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CORRESP
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    cor_31609.htm

    [BANNER
CORPORATION LETTERHEAD]

    March 13,
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 20549-4561

    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 February 23, 2009 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, Form 10-Qs for the fiscal quarters ended
March 31, June 30 and September 30, 2008 and Form 8-K filed January 28,
2009.  The February 23, 2009 comments were supplemental to the
December 23, 2008 letter from the Staff and we provided a response to those
earlier comments on January 23, 2009.

    The
relevant text of the Staff’s comments has been included in this
letter.  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.

              Please
      refer to your response to comment 1 of our December 23, 2008 letter, in
      which you reiterate many of the disclosures included in your
      document.  We have read your document and continue to believe
      that an increased level of transparency surrounding your underwriting
      policies and procedures is appropriate.  We re-issue our comment
      and request that you revise future filings accordingly.  Also,
      please disclose your definition of sub-prime lending in your future
      revisions.

    We have
modified the Lending Activities section beginning on page 5 of our Form 10-K for
the year ended December 31, 2008 (filed on March 16, 2009) (“2008 Form 10-K”) to
address the concerns expressed in your December 23, 2008 letter, as well as to
bring it current for the year ended December 31, 2008.   We
believe the modified discussion included is thorough and reasonably addresses
our underwriting policies and procedures on all significant loan

              Mark Webb, Esquire

              Legal Branch Chief

              Securities and Exchange Commission

              March 13, 2009

              Page 2 of
    10

    products
that we offer.  In particular reference to your comment above, we have
added our definition of subprime lending,  “which we
define as loans to borrowers with poor credit histories or undocumented
repayment capabilities and with excessive reliance on the collateral as the
source of repayment.”  Also, as noted in response to comment 3
below, we have affirmed that “For ARM
loans, our standard practice provides for underwriting based upon fully indexed
interest rates and payments.”  Further, as in prior filings, we
again note that “we( do
not) hold any option-payment or negatively amortizing loan products in our
portfolio.”

              2.

              Please
      refer to your response to comment 2 of our December 23, 2008
      letter.  Please revise future filing to clarify the
      following:

      ·

              We
      note your disclosure that generally ARM loans held in portfolio do not
      allow for interest-only payments or negative amortization of
      principal.  While we note from your response that you do not
      maintain a database that would allow you to identify all exceptions to
      your underwriting practices, we assume you can quantify the ARM loans that
      do allow for interest-only payments and/or negative
      amortization.  Please revise to quantify these loans and provide
      an expanded discussion of your underwriting policies and procedures for
      them.  If you are not able to quantify the amounts of such
      loans, disclose that fact.  To the extent you believe the
      amounts are immaterial, please quantify them for us in your response and
      provide us your related underwriting policies and
    procedures.

    We have
determined that as of December 31, 2008 we had three ARM loans totaling
$1,334,500 in our residential loan portfolio that provide for interest-only
payments until their first rate adjustment date; however, as noted above, we do
not have any option-payment or negatively amortizing loans.  These
loans when granted were subject to our normal underwriting standards, including
evaluation of the borrowers’ ability to repay the loans based upon fully indexed
interest rates and payments.  Although we have modified the disclosure
in the lending section on page six of the 2008 Form 10-K to note that “ARM
loans in our portfolio may allow for interest- only payments for an initial
period up to five years,” we believe this total is
immaterial and does not merit additional comment in our filings.  Our
underwriting for these loans is no different than the standards applied to all
other residential loans including appropriate consideration of the borrowers’
credit history, employment stability and ability to repay the debt.

              ·

              Please
      revise future filings to discuss the circumstances under which you would
      not require private mortgage insurance on residential loans with a
      loan-to-value ratio greater than 80% and quantify the amount of these
      loans.  To the extent you believe the amounts are immaterial,
      please include in your response a discussion of the circumstances under
      which you would not require private mortgage insurance on

            Mark
Webb, Esquire

            Legal
Branch Chief

            Securities
and Exchange Commission

            March 13, 2009

            Page 3 of 10

                           residential loans with a
      loan-to-value ratio greater than 80% and quantify the amount of these
      loans.

    On page
six of our 2008 Form 10-K we have added the following disclosure to our
discussion on residential loan underwriting: “A
growing but immaterial number of exceptions to these general underwriting
guidelines have been granted in connection with the sale or refinance of
properties, particularly new construction, for which we were already providing
financing.  These exceptions most commonly relate to loan-to-value and
mortgage insurance requirements and not to credit underwriting or loan
documentation standards.  Such exceptions will likely increase in the
near term to facilitate troubled loan resolution in the current distressed
housing market, but likely will not have a material effect on the performance
characteristics of our one- to four-family loan portfolio or become a
significant portion of our total loan portfolio.”

              ·

              Where
      you use the terms such as “generally” and “usually” in future filings,
      please specifically disclose, if true, that exceptions to your disclosed
      policies and procedures are immaterial.  Also, incorporate the
      portion of your response that discusses your decision process for making
      exceptions to your standard underwriting practices into your
      disclosures.

    We have
attempted to limit the use of the terms “generally” and “usually” in our current
filing and, while we still believe it is appropriate to qualify certain
statements with those terms, we believe the number of underwriting exceptions
are immaterial.  Also, with the exception of the disclosures noted in
the preceding paragraph concerning loan-to-value and mortgage insurance
requirements with respect to previously financed properties, 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.

              Please
      refer to your response to comment 3 of our December 23, 2008 letter and
      revise future filings to incorporate, as set forth in your response, that
      all adjustable rate loans are underwritten at fully indexed interest
      rates.

