7 million for the same quarter a year ago

In addition, our lower net interest margin also reflected the higherlevel of delinquencies, as non-accruing loans reduced the margin byapproximately 34 basis points in this year's fourth quarter compared toapproximately 24 basis points in the third quarter of 2008 and approximately 16basis points in the fourth quarter of 2007."For the fourth quarter of 2008, net interest income before the provision forloan losses was $35.6 million, compared to $37.6 million in the precedingquarter and $38.7 million in the same quarter a year ago. Revenues from recurring operations (netinterest income before the provision for loan losses plus total other operatingincome excluding fair value adjustments) were $42.9 million in the fourthquarter of 2008, compared to $45.7 million for the third quarter of 2008 and$46.2 million for the fourth quarter a year ago. Revenues from recurringoperations for the year ended December 31, 2008 increased to $178.3 million,compared to $176.6 million in the year ended December 31, 2007.Banner's results for the fourth quarter of 2008 included a net gain of $13.7million ($8.8 million after tax), compared to a net gain of $9.2 million ($5.9million after tax) in the fourth quarter of 2007, for fair value adjustments asa result of changes in the valuation of financial instruments carried at fairvalue in accordance with the adoption of Statement of Financial AccountingStandards (SFAS) Nos 157 and 159. The fair value adjustments in the currentquarter predominantly reflect changes in the valuation of trust preferredsecurities and junior subordinated debentures, both owned and issued by theCompany. For the year ended December 31, 2008, fair value adjustments resultedin a net gain of $9.2 million ($5.9 million after tax), compared to a net gainof $11.6 million ($7.4 million after tax) for the year ended December 31, 2007.Total other operating income for the fourth quarter was $21.0 million comparedto $16.7 million for the same quarter a year ago.

Total other operating incomefrom recurring operations (excluding fair value adjustments) for the fourthquarter was $7.3 million compared to $8.1 million in the preceding quarter and$7.5 million for the same quarter a year ago. For the year ended December 31,2008, total other operating income from recurring operations increased 14 to$30.7 million, compared to $27.0 million for the year ended December 31, 2007.Primarily reflecting a recent slow-down in customer transaction volumes, incomefrom deposit fees and other service charges decreased to $5.3 million in thefourth quarter of 2008, compared to $5.8 million for the preceding quarter. Income from mortgage bankingoperations decreased slightly in the fourth quarter to $1.4 million compared to$1.5 million in the preceding quarter, but was slightly higher than the $1.3million recorded in the same quarter a year ago. For the year, mortgage bankingrevenues declined modestly to $6.0 million from $6.3 million in 2007. "Theslowing economy adversely affected our payment processing business in the mostrecent quarter as activity levels for deposit customers, cardholders andmerchants clearly declined; however, we are pleased with the year-over-yeargrowth in our customer base and payment processing activities," Jones noted.

"Weare also pleased that our mortgage banking revenues have remained solid despitea very difficult year for housing finance. Further, the currently very low levelof interest rates has resulted in a significant increase in mortgage loanapplications in recent weeks.""Controllable operating expenses were generally well managed in the fourthquarter reflecting continuing efforts to improve our processes and efficiency.Unfortunately, collection and legal costs, including charges related to acquiredreal estate, remained high," said Jones. "In addition, FDIC insurance expenseincreased significantly as a result of increased assessment rates for thecurrent quarter, as well as a $1.3 million correction of an error recognizingthe appropriate coverage periods related to previous quarterly assessments,including $744,000 for the year ended December 31, 2007. Although we anticipatecollection costs will continue to be above historical levels for a number offuture quarters, we expect continued expense discipline will be a positivefactor going forward."Total other operating expenses from recurring operations (non-interest expensesexcluding the goodwill write-off) were $36.0 million in the fourth quarter of2008, compared to $34.0 million in the preceding quarter and $35.3 million inthe fourth quarter a year ago. For the year ended December 31, 2008, otheroperating expenses from recurring operations were $138.9 million compared to$127.5 million in 2007. Operating expenses from recurringoperations as a percentage of average assets was 3.06 in the fourth quarter of2008, compared to 2.91 in the previous quarter and 3.20 in the fourth quartera year ago.Earnings information excluding the goodwill impairment charge and fair valueadjustments (alternately referred to as net operating income or net income fromrecurring operations and revenues or expenses from recurring operations)represent non-GAAP (Generally Accepted Accounting Principles) financialmeasures.