Banner Corporation Reports Net Income of $14.7 Million, or $0.69 Per Diluted Share, in Fourth Quarter; Net Income Highlighted by

Banner Corporation Reports Net Income of $14.7 Million, or $0.69 Per Diluted
Share, in Fourth Quarter; Net Income Highlighted by Record Revenue Generation
and Further Improved Credit Quality

WALLA WALLA, Wash., Jan. 23, 2013 (GLOBE NEWSWIRE) -- Banner Corporation
(Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today
reported net income of $14.7 million in the fourth quarter of 2012, compared
to $15.6 million in the preceding quarter and $5.1 million in the fourth
quarter a year ago. For the full year ended December 31, 2012, Banner reported
net income of $64.9 million, compared to $5.5 million in 2011.

"Banner's 2012 performance proves that our super community bank strategy is
working. Our continued improvement in asset quality, record revenues from core
operations, significant customer account growth and strong mortgage banking
results clearly demonstrate that our strategic plan and initiatives are
effective," said Mark J. Grescovich, President and Chief Executive Officer.
"Similar to the third quarter, Banner's fourth quarter and full year 2012
revenues from core operations* (net interest income before the provision for
loan losses plus total other operating income excluding fair value and
other-than-temporary impairment (OTTI) adjustments) increased 8% when compared
to the same periods a year ago. However, while this marks the thirteenth
consecutive quarter that we have realized a year-over-year increase in
revenues from core operations*, the current headwinds associated with the
prolonged very low interest rate environment and the sluggish economy will
make revenue growth challenging going forward. Nonetheless, our strong balance
sheet and improved operations have positioned us well to meet this difficult
environment."

"An additional highlight of 2012 was the redemption of our senior preferred
shares," Grescovich continued. "We believe this redemption was a further
indication of Banner's continued operating improvement, financial strength and
appropriate capital management. We are pleased with the work we have done to
strengthen our asset quality metrics, operating results and profitability
trends so that we were well positioned from a financial perspective to redeem
these preferred shares."

In the fourth quarter, Banner repurchased 43,375 shares of its senior
preferred stock in private transactions at an average price of $991 per share
and on December 24, 2012 redeemed the remaining 30,041 shares at a liquidation
value of $1,000 per share. As a result, Banner realized gains of $401,000 on
the repurchases, which partially offset acceleratedaccretion of the remaining
portion of the initial discount recognized when the preferred shares were
issued. In addition, the accrual for the quarterly dividend was reduced by the
retirement of the repurchased shares. Including the preferred stock dividend,
related accretion and gains on repurchases, net income available to common
shareholders was $0.69 per diluted share for the fourth quarter of 2012,
compared to $0.79 per diluted share in the third quarter of 2012 and $0.18 per
diluted share in the fourth quarter a year ago. For the year ended December
31, 2012, net income available to common shareholders was $3.16 per diluted
share compared to a net loss of $0.15 per diluted share in 2011.

Fourth Quarter 2012 Highlights (compared to fourth quarter 2011 except as
noted)

  *Net income was $14.7 million, compared to $5.1 million in the fourth
    quarter a year ago.
  *Revenues from core operations* increased 8% to $54.5 million.
  *Net interest margin was 4.09%, compared to 4.22% in the preceding quarter
    and 4.07% in the fourth quarter a year ago.
  *Deposit fees and other service charges increased 9%.
  *Revenues from mortgage banking increased 136%.
  *Non-performing assets decreased to $50.2 million, or 1.18% of total
    assets, at December 31, 2012, a 15% decrease compared to three months
    earlier and a 58% decrease compared to a year earlier.
  *Non-performing loans decreased to $34.4 million at December 31, 2012, an
    11% decrease compared to three months earlier and a 54% decrease compared
    to a year earlier.
  *The ratio of tangible common equity to tangible assets increased to 11.80%
    at December 31, 2012.*
  *Banner retired the remaining shares of its senior preferred stock.

*Earnings information excluding fair value and other-than-temporary impairment
(OTTI) adjustments (alternately referred to as other operating income from
core operations or revenues from core operations) and the ratio of tangible
common equity (which excludes other intangible assets and preferred stock) to
tangible assets 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 Banner's core operations reflected
in the current quarter's results and facilitate the comparison of our
performance with the performance of our peers. Where applicable, comparable
earnings information using GAAP financial measures is also presented.

Income Statement Review

"The net interest margin expansion compared to a year ago, for both the
quarter and full year, reflects important reductions in deposit and other
funding costs, as well as a significant reduction in the adverse effect of
non-performing assets," said Grescovich. "However, the continuing impact of
exceptionally low market interest rates is clearly evident in declining asset
yields and the contraction of our net interest margin compared to the
immediately preceding quarter." Banner's net interest margin was 4.09% in the
fourth quarter of 2012, compared to 4.22% in the preceding quarter and 4.07%
in the fourth quarter a year ago. The margin in the third quarter benefited by
nine basis points from the collection of previously unrecognized interest on
certain nonaccrual loans, while collections on those loans added just three
basis points to the margin in the current quarter. For all of 2012, the net
interest margin was 4.17% compared to 4.05% in 2011.

Deposit costs decreased by six basis points in the fourth quarter compared to
the preceding quarter and 24 basis points compared to the fourth quarter a
year ago. Total funding costs for the fourth quarter of 2012 decreased five
basis points compared to the preceding quarter and 29 basis points from the
fourth quarter a year ago. Asset yields decreased 17 basis points compared to
the preceding quarter and decreased 25 basis points from the fourth quarter a
year ago. Loan yields decreased by 19 basis points compared to the preceding
quarter and decreased 27 basis points from the fourth quarter a year ago.
Nonaccrual loans reduced the margin by approximately six basis points in the
fourth quarter of 2012 compared to approximately five basis points in the
preceding quarter and approximately 14 basis points in the fourth quarter of
2011.

