BANNER CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - BANNER CORPORATION FORM 8-K - BANNER CORP	k842312.htm

Exhibit 99.1

Contact: Mark J. Grescovich,

President & CEO

Lloyd W. Baker, CFO

(509) 527-3636

News Release

Banner Corporation Earns $9.2 Million, or $0.40 Per Diluted Share, in First Quarter;

Net Income Highlighted by Strong Revenue Generation and Improved Credit Quality

Walla Walla, WA – April 23, 2012 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that net income increased to $9.2 million in the first quarter of 2012, compared to net income of $5.1 million in the preceding quarter. In the first quarter a year ago Banner reported a net loss of $7.8 million.

“Banner’s first quarter operating results provided further evidence, and confirmed through the hard work of our employees throughout the Company, that we are successfully executing on our strategies to strengthen our franchise and deliver sustainable profitability,” said Mark J. Grescovich, President and Chief Executive Officer. “Our return to profitability for the last four quarters reflects significant progress on the key objectives of our turnaround plan. Banner’s operating performance again showed improvement on every key metric compared to the first quarter a year ago. Our first quarter 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 7% when compared to the first quarter a year ago. Our net interest margin expanded to 4.11% in the first quarter compared to 3.94% in the first quarter a year ago, our deposit fee income remained strong, increasing by 11% compared to the first quarter a year ago, and revenues from mortgage banking, which increased by 37% compared to the immediately preceding quarter, were nearly three times larger than the first quarter of 2011. This progress clearly demonstrates that our strategic turnaround plan is effective and is building shareholder value.”

In the first quarter of 2012, Banner paid a $1.6 million dividend on the $124 million of senior preferred stock it issued to the U.S. Department of the Treasury under the Capital Purchase Program. In addition, Banner accrued $454,000 for related discount accretion. Including the preferred stock dividend and related accretion, net income available to common shareholders was $0.40 per share for the first quarter of 2012, compared to net income available to common shareholders of $0.18 per share in the fourth quarter of 2011 and a net loss to common shareholders of $0.60 per share for the first quarter a year ago.

First Quarter 2012 Highlights (compared to first quarter 2011 except as noted)

·	Net income was $9.2 million, compared to a net loss of $7.8 million in the first quarter a year ago.

·	Revenues from core operations* increased 7% to $50.4 million.

·	The net interest margin improved to 4.11%, compared to 4.07% in the preceding quarter and 3.94% for the first quarter of 2011.

·	Net interest income before provision for loan losses increased 3%.

·	Deposit fees and service charges increased 11%.

·	Mortgage banking revenues increased 175%.

·	Non-performing assets decreased to $93.1 million at March 31, 2012, a 22% decrease compared to three months earlier and a 59% decrease compared to a year earlier.

·	Non-performing loans decreased to $64.9 million at March 31, 2012, a 14% decrease compared to three months earlier and a 51% decrease compared to a year earlier.

·	Real estate owned and repossessed assets decreased to $27.7 million at March 31, 2012, a 36% decrease compared to three months earlier and a 71% decrease compared to a year earlier.

Credit Quality

“Improving the risk profile of Banner and aggressively managing our troubled assets has been and will remain a primary focus for the Company. We continue to show good progress as nonperforming assets have been reduced nearly 22% compared to the fourth quarter of 2011 and 59% compared to a year ago. Credit costs continue to decline and were significantly below those of a year ago as our special asset teams continued to make meaningful progress at reducing problem assets,” said Grescovich.

BANR – First Quarter 2012 Results

April 23, 2012

Page 2

Banner recorded a $5.0 million provision for loan losses in the first quarter of 2012, equal to the provision in the preceding quarter and substantially lower than the $17.0 million provision recorded in the first quarter a year ago. The allowance for loan losses at March 31, 2012 totaled $81.5 million, representing 2.52% of total loans outstanding and 126% of non-performing loans. Non-performing loans decreased 14% to $64.9 million at March 31, 2012, compared to $75.3 million three months earlier, and decreased 51% when compared to $131.7 million a year earlier.

