<PAGE> 1





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

                                    FORM 10-Q

(Mark One)

[X]      Quarterly report pursuant to Section 13 or l5 (d) of the Securities
                              Exchange Act of 1934

                  For the quarterly period ended June 30, 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
                         August 10, 2000 was 4,028,285.










                                        i
<PAGE>






                                Table of Contents

<TABLE> 2
                                                       PART I
                                                                                                               Page

<S>                                                                                                            <C>
Item 1   Financial Statements
           Condensed Consolidated Statements of Financial Condition -                                            1
                June 30, 2000 and December 31, 1999 (unaudited)

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

           Condensed Consolidated Statements of Shareholders' Equity -                                           3
                Six Months Ended June 30, 2000 (unaudited)
           Condensed Consolidated Statements of Comprehensive Income -
                Three and Six Months Ended June 30, 2000 and 1999 (unaudited)

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

           Notes to Condensed Consolidated Financial Statements -                                                5
                Six Months Ended June 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                                             16

                                                       PART II

Item 4   Submission of Matters to a Vote of Security Holders                                                    17

Item 6   Exhibits and Reports on Form 8-K                                                                       17
           Signatures                                                                                           18


</TABLE>

<PAGE> 3

                                     PART I
Item 1. Financial Statements

                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Financial Condition
                 June 30, 2000 and December 31, 1999 (unaudited)
                  (Dollars in thousands, except per share data)
<TABLE>
                                                                                  June 30,         December 31,
                                  Assets                                            2000               1999
                                                                               ---------------    ----------------
<S>                                                                          <C>                <C>
Cash and due from banks                                                      $        15,911    $        10,651
Interest-bearing deposits                                                              1,973              5,842
Federal funds sold                                                                        --              4,300
                                                                               ---------------    ----------------
     Total cash and cash equivalents                                                  17,884             20,793

Federal Home Loan Bank stock                                                             817                791
Investment securities, available-for-sale                                              4,872              6,373
Investment securities, held-to-maturity                                               22,460             24,090
                                                                               ---------------    ----------------
     Total investment securities                                                      28,149             31,254

Loans receivable, net                                                                261,699            220,222
Premises and equipment, net                                                           11,253             11,177
Other real estate owned                                                                  170                170
Deferred tax asset                                                                       434                434
Other assets                                                                           2,400              1,920
                                                                               ---------------    ----------------
              Total assets                                                   $       321,989    $       285,970
                                                                               ===============    ================
                   Liabilities and Shareholders' Equity
Liabilities:
     Deposits:
        Noninterest-bearing                                                  $        39,885    $        35,388
        Interest-bearing                                                             228,813            219,087
                                                                               ---------------    ----------------
              Total deposits                                                         268,698            254,475
     Federal funds purchased                                                           5,000                 --
     Other borrowed funds                                                             16,080                 --
     Other liabilities                                                                 1,758              1,697
                                                                               ---------------    ----------------
              Total liabilities                                                      291,536            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 4,028,285 and 4,061,785
        shares at June 30, 2000 and December 31, 1999, respectively                   16,025             16,413
     Retained earnings                                                                14,536             13,493
     Accumulated other comprehensive income (loss), net                                 (108)              (108)
                                                                               ---------------    ----------------
              Total shareholders' equity                                              30,453             29,798
                                                                               ---------------    ----------------
              Total liabilities and shareholders' equity                     $       321,989    $       285,970
                                                                               ===============    ================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        1
<PAGE> 4

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

<TABLE>
                                                           Three Months Ended                Six Months Ended
                                                                June 30,                         June 30,
                                                          2000           1999               2000           1999
                                                       ------------   ------------       ------------   ------------
<S>                                                  <C>            <C>                <C>            <C>
Interest income:
     Interest and fees on loans                      $     6,064    $     3,926        $    11,549    $     7,453
     Interest on taxable investment securities               164            278                350            573
     Interest on tax-exempt investment securities            203            206                404            404
     Other                                                    45             68                125            170
                                                       ------------   ------------       ------------   ------------
              Total interest income                        6,476          4,478             12,428          8,600

Interest expense                                           2,665          1,588              4,970          3,034
                                                       ------------   ------------       ------------   ------------
              Net interest income                          3,811          2,890              7,458          5,566

