Washington Banking (WBCO) 8-K Washington Banking Fourth Quarter 2007 Earnings Increase to $1.9 million, or $0.19 per Diluted Share

Exhibit 99.1

CONTACT: Michal D. Cann — President & CEO
Rick A. Shields — EVP & Chief Financial Officer
360.679.3121 NEWS RELEASE

Washington Banking Fourth Quarter 2007 Earnings Increase to $1.9 million, or $0.19 per Diluted Share

Asset Quality Remains Healthy with Nonperforming Assets at 0.49% of Total Assets

OAK HARBOR, WA — January 23, 2008 — Washington Banking Company (NASDAQ: WBCO), the holding company for Whidbey Island Bank, today reported that solid loan and deposit growth and strong asset quality contributed to profitability in the fourth quarter of 2007. Expenses associated with the previously announced merger agreement with Frontier Financial reduced profits by $513,000 pre-tax, or $0.04 per share after tax, for both the fourth quarter and full year. For the quarter ended December 31, 2007, net income was $1.9 million, or $0.19 per diluted share, compared to $1.8 million, or $0.19 per diluted share, in the fourth quarter a year ago. In 2007, net income was $9.4 million, or $0.99 per diluted share, approaching last year’s level of $9.5 million, or $1.00 per share.

“Strong loan and deposit growth helped offset margin compression and merger related costs to deliver a profitable year,” stated Michal Cann, President and CEO. “We continue to work towards the closing of our merger with Frontier Financial. In the meantime, we continue to operate as a profitable, independent bank for the benefit of our customers, employees and shareholders.”

Fourth quarter 2007 financial highlights, compared to the like period last year, include:

• Revenues increased 3% to $11.4 million.

• Total loans increased 12% to $806 million.

• Total deposits grew 8% to $758 million, with noninterest-bearing deposits up 5% and money market balances up 31%.

• Book value per share grew 10% to $7.78.

• Nonperforming Assets (NPA) to total assets was just 0.49% compared to 0.50% last year.

At December 31, 2007, total assets increased 11% to $882 million compared to $795 million a year ago. Total loans grew 12% to $806 million from $720 million at December 31, 2006. Business, or C&I, loans grew 23%, commercial real estate loans increased 19%, and residential construction loans grew 6% while commercial construction shrank 4% over the past twelve months. “In addition to strong commercial loan activity we are generating good growth in consumer lending, both direct and indirect,” said Cann.

“Asset quality remained strong during the quarter, with nonperforming assets up slightly from last year and higher than at the end of September,” stated Rick Shields, Executive Vice President and CFO. “There are less than a dozen loans in the nonperforming category, and we believe we are well secured on these loans.” Nonperforming assets totaled $4.3 million, or 0.49% of total assets at December 31, 2007, compared to $2.7 million, or 0.31% of total assets at September 30, 2007, and $4.0 million, or 0.50% of total assets a year ago. The allowance for loan losses increased to $11.1 million, or 395% of nonperforming loans and 1.38% of total loans as of December 31, 2007, as compared to $10.0 million, or 276% of nonperforming loans and 1.40% of total loans a year ago. Net charge-offs decreased to $429,000, or 0.21% of average loans in the fourth quarter and $1.9 million, or 0.25% of average loans for the full year in 2007.

“We continue to fund our loan growth with good deposit growth, supplemented with low cost funds from the Federal Home Loan Bank,” Shields said. “Deposits grew 8% over the past year, with noninterest-bearing deposits up 5% and money market balances growing 31%. In light of the sharp cuts by the Federal Reserve in the second half of 2007, our net interest margin for the fourth quarter was down 23 basis points from the third quarter and off 28 basis points from the fourth quarter a year ago.” On a fully tax-equivalent basis, the net interest margin was 4.71% in the fourth quarter of 2007, compared to 4.94% in the preceding quarter and 4.99% in the fourth quarter of 2006. For the full year, the net interest margin was 4.89% compared to 5.25% in 2006.

In the fourth quarter, the yield on earning assets was 7.92%, down 24 basis points on a sequential-quarter basis and 10 basis points from the fourth quarter of 2006. The cost of interest-bearing liabilities was 3.77% in the quarter, down 3 basis points sequentially and up 21 basis points relative to the fourth quarter of last year. Year to date, the yield on earning assets increased 21 basis points to 8.07% and the cost of interest-bearing liabilities increased 62 basis points to 3.75%.

Interest income increased 8% in the fourth quarter and 13% year to date, compared to the respective year-ago periods. Higher cost of funds, however, offset these increases, with interest expense up 17% over the fourth quarter of 2006, and 35% in 2007. Loan growth helped generate a 3% increase in net interest income, which totaled $9.5 million, up from $9.2 million in the fourth quarter of 2006. In 2007, net interest income was up 2% to $37.6 million, from $36.7 million in 2006.

