Banner Corporation Reports Net Income Of $25.4 Million, Or $1.27 Per Diluted Share, In Second Quarter; Net Income Highlighted By Strong Revenue Generation And Improved Credit Quality, Leading To A Recovery Of The Deferred Tax Asset

Assets totaled $4.22 billion at June 30, 2012, compared to $4.16 billion at the end of the preceding quarter and $4.21 billion a year ago. At June 30, 2012, total stockholders’ equity was $587.2 million, including $121.6 million attributable to preferred stock, and common stockholders’ equity was $465.6 million, or $24.80 per share. Banner had 18.8 million shares of common stock outstanding at June 30, 2012, compared to 16.7 million shares of common stock outstanding a year ago. At June 30, 2012, tangible common stockholders’ equity, which excludes other intangible assets and preferred stock, was $460.3 million, or 10.92% of tangible assets, compared to $421.9 million, or 10.15% of tangible assets at March 31, 2012 and $383.7 million, or 9.14% 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 15.07% and its total capital to risk-weighted assets ratio increased to 19.76% at June 30, 2012.

Conference Call

Banner will host a conference call on Thursday, July 26, 2012, at 8:00 a.m. PDT, to discuss its second quarter results. The conference call can be accessed live by telephone at [phone] 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 [phone], using access code 4548321.

About the Company

Banner Corporation is a $4.22 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 the remainder of 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 - Second Quarter 2012 Results
RESULTS OF OPERATIONS						Quarters Ended												Six Months Ended
(in thousands except shares and per share data)						Jun 30, 2012				Mar 31, 2012				Jun 30, 2011				Jun 30, 2012			Jun 30, 2011
INTEREST INCOME:
Loans receivable					$	44,040			$	43,988			$	46,846			$	88,028			$	93,601
Mortgage-backed securities						995				927				859				1,922				1,734
Securities and cash equivalents						2,230				2,283				2,183				4,513				4,216
						47,265				47,198				49,888				94,463				99,551
INTEREST EXPENSE:
Deposits						4,035				4,448				7,014				8,483				14,826
Federal Home Loan Bank advances						64				63				64				127				242
Other borrowings						74				549				568				623				1,147
Junior subordinated debentures						802				1,012				1,041				1,814				2,079
						4,975				6,072				8,687				11,047				18,294
Net interest income before provision for loan losses						42,290				41,126				41,201				83,416				81,257
PROVISION FOR LOAN LOSSES						4,000				5,000				8,000				9,000				25,000
Net interest income						38,290				36,126				33,201				74,416				56,257
OTHER OPERATING INCOME:
Deposit fees and other service charges						6,283				5,869				5,693				12,152				10,972
Mortgage banking operations						2,855				2,649				855				5,504				1,817
Loan servicing fees						343				217				397				560				653
Miscellaneous						485				551				369				1,036				862
						9,966				9,286				7,314				19,252				14,304
Gain (loss) on sale of securities						29				- -				- -				29				- -
Net change in valuation of financial instruments carried at fair value						(19,059	)			1,685				1,939				(17,374	)			2,195
Total other operating income (loss)						(9,064	)			10,971				9,253				1,907				16,499
OTHER OPERATING EXPENSE:
Salary and employee benefits						19,390				19,510				18,288				38,900				35,543
Less capitalized loan origination costs						(2,747	)			(2,250	)			(1,948	)			(4,997	)			(3,668	)
Occupancy and equipment						5,204				5,477				5,436				10,681				10,830
Information / computer data services						1,746				1,515				1,521				3,261				3,088
Payment and card processing services						2,116				1,890				1,939				4,006				3,586
Professional services						1,224				1,344				1,185				2,568				2,857
Advertising and marketing						1,650				2,066				1,903				3,716				3,643
Deposit insurance						816				1,363				1,389				2,179				3,358
State/municipal business and use taxes						565				568				544				1,133				1,038
Real estate operations						1,969				2,598				6,568				4,567				11,199
Amortization of core deposit intangibles						523				552				570				1,075				1,167
Miscellaneous						3,210				3,280				2,860				6,490				5,758
Total other operating expense						35,666				37,913				40,255				73,579				78,399
Income (loss) before provision for (benefit from) income taxes						(6,440	)			9,184				2,199				2,744				(5,643	)
PROVISION FOR (BENEFIT FROM ) INCOME TAXES						(31,830	)			- -				- -				(31,830	)			- -
NET INCOME (LOSS)						25,390				9,184				2,199				34,574				(5,643	)
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION:
Preferred stock dividend						1,550				1,550				1,550				3,100				3,100
Preferred stock discount accretion						454				454				425				908				851
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS					$	23,386			$	7,180			$	224			$	30,566			$	(9,594	)
Earnings (loss) per share available to common shareholder
Basic					$	1.27			$	0.40			$	0.01			$	1.69			$	(0.58	)
Diluted					$	1.27			$	0.40			$	0.01			$	1.69			$	(0.58	)
Cumulative dividends declared per common share					$	0.01			$	0.01			$	0.01			$	0.02			$	0.08
Weighted average common shares outstanding
Basic						18,404,680				17,761,667				16,535,082				18,051,636				16,404,079
Diluted						18,444,276				17,790,402				16,535,082				18,085,801				16,404,079
Common shares issued in connection with exercise of stock options or DRIP						777,051				474,296				227,534				1,251,347				506,474

