Banner Corporation Reports Earnings of $36.9 Million, or $2.49 Per Diluted Share,...

Banner Corporation Reports Earnings of $36.9 Million, or $2.49 Per Diluted
Share, in 2007 and Fourth Quarter Earnings of $12.0 Million, or $0.74 Per
Diluted Share

WALLA WALLA, Wash., Jan. 22, 2008 (PRIME NEWSWIRE) -- Banner Corporation
(Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today
reported that 2007 revenues increased 20% fueled by strong loan and deposit
growth and that profits were significantly impacted by a substantial net change
in the value of financial instruments carried at fair value. Net income for the
year ended December 31, 2007 totaled $36.9 million, or $2.49 per diluted share,
compared with $31.5 million, or $2.58 per diluted share, for the year ended
December 31, 2006. In the fourth quarter of 2007, net income was $12.0 million,
or $0.74 per diluted share, compared to $7.9 million, or $0.64 per diluted
share, in the fourth quarter of 2006.

Banner's net income included net gains of $9.2 million ($5.9 million after tax)
in the fourth quarter and $11.6 million ($7.4 million after tax) for the full
year of 2007, as a result of changes in the valuation of financial instruments
carried at fair value in accordance with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 159 and SFAS No. 157. Excluding fair value
adjustments, net income from recurring operations was $6.1 million, or $0.38 per
diluted share, in the fourth quarter and $29.5 million, or $1.99 per diluted
share, for the full year of 2007. There was no adjustment for fair value in
either period of 2006; however, Banner received a substantial insurance recovery
in the second quarter of 2006. Excluding that settlement, net income was $28.1
million, or $2.30 per diluted share in 2006. See the footnote below and "Pro
Forma Disclosures Excluding Fair Value Adjustments and 2006 Insurance Recovery."

"In 2007, we continued to focus on building our franchise through both
acquisitions and de novo branching in key markets. As a result, our larger
balance sheet and expanded franchise are producing substantially more revenue
than a year ago," said D. Michael Jones, President and Chief Executive Officer.
"Unfortunately, recently declining interest rates, slowing housing markets and a
high level of operating expenses combined to offset much of this revenue growth
and our net income was less than we had expected. The effect of these offsetting
factors was particularly evident in the fourth quarter, as our net interest
margin contracted, credit costs increased and the full burden of our expense
growth was realized.

"While increased delinquencies, particularly in our construction and land
development portfolio, significantly impacted our net interest margin (17 basis
points in the fourth quarter due to non-accruals) and required a higher level of
loan loss provisioning, we believe our level of nonperforming assets is very
manageable and that our reserves are satisfactory. We shared others' concerns
about the downturn in the national housing market and initially backed away from
construction lending in the Boise, Idaho market early last year. And, although
we remain optimistic about the Northwest economy, we became more cautious in our
approach to construction and land development lending in other markets as the
year progressed. As a result, our total construction and land development loan
originations in 2007 were approximately 35% lower than in the previous year. In
addition, we have not engaged in any sub-prime lending and have no direct
exposure to sub-prime lending problems in our loan portfolio. Nonetheless, in
the current difficult housing environment, we will continue to direct
significant efforts to managing our loan portfolios and overall credit quality.

"As part of our rapid franchise expansion, we added 18 new branches through
acquisition, opened 21 new branches and relocated eight others in the last three
years," Jones continued. "Most recently, we opened branches in Nampa, Idaho, and
Oak Harbor, Washington. During the fourth quarter of 2007, we completed the
acquisition of NCW Community Bank, based in central Washington, which had
approximately $99 million in assets, $91 million in total loans and $87 million
in deposit balances on the date of acquisition. We now have reached our goal in
terms of the number of branches required to generate deposit growth sufficient
to fund our expected loan growth and produce significant fee generating
opportunities. As a result, we plan to open only three additional branches in
2008, a normal level of growth for a bank of our size."

2007 Highlights (compared to 2006)

-- Net income, excluding fair value adjustments and the insurance
settlement, was $29.5 million, or $1.99 per diluted share, in 2007
compared to $28.1 million, or $2.30 per diluted share, in 2006.*
-- Net interest income before provision for loan losses grew 18% to
$149.6 million.
-- Revenues increased 20% to $176.6 million, excluding fair value
adjustments.
-- Total deposits increased 30% to $3.62 billion.
-- Loans increased 28% to $3.76 billion.
-- Nonperforming assets increased to 0.98% of total assets, while net
charge-offs remained modest at 0.08% of average loans.
-- Banner's capital position was strengthened, resulting in a Tier 1
Leverage Ratio of 9.80% at December 31, 2007, compared to 8.77% a
year earlier.
-- Tangible book value per share increased to $18.73 at December 31,
2007, compared to $17.75 a year earlier.
-- Three acquisitions increased loans by $596 million and deposits by
$560 million.

