LINCOLN -- TierOne Corporation , the holding company for TierOne Bank (“Bank”), reported today that the Company recorded net income of $2.1 million, or $0.13 per diluted share, for the three months ended September 30, 2008 compared to a net loss of $5.9 million, or $(0.35) per diluted share, for the same period one year ago.

For the nine months ended September 30, 2008, the Company recorded a net loss of $71.5 million, or $(4.24) per diluted share, compared to net income of $6.0 million, or $0.35 per diluted share for the first nine months of 2007. Based on an analysis of its loan portfolio and current economic conditions, the Company recorded provisions for loan losses of $73.6 million for the nine months ended September 30, 2008 compared to $29.2 million for the comparable period in 2007. The Company also recorded a $42.1 million non-cash goodwill impairment charge during the first quarter of 2008.

“The unprecedented turbulence in national and global financial credit markets compounded by continued erosion in several regional housing sectors throughout the country have created a level of turmoil in the banking industry unmatched in the last 75 years,” said Gilbert G. Lundstrom, chairman and chief executive officer. “Subject to further erosion in the economy, we are beginning to realize the benefits of the aggressive steps we have taken in previous quarters to better position ourselves for the future. In looking ahead, our efforts will remain focused on our core fundamental operations and reinforcing our capital position.”

In managing through the current economic cycle, the Company has implemented several key initiatives designed to address asset quality, restore long-term profitability and increase capital. During the third quarter of 2008, the Bank closed all nine of its loan production offices throughout the country, further reduced nonresidential and nonconsumer-related loan balances by $96.0 million, or 4.3 percent, and continued to make progress in realigning its loan portfolio with lower risk-weighted assets. The Bank continues to monitor the portfolio and establishes reserves on impaired loans while also actively working directly with individual borrowers in addressing delinquency issues.

On the capital front at September 30, 2008, the Bank continued to be categorized as a “well capitalized” financial institution; the highest rating recognized by the federal government. Subsequent to the end of the latest fiscal quarter, the Company also infused an additional $10.0 million capital contribution to the Bank. Consistent with regulatory limitations and as a means to further supplement its capital position during this period of current market volatility, the Company has suspended the payment of its quarterly cash dividend to shareholders. Collectively, these steps will contribute to the Company’s on-going efforts to preserve and strengthen capital.

Synopsis of Third Quarter 2008 Performance

Net Interest Income

Net interest income totaled $21.9 million for the three months ended September 30, 2008, a decrease of 25.4 percent, compared to $29.3 million for the same period in 2007. Year-to-date, net interest income declined 25.6 percent to $67.8 million compared to $91.2 million for the nine months ended September 30, 2007. Declines in net interest income for the three and nine month periods ended September 30, 2008 compared to similar periods in 2007 primarily resulted from decreases in interest income on loans receivable due to the actions of the Federal Reserve in lowering interest rates and an increased level of nonperforming loans.

Average interest rate spread and net interest margin for the three months ended September 30, 2008 were 2.64 percent and 2.92 percent, respectfully, compared to 3.14 percent and 3.58 percent, respectfully, for the same periods one year ago. The decline in quarter-over-quarter average interest rate spread and net interest margin was primarily attributable to the lower interest rate environment and elevated levels of nonperforming loans. Despite continued downward pressure on interest rates throughout the third quarter of 2008, the Bank’s average interest rate spread and net interest margin for the three months ended September 30, 2008 have remained relatively stable when compared to the 2.66 percent and 2.97 percent respective interest measurement levels recorded during the prior three month period ended June 30, 2008.

Noninterest Income

Noninterest income for the three months ended September 30, 2008 increased 18.5 percent to $8.9 million compared to $7.5 million for the same period in 2007. The period-over-period increase in noninterest income primarily resulted from a $1.7 million recovery of a TransLand Financial Services, Inc. (“TransLand”) receivable previously written off. This was partially offset by a $355,000 impairment charge on equity securities which was primarily related to Freddie Mac preferred stock.