Provision for loan losses                                    400            255                726            510
                                                       ------------   ------------       ------------   ------------
              Net interest income after provision
                for loan losses                            3,411          2,635              6,732          5,056
                                                       ------------   ------------       ------------   ------------
Noninterest income:
     Service charges on deposits                             454            344                857            695
     Other                                                   271            319                449            596
                                                       ------------   ------------       ------------   ------------
              Total noninterest income                       725            663              1,306          1,291
                                                       ------------   ------------       ------------   ------------
Noninterest expense:
     Salaries and benefits                                 1,729          1,328              3,518          2,634
     Occupancy expense                                       563            459              1,138            944
     Office supplies and printing                            101             96                240            178
     Data processing                                          82             79                163            151
     Consulting and professional fees                         58             77                 99            145
     Other                                                   457            452                888            823
                                                       ------------   ------------       ------------   ------------
              Total noninterest expense                    2,990          2,491              6,046          4,875
                                                       ------------   ------------       ------------   ------------
              Income before income taxes                   1,146            807              1,992          1,472
Provision for income taxes                                   314            201                543            363
                                                       ------------   ------------       ------------   ------------
              Net income                             $       832    $       606        $     1,449    $     1,109
                                                       ============   ============       ============   ============

Net income per share, basic                          $      0.21    $      0.15        $      0.36    $      0.26
                                                       ============   ============       ============   ============
Net income per share, diluted                        $      0.20    $      0.14        $      0.34    $      0.25
                                                       ============   ============       ============   ============

Average number of shares outstanding, basic              4,046,691      4,182,754          4,054,252      4,189,028
Average number of shares outstanding, diluted            4,249,886      4,444,995          4,258,502      4,447,809
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        2
<PAGE> 5


                           WASHINGTON BANKING COMPANY
                                 AND SUBSIDIARY
            Condensed Consolidated Statements of Shareholders' Equity
                   Six months ended June 30, 2000 (unaudited)
            Condensed Consolidated Statements of Comprehensive Income
          Three and six months ended June 30, 2000 and 1999 (unaudited)
                        (Dollars and shares in thousands)



<TABLE>
                                                                                   Accumulated
                                                                                      other           Total
                                            Common stock            Retained      comprehensive   shareholders'
                                        Shares       Amount         earnings         income           equity
                                                                                   (loss), net
                                      -----------  ------------   --------------  --------------  ---------------
<S>                                       <C>    <C>            <C>             <C>            <C>
Balances at December 31, 1999             4,062  $    16,413    $     13,493    $       (108)   $     29,798
Cash dividend, $0.10 per share               --           --            (406)             --            (406)
Net income                                   --           --           1,449              --           1,449
Net change in unrealized gain (loss)
    on securities available-for-sale         --           --              --              --              --
Repurchase of common stock                  (56)        (454)             --              --            (454)
Stock options exercised                      22           66              --              --              66
                                      -----------  ------------   --------------  --------------  ---------------
Balances at June 30, 2000                 4,028  $    16,025    $     14,536    $       (108)   $     30,453
                                      ===========  ============   ==============  ==============  ===============







                                                    Three Months Ended June 30,         Six Months Ended June 30,
Comprehensive Income:                                   2000           1999               2000           1999
                                                    -------------   ------------      -------------   ------------
Net income                                        $        832    $       606       $      1,449    $     1,109
Increase in unrealized gain (loss) on securities
     available-for-sale, net of tax of
     $5, $33, $0 and $57, respectively                       9            (63)                --           (110)
                                                    -------------   ------------      -------------   ------------
Comprehensive income                              $        841    $       543       $      1,449    $       999
                                                    =============   ============      =============   ============

</TABLE>

See accompanying notes to condensed consolidated financial statements.