* Earnings information excluding the fair value adjustments and the
insurance recovery (net income from recurring 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 more useful and comparative information to assess trends in
the Company's core operations reflected in the current quarter and
year-to-date results. Where applicable, the Company has also
presented comparable earnings information using GAAP financial
measures.
Credit Quality

"We have always placed a strong emphasis on managing asset quality by applying a
disciplined approach to credit approval and monitoring for signs of
deterioration in loan quality," said Jones. "While we are not engaged in any
sub-prime lending, we have seen an increase in delinquencies and nonperforming
loans, primarily construction and land development loans for one- to four-family
residential properties. This increase was not unexpected, as housing markets
have clearly slowed. However, our net charge-offs remain reasonable and we
continue to build our reserves for possible loan losses." Banner added $2.0
million to its provision for loan losses in the fourth quarter, compared to $1.5
million in the third quarter of 2007 and $1.0 million in the fourth quarter of
2006. The allowance for loan losses at quarter-end totaled $45.8 million,
representing 1.20% of total loans outstanding. Non-performing assets were $44.3
million, or 0.98% of total assets, at December 31, 2007, compared to $23.2
million, or 0.54%, in the previous quarter, and $15.0 million or 0.43% at
December 31, 2006. Banner's net charge-offs in the current quarter totaled $1.7
million, or 0.05% of average loans. For the twelve months ended December 31,
2007, the provision for loan losses was $5.9 million and net charge-offs were
$2.9 million, or 0.08% of average loans.

"We are obviously not pleased with the growth of nonperforming loans," stated
Jones, "but believe the underlying asset values remain sufficient to minimize
principal losses even as the borrowers are using up their liquidity servicing
these loans. While construction and land development loans represented 32% of
our portfolio and approximately 80% of our nonperforming assets, they are
significantly diversified with respect to geography and sub-markets, price
ranges and borrowers. Of course, the vast majority of these loans are performing
as agreed and we are experiencing continuing loan payoffs and portfolio
turnover." The geographic distribution of construction and land developments
loans is approximately 35% in the greater Puget Sound market, 45% in the greater
Portland, Oregon market, and 9% in the greater Boise, Idaho market, with the
remaining 11% distributed in various eastern Washington and eastern Oregon
markets served by Banner Bank.

Income Statement Review

"The 100 basis point drop in the Fed Funds rate over the past four months
adversely impacted our operating profits and net interest margin in the fourth
quarter, with asset yields dropping faster than funding costs," said Jones.
Banner's net interest margin was 3.82% for the fourth quarter of 2007, compared
to 4.10% in the preceding quarter and 4.01% for the fourth quarter of 2006. For
the full year, the net interest margin was 3.99%, compared to 4.08 % in 2006.
Funding costs decreased 17 basis points compared to the previous quarter and
decreased 29 basis points from the fourth quarter a year earlier, while asset
yields decreased 45 basis points from the prior linked quarter and 48 basis
points from the fourth quarter a year ago. "While deposit costs moved
significantly lower in the fourth quarter, declining each month as the quarter
progressed, the more immediate impact of lower prime rates on a substantial
portion of our loan portfolio resulted in some compression of our net interest
margin. In addition, the higher level of delinquencies is also reflected in our
lower net interest margin, as non-accruing loans reduced the margin by
approximately 17 basis points in the fourth quarter," Jones noted.

In the fourth quarter of 2007, net interest income before the provision for loan
losses increased 17% to $38.7 million, compared to $33.1 million in the same
quarter a year ago, reflecting Banner's larger earning asset base. Revenues (net
interest income before the provision for loan losses plus other operating
income) excluding fair value adjustments increased 19% to $46.2 million in the
fourth quarter of 2007, from $38.8 million in the fourth quarter of 2006.

Total other operating income, excluding fair value adjustments, for the fourth
quarter increased 33% to $7.5 million, compared to $5.6 million for the same
quarter a year ago. Income from deposit fees and other service charges increased
59% to $4.8 million in the fourth quarter of 2007, compared to $3.0 million for
the same period in 2006. Income from mortgage banking operations decreased 10%
from the fourth quarter of 2006 and fell 26% from the prior quarter, reflecting
lower levels of production in a slowing housing market. Net fair value
adjustments as a result of changes in the value of financial assets and
liabilities recorded at fair value under SFAS No. 159 resulted in an increase of
$9.2 million and $11.6 million, respectively, for the quarter and year ended
December 31, 2007, largely as a result of changes in the fair value of the
junior subordinated debentures (trust preferred securities) issued by the
Company.