Banner’s real estate owned and repossessed assets decreased 36% to $27.7 million at March 31, 2012, compared to $43.0 million three months earlier and decreased 71% when compared to $95.0 million a year ago. Net charge-offs in the first quarter of 2012 totaled $6.4 million, or 0.20% of average loans outstanding, compared to $8.2 million, or 0.25% of average loans outstanding for the fourth quarter of 2011 and $16.8 million, or 0.50% of average loans outstanding, for the first quarter a year ago.

Non-performing assets decreased 22% to $93.1 million at March 31, 2012, compared to $118.9 million three months earlier and decreased 59% when compared to $228.6 million a year ago. At March 31, 2012, Banner’s non-performing assets were 2.24% of total assets, compared to 2.79% at December 31, 2011 and 5.32% a year ago.

Income Statement Review

“The improvement in our net interest margin largely reflects continuing reductions in our funding costs, particularly in our deposit costs, and a significant reduction in the adverse effect of non-performing assets. This reduced cost of funds coupled with changes in our asset mix made it possible for us to maintain a strong net interest margin in recent quarters and to increase it by 17 basis points compared to the first quarter a year ago, despite continued downward pressure on asset yields,” said Grescovich. Banner’s net interest margin was 4.11% in the first quarter of 2012, compared to 4.07% in the preceding quarter and 3.94% in the first quarter a year ago.

Deposit costs decreased by seven basis points in the first quarter compared to the preceding quarter and 37 basis points compared to the first quarter a year earlier. Total funding costs for the first quarter of 2012 decreased six basis points compared to the previous quarter and 34 basis points from the first quarter a year ago. Asset yields decreased two basis points compared to the prior quarter and decreased 16 basis points from the first quarter a year ago. Loan yields decreased nine basis points compared to the preceding quarter and decreased 22 basis points from the first quarter a year ago. Nonaccrual loans reduced the margin by approximately 13 basis points in the first quarter of 2012 compared to approximately 14 basis points in the preceding quarter and approximately 27 basis points in the first quarter of 2011.

“The continued growth in core deposits and the reduced drag from non-performing assets over the past year have led to a solid increase in our revenues from core operations* compared to the first quarter last year,” said Grescovich. First quarter net interest income, before the provision for loan losses, was $41.1 million, compared to $41.6 million in the preceding quarter and $40.1 million in the first quarter a year ago. Revenues from core operations* were $50.4 million in the first quarter of 2012, compared to $50.5 million in the fourth quarter of 2011 and $47.0 million in the first quarter a year ago.

Banner’s first quarter 2012 results included a net gain of $1.7 million 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 loss of $1.8 million for fair value adjustments and in the first quarter of 2011 Banner recorded a net gain of $256,000 for fair value adjustments.

Total other operating income, which includes the above-mentioned changes in the valuation of financial instruments, was $11.0 million in the first quarter of 2012 compared to $7.2 million in both the preceding quarter and the first quarter a year ago. Other operating income from core operations* (total other operating income, excluding fair value and OTTI adjustments) for the current quarter was $9.3 million, compared to $8.9 million for the preceding quarter and $7.0 million for the first quarter a year ago.

Deposit fees and other service charges were $5.9 million in the first quarter of 2012, equal to the preceding quarter and an 11% increase compared to $5.3 million in the first quarter a year ago. As a result of exceptionally strong homeowner refinance activity, revenues from mortgage banking activities increased 37% to $2.7 million in the first quarter of 2012, compared to $1.9 million in the immediately preceding quarter. Income from mortgage banking operations was $962,000 in the first quarter of 2011.

“Operating expenses declined for the first quarter compared to the preceding quarter and the first quarter a year ago, largely due to lower costs associated with the real estate owned portfolio, particularly valuation adjustments,” said Grescovich. “These credit costs should continue to decline as further problem asset resolution occurs.”

Total other operating expenses (non-interest expenses) were $37.9 million in the first quarter of 2012, compared to $38.7 million in the preceding quarter and $38.1 million in the first quarter of 2011. The decrease was largely a result of decreased costs related to real estate owned and FDIC deposit insurance, partially offset by increased compensation-related expenses.

BANR – First Quarter 2012 Results

April 23, 2012

Page 3

*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) 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 results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

Balance Sheet Review

“Loan balances declined slightly compared to the previous quarter, primarily as a result of the expected seasonal pay down of agricultural loans, the impact of refinancing activity on residential mortgage loans and further reductions in land development loans. Production levels for targeted loans remained encouraging, resulting in a consistent pipeline of lending opportunities and modest growth in commercial business loans. While we expect a continued challenging economic environment, we believe that our well-focused marketing efforts to attract business clients will allow us to capitalize on additional lending opportunities going forward,” said Grescovich.

