8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 27, 2010

Banner Corporation

(Exact name of registrant as specified in its charter)

Washington	0-26584	91-1691604
State or other jurisdiction	Commission	(I.R.S. Employer
of incorporation	File Number	Identification No.)

10 S. First Avenue, Walla Walla, Washington	99362
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number (including area code)  (509) 527-3636

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions.

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02  Results of Operations and Financial Condition

On January 27, 2010, Banner Corporation issued its earnings release for the year ended December 31, 2009.  A copy of the earnings release is furnished herewith as Exhibit 99.1, which is incorporated herein by reference.

Item 9.01  Financial Statements and Exhibits

(d)           Exhibits

The following exhibit is being furnished herewith and this list shall constitute the exhibit index:

99.1           Press Release of Banner Corporation dated January 27, 2010.

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, hereunto duly authorized.

	BANNER CORPORATION
Date: January 27, 2010	By: /s/  D. Michael Jones
	D. Michael Jones
	President and Chief Executive Officer

EX-99.1

Exhibit 99.1

Contact: D. Michael Jones, President and CEO Lloyd W. Baker, CFO (509) 527-3636   News Release

Banner Corporation Announces Fourth Quarter Results;

Reports Net Interest Margin Expansion and Strong Core Deposit Growth

Walla Walla, WA – January 27, 2010 - Banner Corporation (NASDAQ GMS: BANR), the parent company of Banner Bank and Islanders Bank, today reported that it had a net loss of $3.5 million for the fourth quarter ended December 31, 2009, compared to a net loss of $6.4 million in the immediately preceding quarter.  The current quarter’s results include a $17.0 million provision for loan losses and a $1.4 million loss from the valuation of financial instruments carried at fair value.

“The strong performance of our retail deposit franchise during the entire year ended December 31, 2009 was particularly evident in our improved operating results for the fourth quarter, as solid core deposit growth and changes in the mix of our funding over the past twelve months resulted in a significant expansion of our net interest margin which increased by 19 basis points to 3.49% compared to the immediately preceding quarter and 25 basis points compared to the same quarter a year ago,” said D. Michael Jones, President and CEO.  “This improvement reflects continuing growth in customer relationships as a result of the determined efforts and quality service provided by our entire staff and the further maturing of the expanded branch network we worked to create over the past five years.  Despite the current difficult economic environment, we are optimistic that the strength of this deposit franchise will provide the foundation for better operating results in future periods.”

“The difficult economic environment and resulting credit costs have been a persistent challenge throughout all of 2009,” Jones continued.  “As a direct result, the provision for loan losses, while substantially less than both the preceding quarter and the same quarter a year ago, remained high in the fourth quarter, reflecting still significant, though moderating, levels of non-performing loans and net charge-offs.  Charge-offs and delinquencies continue to be concentrated in loans for the construction of single-family homes and for acquisition and development of land for residential properties.  However, we are encouraged by the further reduction in our exposure to residential construction loans during the quarter and the slowdown in the surfacing of new problem assets.  By contrast to our construction and development loan portfolio, the non-housing related segments of our loan portfolio have continued to perform with only normal levels of credit problems given the serious economic slowdown.”

In the fourth quarter, Banner paid a $1.6 million dividend on the $124 million of senior preferred stock it issued to the U.S. Treasury in the fourth quarter of 2008 in connection with its participation in the Treasury’s Capital Purchase Program.  In addition, Banner accrued $373,000 for related discount accretion.  Including the preferred stock dividend and related accretion, the net loss to common shareholders was $5.5 million, or $0.27 per diluted share, for the fourth quarter of 2009, compared to a net loss of $79.4 million or $4.72 per diluted share, for the fourth quarter a year ago.  Fourth quarter 2008 results included a $71.1 million goodwill impairment charge and a preferred dividend of $689,000.

Credit Quality

“Distressed property values, particularly for land and developed building lots, placed further stress on certain borrowers and projects during the quarter resulting in additional charge-offs and impairment reserves,” said Jones.  “As a result, our provision for loan losses for the fourth quarter, while decreased significantly from the preceding quarter, was again in excess of our normal expectations.  Although property values have declined, sales of finished homes have continued, our reserve levels are substantial, and both our impairment analysis and charge-off actions reflect current appraisals and valuation estimates as well as recent regulatory examination results.  We remain hopeful that the final resolution of many of these loans will occur at a reasonable pace and that credit costs will moderate over time.  We also are confident that we have the capital and human resources necessary to manage our problem assets in the current economic environment.”

