SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT


PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934


Date of Report (Date of earliest event reported): February 5, 2003


Banner Corporation
(Exact name of registrant as specified in its charter)



    Washington       0-26584     91-1691604  
State or other jurisdiction
of incorporation		 Commission
File Number		 (I.R.S. Employer
Identification No.)


10 S. First Avenue, Walla Walla, Washington   99362  
(Address of principal executive offices) (Zip Code)


Registrant's telephone number (including area code) (509) 527-3636


Not Applicable
(Former name or former address, if changed since last report)






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Item 5.  Other Events

       On February 5, 2003 the Registrant announced its results for the fourth quarter and year ended December 31, 2002. The Registrant also announced that as a result of further deterioration in the quality of the loan portfolio, that its fourth quarter loan loss provision was $10.0 million. For further information, reference is made to the Registrant's press release dated February 5, 2003, which is attached hereto as Exhibit 99 and incorporated herein by reference.



Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits

       Exhibit

         99      Press Release dated February 5, 2003.













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SIGNATURES



       Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.


BANNER CORPORATION
 
 
DATE: February 10, 2003 By: /s/D. Michael Jones               
D. Michael Jones
President and Chief Executive Officer













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Exhibit 99

















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The Cereghino Group Contact:  D. Michael Jones
CORPORATE INVESTOR RELATIONS               President and CEO
1403 SE 44th Avenue BANNER               Lloyd Baker, CFO
Portland, OR 97215 CORPORATION                                         (509) 527-3636
503.421.4168
www.stockvalues.com
News Release    
 


BANNER CORPORATION REPORTS FOURTH QUARTER AND FULL YEAR RESULTS

Walla Walla, WA – February 5, 2003 – Banner Corporation (Nasdaq: BANR), the parent company of Banner Bank, today reported a net loss of $1.6 million, or $(0.14) per diluted share for the fourth quarter, compared to net income of $3.7 million, or $0.32 per diluted share, in the fourth quarter of 2001. For the year ended December 31, 2002, net income was $9.3 million, or $0.82 per diluted share, compared to $7.5 million, or $0.64 per diluted share, for the year ended 2001.

Asset Quality

 "We announced on December 20, 2002, that a portion of our loan portfolio was experiencing signs of deterioration, which would require us to substantially increase the quarterly loan loss provision to bolster reserves," said D. Michael Jones, President and Chief Executive Officer. "Subsequent to that announcement, additional deterioration has become evident and the Puget Sound economy has continued to weaken. In light of these events, we have increased the provision for loan losses to $10.0 million for the quarter ended December 31, 2002. We are hopeful that this additional provision will allow us to return to a more normal level of provision in 2003."

Non-performing assets increased to $42.2 million, or 1.86% of total assets, at December 31, 2002. The allowance for loan losses was $26.5 million, or 1.69% of total loans outstanding, at December 31, 2002, compared to $17.6 million, or 1.10% of loans, a year earlier. Net charge-offs to average loans outstanding improved to 0.16% for the quarter ended December 31, 2002, from 0.32% in the fourth quarter of 2001. For the year ended December 31, 2002, net charge-offs were 0.78%, compared to 0.75% for the prior year. "The problem loans are primarily due from borrowers located in the Puget Sound region, and are the result of poor risk assessment at the time they were originated coupled with weakened economic conditions in that area," said Jones. "We continue to direct significant efforts toward overall asset quality and managing non-performing loans, and we have substantially upgraded our risk-assessment procedures.

"2002 was a very difficult year for Banner Corporation. While we have been successful in building a new management team, adding a number of seasoned commercial lending officers, growing our Bank's deposit portfolio, improving the Company's balance sheet liquidity and augmenting our capital structure, the continuing deterioration of the quality of our loan portfolio and the resulting impact on our earnings performance is very disappointing," said Jones.

Income Statement Review

Revenues (net interest income before the provision for loan losses plus other operating income) for the quarter ended December 31, 2002, increased 12%, to $25.1 million compared to $22.4 million for the same quarter a year earlier. For the year ended December 31, 2002, revenues increased 11% to $94.2 million compared to $85.2 million for 2001.