                                        3
<PAGE> 6

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

<TABLE>
                                                                                  Six Months Ended June 30,
                                                                                   2000                1999
                                                                              ---------------      --------------
<S>                                                                         <C>                  <C>
Cash flows from operating activities:
     Net income                                                             $       1,449        $       1,109
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Federal Home Loan Bank stock dividends                                         (26)                 (27)
       Amortization of investment premiums, net                                        21                   34
       Provision for loan losses                                                      726                  510
       Depreciation of premises and equipment                                         520                  253
       Net increase in other assets                                                  (480)                (165)
       Net decrease in other liabilities                                               61                 (215)
                                                                              ---------------      --------------
           Net cash provided by operating activities                                2,271                1,499
                                                                              ---------------      --------------

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                          1,610                1,645
     Net increase in loans                                                        (42,203)             (35,255)
     Purchases of premises and equipment                                             (596)              (2,104)
                                                                              ---------------      --------------
           Net cash used in investing activities                                  (39,689)             (35,537)
                                                                              ---------------      --------------

Cash flows from financing activities:
     Net increase in deposits                                                      14,223               20,093
     Net increase in other borrowed funds                                          16,080                   --
     Net increase in federal funds purchased                                        5,000                6,200
     Dividends paid on common stock                                                  (406)                (336)
     Proceeds from stock options exercised                                             66                   34
     Repurchase of common stock                                                      (454)                (995)
                                                                              ---------------      --------------
           Net cash provided by financing activities                               34,509               24,996
                                                                              ---------------      --------------
           Net decrease in cash and cash equivalents                               (2,909)              (9,042)
Cash and cash equivalents at beginning of period                                   20,793               24,252
                                                                              ---------------      --------------
Cash and cash equivalents at end of period                                  $      17,884        $      15,210
                                                                              ===============      ==============

Supplemental information:
     Loans foreclosed and transferred to real estate owned                  $          --        $         145
     Cash paid for interest                                                         4,882                3,079
     Cash paid for taxes                                                              400                  430
</TABLE>

See accompanying notes to condensed consolidated financial statements.



                                        4
<PAGE> 7


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              Six months ended June 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 six months ended June 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> 8

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              Six months ended June 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 a material 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 is 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 Company does not expect the
adoption of Interpretation  No. 44 to have a material impact on its consolidated
financial statements.


 (2)  Earnings Per Share

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

<TABLE>

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

                                                                   Three Months Ended June 30, 1999
                                                    ----------------------------------------------------------------
                                                        Income             Weighted average       Per share amount
                                                                                shares
                                                    ----------------    -----------------------   ------------------
Basic EPS
Income available to common shareholders          $          606                4,182,754       $           0.15
Effect of dilutive securities: stock options                 --                  262,241                     --
                                                    ----------------    -----------------------   ------------------
Diluted EPS                                      $          606                4,444,995       $           0.14
                                                    ================    =======================   ==================

</TABLE>


                                        6
<PAGE> 9

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




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

                                                                    Six Months Ended June 30, 1999
                                                    ----------------------------------------------------------------
                                                        Income             Weighted average       Per share amount
                                                                                shares
                                                    ----------------    -----------------------   ------------------
Basic EPS
Income available to common shareholders          $        1,109                4,189,028       $           0.26
Effect of dilutive securities: stock options                 --                  258,781                     --
                                                    ----------------    -----------------------   ------------------
Diluted EPS                                      $        1,109                4,447,809       $           0.25
                                                    ================    =======================   ==================

</TABLE>

For the three-month  periods ended June 30, 2000 and 1999, there were options to
purchase  123,950 and 41,000 shares of common stock  outstanding,  respectively,
which were antidilutive and therefore not included in the computation of diluted
net income per share. For each of the six-month  periods ended June 30, 2000 and
1999 there were options to purchase 123,950 shares 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,
which allows the Company to  repurchase  up to 210,000  shares of the  Company's
common stock. As of June 30, 2000, the Company had repurchased 198,265 shares of
the Company's common stock.

(3)   Subsequent Event

On July 20, 2000,  the Board of Directors  declared a cash dividend of $0.05 per
share to shareholders of record as of August 10, 2000.










                                        7

<PAGE> 10


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.

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.
The Company's  only  significant  business  activity has been to hold the common
stock of the Bank and invest its available funds.  The Company  currently has 13
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.  The  loan  production  office  in  Port  Townsend
(Jefferson  County)  was  recently  closed  due to  lower-than-anticipated  loan
demand.  By this fall,  the Company plans to open a  full-service  office in the
Bakerview  neighborhood  of Bellingham  (Whatcom  County),  which is expected to
engage its people and  resources  more  productively  and place the Company in a
more favorable growth position.

