STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS	3 Months Ended
Sep. 30, 2011
STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS
STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS	Note 14: STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS The Company operates the following stock-based compensation plans as approved by the shareholders: the 1996 Management Recognition and Development Plan (MRP), a restricted stock plan, the 1996 Stock Option Plan, the 1998 Stock Option Plan and the 2001 Stock Option Plan (collectively, SOPs). In addition, during 2006 the Board of Directors approved the Banner Corporation Long-Term Incentive Plan, an account-based benefit plan which for reporting purposes is considered a stock appreciation rights plan. MRP and Restricted Stock Grants. Under the MRP, the Company was authorized to grant up to 75,439 shares of restricted stock to its directors, officers and employees. On July 26, 2006, this plan expired with 74,666 shares having been granted and no additional shares eligible to be granted. Shares granted under the MRP vested ratably over a five-year period from the date of grant. There were no expense accruals reflected in the Consolidated Statements of Operations for the three or nine months ended September 30, 2011 for these grant awards. However, expense accruals for the three and nine months ended September 30, 2010 totaled $0 and $2,000, respectively. The fair values of the MRP stock grants were equal to their intrinsic value on the date of grant. As of September 30, 2011 there was no unrecognized compensation expense related to the MRP. In accordance with the employment agreement with Mark J. Grescovich, President and Chief Executive Officer of Banner Corporation and Banner Bank, the Company granted Mr. Grescovich 16,565 shares of restricted common stock on August 22, 2010 and a second restricted stock award of 17,692 shares on August 23, 2011. The employment agreement provided for the granting of restricted shares on the six-month and eighteen-month anniversaries of the effective date of the agreement as an inducement material to his joining the Company and Banner Bank. For each award, the shares vest in one-third annual increments over the following three years. The expense associated with these restricted stock awards was $28,000 and $69,000 during the three and nine months ended September 30, 2011, respectively. Unrecognized compensation expense for these awards as of September 30, 2011 was $403,000 and will be amortized over the next 35 months. Stock Options. Under the SOPs, Banner reserved 326,312 shares for issuance pursuant to the exercise of stock options to be granted to directors and employees. Authority to grant additional options under the 1996 Stock Option Plan terminated on July 26, 2006. Authority to grant additional options under the 1998 Stock Option Plan terminated on July 24, 2008. Authority to grant additional options under the 2001 Stock Option Plan terminated on April 20, 2011. The exercise price of the stock options is set at 100% of the fair market value of the stock price on the date of grant. Options granted vest at a rate of 20% per year from the date of grant and any unexercised incentive stock options will expire ten years after date of grant or 90 days after employment or service ends. During the quarter and nine months ended September 30, 2011 and 2010, the Company did not grant any stock options. Additionally, there were no significant modifications made to any stock option grants during the period. The fair values of stock options granted are amortized as compensation expense on a straight-line basis over the vesting period of the grant. Stock-based compensation costs related to the SOPs were $3,000 and $9,000 for the quarters ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, stock-based compensation costs related to the SOPs were $22,000 and $45,000, respectively. The SOPs’ stock option grant compensation costs are generally based on the fair value calculated from the Black-Scholes option pricing on the date of the grant award. The Black-Scholes model assumes an expected stock price volatility based on the historical volatility at the date of the grant and an expected term based on the remaining contractual life of the vesting period. The Company bases the estimate of risk-free interest rate on the U.S. Treasury Constant Maturities Indices in effect at the time of the grant. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. The Company had $11,000 of total unrecognized compensation costs related to stock options at September 30, 2011 that are expected to be recognized over the next twelve months. During the three and nine months ended September 30, 2011, there were no exercises of stock options. Cash was not used to settle any equity instruments previously granted. The Company issues shares from authorized but unissued shares upon the exercise of stock options. The Company does not currently expect to repurchase shares from any source to satisfy such obligations under the SOPs. Banner Corporation Long-Term Incentive Plan: In June 2006, the Board of Directors adopted the Banner Corporation Long-Term Incentive Plan effective July 1, 2006. The Plan is an account-based type of benefit, the value of which is directly related to changes in the value of Company stock, dividends declared on the Company stock and changes in Banner Bank’s average earnings rate, and is considered a stock appreciation right (SAR). Each SAR entitles the holder to receive cash, upon vesting, equal to the excess of the fair market value of a share of the Company’s common stock on the date of exercise over the fair market value of such share on the date granted plus for some grants the dividends declared on the stock from the date of grant to the date of vesting. On April 27, 2008, the Board of Directors amended the Plan and also authorized the repricing of certain awards to non-executive officers based upon the price of Banner common stock three business days following the public announcement of the Company’s earnings for the quarter ended March 31, 2008. The primary objective of the Plan is to create a retention incentive by allowing officers who remain with the Company or the Banks for a sufficient period of time to share in the increases in the value of Company stock. Detailed information with respect to the Plan and the amendments to the Plan were disclosed on Forms 8-K filed with SEC on July 19, 2006 and May 6, 2008. The Company re-measures the fair value of SARs each reporting period until the award is settled and compensation expense is recognized each reporting period for changes in fair value and vesting. The Company recognized a benefit to compensation expense of $28,000 and $0, respectively, for the three months ended September 30, 2011 and 2010 related to the decrease in the fair value of SARs along with additional vesting during the periods. This expense during the nine months ended September 30, 2011 and 2010 totaled $60,000 and $137,000, respectively. At September 30, 2011, the aggregate liability related to SARs was $248,000 and is included in deferred compensation.

STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS

3 Months Ended

Sep. 30, 2011

STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS

STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS

Note 14: STOCK-BASED COMPENSATION PLANS AND STOCK OPTIONS

The Company operates the following stock-based compensation plans as approved by the shareholders: the 1996 Management Recognition and Development Plan (MRP), a restricted stock plan, the 1996 Stock Option Plan, the 1998 Stock Option Plan and the 2001 Stock Option Plan (collectively, SOPs). In addition, during 2006 the Board of Directors approved the Banner Corporation Long-Term Incentive Plan, an account-based benefit plan which for reporting purposes is considered a stock appreciation rights plan.

MRP and Restricted Stock Grants. Under the MRP, the Company was authorized to grant up to 75,439 shares of restricted stock to its directors, officers and employees. On July 26, 2006, this plan expired with 74,666 shares having been granted and no additional shares eligible to be granted. Shares granted under the MRP vested ratably over a five-year period from the date of grant. There were no expense accruals reflected in the Consolidated Statements of Operations for the three or nine months ended September 30, 2011 for these grant awards. However, expense accruals for the three and nine months ended September 30, 2010 totaled $0 and $2,000, respectively. The fair values of the MRP stock grants were equal to their intrinsic value on the date of grant. As of September 30, 2011 there was no unrecognized compensation expense related to the MRP.

In accordance with the employment agreement with Mark J. Grescovich, President and Chief Executive Officer of Banner Corporation and Banner Bank, the Company granted Mr. Grescovich 16,565 shares of restricted common stock on August 22, 2010 and a second restricted stock award of 17,692 shares on August 23, 2011. The employment agreement provided for the granting of restricted shares on the six-month and eighteen-month anniversaries of the effective date of the agreement as an inducement material to his joining the Company and Banner Bank. For each award, the shares vest in one-third annual increments over the following three years. The expense associated with these restricted stock awards was $28,000 and $69,000 during the three and nine months ended September 30, 2011, respectively. Unrecognized compensation expense for these awards as of September 30, 2011 was $403,000 and will be amortized over the next 35 months.

Stock Options. Under the SOPs, Banner reserved 326,312 shares for issuance pursuant to the exercise of stock options to be granted to directors and employees. Authority to grant additional options under the 1996 Stock Option Plan terminated on July 26, 2006. Authority to grant additional options under the 1998 Stock Option Plan terminated on July 24, 2008. Authority to grant additional options under the 2001 Stock Option Plan terminated on April 20, 2011. The exercise price of the stock options is set at 100% of the fair market value of the stock price on the date of grant. Options granted vest at a rate of 20% per year from the date of grant and any unexercised incentive stock options will expire ten years after date of grant or 90 days after employment or service ends.

During the quarter and nine months ended September 30, 2011 and 2010, the Company did not grant any stock options. Additionally, there were no significant modifications made to any stock option grants during the period. The fair values of stock options granted are amortized as compensation expense on a straight-line basis over the vesting period of the grant. Stock-based compensation costs related to the SOPs were $3,000 and $9,000 for the quarters ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, stock-based compensation costs related to the SOPs were $22,000 and $45,000, respectively. The SOPs’ stock option grant compensation costs are generally based on the fair value calculated from the Black-Scholes option pricing on the date of the grant award. The Black-Scholes model assumes an expected stock price volatility based on the historical volatility at the date of the grant and an expected term based on the remaining contractual life of the vesting period. The Company bases the estimate of risk-free interest rate on the U.S. Treasury Constant Maturities Indices in effect at the time of the grant. The dividend yield is based on the current quarterly dividend in effect at the time of the grant.

The Company had $11,000 of total unrecognized compensation costs related to stock options at September 30, 2011 that are expected to be recognized over the next twelve months. During the three and nine months ended September 30, 2011, there were no exercises of stock options. Cash was not used to settle any equity instruments previously granted. The Company issues shares from authorized but unissued shares upon the exercise of stock options. The Company does not currently expect to repurchase shares from any source to satisfy such obligations under the SOPs.

Banner Corporation Long-Term Incentive Plan: In June 2006, the Board of Directors adopted the Banner Corporation Long-Term Incentive Plan effective July 1, 2006. The Plan is an account-based type of benefit, the value of which is directly related to changes in the value of Company stock, dividends declared on the Company stock and changes in Banner Bank’s average earnings rate, and is considered a stock appreciation right (SAR). Each SAR entitles the holder to receive cash, upon vesting, equal to the excess of the fair market value of a share of the Company’s common stock on the date of exercise over the fair market value of such share on the date granted plus for some grants the dividends declared on the stock from the date of grant to the date of vesting. On April 27, 2008, the Board of Directors amended the Plan and also authorized the repricing of certain awards to non-executive officers based upon the price of Banner common stock three business days following the public announcement of the Company’s earnings for the quarter ended March 31, 2008. The primary objective of the Plan is to create a retention incentive by allowing officers who remain with the Company or the Banks for a sufficient period of time to share in the increases in the value of Company stock. Detailed information with respect to the Plan and the amendments to the Plan were disclosed on Forms 8-K filed with SEC on July 19, 2006 and May 6, 2008. The Company re-measures the fair value of SARs each reporting period until the award is settled and compensation expense is recognized each reporting period for changes in fair value and vesting. The Company recognized a benefit to compensation expense of $28,000 and $0, respectively, for the three months ended September 30, 2011 and 2010 related to the decrease in the fair value of SARs along with additional vesting during the periods. This expense during the nine months ended September 30, 2011 and 2010 totaled $60,000 and $137,000, respectively. At September 30, 2011, the aggregate liability related to SARs was $248,000 and is included in deferred compensation.