In the 2007 fourth quarter, noninterest income increased 2% to $1.8 million from $1.7 million a year ago, reflecting increased income from Bank Owned Life Insurance. Noninterest income in 2007 increased 3% to $7.5 million from $7.3 million in 2006. Reflecting the costs associated with the merger, noninterest expense grew to $7.9 million in the fourth quarter of 2007 compared to $6.8 million in the prior quarter and $7.7 million in the fourth quarter a year ago. In 2007, operating expense increased 3% to $28.5 million from $27.5

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million a year ago. The efficiency ratio was 68.61% in the fourth quarter of 2007 compared to 69.25% in the fourth quarter of 2006. For 2007, the efficiency ratio was 62.31% compared to 62.07% a year ago.

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 20 full-service branches located in five counties in Northwestern Washington.

www.wibank.com

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, credit quality and loan losses, 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 “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; (5) the ability to realize the efficiencies expected from investment in personnel and infrastructure; and (6) successful completion of our previously announced merger with Frontier Financial, the closing of which remains subject to customary closing conditions. 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.

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CONSOLIDATED STATEMENTS OF OPERATIONS

	Quarter Ended		Quarter Ended		Three			Quarter Ended		One
($ in thousands, except per share data)	December 31,		September 30,		Month			December 31,		Year
(unaudited)	2007		2007		Change			2006		Change
Interest Income
Loans	$	15,812	$	15,959		-1	%	$	14,561		9	%
Taxable Investment Securities		135		143		-5	%		126		8	%
Tax Exempt Securities		59		65		-9	%		71		-17	%
Other		21		54		-62	%		17		20	%
Total Interest Income		16,028		16,221		-1	%		14,775		8	%
Interest Expense
Deposits		6,017		5,849		3	%		5,128		17	%
Other Borrowings		62		147		-58	%		124		-50	%
Junior Subordinated Debentures		471		469		0	%		342		38	%
Total Interest Expense		6,550		6,465		1	%		5,594		17	%
Net Interest Income		9,478		9,756		-3	%		9,181		3	%
Provision for Loan Losses		800		800		0	%		625		28	%
Net Interest Income after Provision for Loan Losses		8,678		8,956		-3	%		8,556		1	%
Noninterest Income
Service Charges and Fees		772		749		3	%		815		-5	%
Income from the Sale of Loans		109		192		-43	%		210		-48	%
Other Income		927		982		-6	%		744		25	%
Total Noninterest Income		1,808		1,923		-6	%		1,769		2	%
Noninterest Expense
Compensation and Employee Benefits		4,373		4,166		5	%		4,313		1	%
Occupancy and Equipment		938		932		1	%		940		0	%
Office Supplies and Printing		103		146		-29	%		169		-39	%
Data Processing		170		185		-8	%		139		22	%
Merger Related Expense		513		—		100	%		—		100	%
Consulting and Professional Fees		294		172		71	%		298		-1	%
Other		1,460		1,226		19	%		1,839		-21	%
Total Noninterest Expense		7,851		6,826		15	%		7,698		2	%
Income Before Income Taxes		2,636		4,053		-35	%		2,626		0	%
Provision for Income Taxes		785		1,232		-36	%		816		-4	%
Net Income	$	1,851	$	2,820		-34	%	$	1,811		2	%
Earnings per Common Share
Basic
Net Income per Share	$	0.19	$	0.30		-37	%	$	0.20		-5	%
Impact of Merger Related Expense		0.04		—		100	%		—		100	%
Adjusted Net Income per Share(1)	$	0.23	$	0.30		-23	%	$	0.20		15	%
Diluted
Net Income per Share	$	0.19	$	0.30		-37	%	$	0.19		0	%
Impact of Merger Related Expense		0.04		—		100	%		—		100	%
Adjusted Net Income per Share (1)	$	0.23	$	0.30		-23	%	$	0.19		21	%
Average Number of Common Shares Outstanding		9,365,000		9,323,000					9,256,000
Fully Diluted Average Common and Equivalent Shares Outstanding		9,500,000		9,435,000					9,529,000

(1) Earnings information excluding merger related expenses represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide more useful and comparative information to assess trends in the Company’s core operations reflected in the current quarter and year-to-date results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

