Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934


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BANNER CORPORATION
(Name of Registrant as Specified in Its Charter)



(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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Proposal 1.

~~To elect five~~Election of four directors to each serve ~~for~~ a three-year term.

Proposal 2.

~~To provide~~An advisory ~~approval of the~~(non-binding) vote to approve our executive compensation ~~of our named executive officers.~~as disclosed in this Proxy Statement.

Proposal 3.

~~To ratify~~An advisory (non-binding) vote on whether an advisory vote on executive compensation should be held every one, two or three years.

Proposal 4.

Ratification of the Audit Committee’s selection of Moss Adams LLP as our independent auditor for ~~2011.~~2013.

Proposal 4.5.

~~To approve~~Approval of an amendment to the ~~amendment of the Amended and Restated Articles of Incorporation of~~ Banner Corporation ~~to effect a 1-for-7 reverse stock split of our common stock.~~2012 Restricted Stock Plan.

Time and Place of the Annual Meeting

Time:

10:00 a.m., local time

Place:

Marcus Whitman Hotel, ~~located at~~ 6 W. Rose Street, Walla Walla, Washington

Matters to Be Considered at the Annual Meeting

Proposal 1.

~~To elect five~~Election of four directors to each serve for a three-year term.

Proposal 2.

~~To provide~~An advisory ~~approval of the~~(non-binding) vote to approve our executive compensation ~~of our named~~as disclosed in this Proxy Statement.

Proposal 3.

An advisory (non-binding) vote on whether an advisory vote on executive ~~officers.~~compensation should be held every one, two or three years.

Proposal 3.4.

~~To ratify~~Ratification of the Audit Committee’s selection of Moss Adams LLP as our independent auditor for ~~2011.~~2013.

Proposal 4.5.

We also will transact any other business that may properly come before the annual meeting. As of the date of this Proxy Statement, we are not aware of any other business to be presented for consideration at the annual meeting other than the matters described in this Proxy Statement.

Who is Entitled to Vote?

On March 1, ~~2011,~~2013, there were ~~114,424,156~~19,462,483 shares of Banner common stock outstanding and entitled to vote at the annual meeting.

How Do I Vote at the Annual Meeting?

What if My Shares Are Held in Street Name?

How Will My Shares of Common Stock Held in the Employee Stock Ownership Plan Be Voted?

the same proportion as shares for which the trustees have received voting instructions. The trustees of the ESOP are Directors Adams, Budke, ~~Casper,~~ Epstein, Klaue, Kravas, Lane, Layman, ~~Mitchell,~~ Orrico, Sirmon and Smith.

How Many Shares Must Be Present to Hold the Meeting?

What if a Quorum Is Not Present at the Meeting?

Vote Required to Approve Proposal 1: Election of Directors

Vote Required to Approve Proposal 2: Advisory Approval of Executive Compensation

Vote Required to Approve Proposal 3: Advisory Vote on the Frequency of Shareholder Votes on Executive Compensation

Vote Required to Approve Proposal 4: Ratification of the Selection of the Independent Auditor

Vote Required to Approve Proposal ~~4: Reverse~~5: Amendment of the Restricted Stock ~~Split~~Plan

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on April ~~26, 2011~~23, 2013

May I Revoke My Proxy?

•	submitting a new proxy with a later date;

•	notifying ~~the~~Banner’s Secretary ~~of Banner~~ in writing before the annual meeting that you have revoked your proxy; or

•	voting in person at the annual meeting.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

•	those persons or entities (or groups of affiliated person or entities) known by management to beneficially own more than five percent of Banner’s common stock other than directors and executive officers;

•	each director and director nominee of Banner;

•	each executive officer named in the Summary Compensation Table appearing under “Executive Compensation” below (known as “named executive officers”); and

•	all current directors and executive officers of Banner and Banner Bank as a group.

exercisable or exercisable within 60 days after the voting record date are included in the number of shares beneficially owned by the person and are deemed outstanding for the purpose of calculating the person’s percentage ownership. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

Beneficially Owned (1)

152 West 57th Street

Second Curve Capital, LLC

237 Park Avenue, 9th Floor

New York, New York 10017

*	Less than 1% of shares outstanding.

**	Also a director of Banner. ~~Mr. Jones retired as an executive officer in 2010.~~

(1)

Shares held in accounts under the ESOP and shares of restricted stock granted under Mr. Grescovich’s employment agreement, as well as under the 2012 Restricted Stock plan, as to which the holders have voting power but not investment power, are included as follows: Mr. Grescovich, ~~115,955~~51,264 shares; Mr. Jones, ~~4,062~~586 shares; Mr. Baker, ~~11,704~~4,693 shares; Mr. Barton, ~~3,729~~3,539 shares; Ms. Purcell, ~~7,394~~1,069 shares; Mr. ~~Folz, 3,711~~Bennett, 5,136 shares; and all executive officers and directors as a group, ~~170,699~~79,910 shares. The amounts shown also include the following number of shares which the indicated individuals have the right to acquire within 60 days of the voting record date through the exercise of stock options granted pursuant to Banner’s stock option plans: Mr. ~~Adams,~~Budke, 2,592; Mr. Epstein, 2,592; Dr. Kravas, 2,592; Mr. Klaue, 2,500; Mr. Lane, 2,500; Mr. Layman, 2,500; Mr. Smith, 2,592; Mr. Baker, 1,000; Mr. ~~Budke, 18,150; Mr. Casper,~~Barton, 1,000; Ms. Purcell, 1,000; Mr. ~~Epstein, 18,150;~~Bennett, 857; and all executive officers and directors as a group, 24,080.

(2)	Based on a Schedule 13G dated February 4, 2013, which reports sole voting and dispositive power over the shares reported.

(Footnotes continue on following page)

(4)	~~Based on a Schedule 13G dated January 10, 2011, which reports shared voting and dispositive power over the shares reported.~~
~~(5)~~	~~Based on a Schedule 13G dated February 14, 2011, which reports shared voting and dispositive power over the shares reported.~~
~~(6)~~	Includes ~~13,270~~1,895 shares owned by a trust directed by Mr. Adams.

~~(7)~~ (5)

Includes ~~16,975~~1,567 shares owned by a trust directed by Mr. Budke and his wife.

(6)	Includes 6,832 shares owned solely by his wife.

(7)	Includes 142 shares held as custodian for minors.

(8)	Includes 878 shares held jointly with her husband.

(9)	Includes 4,714 shares held jointly with his wife.

~~(8)~~ (10)	Includes ~~39,705 shares owned solely by his wife.~~
~~(9)~~	~~Includes 611,023 shares owned by companies controlled by Mr. Klaue.~~
~~(10)~~	~~Includes 6,112 shares held jointly with her husband.~~
~~(11)~~	~~Includes 33,000 shares held jointly with his wife.~~
~~(12)~~	~~Includes 75,000~~10,714 shares which have been pledged.

~~(13)~~ (11)	Includes ~~35,512 shares held jointly with his wife.~~
~~(14)~~	~~Includes 312,964~~44,706 shares owned by companies controlled by Mr. Orrico and ~~131,352~~18,827 shares owned by trusts directed by Mr. Orrico.

~~(15)~~ (12)

Includes ~~90,302~~9,938 shares held jointly with his wife and 12,900 shares owned by companies controlled by Mr. Sirmon.

~~(16)~~ (13)

Includes ~~10,200~~1,457 shares held jointly with his wife, ~~16,000~~2,285 shares owned solely by his wife and ~~50,000~~7,142 shares owned by a company controlled by Mr. Smith.

~~(17)~~ (14)	Includes ~~1,000 shares held as custodian for minors.~~
~~(18)~~	~~Includes 847~~121 shares owned solely by his wife and ~~52,428~~8,489 shares held jointly with his wife.
~~(19)~~	~~Includes 12,800 shares held jointly with his wife.~~

(15)	Includes 3 shares held as custodian to a minor.

or Appointed Director (1)

(Table continues on following page)

or Appointed Director (1)

~~(1) Includes prior service on the Board of Directors of Banner Bank for all directors who have served since 1995 or earlier.~~

~~(2) Assuming election or re-election.~~

Information Regarding Nominees for Election. Set forth below is the present principal occupation and other business experience during the last five years of each nominee for election, as well as a brief discussion of the particular experience, qualifications, attributes and skills that led the Board to conclude that the nominee should serve as a director of ~~Banner.~~Banner.

~~particular experience, qualifications, attributes and skills that led the Board to conclude that the director should serve on Banner’s Board of Directors.~~

Gordon E. Budke is President of Budke Consulting, PLLC, which specializes in general business assistance to small and growing companies. A Certified Public Accountant with over 3436 years of experience in public accounting, Mr. Budke retired as a partner from Coopers & Lybrand (now PricewaterhouseCoopers) in October 1997. His qualification as an audit committee financial expert was the primary reason for his nomination to the Board. Mr. Budke also serves on the Board of Directors of Yokes Foods, Inc.

Constance H. Kravas is the University of Washington’s Vice President for Development and Alumni Relations and also serves as the President of the University of Washington Foundation. Prior to joining the University of Washington in 2001, she served as Vice Chancellor for University Advancement at the University of California, Riverside, and as Vice President for Advancement of Washington State University and President of the Washington State University Foundation. ~~Ms.~~Dr. Kravas has over 3038 years of experience in leadership and management positions for not-for-profit boards.

~~Edward L. Epstein~~ retired in 2008 as a partner in the Portland, Oregon, law firm of Stoel Rives LLP, which he joined 1962. Mr. Epstein is a corporate lawyer who focused on mergers and acquisitions, federal income taxation of corporations, advice to boards of directors and corporate governance matters. He co-chaired the firm’s mergers and acquisitions practice group for a number of years, and gave advice to businesses of all sizes, including those in the banking and financial services sector.

~~Robert J. Lane~~ is a retired banking executive who spent his 29-year banking career with Seattle First National Bank, Idaho First National Bank, West One Bancorp and U.S. Bancorp. Mr. Lane’s banking career afforded him the opportunity to gain expertise in management, credit-related production, corporate and commercial banking, and commercial real estate. He is President of Lane Farms, Inc. of La Grande, Oregon and has other real estate and investment interests.

~~Gary Sirmon~~ is Chairman of the Board and a director of Banner and Banner Bank. He joined Banner Bank in 1980 as an Executive Vice President and served as its Chief Executive Officer from 1982 until February 2002. Mr. Sirmon’s extensive career in banking has given him expertise in management, strategic planning, risk management, and mergers and acquisitions.

Committees and Committee Charters

Compensation Committee

Corporate Governance/Nominating Committee

of the business of Banner. The Committee also selects nominees for the election of directors and develops a list of nominees for board vacancies. The Corporate Governance/Nominating Committee believes it has fulfilled its responsibilities under its charter. Each member of the Committee is “independent,” in accordance with the requirements for companies quoted on NASDAQ. The Committee met ~~five~~three times during the year ended December 31, ~~2010.~~2012.

Leadership Structure

Board Involvement in the Risk Management Process

particular the Corporate Governance/Nominating, Audit and Risk Committees, as well as by the separation of the positions of Chairman of the Board and of President and Chief Executive Officer as described above.

•	selecting, evaluating, and retaining competent senior management;

•	establishing, with senior management, Banner’s long- and short-term business objectives, and adopting operating policies to achieve these objectives in a legal and sound manner;

•	monitoring operations to ensure that they are controlled adequately and are in compliance with laws and policies;

•	overseeing Banner’s business performance; and

•	ensuring that the Banks help to meet our communities’ credit needs.

These responsibilities are governed by a complex framework of federal and state law and regulation as well as regulatory guidelines applicable to the operation of Banner and the Banks.

Corporate Governance

that developments can be tracked. Our Regulation O officer, a compliance specialist, monitors developments monthly and completes a quarterly report of Regulation O compliance which is submitted to the Board of Directors.

Director Compensation Table

Change in Pension Value

Deferred Compensation

(1)	The following directors deferred all or a portion of their fees into Banner common stock, ~~or life insurance,~~ pursuant to the deferred fee agreements described below: Adams, ~~Casper,~~Klaue, Kravas, ~~Mitchell~~Layman, Orrico and ~~Orrico.~~Smith.

(2)

Unless otherwise noted, consists of dividends paid on vested phantom stock awards and business and occupation tax reimbursement. Effective July 1, 2010, Washington State subjects directors’ fees to a 1.8% business and occupation tax, which may be reduced by a small business tax credit allowance. Banner has agreed to reimburse or pay the tax on ~~the~~each director’s behalf.

(3)	Includes ~~$3,000 in~~ fees for attending meetings of the Board of Directors of Community Financial Corporation, a subsidiary of Banner ~~Bank.~~Bank as follows: Mr Epstein, $1,000; Mr. Foster, $1,500; Mr. Jones, $1,000; and Mr. Sirmon, $1,500.

(4)

Pursuant to the terms of his consulting agreement (described below), Mr. Foster did not receive an annual retainer and did not earn fees for attending Board or committee meetings of Banner or Banner Bank. However, he did receive meeting fees for attending meetings of the Board of Directors of Community Financial Corporation.

~~(5)~~

The present value of Mr. Foster’s supplemental retirement benefits decreased by ~~$50,552~~$58,147 in ~~2010.~~2012.

~~(6)~~(5)

Mr. Foster received ~~$66,000 pursuant to his consulting agreement and~~ $72,000 pursuant to his supplemental retirement agreement ~~(each as~~(as described below)~~, as well as an aggregate~~; also includes life insurance premiums paid and dividends on vested phantom stock awards.

(6)	Consists of ~~$3,247 for a car allowance, country club dues and~~above-market earnings on deferred compensation. The present value of Mr. Jones’ supplemental retirement benefits decreased by $29,929 in 2012.

(7)	Mr. Jones received $134,050 pursuant to his supplemental retirement agreement (as described below); also includes life insurance premiums paid.

~~(7)~~

~~In addition to business and occupation tax reimbursement, includes dividends received on restricted stock.~~

(8)	Includes ~~$20,100~~$20,700 in fees for attending meetings of the Board of Directors of Islanders Bank.

(9)	The present value of Mr. Sirmon’s supplemental retirement benefits and salary continuation plan decreased by ~~$58,800~~$31,394 in ~~2010.~~2012.

(10)

Mr. Sirmon received $77,062 pursuant to his salary continuation agreement and $57,604 pursuant to his supplemental retirement agreement (each as described below)~~, as well as an aggregate of $4,562 for~~; also includes life insurance premiums paid, country club dues, ~~and~~ business and occupation tax ~~reimbursement.~~reimbursement, and dividends on vested phantom stock awards.

During the year ended December 31, ~~2010,~~2012, non-employee directors of Banner received an annual retainer of $33,000 and a fee of $1,000 per committee meeting attended. The Chairman of the Board receives an additional $20,000 annual retainer, the Chairman of the Audit Committee receives an additional $20,000 annual retainer and the Chairmen of the Compensation Committee, Risk Committee and Corporate Governance/Nominating Committee receive an additional $250 per committee meeting attended. Non-employee directors who serve on the Board of Community Financial Corporation, a subsidiary of Banner Bank, receive $500 for each meeting attended. Non-employee directors who serve on the Board of Islanders Bank receive an annual retainer of $17,400 and $300 per committee meeting attended. Officers of Banner or its subsidiaries who are also directors do not receive any fee or remuneration for services as members of the Board of Directors or any Board committees. The Board of Directors typically determines whether to adjust the annual retainer and meeting fees of directors in April of each year and from time to time requests recommendations from the Compensation Committee.

In order to encourage the retention of qualified directors, we have entered into deferred fee agreements whereby directors may defer all or a portion of their regular fees until retirement. Each director may direct the investment of the deferred fees toward the purchase of life insurance, Banner common stock, mutual fund-style investments or a stable value account. We have established grantor trusts to hold the common stock and mutual fund-style investments. The assets of the trusts are considered part of our general assets and the directors have the status of unsecured creditors of Banner with respect to the trust assets. The deferred fee agreements provide pre-retirement death and disability benefits in an amount equal to the value of the director’s account balance upon the occurrence of either event. At retirement, a director, as previously elected, may receive the balance of his or her account in a lump sum or in annual installments over a period not exceeding ten years. In connection with its acquisitions, Banner also assumed liability for certain deferred compensation plans for the acquired institutions’ directors. At December 31, ~~2010,~~2012, our estimated deferred compensation liability accrual with respect to non-employee directors under these agreements was ~~$3.1~~$3.3 million.

Banner Bank entered into agreements to provide supplemental retirement benefits to Messrs. Foster, Jones and Sirmon while each was employed by Banner as an executive officer. Banner Bank has purchased life insurance to recover the benefits payable under these agreements upon each man’s death. The agreements provide that, following retirement at or after attaining age 62 (age 65 for Mr. Jones) and for a minimum of a 180-month period thereafter, Banner Bank will pay each man (or his beneficiary) an annual benefit based on his level of pre-retirement compensation and other retirement benefits. Mr. Foster’s monthly benefit is $6,000 and was first paid on January 1, 2004. Mr. Jones’ monthly benefit is $11,171 and was first paid on March 1, 2011. Mr. Sirmon’s monthly benefit is approximately $4,800 and was first paid on August 1, 2005.

Banner Bank entered into a salary continuation agreement in October 1993 with Mr. ~~Gary~~ Sirmon, a director and former Chairman, President and Chief Executive Officer of Banner and Banner Bank, to ensure his continued service through retirement. Banner Bank has purchased life insurance to recover the benefits payable under the agreement upon Mr. Sirmon’s death. Mr. Sirmon retired on July 16, 2005 and will receive monthly payments over a minimum of a 180-month period following retirement. ~~The annual payment for~~ Mr. ~~Sirmon under this agreement~~Sirmon’s monthly benefit is ~~$77,062, or~~ approximately $6,422 ~~per month.~~

~~Banner Bank also is party to an agreement with Mr. Sirmon to provide him with supplemental retirement benefits. Banner Bank has purchased life insurance to recover these benefits~~ and ~~the benefits payable under the salary continuation agreement upon Mr. Sirmon’s death. The agreement provides that, following Mr. Sirmon’s retirement at or after attaining age 62 (which occurred~~was first paid on July 16, 2005) and for a minimum of a 180-month period thereafter, Banner Bank will pay him (or his beneficiary) an annual benefit based on his level of pre-retirement compensation and other retirement benefits. The annual payment for Mr. Sirmon under this agreement is $57,604, or approximately $4,800 per month.

Banner Bank entered into a consulting agreement with Mr. Jesse G. Foster, a director and former executive officer of Banner, in December 2003. The agreement originally provided for compensation of $10,000 per month. Effective JanuaryAugust 1, 2010, the compensation was reduced to $8,000 per month to reflect a reduction in his consulting engagement and effective March 1, 2010, the compensation was further reduced to $5,000 per month. On November 15, 2010, Mr. Foster submitted a letter terminating the consulting agreement effective December 31, 2010. The monthly compensation for 2010 includes any Board or committee fees payable to Mr. Foster.2005.