Net interest margin was 3.86% in the fourth quarter of 2002, a six basis point improvement from the 3.80% margin generated in the fourth quarter of 2001. Net interest margin for the year ended December 31, 2002 was 3.91%, an 18 basis point improvement from a year ago. "Funding costs have declined as interest rates remain extraordinarily low, and we continue to grow our deposit base. This decline in costs has contributed to an improvement in our interest margin. However, the Federal Reserve's most recent rate cut, combined with the Bank's increase in non-performing assets, has placed pressure on asset yields and compressed our net interest margin during the last half of the quarter," said Jones.

Mortgage banking activities for both purchases and refinancing continue to contribute to other operating income as housing markets remain strong. Real estate loan production for the year, including construction loans, surpassed $1 billion for the first time in the Company's history. Other operating income increased 42% to $5.2 million in the fourth quarter of 2002, from $3.7 million in the same quarter a year ago. Income from mortgage banking operations grew to $2.7 million while deposit fees totaled $1.5 million during the quarter compared to $1.2 million and $1.5 million, respectively, in the same quarter a year ago. For the year ended December 31, 2002, other operating income reached $15.9 million, an 18% improvement over the $13.5 million generated in the previous year.

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"We have expanded our franchise through the acquisition of Oregon Business Bank in January 2002 and de novo branches in Spokane and Pasco, Washington," Jones said. "We also have added commercial lending centers in Portland, Seattle, Spokane and the Tri-Cities, and staffed them with a number of experienced commercial bankers; and we have embarked on a regional advertising and marketing campaign. We anticipate increased contributions from each of these efforts in the coming year."

Other operating expenses were $18.0 million for the fourth quarter of 2002, compared to $13.1 million in the fourth quarter of 2001. Other operating expenses were $60.4 million for all of 2002, compared to $59.6 million for 2001. Fourth quarter 2002 expenses increased because of a number of seasoned commercial lending officers that have been added to staff but have not yet had time to convert their long-term customers to Banner Bank. Additionally, expenses were increased when compared to the fourth quarter of 2001 due to significant increases in incentive compensation caused by excellent fourth quarter mortgage banking results along with elevated compensation and collection expenses related to management of the Bank's problem loan portfolio.

Following the adoption of Financial Accounting Standards No. 142, Banner Bank no longer amortizes goodwill associated with intangible assets from acquisitions. Consequently, goodwill amortization expenses have been significantly lower this year compared to comparable periods a year earlier. Goodwill amortization expense was $795,000 in the fourth quarter of 2001 and $3.2 million for the year ended December 31, 2001.

Balance Sheet Review

Total assets increased 8% to $2.26 billion at December 31, 2002, from $2.09 billion at December 31, 2001, while stockholders' equity declined to $190.4 million from $192.3 million over the same period. Book value per share at December 31, 2002, increased to $17.64 per share from $17.40 per share a year earlier. Tangible book value per share at December 31, 2002, was $14.24 per share compared to $14.55 per share at December 31, 2001. During the fourth quarter 58,000 shares were repurchased by the Company, bringing the total shares repurchased during 2002 to 423,000.

Banner's loan portfolio declined slightly to $1.55 billion at December 31, 2002. "Commercial and agricultural loans continue to represent a larger portion of the total loan portfolio as production of these types of loans increases and term real estate loans decline through sales to the secondary market and refinancing activity," said Jones. Commercial and agricultural loans increased 12% and now represent 25% of the loan portfolio. Residential construction and development lending remained strong, contributing significantly to revenue growth throughout the year as average balances exceeded prior year levels, although the December 31, 2002 balance of these types of loans was nearly unchanged from a year earlier.

Deposits increased 16% to $1.5 billion at December 31, 2002, from $1.3 billion a year earlier, which substantially improved balance sheet liquidity. Largely as a result of the strong customer deposit growth, the Company increased its investment in interest bearing deposits, federal funds sold, and securities, while also repaying a portion of its borrowings. As a result, cash and securities increased 48% to $567.4 million at December 31, 2002, compared to $384.4 million at December 31, 2001, and borrowings declined by $31.8 million, or 5%, to $547.0 million at December 31, 2002, compared to $578.7 million at December 31, 2001. In addition, during the year the Company significantly strengthened its capital position by issuing $40 million of Trust Preferred Securities.