Banner recorded a $17.0 million provision for loan losses in the fourth quarter, compared to $25.0 million in the preceding quarter and $33.0 million in the fourth quarter of 2008. The allowance for loan losses at December 31, 2009 totaled $95.3 million, representing 2.51% of total loans outstanding.  Non-performing loans totaled $ 213.9 million at December 31, 2009, compared to $243.3 million in the preceding quarter and $187.3 million at December 31, 2008.  Banner’s real estate owned and repossessed assets totaled $77.8 million at December 31, 2009, compared to $53.8 million three months earlier and $21.9 million a year ago.  Banner’s net charge-offs in the quarter totaled $16.9 million, or 0.44% of average loans outstanding.

At December 31, 2009, the geographic distribution of construction and land development loans, including residential and commercial properties, is approximately 32% in the greater Puget Sound market, 38% in the greater Portland, Oregon market, and 7% in the greater Boise, Idaho market, with the remaining 23% distributed in various eastern Washington, eastern Oregon and northern Idaho 

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markets served by Banner Bank.  One-to-four family residential construction and related lot and land loans represent 14% of the total loan portfolio and 48% of non-performing assets.  The geographic distribution of non-performing construction, land and land development loans and real estate owned included approximately $103 million, or 43%, in the greater Puget Sound market, $78 million, or 33%, in the greater Portland market and $24 million, or 10%, in the greater Boise market.

Income Statement Review

Banner’s net interest margin was 3.49% for the fourth quarter, a 19 basis point improvement compared to the preceding quarter and a 25 basis point improvement compared to the fourth quarter a year ago.  “Our improved net interest margin is driven by a continued decline in funding costs as well as our core deposit growth,” said Jones.  “While loan yields have been very stable for a number of quarters now, asset yields declined slightly primarily as a result of the growth of our on-balance-sheet liquidity which is currently invested at very low short-term interest rates.”

For the quarter ended December 31, 2009, funding costs decreased 31 basis points compared to the previous quarter and 89 basis points from the same quarter a year ago.  Deposit costs decreased by 33 basis points compared to the preceding quarter and 91 basis points compared to the fourth quarter a year earlier.  Asset yields decreased ten basis points from the prior linked quarter and 59 basis points from the fourth quarter a year ago.  Loan yields decreased by one basis point compared to the third quarter and by 35 basis points compared to the fourth quarter of 2008.  Non-accruing loans reduced the margin by approximately 37 basis points in the fourth quarter of 2009 compared to approximately 42 basis points in the preceding quarter and approximately 34 basis points in the fourth quarter of 2008.

For the fourth quarter of 2009, net interest income before the provision for loan losses was $38.3 million, compared to $36.4 million in the preceding quarter and $35.7 million in the fourth quarter a year ago.  Revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) were $45.4 million in the fourth quarter of 2009, compared to $45.2 million in the third quarter of 2009 and $42.9 million for the fourth quarter a year ago.

Banner’s results for the quarter included a net loss of $1.4 million ($0.9 million after tax), compared to a net gain of $13.7 million ($8.8 million after tax) in the fourth quarter a year ago, for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value.

Total other operating income, which includes the changes in the valuation of financial instruments noted above, was $5.6 million in the fourth quarter, compared to $13.5 million in the preceding quarter and $21.0 million for the fourth quarter a year ago.  Total other operating income from core operations* (excluding fair value adjustments) for the current quarter was $7.0 million, compared to $8.8 million in the preceding quarter and $7.2 million for the same quarter a year ago.  Income from deposit fees and other service charges decreased to $5.3 million in the fourth quarter compared to $5.7 million in the preceding quarter and was unchanged from the fourth quarter a year ago.  Income from mortgage banking operations decreased to $1.3 million in the fourth quarter compared to $2.1 million in the preceding quarter and $1.4 million for the fourth quarter a year ago.

“Our payment processing business continues to be adversely affected by the soft economy, as activity levels for deposit customers, cardholders and merchants remained lower than in previous years,” said Jones.  “Additionally, mortgage banking revenues declined compared to the preceding quarter and the fourth quarter a year ago, as seasonal factors and rising mortgage rates slowed originations.   However, for the full year mortgage banking revenues were well above the levels achieved in 2008 and we are encouraged by our market share position and improved efficiencies as we continue to address the needs of home buyers in the communities we serve.  Unfortunately, continuing high levels of refinancing activity and a soft market for mortgage servicing rights was reflected in the impairment of loan servicing revenues in the fourth quarter.  Amortization and write-off of mortgage servicing rights totaled $974,000 for the fourth quarter of 2009, compared to $415,000 in the third quarter and $193,000 in the fourth quarter a year ago.”