Banner Bank also is party to an agreement with Mr. Foster to provide him with supplemental retirement benefits. Banner Bank has purchased life insurance to recover the benefits payable under this agreement upon Mr. Foster’s death. The agreement provides that, following Mr. Foster’s retirement at or after attaining age 62 and for a 12-year period thereafter, Banner Bank will pay him (or his beneficiary) an annual benefit equal to 40% of his average annual salary during the three years preceding his retirement. Mr. Foster retired as an executive officer effective as of December 31, 2003 and is receiving payments of $6,000 per month under this agreement.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Compensation Committee of the Banner Board of Directors is responsible for setting the policies and compensation levels for Banner directors, officers and employees, while the Compensation Committee of the Banner Bank Board of Directors is responsible for setting the policies and compensation levels for Banner Bank directors, officers and employees. Banner Bank is the primary subsidiary of Banner. Each Committee is responsible for evaluating the performance of its Chief Executive Officer, while the Chief Executive Officer evaluates the performance of other senior officers and makes recommendations to the appropriate Committee regarding compensation levels.

The Compensation Committee continually reviews executive compensation. The recent economic downturn has impacted and will continue to impact our compensation for the foreseeable future. In particular, we did not pay any bonuses to the named executive officers for 2008, 2009 and 2010 and do not anticipate paying any bonuses to the named executive officers for 2011. On November 21, 2008, Banner received $124 million from the U.S. DepartmentImpact of the Treasury as part of the Capital Purchase Program. The additional capital is intended to enhance our capacity to support the communities we serve through expanded lending activities and economic development. Participation in this program affects executive compensation, as described below.

~~Impact of American Recovery and Reinvestment Act of 2009~~Troubled Asset Relief Program (“TARP”) on Executive Compensation.Effective November 21, 2008, Banner completed the sale to the U.S. Department of the Treasury (the “Treasury”) of 124,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A ~~(the “Series A~~ (“Preferred Stock”), with a related warrant to purchase ~~1,707,989~~243,998 shares (adjusted for the 2011 reverse stock split) of Banner’s common ~~stock (the “Treasury Warrant”).~~stock. The issuance was ~~the result of the Treasury’s approval of Banner’s application to participate in the Treasury’s Capital Purchase Program, which was established by Treasury~~made pursuant to the ~~authority granted~~Treasury’s TARP Capital Purchase Program. From the date of issuance of the TARP Preferred Stock until the Treasury’s sale of the TARP Preferred Stock to third party investors on March 29, 2012, we were subject to a number of requirements and restrictions on compensation and corporate governance matters applicable to TARP recipients. These included: certain reviews of our compensation programs by the ~~Emergency Economic Stabilization Act of 2008 (the “EESA”). Banner was required~~Compensation Committee; general prohibitions on bonuses to ~~make certain changes~~our five most highly compensated employees and on any payments to ~~its~~our named executive ~~compensation arrangements as necessary~~officers and five most highly compensated employees who are not executive officers in connection with a change in control or for departure from Banner; subjecting bonus, incentive and retention payments to ~~comply with the provisions of the EESA. Effective February 17, 2009, President Obama signed into law the American Recovery~~our senior executive officers and ~~Reinvestment Act of 2009 (“ARRA”). The ARRA amends the provisions of the EESA that~~20 most highly compensated employees who are ~~applicable~~not senior executive officers to ~~Troubled Asset Relief Program (“TARP”) recipients, such as Banner. Accordingly, Banner is now subject to additional limitations on executive compensation, including a provision for~~ recovery ~~of bonus, retention awards, or incentive compensation paid~~(clawback) if based on statements of earnings, ~~revenue,~~revenues, gains or other criteria that are later found to be materially ~~inaccurate,~~inaccurate; and a ~~prohibition~~requirement that Banner have and enforce a policy on ~~making golden parachute payments (including payments on account~~luxury expenses. In addition, all compensation, including performance-based compensation, paid to each of ~~termination~~our senior executive officers was limited to tax deductibility of ~~employment),~~$500,000. As a ~~prohibition on paying or accruing any bonus, retention award or incentive compensation (except for certain grants~~result of ~~long-term restricted stock),~~

the sale by the Treasury of the TARP Preferred Stock to third party investors, we are no longer subject to these requirements and ~~providing tax gross-ups. These restrictions and prohibitions apply to various Banner officers, as discussed in greater detail herein.~~restrictions.

Objectives and Overview of the Compensation Program. Our executive compensation policies are designed to establish an appropriate relationship between executive pay and the annual and long-term performance of Banner and Banner Bank, to reflect the attainment of short- and long-term financial performance goals, to enhance our ability to attract and retain qualified executive officers, and to align to the greatest extent possible the interests of management and shareholders. The principles underlying the executive compensation policies include the following:

•	to attract and retain key executives who are vital to our long-term success and are of the highest caliber;

•	to provide levels of compensation competitive with those offered throughout the financial industry and consistent with our level of performance;

•	to motivate executives to enhance long-term shareholder value by granting awards tied to the value of our common stock; and

•	to integrate the compensation program with our annual and long-term strategic planning and performance measurement processes.

The Committees consider a variety of subjective and objective factors in determining the compensation package for individual executives including: (1) the performance of Banner and Banner Bank as a whole with emphasis on annual

performance factors and long-term objectives; (2) the responsibilities assigned to each executive; and (3) the performance of each executive of assigned responsibilities as measured by the progress of Banner and Banner Bank during the year.

Use of Compensation ~~Consultant.~~Consultants. From time to time, Banner’s Compensation Committee engages outside advisors to assist the Committee with its responsibilities. In ~~2010,~~late 2011, the ~~Banner Compensation~~ Committee engaged Swanson Advisory Services, LLC (“SAS”) to assist the Committee with its periodic review of Banner’s executive pay practices by performing a total compensation benchmarking ~~analysis.~~ analysis, as described further in the section below titled “Compensation Benchmarking.” SAS served as an independent advisor to the Committee through March 31, 2012.

In ~~particular, Swanson~~July 2012, the Committee engaged Pearl Meyer & Partners, LLC (“PM&P”), an independent consulting firm, to serve as the independent consultant to the Committee regarding executive compensation matters. PM&P is retained by, and reports directly to, the Committee, and provides no other services to Banner.

The Committee reviewed and ~~analyzed~~considered information provided to the ~~current~~Committee by SAS and PM&P, the Committee members and Company’s executive officers, and based on its review and such factors as it deemed relevant, the Committee has concluded that the advice it received from SAS and the advice it continues to receive from PM&P is objective and that neither firm’s work raised any conflict of interest.

Compensation Benchmarking. In the first quarter of 2012, the Compensation Committee engaged SAS to review and analyze Banner’s compensation and benefit practices for the named executive officers, comparing these practices to those of Banner’s peer group. The 2012 peer group ~~consists~~recommended by SAS and approved by the Committee consisted of 23the following 21 financial institutions, ranging in total assets from $1$1.2 billion to ~~$12.6~~$13.5 billion and headquartered in Washington, Oregon, Montana, California, ~~Nevada,~~ Colorado, Arizona and New Mexico. Swanson presented data in two groupings: (1) the subset of 12 Northwest financial institutions Banner has historically monitored, and (2) all 23 financial institutions, including 11 western institutions that are similar in asset size to Banner. Banner has historically monitored the following 12 financial institutions:Alaska:

	~~AmericanWest Bancorporation~~Cascade Bancorp	~~Pacific Continental Corporation~~PremierWest Bancorp
	~~Cascade Bancorp~~CoBiz Financial	Sterling Financial Corp.
	~~Cascade~~Columbia Banking System	Trico Bancshares
	CVB Financial ~~Corp.~~Corporation	Umpqua Holdings Corporation
	~~Columbia Banking System~~	~~Washington Banking Co.~~
	First Interstate BancSystem	Washington Banking Company
	First National Bank of Alaska	Washington Federal
	Glacier Bancorp ~~Inc.~~	West Coast Bancorp

Banner monitored this peer group because management believes these institutions represent Banner’s most direct competitors in the markets it serves, in terms of services offered as well as competition for employees. Swanson added the following western financial institutions to its analysis:

	~~Co Biz~~Heritage Financial	~~PacWest Bancorp~~
	~~CVB Financial Corp~~	~~PremierWest Bancorp~~
	~~F&M Bank of Long Beach~~ Corporation	Westamerica Bancorporation
	~~First State Bancorporation~~Pacific Capital Bancorp	Western Alliance Bancorp
	~~Nara Bancorp~~Pacific Continental Corporation	Wilshire Bancorp
	~~Pacific Capital~~PacWest Bancorp

~~These institutions were added to provide better comparative data for financial institutions similar to Banner in terms of asset size. Swanson~~

SAS presented the results of its benchmarking analysis to the ~~Compensation~~ Committee in ~~October 2010.~~February 2012. The analysis provided benchmarks for base salary, total cash compensation, total direct compensation and total remuneration, including retirement benefits and perquisites. For each combination of pay, the data was presented at the 10th, 25th, 50th, 75th and 90th percentile measures. The Committee does not target a specific percentile measure for any particular component of compensation, but rather uses benchmarking information to provide important context for the competitiveness of its compensation arrangements. The Committee considered the results of the analysis in determining whether any changes to executive compensation were ~~necessary; however, as a result~~appropriate for 2012.

In January 2013, the Banner Compensation Committee asked PM&P to update the total compensation benchmarking analysis for the Chief Executive Officer position. PM&P recommended changes to the peer group of ~~restrictions~~companies, based primarily on ~~executive compensation as a result of Banner’s participation in~~merger and initial public offering activity that had occurred since the ~~Treasury’s Capital Purchase Program,~~prior analysis. The 2013 peer group approved by the Committee ~~made no changes~~was based on the following criteria: (1) headquartered in the Western United States; (2) listed on either the NYSE or Nasdaq exchanges; (3) within 0.5 to 2.0 times Banner’s asset size (0.3 to 3.0 times, if headquartered in the Pacific Northwest); and (4) likely competitor for executive talent. These criteria resulted in a revised peer group consisting of the following 20 companies:

	BofI Holdings, Inc.	National Bank Holdings Corp.
	Cascade Bancorp	Pacific Continental Corp.
	Central Pacific Financial Corp.	PacWest Bancorp
	CoBiz Financial	Sterling Financial Corp.
	Columbia Banking System	Trico Bancshares
	CVB Financial Corp.	Umpqua Holdings Corp.
	First Interstate BancSystem	Washington Banking Company
	Glacier Bancorp	Washington Federal
	Heritage Financial Corp.	Westamerica Bancorporation
	HomeStreet, Inc.	Western Alliance Bancorp

The Committee’s primary use of the analysis ~~presented~~performed by ~~Swanson.~~PM&P in January 2013 will be related to decisions about 2013 Chief Executive Officer compensation. However, this analysis was also instrumental in helping the Committee come to its conclusions regarding the Chief Executive Officer’s discretionary bonus for 2012, as discussed below.

Compensation Program Elements. The Compensation Committees focus primarily on the following five components in forming the total compensation package for our named executive officers:

•	base salary;

•	incentive compensation;

•	deferred compensation;

•	long-term incentive compensation; and

•	participation in a supplemental executive retirement program.

The current compensation plans involve a combination of base salary, deferred compensation, long-term incentive compensation and a supplemental executive retirement program to ensure the continued service of executive officers. During the year ended December 31, ~~2010,~~2012, there were no at-risk incentives to reward short-term performance ~~and none are contemplated for 2011 as~~because at the time the Compensation Committee would have considered incentives, Banner was a ~~result of Banner’s participation~~participant in the Treasury’s Capital Purchase ~~Program.~~

Program and such incentives were prohibited.

Base Salary. The salary levels of executive officers are designed to be competitive within the banking and financial services industries. In addition to the benchmarking analysis described above, the Compensation Committees evaluate current salary levels by surveying similar institutions in Washington, Oregon, the Northwest and the United States. The Committees’ peer group analyses focus on asset size, nature of ownership, type of operation and other common factors. Specifically, the Committees annually review the 2012 Northwest Financial Industry Salary Survey prepared by Milliman (actuaries and consultants) in association with the Washington Bankers Association, the Washington Financial League and the Oregon Bankers Association, covering 96101 Northwest financial organizations in Washington, Oregon, Idaho and ~~Idaho,~~Alaska, the ~~American Bankers Association 2010 Compensation and Benefits~~Northwest Information Technology Salary Survey ~~which covers 317 responding financial institutions,~~ prepared by Milliman, with data from 69 major Northwest IT employers,

the Moss Adams ~~2010 Bankers’~~2012 Community Bank Compensation Survey, covering ~~113~~123 respondents, ~~the Compensation Data 2010 Banking and Finance West survey published by Compdata Surveys, covering 225 banking and finance companies in the western United States,~~ the 2010/2011 Financial Services Survey Report on Executive and General Industry Personnel Compensation prepared by Towers Watson covering 109 financial services organizations, ~~the 2011 IT Salary Survey prepared by Janco Associates, Inc. covering 281 large companies~~as well as similar Towers Watson reports on consumer finance and ~~703 mid-sized companies representing all industries,~~mortgage-based banking personnel, commercial lending and trust services personnel and retail banking personnel, and the ~~2011~~2012 Technology and Accounting and Finance Salary ~~Guide~~Guides prepared by Robert Half International.

The Compensation Committees take a number of factors into account when setting the base salaries of the named executive officers. These factors include peer data provided by compensation consultants and the Committees’ review of compensation surveys, the officer’s level of experience, the responsibilities assigned to the officer, ~~and~~ the officer’s performance during the previous ~~year.~~year, and Banner’s overall financial health. Based on the Committees’ evaluation of Mr. Grescovich’s performance, and informed by the benchmarking analysis provided by SAS in the first quarter of 2012, the Committees approved an increase in Mr. Grescovich’s base salary from $600,000 to $715,000, effective March 1, 2012. This was the first salary increase for Mr. Grescovich since he joined Banner in April 2010. The Committees also approved salary increases for certain other executive officers based on the recommendations of Mr. Grescovich after review of the benchmarking analysis provided by SAS.

Short-term Incentive Compensation Program. ~~Historically,~~Prior to Banner’s participation in TARP, a short-term incentive plan had been in effect for the executive officers of Banner Bank which was designed to compensate for performance. The plan was designed to provide for incentive compensation with established targets of 35% of salary for the Chief Executive Officer, 30% of salary for executive vice presidents and 18% to 25% of salary for certain other officers. In certain circumstances, incentive compensation was payable at higher levels based on exceptional performance. In making awards under this plan, the Compensation Committee, the President and Chief Executive Officer or executive officers, as appropriate, reviewed quantifiable data related to specific shared corporate goals and individual performance goals. Individual performance goals varied significantly depending primarily on the assigned responsibilities of each officer and may have included such items as business unit performance measures, staff management, project completion, or individual loan or deposit production totals. However, as a result of the economic environment and Banner’s anticipated operating results, no awards were contemplated or paid for the year ended December 31, 2010. In addition,Through March 2012, Banner’s participation in the Treasury’s Capital Purchase Program ~~currently prohibits~~prohibited it from paying or accruing any bonus, retention award or incentive compensation to its five most highly compensated ~~employees; therefore,~~employees (including Mr. ~~Jones,~~Grescovich, Mr. Barton and Ms. ~~Purcell and three employees who are not named executive officers were not eligible to receive incentive awards for the year ended December 31, 2010.~~Purcell). This prohibition ~~will be effective~~remained in effect for as long as ~~the 124,000 shares of~~ Banner’s Series A Preferred Stock continued to be held by the Treasury. On March 29, 2012, Banner’s Series A Preferred Stock was sold toby the Treasury ~~remain outstanding. Future incentive awards for eligible executive vice presidents~~as part of its efforts to manage and ~~certain other officers~~recover its investments under TARP, thereby eliminating the compensation restrictions implemented by the Treasury on TARP recipients. Banner’s Compensation Committee is currently exploring the possibility of reestablishing a formal short-term incentive plan ~~such as that described above, will depend upon Banner’s operating results, among other factors.~~for executive officers.

2012 Discretionary Bonus for the CEO. As mentioned above, Banner was prohibited from accruing or paying any bonus or incentive award to Mr. Grescovich for performance through the date of the Treasury’s sale of its Preferred Stock interests in Banner on March 29, 2012. With the assistance of PM&P, Banner’s Compensation Committee carefully evaluated the performance of Mr. Grescovich and of Banner over the period April 1, 2012 to December 31, 2012 (the post-TARP period), to determine whether, and to what extent, a discretionary bonus was appropriate for performance during that nine month period in 2012.

During the post-TARP period in 2012, Banner delivered exceptional financial performance, in both absolute and relative terms. In absolute terms, Banner post-TARP period net income available to shareholders was $51.9 million, its return on assets was 1.32%, and non-performing assets declined by $42.9 million or 46%. In relative terms, Banner’s exceptional financial performance is best evidenced by the increase in shareholder value during this period. Over the post-TARP period in 2012, market capitalization increased roughly $201 million, more than all but one of Banner’s 2013 peer group companies (median increase among these peers was $4 million over this period), and total shareholder return (TSR) was 40%, higher than all but two of Banner’s peers (median TSR among peer companies was 4.3% over this period). The charts below illustrate Banner’s performance in these two measures during the post-TARP period, relative to peers. The darker column is Banner and each of the lighter columns below represents one of the companies in Banner’s 2013 peer group*.

Total Shareholder Return From 4/1/2012 to 12/31/2012		Change in Market Capitalization From 4/1/2012 to 12/31/2012 ($ in millions)

* See Compensation Benchmarking above for a listing of the companies in the 2013 Peer Group. National Bank Holdings Corp. is not included in the charts, as they did not go public until September 2012.

After considering Banner’s financial performance, increase in shareholder value and the individual performance of Mr. Grescovich over the post-TARP period, the Committee awarded Mr. Grescovich a discretionary bonus equal to $515,000. Of this amount, $290,000 was paid in cash and $225,000 was awarded in the form of restricted stock, which vests ratably over three years. One-third of the shares will vest on each of the first three anniversaries from the grant date of March 1, 2013; the shares will be fully vested on March 1, 2016.

2012 Discretionary Bonus for the Other Named Executive Officers. Similar to the considerations concerning Mr. Grescovich’s discretionary bonus, the Committee considered Banner’s exceptional financial performance over the post-TARP period in determining the level of discretionary bonuses paid to the named executive officers, basing its decision in part on Mr. Grescovich’s recommendation and evaluation of individual executive officer performance and total compensation. Individual awards were informed by the benchmarking analysis provided by SAS in the first quarter of 2012 and varied based on the assigned responsibilities, business unit performance measures, staff management, project completion, or individual loan or deposit production totals covering the post-TARP period. As mentioned above, Banner was prohibited from accruing or paying any bonus or incentive award to its five most highly compensated employees for performance through the date of the Treasury’s sale of its Preferred Stock interests in Banner on March 29, 2012.