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CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Twelve Months Ended				One
	December 31,				Year
($ in thousands, except per share data)	2007		2006		Change
Interest Income
Loans	$	61,385	$	54,240		13	%
Taxable Investment Securities		547		457		20	%
Tax Exempt Securities		263		310		-15	%
Other		173		178		-3	%
Total Interest Income		62,368		55,185		13	%
Interest Expense
Deposits		22,669		16,557		37	%
Other Borrowings		379		547		-31	%
Junior Subordinated Debentures		1,762		1,337		32	%
Total Interest Expense		24,810		18,441		35	%
Net Interest Income		37,558		36,744		2	%
Provision for Loan Losses		3,000		2,675		12	%
Net Interest Income after Provision for Loan Losses		34,558		34,069		1	%
Noninterest Income
Service Charges and Fees		3,135		3,296		-5	%
Income from the Sale of Loans		667		709		-6	%
Other Income		3,688		3,245		14	%
Total Noninterest Income		7,490		7,250		3	%
Noninterest Expense
Compensation and Employee Benefits		17,082		16,807		2	%
Occupancy and Equipment		3,805		3,596		6	%
Office Supplies and Printing		558		640		-13	%
Data Processing		663		479		38	%
Merger Related Expense		513		—		100	%
Consulting and Professional Fees		735		769		-4	%
Other		5,115		5,238		-2	%
Total Noninterest Expense		28,471		27,530		3	%
Income Before Income Taxes		13,577		13,789		-2	%
Provision for Income Taxes		4,179		4,298		-3	%
Net Income	$	9,398	$	9,491		-1	%
Earnings per Common Share
Basic
Net Income per Share	$	1.00	$	1.03		-3	%
Impact of Merger Related Expense		0.04		—		100	%
Adjusted Net Income per Share(1)	$	1.04	$	1.03		1	%
Diluted
Net Income per Share	$	0.99	$	1.00		-1	%
Impact of Merger Related Expense		0.04		—		100	%
Adjusted Net Income per Share(1)	$	1.03	$	1.00		3	%
Average Number of Common Shares Outstanding		9,365,000		9,217,000
Fully Diluted Average Common and Equivalent Shares Outstanding		9,493,000		9,490,000

(1) Earnings information excluding merger related expenses represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide more useful and comparative information to assess trends in the Company’s core operations reflected in the current quarter and year-to-date results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

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CONSOLIDATED BALANCE SHEETS (unaudited)

							Three						One
	December 31,			September 30,			Month			December 31,			Year
($ in thousands except per share data)	2007			2007			Change			2006			Change
Assets
Cash and Due from Banks	$	18,795		$	20,984			-10	%	$	18,984			-1	%
Interest-Bearing Deposits with Banks		257			278			-7	%		761			-66	%
Fed Funds Sold		—			4,600			-100	%		—			0	%
Total Cash and Cash Equivalents		19,052			25,862			-26	%		19,744			-4	%
Investment Securities Available for Sale		13,832			16,908			-18	%		16,790			-18	%
FHLB Stock		1,984			1,984			0	%		1,984			0	%
Loans Held for Sale		2,347			1,504			56	%		2,458			-5	%
Loans Receivable		805,862			782,095			3	%		719,580			12	%
Less: Allowance for Loan Losses		(11,126	)		(10,755	)		3	%		(10,048	)		11	%
Loans, Net		794,736			771,341			3	%		709,532			12	%
Premises and Equipment, Net		25,138			24,586			2	%		23,372			8	%
Bank Owned Life Insurance		16,517			16,363			1	%		10,930			51	%
Other Real Estate Owned		1,440			1,332			8	%		363			296	%
Other Assets		7,244			7,533			-4	%		9,370			-23	%
Total Assets	$	882,289		$	867,413			2	%	$	794,545			11	%
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-Bearing Demand	$	101,539		$	107,648			-6	%	$	96,858			5	%
NOW Accounts		140,145			140,854			-1	%		152,087			-8	%
Money Market		133,265			147,195			-9	%		101,856			31	%
Savings		41,888			44,335			-6	%		50,036			-16	%
Time Deposits		341,517			326,276			5	%		302,930			13	%
Total Deposits		758,354			766,308			-1	%		703,766			8	%
FHLB Overnight Borrowings		20,500			—			100	%		3,075			567	%
Junior Subordinated Debentures		25,774			25,774			0	%		15,007			72	%
Other Liabilities		4,091			3,608			13	%		6,304			-35	%
Total Liabilities		808,719			795,691			2	%		728,152			11	%
Shareholders’ Equity:
Common Stock (no par value)
Authorized 13,679,757 Shares:
Issued and Outstanding 9,453,767 at 12/31/07 9,396,875 at 9/30/07 and 9,388,600 at 12/31/06		32,812			32,335			1	%		33,016			-1	%
Retained Earnings		40,652			39,365			3	%		33,422			22	%
Other Comprehensive Income (Loss)		106			22			381	%		(45	)		336	%
Total Shareholders’ Equity		73,570			71,722			3	%		66,393			11	%
Total Liabilities and Shareholders’ Equity	$	882,289		$	867,413			2	%	$	794,545			11	%