Net loans were $3.15 billion at March 31, 2012, compared to $3.21 billion at December 31, 2011 and $3.23 billion a year ago. Commercial and agricultural business loans were $798.5 million at March 31, 2012 compared to $819.6 million at December 31, 2011 and $765.9 million a year ago. Commercial real estate and multi-family real estate loans were $1.21 billion at March 31, 2012, compared to $1.23 billion at both December 31, 2011 and at March 31, 2011.

The combined total of securities at fair value, available for sale and held to maturity, was $541.3 million at March 31, 2012 compared to $622.0 million at December 31, 2011 and $407.0 million at March 31, 2011. The aggregate total of securities and interest-bearing deposits decreased to $685.2 million at March 31, 2012 compared to $691.7 million at December 31, 2011 and $678.9 million a year ago. 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.

Deposits totaled $3.43 billion at March 31, 2012, compared to $3.48 billion at the end of the preceding quarter and $3.54 billion a year ago. Non-interest-bearing accounts increased 24% to $771.8 million at March 31, 2012, compared to $622.8 million a year ago. At December 31, 2011, non-interest-bearing accounts totaled $777.6 million. Interest-bearing transaction and savings accounts were $1.46 billion at March 31, 2012, compared to $1.45 billion at December 31, 2011 and $1.46 billion a year ago.

“The improvements in our deposit mix are reflective of our super community bank strategy that is reducing our funding cost by remixing our deposits away from high-priced CDs, growing new client relationships, and improving our core funding position. To that point, total transaction and savings accounts increased by 7% compared to a year ago and non-interest-bearing accounts increased by 24% over the same period,” said Grescovich.

On March 31, 2012, Banner Bank repaid a $50 million, three-year borrowing that was guaranteed under the FDIC Temporary Liquidity Guarantee Program (TLGP) as reflected in other borrowings on the attached financial statements. Assets totaled $4.16 billion at March 31, 2012, compared to $4.26 billion at the end of the preceding quarter and $4.30 billion a year ago.

At March 31, 2012, total stockholders’ equity was $548.8 million, including $121.2 million attributable to preferred stock, and common stockholders’ equity was $427.6 million, or $23.77 per share. In May 2011, Banner announced a 1-for-7 reverse stock split, which took effect on June 1, 2011. Every seven shares of Banner’s pre-split common shares were automatically consolidated into one post-split share. Taking the reverse stock split into account, Banner had 18.0 million shares outstanding at March 31, 2012, compared to 16.4 million shares outstanding a year ago. At March 31, 2012, tangible common stockholders’ equity, which excludes other intangible assets and preferred stock, was $421.9 million, or 10.15% of tangible assets, compared to $405.4 million, or 9.54% of tangible assets at December 31, 2011 and $377.3 million, or 8.79% of tangible assets 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 increased to 14.00% and its total capital to risk-weighted assets ratio increased to 18.98% at March 31, 2012.

Regulatory Agreements

On March 19, 2012, Banner Bank received notice from the FDIC and the Washington Department of Financial Institutions terminating their Memorandum of Understanding with Banner Bank dated March 23, 2010. On April 10, 2012, Banner Corporation received notice from the Federal Reserve Bank of San Francisco terminating its Memorandum of Understanding with Banner Corporation dated March 29, 2010.

BANR – First Quarter 2012 Results

April 23, 2012

Page 4

Conference Call

Banner will host a conference call on Tuesday, April 24, 2012, at 8:00 a.m. PDT, to discuss its first quarter results. The conference call can be accessed live by telephone at (480) 629-9692 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 4527868.

About the Company

Banner Corporation is a $4.16 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 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; 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 FDIC, the Washington 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, 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; 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 and preferred 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. These risks could cause our actual results for 2012 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.