Deferred Compensation. In 2004, we adopted deferred compensation plans which allow executive officers of Banner to defer all or part of their cash compensation or non-qualified stock options until retirement. Each executive officer may direct the investment of the deferred compensation toward the purchase of life insurance, Banner common stock, mutual fund-style investments or a stable value account. We established grantor trusts to hold the common stock and mutual fund-style investments. The assets of the trusts are considered part of our general assets and the executive officers have the status of unsecured creditors of Banner with respect to the trust assets. The deferred compensation agreements provide pre-retirement death and disability benefits in an amount based on the value of the executive officer’s account balance upon the occurrence of either event. At retirement, an executive officer, as previously elected, may receive the balance of his or her account in a lump sum or in annual installments over a period not exceeding ten years. At December 31, ~~2010,~~2012, our estimated deferred compensation liability accrual with respect to executive officers under these agreements was ~~$859,000.~~$295,000.

Section 401(a)(17) of the Internal Revenue Code limits the amount of compensation that is considered for purposes of determining the maximum contribution to Banner Bank’s tax-qualified profit sharing plan by eligible employees. For ~~2010,~~2012, this limit was $245,000 and remains the same for ~~2011.~~2013. In previous years, we have credited executive officers whose total compensation exceeds this amount with additional deferred compensation to restore

amounts that could not be contributed to the profit sharing plan as a result of the Section 401(a)(17) limitation. However, for 2010, 2011 and 2012 we did not provide any such credits to our executive officers.

Long-Term Incentive Compensation. Our shareholders ~~approved the 2001 Stock Option Plan, under which officers may receive grants of stock options. Shareholders also~~ approved the 1996 Management Recognition and Development Plan, the 1996 Stock Option Plan, the 1998 Stock Option Plan and the ~~1998~~2001 Stock Option Plan, under which grants of stock options and awards of restricted shares are outstanding, but no further grants or awards may be made. On April 24, 2012, our shareholders approved the 2012 Restricted Stock Plan, which provides for awards of restricted stock. We believe that stock ownership by our officers is a significant factor in aligning the interests of the officers with those of shareholders. Stock options and stock awards under these plans are allocated based upon the officers’ level of responsibility and expected contributions to Banner and Banner Bank as judged by the Compensation Committee or the Board of Directors. The Compensation Committee considers a number of factors in granting equity awards. These factors differ from year to year, but generally include a review of trends in making awards by Banner’s peer group and the Committee’s view on what is necessary for retention, as well as the potential recipient’s other compensation and value to Banner. The Compensation Committee does not place any specific weight on any of the factors it considers. As a result of the limited number of stock options available for granting purposes, no stock options were granted in ~~2010.~~2010 and 2011, and authority to make additional grants expired effective April 20, 2011. In 2012, the Committee awarded Mr. Grescovich a grant of restricted stock valued at $300,000 pursuant to amending his employment agreement as described below. The Committee also awarded grants of restricted stock under the 2012 Restricted Stock Plan to certain other executive officers in July 2012 based on Mr. Grescovich’s recommendation and evaluation of retention considerations, executive responsibilities and expected contributions, as well as the potential recipient’s other compensation and value to Banner.

Stock ownership is enhanced through participation in our ESOP, under which eligible employees receive an allocation of Banner stock based on a percentage of eligible wages. We also provide a 401(k) profit sharing plan. The Board of Directors has appointed an administrative committee of Banner Bank officers to administer the ESOP and the 401(k) plan, and the named executive officers participate in both of these plans. On an annual basis, the Board of Directors establishes the level of employer contributions to the ESOP and the 401(k) plan, which applies to all eligible participants including the named executive officers. In 2008, we contributed two percent of eligible wages into the ESOP on behalf of each eligible participant, and we matched the first four percent of participants’ contributions into the 401(k) plan each payroll period. In 2009, we matched the first four percent of participants’ contributions into the 401(k) plan for the month of January but did not contribute to either the ESOP or 401(k) plan thereafter because the Board of Directors considered it prudent to reduce employee benefit costs as an expense saving measure during a year of reduced profitability. We did not make any ESOP or 401(k) plan contributions in ~~2010.~~2010 or 2011. In 2012, we did not make any ESOP contribution; however, we matched two percent of participants’ contributions into the 401(k) plan for each payroll period beginning in August.

On June 13, 2006, the Board of Directors adopted the Banner Corporation Long-Term Incentive Plan, in accordance with the recommendations made by Banner’s Compensation Committee. The plan is an account-based type of benefit, the value of which is directly related to changes in the value of Banner common stock, commonly known as a “phantom stock plan.” The primary objective of the plan is to encourage retention and reward performance by allowing executives who remain with Banner or Banner Bank for a five-year period of time to share in increases in the value of Banner’s common stock. Although the plan benefits are tied to the increase in value of Banner stock during the vesting period, the plan benefit is paid in cash rather than Banner stock, hence the term “phantom stock.” The plan was amended on May 5, 2008 to eliminate the 25% cap on the amount of any annual increase in the value of an award, to clarify certain provisions and to allow for the repricing of existing and future awards.

Within 30 days after a grant of phantom stock, the participant must elect how and when plan benefits will be paid. One election relates to the timing of when the benefit will be paid: upon separation from service; at a specific time; or upon completion of 60 months of continuous service. If no election is made, payment will be made upon the participant’s separation from service. In the case of certain key employees, payment may be delayed for six months in order to comply with Section 409A of the Internal Revenue Code. The other election relates to the form of payment, with the choices being a lump sum or monthly installments over 120 months. If no election is made, distribution will be in the form of a lump sum. With respect to monthly installments, there will be no change in a monthly installment amount based on changes in the value of Banner stock or dividends. Instead, the value of the long-term incentive benefit will be adjusted annually to reflect Banner Bank’s average earning assets rate for the preceding year. The initial awards under this program were made in July 2006. Subsequent awards are granted at the discretion of the Compensation Committee as it deems appropriate. In ~~2010,~~2011, only ~~non-employee directors and~~ non-executive officers received awards under the Long-Term Incentive Plan. In 2012, one executive officer received an award under the Long-Term Incentive Plan, subject to a three-

year vesting period. Through March 2012, Banner’s participation in the Treasury’s Capital Purchase Program ~~currently prohibits~~prohibited it from paying or accruing any bonus, retention award or incentive compensation, which includes a grant of phantom stock, to its five most highly compensated employees; therefore, Mr. Jones, Ms. Purcell and three employees who are not named executive officers were not eligible to receive phantom stock awards for the year ended December 31, 2010. This prohibition will be effective for as long as the 124,000 shares of Banner’s Series A Preferred Stock sold to the Treasury remain outstanding.

employees.

In connection with Mr. Grescovich’s employment, we entered into an employment agreement with him. The agreement ~~provides~~provided for two grants of Banner’s common stock in the form of restricted stock on the sixth and eighteenth month anniversaries of the effective date of the agreement. The first grant was made on August 22, 2010 and the second on August 22, 2011. The aggregate value of each restricted stock grant ~~will be~~was $250,000 and one third of each restricted stock grant will vest on each of the next three anniversaries following the grant, unless there is an earlier change in control while Mr. Grescovich is actively employed, in which case all of the restricted stock will vest. The shares may not be sold while Mr. Grescovich is employed by us and the grants are subject to restrictions imposed by the Treasury as a result of Banner’s participation in the Treasury’s Capital Purchase Program. The first grant was made on August 22, 2010.us.

Supplemental Executive Retirement Program. We have adopted a supplemental executive retirement program (“SERP”) for each of the named executive ~~officers.~~officers except Mr. Grescovich. The SERP is intended to encourage retention by ensuring that the named executive officers reach a targeted retirement income, recognizing their value to Banner and rewarding them for their long-term service commitments. At termination of employment at or after retirement age and achievement of a service requirement, the executive’s annual benefit under the SERP, which may be reduced by certain other retirement benefits, would be computed as a percentage of the executive’s final average compensation (as defined in the plan) and the executive’s annual years of service (called the “supplemental benefit”). The executives are eligible for a reduced benefit upon early retirement if they meet the years of service requirements in their individual agreements; however, no benefit payment will begin before retirement age. The SERP also provides for payments in the event of an executive’s disability or death, or termination in the event of a change in control, all as discussed in further detail below, under “Potential Payments Upon Termination or Change in Control.” Executives’ receipt of payments under the SERP are subject to confidentiality and non-competition provisions. The executive officers have the status of unsecured creditors of Banner Bank with respect to the benefits accrued under the SERP.

Results of Shareholder Vote on Executive Compensation. Prior to the Treasury’s sale of our TARP Preferred Stock to third party investors on March 29, 2012, we were required to annually permit shareholders to vote to approve executive compensation, commonly known as a say-on-pay proposal. At last year’s annual meeting of shareholders, the resolution was approved by 98% of the shares present for purposes of voting on executive compensation. The Board and Compensation Committee considered the affirmative vote of the shareholders on the say-on-pay resolution at last year’s annual meeting and determined that existing executive compensation practices were deemed reasonable.

Allocation of Compensation. We do not have any specific policies regarding allocation of total compensation between short-term and long-term elements, or cash and non-cash elements. For ~~2010,~~2012, the composition of total compensation for our named executive officers was as follows:

Type of Compensation		Percentage of Total Compensation

Base salary		~~66%~~52%
Discretionary bonus		16
Deferred compensation and long-term incentive compensation (including restricted stock grant)		915
Supplemental executive retirement program		2116
All other compensation		41

Compensation Committee Report

The Compensation Committee of Banner’s Board of Directors has submitted the following report for inclusion in this Proxy Statement:

The Compensation Committee has reviewed and approved the Compensation Discussion and Analysis contained in this proxy statement with management. Based on the Committee’s discussion with management, the Compensation Committee recommended that the Board of Directors approve and include the Compensation Discussion and Analysis in this ~~proxy statement.~~Proxy Statement.

The Compensation Committee certifies that:

(1) On March 29, 2012, Banner’s Series A Preferred Stock was sold by the Treasury as part of its efforts to manage and recover its investments under TARP; therefore, January 1, 2012 to March 29, 2012 constituted the “TARP period” during the most recently completed fiscal year.

(2) It has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the senior executive officer (SEO) compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Banner Corporation and has identified any features of the employee compensation plans that pose risks to Banner Corporation and has limited those features to ensure that Banner Corporation is not unnecessarily exposed to risks.

(3) It has reviewed during any part of the most recently completed fiscal year that was a TARP period the employee compensation plans to eliminate any features of these plans that would encourage the manipulation of reported earnings of Banner to enhance the compensation of any employee.

(4) During the abbreviated 2012 TARP period, the following standards were not required to be met:

(a) It has reviewed with senior risk officers at least every six months the ~~senior executive officer (SEO)~~SEO compensation plans and has made all reasonable efforts to ensure that these plans do not encourage SEOs to take unnecessary and excessive risks that threaten the value of Banner; and

~~(2)~~ (b) It has reviewed with senior risk officers at least every six months the employee compensation plans and has made all reasonable efforts to limit any unnecessary risks these plans pose to ~~Banner; and~~Banner

~~(3) It has reviewed~~In March 2012, the ~~employee~~Compensation Committee met with management and the Senior Risk Management Officer to discuss, evaluate and review Banner Bank’s 2012 incentive compensation plans for officers and employees, other than senior executive officers, and the risks, if any, these plans posed to ~~eliminate~~Banner. They met to determine whether any features in the 2012 plans could lead participating officers to take unnecessary and excessive risks that would threaten the value of Banner, and whether any features in the 2012 plans unnecessarily expose Banner to risks, including any features of ~~these~~the plans that would encourage behavior focused on short-term results rather than long-term value creation. They also met to discuss, evaluate and review the terms of the 2012 plans for the purpose of determining whether they contain any feature that could encourage the manipulation of the reported earnings of Banner to enhance the compensation of ~~any~~an employee.

In ~~April and October 2010,~~December 2012, the ~~Banner~~ Compensation Committee met with the Senior Risk Management Officer to discuss, evaluate and review ~~our~~ senior executive officer compensation plans and employee compensation plans and the risks, if any, these plans pose to ~~Banner as required by our participation in the Treasury’s Capital Purchase Program.~~Banner. They met to determine whether any features in senior executive officer compensation plans could lead those officers to take unnecessary and excessive risks that would threaten the value of Banner, and whether any features in employee compensation plans unnecessarily expose Banner to risks, including any features of senior executive officer or employee compensation plans that would encourage behavior focused on short-term results rather than long-term value creation. They also met to discuss, evaluate and review the terms of employee compensation plans for the purpose of determining whether they contain any feature that could encourage the manipulation of the reported earnings of Banner to enhance the compensation of an employee.

The Compensation Committee and Senior Risk Management Officer concluded that our senior executive officer compensation plans do not encourage the senior executive officers to take unnecessary and excessive risks that would threaten the value of Banner; that senior executive officer or employee compensation plans do not unnecessarily expose Banner to risks or contain any features that would encourage senior executive officer or employee behavior focused on short-term results rather than long-term value creation; and that employee compensation plans do not contain any feature that could encourage the manipulation of the reported earnings of Banner to enhance the compensation of an employee.

In reaching these conclusions, the Compensation Committee and Senior Risk Management Officer considered Banner’s ~~Strategic Priorities,~~strategic priorities, including achieving a moderate risk profile, building sustainable revenue growth and profitability, ~~remaining core funded, and~~ improving operating ~~leverage;~~leverage and retaining, attracting and developing talented people; financial measures;

Banner’s unique and material risks, including long-term and short-term risks; and the key features of senior executive officer and employee compensation plans. They also considered information from the ~~Swanson Advisory Services, LLC total~~work performed by the independent compensation ~~benchmarking analysis described above.~~consultants.

During ~~2010,~~2012, senior executive officer compensation predominately consisted of base salary, ~~deferred compensation,~~a discretionary bonus, long-term incentive compensation in the form of restricted stock ~~granted to Mr. Grescovich,~~ and the SERP for named executives other than Mr. Grescovich. The Committee and the Senior Risk Management Officer noted that combined senior executive officer base salaries appeared reasonably balanced as a percentage of total compensation and that the level of combined senior executive officer base salaries appeared similar to peers and are therefore risk neutral with only a slight bias towards risk taking to enhance short-term earnings. ~~Although long-term~~

They observed that since the end of the TARP period, Banner’s compensation package for senior executive officers lacked a short-term incentive ~~compensation was not a significant~~ component, and noted the addition of meaningful “at risk” short-term incentives to the total compensation packages would be appropriate to help drive the development of business tactics and the achievement of Banner’s short-term goals that ultimately result in ~~2010, they~~the attainment of longer-term strategic objectives. They further noted that it would help mitigate the current risk to executive attraction and retention based on our current mix of compensation components versus our peers and competitors

They noted that long-term incentive compensation requires participants to remain in the active employment of Banner for an extended period of time (typically three to five years or more of ~~vesting; three years’ vesting for restricted stock granted to Mr. Grescovich)~~vesting) to obtain the full benefit. In addition, the value of long-term incentives are predominantly, if not wholly, dependent on the value of Banner’s common stock; therefore, these incentives serve to promote long-term value creation by each participant.

The Committee and the Senior Risk Management Officer noted that senior executive officers may elect to participate in deferred compensation plans as described elsewhere in this Proxy Statement and that they may direct the investment of deferred compensation toward the purchase of Banner common stock. Risks associated with this feature of the plan are mitigated by several features of the plan, including: required advance selection of the form and timing of plan distributions; waiting periods in the event of making a change in desired distributions; and the inability of a senior executive officer to accelerate plan payments. Further, Banner establishes grantor trusts to hold the investments associated with senior executive officer deferred compensation elections. This means that senior executive officers have the status of unsecured creditors of Banner with respect to trust assets; therefore, participation in the deferred compensation plan creates a bias towards long-term value creation and the financial strength of Banner.

The SERP component of senior executive officer compensation also appears to create a bias towards long-term value creation because each participant is an unsecured creditor of Banner. While a SERP participant’s benefits are tied, in part, to the value of Banner common stock because of the offset for tax-qualified benefits which includes the ESOP, the risks associated with this feature of the plan are mitigated by several provisions of the plan, including restrictions on changing the form of benefit and prohibitions on accelerating benefits.

The Compensation Committee and Senior Risk Management Officer further observed that Banner’s internal controls over financial reporting and disclosures which provide for an audited review of assets, liabilities, capital, revenues and expenses as well as the financial reports released to regulators, shareholders and the public provide for an

extensive array of preventive and detective controls that individually and collectively serve to discourage and deter any senior executive officer or employee from contemplating or taking any action to manipulate reported earnings. The Compensation Committee and Senior Risk Management Officer further concluded that senior executive officer compensation plans reflect the need for Banner to remain a competitive enterprise and to retain and recruit talented employees who will contribute to Banner’s future ~~success, and ultimately to repay TARP Capital Purchase Program obligations.~~success.

On June 25, 2010, the Federal Reserve, the Federal Deposit Insurance Corporation, and the other Federal banking regulators issued comprehensive new guidance on incentive compensation practices. The guidance is intended to assist banks in designing and implementing incentive compensation arrangements and related policies and procedures that effectively consider potential risks and outcomes. The guidance requires that to be consistent with safety and soundness, incentive compensation arrangements, as defined, at a banking organization should:

•	provide employees incentives that appropriately balance risk and reward;

•	be compatible with effective controls and risk-management; and

•	be supported by strong corporate governance, including active and effective oversight by the bank’s Board of Directors.

Under the guidance, we must regularly review our incentive compensation arrangements for all executives and non-executive employees who, either individually or as part of a group, have the ability to expose Banner and Banner Bank to material amounts of risk (known as “covered employees”). We must also regularly review the ~~risk-management,~~risk management, control and corporate governance processes related to these arrangements. The goal is to ensure that incentive compensation arrangements do not encourage employees to expose us to “imprudent risks that may pose a threat to the safety and soundness” of the Bank.

In ~~October 2010,~~March and December 2012, the Compensation Committee met with the Senior Risk Management Officer to discuss, evaluate and review the incentive compensation plans of Banner and Banner Bank employees covered by the ~~new~~ Interagency Guidance. They met to determine whether incentives appropriately balance risk and reward and are compatible with effective controls and risk-management. The Compensation Committee and Senior Risk Management Officer concluded that Banner’s and Banner Bank’s covered employee incentive ~~plans do not encourage imprudent risk-taking behavior, they appear to appropriately balance risk and reward, and they are compatible with effective controls and risk management practices.~~ plans:

do not encourage imprudent risk-taking behavior,

they appear to appropriately balance risk and reward, and

they are compatible with effective controls and risk management practices

In reaching these conclusions, the Compensation Committee and Senior Risk Management Officer considered Banner’s and Banner Bank’s strategic priorities, the long-term and short-term risks faced by Banner and Banner Bank, and the features of the identified incentive compensation plans for covered employees.

