exv99w1

corporate investor relations

CONTACT:

Michal D. Cann — President & CEO

1809 — 7^th Avenue , Suite 1414

Rick A. Shields — SVP & Chief Financial Officer

Seattle, WA 98101

www.stockvalues.com

Exhibit 99.1

NEWS RELEASE

WASHINGTON BANKING COMPANY REPORTS EARNINGS UP 15% YTD;
LOAN GROWTH AND CREDIT QUALITY REMAIN STRONG

OAK HARBOR, WA – July 25, 2006 – Washington Banking Company (Nasdaq: WBCO) today reported good net income growth for the second quarter and first half of 2006. The holding company for Whidbey Island Bank recorded strong loan growth and improved credit quality from already solid levels. For the quarter ended June 30, 2006, net income increased 6% to $2.5 million, or $0.33 per diluted share, compared to $2.3 million, or $0.31 per diluted share in the second quarter a year ago. For the six-month period, net income grew 15% to $5.0 million, or $0.67 per diluted share, from $4.4 million, or $0.58 per diluted share in the first half of 2005.

“Northwestern Washington State is one of the most demographically desirable markets in the country, with continued population growth fueling a strong economy,” stated Michal Cann, President and CEO. “Loan demand for consumer and commercial projects remains healthy.”

FINANCIAL HIGHLIGHTS

Second quarter 2006 highlights, compared to the same period last year, include:

	•		Net income increased 6% to $2.5 million.

	•		Total loans were up 12% to $686.1 million.

	•		Total deposits grew 9% to $679.9 million.

	•		Nonperforming assets to total assets improved to 0.14% from 0.49%.

	•		Return on average equity was 16.44%, return on average assets was 1.34%.

	•		The efficiency ratio improved to 58.25%.

At June 30, 2006, total loans had increased 12% to $686.1 million, compared to $610.7 million a year earlier. “The strongest loan demand continues to be for real estate and construction loans, and that represents the bulk of the year-over-year growth in our portfolio,” Cann said. “Borrowers recognize our expertise in the market and appreciate our commitment to customer service. While we are confident that we’ll have ample opportunities to continue to grow our portfolio without sacrificing credit quality, we don’t expect to continue at the pace we saw in the second quarter.”

“The loan portfolio continues to perform well, with nonperforming loans and nonperforming assets both declining,” stated Rick Shields, Senior Vice President and Chief Financial Officer. At end of June 2006, nonperforming loans (NPLs) declined to $1.1 million, or 0.16% of total loans, compared to $1.6 million, or 0.25% of total loans at the end of the preceding quarter and $2.6 million, or 0.42% of total loans at the end of the second quarter last year. The bank had no other real estate owned on its books at the end of June or March 2006, down from $870,000 at the halfway point last year. As a result, nonperforming assets were 0.14% of total assets at June 30, 2006, compared to 0.22% three months earlier and 0.49% of total assets at the end of June 2005.

“Net loan charge-offs increased in the June quarter when compared to the previous quarter, but primarily as a result of the exceptionally high level of recoveries in the first quarter of this year,” Shields said. “The loan loss provision, however, has kept pace with the growth in the loan portfolio and our coverage ratio remains at 1.40% of total loans.” The loan loss provision was $800,000 in the second quarter of 2006 and $1.3 million year-to-date, compared to $525,000 and $950,000, respectively, last year. The reserve for loan losses has grown to $9.6 million as of June 30, 2006.

“The continued rise in interest rates has helped our loan yields,” Cann said. “However, the rate environment coupled with an extremely competitive market has also driven up our funding costs.” On a fully tax-equivalent basis, the net interest margin was 5.37% in the second quarter, down from 5.59% in the March quarter, but up slightly from 5.32% a year ago.

“Unusually high first quarter interest recoveries essentially inflated our net interest margin by roughly eight basis points, so the sequential-quarter erosion is not as large as it first appears,” Shields said. “In fact, our margin has actually improved on a year-over-year basis to 5.47%, compared to 5.27% in the first half of last year. Looking toward year-end, I expect some additional erosion in our net interest margin, but not as dramatic as seen in the most recent quarter.”