BANR – First Quarter 2012 Results

April 23, 2012

Page 5

RESULTS OF OPERATIONS				Quarters Ended
(in thousands except shares and per share data)				Mar 31, 2012		Dec 31, 2011		Mar 31, 2011

INTEREST INCOME
	Loans receivable		$	43,988	$	45,115	$	46,755
	Mortgage-backed securities			927		922		875
	Securities and cash equivalents			2,283		2,414		2,033
				47,198		48,451		49,663
INTEREST EXPENSE
	Deposits			4,448		5,169		7,812
	Federal Home Loan Bank advances			63		64		178
	Other borrowings			549		559		579
	Junior subordinated debentures			1,012		1,073		1,038
				6,072		6,865		9,607
	Net interest income before provision for loan losses			41,126		41,586		40,056

PROVISION FOR LOAN LOSSES				5,000		5,000		17,000
	Net interest income			36,126		36,586		23,056

OTHER OPERATING INCOME
	Deposit fees and other service charges			5,869		5,894		5,279
	Mortgage banking operations			2,649		1,936		962
	Loan servicing fees			217		136		256
	Miscellaneous			551		972		493
				9,286		8,938		6,990
	Net change in valuation of financial instruments carried at fair value			1,685		(1,787)		256
	Total other operating income			10,971		7,151		7,246

OTHER OPERATING EXPENSE
	Salary and employee benefits			19,510		18,730		17,255
	Less capitalized loan origination costs			(2,250)		(2,404)		(1,720)
	Occupancy and equipment			5,477		5,379		5,394
	Information / computer data services			1,515		1,388		1,567
	Payment and card processing services			1,890		2,156		1,647
	Professional services			1,344		1,210		1,672
	Advertising and marketing			2,066		2,036		1,740
	Deposit insurance			1,363		1,367		1,969
	State/municipal business and use taxes			568		562		494
	Real estate operations			2,598		4,365		4,631
	Amortization of core deposit intangibles			552		555		597
	Miscellaneous			3,280		3,323		2,898
	Total other operating expense			37,913		38,667		38,144
	Income (loss) before provision for (benefit from) income taxes			9,184		5,070		(7,842)

PROVISION FOR (BENEFIT FROM ) INCOME TAXES				- -		- -		- -
NET INCOME (LOSS)				9,184		5,070		(7,842)

PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION
	Preferred stock dividend			1,550		1,550		1,550
	Preferred stock discount accretion			454		425		426
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS			$	7,180	$	3,095	$	(9,818)

Earnings (loss) per share available to common shareholder
		Basic	$	0.40	$	0.18	$	(0.60)
		Diluted	$	0.40	$	0.18	$	(0.60)

Cumulative dividends declared per common share			$	0.01	$	0.01	$	0.07

Weighted average common shares outstanding
		Basic		17,761,667		17,269,269		16,271,621
		Diluted		17,790,402		17,298,004		16,271,621
Common shares issued in connection with exercise of stock options or DRIP				474,296		522,223		278,940

BANR – First Quarter 2012 Results

April 23, 2012

Page 6

FINANCIAL CONDITION
(in thousands except shares and per share data)			Mar 31, 2012		Dec 31, 2011		Mar 31, 2011

ASSETS
Cash and due from banks		$	55,723	$	62,678	$	44,381
Federal funds and interest-bearing deposits			143,885		69,758		271,924
Securities - at fair value			77,706		80,727		90,881
Securities - available for sale			386,716		465,795		240,968
Securities - held to maturity			76,853		75,438		75,114
Federal Home Loan Bank stock			37,371		37,371		37,371
Loans receivable:
	Held for sale		4,623		3,007		1,493
	Held for portfolio		3,225,039		3,293,331		3,324,587
	Allowance for loan losses		(81,544)		(82,912)		(97,632)
			3,148,118		3,213,426		3,228,448

Accrued interest receivable			16,047		15,570		16,503
Real estate owned held for sale, net			27,723		42,965		94,945
Property and equipment, net			90,106		91,435		94,743
Other intangibles, net			5,777		6,331		8,011
Bank-owned life insurance			59,056		58,563		57,123
Other assets			35,683		37,255		39,291
		$	4,160,764	$	4,257,312	$	4,299,703
LIABILITIES

Deposits:
	Non-interest-bearing	$	771,812	$	777,563	$	622,759
	Interest-bearing transaction and savings accounts		1,457,030		1,447,594		1,459,895
	Interest-bearing certificates		1,197,328		1,250,497		1,457,994
			3,426,170		3,475,654		3,540,648