The foregoing report is provided by the following directors, who constitute the Committee:

The Compensation Committee

	~~The Compensation Committee~~

	Robert J. Lane, Chair

Edward L. Epstein

David A. Klaue

~~David B. Casper~~ Constance H. Kravas

	~~David A. Klaue~~
	~~Dean W. Mitchell~~ Michael M. Smith

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, and shall not otherwise be deemed filed under such acts.

Summary Compensation Table

The following table presents information regarding compensation for our named executive officers: (1) Mark J. Grescovich, our President and Chief Executive Officer; (2) ~~D. Michael Jones, our former President and Chief Executive Officer; (3)~~ Lloyd W. Baker, our Chief Financial Officer; and ~~(4)~~(3) our three other most highly compensated executive

officers, who are Richard B. Barton, Cynthia D. Purcell and ~~Paul E. Folz.~~Douglas M Bennett. No executive officer of Islanders Bank or Community Financial Corporation is an executive officer of Banner. ~~The named executive officers did not receive any bonus, option awards or non-equity incentive plan compensation; therefore, these columns have been omitted from the table below.~~

Name and Principal Position	Year	Salary ($)	Stock Awards ($)(1)	Change in Pension Value and Non- qualified Deferred Compensation Earnings ($)(2)	All Other Compen- sation ($)(3)	Total ($)	Year	Salary ($)	Bonus ($)	Stock Awards ($)(1)	Change in Pension Value and Non- qualified Deferred Compensation Earnings ($)(2)	All Other Compen- sation ($)(3)	Total ($)

Mark J. Grescovich ~~(4)~~	2010	496,154	250,000	--	42,626 (5)	788,780	2012	670,833	290,000	300,000	--	7,540	1,268,373
President and Chief							2011	600,000	--	250,000	--	69,545	919,545
Executive Officer							2010	496,154	--	250,000	--	42,626	788,780

D. Michael Jones (6)	2010	283,333	--	104,151 (7)	20,177 (8)	407,661
Former President and	2009	425,000	--	2,516 (7)	9,754	437,270
Chief Executive Officer	2008	425,000	--	81,488 (7)	27,461	533,949

Lloyd W. Baker	2010	250,000		172,675 (9)	10,559	433,234	2012	250,000	50,000	65,820	107,012 (4)	9,238	482,070
Executive Vice President,	2009	250,000	--	180,550 (9)	10,090	440,640	2011	250,000	--	--	186,705 (4)	18,518	455,223
Chief Financial Officer	2008	220,000	14,400	211,068 (9)	24,488	469,956	2010	250,000	--	--	172,675 (4)	10,559	433,234

Richard B. Barton	2010	254,000	--	116,653 (10)	19,715	390,368	2012	254,000	75,000	65,820	97,426 (5)	22,580	514,826
Executive Vice President,	2009	254,000	--	103,812 (10)	20,168	377,980	2011	254,000	--	--	162,965 (5)	28,526	445,491
Chief Lending Officer	2008	236,250	10,800	173,760 (10)	35,531	456,341	2010	254,000	--	--	116,653 (5)	19,715	390,368

Cynthia D. Purcell	2010	283,750	--	57,324 (11)	5,888	346,962	2012	285,000	45,000	--	134,798 (4)	4,951	469,749
Executive Vice President,	2009	270,000	--	101,815 (11)	6,536	378,351	2011	285,000	--	--	234,116 (4)	14,051	533,167
Retail Banking and	2008	257,650	14,400	220,176 (11)	21,444	513,670
Administration
Retail Banking and Administration							2010	283,750	--	--	50,201 (4)	5,888	339,839

Paul E. Folz	2010	260,000	--	113,903 (12)	7,676	381,579
Douglas M. Bennett (6)							2012	230,578	50,000	65,820	172,601 (7)	6,461	525,460
Executive Vice President,	2009	260,000	--	101,779 (12)	8,921	370,700
Commercial Banking	2008	257,500	10,800	168,982 (12)	21,626	458,908
Real Estate Lending Operations

~~_____________~~______________

(1)	Represents the aggregate grant date fair value of awards, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation – Stock Compensation” (“FASB ASC Topic ~~718”~~718"). For a discussion of valuation assumptions, see Note 16 of the Notes to Consolidated Financial Statements in Banner’s Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2012.
(2)	See Pension Benefits below for a detailed discussion of the assumptions used to calculate the Change in Pension Value.
(3)	~~Unless otherwise noted, includes life insurance premiums, club dues and company car allowance.~~Please see the table below for more information on the other compensation paid to our executive officers in 2012.
(4)	~~Mr. Grescovich was hired effective as of April 6, 2010.~~
~~(5)~~	~~Also includes $29,506 in transition expenses.~~
~~(6)~~	~~Mr. Jones retired on of August 31, 2010.~~
~~(7)~~	For 2010, consists of an increase in the value of Mr. Jones’s SERP of $98,911 and above-market earnings on deferred compensation of $5,240. For 2009, represents above-market earnings on deferred compensation. For 2008, consists of an increase in the value of Mr. Jones’s SERP of $76,449 and above-market earnings on deferred compensation of $5,039.
~~(8)~~	~~Also includes $11,500 in directors’ fees, paid after Mr. Jones retired as President and Chief Executive Officer, as well as post-retirement health insurance premiums.~~
~~(9)~~	Represents an increase in the value of ~~Mr. Baker’s~~the executive’s SERP. For Ms. Purcell, the 2010 amount has been recalculated to conform to the current year’s presentation, which more accurately reflects the SERP agreement.
~~(10)~~(5)	Consists of the following increases in the value of Mr. Barton’s SERP: $97,108 for 2012, $162,709 for 2011 and $116,517 for ~~2010, $103,753 for 2009 and $173,639 for 2008;~~2010; and the following amounts of above-market earnings on deferred compensation: $318 for 2012, $256 for 2011 and $136 for ~~2010, $59 for 2009 and $121 for 2008.~~2010.
~~(11)~~(6)	~~Represents~~Mr. Bennett was not a named executive officer in 2011 or 2010.
(7)	Consists of an increase in the value of ~~Ms. Purcell’s SERP.~~
~~(12)~~	~~Consists~~Mr. Bennett’s SERP of ~~the following increases in the value of Mr. Folz’s SERP: $113,507 for 2010, $101,595 for 2009~~$172,471 and ~~$168,667 for 2008; and the following amounts of~~ above-market earnings on deferred ~~compensation: $396 for 2010, $184 for 2009 and $315 for 2008.~~compensation of $130.

The current base salaries for ~~2011~~2012 for ~~Mr. Grescovich,~~ Mr. Baker, Mr. Barton, Ms. Purcell and Mr. ~~Folz~~Bennett are ~~$600,000,~~ $250,000, $254,000, $285,000 and ~~$260,000, respectively.~~$232,875, respectively (Mr. Grescovich’s salary is addressed below). In addition to base salary, the agreements provide for the executive’s participation in the employee benefit plans and other fringe benefits applicable to executive personnel. The initial three-year term of each agreement may be extended annually for an additional year at the

discretion of the Board of Directors of Banner Bank. The agreements were extended on the following dates: ~~Messrs. Barton and Folz, June 1, 2010,~~ Mr. Baker, July 1, ~~2010,~~2012, Mr. ~~Grescovich, February 22, 2011 and~~Barton, June 1, 2012, Ms. Purcell, March 1, ~~2011.~~2012 and Mr. Bennett, August 1, 2012. The agreements provide that compensation may be paid in the event of disability, death, involuntary termination or a change in control, as described below under “Potential Payments Upon Termination or Change in Control.”

Grants of Plan-Based Awards

All Other Stock Awards:

Number of Shares of Stock or

Grant Date Fair Value of

Outstanding Equity Awards

Option Awards (1) Stock Awards
Name Grant Date (1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Option
Exercise
Price ($)

Option
Expira-
tion
Date

Number of
Shares or
Units of Stock
That Have
Not Vested
(#)

Market Value
of Shares or
Units of Stock
That Have
Not Vested
($)

Mark J. Grescovich -- -- -- -- --    115,955 (2) 269,016

D. Michael Jones -- -- -- -- -- -- --

Lloyd W. Baker 12/19/01   4,800 -- 16.43 12/19/11
03/25/03   5,000 -- 15.67 03/25/13
12/16/04   2,000 -- 31.71 12/16/14
       8,250 (3)     8,830

Richard B. Barton 06/03/02 14,000 -- 22.05 06/03/12
03/25/03   5,000 -- 15.67 03/25/13
12/16/04   2,000 -- 31.71 12/16/14
       7,250 (4)     8,450

Cynthia D. Purcell 12/19/01   4,800 -- 16.43 12/19/11
03/25/03   5,000 -- 15.67 03/25/13
12/16/04   2,000 -- 31.71 12/16/14
       8,250 (3)     8,830

Paul E. Folz 06/03/02 14,000 -- 22.05 06/03/12
03/25/03   5,000 -- 15.67 03/25/13
12/16/04   2,000 -- 31.71 12/16/14
       7,250 (4)     8,450

	Option Awards (1)					Stock Awards
Name	Grant Date (1)	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expira- tion Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)

Mark J. Grescovich	--	--	--	--	--	31,851 (2)	978,781

Lloyd W. Baker	03/25/03	714	--	109.69	03/25/13
	12/16/04	285	--	221.97	12/16/14
						571 (3)	1,634
						3,000 (4)	92,190

(Table continues on following page)

~~__________________~~

	Option Awards (1)					Stock Awards
Name	Grant Date (1)	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expira- tion Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)

Richard B. Barton	03/25/03	714	--	109.69	03/25/13
	12/16/04	285	--	221.97	12/16/14
						428 (3)	1,226
						3,000 (4)	92,190

Cynthia D. Purcell	03/25/03	714	--	109.69	03/25/13
	12/16/04	285	--	221.97	12/16/14
						571 (3)	1,634

Douglas M. Bennett	03/25/03	571	--	109.69	03/25/13
	12/16/04	285	--	221.97	12/16/14
						428 (3)	1,226
						3,000 (4)	92,190

___________

(1)	Option grants vest pro rata over a five-year period from the grant date, with the first 20% vesting one year after the grant date.

(2)	Consists of ~~an award~~awards of restricted stock on August 22, 2010 and 2011 and April 24, 2012 which ~~vests~~vest pro rata over a three-year period from the grant date, with the first one-third vesting one year after the grant date.

(3)	Consists of ~~the following awards of~~ phantom ~~stock: 4,250 shares on July 1, 2006 and 4,000 shares~~stock awarded on May 5, 2008. ~~These awards vest~~The award vests after five years of service from the date of grant.

(4)

Consists of ~~the following~~ awards of ~~phantom stock: 4,250 shares~~restricted stock on July ~~1, 2006 and 3,000 shares on May 5, 2008. These awards~~2, 2012 which vest ~~after five years of service~~pro rata over a three-year period from the grant date, ~~of grant.~~with the first one-third vesting one year after the grant date.

Option Exercises and Stock Vested

~~____________~~_____________

(1)

~~Except with respect to Mr. Jones, amounts~~Amounts shown assume normal retirement age as defined in individual agreements and an assumed life of 82 years for the recipient and recipient’s spouse, with the projected cash flows discounted at five percent to calculate the resulting present value. In 2011, Banner used five and one-half percent and in prior years used six and one-half percent to calculate the ~~resulting~~ present ~~value. Mr. Jones retired effective August 31, 2010 with his initial six payments deferred until March 1, 2011.~~values. The ~~amount shown for Mr. Jones assumes payments beginning March 1,~~changes in the discount rate had the effect of increasing the present values in the current year and increased of the amounts of 2011 and ~~a total of 180 payments (including~~2012 compensation reported in the ~~six deferred payments) with the projected cash flows discounted at six and one-half percent to calculate the resulting present value.~~

~~(2)~~

~~As of December 31, 2008, Mr. Jones agreed to limit his years of service to seven years.~~Summary Compensation Table on page 21.

Nonqualified Deferred Compensation

Name

Executive
Contributions
in Last FY ($)

Registrant
Contributions
in Last FY ($)

Aggregate
Earnings in
Last FY ($)(1)

Aggregate
Withdrawals/
Distributions ($)

Aggregate
Balance
at FYE ($)(2)

Mark J. Grescovich -- -- -- -- --
D. Michael Jones -- -- 30,250 -- 676,351
Lloyd W. Baker -- -- (1,135 ) -- 8,322
Richard B. Barton -- -- 828 -- 17,159
Cynthia D. Purcell -- -- 1,192 -- 9,224
Paul E. Folz -- -- 1,991 -- 53,346

~~_____________~~

Name	Executive Contributions in Last FY ($)	Registrant Contributions in Last FY ($)	Aggregate Earnings in Last FY ($)(1)	Aggregate Withdrawals/ Distributions ($)	Aggregate Balance at FYE ($)(2)

Mark J. Grescovich	--	--	--	--	--
Lloyd W. Baker	--	--	7,045	--	15,920
Richard B. Barton	--	--	838	--	18,831
Cynthia D. Purcell	--	--	1,540	--	10,957
Douglas M. Bennett	--	--	576	--	8,218
_______________

(1)	The following amounts, constituting above-market earnings, were reported as compensation in ~~2010~~2012 in the Summary Compensation Table: for Mr. ~~Jones, $5,240; for Mr.~~ Barton, ~~$136;~~$318; and for Mr. ~~Folz, $396.~~Bennett, $130.

(2)

Of these amounts, the following amounts were previously reported as compensation to the officers in the Summary Compensation Table: for Mr. ~~Jones, $67,150; for Mr.~~ Baker, $4,310; for Mr. Barton, ~~$5,209;~~$5,601; and for Ms. Purcell, ~~$4,772;~~$4,772. Consists of employer contributions to the deferred compensation plan and for Mr. ~~Folz, $7,995.~~Barton, also includes above-market earnings.

Potential Payments Upon Termination or Change in Control

payments and benefits following a termination of employment under a variety of scenarios. However, as a result of Banner’s participation in the Treasury’s Capital Purchase Program, it is currently prohibited from making a golden parachute payment to a named executive officer or any of the next five most highly compensated employees. For purposes of this restriction, a golden parachute payment means any payment for the departure from a TARP recipient for any reason, or any payment due to a change in control of the TARP recipient, except for payments for services performed or benefits accrued. Excluded from the restriction are payments made in the event of an employee’s death or disability. The affected executives signed compensation modification agreements to comply with the restriction against making golden parachute payments. Accordingly, except for payments for services performed or benefits accrued, our named executive officers are not currently eligible to receive any payments upon termination without just cause or in connection with a change in control pursuant to their employment agreements or supplemental executive retirement program but they, or their beneficiaries, remain eligible to receive payments upon a termination due to death or disability. The prohibition against golden parachute payments will be effective for as long as the 124,000 shares of Banner’s Series A Preferred Stock sold to the Treasury remain outstanding.

	~~Death ($)~~	~~Disability ($)~~	~~Involuntary~~ ~~Termination ($)~~	~~Involuntary~~ ~~Termination~~ ~~Following~~ ~~Change in~~ ~~Control ($)~~	~~Early~~ ~~Retirement ($)~~	~~Normal~~ ~~Retirement ($)~~

~~Mark J. Grescovich~~
~~Employment Agreement~~	--	~~485,851 (5)~~	~~612,678 (1)~~	~~612,678 (1)~~	--	--
~~Equity Plans~~	~~269,016 (2)~~	~~269,016 (2)~~	--	~~269,016 (1)~~	--	--

~~D. Michael Jones~~
~~SERP~~	~~67,025 (2)~~	~~134,050 (2)~~	~~134,050 (2)~~	~~134,050 (2)~~	~~134,050 (2)~~	~~134,050 (2)~~
~~Equity Plans~~	--	--	--	--	--	--

~~Lloyd W. Baker~~
~~Employment Agreement~~	--	~~166,667 (2)~~	~~625,000 (1)~~	~~770,385 (1)~~	--	--
~~SERP~~	~~64,174 (2)~~	~~128,347 (2)~~	~~128,347 (3)~~	~~128,347 (3)~~	~~128,347 (3)~~	~~128,347 (2)~~
~~Equity Plans~~	--	--	--	~~8,830 (1)~~	--	~~8,830~~

~~Richard B. Barton~~
~~Employment Agreement~~	--	~~169,333 (2)~~	~~613,833 (1)~~	~~864,602 (1)~~	--	--
~~SERP~~	~~22,736 (2)~~	~~45,471 (2)~~	~~45,471 (4)~~	~~45,471 (4)~~	~~45,471 (4)~~	~~45,471 (2)~~
~~Equity Plans~~	--	--	--	~~8,450 (1)~~	--	~~8,450~~

~~Cynthia D. Purcell~~
~~Employment Agreement~~	--	~~190,000 (2)~~	~~617,500 (1)~~	~~854,045 (1)~~	--	--
~~SERP~~	~~76,664 (2)~~	~~153,328 (2)~~	~~98,881 (3)~~	~~98,881 (3)~~	~~98,881 (3)~~	~~153,328 (2)~~
~~Equity Plans~~	--	--	--	~~8,830 (1)~~	--	~~8,830~~

~~Paul E. Folz~~
~~Employment Agreement~~	--	~~173,333 (2)~~	~~628,333 (1)~~	~~850,316 (1)~~	--	--
~~SERP~~	~~23,395 (2)~~	~~46,789 (2)~~	~~46,789 (3)~~	~~46,789 (3)~~	~~46,789 (3)~~	~~46,789 (2)~~
~~Equity Plans~~	--	--	--	~~8,450 (1)~~	--	~~8,450~~

~~_____________~~

	Death ($)		Disability ($)		Involuntary Termination ($)		Involuntary Termination Following Change in Control ($)		Early Retirement ($)		Normal Retirement ($)

Mark J. Grescovich
Employment Agreement	--		605,766	(1)	738,325		738,325		--		--
Equity Plans	978,781	(2)	978,781	(2)	--		978,781	(2)	--		--

Lloyd W. Baker
Employment Agreement	--		166,667	(3)	625,000		835,469		--		--
SERP	72,926	(4)	145,851	(4)	145,851	(5)	145,851	(5)	145,851	(5)	145,851	(4)
Equity Plans	92,190	(2)	92,190	(2)	--		93,824	(2)	--		--

Richard B. Barton
Employment Agreement	--		--		613,833		879,994		--		--
SERP	34,104	(4)	68,207	(4)	68,207	(6)	68,207	(6)	68,207	(6)	68,207	(4)
Equity Plans	92,190	(2)	92,190	(2)	--		93,416	(2)	--		--

Cynthia D. Purcell
Employment Agreement	--		190,000	(3)	617,500		930,099		--		--
SERP	75,865	(4)	151,729	(4)	109,003	(5)	109,003	(5)	109,003	(5)	132,717	(4)
Equity Plans	--		--		--		1,634		--		--

Douglas M. Bennett
Employment Agreement	--		155,250	(3)	601,594		769,001		--		--
SERP	30,109	(4)	60,218	(4)	60,218	(5)	60,218	(5)	60,218	(5)	60,218	(4)
Equity Plans	92,190	(2)	92,190	(2)	--		93,416	(2)	--		--

___________

(1)	~~Payment is prohibited as a result of Banner’s participation in the Treasury’s Capital Purchase Program.~~

~~(2)~~

~~Indicates annual payments.~~

~~(3)~~

~~Indicates annual payments (which may not begin before age 62).~~

~~(4)~~

~~Indicates annual payments (which may not begin before age 68).~~

~~(5)~~

Annually through the term of the employment agreement unless the Board exercises an election to discontinue.

