and
national  banking  industry  as those  factors  relate  to our cost of funds and
return on assets. In addition,  there are risks inherent in the banking industry
relating to collectibility of loans and changes in interest rates. Many of these
risks,  as well as other  risks that may have a material  adverse  impact on our
operations  and  business,  are  identified  in our other  filings with the SEC.
However,  you should be aware that these factors are not an exhaustive list, and
you  should  not  assume  these are the only  factors  that may cause our actual
results to differ from our expectations.




                                       8
<PAGE>

Overview

The  Bank  began  operations  in  1961  with  its  headquarters  at  Coupeville,
Washington, located on Whidbey Island. Washington Banking Company, headquartered
in Oak Harbor, Washington, was formed as a bank holding company in April of 1996
and currently holds all of the issued and outstanding  common stock of the Bank.
WBCO's only significant  business  activity has been to hold the common stock of
the  Bank  and  invest  its  available  funds.  The  Company  currently  has  14
full-service  bank branches,  one loan production office and 18 automated teller
machines  ("ATMs")  located in  Island,  Skagit,  and  Whatcom  counties  in the
northern  area of Western  Washington.  A  full-service  office in the Bakerview
neighborhood of Bellingham (Whatcom County) was opened during August 2000.

Construction  of a new  building in Oak Harbor is expected  to be  completed  by
year-end 2000. The new construction  will combine the downtown Oak Harbor branch
and some of the administrative  offices. Once the new building is occupied,  the
Company is expected to be able to eliminate the use of some properties presently
owned or leased. Management believes that the new location will enhance customer
service by providing  easier branch access and more  convenient  availability of
expanded  financial  services,   and  that  the  consolidation  will  assist  in
streamlining operations and improving efficiencies.

The Company's objective is to continue its strategy of growth, primarily through
increasing  its  market  penetration  in the  areas  it  currently  serves,  and
improving its profitability and operating efficiencies. Management's strategy is
to continue to provide a high level of personal  service to its customers and to
expand  loan,  deposit  and other  products  and  services  that it  offers  its
customers.   Maintenance  of  asset  quality   continues  to  be  emphasized  by
controlling nonperforming assets and adhering to prudent underwriting standards.
In addition, management will strive to improve operating efficiencies to further
manage  noninterest  expense  and will  continue to improve  internal  operating
systems. To deliver the Company's products more effectively and efficiently, the
Company's market strategy is to locate full-service branch offices which provide
all of the Company's  products and services in its targeted growth areas.  These
branches are supported by loan  production  offices,  mini-branches,  grocery or
retail  store  branches  and/or  ATMs in the  areas  surrounding  those  central
locations in order to further serve customers.  The Company has also invested in
technology  to facilitate  telephone,  personal  computer and Internet  banking,
while its primary commitment is to provide exceptional service.

The  Company  may  also use  acquisition  of  banks  or  branches  as a means of
expansion if appropriate  opportunities are presented.  Expansion opportunities,
primarily in the geographic areas north and northwest of Seattle to the Canadian
border,  may be  considered  if they meet the  Company's  criteria.  The primary
factors  considered  include  customer  demand and  availability  of experienced
personnel  with  a  longstanding   community   presence  and  extensive  banking
relationships.  Growth can be expected to require the expenditure of substantial
sums to purchase or lease real property and  equipment  and to hire  experienced
personnel.  New branch  offices are often not  profitable for at least the first
eighteen  months after opening and management  expects that any earnings will be
negatively affected as the Company pursues its growth strategy.













                                       9
<PAGE>

Financial Condition

Total  assets  increased  to $343.8  million at  September  30, 2000 from $286.0
million at December 31, 1999, an increase of 20.2%. Net loans increased 28.8% to
$283.5  million at September 30, 2000 from $220.2  million at December 31, 1999.
Deposits  increased  16.1% to $295.4  million at September  30, 2000 from $254.5
million at December 31, 1999.

The Company's  shareholders'  equity increased to $31.0 million at September 30,
2000 from $29.8  million at December 31, 1999.  The increase  reflects  earnings
offset by the  repurchase  of 67,735  shares of common  stock for  approximately
$550,000  and the payment of cash  dividends  of $606,000  during the first nine
months of 2000.