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ASSET QUALITY(unaudited)

	Quarter Ended			Quarter Ended			Quarter Ended			Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,
($ in thousands, except per share data)	2007			2007			2006			2007			2006
Allowance for Loan Losses Activity:
Balance at Beginning of Period	$	10,755		$	10,526		$	9,985		$	10,048		$	8,810
Indirect Loans:
Charge-offs		(423	)		(200	)		(185	)		(1,020	)		(747	)
Recoveries		144			83			106			343			415
Indirect Net Charge-offs		(279	)		(117	)		(79	)		(677	)		(332	)
Other Loans:
Charge-offs		(288	)		(573	)		(542	)		(1,762	)		(1,640	)
Recoveries		138			119			59			517			535
Other Net charge-offs		(150	)		(454	)		(483	)		(1,245	)		(1,105	)
Total Net Charge-offs		(429	)		(571	)		(562	)		(1,922	)		(1,437	)
Provision for loan losses		800			800			625			3,000			2,675
Balance at End of Period	$	11,126		$	10,755		$	10,048		$	11,126		$	10,048
Net Charge-offs to Average Loans:
Indirect Loans Net Charge-Offs, to Avg Indirect Loans, Annualized(1)		0.99	%		0.42	%		0.31	%		0.61	%		0.34	%
Other Loans Net Charge-Offs, to Avg Other Loans, Annualized(1)		0.09	%		0.27	%		0.31	%		0.19	%		0.19	%
Net Charge-offs to Average Total Loans(1)		0.21	%		0.29	%		0.31	%		0.25	%		0.21	%

	December 31,			September 30,			December 31,
	2007			2007			2006
Nonperforming Assets
Nonperforming Loans(2)	$	2,839		$	1,324		$	3,638
Other Real Estate Owned		1,440			1,332			363
Total Nonperforming Assets	$	4,279		$	2,656		$	4,001
Nonperforming Loans to Loans(1)		0.35	%		0.17	%		0.51	%
Nonperforming Assets to Assets		0.49	%		0.31	%		0.50	%
Allowance for Loan Losses to Nonperforming Loans		395.41	%		812.27	%		276.19	%
Allowance for Loan Losses to Nonperforming Assets		262.34	%		404.91	%		251.13	%
Allowance for Loan Losses to Loans		1.38	%		1.38	%		1.40	%
Loan Composition
Commercial		102,284		$	103,004		$	82,990
Real Estate Mortgages
One-to-Four Family Residential		56,636			53,543			54,509
Commercial		296,901			276,244			249,109
Real Estate Construction
One-to-Four Family Residential		101,912			97,287			96,107
Commercial		44,735			44,464			46,329
Consumer
Indirect		114,271			117,384			104,794
Direct		86,716			87,439			83,741
Deferred Fees		2,405			2,730			2,001
Total Loans	$	805,862		$	782,095		$	719,580

(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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FINANCIAL STATISTICS (unaudited)

	Quarter Ended			Quarter Ended			Quarter Ended			Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,
($ in thousands, except per share data)	2007			2007			2006			2007			2006
Revenues(1) (2)	$	11,443		$	11,840		$	11,115		$	45,694		$	44,352
Averages
Total Assets	$	867,357		$	853,908		$	794,908		$	836,738		$	756,777
Loans and Loans Held for Sale		791,546			773,145			722,089			759,242			682,939
Interest Earning Assets		810,783			796,246			742,345			781,296			706,393
Deposits		759,676			743,842			699,090			732,107			662,933
Shareholders’ Equity	$	72,439		$	69,908		$	65,133		$	69,488		$	61,800
Financial Ratios
Return on Average Assets, Annualized		0.85	%		1.32	%		0.90	%		1.12	%		1.25	%
Return on Average Equity, Annualized		10.14	%		16.18	%		11.03	%		13.53	%		15.36	%
Average Equity to Average Assets		8.35	%		8.19	%		8.19	%		8.30	%		8.17	%
Efficiency Ratio(2)		68.61	%		57.65	%		69.25	%		62.31	%		62.07	%
Yield on Earning Assets(2)		7.92	%		8.16	%		8.02	%		8.07	%		7.86	%
Cost of Interest Bearing Liabilities		3.77	%		3.80	%		3.56	%		3.75	%		3.13	%
Net Interest Spread		4.15	%		4.36	%		4.42	%		4.32	%		4.73	%
Net Interest Margin(2)		4.71	%		4.94	%		4.99	%		4.89	%		5.25	%

	December 31,		September 30,		December 31,
	2007		2007		2006
Period End
Book Value Per Share	$	7.78	$	7.63		$	7.07

(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.

Note: Transmitted on Business Wire at 02:37 pm PST January 23, 2008.