    On page
six of our 2008 Form 10-K we have added the following disclosure to our
discussion on residential loan underwriting: “For ARM
loans, our standard practice provides for underwriting based upon fully indexed
interest rates and payments.”

          Mark
Webb, Esquire

          Legal
Branch Chief

          Securities
and Exchange Commission

          March 13,
2009

          Page  of 4
of 10

    Managements discussion and
Analysis of Financial Condition and Results of

    Operations, page
27

    Non-performing Assets, page
41

              4.

              Please
      refer to your response to comment 5 of our December 23, 2008
      letter.  We understand that the development of allowance for
      loan losses is not a simple mathematical formula tied to one or two
      ratios; however, we continue to believe that asset quality ratios can
      identify important trends in the allowance for loan losses, non-performing
      assets and your loan portfolio.  We re-issue comment 5 of our
      December 23, 2008 letter and request that you revise future filings to
      include an expanded discussion of the trends depicted by your asset
      quality ratios between quarters, including a chronology of events that
      lead to the deteriorating assets quality ratios between
      periods.  Also, considering the significant provision recorded
      in the fourth quarter of 2008, include a discussion of the specific facts
      and circumstances that occurred in that quarter that were not present
      prior to September 30, 2008.

    We agree
that increases or decreases in non-performing loans and net charge-offs are
factors that should be considered in evaluating the adequacy of our provision
and allowance for loan losses and we have always disclosed and discussed those
items in our annual and quarterly filings.  When appropriate we have
also discussed the economic trends affecting those factors.  This has
been particularly true in 2008, as first the housing market and more recently
the general economy have deteriorated throughout the year but at an accelerating
pace in the fourth quarter and as our level of provisioning has
increased.  Because of this economic deterioration and the resulting
need for a significantly larger loss provision, our 2008 Form 10-K contains even
more discussion and disclosure than prior filings.  In that regard we
have included relevant portions of that document with this letter, which we
believe clearly convey to the reader the significant adverse impact of the
increase in non-performing loans, particularly construction and land development
loans, on the level of loan loss provisioning and on our operating results for
the year, with particular emphasis on the slowdown in home sales and increase in
distressed properties in the second half of the year (see excerpts
below).

    As we
noted in our previous response, our filings have always provided an extensive
discussion of the factors we consider to support the judgments, estimates and
assumptions that ultimately result in our conclusions with respect to the
adequacy of the allowance and therefore the appropriate amount of
provisioning.  That discussion highlights the fact that our loan loss
allowance and  provisioning are supported by considering multiple
factors including “changes
in the size and composition of the loan portfolio, delinquency rates, actual
loan loss

                  Mark
      Webb, Esquire

                  Legal
      Branch Chief

                  Securities
      and Exchange Commission

                  March
      13, 2009

                  Page  of 5
      of 10

                experience,
      current and anticipated economic conditions, detailed analysis of
      individual loans for which full collectibility may not be assured, and
      determination of the existence and realizable value of the collateral and
      guarantees securing the loans.”  The
      complete text of this discussion was included with our earlier
      response.  In response to your previous letter, we have moved
      this discussion to the Critical Accounting Policies section of the
      Management Discussion & Analysis portion of our 2008 Form
      10-K.

    Excerpts
from Banner Corporation December 31, 2008 Report on Form 10-K:

    Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operations

    Executive
Overview

    .........
Deteriorating economic conditions and ongoing strains in the financial and
housing markets which accelerated throughout 2008 presented an unusually
challenging environment for banks and their holding companies, including Banner
Corporation.  This was particularly evident in our need to provide for
credit losses at a significantly higher level than our historical
experience. ........  The provision for loan losses was $62.5 million
for the year ended December 31, 2008, an increase of $56.6 million compared to
the year ended December 31, 2007.  The increase in the provision for
loan losses in the current year reflects material increases in delinquencies,
non-performing loans and net charge-offs, particularly for loans for the
construction of one- to four-family homes and for acquisition and development of
land for residential properties.  ........

    Comparison of Financial Condition at
December 31, 2008 and 2007

    ......... Asset Quality:  We have always placed a
strong emphasis on managing our asset quality by applying a disciplined approach
to credit approval and monitoring for signs of deterioration in loan
quality.  Nonetheless, over the past two years as housing markets have
continued to weaken in many of our primary service areas, we have experienced
significantly increasing delinquencies and non-performing assets, primarily in
our construction and land development loan portfolios.  During the
third and fourth quarters of 2008, in particular, home and lot sales activity
was exceptionally slow, causing additional stress on builders’ and developers’
cash flows and ability to service debt, which is reflected in our increased
non-performing asset totals.  In addition, other non-housing-related
segments of the loan portfolio are beginning to show signs of stress and
increasing levels of non-performing loans as the effects of the slowing economy
are becoming more evident.  As a result, our provision for loan losses
was significantly higher in the current year than historical levels and normal
expectations.  This higher level of delinquencies and non-accruals
also had a material adverse effect on operating income as a result of foregone
interest revenues and increased loan collection costs.  Although much
will depend on the depth and duration of the current economic recession, we
believe that we can work our way through the housing market-related problems and
we are actively engaged with our borrowers in resolving problem
loans.  While property values have continued to decline, our reserve
levels are substantial and, along with our impairment analysis and charge-off
actions, reflect current appraisals and valuation estimates.

    Non-performing
assets increased to $209 million, or 4.56% of total assets, at December 31,
2008, compared to $44 million, or 0.99% of total assets, at December 31,
2007.  Slower sales and excess inventory in certain housing markets
have been the primary cause of the increase in delinquencies and foreclosures of
residential construction and land development loans, which represent
approximately 82% of our non-performing assets.  Whil