“We had another good quarter of managing controllable operating expenses; however, collection and legal costs, including charges related to acquired real estate, remained high,” said Jones.  “We have made significant progress in improving our core operating efficiency as compensation, occupancy and other manageable operating expenses have been reduced steadily over the past twelve months.  However, compared to a year ago FDIC insurance expense has increased substantially and offset much of the improvement in other operating expenses.  FDIC insurance charges were $2.2 million and $10.0 million, respectively, for the quarter and year ended December 31, 2009, compared to $2.3 million and $4.0 million, respectively, for the quarter and year ended December 31, 2008.  In addition, expenses associated with acquired real estate increased to $1.9 million for the quarter and $7.1 million for the year ended December 31, 2009, compared to $676,000 and $2.8 million, respectively, for the same quarter and twelve-month period a year ago.  We anticipate collection costs, acquired real estate expenses and FDIC insurance premiums will continue above historical levels for a number of future quarters.”

Total other operating expenses from core operations* (excluding the goodwill write-off in 2008), or non-interest expenses, were $34.8 million in the fourth quarter, compared to $36.6 million in the preceding quarter and $36.0 million in the fourth quarter a year ago.  

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Operating expenses from core operations as a percentage of average assets was 3.00% in the fourth quarter of 2009, compared to 3.17% in the preceding quarter and 3.06% in the fourth quarter a year ago.

*Earnings information excluding fair value adjustments and the goodwill impairment charge (alternately referred to as total other operating income from core operations, total other operating expenses from core operations, revenues from core operations, or operating expenses from core operations) 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 useful and comparative information to assess trends in the Company’s core operations reflected in the current quarter’s and year-to-date’s results.  Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

Balance Sheet Review

Net loans were $3.69 billion at December 31, 2009, compared to $3.80 billion at the end of the preceding quarter and $3.89 billion a year earlier.  Total assets were $4.72 billion at December 31, 2009, compared to $4.79 billion at the end of the preceding quarter and $4.58 billion a year ago.

“Largely as a result of substantially reducing construction and land development loans, our total loan balances declined compared to a year ago,” said Jones.  “Home sales have improved, although they are still slower than historical levels, contributing to a $182 million reduction in our portfolio of one-to-four family construction loans over the past twelve months, including a $38.3 million decrease in the most recent quarter.  As a result, at December 31, 2009 our one-to-four family construction loans totaled $239 million, a decline of $416 million from their peak quarter-end balance of $655 million at June 30, 2007.  Reflecting the economic environment, demand for business and consumer loans has been modest, further contributing to the decrease in total loans.  By contrast, mortgage loans for one- to four-family properties have shown steady growth primarily as a result of financing the purchase of newly constructed homes.”

Deposits totaled $3.87 billion at December 31, 2009, compared to $3.86 billion at the end of the preceding quarter and $3.78 billion a year ago.  Non-interest-bearing accounts increased by $36 million during the quarter to $582 million at December 31, 2009, compared to $547 million at September 30, 2009 and $509 million a year ago.  Interest-bearing accounts declined by $31 million during the fourth quarter, primarily due to a decrease in brokered deposits, to $3.28 billion at December 31, 2009 compared to $3.31 billion at September 30, 2009, but increased by $13.3 million compared to a year ago.  At December 31, 2008, interest-bearing accounts totaled $3.27 billion.

“Our retail deposit franchise had another strong quarter and we have now more than replaced all of the public funds and brokered deposits that we have chosen to run off,” said Jones.  “Over the past year, we have allowed $173 million in public funds to run off as the new higher collateralization requirements and the shared risk exposure requirements under the Washington and Oregon State requirements have made retaining those deposits less desirable than in the past.  In addition, although brokered deposits have never been an important component of our funding, we have reduced brokered deposits by $103 million over the same twelve-month period.  At the same time, our retail deposit growth has allowed us to steadily build our short-term liquidity, a key operating goal, lower our loan-to-deposits ratio towards our long-term goal of 95% and substantially lower our cost of deposits and funding.”

Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as “well-capitalized” under applicable regulatory standards.  Banner Corporation’s Tier 1 leverage capital to average assets ratio was 9.62% and its total capital to risk-weighted assets ratio was 12.73% at December 31, 2009.

Tangible stockholders’ equity at December 31, 2009 was $394.1 million, including $117.4 million attributable to preferred stock, compared to $419.6 million a year ago.  Tangible book value per common share was $12.99 at quarter-end, compared to $17.96 a year earlier.  At December 31, 2009, Banner had 21.3 million shares outstanding, while it had 16.9 million shares outstanding a year ago.  Tangible common stockholders’ equity was $276.7 million at December 31, 2009, or 5.87% of tangible assets, compared to $303.7 million, or 6.64% of tangible assets a year earlier.

