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    Unassociated Document

    January
23, 2009

    Via Edgar
and Overnight Mail

    Mark
Webb, Esquire

    Legal
Branch Chief

    Securities
and Exchange Commission

    Division
of Corporation Finance

    Mail Stop
4561

    100 F
Street, N.E.

    Washington,
DC 20549-0408

    RE:  Banner
Corporation

            Form
10-K for the Period Ended December 31, 2007

            Form
10-Q for the Periods Ended March 31, June 30, and September 30,
2008

            File
No. 0-26584

    Dear Mr.
Webb:

    This
letter sets forth the responses of Banner Corporation (the “Company”) to the
comments received from the staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) by letter dated December 23, 2008 in connection
with the Staff’s review of the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 and Form 10-Qs for the fiscal quarters ended
March 31, June 30 and September 30, 2008.

    The
Company understands that the Division of Corporation Finance views the comment
process as a dialogue with the Company about its disclosure, and we appreciate
the opportunity to engage in that dialogue.  Below, the relevant text of
the Staff’s comments has been included in this letter, followed by our
responses.  The numbering of the Company’s responses corresponds to
the numbering in the Staff’s letter.

    Form
10-K

    Business, page
4

    Lending Activities, page
5

              1.

              We
      note your disclosures that you have developed a variety of floating or
      adjustable interest rate loan products that correlate to your cost of
      funds and that floating or adjustable rate loans comprise approximately
      64% of loans due after December 31, 2007.   Please tell us
      and revise future filings to provide a robust discussion of your
      underwriting policies and procedures on all significant loan products, to
      include levels of loan documentation, FICO scores, interest rate reset
      characteristics, whether floating or adjustable rate loans are
      underwritten at fully indexed interest rate and whether or not you have
      loan products that offer payment
options.

    While we
understand the sensitivity to underwriting standards and adjustable rate loan
product parameters given the recent turmoil and rising consumer default rates in
the

          Mark
Webb, Esquire

          Legal Branch Chief

          Securities and Exchange
Commission

          January 23, 2009

          Page 2 of 16

    mortgage
market, we believe the discussion included in the Lending Activities section of
our Form 10-K is thorough and addresses most, if not all, of the concerns
expressed in your comment above.  Nonetheless, where possible, we will
attempt to clarify future filings with respect to these issues.  We
also offer the following observations with respect to our current
reports:

    In the
General section (page
5), we have specifically noted that “we do not now and have not
previously engaged in any sub-prime lending.”  We reiterate and
expand upon this statement in our discussion of Asset Quality (page 40 of the
Form 10-K) contained in the Management Discussion and Analysis section of the
annual and quarterly reports and provide detailed information concerning
non-performing assets in the accompanying tables (Table 10, page 41 of the Form
10-K).

    In the
section on One- to Four-Family
Residential Real Estate Lending (page 5), we provide detailed discussion
of the interest rate reset characteristics of the ARM loans that we offer and/or
hold including a statement that “ARM loans held in our
portfolio do not allow for interest-only payments nor negative amortization of
principal and carry no prepayment restrictions.”  We also note
that one- to four- family “ARM loans have represented
only a small portion of  loans originated during this period and of
our portfolio.”  In this section we further provide a paragraph
of discussion on our underwriting standards, noting that our loans are generally
(while providing for the exception to the rule) underwritten and documented to
the guidelines established by Freddie Mac, Fannie Mae, HUD or the VA, whichever
may be applicable to a specific loan request.  We also state that
“In the loan approval
process, we assess the borrower’s ability to repay the loan, the adequacy of the
proposed security, the employment stability of the borrower and the credit
worthiness of the borrower.”

    In the
remaining sections of our discussion on Lending Activities (pages
5-8), we provide similar information with respect to loan terms, including
adjustable, floating and fixed rate characteristics, for our Construction and Land, Commercial
and Multifamily Real Estate, Commercial Business, Agricultural and Consumer and Other
Lending.  We also provide discussion of general underwriting
standards for each of these lending categories.  While none of this
discussion is detailed to the level of acceptable FICO scores or specific loan
documentation requirements, we believe it is sufficient to convey to the reader
the level of diligence employed in our underwriting process and standards and
the nature of the loan portfolio.   We further believe that this
discussion, combined with the risk disclosures and asset quality discussion and
loan performance data made available in other sections of the filings, provide a
comprehensive view of our lending activities, portfolio performance and credit
risk exposure.

