UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

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

For the transition period from                      to                     

Commission File Number 000-24503

WASHINGTON BANKING COMPANY

(Exact name of registrant as specified in its charter)

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

450 SW Bayshore Drive
Oak Harbor, Washington 98277
(Address of principal executive offices) (Zip Code)

(360) 679-3121
(Registrant’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 registrant: (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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o              Accelerated filer þ                        Non-accelerated filer o                            Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark if the registrant is a shell company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Yes o No þ

     The number of shares of the issuer’s Common Stock outstanding at April 30, 2008 was 9,476,003.

Table of Contents

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition - March 31, 2008 and December 31, 2007		1
Condensed Consolidated Statements of Income - Three Months Ended March 31, 2008 and 2007		2
Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income - Three Months Ended March 31, 2008 and 2007		3
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2008 and 2007		4
Notes to Condensed Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures about Market Risk		18
Item 4. Controls and Procedures		18
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		19
Item 1A. Risk Factors		19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 5. Other Information
Item 6. Exhibits		19
Signatures		20
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

i

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WASHINGTON BANKING COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition (unaudited)

(Dollars in thousands)

	March31,			December31,
	2008			2007
Assets
Cash and due from banks	$	21,377		$	18,795
($1,956 and $3,496, respectively, are restricted)
Interest-bearing deposits		404			257
Federal funds sold		2,415			—
Total cash, restricted cash, and cash equivalents		24,196			19,052
Investment securities available for sale		12,494			13,832
Federal Home Loan Bank stock		1,984			1,984
Loans held for sale		453			2,347
Loans receivable		814,993			805,862
Allowance for loan losses		(11,404	)		(11,126	)
Total loans, net		803,589			794,736
Premises and equipment, net		24,906			25,138
Bank owned life insurance		16,618			16,517
Other assets		8,769			8,683
Total assets	$	893,009		$	882,289
Liabilities and Shareholders’ Equity
Liabilities:
Deposits
Noninterest-bearing	$	98,003		$	101,539
Interest-bearing		313,294			315,298
Time deposits		334,449			341,517
Total deposits		745,746			758,354
FHLB overnight borrowings		11,500			20,500
Other borrowed funds		30,000			—
Junior subordinated debentures		25,774			25,774
Other liabilities		4,277			4,091
Total liabilities		817,297			808,719
Commitments and contingencies		—			—
Shareholders’ equity:
Preferred stock, no par value. Authorized 20,000 shares: no shares issued or outstanding		—			—
Common stock, no par value. Authorized 13,679,757 shares: issued and outstanding 9,476,360 at 3/31/2008 and 9,453,767 at 12/31/2007		33,077			32,812
Retained earnings		42,421			40,652
Accumulated other comprehensive loss		214			106
Total shareholders’ equity		75,712			73,570
Total liabilities and shareholders’ equity	$	893,009		$	882,289

See accompanying notes to condensed consolidated financial statements.

1

WASHINGTON BANKING COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Income (unaudited)
(Dollars and shares in thousands, except per share data)

	Three Months Ended
	March 31,
	2008		2007
Interest income:
Interest and fees on loans	$	15,360	$	14,428
Interest on taxable investment securities		110		133
Interest on tax exempt investment securities		51		71
Other		5		32
Total interest income		15,526		14,664
Interest expense:
Interest on deposits		5,295		5,323
Interest on other borrowings		304		34
Interest on junior subordinated debentures		405		338
Total interest expense		6,004		5,695
Net interest income		9,522		8,969
Provision for loan losses		1,025		550
Net interest income after provision for loan losses		8,497		8,419
Noninterest income:
Service charges and fees		726		816
Income from the sale of loans		90		155
SBA premium income		144		138
Other		835		695
Total noninterest income		1,795		1,804
Noninterest expense:
Salaries and benefits		3,990		4,411
Occupancy and equipment		949		956
Office supplies and printing		119		130
Data processing		161		141
Merger related expense		81		—
Consulting and professional fees		215		171
Other		1,364		1,115
Total noninterest expense		6,879		6,924
Income before provision for income taxes		3,413		3,299
Provision for income taxes		1,076		1,032
Net income	$	2,337	$	2,267
Net income per share, basic	$	0.25	$	0.24
Net income per share, diluted	$	0.25	$	0.24
Average number of shares outstanding, basic		9,432,000		9,389,000
Average number of shares outstanding, diluted		9,514,000		9,558,000

See accompanying notes to condensed consolidated financial statements.

2

WASHINGTON BANKING COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity
and Comprehensive Income (unaudited)
(Dollars and shares in thousands, except per share data)

									Accumulated
									other			Total
	Common stock					Retained			comprehensive			shareholders’
	Shares			Amount		earnings			income (loss)			equity
Balances at December 31, 2006		9,389		$	33,016	$	33,422		$	(45	)	$	66,393
Comprehensive income:
Net income		—			—		2,267			—			2,267
Net unrealized gain on securities available for sale, net of tax of $12		—			—		—			22			22
Total comprehensive income		—			—		—			—			2,289
Cash dividend, $0.05 per share		—			—		(472	)		—			(472	)
Stock based compensation expense		—			142		—			—			142
Exercise of common stock- stock options		55			382		—			—			382
Issuance of restricted stock		2			—		—			—			—
Tax benefit associated with stock awards		—			47		—			—			47
Balances at March 31, 2007		9,446		$	33,587	$	35,217		$	(23	)	$	68,781
Balances at December 31, 2007		9,454		$	32,812	$	40,652		$	106		$	73,570
Comprehensive income:
Net income		—			—		2,337			—			2,337
Net unrealized gain on securities available for sale, net of tax of $58		—			—		—			108			108
Total comprehensive income		—			—		—			—			2,445
Cash dividend, $0.06 per share		—			—		(568	)		—			(568	)
Stock based compensation expense		—			95		—			—			95
Exercise of common stock- stock options		23			129		—			—			129
Cancellation of restricted stock		(1	)		—		—			—			—
Tax benefit associated with stock awards		—			41		—			—			41
Balances at March 31, 2008		9,476		$	33,077	$	42,421		$	214		$	75,712