On December 18, 2009 Banner announced that it had decided to terminate its previously announced common stock offering in light of current market conditions.  Banner plans to commence a new offering in 2010 after market conditions become more favorable.

Conference Call

Banner will host a conference call on Thursday, January 28, 2010, at 8:00 a.m. PST, to discuss fourth quarter 2009 results.  The conference call can be accessed live by telephone at 480-629-9818 using access code 4198992 to participate in the call.  To listen to the call online, go to the Company’s website at www.bannerbank.com.  A replay will be available for a week at (303) 590-3030, using access code 4198992.

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About the Company

Banner Corporation is a $4.7 billion bank holding company operating two commercial banks in Washington, Oregon and Idaho.  Banner serves the Pacific Northwest region with a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans.  Visit Banner Bank on the Web at www.bannerbank.com.

This press release contains statements that the Company believes are “forward-looking statements.” These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiaries by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; fluctuations in agricultural commodity prices, crop yields and weather conditions; our ability to control operating costs and expenses; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; our ability to pay dividends; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in Banner’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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RESULTS OF OPERATIONS				Quarters Ended						Year Ended
(in thousands except shares and per share data)				Dec 31, 2009		Sep 30, 2009		Dec 31, 2008		Dec 31, 2009		Dec 31, 2008
INTEREST INCOME:
	Loans receivable		$	55,013	$	56,175	$	60,674	$	223,035	$	257,211
	Mortgage-backed securities			1,265		1,422		1,359		6,057		4,639
	Securities and cash equivalents			2,030		1,976		2,934		8,278		11,308
				58,308		59,573		64,967		237,370		273,158
INTEREST EXPENSE:
	Deposits			17,663		20,818		25,868		83,211		110,314
	Federal Home Loan Bank advances			602		630		1,097		2,627		5,407
	Other borrowings			652		655		397		2,205		2,271
	Junior subordinated debentures			1,054		1,118		1,954		4,754		7,353
				19,971		23,221		29,316		92,797		125,345
	Net interest income before provision for loan losses			38,337		36,352		35,651		144,573		147,813
PROVISION FOR LOAN LOSSES				17,000		25,000		33,000		109,000		62,500
	Net interest income			21,337		11,352		2,651		35,573		85,313
OTHER OPERATING INCOME:
	Deposit fees and other service charges			5,345		5,705		5,263		21,394		21,540
	Mortgage banking operations			1,253		2,065		1,351		8,893		6,045
	Loan servicing fees			(167)		282		407		93		1,703
	Miscellaneous			592		768		205		2,292		1,185
				7,023		8,820		7,226		32,672		30,473
	Increase (Decrease) in valuation of financial instruments carried at fair value			(1,411)		4,633		13,740		11,018		9,156
	Total other operating income			5,612		13,453		20,966		43,690		39,629
OTHER OPERATING EXPENSE:
	Salary and employee benefits			16,166		17,379		18,481		68,674		76,104
	Less capitalized loan origination costs			(1,853)		(2,060)		(1,730)		(8,863)		(8,739)
	Occupancy and equipment			5,699		5,715		6,197		23,396		24,010
	Information / computer data services			1,580		1,551		1,309		6,264		6,698
	Payment and card processing services			1,610		1,778		1,781		6,396		6,993
	Professional services			2,251		1,456		1,175		6,084		4,378
	Advertising and marketing			1,701		1,899		2,009		7,639		6,676
	Deposit insurance			2,150		2,219		2,308		9,968		3,969
	State/municipal business and use taxes			524		558		545		2,154		2,257
	Real estate operations			1,920		2,799		676		7,147		2,828
	Miscellaneous			3,019		3,335		3,218		13,221		13,725
				34,767		36,629		35,969		142,080		138,899
	Goodwill write-off			- -		- -		71,121		- -		121,121
	Total other operating expense			34,767		36,629		107,090		142,080		260,020
	Income (Loss) before provision (benefit) for income taxes			(7,818)		(11,824)		(83,473)		(62,817)		(135,078)
PROVISION FOR  (BENEFIT FROM ) INCOME TAXES				(4,276)		(5,376)		(4,942)		(27,053)		(7,085)
NET INCOME (LOSS)			$	(3,542)	$	(6,448)	$	(78,531)	$	(35,764)	$	(127,993)
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION
	Preferred stock dividend			1,550		1,550		689		6,200		689
	Preferred stock discount accretion			373		373		161		1,492		161
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS			$	(5,465)	$	(8,371)	$	(79,381)	$	(43,456)	$	(128,843)
Earnings (Loss) per share available to common shareholder
		Basic	$	(0.27)	$	(0.44)	$	(4.72)	$	(2.33)	$	(7.94)
		Diluted	$	(0.27)	$	(0.44)	$	(4.72)	$	(2.33)	$	(7.94)
Cumulative dividends declared per common share			$	0.01	$	0.01	$	0.05	$	0.04	$	0.50
Weighted average common shares outstanding
		Basic		20,616,861		19,022,522		16,820,350		18,646,836		16,225,225
		Diluted		20,616,861		19,022,522		16,820,350		18,646,836		16,225,225
Common shares repurchased during the period				- -		- -		200		- -		614,103
Common shares issued in connection with exercise of stock options or DRIP				1,605,647		1,507,485		171,770		4,387,552		1,499,992