Fourth quarter net interest income, before the provision for loan losses, was
$41.5 million, compared to $42.7 million in the preceding quarter and $41.6
million in the fourth quarter a year ago. For the full year of 2012, net
interest income, before the provision for loan losses, was $167.6 million
compared to $164.6 million in 2011.

"In addition to solid net interest income and deposit fees, our revenues from
core operations* continued to benefit from another quarter of very strong
mortgage banking results," said Grescovich. Significant homeowner refinance
activity contributed to revenues from mortgage banking activities, which
increased 33% to $4.4 million in the fourth quarter of 2012, compared to $3.3
million in the immediately preceding quarter and increased 136% from the $1.9
million in the fourth quarter a year ago. For the year ended December 31,
2012, revenues from mortgage banking increased to $12.9 million compared to
$5.1 million for all of 2011. Deposit fees and other service charges were $6.4
million in the fourth quarter of 2012, compared to $6.7 million in the
preceding quarter and a 9% increase compared to $5.9 million in the fourth
quarter a year ago. Deposit fees and other service charges increased to $25.3
million for the year ended December 31, 2012, a 10% increase compared to the
full year 2011. Miscellaneous revenues increased compared to prior periods
primarily reflecting increased gains from the sale of SBA guaranteed loans,
which totaled $558,000 and $876,000 for the quarter and year ended December
31, 2012, respectively, as well as the recognition in the current quarter of a
$549,000 death benefit on a bank-owned life insurance policy. Loan servicing
fees were reduced in the fourth quarter of 2012 as a result of a $400,000
impairment charge reflecting accelerated loan prepayments. Revenues from core
operations* were $54.5 million in the fourth quarter compared to $54.3 million
in the third quarter of 2012 and $50.5 million in the fourth quarter a year
ago. For the year, revenues from core operations* increased 8% to $211.4
million compared to $196.2 million a year ago.

During the second quarter of 2012, Banner reversed most of its deferred tax
asset valuation allowance, reflecting Banner's return to profitability and its
expectation of sustainable profitability in future periods. This expectation
also led to the significant adjustment of the fair value estimate for the
junior subordinated debentures issued by the Company. The substantial changes
to both of these significant accounting estimates were directly linked to
Banner's improved performance and profitability. In the third and fourth
quarters of 2012, Banner reversed the remaining balance of the deferred tax
valuation allowance, which substantially reduced the provision for income tax
expense for both quarters. For the year ended December 31, 2012, the
elimination of the deferred tax asset valuation allowance, combined with the
Company's pre-tax income, resulted in a net tax benefit of $24.8 million.By
contrast, as a result of the previous valuation allowance, Banner's results
for the quarter and year ended December 31, 2011 did not reflect any tax
expense or benefit.

Banner's fourth quarter 2012 results included a $386,000 net gain for fair
value adjustments as a result of changes in the valuation of financial
instruments carried at fair value.In the preceding quarter, Banner recorded a
net gain of $473,000 for fair value adjustments, which was largely offset by
$409,000 of OTTI charges related to certain equity securities issued by
government sponsored entities.For the quarter ended December 31, 2011, the
Company recorded a net loss of $1.8 million for fair value adjustments.

Banner's full year 2012 results included a net charge of $16.5 million for
fair value adjustments compared to a net charge of $624,000 in 2011.The net
charge in the current year primarily reflects a change of $23.1 million in the
estimated fair value of the junior subordinated debentures, which was
partially offset by changes in the estimated value of other financial
instruments carried at fair value.For 2012, OTTI charges were $409,000
compared to a recovery of $3.0 million for 2011.

Total other operating income, which includes the changes in the valuation of
financial instruments, increased to $13.3 million in the fourth quarter of
2012 compared to $11.7 million in the third quarter of 2012 and $7.2 million
in the fourth quarter a year ago.For all of 2012, total other operating
income was $26.9 million compared to $34.0 million in 2011.Other operating
income from core operations* (total other operating income, excluding fair
value and OTTI adjustments) for the fourth quarter of 2012 was $12.9 million,
compared to $11.6 million for the preceding quarter and $8.9 million for the
fourth quarter a year ago, reflecting strong mortgage banking
revenues.Reflecting increased deposit fees and service charges as well as the
strong mortgage banking revenues and increased gains on SBA loan sales, for
the year ended December 31, 2012, other operating income from core operations*
was $43.8 million compared to $31.6 million for the year ended December 31,
2011.

Total other operating expenses (non-interest expenses) were $34.5 million in
the fourth quarter of 2012, compared to $33.4 million in the preceding quarter
and $38.7 million in the fourth quarter of 2011."Operating expenses declined
in the fourth quarter compared to the fourth quarter a year ago, largely due
to lower costs associated with loan collections and the real estate owned
portfolio, as well as decreased FDIC deposit insurance expense," said
Grescovich."The increase in operating expenses compared to the preceding
quarter was largely a result of realizing significantly more in net gains on
the sale of real estate owned in the third quarter of 2012 than in the current
quarter."

For the year 2012, total other operating expenses declined 11% to $141.5
million compared to $158.1 million in 2011.The decrease was largely a result
of decreased costs related to real estate owned, professional services, and
deposit insurance, which more than offset increases in compensation and other
expenses.