BANR - Second Quarter 2012 Results
FINANCIAL CONDITION
(in thousands except shares and per share data)						Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Dec 31, 2011
ASSETS
Cash and due from banks					$	56,640		$	55,723		$	48,246		$	62,678
Federal funds and interest-bearing deposits						132,536			143,885			168,198			69,758
Securities - at fair value						77,368			77,706			89,374			80,727
Securities - available for sale						436,130			386,716			287,255			465,795
Securities - held to maturity						83,312			76,853			76,596			75,438
Federal Home Loan Bank stock						37,371			37,371			37,371			37,371
Loans receivable:
Held for sale						6,752			4,623			1,907			3,007
Held for portfolio						3,205,505			3,225,039			3,304,760			3,293,331
Allowance for loan losses						(80,221)			(81,544)			(92,000)			(82,912)
						3,132,036			3,148,118			3,214,667			3,213,426
Accrued interest receivable						14,656			16,047			15,907			15,570
Real estate owned held for sale, net						25,816			27,723			71,205			42,965
Property and equipment, net						90,228			90,106			93,532			91,435
Other intangibles, net						5,252			5,777			7,442			6,331
Bank-owned life insurance						59,800			59,056			57,578			58,563
Other assets						70,282			35,683			38,696			37,255
					$	4,221,427		$	4,160,764		$	4,206,067		$	4,257,312
LIABILITIES
Deposits:
Non-interest-bearing					$	804,562		$	771,812		$	645,778		$	777,563
Interest-bearing transaction and savings accounts						1,449,890			1,457,030			1,422,290			1,447,594
Interest-bearing certificates						1,171,297			1,197,328			1,398,332			1,250,497
						3,425,749			3,426,170			3,466,400			3,475,654
Advances from Federal Home Loan Bank at fair value						10,423			10,467			10,572			10,533
Customer repurchase agreements and other borrowings						90,030			91,253			136,285			152,128
Junior subordinated debentures at fair value						70,553			49,368			47,986			49,988
Accrued expenses and other liabilities						23,564			21,136			19,115			23,253
Deferred compensation						13,916			13,580			14,683			13,306
						3,634,235			3,611,974			3,695,041			3,724,862
STOCKHOLDERS' EQUITY
Preferred stock - Series A						121,610			121,156			119,851			120,702
Common stock						554,866			540,068			517,782			531,149
Retained earnings (accumulated deficit)						(89,266)			(112,465)			(126,268)			(119,465)
Other components of stockholders' equity						(18)			31			(339)			64
						587,192			548,790			511,026			532,450
					$	4,221,427		$	4,160,764		$	4,206,067		$	4,257,312
Common Shares Issued:
Shares outstanding at end of period						18,804,819			18,027,768			16,668,694			17,553,472
Less unearned ESOP shares at end of period						34,340			34,340			34,340			34,340
Shares outstanding at end of period excluding unearned ESOP shares						18,770,479			17,993,428			16,634,354			17,519,132
Common stockholders' equity per share (1)					$	24.80		$	23.77		$	23.52		$	23.50
Common stockholders' tangible equity per share (1) (2)					$	24.52		$	23.45		$	23.07		$	23.14
Common stockholders' tangible equity to tangible assets (2)						10.92%			10.15%			9.14%			9.54%
Consolidated Tier 1 leverage capital ratio						15.07%			14.00%			12.90%			13.44%
(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, core deposit and other intangibles. Tangible assets excludes other intangible assets. These ratios represent non-GAAP financial measures.

BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
							Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Dec 31, 2011
LOANS (including loans held for sale):
Commercial real estate
Owner occupied						$	477,621		$	468,318		$	507,751		$	469,806
Investment properties							613,965			612,617			582,569			621,622
Multifamily real estate							130,319			132,306			147,951			139,710
Commercial construction							23,808			40,276			35,790			42,391
Multifamily construction							18,132			20,654			20,552			19,436
One- to four-family construction							157,301			148,717			140,669			144,177
Land and land development
Residential							83,185			89,329			128,920			97,491
Commercial							11,451			12,044			29,347			15,197
Commercial business							600,046			609,497			566,243			601,440
Agricultural business including secured by farmland							211,705			188,955			208,485			218,171
One- to four-family real estate							607,489			619,511			658,216			642,501
Consumer							103,504			106,978			97,396			103,347
Consumer secured by one- to four-family real estate							173,731			180,460			182,778			181,049
Total loans outstanding						$	3,212,257		$	3,229,662		$	3,306,667		$	3,296,338
Restructured loans performing under their restructured terms						$	58,010		$	53,391		$	55,652		$	54,533
Loans 30 - 89 days past due and on accrual						$	5,504		$	14,336		$	11,560		$	9,962
Total delinquent loans (including loans on non-accrual)						$	52,866		$	79,249		$	126,805		$	85,274
Total delinquent loans / Total loans outstanding							1.65%			2.45%			3.83%			2.59%
GEOGRAPHIC CONCENTRATION OF LOANS AT
June 30, 2012							Washington			Oregon			Idaho			Other			Total
Commercial real estate
Owner occupied						$	367,377		$	50,164		$	57,022		$	3,058		$	477,621
Investment properties							469,363			94,893			42,657			7,052			613,965
Multifamily real estate							110,342			12,889			6,738			350			130,319
Commercial construction							15,767			5,415			2,626			- -			23,808
Multifamily construction							16,930			1,202			- -			- -			18,132
One- to four-family construction							86,186			69,101			2,014			- -			157,301
Land and land development
Residential							40,903			40,184			2,098			- -			83,185
Commercial							8,770			885			1,796			- -			11,451
Commercial business							383,040			75,556			60,592			80,858			600,046
Agricultural business including secured by farmland							110,608			38,650			62,447			- -			211,705
One- to four-family real estate							371,458			208,490			25,360			2,181			607,489
Consumer							69,701			28,566			5,236			1			103,504
Consumer secured by one- to four-family real estate							117,685			43,867			11,645			534			173,731
Total loans outstanding						$	2,168,130		$	669,862		$	280,231		$	94,034		$	3,212,257
Percent of total loans							67.5%			20.9%			8.7%			2.9%			100.0%
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT
June 30, 2012							Washington			Oregon			Idaho			Other			Total
Residential
Acquisition & development						$	7,071		$	15,975		$	1,738		$	- -		$	24,784
Improved lots							21,980			21,542			279			- -			43,801
Unimproved land							11,852			2,667			81			- -			14,600
Total residential land and development						$	40,903		$	40,184		$	2,098		$	- -		$	83,185
Commercial & industrial
Acquisition & development						$	1,464		$	- -		$	481		$	- -		$	1,945
Improved land							3,269			- -			570			- -			3,839
Unimproved land							4,037			885			745			- -			5,667
Total commercial land and development						$	8,770		$	885		$	1,796		$	- -		$	11,451

BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
							Quarters Ended									Six Months Ended
CHANGE IN THE							Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Jun 30, 2012			Jun 30, 2011
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period						$	81,544		$	82,912		$	97,632		$	82,912		$	97,401
Provision							4,000			5,000			8,000			9,000			25,000
Recoveries of loans previously charged off:
Commercial real estate							18			614			15			632			15
Multifamily real estate							- -			- -			- -			- -			- -
Construction and land							1,050			370			716			1,420			751
One- to four-family real estate							374			5			29			379			81
Commercial business							639			236			76			875			157
Agricultural business, including secured by farmland							15			- -			5			15			5
Consumer							195			136			84			331			162
							2,291			1,361			925			3,652			1,171
Loans charged off:
Commercial real estate							(1,259)			(1,323)			(1,871)			(2,582)			(2,860)
Multifamily real estate							- -			- -			(244)			- -			(671)
Construction and land							(1,703)			(2,924)			(6,077)			(4,627)			(16,614)
One- to four-family real estate							(1,906)			(966)			(1,894)			(2,872)			(4,103)
Commercial business							(2,297)			(1,407)			(3,993)			(3,704)			(6,361)
Agricultural business, including secured by farmland							- -			(275)			(166)			(275)			(289)
Consumer							(449)			(834)			(312)			(1,283)			(674)
							(7,614)			(7,729)			(14,557)			(15,343)			(31,572)
Net charge-offs							(5,323)			(6,368)			(13,632)			(11,691)			(30,401)
Balance, end of period						$	80,221		$	81,544		$	92,000		$	80,221		$	92,000
Net charge-offs / Average loans outstanding							0.16%			0.20%			0.41%			0.36%			0.91%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES							Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Dec 31, 2011
Specific or allocated loss allowance
Commercial real estate						$	16,834		$	17,083		$	13,087		$	16,457
Multifamily real estate							5,108			3,261			5,404			3,952
Construction and land							16,974			15,871			25,976			18,184
One- to four-family real estate							14,213			12,869			8,254			12,299
Commercial business							12,352			13,123			19,912			15,159
Agricultural business, including secured by farmland							1,294			1,887			1,409			1,548
Consumer							1,365			1,274			1,445			1,253
Total allocated							68,140			65,368			75,487			68,852
Estimated allowance for undisbursed commitments							639			651			1,001			678
Unallocated							11,442			15,525			15,512			13,382
Total allowance for loan losses						$	80,221		$	81,544		$	92,000		$	82,912
Allowance for loan losses / Total loans outstanding							2.50%			2.52%			2.78%			2.52%
Allowance for loan losses / Non-performing loans							169%			126%			80%			110%

BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
								Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Dec 31, 2011
NON-PERFORMING ASSETS
Loans on non-accrual status
Secured by real estate:
Commercial							$	7,580		$	10,541		$	22,421		$	9,226
Multifamily								- -			- -			1,560			362
Construction and land								8,939			18,601			53,529			27,731
One- to four-family								16,170			19,384			15,435			17,408
Commercial business								8,600			10,121			15,264			13,460
Agricultural business, including secured by farmland								1,010			1,481			1,342			1,896
Consumer								2,882			2,572			4,400			2,905
								45,181			62,700			113,951			72,988
Loans more than 90 days delinquent, still on accrual
Secured by real estate:
Commercial								- -			- -			- -			- -
Multifamily								- -			- -			- -			- -
Construction and land								- -			- -			- -			- -
One- to four-family								2,142			2,129			622			2,147
Commercial business								- -			- -			1			4
Agricultural business, including secured by farmland								- -			- -			545			- -
Consumer								39			84			126			173
								2,181			2,213			1,294			2,324
Total non-performing loans								47,362			64,913			115,245			75,312
Securities on non-accrual								- -			500			1,896			500
Real estate owned (REO) and repossessed assets								25,830			27,731			71,265			43,039
Total non-performing assets							$	73,192		$	93,144		$	188,406		$	118,851
Total non-performing assets / Total assets								1.73%			2.24%			4.48%			2.79%
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT
June 30, 2012								Washington			Oregon			Idaho			Total
Secured by real estate:
Commercial							$	7,445		$	- -		$	135		$	7,580
Multifamily								- -			- -			- -			- -
Construction and land
One- to four-family construction								1,516			2,046			243			3,805
Residential land acquisition & development								244			1,835			- -			2,079
Residential land improved lots								115			1,764			- -			1,879
Residential land unimproved								47			666			80			793
Commercial land improved								294			- -			- -			294
Commercial land unimproved								89			- -			- -			89
Total construction and land								2,305			6,311			323			8,939
One- to four-family								13,465			3,481			1,366			18,312
Commercial business								8,185			146			269			8,600
Agricultural business, including secured by farmland								875			- -			135			1,010
Consumer								2,338			11			572			2,921
Total non-performing loans								34,613			9,949			2,800			47,362
Securities on non-accrual								- -			- -			- -			- -
Real estate owned (REO) and repossessed assets								12,117			10,384			3,329			25,830
Total non-performing assets at end of the period							$	46,730		$	20,333		$	6,129		$	73,192

BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
						Quarters Ended								Six Months Ended
REAL ESTATE OWNED						Jun 30, 2012				Jun 30, 2011				Jun 30, 2012				Jun 30, 2011
Balance, beginning of period					$	27,723			$	94,945			$	42,965			$	100,872
Additions from loan foreclosures						6,886				11,918				8,487				26,834
Additions from capitalized costs						7				1,532				134				3,147
Dispositions of REO						(7,799	)			(32,437	)			(23,240	)			(51,331	)
Gain (loss) on sale of REO						566				58				666				(479	)
Valuation adjustments in the period						(1,567	)			(4,811	)			(3,196	)			(7,838	)
Balance, end of period					$	25,816			$	71,205			$	25,816			$	71,205
						Quarters Ended
REAL ESTATE OWNED - FIVE COMPARATIVE QUARTERS						Jun 30, 2012				Mar 31, 2012				Dec 31, 2011				Sep 30, 2011				Jun 30, 2011
Balance, beginning of period					$	27,723			$	42,965			$	66,459			$	71,205			$	94,945
Additions from loan foreclosures						6,886				1,601				7,482				18,881				11,918
Additions from capitalized costs						7				127				150				1,107				1,532
Dispositions of REO						(7,799	)			(15,441	)			(28,299	)			(19,440	)			(32,437	)
Gain (loss) on sale of REO						566				100				(170	)			(725	)			58
Valuation adjustments in the period						(1,567	)			(1,629	)			(2,657	)			(4,569	)			(4,811	)
Balance, end of period					$	25,816			$	27,723			$	42,965			$	66,459			$	71,205
REAL ESTATE OWNED - BY TYPE AND STATE						Washington				Oregon				Idaho				Total
Commercial real estate					$	340			$	301			$	2,089			$	2,730
One- to four-family construction						405				389				- -				794
Land development- commercial						3,225				37				195				3,457
Land development- residential						4,120				6,871				187				11,178
One- to four-family real estate						4,013				2,786				858				7,657
Total					$	12,103			$	10,384			$	3,329			$	25,816

BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSITS & OTHER BORROWINGS
							Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Dec 31, 2011
DEPOSIT COMPOSITION
Non-interest-bearing						$	804,562		$	771,812		$	645,778		$	777,563
Interest-bearing checking							379,742			368,810			356,321			362,542
Regular savings accounts							664,736			673,704			631,688			669,596
Money market accounts							405,412			414,516			434,281			415,456
Interest-bearing transaction & savings accounts							1,449,890			1,457,030			1,422,290			1,447,594
Interest-bearing certificates							1,171,297			1,197,328			1,398,332			1,250,497
Total deposits						$	3,425,749		$	3,426,170		$	3,466,400		$	3,475,654
INCLUDED IN TOTAL DEPOSITS
Public transaction accounts						$	73,507		$	68,590		$	72,181		$	72,064
Public interest-bearing certificates							62,743			69,856			69,219			67,112
Total public deposits						$	136,250		$	138,446		$	141,400		$	139,176
Total brokered deposits						$	23,521		$	30,978		$	73,161		$	49,194
OTHER BORROWINGS
Customer repurchase agreements / "Sweep accounts"						$	90,030		$	91,253		$	85,822		$	102,131
Temporary liquidity guarantee notes							- -			- -			49,993			49,997
Other							- -			- -			470			- -
Total other borrowings						$	90,030		$	91,253		$	136,285		$	152,128
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
June 30, 2012							Washington			Oregon			Idaho			Total
						$	2,600,221		$	600,748		$	224,780		$	3,425,749
													Minimum for Capital Adequacy
REGULATORY CAPITAL RATIOS AT							Actual						or "Well Capitalized"
June 30, 2012							Amount			Ratio			Amount			Ratio
Banner Corporation-consolidated
Total capital to risk-weighted assets						$	665,551			19.76%		$	269,458			8.00%
Tier 1 capital to risk-weighted assets							622,978			18.50%			134,729			4.00%
Tier 1 leverage capital to average assets							622,978			15.07%			165,339			4.00%
Banner Bank
Total capital to risk-weighted assets							542,314			16.97%			255,652			10.00%
Tier 1 capital to risk-weighted assets							501,906			15.71%			127,826			6.00%
Tier 1 leverage capital to average assets							501,906			12.84%			156,349			5.00%
Islanders Bank
Total capital to risk-weighted assets							31,364			16.79%			14,944			10.00%
Tier 1 capital to risk-weighted assets							29,023			15.54%			7,472			6.00%
Tier 1 leverage capital to average assets							29,023			12.70%			9,143			5.00%

BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
						Quarters Ended									Six Months Ended
OPERATING PERFORMANCE						Jun 30, 2012			Mar 31, 2012			Jun 30, 2011			Jun 30, 2012			Jun 30, 2011
Average loans					$	3,232,204		$	3,250,767		$	3,333,102		$	3,241,485		$	3,341,487
Average securities						636,097			660,638			511,273			648,368			488,233
Average interest earning cash						122,846			111,536			196,211			117,191			252,094
Average non-interest-earning assets						174,566			185,035			215,494			179,613			224,414
Total average assets					$	4,165,713		$	4,207,976		$	4,256,080		$	4,186,657		$	4,306,228
Average deposits					$	3,410,249		$	3,421,448		$	3,504,884		$	3,415,661		$	3,532,796
Average borrowings						230,517			280,439			283,178			255,478			302,612
Average non-interest-bearing other liabilities						(37,694)			(36,699)			(41,253)			(37,196)			(40,508)
Total average liabilities						3,603,072			3,665,188			3,746,809			3,633,943			3,794,900
Total average stockholders' equity						562,641			542,788			509,271			552,714			511,328
						`
Total average liabilities and equity					$	4,165,713		$	4,207,976		$	4,256,080		$	4,186,657		$	4,306,228
Interest rate yield on loans						5.48%			5.44%			5.64%			5.46%			5.65%
Interest rate yield on securities						1.99%			1.92%			2.31%			1.95%			2.34%
Interest rate yield on cash						0.25%			0.23%			0.20%			0.24%			0.22%
Interest rate yield on interest-earning assets						4.76%			4.72%			4.95%			4.74%			4.92%
Interest rate expense on deposits						0.48%			0.52%			0.80%			0.50%			0.85%
Interest rate expense on borrowings						1.64%			2.33%			2.37%			2.02%			2.31%
Interest rate expense on interest-bearing liabilities						0.55%			0.66%			0.92%			0.61%			0.96%
Interest rate spread						4.21%			4.06%			4.03%			4.13%			3.96%
Net interest margin						4.26%			4.11%			4.09%			4.19%			4.01%
Other operating income / Average assets						(0.88%)			1.05%			0.87%			0.09%			0.77%
Other operating income EXCLUDING fair value adjustments / Average assets (1)						0.97%			0.89%			0.69%			0.93%			0.67%
Other operating expense / Average assets						3.44%			3.62%			3.79%			3.53%			3.67%
Efficiency ratio (other operating expense / revenue)						107.34%			72.77%			79.79%			86.24%			80.20%
Efficiency ratio EXCLUDING fair value adjustments / Average assets (1)						68.21%			75.21%			82.97%			71.65%			82.04%
Return (Loss) on average assets						2.45%			0.88%			0.21%			1.66%			(0.26%)
Return (Loss) on average equity						18.15%			6.81%			1.73%			12.58%			(2.23%)
Return (Loss) on average tangible equity (2)						18.33%			6.88%			1.76%			12.71%			(2.26%)
Average equity / Average assets						13.51%			12.90%			11.97%			13.20%			11.87%
(1) - 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.
(2) - Average tangible equity excludes core deposit and other intangibles and represents a non-GAAP financial measure.

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