For the year ended December 31, 2007, net interest income before the provision
for loan losses increased 18% to $149.6 million, compared to $126.9 million a
year ago. Revenues increased 20% to $176.6 million, excluding fair value
adjustments, in 2007, compared to $147.5 million in 2006. Total other operating
income increased 32% to $27.0 million, excluding fair value adjustments, in
2007, compared to $20.5 million in full-year 2006.

"On October 10, 2007, we completed the acquisition of NCW Community Bank.
Additionally, during the current quarter we opened two new branches and
relocated two other branches," said Jones. "For the full year ended December 31,
2007, through acquisitions and new branch openings, we added 26 locations to our
distribution network. These new and acquired branches have increased expenses
over the quarter and year-to-date; however, they are proving to be very
successful in helping us reach new customers and grow deposits. While we need to
reduce our level of expenses from what we incurred in the fourth quarter,
recurring operating expenses exclusive of the NCW Community Bank acquisition in
October were slightly reduced from the level of those expenses in the third
quarter. Over time we expect these new offices and acquisitions will add to our
profitability by providing low-cost core deposits and additional revenue
generating opportunities." Other operating expenses increased to $35.3 million
in the fourth quarter of 2007, compared to $25.8 million in the fourth quarter a
year ago, reflecting both new branches and acquisition activity. For the full
year, other operating expenses were $127.5 million, compared to $99.7 million,
excluding the insurance recovery, and $94.4 million after the recovery in 2006.
"Approximately 50% of the year-over-year increase in operating expenses was due
to the three acquisitions. However, we clearly have work to do in reducing our
expense levels by capturing more cost savings in the acquired banks and
substantially slowing our de novo branch expansion," said Jones.

Balance Sheet Review

Assets increased 29% to $4.5 billion at December 31, 2007, compared to $3.5
billion a year earlier. "Loan growth, exclusive of the NCW Community Bank
acquisition, improved to an annualized rate of 11% in the fourth quarter and was
strongest in the commercial business and consumer sectors, reflecting the still
solid Northwest economy," said Jones. "However, we have continued to be very
cautious in our underwriting and we have significantly slowed our production of
construction and land development loans." Net loans increased 28% (20% from
acquisitions) to $3.76 billion at December 31, 2007, compared to $2.93 billion a
year earlier.

Total deposits increased 30% (20% from acquisitions) to $3.62 billion at
December 31, 2007, compared to $2.79 billion at December 31, 2006.
Non-interest-bearing accounts increased 46% and total transaction and savings
accounts increased 43% during the twelve months ending December 31, 2007, while
certificates of deposit increased 19%. "We chose not to renew approximately $86
million of matured brokered certificates of deposit in the second half of the
year, which resulted in slower deposit growth; however, our retail growth for
the whole year was very encouraging," said Jones. "We are optimistic that our
expanded branch network will deliver continued deposit growth and related fee
income as we have experienced excellent growth in the number of transaction
deposit accounts throughout the system."

Shareholders' equity for the year ended December 31, 2007 increased 75% year
over year. At December 31, 2007, shareholders' equity was $437.8 million
compared to $250.6 million at December 31, 2006. The $187.2 million rise in
equity primarily reflects the issuance of stock associated with the three
acquisitions in 2007. During the fourth quarter of 2007, the Company issued
340,000 shares of common stock in connection with the acquisition of NCW
Community Bank, resulting in $11.8 million of additional equity. During the
quarter ended June 30, 2007, the Company issued 2.6 million shares of common
stock in connection with the acquisitions of F&M Bank and San Juan Financial
Holding Company (Islanders Bank), resulting in $113.1 million of additional
equity. The three acquisitions also resulted in a combined increase of $103.1
million of goodwill and other intangibles. The Company has also issued shares
through its Dividend Reinvestment and Stock Purchase Plan and in connection with
the exercise of vested stock options. At December 31, 2006, Banner had 12.3
million shares outstanding, but as a result of the three acquisitions and the
stock issuance noted above, it had 16.3 million shares outstanding at December
31, 2007.

Book value per share increased 32% to $27.32 at year-end, from $20.76 a year
earlier, and tangible book value per share was up 6% to $18.73 at year-end,
compared to $17.75 a year earlier.

Accounting Treatments

Banner Corporation elected early adoption of SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, and SFAS No. 157, Fair Value
Measurements, effective January 1, 2007. SFAS No. 159, which was issued in
February 2007, generally permits the measurement of selected eligible financial
instruments at fair value at specified election dates. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value under generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurement. The Company made this election to allow it more flexibility with
respect to the management of its investment securities, wholesale borrowings and
interest rate risk position in future periods.