Advances from Federal Home Loan Bank at fair value			10,467		10,533		10,567
Customer repurchase agreements and other borrowings			91,253		152,128		159,902
Junior subordinated debentures at fair value			49,368		49,988		48,395

Accrued expenses and other liabilities			21,136		23,253		20,958
Deferred compensation			13,580		13,306		14,489
			3,611,974		3,724,862		3,794,959
STOCKHOLDERS' EQUITY

Preferred stock - Series A			121,156		120,702		119,426
Common stock			540,068		531,149		513,950
Retained earnings (accumulated deficit)			(112,465)		(119,465)		(126,318)
Other components of stockholders' equity			31		64		(2,314)
			548,790		532,450		504,744
		$	4,160,764	$	4,257,312	$	4,299,703
Common Shares Issued:
Shares outstanding at end of period			18,027,768		17,553,472		16,443,720
	Less unearned ESOP shares at end of period		34,340		34,340		34,340
Shares outstanding at end of period excluding unearned ESOP shares			17,993,428		17,519,132		16,409,380

Common stockholders' equity per share (1)		$	23.77	$	23.50	$	23.48
Common stockholders' tangible equity per share (1) (2)		$	23.45	$	23.14	$	22.99
Common stockholders' tangible equity to tangible assets (2)			10.15%		9.54%		8.79%
Consolidated Tier 1 leverage capital ratio			14.00%		13.44%		12.50%
(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 core deposits and preferred stock, core deposit and other intangibles.
	Tangible assets excludes other intangible assets. These ratios represent non-GAAP financial measures.

BANR – First Quarter 2012 Results

April 23, 2012

Page 7

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
				Mar 31, 2012		Dec 31, 2011		Mar 31, 2011
LOANS (including loans held for sale)
Commercial real estate
	Owner occupied		$	468,318	$	469,806	$	521,823
	Investment properties			612,617		621,622		564,337
Multifamily real estate				132,306		139,710		147,569
Commercial construction				40,276		42,391		26,580
Multifamily construction				20,654		19,436		19,694
One- to four-family construction				148,717		144,177		151,015
Land and land development
	Residential			89,329		97,491		147,913
	Commercial			12,044		15,197		30,539
Commercial business				609,497		601,440		577,128
Agricultural business including secured by farmland				188,955		218,171		188,756
One- to four-family real estate				619,511		642,501		665,396
Consumer				106,978		103,347		104,129
Consumer secured by one- to four-family real estate				180,460		181,049		181,201
		Total loans outstanding	$	3,229,662	$	3,296,338	$	3,326,080
Restructured loans performing under their restructured terms			$	53,391	$	54,533	$	60,968
Loans 30 - 89 days past due and on accrual			$	14,336	$	9,962	$	16,587
Total delinquent loans (including loans on non-accrual)			$	79,249	$	85,274	$	148,285
Total delinquent loans / Total loans outstanding				2.45%		2.59%		4.46%

GEOGRAPHIC CONCENTRATION OF LOANS AT
		March 31, 2012		Washington		Oregon		Idaho		Other		Total

Commercial real estate
	Owner occupied		$	355,126	$	58,739	$	51,341	$	3,112	$	468,318
	Investment properties			473,807		91,070		42,581		5,159		612,617
Multifamily real estate				110,525		13,210		8,192		379		132,306
Commercial construction				23,748		6,861		9,667		- -		40,276
Multifamily construction				20,654		- -		- -		- -		20,654
One- to four-family construction				77,225		69,370		2,122		- -		148,717
Land and land development
	Residential			47,833		39,135		2,361		- -		89,329
	Commercial			9,338		887		1,819		- -		12,044
Commercial business				396,611		74,683		67,449		70,754		609,497
Agricultural business including secured by farmland				99,778		35,073		54,104		- -		188,955
One- to four-family real estate				379,602		210,708		26,977		2,224		619,511
Consumer				70,662		30,697		5,619		- -		106,978
Consumer secured by one- to four-family real estate				124,494		43,420		12,011		535		180,460
		Total loans outstanding	$	2,189,403	$	673,853	$	284,243	$	82,163	$	3,229,662

		Percent of total loans		67.8%		20.9%		8.8%		2.5%		100.0%

DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
		March 31, 2012		Washington		Oregon		Idaho		Other		Total