The  Company's  allowance for loan losses was $2.8 million at September 30, 2000
and $2.2  million at December 31, 1999.  Nonperforming  assets  amounted to $2.3
million at  September  30,  2000,  or 0.68% of total  assets,  compared  to $1.1
million or 0.40% at December 31, 1999.


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  primarily  through  service charges and fees and
other  sources.   The  Company's   noninterest  expenses  consist  primarily  of
compensation and employee benefit expense, and occupancy expense.

Net income for the third  quarter of 2000  increased  41.7% to $771,000 or $0.18
per diluted  share,  from $544,000,  or $0.12 per diluted  share,  for the third
quarter  of 1999.  Net income  for the nine  months  ended  September  30,  2000
increased  34.3% to $2.2 million or $0.52 per diluted share,  from $1.7 million,
or $0.37 per diluted  share,  for the nine months ended  September 30, 1999. The
increase in net income was primarily due to growth in net interest income.


Net Interest Income

Net  interest  income  for the third  quarter  of 2000  increased  22.8% to $3.9
million  from $3.2  million  for the third  quarter of 1999.  For the first nine
months of 2000, net interest  income  increased 29.9% to $11.3 million from $8.7
million for the like period in 1999.  The  increase  in net  interest  income is
largely due to the growth of the Company's loan portfolio  resulting from strong
loan demand.


















                                       10
<PAGE>

The following table sets forth at the dates indicated the Company's consolidated
average balance sheet and analysis of net interest income and expense:

<TABLE>

                                Three Months Ended September 30, 2000      Three Months Ended September 30, 1999
                                 Average       Interest     Average          Average      Interest      Average
(Dollars in thousands)           balance      earned/paid  yield (1)         balance     earned/paid   yield (1)
                                -----------   -----------  -----------     ------------  ------------ ------------
    Assets
<S>                            <C>           <C>              <C>         <C>           <C>              <C>
Loans                          $  273,539    $   6,699        9.80%       $  188,944    $   4,439        9.40%
Federal funds sold                    478            8        6.69%              989           13        5.26%
Interest-bearing cash               1,799           28        6.23%            3,613           42        4.65%
Investments:
     Taxable                       10,789          163        6.04%           18,231          271        5.95%
     Non-taxable (2)               17,093          268        6.27%           17,636          276        6.26%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-earning assets        $  303,698    $   7,166        9.44%       $  229,413    $   5,041        8.79%
Noninterest-earning assets         25,772                                     24,277
                                -----------                                ------------
    Total assets               $  329,470                                 $  253,690
                                ===========                                ============

    Liabilities and shareholders' equity
Deposits:
     Interest demand and
      money market             $   92,077    $     843        3.66%       $   75,341    $     534        2.84%
     Savings                       25,175          179        2.84%           25,635          163        2.54%
     Time deposits                123,673        1,938        6.27%           85,039        1,092        5.14%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing deposits      $  240,925    $   2,960        4.91%       $  186,015    $   1,789        3.85%
Fed Funds purchased                 5,363           90        6.71%            1,733           24        5.54%
FHLB advances                      10,038          171        6.81%               --           --          --
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing liabilities   $  256,326    $   3,221        5.03%       $  187,748    $   1,813        3.86%
Noninterest-bearing deposits       40,626                                     35,049
Other noninterest-bearing
  liabilities                       1,785                                      1,337
                                -----------                                ------------
Total liabilities              $  298,737                                 $  224,134
Shareholders' equity               30,733                                     29,556
                                -----------                                ------------
    Total liabilities and
       shareholders' equity    $  329,470                                 $  253,690
                                ===========                                ============

Net interest income (2)                      $   3,945                                  $   3,228
                                              ===========                                ============

Net interest spread (1)                                       4.41%                                      4.93%
                                                           ===========                                ============

Net interest margin (1)                                       5.20%                                      5.63%
                                                           ===========                                ============

(1)  Annualized
(2)  Interest  income on  non-taxable  investments  is presented  on a fully  taxable-equivalent  basis using the
federal statutory rate of 34%. These adjustments were $68 and $70 for the three months ended September 30, 2000 and 1999.