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,  reducing  dependence on leased office
space.  We believe the new location will enhance  customer  service by providing
easier  branch access and more  convenient  availability  of expanded  financial



                                        8

<PAGE> 11


services.  Once the new building is occupied,  the Company expects to be able to
reduce  or  eliminate  the use of some  properties  presently  owned or  leased.
Management believes the consolidation will assist in streamlining operations and
improving efficiencies.

The  Company's  objective  is to continue  its  strategy of growth,  enhance its
market   penetration  in  the  areas  it  currently  serves,   and  improve  its
profitability  and  operating  efficiencies.  The  Company  looks for  expansion
opportunities that meet its criteria primarily in the geographic areas north and
northwest of Seattle to the Canadian border.  The primary factors  considered in
determining   the  areas  of  geographic   expansion  are  customer  demand  and
availability of experienced managers, lending officers and branch 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 earnings will be negatively  affected as the
Company pursues its growth strategy.

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 will 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
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. Acquisition of banks or branches may also be used as
a means of expansion if appropriate opportunities are presented. The Company has
also  invested in  technology to  facilitate  telephone,  personal  computer and
internet banking,  but with its primary commitment being to provide  exceptional
personal service.

Financial Condition

Total assets increased to $322.0 million at June 30, 2000 from $286.0 million at
December 31, 1999,  an increase of 12.6%.  Net loans  increased  18.8% to $261.7
million at June 30, 2000 from  $220.2  million at December  31,  1999.  Deposits
increased  5.6% to $268.7  million  at June 30,  2000  from  $254.5  million  at
December 31, 1999.

The Company's  shareholders'  equity increased to $30.5 million at June 30, 2000
from $29.8 million at December 31, 1999. The increase  reflects  earnings offset
by the  repurchase of 56,000 shares of common stock for  approximately  $454,000
and the payment of cash  dividends  of  $406,000  during the first six months of
2000.

The  Company's  allowance  for loan losses was $2.7 million at June 30, 2000 and
$2.2 million at December 31, 1999. Nonperforming assets amounted to $2.1 million
at June 30, 2000, or 0.64% of total assets, compared to $1.1 million or 0.40% at
December 31, 1999.







                                        9

<PAGE> 12


Results of Operations

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

Net income for the second quarter of 2000  increased  37.3% to $832,000 or $0.20
per diluted  share,  from $606,000,  or $0.14 per diluted share,  for the second
quarter of 1999.  Net income for the six months  ended June 30,  2000  increased
30.7% to $1,449,000 or $0.34 per diluted share,  from  $1,109,000,  or $0.25 per
diluted  share,  for the six months  ended June 30,  1999.  The  increase in net
income was primarily due to net interest income.


Net Interest Income

Net  interest  income for the second  quarter  of 2000  increased  31.9% to $3.8
million  from $2.9  million  for the second  quarter of 1999.  For the first six
months of 2000, net interest  income  increased  34.0% to $7.5 million from $5.6
million for the same period in 1999.  The  increase  in net  interest  income is
largely due to the growth of the Company's  loan  portfolio  resulting  from the
strong loan demand.



































                                       10
<PAGE> 13


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

<TABLE>
                                  Three Months Ended June 30, 2000            Three Months Ended June 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                          $  248,908    $   6,064        9.74%       $  171,601    $   3,926        9.15%
Federal funds sold                     46            1        8.70%              231            4        6.93%
Interest-bearing cash               2,215           31        5.60%            4,618           50        4.33%
Investments:
     Taxable                       11,620          177        6.09%           19,604          292        5.96%
     Non-taxable (2)               17,131          272        6.35%           17,641          277        6.28%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-earning assets        $  279,920    $   6,545        9.35%       $  213,695    $   4,549        8.51%
Noninterest-earning assets         24,861                                     21,296
                                -----------                                ------------
    Total assets               $  304,781                                 $  234,991
                                ===========                                ============