Upon adoption of SFAS No.159, the Company selected fair value measurement for
all of its "available for sale" investment securities, Federal Home Loan Bank
advances and junior subordinated debentures, which had fair values of
approximately $226.2 million, $176.8 million and $124.4 million, respectively,
on January 1, 2007. The initial fair value measurement of these instruments
resulted in a $3.5 million adjustment for the cumulative effect, net of tax, as
a result of the change in accounting, which was recorded as a reduction in
retained earnings as of January 1, 2007, and which under SFAS No. 159 has not
been recognized in current earnings. While the adjustment to retained earnings
is permanent, approximately $2.6 million of the amount was previously reported
as accumulated other comprehensive loss at December 31, 2006, so the reduction
in total shareholders' equity was only $897,000 on January 1, 2007. Following
the initial election, changes in the value of financial instruments recorded at
fair value are recognized as gains or losses in earnings in subsequent financial
reporting periods. As a result of the adoption of SFAS No. 159 and changes in
the fair value measurement of the financial assets and liabilities noted above,
Banner recorded a net gain of $1.2 million ($755,000 after tax) in the quarter
ended March 31, 2007, a net loss of $1.9 million ($1.2 million after tax) in the
quarter ended June 30, 2007, a net gain of $3.1 million ($2.0 million after-tax)
in the quarter ended September 30, 2007, and a net gain of $9.2 million ($5.9
million after tax), in the quarter ended December 31, 2007, resulting in a
cumulative net gain of $11.6 million ($7.4 million after tax) for the
twelve-month period.

Restatement and Reclassification

Operating results and financial statements for the quarter and year ended
December 31, 2006 have been restated to reflect non-material adjustments to our
provision for income taxes, income taxes payable and the common stock and
retained earnings components of stockholders' equity related to the tax
treatment of certain elements of stock-based compensation. The effects of these
adjustments are increases of $155,000 and $619,000, respectively, in the
provision for income taxes for the quarter and year ended December 31, 2006; as
well as a reduction of $2.4 million of retained earnings and increases of $2.8
million and $379,000, respectively, in common stock (paid-in capital) and total
stockholders' equity as of December 31, 2006. These adjustments have
immaterially affected certain previously reported ratios for those prior
periods.

In addition, certain reclassifications have been made to the prior periods'
consolidated financial statements and/or schedules to conform to the current
period's presentation. These reclassifications may have slightly affected
certain ratios for the prior periods. These reclassifications had no effect on
retained earnings or net income as previously presented and the effect of these
reclassifications is considered immaterial.

Conference Call

Banner will host a conference call on Wednesday, January 23, 2008, at 6:00 a.m.
PST, to discuss fourth quarter and year end results. The conference call can be
accessed live by telephone at 303-262-2130. To listen to the call online, go to
the Company's website at www.bannerbank.com. An archived recording of the call
can be accessed by dialing 303-590-3000, passcode 11104221# until Wednesday,
January 30, 2008, or via the Internet at www.bannerbank.com.

About the Company

Banner Corporation is a $4.5 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.

Statements concerning future performance, developments or events, expectations
for earnings, growth and market forecasts, and any other guidance on future
periods, constitute forward-looking statements, which are subject to a number of
risks and uncertainties that are beyond Banner's control and might cause actual
results to differ materially from the expectations and stated objectives.
Factors which could cause actual results to differ materially include, but are
not limited to, regional and general economic conditions, management's ability
to generate improvement in asset quality and profitability, changes in interest
rates, deposit flows, demand for housing, mortgages and other loans, real estate
values, competition, loan delinquency rates, the successful operation of the
newly-opened branches and loan offices, the ability to successfully complete
consolidation and conversion activities, incorporate acquisitions into
operations, retain key employees and achieve cost savings, changes in accounting
principles, practices, policies or guidelines, changes in legislation or
regulation, other economic, competitive, governmental, regulatory and
technological factors affecting operations, pricing, products and services,
Banner's ability to successfully resolve outstanding credit issues and other
risks detailed in Banner's reports filed with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the fiscal year ended
December 31, 2006. Accordingly, these factors should be considered in evaluating
the forward-looking statements, and undue reliance should not be placed on such
statements. Banner undertakes no responsibility to update or revise any
forward-looking statements.