</TABLE>



                                       11
<PAGE>

Average  interest-earning  assets  for the  third  quarter  increased  to $303.7
million at September 30, 2000 compared to $229.4  million at September 30, 1999,
a growth of $74.3 million, or 32.4%, while the average yield on interest-earning
assets  increased to 9.44% compared to 8.79% in third quarter of the prior year.
The average yield on loans  increased to 9.80% for the quarter  ended  September
30, 2000 from 9.40% for the quarter ended  September 30, 1999. The average yield
on  interest-bearing  deposits  also  increased in the third  quarter of 2000 to
4.91%  from  3.85%  for  the  quarter   ended   September   30,  1999.   Average
interest-bearing  deposits  for the  quarter  increased  to  $240.9  million  at
September 30, 2000 compared to $186.0 million at September 30, 1999, a growth of
$54.9 million,  or 29.5%.  The overall result of these changes was a decrease in
the net  interest  spread  and the net  interest  margin  to  4.41%  and  5.20%,
respectively,  for the quarter  ended  September  30, 2000 from 4.93% and 5.63%,
respectively, for the quarter ended September 30, 1999.


Noninterest Income and Expense

Noninterest  income increased  $110,000,  or 19.7%, in the third quarter of 2000
compared  to the like  period  in  1999.  For the  first  nine  months  of 2000,
noninterest  income increased  $138,000,  or 7.5% compared to the like period in
1999.  This  additional  income is due to an  increase  in the number of deposit
accounts and service charges.

Noninterest expense was $3.2 million, an increase of $499,000,  or 18.4%, in the
third quarter of 2000.  Two major  components of noninterest  expense,  employee
compensation  and occupancy,  increased  28.8% and 4.5%,  respectively,  for the
quarter  compared to the like period in 1999. For the first nine months of 2000,
noninterest expense rose to $9.3 million from $7.6 million one year ago, a 22.2%
increase. Employee compensation and occupancy expense increased 32.2% and 14.4%,
respectively, for the nine months ended September 30, 2000. With the majority of
our hub branches completed, the increase in noninterest expenses mainly reflects
personnel costs  associated with additional  staffing for those  locations.  The
efficiency ratio (noninterest  expense divided by the sum of net interest income
plus  noninterest  income less  non-recurring  gains) improved to 70.53% for the
third quarter 2000 compared to 72.86% for the like period in 1999. For the first
nine  months of 2000 and 1999,  the  efficiency  ratio was  69.51%  and  71.68%,
respectively.


Income Taxes

For the third  quarter  and first nine months of 2000,  the Company  recorded an
income tax  provision  of  $268,000  and  $811,000,  respectively.  The  overall
effective  tax rate  increased  for the nine  months  ended  September  30, 2000
compared  to the like period in 1999 due to the  decrease of interest  income on
tax-exempt investment securities as a percentage of taxable income.

















                                       12
<PAGE>

Lending Activities

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

<TABLE>

                                                        September 30, 2000                     December 31, 1999
                                                -----------------------------------    -----------------------------------
(Dollars in thousands)                              Balance           % of total           Balance           % of total
                                                ----------------    ---------------    -----------------    --------------
<S>                                             <C>                      <C>            <C>                      <C>
Commercial                                      $   103,428              36.1%          $   90,014               40.5%
Real estate mortgages:
     One-to-four family residential                  30,639              10.7%              24,822               11.2%
     Five-or-more family residential and
      commercial                                     38,618              13.5%              29,527               13.2%
                                                ----------------    ---------------    -----------------    --------------
Total real estate mortgages                          69,257              24.2%              54,349               24.4%
Real estate construction                             21,541               7.5%              14,300                6.4%
Consumer                                             92,107              32.2%              63,757               28.7%
                                                ----------------    ---------------    -----------------    --------------
Subtotal                                            286,333             100.0%             222,420              100.0%
                                                                    ===============                         ==============
     Less: allowance for loan losses                 (2,770)                                (2,182)
     Less: deferred loan fees and other                 (14)                                   (16)
                                                ----------------                       -----------------
           Total loans, net                       $ 283,549                              $ 220,222
                                                ================                       =================
</TABLE>

Total  loans,   net,   increased  to  $283.5  million  at  September  30,  2000,
representing a 28.8% increase from year-end 1999. Total commercial,  real estate
mortgage,  real estate  construction and consumer loans increased 14.9%,  27.4%,
50.6% and 44.5%,  respectively,  at September 30, 2000 from year-end 1999. These
increases  reflect  the  Company's  strategy  of  growth  and  increased  market
penetration in the areas it currently serves.


