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FINANCIAL  CONDITION
(in thousands except shares and per share data)			Dec 31, 2009		Sep 30, 2009		Dec 31, 2008
ASSETS
Cash and due from banks		$	78,364	$	60,531	$	89,964
Federal funds and interest-bearing deposits			244,641		270,623		12,786
Securities - at fair value			147,151		167,944		203,902
Securities - available for sale			74,834		74,527		53,272
Securities - held to maturity			95,667		76,630		59,794
Federal Home Loan Bank stock			37,371		37,371		37,371
Loans receivable:
	Held for sale		4,497		4,781		7,413
	Held for portfolio		3,785,624		3,891,413		3,953,995
	Allowance for loan losses		(95,269)		(95,183)		(75,197)
			3,694,852		3,801,011		3,886,211
Accrued interest receivable			18,998		20,912		21,219
Real estate owned held for sale, net			77,743		53,576		21,782
Property and equipment, net			103,542		104,469		97,647
Goodwill and other intangibles, net			11,070		11,718		13,716
Bank-owned life insurance			54,596		54,037		52,680
Other assets			83,392		54,659		34,024
		$	4,722,221	$	4,788,008	$	4,584,368
LIABILITIES
Deposits:
	Non-interest-bearing	$	582,480	$	546,956	$	509,105
	Interest-bearing transaction and savings accounts		1,341,145		1,305,546		1,137,878
	Interest-bearing certificates		1,941,925		2,008,673		2,131,867
			3,865,550		3,861,175		3,778,850
Advances from Federal Home Loan Bank at fair value			189,779		255,806		111,415
Customer repurchase agreements and other borrowings			176,842		174,770		145,230
Junior subordinated debentures at fair value			47,694		47,859		61,776
Accrued expenses and other liabilities			24,020		28,715		40,600
Deferred compensation			13,208		12,960		13,149
			4,317,093		4,381,285		4,151,020
STOCKHOLDERS' EQUITY
Preferred stock - Series A			117,407		117,034		115,915
Common stock			331,538		327,385		316,740
Retained earnings (accumulated deficit)			(42,077)		(36,402)		2,150
Other components of stockholders' equity			(1,740)		(1,294)		(1,457)
			405,128		406,723		433,348
		$	4,722,221	$	4,788,008	$	4,584,368
Common Shares Issued:
Shares outstanding at end of period			21,539,590		19,933,943		17,152,038
	Less unearned ESOP shares at end of period		240,381		240,381		240,381
Shares outstanding at end of period excluding unearned ESOP shares			21,299,209		19,693,562		16,911,657
Common stockholders' equity per share (1)		$	13.51	$	14.71	$	18.77
Common stockholders' tangible equity per share (1) (2)		$	12.99	$	14.11	$	17.96
Tangible common stockholders' equity to tangible assets			5.87%		5.82%		6.64%
Consolidated Tier 1 leverage capital ratio			9.62%		9.66%		10.32%
(1)	- Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares
	outstanding and excludes unallocated shares in the ESOP.
(2)	- Tangible common equity excludes preferred stock, goodwill, core deposit and other intangibles.