       Liabilities and
    shareholders' equity
Deposits:
     Interest demand and
      money market             $   82,225    $     664        3.23%       $   71,581    $     478        2.67%
     Savings                       24,706          158        2.56%           24,782          156        2.52%
     Time deposits                113,123        1,613        5.70%           68,733          873        5.08%
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing deposits      $  220,054    $   2,435        4.43%       $  165,096    $   1,507        3.65%
FHLB advances                      13,776          230        6.68%            6,471           81        5.01%
Other borrowings (3)                  177           --        0.00%               --           --          --
                                -----------   -----------  -----------     ------------  ------------ ------------
Interest-bearing liabilities   $  234,007    $   2,665        4.56%       $  171,567    $   1,588        3.70%
Noninterest-bearing deposits       38,852                                     32,607
Other noninterest-bearing
   liabilities                      1,650                                      1,114
                                -----------                                ------------
Total liabilities              $  274,509                                 $  205,288
Shareholders' equity               30,272                                     29,703
                                -----------                                ------------
    Total liabilities and
       shareholders' equity    $  304,781                                 $  234,991
                                ===========                                ============

Net interest income (2)                      $   3,880                                  $   2,961
                                              ===========                                ============
Net interest spread (1)                                       4.80%                                      4.81%
                                                           ===========                                ============
Net interest margin (1)                                       5.54%                                      5.54%
                                                           ===========                                ============

(1)  Annualized
(2)  Interest  income on  non-taxable  investments  is presented  on a fully  taxable-equivalent  basis using the
     federal statutory rate of 34%. These adjustments were $69 and $71 for the three months ended June 30, 2000 and 1999.
(3)  Funds were borrowed on June 30, 2000.

</TABLE>

                                       11

<PAGE> 14


Average  interest-earning  assets for the  second  quarter  increased  to $279.9
million at June 30, 2000  compared to $213.7  million at June 30, 1999, a growth
of $66.2 million, or 31.0%, while the average yield on  interest-earning  assets
increased to 9.35%  compared with 8.51% in second quarter of the prior year. The
average  yield on loans  increased to 9.74% for the quarter  ended June 30, 2000
from  9.15%  for  the  quarter  ended  June  30,  1999.  The  average  yield  on
interest-bearing  deposits also increased in the second quarter of 2000 to 4.43%
from  3.65%  for the  quarter  ended  June 30,  1999.  Average  interest-bearing
deposits for the quarter  increased to $220.1  million at June 30, 2000 compared
to $165.1  million at June 30, 1999, a growth of $55.0  million,  or 33.3%.  The
overall result of these changes was a slight decrease in the net interest spread
to 4.80% for the quarter  ended June 30,  2000 from 4.81% for the quarter  ended
June 30, 1999.  Margins  have held firm  because our lending  rates tend to more
closely follow the prevailing rates, while our deposit rates usually adjust more
slowly.

Average  shareholders'  equity  was  $30.3  million  and $29.7  million  for the
quarters ended June 30, 2000 and 1999. Net interest  margin (net interest income
divided by average interest-earning assets) was 5.54% in both the second quarter
of 2000 and 1999.


Noninterest Income and Expense

Noninterest  income  increased  $62,000,  or 9.4%, in the second quarter of 2000
compared to the same period in 1999.  The slight rise  reflects  the decrease in
fees  received  on  third  party  originated  real  estate  loans  due to a less
favorable 2000 mortgage loan market

Noninterest expense increased $499,000,  or 20.0%, in the second quarter of 2000
as the Company  pursued its  strategy of growth  through  branching  and product
expansion.  Two major components of noninterest expense,  employee  compensation
and occupancy, increased 30.2% and 22.7%, respectively, for the quarter compared
with the same period in 1999. These increases  reflect the Company's  geographic
expansion,  the addition of new products and services, and the overall growth of
the Company. The efficiency ratio (noninterest expense divided by the sum of net
interest income plus noninterest  income less  non-recurring  gains) improved to
65.92% for the second  quarter  2000  compared  to 70.11% for the same period in
1999.


Income Taxes

For the second quarter of 2000, the Company  recorded an income tax provision of
$314. The overall effective tax rate increased for the six months ended June 30,
2000 compared to the same period in 1999 due to the decrease of interest  income
on tax-exempt investment securities as a percentage of taxable income.