3

WASHINGTON BANKING COMPANY
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)

	Three Months Ended
	March 31,
	2008			2007
Cash flows from operating activities:
Net income from operations	$	2,337		$	2,267
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of investment discounts, net		(4	)		—
Deferred income tax expense (benefit)		(100	)		164
Depreciation and amortization		455			443
Earnings on bank owned life insurance		(101	)		(87	)
Provision for loan losses		1,025			550
Write-downs of other real estate		150			—
Excess tax benefits from stock based compensation		(41	)		(47	)
Amortization of stock-based compensation		95			142
Net change in assets and liabilities:
Net (increase) decrease in loans held for sale		1,894			(2,259	)
Decrease (increase) in other assets		447			(325	)
Increase (decrease) in other liabilities		186			(575	)
Cash provided by operating activities		6,343			273
Cash flows from investing activities:
Purchases of investment securities, available for sale		—			(928	)
Maturities/calls/principal payments of investment and mortgage-backed securities, available for sale		1,508			1,005
Net increase in loans		(10,478	)		(12,701	)
Purchases of premises and equipment		(223	)		(306	)
Proceeds from the sale of other real estate owned		—			363
Cash used by investing activities		(9,193	)		(12,567	)
Cash flows from financing activities:
Net increase (decrease) in deposits		(12,608	)		22,606
Net decrease in FHLB overnight borrowings		(9,000	)		(3,075	)
Dividends paid on common stock		(568	)		(472	)
Excess tax benefits from stock based compensation		41			47
Proceeds from exercise of common stock- stock options		129			382
Cash provided by financing activities		7,994			19,488
Net change in cash and cash equivalents		5,144			7,194
Cash and cash equivalents at beginning of period		19,052			19,745
Cash and cash equivalents at end of period	$	24,196		$	26,939
Supplemental information:
Loans foreclosed and transferred to other real estate owned	$	600		$	—
Cash paid for interest		5,941			5,714
Cash paid for income taxes		200			810

See accompanying notes to condensed consolidated financial statements.

4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2008 and 2007 (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 (the “Company” or “WBCO”) is a registered bank holding company formed on April 30, 1996. At March 31, 2008, WBCO had two wholly owned subsidiaries – Whidbey Island Bank (“WIB” or the “Bank”), the Company’s principal subsidiary, and Washington Banking Master Trust (the “Trust”). 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. The region’s economy has evolved from one that was once heavily dependent upon forestry, fishing and farming to an economy with a much more diverse blend of industries including retail trade, services, manufacturing, tourism and a large military base presence. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers’ ability to repay their loans is dependent upon the economic conditions affecting this area.

(b) Basis of Presentation: The accompanying interim condensed consolidated financial statements include the accounts of WBCO and its subsidiaries described above. The accompanying interim condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the December 31, 2007 audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC. In management’s opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. In preparing the condensed consolidated financial statements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses are required. Actual results could differ from those estimates.

(c) Reclassifications: Certain amounts in prior year’s financial statements may have been reclassified to conform to the 2008 presentation. These reclassifications had no significant impact on the Company’s financial position or results of operations.

(2) Recent Financial Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement 133. Statement No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, Statement 161 requires:

• Disclosure of the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation;

• Disclosure of the fair values of derivative instruments and their gains and losses in a tabular format;

• Disclosure of information about credit-risk-related contingent features; and

• Cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed.

Statement No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect the standard to have a material impact on its financial statements.

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2008 and 2007 (unaudited)
(Dollars in thousands, except per share data)

(3) Earnings Per Share

The following table reconciles the denominator of the basic and diluted earnings per share computation:

	Three Months Ended
	March 31,
	2008		2007
Weighted average shares-basic		9,432,000		9,389,000
Effect of dilutive securities: stock awards		82,000		169,000
Weighted average shares-diluted		9,514,000		9,558,000

At March 31, 2008 and 2007, there were options to purchase 165,703 and 250,417 shares of common stock outstanding, respectively. For the three months ended March 31, 2008, 72,401 options were antidilutive and therefore not included in the computation of diluted net income per share. There were no antidilutive options at March 31, 2007.

(4) Stock-Based Compensation

(a) Stock Options: The Company measures the fair value of each stock option grant at the date of the grant, using the Black Scholes option pricing model. There were no options granted during the three months ended March 31, 2008. The weighted average fair value per share of options granted during the three months ended March 31, 2007 was $5.11 per share. The following assumptions were used in arriving at the fair value of options granted:

	Three Months
	Ended
	March 31,
	2007
Risk-free interest rate		4.85	%
Dividend yield rate		1.50	%
Price volatility		33.00	%
Expected life of stock options	5 years

The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. For the three months ended March 31, 2008 and 2007 the Company recognized $32 and $28, respectively, in stock based compensation expense as a component of salaries and benefits. As of March 31, 2008 there was approximately $283 of total unrecognized compensation cost related to nonvested stock awards.