(2)	Represents one-time accelerated vesting of restricted stock.

(3)	Indicates annual payments; payable only until age 65.

(4)	Indicates annual payments.

(5)	Indicates annual payments (which may not begin before age 62).

(6)	Indicates annual payments (which may not begin before age 68).

Employment Agreements. The employment agreements with Messrs. Grescovich, Baker, Barton and ~~Folz~~Bennett and Ms. Purcell provide for payments in the event of death, disability or termination. ~~The employment agreement with Mr. Jones was terminated in connection with his retirement.~~ In the event of an executive’s death during the term of his or her employment agreement, we will pay to ~~his~~the executive’s estate the compensation due through the last day of the calendar month in which his death occurred.

Mr. Grescovich’s agreement provides that if he becomes entitled to benefits under the terms of the then-current disability plan, if any, of Banner or Banner Bank or becomes otherwise unable to fulfill his duties under his employment

agreement, he shall be entitled to receive such group and other disability benefits as are then provided for executive employees. In the event of his disability, the employment agreement is not suspended, except that (1) the obligation to pay Mr. Grescovich’s salary will be reduced by the amount of disability income benefits he receives and (2) upon a resolution adopted by a majority of the disinterested members of the Board of Directors or the Compensation Committee, Banner or Banner Bank may discontinue payment of his salary beginning six months following a determination that he has become entitled to benefits under the disability plan or otherwise unable to fulfill his duties under his agreement. If Mr. Grescovich’s disability does not constitute a disability within the meaning of Section 409A of the Internal Revenue Code, and he is a “specified employee” within the meaning of Section 409A, then disability payments will not begin until the earlier of his death or the sixth month anniversary of his separation from service.

The employment agreements with Messrs. Baker, Barton and ~~Folz~~Bennett and Ms. Purcell provide that if the executive becomes disabled or incapacitated to the extent that he or she is unable to perform the duties of his or her position, he or she shall receive short-term disability benefits equal to 100% of his or her monthly compensation beginning on the 15th day of disability and continuing until the 180th day of disability and long-term disability benefits equal to 66 2/3% of monthly salary beginning on the 181st day of disability and continuing until he or she attains age 65. These benefits will be reduced by the amount of any benefits payable to the executive under any other disability program

of Banner Bank. The Bank currently provides disability benefits with certain limitations to all full time employees. In addition, during any period of disability, the executive and his or her dependents shall, to the greatest extent possible, continue to be covered under all executive benefits plans of Banner Bank, including without limitation, its retirement plans, life insurance plan and health insurance plans, as if actively employed by Banner Bank. If the executive is disabled for a continuous period exceeding six calendar months, Banner Bank may, at its election, terminate the employment agreement.

The employment of the executives is terminable at any time for just cause as defined in the agreements. In addition, the employment of the executive may be terminated without just cause, in which case the agreement provides that he or she would continue to receive base salary over the remaining term, except for Mr. Grescovich, who would continue to receive his base salary for 12 months following the date of termination. Mr. Grescovich’s agreement also entitles him to continuation of group life insurance, hospitalization, medical, dental, prescription drug and other health benefits, and long-term disability insurance for the remainder of the term of his employment agreement. As described previously, as a result of Banner’s participation in the Treasury’s Capital Purchase Program, it is currently prohibited from a making a payment upon termination without just cause to a named executive officer.

The employment agreements also provide for benefits in the event of the executives’ termination in connection with a change in control. If, after a change in control, we (or our acquiror) terminate an executive’s employment or otherwise change the circumstances in which he or she is employed, or cause a reduction in responsibilities or authority or compensation or other benefits provided under the employment agreement without consent, other than for just cause, the agreements provide that we must pay to the executive and provide him or her, or the his or her beneficiaries, dependents and estate, with the following: (1) 2.99 times the executive’s base amount (as defined in Section 280G of the Internal Revenue Code of 1986) (for Mr. Grescovich, one times his base amount); and (2) during the period of 36 calendar months beginning with the event of termination, continued coverage under all Banner employee benefit plans as if the executive were still employed during that period under the employment agreement (for Mr. Grescovich, continued coverage is for the remaining term of his employment agreement). The employment agreements limit these payments and do not allow payments of amounts in excess of the limits imposed by Section 280G of the Internal Revenue Code. As described previously, as a result of Banner’s participation in the Treasury’s Capital Purchase Program, it is currently prohibited from making a payment in connection with a change in control to a named executive officer.

Supplemental Executive Retirement Program. We have adopted a supplemental executive retirement program (“SERP”) for each of the named executive officers, except Mr. Grescovich. At termination of employment at or after attaining age 62 (age 68 for Mr. Barton) and having achieved a service requirement, the executive’s annual benefit under the SERP would be computed as the product of 3% (4% for Messrs. Barton and ~~Folz)~~Bennett) of the executive’s final average compensation (defined as the three calendar years of the executive’s annual cash compensation, including bonuses, which produce the highest average within the executive’s final eight full calendar years of employment) and the executive’s annual years of service (subsequent to January 1, 2007 for Messrs. Barton and ~~Folz)~~Bennett) (called the “supplemental benefit”). However, the supplemental benefit would be limited such that the sum of (1) amounts payable from the executive’s other retirement benefits from Banner and Banner Bank and (2) the supplemental benefit may not

exceed 60% of final average compensation (for Messrs. Barton and ~~Folz,~~Bennett, the supplemental benefit may not exceed the product of 3% times his total years of service and his final average compensation). Payment of the supplemental benefit begins on the first day of the month next following the executive’s retirement date and continues monthly for the executive’s life, unless the executive is a specified employee (as defined in Section 409A of the Internal Revenue Code), in which case payment begins on the first day of the month following the six-month anniversary of the executive’s termination of employment. The executives are eligible for a reduced benefit upon retirement prior to age 62 (age 68 for Mr. Barton) if they meet the years of service requirements in their individual agreements; however, no benefit payment will begin before age 62 (age 68 for Mr. Barton) and payments will be subject to the delayed distribution requirements if the executive is a specified employee. ~~Mr. Jones retired on August 31, 2010 and began receiving payments on March 1, 2011.~~

In the event of an executive’s death, the executive’s surviving spouse shall receive a spouse’s supplemental benefit. If the death occurs following the executive’s retirement date, the surviving spouse shall be entitled to a spouse’s supplemental benefit, payable for life, equal to 50% of the monthly amount of the supplemental benefit payable to the executive prior to his or her death. If the death occurs while the executive is actively employed by Banner or any of its affiliates, the surviving spouse shall receive a spouse’s supplement benefit equal to 50% of the amount the executive would have received as a supplemental benefit if the executive’s retirement date had occurred on the date immediately preceding the executive’s death.

With respect to each of the named executive officers, ~~other than Mr. Jones,~~ the agreement provides that in the event of the executive’s involuntary termination of employment on or after the effective date of a change in control, the date of termination shall be treated as the executive’s retirement date and he or she shall be entitled to receive a supplemental benefit. If the executive had reached his or her retirement date, the supplemental benefit would be calculated as described above for normal retirement and if the executive had not reached his or her retirement date but had satisfied the years of service requirement, the supplemental benefit would be calculated as described above for early retirement. No benefit payment will begin before age 62 (age 68 for Mr. Barton) and payments will be subject to the delayed distribution requirements if the executive is a specified employee. As described previously, as a result of Banner’s participation in the Treasury’s Capital Purchase Program, it is currently prohibited from making a payment in connection with a change in control to a named executive officer.

The supplemental benefit shall cease to be paid to the executive (and rights to the spouse’s supplemental benefit shall terminate) if the executive (1) discloses material confidential information or trade secrets concerning Banner Bank or any of its subsidiaries without its consent or (2) engages in any activity that is materially damaging to the Bank including engaging in competitive employment during the three-year period beginning on the executive’s retirement date (or in the case of Messrs. Barton and ~~Folz,~~Bennett, during the two-year period beginning on the date of his involuntary termination of employment on or after the effective date of a change of control).

Equity Plans. Our 2001 Stock Option Plan, ~~and~~ Long-Term Incentive Plan and 2012 Restricted Stock Plan provide for accelerated vesting of awards in the event of a change in control. If a change in control occurs: (1) all options granted and not fully exercisable will become exercisable in full; ~~and~~ (2) awards of phantom stock will vest fully and be payable within 60 ~~days.~~days; and (3) all unvested awards of restricted stock will vest fully. In addition, if a tender offer or exchange offer for Banner’s shares commences, options granted under the 2001 Stock Option Plan and not fully exercisable will become exercisable in full. The Long-Term Incentive Plan also provides that a participant who (1) has attained age 65, (2) voluntarily terminates employment with Banner and its affiliates, (3) is not vested at the time of the termination of employment and (4) enters into a non-competition agreement for a period equal to the greater of two years from the participant’s separation from service or the period of time necessary for the participant to fully vest in his or her benefit, shall have continuous service credited on his or her behalf for vesting purposes for a period equal to the term of the non-competition agreement. ~~As described previously,~~Our 2012 Restricted Stock Plan also provides for accelerated vesting of awards if a recipient’s service is terminated as a result of Banner’s participation in the Treasury’s Capital Purchase Program, it is currently prohibited from making golden parachute payments to the named executive officers and this includes accelerating equity awards.death or disability.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Robert J. Lane, ~~David B. Casper,~~Edward L. Epstein, David A. Klaue, Constance H. Kravas and ~~Dean W. Mitchell.~~Michael M. Smith. No members of the Compensation Committee were officers or employees of Banner or any of its subsidiaries during the year ended December 31, ~~2010,~~2012, nor were they formerly Banner officers or had any relationships otherwise requiring disclosure.

PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

~~On February 17, 2009, President Obama signed~~Under the ~~American Recovery~~Dodd-Frank Wall Street Reform and ~~Reinvestment~~Consumer Protection Act (“Dodd-Frank Act”), we are required to include in this Proxy Statement and present at the meeting a non-binding shareholder resolution to approve the compensation of ~~2009 (“ARRA”) into law. For financial institutions that have received financial assistance under~~our named executive officers, as disclosed in this Proxy Statement pursuant to the ~~troubled asset relief program (“TARP”) or related programs, such as Banner, the ARRA significantly rewrote the original executive~~ compensation ~~and corporate governance provisions of Section 111~~disclosure rules of the ~~Emergency Economic Stabilization Act of 2008. Notably, the ARRA requires that TARP recipients permit shareholders to vote to approve executive compensation.~~SEC. This proposal, commonly known as a ~~“say on pay”~~“say-on-pay” proposal, gives shareholders the opportunity to endorse or not endorse the compensation of ~~our named executive officers.~~Banner’s executives as disclosed in this Proxy Statement. The proposal will be presented at the annual meeting in the form of the following resolution:

RESOLVED, that the shareholders approve the compensation of Banner Corporation’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables and related material in the Proxy Statement for the ~~2011~~2013 annual meeting of shareholders.

~~As provided under the ARRA, this~~This vote will not be binding on our Board of Directors or Compensation Committee and may not be construed as overruling a decision by the Board or create or imply any additional fiduciary duty on the Board. It will also not affect any compensation paid or awarded to any executive. The Compensation Committee and the Board may, however, take into account the outcome of the vote when considering future executive compensation arrangements.

Our executive compensation policies are designed to establish an appropriate relationship between executive pay and the annual and long-term performance of Banner and Banner Bank, to reflect the attainment of short- and long-term financial performance goals, to enhance our ability to attract and retain qualified executive officers, and to align to the greatest extent possible the interests of management and shareholders. Our Board of Directors believes that our compensation policies and procedures achieve these objectives. The Board of Directors unanimously recommends that you vote FOR approval of the compensation of our named executive ~~officers.~~officers as disclosed in this Proxy Statement.

PROPOSAL 3 – ADVISORY VOTE ON THE FREQUENCY OF

FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

Under the Dodd-Frank Act, we are required to include in this Proxy Statement and present at the meeting a non-binding shareholder vote to determine the timing of future shareholder votes on executive compensation. This proposal gives shareholders the opportunity to vote on whether a resolution to approve the compensation of our named executive officers should be presented to shareholders every one, two or three years, or to abstain from voting.

The Board of Directors believes that a resolution to approve the compensation of our executives should be presented to shareholders every year because the Board is committed to strong corporate governance and an annual cycle provides for the greatest accountability to our shareholders.

This vote will not be binding on our Board of Directors or Compensation Committee and may not be construed as overruling a decision by the Board or create or imply any additional fiduciary duty on the Board. It also will not affect when the shareholders will be asked to vote on executive compensation in future years. The Compensation Committee and the Board may, however, take into account the outcome of the vote when considering when to present shareholders with a resolution to approve executive compensation.

The Board of Directors recommends that you vote FOR conducting an advisory vote on executive compensation every year.

•	The Audit Committee has completed its review and discussion of the ~~2010~~2012 audited financial statements with management;

•	The Audit Committee has discussed with the independent auditor (Moss Adams LLP) the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T;

•

The Audit Committee has received written disclosures and the letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, and has discussed with the independent auditor the independent auditor’s independence; and

•

The Audit Committee has, based on its review and discussions with management of the ~~2010~~2012 audited financial statements and discussions with the independent auditors, recommended to the Board of Directors that Banner’s audited financial statements for the year ended December 31, ~~2010~~2012 be included in its Annual Report on Form ~~10-K~~.10-K.

The foregoing report is provided by the following directors, who constitute the Audit Committee:

	~~Audit Committee~~

	Gordon E. Budke, Chairman

Year Ended December 31,
2010 2009

Audit Fees (1)
473,693 $556,231
Audit-Related Fees
136,172     96,034
Tax Fees
          --             --
All Other Fees
          3,126 (2)
            --

Fees for ~~2010~~2012 include estimated amounts to be billed.

~~General~~

We are asking our shareholders to approve an amendment to the Banner Corporation 2012 Restricted Stock Plan (now known as the “2012 Restricted Stock and Incentive Bonus Plan”), which makes the following changes:

•	provides Banner with the flexibility to grant incentive-based awards under the Plan, which awards may be paid either in cash or Banner stock.

•	adds performance goals and incentive awards to the Plan for the purpose of making incentive-based awards fully deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

•	in the case of a restricted stock award granted after the amended Plan is approved, permits accelerated vesting of that award on account of a change in control event only if the participant also is involuntarily terminated within 12 months of the change in control event.

•	in the case of restricted stock awards granted after the amended Plan is approved, the vested status of the award will not be affected by the commencement of a tender or exchange offer.

~~We believe that enabling the Board of Directors with the discretion regarding whether and when to implement the reverse stock split~~approved, will provide usthe Compensation Committee with the flexibility to ~~do so in a manner most advantageous to Banner and its shareholders. In determining whether and when to implement~~grant awards under the ~~reverse stock split,~~Plan that qualify as qualified performance-based compensation under Section 162(m) of the ~~Board~~Code, the approval of ~~Directors may consider the following factors, among others:~~

•	~~the historical trading price and trading volume of Banner’s common stock;~~

•	~~the number of shares of Banner’s common stock outstanding;~~

•	~~the then-prevailing trading price and trading volume of Banner’s common stock and the anticipated impact of the reverse stock split on the trading market for the common stock; and~~

•	~~prevailing general market and economic conditions~~

~~If common shareholders approve the reverse stock split and the Board of Directors implements it, the articles of~~this amendment to be filed with the Washington Secretary of State would amend the first paragraph of Article IV of Banner’s Amended and Restated Articles of Incorporation to replace the first sentence with the following language:

~~ARTICLE IV. Capital Stock.~~ The total number of shares of all classes of capital stock which the corporation has authority to issue is 50,500,000, of which 50,000,000 shall be common stock of par value of $0.01 per share, and of which 500,000 shall be serial preferred stock of par value $0.01 per share. Upon the filing and effectiveness pursuant to the Washington Business Corporation Act of these Articles of Amendment (“Effective Time”), each seven (7) shares of common stock issued and outstanding immediately prior to the Effective Time shall be combined and changed into one (1) validly issued, fully paid and non-assessable share of common stock without any further action by the corporation or the holder thereof (the “reverse stock split”). Any fractional shares resulting from the reverse stock split will not ~~be issued (except~~require the Committee to grant awards that qualify as permitted below), but will be paid out in cash (without interest or deduction) in the amount equal to the number of shares exchanged into such fractional share multiplied by the closing trading price of the corporation’s common stock on the NASDAQ Global Select on the trading day immediately before the Effective Time. Participants in the corporation’s Employee Stock Ownership Plan and Dividend Reinvestment and Direct Stock

~~Purchase and Sale Plan will receive their whole and fractional shares resulting from the reverse stock split credited to their accounts.~~

~~The remaining text of Article IV of Banner’s Amended and Restated Articles of Incorporation would remain unchanged.~~

~~Reasons for the Reverse Stock Split~~

The Board is submitting the reverse stock split for approval with the primary intent of increasing the market price per share of our common stock. The Board of Directors believes that a higher price per share could result in greater interest in Banner’s common stock among institutional owners, members of the financial community and the investing public. In addition, the Board believes the reverse stock split could possibly create a more liquid market for Banner’s shareholders.

We believe that the reverse stock split will make our common stock more attractive to a broader range of institutional and other investors, as we have been advised that the current market price of our common stock may affect its acceptability to certain institutional investors, professional investors and other members of the investing public. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. In addition, some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Moreover, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of common stock can result in individual shareholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. We believe that the reverse stock split will make our common stock a more attractive and cost effective investment for many investors, which will enhance the liquidity of the holders of our common stock.

Reducing the number of outstanding shares of our common stock through the reverse stock split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result, there can be no assurance that the reverse stock split, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following the reverse stock split or that the market price of our common stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our common stock after a reverse stock split will increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split. Accordingly, the total market capitalization of our common stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split.