Residential
	Acquisition & development		$	12,115	$	14,708	$	1,903	$	- -	$	28,726
	Improved lots			22,615		21,510		370		- -		44,495
	Unimproved land			13,103		2,917		88		- -		16,108
		Total residential land and development	$	47,833	$	39,135	$	2,361	$	- -	$	89,329
Commercial & industrial
	Acquisition & development		$	1,555	$	- -	$	483	$	- -	$	2,038
	Improved land			3,458		- -		580		- -		4,038
	Unimproved land			4,325		887		756		- -		5,968
		Total commercial land and development	$	9,338	$	887	$	1,819	$	- -	$	12,044

BANR – First Quarter 2012 Results

April 23, 2012

Page 8

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
				Quarters Ended
CHANGE IN THE				Mar 31, 2012		Dec 31, 2011		Mar 31, 2011
ALLOWANCE FOR LOAN LOSSES

Balance, beginning of period			$	82,912	$	86,128	$	97,401

Provision				5,000		5,000		17,000

Recoveries of loans previously charged off:
		Commercial real estate		614		37		- -
		Multifamily real estate		- -		- -		- -
		Construction and land		370		762		35
		One- to four-family real estate		5		241		52
		Commercial business		236		511		81
		Agricultural business, including secured by farmland		- -		5		- -
		Consumer		136		73		78
				1,361		1,629		246
Loans charged off:
		Commercial real estate		(1,323)		(1,575)		(989)
		Multifamily real estate		- -		(11)		(427)
		Construction and land		(2,924)		(3,269)		(10,537)
		One- to four-family real estate		(966)		(3,324)		(2,209)
		Commercial business		(1,407)		(1,172)		(2,368)
		Agricultural business, including secured by farmland		(275)		(188)		(123)
		Consumer		(834)		(306)		(362)
				(7,729)		(9,845)		(17,015)
		Net charge-offs		(6,368)		(8,216)		(16,769)
Balance, end of period			$	81,544	$	82,912	$	97,632

Net charge-offs / Average loans outstanding				0.20%		0.25%		0.50%

ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES				Mar 31, 2012		Dec 31, 2011		Mar 31, 2011
Specific or allocated loss allowance
	Commercial real estate		$	17,083	$	16,457	$	11,871
	Multifamily real estate			3,261		3,952		6,055
	Construction and land			15,871		18,184		30,346
	Commercial business			13,123		15,159		22,054
	Agricultural business, including secured by farmland			1,887		1,548		1,441
	One- to four-family real estate			12,869		12,299		8,149
	Consumer			1,274		1,253		1,452

		Total allocated		65,368		68,852		81,368

	Estimated allowance for undisbursed commitments			651		678		1,158
	Unallocated			15,525		13,382		15,106
		Total allowance for loan losses	$	81,544	$	82,912	$	97,632

Allowance for loan losses / Total loans outstanding				2.52%		2.52%		2.94%

Allowance for loan losses / Non-performing loans				126%		110%		74%

BANR – First Quarter 2012 Results

April 23, 2012

Page 9

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
					Mar 31, 2012		Dec 31, 2011		Mar 31, 2011
NON-PERFORMING ASSETS

Loans on non-accrual status
	Secured by real estate:
			Commercial	$	10,541	$	9,226	$	23,443
			Multifamily		- -		362		1,361
			Construction and land		18,601		27,731		67,163
			One- to four-family		19,384		17,408		16,571
	Commercial business				10,121		13,460		15,904
	Agricultural business, including secured by farmland				1,481		1,896		1,984
	Consumer				2,572		2,905		4,655
					62,700		72,988		131,081

Loans more than 90 days delinquent, still on accrual
	Secured by real estate:
			Commercial		- -		- -		- -
			Multifamily		- -		- -		- -
			Construction and land		- -		- -		- -
			One- to four-family		2,129		2,147		561
	Commercial business				- -		4		14
	Agricultural business, including secured by farmland				- -		- -		- -
	Consumer				84		173		42
					2,213		2,324		617
Total non-performing loans					64,913		75,312		131,698
Securities on non-accrual					500		500		1,904
Real estate owned (REO) and repossessed assets					27,731		43,039		94,969
			Total non-performing assets	$	93,144	$	118,851	$	228,571