The following table summarizes information on stock option activity during 2008:

						Weighted average
				Weighted average		remaining
				exercise price per		contractual terms		Aggregate intrinsic
	Shares			share		(in years)		value
Outstanding at January 1, 2008		192,618		$	9.63
Granted		—			—
Exercised		(23,352	)		5.52			$	226
Forfeited, expired or cancelled		(3,563	)		15.93
Outstanding at March 31, 2008		165,703		$	10.07		6.08	$	965
Exercisable at March 31, 2008		95,009		$	5.91		4.04	$	944

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2008 and 2007 (unaudited)
(Dollars in thousands, except per share data)

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on March 31, 2008 and the exercise price, times the number of shares) that would have been received by the option holders had all the option holders exercised their options on March 31, 2008. This amount changes based upon the fair market value of the Company’s stock.

(b) Restricted Stock Awards: The Company grants restricted stock periodically for the benefit of employees. Recipients of restricted stock do not pay any cash consideration to the Company for the shares and receive all dividends with respect to such shares, whether or not the shares have vested. Restrictions are based on continuous service.

The following table summarizes information on restricted stock activity during 2008:

						Weighted average
				Weighted average		remaining
				grant price per		contractual terms
	Shares			share		(in years)
Outstanding at January 1, 2008		29,560		$	13.08
Granted		—			—
Vested		(6,497	)		10.92
Forfeited, expired or cancelled		(758	)		14.52
Outstanding at March 31, 2008		22,305		$	13.66		1.95

For the three months ended March 31, 2008 and 2007 the Company recognized $42 and $44, respectively, in restricted stock compensation expense as a component of salaries and benefits. As of March 31, 2008 there was $205 of total unrecognized compensation costs related to nonvested restricted stock.

(c) Restricted Stock Units: The Company grants restricted stock units periodically for the benefit of employees and directors. Recipients of restricted stock units receive shares of the Company’s stock upon the lapse of their related restrictions and do not pay any cash consideration to the Company for the shares. Restrictions are based on continuous service.

The following table summarizes information on restricted stock unit activity during the three months ended March 31, 2008:

						Weighted average
				Weighted average		remaining
				grant price per		contractual terms
	Shares			share		(in years)
Outstanding at January 1, 2008		17,815		$	15.98
Granted		7,200			15.95
Vested		—			—
Forfeited, expired or cancelled		(717	)		15.98
Outstanding at March 31, 2008		24,298		$	15.97		3.41

For the three months ended March 31, 2008 the Company recognized $21 in restricted stock units compensation expense as a component of salaries and benefits; there was no compensation expense in the prior year. As of March 31, 2008 there was $324 of total unrecognized compensation costs related to nonvested restricted stock units.

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2008 and 2007 (unaudited)
(Dollars in thousands, except per share data)

(5) Fair Value Measurements

Effective January 1, 2008, the Company adopted FASB Statement No.157, Fair Value Measurements, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. Statement No. 157 establishes a new framework for measuring fair value and expands related disclosures. Broadly, Statement No. 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Statement No. 157 establishes market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

The valuation techniques required by Statement No. 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1:	Quoted prices for identical instruments in active markets.
Level 2:	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drives are observable.
Level 3:	Significant inputs to the valuation model are unobservable.

The following section describes the valuation methodologies the Company uses to measure different financial instruments at fair value.

Investments in debt and equity securities: When available, the Company uses quoted market prices to determine the fair value of investment securities. These investments are included in Level 1. When quoted market prices are unobservable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant information including market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable. These investments are included in Level 2 and comprise the Company’s portfolio of U.S. agency securities, municipal bonds and one mortgage-backed security.

Impaired loans: A loan is considered impaired when, based upon currently known information, it is deemed probable that the Company will be unable to collect all amounts due as scheduled according to the original terms of the agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, based on the loan’s observable market price or the fair value of collateral, if the loan is collateral dependent. Impaired loans, which are collateral dependent, are included in the nonrecurring basis table below.

Other real estate owned: Other real estate owned includes properties acquired through foreclosure. These properties are recorded at the lower of cost or estimated fair value (less estimated cost to sell), based on periodic evaluations. Other real estate owned, which has been recorded at estimated fair value are included the nonrecurring basis table below

The following table presents the Company’s assets measured at fair value on a recurring basis at March 31, 2008:

	Level 1		Level 2		Level 3		Total
Assets
Investment securities	$	—	$	12,494	$	—	$	12,494
Total	$	—	$	12,494	$	—	$	12,494

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2008 and 2007 (unaudited)
(Dollars in thousands, except per share data)

The following table presents the Company’s assets measured at fair value on a nonrecurring basis at March 31, 2008:

	Level 1		Level 2		Level 3		Total
Assets
Impaired loans	$	—	$	—	$	1,373	$	1,373
Other real estate owned		—		—		932		932
Total	$	—	$	—	$	2,305	$	2,305

In accordance with FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan, impaired loans, with carrying amounts of $1.4 million had specific valuation allowances totaling $532,000, which were included in the allowance for loan losses.

In accordance with FASB Statement No.144, Accounting for the Impairment or Disposal of Long-Lived Assets, other real estate owned properties with a total carrying amount of $1.1 million were written down to their fair value of $932,000, less a cost to sell of $134,000, which was included in the first quarter 2008 earnings.