~~Potential Effects of the Reverse Stock Split~~

If shareholders approve the reverse stock split, there will be no impact unless and until the Board of Directors determines to implement it. The reverse stock split, once implemented, would affect all of Banner’s common shareholders and would not affect any shareholder’s percentage ownership interests or proportionate voting power, except as described below under “Fractional Shares.”

~~The principal effects of the reverse stock split would be that:~~

•	~~seven shares of common stock would be reclassified and combined into one share of common stock;~~

•	~~the total number of outstanding shares of common stock would be decreased by a factor of seven;~~

•	~~the total number of authorized shares of common stock would decrease from 200,000,000 to 50,000,000;~~

•	~~based on the 1-for-7 reverse stock split ratio, the per share exercise price of all outstanding equity awards would be increased proportionately and the number of shares of common stock issuable upon~~

~~the exercise of all such awards and the number of vested and unvested shares subject to outstanding option and other stock awards would be decreased proportionately; and~~

•

based on the 1-for-7 reverse stock split ratio, the conversion price of all other outstanding securities that are exercisable or exchangeable for or convertible into shares of common stock would be increased proportionately and the number of shares of common stock issuable upon such exercise, exchange or conversion would be decreased proportionately.

Because the reverse stock split, if implemented, would result in a reduction of the number of outstanding shares of our common stock, it would be accompanied by a significant reduction in the number of shares of common stock that our Board is authorized to issue. The reverse stock split would not affect the number of shares of preferred stock the we may issue, which would remain at 500,000 shares. Although the number of outstanding shares of common stock would decrease following the proposed reverse stock split, we do not intend for the reverse stock split to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Securities Exchange Act. The reverse stock split would not affect the terms of or par value of the common stock.

Except for minor adjustments that may result from the treatment of fractional shares as described below, the reverse stock split will not have any dilutive effect on our shareholders since each shareholder would hold the same percentage of our common stock outstanding immediately following the reverse split as such shareholder held immediately prior to the reverse split. After the reverse stock split, all shares of common stock would have the same voting rights, and rights to dividends and other distributions (if any) by Banner. The Board of Directors reviews dividends on a quarterly basis and has not yet determined whether it would make any change in the dividend paid per share on the common stock as a result of the reverse stock split. At the effective time of the reverse stock split, each seven shares of common stock would be reclassified and combined into one share of common stock, automatically and without further action on the shareholders’ part.

We estimate that after the implementation of the reverse stock split, we will have approximately the same number of shareholders. However, the reverse stock split may result in some shareholders owning less than 100 shares of common stock, which are known as “odd lots.” Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.

The reverse stock split, if implemented, will concurrently reduce the authorized number of shares of Banner’s common stock from 200,000,000 to 50,000,000. Accordingly, the additional authorized shares of common stock will be available for issuance at such times and for such purposes as the Board of Directors may deem advisable without further action by our shareholders, except as required by applicable laws and regulations. The Board believes that the availability of additional authorized shares of common stock will provide it with additional flexibility. We currently do not have any plan, commitment, arrangement, understanding or agreement, either written or oral, to issue any shares of additional authorized common stock, however, the additional shares of common stock would be available for issuance by action of the Board without the need for further action by our shareholders, unless shareholder action is specifically required by applicable law. The number of shares of authorized preferred stock will remain the same.

~~Fractional Shares~~

No fractional shares of common stock will be issued in connection with the reverse stock split, other than to participants in Banner’s Employee Stock Ownership Plan and Dividend Reinvestment and Direct Stock Purchase and Sale Plan. All other shareholders who would otherwise be entitled to receive a fractional share due to holding a number of shares not evenly divisible by seven would receive cash in lieu of a fractional share. The cash amount to be paid to each such shareholder will be paid out (without interest or deduction) in an amount equal to the number of whole shares exchanged into such fractional share multiplied by the closing trading price of our common stock on the NASDAQ Global Select Market on the trading day immediately before the articles of amendment are filed with the Washington Secretary of State.

If a shareholder who holds shares in certificated form is entitled to a payment in lieu of any fractional share interest, the shareholder will receive a check as soon as practicable after the effective time and after the shareholder has submitted an executed letter of transmittal and surrendered all stock certificates, as described below in “Exchange of

Stock Certificates.” Shareholder who hold shares of our common stock with a broker, bank or other nominee should contact their broker, bank or other nominee for information on the treatment and processing of fractional shares. By signing and cashing the check, shareholders will warrant that they owned the shares of common stock for which they received a cash payment. The cash payment is subject to applicable federal and state income tax and state abandoned property laws. Shareholders will not be entitled to receive interest for the period of time between the effective time and the date payment is received.

~~Exchange of Stock Certificates~~

If the shareholders approve the reverse stock split and the Board of Directors implements it, the combination of, and reduction in, the number of shares of our outstanding common stock as a result of the reverse stock split will occur automatically on the date that the articles of amendment are filed with the Washington Secretary of State, without any action by shareholders and without regard to the date that stock certificates representing the outstanding shares of our common stock prior to the effective time are physically surrendered for new stock certificates.

Our transfer agent will mail a letter of transmittal to each holder of record of certificates for our common stock to be used in forwarding the certificates for surrender and exchange for certificates representing the number of shares of our common stock the shareholder is entitled to receive as a result of the reverse stock split, as soon as practicable after the effective time. The letter of transmittal will contain instructions on how a shareholder should surrender the certificate(s) representing shares of common stock to the transfer agent in exchange for certificates representing the appropriate number of shares of post-reverse stock split common stock. No post-split certificates will be issued to a shareholder until the shareholder has surrendered all pre-split certificates, together with a properly completed and executed letter of transmittal, to the transfer agent. There will be no fee for exchanging certificates. ~~Shareholders should not destroy any stock certificate(s) and should not submit any stock certificate(s) until requested to do so.~~

If your shares of Banner common stock are held in book-entry form with the transfer agent, meaning you do not have stock certificates evidencing your ownership of the common stock and receive a statement reflecting the number of shares registered in your accounts, you will not need to take action to receive shares of post-reverse stock split common stock. The exchange will be automatic and you will receive cash in lieu of fractional shares.

If you are a beneficial owner of Banner common stock held by a broker, bank or other nominee (i.e., in “street name”), you will be treated in the same manner as shareholders whose shares are registered in their names. Brokers, banks and other nominees will be instructed to effect the reverse stock split for their beneficial holders holding common stock in street name. However, these banks, brokers or other nominees may have different procedures than registered shareholders for processing the reverse stock split. If your shares are held in street name and you have any questions in this regard, we encourage you to contact your broker, bank or other nominee.

~~Certain Federal Income Tax Consequences of the Reverse Stock Split~~

The following is a summary of certain United States federal income tax consequences of a reverse stock split. It does not address any state, local or foreign income or other tax consequences. It applies to you only if you held pre-reverse stock split Banner common stock shares and post-reverse stock split Banner common stock shares as capital assets for tax purposes. This section does not apply to you if you are a member of a class of holders subject to special rules, such as (i) a dealer in securities, (ii) a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, (iii) a bank or (iv) a tax-exempt organization. This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis, which could have a material effect on the U.S. federal income tax consequences of the reverse stock split.

If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our common stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the reverse stock split.

qualified performance-based compensation. The Committee reserves the right to continue to grant awards under the Plan, regardless of whether or not the grant of such award results in compensation that is deductible for federal income tax purposes.

Description of Proposed Amendments

Other than with respect to any cash payments received in lieu of fractional shares discussed below, no gain or loss will be recognized by a U.S. holder upon such holder’s exchange of pre-reverse stock split shares for post-reverse stock split shares pursuant to a reverse stock split. The aggregate tax basisshareholder-approved performance goals that this committee approves at the time of the post-reverse stock split shares received in the reverse stock split (including any fraction of a new share deemed to have been received) will be the same as the holder’s aggregate tax basis in the pre-reverse stock split shares exchanged therefor. In general, U.S. holders who receive cash in exchange for their fractional share interests in the post-reverse stock split shares as a result of a reverse stock split will be deemed for U.S. federal income tax purposes to have first received the fractional share interests and then to have had those fractional share interests redeemed for cash. The U.S. holder’s holding period for the post-reverse stock split shares will include the period during which the holder held the pre-reverse stock split shares surrendered in the reverse stock split.grant.

Persons who, actually or constructively for U.S. federal income tax purposes, own more than one percent of the outstanding shares of Banner common stock should consult their tax advisors as to whether the cash in lieu of fractional shares is treated as being “essentially equivalent to a dividend” and taxed accordingly.

•	earnings per share;

~~U.S. Information Reporting and Backup Withholding.~~ Information returns generally will be required to be filed with the Internal Revenue Service (“IRS”) with respect to the receipt of cash in lieu of a fractional share of our common stock pursuant to the reverse stock split in the case of certain U.S. holders. In addition, U.S. holders may be subject to a backup withholding tax (at the current applicable rate of 28%) on the payment of such cash if they do not provide their taxpayer identification numbers in the manner required or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS.

•	return on equity;

~~U.S. Federal Income Tax Consequences to Non-U.S. Holders.~~ Generally, a non-U.S. holder, defined as any beneficial owner of Banner common stock that is neither a U.S. holder nor a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes, will not be subject to U.S. federal income tax on gain recognized on a deemed disposition of fractional shares for cash unless (i) the gain is “effectively connected” with the conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment or fixed base maintained in the United States by the Non-U.S. Holders, if that is required by an applicable income tax treaty as a condition for being subjected to United States federal income tax on a net income basis, or (ii) the holder is an individual, is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist. A corporate non-U.S. holder’s “effectively connected” recognized gains may also, under certain circumstances, be subject to an additional “branch profits tax” on earnings and profits for the taxable year that are effectively connected to the conduct of a trade ~~or business within the United States at a 30 percent gross rate (or at a lower rate if the holder is eligible for the benefits of an income tax treaty that provides for a lower rate).~~ ~~Non-U.S. Holders should consult their own tax advisors regarding these rules.~~

•	return on average equity;

•	return on tangible common equity (defined as a ratio, the numerator of which is income before amortization of intangibles, and the denominator of which is tangible common equity);

•	return on assets;

•	return on average assets;

•	“efficiency ratio” determined as the ratio of total non-interest operating expenses (less amortization of intangibles) divided by total revenues (less net security gains and adjustments for financial instruments carried at fair value);

•	non-interest income to total revenue ratio;

•	net interest margin;

Non-U.S. holders who, actually or constructively for U.S. federal income tax purposes, own more than one percent of the outstanding Banner common stock shares should consult their tax advisors as to whether the cash in lieu of fractional shares is treated as being “essentially equivalent to a dividend” and taxed accordingly.

•	credit quality measures (including non-performing asset ratio, net charge-off ratio, and reserve coverage of non-performing loans);

~~Tax Consequences to Banner~~

•	net operating profit;

•	loan growth;

•	deposit growth;

•	non-interest income growth;

•	total shareholder return;

•	market share;

•	productivity ratios;

•	interest income;

•	pre-tax pre-provision, which is pre-tax income on a tax equivalent basis adjusted for provision expense, security gains and losses, and amortization of intangibles; or

•	other strategic milestones based on objective criteria established by the Committee, provided that, with respect to Covered Employees, such strategic milestones must be approved by Banner shareholders prior to the payment of any award.

The performance objectives may be expressed in terms of Banner’s overall performance or the performance of a business function or business unit and/or Banner’s subsidiaries. The performance objectives may be applied either to Banner as a whole or to a business unit or subsidiary, as determined by the Compensation Committee. Performance objectives may be different for different participants. The Committee may include or exclude extraordinary events or any other objective events or occurrences either establishing the performance objective or in determining whether the performance objective has been achieved. However, the Committee does not have discretion to increase the amount of an award that would otherwise be due to a participant who is a Covered Employee based on such Covered Employee’s pre-established performance goals for the applicable performance period.

Additional Restrictions on the Accelerated Vesting of Future Restricted Stock Awards

~~Banner~~Restricted stock awards granted after the amended Plan is approved will not ~~recognize~~be permitted to fully vest upon a change in control event unless the award recipient also is involuntarily terminated within 12 months of the change in control event (unless an earlier vesting event occurs). The definition of a change in control event is not amended. In addition, the vested status of a restricted stock award granted after the amended Plan is approved will not be affected by the commencement of a tender or exchange offer.

No Other Amendments

This amendment does not amend the Plan in any ~~gain or loss~~respect other than to reflect the changes specifically described above.

Purposes of the Plan

The purposes of the Plan are to promote the long-term interests of Banner and its shareholders by providing a means for attracting and retaining officers of Banner and its affiliates, and to provide additional incentive to officers to promote the success of our business.

The aggregate number of shares of common stock subject to awards under the Plan is 300,000 shares. As of March 1, 2013, 54 restricted stock awards for up to an aggregate of 97,995 shares were outstanding under the 2012 Stock Plan, and 202,005 shares (plus any shares that might in the future be returned to the 2012 Stock Plan as a result of ~~any reverse stock split.~~cancellations, forfeitures, repurchases, surrender or expiration of awards) remained available for future grants. The aggregate authorized number may be adjusted for changes in Banner’s capitalization and certain corporate transactions, as described below under the heading “Changes in Control and Corporate Transactions.” To the extent that an award

~~Accounting Matters~~

expires, terminates or is cancelled, without having been exercised in full or settled, any unexercised shares subject to the award will be available for future grant or sale under the Plan. Shares of restricted stock which are forfeited, repurchased by us or surrendered pursuant to the Plan may again be granted or awarded under the Plan.

Awards Under the Plan

Awards Generally Not Transferable

Changes in Capitalization and Corporate Transactions

Federal Income Tax Consequences Associated with the Plan

Voting Recommendation of the Board of Directors

The following table summarizes share and exercise price information about Banner’s equity compensation plans as of December 31, 2012.

			(c)
			Number of securities
	(a)	(b)	remaining available
	Number of securities	Weighted-average	for future issuance
	to be issued upon	exercise price	under equity
	exercise of	of outstanding	compensation plans
	outstanding options,	options, warrants	(excluding securities
Plan category	warrants and rights	and rights	reflected in column (a))

Equity compensation plans approved
by security holders:	42,521	$ 173.98	209,465

Equity compensation plans not
approved by security holders:	--	N/A	--

Total	42,521		209,465

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Albert H. Marshall, Secretary, Banner Corporation, 10 S. First Avenue, Post Office Box 907, Walla Walla, Washington 99362.

~~SHAREHOLDER PROPOSALS~~

SHAREHOLDER PROPOSALS

Walla Walla, Washington

March ~~21, 2011~~22, 2013

~~Serve as an independent and objective party to monitor the Corporation’s financial reporting process and internal control system.~~

~~Review and appraise the audit efforts of the Corporation’s independent accountants and internal auditing department.~~

~~Provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditing department and the Board of Directors.~~

II. Composition

~~II.~~

~~Composition~~

~~The Audit Committee~~Committees shall each be comprised of three or more directors as determined by the Board ~~each~~ of ~~whom~~Directors of the Corporation or the Bank, as appropriate. Each member shall be an independent ~~directors, and~~director of the respective entity, who is free from any relationships that, in the opinion of the relevant Board, would interfere with the exercise of his or her independent judgment as a member of the Committee. ~~All members of the Committee shall have a working familiarity with basic finance and accounting practices.~~ Member independence ~~experience and financial expertise~~ will be in ~~conformance~~conformity with rules established by the ~~SEC, NASD, FDIC,~~Securities and Exchange Commission and the ~~AICPA.~~National Association of Securities Dealers. The members of the ~~Committee~~Committees shall be elected by the Board of Directors of the Corporation or the Bank, as appropriate, at the annual organizational meeting of the relevant Board and shall serve until their successors ~~shall be~~are duly elected and qualified. Unless a Chair is selected by the ~~full~~relevant Board, the members of ~~the~~each Committee may designate a Chair by majority vote of the full Committee membership.

IV. Responsibilities and Duties

~~Review~~Develop guidelines and ~~update this Charter periodically, at least annually, as conditions dictate.~~policies for director compensation, coordinating actions between the Corporation Compensation Committee and the Bank Compensation Committee.

~~Review~~Develop guidelines and policies for executive compensation, coordinating actions between the ~~Corporation’s annual financial statements~~Corporation Compensation Committee and ~~any submitted~~the Bank Compensation Committee.

Make regular reports to the ~~public, including any certification, report, opinion, or review rendered by the independent accountants.~~appropriate Board of Directors.

A-1

~~Review the regular internal reports prepared by the internal auditing department and management’s response.~~

~~Review with financial management~~At least annually, review the compensation policies to ensure that they are effective in meeting goals for compensation and the independent accountants the financial statements, including disclosures made in Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Corporation’s reports on Forms 10-Q and 10-K and annual reports to shareholders prior to its filing or prior to the release of earnings. The Committee shall recommend to the Board whether or not the audited financial statements should be included in the Corporation’s 10-K.make new recommendations, as needed.

Review ~~disclosures made by~~and approve the ~~Corporation’s chief executive officer and chief financial officer regarding compliance with their certification obligations as required under~~list of a peer group of companies to which the ~~Sarbanes-Oxley Act of 2002~~Corporation and the ~~rules promulgated thereunder, including the Corporation’s disclosure controls and procedures and internal controls~~Bank shall compare themselves for ~~financial reporting and evaluations thereof.~~compensation purposes.

~~Independent Accountants~~

~~Be directly responsible for the appointment,~~If necessary, engage independent consultants and outside counsel to provide comparative information regarding compensation ~~retention~~ and ~~oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report of performing other audit, review or attest services for the Corporation,~~benefits, and ~~each such registered accounting firm shall report directly to the Audit Committee.~~advice on issues involving laws and regulations governing compensation.

~~Approve all audit engagement fees~~Review and terms and all non-audit engagements with the independent accountants. The Committee may delegate authority to pre-approve non-audit services to one or more members of the Committee. If this authority is delegated, all approved non-audit services will be presented to the Committee at its next scheduled meeting.approve other large compensation expense categories such as employee benefit plans.

Ensure receipt from the independent accountants of a formal written statement delineating all relationships between the accountants and the Corporation, consistent with Independence Standards Board Standard 1. On an annual basis, the Committee shouldAt least annually, review and discuss with the accountants any such relationships to determine the accountants’ independence and objectivity. The Committee should take, or recommend to the Board that it take appropriate action to oversee the independence of the accountants.update (if necessary) this Charter, as conditions dictate.

Compensation

~~Ensure~~Review director compensation levels and recommend, as necessary, changes in the ~~independent accountants’ ultimate accountability to~~compensation levels, with equity ownership in the ~~Board and the Committee, as representatives of the shareholders, receiving direct reports from the accountants.~~Corporation encouraged.

10.

~~Periodically consult with~~Receive and review an annual report from the ~~independent accountants out of~~Chief Executive Officer which includes the ~~presence of management about internal controls~~performance assessment for all senior officers and ~~the completeness~~recommendations for compensation levels, and ~~accuracy of the organization’s financial statements.~~which also includes salary recommendations for all employees.