RESULTS OF OPERATIONS
(In thousands except share and per share data)

Quarters Ended Twelve Months Ended
-------------------------------- ---------------------
Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
2007 2007 2006 2007 2006
---------- ---------- ---------- ---------- ----------
RESTATED(1) RESTATED(1)

INTEREST INCOME:
Loans
receivable $ 72,592 $ 75,668 $ 62,514 $ 281,135 $ 227,661
Mortgage-backed
securities 1,179 1,343 1,845 5,832 7,860
Securities
and cash
equivalents 2,471 2,199 1,840 8,342 7,498
---------- ---------- ---------- ---------- ----------
76,242 79,210 66,199 295,309 243,019

INTEREST EXPENSE:
Deposits 34,091 35,341 27,067 129,420 89,987
Federal Home
Loan Bank
advances 435 292 2,695 4,168 14,354
Other borrowings 766 730 1,168 3,214 3,744
Junior
subordinated
debentures 2,288 2,177 2,154 8,888 8,029
---------- ---------- ---------- ---------- ----------
37,580 38,540 33,084 145,690 116,114
---------- ---------- ---------- ---------- ----------

Net interest
income before
provision for
loan losses 38,662 40,670 33,115 149,619 126,905

PROVISION FOR
LOAN LOSSES 2,000 1,500 1,000 5,900 5,500
---------- ---------- ---------- ---------- ----------
Net interest
income 36,662 39,170 32,115 143,719 121,405
OTHER OPERATING
INCOME:
Deposit fees
and other
service
charges 4,770 4,750 2,998 16,573 11,417
Mortgage banking
operations 1,325 1,782 1,474 6,270 5,824
Loan servicing
fees 625 457 260 1,830 1,299
Miscellaneous 800 483 905 2,336 1,970
---------- ---------- ---------- ---------- ----------
7,520 7,472 5,637 27,009 20,510
Gain (loss) on
sale of
securities -- -- -- -- 65
Increase
(decrease)
in valuation
of financial
instruments
carried at
fair value 9,209 3,062 -- 11,574 --
---------- ---------- ---------- ---------- ----------
Total other
operating
income 16,729 10,534 5,637 38,583 20,575
OTHER OPERATING
EXPENSE:
Salary and
employee
benefits 19,441 20,431 16,369 75,975 65,116
Less capitalized
loan
origination
costs (2,459) (2,455) (2,672) (10,683) (11,448)
Occupancy and
equipment 6,011 5,484 4,279 20,953 15,938
Information /
computer data
services 2,130 2,031 1,342 7,297 5,120
Miscellaneous 10,150 9,355 6,518 33,947 25,005
---------- ---------- ---------- ---------- ----------
35,273 34,846 25,836 127,489 99,731
Insurance
recovery, net
proceeds -- -- -- -- (5,350)
---------- ---------- ---------- ---------- ----------
Total other
operating
expense 35,273 34,846 25,836 127,489 94,381
---------- ---------- ---------- ---------- ----------

Income before
provision for
income taxes 18,118 14,858 11,916 54,813 47,599
PROVISION FOR
INCOME TAXES 6,106 4,871 4,064 17,890 16,055
---------- ---------- ---------- ---------- ----------
NET INCOME $ 12,012 $ 9,987 $ 7,852 $ 36,923 $ 31,544
========== ========== ========== ========== ==========
Earnings per
share
Basic $ 0.75 $ 0.64 $ 0.65 $ 2.53 $ 2.65
Diluted $ 0.74 $ 0.64 $ 0.64 $ 2.49 $ 2.58
Cumulative
dividends
declared per
common share $ 0.20 $ 0.19 $ 0.19 $ 0.77 $ 0.73
Weighted average
shares
outstanding
Basic 15,936,430 15,497,193 12,004,212 14,581,286 11,905,598
Diluted 16,141,941 15,720,248 12,358,008 14,838,469 12,238,933
Shares
repurchased
during the
period 58,157 700 2,220 69,467 65,642
Shares issued
in connection
with
acquisitions 339,860 -- -- 2,932,471 --
Shares issued
in connection
with exercise
of stock
options or DRIP 163,379 141,281 16,776 1,088,875 297,436

(1) Provision for income taxes has been restated to reflect
adjustments related to the tax treatment of certain elements of
stock-based compensation.
---------------------------------------------------------------------
PRO FORMA DISCLOSURES EXCLUDING THE EFFECTS OF THE CHANGE IN THE
VALUATION OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE AND THE 2006
INSURANCE RECOVERY

NET INCOME
from above $ 12,012 $ 9,987 $ 7,852 $ 36,923 $ 31,544
ADJUSTMENTS
FOR CHANGE
IN VALUATION
OF FINANCIAL
INSTRUMENTS
AND THE 2006
INSURANCE
RECOVERY
Change in
valuation of
financial
instruments
carried at
fair value (9,209) (3,062) -- (11,574) --
2006 insurance
recovery -- -- -- -- (5,350)
Income tax
provision
(benefit)
related to
above items 3,315 1,102 -- 4,167 1,926
---------- ---------- ---------- ---------- ----------

Above items,
net of
income tax
provision
(benefit) (5,894) (1,960) -- (7,407) (3,424)
---------- ---------- ---------- ---------- ----------