(6) Subsequent Events

On April 24, 2008, the Company announced that its Board of Directors declared a cash dividend of $0.065 per share to shareholders of record as of May 5, 2008, payable on May 19, 2008.

(7) Commitments and Guarantees

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Except for certain long-term guarantees, most guarantees expire in one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral supporting those commitments, for which collateral is deemed necessary, generally amounted to one hundred percent of the commitment amount at March 31, 2008. The Company routinely charges a fee for these credit facilities. Such fees are amortized into income over the life of the agreement, and unamortized amounts were not significant as of March 31, 2008. As of March 31, 2008 the commitments under these agreements were $2,431.

At March 31, 2008, the Company was the guarantor of trust preferred securities. The Company has issued junior subordinated debentures to a wholly owned special purpose trust, which has issued trust preferred securities. The sole assets of the special purpose trust are the junior subordinated debentures issued by the Company. Washington Banking Company has fully and unconditionally guaranteed the capital securities along with all obligations of the Trust under the trust agreements. The maximum amount of future payments the Company will be required to make under these agreements is the principal and interest of the trust preferred securities, the principal of which totaled $25,000 at March 31, 2008.

9

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

Note Regarding Forward-Looking Statements: This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements describe Washington Banking Company’s (the “Company”) management’s expectations regarding future events and developments such as future operating results, growth in loans and deposits, continued success of the Company’s business plan and the strength of the local economy. The words “will,” “believe,” “expect,” “should,” “anticipate” and words of similar construction are intended in part to help identify forward-looking statements. Future events are difficult to predict, and the expectations described below are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), factors that may cause actual results to differ materially from those contemplated in such 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) the ability to realize efficiencies expected from investment in personnel and infrastructure; and (6) successful completion of the previously announced merger with Frontier Financial, closing of which remains subject to customary closing conditions. However, the reader should be aware that these factors are not an exhaustive list, and it should not be assumed that these are the only factors that may cause actual results to differ from expectations. In addition, the reader should note that the Company does not intend to update any of the forward-looking statements or the uncertainties that may adversely impact those statements.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto presented elsewhere in this report.

Overview

Washington Banking Company (referred to in this report as the “Company”) is a registered bank holding company with two wholly-owned subsidiaries: Whidbey Island Bank (the “Bank”), the Company’s principal subsidiary and Washington Banking Master Trust (the “Trust”). Headquartered in Oak Harbor, the Company’s market area is primarily northwestern Washington. The market area encompasses distinct economies, and none are particularly dependent upon a single industrial or occupational source. The economies within the market areas have evolved from being heavily dependent upon forestry, fishing and farming to a more diverse blend of industries including retail trade, services, manufacturing, tourism and a large military presence.

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

On March 27, 2008 shareholders approved the merger of the Company into Frontier Financial Corporation (“Frontier”). The closing of the merger is subject to the approval of the Federal Deposit Insurance Corporation (FDIC), final board approval and other closing conditions. Frontier has not received FDIC approval and no assurances can be given as to when or whether the FDIC will approve the application. At this time the closing cannot be assured and the closing date of the transaction cannot be determined

Summary of Critical Accounting Policies

Significant accounting policies are described in Note (1) of the Notes to Consolidated Financial Statements for the year ended December 31, 2007 as filed in Form 10-K. Not all of these accounting policies require management to make difficult, subjective or complex judgments or estimates. Management believes that the following accounting policies could be considered critical under the SEC’s definition.

Allowance for Loan Losses: There have been no material changes in the accounting policy relating to allowance for loan losses as compared to that contained in Note (1) of the Notes to Consolidated Financial Statements for the year ended December 31, 2007 as filed in Form 10-K.

Stock-based Compensation: There have been no material changes in the accounting policy relating to stock-based compensation as compared to that contained in Note (1) of the Notes to Consolidated Financial Statements for the year ended December 31, 2007 as filed in Form 10-K.

10

Results of Operations Overview

The Company’s net income increased to $2.3 million or $0.25 per diluted share, in the first quarter of 2008, compared with $2.3 million or $0.24 per diluted share in the first quarter of 2007. Return on average equity decreased to 12.62% in the first quarter of 2008, compared with 13.69% in the corresponding quarter of 2007. Return on average assets decreased to 1.06% in the first quarter of 2008, compared with 1.15% in first quarter of 2007.

Net Interest Income: One of the Company’s key sources of earnings is net interest income. To make it easier to compare results among several periods and the yields on various types of earning assets (some of which are taxable and others which are not), net interest income is presented in this discussion on a “taxable-equivalent basis” (i.e., as if it were all taxable at the same rate). There are several factors that affect net interest income including:

• The volume, pricing, mix and maturity of interest-earning assets and interest-bearing liabilities;

• The volume of free funds (consisting of noninterest-bearing deposits and other liabilities and shareholders’ equity);

• The volume of noninterest-earning assets;

• Market interest rate fluctuations; and

• Asset quality

     The following tables set forth various components of the balance sheet that affect interest income and expense, and their respective yields or rates:

	Average Balance Sheet and Analysis of Net Interest Income and Yields/Rates
	Three Months Ended							Three Months Ended
	March 31, 2008							March 31, 2007
	Average		Interest		Average			Average		Interest		Average
(Dollars in thousands)	balance		earned/paid		yield			balance		earned/paid		yield
Assets
Loans (1) (2)	$	811,128	$	15,490		7.66	%	$	723,735	$	14,562		8.16	%
Federal funds sold		266		2		2.89	%		1,771		22		4.97	%
Interest-earning cash		282		3		3.69	%		770		10		5.27	%
Investments:
Taxable		9,717		110		4.54	%		12,393		133		4.36	%
Non-taxable (2)		5,266		75		5.68	%		6,798		104		6.20	%
Interest-earning assets		826,659		15,680		7.61	%		745,467		14,831		8.07	%
Noninterest-earning assets		53,623							51,717
Total assets	$	880,282						$	797,184
Liabilities and Shareholders’ Equity
Deposits:
Interest demand and money market	$	271,268	$	1,351		2.00	%	$	252,937	$	1,583		2.54	%
Savings		41,928		51		0.49	%		49,176		91		0.75	%
Time deposits		336,955		3,893		4.69	%		308,592		3,649		4.80	%
Interest-bearing deposits		650,151		5,295		3.27	%		610,705		5,323		3.53	%
Federal funds purchased		18,581		176		3.79	%		2,291		33		5.78	%
Junior subordinated debentures		25,774		405		6.30	%		15,007		339		9.16	%
Other borrowed funds		15,495		129		3.34	%		¾		¾		0.00	%
Interest-bearing liabilities		710,001		6,005		3.39	%		628,003		5,695		3.68	%
Noninterest-bearing deposits		92,527							96,097
Other noninterest-bearing liabilities		3,490							5,920
Total liabilities		806,018							730,020
Shareholders’ equity		74,264							67,164
Total liabilities and shareholders’ equity	$	880,282						$	797,184
Net interest income			$	9,675						$	9,136
Net interest spread						4.22	%						4.39	%
Net interest margin						4.69	%						4.97	%

11

(1)

Average balance includes nonaccrual loans.

(2)

Interest income on non-taxable investments and loans is presented on a taxable-equivalent basis using the federal statutory rate of 35.0% and 35.0% in 2008 and 2007, respectively. These adjustments were $152 and $167 for the three months ended March 31, 2008 and 2007, respectively. Taxable-equivalent is a Non GAAP performance measurement that management believes provides investors with a more accurate picture of the net interest margin and efficiency ratio for comparative purposes.

Net interest income on a taxable-equivalent basis totaled $9.7 million at March 31, 2008 compared with $9.1 million during the first quarter of 2007. There were significant changes in the mix of interest-earning assets and interest-bearing liabilities and their related volumes and rates during the first quarter. Average interest-earning assets increased $81.0 million to 826.7 million, due to strong loan growth, as compared to 745.5 million for the first quarter of 2007. However, the yields on interest-earning assets decreased 46 basis points to 7.61% in the first quarter of 2008 from 8.07% in the same period in 2007. This decrease was primarily attributed to a 200 basis point decrease in the prime rate charged on variable rate loans. Average interest-bearing liabilities increased $82.0 million to 710.0 million as compared to $628.0 million in the first quarter of 2007, with interest-bearing deposits increasing $39.5 million and the remaining $42.5 million increase in the first quarter of 2008 made up of various other borrowing sources. The average cost of interest-bearing liabilities decreased 29 basis points to 3.39% in the first quarter of 2008 from 3.68% in the same period in 2007. These changes in loan and deposit volumes and rates caused the net interest margin to decrease 28 basis points in the first quarter of 2008 to 4.69% from 4.97% in the same period last year.

The following table shows how changes in yields or rates and average balances affected net interest income for the first quarters of 2008 and 2007:

	Three Months Ended
	March 31
	2008 vs. 2007
	Increase (decrease) due to(2):
	Volume			Rate			Total
Assets:
Loans (1) (3)	$	1,884		$	(956	)	$	928
Federal funds sold		(13	)		(7	)		(20	)
Interest-bearing cash		(5	)		(2	)		(7	)
Investments (1)		(50	)		(2	)		(52	)
Total interest earning assets		1,816			(967	)		849
Liabilities:
Deposits:
Interest demand and money market		120			(352	)		(232	)
Savings		(12	)		(28	)		(40	)
Time deposits		385			(141	)		244
Interest on other borrowed funds		150			(7	)		143
Junior subordinated debentures		118			(51	)		67
Other interest-bearing liabilities		128			¾			128
Total interest-bearing liabilities		889			(579	)		310
Total increase (decrease) in net interest income	$	927		$	(388	)	$	539

(1)	Interest on loans and investments is presented on a fully tax-equivalent basis.
(2)	The changes attributable to the combined effect of volume and interest rates have been allocated proportionately.
(3)	Interest income previously accrued on nonaccrual loans is reversed in the period the loan is placed on nonaccrual status.

Noninterest Income: Noninterest income was basically flat at $1.8 million in the first quarter of 2008 and 2007. Changes in noninterest income were primarily due to a $90,000 decline in service charge and fees and a $65,000 decline in income from the sale of loans as compared to the corresponding quarter in 2007. These decreases were offset by an increase in annuity income of $66,000, earnings on bank owned life insurance of $15,000 and electronic banking fees of $28,000.

12

Noninterest Expense: Noninterest expense was essentially flat, at $6.9 million in the first quarter of 2008 and 2007. Salaries and benefits for the first quarter of 2008 decreased $421,000 due to a reduction in full time equivalent employees (FTE’s). The number of FTE’s decreased to 258 at March 31, 2008 from 303 at March 31, 2007. This decrease in the number of FTE’s was offset by a $134,000 increase in write-downs of several other real estate owned properties, $81,000 increase in merger related expenses associated with the pending merger with Frontier Financial Corporation, and a $44,000 increase in consulting and professional fees. Additionally, FDIC premiums in the first quarter of 2008 increased $120,000 as compared to 2007. In the first quarter of 2007, the Bank received a credit from the FDIC which reduced the expense to only $3,000 for that quarter.