11.

~~Discuss with~~Set compensation for all senior officers, other than the ~~independent auditors all matters required by Statement of Auditing Standards No. 61 relating to~~Chief Executive Officer, based on the ~~conduct~~recommendations of the ~~audit.~~Chief Executive Officer.

12.

~~Ensure that the lead audit partner~~On an annual basis, review and approve goals and objectives relevant to compensation of the ~~independent accountants~~Chief Executive Officer, evaluate the Chief Executive Officer’s performance in light of those goals and objectives, and determine the ~~audit partner responsible for reviewing the audit are rotated at least every five years, and that all other audit partners are rotated at least every seven years.~~Chief Executive Officer’s compensation based on this evaluation.

~~Financial Reporting Processes~~

13.

~~In consultation with~~For the ~~independent accountants~~senior officers, annually review and ~~the internal auditors, review the integrity of the organization’s financial reporting processes, both internal~~approve (i) employment agreements, severance agreements and ~~external.~~change in control agreements or provisions, in each case, when and if appropriate, and (ii) any special or supplemental benefits.

14.

~~Consider~~Adopt, administer, approve and ratify awards under incentive compensation and stock plans, including amendments to the ~~independent accountants’ judgments about the quality~~awards made under any such plans, and ~~appropriateness of the Corporation’s accounting principles as applied in its financial reporting.~~review and monitor awards under such plans.

Succession Planning

15.

~~Consider and approve, if appropriate, major changes~~In conjunction with the Corporate Governance/Nominating Committee, recommend to the ~~Corporation’s auditing and accounting principles and practices as suggested by~~appropriate Board of Directors a policy on succession planning for the ~~independent accountant’s, management, or the internal auditing department.~~Chief Executive Officer.

~~Process Improvements~~Reporting

16.

Establish regular and separate systems of reporting to the Audit Committee by each of management, the independent accountants and the internal auditors regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments.

~~A-2~~

~~17.~~

~~Establish procedures that allow employees of the Corporation or any of its subsidiaries to submit confidential and anonymous concerns regarding questionable accounting or auditing matters.~~

~~18.~~

~~Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters.~~

~~19.~~

Following completion of the annual audit, review separately, as needed, with each of management, the independent accountants and the internal auditing department any significant difficulties encountered during the course of the audit, including any restrictionsPrepare a report on ~~the scope of work or access to required information.~~

~~20.~~

Review (and in the case of the independent accountants, settle) any disagreement among management and the independent accountants or the internal auditing department in connection with the preparation of the financial statements.

~~21.~~

Review with the independent accountants, the internal auditing department and management the adequacy and effectiveness of the accounting and financial controls of the Corporation and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable.

~~22.~~

Review with the independent accountants, the internal auditing department and management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented.

~~Compliance~~

~~23.~~

Review the Corporation’s financial statements, reports and other information disseminated to the public. Assess compliance with legal requirements and engage outside consultants or counsel, when necessary.

~~24.~~

~~Review activities, organizational structure, and qualifications of the internal audit department.~~

~~25.~~

~~Review, with the organization’s counsel, legal compliance matters including corporate securities trading policies.~~

~~26.~~

~~Review, with the organization’s counsel, any legal matter that could have a significant impact on the organization’s public financial statements.~~

~~27.~~

~~On an ongoing basis, review all related party transactions for potential conflict of interest situations. Approve related party transactions when warranted.~~

~~28.~~

~~Perform any other activities consistent with this Charter, the Corporation’s By-laws and governing law, as the Committee or Board deems necessary or appropriate.~~

~~Reporting~~

~~29.~~

~~Prepare an audit committee report~~executive compensation for inclusion in the Corporation’s annual proxy statement, consulting with the Corporation’s legal counsel, if necessary.

~~Miscellaneous~~

~~30.~~

Determine the appropriate funding for payment of (i) compensation to the independent accountants, (ii) compensation to any advisers employed by the Committee and (iii) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

~~31.~~

~~Discuss with management any second opinions sought from an accounting firm other than the Corporation’s independent accountants, including the substance and reasons for seeking any such opinion.~~

~~32.~~

Review the internal audit function of the Corporation, including the independence, competence, staffing, adequacy and authority of the internal auditing department, the reporting relationships among the internal auditing department, financial management and the Audit Committee, the internal audit reporting obligations, the proposed internal audit plans for the coming year, and the coordination of such plans with the independent accountants.

~~33.~~

~~Review findings from completed internal audits and progress reports on the proposed internal audit plan, together with explanations for any deviations from the original plan.~~

~~34.~~

~~Review the appointment, reassignment or dismissal of the director of the internal audit.~~

~~A-3~~A-2

Review at least annually the material exceptions noted in the reports to the Audit Committee by the internal auditors and the independent accountants, and the progress made in responding to the exceptions.

Appendix B

~~36.~~

Inquire of management and the independent auditors about significant risks or exposures, review the Corporation’s policies for risk assessment and risk management, and assess the steps management has taken to control such risk to the Corporation.

~~37.~~

~~Review the Corporation’s policies and procedures for regular review of the expense accounts of the Corporation’s executive management.~~

BANNER CORPORATION

~~38.~~

Review with management and legal counsel the Corporation’s system for assessing whether the Corporation’s financial statements, reports and other financial information required to be disseminated to the public and filed with governmental organizations satisfy the requirements of the SEC and NASD.

2012 RESTRICTED STOCK AND INCENTIVE BONUS PLAN

~~39.~~

Discuss with management and the independent accountants any correspondence with regulators or governmental agencies and any employee complaints or published reports, which raise material issues regarding the Corporation’s financial statements or accounting policies.

(AMENDED AND RESTATED)

~~40.~~

~~Discuss with the Corporation’s legal counsel any regulatory matters that may have a material impact on the Corporation’s financial statements or its compliance and reporting policies.~~

~~41.~~

At its discretion, request that management, the independent accountants or the internal auditors undertake special projects or investigations which the Audit Committee deems necessary to fulfill its responsibilities.

~~V.Limitations~~1. Plan Purpose. The purpose of ~~Audit Committee’s Roles~~the Plan is to promote the long-term interests of the Corporation and its stockholders by providing a means for attracting and retaining executive officers of the Corporation and its Affiliates, including the Banks, and in the case of certain Awards, preserving tax deductibility by satisfying the Section 162(m) Exemption (as defined herein). The Plan has been restated to include amendments approved by the Board on January 31, 2013. The effective date of this amended and restated Plan shall be the date it is approved by

the shareholders of the Corporation.

2. Definitions. The following definitions are applicable to the Plan:

~~While~~“Affiliate” -- means any “parent corporation” or “subsidiary corporation” of the Corporation, as such terms are defined in Section 424(e) and (f), respectively, of the Code.

“Award” -- means the grant by the Committee ~~has~~of Restricted Stock or an Incentive Bonus, as provided in the ~~responsibilities~~Plan.

“Award Agreement” -- means the agreement evidencing the grant of an Award made under the Plan.

“Banks” -- means Banner Bank, Islanders Bank or any successor entity.

“Board” -- means the board of directors of the Corporation.

“Change in Control” -- means each of the events specified in the following clauses (a) through (c): (a) any third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial owner of Shares of the Corporation with respect to which 25% or more of the total number of votes for the election of the Board may be cast; (b) as a result of, or in connection with, any cash tender offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Corporation shall cease to constitute a majority of the Board; or (c) the stockholders of the Corporation shall approve an agreement providing either for a transaction in which the Corporation will cease to be an independent publicly-owned corporation or for a sale or other disposition of all or substantially all the assets of the Corporation.

“Code” -- means the Internal Revenue Code of 1986, as amended.

“Committee” -- means the committee referred to in Section 3 hereof. Where necessary to comply with Section 162(m) in the case of the awarding and ~~powers set forth~~administration of Qualified Performance-Based Awards, the Committee (which may be a subcommittee of the committee referred to in ~~this Audit Committee Charter, it~~Section 3 hereof) shall be comprised solely of two or more members who satisfy the requirements for being “outside directors” for purposes of the Section 162(m) Exemption.

“Corporation” -- means Banner Corporation, a Washington corporation, and any successor thereto.

“Covered Employee” -- means “covered employee” within the meaning of Section 162(m)(3) of the Code and the regulations and guidance of general applicability issued thereunder.

“Incentive Bonus” -- means a bonus opportunity awarded under Section 7 pursuant to which a Participant may become entitled to receive an amount based on satisfaction of such Performance Goals as are specified in the Award Agreement.

“Participant” -- means any officer of the Corporation or any Affiliate who is ~~not the duty of~~selected by the Committee to prepare financial statements, plan or conduct audits or to determine that the Corporation’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent accountants.receive an Award.

~~A-4~~B-1

“Performance Goals” -- means the business criteria allowed under the performance goal requirements of Section 162(m), including any one or more of the following objective performance criteria upon which the achievement of specific, pre-established, objective performance goals for each Participant are based as determined by the Committee in connection with the grant and certification of Awards: (a) net income, (b) earnings per share, (c) return on equity, (d) return on average equity, (e) return on tangible common equity (defined as a ratio, the numerator of which is income before amortization of intangibles, and the denominator of which is tangible common equity), (f) return on assets, (g) return on average assets, (h) “efficiency ratio” determined as the ratio of total non-interest operating expenses (less amortization of intangibles) divided by total revenues (less net security gains and adjustments for financial instruments carried at fair value), (i) non-interest income to total revenue ratio, (j) net interest margin, (k) revenues, (l) credit quality measures (including non-performing asset ratio, net charge-off ratio, and reserve coverage of non-performing loans), (m) net operating profit, (n) loan growth, (o) deposit growth, (p) non-interest income growth, (q) total shareholder return, (r) market share, (s) productivity ratios, (t) interest income, (u) pre-tax pre-provision, which is pre-tax income on a tax equivalent basis adjusted for: provision expense, security gains and losses, and amortization of intangibles, or (v) other strategic milestones based on objective criteria established by the Committee, provided that, with respect to Covered Employees, such strategic milestones must be approved by the shareholders of the Corporation prior to the payment of any Award. Performance Goals may be expressed in terms of (1) attaining a specified absolute level of the criteria, or (2) a percentage increase or decrease in the criteria compared to a pre-established target, previous years’ results, or a designated market index or comparison group, all as determined by the Committee. The Performance Goals may be applied either to the Corporation as a whole or to a business unit or subsidiary, as determined by the Committee. Performance Goals may be different for different Participants, as determined in the discretion of the Committee. The Committee may include or exclude extraordinary events or any other objective events or occurrences either establishing the Performance Goal or in determining whether the Performance Goal has been achieved; provided, however, that the Committee shall not have the discretion to increase the amount of an Award that would otherwise be due to a Participant who is a Covered Employee based on such Covered Employee’s pre-established performance goals for the applicable Performance Period.

“Performance Period” -- means that period established by the Committee at the time any applicable Qualified Performance-Based Award is granted or at any time thereafter during which any Performance Goals specified by the Committee with respect to such Award are to be measured.

“Plan” -- means this amended and restated Banner Corporation 2012 Restricted Stock and Incentive Bonus Plan.

“Qualified Performance-Based Award” -- means an Award intended to qualify for the Section 162(m) Exemption.

“Restricted Period” -- means the period of time selected by the Committee for the purpose of determining when restrictions are in effect under Section 5 hereof with respect to Restricted Stock awarded under the Plan, which period shall not be less than three years.

“Restricted Stock” -- means Shares awarded to a Participant by the Committee pursuant to Section 5 hereof.

“Section 162(m)” -- means Section 162(m) of the Code and the regulations and guidance of general applicability issued thereunder.

“Section 162(m) Exemption” -- means the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code.”

“Section 409A” -- means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

“Shares” -- means the shares of common stock of the Corporation.

“Termination of Service” -- means cessation of service, for any reason, whether voluntary or involuntary, so that the affected individual is not a director, emeritus director or employee of the Corporation or any Affiliate. Service shall not be considered to have ceased in the case of sick leave, military leave or any other leave of absence approved

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by the Corporation or any Affiliate or in the case of transfers between payroll locations of the Corporation or between the Corporation, its subsidiaries or its successor.

3. Administration. The Plan shall be administered by the Company’s Compensation Committee consisting of two or more members of the Board, each of whom (i) shall be an “outside director,” as defined under Section 162(m), and (ii) shall be a “non-employee director,” as defined under Rule 16(b) of the Securities Exchange Act of 1934 or any similar or successor provision. The members of the Committee shall be appointed by the Board. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion to: (i) select Participants and grant Awards; (ii) determine the number of Shares to be subject to types of Awards generally, as well as to individual Awards granted under the Plan; (iii) determine the terms and conditions upon which Awards shall be granted under the Plan, including whether an Award shall be a Qualified Performance-Based Award; (iv) prescribe the form and terms of Award Agreements; (v) establish from time to time regulations for the administration of the Plan; and (vi) interpret the Plan and make all determinations deemed necessary or advisable for the administration of the Plan.

A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be acts of the Committee.

The Plan is intended to provide benefits that are not deferred compensation within the meaning of Section 409A and the Plan shall be administered and interpreted accordingly.

4. Shares Subject to Plan. Subject to adjustment by the operation of Section 8, the maximum number of Shares with respect to which Awards may be made under the Plan is 300,000 Shares. The Shares with respect to which Awards may be made under the Plan may be either authorized and unissued Shares or previously issued Shares reacquired and held as treasury stock. An Award shall not be considered to have been made under the Plan with respect to Restricted Stock which is forfeited, and new Awards may be granted under the Plan with respect to the number of Shares as to which such forfeiture has occurred.

5. Terms and Conditions of Restricted Stock. The Committee is hereby authorized to grant Awards of Restricted Stock to Participants with the following terms and conditions and with such additional terms and conditions as the Committee shall determine, subject to the provisions of this Section 5 and Section 6 (which shall govern with respect to Qualified Performance-Based Awards):

(a) At the time of an Award of Restricted Stock, the Committee shall establish for each Participant a Restricted Period, during which or at the expiration of which, as the Committee shall determine and provide in the Award Agreement, the Shares awarded as Restricted Stock shall no longer be subject to restriction. Subject to any such other terms and conditions as the Committee shall provide, Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, except as hereinafter provided, during the Restricted Period. Except for such restrictions, and subject to this Section 5, Section 6 and Section 8 hereof, the Participant as owner of such Shares shall have all the rights of a stockholder, including the right to vote the Restricted Stock and the right to receive dividends with respect to the Restricted Stock.

Except to the extent prohibited by Section 162(m), with respect to Qualified Performance-Based Awards, the Committee shall have the authority, in its discretion, to accelerate the time at which any or all of the restrictions shall lapse with respect thereto, or to remove any or all of such restrictions, whenever it may determine that such action is appropriate by reason of changes in applicable tax or other laws or other changes in circumstances occurring after the commencement of such Restricted Period.

(b) If a Participant incurs a Termination of Service for any reason (other than death, disability or in connection with a Change in Control, except as provided in Section 9), all Shares of Restricted Stock awarded to such Participant and which at the time of such Termination of Service are subject to the restrictions imposed pursuant to paragraph (a) of this Section 5, or Section 6, shall upon such Termination of Service be forfeited and returned to the Corporation. If a Participant incurs a Termination of Service by reason of death or disability, the Restricted Period with respect to the Participant’s Restricted Stock then still subject to restrictions shall thereupon lapse.

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(c) Each certificate in respect of Shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant and deposited by the Participant, together with a stock power endorsed in blank, with the Corporation and shall bear the following (or a similar) legend:

The transferability of this certificate and the Shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the Banner Corporation 2012 Restricted Stock and Incentive Bonus Plan. Copies of such Plan are on file in the office of the Secretary of Banner Corporation, 10 South First Avenue, Walla Walla, Washington, 99362.

(d) At the time of any Award, the Participant shall enter into an Award Agreement with the Corporation in a form specified by the Committee, agreeing to the terms and conditions of the Award and such other matters as the Committee, in its sole discretion, shall determine.

(e) Upon the lapse of the Restricted Period, the Corporation shall redeliver to the Participant (or where the relevant provision of paragraph (b) of this Section 5 applies in the case of a deceased Participant, to his legal representative, beneficiary or heir) the certificate(s) and stock power deposited with it pursuant to paragraph (c) of this Section 5, and the Shares represented by such certificate(s) shall be free of the restrictions imposed pursuant to paragraph (a) of this Section 5.

(f) No term or condition of any Restricted Stock shall be included that would cause the Restricted Stock to be subject to Section 409A. Any such term or condition shall be void ab initio.

6. Performance-Based Restricted Stock. The provisions of this Section 6 are intended to allow Restricted Stock granted hereunder to any Participant who is or may be a Covered Employee in the tax year in which such Restricted Stock is expected to be deductible by the Corporation or one or more of the Banks, to qualify for the Section 162(m) Exemption. The Committee may grant Awards of Restricted Stock that qualify as Qualified Performance-Based Awards (provided, without limitation, that all such Awards be granted by a committee comprised of two or more members who satisfy the requirements for being “outside directors” for purposes of the Section 162(m) Exemption). With respect to Qualified Performance-Based Awards, as required to comply with the Section 162(m) Exemption, no later than 90 days following the commencement of a Performance Period or, if earlier, by the expiration of 25 percent of a Performance Period, the Committee shall designate one or more Performance Periods, determine the Covered Employees for the Performance Periods and establish the Performance Goals for the Performance Periods. Each Award of Restricted Stock that is intended to be a Qualified Performance-Based Award shall be earned, vested and/or payable (as applicable) upon the achievement of one or more Performance Goals, together with the satisfaction of any other conditions, such as continued employment, as the Committee may determine to be appropriate. With respect to Restricted Stock that is intended to be granted pursuant to a Qualified Performance-Based Award, the provisions of this Section 6 shall be applied in accordance with Treasury Regulations Section 1.162-27(e), and the Plan and any related Award Agreement shall be administered and interpreted accordingly.

7. Incentive Bonus Awards. Incentive Bonus Awards may be granted under the Plan at any time and from

time to time. Each Incentive Bonus Award shall be evidenced by an Award Agreement that shall be executed by the Company and the Participant. Payment of the amount due under an Incentive Bonus Award may be made in cash or in Restricted Stock, as determined by the Committee. With respect to Incentive Bonus Awards intended to qualify as Qualified Performance-Based Awards, the Committee shall establish and administer Performance Goals in the manner described in Section 6 as an additional condition to the vesting and payment of such Incentive Bonus Awards, and the provisions of Treasury Regulations Section 1.162-27(e) shall apply (and the Plan and the Award Agreement pertaining to the Incentive Bonus Award shall be administered and interpreted accordingly). No Participant may be granted Incentive Bonus Awards intended to qualify as Qualified Performance-Based Awards in excess of $1,000,000 in any calendar year. If the Participant vests in his Incentive Bonus Award, then payment of such Incentive Bonus Award shall be paid at such time as would qualify the payment as a “short term deferral” within the meaning of Treasury Regulations Section 1.409A-1(b)(4). The Incentive Bonus Award for any Performance Period to any Participant may be reduced or eliminated by the Committee in its discretion, but may not be increased. Incentive Bonus Awards payable hereunder may be pursuant to one or more subplans.