NET INCOME FROM
RECURRING
OPERATIONS $ 6,118 $ 8,027 $ 7,852 $ 29,516 $ 28,120
========== ========== ========== ========== ==========
Earnings per
share EXCLUDING
the effects
of change in
valuation of
financial
instruments
carried at
fair value
and the 2006
insurance
recovery
Basic $ 0.38 $ 0.52 $ 0.65 $ 2.02 $ 2.36
Diluted $ 0.38 $ 0.51 $ 0.64 $ 1.99 $ 2.30

FINANCIAL CONDITION

(In thousands except share and per share data)

Dec 31, Sep 30, Dec 31,

2007 2007 2006

----------- ----------- -----------

RESTATED(1) RESTATED(1)

ASSETS

------

Cash and due from banks $ 98,120 $ 83,933 $ 68,317

Federal funds and interest-

bearing deposits 310 62,628 5,068

Securities - trading 202,863 158,932 --

Securities - available for sale -- -- 226,153

Securities - held to maturity 53,516 53,259 47,872

Federal Home Loan Bank stock 37,371 37,291 35,844

Loans receivable:

Held for sale 4,596 4,121 5,080

Held for portfolio 3,805,021 3,617,130 2,960,910

Allowance for loan losses (45,827) (44,212) (35,535)

----------- ----------- -----------

3,763,790 3,577,039 2,930,455

Accrued interest receivable 24,980 26,376 23,272

Real estate owned held for

sale, net 1,867 3,072 918

Property and equipment, net 98,098 95,816 58,003

Goodwill and other

intangibles, net 137,654 128,868 36,287

Bank-owned life insurance 51,483 51,024 38,527

Other assets 25,089 22,123 24,850

----------- ----------- -----------

$ 4,495,141 $ 4,300,361 $ 3,495,566

=========== =========== ===========

LIABILITIES

-----------
Deposits:

Non-interest-bearing $ 484,251 $ 473,571 $ 332,372

Interest-bearing transaction

and savings accounts 1,288,110 1,299,232 905,746

Interest-bearing certificates 1,848,232 1,825,096 1,556,474

----------- ----------- -----------

3,620,593 3,597,899 2,794,592

Advances from Federal Home

Loan Bank -- -- 177,430

Advances from Federal Home

Loan Bank at fair value 167,045 24,577 --

Customer repurchase agreements

and other borrowings 91,724 78,511 103,184

Junior subordinated debentures -- -- 123,716

Junior subordinated debentures

at fair value 113,270 122,220 --

Accrued expenses and other

liabilities 48,189 47,577 36,888

Deferred compensation 11,396 10,830 7,025

Income taxes payable (1) 5,078 4,783 2,124

----------- ----------- -----------

4,057,295 3,886,397 3,244,959

STOCKHOLDERS' EQUITY

--------------------
Common stock (1) 300,486 285,468 137,981

Retained earnings (1) 139,636 130,826 117,754

Other components of

stockholders' equity (2,276) (2,330) (5,128)

----------- ----------- -----------

437,846 413,964 250,607

----------- ----------- -----------

$ 4,495,141 $ 4,300,361 $ 3,495,566

=========== =========== ===========

Shares Issued:

Shares outstanding at end of

period 16,266,149 15,821,067 12,314,270

Less unearned ESOP shares at

end of period 240,381 240,381 240,381

----------- ----------- -----------

Shares outstanding at end of

period excluding unearned

ESOP shares 16,025,768 15,580,686 12,073,889

=========== =========== ===========

Book value per share (1)(2) $ 27.32 $ 26.57 $ 20.76

Tangible book value per

share (1)(2)(3) $ 18.73 $ 18.30 $ 17.75

Consolidated Tier 1 leverage

capital ratio 9.80% 9.83% 8.77%

(1) Income taxes payable, common stock and retained earnings have been
restated to reflect adjustments related to the tax treatment of
certain elements of stock-based compensation.

(2) Calculation is based on number of shares outstanding at the end of
the period rather than weighted average shares outstanding and
excludes unallocated shares in the ESOP.

(3) Tangible book value excludes goodwill, core deposit and other

intangilbles.

ADDITIONAL FINANCIAL INFORMATION
( Dollars in thousands )

Dec 31, Sep 30, Dec 31,
2007 2007 2006
---------- ---------- ----------
LOANS (including
loans held
for sale):
----------------
Commercial
real estate $ 882,523 $ 811,816 $ 596,488
Multifamily
real estate 165,886 170,316 147,311
Commercial
construction 74,123 84,176 98,224
Multifamily
construction 35,318 41,814 39,908
One- to four-
family
construction 613,779 624,280 570,501
Land and land
development 497,962 463,514 402,665
Commercial
business 696,350 630,827 467,745
Agricultural
business
including
secured by
farmland 186,305 178,158 163,518
One- to four-
family real
estate 463,954 424,122 361,625
Consumer 193,417 192,228 118,005
---------- ---------- ----------

