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You'll trigger this quest the first time that you engage a Banite gang on the overland map. You can also trigger this quest by entering the Banite Enclave.
You'll find the Banite Enclave in the northeastern part of the Sword Coast (east of New Leaf). Inside, you'll encounter -- no surprise here -- a bunch of Banites. They won't be happy to see you, and they'll attack you on sight. The first three rooms holding Banites (#1) are close enough together that when you start fighting in one, you'll probably alert the Banites in the others, and have to fight them all, too. So be prepared for a long and possibly difficult fight right off the bat.
Then in a back room (#3), you'll encounter the Banite leaders. They're kind of nasty, too, but if you immediately whack them with area-effect spells, they shouldn't last too long, and you'll find
Full Plate +3
Fists of Bane
Cloak of Protection +3
, and more on their corpses.
When you kill the last of the Banites, you'll complete the quest and earn 1200 xp. You'll also receive the Bane of the Banites feat.
1 - Banites
2 - Timothy Arneson
If you kill all of the Banites before sending Timothy on his way, then you'll gain 500 xp. If you lie to Timothy, and send him on his way before killing all of the Banites, then you'll become more chaotic and evil. If you kill Timothy, then you won't gain anything.
3 - Banite Leaders
Besides the leaders, you'll also find an arcane nexus in this room. You'll need to visit the nexus for the quest
A Knot in the Weave
4 - Evil Statue
The statue will hit you with negative energy as you approach it. You'll have to destroy it to get it to stop.
5 - Treasure Room
You won't find much of a treasure in the room, just some gold and some other minor items.
- World exit.