Credit Quality

"Credit costs continue to decline and were significantly below those of a year
ago," said Grescovich."Our bankers and loan work-out teams have done an
outstanding job of enhancing our portfolio management processes and reducing
non-performing assets from over $339 million three years ago to just above $50
million at the end of 2012.All of our key credit quality metrics have
improved, including further improvement in the most recent quarter, while our
reserve levels have remained substantial."

Banner recorded a $1.0 million provision for loan losses in the fourth quarter
of 2012, compared to a $3.0 million provision in the preceding quarter and a
$5.0 million provision in the fourth quarter a year ago.The allowance for
loan losses at December 31, 2012 was $77.5 million, representing 2.39% of
total loans outstanding and 225% of non-performing loans.Non-performing loans
decreased 11% to $34.4 million at December 31, 2012, compared to $38.7 million
three months earlier, and decreased 54% when compared to $75.3 million a year
earlier.

Real estate owned and repossessed assets decreased 22% to $15.9 million at
December 31, 2012, compared to $20.4 million three months earlier, and
decreased 63% when compared to $43.0 million a year ago.Net charge-offs in
the fourth quarter of 2012 totaled $2.3 million, or 0.07% of average loans
outstanding, compared to $4.4 million, or 0.14% of average loans outstanding
in the third quarter of 2012 and $8.2 million, or 0.25% of average loans
outstanding in the fourth quarter a year ago. 

At December 31, 2012, Banner's non-performing assets were 1.18% of total
assets, compared to 1.38% at September 30, 2012 and 2.79% a year
ago.Non-performing assets decreased 15% to $50.2 million at December 31,
2012, compared to $59.1 million three months earlier, and decreased 58% when
compared to $118.9 million a year ago.

Balance Sheet Review

"Total loans outstanding increased during the quarter," said
Grescovich."However, net loan originations were modest and credit line
utilizations remained low, as the weak economy continues to temper loan demand
by both businesses and consumers.We expect a continued challenging
environment going forward as businesses and consumers maintain a cautious
approach to spending and borrowing."

Net loans were $3.16 billion at September 30, 2012, compared to $3.13 billion
three months earlier and $3.21 billion a year ago.Commercial and agricultural
business loans increased 3% to $848.1 million at December 31, 2012 compared to
$822.7 million three months earlier and $819.6 million a year ago.Commercial
real estate and multifamily real estate loans were $1.21 billion at December
31, 2012 compared to $1.22 billion at September 30, 2012 and $1.23 billion at
December 31, 2011.

The aggregate total of securities and interest-bearing deposits declined to
$745.5 million at December 31, 2012 compared to $764.4 million at September
30, 2012, but increased from $691.7 million at December 31, 2011.The change
in the mix of interest-bearing deposits and securities holdings compared to a
year ago reflects a modest extension of the expected duration of this
aggregate position designed to increase the yield relative to interest-bearing
deposits.The securities purchased in recent periods were primarily short- to
intermediate-term U.S. Government Agency notes and mortgage-backed securities
and, to a lesser extent, intermediate-term tax-exempt municipal
securities.The average duration of Banner's securities portfolio at December
31, 2012 was 4.6 years.

Total deposits increased 2% to $3.56 billion at December 31, 2012, compared to
$3.49 billion three months earlier and $3.48 billion a year
ago.Non-interest-bearing account balances increased 7% to $981.2 million at
December31,2012, compared to $919.0 million at September 30, 2012, and
increased 26% compared to $777.6 million a year ago.Interest-bearing
transaction and savings accounts totaled $1.55 billion at December 31, 2012,
compared to $1.48 billion at September 30, 2012 and $1.45 billion a year ago.

"The continued growth in core deposits and improvement in our deposit mix have
been rewarding and reflect a value proposition that is clearly resonating with
our client base," said Grescovich."Our super community bank strategy that
involves lowering our funding costs by reducing our reliance on high-priced
certificates of deposit, growing new client relationships, and improving our
core funding position is consistently producing results and enhancing our
deposit franchise."Banner's cost of deposits declined six basis points to
0.35% for the quarter ended December 31, 2012 compared to 0.41% for the
quarter ended September 30, 2012, and declined 24 basis points from 0.59% for
the quarter ended December 31, 2011.

Total assets were $4.27 billion at December 31, 2012, nearly unchanged from
September 30, 2012 and a slight increase from $4.26 billion a year ago. At
December 31, 2012, total common stockholders' equity was $506.9 million, or
$26.10 per share.Banner had 19.5 million shares of common stock outstanding
at year end, compared to 17.6 million shares of common stock outstanding a
year ago, primarily as a result of stock issuances through Banner's Dividend
Reinvestment and Direct Stock Purchase and Sale Plan.At December 31, 2012,
tangible common stockholders' equity, which excludes other intangible assets
and preferred stock, was $502.7 million, or 11.80% of tangible assets,
compared to $489.1 million, or 11.47% of tangible assets, at September 30,
2012 and $405.4 million, or 9.54% of tangible assets, a year ago.Banner's
tangible book value per share increased to $25.88 at December 31, 2012,
compared to $23.14 per share a year ago.

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 12.74% and its total
capital to risk-weighted assets ratio was 16.96% at December 31, 2012.

Conference Call

Banner will host a conference call on Thursday, January 24, 2013, at 8:00 a.m.
PST, to discuss its fourth quarter results.The conference call can be
accessed live by telephone at (480) 629-9835 to participate in the call.To
listen to the call on-line, go to the Company's website at
www.bannerbank.com.A replay will be available for one week at (303) 590-3030,
using access code 4583551.