Total loans
outstanding $3,809,617 $3,621,251 $2,965,990
========== ========== ==========
Total
delinquent
loans $ 69,031 $ 38,974 $ 17,818
========== ========== ==========
Total delinquent
loans /
Total loans
outstanding 1.81% 1.08% 0.60%

NON-PERFORMING Dec 31, Sep 30, Dec 31,
ASSETS: 2007 2007 2006
-------------- ---------- ---------- ----------
Loans on non-
accrual
status $ 42,068 $ 19,788 $ 13,463
Loans more than
90 days
delinquent,
still on
accrual 315 132 593
---------- ---------- ----------
Total non-
performing
loans 42,383 19,920 14,056
Real estate
owned ( REO ) /
Repossessed
assets 1,885 3,294 918
---------- ---------- ----------

Total non-
performing
assets $ 44,268 $ 23,214 $ 14,974
========== ========== ==========
Total non-
performing
assets /
Total assets 0.98% 0.54% 0.43%

Quarters Ended Twelve Months Ended
CHANGE IN THE -------------------------------- ---------------------
ALLOWANCE FOR Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
LOAN LOSSES: 2007 2007 2006 2007 2006
-------------- ---------- ---------- ---------- ---------- ----------
Balance,
beginning of
period $ 44,212 $ 43,248 $ 35,160 $ 35,535 $ 30,898
Acquisitions /
( divestitures ) 1,319 -- -- 7,276 --
Provision 2,000 1,500 1,000 5,900 5,500

Recoveries of
loans previously
charged off 127 469 354 1,491 1,898
Loans charged
-off (1,831) (1,005) (979) (4,375) (2,761)
---------- ---------- ---------- ---------- ----------
Net (charge-
offs)
recoveries (1,704) (536) (625) (2,884) (863)
---------- ---------- ---------- ---------- ----------

Balance, end
of period $ 45,827 $ 44,212 $ 35,535 $ 45,827 $ 35,535
========== ========== ========== ========== ==========
Net charge-offs
(recoveries) /
Average loans
outstanding 0.05% 0.01% 0.02% 0.08% 0.03%
Allowance for
loan losses /
Total loans
outstanding 1.20% 1.22% 1.20% 1.20% 1.20%

Dec 31, Sep 30, Dec 31,
DEPOSITS 2007 2007 2006
-------- ---------- ---------- ----------
Non-interest-
bearing $ 484,251 $ 473,571 $ 332,372
---------- ---------- ----------

Interest-bearing
checking 430,635 438,974 327,836
Regular savings
accounts 609,073 602,190 364,957
Money market
accounts 248,403 258,068 212,953
---------- ---------- ----------

Interest-
bearing
transaction
& savings
accounts 1,288,111 1,299,232 905,746
---------- ---------- ----------

Three-month
maturity money
market
certificates 165,693 167,025 178,981
Other
certificates 1,682,538 1,658,071 1,377,493
---------- ---------- ----------
Interest-
bearing
certificates 1,848,231 1,825,096 1,556,474
---------- ---------- ----------

Total
deposits $3,620,593 $3,597,899 $2,794,592
========== ========== ==========

Included in
other
borrowings
-----------
Customer
repurchase
agreements /
"Sweep
accounts" $ 91,724 $ 78,511 $ 76,825
---------- ---------- ----------

ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates / Ratios Annualized)

Quarters Ended Twelve Months Ended
-------------------------------- ---------------------
OPERATING Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
PERFORMANCE: 2007 2007 2006 2007 2006
------------- ---------- ---------- ---------- ---------- ----------
RESTATED(1)RESTATED(1) RESTATED(1)

Average loans $3,716,512 $3,626,541 $2,950,193 $3,437,259 $2,767,585
Average
securities
and deposits 301,071 313,325 328,241 309,860 342,434
Average non-
interest-
earning assets 356,752 346,762 191,363 297,353 191,579
---------- ---------- ---------- ---------- ----------
Total average
assets $4,374,335 $4,286,628 $3,469,797 $4,044,472 $3,301,598
========== ========== ========== ========== ==========

Average
deposits $3,628,581 $3,593,722 $2,749,618 $3,332,098 $2,536,154
Average
borrowings 258,431 221,837 425,398 287,478 488,984
Average non-
interest-
earning
liabilities 62,415 62,054 45,884 58,371 39,103
---------- ---------- ---------- ---------- ----------
Total average
liabilities 3,949,427 3,877,613 3,220,900 3,677,947 3,064,241

Total average
stockholders'
equity 424,908 409,015 248,897 366,525 237,357
---------- ---------- ---------- ---------- ----------
`
Total average
liabilities
and equity $4,374,335 $4,286,628 $3,469,797 $4,044,472 $3,301,598
========== ========== ========== ========== ==========