Total non-performing assets / Total assets					2.24%		2.79%		5.32%

DETAIL & GEOGRAPHIC CONCENTRATION OF
	NON-PERFORMING ASSETS AT
			March 31, 2012		Washington		Oregon		Idaho		Other		Total
Secured by real estate:
	Commercial			$	7,698	$	355	$	2,488	$	- -	$	10,541
	Multifamily				- -		- -		- -		- -		- -
	Construction and land
		One- to four-family construction			3,782		2,226		243		- -		6,251
		Commercial construction			942		- -		- -		- -		942
		Multifamily construction			- -		- -		- -		- -		- -
		Residential land acquisition & development			4,691		1,836		- -		- -		6,527
		Residential land improved lots			424		2,309		73		- -		2,806
		Residential land unimproved			287		916		88		- -		1,291
		Commercial land acquisition & development			- -		- -		- -		- -		- -
		Commercial land improved			454		- -		- -		- -		454
		Commercial land unimproved			330		- -		- -		- -		330
			Total construction and land		10,910		7,287		404		- -		18,601
	One- to four-family				16,753		3,386		1,374		- -		21,513
Commercial business					9,511		138		472		- -		10,121
Agricultural business, including secured by farmland					1,346		- -		135		- -		1,481
Consumer					2,128		25		503		- -		2,656
Total non-performing loans					48,346		11,191		5,376		- -		64,913
Securities on non-accrual					- -		- -		500		- -		500
Real estate owned (REO) and repossessed assets					14,497		10,341		2,893		- -		27,731
			Total non-performing assets at end of the period	$	62,843	$	21,532	$	8,769	$	- -	$	93,144

BANR – First Quarter 2012 Results

April 23, 2012

Page 10

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
			Quarters Ended
REAL ESTATE OWNED			Mar 31, 2012		Mar 31,2011

Balance, beginning of period		$	42,965	$	100,872
	Additions from loan foreclosures		1,601		14,916
	Additions from capitalized costs		127		1,615
	Dispositions of REO		(15,441)		(18,894)
	Gain (loss) on sale of REO		100		(537)
	Valuation adjustments in the period		(1,629)		(3,027)
Balance, end of period		$	27,723	$	94,945

			Quarters Ended

REAL ESTATE OWNED- FIVE COMPARATIVE QUARTERS			Mar 31, 2012		Dec 31, 2011		Sep 30, 2011		Jun 30, 2011		Mar 31, 2011

Balance, beginning of period		$	42,965	$	66,459	$	71,205	$	94,945	$	100,872
	Additions from loan foreclosures		1,601		7,482		18,881		11,918		14,916
	Additions from capitalized costs		127		150		1,107		1,532		1,615
	Dispositions of REO		(15,441)		(28,299)		(19,440)		(32,437)		(18,894)
	Gain (loss) on sale of REO		100		(170)		(725)		58		(537)
	Valuation adjustments in the period		(1,629)		(2,657)		(4,569)		(4,811)		(3,027)
Balance, end of period		$	27,723	$	42,965	$	66,459	$	71,205	$	94,945

REAL ESTATE OWNED- BY TYPE AND STATE			Washington		Oregon		Idaho		Total

Commercial real estate		$	2,064	$	- -	$	494	$	2,558
One- to four-family construction			405		732		- -		1,137
Land development- commercial			3,875		75		200		4,150
Land development- residential			4,354		7,793		1,181		13,328
One- to four-family real estate			3,791		1,741		1,018		6,550
Total		$	14,489	$	10,341	$	2,893	$	27,723

BANR – First Quarter 2012 Results

April 23, 2012

Page 11

DEPOSITS & OTHER BORROWINGS
				Mar 31, 2012		Dec 31, 2011		Mar 31, 2011
	DEPOSIT COMPOSITION

	Non-interest-bearing		$	771,812	$	777,563	$	622,759
	Interest-bearing checking			368,810		362,542		361,430
	Regular savings accounts			673,704		669,596		648,520
	Money market accounts			414,516		415,456		449,945
		Interest-bearing transaction & savings accounts		1,457,030		1,447,594		1,459,895
	Interest-bearing certificates			1,197,328		1,250,497		1,457,994
		Total deposits	$	3,426,170	$	3,475,654	$	3,540,648