About the Company

Banner Corporation is a $4.27 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" within the meaning of the Private Securities
Litigation Reform Act of 1995.These statements relate to the Company's
financial condition, liquidity, 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 from the results anticipated orimplied by our forward-looking
statements 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 and changes in our allowance for loan losses and provision for loan
losses that may be impacted by deterioration in the housing and commercial
real estate markets and may lead to increased losses and non-performing assets
and may result in our allowance for loan losses not being adequate to cover
actual losses and require us to materially increase our reserves; changes in
general economic conditions, either nationally or in our market areas; changes
in the levels of general interest rates and the relative differences between
short and long-term interest rates, loan and deposit interest rates, our net
interest margin and funding sources; fluctuations in the demand for loans, the
number of unsold homes, land and other properties and fluctuations in real
estate values in our market areas; secondary market conditions for loans and
our ability to sell loans in the secondary market; results of examinations of
us by the Board of Governors of the Federal Reserve System and of our bank
subsidiaries by the Federal Deposit Insurance Corporation, the Washington
State Department of Financial Institutions or other regulatory authorities,
including the possibility that any such regulatory authority may, among other
things, institute a formal or informal enforcement action against us or any of
the Banks which could require us to increase our reserve for loan losses,
write-down assets, change our regulatory capital position or affect our
ability to borrow funds or maintain or increase deposits, or impose additional
requirements and restrictions on us, any of which could adversely affect our
liquidity and earnings; legislative or regulatory changes that adversely
affect our business including changes in regulatory policies and principles,
or the interpretation of regulatory capital or other rules including changes
related to Basel III; the impact of the Dodd-Frank Wall Street Reform and
Consumer Protection Act and the implementing regulations; our ability to
attract and retain deposits; increases in premiums for deposit insurance; our
ability to control operating costs and expenses; the use of estimates in
determining fair value of certain of our assets and liabilities, which
estimates may prove to be incorrect and result in significant changes in
valuations; staffing fluctuations in response to product demand or the
implementation of corporate strategies that affect our workforce and potential
associated charges; the failure or security breach of computer systems on
which we depend; our ability to retain key members of our senior management
team; costs and effects of litigation, including settlements and judgments;
our ability to implement our business strategies; our ability to successfully
integrate any assets, liabilities, customers, systems, and management
personnel we may 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; increased competitive pressures among financial services companies;
changes in consumer spending, borrowing and savings habits; the availability
of resources to address changes in laws, rules, or regulations or to respond
to regulatory actions; our ability to pay dividends on our common stock and
interest or principal payments on our junior subordinated debentures; adverse
changes in the securities markets; inability of key third-party providers to
perform their obligations to us; changes in accounting policies and practices,
as may be adopted by the financial institution regulatory agencies or the
Financial Accounting Standards Board including additional guidance and
interpretation on accounting issues and details of the implementation of new
accounting methods; the economic impact of 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 Corporation's reports filed with the Securities and
Exchange Commission, including its Annual Report on Form 10-K for the year
ended December 31, 2011. We do not undertake and specifically disclaim any
obligation to revise any forward-looking statements to reflect the occurrence
of anticipated or unanticipated events or circumstances after the date of such
statements whether as a result of new information, future events or otherwise.
These risks could cause our actual results for 2013 and beyond to differ
materially from those expressed in any forward-looking statements by, or on
behalf of, us, and could negatively affect our operating and stock price
performance.

                                      