“Growing our low-cost deposit base is a priority, but it is challenging in the current environment,” Cann said. At the end of June 2006, total deposits were $679.9 million, up 9% from $623.0 million at the end of the second quarter 2005. Low-cost deposits grew by $8.9 million over the past year to $403.1 million, while time deposits increased by $48.0 million in the same time period to $276.8 million at June 30, 2006.

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WBCO — Record Profits in 2Q06
July 25, 2006
Page 2

Net interest income was $9.2 million in the quarter ended June 30, 2006, up 11% from $8.3 million in the second quarter last year. For the six-month period ended June 30, net interest income was $18.3 million in 2006, up 14% from $16.1 million in the same period last year. Noninterest income was $1.7 million in the 2006 second quarter, compared to $1.9 million in the second quarter of 2005; noninterest income increased slightly in the six-month period to $3.6 million, from $3.5 million in 2005.

“While service charges have shown solid growth, our annuity sales and SBA premiums declined in the second quarter,” Cann said. “In addition, gain on sale of mortgage loans also decreased. It’s anticipated that annuities and SBA premiums will pick back up in the second half, although our 2006 noninterest income will not likely improve substantially over last year’s level.”

Noninterest expense was up 4% to $6.4 million in the 2006 second quarter, from $6.2 million in the same quarter last year. For the first half of 2006, noninterest expense was $13.1 million, up 8% from $12.1 million in the first half of last year.

“The increase in second quarter operating expenses was quite moderate compared with last year, and expenses were actually lower on a sequential quarter basis,” said Shields. “However, some additional expenses are expected in the second half of the year due to the opening of our fourth Bellingham branch scheduled for late September.”

The efficiency ratio improved to 58.25% in the second quarter of 2006, compared to 59.83% in the same quarter last year. Return on average equity (ROE) was 16.44% in the second quarter of 2006, compared to 18.24% a year ago. Return on average assets (ROA) was 1.34%, versus 1.37% in the second quarter of 2005.

For the six-month period through June, the efficiency ratio was 59.39% in 2006, versus 61.39% last year. ROE was 17.05%, compared to 17.44% in the first half of 2005, and ROA improved to 1.39%, from 1.32% in the six-month period ended June 30, 2005.

EARNINGS CONFERENCE CALL AND WEBCAST

Management will host a conference call today, July 25, at 11:00 am PDT (2:00 pm EDT) to discuss second quarter results. Investment professionals and all current and prospective shareholders are invited to access the live call by dialing (303) 262-2143, or to listen to the call, either live or archived, from the Investor Relations page of Whidbey Island Bank’s website, www.wibank.com. Shortly after the call concludes, the replay will be archived for two months at (303) 590-3000, using access code 11064428#.

ABOUT WASHINGTON BANKING COMPANY

Washington Banking Company is a bank holding company based in Oak Harbor, Washington, that operates Whidbey Island Bank, a state-chartered full-service commercial bank. Founded in 1961, Whidbey Island Bank provides various deposit, loan and investment services to meet customers’ financial needs. Whidbey Island Bank operates 19 full-service branches located in five counties in Northwestern Washington.

This news release may contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements describe management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, maintenance of the net interest margin, credit quality and loan losses, the efficiency ratio and continued success of the Company’s business plan. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. The words “should,” “anticipate,” “expect,” “will,” “believe,” and words of similar meaning are intended, in part, to help identify forward-looking statements. Future events are difficult to predict, and the expectations described above are subject to risk and uncertainty that may cause actual results to differ materially. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the Securities and Exchange Commission, factors that may cause actual results to differ materially from those contemplated in these forward-looking statements include, among others: (1) local and national general and economic condition; (2) changes in interest rates and their impact on net interest margin; (3) competition among financial institutions; (4) legislation or regulatory requirements; and (5) success of the Company’s expansion efforts. Washington Banking Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made. Any such statements are made in reliance on the safe harbor protections provided under the Securities Exchange Act of 1934, as amended.

www.wibank.com

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WBCO — Record Profits in 2Q06
July 25, 2006
Page 3


CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)	Quarters Ended				Three			Quarter Ended		One
($ in thousands, except per share data)	June 30,		March 31,		Month			June 30,		Year
	2006		2006		Change			2005		Change