    Finally,
it is important to note that a close examination of the information contained in
Table 6(a):  Loans Maturing after One Year (page 37 of Form 10-K)
indicates that while Floating or Adjustable Rate loans comprise 64%, or $1.65
billion, of loans maturing after

          Mark
Webb, Esquire

          Legal Branch
Chief

          Securities and
Exchange Commission

          January 23,
2009

          Page 3 of
16

    one year,
these loans are predominately to commercial borrowers ($1.43 billion, or 87% of
the total).  Adjustable or floating rate loans are commonly made to
commercial borrowers and are not indicative of the kinds of abusive or poorly
designed consumer loans, such as Payment Option ARMs, that have been the subject
of recent regulatory, credit quality and consumer protection
concerns.  As noted earlier, the Company and its subsidiaries do not
hold any Payment Option ARMs (“negative amortization of
principal”).  Further, for both consumer (including one- to
four-family mortgages) and commercial borrowers our standard lending practices
provide for underwriting adjustable rate loans at fully indexed interest
rates.

              2.

              We
      note the use of the terms "generally" and "usually" in discussing loan
      terms such as loan to value ratios and private mortgage insurance
      requirements.  Please tell us and revise future filings to more
      definitively quantify the amounts of loans that exceed general and usual
      terms, including a discussion of how management determines when to extend
      those loans.

    We use
the terms “generally” and “usually” throughout the discussion of our lending
activities to acknowledge that, in a portfolio as large as ours and with credit
granting authority delegated to a significant group of people, there are
undoubtedly exceptions to our standard underwriting practices that have
occurred.  While we do not maintain a data base that would allow us to
identify all of those exceptions, we are confident they would comprise an
immaterial portion of our portfolio.  The decisions to make exceptions
to our standard underwriting practices are made on a case-by-case basis
depending on the nature of the loan request and the borrowers’ circumstances and
could not easily be generalized into specific patterns.

              3.

              To
      the extent you do not underwrite floating and adjustable rate loans at
      full indexed interest rates, please tell us and revise future filings to
      discuss how you monitor and access credit risk on these loan
      products.

    For both
consumer (including one- to four-family mortgages) and commercial borrowers our
standard lending practices provide for underwriting adjustable rate loans at
fully indexed interest rates.

    Management's Discussion and
Analysis of Financial Condition and Results of Operations, page
27

    Critical Accounting
Policies, page 28

              4.

              Please
      revise this section to provide an expanded discussion of why management
      believes the policies disclosed are critical to its business. Please
      include a discussion that identifies and describes the
      following:

          Mark
Webb, Esquire

          Legal Branch Chief

          Securities and Exchange
Commission

          January 23, 2009

          Page 4 of 16

    Our
approach to the critical accounting policies disclosure in the MD&A was to
identify significant financial statement items, which by their nature were
inherently subject to estimation techniques, valuation assumptions and other
subjective assessments, that due to the judgments involved could result in
material differences in our financial condition or results of operations if
alternative judgments, assumptions or estimates were used.  The common
thread was that each of these items is subject to estimates which require
management to employ informed judgment which could be challenged by
others.  It was our intent to highlight those policies so that readers
of the report would be particularly sensitive to them as they reviewed the
discussion in the MD&A and the Notes to the Consolidated Financial
Statements.  We believed the references to the Notes and the MD&A
and the discussion contained in each was sufficient to provide readers with a
thorough understanding of the significance of each item.  With the
benefit of hindsight, we now believe that two of the policies enumerated, the
valuation of mortgage servicing rights and the valuation of real estate held for
sale, were unlikely to result in a material misstatement during the periods
covered and, therefore, could have been omitted from the list of most critical
accounting policies.  We also believe that by moving certain
information from other sections of the MD&A and including some of the
disclosure from the Notes to the Consolidated Financial Statements in this
section of the report we can improve the usefulness of this
disclosure.  In future filings we propose to revise this section as
follows:

    Critical
Accounting Policies

    In the
opinion of management, the accompanying consolidated statements of financial
condition and related consolidated statements of income, comprehensive income,
changes in stockholders’ equity and cash flows reflect all adjustments (which
include reclassification and normal recurring adjustments) that are necessary
for a fair presentation in conformity with Generally Accepted Accounting
Principles (“GAAP”).  The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect amounts reported in the financial statements.