Interest rate
yield on loans 7.75% 8.28% 8.41% 8.18% 8.23%
Interest rate
yield on
securities
and deposits 4.81% 4.48% 4.45% 4.57% 4.48%
---------- ---------- ---------- ---------- ----------

Interest rate
yield on
interest-
earning
assets 7.53% 7.98% 8.01% 7.88% 7.81%
---------- ---------- ---------- ---------- ----------

Interest rate
expense on
deposits 3.73% 3.90% 3.91% 3.88% 3.55%
Interest rate
expense on
borrowings 5.36% 5.72% 5.61% 5.66% 5.34%
---------- ---------- ---------- ---------- ----------

Interest rate
expense on
interest-
bearing
liabilities 3.84% 4.01% 4.13% 4.03% 3.84%
---------- ---------- ---------- ---------- ----------

Interest rate
spread 3.69% 3.97% 3.88% 3.85% 3.97%
========== ========== ========== ========== ==========

Net interest
margin 3.82% 4.10% 4.01% 3.99% 4.08%
========== ========== ========== ========== ==========

Other operating
income /
Average assets 1.52% 0.97% 0.64% 0.95% 0.62%

Other operating
expense /
Average assets 3.20% 3.23% 2.95% 3.15% 2.86%

Efficiency ratio
(other operating
expense /
revenue) 63.68% 68.05% 66.67% 67.74% 64.00%

Return on
average assets 1.09% 0.92% 0.90% 0.91% 0.96%

Return on
average equity 11.22% 9.69% 12.52% 10.07% 13.29%

Return on
average
tangible
equity (1) 15.28% 13.36% 14.65% 13.27% 15.69%

Average equity /
Average assets 9.71% 9.54% 7.17% 9.06% 7.19%

(1) Average non-interest-earning liabilities and average
stockholders' equity have been restated to reflect adjustments
related to the tax treatment of certain elements of stock-based
compensation

(2) Average tangible equity excludes goodwill
---------------------------------------------------------------------

Operating performance for the periods presented excluding the effects
of change in valuation of financial instruments carried at fair
value and the 2006 insurance recovery.

Other operating
income (loss)
EXCLUDING
change in
valuation of
financial
instruments
carried at
fair value /
Average assets 0.68% 0.69% 0.64% 0.67% 0.62%

Other operating
expense
EXCLUDING
the 2006
insurance
recovery /
Average assets 3.20% 3.23% 2.95% 3.15% 3.02%

Efficiency ratio
(other operating
expense /
revenue)
EXCLUDING
change in
valuation
of financial
instruments
carried at
fair value
and the 2006
insurance
recovery 76.38% 72.38% 66.67% 72.18% 67.62%

Return on
average assets
EXCLUDING
change in
valuation of
financial
instruments
carried at
fair value
and the 2006
insurance
recovery 0.55% 0.74% 0.90% 0.73% 0.85%

Return on
average equity
EXCLUDING
change in
valuation of
financial
instruments
carried at
fair value
and the 2006
insurance
recovery 5.71% 7.79% 12.52% 8.05% 11.85%

Return on
average
tangible
equity
EXCLUDING
change in
valuation of
financial
instruments
carried at
fair value
and the 2006
insurance
recovery 7.78% 10.73% 14.65% 10.61% 13.99%

ADDITIONAL FINANCIAL INFORMATION
( Dollars in thousands )

Dec 31, Sep 30, Dec 31,
2007 2007 2006
----------- ----------- -----------
NON-PERFORMING ASSETS:
----------------------
Loans on non-accrual status
Secured by real estate:
One- to four-family $ 3,371 $ 1,070 $ 1,198
Commercial 1,357 544 4,215
Multifamily 1,222 1,250 792
Construction and land 33,432 10,699 2,056
Commercial business 2,250 5,713 4,498
Agricultural business,
including secured by farmland 436 512 703
Consumer -- -- 1
----------- ----------- -----------
42,068 19,788 13,463

Loans more than 90 days
delinquent, still on accrual
Secured by real estate:
One- to four-family 221 54 593
Commercial -- -- --
Multifamily -- -- --
Construction and land -- -- --
Commercial business -- -- --
Agricultural business,
including secured by farmland -- -- --
Consumer 94 78 --
----------- ----------- -----------
315 132 593
----------- ----------- -----------
Total non-performing loans 42,383 19,920 14,056
Real estate owned ( REO )
/ Repossessed assets 1,885 3,294 918
----------- ----------- -----------

Total non-performing assets $ 44,268 $ 23,214 $ 14,974
=========== =========== ===========
-0-
CONTACT: Banner Corporation
D. Michael Jones, President and CEO
Lloyd W. Baker, CFO
(509) 527-3636