                                                       
RESULTS OF OPERATIONS   Quarters Ended                   Twelve Months Ended
(in thousands except    Dec31,    Sep30,    Dec31,    Dec31,    Dec31,
shares and per share    2012       2012       2011       2012       2011
data)
INTEREST INCOME:                                                
Loans receivable        $42,341    $43,953    $45,115    $174,322   $184,357
Mortgage-backed         1,165      1,089      922        4,176      3,455
securities
Securities and cash     2,019      2,132      2,414      8,664      9,751
equivalents
                       45,525     47,174     48,451     187,162    197,563
INTEREST EXPENSE:                                               
Deposits                3,088      3,536      5,169      15,107     26,164
Federal Home Loan Bank  63         64         64         254        370
advances
Other borrowings        64         71         559        758        2,265
Junior subordinated     776        805        1,073      3,395      4,193
debentures
                       3,991      4,476      6,865      19,514     32,992
Net interest income
before provision for    41,534     42,698     41,586     167,648    164,571
loan losses
PROVISION FOR LOAN      1,000      3,000      5,000      13,000     35,000
LOSSES
Net interest income     40,534     39,698     36,586     154,648    129,571
OTHER OPERATING INCOME:                                         
Deposit fees and other  6,433      6,681      5,894      25,266     22,962
service charges
Mortgage banking        4,357      3,286      1,850      12,940     5,068
operations
Loan servicing fees     (65)       377        136        872        1,078
Miscellaneous           2,197      1,257      1,058      4,697      2,506
                       12,922     11,601     8,938      43,775     31,614
Gain on sale of         3          19         --         51         --
securities
Other-than-temporary
impairment recovery     --         (409)      --         (409)      3,000
(loss)
Net change in valuation
of financial            386        473        (1,787)    (16,515)   (624)
instruments carried at
fair value
Total other operating   13,311     11,684     7,151      26,902     33,990
income
OTHER OPERATING                                                 
EXPENSE:
Salary and employee     20,182     19,614     18,730     78,696     72,499
benefits
Less capitalized loan   (2,752)    (2,655)    (2,404)    (10,404)   (8,001)
origination costs
Occupancy and equipment 5,320      5,811      5,379      21,812     21,561
Information / computer  1,836      1,807      1,388      6,904      6,023
data services
Payment and card        2,263      2,335      2,156      8,604      7,874
processing services
Professional services   850        993        1,210      4,411      6,017
Advertising and         1,602      1,897      2,036      7,215      7,281
marketing
Deposit insurance       715        791        1,367      3,685      6,024
State/municipal         574        582        562        2,289      2,153
business and use taxes
Real estate operations  91         (1,304)    4,365      3,354      22,262
Amortization of core    509        508        555        2,092      2,276
deposit intangibles
Miscellaneous           3,329      2,976      3,323      12,795     12,135
Total other operating   34,519     33,355     38,667     141,453    158,104
expense
Income before provision
for (benefit from)      19,326     18,027     5,070      40,097     5,457
income taxes
PROVISION FOR(BENEFIT  4,638      2,407      --         (24,785)   --
FROM ) INCOME TAXES
NET INCOME              14,688     15,620     5,070      64,882     5,457
PREFERRED STOCK
DIVIDEND AND                                                    
ADJUSTMENTS:
Preferred stock         611        1,227      1,550      4,938      6,200
dividend
Preferred stock         1,174      1,216      425        3,298      1,701
discount accretion
Gain on repurchase and
retirement of preferred (401)      (2,070)    --         (2,471)    --
stock
NET INCOME (LOSS)
AVAILABLE TO COMMON     $13,304    $15,247    $3,095     $59,117    $ (2,444)
SHAREHOLDERS
Earnings (loss) per
share available to                                              
common shareholder
Basic                  $0.69      $0.80      $0.18      $3.17      $(0.15)
Diluted                $0.69      $0.79      $0.18      $3.16      $(0.15)
Cumulative dividends
declared per common     $0.01      $0.01      $0.01      $0.04      $0.10
share
Weighted average common                                         
shares outstanding
Basic                  19,312,761 19,172,296 17,269,269 18,650,336 16,724,113
Diluted                19,420,612 19,285,373 17,298,004 18,722,859 16,752,848
Common shares issued
via restricted stock    86         650,060    522,223    1,901,493  1,375,185
grants, DRIP and stock
purchases (net)



FINANCIALCONDITION
(in thousands except shares and   Dec31, 2012   Sep30, 2012   Dec31, 2011
per share data)
ASSETS                                                        
Cash and due from banks           $66,370        $60,505        $62,678
Federal funds and                 114,928        143,251        69,758
interest-bearing deposits
Securities - at fair value        71,232         72,593         80,727
Securities - available for sale   472,920        459,958        465,795
Securities - held to maturity     86,452         88,626         75,438
Federal Home Loan Bank stock      36,705         37,038         37,371
Loans receivable:                                             
Held for sale                     11,920         6,898          3,007
Held for portfolio                3,223,794      3,206,625      3,293,331
Allowance for loan losses         (77,491)       (78,783)       (82,912)
                                 3,158,223      3,134,740      3,213,426
Accrued interest receivable       13,930         16,118         15,570
Real estate owned held for sale,  15,778         20,356         42,965
net
Property and equipment, net       89,117         89,202         91,435
Other intangibles, net            4,230          4,740          6,331
Bank-owned life insurance         59,891         60,395         58,563
Other assets                      75,788         81,142         37,255
                                 $4,265,564     $4,268,664     $4,257,312
LIABILITIES                                                   
Deposits:                                                     
Non-interest-bearing              $981,240       $918,962       $777,563
Interest-bearing transaction and  1,547,271      1,480,234      1,447,594
savings accounts
Interest-bearing certificates     1,029,293      1,087,176      1,250,497
                                 3,557,804      3,486,372      3,475,654
Advances from Federal Home Loan   10,304         10,367         10,533
Bank at fair value
Customer repurchase agreements    76,633         82,275         152,128
and other borrowings
Junior subordinated debentures at 73,063         73,071         49,988
fair value
Accrued expenses and other        26,389         36,109         23,253
liabilities
Deferred compensation             14,452         14,375         13,306
                                 3,758,645      3,702,569      3,724,862
STOCKHOLDERS' EQUITY                                          
Preferred stock - Series A        --             72,242         120,702
Common stock                      567,907        567,659        531,149
Retained earnings (accumulated    (61,102)       (74,212)       (119,465)
deficit)
Other components of stockholders' 114            406            64
equity
                                 506,919        566,095        532,450
                                 $4,265,564     $4,268,664     $4,257,312
Common Shares Issued:                                         
Shares outstanding at end of      19,454,965     19,454,879     17,553,472
period
Less unearned ESOP shares at end  34,340         34,340         34,340
of period
Shares outstanding at end of
period excluding unearned ESOP    19,420,625     19,420,539     17,519,132
shares
Common stockholders' equity per   $26.10         $25.43         $23.50
share ^(1)
Common stockholders' tangible     $25.88         $25.19         $23.14
equity per share ^(1) (2)
Common stockholders' tangible     11.80%         11.47%         9.54%
equity to tangible assets ^(2)
Consolidated Tier 1 leverage      12.74%         14.29%         13.44%
capital ratio
                                                             
^(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) Common stockholders' tangible equity excludes preferred stock and other
intangibles. Tangible assets excludes other intangible assets. These ratios
represent non-GAAP financial measures.
                                                             