                                       12

<PAGE> 15


Lending Activities

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

<TABLE>
                                                          June 30, 2000                        December 31, 1999
                                                -----------------------------------    -----------------------------------
(Dollars in thousands)                              Balance           % of total           Balance           % of total
                                                ----------------    ---------------    -----------------    --------------

<S>                                              <C>                     <C>            <C>                      <C>
Commercial                                       $   99,760              37.7%          $   90,014               40.5%
Real estate mortgages:
     One-to-four family residential                  29,482              11.2%              24,822               11.2%
     Five-or-more family residential and
      commercial                                     36,422              13.8%              29,527               13.2%
                                                ----------------    ---------------    -----------------    --------------
Total real estate mortgages                          65,904              25.0%              54,349               24.4%
Real estate construction                             18,052               6.8%              14,300                6.4%
Consumer                                             80,650              30.5%              63,757               28.7%
                                                ----------------    ---------------    -----------------    --------------
Subtotal                                            264,366             100.0%             222,420              100.0%
                                                                    ===============                         ==============
     Less: allowance for loan losses                 (2,657)                                (2,182)
     Less: deferred loan fees and other                 (10)                                   (16)
                                                ----------------                       -----------------
           Total loans, net                       $ 261,699                              $ 220,222
                                                ================                       =================
</TABLE>

Total loans, net, increased to $261.7 million at June 30, 2000,  representing an
18.8% increase from year-end 1999. Total commercial,  real estate mortgage, real
estate  construction and consumer loans increased 10.8%, 21.3%, 26.2% and 26.5%,
respectively,  at June 30,  2000  from  year-end  1999.  These  changes  reflect
seasonal trends, the Company's geographical expansion and increased average loan
size  resulting  in solid growth from its various  market areas and  diversified
customer base.






















                                       13
<PAGE> 16


Nonperforming Assets

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

<TABLE>

(Dollars in thousands)                                       June 30, 2000             December 31, 1999
                                                        -------------------------    ----------------------
<S>                                                         <C>                          <C>
Nonaccrual loans                                            $     1,830                  $        920
Restructured loans                                                   52                            52
                                                        -------------------------    ----------------------
         Total nonperforming loans                                1,882                           972
Real estate owned                                                   170                           170
                                                        -------------------------    ----------------------
         Total nonperforming assets                         $     2,052                   $     1,142
                                                        =========================    ======================

Accruing loans past due => 90  days                       $          --                 $          --
Potential problem loans                                              --                            --
Allowance for loan losses                                         2,657                         2,182

Nonperforming loans to loans                                      0.71%                         0.44%
Allowance for loan losses to loans                                1.01%                         0.98%
Allowance for loan losses to nonperforming loans                141.18%                       224.49%
Nonperforming assets to total assets                              0.64%                         0.40%

</TABLE>

Nonperforming  loans increased to $1.9 million, or 0.71% of total loans, at June
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 during the second  quarter.  Management  considers  nonperforming  lending
relationships adequately reserved.


Provision and Allowance for Loan Losses

The Company recorded a $400,000 provision for loan losses for the second quarter
of 2000,  compared  with  $255,000  for the same  period a year ago.  There were
$105,000 in net loan charge-offs during the second quarter of 2000,  compared to
$61,000 in net charge-offs for the same period in 1999.

The  allowance  for loan losses  increased to $2.7 million at June 30, 2000 from
$2.2  million at December  31,  1999,  or 1.01% of total  outstanding  loans and
141.18% of nonperforming loans at the end of the second 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.





                                       14
<PAGE> 17


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

<TABLE>

(Dollars in thousands)                           Three Months Ended                       Six Months Ended
                                                      June 30,                                June 30,
                                               2000              1999                 2000               1999
                                          ---------------    --------------       --------------     --------------
<S>                                     <C>                <C>                  <C>                <C>
Balance at beginning of period          $     2,362        $     1,826          $     2,182        $     1,745
Charge-offs:
     Commercial                                  (9)                --                  (95)              (117)
     Real estate                                 --                 (6)                  --                 (6)
     Consumer                                  (111)               (60)                (196)              (126)
                                          ---------------    --------------       --------------     --------------
              Total charge-offs                (120)               (66)                (291)              (249)

Recoveries:
     Commercial                                   3                 --                    5                  7
     Real estate                                 --                 --                   --                 --
     Consumer                                    12                  5                   35                  7
                                          ---------------    --------------       --------------     --------------
              Total recoveries                   15                  5                   40                 14
Net charge-offs                                (105)               (61)                (251)              (235)
Provision for loan losses                       400                255                  726                510
                                          ---------------    --------------       --------------     --------------
Balance at end of period                $     2,657        $     2,020          $     2,657        $     2,020
                                          ===============    ==============       ==============     ==============