Income Taxes: The Company’s consolidated effective tax rates for the first quarters of 2008 and 2007 were 31.5% and 31.3%, respectively. The effective tax rates are below the federal statutory rate of 35% principally due to nontaxable income generated from investments in bank owned life insurance, tax-exempt municipal bonds and loans. Additionally, the Company’s tax rate reflects a benefit from the New Market Tax Credit Program whereby a subsidiary of Whidbey Island Bank has been awarded approximately $3.1 million in future federal tax credits. The tax benefits related to these credits will be recognized in the same periods that the credits are recognized on the Company’s income tax returns.

Financial Condition Overview

Total assets were $893.0 million at March 31, 2008, an increase of $10.7 million from $882.3 million at December 31, 2007. During the first three months of 2008 the Company continued to focus on growing the loan and deposit portfolios. Loans at March 31, 2008 grew 1% to $815.0 million compared to $805.9 million at December 31, 2007. Deposits at March 31, 2008 were $745.8 million, a 2% decrease from December 31, 2007.

Loans: Total loans outstanding as of March 31, 2008 were $815.0 million, an increase of $9.1 million from $805.9 million at December 31, 2007. The total loan portfolio represented 91.3% of total assets at both March 31, 2008 and December 31, 2007.

Active portfolio management has resulted in a diversified portfolio that is not heavily concentrated in any one industry or community. The following table further details the major components of the loan portfolio:

	Loan Portfolio Composition as of:
	March 31, 2008					December 31, 2007					Change
(Dollars in thousands)	Balance		% of total			Balance		% of total			2008 vs. 2007
Commercial	$	105,641		13.0	%	$	102,284		12.7	%	$	3,357
Real estate mortgages:
One-to-four family residential		55,129		6.8	%		56,636		7.0	%		(1,507	)
Commercial		311,188		38.3	%		296,902		37.0	%		14,286
Total real estate mortgages		366,316		45.1	%		353,538		44.0	%		12,778
Real estate construction:
One-to-four family residential		102,742		12.6	%		101,912		12.7	%		830
Multi-family and commercial		41,335		5.1	%		44,735		5.6	%		(3,400	)
Total real estate construction		144,077		17.7	%		146,647		18.3	%		(2,570	)
Consumer:
Indirect		112,351		13.8	%		114,271		14.2	%		(1,920	)
Direct		84,053		10.3	%		86,716		10.8	%		(2,663	)
Total consumer		196,404		24.2	%		200,987		25.0	%		(4,583	)
Subtotal		812,438		100.0	%		803,456		100.0	%		8,982
Deferred loan fees, net		2,555					2,406					149
Total loans, net	$	814,993				$	805,862				$	9,131

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Allowance for Loan Losses: The allowance for loan losses at March 31, 2008 was $11.4 million or 1.40% of total loans and 830.59% of total non-performing loans. This compares with an allowance of $11.1 million or 1.38% of total loans and 395.41% of total non-performing loans at December 31, 2007.

The allowance for loan losses is maintained at a level considered adequate by management to provide for loan losses inherent in the portfolio. The Company assesses the allowance on a quarterly basis. The evaluation of the allowance is based on a continuing assessment of nonperforming assets, recent and historical loss experience, and other factors, including regulatory guidance and economic factors. While the Company believes that it uses the best information available to determine the allowance for loan losses unforeseen market conditions could result in adjustments to the allowance for loan losses, and net income could be significantly affected if circumstances differ substantially from the assumptions used in making the final determination. The Company anticipates that normal growth of the loan portfolio will require continued increases in the allowance for loan losses. The following table details the activity of the allowance for loan losses:

	Three Months Ended
	March 31,
(Dollars in thousands)	2008			2007
Balance at beginning of period	$	11,126		$	10,048
Charge-offs:
Commercial		(449	)		(370	)
Real estate		(20	)		¾
Consumer:
Direct		(191	)		(88	)
Indirect		(362	)		(135	)
Total charge-offs		(1,022	)		(593	)
Recoveries:
Commercial		55			48
Real estate		2			71
Consumer:
Direct		47			34
Indirect		171			54
Total recoveries		275			207
Net charge-offs		(747	)		(386	)
Provision for loan losses		1,025			550
Balance at end of period	$	11,404		$	10,212
Indirect net charge-offs to average indirect loans (1)		0.67	%		0.31	%
Other net charge-offs to average other loans (1)		0.32	%		0.20	%
Net charge-offs to average loans (1)		0.37	%		0.21	%

⁽¹⁾ Excludes loans held for sale.

The changes in the allocation of the allowance for loan losses in the first three months of 2008 were due primarily to changes in the loan portfolio and its mix, changes in the risk grading of loans and charge-off and recovery activity.

During the first quarter of 2008, the Company recorded a $1.0 million provision for loan losses compared to $550,000 for the first quarter in 2007. Net charge-offs for first quarter of 2008 were $747,000, a $361,000 increase over the first quarter of 2007. This increase in the first quarter is the result of a lower level of indirect charge-offs in 2007 and an increase in commercial charge-offs in the first quarter of 2008.