Interest Income
Loans	$	13,289	$	12,407		7	%	$	10,943		21	%
Taxable Investment Securities		111		103		8	%		80		39	%
Tax Exempt Securities		80		80		0	%		79		1	%
Other		38		59		-36	%		35		9	%

Total Interest Income		13,518		12,649		7	%		11,137		21	%

Interest Expense
Deposits		3,720		3,095		20	%		2,359		58	%
Other Borrowings		229		150		53	%		177		29	%
Junior Subordinated Debentures		334		309		8	%		260		28	%

Total Interest Expense		4,283		3,554		21	%		2,796		53	%

Net Interest Income		9,235		9,095		2	%		8,341		11	%

Provision for Loan Losses		800		500		60	%		525		52	%

Net Interest Income after Provision for Loan Losses		8,435		8,595		-2	%		7,816		8	%

Noninterest Income
Service Charges and Fees		852		817		4	%		771		11	%
Income from the Sale of Loans		150		182		-18	%		212		-29	%
Other Income		678		884		-23	%		909		-25	%

Total Noninterest Income		1,680		1,883		-11	%		1,892		-11	%

Noninterest Expense
Compensation and Employee Benefits		3,973		4,276		-7	%		3,802		5	%
Occupancy and Equipment		891		860		4	%		1,096		-19	%
Office Supplies and Printing		140		181		-23	%		171		-18	%
Data Processing		122		82		49	%		138		-12	%
Consulting and Professional Fees		157		119		32	%		15		947	%
Other		1,110		1,165		-5	%		937		18	%

Total Noninterest Expense		6,393		6,683		-4	%		6,159		4	%

Income Before Income Taxes		3,721		3,796		-2	%		3,549		5	%
Provision for Income Taxes		1,236		1,244		-1	%		1,200		3	%

Net Income	$	2,486	$	2,552		-3	%	$	2,349		6	%

Earnings per Common Share

Net Income per Share, Basic	$	0.34	$	0.35		-4	%	$	0.32		5	%



Net Income per Share, Diluted	$	0.33	$	0.34		-4	%	$	0.31		6	%


Average Number of Common Shares Outstanding		7,376,000		7,363,000					7,302,000
Fully Diluted Average Common and Equivalent Shares Outstanding		7,582,000		7,578,000					7,573,000

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WBCO — Record Profits in 2Q06
July 25, 2006
Page 4


CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)	Six Months Ended				One
($ in thousands, except per share data)	June 30,				Year
	2006		2005		Change

Interest Income
Loans	$	25,695	$	21,037		22	%
Taxable Investment Securities		223		168		33	%
Tax Exempt Securities		161		159		1	%
Other		88		66		33	%

Total Interest Income		26,167		21,430		22	%

Interest Expense
Deposits		6,814		4,466		53	%
Other Borrowings		378		346		9	%
Junior Subordinated Debentures		644		497		30	%

Total Interest Expense		7,836		5,309		48	%

Net Interest Income		18,331		16,121		14	%

Provision for Loan Losses		1,300		950		37	%

Net Interest Income after Provision for Loan Losses		17,031		15,171		12	%

Noninterest Income
Service Charges and Fees		1,669		1,470		14	%
Income from the Sale of Loans		332		384		-14	%
Other Income		1,562		1,689		-8	%

Total Noninterest Income		3,563		3,543		1	%

Noninterest Expense
Compensation and Employee Benefits		8,249		7,233		14	%
Occupancy and Equipment		1,751		2,053		-15	%
Office Supplies and Printing		321		356		-10	%
Data Processing		204		256		-20	%
Consulting and Professional Fees		276		318		-13	%
Other		2,275		1,930		18	%

Total Noninterest Expense		13,076		12,146		8	%

Income Before Income Taxes		7,518		6,568		14	%
Provision for Income Taxes		2,480		2,176		14	%

Net Income	$	5,038	$	4,392		15	%

Earnings per Common Share

Net Income per Share, Basic	$	0.68	$	0.60		14	%



Net Income per Share, Diluted	$	0.67	$	0.58		15	%


Average Number of Common Shares Outstanding		7,369,000		7,276,000
Fully Diluted Average Common and Equivalent Shares Outstanding		7,579,000		7,546,000