                                                               
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)                                          
                                       Dec31, 2012 Sep30, 2012 Dec31, 2011
LOANS (including loans held for sale):                          
Commercial real estate                                          
Owner occupied                          $489,581     $477,871     $469,806
Investment properties                   583,641      604,265      621,622
Multifamily real estate                 137,504      138,716      139,710
Commercial construction                 30,229       28,598       42,391
Multifamily construction                22,581       14,502       19,436
One- to four-family construction        160,815      163,521      144,177
Land and land development                                       
Residential                             77,010       79,932       97,491
Commercial                              13,982       14,242       15,197
Commercial business                     618,049      603,606      601,440
Agricultural business including secured 230,031      219,084      218,171
by farmland
One- to four-family real estate         581,670      594,413      642,501
Consumer                                                        
Consumer secured by one- to four-family 170,123      171,380      181,049
real estate
Consumer-other                          120,498      103,393      103,347
Total loans outstanding                 $3,235,714   $3,213,523   $3,296,338
Restructured loans performing under     $57,462      $62,438      $54,533
their restructured terms
Loans 30 - 89 days past due and on      $11,685      $7,739       $9,962
accrual
Total delinquent loans (including loans $45,300      $46,450      $85,274
on non-accrual)
Total delinquent loans/Total loans    1.40%        1.45%        2.59%
outstanding



GEOGRAPHIC
CONCENTRATION OF
LOANS AT
December31, 2012   Washington   Oregon     Idaho      Other      Total
Commercial real                                               
estate
Owner occupied      $366,422   $57,903  $61,379  $3,877   $489,581
Investment          450,142      85,416     42,774     5,309      583,641
properties
Multifamily real    117,654      11,309     8,249      292        137,504
estate
Commercial          20,839       6,107      934        2,349      30,229
construction
Multifamily         12,383       10,198      --      --     22,581
construction
One- to four-family 88,090       71,663     1,062       --     160,815
construction
Land and land                                                 
development
Residential         41,680       33,478     1,852       --     77,010
Commercial          8,979        3,092      1,911       --     13,982
Commercial business 396,935      72,594     58,416     90,104     618,049
Agricultural
business including  108,671      51,286     70,074      --     230,031
secured by farmland
One- to four-family 360,625      195,364    23,596     2,085      581,670
real estate
Consumer                                                      
Consumer secured by
one- to four-family 114,405      42,395     12,644     679        170,123
real estate
Consumer-other      80,209       34,668     5,621       --     120,498
Total loans         $2,167,034 $675,473 $288,512 $104,695 $3,235,714
outstanding
Percent of total    67.0%        20.9%      8.9%       3.2%       100.0%
loans
                                                             
DETAIL OF LAND AND
LAND DEVELOPMENT
LOANS AT
December31, 2012   Washington   Oregon     Idaho      Other      Total
Residential                                                   
Acquisition &       $10,182    $13,454  $1,612    --     $25,248
development
Improved lots       23,418       18,823     240         --     42,481
Unimproved land     8,080        1,201       --      --     9,281
Total residential
land and            $41,680    $33,478  $1,852    --     $77,010
development
Commercial &                                                  
industrial
Acquisition &       $1,273      --     $482      --     $1,755
development
Improved land       4,204        136        552         --     4,892
Unimproved land     3,502        2,956      877         --     7,335
Total commercial
land and            $8,979     $3,092   $1,911    --     $13,982
development



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
                                  Quarters Ended          Twelve Months Ended
CHANGE IN THE                      Dec31, Sep30, Dec31, Dec31,   Dec31,
                                   2012    2012    2011    2012      2011
ALLOWANCE FOR LOAN LOSSES                                        
Balance, beginning of period       $78,783 $80,221 $86,128 $82,912   $97,401
Provision                          1,000   3,000   5,000   13,000    35,000
Recoveries of loans previously                                   
charged off:
Commercial real estate             159     130     37      921       53
Multifamily real estate            --      --      --      --        --
Construction and land              1,499   35      762     2,954     1,602
One- to four-family real estate    174     34      241     586       356
Commercial business                1,395   154     511     2,425     1,082
Agricultural business, including   4       30      5       49        20
secured by farmland
Consumer                           108     91      73      531       304
                                  3,339   474     1,629   7,466     3,417
Loans charged off:                                               
Commercial real estate             (558)   (924)   (1,575) (4,065)   (6,079)
Multifamily real estate            --      --      (11)    --        (682)
Construction and land              (1,301) (617)   (3,269) (6,546)   (26,328)
One- to four-family real estate    (1,748) (709)   (3,324) (5,328)   (9,910)
Commercial business                (1,094) (1,687) (1,172) (6,485)   (8,396)
Agricultural business, including   (155)   (26)    (188)   (456)     (477)
secured by farmland
Consumer                           (775)   (949)   (306)   (3,007)   (1,034)
                                  (5,631) (4,912) (9,845) (25,887)  (52,906)
Net charge-offs                    (2,292) (4,438) (8,216) (18,421)  (49,489)
Balance, end of period             $77,491 $78,783 $82,912 $77,491   $82,912
                                                                
Net charge-offs / Average loans    0.07%   0.14%   0.25%   0.57%     1.50%
outstanding

                                                               
                                                               
ALLOCATION OF                                                   
ALLOWANCE FOR LOAN LOSSES               Dec31, 2012 Sep30, 2012 Dec31, 2011
Specific or allocated loss allowance                            
Commercial real estate                  $15,322      $15,777      $16,457
Multifamily real estate                 4,506        4,741        3,952
Construction and land                   14,991       15,764       18,184
One- to four-family real estate         16,475       16,152       12,299
Commercial business                     9,957        10,701       15,159
Agricultural business, including        2,295        2,342        1,548
secured by farmland
Consumer                                1,348        1,321        1,253
Total allocated                         64,894       66,798       68,852
Estimated allowance for undisbursed     758          932          678
commitments
Unallocated                             11,839       11,053       13,382
Total allowance for loan losses         $77,491      $78,783      $82,912
Allowance for loan losses / Total loans 2.39%        2.45%        2.52%
outstanding
Allowance for loan losses /             225%         204%         110%
Non-performing loans