                                       13
<PAGE>

Nonperforming Assets

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

<TABLE>

(Dollars in thousands)                                     September 30, 2000          December 31, 1999
                                                        -------------------------    ----------------------
<S>                                                          <C>                         <C>
Nonaccrual loans                                             $    2,093                  $        920
Restructured loans                                                   77                            52
                                                        -------------------------    ----------------------
         Total nonperforming loans                                2,170                           972
Real estate owned                                                   170                           170
                                                        -------------------------    ----------------------
         Total nonperforming assets                          $    2,340                   $     1,142
                                                        =========================    ======================

Accruing loans past due => 90  days                         $        --                 $          --
Potential problem loans                                              --                            --
Allowance for loan losses                                         2,770                         2,182

Nonperforming loans to loans                                      0.76%                         0.44%
Allowance for loan losses to loans                                0.97%                         0.98%
Allowance for loan losses to nonperforming loans                127.65%                       224.49%
Nonperforming assets to total assets                              0.68%                         0.40%

</TABLE>

Nonperforming  loans  increased to $2.2  million,  or 0.76% of total  loans,  at
September 30, 2000 from $972,000,  or 0.44% of total loans, at December 31, 1999
primarily  due to a small number of borrowing  relationships  that were added to
nonaccrual   loans.   Accordingly,   the   Company   expects  to  charge  off  a
higher-than-normal  amount of  nonperforming  loans in the fourth  quarter.  The
Company will  continue to evaluate the  adequacy of the loan loss  reserve,  and
anticipates  increasing the provision either in the fourth quarter or next year,
which may have a negative  impact on net income.


























                                       14
<PAGE>

Provision and Allowance for Loan Losses

The Company recorded a $300,000  provision for loan losses for the third quarter
of 2000,  compared  to  $255,000  for the like  period a year  ago.  There  were
$187,000 in net loan charge-offs  during the third quarter of 2000,  compared to
$114,000 for the like period in 1999.  For the nine months ended  September  30,
2000, the Company recorded a $1.0 million  provision for loan losses compared to
$765,000 for the like period in 1999. Net loan charge-offs during the first nine
months of 2000 were $438,000 compared to $349,000 for the like period in 1999.

The  allowance  for loan losses  increased to $2.8 million at September 30, 2000
from $2.2 million at December 31, 1999, or 0.97% of total  outstanding loans and
127.65% of nonperforming  loans at the end of the third quarter 2000 as compared
to 0.98% of total loans and 224.49% of nonperforming loans at December 31, 1999.

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

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

<TABLE>

(Dollars in thousands)                           Three Months Ended                      Nine Months Ended
                                                   September 30,                           September 30,
                                               2000              1999                 2000               1999
                                          ---------------    --------------       --------------     --------------
<S>                                     <C>                <C>                  <C>                <C>
Balance at beginning of period          $     2,657        $     2,020          $     2,182        $     1,745
Charge-offs:
     Commercial                                (100)               (52)                (195)              (169)
     Real estate                                  -                  -                    -                 (6)
     Consumer                                  (109)               (69)                (305)              (195)
                                          ---------------    --------------       --------------     --------------
              Total charge-offs                (209)              (121)                (500)              (370)

Recoveries:
     Commercial                                  --                  1                    5                  8
     Real estate                                 --                 --                   --                 --
     Consumer                                    22                  6                   57                 13
                                          ---------------    --------------       --------------     --------------
              Total recoveries                   22                  7                   62                 21
Net charge-offs                                (187)              (114)                (438)              (349)
Provision for loan losses                       300                255                1,026                765
                                          ---------------    --------------       --------------     --------------
Balance at end of period                $     2,770        $     2,161          $     2,770        $     2,161
                                          ===============    ==============       ==============     ==============

</TABLE>










                                       15
<PAGE>

Liquidity and Sources of Funds

The Company's sources of funds are customer  deposits,  cash and demand balances
due from other banks, federal funds sold, short-term  investments and investment
securities  available-for-sale.  These funds,  together with loan repayments and
maturing investments,  are used to make loans and to fund continuing operations.
In  addition,  at September  30, 2000,  the Company had lines of credit with the
Federal Home Loan Bank of Seattle  ("FHLB") of $51.3  million and  correspondent
financial institutions in the amount of $12.1 million. As of September 30, 2000,
there were $15.6 million in advances on these lines of credit.