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ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
				Dec 31, 2009		Sep 30, 2009		Dec 31, 2008
LOANS (including loans held for sale):
Commercial real estate
	Owner occupied		$	509,464	$	481,698	$	459,446
	Investment properties			573,495		585,206		554,263
Multifamily real estate				153,497		152,832		151,274
Commercial construction				80,236		83,937		104,495
Multifamily construction				57,422		62,614		33,661
One- to four-family construction				239,135		277,419		420,673
Land and land development
	Residential			284,331		322,030		401,129
	Commercial			43,743		47,182		62,128
Commercial business				637,823		678,187		679,867
Agricultural business including secured by farmland				205,307		225,603		204,142
One- to four-family real estate				703,277		676,928		599,169
Consumer				302,391		302,558		291,161
		Total loans outstanding	$	3,790,121	$	3,896,194	$	3,961,408
Restructured loans performing under their restructured terms			$	43,683	$	39,173	$	23,635
Loans 30 - 89 days past due and on accrual			$	34,156	$	21,243	$	61,124
Total delinquent loans (including loans on non-accrual)			$	248,006	$	264,531	$	248,469
Total delinquent loans  /  Total loans outstanding				6.54%		6.79%		6.27%
GEOGRAPHIC CONCENTRATION OF LOANS AT
		December 31, 2009		Washington		Oregon		Idaho		Other		Total
Commercial real estate
	Owner occupied		$	401,392	$	61,821	$	46,251	$	- -	$	509,464
	Investment properties			413,570		105,956		43,684		10,285		573,495
Multifamily real estate				127,748		13,672		8,776		3,301		153,497
Commercial construction				57,493		13,625		9,118		- -		80,236
Multifamily construction				29,956		27,466		- -		- -		57,422
One- to four-family construction				107,067		120,395		11,673		- -		239,135
Land and land development
	Residential			140,539		112,945		30,847		- -		284,331
	Commercial			29,130		12,122		2,491		- -		43,743
Commercial business				451,531		92,289		70,803		23,200		637,823
Agricultural business including secured by farmland				94,452		50,419		60,436		- -		205,307
One- to four-family real estate				485,185		185,573		30,064		2,455		703,277
Consumer				216,315		65,564		20,011		501		302,391
		Total loans outstanding	$	2,554,378	$	861,847	$	334,154	$	39,742	$	3,790,121
		Percent of total loans		67.4%		22.7%		8.8%		1.1%		100.0%
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
		December 31, 2009		Washington		Oregon		Idaho		Other		Total
Residential
	Acquisition & development		$	56,540	$	74,496	$	8,946	$	- -	$	139,982
	Improved lots			48,102		31,461		2,013		- -		81,576
	Unimproved land			35,897		6,988		19,888		- -		62,773
		Total residential land and development	$	140,539	$	112,945	$	30,847	$	- -	$	284,331
Commercial & industrial
	Acquisition & development		$	8,531	$	- -	$	552	$	- -	$	9,083
	Improved land			9,072		10,643		- -		- -		19,715
	Unimproved land			11,527		1,479		1,939		- -		14,945
		Total commercial land and development	$	29,130	$	12,122	$	2,491	$	- -	$	43,743

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BANR-Fourth Quarter 2009 Results

January 27, 2010

Page 8

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
					Quarters Ended					Year Ended
CHANGE IN THE				Dec 31, 2009		Sep 30, 2009		Dec 31, 2008		Dec 31, 2009		Dec 31, 2008
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period			$	95,183	$	90,694	$	58,846	$	75,197	$	45,827
Provision				17,000		25,000		33,000		109,000		62,500
Recoveries of loans previously charged off:
		Commercial real estate		- -		- -		- -		- -		1,530
		Multifamily real estate		- -		- -		- -		- -		- -
		Construction and land		98		299		144		715		192
		One- to four-family real estate		26		21		1		138		45
		Commercial business		106		120		81		545		471
		Agricultural business, including secured by farmland		10		6		430		38		1,048
		Consumer		60		152		59		275		185
				300		598		715		1,711		3,471
Loans charged-off:
		Commercial real estate		(1)		- -		- -		(1)		(7)
		Multifamily real estate		- -		- -		- -		- -		- -
		Construction and land		(12,245)		(16,614)		(13,404)		(64,456)		(27,020)
		One- to four-family real estate		(1,557)		(856)		(523)		(8,795)		(934)
		Commercial business		(2,249)		(3,060)		(2,884)		(11,541)		(7,323)
		Agricultural business, including secured by farmland		(692)		- -		- -		(3,877)		(60)
		Consumer		(470)		(579)		(553)		(1,969)		(1,257)
				(17,214)		(21,109)		(17,364)		(90,639)		(36,601)
		Net charge-offs		(16,914)		(20,511)		(16,649)		(88,928)		(33,130)
Balance, end of period			$	95,269	$	95,183	$	75,197	$	95,269	$	75,197
Net charge-offs / Average loans outstanding				0.44%		0.53%		0.42%		2.28%		0.84%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES				Dec 31, 2009		Sep 30, 2009		Dec 31, 2008
Specific or allocated loss allowance
	Commercial real estate		$	7,631	$	7,580	$	4,199
	Multifamily real estate			90		89		87
	Construction and land			43,746		49,829		38,253
	One- to four-family real estate			3,026		2,304		752
	Commercial business			21,754		20,906		16,533
	Agricultural business, including secured by farmland			918		1,540		530
	Consumer			1,778		1,758		1,730
		Total allocated		78,943		84,006		62,084
	Estimated allowance for undisbursed commitments			1,591		2,202		1,108
	Unallocated			14,735		8,975		12,005
		Total allowance for loan losses	$	95,269	$	95,183	$	75,197
Allowance for loan losses  /  Total loans outstanding				2.51%		2.44%		1.90%