For the nine months ended September 30, 2008, total noninterest income amounted to $24.2 million, an increase of 10.6 percent, compared to $21.9 million for the comparable period one year ago. The increase in noninterest income was primarily attributable to a $1.7 million recovery of the TransLand receivable and a $1.6 million increase in deposit and debit card-related fees and service charges. This increase was partially offset by a $949,000 other-than-temporary impairment charge on investment securities, the majority of which related to Freddie Mac preferred stock.

Noninterest Expense

For the three months ended September 30, 2008, noninterest expense declined 22.2 percent to $21.5 million compared to $27.7 million for the same period in 2007. The decrease in noninterest expense between the two periods primarily resulted from the recognition of a one time $4.8 million TransLand receivable write-off in the third quarter of 2007. The decrease was further supported by the reduction of $1.8 million in stock-based compensation expense which was partially offset by a $586,000 increase in FDIC insurance premium expense.

Noninterest expense for the nine months ended September 30, 2008 totaled $108.2 million, an increase of 50.3 percent, compared to $72.0 for the first nine months of 2007. The increase in noninterest expense for the 2008 year-to-date period was primarily associated with a $42.1 million non-cash, goodwill impairment charge recorded during the first quarter of 2008. The goodwill charge, which was required under current accounting rules, had no impact on the Company’s liquidity, cash flow or regulatory capital position.

Asset Quality

Total nonperforming loans at September 30, 2008 were $141.0 million, or 5.08 percent of net loans, compared to $132.9 million, or 4.74 percent of net loans, at June 30, 2008 and $128.5 million, or 4.32 percent of net loans, at December 31, 2007. The increase in nonperforming loans since June 30, 2008 was primarily attributable to a $7.7 million increase in nonperforming residential construction loans. The Company’s $141.0 million of nonperforming loans at September 30, 2008 primarily consisted of $64.5 million of land and land development loans, $41.8 million of residential construction loans and $18.5 million of commercial construction loans.

Nonperforming land and land development loans increased $1.0 million to $64.5 million at September 30, 2008 compared to $63.4 million at June 30, 2008. At September 30, 2008, nonperforming land and land development loans consisted of 16 residential properties in Las Vegas totaling $50.5 million, seven residential properties in Nebraska totaling $4.3 million, six residential properties in Arizona totaling $3.9 million, one residential property in Florida totaling $3.8 million, and eight residential properties located in other states totaling $2.0 million. With a very few limited exceptions, the Bank has not committed to any additional land and land development loans since late 2006.

At September 30, 2008, nonperforming residential construction loans totaled $41.8 million, an increase of $7.7 million, compared to $34.1 million at June 30, 2008. Levels of nonperforming residential construction loans were concentrated in 60 properties located in the states of Nevada at $10.5 million, South Carolina at $9.2 million, Florida at $7.4 million, Arizona at $6.7 million, North Carolina at $4.4 million, Nebraska at $2.0 million and Minnesota at $1.6 million.

Nonperforming commercial construction loans at September 30, 2008 totaled $18.5 million, a decrease of $1.8 million from a June 30, 2008 level of $20.3 million. These nonperforming commercial construction loans represent two upscale condominium developments located in suburban Las Vegas. The Company continues in its efforts to negotiate contracts to complete the larger of the two projects with a local builder under the supervision of a court-appointed trustee.

Delinquent loans, or those loans considered 30 – 89 days past due, were $50.1 million at September 30, 2008 compared to $48.1 million at June 30, 2008 and $52.5 million at December 31, 2007. Following an increase between the second and third quarter of 2007, quarterly delinquent loans levels to present have remained relatively stable since September 30, 2007.

The allowance for loan losses at September 30, 2008 was $63.0 million compared to $66.5 million at December 31, 2007. The allowance for loan losses as a percentage of net loans was 2.27 percent at September 30, 2008 compared to 2.24 percent at December 31, 2007. Provisions for loan losses recorded during the three months ended September 30, 2008 were $6.0 million compared to $27.7 million for the three months ended June 30, 2008 and $17.5 million for the three months ended September 30, 2007. The decline in third quarter 2008 provision for loan losses when compared to the linked and quarter-over-quarter periods primarily resulted from the Company’s efforts in prior successive quarters to identify impaired loans and establish reserves. The decline in provisions for loans losses was further supported by lower levels of loan defaults during the three months ended September 30, 2008.