14

The table below details the Company’s allocation of the allowance for loan losses by loan type and remaining unallocated allowances. The decrease in the level of unallocated reserve is a reflection of continued weakness in the regional residential real estate markets:

	Allocation of the Allowance for Loan Losses as of:
	March 31, 2008								December 31, 2007								March 31, 2007
			% of			% of					% of			% of					% of			% of
(Dollars in thousands)	Amount		Allowance(2)			Loans(1)			Amount		Allowance(2)			Loans(1)			Amount		Allowance(2)			Loans(1)
Balance applicable to:
Commercial	$	1,065		9.3	%		13.0	%	$	976		8.8	%		12.8	%	$	813		8.0	%		12.2	%
Real estate mortgage		4,371		38.3	%		45.1	%		3,928		35.3	%		44.0	%		3,220		31.5	%		41.7	%
Real estate construction		1,871		16.4	%		17.7	%		1,812		16.3	%		18.3	%		1,761		17.2	%		19.8	%
Consumer		2,886		25.3	%		24.2	%		2,773		24.9	%		24.9	%		2,578		25.2	%		26.3	%
Unallocated		1,211		10.7	%		N/A			1,637		14.7	%		N/A			1,840		18.1	%		N/A
Total	$	11,404		100	%		100	%	$	11,126		100	%		100	%	$	10,212		100.0	%		100.0	%

(1)	Represents the total of all outstanding loans in each category as a percent of total loans outstanding.
(2)	Represents the total allowance allocated to each loan category as a percent of total allowance for loan losses.

Nonperforming Assets: The table below shows the composition of the Company’s nonperforming assets:

	Nonperforming Assets as of:
	March 31,			December 31,
(Dollars in thousands)	2008			2007
Nonaccrual loans	$	1,373		$	2,839
Restructured loans		—			—
Total nonperforming loans		1,373			2,839
Other real estate owned		1,890			1,440
Total nonperforming assets	$	3,263		$	4,279
Total impaired loans	$	1,373		$	2,839
Accruing loans past due ³ 90 days		—			—
Potential problem loans		—			—
Allowance for loan losses	$	11,404		$	11,126
Interest foregone on nonaccrual loans		—			164
Nonperforming loans to loans		0.17	%		0.35	%
Allowance for loan losses to loans		1.40	%		1.38	%
Allowance for loan losses to nonperforming loans		830.59	%		395.41	%
Allowance for loan losses to nonperforming assets		349.49	%		262.34	%
Nonperforming assets to total assets		0.37	%		0.49	%

Deposits: Total deposits in the first three months of 2008 decreased $12.6 million to $745.8 million at quarter end as compared to $758.4 million at December 31, 2007. Deposits represented 91.2% of total liabilities at March 31, 2008 compared to 93.4% at December 31, 2007.

15

The following table further details the major components of the deposit portfolio:

	Deposit Composition as of:
	March 31, 2008					December 31, 2007					Change
(Dollars in thousands)	Balance		% of total			Balance		% of total			2008 vs. 2007
Noninterest-bearing demand	$	98,003		13.1	%	$	101,539		13.4	%	$	(3,536	)
NOW accounts		140,568		18.8	%		140,145		18.5	%		423
Money market		130,044		17.4	%		133,265		17.6	%		(3,221	)
Savings		42,682		6.0	%		41,888		5.5	%		794
Time deposits		334,449		44.7	%		341,517		45.0	%		(7,068	)
Total deposits	$	745,746		100	%	$	758,354		100	%	$	(12,608	)

Other Borrowed Funds: During the first quarter the Company entered into a short term borrowing agreement with the Federal Home Loan Bank (FHLB) for a total of $30.0 million. The advances are as follows:

§	$10.0 million advance with a fixed interest rate of 3.64%, maturing in January 2009.
§	$20.0 million advance with a fixed interest rate of 3.02%, maturing in August 2008.

Capital

Shareholders’ Equity: Total shareholders’ equity increased 3% to $75.7 million at March 31, 2008 from $73.6 million at December 31, 2007. This was principally due to the retention of $1.8 million, or approximately 80% of net income for the first three months of 2008 and proceeds from the exercise of stock awards of $129,000. The Company paid approximately $568,000 to shareholders in cash dividends during the first quarter of 2008.

Regulatory Capital Requirements: Banking regulations require bank holding companies and banks to maintain a minimum leverage ratio of core capital to adjusted average total assets of at least 4%. In addition, banking regulators have adopted risk-based capital guidelines, under which risk percentages are assigned to various categories of assets and off-balance sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common shareholders’ equity (which does not include unrealized gains and losses on securities), less goodwill and certain identifiable intangible assets, while Tier II capital includes the allowance for loan losses and subordinated debt, both subject to certain limitations.

The FDIC established the qualifications necessary to be classified as a “well-capitalized” bank, primarily for assignment of FDIC insurance premium rates. As the following table indicates, the Company and Bank qualified as “well-capitalized” at March 31, 2008 and December 31, 2007:

	Regulatory Requirements						Actual Ratios
	Adequately-			Well-			March 31,			December 31,
	capitalized			capitalized			2008			2007
Total risk-based capital ratio
Company (consolidated)		8	%		N/A			12.63	%		12.45	%
Whidbey Island Bank		8	%		10	%		12.29	%		12.03	%
Tier 1 risk-based capital ratio
Company (consolidated)		4	%		N/A			11.38	%		11.14	%
Whidbey Island Bank		4	%		6	%		11.04	%		10.78	%
Leverage ratio
Company (consolidated)		4	%		N/A			11.43	%		11.29	%
Whidbey Island Bank		4	%		5	%		11.08	%		10.92	%

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

16

Liquidity and Cash Flows

Liquidity: The principal objective of the liquidity management program is to maintain the Bank’s ability to meet the day to day cash flow requirements of its customers who either wish to withdraw funds or draw upon credit facilities to meet their needs.