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July 25, 2006
Page 5


CONSOLIDATED BALANCE SHEETS (unaudited)							Three						One
($ in thousands, except per share data)	June 30,			March 31,			Month			June 30,			Year
	2006			2006			Change			2005			Change

Assets
Cash and Due from Banks	$	24,543		$	22,433			9	%	$	18,644			32	%
Interest-Bearing Deposits with Banks		659			692			-5	%		795			-17	%
Fed Funds Sold		5,275			8,530			-38	%		12,775			-59	%

Total Cash and Cash Equivalents		30,477			31,655			-4	%		32,214			-5	%

Investment Securities Available for Sale		17,945			19,013			-6	%		18,224			-2	%

FHLB Stock		1,984			1,984			0	%		1,984			0	%

Loans Held for Sale		867			1,356			-36	%		11,339			-92	%

Loans Receivable		686,108			651,134			5	%		610,698			12	%
Less: Allowance for Loan Losses		(9,606	)		(9,130	)		5	%		(8,554	)		12	%

Loans, Net		676,502			642,004			5	%		602,144			12	%

Premises and Equipment, Net		20,847			20,591			1	%		20,882			0	%
Bank Owned Life Insurance		10,736			10,646			1	%		10,385			3	%
Other Real Estate Owned		—			—			0	%		870			N/A
Other Assets		8,662			8,372			3	%		7,551			15	%

Total Assets	$	768,020		$	735,621			4	%	$	705,593			9	%


Liabilities and Shareholders’ Equity
Deposits:
Noninterest-Bearing Demand	$	104,832		$	100,537			4	%	$	99,780			5	%
NOW Accounts		149,910			154,170			-3	%		147,169			2	%
Money Market		90,913			89,086			2	%		91,600			-1	%
Savings		57,398			56,840			1	%		55,618			3	%
Time Deposits		276,805			245,373			13	%		228,849			21	%

Total Deposits		679,858			646,006			5	%		623,016			9	%

FHLB Overnight Borrowings		2,000			—			N/A			—			N/A
Other Borrowed Funds		5,000			10,000			-50	%		10,000			-50	%
Junior Subordinated Debentures		15,007			15,007			0	%		15,007			0	%
Other Liabilities		4,041			4,559			-11	%		4,246			-5	%

Total Liabilities		705,906			675,572			4	%		652,269			8	%

Shareholders’ Equity:
Common Stock (no par value)
Authorized 11,822,706 Shares:
Issued and Outstanding 7,423,791 at 6/30/06, 7,409,115 at 3/31/2006, and 7,321,587 at 6/30/05		32,880			32,662			1	%		31,779			3	%
Retained Earnings		29,354			27,468			69	%		21,520			36	%
Other Comprehensive Income		(120	)		(81	)		48	%		25			-580	%

Total Shareholders’ Equity		62,114			60,049			3	%		53,324			16	%

Total Liabilities and Shareholders’ Equity	$	768,020		$	735,621			4	%	$	705,593			9	%

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WBCO — Record Profits in 2Q06
July 25, 2006
Page 6


ASSET QUALITY (unaudited)				Quarters Ended						Six Month Ended
($ in thousands, except per share data)	June 30,			March 31,			June 30,			June 30,
	2006			2006			2005			2006			2005

Allowance for Loan Losses Activity:

Balance at Beginning of Period	$	9,130		$	8,810		$	8,052		$	8,810		$	7,903
Indirect Loans:
Charge-offs		(169	)		(231	)		(116	)		(401	)		(434	)
Recoveries		88			131			120			220			201

Indirect Net Charge-offs		(81	)		(100	)		4			(181	)		(233	)

Other Loans:
Charge-offs		(423	)		(324	)		(88	)		(746	)		(352	)
Recoveries		180			244			61			423			286

Other Net Charge-offs		(243	)		(80	)		(27	)		(323	)		(66	)

Total Net Charge-offs		(324	)		(180	)		(23	)		(504	)		(299	)
Provision for Loan Losses		800			500			525			1,300			950

Balance at End of Period	$	9,606		$	9,130		$	8,554		$	9,606		$	8,554


Net Charge-offs to Average Loans:

Indirect Loans Net Charge-Offs, to Avg Indirect Loans, Annualized ⁽¹⁾		0.34	%		0.43	%		-0.02	%		0.39	%		0.48	%
Other Loans Net Charge-Offs, to Avg Other Loans, Annualized ⁽¹⁾		0.17	%		0.06	%		0.02	%		0.12	%		0.03	%
Net Charge-offs to Average Total Loans ⁽¹⁾		0.19	%		0.11	%		0.02	%		0.15	%		0.10	%


	June 30,			March 31,			June 30,
	2006			2006			2005

Nonperforming Assets

Nonperforming Loans ⁽²⁾	$	1,079		$	1,599		$	2,579
Other Real Estate Owned		—			—			870

Total Nonperforming Assets	$	1,079		$	1,599		$	3,449

Nonperforming Loans to Loans ⁽¹⁾		0.16	%		0.25	%		0.42	%
Nonperforming Assets to Assets		0.14	%		0.22	%		0.49	%
Allowance for Loan Losses to Nonperforming Loans		890.27	%		570.98	%		331.68	%
Allowance for Loan Losses to Nonperforming Assets		890.27	%		570.98	%		248.01	%
Allowance for Loan Losses to Loans		1.40	%		1.40	%		1.40	%

Loan Composition
Commercial	$	83,553		$	80,667		$	84,403
Real Estate Mortgages
One-to-Four Family Residential		51,491			50,095			42,741
Commercial		231,547			223,979			192,127
Real Estate Construction		140,105			120,600			113,391
Consumer
Indirect		96,946			93,900			95,996
Direct		82,037			81,712			81,771
Deferred Fees		429			181			269

Total Loans	$	686,108		$	651,134		$	610,698

⁽¹⁾ Excludes Loans Held for Sale.

⁽²⁾ Nonperforming loans includes nonaccrual loans plus accruing loans 90 or more days past due.

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July 25, 2006
Page 7


FINANCIAL STATISTICS (unaudited)				Quarters Ended						Six Months Ended
($ in thousands, except per share data)	June 30,			March 31,			June 30,			June 30,
	2006			2006			2005			2006			2005

Revenues ^{(1) (2)}	$	10,975		$	11,048		$	10,295		$	22,018		$	19,786

Averages
Total Assets	$	743,987		$	712,053		$	686,098		$	728,773		$	672,946
Loans and Loans Held for Sale		670,884			639,742			609,066			655,399			597,573
Interest-Earning Assets		694,835			665,351			633,887			680,173			622,094
Deposits		644,884			619,844			595,701			632,668			582,437
Shareholders’ Equity	$	60,651		$	58,543		$	51,666		$	59,603		$	50,784

Financial Ratios
Return on Average Assets, Annualized		1.34	%		1.45	%		1.37	%		1.39	%		1.32	%
Return on Average Equity, Annualized		16.44	%		17.68	%		18.24	%		17.05	%		17.44	%
Average Equity to Average Assets		8.15	%		8.22	%		7.53	%		8.18	%		7.55	%
Efficiency Ratio ⁽²⁾		58.25	%		60.49	%		59.83	%		59.39	%		61.39	%
Yield on Earning Assets ⁽²⁾		7.84	%		7.75	%		7.09	%		7.80	%		6.99	%
Cost of Interest-Bearing Liabilities		2.97	%		2.62	%		2.09	%		2.80	%		2.02	%
Net Interest Spread		4.87	%		5.13	%		5.00	%		5.00	%		4.97	%
Net Interest Margin ⁽²⁾		5.37	%		5.59	%		5.32	%		5.47	%		5.27	%


	June 30,		March 31,		June 30,
	2006		2006		2005

Period End
Book Value Per Share	$	8.37	$	8.10	$	7.28

⁽¹⁾ Revenues is the fully tax-equivalent net interest income before provision for loan losses plus noninterest income.

⁽²⁾ Fully tax-equivalent is a non-GAAP performance measurement that management believes provides investors with a more accurate picture of the net interest margin, revenues and efficiency ratio for comparative purposes. The calculation involves grossing up interest income on tax-exempt loans and investments by an amount that makes it comparable to taxable income.

-0-

Note: Transmitted on Business Wire at 3:30 am, PDT on July 25, 2006.