Loan charge-offs, net of recoveries, totaled $8.0 million for the three months ended September 30, 2008 compared to $1.9 million for the same period one year ago. Net charged-off loans for the three months ended September 30, 2008 primarily consisted of $5.1 million of land and land development loans and $1.9 million of commercial construction loans.

Of the Company’s $2.8 billion of net loans at September 30, 2008, $1.5 billion, or 53.7 percent, was secured by property located in the Bank’s in-market area of Nebraska, Iowa and Kansas. Net loans in states where the Company previously operated loan production offices (Arizona, Colorado, Florida, Minnesota, Nevada and North Carolina) totaled $741.4 million, or 26.7 percent of net loans at September 30, 2008. Remaining states encompassed 19.6 percent of the Company’s net loans, or $545.1 million. Total loan exposure in former loan production office states, a number of which have felt the brunt of the recent housing contraction, has declined $278.9 million, or 25.5 percent, since December 31, 2007.

At September 30, 2008, nonperforming loans in former loan production office states totaled $112.3 million, or 79.6 percent of the Company’s total nonperforming loans. Nevada nonperforming loans declined $6.5 million from June 30, 2008 levels to $79.5 million yet represented 56.4 percent of the Company’s total nonperforming loans at September 30, 2008. Nonperforming loans located within the Company’s tri-state bank market area were $17.1 million, or 12.1 percent, of total nonperforming loans. Nonperforming loans at September 30, 2008 in all remaining states were $11.6 million, or 8.3 percent of the total.

The Bank maintains a corporate policy of not participating in subprime residential real estate lending or negative amortizing mortgage products for loans placed into portfolio. The OTS defines subprime loans as loans to borrowers displaying one or more credit risk characteristics including lending to a borrower with a credit bureau risk score (“FICO”) of 660 or below. Furthermore, the Bank has not participated in collateralized loan obligations, collateralized debt obligations, structured investment vehicles or asset-backed commercial paper.

Consolidated Statements of Financial Condition

Total assets at September 30, 2008 were $3.2 billion, a decrease of 9.1 percent, compared to $3.5 billion at December 31, 2007. The year-to-date decline in total assets through September 30, 2008 was primarily attributable to a $198.4 million decrease in net loans, a $117.7 million reduction in cash and cash equivalents and the write-off of $42.1 million of goodwill. These declines were partially offset by a $32.6 million increase in available for sale investment securities. Included within the increase in the Bank’s available for sale investment securities is an offsetting $345,000 impairment charge related to the write-down of Freddie Mac preferred stock. Other than a residual value of $21,000 of Freddie Mac preferred stock at September 30, 2008, the Bank has no additional exposure to Fannie Mae or Freddie Mac equity securities.

At September 30, 2008, total liabilities declined 7.8 percent to $2.9 billion compared to $3.2 billion at December 31, 2007. Due to the current economic environment, the decrease in total liabilities through the first nine months of 2008 was primarily driven by a less aggressive depository pricing strategy which resulted in a $223.7 million reduction in total deposits.

Stockholders’ equity totaled $273.7 million at September 30, 2008, a decrease of 20.8 percent when compared to $345.6 million at December 31, 2007. On a linked quarter basis, stockholders’ equity at September 30, 2008 increased $2.0 million, or 0.7 percent. The net decline in year-to-date stockholders’ equity through September 30, 2008 was the result of recording a net of tax loan loss provision of $45.3 million and a $42.1 million non-cash goodwill impairment charge.

Other Developments

Following the mid-September retirement of Ann Lindley Spence, who served as a director of the Company since its inception in 2002 and as a director of the Bank since 1989, the Company’s Board of Directors appointed Samuel P. Baird to serve the remainder of her term which expires at the 2010 annual meeting of shareholders. Baird, who was Director of the Nebraska Department of Banking and Finance from 1999 to 2004, has over 35 years of experience in banking, real estate, insurance and law.