Conference Call

The Company will host a conference call today, February 5, 2003 at 1:30 p.m. PST, to discuss fourth quarter and year end results. The conference call can be accessed live by telephone at 303-205-0033 or from the Company's website at www.banrbank.com, or www.companyboardroom.com. Institutional investors may access the call via www.streetevents.com. An archived recording of the call can be accessed by dialing 303-590-3000, access code 522830 until February 19, 2003, or via the Internet at www.companyboardroom.com through February 26, 2003.

Banner Corporation is the parent of Banner Bank, a commercial bank which operates a total of 41 branch offices and seven loan offices in 19 counties 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.banrbank.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 the Company'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, changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, competition, loan delinquency rates, 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 recover check kiting losses, and the Company's stock repurchase activity. 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.


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RESULTS OF OPERATIONS      Quarters Ended
 Year Ended
(In thousands except share and per share data) Dec 31, 2002
 Sep 30, 2002
 Dec 31, 2001
 Dec 31, 2002
 Dec 31, 2001
INTEREST INCOME:
   Loans receivable $ 30,492 $ 30,907 $ 32,378 $ 123,352 $ 135,765
   Mortgage-backed securities 2,526 2,770 2,979 10,738 12,196
   Securities and deposits 2,615
 2,672
 2,134
 10,186
 9,705
35,633 36,349 37,491 144,276 157,666
 
INTEREST EXPENSE:
   Deposits 9,455 9,733 11,149 39,206 52,702
   Federal Home Loan Bank advances 5,604 5,791 7,021 24,094 29,990
   Trust preferred securities 467 380 - - 1,185 - -
   Other borrowings 226
 366
 578
 1,484
 3,252
15,752
 16,270
 18,748
 65,969
 85,944
     Net Interest Income Before Provision
       For Loan Losses
19,881
20,079
18,743
78,307
71,722
 
PROVISION FOR LOAN LOSSES 10,000
 4,000
 4,100
 21,000
 13,959
     Net Interest Income After Provision
       For Loan Losses
9,881
16,079
14,643
57,307
57,763
OTHER OPERATING INCOME:
   Loan servicing fees 475 239 255 1,471 1,158
   Other fees and service charges 1,473 1,525 1,545 5,804 5,704
   Mortgage banking operations 2,674 1,602 1,165 6,695 4,575
   Gain (loss) on sale of securities - - 10 327 27 687
   Miscellaneous 557
 555
 359
 1,880
 1,341
5,179 3,931 3,651 15,877 13,465
OTHER OPERATING EXPENSE:
   Salary and employee benefits 10,505 9,973 7,044
   Less capitalized loan origination costs (1,737) (1,438) (1,315) (5,780) (4,897)
   Occupancy and equipment 2,259 2,141 2,177 8,522 7,947
   Information / computer data services 1,069 925 971 3,331 4,191
   Advertising 900 723 484 2,220 1,171
   Check kiting loss - - - - - - - - 8,100
   Amortization of intangibles 63 64 795 255 3,180
   Miscellaneous 4,920
 2,912
 2,967
 13,635
 10,079
17,979
 15,300
 13,123
 60,445
 59,636
     Income (Loss) Before Provision
       For Income Taxes
(2,919)
4,710
5,171
12,739
11,592
PROVISION FOR (BENEFIT FROM)
INCOME TAXES
(1,362)
1,329
1,505
3,479
4,142
NET INCOME (LOSS) $ (1,557) $ 3,381 $ 3,666 $ 9,260 $ 7,450
 
Earnings (Loss) Per Share
   Basic $ (0.14) $ 0.31 $ 0.33 $ 0.85 $ 0.67
   Diluted $ (0.14) $ 0.30 $ 0.32 $ 0.82 $ 0.64
Cumulative Dividend Per Share $ 0.15 $ 0.15 $ 0.14 $ 0.60 $ 0.56
Weighted Average Shares Outstanding
   Basic 10,738,460 10,892,122 11,103,946 10,932,573 11,179,166
   Diluted 11,094,056 11,286,894 11,432,686 11,351,647 11,599,811
Shares repurchased during the period 58,490 324,354 276,091 422,844 569,166

NOTE: Certain reclassifications have been made to the prior periods' financial numbers to conform to the current period's presentation. These reclassifications have affected certain ratios for the prior periods. The effect of such reclassifications is immaterial.