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
                                       Dec31, 2012 Sep30, 2012 Dec31, 2011
NON-PERFORMING ASSETS                                           
Loans on non-accrual status                                     
Secured by real estate:                                         
Commercial                              $6,579       $5,574       $9,226
Multifamily                             --           --           362
Construction and land                   3,673        7,450        27,731
One- to four-family                     12,964       14,234       17,408
Commercial business                     4,750        6,159        13,460
Agricultural business, including        --           645          1,896
secured by farmland
Consumer                                3,395        2,571        2,905
                                       31,361       36,633       72,988
Loans more than 90 days delinquent,                             
still on accrual
Secured by real estate:                                         
Commercial                              --           --           --
Multifamily                             --           --           --
Construction and land                   --           --           --
One- to four-family                     2,877        2,037        2,147
Commercial business                     --           15           4
Agricultural business, including        --           --           --
secured by farmland
Consumer                                152          26           173
                                       3,029        2,078        2,324
Total non-performing loans              34,390       38,711       75,312
Securities on non-accrual               --           --           500
Real estate owned (REO) and repossessed 15,853       20,356       43,039
assets
Total non-performing assets             $50,243      $59,067      $118,851
Total non-performing assets/Total     1.18%        1.38%        2.79%
assets



DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT
December31, 2012                            Washington Oregon  Idaho  Total
Secured by real estate:                                             
Commercial                                   $5,814     --      $765   $6,579
Multifamily                                  --         --      --     --
Construction and land                                               
One- to four-family construction            1,565      --      --     1,565
Residential land acquisition & development  --         1,422   --     1,422
Residential land improved lots              119        276     --     395
Residential land unimproved                 245        --      --     245
Commercial land improved                    --         --      --     --
Commercial land unimproved                  46         --      --     46
Total construction and land                 1,975      1,698   --     3,673
One- to four-family                         11,932     2,487   1,422  15,841
Commercial business                          4,676      74      --     4,750
Agricultural business, including secured by  --         --      --     --
farmland
Consumer                                     2,623      423     501    3,547
Total non-performing loans                   27,020     4,682   2,688  34,390
Real estate owned (REO) and repossessed      5,850      9,557   446    15,853
assets
Totalnon-performing assets at end of the   $32,870    $14,239 $3,134 $50,243
period



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
                          Quarters Ended            Twelve Months Ended
REAL ESTATE OWNED          Dec31, 2012 Dec31, 2011 Dec31, 2012 Dec31, 2011
Balance, beginning of      $20,356      $66,459      $42,965      $100,872
period
Additions from loan        2,332        7,482        13,930       53,197
foreclosures
Additions from capitalized 17           150          248          4,404
costs
Proceeds from dispositions (7,306)      (28,299)     (40,914)     (99,070)
of REO
Gain (loss) on sale of REO 1,105        (170)        4,726        (1,374)
Valuation adjustments in   (726)        (2,657)      (5,177)      (15,064)
the period
Balance, end of period     $15,778      $42,965      $15,778      $42,965

                                   
                                   
                                   Quarters Ended
REAL ESTATE OWNED- FIVE COMPARATIVE Dec31, Sep30,  Jun30, Mar31,  Dec31,
QUARTERS                            2012    2012     2012    2012     2011
Balance, beginning of period        $20,356 $25,816  $27,723 $42,965  $66,459
Additions from loan foreclosures    2,332   3,111    6,886   1,601    7,482
Additions from capitalized costs    17      97       7       127      150
Proceeds from dispositions of REO   (7,306) (10,368) (7,799) (15,441) (28,299)
Gain (loss) on sale of REO          1,105   2,955    566     100      (170)
Valuation adjustments in the period (726)   (1,255)  (1,567) (1,629)  (2,657)
Balance, end of period              $15,778 $20,356  $25,816 $27,723  $42,965



REAL ESTATE OWNED- BY TYPE AND STATE
December31, 2012                    Washington Oregon Idaho Total
Commercial real estate               $390       --     $199  $589
One- to four-family construction     --         --     --    --
Land development- commercial         --         --     177   177
Land development- residential        3,174      6,438  70    9,682
Agricultural land                    365        --     --    365
One- to four-family real estate      1,866      3,099  --    4,965
Total                                $5,795     $9,537 $446  $15,778



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSITS & OTHER BORROWINGS                                     
                                       Dec31, 2012 Sep30, 2012 Dec31, 2011
DEPOSIT COMPOSITION                                             
Non-interest-bearing                    $981,240     $918,962     $777,563
Interest-bearing checking               410,316      379,650      362,542
Regular savings accounts                727,957      689,322      669,596
Money market accounts                   408,998      411,262      415,456
Interest-bearing transaction & savings  1,547,271    1,480,234    1,447,594
accounts
Interest-bearing certificates           1,029,293    1,087,176    1,250,497
Total deposits                          $3,557,804   $3,486,372   $3,475,654
                                                               
INCLUDED IN TOTAL DEPOSITS                                      
Public transaction accounts             $79,955      $72,407      $72,064
Public interest-bearing certificates    60,518       61,628       67,112
Total public deposits                   $140,473     $134,035     $139,176
Total brokered deposits                 $15,702      $21,403      $49,194
                                                               