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BANR-Fourth Quarter 2009 Results

January 27, 2010

Page 9

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
					Dec 31, 2009		Sep 30, 2009		Dec 31, 2008
NON-PERFORMING ASSETS
Loans on non-accrual status
	Secured by real estate:
			Commercial	$	7,300	$	8,073	$	12,879
			Multifamily		383		- -		- -
			Construction and land		159,264		193,281		154,823
			One- to four-family		14,614		18,107		8,649
	Commercial business				21,640		15,070		8,617
	Agricultural business, including secured by farmland				6,277		5,868		1,880
	Consumer				3,923		- -		130
					213,401		240,399		186,978
Loans more than 90 days delinquent, still on accrual
	Secured by real estate:
			Commercial		- -		- -		- -
			Multifamily		- -		- -		- -
			Construction and land		- -		2,090		- -
			One- to four-family		358		690		124
	Commercial business				- -		- -		- -
	Agricultural business, including secured by farmland				- -		- -		- -
	Consumer				91		109		243
					449		2,889		367
Total non-performing loans					213,850		243,288		187,345
Securities on non-accrual					4,232		1,236		- -
Real estate owned (REO) / Repossessed assets					77,802		53,765		21,886
			Total non-performing assets	$	295,884	$	298,289	$	209,231
Total non-performing assets  /  Total assets					6.27%		6.23%		4.56%
DETAIL & GEOGRAPHIC CONCENTRATION OF
	NON-PERFORMING ASSETS AT
			December 31, 2009		Washington		Oregon		Idaho		Other		Total
Secured by real estate:
	Commercial			$	6,095	$	716	$	489	$	- -	$	7,300
	Multifamily				383		- -		- -		- -		383
	Construction and land
		One- to four-family construction			21,819		24,760		6,810		- -		53,389
		Commercial construction			1,561		- -		- -		- -		1,561
		Residential land acquisition & development			16,775		25,920		3,987		- -		46,682
		Residential land improved lots			10,743		8,287		588		- -		19,618
		Residential land unimproved			22,414		241		321		- -		22,976
		Commercial land acquisition & development			- -		- -		- -		- -		- -
		Commercial land improved			- -		10,656		- -		- -		10,656
		Commercial land unimproved			4,382		- -		- -		- -		4,382
			Total construction and land		77,694		69,864		11,706		- -		159,264
	One- to four-family				8,666		5,548		758		- -		14,972
Commercial business					14,825		633		1,195		4,987		21,640
Agricultural business, including secured by farmland					365		214		5,698		- -		6,277
Consumer					3,029		372		183		430		4,014
Total non-performing loans					111,057		77,347		20,029		5,417		213,850
Securities on non-accrual					3,000		- -		- -		1,232		4,232
Real estate owned (REO) and repossessed assets					44,330		17,909		15,563		- -		77,802
			Total  non-performing assets at end of the period	$	158,387	$	95,256	$	35,592	$	6,649	$	295,884

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BANR-Fourth Quarter 2009 Results