	INCLUDED IN TOTAL DEPOSITS

	Public transaction accounts		$	68,590	$	72,064	$	62,873
	Public interest-bearing certificates			69,856		67,112		67,527
		Total public deposits	$	138,446	$	139,176	$	130,400

	Total brokered deposits		$	30,978	$	49,194	$	92,940


	OTHER BORROWINGS
	Customer repurchase agreements / "Sweep accounts"		$	91,253	$	102,131	$	109,227
	Temporary liquidity guarantee notes			- -		49,997		49,990
	Other			- -		- -		685
	Total other borrowings		$	91,253	$	152,128	$	159,902


	GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
		March 31, 2012		Washington		Oregon		Idaho		Total

			$	2,599,804	$	601,842	$	224,524	$	3,426,170




								Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT				Actual				or "Well Capitalized"
		March 31, 2012		Amount		Ratio		Amount		Ratio

Banner Corporation-consolidated
		Total capital to risk-weighted assets	$	630,106		18.98%	$	265,573		8.00%
		Tier 1 capital to risk-weighted assets		588,116		17.72%		132,787		4.00%
		Tier 1 leverage capital to average assets		588,116		14.00%		168,018		4.00%

Banner Bank
		Total capital to risk-weighted assets		519,867		16.47%		252,445		10.00%
		Tier 1 capital to risk-weighted assets		479,938		15.21%		126,223		6.00%
		Tier 1 leverage capital to average assets		479,938		12.10%		158,658		5.00%

Islanders Bank
		Total capital to risk-weighted assets		30,967		16.44%		15,066		10.00%
		Tier 1 capital to risk-weighted assets		28,607		15.19%		7,533		6.00%
		Tier 1 leverage capital to average assets		28,607		12.48%		9,172		5.00%

BANR – First Quarter 2012 Results

April 23, 2012

Page 12

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
			Quarters Ended

OPERATING PERFORMANCE			Mar 31, 2012		Dec 31, 2011		Mar 31, 2011


Average loans		$	3,250,767	$	3,237,305	$	3,349,978
Average securities			660,638		670,807		465,017
Average interest earning cash			111,536		148,070		308,575
Average non-interest-earning assets			185,035		207,609		233,365
	Total average assets	$	4,207,976	$	4,263,791	$	4,356,935

Average deposits		$	3,421,448	$	3,477,587	$	3,561,020
Average borrowings			280,439		294,675		322,261
Average non-interest-bearing other liabilities			(36,699)		(38,703)		(39,755)
	Total average liabilities		3,665,188		3,733,559		3,843,526
Total average stockholders' equity			542,788		530,232		513,409
	Total average liabilities and equity	$	4,207,976	$	4,263,791	$	4,356,935

Interest rate yield on loans			5.44%		5.53%		5.66%
Interest rate yield on securities			1.92%		1.92%		2.38%
Interest rate yield on cash			0.23%		0.23%		0.23%
	Interest rate yield on interest-earning assets		4.72%		4.74%		4.88%

Interest rate expense on deposits			0.52%		0.59%		0.89%
Interest rate expense on borrowings			2.33%		2.28%		2.26%
	Interest rate expense on interest-bearing liabilities		0.66%		0.72%		1.00%
Interest rate spread			4.06%		4.02%		3.88%
Net interest margin			4.11%		4.07%		3.94%

Other operating income / Average assets			1.05%		0.67%		0.67%

Other operating income EXCLUDING fair value and OTTI
	adjustments / Average assets (1)		0.89%		0.83%		0.65%

Other operating expense / Average assets			3.62%		3.60%		3.55%

Efficiency ratio (other operating expense / revenue)			72.77%		79.34%		80.64%

Return (Loss) on average assets			0.88%		0.47%		(0.73%)

Return (Loss) on average equity			6.81%		3.79%		(6.19%)

Return (Loss) on average tangible equity (2)			6.88%		3.84%		(6.30%)

Average equity / Average assets			12.90%		12.44%		11.78%

(1)	- Earnings information excluding fair value and OTTI adjustments (alternately referred to as other operating income from
	core operations or revenues from core operations) represent non-GAAP financial measures.

(2)	- Average tangible equity excludes core deposit and other intangibles and represents a non-GAAP financial measure.

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