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8. Adjustments Upon Changes in Capitalization. In the event of any change in the outstanding Shares subsequent to the effective date of the Plan by reason of any reorganization, recapitalization, stock split, stock dividend, combination or exchange of Shares, merger, consolidation or any change in the corporate structure or Shares of the Corporation, the maximum aggregate number and class of Shares as to which Awards may be granted under the Plan and the number and class of Shares with respect to which Awards have been granted under the Plan shall be appropriately and equitably adjusted by the Committee, whose determination shall be conclusive. Any Award which is adjusted as a result of this Section 8 shall be subject to the same restrictions as the original Award, and the certificate[s] or other instruments representing or evidencing such Restricted Stock shall be legended and deposited with the Corporation in the manner provided in Section 5(c) hereof.

9. Effect of Tender or Exchange Offer or Change in Control. With respect to Restricted Stock attributable to Awards granted prior to the effective date of this amended and restated Plan, if a tender offer or exchange offer for Shares (other than such an offer by the Corporation) is commenced, or if a Change in Control shall occur, then unless the Committee shall have otherwise provided in the Award Agreement, the Restricted Period with respect to Restricted Stock theretofore awarded to such Participant shall lapse and all Shares awarded hereunder as Restricted Stock shall become fully vested in the Participant to whom such Shares were awarded; provided, however, that no Award which has previously been forfeited shall become vested. With respect to Restricted Stock attributable to Awards granted on or after the effective date of this amended and restated Plan, the commencement of a tender offer or exchange offer for Shares shall have no effect on the vested status of the Awards; however, if a Change in Control shall occur, the Restricted Period with respect to such Restricted Stock theretofore awarded to such Participant shall lapse and all Shares awarded hereunder as Restricted Stock shall become fully vested in the Participant to whom such Shares were awarded if the Participant also experiences an “involuntary separation from service” (within the meaning of Treasury Regulations Section 1.409A-1(n), which shall include a voluntary separation from service for good reason as defined therein) during the 12-month period following the effective date of the Change in Control.

10. Assignments and Transfers. During the Restricted Period, no Award nor any right or interest of a Participant in any instrument evidencing an Award may be assigned, encumbered or transferred other than by will, the laws of descent and distribution, or pursuant to a “domestic relations order,” as defined in Section 414(p)(1)(B) of the Code.

11. Employee Rights Under the Plan. No person shall have a right to be selected as a Participant nor, having been so selected, to be selected again as a Participant, and no employee or other person shall have any claim or right to be granted an Award under the Plan or under any other incentive or similar plan of the Corporation or any Affiliate. Neither the Plan nor any action taken thereunder shall be construed as giving any employee any right to be retained in the employ of the Corporation or any Affiliate.

12. Delivery and Registration of Stock. The Corporation’s obligation to deliver Shares with respect to an Award shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Participant to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933 or any other federal, state or local securities legislation. It may be provided that any representation requirement shall become inoperative upon a registration of the Shares or other action eliminating the necessity of such representation under such Securities Act or other securities legislation. The Corporation shall not be required to deliver any Shares under the Plan prior to (i) the admission of such Shares to listing on any stock exchange on which Shares may then be listed and (ii) the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable.

13. Withholding Tax. Upon the termination of the Restricted Period with respect to any Shares of Restricted Stock (or at any such earlier time, if any, that an election is made by the Participant under Section 83(b) of the Code, or any successor provision thereto, to include the value of such Shares in taxable income), the Corporation shall have the right to require the Participant or other person receiving such Shares to pay the Corporation the amount of any taxes which the Corporation is required to withhold with respect to such Shares, or, in lieu thereof, to retain or sell without notice, a sufficient number of Shares held by it to cover the amount required to be withheld. The Corporation shall have the right to deduct from all dividends paid with respect to Shares of Restricted Stock the amount of any taxes which the Corporation is required to withhold with respect to such dividend payments.

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14. Amendment or Termination.

(a) The Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of stockholders or Participants, except that any such action will be subject to the approval of the Corporation’s stockholders if, when and to the extent (i) such stockholder approval is necessary or required for purposes of any applicable federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted, (ii) such amendment or alteration is deemed by the Board to be of a material nature or (iii) if the Board, in its discretion, determines to seek such stockholder approval.

(b) The Committee may waive any conditions of, or rights of, the Corporation or modify or amend the terms of any outstanding Award, except in the case of a Qualified Performance-Based Award if such waiver, modification or amendment would cause the Qualified Performance-Based Award not to qualify for the Section 162(m) Exemption. The Committee may not, however, amend, alter, suspend, discontinue or terminate any outstanding Award without the consent of the Participant or holder thereof, except as otherwise provided herein.

(c) No amendment of the Plan or any Award shall be permitted that would cause the Plan or any benefit provided for hereunder to be subject to Section 409A. Nor shall the termination of the Plan be effected in a manner that would give rise to the application of Section 409A.

15. Effective Date and Term of Plan. The Plan shall become effective upon the later of its initial adoption by the Board or its initial approval by the stockholders of the Corporation. It shall continue in effect for a term of ten years from the initial adoption of the Plan, unless sooner terminated under Section 14 of this Plan.

* * * * *

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REVOCABLE PROXY

BANNER CORPORATION

ANNUAL MEETING OF SHAREHOLDERS

APRIL ~~26, 2011~~23, 2013

The undersigned hereby appoints ~~Robert D. Adams~~Brent A. Orrico and ~~David B. Casper,~~Edward L. Epstein, and each of them, with full powers of substitution to act as attorneys and proxies for the undersigned, to vote all shares of common stock of Banner Corporation (“Banner”) which the undersigned is entitled to vote at the annual meeting of shareholders, to be held at the Marcus Whitman Hotel, at 6 W. Rose Street, Walla Walla, Washington, on Tuesday, April ~~26, 2011,~~23, 2013, at 10:00 a.m., local time, and at any and all adjournments thereof, as indicated.

		FOR	VOTE WITHHELD


11.	The election as director of the nominees listed below ~~(except~~ (except as marked to the contrary below)	[ ]	[ ]

	~~Jesse G. Foster~~Robert D. Adams
	~~Mark J. Grescovich~~Connie R. Collingsworth
	~~D. Michael Jones~~Robert J. Lane
	~~David A. Klaue~~
	~~Brent A. Orrico~~Gary Sirmon

		FOR	AGAINST	ABSTAIN

22.	Advisory ~~approval of~~(non-binding) vote to approve the compensation of Banner Corporation’s named executive officers.	[ ]	[ ]	[ ]

		1 YR.	2 YRS.	3 YRS.	ABSTAIN

3.	Advisory (non-binding) vote on how often shareholders shall vote on executive compensation – every one, two or three years.	[ ]	[ ]	[ ]	[ ]

		FOR	AGAINST	ABSTAIN

34.	The ratification of the Audit Committee’s selection of Moss Adams LLP as the independent auditor for the year ending December 31, ~~2011.~~2013.	[ ]	[ ]	[ ]

45.	The ~~approval~~amendment of the ~~amendment of Banner’s Articles of Incorporation to effect a reverse stock split.~~Banner Corporation 2012 Restricted
	Stock Plan.	[ ]	[ ]	[ ]

56.	In their discretion, upon such other matters as may
	properly come before the meeting.


	The Board of Directors recommends a vote “FOR” ~~the above proposals.~~
propositions 1, 2, 4 and 5, and for “1 Year” for Proposition 3.

The proxies or the trustees of the ESOP, as the case may be, will vote your shares as directed on this card. If you do not indicate your choices on this card, the proxies will vote your shares in accordance with the directors’ recommendations. If any other business is presented at the annual meeting, the proxies will vote your shares in accordance with the directors’ recommendations. At the present time, the Board of Directors knows of no other business to be presented at the annual meeting. This proxy card also confers discretionary authority on the Board of Directors to vote with respect to the election of any person as director where the nominees are unable to serve or for good cause will not serve and on matters incident to the conduct of the annual meeting.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

Should the undersigned be present and elect to vote at the annual meeting or at any adjournment thereof and after notification to the Secretary of Banner at the annual meeting of the shareholder’s decision to terminate this proxy, then the power of said attorneys and proxies shall be deemed terminated and of no further force and effect.

The undersigned acknowledges receipt from Banner prior to the execution of this proxy of the Notice of Annual Meeting of Shareholders, a Proxy Statement dated March ~~21, 2011~~22, 2013 and the ~~2010~~2012 Annual Report to Shareholders.

Dated: , ~~2011~~ 2013






PRINT NAME OF SHAREHOLDER		PRINT NAME OF SHAREHOLDER





SIGNATURE OF SHAREHOLDER		SIGNATURE OF SHAREHOLDER

Please sign exactly as your name appears on the enclosed card. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If shares are held jointly, each holder should sign.

PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.

	BY ORDER OF THE BOARD OF DIRECTORS

	/s/ ALBERT H. MARSHALL

	ALBERT H. MARSHALL
	SECRETARY

Name	Number of Shares Beneficially Owned (1)			Percent of Shares Outstanding		Number of Shares Beneficially Owned (1)			Percent of Shares Outstanding

Beneficial Owners of More Than 5%

Donald Smith & Co., Inc.		10,819,060	(2)		9.46
Donald Smith Long/Short Equities Fund, L.P.
152 West 57th Street
New York, New York 10019
BlackRock, Inc.							1,662,517	(2)		8.54
40 East 52nd Street
New York, New York 10022

Sy Jacobs		6,335,280	(3)		5.54
Jacobs Asset Management, LLC
11 East 26th Street
New York, New York 10010

Thomas K. Brown Second Curve Capital, LLC 237 Park Avenue, 9th Floor New York, New York 10017		9,535,707	(4)		8.33

Wellington Management Company		7,438,200	(5)		6.50
280 Congress Street
Boston, Massachusetts 02210
The Vanguard Group							1,052,634	(3)		5.41
100 Vanguard Boulevard
Malvern, Pennsylvania 19355

Directors

Robert D. Adams		119,804	(6)		*		18,579	(4)		*
Gordon E. Budke		29,036			*		4,159	(5)		*
David B. Casper		70,205	(7)		*
Edward L. Epstein		46,610			*		6,660			*
Jesse G. Foster		69,156	(8)		*		9,874	(6)		*
D. Michael Jones							22,599	(7)		*
David A. Klaue		949,142	(9)		*		80,329			*
Constance H. Kravas		59,614	(10)		*		11,845	(8)		*
Robert J. Lane		43,500	(11)		*		7,214	(9)		*
John R. Layman		151,471	(12)		*		19,769	(10)		*
Dean W. Mitchell		116,850	(13)		*
Brent A. Orrico		519,871	(14)		*		76,916	(11)		*
Gary Sirmon		256,517	(15)		*		36,459	(12)		*
Michael M. Smith		143,589	(16)		*		23,629	(13)		*

Director Nominee

Connie R. Collingsworth							100			*

Named Executive Officers

Mark J. Grescovich**		165,955			*		58,406			*
D. Michael Jones**		158,112	(17)		*
Lloyd W. Baker		82,534	(18)		*		15,129	(14)		*
Richard B. Barton		34,479			*		5,931			*
Cynthia D. Purcell		23,311			*		2,656			*
Paul E. Folz		40,981	(19)		*
Douglas M. Bennett							6,023	(15)		*

All Executive Officers and Directors as a Group (24 persons)		3,225,594			2.82
All Executive Officers and Directors as a Group (23 persons)							436,085			2.24
______________

	Ms. Kravas, 18,150; Mr. Klaue, 10,500; Mr. Lane, 10,500; Mr. Layman, 10,500; Mr. Mitchell, 1,000; Mr. Smith, 18,150; Mr. Baker, 11,800; Mr. Barton, 21,000; Ms. Purcell, 11,800; Mr. Folz, 21,000; and all executive officers and directors as a group, 196,700.
~~(2)~~(3)	Based on a Schedule 13G dated February ~~11, 2011,~~7, 2013, which reports ~~that Donald Smith & Co., Inc. has~~ sole voting power over ~~9,080,783~~25,582 shares and sole dispositive power over ~~10,819,060 shares, and Donald Smith Long/Short Equities Fund, L.P. has sole voting power over 33,577 shares and sole dispositive power over 10,819,060~~1,027,652 shares.
~~(3)~~	~~Based on a Schedule 13G dated February 14, 2011, which reports shared voting and dispositive power over the shares reported.~~

Name	Fees Earned or Paid in Cash ($)(1)	Change in Pension Value and Non- qualified Deferred Compensation Earnings ($)	All Other Compensation ($)(2)	Total ($)	Fees Earned or Paid in Cash ($)(1)	Change in Pension Value and Non-qualified Deferred Compensation Earnings ($)	All Other Compensation ($)(2)	Total ($)

Robert D. Adams	48,000	--	221	48,221	48,000	--	2,052	50,052
Gordon E. Budke	71,000	--	290	71,290	75,000	--	3,281	78,281
David B. Casper	37,000	--	164	37,164
Edward L. Epstein	52,000 (3)	--	209	52,209	40,500 (3)	--	2,053	42,553
Jesse G. Foster	3,000 (4)	(5)	141,247 (6)	144,247	38,500 (3)	(4)	76,437 (5)	114,937
David A. Klaue	36,000	--	157	36,157	42,000	--	1,974	43,974
Constance H. Kravas	38,000	--	179 (7)	38,179	35,000	--	1,974	36,974
D. Michael Jones					34,000 (3)	10,704 (6)	134,825 (7)	179,529
Robert J. Lane	40,500	--	162	40,662	45,750	--	2,009	47,759
John R. Layman	49,000	--	236	49,236	47,000	--	2,000	49,000
Dean W. Mitchell	37,500	--	158	37,658
Brent A. Orrico	70,350 (8)	--	209	70,559	67,200 (8)	--	2,146	69,346
Gary Sirmon	58,000 (3)	(9)	139,228 (10)	197,228	61,500 (3)	(9)	141,774 (10)	203,274
Michael M. Smith	49,000	--	221	49,221	50,000	--	2,053	52,053
_______________

	BY ORDER OF THE BOARD OF DIRECTORS

	/s/ ALBERT H. MARSHALL

	ALBERT H. MARSHALL
	SECRETARY

	Sincerely,

	/s/ Mark J. Grescovich

	Mark J. Grescovich
	President and Chief Executive Officer

Name	Age as of December 31, 2010	Year First Elected or Appointed Director (1)	Term to Expire		Age as of December 31, 2012	Year First Elected or Appointed Director (1)	Term to Expire

BOARD NOMINEES

Robert D. Adams					71	1984	2016 (2)
Connie R. Collingsworth					54	N/A	2016 (2)
Robert J. Lane					67	2007	2016 (2)
Gary Sirmon					69	1983	2016 (2)

DIRECTORS CONTINUING IN OFFICE				DIRECTORS CONTINUING IN OFFICE

Jesse G. Foster	72	1996	2014 (2)		74	1996	2014
Mark J. Grescovich	46	2010	2014 (2)		48	2010	2014
D. Michael Jones	68	2002	2014 (2)		70	2002	2014
David A. Klaue	57	2007	2014 (2)		59	2007	2014
Brent A. Orrico	61	1999	2014 (2)		63	1999	2014

DIRECTORS CONTINUING IN OFFICE

Gordon E. Budke	68	2002	2012		71	2002	2015
David B. Casper	74	1976	2012
Constance H. Kravas	64	2004	2012		66	2004	2015
John R. Layman	52	2007	2012		54	2007	2015
Michael M. Smith	56	2003	2012		58	2003	2015

(Table continues on following page)
___________

(1)	Includes prior service on the Board of Directors of Banner Bank for all directors who have served since 1995 or earlier.
(2)	Assuming election or re-election.

Name	Employer 401(k) Matching Contribution	Dividends on Unvested Restricted Stock ($)	Life Insurance Premium ($)	Club Dues ($)	Company Car Allowance ($)	Total ($)

Mark J. Grescovich	--	1,326	1,272	3,347	1,595	7,540
Lloyd W. Baker	1,275	60	3,273	3,347	1,283	9,238
Richard B. Barton	2,167	60	5,091	9,262	6,000	22,580
Cynthia D. Purcell	1,192	--	2,062	1,247	450	4,951
Douglas M . Bennett	1,974	60	2,756	--	1,671	6,461

Name	Grant Date	All Other Stock Awards: Number of Shares of Stock or Units (#)	Grant Date Fair Value of Stock Awards ($)

Mark J. Grescovich	04/24/12	14,535	300,000

Lloyd W. Baker	07/02/12	3,000	65,820

Richard B. Barton	07/02/12	3,000	65,820

Cynthia D. Purcell	--	--	--

Douglas M. Bennett	07/02/12	3,000	65,820

	Option Awards		Stock Awards
	Number of		Number of
	Shares	Value	Shares	Value
	Acquired on	Realized on	Acquired on	Realized on
	Exercise	Exercise	Vesting	Vesting
Name	(#)	($)	(#)	($)

Mark J. Grescovich	--	--	11,419	277,368
Lloyd W. Baker	--	--	--	--
Richard B. Barton	--	--	--	--
Cynthia D. Purcell	--	--	--	--
Douglas M. Bennett	--	--	--	--

Name	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)(1)	Payments During Last Fiscal Year ($)	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)(1)	Payments During Last Fiscal Year ($)

Mark J. Grescovich	N/A	--	--	--	N/A	--	--	--
D. Michael Jones	Supplemental Executive Retirement Program	7 (2)	1,309,538	--
Lloyd W. Baker	Supplemental Executive Retirement Program	16	1,442,315	--	Supplemental Executive Retirement Program	18	1,736,032	--
Richard B. Barton	Supplemental Executive Retirement Program	4	393,929	--	Supplemental Executive Retirement Program	6	653,746	--
Cynthia D. Purcell	Supplemental Executive Retirement Program	26	977,574	--	Supplemental Executive Retirement Program	28	1,195,945	--
Paul E. Folz	Supplemental Executive Retirement Program	4	383,769	--
Douglas M. Bennett					Supplemental Executive Retirement Program	6	692,560	--

	Year Ended December 31,
	2012	2011

Audit Fees (1)	$468,081	$445,233
Audit-Related Fees	86,826	61,866
Tax Fees	100,250	106,190
All Other Fees	--	--

____________
(1)	Fees for ~~2010~~2012 include estimated amounts to be billed.
~~(2)~~	~~Consists of subscription service for accounting research database.~~