Management monitors the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. The Company’s sources of funds are customer deposits, loan repayments, current earnings, cash and demand balances due from other banks, federal funds, short-term investments, investment securities available for sale and trust preferred securities. The Company’s strategy includes maintaining a “well-capitalized” status for regulatory purposes, while maintaining a favorable liquidity position and proper asset/liability mix. With this strategy in mind, management anticipates that the Bank will rely primarily upon customer deposits and investments to provide liquidity in 2008. These funds will be used for loan originations and deposit withdrawals, to satisfy other financial commitments and to support continuing operations. Additional funds are available through established FHLB and correspondent bank lines of credit, which the Bank may use to supplement funding sources.

Consolidated Cash Flows: As disclosed in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $6.3 million for the first three months of 2008. Approximately $1.9 million was from the sale of loans held for sale. Net cash of $9.1 million was used in investing activities for the period, primarily for the funding of net loan growth of $10.5 million for the period. Net cash provided by financing activities was $8.0 million for the first three months of 2008. Increase in other borrowings provided approximately $30.0 million of additional cash during the period.

Capital Resources:

Off-Balance Sheet Items: The Company is a party to financial instruments with off-balance sheet risk. Among the off-balance sheet items entered into in the ordinary course of business are commitments to extend credit and the issuance of letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet. Certain commitments are collateralized. As of March 31, 2008 and December 31, 2007, the Company’s commitments under letters of credit and financial guarantees amounted to $2.4 million and $1.2 million, respectively. Since many of the commitments are expected to expire without being drawn upon, these total commitment amounts do not necessarily represent future cash requirements.

17

Item 3. Quantitative and Qualitative Disclosures about Market Risk

At March 31, 2008, 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, 2007. Should rates increase, the Company may, or may not be positively impacted due to its current slightly liability sensitive position. For additional information, refer to the Company’s Form 10-K for year ended December 31, 2007 filed with the SEC.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, management evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The principal executive and financial officers supervised and participated in this evaluation. Based on this evaluation, the chief executive and financial officer each concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the periodic reports to the SEC. The design of any system of controls is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any of the Company’s plans, products, services or procedures will succeed in achieving their intended goals under future conditions. Management found no facts that would require the Company to take any corrective actions with regard to significant deficiencies or material weaknesses.

Changes in Internal Control over Disclosure and Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the quarterly period ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

18

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company may be involved in legal proceedings in the regular course of business. At this time, management does not believe that there is pending litigation resulting in an unfavorable outcome of which would result in a material adverse change to the Company’s financial condition, results of operations or cash flows.

Item 1A. Risk Factors

For information regarding risk factors, please refer to Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. There have been no material changes in the Company’s risk factors from those disclosed in the 2007 Annual Report on Form 10-K.

Merger with Frontier Financial Corporations The Company’s management has expended substantial time and effort in negotiating the merger agreement and the related arrangements connected with the merger with Frontier Financial Corporation (“Frontier”). Moreover, the board of directors has agreed to certain arrangements intended to avert any unsolicited attempt to gain control of the Company during the pendency of this transaction, including certain breakup fees and expense reimbursements. Additionally, the merger reflects a substantial aspect of management’s strategic planning for the Company’s future. Were the merger with Frontier not to be consummated, the Company would be forced to make substantial adjustments in its strategic plans, which would require additional management time and effort and which might not be successful. Therefore, if the merger with Frontier is not consummated, the Company may experience adverse impacts on its strategic direction and its operating capabilities, and these impacts may be material. Finally, the termination or abandonment of the merger with Frontier may have an adverse impact upon investors’ views as to the attractiveness of the Company’s common stock, which may result in a reduced market price for the Company’s common stock, and such reduction may be material.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) — (c) None

Item 3. Defaults Upon Senior Securities

None

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

A special meeting of shareholders was held at Oak Harbor, Washington at 9:00 a.m. on March 27, 2008. The total number of shares of common stock represented in person or by proxy at the meeting was 7,252,979 shares. This represented 76.67% of the 9,460,033 shares held by shareholders as of February 8, 2008 and entitled to vote at the meeting. The following issue came before the shareholders for vote:

To consider and vote upon a proposal to approve the Agreement and Plan of Merger dated September 26, 2007 by and among Washington Banking Company and its wholly-owned subsidiary Whidbey Island Bank, and Frontier Financial Corporation and its wholly-owned subsidiary Frontier Bank, pursuant to which WBCO would merge into Frontier Financial and Whidbey Island Bank would merge into Frontier Bank. Approval of the Agreement required the affirmative vote of at least two-thirds of the outstanding shares of WBCO common stock.

The proposal was approved with the following vote totals:

	For		Against		Abstain
Approval of the Agreement		6,931,296		316,676		5,007

Item 5. Other Information

(a) Not applicable

19

(b) There have been no material changes in the procedures for shareholders to nominate directors to the Company’s board.

Item 6. Exhibits

Exhibits

31.1	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section 302 of the Sarbanes Oxley Act of 2002
32.1	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. Section 1350
32.2	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. Section 1350

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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: May 9, 2008	By	/s/ Michal D. Cann
		Michal D. Cann
		President and Chief Executive Officer
Date: May 9, 2008	By	/s/ Richard A. Shields
		Richard A. Shields
		Executive Vice President and Chief Financial Officer

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