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FINANCIAL CONDITION
(In thousands except share and per share data) Dec 31, 2002
 Sep 30, 2002
 Dec 31, 2001
ASSETS
Cash and due from banks $ 132,910 $ 125,018 $ 67,728
Securities available for sale 421,222 373,749 301,847
Securities held to maturity 13,253 14,082 14,828
Federal Home Loan Bank stock 32,831 32,282 30,840
Loans receivable:
   Held for sale 39,366 29,044 43,235
   Held for portfolio 1,534,100 1,563,789 1,549,742
   Allowance for loan losses (26,539)
 (19,150)
 (17,552)
1,546,927 1,573,683 1,575,425
Accrued interest receivable 13,689 14,263 12,929
Real estate held for sale, net 6,062 5,362 3,011
Property and equipment, net 20,745 19,025 18,151
Costs in excess of net assets acquired
  (goodwill), net
36,714
36,752
31,437
Deferred income tax asset, net 2,786 1,364 1,443
Bank owned life insurance 31,809 31,356 20,304
Other assets 4,224
 4,306
 9,151
$ 2,263,172 $ 2,231,242 $ 2,087,094
 
LIABILITIES
Deposits:
   Non-interest-bearing $ 200,500 $ 222,062 $ 180,813
   Interest-bearing 1,297,278
 1,263,620
 1,114,998
1,497,778 1,485,682 1,295,811
Borrowings:
   Advances from Federal Home Loan Bank 465,743 444,243 501,982
   Trust preferred securities 40,000 25,000 - -
   Other borrowings 41,202
 65,014
 76,715
546,945 534,257 578,697
Accrued expenses and other liabilities 24,700 15,036 17,591
Deferred compensation 3,372 3,083 2,655
Income taxes payable 2,072,795 2,038,058 1,894,754
 
STOCKHOLDERS' EQUITY
Common stock and additional paid in capital 120,554 120,836 126,844
Retained earnings 70,813 73,733 68,104
Accumulated other comprehensive income 3,488 3,595 2,264
Unearned shares of common stock issued to
Employee Stock Ownership Plan (ESOP) trust:
at cost

(4,262)

(4,769)

(4,769)
Net carrying value of stock related deferred
  compensation plans
(216)
(211)
(103)
190,377
 193,184
 192,340
$ 2,263,172 $ 2,231,242 $ 2,087,094
Shares Issued:
Shares outstanding at end of period 11,306,977 11,358,505 11,634,159
Less unearned ESOP shares at end of period 515,707
 577,039
 577,039
Shares outstanding at end of period excluding
unearned ESOP shares
10,791,270
10,781,466
11,057,120
Book Value Per Share(1) $ 17.64 $ 17.92 $ 17.40
Tangible Book Value Per Share(1) $ 14.24 $ 14.51 $ 14.55
Consolidated Tier 1 Leverage Capital Ratio 8.77% 8.39% 7.71%

(1) 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 employee stock ownership plan (ESOP).

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ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
 
LOANS (including loans held for sale): Dec 31, 2002 Sep 30, 2002 Dec 31, 2001
Secured by real estate:
   One- to four-family $ 355,509 $ 376,557 $ 422,456
   Commercial 379,099 379,416 363,560
   Multifamily 72,333 81,919 79,035
   Construction and land 339,516 335,411 335,798
Commercial business 285,231 278,713 270,022
Agricultural business 102,626 99,899 76,501
Consumer 39,152
 40,918
 45,605
   Total loans outstanding $1,573,466 $1,592,833 $1,592,977
 
NON-PERFORMING ASSETS: Dec 31, 2002 Sep 30, 2002 Dec 31, 2001
Loans on nonaccrual status $ 34,249 $ 22,282 $ 17,509
Accruing loans greater than 90 days delinquent 1,859
 431
 534
   Total nonperforming loans 36,108 22,713 18,043
Real estate owned (REO) / Repossessed assets 6,062
 5,362
 3,011
   Total nonperforming assets $ 42,170 $ 28,075 $ 21,054
Total nonperforming assets / Total assets 1.86% 1.26% 1.01%





