Walla Walla, WA - October 24, 2003 - Banner Corporation (Nasdaq: BANR), the parent of Banner Bank, today reported that robust mortgage banking activities, growth in assets and deposits, and continuing improvements in credit quality contributed to a 23% increase in net income for the third quarter ended September 30, 2003, compared to a year earlier. Third quarter net income was $4.2 million, or $0.37 per diluted share, compared to $3.4 million, or $0.30 per diluted share, for the same quarter a year earlier. For the first nine months of the year, net income was $11.7 million, or $1.05 per diluted share, compared to $10.8 million, or $0.95 per diluted share, for the same period of 2002.

"We have generated both top- and bottom-line improvements, with assets increasing 12%, deposits growing 15% and net income up 23% from levels a year ago. This is particularly gratifying given the historically low interest rate environment and the slow economy of the Pacific Northwest," said D. Michael Jones, President and Chief Executive Officer."Our key credit quality ratios have improved significantly, with a 25% reduction in non-performing assets since the first of the year. Net charge-offs to average loans outstanding, at 38 basis points year-to-date, also shows dramatic improvement from 62 basis points at the same time last year. With this progress, our loan loss provision is returning to more normal levels, bringing increased profits to the bottom-line."

Credit Quality

Non-performing assets were $31.6 million, or 1.26% of total assets, at September 30, 2003, a 15% reduction from $37.1 million, or 1.48% of total assets, at June 30, 2003, and a 25% reduction from $42.2 million, or 1.86% of total assets, at December 31, 2002.The loan loss provision for the third quarter was $1.4 million, a reduction from the $2.3 million provision for each of the two prior quarters and $4.0 million for the third quarter a year ago.At September 30, 2003, the allowance for loan losses totaled $26.2 million, representing 1.55% of total loans outstanding, compared to $26.1 million, or 1.57% of total loans, at June 30, 2003, and $19.2 million, or 1.20% of total loans, at September 30, 2002.

Income Statement Review

Third quarter revenues (net interest income before the provision for loan losses plus other operating income) increased 5% to $25.2 million, compared to $24.0 million for the same quarter of 2002. For the first nine months, revenues increased 8% to $74.9 million, compared to $69.1 million for the same period of 2002.Net interest margin was 3.35% for the quarter, compared to 3.57% for the prior quarter and 3.98% for the same quarter a year ago."The net interest margin was negatively impacted by prepayments on mortgage-backed securities, as well as changes in the asset mix and the effect of the lower interest rate environment on loan and investment yields," said Jones.

For the quarter, mortgage banking operations, including loan servicing fees, increased 72% to $3.2 million, compared to $1.8 million for the third quarter of 2002. Total other operating income increased 41% for the quarter to $5.5 million, compared to $3.9 million for the same quarter last year. Year-to-date, other operating income grew 47% to $15.7 million, compared to $10.7 million for the first nine months of 2002.

"Over the last 12 months, we have been building our franchise through the addition of new branches, upgrades of existing branches and, most importantly, through attracting and hiring top level, experienced bankers.These efforts contributed to a 17% increase in operating expenditures over the same quarter a year earlier.The benefits of these initiatives, however, are translating into year-over-year growth for the bank as well as positioning us for improving operations in future periods," Jones said.

Other operating expense was $17.9 million for the quarter ended September 30, 2003, compared to $17.3 million for the second quarter of 2003 and $15.3 million for the third quarter of 2002. Factors contributing to the higher operating expenses include the increase in branches and lending centers, substantially augmented lending staff, increases in compensation to real estate lenders due to their exceptional volumes, higher problem loan collection costs, and increased marketing expenditures.

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