January 27, 2010

Page 10

ADDITIONAL FINANCIAL INFORMATION (dollars in thousands)
DEPOSITS & OTHER BORROWINGS
				Dec 31, 2009		Sep 30, 2009		Dec 31, 2008
	BREAKDOWN OF DEPOSITS
	Non-interest-bearing		$	582,480	$	546,956	$	509,105
	Interest-bearing checking			360,256		329,820		378,952
	Regular savings accounts			538,765		521,663		474,885
	Money market accounts			442,124		454,063		284,041
		Interest-bearing transaction & savings accounts		1,341,145		1,305,546		1,137,878
	Interest-bearing certificates			1,941,925		2,008,673		2,131,867
		Total deposits	$	3,865,550	$	3,861,175	$	3,778,850
	INCLUDED IN TOTAL DEPOSITS
	Public transaction accounts		$	78,202	$	44,645	$	117,402
	Public interest-bearing certificates			88,186		98,906		221,915
		Total public deposits	$	166,388	$	143,551	$	339,317
	Total brokered deposits		$	165,016	$	186,087	$	268,458
	INCLUDED IN OTHER BORROWINGS
	Customer repurchase agreements / "Sweep accounts"		$	124,330	$	124,795	$	145,230
	GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
		December 31, 2009		Washington		Oregon		Idaho		Total
			$	2,979,985	$	611,180	$	274,385	$	3,865,550
								Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT				Actual				or "Well Capitalized"
		December 31, 2009		Amount		Ratio		Amount		Ratio
Banner Corporation-consolidated
		Total capital to risk-weighted assets	$	489,827		12.73%	$	334,879		8.00%
		Tier 1 capital to risk-weighted assets		441,160		11.47%		167,440		4.00%
		Tier 1 leverage capital to average assets		441,160		9.62%		183,421		4.00%
Banner Bank
		Total capital to risk-weighted assets		474,831		12.95%		400,522		10.00%
		Tier 1 capital to risk-weighted assets		428,420		11.69%		240,313		6.00%
		Tier 1 leverage capital to average assets		428,420		9.74%		219,431		5.00%
Islanders Bank
		Total capital to risk-weighted assets		26,728		13.17%		20,301		10.00%
		Tier 1 capital to risk-weighted assets		24,732		12.18%		12,180		6.00%
		Tier 1 leverage capital to average assets		24,732		11.58%		10,679		5.00%

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BANR-Fourth Quarter 2009 Results

January 27, 2010

Page 11

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
			Quarters Ended						Year Ended
OPERATING PERFORMANCE			Dec 31, 2009		Sep 30, 2009		Dec 31, 2008		Dec 31, 2009		Dec 31, 2008
Average loans		$	3,829,717	$	3,905,763	$	3,988,531	$	3,900,569	$	3,935,039
Average securities and deposits			528,754		461,360		391,560		447,386		345,827
Average non-interest-earning assets			235,007		219,780		296,927		212,126		325,235
	Total average assets	$	4,593,478	$	4,586,903	$	4,677,018	$	4,560,081	$	4,606,101
Average deposits		$	3,836,327	$	3,821,065	$	3,750,383	$	3,758,156	$	3,722,012
Average borrowings			378,376		377,976		456,383		400,596		425,713
Average non-interest-bearing liabilities			(32,296)		(25,527)		25,459		(21,122)		30,335
	Total average liabilities		4,182,407		4,173,514		4,232,225		4,137,630		4,178,060
Total average stockholders' equity			411,071		413,389		444,793		422,451		428,041
			`
	Total average liabilities and equity	$	4,593,478	$	4,586,903	$	4,677,018	$	4,560,081	$	4,606,101
Interest rate yield on loans			5.70%		5.71%		6.05%		5.72%		6.54%
Interest rate yield on securities and deposits			2.47%		2.92%		4.36%		3.20%		4.61%
	Interest rate yield on interest-earning assets		5.31%		5.41%		5.90%		5.46%		6.38%
Interest rate expense on deposits			1.83%		2.16%		2.74%		2.21%		2.96%
Interest rate expense on borrowings			2.42%		2.52%		3.01%		2.39%		3.53%
	Interest rate expense on interest-bearing liabilities		1.88%		2.19%		2.77%		2.23%		3.02%
Interest rate spread			3.43%		3.22%		3.13%		3.23%		3.36%
Net interest margin			3.49%		3.30%		3.24%		3.33%		3.45%
Other operating income / Average assets			0.48%		1.16%		1.78%		0.96%		0.86%
Other operating income (loss) EXCLUDING change in valuation of
	financial instruments carried at fair value / Average assets (1)		0.61%		0.76%		0.61%		0.72%		0.66%
Other operating expense / Average assets			3.00%		3.17%		9.11%		3.12%		5.65%
Other operating expense EXCLUDING goodwill write-off / Average assets (1)			3.00%		3.17%		3.06%		3.12%		3.02%
Efficiency ratio (other operating expense / revenue)			79.11%		73.54%		189.15%		75.47%		138.72%
Return (Loss) on average assets			(0.31%)		(0.56%)		(6.68%)		(0.78%)		(2.78%)
Return (Loss) on average equity			(3.42%)		(6.19%)		(70.24%)		(8.47%)		(29.90%)
Return (Loss) on average tangible equity (2)			(3.52%)		(6.37%)		(86.69%)		(8.72%)		(40.34%)
Average equity  /  Average assets			8.95%		9.01%		9.51%		9.26%		9.29%
(1)	- Earnings information excluding the fair value adjustments and goodwill impairment charge (alternately referred to as operating
	income (loss) from core operations and expenses from core operations) represent non-GAAP (Generally Accepted
	Accounting Principles) financial measures.
(2)	- Average tangible equity excludes goodwill, core deposit and other intangibles.