OTHER BORROWINGS                                                
Customer repurchase agreements / "Sweep $76,633      $82,275      $102,131
accounts"
Temporary liquidity guarantee notes     --           --           49,997
Other                                   --           --           --
Total other borrowings                  $76,633      $82,275      $152,128

                                                                
                                                                
GEOGRAPHIC CONCENTRATION OF DEPOSITS                             
AT
December31, 2012                      Washington Oregon   Idaho    Total
                                      $2,718,396 $600,179 $239,229 $3,557,804

                                                      
                                                       
                                                       Minimum for Capital
                                                         Adequacy
REGULATORY CAPITAL RATIOS AT             Actual          or "Well Capitalized"
December31, 2012                        Amount   Ratio  Amount      Ratio
                                                                 
Banner Corporation-consolidated                                   
Total capital to risk-weighted assets    $581,796 16.96% $274,460    8.00%
Tier 1 capital to risk-weighted assets   538,485  15.70% 137,230     4.00%
Tier 1 leverage capital to average       538,485  12.74% 169,053     4.00%
assets
                                                                 
Banner Bank                                                       
Total capital to risk-weighted assets    533,128  16.38% 325,488     10.00%
Tier 1 capital to risk-weighted assets   492,025  15.12% 195,293     6.00%
Tier 1 leverage capital to average       492,025  12.29% 200,153     5.00%
assets
                                                                 
Islanders Bank                                                    
Total capital to risk-weighted assets    32,913   17.53% 18,773      10.00%
Tier 1 capital to risk-weighted assets   30,558   16.28% 11,264      6.00%
Tier 1 leverage capital to average       30,558   13.02% 11,735      5.00%
assets



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
                       Quarters Ended                   Twelve Months Ended
OPERATING PERFORMANCE   Dec31,    Sep30,    Dec31,    Dec31,    Dec31,
                        2012       2012       2011       2012       2011
                                                               
Average loans           $3,201,389 $3,211,133 $3,237,305 $3,223,777 $3,297,650
Average securities      660,731    673,156    670,807    657,649    548,446
Average interest        175,441    142,437    148,070    138,179    219,025
earning cash
Average
non-interest-earning    227,728    210,660    207,609    199,561    215,646
assets
Total average assets    $4,265,289 $4,237,386 $4,263,791 $4,219,166 $4,280,767
                                                               
Average deposits        $3,507,202 $3,452,393 $3,477,587 $3,447,905 $3,510,274
Average borrowings      214,275    219,687    294,675    236,124    292,555
Average
non-interest-bearing    (2,208)    (14,710)   (38,703)   (22,757)   (40,266)
other liabilities ^(1)
Total average           3,719,269  3,657,370  3,733,559  3,661,272  3,762,563
liabilities
Total average           546,020    580,016    530,232    557,894    518,204
stockholders' equity
Total average           $4,265,289 $4,237,386 $4,263,791 $4,219,166 $4,280,767
liabilities and equity
                                                               
Interest rate yield on  5.26%      5.45%      5.53%      5.41%      5.59%
loans
Interest rate yield on  1.85%      1.85%      1.92%      1.90%      2.32%
securities
Interest rate yield on  0.26%      0.23%      0.23%      0.24%      0.23%
cash
Interest rate yield on 4.49%      4.66%      4.74%      4.66%      4.86%
interest-earning assets
                                                               
Interest rate expense   0.35%      0.41%      0.59%      0.44%      0.75%
on deposits
Interest rate expense   1.68%      1.70%      2.28%      1.87%      2.33%
on borrowings
Interest rate expense
on interest-bearing     0.43%      0.48%      0.72%      0.53%      0.87%
liabilities
                                                               
Interest rate spread    4.06%      4.18%      4.02%      4.13%      3.99%
                                                               
Net interest margin     4.09%      4.22%      4.07%      4.17%      4.05%
                                                               
Other operating income  1.24%      1.10%      0.67%      0.64%      0.79%
/ Average assets
                                                               
Other operating income
EXCLUDING fair value    1.21%      1.09%      0.83%      1.04%      0.74%
adjustments / Average
assets ^(2)
                                                               
Other operating expense 3.22%      3.13%      3.60%      3.35%      3.69%
/ Average assets
Efficiency ratio (other
operating expense /     62.94%     61.33%     79.34%     72.71%     79.62%
revenue)
Efficiency ratio
EXCLUDING fair value    63.39%     61.41%     76.53%     66.89%     80.59%
adjustments^(2)
Return on average       1.37%      1.47%      0.47%      1.54%      0.13%
assets
Return on average       10.70%     10.71%     3.79%      11.63%     1.05%
equity
Return on average       10.70%     10.81%     3.84%      11.63%     1.07%
tangible equity ^(3)
Average                 12.80%     13.69%     12.44%     13.22%     12.11%
equity/Average assets
                                                               
^(1) Average non-interest-bearing liabilities include fair value adjustments
related to FHLB advances and Junior Subordinated Debentures.
^(2) Earnings information excluding fair value adjustments (alternately
referred to as other operating income from core operations or revenues from
core operations) represent non-GAAP financial measures.
^(3) Average tangible equity excludes other intangibles and represents a
non-GAAP financial measure.

CONTACT: MARK J. GRESCOVICH,
         PRESIDENT & CEO
         LLOYD W. BAKER, CFO
         (509) 527-3636
 
Press spacebar to pause and continue. Press esc to stop.