Walla Walla, WA - October 27, 2005 - Banner Corporation (Nasdaq: BANR), the parent company of Banner Bank, today reported improved third quarter profits as a result of continued loan and deposit growth. Net income increased 10% to $5.7 million, or $0.47 per diluted share, in the third quarter ended September 30, 2005, compared to $5.2 million, or $0.44 per diluted share, in the third quarter a year ago. For the first nine months of 2005, Banner's net income increased 9% to $15.4 million, compared to $14.1 million in the first nine months of 2004.

"The investments we are making in our branch network, marketing programs and lending teams are combining to produce solid results, as demonstrated by our third quarter profits," said D. Michael Jones, President and Chief Executive Officer. "Our efforts have paid off as we have increased both loans and deposits 19% over the past twelve months. Transaction and savings accounts comprise the bulk of this new deposit growth over the past year as balances for these types of accounts have increased 33%. Much of this deposit growth can be attributed to our successful franchise expansion, which we are continuing. In the third quarter we opened offices in Vancouver and Walla Walla, Washington and Boise, Idaho, and this month we opened an office in Beaverton, Oregon. Before year-end, we expect to be operating our new branch in Burlington, Washington and to have construction substantially complete for new offices in Pasco, Washington and Twin Falls, Idaho."

In the third quarter ended September 30, 2005, Banner issued $25 million of trust preferred securities to help fund its expanding operations. "Trust preferred securities are an excellent source of capital to support our continued growth," said Jones. "The proceeds from this offering provide additional flexibility with regard to the capital structure of both the Bank and the Company. We currently have over $40 million of unencumbered cash at the holding company level that could be used to fund the Bank's capital needs, acquisitions, stock repurchases or the prepayment of more costly trust preferred securities issued in prior years."

Third Quarter 2005 Highlights (Compared to Third Quarter 2004)

• Assets grew 13% to $3.19 billion.
• Loans increased 19% to $2.33 billion.
• Non-interest bearing deposits increased 40% and total deposits increased 19% to $2.28 billion.
• Non-performing assets declined by 41% (and 19% since June 30, 2005).
• Revenues advanced 11% to $33.1 million.
• Net income increased 10% to $5.7 million.
• Net interest income before provision for loan losses grew 12% to $28.1 million.

For the third quarter, net interest income before the provision for loan losses increased 12% to $28.1 million, compared to $25.1 million in the same quarter a year ago. Revenues (net interest income before the provision for loan losses plus other operating income) grew 11% to $33.1 million in the third quarter, from $29.9 million last year. Total other operating income for the third quarter increased 5% to $5.0 million, compared to $4.8 million for the same quarter last year. Income from deposit fees and other service charges increased 19% to $2.6 million in the third quarter, compared to $2.1 million for the same period in 2004. Income from mortgage banking operations increased 21% to $1.7 million in the third quarter, compared to $1.4 million in the third quarter a year ago.

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For the nine-month period ended September 30, 2005, net interest income before the provision for loan losses increased 12% to $80.0 million, compared to $71.2 million in the same period a year ago. Revenues increased 12% to $93.6 million in the first nine months of 2005, compared to $83.9 million in the nine-month period a year ago. Total other operating income increased 7% to $13.6 million in the first nine months of 2005, compared to $12.7 million in the first nine months of 2004.

Primarily as a result of Banner's branch expansion program over the past twelve months, other operating expenses increased to $23.6 million in the third quarter, compared to $20.9 million in the third quarter last year. For the first nine months of 2005, other operating expenses were $67.7 million, an increase from $59.3 million in the first nine months of 2004. The ratio of other operating expense (expense ratio) to average assets was 2.98% for the third quarter, compared to 3.02% for the second quarter of 2005 and 2.98% for the third quarter a year ago.

"So far during 2005 we have opened new branches in Beaverton, Oregon, Boise, Idaho and Vancouver, Kent, Everett, Edmonds, Lynnwood, Mercer Island and East Wenatchee, Washington. In addition, we have relocated branches in Lynden, Spokane and Walla Walla, Washington. We also saw significant progress on the construction of our four other southwestern Idaho branch offices, which we expect to open within the next six to twelve months. Operating expenses will continue to be higher as a result of our expansion, but over time these new branches should help improve our profitability by providing low cost deposits and proportionately reducing our borrowings from the Federal Home Loan Bank," said Jones. In part reflecting its enhanced deposit gathering ability, Banner has reduced its dependence on borrowings from the Federal Home Loan Bank of Seattle ("FHLB") 17% to $485 million at September 30, 2005 from $584 million just nine months earlier.

Banner's net interest margin was 3.77% for the third quarter of 2005, an improvement from 3.75% in the previous quarter. The net interest margin was 3.79% for the third quarter of 2004. For the first nine months of the year, the net interest margin was 3.75%, a four basis point improvement from 3.71% for the same period last year. "We experienced a modest expansion in our net interest margin from the previous quarter as a result of the shift in our loan and deposit mix and increasing asset yields, despite higher funding costs as a result of increasing short-term interest rates," said Jones. Funding costs were up 17 basis points compared to the previous quarter and up 63 basis points from the same quarter a year earlier. However, asset yields were also higher, increasing by 19 and 61 basis points, respectively, compared to the quarters ended June 30, 2005 and September 30, 2004. "As we have noted before, our exposure to interest rate risk remains very manageable; however, we do expect modest expansion of our margin over future periods as a result of our improving funding mix," said Jones.

In contrast with last year, for the first nine months of 2005 Banner Bank did not record any dividend income on its investment in stock of the FHLB. For the quarter and the nine months ended September 30, 2004, Banner Bank recorded $311,326 and $1,004,834, respectively, of dividend income on its FHLB stock, which contributed five basis points to the margin calculations for both of those periods.

Assets reached $3.19 billion at September 30, 2005, a 13% increase from $2.83 billion a year earlier. Net loans increased 19%, to $2.33 billion at September 30, 2005, from $1.95 billion a year ago. "Although slowing from the record pace of the two previous quarters, the major components of the loan portfolio showed significant growth in the last year," said Jones. "Compared to a year ago, we increased commercial and multifamily real estate loans 7%, construction and land loans 47% and commercial and agricultural business loans 13%. In addition, over the same period our credit quality indicators have improved dramatically."

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Book value per share was $19.01 at September 30, 2005, an improvement from $18.77 a year earlier. Tangible book value per share was $15.89 at September 30, 2005, compared to $15.53 a year earlier. Return on average assets was 0.72% for the third quarter of 2005 compared to 0.74% in the third quarter of 2004. Return on average equity was 10.03% in the third quarter of 2005 compared to 9.84% during the same period in 2004.

Non-performing assets decreased 41% to $13.9 million, or 0.44% of total assets, at September 30, 2005, compared to $23.7 million, or 0.84% of total assets, a year ago, reflecting significant progress in reducing the Company's credit risk. Non-performing assets decreased 19% compared to the previous quarter. At June 30, 2005, Banner's non-performing assets totaled $17.3 million or 0.55% of total assets. The provision for loan losses for the third quarter was $1.3 million, compared to $1.4 million in the same quarter of 2004 and $1.3 million for the quarter ended June 30, 2005. Net loan charge-offs in the third quarter of 2005 were $527,000, or 0.02% of average loans outstanding. "Recent trends in credit quality have been very encouraging and have allowed us to maintain the current level of loan loss provisioning despite significant growth in outstanding balances," said Jones. At September 30, 2005, the allowance for loan losses totaled $30.6 million, representing 1.29% of total loans outstanding.

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