</TABLE>


Liquidity and Sources of Funds

The Company's sources of funds are customer  deposits,  cash and demand balances
due from other banks, federal funds sold, short-term  investments and investment
securities  available-for-sale.  These funds,  together with loan repayments and
maturing investments,  are used to make loans and to fund continuing operations.
In addition,  at June 30, 2000, the Company had lines of credit with the Federal
Home Loan Bank of Seattle (FHLB) of $48.0 million,  the Federal  Reserve Bank of
San Francisco of $500,000 and correspondent financial institutions in the amount
of $12.1 million.  As of June 30, 2000,  there were $21.1 million in advances on
these lines of credit.

Total  deposits  increased  5.6% to $268.7  million at June 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 Federal
Home Loan Bank advances to supplement funding sources.






                                       15
<PAGE> 18


Capital

The Company's  shareholders'  equity increased to $30.5 million at June 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 June 30, 2000 a
total of  198,265  shares  had been  repurchased,  with  56,000 of those  shares
repurchased  during  the six  months  ended  June  30,  2000  for  approximately
$454,000.  Management  anticipates continued repurchases of Company stock, as it
deems  appropriate,  up to the approximate 5% level  approved.  The Company also
paid cash dividends of $406,000 during the first six months ended June 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 $655,000 in shareholders'
equity at June 30, 2000.  Total assets  increased to $322.0  million at June 30,
2000  from  $286.0   million  at  December  31,  1999,  an  increase  of  12.6%.
Shareholders' equity to total assets was 9.5% at June 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 June 30, 2000.

<TABLE>
                                                                      June 30, 2000
                                         ------------------------------------------------------------------------
                                          Minimum requirement       Well-capitalized           Actual ratio
                                                                       requirement
                                         ----------------------    --------------------    ----------------------
<S>                                               <C>                      <C>                    <C>
  Total risk-based capital ratio                  8%                       10%                    11.27%
  Tier 1 risk-based capital ratio                 4%                       6%                     10.31%
  Leverage ratio                                  4%                       5%                      9.43%

</TABLE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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




                                       16

<PAGE> 19


                                     PART II

Item 4.  Submission Of Matters To A Vote of Security Holders

The annual meeting of shareholders was held at Oak Harbor, Washington on May 25,
2000 at 3:00 p.m. 3,373,440 shares of common stock were represented in person or
by proxy at the meeting.  This represented 83.2% of the 4,054,285 shares held by
shareholders  as of March 30,  2000 and  entitled  to vote at the  meeting.  The
following issue came before the shareholders for vote:


          Election of  directors  to serve on the Board of  Directors  until the
     Annual meeting of shareholders in the year 2003, or until their  successors
     are duly elected and  qualified - three of the ten director  positions  had
     expired and were open for election.  The nominees for these  positions were
     Karl C. Krieg,  III,  Robert B. Olson and Anthony J.  Pickering.  All these
     were elected with the following vote totals:
<TABLE>
                                                        For             Against                 Withheld
                                              -------------------- -------------------- -------------------
<S>                                                  <C>                    <C>                <C>
         Karl C. Krieg, III                          3,253,395              0                  120,045
         Robert B. Olson                             3,331,395              0                   42,045
         Anthony J. Pickering                        3,341,895              0                   31,545
</TABLE>

The other five  directors  who  continue in office are:  Michal D. Cann,  Jay T.
Lien, Marlen L. Knutson, Alvin J. Sherman and Edward J. Wallgren. Orlan D. Dean,
a director  of the Bank  since  1985,  retired  on  January  1, 2000.  There are
currently two vacancies on the board.


Item 6.   Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit  10.1 -  Material Contracts

         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















                                       17
<PAGE> 20





                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                           WASHINGTON BANKING COMPANY






 Date   August 11, 2000                 By    /s/  Michal D. Cann

                                        Michal D. Cann
                                        President and Chief Executive Officer






 Date   August 11, 2000                 By    /s/ Phyllis A. Hawkins

                                        Phyllis A. Hawkins
                                        Senior Vice President and
                                        Chief Financial Officer





























                                       18