Banner Corporation Announces Merger of Subsidiary Banks and Provides Preliminary Information On Second Quarter Results.

Business Editors

WALLA WALLA, Wash.--(BUSINESS WIRE)--June 29, 2001

Banner Corporation (Nasdaq:BANR) today announced plans to merge its subsidiary banks, Banner Bank and Banner Bank of Oregon.

"When we adopted the name Banner Bank in October of last year, we restructured the Company into two separate entities, Banner Bank and Banner Bank of Oregon," stated Gary Sirmon, president and CEO. "The intent was for Banner Bank of Oregon to qualify as a community financial institution under the Gramm-Leach-Bliley Act, allowing it to obtain long-term Federal Home Loan Bank advances to fund small business and agribusiness loans.

"However, with the release of the Act's implementing regulations, it appears that the benefits of additional borrowing capacity are not as substantial as the potential efficiencies we may derive by operating under a single bank charter," continued Sirmon. In addition to reducing the regulatory reporting burden, other duplicated efforts may be eliminated, resulting in improved operating efficiencies over time. The Company's previously announced data processing conversion to one system is proceeding as expected and should coincide well with the planned merger. No unusual expenses are anticipated in connection with the merger.

In addition, as discussed in the earnings release for the quarter ended March 31, 2001, and the conference call in connection with that release, the continued lowering of interest rates by the Federal Reserve has put additional pressure on Banner's net interest margin. Also as anticipated, the costs associated with the data processing conversion will increase expenses for the second quarter ended June 30, 2001. As a result, the Company believes net income will be between $.38 and $.40 per share for the second quarter, slightly lower than previously anticipated and about level with the $.39 per share earned in the second quarter of last year.

"Our loan volume and loan quality remain strong, as does our overall growth," said Sirmon. "However, declining interest rates have had a more immediate effect on loan yields than on funding costs. Based on the current level of interest rates, we do anticipate significant declines in funding costs over the balance of the year as certificates of deposit and FHLB advances reprice upon renewal, although the most recent Federal Reserve action will maintain margin pressures during the next quarter. Later this year and to a greater extent next year, we expect that efficiencies and cost savings from our consolidation efforts and the merger of the two subsidiary banks will help offset margin pressures."

Comprehensive second quarter results will be released on Friday, July 27, 2001 at 5:00 a.m. PDT. Management will host a conference call that morning at 8:00 a.m. PDT/11:00 a.m. EDT. Further details regarding accessing the call will be available shortly.

On April 20, 2001, Banner reported strong internally generated growth in loans and deposits for the first quarter ended March 31, 2001. For that quarter, net income grew 5% to $4.6 million, or $.40 per share, compared to $4.4 million, or $.38 per share in the first quarter of 2000. Total assets increased 6% over the twelve months to $2.0 billion and shareholders' equity increased 9% to $197.3 million. Banner's loan portfolio grew 12% to $1.5 billion and deposits increased 8% to $1.2 billion over the twelve months.

Banner Corporation is the parent company of two commercial banking subsidiaries, which operate a combined total of 38 branch offices and five loan offices in 17 counties in three states. Banner Bank, the Washington state chartered commercial bank, operates 32 bank branches and four loan offices in Washington, Oregon and Idaho. Banner Bank of Oregon operates six commercial bank branches and one loan office within that state. Banner serves the rapidly growing Pacific Northwest region with a full range of deposit and loan services. Visit Banner Bank on the Web at www.banrbank.com. On Thursday, June 28, 2001, the Company's stock closed the trading day at $21.64 per share.

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 the Company's control and might cause actual results to differ materially from the expectations and stated objectives. These factors include but are not limited to: the effect of interest rate changes, competition in the financial services market for both deposits and loans as well as regional and general economic conditions, Banner's ability to efficiently develop and operate de novo branches, Banner's ability to successfully integrate the two subsidiaries, complete the conversion of computer systems and achieve cost savings. Banner undertakes no responsibility to update or revise any forward-looking statements.