On November 21, 2008, as part of the Troubled Asset Relief Program ("TARP") Capital Purchase Program, Banner Corporation ("Banner") entered into a Letter Agreement and Securities Purchase Agreement (collectively, the "Purchase Agreement") with the United States Department of the Treasury ("Treasury"), pursuant to which Banner sold (i) 124,000 shares of Banner's Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock") and (ii) a warrant (the "Warrant") to purchase 1,707,989 shares of Banner's common stock, par value $0.01 per share (the "Common Stock"), for an aggregate purchase price of $124 million in cash. The Purchase Agreement is attached as Exhibit 10.1 hereto and is incorporated herein by reference.

The Series A Preferred Stock will qualify as Tier 1 capital and will be entitled to cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series A Preferred Stock may be redeemed by Banner after three years. Prior to the end of three years, the Series A Preferred Stock may be redeemed by Banner only with proceeds from the sale of qualifying equity securities of Banner (a "Qualified Equity Offering"). The restrictions on redemption are set forth in the Articles of Amendment to the Banner Corporation Articles of Incorporation (the "Articles of Amendment") described in Item 5.03 below that it holds.

The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $10.89 per share of the Common Stock. The Warrant is attached as Exhibit 4.2 hereto and is incorporated herein by reference. Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant that it holds.

The Series A Preferred Stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Upon the request of Treasury at any time, Banner has agreed to promptly enter into a deposit arrangement pursuant to which the Series A Preferred Stock may be deposited and depositary shares ("Depositary Shares"), representing fractional shares of Series A Preferred Stock, may be issued. Banner has agreed to register the Series A Preferred Stock, the Warrant, the shares of Common Stock underlying the Warrant (the "Warrant Shares") and the Depositary Shares, if any, as soon as practicable after the date of the issuance of the Series A Preferred Stock and the Warrant. Neither the Series A Preferred Stock, the Warrant nor the Warrant Shares will be subject to any contractual restrictions on transfer, except that Treasury may only transfer or exercise an aggregate of one-half of the Warrant Shares or the Warrant as applicable, prior to the earlier of the redemption of 100% of the shares of Series A Preferred Stock and December 31, 2009.

The Purchase Agreement also subjects Banner to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008 (the "EESA"). In this connection, as a condition to the closing of the transaction, each of Messrs. D. Michael Jones, Lloyd W. Baker, Richard B. Barton, Paul E. Folz, Douglas M. Bennett and Michael K. Larsen, and Ms. Cynthia D. Purcell, Banner's Senior Executive Officers (as defined in the Purchase Agreement) (the "Senior Executive Officers"), (i) executed a waiver (the "Waiver") voluntarily waiving any claim against the Treasury or Banner for any changes to such Senior Executive Officer's compensation or benefits that are required to comply with the regulation issued by the Treasury under the TARP Capital Purchase Program as published in the Federal Register on October 20, 2008 and acknowledging that the regulation may require modification of the compensation, bonus, incentive and other benefit plans, arrangements and . . .

The information set forth under "Item 1.01 Entry into a Material Definitive Agreement" is incorporated by reference into this Item 3.02.

Pursuant to the terms of the Purchase Agreement, the ability of Banner to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its Junior Stock (as defined below) and Parity Stock (as defined below) will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share ($0.05) declared on the Common Stock prior to November 21, 2008. The redemption, purchase or other acquisition of trust preferred securities of Banner or its affiliates also will be restricted. These restrictions will terminate on the earlier of (a) the third anniversary of the date of issuance of the Series A Preferred Stock, (b) the date on which the Series A Preferred Stock has been redeemed in whole, and (c) the date Treasury has transferred all of the Series A Preferred Stock to third parties. The restrictions described in this paragraph are set forth in the Purchase Agreement.

In addition, pursuant to the Articles of Amendment, the ability of Banner to declare or pay dividends or distributions on, or repurchase, redeem or otherwise acquire for consideration, shares of its Junior Stock and Parity Stock will be subject to restrictions in the event that Banner fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on its Series A Preferred Stock. These restrictions are set forth in the Articles of Amendment described in Item 5.03.

"Junior Stock" means the Common Stock and any other class or series of stock of Banner the terms of which expressly provide that it ranks junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of Banner. "Parity Stock" means any class or series of stock of Banner the terms of which do not expressly provide that such class or series will rank senior or junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of Banner (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

The information concerning executive compensation set forth under "Item 1.01 Entry into a Material Definitive Agreement" is incorporated by reference into this Item 5.02.

On November 19, 2008, Banner filed Articles of Amendment with the State of Washington for the purpose of amending its Articles of Incorporation to fix the designations, preferences, limitations and relative rights of the Series A Preferred Stock. The Series A Preferred Stock has a liquidation preference of $1,000 per share. The Articles of Amendment are attached hereto as Exhibit 3.1 and are incorporated by reference herein.

On November 21, 2008, Banner issued a press release announcing the sale of $124 million of Series A Preferred Stock to Treasury pursuant to the Purchase Agreement. The press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

(d) Exhibits

The following exhibits are filed herewith:

 Exhibit       No. Description of Exhibit

    3.1        Articles of Amendment for the Series A Preferred
               Stock

    4.1        Form of Certificate for the Series A Preferred Stock

   4. 2        Warrant for Purchase of Shares of Common Stock

   10.1        Letter Agreement, dated November 21, 2008, between
               Banner Corporation and United States Department of
               the Treasury, with respect to the issuance and sale
               of the Series A Preferred Stock and the Warrant

   10.2        Form of Waiver

   10.3        Form of Compensation Modification Agreement

   99.1        November 21, 2008 Press Release