    Various
elements of our accounting policies, by their nature, are inherently subject to
estimation techniques, valuation assumptions and other subjective
assessments.  In particular, management has identified several
accounting policies that, due to the judgments, estimates and assumptions
inherent in those policies, are critical to an understanding of our financial
statements.  These policies relate to (i) the methodology for the
recognition of interest income, (ii) determination of the provision and
allowance for loan and lease losses, (iii) the valuation of financial assets and
liabilities recorded at fair value and (iv) the valuation of
goodwill.  These policies and judgments, estimates and assumptions are
described in greater detail below in Management’s Discussion and Analysis and in
the Notes to the Consolidated Financial Statements.  Management
believes that the judgments, estimates and assumptions used in the preparation
of the financial statements are appropriate based on the factual circumstances
at the time.  However, because of the sensitivity of the financial
statements to these critical accounting policies, the use of other judgments,
estimates and assumptions could result in material differences in our results of
operations or financial condition.  Further, subsequent changes in
economic or market conditions could have a material impact on these estimates
and our financial condition and operating results in future
periods.  There have been no significant changes in our application of
accounting policies since December 31, 2006, except for the adoption of
Statements of Financial Accounting Standards (“SFAS”) Nos. 157 and 159 discussed
below.  For additional information on the adoption of this standard
and the valuation of financial assets, see Notes 4

          Mark
Webb, Esquire

          Legal Branch Chief

          Securities and Exchange
Commission

          January 23, 2009

          Page 5 of 16

    and 9 of
the Notes to the Consolidated Financial Statements.   For
additional information concerning these critical accounting policies see Notes
1, 9, 11, 12 and 24 of the Notes to the Consolidated Financial Statements and
the following:

    Interest
Income:  (Notes 1 & 11)  Interest on loans and
securities is accrued as earned unless management doubts the collectibility of
the asset or the unpaid interest.  Interest accruals on loans are
generally discontinued when loans become 90 days past due for payment of
interest and the loans are then placed on nonaccrual status.  All
previously accrued but uncollected interest is deducted from interest income
upon transfer to nonaccrual status.  For any future payments
collected, interest income is recognized only upon management's assessment that
there is a strong likelihood that the full amount of a loan will be repaid or
recovered.  A loan may be put on nonaccrual status sooner than this
policy would dictate if, in management’s judgment, the loan may be
uncollectible.  While less common, similar interest reversal and
nonaccrual treatment would apply to investment securities if their ultimate
collectibility became questionable.

    Provision and Allowance for Loan
Losses:  (Notes 1 & 12) [Note, the following information is
presently included in the Comparison of Results of Operations section of the
MD&A and will be moved to this location in future filings.] The provision
for loan losses reflects the amount required to maintain the allowance for
losses at an appropriate level based upon management’s evaluation of the
adequacy of general and specific loss reserves.  We maintain an
allowance for loan losses consistent in all material respects with the GAAP
guidelines outlined in SFAS No. 5, Accounting for
Contingencies.  We have established systematic methodologies
for the determination of the adequacy of our allowance for loan
losses.  The methodologies are set forth in a formal policy and take
into consideration the need for an overall general valuation allowance as well
as specific allowances that are tied to individual problem loans.  We
increase our allowance for loan losses by charging provisions for probable loan
losses against our income and value impaired loans consistent with the
guidelines in SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for
Impairment of a Loan—Income Recognition and Disclosure.

    The
allowance for losses on loans is maintained at a level sufficient to provide for
estimated losses based on evaluating known and inherent risks in the loan
portfolio and upon our continuing analysis of the factors underlying the quality
of the loan portfolio.  These factors include changes in the size and
composition of the loan portfolio, delinquency rates, a