Total  deposits  increased  16.1% to $295.4  million at September  30, 2000 from
$254.5 million as of December 31, 1999. 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.  In addition,  the Company has been able to retain a significant amount
of its deposits as they mature.

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


Capital

The Company's  shareholders'  equity increased to $31.0 million at September 30,
2000 from $29.8  million at December 31, 1999.  On April 29, 1999 the  Company's
Board of Directors  approved the repurchase of up to approximately 5% or 210,000
shares of outstanding  Company stock. The Board deemed this action prudent given
the Company's  strong capital position and market  conditions.  At September 30,
2000 the  210,000  shares  had been  repurchased,  with  67,735 of those  shares
repurchased  during the nine months ended  September 30, 2000 for  approximately
$550,000.  The Company  also paid cash  dividends  of  $606,000  during the nine
months ended September 30, 2000. Net income for the quarter,  offset by the cash
dividends  and stock  repurchases,  were the primary  reasons for the  Company's
increase of $1.2 million in  shareholders'  equity at September 30, 2000.  Total
assets  increased to $343.8 million at September 30, 2000 from $286.0 million at
December 31, 1999,  an increase of 20.2%.  Shareholders'  equity to total assets
was 9.0% at September 30, 2000 compared to 10.4% at December 31, 1999.

The  Company  and the  Bank are  subject  to  risk-based  capital  and  leverage
guidelines  issued by  federal  banking  agencies  for  banks  and bank  holding
companies. These agencies are required by law to take specific prompt corrective
actions with respect to institutions  that do not meet minimum capital standards
and have defined five capital tiers, the highest of which is "well-capitalized".
As  the  following   table   indicates,   the  Company  and  Bank  qualified  as
"well-capitalized" at September 30, 2000:

<TABLE>
                                                                   September 30, 2000
                                         ------------------------------------------------------------------------
                                          Minimum requirement       Well-capitalized           Actual ratio
                                                                       requirement
                                         ----------------------    --------------------    ----------------------
<S>                                               <C>                      <C>                    <C>
  Total risk-based capital ratio                  8%                       10%                    10.73%
  Tier 1 risk-based capital ratio                 4%                        6%                     9.80%
  Leverage ratio                                  4%                        5%                     8.95%

</TABLE>




                                       16
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

A number  of  measures  are used to  monitor  and  manage  interest  rate  risk,
including income simulations and interest sensitivity (gap) analyses.  An income
simulation  model is the primary tool used to assess the direction and magnitude
of changes in net interest income  resulting from changes in interest rates. Key
assumptions in the model include prepayment speeds on  mortgage-related  assets,
cash flows and  maturities  of other  investment  securities,  loan and  deposit
volumes and  pricing.  These  assumptions  are  inherently  uncertain  and, as a
result,  the model cannot  precisely  estimate net interest  income or precisely
predict the impact of higher or lower  interest  rates on net  interest  income.
Actual results will differ from simulated  results due to timing,  magnitude and
frequency of interest rate changes,  changes in market conditions and management
strategies,  among other factors.  At September 30, 2000,  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,  1999.  For
additional information, refer to the Company's Form 10-K for year ended December
31, 1999.


                                     Part II

Item 6.   Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit 27 - Financial  Data  Schedule - This exhibit is included only
         in the  electronic  EDGAR version of this Form 10-Q. The financial data
         schedule is not a separate  financial  statement,  but a  schedule that
         summarizes  certain  standard  financial information extracted directly
         from the financial statements in this filing.


(b)      Reports on Form 8-K

         None

                                   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, 2000                  By       /s/  Michal D. Cann

                                        Michal D. Cann
                                        President and Chief Executive Officer


Date November 13, 2000                  By       /s/ Phyllis A. Hawkins

                                        Phyllis A. Hawkins
                                        Senior Vice President and
                                        Chief Financial Officer





                                       17