CHANGE IN THE Quarters Ended
 Year Ended
ALLOWANCE FOR LOAN LOSSES: Dec 31, 2002
 Sep 30, 2002
 Dec 31, 2001
 Dec 31, 2002
 Dec 31, 2001
Balance at beginning of period $ 19,150 $ 16,646 $ 18,593 $ 17,552 $ 15,314
 
Acquisitions / (divestitures) - - - - - - 460 - -
Provision for loan losses 10,000 4,000 4,100 21,000 13,959
 
Recoveries 208 46 48 325 142
Chargeoffs (2,819)
 (1,542)
 (5,189)
 (12,798)
 (11,863)
   Net (chargeoffs) recoveries (2,611)
 (1,496)
 (5,141)
 (12,473)
 (11,721)
   Balance at end of period $ 26,539 $ 19,150 $ 17,552 $ 26,539 $ 17,552
 
Net chargeoffs / Average loans outstanding 0.16% 0.10% 0.32% 0.78% 0.75%
 
Allowance for loan losses / Total loans
outstanding
1.69%
1.20%
1.10%
1.69%
1.10%

NOTE: Certain reclassifications have been made to the prior periods' financial numbers to conform to the current period's presentation. These reclassifications have affected certain ratios for the prior periods. The effect of such reclassifications is immaterial.



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ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates / Ratios Annualized)
Quarters Ended
 Year Ended
OPERATING PERFORMANCE: Dec 31, 2002
 Sep 30, 2002
 Dec 31, 2001
 Dec 31, 2002
 Dec 31, 2001
 
Average loans $   1,589,608 $   1,572,856 $   1,605,068 $   1,589,035 $   1,569,905
Average securities and deposits 454,671 427,667 352,207 413,419 350,973
Average noninterestearning assets 162,595
 157,773
 132,102
 148,706
 122,712
   Total Average Assets $   2,206,874 $   2,158,296 $   2,089,377 $   2,151,160 $   2,043,590
 
Average deposits $   1,481,623 $   1,411,767 $   1,301,132 $   1,404,426 $   1,251,970
Average borrowings 515,612 534,541 577,456 537,079 579,326
Average non-interest-earning liabilities 14,582
 14,687
 15,649
 13,177
 15,277
   Total Average Liabilities 2,011,817 1,960,995 1,894,237 1,954,682 1,846,573
 
Total average equity 195,057
 197,301
 195,140
 196,478
 197,017
   Total Average Liabilities And Equity $   2,206,874 $   2,158,296 $   2,089,377 $   2,151,160 $   2,043,590
 
Interest rate yield on loans 7.61% 7.80% 8.00% 7.76% 8.65%
Interest rate yield on securities and deposits 4.49%
 5.05%
 5.76%
 5.06%
 6.24%
   Interest Rate Yield On Interest-Earning Assets 6.92%
 7.21%
 7.60%
 7.20%
 8.21%
 
Interest rate expense on deposits 2.53% 2.74% 3.40% 2.79% 4.21%
Interest rate expense on borrowings 4.85%
 4.85%
 5.22%
 4.98%
 5.74%
   Interest Rate Expense On Interest-
     Bearing Liabilities
3.13%
3.32%
3.96%
3.40%
4.69%
Interest rate spread 3.79% 3.89% 3.64% 3.80% 3.52%
Net interest margin 3.86% 3.98% 3.80% 3.91% 3.73%
 
Other operating income / Average assets 0.93% 0.72% 0.69% 0.74% 0.66%
Other operating expense / Average assets 3.23% 2.81% 2.49% 2.81% 2.92%
Efficiency ratio (other operating expense /
  revenue)
71.74%
63.72%
58.60%
64.18%
70.01%
Return on average assets (0.28%) 0.62% 0.70% 0.43% 0.36%
Return on average equity (3.17%) 6.80% 7.45% 4.71% 3.78%
Average equity / Average assets 8.84% 9.14% 9.34% 9.13% 9.64%



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NOTE: Transmitted on Business Wire at 1:05 p.m. PST on February 5, 2003.



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